INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of February 18, 2011, by and among Highland Funds
Asset Management, L.P., a Delaware limited partnership (the "Adviser"),
Highland Funds II, a Massachusetts business trust (fka GE Funds
"Trust"), on behalf of its series Highland Tax-Exempt Fund (fka GE Tax-
Exempt Fund), solely with respect to Section 10(b) of this Agreement,
and GE Asset Management Incorporated, a Delaware corporation (the "Sub-
Adviser").
WHEREAS, the Trust is engaged in business as an open-end
management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Adviser and Sub-Adviser are both engaged principally
in the business of rendering investment management services and are
registered as investment advisers under the Investment Advisers Act of
1940, as amended (the "Advisers Act");
WHEREAS, the Trust, on behalf of its series, Highland Tax-Exempt
Fund (fka GE Tax-Exempt the "Fund"), and the Adviser have entered into
an investment advisory agreement (the "Advisory Agreement") pursuant to
which the Adviser acts as manager and investment adviser to the Fund;
WHEREAS, the Advisory Agreement provides that the Adviser shall
have the authority to engage one or more sub-advisers in connection with
the portfolio management of the Fund; and
WHEREAS, the Adviser and the Board of Trustees of the Trust desire
to engage the Sub-Adviser to render portfolio management services in the
manner and on the terms set forth in this Agreement;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the
parties hereto as follows:
SECTION 1. Appointment of Sub-Adviser.
The Adviser hereby appoints the Sub-Adviser to act as investment
sub-adviser to the Fund for the period and on the terms herein set
forth, and the Trust on behalf of the Fund and the shareholders of the
Fund have approved such appointment. The Sub-Adviser accepts such
appointment and agrees to render the services herein set forth, for the
compensation herein provided. The Sub-Adviser acknowledges that such
appointment as investment sub-adviser to the Fund may be limited to
those Fund assets allocated to the Sub-Adviser by the Adviser, which may
be changed from time to time at the sole discretion of the Adviser.
Where the context so requires, references to "the Fund" in this
Agreement shall refer to those Fund assets allocated to the Sub-Adviser
by the Adviser. The Sub-Adviser shall for purposes herein be deemed an
independent contractor and shall, except as expressly provided or
authorized, have no authority to act for or represent the Trust, the
Funds or the Adviser in any way, or otherwise be deemed an agent of the
Trust, the Funds or the Adviser. For the avoidance of doubt, the Sub-
Adviser shall not be permitted to delegate any of its obligations under
this Agreement.
SECTION 2. Duties of Sub-Adviser.
The Sub-Adviser, at its own expense, shall furnish the following
services and facilities to the Fund:
(a) Investment Program. The Sub-Adviser shall (i) furnish
continuously an investment program for the Fund, [including
but not limited to allocating assets to other third-party
sub-advisers based upon the Sub-Adviser's asset allocation
model,]1 (ii) determine (subject to the overall supervision
of the Adviser and the Trust's Board of Trustees) the
investments to be purchased, held, sold or exchanged by the
Fund and the portion, if any, of the assets of the Fund to be
held uninvested, (iii) make changes in the investments of the
Fund, (iv) review and certify in writing, at such times as
shall be reasonably requested by the Adviser, that the
information stated in those sections specifically identified
to the Sub-Adviser by the Adviser of the Trust's registration
statement, as currently in effect and as amended or
supplemented from time to time (referred to collectively as
the "Registration Statement") and as filed with the
Securities and Exchange Commission ("SEC"), any proxy
statement, any annual or semi-annual report to investors in
the Fund, any other reports filed with the SEC and any
marketing material of the Fund, to the extent such sections
relate to the Sub-Adviser and its management of the Fund or
the applicable portion of the Fund's assets, is true, correct
and complete to the best of its knowledge, (v) at such times
as shall be reasonably requested by the Adviser, cooperate
with the Adviser to ensure the accuracy of other information
in such documents and materials relating to the Fund,
including the Fund's risk disclosures and financial
information and the Sub-Adviser's investment performance in
its management of the Fund, and (vi) vote, exercise consents
and exercise all other rights pertaining to such investments.
The Sub-Adviser shall be subject always to the provisions of
the organizational documents of the Trust, the Registration
Statement of the Trust with respect to the Fund and its
shares of beneficial interest, including the Fund's
prospectus(es) and statement of additional information, and
the 1940 Act, in each case as from time to time amended and
in effect. The Sub-Adviser shall carry out its
responsibilities under this Agreement in compliance with:
(vii) the Fund's investment objective, policies and
restrictions as set forth in the Registration Statement of
the Trust and the Fund's prospectus and statement of
additional information; (viii) the organizational documents
of the Trust; (ix) all investment guidelines, policies,
procedures or directives of the Trust or the Adviser as
provided to the Sub-Adviser ("Investment Guidelines"); (x)
the 1940 Act and the rules promulgated thereunder; (xi) the
Investment Advisers Act of 1940, as amended ("Advisers Act"),
and the rules promulgated thereunder; and (xii) other
applicable federal and state laws and related regulations. To
the extent that the Investment Guidelines applicable to the
portion of the Fund's assets allocated to the Sub-Adviser are
inconsistent with the investment restrictions applicable to
the Fund's total assets as set forth in the Registration
Statement, the Sub-Adviser shall comply with the
1 Bracketed text to be included for GE Total Return Fund only.
policies, procedures and directives as set forth in the
Investment Guidelines. The Adviser shall promptly notify the
Sub-Adviser in writing of changes to (vii), (viii) or (ix)
above and shall consult with the Sub-Adviser before making
any changes relating solely to the Fund's investment
objective, policies and restrictions as set forth in the
Registration Statement, as well as to the policies,
procedures and directives set forth in the Investment
Guidelines.
Portfolio Transactions. The Sub-Adviser shall place all
orders for the purchase and sale of portfolio securities for
the account of the Fund with brokers or dealers selected by
the Sub-Adviser, although the Fund will pay the actual
brokerage commissions on portfolio transactions in accordance
with Section 3(d) of the Advisory Agreement. For that limited
purpose, the Sub-Adviser is authorized as the agent of the
Fund to give instructions to the custodian of the Fund as to
deliveries of securities or other investments and payments of
cash for the account of the Fund.
In placing portfolio transactions for the Fund, it is
recognized that the Sub-Adviser will use its best efforts to
secure the most favorable price and efficient execution.
Consistent with this policy, the Sub-Adviser may consider the
financial responsibility, research and investment information
and other services provided by brokers or dealers who may
effect or be a party to any such transaction or other
transactions to which other clients of the Sub-Adviser may be
a party. It is understood that neither the Fund nor the Sub-
Adviser has adopted a formula for allocation of the Fund's
investment transaction business. It is also understood that
it is desirable for the Fund that the Sub-Adviser have access
to supplemental investment and market research and security
and economic analysis provided by brokers who may execute
brokerage transactions at a higher cost to the Fund than
would otherwise result when allocating brokerage transactions
to other brokers on the basis of seeking the most favorable
price and efficient execution. Therefore, subject to Section
28(e) of the Securities Exchange Act of 1934 and any
restrictions and guidelines established by the Trust's Board
of Trustees, the Sub-Adviser is authorized to place orders
for the purchase and sale of securities for the Fund with
such brokers. It is understood that the services provided by
such brokers may be useful or beneficial to the Sub-Adviser
in connection with its services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale
of a security to be in the best interest of the Fund as well
as other clients, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be so sold or
purchased in order to obtain the most favorable price or
lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be
made by the Sub-Adviser in the manner it considers to be the
most equitable and consistent with its fiduciary obligations
to the Fund and to such other clients.
(c) Fair Valuation. In accordance with procedures adopted by the
Trust's Board of Trustees, as amended from time to time, the
Sub-Adviser is responsible for assisting the Adviser in
determining the fair valuation of any illiquid portfolio
securities held by the Fund and will assist the Trust's
accounting services agent or the Adviser to obtain
independent sources of market value for all other portfolio
securities.
Further, the Sub-Adviser shall be responsible to ensure that
the Fund and/or the Adviser is promptly notified of any and
all instances in which the Sub-Adviser knows or should have
reason to know that the available price or value of a
portfolio security does not represent the fair value of the
instrument, or that there is no price or value available from
any source with respect to a particular instrument and that
such instrument should accordingly be subject to a fair
valuation determination in accordance with procedures adopted
by the Board of Trustees, as amended from time to time.
SECTION 3. Delivery of Documents.
The Adviser has furnished the Sub-Adviser with true and
complete copies properly certified or authenticated of each of the
following documents:
Organizational documents of the Trust;
Registration Statement of each Fund: The
Investment Guidelines;
The Advisory Agreement;
A list of affiliated brokers and underwriters of a Fund for compliance
with applicable provisions of the 1940 Act; and
A list of affiliated issuers of the Fund and/or the Adviser restricted
from purchase by a Fund.
The Adviser will provide to the Sub-Adviser copies properly certified
or authenticated of amendments or supplements to any of these
materials as soon as practical after such materials become available.
SECTION 4. Allocation of Expenses.
During the term of this Agreement, the Sub-Adviser will bear all
expenses incurred by it in connection with its investment sub-advisory
services under this Agreement. The Sub-Adviser does not assume nor shall
it pay any expenses for Fund operations and activities. For the
avoidance of doubt, unless the prospectus(es) or statement of additional
information of the Fund provides otherwise, the expenses to be borne by
the Fund shall include, without limitation, those items listed in
Section 3 of the Advisory Agreement.
SECTION 5. Sub-Advisory Fee.
(a) In return for its advisory services, the Adviser will pay the
Sub-Adviser a monthly
fee, computed and accrued daily, based on an annual rate of
0.175% of the "Average Daily Managed Assets" of such portion
of the Fund's assets allocated to the Sub-Adviser. "Average
Daily Managed Assets" shall mean the average daily value of
the assets of the Fund allocated to the Sub-Adviser, less
accrued liabilities of the Fund related or allocated to such
portion of the Fund's assets allocated to the Sub-Adviser
(other than the aggregate amount of any outstanding
borrowings constituting financial leverage). [For the
avoidance of doubt, assets allocated by the Sub-Adviser to
other sub-advisers pursuant to Section 2(a) of this Agreement
will not be considered to have been allocated to Sub-Adviser
for purposes of determining Average Daily Managed Assets, and
the Sub-Adviser will not receive any fees with respect to
such assets.]2 If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the
last day of a month, compensation for such month shall be
computed in a manner consistent with the calculation of the
fees payable on a monthly basis. The accrued fees will be
payable monthly no later than the fifteenth (15) business day
following the end of each month during which this Agreement
is in effect.
(b) The Adviser agrees to direct the Fund's administrator to pay
the Sub-Adviser the compensation payable pursuant to Section
5(a) out of the assets of the Fund; provided, however, that
in such case the compensation payable to the Sub-Adviser by
the Adviser hereunder will be reduced by the amount of any
compensation paid directly by the Fund to the Sub-Adviser.
To the extent the Sub-Adviser allocates any assets to third-
party sub-advisers as contemplated by clause (i) of Section
2(a), the fees payable to such third-party sub-advisers shall
not be payable by the Sub-Adviser out of the fees paid by the
Adviser to the Sub-Adviser pursuant to this Section 5 but
shall be paid pursuant to the terms and conditions of the
sub-advisory agreement entered between such third-party sub-
adviser and the Adviser.]3
SECTION 6. Compliance with Applicable
Regulations. In performing its duties hereunder, the
Sub-Adviser:
(a) Shall establish, to the extent required by applicable law,
compliance policies and procedures relating to the provision
of sub-advisory services under this Agreement (the
"Compliance Policies and Procedures") (copies of which shall
be provided to the Adviser and shall be subject to review and
approval by the Adviser and the Board of Trustees) and, in
addition, shall comply with all applicable provisions of the
"Federal Securities Laws" (as such term is defined in
2 Bracketed text to be included for GE Total Return Fund only.
3 Bracketed text to be included for GE Total Return Fund only.
Rule 3 8a- 1 under the 1940 Act); the asset diversification
requirements set forth under Section 851 (b)(3) of Subchapter
M of the Internal Revenue Code of 1986, as amended (the
"Code"); the gross income qualification requirements as set
forth under Section 851(b)(2) of the Code; the provisions of
the Registration Statement of the Trust with respect to the
Fund; the provisions of the organizational documents of the
Trust, as the same may be amended from time to time; and Rule
206(4)-7 under the Advisers Act; and any other applicable
provision of state, federal or foreign law to the extent
violations of such law may adversely affect the Fund or the
Adviser. The Sub-Adviser shall manage the Fund in a manner
(i) that will make available sufficient cash for the Fund to
pay dividends that satisfy the distribution requirements set
forth in Section 852(a) of the Code and eliminate tax at the
fund level under Section 852(a) and Section 4982(a) of the
Code and (ii) that will permit the Fund to pay exempt-
interest dividends within the meaning of Section 852(b)(5) of
the Code.[4] The Sub-Adviser shall provide the Fund's Chief
Compliance Officer ("CCO") with reasonable access to
information regarding the Sub-Adviser's compliance program,
which access shall include on-site visits, during normal
business hours, by the CCO with the Sub-Adviser as may be
reasonably requested from time to time. The Sub-Adviser shall
provide reasonable assistance to the Fund and the CCO in
complying with Rule 38a-1 under the 1940 Act and, upon the
request of the Fund and/or the CCO, including in connection
with the CCO's annual written report to the Board required
pursuant to Rule 3 8a- 1, the Sub-Adviser agrees to provide
reports and certifications from the Sub-Adviser's Chief
Compliance Officer regarding: (i) the adequacy and operation
of the Compliance Policies and Procedures and any material
changes made or recommended to be made to those policies and
procedures; and (ii) the effectiveness of their
implementation.
(b) Shall notify the Fund and Adviser regarding: (i) any material
changes made to the Compliance Policies and Procedures since
the date of the last report delivered pursuant to paragraph
(a) of this Section 6; (ii) any material changes to the
Compliance Policies and Procedures recommended as a result of
the annual review conducted pursuant to Rule 3 8a- 1 under
the 1940 Act; and (iii) any (A) material violation of the
Federal Securities Laws by the Sub-Adviser relating to the
provision of the sub-advisory services provided under this
Agreement; (B) material violation by the Sub-Adviser of the
Compliance Policies and Procedures, the Fund's or the
Adviser's policies and procedures to the extent such policies
and procedures are previously provided to the Sub-Adviser,
and to the extent the Board would reasonably need to know to
oversee Fund compliance; and (C) known material weakness in
the design or implementation of the Compliance Policies and
Procedures. The Sub-Adviser shall provide the notice
contemplated by clauses (i) and (ii) above within a
reasonable period of time after the event giving rise to the
notice, except that the Sub-Adviser shall promptly notify the
Fund and the Adviser of any such events which may have a
material effect upon
[4 Note: The text following romanette (ii) (and thus the reference to
romanette (i)) should be included if the Fund is a tax-exempt Fund .]
the Sub-Adviser's ability to perform its obligations under
this Agreement. The Sub-Adviser shall provide the notice
contemplated by clause (iii) above promptly after the event
giving rise to such notice.
Shall exercise voting rights with respect to portfolio
securities held by the Fund in accordance with written
policies and procedures adopted by the Sub-Adviser, which
may be amended from time to time, and which at all times
shall comply with the requirements of applicable federal
statutes and regulations and any related guidance from the
Securities and Exchange Commission and its staff relating to
such statutes and regulations (collectively, "Proxy Voting
Policies and Procedures"). The Sub-Adviser shall vote
proxies on behalf of the Fund in a manner deemed by the Sub-
Adviser to be in the best interests of the Fund pursuant to
the Sub-Adviser's written Proxy Voting Policies and
Procedures. The Sub-Adviser shall provide disclosure
regarding the Proxy Voting Policies and Procedures in
accordance with the requirements of Form N-1A for inclusion
in the Registration Statement of the Trust. The Sub-Adviser
shall report to the Adviser in a timely manner a record of
all proxies voted, in such form and format that complies with
acceptable federal statutes and regulations (e.g.,
requirements of Form N-PX). The Sub-Adviser shall certify at
least annually or more often as may reasonably be requested
by the Adviser, as to its compliance with its Proxy Voting
Policies and Procedures.
Agrees that it will maintain for the Fund all and only such
records as required under Rules 31 a-1 and 31 a-2 under the
1940 Act in respect to its services hereunder and that such
records are the property of the Fund and further agrees to
surrender promptly to the Fund any such records upon the
Fund's request all in accordance with Rule 31 a-3 under the
1940 Act, provided that the Sub-Adviser may retain a copy of
those records for compliance purposes.
Agrees to regularly report to the Adviser on the investment
program for the Fund and the issuers and securities
represented in the Fund, and will furnish the Adviser, with
respect to the Fund, such periodic and special reports as
the Board and the Adviser may reasonably request or as may
be required by applicable law.
Will be responsible for the preparation and filing of
Schedule 1 3G and Form 1 3F with respect to the assets of
the Fund reflecting holdings over which the Sub-Adviser and
its affiliates have investment discretion.
Will comply with the Fund's policy on selective disclosure
of portfolio holdings of the Fund (the "Procedure for
Compliance with Regulation FD"), as provided in writing to
the Sub-Adviser and as may be amended from time to time. The
Sub-Adviser agrees to provide a certification with respect
to compliance with the Fund's Procedure for Compliance with
Regulation FD as may be reasonably requested by the Fund
from time to time.
Shall promptly notify the Adviser and the Fund (i) in the
event that the SEC, CFTC, or any banking or other regulatory
body has censured the Sub-Adviser; placed limitations upon
its activities, functions or operations; suspended or revoked
its registration or ability to serve as an investment
adviser; or has commenced proceedings or an investigation
that can reasonably be expected to result in any of these
actions; (ii) upon having a reasonable basis for believing
that the Fund has ceased to qualify or might not qualify as a
regulated investment company under Subchapter M of the Code;
and (iii) upon having a reasonable basis for believing that
the Fund has ceased to comply with the diversification
provisions of Section 8 17(h) of the Code or the regulations
thereunder. The Sub-Adviser further agrees to notify in
writing the Adviser and Fund promptly of any material fact
known to the Sub-Adviser respecting or relating to the Sub-
Adviser that should be but is not contained in the
Registration Statement of the Trust, or any amendment or
supplement thereto, or of any statement contained therein
regarding the Sub-Adviser that becomes untrue in any material
respect.
For the avoidance of doubt, the Sub-Adviser shall not be
responsible for compliance by the Trust's Board of
Trustees or officers (including the Chief Compliance
Officer) or by the Adviser with their respective
obligations under the 1940 Act (including Rule 38a-1 under
the 1940 Act), the Code, and the regulations thereunder,
and under any federal, state or self-regulatory
organization's laws, rules, regulations or orders
applicable to them.
SECTION 7. Adviser Representations and Warranties.
The Adviser represents and warrants to the Sub-Adviser that
(i) the retention of the Sub-Adviser by the Adviser as
contemplated by this Agreement is authorized by the governing
documents of the Adviser; (ii) the execution, delivery and
performance of each of this Agreement and the Advisory
Agreement does not violate any obligation by which the
Adviser or its property is bound, whether arising by
contract, operation of law or otherwise; (iii) the Adviser
has met and will seek to continue to meet for so long as this
Agreement remains in effect, any other applicable federal or
state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency necessary to be
met in order to perform the services contemplated by the
Advisory Agreement; (iv) the Adviser will promptly notify the
Sub-Adviser of the occurrence of any event that would
disqualify the Adviser from serving as an investment adviser
of an investment company pursuant to Section 9(a) of the 1940
Act or otherwise; and (v) each of this Agreement and the
Advisory Agreement has been duly authorized by appropriate
action of the Adviser and when executed and delivered by the
Adviser will be the legal, valid and binding obligation of
the Adviser, enforceable against the Adviser in accordance
with its terms hereof subject, as to enforcement, to
applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to general equitable
principles (regardless of whether enforcement is sought in a
proceeding in equity or law).
The Adviser agrees that it will, upon request, provide any
information reasonably requested by the Sub-Adviser
regarding the scope and coverage of the Adviser's and the
Trust's errors and omissions and professional liabilities
policy.
The Adviser represents and warrants to the Sub-Adviser that
neither it, nor any of its affiliates, will knowingly in any
way refer directly or indirectly to the term, words or
initials "GE," "GEAM," "GE Asset Management," "GEID," "GE
Investment Distributors" or "General Electric," or to any
derivative or confusingly similar name, or refer to or use
any trade name or trademark owned or licensed by the Sub-
Adviser or its affiliates including but not limited to the
distinctive GE circular logo or slogans, in any disclosure,
offering, advertising or marketing materials for the Fund,
subject to the following exceptions: (a) with the Sub-
Adviser's prior written approval of material or forms of
advertising or disclosure including those intended for
repeated use, after a reasonable opportunity to review the
proposed use or form, (b) naming GE Asset Management
Incorporated or GEAM as the sub-adviser to the Fund or (c) to
the limited extent required by rule, regulation or upon the
request of a governmental authority.
SECTION 8. Sub-Adviser Representations and Warranties.
The Sub-Adviser represents and warrants to the Adviser that
(i) the Sub-Adviser is registered as an investment adviser
under the Advisers Act and will continue to be so registered
for so long as this Agreement remains in effect; (ii) the
Sub-Adviser is not prohibited by the 1940 Act, the Advisers
Act or other law, regulation or order from performing the
services contemplated by this Agreement; (iii) the Sub-
Adviser has met and will seek to continue to meet for so long
as this Agreement remains in effect, any other applicable
federal or state requirements, or the applicable requirements
of any regulatory or industry self-regulatory agency
necessary to be met in order to perform the services
contemplated by this Agreement; (iv) the Sub-Adviser has the
authority to enter into and perform the services contemplated
by this Agreement; (v) the Sub-Adviser will promptly notify
the Adviser of the occurrence of any event that would
disqualify the Sub-Adviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of
the 1940 Act or otherwise; (vi) this Agreement has been duly
authorized by appropriate action of the Sub-Adviser and when
executed and delivered by the Sub-Adviser will be the legal,
valid and binding obligation of the Sub-Adviser, enforceable
against the Sub-Adviser in accordance with its terms hereof,
subject, as to enforcement, to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights
generally and to general equitable principles (regardless of
whether enforcement is sought in a proceeding in equity or
law), and the execution, delivery and performance by the Sub-
Adviser of this Agreement does not contravene or constitute a
default under any agreement binding on the Sub-Adviser; (vii)
the Sub-Adviser has filed a notice of exemption pursuant to
Rule 4.14 under the Commodity Exchange Act with the Commodity
Futures Trading Commission and the National Futures
Association or is not required to file such exemption; and
(viii) the Sub-Adviser is duly organized and validly existing
under the laws of the state of Delaware with the power to own
and possess its assets and carry on its business as it is
now being conducted. The Sub-Adviser will also promptly
notify the Fund and the Adviser if it is served or otherwise
receives notice of any action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court,
public board or body, involving the affairs of the Fund.
The Sub-Adviser represents and warrants to the Adviser that
the Sub-Adviser has adopted a written Code of Ethics
complying with the requirements of Rule 1 7j -1 under the
1940 Act and Rule 204A-1 under the Advisers Act and will
provide the Adviser and the Board with a copy of such Code of
Ethics, together with evidence of its adoption. Within 15
days of the end of the last calendar quarter of each year
that this Agreement is in effect, and as otherwise reasonably
requested, the president, Chief Operating Officer, Chief
Compliance Officer or a vice-president of the Sub-Adviser
shall certify to the Adviser that the Sub-Adviser has
complied with the requirements of Rule 17j-1 and Rule 204A-1
during the previous year and that there has been no material
violation of the Sub-Adviser's Code of Ethics or, if such a
material violation has occurred, that appropriate action was
taken in response to such violation. Upon the reasonable
written request of the Adviser, the Sub-Adviser shall permit
the Adviser, its employees or its agents to examine the
reports required to be made to the Sub-Adviser by Rule 17j-
1(c)(1) and Rule 204A-1(b) and all other records relevant to
the Sub-Adviser's Code of Ethics. The Sub-Adviser further
represents and warrants to the Adviser that the Sub-Adviser
has adopted procedures reasonably necessary to prevent Access
Persons (as defined in Rule 17j-1) from violating the Sub-
Adviser's Code of Ethics.
The Sub-Adviser represents and warrants to the Adviser that
the Sub-Adviser has provided the Fund and the Adviser with a
copy of its Form ADV Part I and Part
II, which as of the date of this Agreement is its Form ADV I
as most recently filed with the SEC and promptly will furnish
a copy of all amendments to its Form ADV Part I and Part II
to the Trust and the Adviser at least annually. Such
amendments shall reflect all changes in the Sub-Adviser's
organizational structure, professional staff or other
significant developments affecting the Sub-Adviser, as
required by the Advisers Act.
The Sub-Adviser represents and warrants to the Adviser that
the Sub-Adviser will promptly notify the Adviser of any
change of control of the Sub-Adviser, including any change of
its direct or indirect 25% shareholders, and any changes in
the key personnel of the Sub-Adviser, including without
limitation, any change in the portfolio manager(s) of the
Fund, in each case prior to or, to the extent prior notice is
not practicable, promptly after such change. Notwithstanding
the foregoing and subject upon the reasonable request of the
Sub-Adviser to the terms of Section 14 of this Agreement, the
Sub-Adviser will promptly notify the Adviser of any existing
agreement, or upon entering into any agreement, that may
result in a change in control of the Sub-Adviser. The Sub-
Adviser will be liable to the Trust and the Adviser for all
direct and indirect costs resulting from a change in control
of the Sub-Adviser, including without limitation all costs
associated with proxy solicitations, meetings of the Board
of Trustees, revisions to prospectuses, statements of
additional information and marketing materials in connection
with the re-hiring of the Sub-Adviser.
(e) The Sub-Adviser represents and warrants to the Adviser that
the Sub-Adviser agrees to maintain an appropriate level of
errors and omissions or professional liability insurance
coverage. The Sub-Adviser shall provide prior written notice
to the Adviser if any claims will be made under its insurance
policies to the extent they relate to the services provided
hereunder. Further, it shall upon request provide to the
Adviser any information it may reasonably require concerning
the amount or scope of such insurance to the extent related
to the Sub-Adviser's obligations under this Agreement.
(f) The Sub-Adviser represents and warrants to the Adviser that
the Sub-Adviser agrees that neither it, nor any of its
affiliates, will knowingly in any way refer directly or
indirectly to its relationship with the Trust, the Fund, the
Adviser or any of their respective affiliates in offering,
marketing or other promotional materials without the express
written consent of the Adviser, except as required by rule,
regulation or upon the request of a governmental authority.
However, the Sub-Adviser may use the performance of the Fund
in its composite performance.
(g) The Sub-Adviser represents and warrants to the Adviser that
the Sub-Adviser shall act honestly, in good faith and in the
best interests of the Fund including requiring any of its
personnel with knowledge of the Fund's activities to place
the interest of the Fund ahead of their own interests, in all
personal trading scenarios that may involve a conflict of
interest with the Fund.
SECTION 9. Limitation of Liability.
The Sub-Adviser shall not be liable to the Trust or the Adviser
for any loss suffered by the Fund, the Trust or its shareholders or
by the Adviser in connection with the matters to which this
Agreement relates, except (a) a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement, and (b) to the extent
otherwise provided in Section 36(b) of the 1940 Act concerning
loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services.
SECTION 10. Indemnification.
(a) By the Adviser. The Adviser agrees to indemnify and hold
the Sub-Adviser, its officers and directors, and any person
who controls the Sub-Adviser within the meaning of Section
15 of the Securities Act of 1933, as amended ("1933 Act")
harmless from any and all direct or indirect liabilities,
losses or damages (including reasonable attorneys' fees)
arising out of any claim, demand, action, suit or
proceeding arising out of:
(i) The Adviser's breach of its duties under this
Agreement; or
(ii) any bad faith, willful misfeasance, reckless disregard
or gross negligence on the part of the Adviser or any of its
directors, officers or employees in the performance of the
Adviser's duties and obligations under this Agreement, except
to the extent such loss results from the Sub-Adviser's own
willful misfeasance, bad faith, reckless disregard or gross
negligence in the performance of Sub-Adviser's duties and
obligations under this Agreement.
By the Trust.
(i) The Trust agrees to indemnify and hold the Sub-
Adviser, its officers and directors, and any person who
controls the Sub-Adviser within the meaning of Section 15 of
the 1933 Act (each, a "Sub-Adviser Indemnitee") harmless
from any and all direct or indirect liabilities, losses or
damages (including reasonable attorneys' fees) arising out
of any claim, demand, action, suit or proceeding arising out
of any misrepresentation of a material fact or the omission
of a fact necessary to make information not misleading in
the Registration Statement, any proxy statement, or any
annual or semi-annual report to investors in the Fund (other
than a misstatement or omission relating to disclosure about
the Sub-Adviser approved by the Sub-Adviser or provided to
the Adviser or the Trust by the Sub-Adviser).
(ii) As to any matter disposed of by settlement or a
compromise payment by such Sub-Adviser Indemnitee, pursuant
to a consent decree or otherwise, no indemnification either
for said payment or for any other expenses shall be provided
unless there has been a determination that such settlement or
compromise is in the best interests of the Trust and that
such Sub-Adviser Indemnitee appears to have acted in good
faith in the reasonable belief that such Sub-Adviser
Indemnitee's action was in the best interests of the Trust
and did not involve willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of such Sub-Adviser Indemnitee's position (such
conduct, "Disabling Conduct"). With respect to any action,
suit or other proceeding voluntarily prosecuted by any Sub-
Adviser Indemnitee as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit or
other proceeding by such Sub-Adviser Indemnitee was
authorized by a majority of the full Board of Trustees of the
Trust. Notwithstanding the foregoing, the Trust shall not be
obligated to provide any such indemnification to the extent
such provision would waive any right that the Trust cannot
lawfully waive.
(iii) All determinations with respect to indemnification
hereunder shall be made (1) by a final decision on the merits
by a court or other body of competent jurisdiction before
whom the proceeding was brought that such Sub-Adviser
Indemnitee is not liable by reason of Disabling Conduct or,
(2) in the absence of such a decision, by (i) a majority vote
of a quorum of the Trustees of the Trust who are neither
"interested persons" of the Trust (as defined in Section
2(a)(1 9) of the 0000 Xxx) nor parties to the proceeding, or
(ii) if such a quorum is not obtainable or even if
obtainable, if a majority vote of such quorum so directs,
independent legal counsel in a written opinion.
By the Sub-Adviser. The Sub-Adviser agrees to indemnify and
hold the Adviser, its officers and directors, and any person
who controls the Adviser within the meaning of Section 15 of
the 1933 Act, and the Trust harmless from any and all direct
or indirect liabilities, losses or damages (including
reasonable attorneys' fees) arising out of any claim,
demand, action, suit or proceeding arising out of:
(i) any misrepresentation of a material fact or the omission
of a fact necessary to make information not misleading in
the Registration Statement, any proxy statement, any annual
or semi-annual report to investors in the Fund, any other
reports filed with the SEC or any marketing material of the
Fund relating to disclosure about the Sub-Adviser approved
by the Sub-Adviser in writing or provided to the Adviser or
the Trust by the Sub-Adviser;
(ii) Sub-Adviser's breach of its duties under this Agreement;
or
(iii) any bad faith, willful misfeasance, reckless disregard
or gross negligence on the part of the Sub-Adviser or any of
its directors, officers or employees in the performance of
the Sub-Adviser's duties and obligations under this
Agreement, except to the extent such loss results from the
Trust's or the Adviser s own willful misfeasance, bad faith,
reckless disregard or gross negligence in the performance of
their respective duties and obligations under the Advisory
Agreement or this Agreement.
SECTION 11. Duration and Termination of this
Agreement.
Duration. This Agreement shall become effective on the date
first set forth above, such date being the date on which this
Agreement has been executed following: (1) the approval of
the Trust's Board of Trustees, including approval by a vote
of a majority of the Trustees who are not "interested
persons" (as defined in the 0000 Xxx) of the Fund, cast in
person at a meeting called for the purpose of voting on such
approval; and (2) the approval by a "vote of a majority of
the outstanding voting securities" (as defined in the 0000
Xxx) of the Fund. Unless terminated as herein provided, this
Agreement shall remain in full force and effect until the
date that is two years after the effective date of this
Agreement. Subsequent to such initial period of
effectiveness, this Agreement shall continue in full force
and effect, subject to paragraph 11(c), so long as such
continuance is approved at least annually (a) by either the
Trust's Board of Trustees or by a "vote of a majority of the
outstanding voting securities" (as defined in the 0000 Xxx)
of the Fund and (b) in either event, by the vote of a
majority of the Trustees of the Fund who are not parties to
this Agreement or "interested persons" (as defined in the
0000 Xxx) of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
Amendment. No provision of this Agreement may be amended,
waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which
enforcement of the amendment, waiver, discharge or
termination is sought. No material amendment to this
Agreement shall be
effective until approved by a vote of a majority of the
Fund's outstanding voting securities, unless the Trust
receives an SEC exemptive order or opinion of counsel, or the
issue is the subject of a position of the SEC or its staff
permitting it to modify the Agreement without such vote
(including but not limited to the interpretation thereof that
amendments that do not increase the compensation of the Sub-
Adviser or otherwise fundamentally alter the relationship of
the Trust with the Sub-Adviser do not require shareholder
approval if approved by the requisite majority of the Trust's
Trustees who are not "interested persons" (as defined in the
0000 Xxx) of the Trust).
(c) Termination. This Agreement may be terminated (i) at any
time, without payment of any penalty, by vote of the Trust's
Board of Trustees, or by a "vote of a majority of the
outstanding voting securities" (as defined in the 0000 Xxx)
of the Fund, (ii) at any time, without payment of a penalty,
by the Adviser (1) upon no less than 60 days' prior written
notice to the Sub-Adviser; (2) upon material breach by the
Sub-Adviser of any of the representations and warranties set
forth in this Agreement; or (3) if the Sub-Adviser becomes
unable to discharge its duties and obligations under this
Agreement, including circumstances such as financial
insolvency of the Sub-Adviser or other circumstances that
could adversely affect the Fund, or (iii) by the Sub-Adviser
upon no less than 60 days' prior written notice to the
Adviser. All rights to compensation under this Agreement
shall survive the termination of this Agreement. In the event
of termination of this Agreement, all compensation due
through the date of termination will be calculated on a pro-
rated basis through the date of termination and paid within
thirty (30) days of the date of termination.
(d) Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its "assignment" (as
defined in the 0000 Xxx) or upon termination of the Advisory
Agreement.
SECTION 12. Prohibited Conduct.
In providing the services described in this Agreement, the Sub-
Adviser will not consult with any other investment advisory firm that
provides investment advisory services to any investment company
sponsored by the Adviser, including the Fund, regarding transactions in
portfolio securities or other portfolio investments of the Fund.
SECTION 13. Services Not Exclusive.
The services of the Sub-Adviser to the Fund hereunder are not to
be deemed exclusive, and the Sub-Adviser (and its affiliates) shall be
free to render similar services to others so long as its services
hereunder are not impaired thereby; provided, however, that the Sub-
Adviser will undertake no activities that, in its reasonable good faith
judgment, will adversely affect the performance of its obligations under
this Agreement. In addition, the parties may enter into other agreements
pursuant to which the Sub-Adviser provides administrative or other, non-
investment advisory services to the Fund, and the Sub-Adviser may be
compensated for such other services.
SECTION 14. Confidentiality.
During the term of this Agreement, and at all times thereafter,
the Sub-Adviser shall not itself, or assist anyone else to, directly or
indirectly, disclose to any person or entity Confidential Information of
the Adviser, the Trust or the Fund, now known or subsequently learned by
the Sub-Adviser, provided that the Sub-Adviser may disclose Confidential
Information to the extent reasonably necessary to perform its duties
under this Agreement such as to broker-dealers, lawyers, accountants and
other agents and, provided, further, Confidential Information may be
disclosed to the extent required by law or by an order or decree of any
court or other governmental authority; provided, however, that the Sub-
Adviser will, if legally compelled to disclose such information: (i)
provide the Adviser with prompt written notice of that fact so that the
Adviser may attempt to obtain a protective order or other appropriate
remedy and/or waive compliance with the provisions of this Agreement;
and (ii) endeavor to obtain assurance that confidential treatment will
be accorded the information so disclosed. "Confidential Information"
shall mean any information, whether written or oral, and materials
furnished to or obtained by the Sub-Adviser, including but not limited
to that which relates to the Adviser, the Trust, the Fund, and their
affiliates, clients, customers, vendors, or other third party's
research, development, trade secrets, techniques, processes, procedures,
plans, policies, business affairs, marketing activities, discoveries,
hardware, software, screens, specifications, designs, drawings, data and
other information and materials, regardless of its form, other than
information in the public domain.
In addition, the Adviser and the Sub-Adviser each agree, during
the term of this Agreement, not to (and to cause its respective
affiliates and its and its affiliates' directors, officers, employees,
agents, advisors, financing sources and representatives not to) initiate
or maintain contact (except for those contacts made in the ordinary
course of business or in the course of performance of its obligations
under this Agreement) with any officer, director, employee, or agent of
the other party or its affiliates regarding the other party's business,
operations, prospects or finances, except with the other party's express
written consent. In addition, each of the Adviser and the Sub-Adviser
agree that, during the term of this Agreement, neither it nor any of its
affiliates will, directly or indirectly, solicit the employment of or
hire any current officer or employee of the other party or its
affiliates with whom such party comes into contact in connection with
the performance of its obligations under this Agreement, but only for so
long as such officer or employee is employed by the other party or its
affiliates. The phrase "solicit the employment of" (and any hiring
resulting from such solicitation) shall not be deemed to include (i)
general solicitation of employment not specifically directed towards
employees of the other party or (ii) responding to unsolicited requests
for employment.
SECTION 15. Notices.
Notices under this Agreement shall be in writing and shall be
addressed, and delivered or mailed postage prepaid, to the other party
at such address as such other party may designate from time to time for
the receipt of such notices. Until further notice to the other party,
the address of the Trust and the Adviser for this purpose shall be
NexBank Tower, 00000 Xxxx Xxxx, Xxxxx 000, Xxxxxx, Xxxxx 00000 and the
address of the Sub-Adviser for this purpose shall be 0000 Xxxxxx Xxxxxx,
Xxxxxxxx, Xxxxxxxxxxx 00000, Attention: General Counsel.
SECTION 16. Governing Law; Severability;
Counterparts.
This Agreement shall be construed in accordance with the laws of
the State of Delaware and the applicable provisions of the 1940 Act. To
the extent that applicable law of the State of Delaware, or any of the
provisions herein, conflict with applicable provisions of the 1940 Act,
the latter shall control. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby. This
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
SECTION 17. Miscellaneous.
Where the effect of a requirement of the 1940 Act reflected in or
contemplated by any provisions of this Agreement is altered by a rule,
regulation or order of the SEC, whether of special or general
application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first set forth above.
HIGHLAND FUNDS ASSET MANAGEMENT, L.P.
By: Strand Advisors XVI, Inc., its general partner
By:
Name:
Title:
Highland Funds II,
SOLELY WITH RESPECT TO SECTION 10(b) OF
THIS AGREEMENT
By:
Name:
Title:
GE ASSET MANAGEMENT INCORPORATED
By:
Name:
Title:
Schedule of Sub-Advisory Fees for GE Asset Management Incorporated
(attach to form of Sub-Advisory Agreement)
The following annual rates will apply under Section 5(a) of the
proposed Investment Sub-Advisory Agreement by and among Highland
Funds Asset Management, L.P., Highland Funds II (to be renamed
from GE Funds), on behalf of its series named below, and GE Asset
Management Incorporated:
Name of Fund Sub-Advisory Fee
(annual rate)
Income Funds
Highland Tax-Exempt Fund fka GE Tax-Exempt Fund 0.175%
