SUB-ADVISORY AGREEMENT
THE AAL MUTUAL FUNDS
SUB-ADVISORY AGREEMENT FOR THE
AAL HIGH YIELD BOND FUND
WITH
PACIFIC INVESTMENT MANAGEMENT COMPANY
AGREEMENT made this 12th day of June, 2000, by and among THE AAL
MUTUAL FUNDS (the "Fund"), a Massachusetts business trust, AAL CAPITAL
MANAGEMENT CORPORATION (the "Adviser"), a Delaware corporation and PACIFIC
INVESTMENT MANAGEMENT COMPANY LLC (the "Sub-Adviser"), a Delaware limited
liability company.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and among the parties hereto as follows:
1. In General.
The Sub-Adviser agrees, as more fully set forth herein, to act as
Sub-Adviser to the Fund with respect to the investment and reinvestment of the
assets of the Fund's series of shares described as The AAL High Yield Bond Fund.
It is understood that the Fund has designated, and there presently exist,
several other series of the Fund's shares, and that the Fund may create one or
more additional series from time to time in the future. This Agreement may be
amended by the mutual written agreement of the parties to include any such
additional series under the terms of this Agreement.
2. Duties and Obligations of the Sub-Adviser with Respect to Investment of
Assets of the High Yield Bond Fund.
(a) Subject to the succeeding provisions of this section and subject
to the oversight and review of the Adviser and the direction and control of
the Board of Trustees ("Trustees") of the Fund, the Sub-Adviser, as agent
and attorney-in-fact with respect to the Fund, is authorized, in its
discretion and with prior consultation with the Fund, on behalf of each
series covered from time to time by this Agreement, to:
(i) Buy, sell, exchange, convert, lend and otherwise trade in any
stocks, bonds, currencies, and any other securities or assets;
(ii) Place orders and negotiate the commissions (if any) for the
execution of transactions in securities or other assets with or
through such brokers, dealers, underwriters or issuers as the
Sub-Adviser may select; including brokers and dealers that may be
affiliates of the Sub-Adviser;
(iii)Enter into and execute agreements on behalf of the Fund,
relating to the acquisition or disposition of investment assets
and the execution of portfolio transactions. Nothing contained
herein, however, shall be deemed to authorize the Sub-Adviser to
take or receive physical possession of any cash or securities
held for the Fund, it being intended that sole responsibility for
safekeeping thereof and the consummation of all such purchases,
sales, deliveries, and investments made pursuant to the Sub-
Adviser's direction shall rest upon the Fund's Custodian; and
(iv) Provide the Adviser and the Trustees with such reports as may
reasonably be requested in connection with the discharge of the
foregoing responsibilities and the discharge of the Adviser's
responsibilities under the Investment Advisory Agreement with the
Fund and those of AAL Capital Management Corporation under the
Distribution Agreement with the Fund.
Written procedures with respect to (i), (ii) and (iii) above may be
set forth as agreed to among the Fund, the Adviser and Sub-Adviser.
(b) Any investment purchases or sales made by the Sub-Adviser under
this section shall at all times conform to, and be in accordance with, any
requirements imposed by: (1) the provisions of the Investment Company Act
of 1940 (the "Act") and of any rules or regulations in force thereunder;
(2) any other applicable provisions of law; (3) any policies and
determinations of the Board of Trustees of the Fund; and (4) the
fundamental policies of the Fund, as reflected in its Registration
Statement under the Act, or as amended by the shareholders of the Fund;
provided that copies of the items referred to in clauses (3) and (4) shall
have been furnished to the Sub-Adviser.
(c) The Sub-Adviser shall give the Fund the benefit of its best
judgment and effort in rendering services hereunder. In the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties ("disabling conduct") hereunder on the part of
the Sub-Adviser (and its officers, directors, agents, employees,
controlling persons, shareholders and any other person or entity affiliated
with the Sub-Adviser) the Sub-Adviser shall not be subject to liability to
the Fund or to any shareholder of the Fund for any act or omission in the
course of, or connected with rendering services hereunder, including
without limitation, any error of judgment or mistake of law or for any loss
suffered by any of them in connection with the matters to which this
Agreement relates, except to the extent specified in Section 36 (b) of the
Act concerning loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services. Except for such disabling
conduct, the Fund shall indemnify the Sub-Adviser (and its officers,
directors, agents, employees, controlling persons, shareholders and any
other person or entity affiliated with the Sub-Adviser) against any
liability arising from the Sub-Adviser's gross negligent conduct under this
Agreement to the extent permitted by the Articles of Incorporation and
applicable law.
(d) Nothing in this Agreement shall prevent the Sub-Adviser or any
"affiliated person" (as defined in the Act) of the Sub-Adviser from acting
as investment adviser or manager for any other person, firm or corporation
and shall not in any way limit or restrict the Sub-Adviser or any such
affiliated person from buying, selling or trading any securities for its or
their own accounts or for the accounts of others for whom it or they may be
acting, provided, however, that the Sub-Adviser expressly represents that
it will undertake no activities which, in its judgment, will adversely
affect the performance of its obligations to the Fund under this Agreement.
It is agreed that the Sub-Adviser shall have no responsibility or liability
for the accuracy or completeness of the Fund's Registration Statement under
the Act and the Securities Act of 1933 except for information supplied by
the Sub-Adviser for inclusion therein. The Sub-Adviser shall be deemed to
be an independent contractor and, unless otherwise expressly provided or
authorized, have no authority to act or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
(e) In connection with its duties to arrange for the purchase and sale
of the securities and other assets of each series covered from time to time
by this Agreement, the Sub-Adviser shall follow the principles set forth in
any investment advisory agreement in effect from time to time between the
Fund and the Adviser, provided that a copy of any such agreement shall have
been provided to the Sub-Adviser. The Sub-Adviser will promptly communicate
to the Adviser and to the officers and the Trustees of the Fund such
information relating to portfolio transactions as they may reasonably
request.
(f) The Sub-Adviser may place orders both as to sales and purchases of
assets directly through any broker or dealer it chooses. Brokers or dealers
may be selected who provide brokerage and/or research services to the Fund
and/or other accounts over which the Sub-Adviser or its affiliates exercise
investment discretion. Brokers or dealers who execute portfolio
transactions on behalf of the Fund may receive commissions which are in
excess of the amount of commissions which other brokers or dealers would
have charged for effecting such transactions. In order to cause the Fund to
pay such higher commissions, the Sub-Adviser must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and/or research services provided by such executing brokers or
dealers viewed in terms of a particular transaction or the Sub-Adviser's
overall responsibilities to the Fund or its other discretionary client
accounts. The Sub-Adviser shall not be liable for any act or omission of
any securities brokerage firm or firms designated by the Adviser or chosen
with reasonable care.
(g) 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 aggregate the securities to be sold or purchased in order
to obtain the best execution and lower brokerage commissions, if any. 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 most equitable and consistent with its
fiduciary obligations to the Fund and to such clients.
The Sub-Adviser may purchase or sell for the Fund, pursuant to the
Fund's Rule I0f-3 Procedures, any security (including securities of the
same class as those underwritten or other securities of the same or related
issuer) for which any affiliate of the Sub-Adviser acts as (1) an
underwriter (either as lead underwriter or syndicate member), both during
the pendency of any underwriting or selling syndicate and thereafter, or
(2) a market maker, provided that such security is purchased from a
non-affiliated party.
3. Allocation of Expenses.
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities, commodities, and other investments (including
brokerage commissions and other transaction charges, if any) purchased for the
Fund. The Sub-Adviser agrees that it will furnish the Fund, at the Sub-Adviser's
expense, with all office space, facilities, equipment, and clerical personnel
necessary for carrying out its duties under this Agreement.
4. Certain Records.
Any records required to be maintained and preserved pursuant to the
provisions of Rule 31a-1 and Rule 31a-2 under the Act that are prepared or
maintained by the Sub-Adviser on behalf of the Fund are the property of the
Fund and will be surrendered promptly to the Fund or Adviser on request.
5. Reference to the Sub-Adviser.
Neither the Fund, the Adviser or any affiliate or agent thereof shall
make reference to or use the name of the Sub-Adviser or any of its
affiliates in any advertising or promotional materials without the prior
approval of the Sub-Adviser, which approval shall not be unreasonably
withheld.
6. Compensation of the Sub-Adviser.
The Adviser agrees to pay the Sub-Adviser and the Sub-Adviser agrees
to accept as full compensation for all services rendered by the Sub-Adviser
as such, a management fee, payable quarterly in arrears and computed on the
average daily net asset value of The AAL High Yield Bond Fund at rates
shown on Exhibit A attached hereto.
7. Duration and Termination.
(a) This Agreement shall go into effect for The AAL High Yield Bond
Fund on July 1, 2000, or as soon thereafter as it is approved by
shareholders of that Fund, and shall, unless terminated as hereinafter
provided, continue in effect thereafter from year to year, but only so long
as such continuance is specifically approved at least annually by a
majority of the Fund's Board of Trustees, or by the vote of the holders of
a "majority" (as defined in the Act) of the outstanding voting securities
of the Fund, with respect to the High Yield Bond Fund, and, in either case,
a majority of the Trustees who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party cast in
person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated by the Sub-Adviser at any time
without penalty upon giving the Fund and the Adviser sixty (60) days'
written notice (which notice may be waived by the Fund and Adviser) and may
be terminated by the Fund or the Adviser at any time without penalty upon
giving the Sub-Adviser sixty (60) days' written notice (which notice may be
waived by the Sub-Adviser), provided that such termination by the Fund
shall be directed or approved by the vote of a majority of all of the
Trustees in office at the time or by the vote of the holders of a majority
(as defined in the Act) of the voting securities of the Fund, with respect
to The AAL High Yield Bond Fund, or with respect to any other series of the
Fund covered by this Agreement, by the vote of a majority of the
outstanding shares of such series. This Agreement shall automatically
terminate in the event of its "assignment" (as defined in the Act). This
Agreement will also terminate in the event that the Investment Advisory
Agreement is terminated. Furthermore, the Fund and the Adviser understand
and agree that Pacific Investment Management Company LLC was indirectly
acquired by Allianz AG on May 5, 2000.
8. Agreement Binding Only On Fund Property.
The Sub-Adviser understands that the obligations of this Agreement are
not binding upon any shareholder of any series of the Fund personally, but
bind only the property of the Fund allocated to the particular series; the
Sub-Adviser represents that it has notice of the provisions of the Fund's
Declaration of Trust disclaiming shareholder liability for acts or
obligations of the Fund.
9. Action By An Individual Series.
The provisions of this Agreement and any amendments hereto with
respect to The AAL High Yield Bond Fund or any other series of the Fund
covered hereby may be approved by the shareholders of such series and
become effective with respect to the assets of such series without the
necessity of approval thereof by shareholders of any other series. The
Adviser represents that the holders of a majority (as defined in the "Act")
of The AAL High Yield Bond Fund will vote on approval of the entry into
this Agreement on behalf of said series.
10. Notices.
The Sub-Adviser agrees to promptly notify the Adviser of the
occurrence of any of the following events:
(a) Any change in any of the Sub-Adviser's portfolio managers;
(b) The Sub-Adviser fails to be registered as an investment adviser
under the Advisers Act or under the laws of any jurisdiction in which the
Sub-Adviser is required to be registered as an investment adviser in order
to perform its obligations under this Agreement;
(c) The Sub-Adviser is the subject of any action, suit, proceeding,
inquiry or investigation at law or in equity, before any court, public
board or body, involving the affairs of the Fund or another series of the
Fund covered by this Agreement, or
(d) Any change in ownership or control, or partnership structure of
the Sub-Adviser.
11. Manner of Notice.
Any notice given hereunder shall be in writing and may be served by
being sent by telex, facsimile or other electronic transmission, or sent by
registered mail or by courier to the address set forth below for the party
for which it is intended. A notice served by mail shall be deemed served
seven days after mailing and in the case of telex, facsimile or other
electronic transmission, twelve hours after confirmed receipt thereof.
Addresses for notice may be changed by written notice to the other party.
The Adviser: ▇▇▇▇▇▇ ▇. Same, President
AAL Capital Management Corporation
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Fax: (▇▇▇)▇▇▇-▇▇▇▇
The Fund: ▇▇▇▇▇▇ ▇. Same, President
The AAL Mutual Funds
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Fax: (▇▇▇) ▇▇▇-▇▇▇▇
The Sub-Adviser: ▇▇▇▇▇ ▇▇▇▇▇▇
Pacific Investment Management Company
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Fax: (▇▇▇) ▇▇▇-▇▇▇▇
cc: Chief Administrative Officer
No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by all of the
parties.
The Adviser and the Fund acknowledges receipt of the Sub-Adviser's Part
II, Form ADV at least 48 hours in advance of signing this Agreement.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. 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.
The Adviser represents to the Sub-Adviser that the Adviser has all
necessary power and authority to execute, deliver and perform this Agreement and
all transactions contemplated hereby, and such execution, delivery and
performance will not violate and applicable law, rule, regulation, governing
document, contract or other material agreement binding upon the Adviser
The Sub-Adviser is expressly authorized to rely upon any and all
instructions, approvals and notices given on behalf of the Fund whose names,
titles and specimen signatures appear in Exhibit B attached hereto. The Adviser
may amend such Exhibit B from time to time by written notice to the Sub-adviser.
The Sub-Adviser shall continue to rely upon these instructions until notified by
the Adviser to the contrary.
This Agreement shall be governed by the laws of the State of Wisconsin.
This Agreement shall be executed in two counterparts, each of which
shall be considered to be an original.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers and their seals to
be hereunto affixed, all as of the day and year first above written.
THE AAL MUTUAL FUNDS
/s/▇▇▇▇▇▇ ▇. Same
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▇▇▇▇▇▇ ▇. Same, President
AAL CAPITAL MANAGEMENT CORPORATION
/s/▇▇▇▇▇▇ ▇. Same
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▇▇▇▇▇▇ ▇. Same, President
PACIFIC INVESTMENT MANAGEMENT COMPANY
/s/▇▇▇▇▇▇▇ ▇. Benz II
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▇▇▇▇▇▇▇ ▇. Benz II, Managing Director
EXHIBIT A TO THE AAL MUTUAL FUNDS SUB-ADVISORY AGREEMENT (Dated June 12)
1. The AAL High Yield Bond Fund
The management fee for The AAL High Yield Bond Fund, payable to the
Sub-Adviser by the Adviser, calculated in accordance with paragraph 6 of The AAL
Mutual Funds Sub-Advisory Agreement, shall be at the annual rate of: 25 basis
points.
EXHIBIT B TO THE AAL MUTUAL FUNDS SUB-ADVISORY AGREEMENT (Dated June 12)
The Adviser authorizes the following person to convey instructions,
approvals and notices to the Sub-Adviser on behalf of the Adviser:
▇▇▇▇▇▇ ▇. Same, President /s/▇▇▇▇▇▇ ▇. Same
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▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. Vice President /s/▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, AAL Fixed Income /s/▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Secretary /s/▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Treasurer /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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