Exhibit D(ii)
-------------
INVESTMENT ADVISORY AGREEMENT
-----------------------------
COMMONWEALTH INTERNATIONAL SERIES TRUST
on behalf of its Fund
COMMONWEALTH JAPAN FUND
AGREEMENT, effective commencing on November 25, 1991, between FCA CORP (the
"Adviser") and COMMONWEALTH INTERNATIONAL SERIES TRUST (the "Trust") with
respect to JAPAN FUND (the "fund").
WHEREAS, the Trust is a Massachusetts business trust organized under a
Declaration of Trust dated May 2, 1986, as amended and restated December 29,
1986 ("Declaration of Trust") and is authorized to divide and classify its
shares of beneficial interest into separate series of shares and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end, diversified management investment company;
WHEREAS, the Fund is a separate series of the Trust's shares of beneficial
interest;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 ("Advisers Act");
WHEREAS, the Trust wishes to retain the Adviser to render investment
advisory services to the Fund and the Adviser is willing to furnish such
services to the Fund.
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the Trust and the Adviser as follows:
1. Appointment. The Trust hereby appoints the Adviser to act as investment
adviser to the Fund for the periods and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
2. Investment Advisory Duties. Subject to the supervision of the Trustees
of the Trust, the Adviser will (a) provide a program of continuous investment
management for the Fund in accordance with the Fund's investment objectives,
policies and limitations as stated in the Fund's prospectus and Statement of
Additional Information included as part of the Trust's Registration Statement
filed with the Securities and Exchange Commission, as they may be amended from
time to time, copies of which shall be provided to the Adviser by the Trust; (b)
make investment decisions for the Fund; and (c) place orders to purchase and
sell securities for the Fund.
In performing its investment management services to the Fund hereunder, the
Adviser will provide the Fund with ongoing investment guidance and policy
direction, including oral and written research, analysis, advice, statistical
and economic data and judgments regarding individual investments, general
154
economic conditions and trends and long-range investment policy. The Adviser
will determine the securities, instruments, currencies, repurchase agreements,
futures, options and other investments and techniques that the Fund will
purchase, sell, enter into or use, and will provide an ongoing evaluation of the
Fund's portfolio. The Adviser will determine what portion of the Fund's
portfolio shall be invested in securities and other assets and what portion, if
any, should be held uninvested.
The Adviser further agrees that it will:
(a) comply with the 1940 Act and all rules and regulations there under, the
Advisers Act, the Internal Revenue Code (the "code"), and all other applicable
federal and state laws and regulations, and with any applicable procedures
adopted by the Trustees;
(b) use reasonable efforts to manage the Fund so that it will qualify, and
continue to qualify, as a regulated investment company under Subchapter M of the
Code and regulations issued there under;
(c) place orders pursuant to its investment determinations for the Fund
directly with the issuer, or with any broker or dealer, in accordance with
applicable policies expressed in the Fund's prospectus and/or Statement of
Additional Information and in accordance with applicable legal requirements;
(d) furnish to the Fund whatever statistical information the Fund may
reasonably request with respect to the Fund's assets or contemplated
investments. In addition, the Adviser will keep the Fund and the Trustees
informed of developments materially affecting the Fund's portfolio and shall, on
the Adviser's own initiative, furnish to the Fund and the Adviser from time to
time whatever information the Adviser believes appropriate for this purpose;
(e) make available to the Fund, promptly upon their request, copies of all
its investment records and ledgers with respect to the Fund to assist the Fund
in their compliance with applicable laws and regulations. The Adviser will
furnish the Trustees with such periodic and special reports regarding the Fund
as they may reasonably request;
(f) immediately notify the Fund in the event that the Adviser or any of its
affiliates: (1) becomes subject to a statutory disqualification that prevents
the Adviser from serving as investment adviser pursuant to this Agreement; or
(2) has been the subject of an administrative proceeding or enforcement action
by the Securities and Exchange Commission ("SEC") or other regulatory authority.
The Adviser further agrees to notify the Fund immediately of any material fact
known to the Adviser respecting or relating to the Adviser that is not contained
in the Trust's Registration Statement with respect to the Fund, or any amendment
or supplement thereto, and of any statement contained therein that becomes
untrue in any material request.
3. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this Section 3, the Adviser shall pay the compensation and expenses
of all its directors, officers and employees who serve as officers and executive
employees of the Trust (including the fund's share of payroll taxes) and of all
Trustees of the Trust who are interested persons of the Adviser, and the Adviser
shall make available, without expense to the Fund, the service of its directors,
officers and employees who may be duly elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law.
The Adviser shall not be required to pay any expenses of the Fund, other
than those specifically allocated to the Adviser in this Section 3. In
particular, but without limiting the generality of the foregoing, the Adviser
shall not be responsible, except to the extent of the reasonable compensation of
such of
155
the Fund's employees as are directors, officers or employees of the Adviser
whose services may be involved, for the following expenses of the Fund:
organization and certain offering expenses of the Fund (including out-of-pocket
expenses, but not including the Adviser's overhead and employee costs); fees
payable to the Adviser and to any other expenses; interest expenses; telephone,
telex, facsimile, postage and other communications expenses; taxes and
governmental fees; fees, dues and expenses incurred by or with respect to the
Fund in connection with membership in investment company trade organizations;
cost of insurance relating to fidelity coverage for the Fund's officers and
employees, fees and expenses of the Fund's Administrator or of any custodial,
sub custodian, transfer agent, registrar, or dividend disbursing agent of the
Fund; payments to the Administrator for maintaining the Fund's financial books
and records and calculating its daily net asset value; other payments for
portfolio pricing or valuation services to pricing agents, accountants, bankers
and other specialists, if any; expenses of preparing share certificates and,
except as provided below in this Section 3, other expenses in connection with
the issuance, offering, distribution or sale of securities issued by the Fund;
expenses relating to investor and public relations; expenses of registering and
qualifying shares of the Fund for sale; freight, insurance and other charges in
connection with the shipment of the Fund's portfolio securities; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
or other assets of the Fund, or of entering into other transactions or engaging
in any investment practices with respect to the Fund; expenses of printing and
distributing prospectuses, Statements of Additional Information, reports,
notices and dividends to shareholders; costs of stationery; any litigation
expenses; costs of shareholders' and other meetings; the compensation and all
expenses (specifically including travel expenses relating to the Trust business)
of Trustees, officers and employees of the Trust who are not interested persons
of the Adviser or Administrator; and travel expenses (or an appropriate portion
thereof) of Trustees and officers of the Trust who are directors, officers or
employees of the Adviser or the Administrator to the extent that such expenses
relate to attendance at meetings of the Board of Trustees of the Trust or any
committees thereof or advisers thereto.
The Adviser shall not be required to pay expenses of any activity which is
primarily intended to result in sales of shares of the Fund if and to the extent
that (i) such expenses are assumed or required to be borne by the Fund's
principal underwriter or some other party, or (ii) the Trust on behalf of the
Fund shall have adopted a plan in conformity with Rule 12b-1 under the 1940 Act
providing that the Fund (or some other party) shall assume some or all of such
expenses. The Adviser shall be required to pay such of the foregoing sales
expenses as are not assumed or required to be paid by the principal underwriter
or some other party or are not permitted to be paid by the Fund (or some other
party) pursuant to such a plan.
4. Compensation. As compensation for the services provided and expenses
assumed by the Adviser under this Agreement, the fund will pay the adviser at
the end of each calendar month an advisory fee computed daily at a rate equal on
an annual basis to 0.75% of the Fund's average daily net assets. The "average
daily net assets" of the Fund shall mean the average of the values placed on the
Fund's net assets as of 4:00 p.m. (New York time) on each day on which the net
asset value of the Fund is determined consistent with the provisions of Rule
22c-1 under the 1940 Act or, if the Fund lawfully determines the value of its
net assets as of some other time on each business day, as of such other time.
The value of net assets of the Fund shall always be determined pursuant to the
applicable provisions of the Declaration of Trust and the Registration
Statement. If, pursuant to such provisions, the determination of net asset value
is suspended for any particular business day, then for the purpose of this
Section 4, the value of the net assets of the Fund as last determined shall be
deemed to be the value of its net assets as of the close of the New York Stock
Exchange, or as of such other time as the value of the net assets of the Fund's
portfolio may lawfully be determined, on that day. If the determination of the
net asset value of the shares of the Fund has been so suspended for a period
including any month end when the Adviser's compensation is payable pursuant to
this Section, then the Adviser's compensation payable at the end of such month
shall be computed on the basis of the value of the net assets of the Fund as
last determined (whether during
156
or prior to such month). If the Fund determines the value of the net assets of
its portfolio more than once on any day, then the last such determination
thereof on that day shall be deemed to be the sole determination thereof on that
day for the purposes of this Section 4.
In the event that the Adviser's gross compensation, together with that paid
or payable by the Fund to the Administrator for any fiscal year, shall, when
added to the other expenses of the Fund, cause the aggregate expenses of the
Fund to exceed the maximum expenses permitted under the lowest applicable
expense limitation established pursuant to the statutes or regulations of any
jurisdiction in which the shares of the Fund may be qualified for offer and
sale, the total compensation paid or payable to the Adviser and to the
Administrator shall each be reduced pro rata (but not below zero), to the extend
necessary to cause the Fund not to exceed such expense limitation. Except to the
extent that such reduction with respect to the Adviser has been reflected in
lowered monthly payments to the Adviser, the Adviser shall refund to the Fund
its pro rata portion of the amount by which the total of payments received by
the Adviser and the Administrator are in excess of such expense limitation as
promptly as practicable after the end of such fiscal year, provided that neither
the Adviser nor the Administrator shall be required to pay the Fund an amount
greater than the fee otherwise payable to the Adviser or the Administrator,
respectively, in respect of such year. As used in this Section 4, "expenses"
shall mean those expenses included in the applicable expense limitation having
the broadest specifications thereof, and "expense limitation" means a limit on
the maximum annual expenses which may be incurred by an investment company
determined (i) by multiplying a fixed percentage by the average, or by
multiplying more than one such percentage by different specified amounts of the
average, of the values of an investment company's net assets for a fiscal year
or (ii) by multiplying a fixed percentage by an investment company's net
investment income for a fiscal year. The words "lowest applicable expense
limitation" shall be deemed to be that which results in the largest reduction of
the Adviser's and Administrator's compensation for any fiscal year of the Fund;
provided, however, that nothing in this Agreement shall limit the Adviser's or
the Administrator's fees if not required by an applicable statute or regulation
referred to above in this Section 4.
5. Books and Records. The Adviser agrees to maintain such books and records
with respect to its services to the Fund as are required by Section 31 under the
1940 Act, and rules adopted there under, and by other applicable legal
provisions, and to preserve such records for the periods and in the manner
required by that Section, and those rules and legal provisions. The Adviser also
agrees that records it maintains and preserves pursuant to Rules 31a-1 and Rule
31a-2 under the 1940 Act and otherwise in connection with its services hereunder
are the property of the Fund and will be surrendered promptly to the Fund upon
its request. And the Adviser further agrees that it will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with its services hereunder which may be requested in order to
determine whether the operations of the Trust or the Fund are being conducted in
accordance with applicable laws and regulations.
6. Standard of Care and Limitation of Liability. The Adviser shall exercise
its best judgment in rendering the services provided by it under this Agreement.
The Adviser shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect the Adviser against any liability to the Trust,
the Fund or to holders of the Fund's shares to which the Adviser would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason of the Adviser's reckless
disregard of its obligations and duties under this Agreement.
7. Services Not Exclusive. It is understood that the services of the
Adviser are not exclusive, and nothing in this Agreement shall prevent the
Adviser from providing similar services to other investment companies
157
(whether or not their investment objectives and policies are similar to those of
the Fund) or from engaging in other activities, provided such other services and
activities do not, during the term of this Agreement, interfere in a material
manner with the Adviser's ability to meet its obligations to the Fund and to the
Trust hereunder. When the adviser recommends the purchase or sale of a security
for other investment companies and other clients, and at the same time the
Adviser recommends the purchase or sale of the same security for the Fund, it is
understood that in light of its fiduciary duty to the Fund, such transactions
will be executed on a basis that is fair and equitable to the Fund. In
connection with purchases or sales of portfolio securities for the account of
the Fund, neither the Adviser nor any of its directors, officers or employees
shall act as a principal or agent or receive any commission. If the Adviser
provides any advice to its clients concerning the shares of the Fund, the
Adviser shall act solely as investment counsel for such clients and not in any
way on behalf of the Fund.
8. Duration and Termination. This Agreement shall continue until August 25,
1999, and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by (i) the
Trustees or (ii) a vote of a "majority" (as defined in the ▇▇▇▇ ▇▇▇) of the
Fund's outstanding voting securities (as defined in the 1940 Act), provided that
in either event the continuance is also approved by a majority of the Trustees
who are not "interested persons" (as defined in the ▇▇▇▇ ▇▇▇) of any party to
this Agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval. Notwithstanding the foregoing, this Agreement may be
terminated: (a) at any time without penalty by the Trust upon the vote of a
majority of the Trustees or by vote of the majority of the Fund's outstanding
voting securities, upon sixty (60) days' written notice to the Adviser, or (b)
by the Adviser at any time without penalty, upon ninety (90) days' written
notice to the Fund. This Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
9. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Trustees who are not
interested persons of any part of this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, if such approval is required
by applicable law.
10. Limitation of Liability for Claim. The Declaration of Trust of the
Trust, a copy of which, together with all amendments thereto is on file in the
Office of the Secretary of the Commonwealth of Massachusetts, provides that the
name "Commonwealth International Series Trust" refers to the Trustees under the
Declaration of Trust collectively as trustees and not as individuals or
personally, and that no shareholder of the Fund, or Trustee, officer, employee
or agent of the Trust, shall be subject to claims against or obligations of the
Trust or of the Fund to any extent whatsoever, but that the Trust estate only
shall be liable.
The Adviser is hereby expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust and hereby agrees that the
obligations assumed by the Trust on behalf of the Fund pursuant to this
Agreement shall be limited in all cases to the Fund and its assets, and the
Adviser shall not seek satisfaction of any such obligation from shareholders or
any shareholder of the Fund or any other series of the Trust or their
shareholders, or from any Trustee, officer, employee or agent of the Trust. The
Adviser understands that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
158
11. Miscellaneous.
a. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
hereunder.
b. The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
c. 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 hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Adviser as an
agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of August 25, 1997.
COMMONWEALTH INTERNATIONAL SERIES TRUST
on behalf of its Fund the COMMONWEALTH JAPAN FUND
By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President
FCA CORP
By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President
159