EXHIBIT (d)(3)
SUBADVISORY AGREEMENT
This Subadvisory Agreement (the "Agreement") is entered into as of
_________ __, 1999 between ▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇ CAPITAL MANAGEMENT, a California
limited partnership (the "Manager"), and CRITERION INVESTMENT MANAGEMENT LLC, a
Delaware limited liability company (the "Subadviser").
WHEREAS ▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇ Institutional Funds, a Delaware business
trust (the "Trust"), a diversified open-end management company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), is a series
type investment company that is comprised of various series, each of which is a
separate investment portfolio having its own investment objectives and
investment policies;
WHEREAS the Manager has entered into an investment advisory agreement
with the Trust dated May __, 1999 (the "Management Agreement") pursuant to which
the Manager has been retained to furnish investment advisory services to the
Trust and each of its series;
WHEREAS the Subadviser is engaged in business as an investment adviser
and is registered as an investment adviser under the Investment Advisers Act of
1940, as amended (the "Advisers Act");
WHEREAS pursuant to the approval of the Trust and the authority granted
to the Manager in the Management Agreement, the Manager wishes to retain the
Subadviser to furnish investment advisory services to one or more series of the
Trust, and the Subadviser is willing to provide such services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. SERVICES TO BE RENDERED BY SUBADVISER TO THE TRUST.
a. Subject always to the supervision of the trustees of the Trust
(the "Trustees"), the Subadviser will provide a continuous
investment program for each of the series listed on Schedule A
(each such series, a "Fund"), including investment research and
management with respect to all securities and investments and
cash equivalents in a Fund. The Subadviser will determine from
time to time what securities and other investments will be
purchased, retained or sold with respect to a Fund.
In the performance of its duties, the Subadviser (i) will provide
services under this Agreement in accordance with a Fund's
investment objectives, policies and restrictions as set forth in
its current prospectus and statement of additional information as
provided to the Subadviser by the Trust, (ii) will comply with
the 1940 Act and all rules and regulations thereunder, and all
other applicable law, and will comply with other written
directions which the Trustees or the Manager, as the case may be,
may from time to time provide, and (iii) shall exercise the same
care and diligence as required of the Manager pursuant to the
terms of the Management Agreement in the form provided by the
Manager to the Subadviser. The Subadviser and the Manager shall
each make its officers and employees available to the other from
time to time at reasonable times to review investment policies of
each Fund and to consult with each other regarding the investment
affairs of each Fund.
b. In the event that the Manager designates one or more series with
respect to which it and the Trust wish to retain the Subadviser
to render investment advisory services hereunder, it shall notify
the Subadviser in writing. If the Subadviser is willing to render
such services, it shall notify the Manager in writing, whereupon
such series shall become a Fund hereunder, and be subject to this
Agreement.
c. The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of
personnel, required for it to execute its duties hereunder in a
professional manner and (ii) administrative facilities, including
bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of each Fund,
including assistance in obtaining and verifying prices for
portfolio securities.
d. The Subadviser will place all orders for the purchase and sale of
portfolio securities for the account of a Fund with brokers or
dealers selected by the Subadviser. In executing portfolio
transactions and selecting brokers or dealers, the Subadviser
will use its best efforts to seek on behalf of a Fund the best
available price and execution. In assessing the best overall
terms available for any transaction, the Subadviser will consider
all factors it deems relevant, including the breadth of the
market in the security, the price of the security, the size of
the order, the difficulty and risk of execution, the financial
condition and execution capability of the broker or dealer, and
the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis.
In evaluating the best overall terms available, and in selecting
the broker or dealer or execute a particular transaction, the
Subadviser may also
consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934,
as amended (the "1934 Act") provided to a Fund and/or other
accounts over which the Subadviser or any affiliate of the
Subadviser exercises investment discretion. The Subadviser is
authorized to pay a broker or dealer who provides such brokerage
and research services a commission or spread for executing a
portfolio transaction for a Fund which is in excess of the amount
of commission or spread another broker or dealer would have
charged for effecting that transaction if, but only if, the
Subadviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer viewed in terms of
that particular transaction or in terms of the overall
responsibilities of the Subadviser to the particular Fund and to
the Trust. The Subadviser may also select brokers who sell shares
of the various series of ▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇ Mutual Funds to
execute portfolio transactions. The extent and continuation of
these practices will be subject to periodic review of the
Trustees.
In executing portfolio transactions for any Fund, the Subadviser
may, but will not be obligated to, aggregate the securities to be
sold or purchased with those of other funds and its other clients
where such aggregation is not inconsistent with the policies set
forth in the prospectus, to the extent permitted by applicable
laws and regulations. In such event, the Subadviser will allocate
the securities so purchased or sold, and the expenses incurred in
the transaction, in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to a Fund
and such other clients.
e. The Subadviser will make available to the Trust and the Manager,
promptly upon request, any of the Funds' investment records and
ledgers maintained by the Subadviser as are necessary to assist
the Trust and the Manager to comply with the requirements of the
1940 Act, the Advisers Act, and other applicable laws. The
Subadviser will furnish to regulatory authorities having the
requisite authority any information or reports in connection with
such services in respect to each Fund which may be requested in
order to ascertain whether the operations of such Fund are being
conducted in a manner consistent with applicable laws and
regulations.
f. The Subadviser will provide reports to the Trustees for
consideration at meetings of the Trustees on the investment
program for each Fund and the issuers and securities represented
in each Fund's portfolio, and will furnish the Trustees with
respect to each Fund such periodic and special reports as the
Trustees and/or the Manager may reasonably request.
g. The Subadviser shall not be obligated to pay any expenses of or
for the Trust or of or for a Fund not expressly assumed by the
Subadviser pursuant to this Section 1.
2. COMPENSATION TO BE PAID BY THE MANAGER TO THE SUBADVISER.
The Manager will pay to the Subadviser as compensation for the
Subadviser's services rendered, for the facilities furnished and for the
expenses borne by the Subadviser pursuant to Section 1, a fee in accordance with
Schedule A of this Agreement.
3. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT.
This Agreement shall automatically terminate with respect to a Fund,
without the payment of any penalty, in the event of its assignment or in the
event that the Management Agreement between the Manager and the Trust, with
respect to such Fund, shall have terminated for any reason, and the Manager
shall provide notice of any such termination of the Management Agreement to the
Subadviser.
4. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective on the first date written above,
and shall remain in full force and effect continuously thereafter with respect
to each Fund (unless terminated automatically as set forth in Section 3) until
terminated as follows:
a. The Trust may at any time terminate this Agreement by written
notice delivered or mailed by registered mail, postage prepaid,
to the Manager and the Subadviser, or
b. Unless sooner terminated as provided herein, this Agreement will
continue in effect for a period of two years from the date
hereof. Thereafter, if not terminated, this Agreement will
continue in effect as to a Fund for successive annual periods,
provided such continuance is specifically approved at least
annually (i) by the vote of a majority of those Trustees who are
not interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such
approval, and (ii) by the Trustees or by vote of a majority of
the outstanding voting securities of such Fund. Notwithstanding
the foregoing, this Agreement may be terminated as to any Fund at
any time, without the payment of any penalty, by the Trust (by
vote of the Trustees or by vote of a majority of the outstanding
voting securities of such Fund), by the Manager or by the
Subadviser, upon not less than 60
days' written notice. This Agreement will immediately terminate
in the event of its assignment. (As used in this Agreement, the
terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" have the same meaning as
the meaning of such terms in the 1940 Act).
5. PROVISION OF CERTAIN INFORMATION BY SUBADVISER.
The Subadviser shall promptly notify the Manager in writing of the
occurrence of any of the following events: (a) the Subadviser shall fail to be
registered as an investment adviser under the Advisers Act, (b) the Securities
and Exchange Commission (the "SEC") has censured the Subadviser, placed
limitations on its activities, functions, or operations; suspended its
registration as an investment adviser; or has commenced proceedings or an
investigation that may result in any of these actions; (c) the Subadviser shall
have been served or otherwise have 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 Trust; (d) the Subadviser has a
reasonable basis for believing that a Fund has ceased to qualify or might not
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended; (e) there is a change in control, or an agreement
contemplating a change in control, of the Subadviser or any parent of the
Subadviser within the meaning of the 1940 Act; or (f) there is a material
adverse change in the business or financial position of the Subadviser.
6. EXCULPATION OF SUBADVISER.
The Subadviser will not be liable for any error of judgment or mistake
of law or for any loss suffered by a Fund or the Trust in connection with the
matters to which this Agreement relates, except for liability resulting from
wilful misfeasance, bad faith or gross negligence on the part of the Subadviser
in the performance of its duties, or by reason of the Subadviser's reckless
disregard of its obligations and duties under this Agreement.
The Manager will indemnify and hold harmless the Subadviser from and
against all liabilities, damages, costs and expenses that the Subadviser may
incur in connection with any action, suit, investigation or proceeding arising
out of or otherwise based on any action actually or allegedly taken or omitted
to be taken by the Subadviser with respect to the performance of its duties or
obligations hereunder or otherwise as an investment adviser of the Trust and
Fund; PROVIDED, HOWEVER, that the Subadviser will not be entitled to
indemnification with respect to any liability to the Trust or the Manager by
reason of willful misfeasance, bad faith or gross negligence on the part of the
Subadviser in the performance of its duties, or by reason of the Subadviser's
reckless disregard of its obligations and duties under this Agreement.
7. EXERCISE OF VOTING RIGHTS.
Except with the agreement or on the specific instructions of the
Trustees or the Manager, the Subadviser shall exercise or procure the exercise
of any voting right attaching to investments of the Fund.
8. DISCLOSURE ABOUT SUBADVISER.
The Subadviser has reviewed Post-Effective Amendment No. _ to the
Registration Statement for the Trust filed with the SEC that contains disclosure
about the Subadviser, and represents and warrants that, with respect to the
disclosure about the Subadviser or information relating directly or indirectly
to the Subadviser, such Registration Statement contains, as of the date hereof,
no untrue statement of a material fact, and does not omit any statement of a
material fact which was required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. The Subadviser further represents and warrants that
it is registered as an investment adviser under the Advisers Act and will
maintain such registration as long as this Agreement remains in effect.
9. BOOKS AND RECORDS
The Subadviser hereby agrees that all records that it maintains for the
Funds are the property of the Trust and further agrees to surrender promptly to
the Trust any of such records upon the Trust's or the Manager's request in
compliance with the requirements of Rule 31a-3 under the 1940 Act. The
Subadviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any records required to be maintained by Rule 31a-1 under the
1940 Act.
10. CONFLICTS OF INTEREST
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a shareholder, partner, director, officer or
employee of, or be otherwise interested in, the Subadviser, and in any person
controlling, controlled by or under common control with the Subadviser, and that
the Subadviser and any person controlling, controlled by or under common control
with the Subadviser may have an interest in the Trust. It is also understood
that the Subadviser and persons controlling, controlled by or under common
control with the Subadviser have and may have advisory, management service,
distribution or other contracts with other organizations and persons, and may
have other interests and businesses.
11. SERVICES NOT EXCLUSIVE.
The Subadviser will for all purposes herein be deemed to be an
independent contractor and will, unless otherwise expressly provided herein or
authorize by the Trustees from time to time, have no authority to act for or
represent the Trust in any way or otherwise be deemed its agent. The investment
management services furnished
by the Subadviser hereunder are not deemed exclusive, and the Subadviser will be
free to furnish similar services to others so long as its services under this
Agreement are not impaired thereby.
12. NOTICES.
All notices, requests and consents shall be in writing and shall be
personally delivered or mailed by registered mail, postage prepaid, to the other
party at the address indicated below:
If to the Manager:
▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇ Capital Management
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: E. ▇▇▇▇▇ ▇▇▇▇▇, Jr., General Counsel
If to the Subadviser:
Criterion Investment Management LLC
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
13. GOVERNING LAW
This Agreement will be binding upon and will inure to the benefit of
the parties hereto and their respective successors and will be governed by the
internal laws, and not the law of conflicts of laws, of the State of California;
provided that nothing herein will be construed in a manner inconsistent with the
1940 Act, the Investment Advisers Act of 1940, as amended, or any rule or
regulation of the Securities and Exchange Commission thereunder.
14. MISCELLANEOUS
This Agreement represents the entire agreement pertaining to the
subject matter hereof between the parties and supersedes all prior agreements
and understandings pertaining thereto. The headings of the sections of this
Agreement are inserted for convenience only and shall not constitute a part
hereof. Should any provision of this Agreement be held to be void in law or in
equity, the Agreement shall be construed, insofar as is possible, as if such
portion had never been contained herein. This
Agreement may be executed in more than one counterpart with the same effect as
if the parties executing the several counterparts had all executed one
counterpart.
For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the SEC under the 1940
Act; the term "specifically approve at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations thereunder;
and the term "brokerage and research services" shall have the meaning given in
the 1934 Act and the rules and regulations thereunder.
IN WITNESS WHEREOF, ▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇ CAPITAL MANAGEMENT and CRITERION
INVESTMENT MANAGEMENT LLC have each caused this instrument to be signed in
duplicate on its behalf by its duly authorized representative, all as of the day
and year first above written.
CRITERION INVESTMENT MANAGEMENT LLC ▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇ CAPITAL
MANAGEMENT
By:________________________________ By: ______________________
Name: E. ▇▇▇▇▇ ▇▇▇▇▇, Jr.
Title: General Counsel
SCHEDULE A
1. The following series of the Trust are covered by this Agreement:
High Quality Bond Fund
Short-Intermediate Fixed Income Fund
2. The Subadviser fee for each Fund shall be paid monthly in U.S.
dollars in arrears. The fee shall be equal to an annual rate of 0.25% of the
average daily net asset value with respect to such Fund. For a month in which
this Agreement becomes effective or terminates with respect to a Fund, the
portion of the Subadviser fee due hereunder shall be prorated on the basis of
the number of days that the Agreement is in effect during the month.