AMENDED AND RESTATED SUB-ADVISORY
AGREEMENT
AGREEMENT made as of the 30th day of May
2013, by and between ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
INVESTMENT MANAGEMENT INC., a Delaware
corporation (hereinafter referred to as the "Adviser"), and
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ INVESTMENT MANAGEMENT
LIMITED, a company incorporated under the laws of
England (hereinafter referred to as the "Local Manager").
W I T N E S S E T H:
WHEREAS, each investment company, including
any portfolio/series thereof, set forth on Schedule A (each,
a "Fund" and collectively, the "Funds"), as may be
amended from time to time, is engaged in business as an
open-end management investment company and is
registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment
Company Act"); and
WHEREAS, the Adviser and the Local Manager
are engaged principally in rendering investment advisory
services and are registered as investment advisers under
the Investment Advisers Act of 1940, as amended (the
"Advisers Act"); and
WHEREAS, the Local Manager is regulated by
the Financial Conduct Authority in the United Kingdom;
and
WHEREAS, effective July 31, 2011, the Board of
Trustees/Directors of each Fund approved the termination
of the investment advisory agreement between ▇▇▇▇▇▇
▇▇▇▇▇▇▇ Investment Advisors Inc. ("MSIA") and the Funds
(the "MSIA Advisory Agreement") and the adoption of a
new investment advisory agreement with the Adviser (the
"Advisory Agreement") pursuant to which the Adviser
provides management and investment advisory services to
the Fund; and
WHEREAS, effective July 31, 2011, as a result of
the termination of the MSIA Advisory Agreement, the
amended and restated investment sub-advisory agreement
between MSIA and the Local Manager with respect to
each Fund was terminated pursuant to its terms thereof;
and
WHEREAS, the Adviser and the Local Manager
entered into an investment sub-advisory agreement with
respect to each Fund, effective as of the effective date set
forth in Schedule A (the "Original Sub-Advisory
Agreement"); and
WHEREAS, as of May 30, 2013, the Original
Sub-Advisory Agreement is hereby amended and restated
(this "Agreement") to remove references to the United
Kingdom's Financial Services Authority, which has been
abolished, and replace them with references to the
Financial Conduct Authority, which is a new agency
performing a similar but expanded function as the
Financial Services Authority; and
WHEREAS, the Local Manager is willing to
provide investment advisory services to the Adviser in
connection with the operations of each Fund, on the terms
and conditions hereinafter set forth and including the terms
and conditions contained in the Annex to this Agreement;
provided however, that nothing in the Annex to this
Agreement shall authorize conduct prohibited under the
Investment Company Act or the Advisers Act.
NOW THEREFORE, in consideration of the
premises and the covenants hereinafter contained, the
Local Manager and the Adviser hereby agree as follows:
ARTICLE I
Duties of the Local Manager
The Adviser hereby employs the Local Manager to
act as discretionary investment manager to the Adviser and
to furnish the investment management services described
below, subject to the broad supervision of the Adviser and
the Board of Trustees/Directors of each Fund (the
"Board"), for the period and on the terms and conditions
set forth in this Agreement. The Local Manager hereby
accepts such employment and agrees during such period,
at its own expense, to render, or arrange for the rendering
of, such services and to assume the obligations herein set
forth for the compensation provided for herein. The
Adviser and its affiliates shall for all purposes herein be
deemed a Professional Client as defined under the rules
and guidance promulgated by the Financial Conduct
Authority in the FCA Handbook (hereinafter referred to as
the "FCA Rules"). The Adviser has the right to request to
be treated as a retail client. Classification as a retail client
requires the Local Manager to exercise a higher level of
protective care under the regulatory system. However, the
Local Manager is not obliged to accept any such request.
The Adviser should be aware that professional clients will
not be entitled to certain protections afforded by the FCA
Rules to retail clients. For the avoidance of doubt, the
Local Manager will, for purposes of the FCA Rules, only
treat the Adviser (but not a Fund) as its customer from
both a regulatory and a contractual perspective. The Local
Manager and its affiliates shall for all purposes herein each
be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no
authority to act for or represent any Fund in any way or
otherwise be deemed an agent of any Fund.
The Local Manager shall have full discretion,
power and authority on behalf of each Fund to buy, sell,
retain, exchange or otherwise deal in investments and
other assets, make deposits, subscribe to issues and offers
for sale and accept placings of any investments, enter into
foreign currency transactions on a spot or forward basis,
effect transactions on any markets, take all day to day
decisions and otherwise act as the Local Manager judges
appropriate in relation to the investment and reinvestment
of the portfolio of assets of each Fund. This includes
performing all acts and executing all documents which the
Local Manager reasonably considers incidental thereto,
including (without limitation) power to execute and deliver
all applications, requests, or claims for refund, reduction,
repayment or credit of, or exemption or relief from, any
withholding tax or similar taxes in any jurisdiction in
which such applications, requests or claims may be made.
Subject to guidelines adopted by each Fund, the Local
Manager shall also make recommendations or take action
as to the manner in which voting rights, rights to consent
to corporate action and any other rights pertaining to the
portfolio of assets of each Fund shall be exercised. All of
the foregoing is subject always to the restrictions of the
Declaration of Trust or Articles of Incorporation, as
applicable, and By-Laws of each Fund, as they may be
amended and/or restated from time to time and as provided
to the Local Manager by the Adviser, the provisions of the
Investment Company Act and the statements relating to
each Fund's investment objective(s), investment policies
and investment restrictions as the same are set forth in the
then-currently effective prospectus and statement of
additional information relating to the shares of the Fund
under the Securities Act of 1933, as amended (the
"Prospectus" and "Statement of Additional
Information," respectively), as well as to the supervision
of the Adviser and the Board.
The Local Manager will not hold money on behalf
of the Adviser or a Fund, nor will the Local Manager be
the registered holder of the registered investments of the
Adviser or a Fund or be the custodian of documents or
other evidence of title.
The Local Manager may, where reasonable,
employ agents (including affiliates) to perform any
administrative, dealing or ancillary services required to
enable the Local Manager to perform its services under
this Agreement.
ARTICLE II
Allocation of Charges and Expenses
The Local Manager assumes and shall pay for
maintaining the staff and personnel necessary to perform
its obligations under this Agreement and shall at its own
expense provide the office space, equipment and facilities
which it is obligated to provide under Article I hereof.
ARTICLE III
Compensation of the Local Manager
For the services rendered, the facilities furnished
and expenses assumed by the Local Manager, the Adviser
shall pay to the Local Manager a fee with respect to each
Fund in an amount to be determined from time to time by
the Adviser and the Local Manager, but in no event in
excess of the amount that the Adviser actually received for
providing services to each such Fund pursuant to the
Advisory Agreement. The fee currently paid by the
Adviser to the Local Manager in respect to each Fund is
set forth on Schedule A, as may be amended from time to
time.
ARTICLE IV
Limitation of Liability of the Local Manager
No warranty is given by the Local Manager as to
the performance or profitability of any Fund or any part
thereof.
If a percentage restriction contained in a Fund's
investment objective(s) or investment restrictions (as the
same are set forth in the Fund's then-currently effective
Prospectus and Statement of Additional Information) is
adhered to at the time of investment, a later change in
percentage resulting from a change in values or assets will
not constitute a violation of such restriction.
The Local Manager will not be responsible to the
Adviser or a Fund for the solvency, actions or omissions of
any counterparty, broker, dealer, market-maker, bank,
custodian or sub-custodian, with whom it transacts
business on the Adviser's behalf, other than affiliates of
the Local Manager.
Nothing in this Agreement will exclude or restrict
any liability which the Local Manager has under the
Financial Services and Markets ▇▇▇ ▇▇▇▇ or the FCA
Rules in relation to the Adviser and which may not be
excluded or restricted thereunder.
The Local Manager shall not be liable for any
error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the
performance of investment advisory services rendered with
respect to a Fund, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by
reason of reckless disregard of its obligations and duties
hereunder. The exception in the previous sentence shall
apply to each limitation of the Local Manager's liability
contained in this Article IV. As used in this Article IV, the
Local Manager shall include any affiliates of the Local
Manager performing services for the Local Manager
contemplated hereby and directors, officers and employees
of the Local Manager and such affiliates.
It is understood and agreed that in furnishing the
investment advice and other services as herein provided,
the Local Manager shall use its best professional judgment
to perform its obligations hereunder which will provide
favorable results for each Fund. The Local Manager shall
not be liable to a Fund or to any shareholder of a Fund to
any greater degree than the Adviser, and the Adviser shall
indemnify and hold the Local Manager harmless against
any loss, liability or cost incurred by the Local Manager
towards each Fund or to any shareholder of a Fund except
to the extent that such loss, liability or cost arises from the
Local Manager's fraud, willful misfeasance, bad faith or
gross negligence in the performance of the Local
Manager's duties hereunder.
Each Fund shall be severally (and not jointly)
liable for its own fees, costs, expenses and other liabilities
attributable to such Fund, and no Fund shall be responsible
for any liabilities in connection with any other Fund.
ARTICLE V
Activities of the Local Manager
The services of the Local Manager to the Adviser
in connection with the operations of each Fund are not to
be deemed to be exclusive, the Local Manager and any
person controlled by or under common control with the
Local Manager (for purposes of this Article V referred to
as "affiliates") being free to render services to others. It is
understood that the Board and any officers, employees and
shareholders of a Fund are or may become interested in the
Local Manager and its affiliates, as directors, officers,
employees and shareholders or otherwise and that
directors, officers, employees and shareholders of the
Local Manager and its affiliates are or may become
similarly interested in a Fund, and that the Local Manager
and directors, officers, employees, partners and
shareholders of its affiliates may become interested in a
Fund as shareholders or otherwise.
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective with
respect to each Fund for an initial period of up to two years
from the effective date set forth opposite such Fund's
name on Schedule A hereto, and thereafter, but only so
long as such continuance is specifically approved at least
annually by (i) the Fund's Board or by the vote of a
majority of the outstanding voting securities of the Fund
and (ii) a majority of those Trustees/Directors of the Fund
who are not parties to this Agreement or interested persons
of any such party cast in person at a meeting called for the
purpose of voting on such approval.
This Agreement may be terminated at any time
with respect to a Fund, without the payment of any
penalty, by the Adviser, by the Board of that Fund, or by
vote of a majority of the outstanding voting securities of
such Fund, or by the Local Manager, on sixty days' written
notice to the other party. This Agreement shall
automatically terminate with respect to a Fund in the event
of its assignment or in the event of the termination of the
Advisory Agreement of such Fund. Any termination shall
be without prejudice to the completion of transactions
already initiated.
ARTICLE VII
Amendments to this Agreement
This Agreement may be amended with respect to a
Fund by the parties only if such amendment is specifically
approved by (i) the Fund's Board or by the vote of a
majority of outstanding voting securities of the Fund and
(ii) a majority of those Trustees/Directors of the Fund who
are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the
purpose of voting on such approval.
ARTICLE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding
voting securities," "assignment," "affiliated person" and
"interested person" used in this Agreement, shall have the
respective meanings specified in the Investment Company
Act and the rules and regulations thereunder, subject,
however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
ARTICLE IX
Governing Law
This Agreement shall be construed in accordance
with the laws of the State of New York and the applicable
provisions of the Investment Company Act. To the extent
that the applicable laws of the State of New York, or any
of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall
control.
ARTICLE X
Limited Liability
With respect to all Funds that are organized as
Massachusetts business trusts, as designated on Schedule
A, the Declaration of Trust, together with all amendments
thereto establishing each such Fund (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth
of Massachusetts, provides that the name of such Fund
refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no
Trustee, shareholder, officer, employee or agent of such
Fund shall be held to any personal liability, nor shall resort
be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the
affairs of such Fund, but such Fund only shall be liable.
IN WITNESS WHEREOF, the parties hereto have
executed and delivered this Agreement as of the date first
above written.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ INVESTMENT MANAGEMENT
INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇
Title: Managing Director
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ INVESTMENT MANAGEMENT
LIMITED
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Director
SCHEDULE A
As of April 28, 2014
All of the Funds referenced below are organized as
Massachusetts business trusts unless otherwise indicated.
Name of Fund
Effective Date
of Agreement
and any
amendments
entered into
prior to May
30, 2013
Fee
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ European
Equity Fund Inc.*
Effective Date:
07/31/11
The Adviser
will pay the
Local
Manager on
a monthly
basis an
aggregate
amount equal
to 50% of the
net advisory
fees the
Adviser
receives
from the
Fund during
such period,
after taking
into account
any fee
waivers.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Global
Fixed Income
Opportunities Fund
Effective Date:
07/31/11
The Adviser
will retain
50% of the
net advisory
fees it
receives
from the
Fund, after
taking into
account any
fee waivers.
The
remaining
50% will be
split between
the Adviser
and the Local
Manager,
and paid out
on a monthly
basis, based
on the
relative
percentage of
assets under
management
of the Fund
managed by
the Local
Manager and
the Adviser,
as may be
determined
periodically.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Global
Infrastructure Fund
Effective Date:
07/31/11
The Fund
may have
portfolio
managers
from one or
more sub-
advisers and
from the
Adviser.
The Adviser
will retain
50% of the
net advisory
fees it
receives
from the
Fund, after
taking into
account any
fee waivers.
The
remaining
50% will be
split between
the Adviser,
the Local
Manager and
any other
sub-adviser,
and paid out
on a monthly
basis, based
on the
relative
percentage of
assets under
management
of the Fund
managed by
the Local
Manager,
each other
sub-adviser
and the
Adviser, as
may be
determined
periodically.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Variable
Investment Series:
European Equity
Portfolio
Effective Date:
07/31/11
The Adviser
will pay the
Local
Manager on
a monthly
basis an
aggregate
amount equal
to 50% of the
net advisory
fees the
Adviser
receives
from the
Fund during
such period,
after taking
into account
any fee
waivers.
*Organized as a Maryland Corporation.
SUB-ADVISORY AGREEMENT
ANNEX
1. REGULATORY STATUS
The Local Manager is authorised and regulated by
the Financial Conduct Authority (the "FCA"), the
UK supervisory authority whose registered office
is at 25 The North Colonnade, Canary ▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇.
2. ORDER EXECUTION
The Local Manager acknowledges its duty under
the FCA Rules to take all reasonable steps to
obtain the best possible result for the Adviser
(taking into account the factors prescribed in the
FCA Rules) when executing orders resulting from
decisions to deal in designated investments (as
defined in the FCA Rules) and to act in
accordance with the Adviser's best interests when
placing orders in respect of designated investments
with other persons for execution or when receiving
and transmitting orders to other persons for
execution. Information concerning the Local
Manager's policy for meeting those obligations
(the "Order Execution Policy Disclosure
Statement") is included as Schedule 1. The
Adviser acknowledges receipt of the Order
Execution Policy Disclosure Statement and
confirms its consent to the matters described in it.
For the avoidance of doubt and as set out in the
Order Execution Policy Disclosure Statement, the
Adviser acknowledges that specific instructions
from the Adviser in relation to the execution of
orders may prevent the Local Manager from
following its execution policy in relation to such
orders in respect of the elements of execution
covered by the instructions.
The Local Manager will act in good faith and with
due diligence in its choice and use of brokers or
dealers ("Broker") to place client orders or
execute client transactions. Subject thereto and to
the FCA Rules, the Local Manager may execute or
arrange for the execution of transactions for the
Adviser on such markets or exchanges (including
markets or exchanges that are not Regulated
Markets or MTFs) and with or through such
Brokers (but excluding any Affiliate) as it thinks
fit. All transactions will be effected in accordance
with the rules and regulations of the relevant
market or exchange, and the Local Manager may
take all such steps as may be required or permitted
by such rules and regulations and/or by
appropriate market practice. For purposes of this
Agreement, "Multilateral Trading Facility" (also
"MTF") has the meaning given in the FCA Rules
(in summary, an investment exchange or
multilateral trading platform other than a
Regulated Market); and "Regulated Market" has
the meaning given in the FCA Rules (in summary,
an investment exchange or multilateral trading
platform which, in either case, is regulated within
the EEA as a "regulated market" under the
Markets in Financial Instruments Directive).
The Adviser expressly instructs the Local Manager
not to make public immediately any limit order
relating to transactions in respect of a Fund which
is not immediately executed under prevailing
market conditions where the Local Manager
believes it is in the Adviser's interests not to do so.
The Local Manager may aggregate transactions for
a Fund with transactions of other clients of the
Local Manager and of its employees and of clients
of its affiliate and its employees and will promptly
allocate such aggregated transactions among the
participating accounts on a fair and equitable basis
in accordance its order allocation policy
established in compliance with the requirements of
the FCA Rules. The Adviser recognises that the
Local Manager will aggregate transactions only
where it reasonably believes that it is likely that
the aggregation will operate overall to the
advantage of such Fund. However, on occasion
the aggregation may operate to the disadvantage of
a Fund in relation to a particular order. The Local
Manager will provide a copy of its order allocation
policy to the Adviser upon request.
3. DEALING ARRANGEMENTS
The Local Manager's policy regarding its Dealing
Arrangements, including details of the goods and
services that relate to the execution of trades and
those that relate to the provision of research are set
out in Schedule 2. The Local Manager shall
provide the Adviser with details of its Dealing
Arrangements with the frequency required by the
FCA Rules. For purposes of this Agreement,
"Dealing Arrangements" means arrangements
entered into by the Local Manager as permitted by
the FCA Rules for the receipt or payment of
money, goods or services that relate to the
execution of trades or the provision of research
under which the Local Manager executes or
arranges for the execution of orders in designated
investments.
4. MATERIAL INTERESTS
The Local Manager and any of its affiliates (an
"Affiliate") may, subject to the limitations of the
U.S. Investment Company Act of 1940, as
amended, and to the overriding principles of
suitability and best execution and without prior
reference to the Adviser, effect transactions in
which the Local Manager or Affiliate has, directly
or indirectly, a material interest or a relationship of
any description with another party, which may
involve a potential conflict with the Local
Manager's duty to the Adviser. Neither the Local
Manager nor any Affiliate shall be liable to
account to the Adviser for any profit, commission
or remuneration made or received from or by
reason of such transactions or any connected
transactions nor will the Local Manager's fees,
unless otherwise provided, be abated. For
example, such potential conflicting interests or
duties may arise because:
* any of the Local Manager's or Affiliate's
directors or employees is a director of,
holds or deals in securities of, or is
otherwise interested in any company
whose securities are held or dealt in on
behalf of the Adviser;
* the transaction is in the securities of a
company for which an Affiliate has
provided corporate finance advice,
underwritten, managed or arranged an
issue or offer for sale;
* the Local Manager may act as agent for
the Adviser in relation to transactions in
which it is also acting as agent for the
account of other clients and/or an
Affiliate;
* the transaction is in units or shares of a
collective investment scheme (regulated or
unregulated) of which the Local Manager
or any Affiliate is the manager, operator,
banker, adviser, custodian or trustee; or
* The Local Manager may act as agent for a
counterparty and also act as agent on
behalf of the Adviser and in the course of
so acting may charge a commission to
either the counterparty or the Adviser.
Nothing in the Agreement shall oblige the Local
Manager or any Affiliate to accept responsibilities
more extensive than those set out in the
Agreement or shall give rise to any fiduciary or
equitable duties which would prevent or hinder
either: (i) the Local Manager or any Affiliate
performing investment management or other
services for any person or entity other than the
Adviser or from making investments on their own
behalf and the performance of such services for
others or investment on their own behalf will not
be deemed to violate or give rise to any duty or
obligation to the Adviser; or (ii) the Local
Manager effecting any transaction with or for the
Adviser with an Affiliate; or (iii) such Affiliate
acting both as market-maker and broker, principal
or agent, dealing with other Affiliates and other
clients and generally effecting transactions as
provided above nor from retaining any
remuneration received in respect thereof.
5. RECORDS AND REPORTS
5.1 The Local Manager will keep accurate and
detailed records with respect to all receipts,
investments, sales, disbursements and other
transactions carried out by the Local Manager for
the Adviser or with a Fund.
5.2 All records held pursuant to this clause by the
Local Manager shall be open to inspection by the
Adviser or each Fund and the Local Manager will
provide the Adviser and each Fund with such
access as it itself has to records held by any
relevant third party, in each case at reasonable
times during business hours and upon the giving of
reasonable notice by the Adviser or a Fund.
5.3 The Local Manager shall, not later than 10
working days following the end of each calendar
month, furnish to the Adviser a statement showing
all transactions that have occurred in each Fund
and a monthly listing of all investments and cash
balances held as of the end of such month.
5.4 The monthly statement will show the cost or
amount realised (in the case of any relevant new
purchase or sale) and, where available, the current
value (where applicable) of each investment held
in each Fund and any income arising on each
Fund's account during the relevant calendar
month, and will also include a statement showing
the measure of the performance of the assets of
each Fund. The basis of all valuations will be as
stated in the first monthly statement, unless
otherwise agreed.
5.5 The Local Manager will not provide the Adviser
with an individual trade confirmation of each
portfolio transaction unless the Adviser has
specifically requested the Local Manager to do so.
6. FORCE MAJEURE
The Local Manager shall not be responsible or
liable to the Adviser or a Fund for any failure or
delay in the performance of its obligations under
this Agreement arising out of or caused, directly or
indirectly, by circumstances beyond its reasonable
control, including, without limitation, acts of God;
earthquakes; fires; floods; wars; civil or military
disturbances; sabotage; epidemics; riots;
interruptions, loss or malfunctions of utilities;
computer (hardware or software) or
communications services; accidents; labor
disputes; acts of civil or military authority or
governmental actions; it being understood that the
Local Manager shall use reasonable efforts which
are consistent with accepted practices in the
investment management industry to resume
performance as soon as practicable under the
circumstances.
7. COMPLAINTS
The Local Manager maintains procedures in
accordance with FCA Rules for the effective
consideration and handling of client complaints.
Complaints will be considered promptly by the
appropriate supervisory manager who is not
personally involved in the subject matter of the
complaint. Where appropriate, the complaint will
be passed to the Compliance Officer.
8. RECORDING OF TELEPHONE
INSTRUCTIONS
All instructions received from the Adviser by
telephone will be binding as if received in writing.
The Local Manager may record telephone
conversations with the Adviser and produce such
recordings in evidence if the Local Manager sees
fit to do so. In some circumstances, when the
Adviser is dealing with the Local Manager, data
may be collected about the Adviser and the
Adviser's officers or employees indirectly from
monitoring devices or other means (for example,
telephone logs and recordings). In these
circumstances, the data are not accessed on a
routine basis but access is possible. Access could
occur, for instance, in situations where the data are
needed to clarify or confirm instructions provided
by the Adviser, for compliance or billing purposes.
9. CONFIDENTIALITY AND DISCLOSURE
The Local Manager and the Adviser undertake to
keep private and confidential all information
acquired in connection with this Agreement, and
not to disclose such information to any person
except to the extent that:
(a) the other party gives prior consent; or
(b) the Local Manager is required to disclose
the information by the FCA, the Bank of
England, the London Stock Exchange or any
other recognised investment exchange, the
City Panel on Takeovers and Mergers or any
other regulatory authority having
jurisdiction over the Local Manager or the
performance by it of its obligations under
this Agreement or by English Law; or
(c) disclosure to a counterparty to a transaction
effected for a Fund is required as a
condition to such transaction; or
(d) disclosure is necessary to enable the Local
Manager to perform its obligations under
this Agreement.
10. DATA PROTECTION
10.1 The Local Manager will, in connection with the
Sub-Advisory Agreement, comply (where
applicable) with the UK Data Protection ▇▇▇ ▇▇▇▇
and other applicable data protection laws and
regulations (together, the "Data Protection
Laws").
10.2 The Adviser will comply (where applicable) with
the Data Protection Laws and (where applicable)
take all reasonable steps to ensure that it has
obtained all necessary consents for the Local
Manager to process any personal data for the
purposes of the Agreement.
11. RISK DISCLOSURE
11.1 The Adviser's attention is drawn to Schedule 3
which provides important information as to the
nature and risks of certain investments which may
comprise a Fund and a description of certain
provisions of the industry standard master
agreements and their consequences. The Adviser
represents and warrants to the Local Manager that
it has read, understood, and accepts the provisions
of Schedule 3.
Schedule 1
ORDER EXECUTION POLICY DISCLOSURE
STATEMENT
Transaction Execution Arrangements
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Investment Management Limited (the
"Local Manager") has established and implemented
transaction execution arrangements that are designed to
allow the Local Manager to take all reasonable steps to
obtain the best possible result when executing or placing
orders as portfolio manager on behalf of its clients in
relation to financial instruments that form part, or may
become part, of one or more investment portfolios
managed by the Local Manager for that or those clients
(each a "Transaction"). For the purposes of this
document: any reference to the Local Manager "executing
an order" is a reference to the Local Manager, as agent,
entering into a Transaction on behalf of a client with
another person that acts as principal to that Transaction,
any reference to the Local Manager "placing an order" is a
reference to the Local Manager, as agent, arranging for a
Transaction to be entered into by another person that acts
as agent on behalf of a client when entering into that
Transaction, and any reference to the Local Manager
"effecting a Transaction" is a reference to the Local
Manager either placing or executing an order.
As part of its transaction execution arrangements, the
Local Manager has an order execution policy in place that
is designed to ensure that the Local Manager complies
with its duty to obtain the best possible result when
effecting a Transaction for one or more clients (the
"Order Execution Policy").
This document is intended to provide the Local Manager's
clients with a summary of the Local Manager's Order
Execution Policy. Nothing herein is intended to place upon
the Local Manager fiduciary or other duties or
responsibilities over and above the specific obligations
provided for in the investment management agreement
between the Local Manager and a client.
The quality of execution
Where the Local Manager effects a Transaction for its
professional clients, subject to any specific instructions
received from a client, the Local Manager will determine
the best possible result taking the following factors into
account: (a) price; (b) costs; (c) speed; (d) likelihood of
execution or settlement; (e) size of the Transaction; (f)
nature of the Transaction; and (g) any other consideration
relevant to the Transaction, including availability of
liquidity, the impact on the market of the Transaction and
the Local Manager's operational costs.
Price is normally judged with reference to normal market
size for the relevant financial instrument. Where trades are
outside of normal market size and in sizeable volume or
made on an over the counter basis, it is not generally
possible to source a quote for price from Brokers because a
declaration of intention to deal could result in
market/security price sensitivity. As a result, the Local
Manager must then determine what is likely to be the best
execution venue without being able to get firm quotes, but
there can be no guarantee that it will be.
In certain circumstances, the relevant execution venue may
not be able to provide sufficient immediately available
liquidity to carry the contemplated Transaction out in full
at the time required. In addition, other circumstances may
dictate that the best immediately available price for a
Transaction may not be the best possible result for that
Transaction. Where, in the Local Manager's opinion,
those circumstances occur the Local Manager may need to
split the Transaction up into multiple Transactions with a
view to obtaining the best possible result in relation to the
original Transaction by completing that Transaction over a
period of time using a variety of execution venues.
The Local Manager will determine the relative importance
of each factor using the following criteria: (a) the
characteristics of the Adviser; (b) the characteristics and
nature of the Transaction, including whether any specific
instructions are given by the Adviser; (c) the
characteristics of the financial instruments that are the
subject of the Transaction; and (d) the characteristics of
the execution venues to which the Transaction can be
directed.
While the Local Manager will take all reasonable steps,
based on the resources available to it, to satisfy itself that it
has processes in place that can reasonably be expected to
lead to the delivery of the best possible result, the Local
Manager does not guarantee that it will always be able to
obtain the best possible result in relation to each
Transaction.
Specific Instructions
Where a client provides the Local Manager with a specific
instruction in relation to a proposed Transaction or any
particular aspect of that Transaction (including, but not
limited to, a direction to execute on a particular venue) the
Local Manager will effect that Transaction in accordance
with those instructions. Specific instructions may prevent
the Local Manager from following some or all of the steps
provided for in the Order Execution Policy which are
designed to obtain the best possible result in respect of the
elements covered by those instructions.
In following such instructions, the Local Manager will be
deemed to have taken all reasonable steps to provide the
best possible result in respect of the relevant Transaction
or aspect of that Transaction covered by the specific
instructions. To the extent that specific instructions are not
comprehensive, the Local Manager will determine any
non-specified components in accordance with its Order
Execution Policy.
Selection of Execution Venues
The Local Manager includes in its Order Execution Policy
those execution venues (sources of liquidity) that enable
the Local Manager to obtain on a consistent basis the best
possible result in relation to the Transactions. the Local
Manager may use one or more of the following venues
types: (a) Regulated Markets; (b) Multilateral Trading
Facilities; (c) Systematic Internalisers; (d) third party
investment firms; and/or (e) non-EU entities performing
similar functions. In this document, the terms "Regulated
Market", "Multilateral Trading Facility" and "Systematic
Internaliser" have the meaning given to them in the
Markets in Financial Instruments Directive.
Certain Transactions may be effected outside a Regulated
Market or a Multilateral Trading Facility where the Local
Manager believes it can achieve the best possible result by
doing so.
The Local Manager assesses product-by-product which
venues are likely to provide the best possible result, it also
monitors the execution of all Transactions on that venue if
an order has been placed with another person and keeps
informed of relevant market information. For certain
financial instruments, there may be only one execution
venue available and in such circumstances, the Local
Manager will presume that it has obtained the best possible
result if it effects a Transaction in that venue.
If a Transaction is effected by placing an order with
another person for execution, the Local Manager will
either determine the ultimate execution venue itself and
instruct the other person accordingly, or the Local
Manager will use all reasonable efforts to satisfy itself that
the other person has arrangements in place to enable the
Local Manager to comply with the Local Manager's
obligation to obtain the best possible result in relation to
the relevant Transaction.
Approval of brokers, monitoring and review
The Local Manager's Order Execution Policy provides for
a broker approval procedure. Apart from a broker's
commission/commission equivalent rates, the Local
Manager will consider the following matters when
selecting and approving a broker: (a) reliability, integrity
and reputation in the industry; (b) execution capabilities,
including block positioning, speed of execution and quality
and responsiveness of its trading desk; (c) knowledge of,
and access to, the markets for the securities being traded;
(d) ability to obtain price improvement; (e) ability to
maintain confidentiality; (f) ability to handle non-
traditional trades; (g) technology infrastructure; and (h)
clearance and settlement capabilities.
In addition, in certain circumstances and in some markets,
a broker's research capabilities may be considered relevant
factors in connection with the selection and approval of a
broker. This may include a broker's coverage of certain
industries in which the Local Manager may seek to invest
on behalf of its clients, the quality of the broker's research,
as well as the reputation and standing of the broker's
analysts, their investment strategies, timing, accuracy of
statistical information and idea generation.
The Local Manager monitors the quality of the execution
services provided by approved brokers and reviews each
broker's performance on a regular basis, taking the above
factors into account. the Local Manager meets with the
most significant brokers periodically to review the service
and performance levels provided.
Commission Rates
The Local Manager effects Transactions on the basis of
standard commission rates for specific markets. The rates
are negotiated from time to time with each broker to
ensure competitiveness, taking into account market trends
whilst seeking a commercial balance so as to ensure the
quality of services provided by the brokers.
Schedule 2
INFORMATION ABOUT ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
INVESTMENT MANAGEMENT LIMITED'S USE
OF DEALING COMMISSIONS AND ACCEPTANCE
OF NON-MONETARY BENEFITS FROM
BROKERS
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Investment Management Limited's use
of dealing commissions and non-monetary benefits
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Investment Management Limited (the
"Local Manager") will from time to time execute or place
orders with selected brokers as portfolio manager on
behalf of its professional clients in relation to financial
instruments that form part, or may become part, of one or
more investment portfolios managed by the Local
Manager for its clients (each so executed or placed order a
"Transaction").
Although the Local Manager's investment decisions and
the corresponding Transactions are primarily based upon
fundamental analysis and a variety of primary and
secondary information sources, external research and
market intelligence from analysts employed by the brokers
the Local Manager may engage to effect Transactions is
valuable in helping to make informed investment decisions
and in those circumstances, will enhance the quality of the
Fund management service provided by the Local Manager
to its clients. The available research covers sectors and
markets in detail and may generate and stimulate new
ideas and discussions. Some research services will be
produced for all clients of the relevant broker, but the
analysts may also provide research that has been tailored
to the Local Manager's specific request, including the
ability to discuss corporate developments in the immediate
aftermath of their announcement (together "Research
Services").
This document is intended to provide the Local Manager's
professional clients with information about the manner in
which the Local Manager, when effecting Transactions,
may make payments on behalf of its client to certain
providers of Research Services and about certain non-
monetary benefits that the Local Manager may receive
from certain brokers in the course of its dealings with such
brokers.
The conditions upon which dealing commissions will be
paid to providers of Research Services
The Local Manager will only make payments to a broker
in consideration of the provision of Research Services
when it is satisfied using its reasonable judgement that the
Research Services received in return for the payments will
reasonably assist the Local Manager in the provision of its
portfolio management services to the investment advisers
on whose behalf the relevant Transactions are being
effected and do not, and are not likely to, impair
compliance with the duty of the Local Manager to act in
the best interests of its clients (including, without
limitation, its obligation to take all reasonable steps to
obtain the best possible result when effecting a
Transaction).
The manner in which dealing commissions are paid to
providers of research services
If the conditions for payment have been satisfied, the
eligible providers of Research Services may be
remunerated for the provision of Research Services as part
of the Local Manager's commission sharing arrangements.
Under the commission sharing arrangements, the Local
Manager will instruct participating brokers to record a
certain portion of dealing commission that is received
pursuant to the completion of a Transaction, based upon a
previously agreed allocation, as research credits (each a
"Pool"). Each of the participating brokers has undertaken
to the Local Manager, periodically, subject to an
instruction from the Local Manager, to make payments
from their Pool to providers of Research Services
(including the administering broker itself) as the Local
Manager may specify in the instruction(s). Any balance
that may remain after allocation instructions have been
carried out will be carried forward to the next period.
The Local Manager allocates the Pools based on a periodic
assessment of the quality of the Research Services
provided to the Local Manager by the participating brokers
during that period. the Local Manager tends to consider,
without limitation, the quality of the analyst service, the
sales service, and the company meetings that have been
arranged with senior management of companies in which
the Local Manager invests for its clients. Decisions are
being taken based on a voting system in which the Local
Manager equity portfolio managers participate. As part of
a relationship management effort, the Local Manager
will meet periodically with those providers of Research
Services that the Local Manager deems most significant.
The conditions upon which the Local Manager
employees may accept non-monetary benefits from
brokers
The Local Manager's employees that interact with brokers
may from time to time receive certain non-monetary
benefits in the form of gifts. The Local Manager has
detailed compliance procedures relating to the standard of
conduct expected from employees in these circumstances
which are designed to achieve that receipt of such gifts
does not, and is not likely to, impair compliance with the
duty of the Local Manager and its employees to act in the
best interests of its clients. Most gifts are received during
the holiday season and depending on the number received
gifts are either put into a raffle or allocated between
employees. Employees are allowed to accept invitations to
attend sporting, artistic or entertainment events from
suppliers and counterparties in accordance with guidelines
and limits that are detailed in the policy.
Schedule 3
Information on the Nature and Risks of Certain
Investments
The information contained in this notice cannot disclose
everything about the nature and risks of all financial
instruments in each Fund. Rather it is a general description of
the nature and risks of financial instruments, which explains
the nature of the specific types of instruments which the
Adviser may include in each Fund's investment guidelines (the
"Investment Guidelines"), as well as the risks particular to
those instruments. The Adviser should not include these
financial instruments in the Investment Guidelines unless the
Adviser understand the nature of the financial instruments the
Adviser is permitting ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Investment Management
Limited (the "Local Manager") to enter into on the Adviser's
behalf and the extent of the Adviser's exposure to risk. The
Adviser should also be satisfied that such financial instruments
are suitable for each Fund in light of the Adviser's
circumstances and financial position. Certain strategies, such
as a spread position or "straddle", may be as risky as a simple
"long" or "short" position. While financial instruments can be
utilised for the management of investment risk, certain
financial instruments are unsuitable for certain investors.
Different financial instruments involve different levels of
exposure to risk, and in deciding whether to include such
instruments in the Investment Guidelines, the Adviser should
be aware of the following points.
1. GENERAL
1.1 Returns
The value of investments and the income from them may
fluctuate and go down as well as up. There is no guarantee
that the investment objective will actually be achieved or that
the Adviser will get back the amount initially invested. The
value of investments may be affected by a variety of factors,
including economic and political developments, interest rates
and foreign exchange rates, as well as issuer-specific events.
1.2 Currency Risk
Investments denominated in currencies other than the
Adviser's base currency carry the risk of exchange-rate
movements. A movement in exchange rates may have a
separate effect, unfavourable as well as favourable, on gains
and losses in a Fund. Hedging techniques may, in certain
circumstances, be limited or not be successful.
1.3 Investments which are not Readily Realisable
The market for some investments may be restricted or illiquid.
Subject to the Investment Guidelines, the Local Manager may
effect transactions in such investments for a Fund. There may
be no readily available market and from time to time there may
be difficulty in dealing in such investments or obtaining
reliable information about the value and extent of risks
associated with such investments.
2. EQUITY SECURITIES AND DEBT SECURITIES
Buying equity securities (the most common form of which are
shares) will mean that the Adviser will become a member of
the issuer company and participate fully in its economic risk.
Holding equity securities will generally entitle the Adviser to
receive any dividend distributed each year (if any) out of the
issuer's profits made during the reference period.
On the other hand, buying debt securities (such as bonds and
certificates of deposit) will mean that the Adviser is, in effect,
a lender to the company or entity that has issued the securities.
Holding debt securities will entitle the Adviser to receive
specified periodic interest payments, as well as repayment of
the principal at maturity.
Generally, holdings in equity securities will expose the
Adviser to more risk than debt securities since remuneration is
tied more closely to the profitability of the issuer. In the event
of insolvency of the issuer, the Adviser's claims for recovery
of the Adviser's equity investment in the issuer will generally
be subordinated to the claims of both preferred or secured
creditors and ordinary unsecured creditors of the issuer.
There is an extra risk of losing money when shares are bought
in some smaller companies, such as ▇▇▇▇▇ shares. There is a
usually big difference between the buying price and the selling
price of these shares. If they have to be sold immediately, the
Adviser may get back much less than was paid for them. The
price may change quickly and it may go down as well as up.
Holdings in debt securities, on the other hand, generally risk
not being remunerated only if the issuer is in a state of
financial distress. Moreover, in the event of insolvency of the
issuer, the Adviser is likely to be able to participate with other
creditors in the allotment of the proceeds from the sale of the
company's assets in priority to holders of equity securities.
If the Investment Guidelines allow the Local Manager to buy
equity or debt securities the Adviser will be exposed to both
the specific risks associated with individual securities held
(and the financial soundness of their issuers), as well as the
systemic risks of the equity and debt securities markets.
3. DERIVATIVES
3.1 Futures
Transactions in futures involve the obligation to make, or to
take, delivery of the underlying asset of the contract at a future
date, or in some cases to settle the Adviser's position with cash
from a Fund or elsewhere. Transactions in futures carry a high
degree of risk. The "gearing" or "leverage" often obtainable in
futures trading means that a small deposit or down payment
can lead to large losses as well as gains. It also means that a
relatively small market movement can lead to a
proportionately much larger movement in the value of the
Adviser's investment, and this can work against the Adviser as
well as for the Adviser. Futures transactions have a contingent
liability, and the Adviser should be aware of the implications
of this, in particular the margining requirements, which are
described in paragraph 7.2 below.
3.2 Options
There are many different types of options with different
characteristics subject to different conditions:
3.2.1 Buying Options:
Allowing the Local Manager to buy options involves less risk
than allowing the Local Manager to sell options because, if the
price of the underlying asset moves against the Adviser, the
Local Manager can simply allow the option to lapse. The
maximum loss is limited to the premium, plus any commission
or other transaction charges. However, if the Local Manager
buys a call option on a futures contract for the Adviser and
later exercises the option, the Adviser will acquire the future.
This will expose the Adviser to the risks described under
"futures" and "contingent liability transactions".
3.2.2 Writing Options:
If the Investment Guidelines allow the Local Manager to write
an option for the Adviser, the risk involved is considerably
greater than buying options. The Adviser may be liable for
margin to maintain its position and a loss may be sustained
well in excess of any premium received. By allowing the
Local Manager to write an option on the Adviser's behalf, the
Adviser accepts a legal obligation to purchase or sell the
underlying asset if the option is exercised against the Adviser,
however far the market price has moved away from the
exercise price. If the Adviser already owns the underlying
asset which the Local Manager has contracted on the Adviser's
behalf to sell as part of a Fund (known as "covered call
options") the risk is reduced. If the Adviser does not own the
underlying asset (known as "uncovered call options") the risk
can be unlimited. Only experienced persons should
contemplate authorising the Local Manager to write uncovered
options, and then only after securing full details of the
applicable conditions and potential risk exposure.
3.2.3 Traditional Options:
A particular type of option (called a "traditional option") is
written by certain London Stock Exchange firms under special
exchange rules. These may involve greater risk than other
options. Two way prices are not usually quoted and there is no
exchange market on which to close out an open position. It
may be difficult to assess the value of a traditional option or
for the seller of such an option to manage his exposure to risk.
Again, the Adviser should only provide for the Investment
Guidelines to permit the Local Manager to invest in
"traditional options" if the Adviser is fully aware of the risks
involved.
3.2.4 Margin:
Certain options markets operate on a margined basis, under
which buyers do not pay the full premium on their option at
the time they purchase it. In this situation a Fund (or the
Adviser if there are insufficient assets in the Fund) may
subsequently be called upon to pay margin on the option up to
the level of the Adviser's premium. If the Adviser fails to do
so as required, the Adviser's position may be closed or
liquidated in the same way as a futures position.
3.3 Contracts for Differences:
A contract for difference is a contract between two parties,
buyer and seller, stipulating that the seller will pay to the buyer
the difference between the current value of an asset and its
value at contract time. Contracts for differences allow
investors to take long or short positions, and unlike futures
contracts have no fixed expiry date or contract size. Trades are
conducted on a leveraged basis and these contracts can only be
settled in cash. Investing in a contract for differences carries
the same risks as investing in a future or option and the
Adviser should be aware of these as set out in paragraphs 3.1
and 3.2 respectively. Transactions in contracts for differences
may also have a contingent liability and the Adviser should be
aware of the implications of this as set out in paragraph 7.2
below. As with many leveraged products, maximum exposure
is not limited to the initial investment; it is possible to lose
more than one put in.
3.4 Off-Exchange Transactions in Derivatives:
It may not always be apparent whether or not a particular
derivative is on or off-exchange.
While some off-exchange markets are highly liquid,
transactions in off-exchange or non transferable derivatives
may involve greater risk than investing in on-exchange
derivatives because there is no exchange market on which to
close out an open position. It may be impossible to liquidate
an existing position, to assess the value of the position arising
from an off-exchange transaction or to assess the exposure to
risk. Bid and offer prices need not be quoted, and even where
they are, they will be established by dealers in these
instruments and consequently it may be difficult to establish
what a fair price is. The Adviser should only permit the Local
Manager in the Investment Guidelines to invest a Fund in off-
exchange derivatives transactions if the Adviser is fully aware
of the risks involved.
3.5 ISDA Master Agreement
Where the Adviser permits the Local Manager under the
Investment Guidelines to enter into derivative transactions,
these may be of the type that may be governed by the ISDA
Master Agreement. The ISDA Master Agreement is a standard
agreement commonly used in the derivatives market which
sets forth key provisions governing the contractual relationship
between the parties to such agreement, including each of their
rights, liabilities and obligations. If the Local Manager enters
into derivative transactions on the Adviser's behalf, the Local
Manager may also enter into a Credit Support Annex. The
Credit Support Annex is an annex to the ISDA Master
Agreement and is used to document bilateral credit support
arrangements between parties for transactions governed by an
ISDA Master Agreement.
On each date on which a derivatives transaction is entered into,
the Adviser will be deemed to have given various
representations and undertakings to each counterparty with
whom the Local Manager enters into an ISDA Master
Agreement on the Adviser's behalf.
In certain circumstances, the Adviser may be required to pay
an additional amount or receive a payment from which an
amount is required to be deducted or withheld, in each case in
respect of any deduction or withholding for on account of any
tax, or be required to pay any stamp tax levied or imposed in
respect of the execution or performance of the ISDA Master
Agreement.
Markets and exchanges require that anyone trading in
derivatives must advance collateral as security for initial and
variation margin requirements. The Local Manager has been
authorised to instruct the Adviser's custodian to advance cash
or other collateral acceptable to the counterparty or broker to
meet margin payments as required by the rules and regulations
of any market or exchange on which derivatives are dealt by
the Local Manager as the Adviser's agent. If, under the rules
and regulations of any exchange or market, adverse price
movements occur and margin calls are made and insufficient
funds are available in the Portfolio to meet such margin calls,
the Local Manager may request that the Adviser make
additional funds immediately available until assets can be
realised to cover the related margin call. If the Adviser fails to
makes such funds available, the Adviser's positions may be
closed out and liquidated, resulting in a loss to the Portfolio for
which the Local Manager shall not be liable.
4. WARRANTS
If the Investment Guidelines so permit, the Local Manager
may effect transactions in warrants for a Fund.
4.1 Warrants:
A warrant is a time-limited right to subscribe for shares,
debentures, loan stock or government securities, and is
exercisable against the original issuer of the securities.
Warrants often involve a high degree of gearing, so that a
relatively small movement in the price of the underlying
security results in a disproportionately large movement,
favourable or unfavourable in the price of the warrant. The
prices of warrants can therefore be volatile. The Adviser
should not include warrants in the Investment Guidelines
unless the Adviser is prepared for a Fund to sustain a total loss
of the money the Adviser has invested plus any commission or
other transaction charges. Some other instruments are also
called warrants but are actually options (for example, a right to
acquire securities which is exercisable against someone other
than the original issuer of the securities, often called a
"covered warrant").
If the Adviser is considering including warrants in the
Investment Guidelines, it is essential to understand that the
right to subscribe which a warrant confers is invariably limited
in time. Therefore, if the Adviser fails to exercise this right
within the pre-determined time scale, the investment becomes
worthless.
4.2 Off-Exchange Transactions:
Transactions in off-exchange warrants may involve greater risk
than dealing in exchange traded warrants because there is no
exchange market through which to liquidate the Adviser's
position or to assess the value of the warrant or the exposure to
risk. Bid and offer prices need not be quoted, and even where
they are, they will be established by dealers in these
instruments and consequently it may be difficult to establish
what a fair price is. The Adviser should only permit the Local
Manager in the Investment Guidelines to invest a Fund in off-
exchange warrants if the Adviser is fully aware of the risks
involved.
5. COLLECTIVE INVESTMENT SCHEMES
Collective investment schemes (such as investment funds and
open-ended investment companies) invest funds paid by
purchasers of units or shares in the collective investment
scheme in the various types of asset provided for in their rules
or investment plans. As such, collective investment schemes
generally allow unit holders and shareholders to achieve a high
degree of diversification at a relatively low cost. Open-ended
investment funds, for example, allow savers to invest or
disinvest by buying or selling fund units on the basis of the
value of a unit, plus or minus relevant commissions (the value
of the unit being obtained by dividing the value of the entire
portfolio managed by a Fund, calculated at market prices, by
the number of units in circulation).
Allowing the Local Manager to purchase units or shares in a
collective investment scheme will expose the Adviser to the
risks associated with the nature of the financial instruments in
which the collective investment scheme invests and, where
relevant, their concentration in a particular sector, country,
region or asset class. Before allowing the Local Manager to
invest in collective investment schemes, the Adviser should
make itself fully aware of the risks associated with collective
investment schemes, including without limitation, the general
risks identified in paragraph 1 above.
6. EXCHANGE TRADED FUNDS
Exchange traded funds ("ETFs") are closed-ended collective
investment schemes, traded as shares on stock exchanges, and
typically replicate a stock market index, market sector,
commodity or basket of assets. As such, they generally
combine the flexibility and tradeability of a share with the
diversification of a collective investment scheme. Where the
Investment Guidelines permit the Local Manager to purchase
ETFs, the Adviser will be exposed to similar risks as detailed
in respect of equity securities and collective investment
schemes, as well as the general risks detailed in paragraph 1.
7. MISCELLANEOUS
7.1 Overseas Markets:
Overseas markets may involve different risks to the Adviser's
home markets. In some cases the risks will be greater. In
drafting the Investment Guidelines to permit the Local
Manager to invest in overseas markets the Adviser should
make itself fully aware of the risks and protections (if any)
which will operate in any relevant overseas markets. The
potential for profit or loss from transactions on overseas
markets or in contracts denominated other than in a Fund's
base currency will be affected by fluctuations in overseas
exchange rates against the Fund's base currency.
7.2 Contingent Liability Investments:
Contingent liability investments are derivatives under the
terms of which the Client will or may be liable to make further
payments (other than charges, and whether or not secured by
margin) when the transaction falls to be completed or upon the
earlier closing out of the Adviser's position. Contingent
liability investments which are margined require a Fund (or the
Adviser if there are insufficient assets in the Fund) to make a
series of payments against the purchase price, instead of
paying the whole purchase price immediately.
If the Adviser permits the Local Manager, as part of the
Investment Guidelines, to trade for a Fund in futures, contracts
for differences or write or otherwise deal on margin in options
for the Fund, the Adviser may sustain a total loss of the margin
which the Local Manager, on the Adviser's behalf, deposits
with a broker to establish or maintain a position. If the market
moves against the Adviser, the Adviser may be called upon to
pay out of the Fund (or the Adviser's other assets if there are
insufficient assets in the Fund) substantial additional margin at
short notice to maintain the position. If the Adviser fails to do
so within the time required, the Adviser's position may be
liquidated at a loss and the Adviser will be liable for any
resulting deficit.
Even if a transaction is not margined, it may still carry an
obligation to make further payments in certain circumstances
over and above any amount paid when the contract was
entered into. Contingent liability investments which are not
traded on or under the rules of a regulated market may expose
the Adviser and the Fund to substantially greater risks.
7.3 Collateral:
If the Adviser permits the Local Manager as part of the
Investment Guidelines to enter into transactions which require
the Adviser to deposit collateral as security with a broker, the
way in which such collateral will be treated will vary
according to the type of transaction and where it is traded.
There could be significant differences in the treatment of the
Adviser's collateral depending on whether the trading is on a
regulated market, with the rules of that market (and associated
clearing house) applying, or is off-exchange. Deposited
collateral may lose its identity as the Adviser's property once
dealings on the Adviser's behalf are undertaken. Even if the
Adviser's dealings should ultimately prove profitable, the
Adviser may not get back the same assets which the Local
Manager deposited on the Adviser's behalf and may have to
accept payment in cash.
7.4 Commissions:
The Adviser is liable for all commissions and it may be the
case that charges are not expressed in money terms (but for
example, as a percentage of contract value). In the case of
futures, when commission is charged as a percentage, it will
normally be as a percentage of the total contract value, and not
simply as a percentage of the Adviser's initial payment.
7.5 Suspensions of Trading:
Under certain trading conditions or the application of certain
rules in force in some markets (such as circuit breakers) it may
be difficult or impossible for the Local Manager to liquidate a
position held for the Adviser. This may occur, for example, at
times of rapid price movement if the price of an investment
rises or falls in one trading session to such an extent that under
the rules of the relevant exchange trading of that investment is
suspended or restricted. Further, the Local Manager placing a
stop-loss order on the Adviser's behalf will not necessarily
limit losses to the intended amounts because market conditions
may make it impossible to execute such an order at the
stipulated price. Most electronic and auction trading systems
are supported by computerised systems for order routing and
trade checking, recording and clearing. Like all automated
procedures, these systems are subject to the risk of stoppages
and malfunctions, which may result in the Adviser's orders not
being executed in accordance with the Local Manager's
instructions or remaining unexecuted.
7.6 Clearing House Protections:
On many exchanges, the performance of a transaction by a
broker (or the third party with whom he is dealing on the
Adviser's behalf) is "guaranteed" by the exchange or its
clearing house. However, this guarantee is unlikely in most
circumstances to cover the Adviser and may not protect the
Adviser if the broker or another party defaults on its
obligations to the Adviser. There is no clearing house for
traditional options, nor normally for instruments which are not
traded under the rules of a recognised or designated investment
exchange.
7.7 Insolvency:
A derivative broker's insolvency or default, or that of any
other brokers involved with the Adviser's transaction, may
lead to positions being liquidated or closed out without the
Adviser's or the Local Manager's consent or knowledge. In
certain circumstances, the Adviser may not get back the actual
assets which the Adviser lodged as collateral and the Adviser
may have to accept any available payment in cash.
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Sch. A-3
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Sch. A-1
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Annex-3
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Annex-1
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Sch. 1-3
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Sch. 3-1
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