AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
AGREEMENT made as of the 30th day of June, 2009, by and between ▇▇▇▇▇▇
▇▇▇▇▇▇▇ INVESTMENT MANAGEMENT INC., a Delaware corporation (hereinafter referred
to as the "INVESTMENT ADVISER"), and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ INVESTMENT MANAGEMENT
LIMITED, a company incorporated under the laws of England (hereinafter referred
to as the "LOCAL MANAGER").
WITNESSTETH:
WHEREAS, The Latin American Discovery Fund, Inc. (the "FUND") is a Maryland
corporation engaged in business as a closed-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 Investment 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 Services Authority
in the United Kingdom; and
WHEREAS, the Investment Adviser has entered into an investment advisory
agreement (the "ADVISORY AGREEMENT") with the Fund dated June 16, 1992, pursuant
to which the Investment Adviser provides management and investment and advisory
services to the Fund; and
WHEREAS, the Investment Adviser entered into an investment sub-advisory
agreement with the Local Manager with respect to the Fund, effective as of
October 27, 2005 (the "CURRENT SUB-ADVISORY AGREEMENT"); and
WHEREAS, as of June 30, 2009, the Current Sub-Advisory Agreement is hereby
amended and restated (this "AGREEMENT") to incorporate amendments thereto and to
make other ministerial changes designed to facilitate the administration of this
Agreement; and
WHEREAS, the Local Manager is willing to provide investment advisory
services to the Investment Adviser in connection with the Fund's operations 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 Investment Adviser hereby agree
as follows:
ARTICLE I
Duties of the Local Manager
The Investment Adviser hereby employs the Local Manager to act as
discretionary investment manager to the Investment Adviser and to furnish the
investment management services described below, subject to the broad supervision
of the Investment Adviser and the Board of Directors of the Fund (the "BOARD OF
DIRECTORS" or the "DIRECTORS"), 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
AMR #196175-v2A
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 Investment 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 Services Authority (hereinafter referred to as the
"FSA RULES"). The Investment 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 Investment
Adviser should be aware that professional clients will not be entitled to
certain protections afforded by the FSA Rules to retail clients. For the
avoidance of doubt, the Local Manager will, for purposes of the FSA Rules, only
treat the Investment Adviser (but not the 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 the Fund in any way or otherwise be deemed an agent of the
Fund.
The Local Manager shall have full discretion, power and authority on the
Fund's behalf 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 the 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 the 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 the Fund shall be exercised. All of the foregoing is
subject always to the restrictions of the Articles of Incorporation and By-Laws
of the Fund, as they may be amended and/or restated from time to time and as
provided to the Local Manager by the Investment Adviser, the provisions of the
Investment Company Act and the statements relating to the Fund's investment
objective(s), investment policies and investment restrictions as the same are
set forth in the then-currently effective prospectus, if any, relating to the
shares of the Fund under the Securities Act of 1933, as amended (the
"PROSPECTUS"), or such other applicable disclosure document, as well as to the
supervision of the Investment Adviser and the Board of Directors of the Fund.
The Local Manager will not hold money on behalf of the Investment Adviser
or the Fund, nor will the Local Manager be the registered holder of the
registered investments of the Investment Adviser or the 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.
2
ARTICLE III
Compensation of the Local Manager
For the services rendered, the facilities furnished and expenses assumed by
the Local Manager, the Investment Adviser shall pay to the Local Manager a fee
in an amount to be determined from time to time by the Investment Adviser and
the Local Manager but in no event in excess of the amount that the Investment
Adviser actually received for providing services to the Fund pursuant to the
Advisory Agreement. The fee currently paid by the Investment Adviser to the
Local Manager 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 the Fund or any part thereof.
If a percentage restriction contained in the Fund's investment objective(s)
or investment restrictions (as the same are set forth in the Fund's
then-currently effective Prospectus or such other applicable disclosure
document) 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 Investment Adviser or the
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 Investment 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 ▇▇▇ ▇▇▇▇, FSA Rules
or Regulatory System (as defined by FSA Rules) in relation to the Investment
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 the
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 the Fund. The Local Manager shall not be liable to the
Fund or to any shareholder of the Fund to any greater degree than the Investment
Adviser, and the Investment Adviser shall indemnify and hold the Local Manager
harmless against any loss, liability or cost incurred by the Local Manager
towards the Fund or to any shareholder of the 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.
3
ARTICLE V
Activities of the Local Manager
The services of the Local Manager to the Investment Adviser in connection
with the operations of the 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 Directors and any
officers, employees and shareholders of the 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 the Fund, and that the Local Manager and directors, officers,
employees, partners and shareholders of its affiliates may become interested in
the Fund as shareholders or otherwise.
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective with respect to the Fund for an
initial period of up to two years from the effective date set forth opposite the
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 Board of
Directors or by the vote of a majority of the outstanding voting securities of
the Fund and (ii) a majority of those Directors 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, without the payment of any
penalty, by the Investment Adviser, by the Board of Directors of the Fund or by
vote of a majority of the outstanding voting securities of the Fund, or by the
Local Manager, on sixty days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment or in the event of
the termination of the Advisory Agreement. Any termination shall be without
prejudice to the completion of transactions already initiated.
ARTICLE VII
Amendments to this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the Directors of the Fund or by the vote of a
majority of outstanding voting securities of the Fund and (ii) a majority of
those Directors 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.
4
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.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ INVESTMENT MANAGEMENT
INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ INVESTMENT MANAGEMENT
LIMITED
By: /s/ ▇▇▇▇▇▇ Onslow
------------------------------------
Name: ▇▇▇▇▇▇ Onslow
Title: Director
5
SCHEDULE A
AS OF JUNE 30, 2009
EFFECTIVE DATE OF AGREEMENT AND
ANY AMENDMENTS ENTERED INTO
NAME OF FUND PRIOR TO JUNE 30, 2009 FEE
------------ ------------------------------- -------------------------------
The Latin American Discovery Effective Date: 10/27/05 The Investment Adviser will pay
Fund, Inc. Amendments: 04/25/06 the Local Manager on a monthly
basis an aggregate amount equal
to 54% of the net advisory fees
the Investment Adviser receives
from the Fund during such
period, after taking into
account any fee waivers.
Sch. A-1
SUB-ADVISORY AGREEMENT
ANNEX
1. REGULATORY STATUS
The Local Manager is authorised and regulated by the Financial Services
Authority (the "FSA"), 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 FSA Rules to take all
reasonable steps to obtain the best possible result for the Investment
Adviser (taking into account the factors prescribed in the FSA Rules) when
executing orders resulting from decisions to deal in designated investments
(as defined in the FSA Rules) and to act in accordance with the Investment
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
Investment 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 Investment Adviser acknowledges that specific
instructions from the Investment 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 FSA Rules, the
Local Manager may execute or arrange for the execution of transactions for
the Investment 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 FSA Rules (in
summary, an investment exchange or multilateral trading platform other than
a Regulated Market); and "Regulated Market" has the meaning given in the
FSA 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 Investment Adviser expressly instructs the Local Manager not to make
public immediately any limit order relating to transactions in respect of
the Fund which is not immediately executed under prevailing market
conditions where the Local Manager believes it is in the Investment
Adviser's interests not to do so.
The Local Manager may aggregate transactions for the Fund with transactions
of other clients of the Local Manager and of its employees and of clients
of its affiliate and its
Annex-1
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 FSA Rules. The Investment 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 the
Fund. However, on occasion the aggregation may operate to the disadvantage
of the Fund in relation to a particular order. The Local Manager will
provide a copy of its order allocation policy to the Investment 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 Investment Adviser with details of
its Dealing Arrangements with the frequency required by the FSA Rules. For
purposes of this Agreement, "Dealing Arrangements" means arrangements
entered into by the Local Manager as permitted by the FSA 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 Investment 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
Investment Adviser. Neither the Local Manager nor any Affiliate shall be
liable to account to the Investment 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 Investment 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 Investment 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
Annex-2
- The Local Manager may act as agent for a counterparty and also
act as agent on behalf of the Investment Adviser and in the
course of so acting may charge a commission to either the
counterparty or the Investment 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 Investment 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 Investment Adviser; or (ii) the Local Manager effecting any
transaction with or for the Investment 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 Investment Adviser or with the
Fund.
5.2 All records held pursuant to this clause by the Local Manager shall be open
to inspection by the Investment Adviser or the Fund and the Local Manager
will provide the Investment Adviser and the 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 Investment Adviser or the Fund.
5.3 The Local Manager shall, not later than 10 working days following the end
of each calendar month, furnish to the Investment Adviser a statement
showing all transactions that have occurred in the 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 the Fund and any income
arising on the Fund's account during the relevant calendar month, and will
also include a statement showing the measure of the performance of the
assets of the 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 Investment Adviser with an
individual trade confirmation of each portfolio transaction unless the
Investment Adviser has specifically requested the Local Manager to do so.
6. FORCE MAJEURE
The Local Manager shall not be responsible or liable to the Investment
Adviser or the 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
Annex-3
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 FSA 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 Investment Adviser by telephone will be
binding as if received in writing. The Local Manager may record telephone
conversations with the Investment Adviser and produce such recordings in
evidence if the Local Manager sees fit to do so. In some circumstances,
when the Investment Adviser is dealing with the Local Manager, data may be
collected about the Investment Adviser and the Investment 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 Investment Adviser, for
compliance or billing purposes.
9. CONFIDENTIALITY AND DISCLOSURE
The Local Manager and the Investment 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 FSA,
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 the 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.
Annex-4
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 Investment 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 Investment Adviser's attention is drawn to Schedule 3 which provides
important information as to the nature and risks of certain investments
which may comprise the Fund and a description of certain provisions of the
industry standard master agreements and their consequences. The Investment
Adviser represents and warrants to the Local Manager that it has read,
understood, and accepts the provisions of Schedule 3.
Annex-5
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
Sch. 1-1
variety of execution venues.
The Local Manager will determine the relative importance of each factor using
the following criteria: (a) the characteristics of the Investment Adviser; (b)
the characteristics and nature of the Transaction, including whether any
specific instructions are given by the Investment 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.
Sch. 1-2
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.
Sch. 1-3
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
Sch. 2-1
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.
Sch. 2-2
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 the 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 Investment
Adviser may include in the Fund's investment guidelines (the "INVESTMENT
GUIDELINES"), as well as the risks particular to those instruments. The
Investment Adviser should not include these financial instruments in the
Investment Guidelines unless the Investment Adviser understand the nature of the
financial instruments the Investment Adviser is permitting ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Investment Management Limited (the "LOCAL MANAGER") to enter into on the
Investment Adviser's behalf and the extent of the Investment Adviser's exposure
to risk. The Investment Adviser should also be satisfied that such financial
instruments are suitable for the Fund in light of the Investment 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 Investment 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 Investment 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 Investment 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 the 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 the 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 Investment Adviser will become a member of the issuer company and
participate fully in its economic risk. Holding equity securities will generally
entitle the Investment Adviser to receive
Sch. 3-1
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 Investment Adviser is, in effect, a lender to the
company or entity that has issued the securities. Holding debt securities will
entitle the Investment Adviser to receive specified periodic interest payments,
as well as repayment of the principal at maturity.
Generally, holdings in equity securities will expose the Investment 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
Investment Adviser's claims for recovery of the Investment 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 Investment 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 Investment 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 Investment 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 Investment Adviser's position with cash from the 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 Investment Adviser's investment, and this can work
against the Investment Adviser as well as for the Investment Adviser. Futures
transactions have a contingent liability, and the Investment 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:
Sch. 3-2
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 Investment 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 Investment Adviser and later exercises the option,
the Investment Adviser will acquire the future. This will expose the Investment
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 Investment Adviser, the risk involved is considerably greater than buying
options. The Investment 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 Investment Adviser's
behalf, the Investment Adviser accepts a legal obligation to purchase or sell
the underlying asset if the option is exercised against the Investment Adviser,
however far the market price has moved away from the exercise price. If the
Investment Adviser already owns the underlying asset which the Local Manager has
contracted on the Investment Adviser's behalf to sell as part of the Fund (known
as "covered call options") the risk is reduced. If the Investment 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 Investment Adviser
should only provide for the Investment Guidelines to permit the Local Manager to
invest in "traditional options" if the Investment 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 the Fund (or the Investment 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 Investment Adviser's premium. If the Investment Adviser fails
to do so as required, the Investment 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
Sch. 3-3
differences carries the same risks as investing in a future or option and the
Investment 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 Investment 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 Investment Adviser should only permit the Local Manager in
the Investment Guidelines to invest the Fund in off-exchange derivatives
transactions if the Investment Adviser is fully aware of the risks involved.
3.5 ISDA MASTER AGREEMENT
Where the Investment 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 Investment 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
Investment 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 Investment Adviser's behalf.
In certain circumstances, the Investment 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 Investment 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
Investment Adviser's agent. If, under the rules and regulations of any exchange
or market, adverse price
Sch. 3-4
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 Investment Adviser make additional funds immediately available until assets
can be realised to cover the related margin call. If the Investment Adviser
fails to makes such funds available, the Investment 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 the 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 Investment
Adviser should not include warrants in the Investment Guidelines unless the
Investment Adviser is prepared for the Fund to sustain a total loss of the money
the Investment 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 Investment 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
Investment 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 Investment 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
Investment Adviser should only permit the Local Manager in the Investment
Guidelines to invest the Fund in off-exchange warrants if the Investment 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 the Fund,
calculated at market prices, by the number of units in circulation).
Sch. 3-5
Allowing the Local Manager to purchase units or shares in a collective
investment scheme will expose the Investment 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 Investment 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 Investment 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 Investment 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 Investment 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 the 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 Investment Adviser's position. Contingent
liability investments which are margined require the Fund (or the Investment
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 Investment Adviser permits the Local Manager, as part of the
Investment Guidelines, to trade for the Fund in futures, contracts for
differences or write or otherwise deal on margin in options for the Fund, the
Investment Adviser may sustain a total loss of the margin which the Local
Manager, on the Investment Adviser's behalf, deposits with a broker to establish
or maintain a position. If the market moves against the Investment Adviser, the
Investment Adviser may be called upon to pay out of the Fund (or the Investment
Adviser's other assets if there are insufficient assets in the Fund) substantial
additional margin at short notice to maintain the position. If the Investment
Adviser fails to do so within the time required, the Investment Adviser's
position may be liquidated at a loss and the Investment 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
Sch. 3-6
entered into. Contingent liability investments which are not traded on or under
the rules of a regulated market may expose the Investment Adviser and the Fund
to substantially greater risks.
7.3 COLLATERAL:
If the Investment Adviser permits the Local Manager as part of the
Investment Guidelines to enter into transactions which require the Investment
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 Investment 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
Investment Adviser's property once dealings on the Investment Adviser's behalf
are undertaken. Even if the Investment Adviser's dealings should ultimately
prove profitable, the Investment Adviser may not get back the same assets which
the Local Manager deposited on the Investment Adviser's behalf and may have to
accept payment in cash.
7.4 COMMISSIONS:
The Investment 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 Investment 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 Investment
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 Investment 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
Investment 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 Investment Adviser's behalf) is
"guaranteed" by the exchange or its clearing house. However, this guarantee is
unlikely in most circumstances to cover the Investment Adviser and may not
protect the Investment Adviser if the broker or another party defaults on its
obligations to the Investment 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
Sch. 3-7
Investment Adviser's transaction, may lead to positions being liquidated or
closed out without the Investment Adviser's or the Local Manager's consent or
knowledge. In certain circumstances, the Investment Adviser may not get back the
actual assets which the Investment Adviser lodged as collateral and the
Investment Adviser may have to accept any available payment in cash.
Sch. 3-8