INVESTMENT SUB-ADVISORY AGREEMENT
INVESTMENT SUB-ADVISORY AGREEMENT, dated February 25, 1997, between The
Westwood Funds on behalf of the Westwood Realty Fund and the Westwood SmallCap
Equity Fund (the "Trust" and the "Funds", respectively), a Massachusetts
business trust, for purposes of section 5 only, and Teton Advisers, LLC (the
"Adviser"), a Texas limited liability company and Westwood Management Corp. (the
Sub-Adviser").
Whereas the Adviser has been appointed investment adviser to the Trust
and pursuant to such appointment desires to appoint the Sub-Adviser as its
subadviser; and whereas the Sub-Adviser desires to be so appointed;
In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is agreed by and between the parties hereto as follows:
1. In General
The Sub-Adviser agrees, all as more fully set forth herein, to act as
investment adviser to the Trust with respect to the investment of the assets of
the Trust allocated to the Funds and to supervise and arrange the purchase and
sale of assets held in the investment portfolios of the Funds.
2. Duties and obligations of the Sub-Adviser with
respect to investments of assets of the Funds.
(a) Subject to the succeeding provisions of this paragraph and
subject to the direction and control of the Trust's Adviser's, the Sub-Adviser
shall (i) act as Investment adviser for and supervise and manage the investment
and reinvestment of each Fund's assets and in connection therewith have complete
discretion in purchasing and selling securities and other assets for the Funds
and in voting, exercising consents and exercising all other rights appertaining
to such securities and other assets on behalf of the Funds and (ii) arrange for
the purchase and sale of securities and other assets held in the investment
portfolio of each Fund.
(b) The specific services to be provided or arranged for by the
Sub-Adviser for the Funds are to supervise the calculation of the net asset
value of each Fund's shares.
(c) In the performance of its duties under this Agreement, the
Sub-Adviser shall at all times use all reasonable efforts to conform to, and act
in accordance with, any requirements imposed by (i) the provisions of the
Investment Trust Act of 1940 (the "Act"), and of any rules or regulations in
force thereunder; (ii) any other applicable provision of law; (iii) the
provisions of the articles of Incorporation and By-Laws of the Trust, as such
documents are amended from time to time; (iv) the investment objective, policies
and restrictions applicable to the Funds as set for the in the Trust's
Registration Statement on Form N-1A and (v) any policies and determinations of
the Board of Trustees of the Trust with respect to the Funds.
(d) The Sub-Adviser will seek to provide qualified personnel to
fulfill its duties hereunder and will bear all costs and expenses (including any
overhead and personnel costs) incurred in connection with its duties hereunder
and shall bear the costs of any salaries or trustees fees of any officers or
trustees of the Trust who are affiliated person (as defined in the Act) of the
Sub-Adviser. If in any fiscal year any Fund's aggregate expenses (excluding
interest, taxed, distribution expenses, brokerage commissions and extraordinary
expenses) exceed the most restrictive expense limitation imposed by the
securities law of any state in which the shares of that Fund are registered or
qualified for sale, the Sub-Adviser will reimburse the Trust for the amount of
such excess up to the amount of fees accrued for such
fiscal year hereunder. The amount of such reimbursement shall be calculated
monthly and an appropriate amount shall be held back or released to the Adviser
each month so that the aggregate amount held back at any particular time shall
equal the net amount of the reimbursement on a cumulative year-to-date basis. As
of the end of the year the final amount of the total reimbursement shall be
calculated and the appropriate amount released to the Funds or the Sub-Adviser
or paid to the Funds by the Sub-Adviser.
(e) The Sub-Adviser shall give the Funds the benefit of its best
judgment and effort in rendering services hereunder, but neither the Sub-Adviser
nor any of its officers, trustees, employees, agents or controlling persons
shall be liable for any act or omission or for any loss sustained by the Funds
in connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement; provided, however, that the
foregoing shall not constitute a waiver of any rights which the Trust may have
which may not be waived under applicable law.
(f) Nothing in this Agreement shall prevent the Sub-Adviser or any
trustee, officer, employee or other affiliate thereof from acting as investment
adviser for any other person, firm or corporation, or from engaging in any other
lawful activity, and shall not in any way limit or restrict the Sub-Adviser or
any of its trustees, officers, employees or agents from buying, selling or
trading any securities for its or their own accounts or for the accounts of
others for whom it or they may be acting, provided that, for the term of this
agreement, the Sub-Adviser will not act as investment adviser to any investment
companies other than the Trust.
3. Portfolio Transactions
In the course of the Sub-Adviser's execution of portfolio transactions
for the Funds, it is agreed that the Sub-Adviser shall employ securities brokers
and dealers which, in its judgment, will be able to satisfy the policy of the
Funds to seek the best execution of its portfolio transactions at reasonable
expenses. For purposes of this agreement, "best execution" shall mean prompt,
efficient and reliable execution at the most favorable price obtainable. Under
such conditions as ma be specified by the Trust's Board of Trustees in the
interest of its shareholders and to ensure compliance with applicable law and
regulations, the Sub-Adviser may (a) place orders for the purchase or sale of
each Fund's portfolio with the Adviser's affiliate, Gabelli & Company, Inc. or
its affiliates, Southwest Securities Inc. or their affiliated entities pursuant
to procedures under 17e-1; (b) pay commissions to broker other than its
affiliates which are higher than might be charged by another qualified broker to
obtain brokerage and /or research services considered by the Sub-Adviser to be
useful or desirable in the performance of its duties hereunder and for the
investment management of other advisory accounts over which it or its affiliates
exercise investment discretion; and (c) consider sales by brokers (other than
its affiliated distributor) of shares of the Funds and any other mutual fund for
which it or its affiliates act as investment adviser, as a factor in its
selection of brokers and dealers for each Fund's portfolio transactions.
4. Compensation of the Sub-Adviser
(a) The Adviser agrees to pay to the Sub-Adviser out of its advisory
fees with respect to the Funds, which advisory fees may be paid to the
Sub-Adviser directly by the Trust at the Adviser's request, and the Sub-Adviser
agrees to accept as full compensation for all services rendered by or through
the Sub-Adviser a fee computed daily and payable monthly in an amount equal on
an annualized basis to the greater of (i) $150,000 per year on an aggregate
basis for all the Funds or (ii) 35% of the net revenues to the Advisers from the
Funds; net revenues are gross revenues less administrative and marketing fees at
an annual rate of .20% of each Funds average net assets; gross revenues equal to
all advisory and administrative fees paid to the Adviser. For any period of less
than a month during which this Agreement is in effect, the fee shall be prorated
according to the proportion which such period bears to a full month of 28, 29,
30, or 31 days, as the case may be.
2
(b) For purposes of this Agreement, the net assets of the Fund shall
be calculated pursuant to the procedures adopted by resolutions of the Trustees
of the Trust for calculating the net asset value of each Fund's shares.
5. Indemnity
(a) The Trust hereby agrees to indemnify the Sub-Adviser and each of
the Sub-Adviser's subadvisers, trustees, officers, employees, and agents
(including any individual who serve at the Adviser's request as trustee,
officer, partner, trustee or the like of another corporation) and controlling
persons of each of them (each such person being an "indemnitee") against my
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, and counsel fees (all as provided in
accordance with applicable corporate law) reasonably incurred by such indemnitee
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
investigative body in which he may be or may have been threatened, while acting
in any capacity set forth above in this paragraph or thereafter by reason of his
having acted in any such capacity, except with respect to any matter as to which
he shall have been adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust and further more,
in the case of any criminal proceeding, so long as he has no reasonable the case
of any criminal proceeding, so long as he had no reasonable cause to believe
that the conduct was unlawful, provided, however, that (i) no indemnitee shall
be indemnified hereunder against any liability to the Trust or its shareholders
or any expense of such indemnitee arising by reason of (i) willful misfeasance,
(ii) bad faith, (iii) gross negligence, (iv) reckless disregard of the duties
involved in the conduct of his position (the conduct referred to in such clauses
(i) through (v) being sometimes referred to herein as "disabling conduct"), (2)
as to any matter disposed of by settlement or a compromise payment by such
indemnitee, pursuant to a consent decree or otherwise, no indemnification either
for said payment or for any other expenses shall be provided unless there has
been a determination that such settlement or compromise is in the best interests
of the Trust and that such indemnitee appears to have acted in good faith in the
reasonable belief hat his action was in the best interest of the Trust and did
not involve disabling conduct by such indemnitee and (3) with respect to any
action, suit or other proceeding voluntarily prosecuted by any indemnitee as
plaintiff indemnification shall be mandatory only if the prosecution of such
action, suit or other proceeding by such indemnitee was authorized by a majority
of the full Board of the Trust. Notwithstanding the foregoing the Trust shall
not be obligated to provide any such indemnification to the extent such
provision would waive any right which the Trust cannot lawfully waive. The
Sub-Adviser and Adviser shall each indemnify the other and their respective
officers, trustees, shareholders, partners and controlling persons to the extent
such persons are not indemnified by the Trust and have not engaged in disabling
conduct with respect to all actions or omissions to act or any matter related to
the activities of the such persons hereunder.
(b) The Trust shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification might be
sought hereunder if the Trust receives a written affirmation of the indemnitee's
good faith belief that the standard of conduct necessary for indemnification has
been met an d a written undertaking to reimburse the Trust unless it is
subsequently determined that he is entitled to such indemnification and if the
trustees of the Trustee determine that the facts then known to them would not
preclude indemnification. In addition, at least one of the following conditions
must be met: (A) the indemnitee shall provide a security for his undertaking,
(B) the Trust shall be insured against losses arising by reason of any lawful
advances, or (C) a majority of a quorum of trustees of the Trust who are
"interested persons" of the (as defined in Section 2 (a) (19) of the Act) nor
parties to the proceeding ("Disinterested Non-Party Trustees") or an independent
legal counsel in a written opinion, shall determine, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the indemnitee ultimately will be found entitled to
indemnification.
(c) All determinations with respect to indemnification hereunder
shall be made (1) by a final decision on the merits by a court or other body
before whom the proceeding was brought that
3
such indemnitee is no liable by reason of disabling conduct or, (2) in the
absence of such a decision, by (i) a majority vote of a quorum of the
Disinterested Non-party Trustees of the Trust, or (ii) if such a quorum so
directs, independent legal counsel in a written opinion.
The rights accruing to any indemnitee under these provisions shall not
exclude any other right to which he may be lawfully entitled.
6. Duration and Termination
This Agreement shall become effective upon on the date hereof and shall
continue in effect for a period of two years and thereafter from year to year,
but only so long as such continuation is specifically approved at least annually
in accordance with the requirements of the Act.
This Agreement may be terminated by the Sub-Adviser at any time without
penalty upon giving the Trust sixty days written notice (which notice may be
waived by the Trust) and may be terminated by the Trust at any time without
penalty upon giving the Sub-Adviser sixty days notice (which notice may be
waived by the Adviser), provided that such termination by the Trust shall be
directed or approved by the vote of a majority of the Trustees of the Trust in
office at the time or by the vote of the holders of a "majority of voting
securities" (as defined in the Act) of the Funds at the time outstanding and
entitled to vote. This Agreement shall terminate automatically in the event of
its assignment (as "assignment" is defined in the Act and the rules thereunder.)
7. Notices
Any notice under this Agreement shall be in writing to the other party
at such address as the other party may designate from time to time for the
receipt of such notice and shall be deemed to be received on the earlier of the
date actually received or on the fourth day after the postmark if such notice is
mailed first class postage prepaid.
8. Governing Law
This Agreement shall be construed in accordance with the laws of the
State of New York for contracts to be performed entirely therein and in
accordance with the applicable provisions of the Act.
9. Miscellaneous
The Declaration of Trust has been filed with the Secretary of State of
the Commonwealth of Massachusetts. The obligations of the Trust are not
personally binding upon, nor shall resort be had to the private property of, any
of the Trustees, shareholders, officers, employees or agents of the Trust, but
only the Trust's property shall be bound.
4
IN WITNESS WHEREOF, the parties hereto have caused the
foregoing instrument to be executed by their duly authorized officers, all as of
the day and the year first above written.
The Westwood Funds
By _________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: President
Teton Advisors, LLC
By _________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Manager
5