EXHIBIT 99.5(b)(1):
-------------------
FORM OF SUB-ADVISORY AGREEMENT BETWEEN UNDISCOVERED MANAGERS AND XXXXXX
ASSOCIATES RELATING TO THE HIDDEN VALUE FUND.
UNDISCOVERED MANAGERS FUNDS
SUB-ADVISORY AGREEMENT
(Hidden Value Fund)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
__________, 1997 by and between Undiscovered Managers, LLC, a Delaware limited
liability company (the "Manager") and X.X. Xxxxxx Associates, LLC (the
"Sub-Adviser").
WHEREAS, the Manager has entered into a Management Agreement dated
____________, 1997 (the "Management Agreement") with Undiscovered Managers Funds
(the "Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the Hidden Value Fund of the Trust (the "Series");
WHEREAS, the Management Agreement provides that the Manager may
delegate any or all of its portfolio management responsibilities under the
Management Agreement to one or more sub-advisers; and
WHEREAS, the Manager desires to retain the Sub-Adviser to render
portfolio management services in the manner and on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the
Manager and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code), all as
from time to time in effect (collectively, the "Policies"), and with all
applicable provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. Subject to the foregoing, the Sub-Adviser is
authorized, in its discretion and without prior consultation with the Manager,
to buy, sell, lend and otherwise
trade in any stocks, bonds and other securities and investment instruments on
behalf of the Series, without regard to the length of time the securities have
been held and the resulting rate of portfolio turnover or any tax
considerations; and the majority or the whole of the Series may be invested in
such proportions of stocks, bonds, other securities or investment instruments,
or cash, as the Sub-Adviser shall determine. Notwithstanding the foregoing
provisions of this Section 1.a, however, the Sub-Adviser shall, upon written
instructions from the Manager, effect such portfolio transactions for the Series
as the Manager shall determine are necessary in order for the Series to comply
with the Policies.
b. The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning portfolio
transactions and performance of the Series in such form as may be mutually
agreed upon, and agrees to review the Series and discuss the management of the
Series with representatives or agents of the Manager, the Administrator or the
Trust at their reasonable request. The Sub-Adviser shall permit all books and
records with respect to the Series to be inspected and audited by the Manager
and the Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub- Adviser's Form ADV as filed with the Securities and Exchange Commission and
as amended from time to time and a list of the persons whom the Sub-Adviser
wishes to have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Trust's custodian
to provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with minutes of meetings of the trustees of the Trust applicable to
the Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any
- 2-
further materials or information which the Sub-Adviser may reasonably request to
enable it to perform its functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instructions given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instructions under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
4. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay or
arrange for payment of its own expenses incurred in furnishing the services to
be provided by it pursuant to this Agreement.
5. Purchase and Sale of Assets. Absent instructions from the Manager to
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the
Sub-Adviser, which may include brokers or dealers affiliated with the
Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in
all respects. To the extent consistent with applicable law, purchase or sell
orders for the Series may be aggregated with contemporaneous purchase or sell
orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best
efforts to obtain execution of transactions for the Series at prices which are
advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination with respect to brokerage and research services or
products may be viewed in terms of either that particular transaction or the
overall responsibilities that the Sub-Adviser and its affiliates have with
respect to the Series or to
- 3 -
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
6. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.60% of the first $200 million of the Series' average daily net assets,
0.55% of the next $100 million of such assets and 0.50% of such assets in excess
of $300 million. Such compensation shall be calculated and paid monthly in
arrears or at such other intervals, not less frequently than quarterly, as the
Manager is paid by the Series pursuant to the Management Agreement; provided
that, in the event of any termination of this Agreement before the end of any
such month or other interval, such compensation shall be calculated and paid
within ten business days following such termination. The Manager may from time
to time waive the compensation it is entitled to receive from the Trust;
however, any such waiver will have no effect on the Manager's obligation to pay
the Sub-Adviser the compensation provided for herein.
7. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub- Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager may otherwise agree from time to time in writing
before or after the date hereof. This Agreement shall not in any way limit or
restrict the Sub-Adviser or any of its directors, officers, employees or agents
from buying, selling or trading any securities or other investment instruments
for its or their own account or for the account of others for whom it or they
may be acting. The Sub-Adviser shall have no obligation to acquire for the
Series a position in any investment that the Sub- Adviser or any of its
managers, members, officers, employees or agents holds, has acquired or is
acquiring for its or their own accounts or for the account of another client, so
long as it continues to be the policy and practice of the Sub-Adviser not to
favor or disfavor consistently or consciously any client or class of clients in
the allocation of investment opportunities, so that, to the extent practical,
such opportunities will be allocated among clients over a reasonable period of
time on a fair and equitable basis. The Manager and the Series recognize and
agree that the Sub-Adviser may provide advice to or take action with respect to
other clients, which advice or action, including the timing and nature of such
action, may differ from or be identical to advice given or action taken with
respect to the Series. The Sub- Adviser shall for all purposes hereof be deemed
to be an independent contractor and shall, unless otherwise provided or
authorized, have no authority to act for or represent the Trust or the Manager
in any way or otherwise be deemed an agent of the Trust or the Manager.
8. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected
- 4 -
with, or arising out of any service to be rendered under this Agreement, except
by reason of willful misfeasance, bad faith or gross negligence in the
performance of the Sub-Adviser's duties or by reason of reckless disregard by
the Sub-Adviser of its obligations and duties.
9. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser by the Manager, by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Series; and
c. this Agreement shall automatically terminate in the event
of its assignment.
Termination of this Agreement pursuant to this Section 9 shall be
without the payment of any penalty.
10. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
11. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
12. General.
a. If any term or provision of this Agreement or the
application thereof to any person or circumstances is held to be invalid or
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to other persons or
- 5 -
circumstances shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
b. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
UNDISCOVERED MANAGERS, LLC
By:
------------------------
Xxxx X. Xxxxxx
President
X.X. XXXXXX ASSOCIATES, LLC
By:
------------------------
Xxxxx X. Xxxxxx
Member
- 6 -
