INVESTMENT ADVISORY AGREEMENT
Agreement made as of September 10, 2002, between FRESCO'sm' INDEX
SHARES FUNDS, a Massachusetts business trust ("Trust"), and UBS GLOBAL ASSET
MANAGEMENT (US) INC. ("UBS Global AM"), a Delaware corporation registered as an
investment adviser under the Investment Advisers Act of 1940, as amended
("Advisers Act"), and as a broker-dealer under the Securities Exchange Act of
1934, as amended ("1934 Act").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company; and
WHEREAS, the Trust is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Trust intends to initially offer shares in two series, the
Fresco'sm' Dow Xxxxx STOXX 50'sm' Fund and the Fresco'sm' Dow Xxxxx Euro STOXX
50'sm' Fund, and any other series as to which this Agreement may hereafter be
made applicable and set forth on Schedule A hereto (each such series being
herein referred to as a "Fund", and collectively as the "Funds"); and
WHEREAS, the Trust desires to retain UBS Global AM as investment
adviser, to furnish certain investment advisory and portfolio management
services to the Trust with respect to the Funds, and UBS Global AM is willing to
furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints UBS Global AM as investment
adviser of the Trust and each Fund for the period and on the terms set forth in
this Agreement. UBS Global AM accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Duties as Investment Adviser.
(a) Subject to the supervision and direction of the Trust's Board of
Trustees ("Board"), UBS Global AM will provide a continuous investment program
for a Fund, including investment research and management with respect to all
securities and investments and cash equivalents in the Fund. UBS Global AM will
determine, from time to time, what securities and other investments will be
purchased, retained or sold by the Fund. UBS Global AM shall initially determine
and make such modifications to the identity and number of shares of the
securities to be accepted pursuant to such Fund's benchmark index in exchange
for creation units for each Fund and the securities that will be applicable that
day to redemption requests received for such Fund as may be necessary as a
result of rebalancing adjustments and corporate action events (and may give
directions to the Trust's custodian with respect to such designations). UBS
Global AM may delegate to a sub-adviser, in whole or in part, UBS Global AM's
duty to provide a continuous investment management program with respect to any
Fund, including the provision
of investment management services with respect to a portion of the Fund's
assets, in accordance with paragraph 5 of this Agreement.
(b) UBS Global AM agrees that, in placing orders with brokers, it will
attempt to obtain the best net result in terms of price and execution; provided
that, on behalf of any Fund, UBS Global AM may, in its discretion, use brokers
who provide UBS Global AM with research, analysis, advice and similar services,
and UBS Global AM may cause a Fund to pay to those brokers in return for
brokerage and research services a higher commission than may be charged by other
brokers, subject to UBS Global AM's determining in good faith that such
commission is reasonable in relation to the research and execution services
received. In no instance will portfolio securities be purchased from or sold to
UBS Global AM, or any affiliated person thereof, except in accordance with the
federal securities laws and the rules and regulations thereunder, or any
applicable exemptive orders. UBS Global AM may aggregate sales and purchase
orders with respect to the assets of the Funds with similar orders being made
simultaneously for other accounts advised by UBS Global AM or its affiliates.
Whenever UBS Global AM simultaneously places orders to purchase or sell the same
security on behalf of a Fund and one or more other accounts advised by UBS
Global AM, such orders will be allocated as to price and amount among all such
accounts in a manner believed to be equitable, over time, to each account. The
Trust recognizes that in some cases this procedure may adversely affect the
results obtained for the Funds.
(c) UBS Global AM will oversee the maintenance of all books and records
with respect to the securities transactions of each Fund, and will furnish the
Board with such periodic and special reports as the Board reasonably may
request. In compliance with the requirements of Rule 31a-3 under the 1940 Act,
UBS Global AM hereby agrees that all records which it maintains for the Funds
are the property of the Trust, agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records which it maintains for the Trust and
which are required to be maintained by Rule 31a-l under the 1940 Act, and
further agrees to surrender promptly to the Trust any records which it maintains
for the Funds upon request by the Trust.
(d) UBS Global AM will oversee the computation of the net asset value
and the net income of each Fund as described in the currently effective
registration statement of the Trust under the Securities Act of 1933, as
amended, and the 1940 Act, and any amendments or supplements thereto
("Registration Statement") or as more frequently requested by the Board.
(e) The Trust hereby authorizes UBS Global AM and any entity or person
associated with UBS Global AM which is a member of a national securities
exchange to effect any transaction on such exchange for the account of any Fund,
which transaction is permitted by Section 11(a) of the 1934 Act and the rules
thereunder, and the Trust hereby consents to the retention of compensation by
UBS Global AM or any person or entity associated with UBS Global AM for such
transaction.
3. Use of Name. The Trust may use the name "Fresco" or any variant
thereof in connection with the name of the Trust or any of the Funds, only for
so long as this Agreement or any extension, renewal or amendment hereof remains
in effect. At such time as this Agreement shall no longer be in effect, the
Trust shall cease to use such a name or any other similar name.
2
In no event shall the Trust use the name "Fresco" or any variant thereof if UBS
Global AM's functions are transferred or assigned to a company over which UBS
Global AM does not have control or with which it is not affiliated. In the event
that this Agreement shall no longer be in effect or UBS Global AM's functions
are transferred or assigned to a company over which UBS Global AM does not have
control or with which it is not affiliated, the Trust shall use its best efforts
to legally change its name by filing the required documentation with appropriate
state and federal agencies.
4. Further Duties. In all matters relating to the performance of this
Agreement, UBS Global AM will act in conformity with the Declaration of Trust,
By-Laws, and Registration Statement of the Trust and with the instructions and
directions of the Board and will comply with the requirements of the 1940 Act,
the rules thereunder, and all other applicable federal and state laws and
regulations applicable to the Trust and the Funds.
5. Delegation of UBS Global AM's Duties as Investment Adviser. With
respect to any or all Funds, UBS Global AM may enter into one or more contracts
(each a "Sub-Advisory Agreement") with one or more sub-advisers in which UBS
Global AM delegates to such sub-advisers any or all of its duties specified in
paragraph 2 of this Agreement, provided that each Sub-Advisory Agreement imposes
on the sub-adviser bound thereby all the corresponding duties and conditions to
which UBS Global AM is subject by paragraph 2 of this Agreement and all the
duties and conditions of paragraph 4 of this Agreement, and further provided
that each Sub-Advisory Agreement meets all requirements of the 1940 Act and
rules thereunder.
6. Services Not Exclusive. The services furnished by UBS Global AM
hereunder are not to be deemed exclusive and UBS Global AM shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby or unless otherwise agreed to by the parties hereunder
in writing. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of UBS Global AM, who may also be a Trustee
("Board member"), officer or employee of the Trust, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
7. Expenses.
(a) The Trust or a Fund may pay directly any expenses incurred by it in
its normal operations and, if any such payment is consented to by UBS Global AM
and acknowledged as otherwise payable by UBS Global AM pursuant to this
Agreement, the Fund may reduce the advisory fee payable to UBS Global AM
pursuant to paragraph 8 hereof by such amount. To the extent that such
deductions exceed the fee payable to UBS Global AM on any monthly payment date,
such excess shall be carried forward and deducted in the same manner from the
fee payable on succeeding monthly payment dates to the extent not otherwise paid
by UBS Global AM.
(b) UBS Global AM will assume the cost of any compensation for services
provided to the Trust received by the officers of the Trust and by those Board
members who are "interested persons" of the Trust as that term is defined in the
1940 Act.
3
(c) The payment or assumption by UBS Global AM of any expenses of the
Trust or a Fund that UBS Global AM is not required by this Agreement to pay or
assume shall not obligate UBS Global AM to pay or assume the same or any similar
expense of the Trust or a Fund on any subsequent occasion.
8. Compensation.
(a) For the services to be provided by UBS Global AM hereunder with
respect to each Fund, the Trust shall pay to UBS Global AM an annual advisory
fee ("Advisory Fee") equal to the amounts set forth on Schedule A, attached
hereto. UBS Global AM agrees to pay all expenses incurred by the Trust except
for (i) Fund expenses incurred in connection with the execution of portfolio
securities transactions on behalf of such Fund, (ii) expenses incurred in
connection with any distribution plan adopted by the Trust pursuant to Rule
00x-0 xxxxx xxx 0000 Xxx, (xxx) litigation expenses, (iv) taxes, including, but
not limited to, income, excise, transfer and withholding taxes, (v) interest,
(vi) fees and salaries payable to the Trust's Board members and officers who are
not "interested persons" of the Trust or UBS Global AM, (vii) all expenses
incurred in connection with the Board members' services, including travel
expenses and legal fees of counsel for those members of the Board who are not
"interested persons" of the Trust, (viii) extraordinary expenses and (ix) the
Advisory Fee.
(b) The Advisory Fee shall be computed and accrued daily based on the
average daily net assets of each Fund and paid monthly to UBS Global AM on or
before the first business day of the next succeeding calendar month.
(c) If this Agreement becomes effective or terminates before the end of
any month, the fee for the period from the effective date to the end of the
month or from the beginning of such month to the date of termination, as the
case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
(d) For the services provided and the expenses assumed pursuant to this
Agreement with respect to any other Fund hereafter established, the Trust will
pay to UBS Global AM from the assets of such Fund a fee in an amount to be
agreed upon between the parties and set forth in Schedule A, attached hereto.
9. Limitation of Liability.
(a) UBS Global AM and its delegates, including any Sub-Adviser to any
Fund or the Trust, shall not be liable for any error of judgment or mistake of
law or for any loss suffered by any Fund, the Trust or any of its shareholders,
in connection with the matters to which this Agreement relates, except to the
extent that such a loss results from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, director, employee, or agent of UBS Global AM, who
may be or become an officer, Board member, employee or agent of the Trust shall
be deemed, when rendering services to any Fund or the Trust or acting with
respect to any business of such Fund or the Trust, to be rendering such
4
service to or acting solely for the Fund or the Trust and not as an officer,
director, employee, or agent or one under the control or direction of UBS Global
AM even though paid by it.
(b) UBS Global AM is expressly put on notice of, and hereby
acknowledges and agrees to, the limitation of shareholder liability as set forth
in the Declaration of Trust of the Trust and agrees that the obligations assumed
by the Trust under this contract shall be limited in all cases to the Trust and
its assets. UBS Global AM shall not seek satisfaction of any such obligation
from the shareholders or any shareholder of the Trust, nor shall UBS Global AM
seek satisfaction of any such obligation from the Trustees or any individual
Trustee of the Trust. UBS Global AM understands that the rights and obligations
of each series of shares of the Trust under the Declaration of Trust are
separate and distinct from those of any and all other series.
10. Duration and Termination.
(a) This Agreement shall become effective upon the date hereabove
written provided that, with respect to any Fund, this Agreement shall not take
effect unless it has first been approved (i) by a vote of a majority of those
Board members of the Trust who are not parties to this Agreement or "interested
persons" of any such party ("Independent Board Members") cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by vote of a
majority of that Fund's outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for two years from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually: (i) by a vote of a majority of the Independent Board Members
of the Trust, cast in person at a meeting called for the purpose of voting on
such approval, and (ii) by the Board or, with respect to any given Fund, by vote
of a majority of the outstanding voting securities of such Fund.
(c) Notwithstanding the foregoing, with respect to any Fund, this
Agreement may be terminated at any time, without the payment of any penalty, by
vote of the Board or by a vote of a majority of the outstanding voting
securities of such Fund, on sixty days' written notice to UBS Global AM or by
UBS Global AM at any time, without the payment of any penalty, on sixty days'
written notice to the Trust. Termination of this Agreement with respect to any
given Fund shall in no way affect the continued validity of this Agreement or
the performance thereunder with respect to any other Fund. This Agreement will
automatically terminate in the event of its assignment.
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement as to any
given Fund shall be effective until approved by vote of a majority of such
Fund's outstanding voting securities.
12. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, without giving effect to the conflicts of
laws principles thereof, and in accordance with the 1940 Act, provided, however,
that to the extent that the applicable laws of
5
the State of New York conflict with the applicable provisions of the 1940 Act,
the latter shall control.
13. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"affiliated person," "interested person," "assignment," "broker," "investment
adviser," "national securities exchange," "net assets," "prospectus," "sale,"
"sell" and "security" shall have the same meaning as such terms have in the 1940
Act, subject to such exemption as may be granted by the Securities and Exchange
Commission by any rule, regulation or order. Where the effect of a requirement
of the 1940 Act reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Securities and Exchange Commission, whether of
special or general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated as of the day and year first above
written.
FRESCO'sm' INDEX SHARES FUNDS
Attest:
By: /s/Xxxxx X. Xxxxxxxxxx
By: /s/Xxxxxxx Xx Xxxxxxxx -------------------
---------------------- Name: Xxxxx X. Xxxxxxxxxx
Name: Xxxxxxx Xx Xxxxxxxx Title: Secretary
Title: Assistant Secretary
UBS GLOBAL ASSET MANAGEMENT
(US) INC.
Attest:
By: /s/Xxx X. Doberman
By: /s/Xxxxxxx Xx Xxxxxxxx ---------------
------------------- Name: Xxx X. Doberman
Name: Xxxxxxx Xx Xxxxxxxx Title: Managing Director,
Title: Director, General Counsel
Assistant General Counsel
6
SCHEDULE A
---------------------------------------------------------------------
Fund Advisory Fee
---------------------------------------------------------------------
Fresco'sm' Dow Xxxxx STOXX 50'sm' Fund 0.29%
---------------------------------------------------------------------
Fresco'sm' Dow Xxxxx Euro STOXX 50'sm' Fund 0.29%
---------------------------------------------------------------------
---------------------------------------------------------------------
