THE COMMERCE FUNDS
INTERIM SUB-ADVISORY AGREEMENT
INTERNATIONAL EQUITY FUND
AGREEMENT, dated as of August 8, 2000 between Commerce Bank, N.A. with its
principal offices and places of business in St. Louis, Missouri and Kansas
City, Missouri (the Advisor), and X. Xxxx Price International, Inc.,
a corporation with its principal office and place of business at 000 Xxxx
Xxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx (Sub-Advisor);
WHEREAS, THE COMMERCE FUNDS (the Trust) is registered as an open-end,
diversified management investment company under the Investment Company Act
of 1940, as amended (the 1940 Act);
WHEREAS, the Advisor has been appointed as investment advisor to the Trusts
International Equity Fund (the Fund); and
WHEREAS, the Advisor wishes to retain the Sub-Advisor to
assist it in the provision of a continuous investment
program for the Fund and the Sub-Advisor is willing to render such assistance;
WHEREAS, Xxxx Xxxxx-Xxxxxxx International, Inc. has been
providing sub-advisory services to the Fund under a separate agreement,
which terminated as of the date hereof, and was renamed as X. Xxxx Price
International, Inc. in connection with a change in control involving Xxxx
Xxxxx-Xxxxxxx International, Inc., and will continue as investment Sub-Advisor
provided the conditions of Rule 15a-4 under the 1940 Act are met;
WHEREAS, the Board of Trustees of the Fund have approved this Agreement, and
the Sub-Advisor is willing to furnish such services upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. Appointment. The Advisor hereby appoints Sub-Advisor to act as
sub-advisor for the Fund as permitted by the Advisors Advisory Agreement with
the Trust. The Sub-Advisor accepts such appointment and agrees to render the
services required hereby for the compensation provided in this Agreement.
2. Sub-Advisory Services. Subject to the supervision of the Trusts
Board of Trustees and the Advisor, the Sub-Advisor will provide a continuous
investment program for the Fund, including investment research and management
with respect to all securities and investments and cash equivalents in the Fund.
The Sub-Advisor will determine from time to time what securities and other
investments will be purchased, retained or sold by the Fund, subject to the
Advisors approval of the overall investment objection of each Fund,
and will arrange for the purchase and sale of securities and other investments
of the Fund. The Sub-Advisor will provide the services under this Agreement,
in accordance with the Funds investment objective, policies and restrictions
as stated in the Prospectus, Statement of Additional Information and
supplements and resolutions adopted from time to time by the Trusts Board of
Trustees.
(a) will perform its obligations hereunder in conformity with all
applicable Rules and Regulations of the SEC, and will in addition conduct its
activities under this Agreement in accordance with other applicable law;
(b) will send trade information to the Advisor via telecopier or
electronic delivery on the first business day following the day of the trade
and cause broker confirmations to be sent directly to the Advisor;
(c) will place all orders for the purchase and sale of portfolio
securities for the account of the Fund with brokers or dealers
selected by the Sub-Advisor. In executing portfolio transactions and in
selecting brokers or dealers, the Sub-Advisor will use its
reasonable effort to seek on behalf of the Fund the best overall terms
available. In assessing the best overall terms available for
any transaction, the Sub-Advisor shall consider all factors it deems relevant,
including, the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both
for the specific transaction and on a continuing basis. In evaluating the best
overall terms available, and in selecting the broker or dealer to execute a
particular transaction, the Sub-Advisor may also consider the brokerage and
research services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934, as amended) provided to the Fund and/or
other accounts to which the Sub-Advisor or any affiliate thereof exercise
investment discretion. The Sub-Advisor is authorized, subject to the prior
approval of the Trusts Board of Trustees, to pay to a broker or dealer who
provides such brokerage and research services a commission for executing a
portfolio transaction for the Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if, but only if, the Sub-Advisor determines in good faith that
such commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer -- viewed in terms of that
particular transaction or in terms of the overall responsibilities of the
Sub-Advisor to the Fund and to the Trust. In no instance will portfolio
securities be purchased from or sold to the Sub-Advisor or the principal
underwriter for the Trust or an affiliated person of either acting as principal
or as broker, except as permitted by law. In executing portfolio
transactions for the Fund, the Sub-Advisor, to the extent permitted by
applicable laws and regulations, may but shall not be
obligated to aggregate the securities to be sold or purchased with those of
their other clients where such aggregation is not
inconsistent with the policies set forth in the Funds Prospectus. In such event,
the Sub-Advisor will allocate the securities so purchased or sold, and the
expenses incurred in the transaction, in the manner it considers to be the most
equitable and consistent with its fiduciary obligation to the Fund and such
other clients;
(d) will not make loans to any person to purchase or carry Fund shares or
make interest bearing loans to the Fund, except as provided in the Funds
Prospectus and Statement of Additional Information;
(e) will maintain all books and records with respect to the securities
transactions of the Fund entered into pursuant to this
Agreement; keep books of account with respect to the Fund as required in
connection with its services under the 1940 Act; and furnish
the Trusts Board of Trustees with such periodic and special reports as the
Board may reasonably request; and
(f) will treat confidentiality and as proprietary information of the Trust
all records and other information relative to the Trust and prior, present or
potential shareholders of the Fund, except for such information that is in the
public domain, and will not use such records and information for any purpose
other than performance of its responsibilities and duties hereunder except
where the Sub-Advisor may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
Without limiting the generality of the foregoing, the Sub-Advisor further
agrees that it will:
(g) manage in periodic consultation with the Advisor the Fund's temporary
investments in securities;
(h) place orders for the Fund either directly with the issuer or with any
broker or dealer;
(i) manage the Fund's overall cash position, and determine from time to
time what portion of the Fund's assets will be held in different currencies;
(j) as requested on a reasonable basis, provide the Advisor with foreign
broker research;
(k) provide the advisor with a quarterly review of international economic
and investment developments, and occasional "White Papers" on international
investment issues; and
(l) attend regular business and investment related meetings with the
Trust's Board of Trustees and the Advisor if requested to do so by the Trust
or Advisor.
3. Services Not Exclusive.
(a) Sub-Advisor agrees not to solicit any bank prospect for the purposes
of providing the services provided hereunder with respect to an investment
program similar to the International Equity Fund in Kansas, Missouri and the
region of Southern Illinois.
Provided however, that nothing in this paragraph shall preclude the Sub-Advisor
from servicing bank clients in the above-mentioned
area or any bank prospect that relocates its headquarters in Kansas, Missouri
or Southern Illinois.
(b) Subject to subsection (a) above, the services furnished by the
Sub-Advisor hereunder are deemed not to be exclusive and nothing in this
Agreement shall (i) prevent the Sub-Advisor or any affiliated person as defined
in the 0000 Xxx) of the Sub-Advisor from acting as investment advisor or
manager for any other person or persons, including without limitation other
management investment companies with investment objectives and policies the
same as or similar to those of the Fund or (ii) limit or restrict
the Sub-Advisor or any such affiliated person from buying, selling or trading
any securities or other investments (including any
securities or other investments which the Fund is eligible to buy) for its own
accounts or for the accounts of others for whom it may
be acting.
(c) Nothing contained in this agreement (including, without limitation,
the Sub-Advisor's confidentiality obligation under Section 2(f)), however,
shall prohibit the Sub-Advisor from advertising or soliciting the public
generally with respect to other products or services, regardless of whether
such advertisement or solicitation may include prior, present or potential
shareholders of the Trust.
4. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Advisor hereby agrees that all records which it
maintains for the Trust and the Fund are the property of the Trust and further
agrees to surrender promptly to the Trust any such records upon the Trust's
request. The Sub-Advisor further agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act the records required to be maintained by
Rule 31a-1.
5. Expenses. During the term of this Agreement, the Sub-Advisor will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased for the Fund.
6. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, the Advisor will pay the
Sub-Advisor monthly and the Sub-Advisor will accept as full compensation
therefor: a fee at an annual rate of .75 of 1% of the first
$20 million of average daily net assets; .60 of 1% of the next $30 million of
average daily net assets; .50 of 1% of the average
daily net assets above $50 million; provided that the foregoing fee schedule
shall not apply when the Funds assets are (i) more than
$200 million but less than $50 million, at which time the fee will be reset to
.50 of 1% of the Funds average daily net assets, and
the Sub-Advisor shall accept such fee as full compensation for its services
hereunder, and (ii) $500 million or more, at which time
the fee will be reset to .45 of 1% of the Funds average daily net assets,
and the Sub-Advisor shall accept such fee as full
compensation for its services hereunder. In addition, the Sub-Advisor will
apply a transition fee credit on assets over $184 million
and under $200 million as described in Attachment 1 to this Agreement. Subject
to Section 10 (b) hereof, if this Agreement becomes effective or terminates
before the end of any month, the investment management fee for the period from
the effective date to the end of such month or from the beginning of such month
to the date of termination, as the case may be, shall be prorated according to
the proration which such period bears to the full month in which such
effectiveness or termination occurs.
7. Limitation of Liability of the Sub-Advisor. The Sub-Advisor or any of
its officers, directors or employees shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust or any Fund
in connection with the matters to which this Agreement relates, except a loss
resulting from bad faith, willful misconduct or gross negligence in the
performance of these duties or for losses resulting from a breach of its
fiduciary duty with respect to the receipt of compensation for services.
8. Duration and Termination. The term of this Agreement shall begin on
the date first above written and shall terminate
without penalty upon the earlier of (i) 150 days from the date hereof, (ii) 10
calendar days written notice by the Trust to the
Advisor, provided that the Trusts Board of Trustees or a Majority (as defined
below) of the outstanding voting securities of the
Fund have voted to terminate the Agreement; (iii) an event of assignment (as
defined in the 1940 Act); and (iv) upon the effective
date of a Sub-Advisory Agreement between the Sub-Advisor and the Advisor that
has received the approval of the vote of a Majority of
the Funds outstanding voting securities. For purposes of the foregoing,
Majority is defined as the lesser of (a) 67% of the
shares of the Fund represented at a meeting, if holders of more than 50% of the
outstanding shares of the Fund are present in person
or by proxy or (b) more than 50% of the outstanding shares of the Fund.
Subject to Section 10(a), termination of this Agreement
shall not affect the right of the Sub-Advisor to receive payments on any unpaid
balance of the compensation to which it is entitled
under this Agreement earned prior to such termination.
9. Amendment of this Agreement. No provision of this Agreement may be
waived, changed, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the waiver, change,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of a majority of the outstanding voting
securities of the Fund.
10. Escrow Provisions.
(a) Notwithstanding any other provision of this Agreement, in no event
shall compensation paid to the Sub-Adviser hereunder
exceed the amount permitted by Rule 15a-4 under the 1940 Act between the
Adviser and Sub-Adviser; all compensation paid to the
Sub-Adviser hereunder shall be held in an interest-bearing escrow account with
the Advisor (the Escrow Account). Trust Funds held
in the Escrow Account, including interest earned (Escrow Money), shall be paid
to the Sub-Advisor promptly after approval of a
Sub-Advisory Agreement between the Advisor and Sub-Advisor by the vote of
a Majority of the Funds outstanding voting securities in
accordance with the 1940 Act, provided that such approval is obtained no later
than 150 days after the date of this Agreement.
(b) If a Sub-Advisory Agreement between the Advisor and Sub-Advisor is not
approved by a vote of a majority of the Funds outstanding voting securities
within the time period stated above, the Sub-Advisor shall receive from the
Escrow Account as full compensation for its services hereunder the lesser of:
(x) the sum of the amount of any costs incurred by the Sub-Advisor in
performing its duties under this Agreement prior to such termination plus any
interest earned on that amount, or (y) the sum of the
amount deposited in the Escrow Account plus any interest earned on that amount.
(c) Advisor shall deposit monthly advisory fees payable to Sub-Advisor in
a segregated account with the Advisor and shall invest the same in a money
market mutual fund or interest bearing bank account as from time to time
Advisor and Sub-Advisor shall agree in writing. Whenever required by this
Agreement to disburse any of the Escrow Money, the Advisor shall promptly
liquidate sufficient investments to permit such disbursement to be made, or, if
directed by the Sub-Advisor, distribute the Escrow Money in kind.
11. Notice. Any notice, advice or report to be given pursuant to this
Agreement shall be delivered or mailed:
To the Sub-Advisor at:
Xxxxxx Xxxxxxxxx
X. Xxxx Price International, Inc.
c/o X. Xxxx Price
000 X. Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
With copy to:
Xxxxxxx X. Xxxxxx, Esq.
X. Xxxx Price International, Inc.
c/o X. Xxxx Price
000 X. Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
To the Advisor at:
J. Xxxxxx Xxxxxxxx, Esquire
Commerce Bank, N.A.
P.O. Box 419248
0000 Xxxxxx Xxxxxx
Xxxxxx Xxxx, Xxxxxxxx 00000-0000
To the Trust at:
W. Xxxxx XxXxxxxx, III, Esq.
Drinker Xxxxxx & Xxxxx LLP
One Xxxxx Square
00xx xxx Xxxxxx Xxxxxxx
Xxxxxxxxxxxx, XX 00000-0000
12. 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 and shall
be governed by Delaware law. However, any litigation brought by either party
to this Agreement shall be adjudicated in the
appropriate court of jurisdiction within the State of Missouri.
This Agreement may be executed in counterparts, each of which will be deemed to
be an original, and all of which, when taken together, shall be deemed to
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
COMMERCE BANK, N.A.
Attest:
Signature illegible By: /s/Xxxxx X. Xxxxxxxx
X. XXXX-PRICE INTERNATIONAL, INC.
Attest:
Signature illegible By:/s/Xxxxx X. Xxxxxx
Xxxxx X. Xxxxxx
Vice President
Attachment 1
Transitional Fee Credit
To best accommodate the circumstance where Fund assets fall beneath $200
million and to prevent a decline in Fund assets from causing an increase in the
absolute dollar fee, we offer a transitional credit to cushion the impact of
reverting to the contractual-tiered fee schedule. The Sub-Advisor will give
the Fund a credit against contractual fees payable to Sub-Advisor on average
daily net assets of less than $200 million and greater than $184 million, which
shall be determined annually as follows:
Portfolio asset size $184 million x $80,000
$16 million
The credit is determined by prorating the difference between the contractual
tiered fee and the flat fee ($80,000 per year at all asset levels) over the
difference between $200 million and the current portfolio size for fee
calculation purposes.
The credit would approach $80,000 annually when the Portfolio size was close to
$200 million and fall to zero at $184 million.
The following example may be helpful in understanding the arrangement:
Portfolio Size 200 million $192 million $184 million
Fee Schedule 50 basis pts flat Contractual-tiered Contractual-tiered
schedule, with schedule (no credit)
transitional credit
Annual fee
before credit $1,000,000 $1,040,000 $1,000,000
Transitional credit $ 40,000
Net annual fee $1,000,000 $1,000,000 $1,000,000
