The Independent Trustees were assisted in their review of the Sub-Advisory Agreements, and the specific factors deemed to be material to the renewal of the Prior Sub-Advisory Agreements and approval of the New Sub-Advisory Agreements, including the factors described below, by independent legal counsel. Before the November 20 meeting, independent legal counsel to the Independent Trustees sent to each Sub-Adviser a request for information to be provided to the Independent Trustees in connection with their consideration of the Sub-Advisory Agreements. The Adviser and the Sub-Advisers provided materials to the Trustees in response to that request, in addition to other information that the Adviser and/or the Sub-Advisers believed would be useful in evaluating the Sub-Advisers.
In evaluating the Sub-Advisory Agreements, the Trustees reviewed the available information and discussed with representatives of the Sub-Advisers FSMS’s operations; the nature, extent and quality of the advisory and other services to be provided by the Sub-Advisers to FSMS; the management fees and total expense ratios of each class of shares of FSMS; possible economies of scale; and other benefits (in addition to advisory fee revenues) derived or potentially derived by the Sub-Advisers from their relationship with FSMS. The specific information reviewed and considered by the Board included, without limitation, information about:
•
Each Sub-Adviser’s general qualifications to serve as sub-adviser to FSMS, including its history, organization, ownership structure, operations and financial position;
•
The services that each Sub-Adviser render (or will render) to FSMS, including information relating each Sub-Adviser’s advisory, administrative and reporting capabilities; and any role in the valuation of FSMS assets;
•
Key personnel of each Sub-Adviser and their qualifications, abilities, education, experience and professional accomplishments; the compensation structure of the proposed portfolio managers; succession planning; and the ability of each Sub-Adviser to attract and retain high-caliber professionals;
•
Each Sub-Adviser’s advisory experience and performance, including available performance information relevant to each Sub-Adviser’s proposed management of FSMS and sources of information to be relied upon by each Sub-Adviser in performing portfolio management services;
•
Each Sub-Adviser’s brokerage practices and portfolio transaction allocation methodology, including policies for selecting broker-dealers; each Sub-Adviser’s best-execution practices; policies on allocation of portfolio securities acquisitions across accounts; research services provided by broker-dealers and soft-dollar arrangements;
•
The terms of the Sub-Advisory Agreements and associated fees; “fall-out” and indirect benefits expected potentially to be derived by the Sub-Advisers and/or affiliates in connection with the advisory arrangements; available information on estimated profitability to the Sub-Advisers of the advisory relationship; the potential for economies of scale; available information on management and other fees associated with the advisory arrangements in comparison to comparable funds’ management and other fees;
•
Compliance and related matters, including each Sub-Adviser’s compliance policies and procedures; specific information related to experience managing assets subject to 1940 Act regulation; risk monitoring and management, including management of cybersecurity risk; and
•
Legal matters, including any relevant litigation, investigation or examinations; potential conflicts of interest; and insurance arrangements.
At the November 20, 2018 meeting, there was discussion regarding each of the above items. The Independent Trustees also met in executive session to discuss these items. The Board’s considerations included the following, among others:
Nature, Extent, and Quality of the Services
The Board discussed and considered with respect to each Sub-Adviser (1) information regarding personnel and their qualifications and services provided by (or to be provided by) the Sub-Adviser, (2) historical performance information, including performance of any other relevant accounts managed by each Sub-Adviser, and any investment-related resources each Sub-Adviser employ (or would employ) in managing FSMS’s assets, (3) various operational considerations, including brokerage practices, compliance policies and procedures and related matters. The Board concluded that the nature, extent, and quality of the sub-advisory services provided (or to be provided) by each Sub-Adviser were appropriate and thus supported a decision to approve the Sub-Advisory Agreements.
