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EXHIBIT B
SUB-ADVISORY AGREEMENT
Agreement, dated as of _____, 1996, by and between Wasatch
Advisors, Inc., a Utah corporation (the "Adviser"), and Hoisington Investment
Management Company, a Texas corporation (the "Sub-Adviser").
WHEREAS, the Adviser is the investment adviser to the
Wasatch-Hoisington U.S. Treasury Fund (the "Fund") (formerly "Wasatch Income
Fund"), which is a series of Wasatch Funds, Inc. (the "Company"), which is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser desires to retain the Sub-Adviser to assist the
Adviser in furnishing an investment program to the Fund.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Adviser and the Sub-Adviser agree as follows:
1. The Adviser hereby employs the Sub-Adviser to serve as sub-adviser
with respect to the assets of the Fund, and to perform the services hereinafter
set forth. The Sub-Adviser hereby accepts such employment and agrees, for the
compensation herein provided, to assume all obligations herein set forth and to
bear all expenses of its performance of such obligations (but no other
expenses). The Sub-Adviser shall not be required to pay expenses of the Fund
or the Company, unless otherwise explicitly provided herein. The Sub-Adviser
shall for all purposes herein be deemed to be an independent contractor and
shall, except as expressly provided or authorized (whether herein or
otherwise), have no authority to act for or on behalf of the Fund or the
Company in any way or otherwise be deemed an agent of the Fund or the Company.
2. The Sub-Adviser shall direct the investment of the Fund's assets
in accordance with the 1940 Act, the provisions of the Internal Revenue Code of
1986, as amended, relating to regulated investment companies, applicable laws,
and the investment objectives, policies and restrictions set forth in the
Fund's Prospectus and Statement of Additional Information filed with the
Securities and Exchange Commission pursuant to Rule 497 under the Securities
Act of 1933, subject to the supervision of the Company, its officers and
directors, and the Adviser and in accordance with the investment objectives,
policies and restrictions from time to time prescribed by the Board of
Directors of the Company and communicated by the Adviser to the Sub-Adviser and
subject to such further limitations as the Adviser may from time to time impose
by written notice to the Sub-Adviser.
3. The Sub-Adviser shall formulate and implement a continuing program
for the management of the Fund's assets. The Sub-Adviser shall amend and
update such program from time to time as financial and other economic
conditions warrant. The Sub-Adviser shall make all determinations with respect
to the investment of the assets of the Fund and shall take such steps as may be
necessary to implement the same, including the placement of purchase and sale
orders on behalf of the Fund. The Sub-Adviser shall advise the Adviser and, if
requested by the Adviser, advise the Company's Board of Directors (which shall
make all non-investment decisions with respect to the securities in which the
assets of the Fund may be invested), of the manner in which voting rights,
rights to consent to corporate action, and any other noninvestment decisions
pertaining to the Fund's portfolio securities should be exercised.
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4. The Sub-Adviser shall furnish such reports to the Adviser as the
Adviser may reasonably request for the Adviser's use in discharging its
obligations under the Advisory and Service Contract between the Fund and the
Adviser (the "Advisory Agreement"), which reports may be distributed by the
Adviser to the Company's Board of Directors at periodic meetings of such Board
and at such other times as may be reasonably requested by the Company's Board
of Directors. Copies of all such reports shall be furnished to the Adviser for
examination and review within a reasonable time prior to the presentation of
such reports to Company's Board of Directors.
5. The Sub-Adviser shall select the brokers and dealers that will
execute the purchases and sales of portfolio instruments for the Fund and
markets on or in which such transactions will be executed and shall place, in
the name of the Fund or its nominee, all such orders.
(a) When placing such orders, the Sub-Adviser is authorized to employ
such dealers and brokers as may, in the judgment of the Sub-Adviser (taking
into account such factors as price, including dealer spread, the size, type and
difficulty of the transaction involved, the firm's general execution and
operational facilities and the firm's risk in positioning the securities),
implement the policy of the Fund to obtain the best price and execution.
Consistent with this policy, the Sub-Adviser is authorized to direct the
execution of the Fund's portfolio transactions to dealers and brokers
furnishing statistical information or research deemed by the Sub-Adviser to be
useful or valuable to the performance of its sub-advisory functions for the
Fund. Information so received will be in addition to and not in lieu of the
services required to be performed by the Sub-Adviser.
It is understood that certain other clients of the Sub-Adviser may
have investment objectives and policies similar to those of the Fund, and that
the Sub-Adviser may, from time to time, make recommendations that result in the
purchase or sale of a particular security by its other clients simultaneously
with the Fund. If transactions on behalf of more than one client during the
same period increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price or quantity. In
such event, the Sub-Adviser shall allocate advisory recommendations and the
placing of orders in a manner that is deemed equitable by the Sub-Adviser to
the accounts involved, including the Fund. When two or more of the clients of
the Sub-Adviser (including the Fund) are purchasing or selling the same
security on a given day from the same broker or dealer, such transactions may
be averaged as to price.
(b) The Sub-Adviser agrees that, except to the extent permitted under
Rule 17a-7 under the 1940 Act, or under any no-action letter or exemptive order
issued to the Company or the Fund by the Securities and Exchange Commission, it
will not purchase or sell securities for the Fund in any transaction in which
it, the Adviser or any "affiliated person" of the Company, the Fund, the
Adviser or Sub-Adviser or any affiliated person of such "affiliated person" is
acting as principal. The Sub-Adviser agrees that any transactions effected
under Rule 17a-7 shall comply with the then-effective procedures adopted under
such rule by the Company's Board of Directors.
(c) The Sub-Adviser agrees that it will not execute any portfolio
transactions for the Fund with a broker or dealer or futures commission
merchant which is an "affiliated person" of the Company, the Fund, the Adviser
or the Sub-Adviser or an "affiliated person" of such an "affiliated person"
without the prior written consent of the Adviser. In effecting such
transactions, the Sub-Adviser shall comply with Section 17(e)(1) of the 1940
Act and the then-effective procedures adopted under such rule by the Company's
Board of Directors.
(d) The Sub-Adviser shall promptly communicate to the Adviser and, if
requested by the Adviser, to the Company's Board of Directors, such information
relating to portfolio transactions as the Adviser may reasonably request. The
parties understand that the Fund shall bear all brokerage commissions in
connection with the purchases and sales of portfolio securities for the Company
and all
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ordinary and reasonable transaction costs in connection with purchases of such
securities in private placements and subsequent sales thereof.
6. The Sub-Adviser may (at its cost except as contemplated by
paragraph 5 of this Agreement) employ, retain or otherwise avail itself of the
services and facilities of persons and entities within its own organization or
any other organization for the purpose of providing the Sub-Adviser, the
Adviser, the Fund, or the Company with such information, advice or assistance,
including but not limited to advice regarding economic factors and trends and
advice as to transactions in specific securities, as the Sub-Adviser may deem
necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to the Adviser, the Fund, or the Company, or in
the discharge of the Sub-Adviser's overall responsibilities with respect to the
other accounts for which it serves as investment manager or investment adviser.
7. The Sub-Adviser shall cooperate with and make available to the
Adviser, the Fund, the Company and any agents engaged by the Company, the
Sub-Adviser's expertise relating to matters affecting the Company.
8. For the services to be rendered and the facilities to be furnished
under this Agreement, the Adviser shall pay to the Sub-Adviser a monthly
management fee computed at the annual rate of .02% of the Fund's average daily
net assets as long as and whenever the Fund has net assets of less than $20
million, and one-half (1/2) of the monthly fee the Adviser receives from the
Fund under the Advisory and Service Contract as long as and whenever the Fund
has net assets of $20 million or more. Such fee shall be payable on the
fifteenth day of each calendar month for services performed hereunder during
the preceding month. The net asset value of the Fund shall be calculated as of
the close of the New York Stock Exchange on each day the Exchange is open for
trading or as of such other time or times as the Company's Board of Directors
may determine in accordance with the provisions of the 1940 Act. On each day
when net asset value is not calculated, the net asset value of a share of
common stock of the Fund shall be deemed to be the net asset value of such a
share as of the close of business on the last day on which such calculation was
made for the purpose of the foregoing computations.
If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for that
part of the month during which this Agreement is in effect shall be prorated in
a manner consistent with the calculation of fees as set forth above.
9. The Sub-Adviser represents, warrants and agrees that:
(a) The Sub-Adviser is registered as an "investment adviser"
under the Investment Advisers Act of 1940 ("Advisers Act") and is
currently in compliance and shall at all times continue to comply with
the requirements imposed upon it by the Advisers Act and other
applicable laws and regulations. The Sub-Adviser agrees to (i) supply
the Adviser with such documents as the Adviser may reasonably request
to document compliance with such laws and regulations and
(ii) immediately notify the Adviser of the occurrence of any event
which would disqualify the Sub-Adviser from serving as an investment
adviser of a registered investment company pursuant to any applicable
law or regulation.
(b) The Sub-Adviser will maintain, keep current and preserve
on behalf of the Fund in the manner provided by the 1940 Act all
records required by the 1940 Act with respect to the Sub-Adviser's
activities hereunder. The Sub-Adviser agrees that such records are
the property of the Company, and will be surrendered to the Company
promptly upon request.
(c) The Sub-Adviser will complete such reports concerning
purchases or sales of securities on behalf of the Fund as the Adviser
may from time to time require to document
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compliance with the 1940 Act, the Advisers Act, the Internal Revenue Code,
applicable state securities laws and other applicable laws and regulations or
regulatory and taxing authorities in countries other than the United States.
(d) After filing with the Securities and Exchange Commission
any amendment to its Form ADV, the Sub-Adviser will promptly furnish
a copy of such amendment to the Adviser.
(e) The Sub-Adviser will immediately notify the Adviser of
the occurrence of any event which would disqualify the Sub-Adviser
from serving as an investment adviser of an investment company
pursuant to Section 9 of the 1940 Act or any other applicable statute
or regulation.
10. The Adviser represents, warrants and agrees that:
(a) It has been duly authorized by the Board of Directors of
the Company to delegate to the Sub-Adviser the provision of the
services contemplated hereby.
(b) The Adviser and the Company are currently in compliance
and shall at all times continue to comply with the requirements
imposed upon the Adviser and the Company by applicable law and
regulations.
11. The Sub-Adviser will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund or its shareholders in
connection with the performance of its duties under this Agreement, except a
loss resulting 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
duties under this Agreement.
12. The Sub-Adviser hereby grants the Fund and the Company the right
to use "Hoisington" in the name of the Fund so long as the Sub-Adviser is the
sub-adviser to the Fund. If the Sub-Adviser ceases to be the Fund's
sub-adviser, the Fund will promptly change its name to omit the reference to
"Hoisington." The Sub-Adviser agrees that so long as "Hoisington" is included
in the Fund's name, it will not allow the use of "Hoisington" in the name of
any other public investment company without the express written consent of the
Adviser or the Fund.
13. This Agreement shall become effective as of the date first set
forth above. Unless sooner terminated as hereinafter provided, this Agreement
shall continue in effect for a period of two years from the date of its
execution, and thereafter shall continue in effect only so long as such
continuance is specifically approved at least annually (a) by the Board of
Directors of the Company or by the vote of a majority of the outstanding voting
securities of the Company, and (b) by the vote of a majority of the directors
who are not parties to this Agreement or Interested Persons of any such
parties, cast in person at a meeting called for the purpose of voting on such
approval. It shall be the duty of the Directors of the Company to request and
evaluate, and the duty of the Adviser and Sub-Adviser to furnish, such
information as may be reasonably necessary to evaluate the terms of this
Agreement and any renewal thereof.
This Agreement may be terminated at any time without the payment of
any penalty (a) by the vote of the Board of Directors of the Company or by the
vote of the holders of a majority of the outstanding voting securities of the
Fund, upon 60 days' written notice to the Adviser and the Sub-Adviser, or
(b) by the Adviser, upon 60 days' written notice to the Sub-Adviser; or (c) by
the Sub-Adviser, upon 60 days' written notice to the Adviser. This Agreement
shall automatically terminate in the event of its assignment as defined in the
1940 Act and the rules thereunder.
Wherever referred to in this Agreement, the vote or approval of the
holders of a majority of the outstanding voting securities or shares of the
Fund shall mean the vote of 67% or more of such shares if
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the holders of more than 50% of such shares are present in person or by proxy
or the vote of more than 50% of such shares, whichever is less.
14. No amendment to or modification of this Agreement shall be
effective unless and until approved by the vote of a majority of the
outstanding shares of the Fund.
15. This Agreement shall be binding upon, and inure to the benefit
of, the Adviser and the Sub-Adviser, and their respective successors.
16. 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.
17. Nothing herein shall be deemed to limit or restrict the right of
the Sub-Adviser, or any affiliate of the Sub-Adviser, or any employee of the
Sub-Adviser, to engage in any other business or to devote time and attention to
the management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
18. To the extent that state law is not preempted by the provisions
of any law of the United States heretofore or hereafter enacted, as the same
may be amended from time to time, this Agreement shall be administered,
construed and enforced according to the laws of the State of Utah.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers thereunto duly authorized in multiple
counterparts, each of which shall be an original but all of which shall
constitute one and the same instrument.
WASATCH ADVISORS, INC.
By________________________
Name:
Title:
HOISINGTON INVESTMENT
MANAGEMENT COMPANY
By________________________
Name:
Title: