INVESTMENT SUBADVISORY AGREEMENT
INVESTMENT SUBADVISORY AGREEMENT, dated as of April 27, 2005
("Agreement") by and between Diversified Investment Advisors, Inc., a Delaware
corporation ("Diversified") and Western Asset Management Company ("Subadvisor").
WITNESSETH:
WHEREAS, Diversified has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940 and has been
retained to provide investment advisory services to the Total Return Bond
Portfolio ("Portfolio"), a series of Diversified Investors Portfolios, a
diversified open-end management investment company registered under the
Investment Company Act of 1940 ("1940 Act");
WHEREAS, Diversified desires to retain the Subadvisor to furnish it
with portfolio investment advisory services in connection with Diversified's
investment advisory activities on behalf of the Portfolio, and the Subadvisor is
willing to furnish such services to Diversified;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of the Subadvisor. In accordance with and subject to the
Investment Advisory Agreement between the Portfolio and Diversified, attached
hereto as Schedule A (the "Advisory Agreement"), Diversified hereby appoints the
Subadvisor to perform the portfolio investment advisory services described
herein for the investment and reinvestment of such amount of the Portfolio's
assets as is determined from time to time by the Portfolio's Board of Trustees
and communicated to the Subadvisor in writing ("Assets"), subject to the control
and direction of Diversified and the Diversified Investors Portfolios' Board of
Trustees, for the period and on the terms hereinafter set forth. Subadvisor's
responsibility for providing investment advice to the Portfolio is limited to
that discrete portion of the Portfolio represented by the Assets and Subadviser
is prohibited from directly or indirectly consulting with any other Subadviser
for a portion of the Portfolio's assets concerning Portfolio transactions in
securities or other assets. Notwithstanding the foregoing, the Subadvisor may
appoint one or more of its affiliates as its agent and may delegate the exercise
of all or any of the Subadvisor's powers, discretion and duties in relation to
the management of the portfolio to such affiliate(s).
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The Subadvisor shall provide Diversified with such investment advice
and supervision as the latter may from time to time consider necessary for the
proper supervision of the Assets. The Subadvisor shall furnish continuously an
investment program and shall determine from time to time what securities shall
be purchased, sold or exchanged and what portion of the Assets of the Portfolio
shall be held uninvested, subject always to the provisions of the 1940 Act and
to the Portfolio's then-current Registration Statement on Form N-1A.
In particular, the Subadvisor shall, without limiting the foregoing:
(i) continuously review, supervise and implement the investment program for the
Assets; (ii) monitor regularly the relevant securities for the Assets to
determine if adjustments are warranted and, if so, to make such adjustments;
(iii) determine, in the Subadvisor's discretion, the securities to be purchased
or sold or exchanged in order to keep the Assets in balance with the designated
investment strategy; (iv) determine, in the Subadvisor's discretion, whether to
exercise warrants or other rights with respect to the Assets; (v) determine, in
the Subadvisor's discretion, whether the merit of an investment has been
substantially impaired by extraordinary events or financial conditions, thereby
warranting the removal of such securities from the Assets; (vi) as promptly as
practicable after the end of each calendar month, furnish a report showing: (a)
all transactions during such month, (b) all Assets on the last day of such
month, rates of return, and (c) such other information relating to the Assets as
Diversified may reasonably request; (vii) meet at least four times per year with
Diversified and with such other persons as may be designated on reasonable
notice and at reasonable locations, at the request of Diversified, to discuss
general economic conditions, performance, investment strategy, and other matters
relating to the Assets; (viii) provide the Portfolio, as reasonably requested by
Diversified, with records concerning the Subadvisor's activities which the
Portfolio is required by law to maintain with respect to the Assets; and (ix)
render regular reports to the Portfolio's officers and Directors concerning the
Subadvisor's discharge of the foregoing responsibilities.
Upon written request, the Subadvisor shall also make recommendations to
Diversified as to the manner in which voting rights, rights to consent to
corporate actions and any other rights pertaining to the securities comprising
the Assets shall be exercised. Diversified, however, will assume the
responsibility for the actual voting of any voting rights.
Futures and options contracts will be entered into for hedging purposes
and/or as a part of Subadvisor's overall portfolio strategy and will be
incidental to its securities trading activities for the Portfolio. Investment in
original futures margin and options premiums will at all times be in compliance
with applicable requirements of the Commodities Futures Trading Commission.
Subadvisor is hereby authorized to place orders for the execution of
securities transactions for the Portfolio as may be recommended to and accepted
by or on behalf
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of Diversified (either in writing or by telephone) with or through such brokers,
dealers or issuers as Subadvisor may select.
Subadvisor may execute on behalf of Diversified certain agreements,
instruments and documents in connection with the services performed by it under
this Agreement. These may include, without limitation, brokerage agreements,
clearing agreements, account documentation, futures and options agreements, swap
agreements other investment related agreements and any other agreements,
documents or instruments the Subadvisor believes are appropriate or desirable in
performing its duties under this Agreement.
Should the Board of Trustees at any time establish an investment policy
with respect to the Assets and notify the Subadvisor thereof in writing, the
Subadvisor shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such policy has been
revoked.
The Subadvisor shall take, on behalf of the Assets, all actions which
it deems necessary to implement the investment policies determined as provided
above with respect to the Assets, and in particular to place all orders for the
purchase or sale of securities for the Portfolio's account with brokers or
dealers selected by it, and to that end the Subadvisor is authorized as an agent
of the Portfolio to give instructions to the custodian of the Portfolio as to
deliveries of securities and payments of cash for the account of the Portfolio.
Subject to the primary objective of obtaining the best available prices and
execution, the Subadvisor may place orders for the purchase and sale of
portfolio securities with such broker/dealers who provide research and brokerage
services to the Portfolio within the meaning of Section 28(e) of the Securities
Exchange Act of 1934, to the Subadvisor, or to any other fund or account for
which the Subadvisor provides investment advisory services and may place such
orders with broker/dealers who sell shares of the Portfolio or who sell shares
of any other fund for which the Subadvisor provides investment advisory
services. Broker/dealers who sell shares of the funds of which the Subadvisor is
investment advisor shall only receive orders for the purchase or sale of
portfolio securities to the extent that the placing of such orders is in
compliance with the Rules of the Securities and Exchange Commission and the
NASD.
On occasions when Subadvisor deems the purchase or sale of a security
to be in the best interest of the Portfolio as well as other clients of
Subadvisor, Subadvisor, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by Subadvisor in the manner Subadvisor considers to be
the most equitable and consistent with its fiduciary obligations to the
Portfolio and to such other clients.
Notwithstanding the provisions of the previous paragraph and subject to
such
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policies and procedures as may be adopted by the Board of Trustees and officers
of the Portfolio, the Subadvisor may pay a member of an exchange, broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission another member of an exchange, broker or dealer
would have charged for effecting that transaction, in such instances where the
Subadvisor has determined in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such member, broker or dealer, viewed in terms of either that
particular transaction or the Subadvisor's overall responsibilities with respect
to the Portfolio and to other funds and clients for which the Subadvisor
exercises investment discretion.
2. Allocation of Charges and Expenses. The Subadvisor shall furnish at
its own expense all necessary services, facilities and personnel in connection
with its responsibilities under Section 1 above. It is understood that the
Portfolio will pay all of its own expenses and liabilities including, without
limitation, compensation and out-of-pocket expenses of Trustees not affiliated
with the Subadvisor or Diversified; governmental fees; interest charges; taxes;
membership dues; fees and expenses of independent auditors, of legal counsel and
of any transfer agent, administrator, distributor, shareholder servicing agents,
registrar or dividend disbursing agent of the Portfolio; expenses of
distributing and redeeming shares and servicing shareholder accounts; expenses
of preparing, printing and mailing prospectuses, shareholder reports, notices,
proxy statements and reports to governmental officers and commissions and to
shareholders of the Portfolio; expenses connected with the execution, recording
and settlement of Portfolio security transactions; insurance premiums; fees and
expenses of the custodian for all services to the Portfolio, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of calculating the net asset value of shares of the Portfolio; expenses
of shareholder meetings; expenses of litigation and other extraordinary or
non-recurring events and expenses relating to the issuance, registration and
qualification of shares of the Portfolio.
3. Compensation of the Subadvisor. For the services to be rendered,
Diversified shall pay to the Subadvisor an investment advisory fee computed in
accordance with the terms of Schedule B herewith attached. If the Subadvisor
serves for less than the whole of any period specified, its compensation shall
be prorated.
4. Covenants and Representations of the Subadvisor. The Subadvisor
agrees that it will not deal with itself, or with the Trustees of the Portfolio
or with Diversified, or the Portfolio's principal underwriter or distributor as
principals in making purchases or sales of securities or other property for the
account of the Portfolio, except as permitted by the 1940 Act, and will
materially comply with all other provisions of the Declaration of Trust and any
current Registration Statement on Form N-1A of the Portfolio relative to the
Subadvisor, Advisor and its Trustees and officers.
5. Representations of Diversified. Diversified hereby acknowledges
receipt of
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the Subadvisor's Form ADV, Part II (which also includes its privacy policy) at
least 48 hours prior to the effective date of this Agreement pursuant to Rule
204-3 under the Investment Advisers Act of 1940. The Subadvisor annually shall
deliver, or offer in writing to deliver, upon written request of Diversified and
without charge, Form ADV, Part II. Diversified represents and confirms that the
employment of Subadvisor is authorized by due corporate or other authorization
and that the terms hereof do not violate any obligation by which Diversified is
bound, whether arising by contract, operation of law or otherwise, and, if
Diversified is a corporation or trust, that (a) this Agreement has been duly
authorized by appropriate action and when executed and delivered will be binding
upon Diversified in accordance with its terms, and (b) Diversified will deliver
to Subadvisor such evidence of such authority as Subadvisor may reasonably
require, whether by way of a certified resolution or otherwise.
6. Limits on Duties. The Subadvisor shall be responsible only for
managing the Assets in good faith and in accordance with the investment
objectives, fundamental policies and restrictions, and shall have no
responsibility whatsoever for, and shall incur no liability on account of (i)
diversification, selection or establishment of such investment objectives,
fundamental policies and restrictions (ii) advice on, or management of, any
other assets for Diversified or the Portfolio, (iii) filing of any tax or
information returns or forms, withholding or paying any taxes, or seeking any
exemption or refund, (iv) registration of the Portfolio with any government or
agency, or (v) administration of the plans and trusts investing through the
Portfolio, or (vi) overall Portfolio compliance with the requirements of the
1940 Act, which requirements are outside of the Subadvisor's control, and
Subchapter M of the Internal Revenue Code of 1986, as amended. Diversified
agrees that requirements imposed by the 1940 Act, Subchapter M, or any other
applicable laws, that are outside Subadvisor's control include compliance with
any percentage limitations applicable to the Portfolio's assets that would
require knowledge of the Portfolio's holdings other than the Assets subject to
this Agreement. (vii) The Subadvisor shall not be responsible for any loss
incurred by reason of any act or omission of any custodian, including but not
limited to any loss arising from, on account of or in connection with any
custodian failing to timely notify the Subadvisor of any corporate action or
similar transaction. (viii) The Subadvisor shall not be responsible for any loss
incurred by reason of any act or omission of any broker or dealer; provided,
however, that the Subadvisor will make reasonable efforts to require that
brokers and dealers selected by the Subadvisor perform their obligations with
respect to Diversified. Subadvisor shall be indemnified and held harmless by
Diversified for any loss in carrying out the terms and provisions of this
Agreement, including reasonable attorney's fees, indemnification to the
Portfolio, or any shareholder thereof and, brokers and commission merchants,
fines, taxes, penalties and interest. Subadvisor, however, shall be liable for
any liability, damages, or expenses of Diversified arising out of the willful
malfeasance, bad faith, gross negligence, or violation of applicable law or
reckless disregard of the duties owed pursuant to this Agreement by any of its
employees in providing management under this Agreement; and, in such cases, the
indemnification by Diversified, referred to above, shall be inapplicable, unless
Diversified or any of its employees or agents was acting in a
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manner akin to willful malfeasance, bad faith, gross negligence, or violation of
applicable law or reckless disregard of the duties owed pursuant to this
Agreement.
The Subadvisor may apply to Diversified at any time for instructions
and may consult counsel for Diversified or its own counsel with respect to any
matter arising in connection with the duties of the Subadvisor. Also, the
Subadvisor shall be protected in acting upon advice of Diversified and/or
Diversified's counsel and upon any document which Subadvisor reasonably believes
to be genuine and to have been signed by the proper person or persons.
7. Disclosure/Compliance Obligations. Subadviser agrees that, during
the term of this Agreement, Subadvisor shall disclose to Diversified the
identity of any other commingled investment fund product managed by the
Subadviser in a substantially similar manner to the strategy employed under this
Agreement if, to the best knowledge of the Subadviser, such commingled
investment funds is sold in retirement plan marketplaces in competition with the
Portfolio. In addition, Subadviser agrees to provide Diversified with all
written compliance policies and procedures of the Subadviser (and all updates
thereto) and otherwise comply with all reasonable requests by Diversified to
ensure compliance with all applicable securities and other laws.
8. Duration, Termination and Amendments of this Agreement. This
Agreement shall become effective as of the day and year first above written and
shall govern the relations between the parties hereto thereafter, and, unless
terminated earlier as provided below, shall remain in force for two years, on
which date it will terminate unless its continuance thereafter is specifically
approved at least annually (a) by the vote of a majority of the Trustees of the
Portfolio who are not "interested persons" with respect to this Agreement or of
the Subadvisor or Diversified at an in person meeting specifically called for
the purpose of voting on such approval, and (b) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees, or by the vote of a majority of the outstanding voting
securities of the Portfolio, or by Diversified. The Subadvisor may terminate the
Agreement only upon giving 30 days' advance written notice to Diversified. This
Agreement shall automatically terminate in the event of its assignment.
This Agreement may be amended only if such amendment is approved by the
vote of a majority of the Board of Trustees of the Portfolio who are not parties
to this Agreement or "interested persons" of any such party, cast in person at a
meeting called for the purpose of voting on such approval and, if required under
applicable law, the vote of a majority of the outstanding voting securities of
the Portfolio.
The terms "specifically approved at least annually", "vote of a
majority of the outstanding voting securities", "assignment", "affiliated
person", and "interested persons",
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when used in this Agreement, shall have the respective meanings specified in,
and shall be construed in a manner consistent with, the 1940 Act, subject,
however, to such exemptions as may be granted by the Securities and Exchange
Commission under said Act.
9. Certain Records. Any records to be maintained and preserved pursuant
to the provisions of Rule 31a-1 and Rule 31a-2 adopted under the 1940 Act which
are prepared or maintained by the Subadvisor with respect to the Assets will be
made available promptly to the Portfolio on request.
10. Survival of Compensation Rates. All rights to compensation under
this Agreement shall survive the termination of this Agreement.
11. Entire Agreement. This Agreement states the entire agreement of the
parties with respect to investment advisory services to be provided to the
Portfolio by the Subadvisor and may not be amended except in a writing signed by
the parties hereto and approved in accordance with Section 8 hereof.
Should any part of this Agreement be held 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.
Diversified has delivered, or will deliver to Subadvisor, current
copies and supplements thereto of each of the Prospectus and SAI pertaining to
the Portfolio, and will deliver to it all future amendments and supplements, if
any.
12. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York.
Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of the
Commission, whether of special or general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
13. Change of Management and Pending Litigation. Subadvisor represents
to Diversified that it will disclose to Diversified promptly after it has
knowledge of any significant change or variation in its management structure or
personnel or any significant change or variation in its management style or
investment philosophy that is material to this Agreement. In addition,
Subadvisor represents to Diversified that it will similarly disclose to
Diversified, promptly after it has knowledge, the existence of any pending legal
action being brought against it whether in the form of a lawsuit or a
non-routine investigation by any federal or state governmental agency.
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Diversified represents to Subadvisor that any information and advice
received by Diversified pursuant to this section will be kept strictly
confidential and will not be disclosed to any third party.
Diversified represents to Subadvisor that it will disclose to
Subadvisor promptly after it has knowledge of any significant change or
variation in its management structure or personnel that is material to this
Agreement. In addition, Diversified represents to Subadvisor that it will
similarly disclose to Subadvisor, promptly after it has knowledge, the existence
of any pending legal action being brought against it whether in the form of a
lawsuit or a non-routine investigation by any federal or state governmental
agency.
Subadvisor represents to Diversified that any information received by
Subadvisor pursuant to this section will be kept strictly confidential and will
not be disclosed to any third party.
14. Use of Name. Subadvisor hereby agrees that Diversified may use the
Subadvisor's name in its marketing or advertising materials. Diversified agrees
to allow the Subadvisor to examine and approve any such materials prior to use.
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IN WITNESS WHEREOF, the parties thereto have caused this Agreement to
be executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
Diversified Investment Advisors, Inc.
By:
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Xxxxxx X. Xxxxx
Senior Vice President & General Counsel
Western Asset Management Company
By:
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SCHEDULE B
The Subadvisor shall be compensated for its services under this Agreement on the
basis of the below-described annual fee schedule. For purposes of applying this
decremental fee schedule, any other assets managed by Subadvisor for Diversified
will be combined with the assets of this Portfolio to determine the applicable
basis points charge, e.g., if Subadvisor manages $50M for this Portfolio and
$60M for one or more additional Diversified funds (Portfolios or other
Diversified funds) then the applicable marginal charge would be .0015 of net
assets in excess of $100M for this example. The fee schedule shall only be
amended by agreement between the parties.
FEE SCHEDULE
.0030 OF THE FIRST $100MILLION OF NET ASSETS
.0015 OF NET ASSETS IN EXCESS OF $100MILLION
Net assets are equal to the market value of the portion of the Portfolio
allocated to the Subadvisor. Fees will be calculated by multiplying the
arithmetic average of the beginning and ending monthly net assets for each
calendar month by the fee schedule and dividing by twelve. The fee for each
calendar quarter will be paid quarterly in arrears.
