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 Hotchkis and Wiley Capital Management, LLC, a
Delaware limited liability company ("Subadvisor").
WITNESSETH:
WHEREAS, Diversified has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940, as amended, and
has been retained to provide investment advisory services to the Value Portfolio
("Portfolio"), a series of Diversified Investors Portfolios, a diversified
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("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 Subadvisor
is prohibited from directly or indirectly consulting with any other Subadvisor
for a portion of the Portfolio's assets concerning Portfolio transactions in
securities or other assets.
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 (either in person, by teleconference or video conference) 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.
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
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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 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
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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 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 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.
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
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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 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.
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.
If the Portfolio has a claim or potential claim in any bankruptcy
proceeding, class action securities litigation, or other litigation or
proceeding affecting securities held in the Portfolio, the Subadvisor will not
be obligated to pursue such claim on behalf of the Portfolio, but will provide
the Portfolio or its custodian with reasonable assistance in support of the
Portfolio's pursuit of such claim while the Portfolio is managed by the
Subadvisor.
7. Disclosure/Compliance Obligations. Subadvisor 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
Subadvisor in a substantially similar manner to the strategy employed under this
Agreement if, to the best knowledge of the Subadvisor, such commingled
investment funds is sold in retirement plan marketplaces in competition with the
Portfolio. In addition, Subadvisor agrees to provide Diversified with all
written compliance policies and procedures of the Subadvisor (and all updates
thereto) and otherwise comply with all reasonable requests by Diversified to
ensure compliance with all applicable securities and other laws.
Each party agrees that it will treat confidentially all information
provided by the other party regarding such other party's business and
operations, including without
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limitation the investment activities or holdings of the Portfolio. All
confidential information provided by a party hereto shall not be disclosed to
any unaffiliated third party without the prior consent of the providing party
except as necessary or appropriate to perform services under this Agreement, or
during a regular examination or audit of the Subadvisor. The foregoing shall not
apply to any information that is public when provided or thereafter becomes
public or which is required or requested to be disclosed by any regulatory
authority with jurisdiction, by judicial or administrative process or otherwise
by applicable law or regulation.
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 90 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", 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
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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 7 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.
Diversified represents to Subadvisor that any information 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.
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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.
Diversified hereby agrees that Subadvisor may use Diversified's and the
Portfolio's names in the Subadvisor's client list used for marketing purposes.
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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
Hotchkis and Wiley Capital Management, LLC
By:
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Xxxxx X. Xxxxxx
Chief Operating Officer
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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. The fee schedule shall only be
amended by agreement between the parties.
Fee Schedule
.0075 of the first $15M of net assets
.0050 of the next $35M of net assets
.0035 of the next $100M of net assets
.0025 of the net assets in excess of $150M
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 by the fee
schedule and dividing by twelve. The fee will be paid quarterly.
