HOTCHKIS AND WILEY FUNDS
INVESTMENT ADVISORY AGREEMENT
Hotchkis and Wiley Core Value Fund
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 28th day of July,
2004, by and between HOTCHKIS AND WILEY FUNDS, a Delaware statutory trust (the
"Trust"), on behalf its Hotchkis and Wiley Core Value Fund series (the "Fund")
and HOTCHKIS AND WILEY CAPITAL MANAGEMENT, LLC, a Delaware limited liability
company (the "Advisor").
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company,
registered as such under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and
WHEREAS, the Fund is a series of the Trust having separate assets and
liabilities; and
WHEREAS, the Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act") and is engaged
in the business of supplying investment advice as an independent contractor;
and
WHEREAS, the Trust desires to retain the Advisor to render advice and
services to the Fund pursuant to the terms and provisions of this Agreement,
and the Advisor desires to furnish said advice and services.
NOW, THEREFORE, in consideration of the covenants and the mutual promises
herein, the parties to this Agreement, intending to be legally bound hereby,
mutually agree as follows:
1. APPOINTMENT OF ADVISOR. The Trust hereby employs the Advisor and the
Advisor hereby accepts such employment, to provide management services and to
render investment advice and related services with respect to the assets of the
Fund for the period and on the terms set forth in this Agreement, subject to
the supervision and direction of the Trust's Board of Trustees.
2. DUTIES OF ADVISOR.
(a) GENERAL DUTIES. The Advisor shall act as investment adviser to the
Fund and shall supervise investments of the Fund on behalf of the Fund in
accordance with the investment objectives, policies and restrictions of the
Fund as set forth in the Fund's and Trust's governing documents, including,
without limitation, the Trust's Agreement and Declaration of Trust and By-Laws;
the Trust's prospectus, statement of additional information and undertakings;
and such other limitations, policies and procedures as the
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Trustees may impose from time to time in writing to the Advisor. In providing
such services, the Advisor shall at all times adhere to the provisions and
restrictions contained in the federal securities laws, applicable state
securities laws, the Internal Revenue Code, the Uniform Commercial Code and
other applicable law.
Without limiting the generality of the foregoing, the Advisor shall: (i)
furnish the Fund with advice and recommendations with respect to the investment
of the Fund's assets and the purchase and sale of portfolio securities for the
Fund, including the taking of such steps as may be necessary to implement such
advice and recommendations (I.E., placing the orders); (ii) manage and oversee
the investments of the Fund, subject to the ultimate supervision and direction
of the Trust's Board of Trustees; (iii) vote proxies for the Fund, file
ownership reports under Section 13 of the Securities Exchange Act of 1934, as
amended, for the Fund, and take other actions on behalf of the Fund; (iv)
maintain the books and records required to be maintained by the Fund except to
the extent arrangements have been made for such books and records to be
maintained by the administrator or another agent of the Fund; (v) furnish
reports, statements and other data on securities, economic conditions and other
matters related to the investment of the Fund's assets which the Fund's
administrator or distributor or the officers of the Trust may reasonably
request; and (vi) render to the Trust's Board of Trustees such periodic and
special reports with respect to the Fund's investment activities as the Board
may reasonably request.
(B) BROKERAGE. The Advisor shall be responsible for decisions to buy and
sell securities for the Fund, for broker-dealer selection, and for negotiation
of brokerage commission rates, provided that the Advisor shall not direct
orders to an affiliated person of the Advisor without general prior
authorization of the Trust's Board of Trustees to use such affiliated broker or
dealer. The Advisor's primary consideration in effecting a securities
transaction will be execution at the most favorable price. In selecting a
broker-dealer to execute each particular transaction, the Advisor may take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution
of the broker-dealer to the investment performance of the Fund on a continuing
basis. The price to the Fund in any transaction may be less favorable than that
available from another broker-dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
Subject to such policies as the Board of Trustees of the Trust may
determine and consistent with Section 28(e) of the Securities Exchange Act of
1934, as amended, the Advisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Fund to pay a broker or dealer that provides
(directly or indirectly) brokerage or research services to the Advisor an
amount of commission for effecting a portfolio transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, if the Advisor determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of either
that particular transaction or the Advisor's overall responsibilities with
respect to the Trust. Subject to the same policies and legal provisions, the
Advisor is further authorized to allocate the orders placed by it on behalf of
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the Fund to such brokers or dealers who also provide research or statistical
material, or other services, to the Trust, the Advisor, or any affiliate of
either. Such allocation shall be in such amounts and proportions as the Advisor
shall determine, and the Advisor shall report on such allocations regularly to
the Trust, indicating the broker-dealers to whom such allocations have been
made and the basis therefor.
On occasions when the Advisor deems the purchase or sale of a security to
be in the best interest of the Fund as well as of other clients, the Advisor,
to the extent permitted by applicable laws and regulations, may aggregate the
securities to be so purchased or sold in order to obtain the most favorable
price or lower brokerage commissions and the most 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 the Advisor in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
3. REPRESENTATIONS OF THE ADVISOR.
(a) The Advisor shall use its best judgment and efforts in rendering the
advice and services to the Fund as contemplated by this Agreement.
(b) The Advisor shall maintain all licenses and registrations necessary
to perform its duties hereunder in good order.
(c) The Advisor shall conduct its operations at all times in conformance
with the Advisers Act, the Investment Company Act, and any other applicable
state and/or self-regulatory organization regulations.
(d) The Advisor shall maintain errors and omissions insurance in an
amount at least equal to that disclosed to the Board of Trustees in connection
with their approval of this Agreement.
4. INDEPENDENT CONTRACTOR. The Advisor shall, for all purposes herein,
be deemed to be an independent contractor, and shall, unless otherwise
expressly provided and authorized to do so, have no authority to act for or
represent the Trust or the Fund in any way, or in any way be deemed an agent
for the Trust or for the Fund. It is expressly understood and agreed that the
services to be rendered by the Advisor to the Fund under the provisions of this
Agreement are not to be deemed exclusive, and the Advisor shall be free to
render similar or different services to others so long as its ability to render
the services provided for in this Agreement shall not be impaired thereby.
5. ADVISOR'S PERSONNEL. The Advisor shall, at its own expense, maintain
such staff and employ or retain such personnel and consult with such other
persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Advisor shall be
deemed to include persons employed or retained by the Advisor to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical
and scientific
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developments, and such other information, advice and assistance as the Advisor
or the Trust's Board of Trustees may desire and reasonably request and any
compliance staff and personnel required by the Advisor.
6. EXPENSES.
(a) With respect to the operation of the Fund, the Advisor shall be
responsible for (i) the Fund's organizational expenses, (ii) providing the
personnel, office space and equipment reasonably necessary for the operation of
the Fund, (iii) the expenses of printing and distributing extra copies of the
Fund's prospectus, statement of additional information, and sales and
advertising materials (but not the legal, auditing or accounting fees attendant
thereto) to prospective investors (but not to existing shareholders) to the
extent such expenses are not covered by any applicable plan adopted pursuant to
Rule 12b-1 under the Investment Company Act, (iv) the costs of any special
Board of Trustees meetings or shareholder meetings convened for the primary
benefit of the Advisor, and (v) any costs of liquidating or reorganizing the
Fund (unless such cost is otherwise allocated by the Board of Trustees). If the
Advisor has agreed to limit the operating expenses of the Fund, the Advisor
shall also be responsible on a monthly basis for any operating expenses that
exceed the agreed-upon expense limit.
(b) The Fund is responsible for and has assumed the obligation for
payment of all of its expenses, other than as stated in Subparagraph 6(a)
above, including but not limited to: fees and expenses incurred in connection
with the issuance, registration and transfer of its shares; brokerage and
commission expenses; all expenses of transfer, receipt, safekeeping, servicing
and accounting for the cash, securities and other property of the Trust for the
benefit of the Fund including all fees and expenses of its custodian,
shareholder services agent and accounting services agent; interest charges on
any borrowings; costs and expenses of pricing and calculating its daily net
asset value and of maintaining its books of account required under the
Investment Company Act; taxes, if any; a pro rata portion of expenditures in
connection with meetings of the Fund's shareholders and the Trust's Board of
Trustees that are properly payable by the Fund; salaries and expenses of
officers of the Trust (as agreed by the Board of Trustees), including without
limitation the Trust's Chief Compliance Officer, and fees and expenses of
members of the Trust's Board of Trustees or members of any advisory board or
committee who are not members of, affiliated with or interested persons of the
Advisor; insurance premiums on property or personnel of the Fund which inure to
its benefit, including liability and fidelity bond insurance; the cost of
preparing and printing reports, proxy statements, prospectuses and statements
of additional information of the Fund or other communications for distribution
to existing shareholders; legal, auditing and accounting fees; all or any
portion of trade association dues or educational program expenses determined
appropriate by the Board of Trustees; fees and expenses (including legal fees)
of registering and maintaining registration of its shares for sale under
federal and applicable state and foreign securities laws; all expenses of
maintaining and servicing shareholder accounts, including all charges for
transfer, shareholder recordkeeping, dividend disbursing, redemption, and other
agents for the benefit of the Fund, if any; and all other charges and costs of
its operation plus any extraordinary and non-recurring expenses, EXCEPT AS
HEREIN OTHERWISE PRESCRIBED.
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(c) The Advisor may voluntarily absorb certain Fund expenses or waive
all or a portion of the Advisor's own advisory fee.
(d) To the extent the Advisor incurs any costs by assuming expenses
which are an obligation of the Fund as set forth herein, the Fund shall
promptly reimburse the Advisor for such costs and expenses, except to the
extent the Advisor has otherwise agreed to bear such expenses. To the extent
the services for which the Fund is obligated to pay are performed by the
Advisor, the Advisor shall be entitled to recover from the Fund to the extent
of the Advisor's actual costs for providing such services. In determining the
Advisor's actual costs, the Advisor may take into account an allocated portion
of the salaries and overhead of personnel performing such services.
(e) The Advisor may not pay fees in addition to any Fund distribution or
servicing fees to financial intermediaries, including without limitation banks,
broker-dealers, financial advisors, or pension administrators, for
sub-administration, sub-transfer agency or any other shareholder servicing or
distribution services associated with shareholders whose shares are held in
omnibus or other group accounts, except with the prior authorization of the
Trust's Board of Trustees. Where such arrangements are authorized by the
Trust's Board of Trustees, the Advisor shall report regularly to the Trust on
the amounts paid and the relevant financial institutions.
7. INVESTMENT ADVISORY AND MANAGEMENT FEE.
(a) The Fund shall pay to the Advisor, and the Advisor agrees to accept,
as full compensation for all investment management and advisory services
furnished or provided to the Fund pursuant to this Agreement, an annual
management fee at the rate set forth in SCHEDULE A to this Agreement.
(b) The management fee shall be accrued daily by the Fund and paid to
the Advisor on the first business day of the succeeding month.
(c) The initial fee under this Agreement shall be payable on the first
business day of the first month following the effective date of this Agreement
and shall be prorated as set forth below. If this Agreement is terminated prior
to the end of any month, the fee to the Advisor shall be prorated for the
portion of any month in which this Agreement is in effect which is not a
complete month according to the proportion which the number of calendar days in
the month during which the Agreement is in effect bears to the number of
calendar days in the month, and shall be payable within ten (10) days after the
date of termination.
(d) The fee payable to the Advisor under this Agreement will be reduced
to the extent of any receivable owed by the Advisor to the Fund and as required
under any expense limitation applicable to the Fund.
(e) The Advisor voluntarily may reduce any portion of the compensation or
reimbursement of expenses due to it pursuant to this Agreement and may agree to
make payments to limit the expenses which are the responsibility of the Fund
under this Agreement. Any such reduction or payment shall be applicable only to
such specific
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reduction or payment and shall not constitute an agreement to reduce any future
compensation or reimbursement due to the Advisor hereunder or to continue
future payments. Any such reduction will be agreed to prior to accrual of the
related expense or fee and will be estimated daily and reconciled and paid on a
monthly basis.
8. NO SHORTING; NO BORROWING. The Advisor agrees that neither it nor any
of its officers or employees shall take any short position in the shares of the
Fund. This prohibition shall not prevent the purchase of such shares by any of
the officers or employees of the Advisor or any trust, pension, profit-sharing
or other benefit plan for such persons or affiliates thereof, at a price not
less than the net asset value thereof at the time of purchase, as allowed
pursuant to rules promulgated under the Investment Company Act. The Advisor
agrees that neither it nor any of its officers or employees shall borrow from
the Fund or pledge or use the Fund's assets in connection with any borrowing
not directly for the Fund's benefit. For this purpose, failure to pay any
amount due and payable to the Fund for a period of more than thirty (30) days
shall constitute a borrowing.
9. CONFLICTS WITH TRUST'S GOVERNING DOCUMENTS AND APPLICABLE LAWS.
Nothing herein contained shall be deemed to require the Trust or the Fund to
take any action contrary to the Trust's Agreement and Declaration of Trust,
By-Laws, or any applicable statute or regulation, or to relieve or deprive the
Board of Trustees of the Trust of its responsibility for and control of the
conduct of the affairs of the Trust and Fund. In this connection, the Advisor
acknowledges that the Trustees retain ultimate plenary authority over the Fund
and may take any and all actions necessary and reasonable to protect the
interests of shareholders.
10. REPORTS AND ACCESS. The Advisor agrees to supply such information to
the Fund's administrator and to permit such compliance inspections by the
Fund's administrator as shall be reasonably necessary to permit the
administrator to satisfy its obligations and respond to the reasonable requests
of the Trustees.
11. ADVISOR'S LIABILITIES AND INDEMNIFICATION.
(a) The Advisor shall have responsibility for the accuracy and
completeness (and liability for the lack thereof) of the statements in the
Fund's offering materials (including the prospectus, the statement of
additional information, advertising and sales materials), except for
information supplied by the administrator or the Trust or another third party
for inclusion therein.
(b) The Advisor shall be liable to the Fund for any loss (including
brokerage charges) incurred by the Fund as a result of any improper investment
made by the Advisor.
(c) In the absence of willful misfeasance, bad faith, negligence, or
reckless disregard of the obligations or duties hereunder on the part of the
Advisor, the Advisor shall not be subject to liability to the Trust or the Fund
or to any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security by the Fund.
Notwithstanding the foregoing, federal securities laws and certain state laws
impose
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liabilities under certain circumstances on persons who have acted in good
faith, and therefore nothing herein shall in any way constitute a waiver or
limitation of any rights which the Trust, the Fund or any shareholder of the
Fund may have under any federal securities law or state law.
(d) Each party to this Agreement shall indemnify and hold harmless the
other party and the shareholders, directors, officers and employees of the
other party (any such person, an "Indemnified Party") against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating and defending any alleged loss, liability, claim, damage or
expenses and reasonable counsel fees incurred in connection therewith) arising
out of the Indemnified Party's performance or non-performance of any duties
under this Agreement provided, however, that nothing herein shall be deemed to
protect any Indemnified Party against any liability to which such Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith or
negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties under this Agreement.
(e) No provision of this Agreement shall be construed to protect any
Trustee or officer of the Trust, or officer of the Advisor, from liability in
violation of Sections 17(h) and (i) of the Investment Company Act.
12. NON-EXCLUSIVITY; TRADING FOR ADVISOR'S OWN ACCOUNT. The Trust's
employment of the Advisor is not an exclusive arrangement. The Trust may from
time to time employ other individuals or entities to furnish it with the
services provided for herein. Likewise, the Advisor may act as investment
adviser for any other person, and shall not in any way be limited or restricted
from buying, selling or trading any securities for its or their own accounts or
the accounts of others for whom it or they may be acting, provided, however,
that the Advisor expressly represents that it will undertake no activities
which will adversely affect the performance of its obligations to the Fund
under this Agreement; and provided further that the Advisor will adhere to a
code of ethics governing employee trading and trading for proprietary accounts
that conforms to the requirements of the Investment Company Act and the
Advisers Act and has been approved by the Trust's Board of Trustees.
13. TERM.
(a) This Agreement shall become effective at the time the Fund commences
operations pursuant to an effective amendment to the Trust's Registration
Statement under the Securities Act of 1933, as amended, and shall remain in
effect for a period of two (2) years, unless sooner terminated as hereinafter
provided. This Agreement shall continue in effect thereafter for additional
periods not exceeding one (1) year so long as such continuation is approved for
the Fund at least annually by (i) the Board of Trustees of the Trust or by the
vote of a majority of the outstanding voting securities of the Fund and (ii)
the vote of a majority of the Trustees of the Trust who are not parties to this
Agreement nor interested persons thereof, cast in person at a meeting called
for the purpose of voting on such approval. The terms "majority of the
outstanding voting securities" and "interested persons" shall have the meanings
as set forth in the Investment Company Act.
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(b) The Fund may use the names "Hotchkis and Wiley" and Hotchkis and
Wiley Core Value Fund or any name derived from or using the name "Hotchkis and
Wiley" only for so long as this Agreement or any extension, renewal or
amendment hereof remains in effect. Within sixty (60) days from such time as
this Agreement shall no longer be in effect, the Fund shall cease to use such a
name or any other name connected with the Advisor.
14. TERMINATION; NO ASSIGNMENT.
(a) This Agreement may be terminated by the Trust on behalf of the Fund
at any time without payment of any penalty, by the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Fund, upon sixty (60) days' written notice to the Advisor, and by the Advisor
upon sixty (60) days' written notice to the Fund. In the event of a
termination, the Advisor shall cooperate in the orderly transfer of the Fund's
affairs and, at the request of the Board of Trustees, transfer any and all
books and records of the Fund maintained by the Advisor on behalf of the Fund.
(b) This Agreement shall terminate automatically in the event of any
assignment thereof, as defined in the Investment Company Act.
15. NONPUBLIC PERSONAL INFORMATION. Notwithstanding any provision herein
to the contrary, the Advisor agrees on behalf of itself and its directors,
trustees, shareholders, officers, and employees (1) to treat confidentially and
as proprietary information of the Trust (a) all records and other information
relative to the Fund's prior, present, or potential shareholders (and clients
of said shareholders) and (b) any Nonpublic Personal Information, as defined
under Section 248.3(t) of Regulation S-P ("Regulation S-P"), promulgated under
the Xxxxx-Xxxxx-Xxxxxx Act (the "G-L-B Act"), and (2) except after prior
notification to and approval in writing by the Trust, not to use such records
and information for any purpose other than the performance of its
responsibilities and duties hereunder, or as otherwise permitted by Regulation
S-P or the G-L-B Act, and if in compliance therewith, the privacy policies
adopted by the Trust and communicated in writing to the Advisor. Such written
approval shall not be unreasonably withheld by the Trust and may not be
withheld where the Advisor may be exposed to civil or criminal contempt or
other proceedings for failure to comply after being requested to divulge such
information by duly constituted authorities.
16. ANTI-MONEY LAUNDERING COMPLIANCE. The Advisor acknowledges that, in
compliance with the Bank Secrecy Act, as amended, the USA PATRIOT Act, and any
implementing regulations thereunder (together, "AML Laws"), the Trust has
adopted an Anti-Money Laundering Policy. The Advisor agrees to comply with the
Trust's Anti-Money Laundering Policy and the AML Laws, as the same may apply to
the Advisor, now and in the future. The Advisor further agrees to provide to
the Trust and/or the administrator such reports, certifications and contractual
assurances as may be reasonably requested by the Trust. The Trust may disclose
information regarding the Advisor to governmental and/or regulatory or
self-regulatory authorities to the extent required by applicable law or
regulation and may file reports with such authorities as may be required by
applicable law or regulation.
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17. CERTIFICATIONS; DISCLOSURE CONTROLS AND PROCEDURES. The Advisor
acknowledges that, in compliance with the Xxxxxxxx-Xxxxx Act, and the
implementing regulations promulgated thereunder, the Trust and the Fund are
required to make certain certifications and have adopted disclosure controls
and procedures. To the extent reasonably requested by the Trust, the Advisor
agrees to use its best efforts to assist the Trust and the Fund in complying
with the Xxxxxxxx-Xxxxx Act and implementing the Trust's disclosure controls
and procedures. The Advisor agrees to inform the Trust of any material
development related to the Fund that the Advisor reasonably believes is
relevant to the Fund's certification obligations under the Xxxxxxxx-Xxxxx Act.
18. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute or rule, or shall be otherwise
rendered invalid, the remainder of this Agreement shall not be affected
thereby.
19. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
20. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware without giving effect to the
conflict of laws principles thereof; provided that nothing herein shall be
construed to preempt, or to be inconsistent with, any federal law, regulation
or rule, including the Investment Company Act and the Advisers Act and any
rules and regulations promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all on the day and year first
above written.
HOTCHKIS AND WILEY FUNDS, HOTCHKIS AND WILEY CAPITAL
ON BEHALF OF THE HOTCHKIS AND WILEY MANAGEMENT, LLC
CORE VALUE FUND
By: /s/ XXXXX X. XXXXXX By: /s/ XXXXX X. XXXXXX
Name: Xxxxx X. Xxxxxx Name: Xxxxx X. Xxxxxx
Title: President Title: Chief Operating Officer
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SCHEDULE A
Annual Fee rate: 0.75% of average net assets
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