SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section 240.14a-11(c) or section 240.14a-12
The Diversified Investors Funds Group - Diversified Investors Special
Equity Fund
(Name of Registrant as Specified In Its Charter)
Andres E. Saldana
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
_______________________________________________________________________
2. Aggregate number of securities to which transaction applies:
_______________________________________________________________________
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
_______________________________________________________________________
4. Proposed maximum aggregate value of transaction:
_______________________________________________________________________
5. Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
_______________________________________________________________________
2. Form, Schedule or Registration Statement No.:
_______________________________________________________________________
3. Filing Party:
_______________________________________________________________________
4. Date Filed:
_______________________________________________________________________
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THE DIVERSIFIED INVESTORS FUNDS GROUP
4 Manhattanville Road
Purchase, New York 10577
January 31, 1997
Dear Shareholder:
On February 28, 1997 at 9:30 a.m. (Eastern Time) we will hold a special meeting
of shareholders of Diversified Investors Special Equity Fund (the "Fund"), a
series of The Diversified Investors Funds Group (the "Trust"), to vote on
important proposals relating to the Fund.
VOTING ONLY TAKES A FEW MINUTES - PLEASE RESPOND PROMPTLY.
As a shareholder, you cast one vote for each share that you own. Every
shareholder's vote is important, no matter how many shares you own.
Please take a few moments to read the enclosed materials and then cast your
vote on the enclosed proxy card. Items 1 and 2 have been carefully considered
by the Board of Trustees of the Trust, which is responsible for protecting your
interests as a shareholder. The Board of Trustees of the Trust believes that
the proposals are fair and reasonable and recommends that you vote in favor of
the proposals.
The proposals you will vote on for the Fund are summarized below. Complete
information is contained in the enclosed Proxy Statement.
ITEM 1. To consider and vote on approval of a new Investment
Subadvisory Agreement between Diversified Investment Advisors,
Inc. (the "Adviser") and Liberty Investment Management, a
division of Goldman Sachs Asset Management.
ITEM 2. To consider and vote on ratification of the selection of
Coopers & Lybrand L.L.P. as the independent certified public
accountants of the Fund and Special Equity Portfolio, a series
of Diversified Investors Portfolios.
ITEM 3. To transact such other business as may properly come before
the Special Meeting of Shareholders and any adjournments
thereof.
After you have voted on Items 1 and 2, please be sure to SIGN YOUR PROXY CARD
AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
This is your opportunity to voice your opinion on matters affecting the Fund.
Your participation is extremely important, no matter how many or how few shares
you own.
We appreciate your prompt response. Thank you.
Sincerely,
Robert F. Colby, Secretary
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DIVERSIFIED INVESTORS SPECIAL EQUITY FUND
a series of The Diversified Investors Funds Group
4 Manhattanville Road
Purchase, New York 10577
Telephone: (914) 697-8000
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held February 28, 1997
A Special Meeting of Shareholders of DIVERSIFIED INVESTORS SPECIAL EQUITY
FUND (the "Fund"), a series of The Diversified Investors Funds Group (the
"Trust"), will be held at the offices of Diversified Investment Advisors, Inc.,
4 Manhattanville Road, Purchase, New York 10577 on February 28, 1997 at 9:30
a.m., Eastern Time, for the following purposes:
ITEM 1. To consider and vote on approval of a new Investment
Subadvisory Agreement between Diversified Investment Advisors,
Inc. (the "Adviser") and Liberty Investment Management, a
division of Goldman Sachs Asset Management.
ITEM 2. To consider and vote on ratification of the selection of
Coopers & Lybrand L.L.P. as the independent certified public
accountants of the Fund and Special Equity Portfolio, a series
of Diversified Investors Portfolios.
ITEM 3. To transact such other business as may properly come before
the Special Meeting of Shareholders and any adjournments
thereof.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT YOU VOTE IN FAVOR OF
ALL ITEMS.
Only shareholders of record on January 20, 1997 will be entitled to vote
at the Special Meeting of Shareholders and at any adjournments thereof.
Robert F. Colby, Secretary
January 31, 1997
YOUR VOTE IS IMPORTANT. WE WOULD APPRECIATE YOUR PROMPTLY VOTING, SIGNING AND
RETURNING THE ENCLOSED PROXY, WHICH WILL HELP AVOID THE ADDITIONAL EXPENSES OF
A SECOND SOLICITATION. THE ENCLOSED ADDRESSED ENVELOPE REQUIRES NO POSTAGE AND
IS PROVIDED FOR YOUR CONVENIENCE.
<PAGE>
DIVERSIFIED INVESTORS SPECIAL EQUITY FUND
a series of The Diversified Investors Funds Group
4 Manhattanville Road
Purchase, New York 10577
Telephone: (914) 697-8000
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PROXY STATEMENT
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This Proxy Statement and Notice of Special Meeting with accompanying form of
proxy are being mailed by the Board of Trustees of The Diversified Investors
Funds Group (the "Trust") on behalf of Diversified Investors Special Equity
Fund (the "Fund"), a series of the Trust, on or about January 31, 1997. They
are being furnished in connection with the solicitation of proxies by the Board
of Trustees of the Trust for use at the special meeting of shareholders of the
Fund, or any adjournment thereof, to be held at the offices of Diversified
Investment Advisors, Inc., 4 Manhattanville Road, Purchase, New York 10577, on
February 28, 1997 at 9:30 a.m., Eastern Time (the "Meeting"), for the purposes
set forth in the accompanying Notice of Special Meeting.
The Fund is one of thirteen series of the Trust, which is a registered
investment company organized as a Massachusetts business trust under a
Declaration of Trust dated as of April 23, 1993. The Fund was designated as a
separate series of the Trust on April 23, 1993. The mailing address of the
Trust is 4 Manhattanville Road, Purchase, New York 10577. The Fund seeks to
achieve its investment objective by investing all of its investable assets in
Special Equity Portfolio (the "Portfolio"), a series of Diversified Investors
Portfolios (the "Portfolio Series"), a registered investment company. The
Portfolio has the same investment objective as the Fund. Shareholders of the
Fund are being asked to vote on certain matters with respect to the Portfolio
because the Portfolio has called a meeting of its investors to vote on such
matters.
The Fund commenced operations on July 1, 1994. The annual report for the Fund
for the period ended December 31, 1995, including audited financial statements,
and the semi-annual report for the Fund for the period ended June 30, 1996 have
previously been sent to shareholders and are available without charge upon
request by contacting Catherine A. Mohr, Diversified Investors Funds Group, 4
Manhattanville Road, Purchase, New York 10577 or by calling the Trust toll-free
at (800) 926-0044.
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MANNER OF VOTING PROXIES AND VOTE REQUIRED
If the accompanying form of proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the proxy. If no instructions are specified, shares will be
voted for proposed Items 1 and 2. If the enclosed form of proxy is executed and
returned, it may nevertheless be revoked prior to its exercise by a signed
writing delivered at the Meeting or filed with the Secretary of the Trust.
If sufficient votes to approve the proposed Items 1 and 2 are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares voted at the Meeting. When
voting on a proposed adjournment, the persons named as proxies will vote all
shares that they are entitled to vote with respect to each Item for the
proposed adjournment, unless directed to disapprove the Item, in which case
such shares will be voted against the proposed adjournment.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of the Fund entitled to vote is required to constitute a
quorum at the Meeting. For purposes of determining the presence of a quorum for
transacting business at the Meeting, abstentions and broker "non-votes" (that
is, proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owner or other persons entitled to
vote shares on a particular matter with respect to which the brokers or
nominees do not have discretionary power) will be treated as shares that are
present but which have not been voted. For this reason, abstentions and broker
"non-votes" will have the effect of a "no" vote for purposes of obtaining the
requisite approval of the proposals.
The cost of soliciting proxies in the accompanying form, including the fees of
any proxy soliciting agent, will be borne by Liberty Investment Management, a
division of Goldman Sachs Asset Management. In addition to solicitation by
mail, proxies may be solicited by the Board of Trustees of the Trust, officers,
and regular employees and agents of the Trust without compensation therefor.
Liberty Investment Management may reimburse brokerage firms and others for
their expenses in forwarding proxy materials to beneficial owners and
soliciting them to execute the proxies.
The close of business on January 20, 1997 has been fixed as the Record Date for
the determination of shareholders entitled to notice of and to vote at the
Meeting. 548,069.548 shares of the Fund, par value $0.00001 per share, were
outstanding as of the close of business on the Record Date. Shareholders of
record at the close of business on the Record Date will be entitled to one vote
for each share held.
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INTERESTS OF CERTAIN PERSONS
As of the Record Date, no Trustees or officers of the Trust owned beneficially
or had the right to vote any outstanding shares of the Fund.
As of the Record Date, there were no persons who owned of record or had the
right to vote 5% or more of the outstanding shares of the Fund.
SUBMISSION OF CERTAIN PROPOSALS
The Trust is a Massachusetts business trust and as such is not required to hold
annual meetings of shareholders, although special meetings may be called for
the Fund, or for the Trust as a whole, for purposes such as electing Trustees
or removing Trustees, changing fundamental policies, or approving an advisory
contract. Shareholder proposals to be presented at any subsequent meeting of
shareholders must be received by the Trust at the Trust's office within a
reasonable time before the proxy solicitation is made.
ITEM 1. APPROVAL OR DISAPPROVAL OF A NEW INVESTMENT SUBADVISORY AGREEMENT
BETWEEN DIVERSIFIED INVESTMENT ADVISORS, INC. AND LIBERTY INVESTMENT
MANAGEMENT, A DIVISION OF GOLDMAN SACHS ASSET MANAGEMENT
THE TRANSACTION
Liberty Investment Management, Inc. ("Liberty") currently serves as one of four
investment subadvisers to the Portfolio pursuant to an Investment Subadvisory
Agreement dated as of May 1, 1995, between Liberty and the Adviser (the
"Current Liberty Subadvisory Agreement"). Liberty has entered into a definitive
agreement for the sale of its assets to Goldman, Sachs & Co. ("Goldman Sachs").
The transaction (the "Transaction") is expected to be carried out in stages.
The first stage of the Transaction closed on January 2, 1997 and effected the
sale of a majority of the assets of Liberty to Goldman Sachs, not including the
Current Liberty Subadvisory Agreement. The Liberty assets purchased by Goldman
Sachs, along with the key personnel of Liberty described below, will operate as
a division ("New Liberty") of Goldman Sachs Asset Management ("GSAM"), which is
in turn a separate operating division of Goldman Sachs. New Liberty may operate
under the name Liberty Investment Management or under the name Goldman Sachs
Asset Management.
Liberty will continue to operate as a separate entity after January 2, 1997
until such time as Liberty transfers its remaining assets to New Liberty in one
or more subsequent stages of the Transaction, or otherwise disposes of any
remaining assets.
Because completion of the Transaction with respect to the Current Liberty
Subadvisory Agreement will result in an assignment and automatic termination of
that agreement, shareholders of the Fund are being asked to vote on a new
subadvisory agreement (the "New Liberty Subadvisory Agreement") between New
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Liberty and the Adviser. The terms and conditions of the New Liberty
Subadvisory Agreement, including the investment advisory fees, are identical to
the terms and conditions of the Current Liberty Subadvisory Agreement, with the
exception of the effective date, termination date and the entity to act as
subadviser.
BACKGROUND
As disclosed in the Fund's Prospectus, the Fund is a SpokeSM fund within a
two-tier, master/feeder mutual fund structure, also referred to as a Hub and
Spoke (R) investment fund structure. Hub and Spoke (R) is a registered service
mark of Signature Financial Group, Inc. In the Hub and Spoke (R) structure, the
Fund, unlike other mutual funds which directly acquire and manage their own
portfolios of securities, seeks to achieve its investment objective by
investing all of its investable assets in the Portfolio. The Portfolio has the
same investment objective as the Fund.
Diversified Investment Advisors, Inc., a Delaware corporation (the "Adviser"),
4 Manhattanville Road, Purchase, New York 10577, manages the assets of the
Portfolio pursuant to an Investment Advisory Agreement dated as of January 3,
1994 (the "Advisory Agreement"). The Advisory Agreement was most recently
approved by the Board of Trustees of the Portfolio Series, including a majority
of the Trustees who are not "interested persons," as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), of any party to such
agreement (the "Independent Trustees"), on November 12, 1996. Subject to the
terms of the Advisory Agreement, the Adviser is responsible for the management
of the Portfolio, selects, subject to the review and approval of the Board of
Trustees of the Portfolio Series, appropriate subadvisers to make the
day-to-day investment selections for the Portfolio consistent with the
guidelines and directions set by the Adviser and the Board of Trustees of the
Portfolio Series, and reviews the subadvisers' continued performance.
Liberty maintains its principal office at 2502 Rocky Point Drive, Suite 500,
Tampa, Florida 33607. The Adviser has delegated the responsibility for the
daily management of the Portfolio to Liberty and three other subadvisers. The
Current Liberty Subadvisory Agreement was most recently approved by the Board
of Trustees of the Portfolio Series, including the Independent Trustees, on
November 12, 1996. The Current Liberty Subadvisory Agreement was most recently
approved by the holders of beneficial interests in the Portfolio Series,
including the Fund, on April 24, 1995, in connection with Liberty's succession
to a portion of the business of Eagle Asset Management, Inc., a former
subadviser to the Portfolio.
On October 23, 1996, Liberty entered into a definitive agreement for the sale
of its assets to Goldman Sachs. In connection with the sale, Goldman Sachs has
provided incentives for certain key personnel to remain employed with New
Liberty.
In connection with the Transaction, Herbert E. Ehlers, Lincoln Kinnicutt and
Timothy G. Ebright, currently the Chairman and Chief Executive Officer,
President and Senior Vice President, respectively, of Liberty, have each
entered into separate employment agreements with Goldman Sachs. These
agreements provide that upon completion of the first stage of the Transaction,
Mr. Ehlers will serve as a Managing Director of Goldman Sachs, Mr. Kinnicutt
<PAGE>
will continue to exercise his current sales, marketing and client liaison
functions with New Liberty, and Mr. Ebright will continue to exercise his
current portfolio management functions with New Liberty. Messrs. Ehlers,
Kinnicutt and Ebright will also retain their current titles and functions with
Liberty until all remaining assets of Liberty are subsequently transferred to
New Liberty or otherwise disposed of, and Liberty is dissolved.
All key personnel and investment research and management professionals of
Liberty, except for John Carlson, who is no longer employed by Liberty, have
signed long-term employment agreements with Goldman Sachs. With the exception
of Mr. Carlson, it is expected that all of the current portfolio managers will
continue to be responsible for the day-to-day investment management of their
existing client assignments. The same individuals who currently provide
portfolio management services to the Portfolio will continue to do so. New
Liberty will continue to be staffed by the current personnel of Liberty,
including, in addition to management and research team members, traders as well
as the institutional administrative, operations and client services personnel.
The first stage of the Transaction, which was subject to various approvals and
consents, closed on January 2, 1997 with respect to a majority of the assets of
Liberty, not including the Current Liberty Subadvisory Agreement. The
Transaction will be completed with respect to the Current Liberty Subadvisory
Agreement if the holders of beneficial interests in the Portfolio approve the
New Liberty Subadvisory Agreement. Shareholders of the Fund are being asked to
vote on the New Liberty Subadvisory Agreement because the Portfolio has asked
the Fund, and the Portfolio's other investors, to vote on the same agreement.
After completion of the Transaction, New Liberty will maintain its principal
business office in Tampa, as well as an office in Yardley, Pennsylvania with
respect to Mr. Ebright's portfolio management functions. New Liberty will
operate as a division of GSAM. No fundamental changes in investment philosophy
or processes are anticipated.
The following information regarding Goldman Sachs has been provided by Goldman
Sachs. GSAM, a separate operating division of Goldman Sachs, has its principal
business address at One New York Plaza, New York, New York 10004. Goldman Sachs
is a worldwide investment banking firm and has its principal business address
at 85 Broad Street, New York, New York 10004. The principal executive officers
of Goldman Sachs are Jon S. Corzine and Henry M. Paulson. The principal
occupation of each of Messrs. Corzine and Paulson is the management of Goldman
Sachs. The general partners of Goldman Sachs are The Goldman Sachs Group, L.P.
(a Delaware limited partnership) ("GSGLP") and The Goldman, Sachs & Co. L.L.C.
(a Delaware limited liability company) ("GSCLLC"). The principal business
address of the principal executive officers and general partners of Goldman
Sachs is 85 Broad Street, New York, New York 10004. The Goldman Sachs
Corporation ("GSC") is the parent company of both GSGLP and GSCLLC. GSC owns
0.2% of the voting securities of GSCLLC. GSC is the sole general partner of
GSGLP and owns 0.2% of the voting securities of GSGLP. GSGLP is also a parent
of GSCLLC, and GSGLP owns 99.8% of the voting securities of GSCLLC.
<PAGE>
The Board of Trustees of the Portfolio Series and the Adviser propose that New
Liberty be appointed as a subadviser to the Portfolio upon consummation of the
Transaction with respect to the Current Liberty Subadvisory Agreement. The
proposed appointment of New Liberty as a subadviser to the Portfolio is based
primarily on the desire of the Board of Trustees of the Portfolio Series to
have the current investment management team of Liberty continue to provide
portfolio management services to the Portfolio, including Messrs. Ehlers and
Ebright, who have been primarily responsible for the subadvisory services
provided to the Portfolio since the Portfolio's inception. The fees to be paid
to New Liberty under the New Liberty Subadvisory Agreement will be the same as
the fees currently paid to Liberty under the Current Liberty Subadvisory
Agreement.
As required by the 1940 Act, the Current Liberty Subadvisory Agreement between
Liberty and the Adviser provides for its automatic termination upon its
"assignment." The 1940 Act defines "assignment" to include any direct or
indirect transfer or hypothecation of a contract or of a controlling block of
the assignor's outstanding voting securities by a security holder of the
assignor. Consummation of the Transaction with respect to the Current Liberty
Subadvisory Agreement will give rise to an assignment within the meaning of the
1940 Act, and therefore will result in the automatic termination of the Current
Liberty Subadvisory Agreement.
In accordance with the requirements of the 1940 Act, the New Liberty
Subadvisory Agreement must be approved by the holders of beneficial interests
in the Portfolio. The Portfolio and the Fund have agreed that the shareholders
of the Fund will be asked to vote on all matters on which the Fund is asked to
vote as a holder of a beneficial interest in the Portfolio. The Trust will cast
all of the Fund's votes with respect to the New Liberty Subadvisory Agreement
in the same proportion as the votes of the Fund's shareholders who do, in fact,
vote at the Meeting on this Item 1.
Because there are holders of beneficial interests in the Portfolio other than
the Fund, it is possible that the New Liberty Subadvisory Agreement will not be
approved by the requisite vote, even if the New Liberty Subadvisory Agreement
is approved by the shareholders of the Fund. It is also possible that the New
Liberty Subadvisory Agreement will be approved by the requisite vote, even if
the New Liberty Subadvisory Agreement is not approved by the shareholders of
the Fund.
If New Liberty's appointment is approved in accordance with the 1940 Act, New
Liberty will replace Liberty as one of the Portfolio's subadvisers.
THE CURRENT AND NEW LIBERTY SUBADVISORY AGREEMENTS
If the proposed New Liberty Subadvisory Agreement between New Liberty and the
Adviser is approved by the required holders of beneficial interests in the
Portfolio, as described herein, New Liberty would serve as an investment
subadviser to the Portfolio. The terms and conditions of the New Liberty
Subadvisory Agreement are substantially identical to those of the Current
Liberty Subadvisory Agreement, with the exception of the identity of the
service provider, the effective date and the termination date. The New Liberty
Subadvisory Agreement, if approved by the vote of the holders of a "majority of
the outstanding voting securities" (as such term is defined below) of the
Portfolio, will become effective upon such approval and will continue in effect
<PAGE>
for a two-year period, and thereafter from year to year, subject to approval
annually in accordance with the 1940 Act. The New Liberty Subadvisory Agreement
may be terminated at any time without the payment of any penalty by the Board
of Trustees of the Portfolio Series or by the vote of a "majority of the
outstanding voting securities" of the Portfolio or by the Adviser. The New
Liberty Subadvisory Agreement may also be terminated by New Liberty upon 90
days' advance written notice to the Adviser. The New Liberty Subadvisory
Agreement will also terminate automatically in the event of its "assignment"
(as defined in the 1940 Act).
Under the New Liberty Subadvisory Agreement, as under the Current Liberty
Subadvisory Agreement, New Liberty will furnish continuing portfolio management
services to the Portfolio, subject always to the provisions of the 1940 Act and
to the investment objectives, policies, procedures and investment restrictions
imposed by the Portfolio's then current registration statement under the 1940
Act. As under the Current Liberty Subadvisory Agreement, investment management
decisions of New Liberty will be made by the investment management team at New
Liberty. New Liberty will also provide the Adviser with such investment advice
and reports and data as are requested by the Adviser.
Like the Current Liberty Subadvisory Agreement, the New Liberty Subadvisory
Agreement provides that New Liberty shall be responsible only for managing the
assets of the Portfolio in good faith and in accordance with investment
guidelines, and shall have no responsibility whatsoever for, and shall incur no
liability on account of, (i) selection of such investment guidelines, (ii)
advice on, or management of, any other assets for the Adviser, (iii) filing of
any tax or information returns or forms, withholding or paying any taxes, or
seeking any exemption or refund, or (iv) registration with any government or
agency. The New Liberty Subadvisory Agreement also provides that New Liberty
shall be indemnified by the Adviser for any loss incurred by New Liberty in
carrying out the terms and provisions of the New Liberty Subadvisory Agreement,
including reasonable attorney's fees, indemnification to brokers and commission
merchants, fines, taxes, penalties and interest. New Liberty, however, shall be
liable for any liability, damages, or expenses of the Adviser arising out of
negligence, malfeasance or violation of applicable law by New Liberty or any of
its employees in providing management services under the agreement; and, in
such cases, the indemnification by the Adviser described above shall be
inapplicable.
Shareholders should refer to Exhibit A attached hereto for the complete terms
of the New Liberty Subadvisory Agreement, and the description of the New
Liberty Subadvisory Agreement set forth herein is qualified in its entirety by
the provisions of the New Liberty Subadvisory Agreement as set forth in such
Exhibit.
INVESTMENT ADVISORY FEE
The fee under the New Liberty Subadvisory Agreement will be the same as the fee
under the Current Liberty Subadvisory Agreement. Under the New Liberty
Subadvisory Agreement, the Adviser (not the Fund or the Portfolio) will pay New
Liberty a fee for its services at the annual rate of 0.50% of the Portfolio's
net assets under management by New Liberty. Fees will be calculated monthly by
<PAGE>
multiplying the arithmetic average of the beginning and ending monthly net
assets of the Portfolio under management by New Liberty by 0.50% and dividing
by twelve. Fees will be paid by the Adviser quarterly.
Net fees accrued to Liberty for services provided pursuant to the Current
Liberty Subadvisory Agreement for the fiscal year ended December 31, 1996 were
$294,515. Neither Liberty nor any affiliated person of Liberty, nor any
affiliated person of any such person, received any other fees from the Adviser
or from the Portfolio for services provided to the Portfolio during the fiscal
year of the Portfolio ended December 31, 1996. There were no other material
payments by the Adviser or the Portfolio to Liberty, or any affiliated person
of Liberty, during the fiscal year of the Portfolio ended December 31, 1996.
As of December 31, 1996, the Portfolio had net assets of $507,254,836.
INFORMATION REGARDING LIBERTY
Liberty, a Florida corporation organized on August 30, 1994, is registered as
an investment adviser under the Investment Advisers Act of 1940. Liberty is an
investment management firm that provides investment advisory services to
institutional clients, including employee benefit plans, endowments,
foundations, other tax-exempt funds and registered investment companies.
On October 27, 1994, Liberty entered into an agreement with Eagle Asset
Management, Inc. ("Eagle") and Raymond James Financial, Inc. ("RJF"). RJF is
the parent company of, among other companies, Eagle. Under this agreement,
Liberty assumed as of January 1, 1995 portfolio management duties for
substantially all equity institutional accounts previously managed by Eagle.
These accounts represented approximately $4.3 billion of the $8.7 billion
managed by RJF subsidiaries as of September 30, 1994. In return, RJF was to
receive, for a period of five years, 50% of the fee revenues generated by
previous Eagle accounts which became or become clients of Liberty during this
period. In addition, after five years and at certain other designated times,
RJF would have the option to acquire a 20% ownership interest in Liberty at a
favorable price. RJF's right to receive a portion of Liberty's revenues and its
option to acquire 20% of Liberty will be extinguished at the completion of the
Transaction.
Mr. Ehlers is the sole director, Chief Executive Officer and Chief Investment
Officer of Liberty. He also owns all of the outstanding capital stock issued by
Liberty. Mr. Kinnicutt is Liberty's President and Chief Operating Officer. The
address of Messrs. Ehlers and Kinnicutt is 2502 Rocky Point Drive, Suite 500,
Tampa, Florida 33607.
There have been no purchases or sales by any of the Trustees of the Portfolio
Series or any of the Trustees of the Trust of any interests in Liberty or New
Liberty or any of their subsidiaries since the beginning of the Fund's and the
Portfolio's most recently completed fiscal year. No officer or Trustee of the
Portfolio Series or the Trust is an officer, employee or shareholder of Liberty
or New Liberty or owns securities or has any other material direct or indirect
interest in Liberty or New Liberty or any other person controlling, controlled
by or under common control with Liberty or New Liberty. Since January 1, 1996,
none of the Trustees of the Portfolio Series or the Trust has had any material
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interest, direct or indirect, in any material transaction, or in any material
proposed transaction, to which (i) Liberty or New Liberty, (ii) any affiliated
person of Liberty or New Liberty who controls Liberty or New Liberty either
directly or indirectly through one or more intermediaries, or (iii) any
subsidiary of any such affiliated person of Liberty or New Liberty, was or is
to be a party.
Other investment companies having a similar investment objective as the
Portfolio for which New Liberty or its affiliates plan to serve as an
investment adviser or subadviser after the Transaction and the rates of
compensation therefor, are set forth in Exhibit B attached hereto.
THE EVALUATION BY THE BOARD OF TRUSTEES
The Board of Trustees of the Portfolio Series has determined that, by approving
the New Liberty Subadvisory Agreement, the Portfolio can best assure itself
that services now being provided by Liberty will continue to be provided
without interruption.
At a meeting on November 12, 1996, the Trustees of the Portfolio Series
considered information with respect to whether the New Liberty Subadvisory
Agreement with New Liberty was in the best interests of the Portfolio and its
holders of beneficial interests. The Board of Trustees of the Portfolio Series
considered, among other factors, the level of quality of subadvisory services
provided to the Portfolio; that, subject to the approval of the Board of
Trustees of the Portfolio Series and the required approval of holders of
beneficial interests, the same personnel at Liberty who provide services to the
Portfolio would continue to do so under the New Liberty Subadvisory Agreement;
that the subadvisory fees would not change under the New Liberty Subadvisory
Agreement; and that the Portfolio would not be subjected to any unfair burden
as a result of the transaction. The Board of Trustees of the Portfolio Series
also considered, as they have in the past, the nature and quality of services
expected to be provided by New Liberty and information regarding fees, expense
ratios and performance. In evaluating New Liberty's ability to provide services
to the Portfolio, the Trustees considered information as to New Liberty's
business organization, financial resources and personnel and other matters,
including the management responsibilities of Mr. Ehlers with respect to New
Liberty and both Messrs. Ehlers' and Ebright's specialized experience and
success as growth and equity portfolio managers. The Board of Trustees of the
Portfolio Series also considered that under circumstances in which best price
and execution may be obtained from more than one broker or dealer, New Liberty
may, in its discretion, purchase and sell securities through dealers who
provide research, statistical and other information to New Liberty. Although
certain research, market and statistical information from brokers and dealers
can be useful to the Portfolio and New Liberty, New Liberty has advised that
such information is, in its opinion, only supplementary to New Liberty's own
research activities and the information must still be analyzed, weighed and
reviewed by New Liberty. It was noted that such information may be useful to
New Liberty in providing services to clients other than the Portfolio.
Conversely, it was noted such information provided to New Liberty by brokers
and dealers through whom other clients of New Liberty effect securities
transactions may be useful to New Liberty in providing services to the
Portfolio.
<PAGE>
Based upon its review, the Board of Trustees of the Portfolio Series concluded
that the New Liberty Subadvisory Agreement with New Liberty is reasonable, fair
and in the best interests of the Portfolio and its holders of beneficial
interests, and that the fees provided in the New Liberty Subadvisory Agreement
are fair and reasonable in light of the usual and customary charges made by
others for services of the same nature and quality. Accordingly, after
consideration of the above factors, and such other factors and information as
it deemed relevant, the Board of Trustees of the Portfolio Series, including
the Trustees who are not parties to the Liberty Subadvisory Agreement or the
New Liberty Subadvisory Agreement or interested persons (as defined in the 1940
Act) of any such party, unanimously approved the New Liberty Subadvisory
Agreement and voted to recommend its approval by the holders of beneficial
interests in the Portfolio.
REQUIRED VOTE
Approval of the New Liberty Subadvisory Agreement will require the approval of
"a majority of the outstanding voting securities" (as defined below) of the
Portfolio present in person or represented by proxy at a meeting of the holders
of the beneficial interests in the Portfolio. Under the 1940 Act, a "majority
of the outstanding voting securities" of an issuer means the affirmative vote
by the lesser of (a) 67% or more of the issuer's voting securities present at a
meeting if the holders of more than 50% of the issuer's outstanding voting
securities are present in person or represented by proxy or (b) more than 50%
of the issuer's outstanding voting securities (a "1940 Act Majority"). The
Portfolio and the Fund have agreed that the shareholders of the Fund will be
asked to vote on all matters on which the Fund is asked to vote as a holder of
a beneficial interest in the Portfolio. The Trust will cast all of the Fund's
votes with respect to the New Liberty Subadvisory Agreement in the same
proportion as the votes of the Fund's shareholders cast at the Meeting on this
Item 1. The percentage of the Fund's votes representing shareholders of the
Fund not voting at the Meeting will be voted by the Trust in the same
proportion as those cast by shareholders of the Fund who do, in fact, vote.
Because there are holders of beneficial interests in the Portfolio other than
the Fund, it is possible that the New Liberty Subadvisory Agreement will not be
approved by the requisite vote, even if the New Liberty Subadvisory Agreement
is approved by a 1940 Act Majority of the outstanding voting securities of the
Fund. It is also possible that the New Liberty Subadvisory Agreement will be
approved by the requisite vote, even if the New Liberty Subadvisory Agreement
is not approved by a 1940 Act Majority of the outstanding voting securities of
the Fund.
In the event that the New Liberty Subadvisory Agreement does not receive the
requisite approval, the Adviser could negotiate a new investment subadvisory
agreement with a different advisory organization or make other appropriate
arrangements, in either event subject to approval in accordance with the 1940
Act.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND
VOTE FOR APPROVAL OF THE NEW LIBERTY SUBADVISORY AGREEMENT.
<PAGE>
ITEM 2. RATIFICATION OR REJECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
It is intended that proxies cast by the Fund's shareholders not limited to the
contrary will be voted in favor of ratifying the selection, by a majority of
the Trustees of the Trust who are not "interested persons" (as that term is
defined in the 1940 Act) of the Trust, of Coopers & Lybrand L.L.P. under
Section 32(a) of the 1940 Act as independent public accountants to certify
every financial statement of the Fund required by any law or regulation to be
certified by independent public accountants and filed with the Securities and
Exchange Commission (the "SEC") in respect of all or any part of the fiscal
year of the Fund ending December 31, 1997. Coopers & Lybrand L.L.P. has no
direct or material indirect interest in the Fund.
Coopers & Lybrand L.L.P. has served as the Fund's independent certified public
accountants since the Fund's commencement of operations on July 1, 1994,
providing audit services and consultation with respect to the preparation of
filings with the SEC.
Coopers & Lybrand L.L.P. has also served as the Portfolio's independent
certified public accountants since the commencement of operations of the
Portfolio on January 3, 1994. The Portfolio has requested the ratification by
its holders of beneficial interests (including the Fund) of such selection.
Therefore, the Fund's shareholders are also being asked to ratify the selection
of Coopers & Lybrand L.L.P. as independent certified public accountants of the
Portfolio. It is intended that proxies cast by the Fund's shareholders not
voted to the contrary will be voted in favor of ratifying the selection of
Coopers & Lybrand L.L.P. under Section 32(a) of the 1940 Act as independent
public accountants for the Portfolio, to certify every financial statement of
the Portfolio required by any law or regulation to be certified for the fiscal
year ending December 31, 1997. Coopers & Lybrand L.L.P. has no direct or
material indirect interest in the Portfolio.
Representatives of Coopers & Lybrand L.L.P. are not expected to be present at
the Meeting.
REQUIRED VOTE
Ratification of the selection of Coopers & Lybrand L.L.P. as the independent
certified public accountants of the Fund will require a 1940 Act Majority of
the outstanding voting securities of the Fund, present in person or represented
by proxy at the Meeting.
Ratification of the selection of Coopers & Lybrand L.L.P. as the independent
certified public accountants of the Portfolio will require the vote of a 1940
Act Majority of the outstanding voting securities of the Portfolio present in
person or represented by proxy at a meeting of the holders of the beneficial
interests in the Portfolio. The Portfolio and the Fund have agreed that the
shareholders of the Fund will be asked to vote on all matters on which the Fund
is asked to vote as a holder of a beneficial interest in the Portfolio. The
Trust will cast all of the Fund's votes with respect to the selection of
Coopers & Lybrand L.L.P. as independent certified public accountants of the
Portfolio in the same proportion as the votes of the Fund's shareholders cast
at the Meeting on this Item 2. The percentage of the Fund's votes representing
<PAGE>
shareholders of the Fund not voting at the Meeting will be voted by the Trust
in the same proportion as those cast by shareholders of the Fund who do, in
fact, vote.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND
VOTE FOR RATIFICATION OF THE SELECTION OF COOPERS & LYBRAND L.L.P. AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FUND AND FOR THE PORTFOLIO.
ITEM 3. OTHER BUSINESS
The management of the Trust knows of no other business to be presented at the
Meeting. If any additional matters should be properly presented, it is intended
that the enclosed proxy (if not limited to the contrary) will be voted in
accordance with the judgment of the persons named in such proxy.
ADDITIONAL INFORMATION
The Fund's Distributor is Diversified Investors Securities Corp., 4
Manhattanville Road, Purchase, New York 10577. The Fund's Administrator and
Transfer Agent is Diversified Investment Advisors, Inc., 4 Manhattanville Road,
Purchase, New York 10577.
For the most recently completed fiscal year of the Portfolio, no commissions
were paid to any broker that (i) is an affiliated person of the Portfolio, or
(ii) is affiliated with any such person described in clause (i) of this
paragraph, or (iii) an affiliated person of which is an affiliated person of
the Portfolio, the Adviser, Liberty, or the administrator or the distributor of
the Portfolio.
YOU ARE URGED TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
Robert F. Colby, Secretary
January 31, 1997
<PAGE>
EXHIBIT A
INVESTMENT SUBADVISORY AGREEMENT
INVESTMENT SUBADVISORY AGREEMENT, dated as of March __, 1997, by and
between Diversified Investment Advisors, Inc., a Delaware corporation
("Diversified") and Liberty Investment Management, a division of Goldman Sachs
Asset Management ("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 Special Equity
Portfolio, a series of Diversified Investors Portfolios ("Portfolio"); and
WHEREAS, Diversified desires to retain the Subadvisor to furnish it with
portfolio management 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 management services described herein
for the investment and reinvestment of that portion of the Portfolio's assets
(the "Assets") allocated to the Subadvisor by Diversified, subject to the
control and direction of Diversified and the Portfolio's Board of Trustees, for
the period and on the terms hereinafter set forth.
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 shall be held
uninvested, subject always to the provisions of the Investment Company Act of
1940, as amended ("1940 Act"), and to the Portfolio's then-current Prospectus
and Statement of Additional Information ("SAI").
In particular, the Subadvisor shall: (i) continuously review, supervise
and administer the investment program of the Portfolio; (ii) monitor regularly
the relevant securities for the Portfolio to determine if adjustments are
warranted and, if so, to make such adjustments on a periodic basis; (iii)
determine, in the Subadvisor's discretion, the securities to be purchased or
sold or exchanged in order to keep the Portfolio in balance with its designated
investment strategy; (iv) determine, in the Subadvisor's discretion, whether to
exercise warrants or other rights with respect to the Portfolio's securities;
(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
Portfolio; (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 Portfolio as Diversified may request; (vii) meet at
least four times per year with Diversified and with such other persons as may
<PAGE>
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 Portfolio; (viii) provide the
Portfolio with records concerning the Subadvisor's activities which the
Portfolio is required to by law maintain; and (ix) render regular reports to
the Portfolio's officers and Directors concerning the Subadvisor's discharge of
the foregoing responsibilities.
The Subadvisor shall also make recommendations as to the manner in which
voting rights, rights to consent to corporate action and any other rights
pertaining to the Portfolio's securities shall be exercised. Should the Board
of Trustees of the Portfolio at any time, however, make any definite
determination as to investment policy 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
determination has been revoked.
The Subadvisor shall take, on behalf of the Portfolio, all actions which
it deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
Portfolio securities for the Portfolio's account with brokers or dealers
selected by it, and to that end the Subadvisor is authorized as the 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.
In connection with the selection of such brokers or dealers and the placing of
such orders, the Subadvisor is directed to seek for the Portfolio, in its best
judgment, prompt execution in an effective manner at the most favorable price.
Subject to this requirement of seeking the most favorable price, securities may
be bought from or sold to broker-dealers who have furnished statistical,
research and other information or services to the Subadvisor or the Portfolio,
subject to any applicable laws, rules and regulations.
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 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 with 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, will not
<PAGE>
take a long or short position in the shares of the Portfolio except as
permitted by the Portfolio's Articles, and will comply with all other
provisions of the Portfolio's Articles and By-Laws and any current Prospectus
of the Portfolio relative to the Subadvisor, Advisor and its Trustees and
officers.
5. Limits on Duties. The Subadvisor shall be responsible only for
managing the Assets in good faith and in accordance with the investment
guidelines, and shall have no responsibility whatsoever for, and shall incur no
liability on account of (i) selection of such investment guidelines, (ii)
advice on, or management of, any other assets for Diversified, (iii) filing of
any tax or information returns or forms, withholding or paying any taxes, or
seeking any exemption or refund, (iv) registration with any government or
agency, or (v) administration of the plans and trusts investing through this
Agreement, and shall be indemnified by Diversified for any loss in carrying out
the terms and provisions of this Agreement, including reasonable attorney's
fees, indemnification to 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 negligence, malfeasance
or violation of applicable law by it or 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 any document which it reasonably
believes to be genuine and to have been signed by the proper person or persons.
6. 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 a 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.
However, if the shareholders of the Portfolio fail to approve the Agreement as
provided herein, the Subadvisor may continue to serve hereunder in the manner
and to the extent permitted by the Investment Company Act of 1940 and Rules
thereunder.
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 outstanding voting securities of the Portfolio and by
vote of a majority or 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.
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.
<PAGE>
7. Certain Records. Any records to be maintained and preserved pursuant
to the provisions of Rule 31a-1 and Rule 31a-2 adopted under the Investment
Company Act which are prepared or maintained by the Subadvisor on behalf of the
Portfolio are the property of the Portfolio and will be surrendered promptly to
the Portfolio on request.
8. Survival of Compensation Rights. All rights of compensation under
this Agreement shall survive the termination of this Agreement.
9. Entire Agreement. This Agreement states the entire agreement of
the parties with respect to management of the Portfolio and may not be amended
except in a writing signed by the parties.
10. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York.
11. Change of Management and Pending Litigation. Subadvisor represents
to Diversified that it will disclose to Diversified as soon as 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. In addition, Subadvisor represents to Diversified that it will
similarly disclose to Diversified, as soon as it has knowledge, the existence
of any pending or threatened, significant legal action being brought against it
whether in the form of a lawsuit or an 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, except
as Diversified may deem reasonably necessary to comply with applicable legal
requirements and requests of regulatory authorities.
12. 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.
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:___________________________________
Liberty Investment Management, a
division of Goldman Sachs Asset
Management
By:___________________________________
<PAGE>
SCHEDULE A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of January 3, 1994 by and between the Special Equity
Portfolio, a series of Diversified Investors Portfolios (herein called the
"Portfolio"), and Diversified Investment Advisors, Inc. a Delaware corporation
(herein called "Diversified").
WHEREAS, the Portfolio is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940 (the
"1940 Act"); and
WHEREAS, Diversified has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940; and
WHEREAS, the Portfolio desires to retain Diversified to render investment
advisory services, and Diversified is willing to so render such services on the
terms hereinafter set forth;
NOW, THEREFORE, this Agreement
WITNESSETH:
In consideration of the promises and mutual covenants herein contained,
it is agreed between the parties hereto as follows:
1. The Portfolio hereby appoints Diversified to act as investment
advisor to the Portfolio for the period and on the terms set forth in this
Agreement. Diversified accepts such appointment and agrees to render the
services herein set forth for the compensation herein provided.
2. (a) Diversified shall, at its expense, (i) employ sub-advisors or
associate with itself such entities as it believes appropriate to assist it in
performing its obligations under this Agreement and (ii) provide all services,
equipment and facilities necessary to perform its obligations under this
Agreement.
(b) The Portfolio shall be responsible for all of its expenses and
liabilities, including, but not limited to: compensation and out-of-pocket
expenses of Trustees not affiliated with any 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.
<PAGE>
3. (a) Subject to the general supervision of the Board of Trustees of
the Portfolio, Diversified shall formulate and provide an appropriate
investment program on a continuous basis in connection with the management of
the Portfolio, including research, analysis, advice, statistical and economic
data and information and judgments of both a macroeconomic and microeconomic
character.
Diversified will determine the securities to be purchased, sold, lent,
exchanged or otherwise disposed of or acquired by the Portfolio in accordance
with predetermined guidelines as set forth from time to time in the Portfolio's
then-current prospectus and Statement of Additional Information ("SAI") and
will place orders pursuant to its determinations either directly with the
issuer or with any broker or dealer who deals in such securities. In placing
orders with brokers and dealers, Diversified will use its reasonable best
efforts to obtain the best net price and the most favorable execution of its
orders, after taking into account all factors it deems relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Consistent with the obligation, Diversified may, to the
extent permitted by law, purchase and sell Portfolio securities to and from
brokers and dealers who provide brokerage research services (within the meaning
of Section 28(e) of the Securities Exchange Act of 1934) to or for the benefit
of the Portfolio and/or other accounts over which Diversified or any of its
affiliates exercises investment discretion.
Subject to the review of the Portfolio's Board of Trustees from time to
time with respect to the extent and continuation of the policy, Diversified is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for effecting a securities transaction for the Portfolio
which is in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if Diversified determines in good
faith that such 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 overall responsibilities of
Diversified with respect to the accounts as to which it exercises investment
discretion.
In placing orders with brokers and/or dealers, Diversified intends to
seek best price and execution for purchases and sales and may effect
transactions through itself and its affiliates on a securities exchange
provided that the commissions paid by the Portfolio are "reasonable and fair"
compared to commissions received by other broker-dealers having comparable
execution capability in connection with comparable transactions involving
similar securities and provided that the transactions in connection with which
such commissions are paid are effected pursuant to procedures established by
the Board of the Trustees of the Portfolio. All transactions are effected
pursuant to written authorizations from the Portfolio conforming to the
requirements of Section 11(a) of the Securities Exchange Act of 1934 and Rule
11a2-2(T) thereunder. Pursuant to such authorizations, an affiliated
broker-dealer may transmit, clear and settle transactions for the Portfolio
that are executed on a securities exchange provided that it arranges for
unaffiliated brokers to execute such transactions.
Diversified shall determine from time to time the manner in which voting
rights, rights to consent to corporate action and any other rights pertaining
to the Portfolio's securities shall be exercised, provided, however, that
should the Board of Trustees at any time make any definite determination as to
investment policy and notify Diversified thereof in writing, Diversified shall
be bound by such determination for the period, if any, specified in such notice
or until similarly notified that such determination has been revoked.
Diversified will determine what portion of securities owned by the Portfolio
shall be invested in securities described by the policies of the Portfolio and
what portion, if any, should be held uninvested. Diversified will determine
<PAGE>
whether and to what extent to employ various investment techniques available to
the Portfolio, Diversified may deal with itself and its affiliates, with the
Trustees of the Portfolio or with other entities to the extent such actions are
permitted by the 1940 Act.
(b) Diversified also shall provide to the Portfolio administrative
assistance in connection with the operation of the Portfolio, which shall
include compliance with all reasonable requests of the Portfolio for
information, including information required in connection with the Portfolio's
filings with the Securities and Exchange Commission and state securities
commissions.
(c) As manager of the assets of the Portfolio, Diversified shall make
investments for the account of the Portfolio in accordance with Diversified's
best judgment and within the Portfolio's investment objectives, guidelines, and
restrictions, the 1940 Act and the provisions of the Internal Revenue Code of
1986 relating to regulated investment companies subject to policy decisions
adopted by the Board of Trustees.
(d) Diversified shall furnish to the Board of Trustees periodic reports
on the investment performance of the Portfolio and on the performance of its
obligations under this Agreement and shall supply such additional reports and
information as the Portfolio's officers or Board of Trustees shall reasonably
request.
(e) On occasions when Diversified deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
customers, Diversified, to the extent permitted by applicable law, may
aggregate the securities to be sold or purchased in order to obtain the best
execution or lower brokerage commissions, if any. Diversified may also on
occasion purchase or sell a particular security for one or more customers in
different amounts. On either occasion, and to the extent permitted by
applicable law and regulations, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made by
Diversified in the manner it considers to be the most equitable and consistent
with its fiduciary obligations to the Portfolio and to such other customers.
(f) Diversified shall also provide the Portfolio with the
following services as may be required:
(i) providing office space, equipment and clerical personnel necessary
for maintaining the organization of the Portfolio and for performing
administrative and management functions;
(ii) supervising the overall administration of the Portfolio, including
negotiation of contracts and fees with and the monitoring of
performance and billings of the Portfolio's transfer agent,
custodian and other independent contractors or agents;
(iii) preparing and, if applicable, filing all documents required for
compliance by the Portfolio with applicable laws and regulations,
including registration statements, registration fee filings,
semi-annual and annual reports to investors, proxy statements and
tax returns;
(iv) preparation of agendas and supporting documents for and minutes
of meeting of Trustees, committees of Trustees and investors; and
(v) maintaining books and records of the Portfolio.
<PAGE>
4. Diversified shall give the Portfolio the benefit of Diversified's
best judgment and efforts in rendering services under this Agreement. As an
inducement to Diversified's undertaking to render these services, the Portfolio
agrees that Diversified shall not be liable under this Agreement for any
mistake in judgment or in any other event whatsoever provided that nothing in
this Agreement shall be deemed to protect or purport to protect Diversified
against any liability to the Portfolio or its investors to which Diversified
would otherwise be subject by reason or willful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties under this Agreement or
by reason of the Adviser's reckless disregard of its obligations and duties
hereunder.
5. In consideration of the services to be rendered by Diversified under
this Agreement, the Portfolio shall pay Diversified a fee accrued daily and
paid monthly at an annual rate equal to .80% of the Portfolio's average daily
net assets. If the fees payable to Diversified pursuant to this paragraph 5
begin to accrue before the end of any month or if this Agreement terminates
before the end of any month, the fees for the period from the date to the end
of that month or from the beginning of that month to the date of termination,
as the case may be, shall be prorated according to the proportion which the
period bears to the full month in which the effectiveness or termination
occurs. For purposes of calculating the monthly fees, the value of the net
assets of the Portfolio shall be computed in the manner specified in its
Regulation Statement on Form N 1A for the computation of net asset value. For
purposes of this Agreement, a "business day" is any day the New York Stock
Exchange is open for trading.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
Diversified hereby agrees that all records which it maintains for the Portfolio
are property of the Portfolio and further agrees to surrender promptly to the
Portfolio any such records upon the Portfolio's request. Diversified further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
any such records required to be maintained by Rule 31a-1 under the 1940 Act.
6. This Agreement shall be effective as to the Portfolio as of the date
the Portfolio commences investment operations after this Agreement shall have
been approved by the Board of Trustees of the Portfolio and the investor(s) in
the Portfolio in the manner contemplated by Section 15 of the 1940 Act and,
unless sooner terminated as provided herein, shall continue until the second
anniversary of the date hereof. Thereafter, if not terminated, this Agreement
shall continue in effect as to the Portfolio for successive periods of 12
months each, provided such continuance is specifically approved at least
annually by the vote of a majority of those members 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 either (a) by the vote of a majority of the full Board of
Trustees or (b) by vote of a majority of the outstanding voting securities of
the Portfolio; provided, however, that this Agreement may be terminated by the
Portfolio at any time, without the payment of any penalty, by the Board of
Trustees of the Portfolio or by vote of a majority of the outstanding voting
securities of the Portfolio on 60 days' written notice to Diversified, or by
Diversified as to the Portfolio. This Agreement will immediately terminate in
the event of its assignment. (As used in this Agreement, the terms "majority of
the outstanding voting securities", "interested person" and "assignment" shall
have the same meanings as such terms have in the 1940 Act and the rule and
regulatory constructions thereunder).
7. Except to the extent necessary to perform Diversified's obligations
under this Agreement, nothing herein shall be deemed to limit or restrict the
right of Diversified, or any affiliate of Diversified, or any employee of
Diversified, to engage in any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other trust,
corporation, firm, individual or association.
<PAGE>
8. The investment management services of Diversified to the Portfolio
under this Agreement are not to be deemed exclusive as to Diversified and
Diversified will be free to render similar services to others.
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought and no material amendment of this Agreement shall be effective until
approved by vote of the holders of a majority of the outstanding voting
securities of the Portfolio.
This Agreement embodies the entire agreement and understanding between
the parties hereto and supersedes all prior agreements and understandings
relating to the subject matter hereof. The captions in this Agreement are
including for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
Should any part of this Agreement be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall be binding
and shall inure to the benefit of the parties hereto and their respective
successors, to the extent permitted by law.
9. This Agreement shall be construed in accordance with the laws of the
State of New York provided that nothing herein shall be construed in a manner
inconsistent with the requirements of 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
Attest: Diversified Investors Portfolios
/s/ John J. Hughes By:/s/ Tom Schlossberg
Tom Schlossberg
Chairman and President
Attest: Diversified Investment Advisors, Inc.
/s/ Catherine A. Mohr By:/s/ Gerald L. Katz
Gerald L. Katz
Vice President and CFO
<PAGE>
SCHEDULE B
The Subadvisor shall be compensated for its service 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
.50% of net assets
Net assets are equal to the market value of the Subadvisor's portion of the
Portfolio. 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.
<PAGE>
EXHIBIT B
Investment Companies for which New Liberty is expected to
serve as Investment Adviser or Subadviser
Yearly rate of compensation
Fund name and asset size as a percentage of net assets
CORE EQUITY ACCOUNTS
EAI Select Managers Equity Fund
($15 million in assets as of 12/31/96) 0.375%
Heritage Capital Appreciation Trust
($75 million in assets as of 12/31/96) 0.25%
SMALL CAPITALIZATION ACCOUNTS
Managers Special Equity Fund
($83 million in assets as of 12/31/96) 0.50%
<PAGE>
PROXY
DIVERSIFIED INVESTORS SPECIAL EQUITY FUND
A SERIES OF THE DIVERSIFIED INVESTORS FUNDS GROUP
A PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 28, 1997
The undersigned, revoking all Proxies heretofore given, hereby appoints
each of Tom A. Schlossberg, Robert F. Colby and Gerald L. Katz, or any of them
individually, as Proxies of the undersigned, with full power of substitution,
to vote on behalf of all of the undersigned shares of the Diversified Investors
Special Equity Fund (the "Fund"), a series of The Diversified Investors Funds
Group (the "Trust"), which the undersigned is entitled to vote at the Special
Meeting of Shareholders of the Fund to be held at the offices of Diversified
Investment Advisors, Inc., 4 Manhattanville Road, Purchase, New York 10577, on
February 28, 1997 at 9:30 a.m., Eastern Time, and at any adjournment thereof,
as fully as the undersigned would be entitled to vote if personally present, as
follows:
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS.
1. To consider and vote on approval of a new Investment Subadvisory
Agreement between Diversified Investment Advisors, Inc. and Liberty
Investment Management, a division of Goldman Sachs Asset Management:
_____ FOR _____ AGAINST _____ ABSTAIN
2. (a) To ratify the selection of Coopers & Lybrand L.L.P. as independent
public accountants of the Fund for the year ended December 31, 1997:
_____ FOR _____ AGAINST _____ ABSTAIN
(b) To ratify the selection of Coopers & Lybrand L.L.P. as independent
public accountants of Special Equity Portfolio, a series of Diversified
Investors Portfolios, for the year ended December 31, 1997:
_____ FOR _____ AGAINST _____ ABSTAIN
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS INDICATED OR FOR ANY PROPOSALS
FOR WHICH NO CHOICE IS INDICATED.
THE PROXIES ARE AUTHORIZED IN THEIR DISCRETION TO VOTE UPON SUCH OTHER MATTERS
AS MAY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
Date: _____________
____________________________________
Signature
____________________________________
Signature of joint owner, if any
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON THIS CARD.
When signing as attorney, executor, administrator, trustee, guardian or as
custodian for a minor, please sign your name and give your full title as such.
If signing on behalf of a corporation, please sign the full corporate name and
your name and indicate your title. If you are a partner signing for a
partnership, please sign the partnership name and your name. Joint owners
should each sign this proxy. Please sign, date and return in the enclosed
envelope.
