SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
FILED BY REGISTRANT [X] FILED BY A PARTY OTHER THAN REGISTRANT [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Diversified Investors Portfolios - Balanced Portfolio
(Name of Registrant as Specified In Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No Fee required
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1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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calculated and state how it was determined):
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[ ] 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 the filing.
1) Amount Previously Paid:
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3) Filing Party:
4) Date Filed:
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DIVERSIFIED INVESTORS PORTFOLIOS
4 Manhattanville Road
Purchase, New York 10577
June 11, 1999
Dear Investor:
On July 13, 1999 at 10:00 a.m. (Eastern time) we will hold a special meeting of
investors in Balanced Portfolio, a series of the Diversified Investors
Portfolios, to vote on important proposals relating to the Portfolio.
VOTING ONLY TAKES A FEW MINUTES - PLEASE RESPOND PROMPTLY.
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 Diversified Investors Portfolios, which is
responsible for protecting your interests as an investor. The Board of Trustees
of Diversified Investors Portfolios 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 Portfolio are summarized below. Complete
information is contained in the enclosed Proxy Statement.
ITEM 1. (a) To vote to approve a new Investment Subadvisory Agreement
between Diversified Investment Advisors, Inc. and Payden &
Rygel
(b) To vote to approve a new Investment Subadvisory Agreement
between Diversified Investment Advisors, Inc. and Aeltus
Investment Management, Inc.
ITEM 2. To authorize the Board of Trustees of Diversified Investors
Portfolios to select and change investment subadvisers and enter
into investment subadvisory agreements without obtaining the
approval of investors.
ITEM 3. To transact such other business as may properly come before
the Special Meeting of Investors and any adjournments thereof.
After you have voted on Items 1 and 2, please be sure to RETURN YOUR SIGNED
PROXY CARD.
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This is your opportunity to voice your opinion on matters affecting the
Portfolio. Your participation is extremely important, no matter how large or
small the beneficial interest you own.
We appreciate your prompt response. Thank you.
Sincerely,
Robert F. Colby
Secretary
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BALANCED PORTFOLIO
a series of Diversified Investors Portfolios
4 Manhattanville Road
Purchase, New York 10577
Telephone: (914) 697-8000
NOTICE OF SPECIAL MEETING OF INVESTORS
To be held July 13, 1999
A Special Meeting of Investors of BALANCED PORTFOLIO, a series of Diversified
Investors Portfolios, will be held at the offices of Diversified Investment
Advisors, Inc., 4 Manhattanville Road, Purchase, New York 10577, on July 13,
1999 at 10:00 a.m., Eastern time, for the following purposes:
ITEM 1. (a) To vote to approve a new Investment Subadvisory Agreement
between Diversified Investment Advisors, Inc. and Payden &
Rygel
(b) To vote to approve a new Investment Subadvisory Agreement
between Diversified Investment Advisors, Inc. and Aeltus
Investment Management, Inc.
ITEM 2. To authorize the Board of Trustees of Diversified Investors
Portfolios to select and change investment subadvisers and enter
into investment subadvisory agreements without obtaining the
approval of investors.
ITEM 3. To transact such other business as may properly come before
the Special Meeting of Investors and any adjournments thereof.
THE BOARD OF TRUSTEES OF DIVERSIFIED INVESTORS PORTFOLIOS RECOMMENDS THAT YOU
VOTE IN FAVOR OF ITEMS 1 AND 2.
Only investors of record on May 14, 1999 will be entitled to vote at the
Special Meeting of Investors and at any adjournments thereof.
Robert F. Colby, Secretary
June 11, 1999
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YOUR VOTE IS IMPORTANT. WE WOULD APPRECIATE YOU PROMPTLY VOTING, SIGNING AND
RETURNING THE ENCLOSED PROXY, WHICH WILL HELP AVOID THE ADDITIONAL EXPENSES OF
A SECOND SOLICITATION.
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BALANCED PORTFOLIO
a series of Diversified Investors Portfolios
4 Manhattanville Road
Purchase, New York 10577
Telephone: (914) 697-8000
PROXY STATEMENT
This Proxy Statement and Notice of Special Meeting with accompanying form of
proxy are being furnished in connection with the solicitation of proxies by the
Board of Trustees of Diversified Investors Portfolios (the "Trust") for use at
a special meeting of investors in Balanced Portfolio (the "Portfolio"), a
series of the Trust, or any adjournment thereof, to be held at the offices of
Diversified Investment Advisors, Inc., 4 Manhattanville Road, Purchase, New
York 10577, on July 13, 1999, 10:00 a.m., Eastern time (the "Meeting"). The
Meeting is being held for the purposes set forth in the accompanying Notice of
Special Meeting. These materials are being mailed by the Board of Trustees of
the Trust on or about June 11, 1999.
The Portfolio is one of thirteen series of the Trust, which is a registered
investment company organized as a New York trust under a Declaration of Trust
dated as of September 1, 1993. The Portfolio was designated as a separate
series of the Trust on September 1, 1993. The mailing address of the Trust is 4
Manhattanville Road, Purchase, New York 10577.
The Portfolio commenced operations on January 3, 1994. The annual report for
the Portfolio for the period ended December 31, 1998, including audited
financial statements, has previously been sent to investors and is available
upon request without charge by contacting Catherine A. Mohr, Diversified
Investors Portfolios, 4 Manhattanville Road, Purchase, New York 10577 or by
calling the Trust toll-free at (800) 926-0044.
MANNER OF VOTING PROXIES AND VOTE REQUIRED
If the accompanying form of proxy is executed properly and returned, the
beneficial interest represented by it will be voted at the Meeting in
accordance with the instructions on the proxy. If no instructions are
specified, the beneficial interest 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
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affirmative vote of a majority of those beneficial interests voted at the
Meeting. When voting on a proposed adjournment, the persons named as proxies
will vote all beneficial interests 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 beneficial interests will be voted against the
proposed adjournment.
The presence in person or by proxy of the holders of a majority of the
outstanding beneficial interests of the Portfolio 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 will be
treated as beneficial interests that are present but which have not been voted.
For this reason, abstentions 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
a proxy soliciting agent, will be borne by the Portfolio. 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. The Portfolio may reimburse brokerage firms and others
for their expenses in forwarding proxy materials to the beneficial owners and
soliciting them to execute the proxies.
The close of business on May 14, 1999 has been fixed as the Record Date for the
determination of investors entitled to notice of and to vote at the Meeting.
$514,113,464.63 in beneficial interests were outstanding as of the close of
business on the Record Date. Investors of record at the close of business on
the Record Date will be entitled to vote in the proportion that their
beneficial interests bear to the total beneficial interests in the Portfolio.
BACKGROUND
The Portfolio is a master fund within a two-tier, master/feeder mutual fund
structure. Interests in the Portfolio are sold to accredited investors in
private placement transactions which do not involve a public offering under the
Securities Act of 1933, as amended.
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 Trust, 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 10, 1998. The Advisory Agreement was most
recently submitted to a vote of investors in the Portfolio on January 3, 1994
in connection with its initial approval. Subject to the terms of the Advisory
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Agreement, the Adviser is responsible for the management of the Portfolio,
selects and employs, subject to the review and approval of the Board of
Trustees of the Trust, one or more 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, and reviews the
subadvisers' continued performance. The Adviser may terminate the services of
any subadviser at any time.
Prior to March 31, 1999, Institutional Capital Corporation ("ICC"), a
corporation having its principal offices at 225 West Wacker Drive, Chicago,
Illinois 60606, served as the investment subadviser of the Portfolio pursuant
to an Investment Subadvisory Agreement between ICC and the Adviser. As
subadviser, ICC was responsible for determining the allocation of the
Portfolio's assets between equity securities and fixed income and money market
securities, selecting securities within those two broad categories, and
otherwise managing the Portfolio's assets. The ICC Subadvisory Agreement was
most recently approved by the Board of Trustees of the Trust, including a
majority of the Independent Trustees, on November 10, 1998. The ICC Subadvisory
Agreement was most recently submitted to a vote of investors in the Portfolio
on January 3, 1994 in connection with its initial approval.
At a special meeting of the Board of Trustees of the Trust held on March 24,
1999, the Board considered, at the Adviser's recommendation, the termination of
ICC as the subadviser of the Portfolio. The Board reviewed ICC's investment
performance as subadviser. The Board also considered the Adviser's
recommendation that two subadvisers, one specializing in managing equity
securities and one specializing in managing fixed income securities, be hired
to replace ICC. The Board then reviewed the Adviser's procedures for selecting
new subadvisers. As discussed in Item 1 below under the heading "Evaluation by
the Board of Trustees," the Board authorized the Adviser to terminate the ICC
Subadvisory Agreement and enter into new subadvisory agreements with Payden &
Rygel ("Payden") and Aeltus Investment Management, Inc. ("Aeltus").
Accordingly, effective March 31, 1999, the Adviser terminated the ICC
Subadvisory Agreement and entered into Subadvisory Agreements with each of
Payden and Aeltus.
In accordance with the requirements of the 1940 Act, both the Payden
Subadvisory Agreement and the Aeltus Subadvisory Agreement must be approved by
the holders of beneficial interests in the Portfolio.
ITEM (A) TO VOTE TO APPROVE A NEW INVESTMENT SUBADVISORY AGREEMENT
BETWEEN DIVERSIFIED INVESTMENT ADVISORS, INC. AND PAYDEN &
RYGEL
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(B) TO VOTE TO APPROVE A NEW INVESTMENT SUBADVISORY AGREEMENT
BETWEEN DIVERSIFIED INVESTMENT ADVISORS, INC. AND AELTUS
INVESTMENT MANAGEMENT, INC.
COMPARISON OF THE SUBADVISORY AGREEMENTS
The terms of the Payden Subadvisory Agreement and the Aeltus Subadvisory
Agreement are similar to those of the ICC Subadvisory Agreement. The material
differences between the new Subadvisory Agreements and the ICC Subadvisory
Agreement are the identity of the service provider, the effective date and
termination date, the compensation payable by the Adviser to the applicable
subadviser, and, in the case of the Aeltus Subadvisory Agreement, the standard
of care applicable to Aeltus.
A description of the investment advisory fees to be paid by the Adviser to
Payden and to Aeltus is set forth below under the caption "Investment Advisory
Fees."
The Payden Subadvisory Agreement and the Aeltus Subadvisory Agreement each
became effective on March 31, 1999 and, 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 continue in effect through March 31, 2001, and
thereafter from year to year, subject to approval annually in accordance with
the 1940 Act. Each Subadvisory Agreement may be terminated at any time without
the payment of any penalty by the Board of Trustees of the Trust or by the vote
of a "majority of the outstanding voting securities" of the Portfolio or by the
Adviser. The Payden Subadvisory Agreement may also be terminated by Payden, and
the Aeltus Subadvisory Agreement may also be terminated by Aeltus, in each case
upon 90 days' advance written notice to the Adviser. Each Subadvisory Agreement
will also terminate automatically in the event of its "assignment" (as defined
in the 1940 Act).
Under the Payden Subadvisory Agreement and the Aeltus Subadvisory Agreement, as
under the ICC Subadvisory Agreement, Payden and Aeltus each will furnish
continuing portfolio management services to the Portfolio with respect to the
assets of the Portfolio allocated to it, subject always to the provisions of
the 1940 Act and to the investment objectives, policies, procedures and
restrictions imposed by the Portfolio's then current Registration Statement
under the 1940 Act. Investment management decisions of Payden will be made by
committee and not by managers individually. Investment management decisions of
Aeltus will be made by a team headed by a designated portfolio manager having
primary investment responsibility. Payden and Aeltus will also provide the
Adviser with such investment advice and reports and data as are requested by
the Adviser.
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Like the ICC Subadvisory Agreement, the Payden Subadvisory Agreement and the
Aeltus Subadvisory Agreement each provide that the subadviser 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) diversification
of the Portfolio assets or 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, (iv) registration of the Portfolio with any government
or agency, or (v) administration of the plans and trusts investing through the
Portfolio, and shall be indemnified by the Adviser for any loss in carrying out
the terms and provisions of the agreement, including reasonable attorney's
fees, indemnification to broker-dealers and futures commission merchants,
fines, taxes, penalties and interest. Each subadviser, however, shall be liable
for any liability, damages, or expenses of the Adviser arising out of the
negligence (gross negligence, in the case of Aeltus), malfeasance or violation
of applicable law by any of its employees in providing management under its
Subadvisory Agreement; and, in such cases, the indemnification by the Adviser
referred to above shall be inapplicable.
Investors should refer to Exhibits A and B attached hereto for the complete
terms of the Payden Subadvisory Agreement and the Aeltus Subadvisory Agreement,
respectively. The description of the Subadvisory Agreements set forth herein is
qualified in its entirety by the provisions of the Subadvisory Agreements as
set forth in such Exhibits.
INVESTMENT ADVISORY FEES
Under both the Payden Subadvisory Agreement and the Aeltus Subadvisory
Agreement, the Adviser (not the Portfolio) pays the subadvisers for their
services on the basis of the following annual fee schedules:
Fee Schedule for Payden
.20% of the first $50 million of net assets
of the Portfolio allocated to Payden
.15% of the next $50 million of net assets
of the Portfolio allocated to Payden
.10% of net assets of the Portfolio allocated
to Payden in excess of $100 million
Fee Schedule for Aeltus
.20% of the first $200 million of net assets
of the Portfolio allocated to Aeltus
.15% of the next $300 million of net assets
of the Portfolio allocated to Aeltus
.125% of the next $500 million of net assets
of the Portfolio allocated to Aeltus
.10% of net assets of the Portfolio allocated
to Aeltus in excess of $1 billion
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Under each Subadvisory Agreement, as under the ICC Subadvisory Agreement, net
assets are equal to the market value of the Portfolio. Fees are calculated
monthly by multiplying the arithmetic average of the beginning and ending
monthly net assets in the Portfolio allocated to Payden or Aeltus by the fee
schedule and dividing by twelve. Fees are paid by the Adviser quarterly.
The Payden Subadvisory Agreement and the Aeltus Subadvisory Agreement each
provide that if at any time during the term of the Subadvisory Agreement,
Payden or Aeltus charges another of its clients a lower fee than that set forth
above for the management of a similarly structured balanced fund, then the
Adviser will also be charged the lower rate by Payden or Aeltus, as the case
may be. The Adviser will benefit from the lower rate from the first day that it
is in effect for the other client.
Under the ICC Subadvisory Agreement, the Adviser (not the Portfolio) paid ICC
for its services on the basis of the following annual fee schedule:
ICC Fee Schedule
.35% of the first $50 million of net assets of the Portfolio
.30% of the next $50 million of net assets of the Portfolio
.25% of the net assets of the Portfolio in excess of $100 million
Under the ICC Subadvisory Agreement, net assets were equal to the market value
of the Portfolio. Fees were calculated monthly by multiplying the arithmetic
average of the beginning and ending monthly net assets of the Portfolio by the
fee schedule and dividing by twelve. Fees were paid by the Adviser quarterly.
Approval of the Payden Subadvisory Agreement and the Aeltus Subadvisory
Agreement, by themselves, would have no effect upon the amount of advisory fees
paid by the Portfolio to the Adviser. The Adviser, not the Portfolio, pays
investment advisory fees to both Payden and Aeltus as subadvisers to the
Portfolio.
Fees payable to ICC for services provided pursuant to the ICC Subadvisory
Agreement for the period from January 1, 1998 to December 31, 1998 were
$1,599,343.97. Neither ICC nor any affiliated person of ICC, nor any affiliated
person of any such affiliated 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, 1998. There were no other material
payments by the Adviser or the Portfolio to ICC, any affiliated person of ICC
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or any affiliated person of any such affiliated person, during the fiscal year
of the Portfolio ended December 31, 1998.
Fees that would have been payable to Payden for services provided pursuant to
the Payden Subadvisory Agreement for the period from January 1, 1998 to
December 31, 1998, had the Payden Subadvisory Agreement been in effect for such
period and assuming that Payden managed 40% of the Portfolio's assets at all
times during the period, are $257,782.17. Fees that would have been payable to
Aeltus for services provided pursuant to the Aeltus Subadvisory Agreement for
the period from January 1, 1998 to December 31, 1998, had the Aeltus
Subadvisory Agreement been in effect for such period and assuming that Aeltus
managed 60% of the Portfolio's assets at all times during the period, are
$511,259.88. The aggregate of these fees represents a 52% decrease from the
amount of fees that would have been payable to ICC for such period under the
ICC Subadvisory Agreement.
As of December 31, 1998, the Portfolio had net assets of $505,995,739.
For the Portfolio's fiscal year ended December 31, 1998, no commissions were
paid to any broker (i) that is an affiliated person of the Portfolio, (ii) that
is an affiliated person of any affiliated person of the Portfolio, or (iii) an
affiliated person of which is an affiliated person of the Portfolio, the
Adviser, ICC, Payden, Aeltus or the distributor of the Portfolio.
INFORMATION REGARDING PAYDEN
Payden is a California corporation having an office at 333 South Grand Avenue,
32nd Floor, Los Angeles, California 90071. 75.9%, 5.9% and 5.9% of Payden's
stock is owned by Joan A. Payden, John P. Isaacson, and Scott A. King,
respectively. The business address of each of these individuals is c/o Payden &
Rygel, 333 South Grand Avenue, 32nd Floor, Los Angeles, California 90071.
Payden is registered with the SEC as an investment adviser. Its primary
business is providing fixed income investment counsel to its clients.
MANAGEMENT AND GOVERNANCE. Listed below are the names, positions and principal
occupations of the members of the Board of Directors and the principal
executive officer of Payden, as of March 31, 1999. The principal business
address of each member of the Board of Directors and principal executive
officer, as it relates to his or her duties at Payden, is the same as that of
Payden, unless noted below.
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NAME POSITION WITH PAYDEN PRINCIPAL OCCUPATION
Joan Ann Payden President and Chief Investment adviser with
Executive Officer, Director Payden & Rygel
John Paul Isaacson Managing Principal, Investment adviser with
Director Payden & Rygel
Scott Anthony King Managing Principal, Chief Investment adviser with
Financial Officer, Director Payden & Rygel
No officer or director of the Portfolio currently is an officer or employee of
Payden or a member of Payden's Board of Directors. No officer or Trustee of the
Trust has any other material direct or indirect interest in Payden or any other
person controlling, controlled by or under common control with Payden. Since
January 1, 1998, none of the Trustees of the Trust has had any material
interest, direct or indirect, in any material transactions, or in any material
proposed transactions, to which Payden was or is to be a party.
MANAGEMENT ACTIVITIES. Payden's total assets under management as of March 1,
1999 totaled almost $27 billion.
INFORMATION REGARDING AELTUS
Aeltus is a Connecticut corporation that maintains its principal executive
offices at 10 State House Square, Hartford, Connecticut 06103-3602. Aeltus is
an indirect wholly-owned subsidiary of Aetna Inc., a financial services and
health insurance company offering financial and health insurance products and
services to clients nationally and internationally. Aetna's stock is listed for
trading on the New York Stock Exchange. Aeltus is registered with the SEC as
an investment adviser.
MANAGEMENT AND GOVERNANCE. Listed below are the names, positions and principal
occupations of the members of the Board of Directors and the principal
executive officer of Aeltus, as of April 1, 1999. The principal business
address of each member of the Board of Directors and principal executive
officer, as it relates to his duties at Aeltus, is the same as that of Aeltus,
unless noted below.
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NAME POSITION WITH
AELTUS PRINCIPAL OCCUPATION
Lennart Alan Carlson Managing Director Managing Director,
Aeltus Fixed Income
Department
James Scott Fox Chief Operating Chief Operating Officer,
Officer, Chief Chief Financial Officer
Financial Officer and and Director of Aeltus
Director
Steven Craig Huber Managing Director Managing Director,
Aeltus Fixed Income
Department
John Y. Kim President, Director President, Director and
and Chief Executive Chief Executive Officer
Officer of Aeltus
Neil David Kochen Managing Director Managing Director, Head
of Aeltus Fixed Income
Department
Thomas Joseph McInerney Director President of Aetna
Retirement Services, Inc.
Kevin Mark Means Managing Director Managing Director, Head
of Aeltus Equities
Department
Catherine Hale Smith Director Chief Financial Officer of
Aetna Retirement
Services, Inc.
No officer or director of the Portfolio currently is an officer or employee of
Aeltus or a member of Aeltus' Board of Directors. No officer or Trustee of the
Trust has any other material direct or indirect interest in Aeltus or any other
person controlling, controlled by or under common control with Aeltus. Since
January 1, 1998, none of the Trustees of the Trust has had any material
interest, direct or indirect, in any material transactions, or in any material
proposed transactions, to which Aeltus was or is to be a party.
MANAGEMENT ACTIVITIES. As of March 12, 1999, Aeltus had approximately $49
billion of assets under management.
Aeltus acts as investment manager for registered investment companies with
investment objectives similar to the Portfolio's. The name of each such fund,
together with information concerning the fund's net assets and the fees paid to
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Aeltus for its services, are set forth in Exhibit C. The funds on the Exhibit
are not necessarily managed in a manner consistent with Aeltus's management of
Fund assets. Further, while Aeltus is managing only a portion of the
Portfolio's assets, Aeltus manages all of the assets of the funds listed on
Exhibit C.
THE EVALUATION BY THE BOARD OF TRUSTEES
The Board of Trustees of the Trust authorized the Adviser to terminate the ICC
Subadvisory Agreement and approved the Payden Subadvisory Agreement and the
Aeltus Subadvisory Agreement at a meeting held on March 24, 1999.
Before authorizing the Adviser to terminate the ICC Subadvisory Agreement, the
Board of Trustees of the Trust reviewed with the Adviser its recommendations
that the management structure of the Portfolio be changed and that the services
of ICC as subadviser of the Portfolio be terminated. The Adviser reported that
under the ICC Subadvisory Agreement, ICC was responsible for selecting the
percentages of assets to be allocated to equity securities and to fixed income
securities, and also selecting securities within those broad categories. The
Adviser noted that ICC managed the equity portion of the Portfolio in the value
style, and that, as with equities in general, in recent years the performance
of the equity portion of the Portfolio had lagged the performance of equities
managed in the growth style. The Adviser also noted that for the fixed income
portion of the Portfolio, ICC had favored U.S. Treasury obligations, which also
had affected performance. The Trustees reviewed ICC's performance under the ICC
Subadvisory Agreement, noting that it had been below benchmark during each of
the one-, three- and five-year periods ended December 31, 1998.
The Adviser reported that to address the Portfolio's performance issues, the
Adviser proposed that it would perform the allocation of the Portfolio's assets
between equity securities, on the one hand, and fixed income securities, on the
other hand. The Adviser also proposed to hire two subadvisers, one specializing
in managing equity securities, and the other specializing in managing fixed
income securities. The Adviser noted that Aeltus, the proposed subadviser for
equity securities, managed in a broad market, rather than a value-oriented
style, and that Payden, the proposed subadviser for fixed income securities,
managed to capture broader exposure to the fixed income market than by
investing primarily in U.S. Treasury obligations.
The Board of Trustees then reviewed the Adviser's procedures for selecting new
subadvisers. The Trustees considered information with respect to each of Payden
and Aeltus and whether the Payden Subadvisory Agreement and the Aeltus
Subadvisory Agreement were in the best interests of the Portfolio and its
holders of beneficial interests. The Trustees noted that in recent years the
Portfolio had underperformed the benchmark selected for it, and that it was
important to attempt to reverse that trend. The Trustees considered that the
proposed combination of subadvisers could, under certain circumstances, help
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the Portfolio to outperform its benchmark, but that the possibility of
underperformance, of course, had not been eliminated. The Trustees considered
the nature and quality of services expected to be provided by each of Payden
and Aeltus and reviewed and discussed information regarding each subadviser's
fees and performance. In evaluating each subadviser's ability to provide
services to the Portfolio, the Trustees considered information as to the
subadviser's business organization, financial resources, personnel and other
matters. The Trustees compared the investment performance of certain equity and
fixed income accounts advised by each of Payden and Aeltus, respectively, and
managed in a manner consistent with the proposed management of the Portfolio,
against various benchmarks and against the investment performance of the
Portfolio's assets as managed by ICC.
Based upon its review, the Board of Trustees concluded (a) that for relevant
periods the Portfolio as managed by ICC underperformed its benchmark as well as
a hypothetical portfolio which combined both Payden's and Aeltus's investment
performance for such periods in managing assets of fund clients in a manner
consistent with the proposed management of the Portfolio, (b) the terms of each
of the Payden Subadvisory Agreement and the Aeltus Subadvisory Agreement are
reasonable, fair and in the best interests of the Portfolio and its holders of
beneficial interests, and (c) the fees provided in each of the Payden
Subadvisory Agreement and the Aeltus Subadvisory Agreement are fair and
reasonable in light of the usual and customary charges made 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, including all of the Independent Trustees, authorized the Adviser to
terminate the ICC Subadvisory Agreement, approved each of the Payden
Subadvisory Agreement and the Aeltus Subadvisory Agreement and voted to
recommend the approval of each Subadvisory Agreement by the holders of
beneficial interests in the Portfolio.
REQUIRED VOTE
Approval of each 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").
In the event that both Subadvisory Agreements do not receive the requisite
investor approval, the Adviser would negotiate a new investment subadvisory
agreement with a different advisory organization or make other appropriate
<PAGE>
arrangements, in either event subject to approval in accordance with the 1940
Act.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT INVESTORS IN THE PORTFOLIO
VOTE FOR APPROVAL OF EACH OF THE PAYDEN SUBADVISORY AGREEMENT AND THE AELTUS
SUBADVISORY AGREEMENT.
ITEM 2. TO AUTHORIZE THE BOARD OF TRUSTEES OF THE TRUST TO SELECT AND
CHANGE INVESTMENT SUBADVISERS AND ENTER INTO INVESTMENT
SUBADVISORY AGREEMENTS WITHOUT OBTAINING THE APPROVAL OF
INVESTORS.
As discussed above, the Adviser selects and employs one or more subadvisers to
make the day-to-day investment selections for the Portfolio, and reviews the
subadvisers' continued performance. See "Background." The Adviser may terminate
the services of any subadviser at any time; however, retaining the services of
a new subadviser currently requires Portfolio investor approval.
The 1940 Act requires that all contracts pursuant to which persons serve as
investment advisers to investment companies be approved by investors. This
requirement currently applies to the appointment of any new or replacement
subadviser to the Portfolio. However, the Trust has received exemptive relief
from the Securities and Exchange Commission from these investor vote
requirements. If this proposed Item 2 is approved by the Portfolio's investors,
the Board of Trustees of the Trust would be able, without further investor
approval, to appoint additional or replacement subadvisers so long as certain
requirements are complied with. The Trustees would not, however, be able to
replace the Adviser as investment adviser without complying with the 1940 Act
and applicable regulations governing investor approval of advisory contracts.
This Item 2 is intended to facilitate the efficient supervision and management
of the subadvisers by the Adviser and the Trustees of the Trust. The Adviser
continuously monitors the performance of the subadvisers and may from time to
time recommend that the Board of Trustees of the Trust replace a subadviser or
appoint additional subadvisers, depending on the Adviser's assessment of which
subadviser or combination of subadvisers it believes will optimize the
Portfolio's chances of achieving its investment objective. If the Portfolio's
investors approve this proposed Item 2, the Portfolio would no longer be
required to call an investor meeting each time a new subadviser is appointed.
Investor meetings entail substantial costs which could diminish the benefits of
the current subadvisory arrangements. These costs must be weighed against the
benefits of investor scrutiny of proposed contracts with additional or
replacement subadvisers. However, even in the absence of investor approval, any
proposal to add or replace subadvisers would receive careful review. First, the
Adviser would assess the Portfolio's needs and, if it believed additional or
<PAGE>
replacement subadvisers could benefit the Portfolio, would search for available
investment subadvisers. Second, any recommendations made by the Adviser would
have to be approved by a majority of the Trustees of the Portfolio Trust,
including a majority of the Independent Trustees. In selecting any new or
replacement subadvisers, the Trustees are required to determine that an
investment management agreement with the subadviser is reasonable, fair and in
the best interests of a fund and its investors, and that the fees provided in
the agreement are fair and reasonable in light of the usual and customary
charges made by others for services of the same nature and quality. Finally,
any further appointments of additional or replacement subadvisers would have to
comply with the conditions contained in the Securities and Exchange Commission
exemptive order, which include that the Portfolio furnish to its investors
including the Fund certain information about the additional or replacement
subadvisers.
The Trustees of the Trust believe that the proposed authority for the Board of
Trustees of the Trust to select and change investment subadvisers and enter
into investment subadvisory agreements without obtaining the approval of
Portfolio investors is in the best interests of the investors in the Portfolio.
REQUIRED VOTE
Authorizing the Board of Trustees of the Trust to select and change investment
subadvisers and enter into investment subadvisory agreements without obtaining
the approval of Portfolio investors will require the approval of a 1940 Act
Majority of the outstanding voting securities of the Portfolio, present in
person or represented by proxy at a meeting of investors in the Portfolio.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT THE INVESTORS IN THE
PORTFOLIO VOTE FOR AUTHORIZING THE TRUSTEES OF THE PORTFOLIO TRUST TO SELECT
AND CHANGE INVESTMENT SUBADVISERS AND ENTER INTO INVESTMENT SUBADVISORY
AGREEMENTS WITHOUT OBTAINING THE APPROVAL OF INVESTORS.
ITEM 3. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE SPECIAL MEETING OF INVESTORS AND ANY ADJOURNMENTS THEREOF.
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 Portfolio's exclusive placement agent is Diversified Investors Securities
Corp., 4 Manhattanville Road, Purchase, New York 10577. The Portfolio's
<PAGE>
Administrator and Transfer Agent is Diversified Investment Advisors, Inc., 4
Manhattanville Road, Purchase, New York 10577.
As of the Record Date, no Trustees or officers of the Trust owned beneficially
or had the right to vote any outstanding interests in the Portfolio.
As of the Record Date, the following persons owned of record or had the right
to vote 5% or more of the outstanding beneficial interests in the Portfolio:
Name and Address of Amount and Nature of Percent of
Record Owner Record Ownership Beneficial Interest
AUSA Life Insurance $303,856,581.50 59.10%
Company, Inc.
4 Manhattanville Road
Purchase, NY 10577
Diversified Investment $79,215,917.41 15.41%
Advisors Collective
Trust
4 Manhattanville Road
Purchase, NY 10577
Diversified Investors
Funds Group $121,859,959.72 23.70%
4 Manhattanville Road
Purchase, NY 10577
The Trust is a New York trust and as such is not required to hold annual
meetings of investors, although special meetings may be called for the
Portfolio, or for the Trust as a whole, for purposes such as electing Trustees
or removing Trustees, changing fundamental policies, or approving an advisory
contract. Investor proposals to be presented at any subsequent meeting of
investors must be received by the Trust at the Trust's office within a
reasonable time before the proxy solicitation is made.
<PAGE>
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
June 11, 1999
<PAGE>
PROXY CARD PROXY CARD
BALANCED PORTFOLIO
A SERIES OF DIVERSIFIED INVESTORS PORTFOLIOS
A PROXY FOR A SPECIAL MEETING
OF INVESTORS TO BE HELD JULY 13, 1999
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,
as Proxies of the undersigned with full power of substitution, to vote on
behalf of all of the undersigned beneficial interests in Balanced Portfolio
(the "Portfolio"), a series of Diversified Investors Portfolios (the "Trust"),
which the undersigned is entitled to vote at the Special Meeting of Investors
of the Portfolio to be held at the offices of Diversified Investment Advisors,
Inc., 4 Manhattanville Road, Purchase, New York 10577 on July 13, 1999, at
10:00 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. (a) To vote to approve a new Investment Subadvisory Agreement between
Diversified Investment Advisors, Inc. and Payden & Rygel:
___ FOR ___ AGAINST ___ ABSTAIN
(b) To vote to approve a new Investment Subadvisory Agreement between
Diversified Investment Advisors, Inc. and Aeltus Investment Management,
Inc.:
___ FOR ___ AGAINST ___ ABSTAIN
2. To authorize the Board of Trustees of Diversified Investors Portfolios
to select and change investment subadvisers and enter into investment
subadvisory agreements without obtaining the approval of investors.
___ FOR ___ AGAINST ___ ABSTAIN
THE BENEFICIAL INTERESTS REPRESENTED HEREBY WILL BE VOTED AS INDICATED OR FOR
ANY PROPOSALS FOR WHICH NO CHOICE IS INDICATED.
<PAGE>
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.
<PAGE>
EXHIBIT A
INVESTMENT SUBADVISORY AGREEMENT
INVESTMENT SUBADVISORY AGREEMENT, dated as of March 31, 1999, by and
between Diversified Investment Advisors, Inc., a Delaware corporation
("Diversified") and Payden & Rygel, a California corporation ("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 Balanced Portfolio
("Portfolio"), a series of Diversified Investors Portfolios, a diversified
open-end management investment company registered under the Investment Company
Act of 1940 ("1940 Act");
WHEREAS, Diversified desires to retain the Subadvisor to furnish it with
portfolio investment advisory services in connection with Diversified's
investment advisory activities on behalf of the Portfolio, and the Subadvisor
is willing to furnish such services to Diversified;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of the Subadvisor. In accordance with and subject to the
Investment Advisory Agreement between the Portfolio and Diversified, attached
hereto as Schedule A (the "Advisory Agreement"), Diversified hereby appoints
the Subadvisor to perform the portfolio investment advisory services described
herein for the investment and reinvestment of such amount of the Portfolio's
assets as is determined from time to time by the Portfolio's Board of Trustees,
subject to the control and direction of Diversified and the Diversified
Investors Portfolios' Board of Trustees, for the period and on the terms
hereinafter set forth.
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 Portfolio's assets. The Subadvisor shall furnish
continuously an investment program and shall determine from time to time what
securities shall be purchased, sold or exchanged and what portion of the assets
of the Portfolio shall be held uninvested, subject always to the provisions of
the 1940 Act and to the Portfolio's then-current Registration Statement on Form
N-1A.
<PAGE>
In particular, the Subadvisor shall, without limiting the foregoing: (i)
continuously review, supervise and implement 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;
(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 of the Portfolio on the last day of such month, rates of return, and
(c) such other information relating to the Portfolio as Diversified may
reasonably request; (vii) meet at least four times per year with Diversified
and with such other persons as may be designated on reasonable notice and at
reasonable locations, at the request of Diversified, to discuss general
economic conditions, performance, investment strategy, and other matters
relating to the Portfolio; (viii) provide the Portfolio with records concerning
the Subadvisor's activities which the Portfolio is required by law to 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 to Diversified 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 at any time make any definite determination
as to investment policy with respect to the Portfolio and notify the Subadvisor
thereof in writing, the Subadvisor shall be bound by such determination for the
period, if any, specified in such notice or until similarly notified that such
policy has been revoked. The initial Statement of Investment Policy and
Guidelines is attached hereto as Appendix I.
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.
Subject to the primary objective of obtaining the best available prices and
<PAGE>
execution, the Subadvisor may place orders for the purchase and sale of
portfolio securities with such broker/dealers who provide statistical, factual
and financial information and services to the Portfolio, to the Subadvisor, or
to any other fund or account for which the Subadvisor provides investment
advisory services and may place such orders with broker/dealers who sell shares
of the Portfolio or who sell shares of any other fund for which the Subadvisor
provides investment advisory services. Broker/dealers who sell shares of the
funds of which Payden & Rygel is investment advisor shall only receive orders
for the purchase or sale of portfolio securities to the extent that the placing
of such orders is in compliance with the Rules of the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc.
Notwithstanding the provisions of the previous paragraph and subject to
such policies and procedures as may be adopted by the Board of Trustees and
officers of the Portfolio, the Subadvisor may pay a member of an exchange,
broker or dealer an amount of commission for effecting a securities transaction
in excess of the amount of commission another member of an exchange, broker or
dealer would have charged for effecting that transaction, in such instances
where the Subadvisor has determined in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and
research services provided by such member, broker or dealer, viewed in terms of
either that particular transaction or the Subadvisor's overall responsibilities
with respect to the Portfolio and to other funds and separate accounts for
which the Subadvisor exercises investment discretion.
2. Allocation of Charges and Expenses. The Subadvisor shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 1 above. It is understood that the Portfolio
will pay all of its own expenses and liabilities including, without limitation,
compensation and out-of-pocket expenses of Trustees not affiliated with the
Subadvisor or Diversified; governmental fees; interest charges; taxes;
membership dues; fees and expenses of independent auditors, of legal counsel
and of any transfer agent, administrator, distributor, shareholder servicing
agents, registrar or dividend disbursing agent of the Portfolio; expenses of
distributing and redeeming shares and servicing shareholder accounts; expenses
of preparing, printing and mailing prospectuses, shareholder reports, notices,
proxy statements and reports to governmental officers and commissions and to
shareholders of the Portfolio; expenses connected with the execution, recording
and settlement of Portfolio security transactions; insurance premiums; fees and
expenses of the custodian for all services to the Portfolio, including
safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of shares of the
<PAGE>
Portfolio; expenses of shareholder meetings; expenses of litigation and other
extraordinary or non-recurring events and expenses relating to the issuance,
registration and qualification of shares of the Portfolio.
3. Compensation of the Subadvisor. For the services to be rendered,
Diversified shall pay to the Subadvisor an investment advisory fee computed in
accordance with the terms of Schedule B herewith attached. If the Subadvisor
serves for less than the whole of any period specified, its compensation shall
be prorated.
4. Covenants and Representations of the Subadvisor. The Subadvisor agrees
that it will not deal with itself, or with the Trustees of the Portfolio or
with Diversified, or the principal underwriter or distributor as principals in
making purchases or sales of securities or other property for the account of
the Portfolio, except as permitted by the 1940 Act, and will comply with all
other provisions of the Declaration of Trust and any current Registration
Statement on Form N-1A of the Portfolio relative to the Subadvisor, Advisor and
its Trustees and officers.
5. Limits on Duties. The Subadvisor shall be responsible only for managing
the assets in good faith and in accordance with the investment objectives,
fundamental policies and restrictions, and shall have no responsibility
whatsoever for, and shall incur no liability on account of (i) diversification,
selection or establishment of such investment objectives, fundamental policies
and restrictions, (ii) advice on, or management of, any other assets for
Diversified or the Portfolio, (iii) filing of any tax or information returns or
forms, withholding or paying any taxes, or seeking any exemption or refund,
(iv) registration with any government or agency, or (v) administration of the
plans and trusts investing through the Portfolio, or (vi) overall Portfolio
compliance with the requirements of the 1940 Act, which requirements are
outside of the Subadvisor's control, and Subchapter M of the Internal Revenue
Code of 1986, as amended, and shall be indemnified and held harmless by
Diversified for any loss in carrying out the terms and provisions of this
Agreement, including reasonable attorney's fees, indemnification to the
Portfolio, or any shareholder thereof and, brokers and commission merchants,
fines, taxes, penalties and interest. Subadvisor, however, shall be liable for
any liability, damages, or expenses of Diversified arising out of the
negligence, malfeasance or violation of applicable law by any of its employees
in providing management under this Agreement; and, in such cases, the
indemnification by Diversified, referred to above, shall be inapplicable.
The Subadvisor may apply to Diversified at any time for instructions and
may consult counsel for Diversified or its own counsel with respect to any
<PAGE>
matter arising in connection with the duties of the Subadvisor. Also, the
Subadvisor shall be protected in acting upon advice of Diversified and/or
Diversified's counsel and upon any document which Subadvisor reasonably
believes to be genuine and to have been signed by the proper person or persons.
6. Exclusivity. Subadvisor represents to Diversified that during the term
of this Agreement Subadvisor will not manage any portfolio, any collective
trust, open-end investment company registered under the Investment Company Act
of 1940, Variable Insurance Contract registered under the Investment Company
Act of 1940, or insurance company separate account that are offered to the
types of employee benefit plans referred to in Schedule C and sponsored by
competitors of Diversified in providing services to such types of employee
benefit plans referred to in Schedule C and sponsored by competitors of
Diversified in providing services to such types of employee benefit plans
without providing Diversified with 60 days prior written notice. It is
understood that Subadvisor shall not be limited by this section 6 with respect
to any other portfolio that it may offer (such as a small, medium or large
capitalization specific portfolio, a portfolio that includes a significant
portion devoted to non-U.S. securities or a commingled vehicle that is not
sponsored by a provider of bundled services to the types of employee benefit
plans specified on Schedule C).
7. 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" to this Agreement or of the
Subadvisor or Diversified at an in person meeting specifically called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. 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.
<PAGE>
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 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.
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.
8. Certain Records. Any records to be maintained and preserved pursuant to
the provisions of Rule 31a-1 and Rule 31a-2 adopted under the 1940 Act which
are prepared or maintained by the Subadvisor on behalf of the Portfolio are the
property of the Portfolio and will be surrendered promptly to the Portfolio on
request.
9. Survival of Compensation Rates. All rights to compensation under this
Agreement shall survive the termination of this Agreement.
10. Entire Agreement. This Agreement states the entire agreement of the
parties with respect to investment advisory services to be provided to the
Portfolio by the Subadvisor and may not be amended except in a writing signed
by the parties hereto and approved in accordance with Section 7 hereof.
11. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
12. Change of Management and Pending Litigation. Subadvisor represents to
Diversified that it will disclose to Diversified promptly after it has
knowledge of any significant change or variation in its management structure or
personnel or any significant change or variation in its management style or
investment philosophy. In addition, Subadvisor represents to Diversified that
it will similarly disclose to Diversified, promptly after it has knowledge, the
existence of any pending legal action being brought against it whether in the
form of a lawsuit or a non-routine investigation by any federal or state
governmental agency.
<PAGE>
Diversified represents to Subadvisor that any information received by
Diversified pursuant to this section will be kept strictly confidential and
will not be disclosed any third party.
13. 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: /s/ John F. Hughes
Payden & Rygel
By: /s/ Brian Mathews
<PAGE>
APPENDIX I
March 17,1999
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR
THE FIXED INCOME PORTION OF THE BALANCED FUND
MANAGED BY
PAYDEN & RYGEL
<PAGE>
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR
THE FIXED INCOME PORTION OF THE BALANCED FUND
MANAGED BY
PAYDEN & RYGEL
TABLE OF CONTENTS
I. PURPOSE
II. OBJECTIVES
III. INVESTMENT GUIDELINES
IV. PERFORMANCE EVALUATION
V. COMMUNICATION
VI. OTHER
<PAGE>
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR
THE FIXED INCOME PORTION OF THE BALANCED FUND
MANAGED BY
PAYDEN & RYGEL
I. PURPOSE
The purpose of this Statement of Investment Policy and Guidelines is to
communicate the Fixed Income component of the Balanced Fund investment
objectives, guidelines and performance evaluation standards adopted by
Diversified Investment Advisers and its sub-adviser, Payden & Rygel.
This statement is intended to (1) help the subadvisor understand Diversified's
investment goals, (2) identify portfolio management activities to be employed
by the sub-adviser to achieve those goals, and (3) supply Diversified with a
tool to monitor and evaluate the operations of the fund.
II. OBJECTIVES AND CONSTRAINTS
The primary objectives of the fund are:
o To achieve maximum total return.
o To outperform the Lehman Brothers Aggregate Index over full market cycles.
o To achieve mid-second quartile or better performance among a group of peer
funds as defined by recognized reporting services (e.g., Lipper, or Frank
Russell) over 3-5 year periods.
The primary constraints for the fund are:
o To manage portfolio risk to be not substantially greater than the Lehman
Aggregate index or peer funds annualized standard deviation over 3-5 year
periods
o To maintain tracking error versus the Lehman Aggregate to within two
percent on average over 3-5 year periods.
III. INVESTMENT GUIDELINES
The investment guidelines specified below are in addition to portfolio
compliance procedures necessary to meet legal and regulatory requirements.
<PAGE>
(A) Permissible securities
o Money market instruments, including Federal funds, repurchase agreements,
commercial paper, bankers' acceptances, certificates of deposit.
o U.S. Treasury bills, notes, and bonds.
o U.S. Federal agency securities.
o Mortgage-backed securities.
o CMO's and nonagency CMO's.
o Domestic corporate notes, bonds, and debentures, including liquid
securities issued under rule 144A.
o Below investment grade securities, within limits described below for
quality in section E and sector guidelines in section G.
o Foreign notes and bonds, including Yankees, Euro-dollar, and nonU.S. dollar
denominated securities (sovereign and corporate credits).
o Asset-backed securities, including CBO's and CLO's.
o Commercial mortgage-backed securities.
o Taxable municipal securities.
o Convertible bonds and preferred stock.
o "When issued" securities, for permissible assets.
o Forward purchase agreements, or TBA's (To Be Announced securities).
o U.S. Treasury futures and Euro-dollar futures agreements.
o Caps, floors, swaps, and options as permitted under section D, below.
o Mortgage derivatives such as IO's and PO's to manage duration.
o Bond warrants.
B) Prohibited securities
o Common stock.
o The following mortgage-backed derivative securities -- Inverse Floaters,
Residuals (e.g., Z's), Cash Flow floaters.
o Structured Notes which have principal at risk, or interest payments tied
to sectors outside the permissible category of securities.
o Traditional illiquid private placements.
o Any other security outside the Permissible class (section A, above)
without prior approval by Diversified (e.g., no REIT's, commodities).
C) Leverage
The portfolio may not be leveraged.
<PAGE>
D) Derivatives
o Derivatives may not be used for speculative purposes.
o Derivatives may be used as substitutes for cash securities where
derivatives are cheaper.
o Derivatives may be used to hedge purchases and sales of securities, or to
manage client cash flow (i.e., temporarily securitize cash).
o Derivatives may also be used to enhance portfolio yield in conjunction
with a sales program (e.g., covered call writing).
o Forward contracts or other derivatives may be used to manage currency risk
arising from non-dollar securities.
o Limits on derivative use reflect other portfolio guidelines regarding
duration, quality, and so forth.
E) Quality
o Average portfolio quality of A or better (Standard & Poor's, or Moody's).
o Minimum rating of B, or better (S&P, Moody's) for individual securities at
time of purchase.
o Up to 5% of the money market instruments may be rated A2/P2 at the time of
purchase. All other money market instruments must be rated AI/PI. No A3/P3
issues are permitted.
o Securities violating quality standards must be disposed within two weeks.
F) Duration and Convexity
o Effective duration shall be maintained at +/- 20% of the duration of the
benchmark Lehman Brothers Aggregate index at all times.
G) Sector Allocations
Normal
Index Class Category Minimum Maximum Position
Outside Index 1) Cash 0% 50% 0%
Index 2) Governments 10% 80% 10%
Index 3) Corporates 10% 70% 30%
Index 4) Mortgage-Backed 10% 50% 35%
Outside Index 5) Basket Total: 0%: 40%: 25%:
a) High Yield 0% 35% 10%
b) Non-Dollar 0% 35% 10%
c) Converts & Pref 0% 10% 5%
d) Emerging Mkts. 0% 5% 0%
<PAGE>
NOTES: (1) Corporates include ABS, Yankees, Euro-dollars, CBO's, CLO's.
(2) Mortgage-Backed includes Passthroughs, CMO's, Non-agencies, CMBS.
(3) Basket Total covers High Yield, Non-dollar, Converts &
Preferred, and Emerging Markets outside the benchmark (40%
aggregate basket maximum)
(4) Non-dollar includes sovereign and corporate securities.
H) Risk Controls
o No more than 5% invested in the instruments of any single issuer, except
those of the U.S. Government, or its agencies, or instruments guaranteed
by the U.S. Government
o No more than 25% of the corporate sector in any one industry.
o Tracking error budget of 2% around the benchmark index.
I) Cash Management
o Cash will typically be non-negative except for short periods (e.g., 1-5
business days) to manage unusual liquidity requirements with temporary
automatic overdraft facilities.
o During unsettled market conditions, or periods of inverted yield curves,
the portfolio cash holdings may be substantial to achieve risk or duration
goals.
o Cash securities may be allocated to cover "when issued", TBA, or forward
purchase agreements. Such holdings would be part of regular portfolio
cash, rather than a segregated cash account.
IV. PERFORMANCE EVALUATION
o The performance benchmark for the fund will be the Lehman Brothers
Aggregate Index. It is expected that the fund will outperform the
benchmark over 3-5 year periods by at least 100-150 basis points.
o Additionally, it is expected that the fund will be in the upper second
quartile of peer universes (e.g., Lipper, Russell, or Morningstar), or
better, over 3-5 year periods.
o Tracking error against the benchmark should not exceed 200 basis points
over 3-5 year periods.
<PAGE>
V. COMMUNICATION
In addition to monthly and periodic communications to meet legal and regulatory
compliance requirements:
o Monthly - conference calls to explain to designated Diversified analysts:
the current portfolio position, recent trades and their rationale, market
outlook for the fund, and expected portfolio actions.
o Quarterly - portfolio manager writeups covering material similar to
monthly conference calls, but also including material specified by
Diversified's communications department.
o Annually - meetings between interested parties to reaffirm or change the
Investment Policy Statement. Biannual visits by Diversified personnel at
the sub-adviser site to update due diligence.
o As needed on an ad hoc basis to explain major market moves in addition to
other communications.
o Immediate notification regarding sub-adviser change in ownership, change in
personnel involved in management of the account, conflicts of interest,
pending lawsuits or government investigations, change in investment
philosophy or discipline, or large absolute changes in assets under
management.
VI. OTHER
o Explanation of best execution trading practices, including soft dollar
arrangements.
o Evidence of disaster recovery plan, including Y2K, and EURO conversion
plans.
o Cooperation with audits (Diversified's internal or outside auditors,
Diversified client auditors, or regulators).
Signed: /s/ Brian Mathews Date: March 31, 1999
(Payden & Rygel)
Signed /s/ Leonard J. Antes Date: March 29, 1999
(Diversified Investment Advisers)
<PAGE>
SCHEDULE A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of January 3, 1994 by and between the Balanced
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 subadvisors 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,
<PAGE>
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. (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 this obligation, Diversified may, to the
extent permitted by law, purchase and sell Portfolio securities to and from
brokers and dealers who provide brokerage and 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 to a broker or dealer who provides such brokerage and
research services a commission for effecting a securities transaction for the
<PAGE>
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
whether and to what extent to employ various investment techniques available to
the Portfolio. In effecting transactions with respect to securities or other
property for the account of 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
<PAGE>
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 so 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;
<PAGE>
(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.
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 of 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 .45% 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 that 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
<PAGE>
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 at any time, without payment of any penalty, on
90 days' written notice 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 or devote time and attention to
the management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other trust,
corporation, firm, individual or association.
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.
<PAGE>
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 included 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 not be affected
thereby. 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 F. 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 services under this Agreement on
the basis of the below-described annual fee schedule. The fee schedule shall
only be amended by agreement between the parties.
FEE SCHEDULE
.0020 OF THE FIRST $50M NET ASSETS
.0015 OF THE NEXT $ 50M OF NET ASSETS
.0010 OF NET ASSETS IN EXCESS OF $100M
Net assets are equal to the market value 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.
Payden & Rygel agree that if at anytime during the term of this Subadvisory
Agreement, Payden & Rygel offer another of its clients a lower fee than that
set forth in this Schedule B for the management of a similarly structured
Balanced Portfolio or Balanced Fund then Diversified will also be charged the
lower rate. Diversified will benefit from the lower rate from the first day
that it is in effect for Payden & Rygel's other client. It is understood and
agreed by both Payden & Rygel and Diversified that this paragraph is
applicable solely to Diversified's Balanced Portfolio and not to any other
fund/assets which Payden & Rygel now manages or may manage in the future on
Diversified's behalf.
<PAGE>
SCHEDULE C
Target market for 401(a), 403(b) and 457 plans is those plans between $1 and
$250 million.
<PAGE>
EXHIBIT B
INVESTMENT SUBADVISORY AGREEMENT
INVESTMENT SUBADVISORY AGREEMENT, dated as of March 31, 1999, by and
between Diversified Investment Advisors, Inc., a Delaware corporation
("Diversified") and Aeltus Investment Management, Inc., a Connecticut
corporation ("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 Balanced Portfolio
("Portfolio"), a series of Diversified Investors Portfolios, a diversified
open-end management investment company registered under the Investment Company
Act of 1940 ("1940 Act");
WHEREAS, Diversified desires to retain the Subadvisor to furnish it with
portfolio investment advisory services in connection with Diversified's
investment advisory activities on behalf of the Portfolio, and the Subadvisor
is willing to furnish such services to Diversified;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of the Subadvisor. In accordance with and subject to the
Investment Advisory Agreement between the Portfolio and Diversified, attached
hereto as Schedule A (the "Advisory Agreement"), Diversified hereby appoints
the Subadvisor to perform the portfolio investment advisory services described
herein for the investment and reinvestment of such amount of the Portfolio's
assets as is determined from time to time by the Portfolio's Board of Trustees
("Assets"), subject to the control and direction of Diversified and the
Diversified Investors Portfolios' Board of Trustees, for the period and on the
terms hereinafter set forth.
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 Portfolio's assets. The Subadvisor shall furnish
continuously an investment program and shall determine from time to time what
securities shall be purchased, sold or exchanged and what portion of the assets
of the Portfolio shall be held uninvested, subject always to the provisions of
the 1940 Act and to the Portfolio's then current Registration Statement on Form
N-1A.
<PAGE>
In particular, the Subadvisor shall, without limiting the foregoing: (i)
continuously review, supervise and implement 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;
(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 of the Portfolio on the last day of such month, rates of return, and
(c) such other information relating to the Portfolio as Diversified may
reasonably request; (vii) meet at least four times per year with Diversified
and with such other persons as may be designated on reasonable notice and at
reasonable locations, at the request of Diversified, to discuss general
economic conditions, performance, investment strategy, and other matters
relating to the Portfolio; (viii) provide the Portfolio with records concerning
the Subadvisor's activities which the Portfolio is required by law to 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 to Diversified 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.
Diversified, however, will assume the responsibility for the actual voting of
any voting rights.
Should the Board of Trustees at any time establish an investment policy
with respect to the Portfolio and notify the Subadvisor thereof in writing, the
Subadvisor shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such policy has been
revoked. The initial Statement of Investment Policy and Guidelines is attached
hereto as Appendix I.
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
<PAGE>
deliveries of securities and payments of cash for the account of the Portfolio.
Subject to the primary objective of obtaining the best available prices and
execution, the Subadvisor may place orders for the purchase and sale of
portfolio securities with such broker/dealers who provide research and
brokerage services to the Portfolio within the meaning of Section 28(e) of the
Securities Exchange Act of 1934, to the Subadvisor, or to any other fund or
account for which the Subadvisor provides investment advisory services and may
place such orders with broker/dealers who sell shares of the Portfolio or who
sell shares of any other fund for which the Subadvisor provides investment
advisory services. Broker/dealers who sell shares of the funds of which Aeltus
Investment Management, Inc. is investment advisor shall only receive orders for
the purchase or sale of portfolio securities to the extent that the placing of
such orders is in compliance with the Rules of the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc.
Notwithstanding the provisions of the previous paragraph and subject to
such policies and procedures as may be adopted by the Board of Trustees and
officers of the Portfolio, the Subadvisor may pay a member of an exchange,
broker or dealer an amount of commission for effecting a securities transaction
in excess of the amount of commission another member of an exchange, broker or
dealer would have charged for effecting that transaction, in such instances
where the Subadvisor has determined in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and
research services provided by such member, broker or dealer, viewed in terms of
either that particular transaction or the Subadvisor's overall responsibilities
with respect to the Portfolio and to other funds and clients for which the
Subadvisor exercises investment discretion.
2. Allocation of Charges and Expenses. The Subadvisor shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 1 above. It is understood that the Portfolio
will pay all of its own expenses and liabilities including, without limitation,
compensation and out-of-pocket expenses of Trustees not affiliated with the
Subadvisor or Diversified; governmental fees; interest charges; taxes;
membership dues; fees and expenses of independent auditors, of legal counsel
and of any transfer agent, administrator, distributor, shareholder servicing
agents, registrar or dividend disbursing agent of the Portfolio; expenses of
distributing and 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
<PAGE>
safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of shares of the
Portfolio; expenses of shareholder meetings; expenses of litigation and other
extraordinary or non-recurring events and expenses relating to the issuance,
registration and qualification of shares of the Portfolio.
3. Compensation of the Subadvisor. For the services to be rendered,
Diversified shall pay to the Subadvisor an investment advisory fee computed in
accordance with the terms of Schedule B herewith attached. If the Subadvisor
serves for less than the whole of any period specified, its compensation shall
be prorated.
4. Covenants and Representations of the Subadvisor. The Subadvisor agrees
that it will not deal with itself, or with the Trustees of the Portfolio or
with Diversified, or the Portfolio's principal underwriter or distributor as
principals in making purchases or sales of securities or other property for the
account of the Portfolio, except as permitted by the 1940 Act, and will comply
with all other provisions of the Declaration of Trust and any current
Registration Statement on Form N-1A of the Portfolio relative to the Subadvisor,
Advisor and its Trustees and officers.
5. Limits on Duties. The Subadvisor shall be responsible only for managing
the Assets in good faith and in accordance with the investment objectives,
fundamental policies and restrictions, and shall have no responsibility
whatsoever for, and shall incur no liability on account of (i) diversification,
selection or establishment of such investment objectives, fundamental policies
and restrictions (ii) advice on, or management of, any other assets for
Diversified or the Portfolio, (iii) filing of any tax or information returns or
forms, withholding or paying any taxes, or seeking any exemption or refund,
(iv) registration of the Portfolio with any government or agency, or (v)
administration of the plans and trusts investing through the Portfolio, or (vi)
overall Portfolio compliance with the requirements of the 1940 Act, which
requirements are outside of the Subadvisor's control, and Subchapter M of the
Internal Revenue Code of 1986, as amended. Diversified agrees that requirements
imposed by the 1940 Act, Subchapter M, or any other applicable laws, that are
outside Subadvisor's control include compliance with any percentage limitations
applicable to the Portfolio's assets that would require knowledge of the
Portfolio's holdings other than the Assets subject to this Agreement.
Subadvisor shall be indemnified and held harmless by Diversified for any loss
in carrying out the terms and provisions of this Agreement, including
reasonable attorney's fees, indemnification to the Portfolio, or any
shareholder thereof and, brokers and commission merchants, fines, taxes,
penalties and interest. Subadvisor, however, shall be liable for any liability,
<PAGE>
damages, or expenses of Diversified arising out of the gross negligence,
malfeasance or violation of applicable law by any of its employees in providing
management under this Agreement; and, in such cases, the indemnification by
Diversified, referred to above, shall be inapplicable.
The Subadvisor may apply to Diversified at any time for instructions and
may consult counsel for Diversified or its own counsel with respect to any
matter arising in connection with the duties of the Subadvisor. Also, the
Subadvisor shall be protected in acting upon advice of Diversified and/or
Diversified's counsel and upon any document which Subadvisor reasonably
believes to be genuine and to have been signed by the proper person or persons.
6. Exclusivity. Subadvisor represents to Diversified that during the term
of this Agreement, Subadvisor will not manage through any (1) open-end
investment company or insurance company separate account registered under the
1940 Act; (2) collective trust fund; or (3) insurance company separate account
excepted from regulation under section 3(c)(11) of the 1940 Act, the equity
portion of any balanced fund, in a substantially similar manner to the strategy
employed by Subadvisor for Diversified under this Agreement, if such investment
vehicles are designed primarily for retirement plans described on Schedule C
attached hereto.
Notwithstanding the preceding paragraph above, Subadvisor is not and will
not be precluded from providing such management services on behalf of any
mutual fund, collective trust fund, or insurance company separate account that
is currently or in the future advised, underwritten, sponsored or otherwise
organized by any entity that is an affiliated person of Subadvisor within the
meaning of section 2(a)(3) of the 1940 Act.
7. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written and shall
govern the relations between the parties hereto thereafter, and, unless
terminated earlier as provided below, shall remain in force for two years, on
which date it will terminate unless its continuance thereafter is specifically
approved at least annually (a) by the vote of a majority of the Trustees of the
Portfolio who are not "interested persons" with respect to this Agreement or of
the Subadvisor or Diversified at an in person meeting specifically called for
the purpose of voting on such approval, and (b) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. However, if the shareholders of the Portfolio fail to approve the
Agreement as provided herein, the Subadvisor may continue to serve hereunder in
<PAGE>
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 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.
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.
8. Certain Records. Any records to be maintained and preserved pursuant to
the provisions of Rule 31a-1 and Rule 31a-2 adopted under the 1940 Act which
are prepared or maintained by the Subadvisor on behalf of the Portfolio are the
property of the Portfolio and will be surrendered promptly to the Portfolio on
request.
9. Survival of Compensation Rates. All rights to compensation under this
Agreement shall survive the termination of this Agreement.
10. Entire Agreement. This Agreement states the entire agreement of the
parties with respect to investment advisory services to be provided to the
Portfolio by the Subadvisor and may not be amended except in a writing signed
by the parties hereto and approved in accordance with Section 7 hereof.
11. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
12. Change of Management and Pending Litigation. Subadvisor represents to
Diversified that it will disclose to Diversified promptly after it has
knowledge of any change or variation in its management structure or personnel
or any significant change or variation in its management style or investment
<PAGE>
philosophy that is material to this Agreement. In addition, Subadvisor
represents to Diversified that it will similarly disclose to Diversified,
promptly after it has knowledge, the existence of any pending legal action
being brought against it whether in the form of a lawsuit or a non-routine
investigation by any federal or state governmental agency.
Diversified represents to Subadvisor that any information received by
Diversified pursuant to this section will be kept strictly confidential and
will not be disclosed to any third party.
13. 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: /s/ John F. Hughes
Aeltus Investment Management, Inc.
By: /s/ Mary Ann Fernandez
<PAGE>
APPENDIX I
March 17,1999
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR
THE EQUITY PORTION OF THE BALANCED FUND
MANAGED BY
AELTUS
<PAGE>
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR
THE EQUITY PORTION OF THE BALANCED FUND
MANAGED BY
AELTUS
TABLE OF CONTENTS
I. PURPOSE
II. OBJECTIVES
III. INVESTMENT GUIDELINES
IV. PERFORMANCE EVALUATION
V. COMMUNICATION
VI. OTHER
<PAGE>
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR
THE EQUITY PORTION OF THE BALANCED FUND
MANAGED BY
AELTUS
I. PURPOSE
The purpose of this Statement of Investment Policy and Guidelines is to
communicate the Equity component of the Balanced Fund investment objectives,
guidelines and performance evaluation standards adopted by Diversified
Investment Advisors and its sub-advisor Aeltus.
This statement is intended to (1) help the subadvisor understand Diversified's
investment goals, (2) identify portfolio management activities to be employed
by the sub-adviser to achieve those goals, and (3) supply Diversified with a
tool to monitor and evaluate the operations and performance of the fund.
II. OBJECTIVES AND CONSTRAINTS
The primary objectives of the fund are:
o To provide capital appreciation with some current income.
o To outperform the S&P500 index over full market cycles.
o To achieve mid-second quartile or better performance among a group of peer
funds as defined by recognized reporting services and consulting
organizations (e.g., Lipper, Frank Russell, Callan).
The primary constraint of the fund is:
o To manage the portfolio without excessive risk relative to the S&P500
Index, or peer funds, as measured by annualized standard deviation over 3-5
year periods.
III. INVESTMENT GUIDELINES
In addition to legal requirements specified in the Diversified prospectus to
conform with SEC requirements:
A) Permissible securities
o Money market instruments, including U.S. Treasury bills, Federal funds,
repurchase agreements, commercial paper, bankers' acceptances,
certificates of deposit.
o Common stocks of companies comprising the S&P500
o S&P500 futures.
<PAGE>
o Preferred stocks of companies in the S&P500
o Convertible debt S&P500 companies.
B) Prohibited Securities, and Limitations and Restrictions on Permissible
Investments
For typical market conditions THE FOLLOWING APPLIES TO THE ENTIRE BALANCED
FUND:
o No more than 5% of the assets of the portfolio may be invested in the
securities of any one issuer (other than U.S. government securities). PER
SECTION 5(B) OF THE 1940 ACT, THIS RESTRICTION APPLIES ONLY TO 75% OF THE
VALUE OF THE PORTFOLIO'S TOTAL ASSETS.
o No more than 25% of the assets of the portfolio may be invested in
securities of issuers in any one industry.
o No more than 5% of the voting securities of any one issuer may be
acquired.
o Illiquid securities may not exceed 15% of the portfolio under normal
market conditions.
o The portfolio may not borrow funds except for temporary or emergency
purposes.
C) Leverage
o The portfolio may not be leveraged beyond short-term (e.g., one to two
week) marginal cash overdraft borrowing (e.g., 1-5% of the portfolio)
resulting from temporary cash management.
D) Derivatives
o Derivatives may not be used for speculative purposes.
o S&P500 futures may be used to securitize cash inflows, and manage cash
outflows.
E) Capitalization Guidelines
o Portfolio weighed average market capitalization should not deviate by more
than 20% from the S&P500 weighted average market cap.
F) Sector Weights
o Sector weights should remain within +/- 35% of the S&P500 sector weight.
<PAGE>
G) Risk Controls
o Tracking error versus the S&P500 index should not exceed 200 basis points
on average over 3-5 year periods.
H) Cash Management
o Typical cash balances will be maintained in a range of 0-5% under normal
circumstances.
o Cash balances will not be less than zero except during temporary overdraft
positions to efficiently manage short-term cash requirements during periods
of unusual market conditions (e.g., one to seven business days).
IV. PERFORMANCE EVALUATION
o The performance benchmark for the fund will be the S&P500 Index. It is
expected that the fund will outperform the benchmark by 100-150 basis
points on average over 3-5 year periods, gross of fees.
o Additionally, it is expected that the fund will be in the upper second
quartile of peer universes (specify -- Lipper, Russell, Callan or
Morningstar), or better, over full market cycles.
o The foregoing performance objectives are to be accomplished without taking
excessive risk. Specifically, the tracking error versus the S&P500 index
should not exceed 200 basis points on average over 3-5 year periods.
V. COMMUNICATION
In addition to monthly and periodic communications to meet legal and regulatory
compliance requirements:
o Monthly--conference calls to explain to designated Diversified analysts:
the current portfolio position, recent trades and their rationale, market
outlook for the fund, and expected portfolio actions.
o Quarterly--portfolio manager writeups covering material similar to monthly
conference calls, but also including material specified by Diversified's
communications department.
o Annually--meetings between interested parties to reaffirm or change the
Investment Policy Statement. Bi-annual visits by Diversified personnel at
the subadvisor site to update due diligence.
o As needed on an ad hoc basis to explain major market moves between other
communications.
o Immediate notification regarding subadvisor change in ownership, change in
personnel involved in management of the account, conflicts of interest,
pending lawsuits or government investigations, change in investment
<PAGE>
philosophy or discipline, or large absolute changes in assets under
management.
VI. OTHER
o Explanation of best execution trading practices, including soft dollar
arrangements.
o Evidence of disaster recovery plan, including Y2K, and EURO conversion
plans.
o Cooperation with audits (Diversified's internal or outside auditors,
Diversified client auditors, or regulators).
Signed: /s/ Mary Ann Fernandez Date: March 26, 1999
(Aeltus)
Signed: /s/ Leonard J. Antes Date: March 29, 1999
(Diversified Investment Advisors)
<PAGE>
SCHEDULE A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of January 3, 1994 by and between the Balanced
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 subadvisors 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,
<PAGE>
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. (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 this obligation, Diversified may, to the
extent permitted by law, purchase and sell Portfolio securities to and from
brokers and dealers who provide brokerage and 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 to a broker or dealer who provides such brokerage and
research services a commission for effecting a securities transaction for the
<PAGE>
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
whether and to what extent to employ various investment techniques available to
the Portfolio. In effecting transactions with respect to securities or other
property for the account of 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
<PAGE>
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 so 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;
<PAGE>
(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.
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 of 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 .45% 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 that 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
<PAGE>
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 at any time, without payment of any penalty, on
90 days' written notice 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 or devote time and attention to
the management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other trust,
corporation, firm, individual or association.
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.
<PAGE>
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 included 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 not be affected
thereby. 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 F. 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 services under this Agreement on
the basis of the below-described annual fee schedule. The fee schedule shall
only be amended by agreement between the parties.
FEE SCHEDULE
.00200 OF THE FIRST $200M OF NET ASSETS
.00150 OF THE NEXT $300M OF NET ASSETS
.00125 OF THE NEXT $500M OF NET ASSETS
.00100 OF NET ASSETS IN EXCESS OF $1B
Net assets are equal to the market value 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.
Aeltus Investment Management, Inc., agrees that if at anytime during the term
of this Subadvisory Agreement, Aeltus offers another of its clients (other than
a client that is an affiliated person of Aeltus) a lower fee than that set
forth in this Schedule B for the management of a similarly structured Balanced
Portfolio or Balanced Fund then Diversified will also be charged the lower
rate. Diversified will benefit from the lower rate from the first day that it
is in effect for Aeltus's other client. It is understood and agreed by both
Aeltus and Diversified that this paragraph is applicable solely to
Diversified's Balanced Portfolio and not to any other fund/assets which Aeltus
now manages or may manage in the future on Diversified's behalf.
<PAGE>
SCHEDULE C
Target market for 401(a), 403(b) and 457 plans is those plans with assets
between $1 and $250 million.
<PAGE>
EXHIBIT C
SIMILAR INVESTMENT COMPANIES FOR WHICH AELTUS SERVES AS INVESTMENT ADVISER:
FUND NAME NET ASSETS ANNUAL RATE OF FEE WAIVERS OR
COMPENSATION REDUCTIONS
Aetna Balanced $1,852,355,501(1) 0.500% of net None
VP, Inc. assets
Aetna Balanced $119,647,343(2) 0.800% of net None
Fund assets
- ------------------
(1) Net assets as of December 31, 1998
(2) Net assets as of October 31, 1998
