[PRELIMINARY PROXY - NOT FOR DISTRIBUTION]
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:
[X] Preliminary Proxy Statement
[ ] 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 - Special Equity Portfolio
(Name of Registrant as Specified In Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No Fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of the filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
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 12:00 noon (Eastern time) we will hold a special meeting of
investors in Special Equity Portfolio, a series of 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. To vote to approve a new Investment Subadvisory Agreement
between Diversified Investment Advisors, Inc. and RS Investment
Management, L.P.
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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SPECIAL EQUITY 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 SPECIAL EQUITY 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 12:00 noon, Eastern time, for the following purposes:
ITEM 1. To vote to approve a new Investment Subadvisory Agreement
between Diversified Investment Advisors, Inc. and RS Investment
Management, L.P.
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
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.
<PAGE>
SPECIAL EQUITY 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 Special Equity 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, 12:00 noon, 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.
[AMOUNT] 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. Currently, the Portfolio has four subadvisers.
Prior to March 26, 1999, Ark Asset Management Co., Inc. ("Ark"), a corporation
having its principal offices at 125 Broad Street, New York, New York, served as
one of the investment subadvisers of the Portfolio pursuant to an Investment
Subadvisory Agreement between Ark and the Adviser. As subadviser, Ark was
responsible for investing the Portfolio's assets in a manner consistent with
the terms of the Investment Subadvisory Agreement and the investment objectives
of the Portfolio. The Ark 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 Ark 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
Ark as the subadviser of the Portfolio. The Board reviewed Ark's investment
performance as subadviser and the manner in which Ark was managing the assets
of the Portfolio allocated to it. The Board then reviewed the Adviser's
procedures for selecting a new subadviser. As discussed in Item 1 below under
the heading "Evaluation by the Board of Trustees," the Board authorized the
Adviser to terminate the Ark Subadvisory Agreement and enter into a new
subadvisory agreement with RS Investment Management, L.P. ("RS"). Accordingly,
effective March 26, 1999, the Adviser terminated the Ark Subadvisory Agreement
and entered into a Subadvisory Agreement with RS.
In accordance with the requirements of the 1940 Act, the RS Subadvisory
Agreement must be approved by the holders of beneficial interests in the
Portfolio.
ITEM 1. TO VOTE TO APPROVE A NEW INVESTMENT SUBADVISORY AGREEMENT
BETWEEN DIVERSIFIED INVESTMENT ADVISORS, INC. AND RS INVESTMENT
MANAGEMENT, L.P.
COMPARISON OF THE SUBADVISORY AGREEMENTS
The terms of the RS Subadvisory Agreement are similar to those of the Ark
Subadvisory Agreement. The material differences between the new Subadvisory
Agreement and the Ark Subadvisory Agreement are the identity of the service
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provider, the effective date and termination date and the compensation payable
by the Adviser to the subadviser.
A description of the investment advisory fees to be paid by the Adviser to RS
is set forth below under the caption "Investment Advisory Fees."
The RS Subadvisory Agreement became effective on March 26, 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 26, 2001 and thereafter from year to year, subject to
approval annually in accordance with the 1940 Act. The RS 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 RS Subadvisory
Agreement may also be terminated by RS upon 90 days' advance written notice to
the Adviser. The RS Subadvisory Agreement will also terminate automatically in
the event of its "assignment" (as defined in the 1940 Act).
Under the RS Subadvisory Agreement, as under the Ark Subadvisory Agreement, RS
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
RS will be made by committee and not by managers individually. RS will also
provide the Adviser with such investment advice and reports and data as are
requested by the Adviser.
Like the Ark Subadvisory Agreement, the RS Subadvisory Agreement provides 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 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 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 brokers and 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, malfeasance
or violation of applicable law by it or 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.
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Investors should refer to Exhibit A attached hereto for the complete terms of
the RS Subadvisory Agreement. The description of the Subadvisory Agreement set
forth herein is qualified in its entirety by the provisions of the Subadvisory
Agreement as set forth in such Exhibit.
INVESTMENT ADVISORY FEES
Under the RS Subadvisory Agreement, the Adviser (not the Portfolio) pays the
subadviser for its services on the basis of the following annual fee schedule:
Fee Schedule for RS
.50% of the first $100 million of net assets of the Portfolio allocated to RS
.40% of net assets of the Portfolio allocated to RS in excess of $100 million
Under the RS Subadvisory Agreement, as under the Ark 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 RS by the fee schedule and
dividing by twelve. Fees are paid by the Adviser quarterly.
The RS Subadvisory Agreement provides that if at any time during the term of
the Subadvisory Agreement, RS charges another of its clients a lower fee than
that set forth above for the management of a similarly structured special
equity fund, then the Adviser will also be charged the lower rate by RS. The
Adviser will benefit from the lower rate from the first day that it is in
effect for the other client.
Under the Ark Subadvisory Agreement, the Adviser (not the Portfolio) paid Ark
for its services on the basis of the following annual fee schedule:
Ark Fee Schedule
.50% of the net assets of the Portfolio allocated to Ark
Under the Ark 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
allocated to Ark by the fee schedule and dividing by twelve. Fees were paid by
the Adviser quarterly.
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Approval of the RS Subadvisory Agreement, by itself, 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 RS as subadviser to the
Portfolio.
Fees payable to Ark for services provided pursuant to the Ark Subadvisory
Agreement for the period from January 1, 1998 to December 31, 1998 were
$887,477.23. Neither Ark nor any affiliated person of Ark, 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 Ark, any affiliated person of Ark,
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 RS for services provided pursuant to the
RS Subadvisory Agreement for the period from January 1, 1998 to December 31,
1998, had the RS Subadvisory Agreement been in effect for such period are
$809,981.78. This fee represents a 8.7% decrease in the amount of fees that
would have been payable to Ark for such period under the Ark Subadvisory
Agreement.
As of December 31, 1998, the Portfolio had net assets of $924,089,884.
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, Ark, RS or the distributor of the Portfolio.
INFORMATION REGARDING RS
RS is a California limited partnership having an office at 388 Market Street,
San Francisco, CA 94111. RS Investment Management Co. LLC ("New RSIM") is the
General Partner of RS. RS Regulated 1, LLC is the Limited Partner of RS.
The principal investors in RS were employees of Robertson, Stephens Investment
Management Co. ("Old RSIM") prior to 1997. Old RSIM was acquired by Bank of
America in October, 1997, and became an indirect subsidiary of Nationsbank
Corp. in October, 1998 as a result of the merger of BankAmerica Corp. with
Nationsbank Corp. In February 1999, the principal investors left Old RSIM and
formed New RSIM. RS is registered with the SEC as an investment adviser.
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MANAGEMENT AND GOVERNANCE. Listed below are the names, positions and principal
occupations of the principal investors in New RSIM and the principal executive
officer of New RSIM, as of February 28, 1999. The principal business address of
each individual, as it relates to his or her duties at RS, is the same as that
of RS, unless noted below.
NAME POSITION WITH RS PRINCIPAL OCCUPATION
George Randall Hecht President and Chief President and Chief Executive
Executive Officer Officer of RS
Paul Harbor Stephens Managing Director Portfolio Manager
James Callinan Managing Director Portfolio Manager
Andrew Pilara Managing Director Portfolio Manager
No officer or director of the Fund currently is an officer or employee of RS or
New RSIM. No officer or Trustee of the Portfolio Trust has any other material
direct or indirect interest in RS or any other person controlling, controlled
by or under common control with RS. Since January 1, 1998, none of the Trustees
of the Portfolio Trust has had any material interest, direct or indirect, in
any material transactions, or in any material proposed transactions, to which
RS was or is to be a party.
MANAGEMENT ACTIVITIES. As of April 30, 1999, RS had approximately $2.5 billion
of assets under management.
RS acts as investment manager for registered investment companies with
investment objectives similar to the Portfolio's investment objective of
providing a high level of capital appreciation through investment in a
diversified portfolio of common stocks of small to medium size companies. The
name of each such fund, together with information concerning the fund's net
assets and the fees paid to RS for its services, are set forth in Exhibit B.
THE EVALUATION BY THE BOARD OF TRUSTEES
The Board of Trustees of the Trust authorized the Adviser to terminate the Ark
Subadvisory Agreement and approved the RS Subadvisory Agreement at a meeting
held on March 24, 1999.
Before authorizing the Adviser to terminate the Ark Subadvisory Agreement, the
Board of Trustees of the Trust reviewed with the Adviser its recommendation
that the services of Ark as subadviser of the Portfolio be terminated. The
Adviser reported that the Portfolio's current prospectus states that the
Portfolio "emphasizes common stocks of U.S. companies with market
capitalizations of less than $1 billion." The Adviser noted that while all four
of the Portfolio's subadvisers invested some amount in securities of mid-cap
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issuers (meaning issuers with capitalizations between $1.5 billion and $7
billion), Ark had consistently invested the highest amount in mid-cap issuers.
As a result, while Ark's investment performance had been good, the Adviser
recommended that management responsibilities of the Portfolio be transferred to
a subadviser who would place a greater emphasis on small-cap issuers. The Board
of Trustees then reviewed the Adviser's procedures for selecting a new
subadviser. The Trustees considered information with respect to RS and whether
the RS Subadvisory Agreement was in the best interests of the Portfolio and its
holders of beneficial interests. The Trustees considered the nature and quality
of services expected to be provided by RS and reviewed and discussed
information regarding the subadviser's fees and performance. In evaluating the
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 accounts advised by RS having investment
objectives similar to the Portfolio against various benchmarks and to the
investment performance of the Portfolio's assets as managed by Ark.
Based upon its review, the Board of Trustees concluded that (a) for relevant
periods Ark's investment management style had been somewhat inconsistent with
the Portfolio's small- to mid-cap objectives, (b) the terms of the RS
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
the RS 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 Ark
Subadvisory Agreement, approved the RS Subadvisory Agreement and voted to
recommend the approval of the RS 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 the RS Subadvisory Agreement does not receive the requisite
investor approval, the Adviser would negotiate a new investment subadvisory
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agreement with a different advisory organization or make other appropriate
arrangements, in either event subject to approval in accordance with the 1940
Act.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT INVESTORS IN THE PORTFOLIO
VOTE FOR APPROVAL OF THE RS 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
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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
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 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
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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:
[CONFIRM.]
Name and Address of Amount and Nature of Percent of
Record Owner Record Ownership Beneficial Interests
AUSA Life Insurance $ __________ _____%
Company, Inc.
4 Manhattanville Road
Purchase, NY 10577
Diversified Investment $ __________ _____%
Advisors Collective
Trust
4 Manhattanville Road
Purchase, NY 10577
Diversified Investors $ __________ _____%
Funds Group
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
SPECIAL EQUITY 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 Special Equity
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 12:00 noon, Eastern time, and at any adjournment thereof, as fully as
the undersigned would be entitled to vote if personally present, as follows:
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS.
1. To vote to approve a new Investment Subadvisory Agreement between
Diversified Investment Advisors, Inc. and RS Investment Management L.P.:
___ 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 26, 1999, by and
between Diversified Investment Advisors, Inc., a Delaware corporation
("Diversified") and RS Investment Management, L.P., a Delaware corporation
formerly known as Robertson, Stephens & Co. Investment Mgt. L.P. (hereinafter
"Subadvisor" or "RS").
WITNESSETH:
WHEREAS, Diversified has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940 and has been
retained to provide investment advisory services to the Special Equity
Portfolio ("Portfolio"), a series of Diversified Investors Portfolios, a
diversified openend 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
execution, the Subadvisor may place orders for the purchase and sale of
portfolio securities with such broker/dealers who provide statistical, factual
<PAGE>
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 RS 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. Diversified
understands and agrees that Subadvisor's brokerage practices shall be
consistent with the disclosure in Schedule F of Subadvisor's Form ADV, as
amended from time to time.
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 outofpocket expenses of Trustees not affiliated
with the Subadvisor or Diversified; governmental fees; interest charges; taxes;
membership dues; fees and expenses of independent auditors, of legal counsel
and of any transfer agent, administrator, distributor, shareholder servicing
agents, registrar or dividend disbursing agent of the Portfolio; expenses of
distributing and redeeming shares and servicing shareholder accounts; expenses
of preparing, printing and mailing prospectuses, shareholder reports, notices,
proxy statements and reports to governmental officers and commissions and to
shareholders of the Portfolio; expenses connected with the execution, recording
and settlement of Portfolio security transactions; insurance premiums; fees and
expenses of the custodian for all services to the Portfolio, including
safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of shares of the
Portfolio; expenses of shareholder meetings; expenses of litigation and other
extraordinary or nonrecurring events and expenses relating to the issuance,
registration and qualification of shares of the Portfolio.
<PAGE>
3. Compensation of the Subadvisor. For the services to be rendered,
Diversified shall pay to the Subadvisor an investment advisory fee computed in
accordance with the terms of Schedule B herewith attached. If the Subadvisor
serves for less than the whole of any period specified, its compensation shall
be prorated.
4. Covenants and Representations of the Subadvisor. The Subadvisor
agrees that it will not deal with itself, or with the Trustees of the Portfolio
or with Diversified, or the Portfolio's principal underwriter or distributor as
principals in making purchases or sales of securities or other property for the
account of the Portfolio, except as permitted by the 1940 Act, and will comply
with all other provisions of the Declaration of Trust and any current
Registration Statement on Form N-1A of the Portfolio relative to the Subadvisor,
Advisor and its Trustees and officers.
5. Representations and Warranties of Diversified. Diversified represents
and warrants to Subadvisor and agrees with Subadvisor as follows: a.
Diversified has the requisite legal capacity and authority to execute, deliver
and perform its obligations under this Agreement. This Agreement has been duly
authorized, executed and delivered by Diversified and is the legal, valid and
binding agreement of Diversified, enforceable against Diversified in accordance
with its terms. Diversified's execution of this Agreement and the performance
of its obligations hereunder do not conflict with or violate any provisions of
the governing documents (if any) of Diversified or the Portfolio or any
obligations by which Diversified or the Portfolio is bound, whether arising by
contract, operation of law or otherwise. Diversified is experienced in engaging
subadvisors and is aware of the risks associated with such engagements,
including the risk that the Portfolio could suffer substantial diminution in
value. As of the Effective Date, and at all times during the term of this
Agreement, less than twentyfive percent of the Portfolio's assets are and will
be assets of "employee benefit plans" within the meaning of the Federal
Employee Retirement Income Security Act of 1974, as amended.
6. Allocation of Investments. Diversified acknowledges and understands
that Subadvisor engages in an investment advisory business apart from managing
the Portfolio. This will create conflicts of interest with the Portfolio over
Subadvisor's time devoted to managing the Portfolio and the allocation of
investment opportunities among accounts (including the Portfolio) managed by
Subadvisor. Subadvisor will attempt to resolve all such conflicts in a manner
that is generally fair to all of its clients. Diversified confirms that
Subadvisor may give advice and take action with respect to any of its other
clients that may differ from advice given or the timing or nature of action
taken with respect to the Portfolio so long as it is Subadvisor's policy, to
the extent practicable, to allocate investment opportunities to the Portfolio
over a period of time on a fair and equitable basis relative to other clients.
<PAGE>
Nothing in this Agreement shall be deemed to obligate Subadvisor to acquire for
the Portfolio any Security that Subadvisor or Subadvisor's officers, partners,
employees or affiliates may acquire for Subadvisor's or their own accounts or
for the account of any other client, if, in the absolute discretion of
Subadvisor, it is not practical or desirable to acquire such Security for the
Portfolio.
7. 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. To the extent permitted under applicable
law, Diversified agrees that Subadvisor will not be liable to Diversified or
the Portfolio for any losses incurred by Diversified or the Portfolio that
arise out of or are in any way connected with any recommendation or other act
or failure to act of Subadvisor under this Agreement, including, but not
limited to, any error in judgment with respect to the Portfolio, so long as
such recommendation or other act or failure to act does not constitute a breach
of Subadvisor's fiduciary duty to Diversified or the Portfolio, or a breach of
applicable law, or a breach of the terms of this Agreement. Should any such
breach occur 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.
8. Exclusivity. Subadvisor represents to Diversified that during the
term of this Agreement Subadvisor will not subadvise any similar portfolio, any
collective trust, openend 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 (referenced in Schedule C)
<PAGE>
without providing Diversified with 60 days prior written notice. It is
understood that Subadvisor shall not be limited by this section 8 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 nonU.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).
9. 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
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.
10. Certain Records. Any records to be maintained and preserved pursuant
to the provisions of Rule 31a1 and Rule 31a2 adopted under the 1940 Act which
are prepared or maintained by the Subadvisor on behalf of the Portfolio are the
<PAGE>
property of the Portfolio and will be surrendered promptly to the Portfolio on
request.
11. Survival of Compensation Rates. All rights to compensation under this
Agreement shall survive the termination of this Agreement.
12. 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 9 hereof.
13. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
14. 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 nonroutine 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.
15. Use of Name and Confidentiality. 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. Except as required by law, (a) Subadvisor
agrees to maintain in strict confidence all financial information regarding
Diversified that is furnished to Subadvisor by Diversified (except that
Diversified consents to disclosure of Diversified's identity as a client of
Subadvisor), and (b) Diversified agrees to maintain in strict confidence all
investment advice and information furnished to Diversified by Subadvisor.
Notwithstanding anything to the contrary above, Diversified consents to the use
and disclosure by Subadvisor of Subadvisor's investment experience and
performance with respect to the Portfolio, without disclosing the identity of
Diversified in connection with such experience or performance.
16. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any and all
other provisions hereof.
<PAGE>
17. Delivery of Information. Diversified acknowledges receipt of
Subadvisor's brochure required to be delivered under the Investment Advisers
Act of 1940 (including the information in Part II of Subadvisor's Form ADV).
Upon written request by Diversified, Subadvisor agrees to deliver annually,
without charge, Subadvisor's brochure required by the Investment Advisers Act
of 1940.
18. ThirdParty Beneficiaries. Neither party intends for this Agreement to
benefit any third party not expressly named in this Agreement.
19. Binding Arbitration. The parties waive their right to seek remedies
in court, including any right to a jury trial. The parties agree that in the
event of any dispute between the parties arising out of, relating to or in
connection with this Agreement or the Portfolio, such dispute shall be resolved
exclusively by arbitration to be conducted only in New York, New York in
accordance with the rules of JAMS/ENDISPUTE applying the laws of New York.
Disputes shall not be resolved in any other forum or venue. The parties agree
that such arbitration shall be conducted by a retired judge who is experienced
in resolving disputes regarding the securities business, that discovery shall
not be permitted except as required by the rules of JAMS/ENDISPUTE, that the
arbitration award shall not include factual findings or conclusions of law and
that no punitive damages shall be awarded. The parties understand that any
party's right to appeal or to seek modification of any ruling or award of the
arbitrator is severely limited. Any award rendered by the arbitrator shall be
final and binding, and judgment may be entered on it in any court of competent
jurisdiction in New York, New York or as otherwise provided by law.
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:__________________________________
RS Investment Management, L.P.
By:__________________________________
<PAGE>
APPENDIX I
March 24, 1999
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR THE
RS INVESTMENT MANAGEMENT, L.P. SMALL CAPITALIZATION
GROWTH PORTFOLIO
<PAGE>
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR
THE RS INVESTMENT MANAGEMENT, L.P. SMALL CAPITALIZATION
GROWTH PORTFOLIO
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 RS INVESTMENT MANAGEMENT, L.P. SMALL CAPITALIZATION
GROWTH PORTFOLIO
I. PURPOSE
The purpose of this Statement of Investment Policy and Guidelines is to
communicate the RS Investment Management, L.P. Small Capitalization Growth
Portfolio investment objectives, guidelines and performance evaluation
standards adopted by Diversified Investment Advisors and its subadvisor, RS
Investment Management, L.P.
This statement is intended to (1) help the subadvisor understand Diversified's
investment goals (2) identify portfolio management activities to be employed by
the subadviser 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 a high level of capital appreciation through investment in a
diversified portfolio of common stocks of small to medium size companies.
o To outperform the Russell 2000 Growth Index over full market cycles.
o To achieve midsecond 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 Russell
2000 Growth Index, or peer funds, as measured by annualized standard
deviation over 3-5 year periods.
III. INVESTMENT GUIDELINES
A) Permissible securities
In addition to legal requirements specified in the Diversified prospectus to
conform with SEC requirements:
o Common stocks of small to medium size companies as defined below. As of
February 1999, small capitalization firms range from $50 million to $1.5
billion (including the micro cap subset from $50 million to $300
million), and midcap companies are defined to be greater than $1.5
billion and less than $7.5 billion.
<PAGE>
o Preferred stocks of small to medium size companies.
o Convertible debt securities of small to medium size U.S. corporations.
o ADR's up to 10% of portfolio holdings.
B) Prohibited Securities, and Limitations and Restrictions on Permissible
Investments
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).
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
The portfolio may not be leveraged beyond shortterm (e.g., one to two week)
marginal cash overdraft borrowing (e.g., 15% of the portfolio) resulting from
temporary cash management.
D) Derivatives
o Derivatives may not be used for speculative purposes.
E) Quality
o Non-dollar foreign securities are prohibited.
F) Capitalization Guidelines
<TABLE>
<CAPTION>
Capitalization Range as a % of Dollar-Weighted Average Allowable Portfolio Range
Russell 2000 Growth Index
<S> <C> <C> <C> <C> <C>
Category Minimum Maximum Minimum Maximum
Micro Cap 5% 20% 0% 70%
Small Cap >20% 120% 30% 100%
Mid Cap >120% 600% 0% 25%
Large Cap >600% 0% 0%
</TABLE>
<PAGE>
G) Risk Controls
o Standard deviation of return not more than 20% greater than the Russell
2000 Growth Index, or the median in a peer universe, over 3-5 year
periods.
H) Cash Management
o Typical cash balances will be maintained in a range of 06% under normal
circumstances.
o Cash balances will not be less than zero except during temporary
overdraft positions to efficiently manage shortterm 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 Russell 2000 Growth
Index. It is expected that the fund will outperform the benchmark by at
least 400 basis points over 3-5 year periods.
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, volatility should not exceed the
risk control guidelines established in section (G) over 3-5 year periods,
and the Sharpe ratio should exceed the peer universe average.
V. COMMUNICATION
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 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 philosophy or discipline, or large absolute changes in assets
<PAGE>
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 outside audits (Diversified's or its clients' auditors,
SEC).
Signed__________________________________________
(RS Investment Management, L.P.)
Signed__________________________________________
(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, openend, 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 outofpocket
expenses of Trustees not affiliated with any subadvisor or Diversified;
governmental fees; interest charges; taxes; membership dues; fees and expenses
of independent auditors, of legal counsel and of any transfer agent,
administrator, distributor, shareholder servicing agents, registrar or dividend
<PAGE>
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 nonrecurring 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
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,
<PAGE>
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 brokerdealers 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 11a22(T)
thereunder. Pursuant to such authorizations, an affiliated brokerdealer 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
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
<PAGE>
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;
(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, semiannual and annual reports to investors, proxy
statements and tax returns;
(iv) preparation of agendas and supporting documents for and
minutes of meeting of Trustees, committees of Trustees and
investors; and
(v) maintaining books and records of the Portfolio.
<PAGE>
4. Diversified shall give the Portfolio the benefit of Diversified's
best judgment and efforts in rendering services under this Agreement. As an
inducement to Diversified's undertaking to render these services, the Portfolio
agrees that Diversified shall not be liable under this Agreement for any
mistake in judgment or in any other event whatsoever provided that nothing in
this Agreement shall be deemed to protect or purport to protect Diversified
against any liability to the Portfolio or its investors to which Diversified
would otherwise be subject by reason 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 31a3 under the 1940 Act,
Diversified hereby agrees that all records which it maintains for the Portfolio
are property of the Portfolio and further agrees to surrender promptly to the
Portfolio any such records upon the Portfolio's request. Diversified further
agrees to preserve for the periods prescribed by Rule 31a2 under the 1940 Act
any such records required to be maintained by Rule 31a1 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
<PAGE>
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"
"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.
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.
<PAGE>
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
________________________________ By:________________________________
Tom Schlossberg
Chairman and President
Attest: Diversified Investment Advisors, Inc.
________________________________ By:________________________________
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 belowdescribed annual fee schedule. The fee schedule shall
only be amended by agreement between the parties.
FEE SCHEDULE
.50% OF THE FIRST $100M OF NET ASSETS
.40% OF NET ASSETS IN EXCESS OF $100M
Net assets are equal to the market value of the Subadvisor's portion of the
Portfolio. Fees will be calculated by multiplying the arithmetic average of the
beginning and ending monthly net assets by the fee schedule and dividing by
twelve. The sum of the three consecutive months will be paid in arrears on
calendar quarters.
RS agrees that if at anytime during the term of this Subadvisory Agreement, RS
offers another of its clients a lower fee than that set forth in this Schedule
B for the management of a similarly structured smallcap growth separate account
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 RS's other
client. It is understood and agreed by both RS and Diversified that this
paragraph is applicable solely to Diversified's smallcap growth Portfolio and
not to any other fund/assets which RS 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.
