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 [ ]
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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 - High Quality Bond 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: June 6, 2000
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AUSA LIFE INSURANCE COMPANY, INC.
4 Manhattanville Road
Purchase, New York 10577
June 23, 2000
Dear Contract Holder:
On July 31, 2000 at 10:00 a.m. (Eastern time), High Quality Bond Portfolio will
hold a special meeting of its investors (the "Meeting") to vote on important
proposals relating to the Portfolio. High Quality Bond Portfolio is a series of
Diversified Investors Portfolios, which is a registered investment company. We
are sending this notice of the Meeting to contract holders of Group Variable
Annuity Contracts issued by AUSA Life Insurance Company, Inc. ("AUSA") with
unit interests in the Diversified Investors Variable Funds High Quality Bond
Subaccount of The Diversified Investors Variable Funds. All of the investable
assets of the Subaccount are invested in High Quality Bond Portfolio. The
Meeting will be held at the offices of Diversified Investment Advisors, Inc., 4
Manhattanville Road, Purchase, New York 10577.
While AUSA is the legal owner of the Subaccount's assets, Contract Holders have
the right to instruct AUSA as to how to vote that portion of the Subaccount's
interest in the Portfolio that corresponds to their unit interests in the
Subaccount. AUSA will vote, in accordance with your instructions, that portion
of the Subaccount's interest in the Portfolio that corresponds to your unit
interests in the Subaccount as of June 2, 2000. By separate mailing you will
obtain instructions from affected contract participants on how to instruct AUSA
to vote the interest corresponding to your units.
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 instruction card in accordance with instructions received
from your contract participant. Items 1 and 2 have been carefully considered by
the Board of Trustees of the Diversified Investors Portfolios, which is
responsible for protecting the interests of the Portfolio's investors. The
Board of Trustees believes that the proposals are fair and reasonable and
recommends that investors vote in favor of the proposals.
You are entitled to provide AUSA with voting instructions for the following
proposals to be voted upon:
ITEM 1. To instruct AUSA to vote to approve a new Investment Subadvisory
Agreement between Diversified Investment Advisors, Inc. and
Merganser Capital Management Limited Partnership.
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ITEM 2. To instruct AUSA 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 proposals to be considered at the Meeting are discussed in the enclosed
Proxy Statement. You are urged to read the enclosed Proxy Statement prior to
completing your instruction card instructing AUSA how to vote.
AUSA WILL VOTE THAT PORTION OF THE SUBACCOUNT'S INTEREST IN THE PORTFOLIO
CORRESPONDING TO UNIT INTERESTS IN THE SUBACCOUNT FOR WHICH AUSA RECEIVES NO
VOTING INSTRUCTIONS IN THE SAME PROPORTION AS THAT PORTION OF THE SUBACCOUNT'S
INTEREST IN THE PORTFOLIO FOR WHICH IT DOES, IN FACT, RECEIVE VOTING
INSTRUCTIONS.
AUSA is not aware of any matters, other than the specified proposals, to be
acted upon at the Meeting. If any other matters come before the Meeting, AUSA
will vote upon such matters in its discretion. AUSA reserves the right to vote
for the adjournment of the Meeting for the purpose of further solicitation of
voting instructions.
Sincerely,
/s/ Robert F. Colby
Robert F. Colby
Vice President and Assistant Secretary
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AUSA LIFE INSURANCE COMPANY, INC.
4 Manhattanville Road
Purchase, New York 10577
June 23, 2000
Dear Participant:
Certain contributions made on your behalf to AUSA Life Insurance Company, Inc.
("AUSA") with respect to the Group Variable Annuity Contract (the "Contract")
issued by AUSA to the holder of the Contract (the "Contract Holder") have been
allocated at your direction to the Diversified Investors Variable Funds High
Quality Bond Subaccount (the "Subaccount"), a subaccount of The Diversified
Investors Variable Funds, a separate account of AUSA. All of the investable
assets of the Subaccount are invested in High Quality Bond Portfolio (the
"Portfolio"), a series of Diversified Investors Portfolios (the "Trust"), which
is a registered investment company.
The Portfolio has called a meeting of its investors, including the Subaccount,
to vote on certain matters. AUSA, as the legal owner of all of the assets of
the Subaccount, will vote on such matters in accordance with the instructions
received from contract owners of the Group Variable Annuity Contracts with unit
interests in the Subaccount, including the Contract Holder.
As a participant of record at the close of business on June 2, 2000 (the
"Record Date"), you are entitled to instruct the Contract Holder as to how it
should instruct AUSA to vote on certain proposals to be considered at a Special
Meeting of Investors described in the enclosed Notice of Special Meeting and at
any adjournments thereof (the "Meeting"). The enclosed Proxy Statement and
Notice of Special Meeting are being mailed to you and other participants on or
about June 23, 2000.
The Meeting will be held at the offices of Diversified Investment Advisors,
Inc., 4 Manhattanville Road, Purchase, New York 10577, on July 31, 2000 at
10:00 a.m., Eastern time. You are entitled to provide the Contract Holder (who
in turn will instruct AUSA) with voting instructions for the following
proposals to be voted upon:
ITEM 1. To instruct AUSA to vote to approve a new Investment Subadvisory
Agreement between Diversified Investment Advisors, Inc. and
Merganser Capital Management Limited Partnership.
ITEM 2. To instruct AUSA to authorize the Board of Trustees of
Diversified Investors Portfolios to select and change investment
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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 proposals to be considered at the Meeting are discussed in the enclosed
Proxy Statement. You are urged to read the enclosed Proxy Statement prior to
completing your ballot instructing the Contract Holder how to instruct AUSA to
vote.
To instruct the Contract Holder as to how to instruct AUSA to vote, you are
asked to promptly mark your voting instructions on the enclosed ballot, then
sign, date and mail it.
IF A BALLOT IS NOT MARKED TO INDICATE VOTING INSTRUCTIONS BUT IS SIGNED, DATED
AND RETURNED, IT WILL BE TREATED AS AN INSTRUCTION TO VOTE FOR THE PROPOSALS.
AUSA WILL VOTE THAT PORTION OF THE SUBACCOUNT'S INTEREST IN THE PORTFOLIO
CORRESPONDING TO UNIT INTERESTS IN THE SUBACCOUNT FOR WHICH AUSA RECEIVES NO
VOTING INSTRUCTIONS IN THE SAME PROPORTION AS THAT PORTION OF THE SUBACCOUNT'S
INTEREST IN THE PORTFOLIO FOR WHICH IT DOES, IN FACT, RECEIVE VOTING
INSTRUCTIONS.
AUSA is not aware of any matters, other than the specified proposals, to be
acted upon at the Meeting. If any other matters come before the Meeting, AUSA
will vote upon such matters in its discretion. AUSA reserves the right to vote
for the adjournment of the Meeting for the purpose of further solicitation of
voting instructions.
At any time prior to the vote by AUSA of the Subaccount's interest in the
Portfolio, you may revoke your voting instructions by written notice to the
Assistant Secretary of AUSA at 4 Manhattanville Road, Purchase, New York,
10577.
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In addition to solicitation by mail, ballots may be solicited by the Board of
Directors, officers and employees of the Contract Holder without compensation
therefor.
Very truly yours,
AUSA LIFE INSURANCE COMPANY, INC.
/s/ Robert F. Colby
By: Robert F. Colby
Title: Vice President and Assistant Secretary
YOUR VOTE IS IMPORTANT. WE WOULD APPRECIATE YOUR PROMPTLY VOTING, SIGNING AND
RETURNING THE ENCLOSED BALLOT, WHICH WILL HELP AVOID THE ADDITIONAL EXPENSES OF
A SECOND SOLICITATION.
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DIVERSIFIED INVESTORS PORTFOLIOS
4 Manhattanville Road
Purchase, New York 10577
June 23, 2000
Dear Investor:
On July 31, 2000 at 10:00 a.m., (Eastern time) we will hold a special meeting
of investors in High Quality Bond Portfolio to vote on important proposals
relating to the Portfolio. High Quality Bond Portfolio is a series of
Diversified Investors Portfolios.
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 approve a new Investment Subadvisory Agreement between
Diversified Investment Advisors, Inc. and Merganser Capital
Management Limited Partnership.
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,
/s/ Robert F. Colby
Robert F. Colby
Secretary
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HIGH QUALITY BOND 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 31, 2000
A Special Meeting of Investors of HIGH QUALITY BOND 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 31, 2000 at 10:00 a.m., Eastern time, for the following purposes:
ITEM 1. To approve a new Investment Subadvisory Agreement between
Diversified Investment Advisors, Inc. and Merganser Capital
Management Limited Partnership.
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 June 2, 2000 will be entitled to vote at the
Special Meeting of Investors and at any adjournments thereof.
Robert F. Colby, Secretary
June 23, 2000
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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HIGH QUALITY BOND 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 High Quality Bond 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 31, 2000, at 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 23, 2000.
The Portfolio is one of fourteen 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, 1999, 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
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permit further solicitation of proxies. Any adjournment will require the
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 Item 1 for the proposed adjournment, unless directed to disapprove Item 1,
in which case such beneficial interests will be voted against the proposed
adjournment. Similarly, the persons named as proxies will vote all beneficial
interests that they are entitled to vote with respect to Item 2 for the
proposed adjournment, unless directed to disapprove Item 2, 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 Merganser Capital Management Limited
Partnership. 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. Diversified Investment Advisors,
Inc. 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 June 2, 2000 has been fixed as the Record Date for the
determination of investors entitled to notice of and to vote at the Meeting.
$227,348,750 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
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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 16, 1999. 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
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.
Merganser Capital Management Corporation ("Old Merganser"), a corporation
having its principal offices at One Cambridge Center, Cambridge, Massachusetts
02192, served as the investment subadviser of the Portfolio commencing on July
1, 1994 pursuant to an Investment Subadvisory Agreement between Old Merganser
and the Adviser. As subadviser, Old Merganser was responsible for investing the
Portfolio's assets in a manner consistent with the terms of the Subadvisory
Agreement and the investment objectives of the Portfolio. The Old Merganser
Subadvisory Agreement was most recently approved by the Board of Trustees of
the Trust, including a majority of the Independent Trustees, on November 16,
1999. The Old Merganser Subadvisory Agreement was most recently submitted to a
vote of investors in the Portfolio on January 3, 1994 in connection with its
initial approval.
Pursuant to a letter dated February 15, 2000, Edward R. Bedrosian, Chairman of
Old Merganser, informed the Adviser that Old Merganser intended to enter into a
transaction (the "Transaction") that would result in a change of control of Old
Merganser and, as a result, the automatic termination of the Old Merganser
Subadvisory Agreement as required by applicable law. Mr. Bedrosian informed the
Adviser that the Transaction was scheduled to close in April, 2000, and
requested that a new subadvisory agreement between the Adviser and the
surviving company of the Transaction, Merganser Capital Management Limited
Partnership ("New Merganser"), be approved. The Adviser furnished Mr.
Bedrosian's letter, along with certain additional written materials prepared by
Old Merganser describing the Transaction and New Merganser, to the Board of
Trustees of the Trust. The Transaction is described below in Item 1 under the
heading "The Transaction."
At a special meeting of the Board of Trustees of the Trust held on April 5,
2000, the Board considered, at the Adviser's recommendation, the approval of
New Merganser as the new subadviser of the Portfolio. The Board reviewed Old
Merganser's investment performance as subadviser and considered the anticipated
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effects of the Transaction. As discussed in Item 1 below under the heading
"Evaluation by the Board of Trustees," the Board approved a new subadvisory
agreement with New Merganser. Accordingly, upon the closing of the Transaction
on April 5, 2000, the Old Merganser Subadvisory Agreement terminated, and the
Adviser entered into a Subadvisory Agreement with New Merganser.
In accordance with the requirements of the 1940 Act, the New Merganser
Subadvisory Agreement must be approved by the holders of beneficial interests
in the Portfolio. Currently, New Merganser is serving as the subadviser to the
Portfolio pursuant to a rule under the 1940 Act that permits the New Merganser
Subadvisory Agreement to remain in effect for an interim period while that
approval is sought provided that certain conditions are met. Those conditions
include that all fees payable to New Merganser under the Subadvisory Agreement
be held in escrow until the agreement is approved, and returned to the payor
(net of New Merganser's actual expenses incurred in performing services under
the Subadvisory Agreement, plus interest earned thereon) if the agreement is
not approved in a timely manner. The Adviser (not the Portfolio) pays all the
fees under the Subadvisory Agreement. The Subadvisory Agreement will terminate
if it is not approved by the requisite holders of beneficial interests in the
Portfolio by September 2, 2000.
ITEM 1. TO APPROVE A NEW INVESTMENT SUBADVISORY AGREEMENT BETWEEN
DIVERSIFIED INVESTMENT ADVISORS, INC. AND MERGANSER CAPITAL
MANAGEMENT LIMITED PARTNERSHIP.
THE TRANSACTION
The principal terms of the Transaction, as described by Old Merganser, are as
follows: prior to closing, the capital stock of Old Merganser was owned
one-half by Mr. Bedrosian and one-half by Edward M. Safran. Mr. Bedrosian was
the Chairman of Old Merganser, and Mr. Safran was the President. At closing,
Old Merganser redeemed Mr. Safran's capital stock in exchange for cash and a
promissory note. As a result, Mr. Bedrosian became the sole stockholder of Old
Merganser. Simultaneously, the investment advisory business held by Old
Merganser was transferred to a newly organized Massachusetts limited
partnership, Merganser Capital Management Limited Partnership ("New
Merganser"). Old Merganser became the sole general partner of New Merganser,
and five of Old Merganser's key employees became limited partners in New
Merganser. In the aggregate these key employees hold a minority of the partner
interests in New Merganser while Old Merganser holds a majority of the partner
interests. These key employees are eligible to purchase additional partner
interests in New Merganser over time provided that certain conditions are met.
Mr. Safran entered into a consulting agreement with New Merganser pursuant to
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which he has agreed to perform certain services for New Merganser. Mr. Safran's
consulting services are not expected to occupy him full time. The consulting
agreement has a term of five years.
The redemption by Old Merganser of Mr. Safran's capital stock in Old Merganser
constituted a change of control of Old Merganser for purposes of the 1940 Act.
Under the 1940 Act, such a change of control resulted in an automatic
termination of all of Old Merganser's investment advisory agreements, including
the Old Merganser Subadvisory Agreement.
COMPARISON OF THE SUBADVISORY AGREEMENTS
The principal business terms of the Old Merganser and New Merganser Subadvisory
Agreements are substantially similar except as noted below. The identity of the
service provider, the effective date and the termination date of the New
Merganser Subadvisory Agreement are different than the Old Merganser
Subadvisory Agreement. In addition, the New Merganser Subadvisory Agreement
contains certain provisions concerning the payment of advisory fees that are
required by applicable law to be in effect until investor approval of the
agreement is obtained; upon investor approval, these provisions will cease to
be in effect.
A description of the investment advisory fees to be paid by the Adviser to New
Merganser is set forth below under the caption "Investment Advisory Fees."
The New Merganser Subadvisory Agreement became effective on April 5, 2000 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 April 5, 2002 and thereafter from year to year, subject to
approval annually in accordance with the 1940 Act. The 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 Subadvisory
Agreement may also be terminated by New Merganser upon 90 days' advance written
notice to the Adviser. The Subadvisory Agreement will also terminate
automatically in the event of its "assignment" (as defined in the 1940 Act).
Under the New Merganser Subadvisory Agreement, as under the Old Merganser
Subadvisory Agreement, New Merganser will furnish continuing portfolio
management services to the Portfolio, subject always to the provisions of the
1940 Act and to the investment objectives, policies, procedures and
restrictions imposed by the Portfolio's then current Registration Statement
under the 1940 Act. Investment management decisions of New Merganser will be
made by committee and not by managers individually. New Merganser will also
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provide the Adviser with such investment advice and reports and data as are
requested by the Adviser.
Like the Old Merganser Subadvisory Agreement, the New Merganser 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) 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. New Merganser, 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 the Subadvisory Agreement; and, in such
cases, the indemnification by the Adviser referred to above shall be
inapplicable.
As noted above in "Background," New Merganser is currently serving as the
subadviser to the Portfolio pursuant to Rule 15a-4 under the 1940 Act. That
rule permits the New Merganser Subadvisory Agreement to remain in effect for a
limited period of time while investor approval of the agreement is sought
provided that certain conditions are met. These conditions include that (i) the
agreement may be terminated by the Board of Trustees or holders of beneficial
interests in the Portfolio, without premium or penalty, on not more than ten
days notice, and shall terminate in any event in 150 days if the requisite
investor approval is not obtained, and (ii) fees paid under the agreement will
be held in escrow in an interest-bearing account pending investor approval of
the agreement and returned to the payor (net of New Merganser's actual expenses
incurred in performing services under the Subadvisory Agreement, plus interest
earned on the amount of those expenses while that amount was held in escrow) if
that approval is not obtained. The New Merganser Subadvisory Agreement contains
provisions complying with the necessary conditions. These provisions will cease
to be operative once the requisite investor approval of the agreement is
obtained.
Investors should refer to Exhibit A attached hereto for the complete terms of
the New Merganser 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.
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INVESTMENT ADVISORY FEES
Under the New Merganser Subadvisory Agreement, as under the Old Merganser
Subadvisory Agreement, the Adviser (not the Portfolio) pays the subadviser for
its services on the basis of the following annual fee schedule:
FEE SCHEDULE
.20% of the first $100 million of net assets managed
.15% of net assets managed over $100 million
and less than or equal to $200 million
.10% of net assets managed over $200 million
and less than or equal to $300 million
.05% of net assets managed in excess of $300 million
The foregoing fee schedule took effect between Old Merganser and the Adviser on
December 1, 1999. Prior thereto, the Adviser paid Old Merganser based on the
following annual fee schedule:
PRIOR FEE SCHEDULE
.25% of the first $100 million of net assets managed
.15% of net assets managed over $100 million
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 of the Portfolio by the fee schedule and dividing by twelve.
Fees are paid by the Adviser quarterly.
The New Merganser Subadvisory Agreement provides that if at any time during the
term of the Subadvisory Agreement, New Merganser charges another of its clients
a lower fee than that set forth above for the management of a similarly
structured fixed income fund, then the Adviser will also be charged the lower
rate by New Merganser. The Adviser will benefit from the lower rate from the
first day that it is in effect for the other client.
Approval of the New Merganser 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 New Merganser
as subadviser to the Portfolio.
Fees payable to Old Merganser for services provided pursuant to the Old
Merganser Subadvisory Agreement for the period from January 1, 1999 to December
31, 1999 were $376,408.
<PAGE>
If the first fee schedule set forth above had been in effect for the period
from January 1, 1999 to December 31, 1999, fees payable to Old Merganser for
services provided pursuant to the Old Merganser Subadvisory Agreement would
have been $369,790. Neither Old Merganser nor any affiliated person of Old
Merganser, 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, 1999.
There were no other material payments by the Adviser or the Portfolio to Old
Merganser, any affiliated person of Old Merganser or any affiliated person of
any such affiliated person, during the fiscal year of the Portfolio ended
December 31, 1999.
Because the fee schedules under the Old Merganser and New Merganser Subadvisory
Agreements are identical, had the first fee schedule set forth above been in
effect under the Old Merganser Subadvisory Agreement for the period from
January 1, 1999 to December 31, 1999, the same amount of fees as would have
been payable to Old Merganser under the Old Merganser Subadvisory Agreement
would have been payable to New Merganser for services provided pursuant to the
New Merganser Subadvisory Agreement for the period from January 1, 1999 to
December 31, 1999, had the New Merganser Subadvisory Agreement been in effect
for such period.
For the Portfolio's fiscal year ended December 31, 1999, 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, Old Merganser, New Merganser or the distributor of the Portfolio.
INFORMATION REGARDING MERGANSER
New Merganser is a Massachusetts limited partnership having an office at One
Cambridge Center, Cambridge, Massachusetts O2142. Old Merganser, also located
at One Cambridge Center, Cambridge, Massachusetts 02142, is the sole General
Partner of New Merganser and owns a majority of the partner interests in New
Merganser. Mr. Bedrosian is the sole shareholder of Old Merganser. Douglas A.
Kelly, Richard F. Woerner, Robert W. LeLacheur, Jr., Peter S. Kaplan and Winnie
Luke are limited partners of New Merganser and in the aggregate hold a minority
of the partner interests. As described above, these five key employees are
eligible to purchase additional partner interests in New Merganser over time
provided that certain conditions are met. In no event, however, will these key
employees hold, in the aggregate more than a minority of the partner interests
of New Merganser.
MANAGEMENT AND GOVERNANCE. Listed below are the names, positions and principal
occupations of the members of the principal executive officers of New
<PAGE>
Merganser, as of April 1, 2000. The principal business address of each
individual, as it relates to his or her duties at New Merganser, is the same as
that of New Merganser, unless noted below.
NAME PRINCIPAL OCCUPATION
Edward R. Bedrosian Chief Investment Officer
Douglas A. Kelly Partner
Richard F. Woerner Partner
Robert W. LeLacheur Partner
Peter S. Kaplan Partner
Winnie Luke Partner
No officer or director of the Portfolio currently is an officer or employee of
New Merganser or a member of New Merganser's Board of Directors. No officer or
Trustee of the Trust has any other material direct or indirect interest in New
Merganser or any other person controlling, controlled by or under common
control with New Merganser. Since January 1, 1999, 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 New Merganser
was or is to be a party.
MANAGEMENT ACTIVITIES. New Merganser's total assets under management as of
April 1, 2000 totaled approximately $2.1 billion. New Merganser does not serve
as the investment adviser of any registered investment company other than the
Portfolio.
THE EVALUATION BY THE BOARD OF TRUSTEES
The Board of Trustees of the Trust approved the New Merganser Subadvisory
Agreement at a meeting held on April 5, 2000.
At the meeting, the Board considered a presentation from the Adviser about New
Merganser, including information about the personnel who would be performing
services for the Portfolio, the capital structure of New Merganser, and the
effects of the Transaction on that capital structure. The Adviser reported that
New Merganser had represented to the Adviser that the Transaction would not
result in any changes in the management, operations or personnel of Old
Merganser except for the departure of Mr. Safran, and that the scope and
quality of the services to be provided to the Portfolio by New Merganser would
be at least equivalent to the scope and quality of the services provided to the
Portfolio by Old Merganser.
<PAGE>
In evaluating the New Merganser Subadvisory Agreement, the Board took into
account the historical performance of the Portfolio while it had been managed
by Old Merganser, which had been good. The Board also took into account that
the substantive terms of the Old Merganser and New Merganser Subadvisory
Agreements were substantially similar. The Board considered the terms of the
Transaction and their effect on the Merganser companies, as described in the
presentations made to the Board, and whether the New Merganser Subadvisory
Agreement was in the best interests of the Portfolio and its holders of
beneficial interests. The Board considered the nature and quality of services
expected to be provided by New Merganser and reviewed and discussed information
regarding fees and performance. In evaluating New Merganser's ability to
provide services to the Portfolio, the Board considered information as to New
Merganser's business organization, financial resources, personnel and other
matters. The Board also compared the investment performance of the Portfolio
against various benchmarks.
Based upon its review and the representations made to it, the Board of
Trustees, including all of the Independent Trustees, concluded that (a) New
Merganser had adequate resources and expertise to provide advisory services to
the Portfolio, (b) the scope and quality of the services to be provided to the
Portfolio by New Merganser would be at least equivalent to the scope and
quality of the services provided to the Portfolio by Old Merganser, (c) the
terms of the New Merganser Subadvisory Agreement did not differ in any material
respect from the terms of the Old Merganser Subadvisory Agreement and were
reasonable, fair and in the best interests of the Portfolio and its holders of
beneficial interests, and (d) the fees provided in the New Merganser
Subadvisory Agreement were 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, approved the New Merganser Subadvisory Agreement and
voted to recommend the approval of the New Merganser Subadvisory Agreement by
the holders of beneficial interests in the Portfolio.
REQUIRED VOTE
Approval of the New Merganser Subadvisory Agreement will require the approval
of "a majority of the outstanding voting securities" (as defined below) of the
Portfolio present in person or represented by proxy at a meeting of the holders
of the beneficial interests in the Portfolio. Under the 1940 Act, a "majority
of the outstanding voting securities" of an issuer means the affirmative vote
by the lesser of (a) 67% or more of the issuer's voting securities present at a
meeting if the holders of more than 50% of the issuer's outstanding voting
securities are present in person or represented by proxy or (b) more than 50%
of the issuer's outstanding voting securities (a "1940 Act Majority").
<PAGE>
In the event that the New Merganser Subadvisory Agreement does not receive the
requisite investor approval, the Adviser would negotiate a new investment
subadvisory agreement with a different advisory organization or make other
appropriate arrangements, in either event subject to approval in accordance
with the 1940 Act.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT INVESTORS IN THE PORTFOLIO
VOTE FOR APPROVAL OF THE NEW MERGANSER SUBADVISORY AGREEMENT.
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.
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. Also,
approving a replacement subadvisory agreement upon a change of control of a
subadviser, as in the situation involving Merganser Capital Management
Corporation described in Item 1, 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, or approve a subadvisor following a change of
control, 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
<PAGE>
proposed Item 2, the Portfolio would no longer be required to call an investor
meeting each time a new subadviser is appointed, and investors would not be
asked to vote thereon.
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
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 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 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.
<PAGE>
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
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 $87,255,680 38.39%
Company, Inc.
4 Manhattanville Road
Purchase, NY 10577
Diversified Investment $54,229,074 23.86%
Advisors Collective
Trust
4 Manhattanville Road
Purchase, NY 10577
Diversified Investors $44,084,175 19.40%
Funds Group
4 Manhattanville Road
Purchase, NY 10577
MONY Life Insurance $41,690,191 18.35%
Company
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
<PAGE>
investors must be received by the Trust at the Trust's office within a
reasonable time before the proxy solicitation is made.
YOU ARE URGED TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
/s/ Robert F. Colby
Robert F. Colby, Secretary
June 23, 2000
<PAGE>
INSTRUCTION CARD INSTRUCTION CARD
HIGH QUALITY BOND PORTFOLIO
A SERIES OF DIVERSIFIED INVESTORS PORTFOLIOS
INSTRUCTIONS FOR A SPECIAL MEETING
OF INVESTORS TO BE HELD JULY 31, 2000
The undersigned owner of a Group Variable Annuity Contract (the
"Contract") issued by AUSA Life Insurance Company, Inc. ("AUSA") with unit
interests in The Diversified Investors Variable Funds High Quality Bond
Subaccount (the "Subaccount"), a subaccount of The Diversified Investors
Variable Funds (the "Diversified Account"), revoking all Proxies heretofore
given, hereby instructs AUSA to vote on behalf of the undersigned that portion
of the Subaccount's interest in the High Quality Bond Portfolio corresponding
to the undersigned's unit interests in the Subaccount at the Special Meeting of
Investors of High Quality Bond Portfolio to be held at the offices of
Diversified Investment Advisors, Inc., 4 Manhattanville Road, Purchase, New
York 10577 on July 31, 2000, at 10:00 a.m., Eastern time, and at any
adjournment thereof, as follows:
INSTRUCTIONS SOLICITED ON BEHALF OF THE SUBACCOUNT.
THE BOARD OF TRUSTEES OF DIVERSIFIED INVESTORS PORTFOLIOS RECOMMENDS A VOTE FOR
THE FOLLOWING PROPOSALS.
1. To instruct AUSA to vote to approve a new Investment Subadvisory Agreement
between Diversified Investment Advisors, Inc. and Merganser Capital
Management Limited Partnership.
___ FOR ___ AGAINST ___ ABSTAIN
2. To instruct AUSA to authorize the Board of Trustees of Diversified
Investors Portfolios to select and change investment subadvisers and ente
into investment subadvisory agreements without obtaining the approval of
investors.
___ FOR ___ AGAINST ___ ABSTAIN
THE UNIT INTERESTS REPRESENTED HEREBY WILL BE VOTED AS INDICATED OR VOTED TO
INSTRUCT AUSA TO VOTE FOR ANY PROPOSAL 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 of Contract Holder
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS 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 instruction card.
<PAGE>
BALLOT BALLOT
HIGH QUALITY BOND PORTFOLIO
A SERIES OF DIVERSIFIED INVESTORS PORTFOLIOS
INSTRUCTIONS FOR A SPECIAL MEETING
OF INVESTORS TO BE HELD JULY 31, 2000
The undersigned, a participant in a Group Variable Annuity Contract (the
"Contract") issued by AUSA Life Insurance Company, Inc. ("AUSA"), hereby
instructs the holder of the Contract (the "Contract Holder") to instruct AUSA
to vote on behalf of the undersigned that portion of the unit interests in The
Diversified Investors Variable Funds High Quality Bond Subaccount (the
"Subaccount"), a subaccount of the Diversified Investors Variable Funds (the
"Diversified Account"), that are attributable to the undersigned's
participation in the Contract and that the Contract Holder is entitled to
instruct AUSA to vote at the Special Meeting of Investors of High Quality Bond
Portfolio to be held at 4 Manhattanville Road, Purchase, New York 10577 on July
31, 2000, at 10:00 a.m., Eastern time, and at any adjournment thereof, as
follows:
INSTRUCTIONS SOLICITED ON BEHALF OF THE CONTRACT HOLDER.
THE BOARD OF TRUSTEES OF DIVERSIFIED INVESTORS PORTFOLIOS RECOMMENDS A VOTE FOR
THE FOLLOWING PROPOSALS.
1. To instruct AUSA to vote to approve a new Investment Subadvisory Agreement
between Diversified Investment Advisors, Inc. and Merganser Capital
Management Limited Partnership.
___ FOR ___ AGAINST ___ ABSTAIN
2. To instruct AUSA 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 UNIT INTERESTS ATTRIBUTABLE TO THE UNDERSIGNED'S PARTICIPATION IN THE
CONTRACT WILL BE VOTED AS INDICATED OR VOTED TO INSTRUCT AUSA TO VOTE FOR ANY
PROPOSALS FOR WHICH NO CHOICE IS INDICATED.
<PAGE>
THE CONTRACT HOLDER IS INSTRUCTED IN ITS 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 ballot.
<PAGE>
PROXY CARD PROXY CARD
HIGH QUALITY BOND PORTFOLIO
A SERIES OF DIVERSIFIED INVESTORS PORTFOLIOS
A PROXY FOR A SPECIAL MEETING
OF INVESTORS TO BE HELD JULY 31, 2000
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's beneficial interests in High Quality Bond
Portfolio (the "Portfolio"), a series of Diversified Investors Portfolios,
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 31, 2000, at
10:00 a.m., Eastern time, and at any adjournment thereof, as fully as the
undersigned would be entitled to vote if 0personally 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 approve a new Investment Subadvisory Agreement between Diversified
Investment Advisors, Inc. and Merganser Capital Management Limited
Partnership.
___ 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 April 6, 2000, by and
between Diversified Investment Advisors, Inc., a Delaware corporation
("Diversified") and Merganser Capital Management, LP, a Massachusetts limited
partnership ("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 High Quality Bond
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 the Portfolio's 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 Prospectus and Statement of
Additional Information ("SAI").
<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 to by law maintain;
and (ix) render regular reports to the Portfolio's officers and Directors
concerning the Subadvisor's discharge of the foregoing responsibilities.
The Subadvisor shall also make recommendations 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 Subadvisor shall take, on behalf of the Portfolio, all actions
which it deems necessary to implement the investment policies determined as
provided above, and in particular to place all orders for the purchase or sale
of Portfolio securities for the Portfolio's account with brokers or dealers
selected by it, and to that end the Subadvisor is authorized as the agent of
the Portfolio to give instructions to the custodian of the Portfolio as to
deliveries of securities and payments of cash for the account of the Portfolio.
In connection with the selection of such brokers or dealers and the placing of
<PAGE>
such orders, the Subadvisor is directed to seek for the Portfolio, in its best
judgment, prompt execution in an effective manner at the most favorable price.
Subject to this requirement of seeking the most favorable price, securities may
be bought from or sold to broker-dealers who have furnished statistical,
research and other information or services to the Subadvisor or the Portfolio,
subject to any applicable laws, rules and regulations.
2. Allocation of Charges and Expenses. The Subadvisor shall furnish at
its own expense all necessary services, facilities and personnel in connection
with its responsibilities under Section 1 above. It is understood that the
Portfolio will pay all of its own expenses 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
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, will not take a long or
short position in the shares of the Portfolio except as permitted by the
Articles, and will comply with all other provisions of the Articles and By-Laws
and any current Prospectus of the Portfolio relative to the Subadvisor, Advisor
and its Trustees and officers.
<PAGE>
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
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 of the Subadvisor. Subadvisor represents to Diversified
that Subadvisor will not manage any commingled short term market value bond
fund(s), average duration maintained between one and four years, for any other
company, except for commingled funds sponsored by the Subadvisor, in
Diversified's target market as noted on Schedule C. This exclusive management
provision will continue in effect from year to year if the sum total assets
under the Subadvisor's management for all Portfolios on behalf of Diversified
exceed $400 million dollars.
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
<PAGE>
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.
Except as otherwise provided by applicable law, 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 Fund 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
<PAGE>
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.
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.
14. Override Provisions. Notwithstanding any other provision of this
Agreement: (a) Prior to this Agreement being approved by a vote of a majority
of the Portfolio's outstanding voting securities in accordance with the 1940
Act: (i) in no event shall compensation paid to the Subadvisor hereunder exceed
the amount permitted by Rule 15a-4 under the 1940 Act; and (ii) all compensation
paid to the Subadvisor hereunder shall be held in an interest bearing escrow
account with the Portfolio's custodian, Investors Bank & Trust Company (the
"Escrow Account"). Funds held in the Escrow Account, including interest, shall
be paid to the Subadvisor promptly after approval of this Agreement by the vote
of a majority of the Portfolio's outstanding voting securities in accordance
with the 1940 Act, provided that such approval is obtained no later than 150
days after the date of this Agreement.
(b) If this Agreement is not approved by a vote of a majority of the
Portfolio's outstanding voting securities within the time period stated above,
(i) this Agreement shall immediately terminate; and (ii) the Subadvisor shall
receive from the Escrow Account the lesser of: (a) the sum of the amount of any
costs incurred by the Subadvisor in performing its duties under this Agreement
<PAGE>
prior to such termination plus any interest earned on that amount, and (b) the
sum of the amount deposited in the Escrow Account plus any interest earned on
that amount.
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 Hughes
----------------------------------
Merganser Capital Management, LP
By: /s/ Edward R. Bedrosian
----------------------------------
<PAGE>
SCHEDULE A
(TO EXHIBIT A)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of January 3, 1994 by and between the High Quality
Bond Portfolio, a series of Diversified Investors Portfolios (herein called the
"Portfolio"), and Diversified Investment Advisors, Inc. a Delaware corporation
(herein called "Diversified").
WHEREAS, the Portfolio is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940 (the
"1940 Act"); and
WHEREAS, Diversified has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940; and
WHEREAS, the Portfolio desires to retain Diversified to render
investment advisory services, and Diversified is willing to so render such
services on the terms hereinafter set forth;
NOW, THEREFORE, this Agreement
WITNESSETH:
In consideration of the promises and mutual covenants herein contained,
it is agreed between the parties hereto as follows:
1. The Portfolio hereby appoints Diversified to act as investment
advisor to the Portfolio for the period and on the terms set forth in this
Agreement. Diversified accepts such appointment and agrees to render the
services herein set forth for the compensation herein provided.
2. (a) Diversified shall, at its expense, (i) employ sub-advisors or
associate with itself such entities as it believes appropriate to assist it in
performing its obligations under this Agreement and (ii) provide all services,
equipment and facilities necessary to perform its obligations under this
Agreement.
(b) The Portfolio shall be responsible for all of its expenses and liabilities,
including, but not limited to: compensation and out-of-pocket expenses of
Trustees not affiliated with any sub-advisor or Diversified; governmental fees;
interest charges; taxes; membership dues; fees and expenses of independent
<PAGE>
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.
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
<PAGE>
research services a commission for effecting a securities transaction for the
Portfolio which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if Diversified
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer,
viewed in terms of either that particular transaction or the overall
responsibilities of Diversified with respect to the accounts as to which it
exercises investment discretion.
In placing orders with brokers and/or dealers, Diversified intends to
seek best price and execution for purchases and sales and may effect
transactions through itself and its affiliates on a securities exchange
provided that the commissions paid by the Portfolio are "reasonable and fair"
compared to commissions received by other broker-dealers having comparable
execution capability in connection with comparable transactions involving
similar securities and provided that the transactions in connection with which
such commissions are paid are effected pursuant to procedures established by
the Board of the Trustees of the Portfolio. All transactions are effected
pursuant to written authorizations from the Portfolio conforming to the
requirements of Section 11(a) of the Securities Exchange Act of 1934 and Rule
lla2-2(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
<PAGE>
include compliance with all reasonable requests of the Portfolio for
information, including information required in connection with the Portfolio's
filings with the Securities and Exchange Commission and state securities
commissions.
(c) As manager of the assets of the Portfolio, Diversified shall make
investments for the account of the Portfolio in accordance with Diversified's
best judgment and within the Portfolio's investment objectives, guidelines, and
restrictions, the 1940 Act and the provisions of the Internal Revenue Code of
1986 relating to regulated investment companies subject to policy decisions
adopted by the Board of Trustees.
(d) Diversified shall furnish to the Board of Trustees periodic reports
on the investment performance of the Portfolio and on the performance of its
obligations under this Agreement and shall supply such additional reports and
information as the Portfolio's officers or Board of Trustees shall reasonably
request.
(e) On occasions when Diversified deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
customers, Diversified, to the extent permitted by applicable law, may
aggregate the securities to be 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
<PAGE>
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 .35% 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
Registration Statement on Form N-1A for the computation of net asset value. For
purposes of this Agreement, a "business day" is any day the New York Stock
Exchange is open for trading.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
Diversified hereby agrees that all records which it maintains for the Portfolio
are property of the Portfolio and further agrees to surrender promptly to the
Portfolio any such records upon the Portfolio's request. Diversified further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
any such records required to be maintained by Rule 31a-1 under the 1940 Act.
<PAGE>
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 investors 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.
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
<PAGE>
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
_________________________________ By:________________________________
Tom Schlossberg
Chairman and President
Attest: Diversified Investment Advisors, Inc.
_________________________________ By:________________________________
Gerald L Katz
Vice President and CFO
<PAGE>
SCHEDULE B
(TO EXHIBIT A)
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
.20% of the first $100 million of net assets
.15 % of net assets over $100 million and less than or equal to $200 million
.10% of net assets over $200 million and less than or equal to $300 million
.05% of net assets in excess of $300 million
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 in the Portfolio by the fee schedule and dividing by twelve.
The fee will be paid quarterly.
Merganser Capital Management, LP further agrees that if at anytime during the
term of this Subadvisory Agreement, Merganser Capital offers another of its
clients a lower fee than that set forth in this Schedule B for the management
of a similarly structured High Quality Bond Portfolio/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 Merganser's other client. It
is understood and agreed by both Merganser and Diversified that this paragraph
is applicable solely to Diversified's High Quality Bond Portfolio and not to
any other fund assets which Merganser now manages or may manage in the future
on Diversified's behalf.
Merganser Capital Management, LP
By: /s/ Edward R. Bedrosian
----------------------------------
Diversified Investment Advisors, Inc.
By: /s/ John Hughes
----------------------------------
<PAGE>
SCHEDULE C
(TO EXHIBIT A)
Target market for 401 (a) plans is those plans with assets between $1 and $50
million.
For 403(b) plans, the target market is those plans that have an employee base
between 300-2000 lives, and with assets between $1 and $15 million.
