Exhibit (d)(3)
INVESTMENT SUBADVISORY AGREEMENT
INVESTMENT SUBADVISORY AGREEMENT, dated as of April 20, 2000 by and
between Diversified Investment Advisors, Inc., a Delaware corporation
("Diversified") and Xxxxxxx X. Xxxxxxxxx & Co., Inc. a New York corporation
("Subadvisor").
WITNESSETH:
WHEREAS, Diversified is an investment advisor registered under the
Investment Advisers Act of 1940 and has been retained to provide investment
advisory services to the Value & Income 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 Diversified, 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 thencurrent Registration Statement on Form
N-1A.
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 review all proxy solicitation materials and be
responsible for voting all proxies in relation to the securities held in the
Portfolio. Diversified shall direct the Portfolio's custodian to forward all
proxies and similar materials relating to the Portfolio's securities upon
receipt to the Subadvisor c/o The Proxy Department at Xxxxxxx X. Xxxxxxxxx &
Co., Inc., Gateway Building, Xxx Xxxxx Xxxxxxxxx Xxxxxx, Xxxxx Xxxxxx, Xxx Xxxx
00000, affording the Subadvisor reasonable time in which to determine how to
vote such proxies. The Subadvisor shall provide the Portfolio with Quarterly
reports of all proxies voted by the Subadvisor.
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
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 Xxxxxxx X. Xxxxxxxxx & Co., Inc. is investment advisor shall
only receive orders for the purchase or sale of portfolio securities to the
extent that the placing of such orders is in compliance with the Rules of the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc.
Notwithstanding the provisions of the previous paragraph and subject to
such policies and procedures as may be adopted by the Board of Trustees and
officers of the Portfolio, the Subadvisor may pay a member of an exchange,
broker or dealer an amount of commission for effecting a securities transaction
in excess of the amount of commission another member of an exchange, broker or
dealer would have charged for effecting that transaction, in such instances
where the Subadvisor has determined in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and
research services provided by such member, broker or dealer, viewed in terms of
either that particular transaction or the Subadvisor's overall responsibilities
with respect to the Portfolio and to other funds and separate accounts for
which the Subadvisor exercises investment discretion.
In addition to selecting brokers or dealers to execute transactions for
the Portfolio, the Subadvisor may, subject to its duty to seek the best
available price and execution, also act as a broker for the Portfolio from time
to time at rates not exceeding the usual and customary broker's commission.
Under Federal law, the Subadvisor must obtain the Board of Trustees' and
Diversified's consent to effect agency cross transactions for the Portfolio,
which consent is hereby granted. The Subadvisor represents, warrants and
covenants that all agency cross transactions for the Portfolio will be effected
by the Subadvisor strictly in accordance with Rule 206(3)2 under the Investment
Advisers Act of 1940, as amended. An agency cross transaction is where the
Subadvisor purchases or sells securities from or to a nonmanaged account on
behalf of a client's managed account. Pursuant to this consent, the Subadvisor
will only effect an agency cross transaction for the Portfolio with a
nonmanaged account. In an agency cross transaction, the Subadvisor receives
commissions from both sides of the trade and there is a potentially conflicting
division of loyalties and responsibilities. However, as both sides to the trade
want to execute the transaction at the best price without moving the market
price in either direction, the Subadvisor believes that an agency cross
transaction will aid both sides to the trade in obtaining the best price for
the trade. The Board of Trustees or Diversified may revoke this consent by
written notice to the Subadvisor at any time.
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.
3. Compensation of the Subadvisor. For the services to be rendered,
Diversified shall pay to the Subadvisor an investment advisory fee computed in
accordance with the terms of Schedule B herewith attached. If the Subadvisor
serves for less than the whole of any period specified, its compensation shall
be prorated.
4. Covenants and Representations of the Subadvisor. The Subadvisor
agrees that it will not deal with itself, or with the Trustees of the Portfolio
or with Diversified, or the principal underwriter or distributor as principals
in making purchases or sales of securities or other property for the account of
the Portfolio, except as permitted by the 1940 Act, and will comply with all
other provisions of the Declaration of Trust and any current Registration
Statement on Form N1 A of the Portfolio relative to the Subadvisor, Advisor and
its Trustees and officers.
5. Limits on Duties. The Subadvisor shall be responsible only for
managing the assets in good faith and in accordance with the investment
objectives, fundamental policies and restrictions, and shall have no
responsibility whatsoever for, and shall incur no liability on account of (i)
diversification, selection or establishment of such investment objectives,
fundamental policies and restrictions (ii) advice on, or management of, any
other assets for Diversified or the Portfolio, (iii) filing of any tax or
information returns or forms, withholding or paying any taxes, or seeking any
exemption or refund, (iv) registration with any government or agency, or (v)
administration of the plans and trusts investing through the Portfolio, or (vi)
overall Portfolio compliance with the requirements of the 1940 Act, which
requirements are outside of the Subadvisor's control, and Subchapter M of the
Internal Revenue Code of 1986, as amended, and shall be indemnified and held
harmless by Diversified for any loss in carrying out the terms and provisions
of this Agreement, including reasonable attorney's fees, indemnification to the
Portfolio, or any shareholder thereof and, brokers and commission merchants,
fines, taxes, penalties and interest. Subadvisor, however, shall be liable for
any liability, damages, or expenses of Diversified arising out of the
negligence, malfeasance or violation of applicable law by any of its employees
in providing management under this Agreement; and, in such cases, the
indemnification by Diversified, referred to above, shall be inapplicable.
The Subadvisor may apply to Diversified at any time for instructions
and may consult counsel for Diversified or its own counsel with respect to any
matter arising in connection with the duties of the Subadvisor. Also, the
Subadvisor shall be protected in acting upon advice of Diversified and/or
Diversified's counsel and upon any document which Subadvisor reasonably
believes to be genuine and to have been signed by the proper person or persons.
6. Exclusivity. Subadvisor represents to Diversified that during the
term of this Agreement, Subadvisor will not manage any portfolio, of
substantially similar size and managed in accordance with the same investment
strategy and substantially similar investment guidelines as the Portfolio, for
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
engages Subadvisor's services on or after the date of this Agreement and are
offered to the types of employee benefit plans referred to in Schedule C and
sponsored by competitors of Diversified which have been identified to
Subadvisor in writing by Diversified, in providing services to such types of
employee benefit plans without providing Diversified with 60 days prior written
notice or, if 60 days' prior notice is not possible due to circumstances beyond
the control of Subadvisor, the best possible prior notice which may reasonably
be provided by Subadvisor under the circumstances resulting in the engagement
of Subadvisor's services for which notice is required under this Section 6.
7. Duration, Termination and Amendments of this Agreement. This
Agreement shall become effective as of the day and year first above written and
shall govern the relations between the parties hereto thereafter, and, unless
terminated earlier as provided below, shall remain in force for two years, on
which date it will terminate unless its continuance thereafter is specifically
approved at least annually (a) by the vote of a majority of the Trustees of the
Portfolio who are not "interested persons" to this Agreement or of the
Subadvisor or Diversified at an in person meeting specifically called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. However, if the shareholders of the Portfolio fail to approve the
Agreement as provided herein, the Subadvisor may continue to serve hereunder in
the manner and to the extent permitted by the Investment Company Act of 1940
and Rules thereunder.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees, or by the vote of a majority of the outstanding voting
securities of the Portfolio, or by Diversified. The Subadvisor may terminate
the Agreement only upon giving 90 days' advance written notice to Diversified.
This Agreement shall automatically terminate in the event of its assignment.
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 Portfolio who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval.
The terms "specifically approved at least annually", "vote of a
majority of the outstanding voting securities", "assignment", "affiliated
person", and "interested persons", when used in this Agreement, shall have the
respective meanings specified in, and shall be construed in a manner consistent
with, the 1940 Act, subject, however, to such exemptions as may be granted by
the Securities and Exchange Commission under said Act.
8. Certain Records. Any records to be maintained and preserved pursuant
to the provisions of Rule 31a-1 and Rule 31a-2 adopted under the 1940 Act which
are prepared or maintained by the Subadvisor on behalf of the Portfolio are the
property of the Portfolio and will be surrendered promptly to the Portfolio on
request.
9. Survival of Compensation Rates. All rights to compensation under
this Agreement shall survive the termination of this Agreement.
10. Entire Agreement. This Agreement states the entire agreement of the
parties with respect to investment advisory services to be provided to the
Portfolio by the Subadvisor and may not be amended except in a writing signed
by the parties hereto and approved in accordance with Section 7 hereof.
11. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York.
12. Change of Management and Pending Litigation. Subadvisor represents
to Diversified that it will disclose to Diversified promptly after it has
knowledge of any significant change or variation in its management structure or
personnel or any significant change or variation in its management style or
investment philosophy. In addition, Subadvisor represents to Diversified that
it will similarly disclose to Diversified, promptly after it has knowledge, the
existence of any pending material 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 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, (i) 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, in no event shall compensation paid to the Subadvisor hereunder exceed the
amount permitted by Rule 15a-4 under the 1940 Act, and (ii) if this Agreement
is not approved by a vote of a majority of the Portfolio's outstanding voting
securities in accordance with the 1940 Act no later than 150 days after the
date of this Agreement, this Agreement shall immediately terminate.
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:_______________________________
Xxxxxxx X. Xxxxxxxxx & Co., Inc.
By:_______________________________
APPENDIX I
March, 2000
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR
THE VALUE & INCOME PORTFOLIO
MANAGED BY
XXXXXXX X. XXXXXXXXX & CO., INC.
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR
THE VALUE & INCOME PORTFOLIO
MANAGED BY
XXXXXXX X. XXXXXXXXX & CO., INC.
TABLE OF CONTENTS
I. PURPOSE
II. OBJECTIVES
III. INVESTMENT GUIDELINES
IV. PERFORMANCE EVALUATION
V. COMMUNICATION
VI. OTHER
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR
THE VALUE & INCOME PORTFOLIO
MANAGED BY
XXXXXXX X. XXXXXXXXX & CO., INC.
I. PURPOSE
The purpose of this Statement of Investment Policy and Guidelines is to
communicate the Value & Income Portfolio investment objectives, guidelines and
performance evaluation standards adopted by Diversified Investment Advisors and
its subadvisor Xxxxxxx X. Xxxxxxxxx.
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 capital appreciation.
o To outperform the Xxxxxxx 1000 Value 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, Xxxxx Xxxxxxx, Xxxxxx).
The secondary objective of the fund is to provide dividend income. Under normal
conditions, the portfolio will invest at least 15% of its assets in
dividendpaying equity securities
The primary constraint of the fund is:
o To manage the portfolio without excessive risk relative to the Xxxxxxx
1000 Value 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 to SEC requirements:
o Money market instruments, including U.S. Treasury bills, Federal funds,
repurchase agreements, commercial paper, bankers' acceptances,
certificates of deposit.
o At least 75 % of the fund should be invested in common stocks of large
size U.S. companies, defined as those with market caps at least 300% of
the average cap of the S&P MidCap 400 Index (Lipper definition).
o Any security residing in the Xxxxxxx 1000 Value Index. Conflicts with
Lipper and Xxxxxxx positions will be resolved using Xxxxxxx standards.
o Preferred stocks of large size U.S. companies.
o Convertible bonds and convertible preferred stocks.
o ADR's up to 10% of portfolio holdings.
B) Prohibited Securities, and Limitations and Restrictions on Permissible
Investments:
For typical market conditions the following restrictions apply:
o No more than 8% of the assets of the portfolio (at market) 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 (at market) 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 Non-public 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.
o The portfolio may not purchase or sell real estate.
C) Leverage:
o The portfolio may not be leveraged beyond shortterm (e.g., one to two
weeks) marginal cash overdraft borrowing (e.g., 1-5% of the portfolio)
resulting from temporary cash management.
D) Derivatives
o Derivatives may not be used for speculative purposes.
o Exchange traded stock index futures can be used for hedging purposes
either to securitize cash inflows or to immunize securities for
redemption requests.
o Exchange traded covered call options may be utilized up to the extent
of the individual security holding as part of the sales strategy, but
should not exceed 20% of the portfolio
o No uncovered call writing is permitted
E) Capitalization Guidelines
o Portfolio weighed average market capitalization should not deviate by
more than 40% from the Xxxxxxx 1000 Value weighted average market cap.
o See permissible securities section A above
F) Sector Weights
o Sector weights should remain within +/- 15% of the Xxxxxxx 1000 Value
sector weight.
G) Dividend Yield
o Portfolio yield should be at least equal to 85% of the Xxxxxxx 1000
Value Index
H) Risk Controls
o Tracking error versus the Xxxxxxx 1000 Value Index should average
approximately 4% over 3-5 year periods.
o Individual stock positions +/- 200 basis points relative to the stock's
weight in the Xxxxxxx 1000 Value Index
I) Cash Management
o Typical cash balances will be maintained in a range of 0-5% under
normal circumstances.
o Cash balances will not be less than zero except during temporary
overdraft positions to efficiently manage 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 Xxxxxxx 1000 Value
Index. It is expected that the fund will outperform the benchmark by
approximately 180 basis points on average over 35 year periods, gross
of fees.
o Additionally, it is expected that the fund will be in the midsecond
quartile of peer universes (specify-Xxxxxx, Xxxxxxx, Xxxxxx or
Morningstar), or better, over full market cycles.
o The foregoing performance objectives are to be accomplished without
taking excessive risk. Specifically, the tracking error versus the
Xxxxxxx 1000 Value Index is expected to average approximately 4% on an
annualized basis over 3-5 year periods.
V. COMMUNICATION
In addition to monthly and periodic communications to meet legal and regulatory
compliance requirements:
o Monthly-conference calls to explain to designated Diversified analysts:
the current portfolio position, recent trades and their rationale,
market outlook for the fund, and expected portfolio actions
o Quarterly-portfolio manager writeups covering material similar to
monthly conference calls, but also including material specified by
Diversified's communications department.
o Annually-meetings between interested parties to reaffirm or change the
Investment Policy Statement. 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 under management.
VI. OTHER
o Explanation of best execution trading practices, including soft dollar
arrangements
o Evidence of disaster recovery plan, including Y2K, and EURO conversion
plans
o Cooperation with audits (Diversified's internal or outside auditors,
Diversified client auditors; or regulators).
Signed: _________________________________ Date:____________
(Xxxxxxx X. Xxxxxxxxx & Co., Inc.)
Signed: _________________________________ Date:____________
(Diversified Investment Advisors)
SCHEDULE A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of January 3, 1994 by and between the Equity Income
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
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
thencurrent 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,
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
11a2-2(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 0000 Xxx.
(b) Diversified also shall provide to the Portfolio administrative
assistance in connection with the operation of the Portfolio, which shall
include compliance with all reasonable requests of the Portfolio for
information, including information required in connection with the Portfolio's
filings with the Securities and Exchange Commission and state securities
commissions.
(c) As manager of the assets of the Portfolio, Diversified shall make
investments for the account of the Portfolio in accordance with Diversified's
best judgment and within the Portfolio's investment objectives, guidelines, and
restrictions, the 1940 Act and the provisions of the Internal Revenue Code of
1986 relating to regulated investment companies subject to policy decisions
adopted by the Board of Trustees.
(d) Diversified shall furnish to the Board of Trustees periodic reports
on the investment performance of the Portfolio and on the performance of its
obligations under this Agreement and shall supply such additional reports and
information as the Portfolio's officers or Board of Trustees shall reasonably
request.
(e) On occasions when Diversified deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
customers, Diversified, to the extent permitted by applicable law, may
aggregate the securities to be 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 xxxxxxxx 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.
4. Diversified shall give the Portfolio the benefit of Diversified's
best judgment and efforts in rendering services under this Agreement. As an
inducement to Diversified's undertaking to render these services, the Portfolio
agrees that Diversified shall not be liable under this Agreement for any
mistake in judgment or in any other event whatsoever provided that nothing in
this Agreement shall be deemed to protect or purport to protect Diversified
against any liability to the Portfolio or its investors to which Diversified
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties under this Agreement or
by reason of the Adviser's reckless disregard of its obligations and duties
hereunder.
5. In consideration of the services to be rendered by Diversified under
this Agreement, the Portfolio shall pay Diversified a fee accrued daily and
paid monthly at an annual rate equal to .45% of the Portfolio's average daily
net assets. If the fees payable to Diversified pursuant to this paragraph 5
begin to accrue before the end of any month or if this Agreement terminates
before the end of any month, the fees for the period from that date to the end
of that month or from the beginning of that month to the date of termination,
as the case may be, shall be prorated according to the proportion which the
period bears to the full month in which the effectiveness or termination
occurs. For purposes of calculating the monthly fees, the value of the net
assets of the Portfolio shall be computed in the manner specified in its
Regulation Statement on Form N-1A for the computation of net asset value. For
purposes of this Agreement, a "business day" is any day the New York Stock
Exchange is open for trading.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
Diversified hereby agrees that all records which it maintains for the Portfolio
are property of the Portfolio. and further agrees to surrender promptly to the
Portfolio any such records upon the Portfolio's request. Diversified further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
any such records required to be maintained by Rule 31a-1 under the 1940 Act.
6. This Agreement shall be effective as to the Portfolio as of the date
the Portfolio commences investment operations after this Agreement shall have
been approved by the Board of Trustees of the Portfolio and the investor(s) in
the Portfolio in the manner contemplated by Section 15 of the 1940 Act and,
unless sooner terminated as provided herein, shall continue until the second
anniversary of the date hereof. Thereafter, if not terminated, this Agreement
shall continue in effect as to the Portfolio for successive periods of 12
months each, provided such continuance is specifically approved at least
annually by the vote of a majority of those members of the Board of Trustees of
the Portfolio who are not parties to this Agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of voting on
such approval; and either (a) by the vote of a majority of the full Board of
Trustees or (b) by vote of a majority of the outstanding voting securities of
the Portfolio; provided, however, that this Agreement may be terminated by the
Portfolio at any time, without the payment of any penalty, by the Board of
Trustees of the Portfolio or by vote of a majority of the outstanding voting
securities of the Portfolio on 60 days' written notice to Diversified, or by
Diversified as to the Portfolio at any time, without payment of any penalty, on
90 days' written notice to the Portfolio. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the terms
"majority of the outstanding voting securities", "interested person" and
"assignment" shall have the same meanings as such terms have in the 1940 Act
and the rule and regulatory constructions thereunder.)
7. Except to the extent necessary to perform Diversified's obligations
under this Agreement, nothing herein shall be deemed to limit or restrict the
right of Diversified, or any affiliate of Diversified, or any employee of
Diversified, to engage in any other business or devote time and attention to
the management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other trust,
corporation, firm, individual or association.
8. The investment management services of Diversified to the Portfolio
under this Agreement are not to be deemed exclusive as to Diversified and
Diversified will be free to render similar services to others.
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought and no material amendment of this Agreement shall be effective until
approved by vote of the holders of a majority of the outstanding voting
securities of the Portfolio.
This Agreement embodies the entire agreement and understanding between
the parties hereto and supersedes all prior agreements and understandings
relating to the subject matter hereof. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
Should any part of this Agreement be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors, to the extent
permitted by law.
9. This Agreement shall be construed in accordance with the laws of the
State of New York provided that nothing herein shall be construed in a manner
inconsistent with the requirements of 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
Attest: Diversified Investors Portfolios
_______________________________ By:______________________________
Xxx Xxxxxxxxxxx
Chairman and President
Attest: Diversified Investment Advisors, Inc.
_______________________________ By:______________________________
Xxxxxx X Xxxx
Vice President and CFO
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
.27% of the first $300M net assets
.16% of net assets in excess of $300M and up to $1B
.13% of net assets in excess of $1B
Net assets are equal to the market value of the Portfolio. Fees will be
calculated by multiplying the arithmetic average of the beginning and ending
monthly net assets by the fee schedule and dividing by twelve.
The fee will accrue monthly and will be paid quarterly.
SCHEDULE C
Target market for 401(a), 403(b) and 457 plans is those plans between $1 and
$250 million.
