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INVESTMENT SUBADVISORY AGREEMENT
INVESTMENT SUBADVISORY AGREEMENT, dated as of November 16, 1999, by and
between Diversified Investment Advisors, Inc., a Delaware corporation
("Diversified") and Xxxxx Capital Management, a California limited partnership
(hereinafter "Subadvisor" or "Xxxxx")
WITNESSETH:
WHEREAS, Diversified has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940 and has been
retained to provide investment advisory services to the Special Equity
Portfolio ("Portfolio"), a series of Diversified Investors Portfolios, a
diversified open-end management investment company registered under the
Investment Company Act of 1940 ("1940 Act");
WHEREAS, Diversified desires to retain the Subadvisor to furnish it with
portfolio investment advisory services in connection with Diversified's
investment advisory activities on behalf of the Portfolio, and the Subadvisor
is willing to furnish such services to Diversified;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of the Subadvisor. In accordance with and subject to the
Investment Advisory Agreement between the Portfolio and Diversified, attached
hereto as Schedule A (the "Advisory Agreement"), Diversified hereby appoints
the Subadvisor to perform the portfolio investment advisory services described
herein for the investment and reinvestment of such amount of the Portfolio's
assets as is determined from time to time by the Portfolio's Board of Trustees
and communicated in writing to the Subadvisor, 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 reasonably consider necessary
for the proper supervision of the Subadvisor's portion 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 under the control of
the Subadvisor shall be held uninvested, subject always to the provisions of
the 1940 Act and to the Portfolio's then-current Registration Statement on Form
N-1A.
In particular, the Subadvisor shall, without limiting the foregoing: (i)
continuously review, supervise and implement the investment program of the
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Portfolio under their control; (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
as requested in writing; and (ix) render regular reports as requested 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, and
Subadvisor shall be responsible for effecting such recommendations.
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 in writing
that such policy has been revoked. The initial Statement of Investment Policy
and Guidelines is attached hereto as Appendix I ("Guidelines").
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 best 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
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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 Xxxxx is
investment advisor shall only receive orders for the purchase or sale of
portfolio securities to the extent that the placing of such orders is in
compliance with the Rules of the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc. Diversified understands and
agrees that Subadvisor's brokerage practices shall be consistent with the
disclosure in Schedule F of Subadvisor's Form ADV, as amended from time to time,
and that Subadvisor's brokerage practices so disclosed shall be deemed
acceptable for purposes of this Agreement.
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 and communicated in writing to Subadvisor, the
Subadvisor may pay a member of an exchange, broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission another member of an exchange, broker or dealer would have charged
for effecting that transaction, in such instances where the Subadvisor has
determined in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
member, broker or dealer, viewed in terms of either that particular transaction
or the Subadvisor's overall responsibilities with respect to the Portfolio and
to other funds and separate accounts for which the Subadvisor exercises
investment discretion.
2. Allocation of Charges and Expenses. The Subadvisor shall furnish at
its own expense all necessary services, facilities and personnel in connection
with its responsibilities under Section 1 above. It is understood that the
Portfolio will pay all of its own expenses and liabilities including, without
limitation, compensation and out-of-pocket expenses of Trustees not affiliated
with the Subadvisor or Diversified; governmental fees; interest charges; taxes;
membership dues; fees and expenses of independent auditors, of legal counsel and
of any transfer agent, administrator, distributor, shareholder servicing agents,
registrar or dividend disbursing agent of the Portfolio; expenses of
distributing and redeeming shares and servicing shareholder accounts; expenses
of preparing, printing and mailing prospectuses, shareholder reports, notices,
proxy statements and reports to governmental officers and commissions and to
shareholders of the Portfolio; expenses connected with the execution, recording
and settlement of Portfolio security transactions; insurance premiums; fees and
expenses of the custodian for all services to the Portfolio, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of calculating the net asset value of shares of the 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.
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3. Compensation of the Subadvisor. For the services to be rendered,
Diversified shall pay to the Subadvisor an investment advisory fee computed in
accordance with the terms of Schedule B herewith attached. If the Subadvisor
serves for less than the whole of any period specified, its compensation shall
be prorated.
4. Covenants and Representations of the Subadvisor. The Subadvisor
agrees that it will not deal with itself, or with the Trustees of the Portfolio
or with Diversified, or the Portfolio's principal underwriter or distributor as
principals in making purchases or sales of securities or other property for the
account of the Portfolio, except as permitted by the 1940 Act, and will comply
with all other provisions of the Declaration of Trust and any current
Registration Statement on Form N-1A of the Portfolio relative to the
Subadvisor, Advisor and its Trustees and officers.
5. Representations and Warranties of Diversified. Diversified represents
and warrants to Subadvisor and agrees with Subadvisor as follows. Diversified
has the requisite legal capacity and authority to execute, deliver and perform
its obligations under this Agreement. This Agreement has been duly authorized,
executed and delivered by Diversified and is the legal, valid and binding
agreement of Diversified, enforceable against Diversified in accordance with
its terms. Diversified's execution of this Agreement and the performance of its
obligations hereunder do not conflict with or violate any provisions of the
governing documents (if any) of Diversified or the Portfolio or any obligations
by which Diversified or the Portfolio is bound, whether arising by contract,
operation of law or otherwise. Diversified is experienced in engaging
subadvisors and is aware of the risks associated with such engagements,
including the risk that the Portfolio could suffer substantial diminution in
value.
6. Allocation of Investments. Diversified acknowledges and understands
that Subadvisor engages in an investment advisory business apart from managing
the Portfolio. This will create conflicts of interest with the Portfolio over
Subadvisor's time devoted to managing the Portfolio and the allocation of
investment opportunities among accounts (including the Portfolio) managed by
Subadvisor. Subadvisor will attempt to resolve all such conflicts in a manner
that is generally fair to all of its clients. Diversified confirms that
Subadvisor may give advice and take action with respect to any of its other
clients that may differ from advice given or the timing or nature of action
taken with respect to the Portfolio so long as it is Subadvisor's policy, to the
extent practicable, to allocate investment opportunities to the Portfolio over
a period of time on a fair and equitable basis relative to other clients.
Nothing in this Agreement shall be deemed to obligate Subadvisor to acquire for
the Portfolio any security that Subadvisor or Subadvisor's officers, partners,
employees or affiliates may acquire for Subadvisor's or their own
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accounts or for the account of any other client, if, in the absolute discretion
of Subadvisor, it is not practical or desirable to acquire such Security for
the Portfolio.
7. Limits on Duties. The Subadvisor shall be responsible only for
managing the assets in good faith and in accordance with the Portfolio's
Guidelines and shall have no responsibility whatsoever for, and shall incur no
liability on account of (i) diversification, selection, establishment or
modification of such Guidelines (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, or compliance with Subchapter M of the
Internal Revenue Code of 1986, as amended, and Xxxxx and its partners, officers
and employees shall to the fullest extent permitted by applicable law (and
subject to the applicable provisions of Section 17(i) of the 1940 Act), be
indemnified and held harmless by Diversified for Xxxxx'x actions or omissions
in carrying out the terms and provisions of this Agreement, and including,
without limitation, against any actual or alleged loss, claim, damage,
expense, (including without limitation, reasonable attorneys fees and costs),
costs and settlement related to or resulting from indemnification to the
Portfolio, or any shareholder thereof and, brokers and commission merchants,
fines, taxes, penalties and interest. To the extent permitted under applicable
law, Diversified agrees that Subadvisor will not be liable to Diversified or
the Portfolio for any losses incurred by Diversified or the Portfolio that
arise out of or are in any way connected with any recommendation or other act
or failure to act of Subadvisor under this Agreement, including, but not
limited to, any error in judgment with respect to the Portfolio, so long as
such recommendation or other act or failure to act does not constitute a breach
of Subadvisor's fiduciary duty to Diversified or the Portfolio, or a breach of
applicable law, or a breach of the terms of this Agreement. Should any such
breach occur the indemnification by Diversified, referred to above, shall be
inapplicable.
The Subadvisor may apply to Diversified at any time for instructions and
may consult counsel for Diversified or its own counsel with respect to any
matter arising in connection with the duties of the Subadvisor. Also, the
Subadvisor shall be protected in acting upon advice of Diversified and/or
Diversified's counsel and upon any document which Subadvisor reasonably
believes to be genuine and to have been signed by the proper person or persons.
8. Exclusivity. Subadvisor represents to Diversified that during the term
of this Agreement Subadvisor will not enter into any further agreement to
subadvise any similar portfolio, any collective trust, open-end investment
company registered under the Investment Company Act of 1940, Variable Insurance
Contract registered under the Investment Company Act of 1940, or insurance
company separate account
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that are offered to the types of employee benefit plans (referenced in Schedule
C) without providing Diversified with written notice after agreement is reached.
It is understood that Subadvisor shall not be limited by this section 8 with
respect to any other portfolio that it may offer (such as a small, medium or
large capitalization specific portfolio, a portfolio that includes a significant
portion devoted to non-U.S. securities or a commingled vehicle that is not
sponsored by a provider of bundled services to the types of employee benefit
plans specified on Schedule C).
9. Duration, Termination and Amendments of this Agreement. This
Agreement shall become effective as of the day and year first above written and
shall govern the relations between the parties hereto thereafter, and, unless
terminated earlier as provided below, shall remain in force for two years, on
which date it will terminate unless its continuance thereafter is specifically
approved at least annually (a) by the vote of a majority of the Trustees of the
Portfolio who are not "interested persons" with respect to this Agreement or of
the Subadvisor or Diversified at an in person meeting specifically called for
the purpose of voting on such approval, and (b) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. However, if the shareholders of the Portfolio fail to approve the
Agreement as provided herein; the Subadvisor may continue to serve hereunder in
the manner and to the extent permitted by the Investment Company Act of 1940 and
Rules thereunder.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees, or by the vote of a majority of the outstanding voting
securities of the Portfolio, or by Diversified. The Subadvisor may terminate the
Agreement only upon giving 90 days' advance written notice to Diversified. This
Agreement shall automatically terminate in the event of its assignment.
This Agreement may be amended only if such amendment is approved by the
vote of a majority of the outstanding voting securities of the Portfolio and by
vote of a majority of the Board of Trustees of the Portfolio who are not parties
to this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
The terms "specifically approved at least annually", "vote of a majority of
the outstanding voting securities", "assignment", "affiliated person", and
"interested persons", when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
10. Certain Records. Any records to be maintained and preserved pursuant
to the provisions of Rule 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
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property of the Portfolio and will be surrendered promptly to the Portfolio on
request.
11. Survival of Compensation Rates. All rights to compensation under this
Agreement and the provisions of Section 7 hereof, shall survive the termination
of this Agreement.
12. Entire Agreement. This Agreement states the entire agreement of the
parties with respect to investment advisory services to be provided to the
Portfolio by the Subadvisor and may not be amended except in a writing signed
by the parties hereto and approved in accordance with Section 9 hereof.
13. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
14. Change of Management and Pending Litigation. Subadvisor represents to
Diversified that it will disclose to Diversified promptly after it has
knowledge of any significant change or variation in its management structure or
personnel or any significant change or variation in its management style or
investment philosophy. In addition, Subadvisor represents to Diversified that
it will similarly disclose to Diversified, promptly after it has knowledge, the
existence of any pending legal action being brought against it whether in the
form of a lawsuit or a non-routine investigation by any federal or state
governmental agency.
Diversified represents to Subadvisor that any information received by
Diversified pursuant to this section will be kept strictly confidential and
will not be disclosed to any third party.
15. Use of Name and Confidentiality. Subadvisor hereby agrees that
Diversified may use the Subadvisor's name in its marketing or advertising
materials. Diversified agrees to allow the Subadvisor a reasonable time to
examine and approve any such materials prior to use. Except as required by law,
(a) Subadvisor agrees to maintain in strict confidence all financial
information regarding Diversified that is furnished to Subadvisor by
Diversified (except that Diversified consents to disclosure of Diversified's
identity as a client of Subadvisor), and (b) Diversified agrees to maintain in
strict confidence all investment advice and information furnished to
Diversified by Subadvisor. Notwithstanding anything to the contrary above,
Diversified consents to the use and disclosure by Subadvisor of Subadvisor's
investment experience and performance with respect to the Portfolio, without
disclosing the identity of Diversified in connection with such experience or
performance. Subadvisor may disclose identity of Diversified in its
representative client list.
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16. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any and all
other provisions hereof.
17. Delivery of Information. Diversified acknowledges receipt of
Subadvisor's brochure required to be delivered under the Investment Advisers
Act of 1940 (including the information in Part II of Subadvisor's Form ADV).
Upon written request by Diversified, Subadvisor agrees to deliver annually,
without charge, Subadvisor's brochure required by the Investment Advisers Act
of 1940.
18. Third-Party Beneficiaries. Neither party intends for this
Agreement to benefit any third party not expressly named in this Agreement.
19. Binding Arbitration. The parties waive their right to seek
remedies in court, including any right to a jury trial. The parties agree that
in the event of any dispute between the parties arising out of, relating to or
in connection with this Agreement or the Portfolio, such dispute shall be
resolved exclusively by arbitration to be conducted only in New York, New York
in accordance with the rules of JAMS/ENDISPUTE applying the laws of New York.
Disputes shall not be resolved in any other forum or venue. The parties agree
that such arbitration shall be conducted by a retired judge who is experienced
in resolving disputes regarding the securities business, that discovery shall
not be permitted except as required by the rules of JAMS/ENDISPUTE, that the
arbitration award shall not include factual findings or conclusions of law and
that no punitive damages shall be awarded. The parties understand that any
party's right to appeal or to seek modification of any ruling or award of the
arbitrator is severely limited. Any award rendered by the arbitrator shall be
final and binding, and judgment may be entered on it in any court of competent
jurisdiction in New York, New York or as otherwise provided by law.
Notwithstanding the foregoing, the Subadvisor may bring an action in any
court of competent jurisdiction in New York, New York for equitable relief to
compel performance of the indemnification and defense obligations of
Diversified under Section 7 of this Agreement.
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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/ Xxxx X. Xxxxxx
---------------------------------
Xxxxx Capital Management
By: /s/ Xxxxxxx X. Xxxxxxxx
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APPENDIX I
November 16, 1999
STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR THE
XXXXX CAPITAL MANAGEMENT
SMALL CAPITALIZATION PORTFOLIO
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STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR
THE XXXXX CAPITAL MANAGEMENT
SMALL CAPITALIZATION PORTFOLIO
TABLE OF CONTENTS
I. PURPOSE
II. OBJECTIVES
III. INVESTMENT GUIDELINES
IV. PERFORMANCE EVALUATION
V. COMMUNICATION
VI. OTHER
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STATEMENT OF INVESTMENT POLICY AND GUIDELINES
FOR
THE XXXXX CAPITAL MANAGEMENT
SMALL CAPITALIZATION PORTFOLIO
I. PURPOSE
The purpose of this Statement of Investment Policy and Guidelines is to
communicate the Xxxxx Small Capitalization Portfolio investment objectives,
guidelines and performance evaluation standards adopted by Diversified
Investment Advisors and its sub-advisor, Xxxxx Capital Management.
This statement is intended to (1) help the sub-advisor understand Diversified's
investment goals (2) identify portfolio management activities to be employed by
the sub-adviser to achieve those goals, and (3) supply Diversified with a tool
to monitor and evaluate the operations and performance of the fund.
II. OBJECTIVES AND CONSTRAINTS
The primary objectives of the fund are:
- To provide a high level of capital appreciation through investment in a
diversified portfolio of common stocks of small to medium size companies.
- To outperform the Xxxxxxx 2000 Growth Index over full market cycles.
- To achieve mid-second quartile or better performance among a group of peer
funds as defined by recognized reporting services and consulting
organizations (e.g., Lipper, Xxxxx Xxxxxxx, Xxxxxx).
The primary constraint of the fund is:
- To manage the portfolio without excessive risk relative to the Xxxxxxx 2000
Growth Index, or peer funds, as measured by annualized standard deviation
over 3-5 year periods.
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III. INVESTMENT GUIDELINES
A) Permissible securities:
----------------------
In addition to legal requirements specified in the Diversified prospectus to
conform with SEC requirements:
- Common stocks of small to medium size companies as defined below. As of August
1999, small capitalization firms range from $50 million to $1.9 billion, and
mid-cap companies are defined to be greater than $1.9 billion and less than
$8.4 billion.
- Preferred stocks of small to medium size companies.
- Convertible debt securities of small to medium size U.S. corporations.
- ADR's up to 10% of portfolio holdings.
- Any security residing in the Xxxxxxx 2000 Growth Index.
B) Prohibited Securities, and Limitations and Restrictions on Permissible
Investments:
-------------------------------------------------------------------------
- No more than 5% of the assets (at cost) of the portfolio may be invested in
the securities of any one issuer (other than U.S. government securities).
- Any combination of three names may not exceed 25% of the market value of the
portfolio, with no single name exceeding 9% of the market value of the
portfolio.
- No more than 25% of the assets of the portfolio may be invested in securities
of issuers in any one industry.
- No more than 5% of the voting securities of any one issuer may be acquired.
- Non-public illiquid securities may not exceed 15% of the portfolio under
normal market conditions (i.e., 144A).
- The portfolio may not borrow funds except for temporary or emergency purposes.
C) Leverage:
---------
The portfolio may not be leveraged beyond short-term (e.g., one to two week)
marginal cash overdraft borrowing (e.g., 1-5% of the portfolio) resulting from
temporary cash management.
D) Derivatives:
------------
- Derivatives may not be used for speculative purposes.
- Exchange traded Xxxxxxx 2000 Index futures can be used for hedging purposes
either to securitize cash inflows or to immunize securities for redemption
requests.
- 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.
- No uncovered call writing is permitted.
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E) Quality
-------
- Non-dollar foreign securities are prohibited.
F) Capitalization Guidelines Relative to Benchmark
-----------------------------------------------
- At least 75% of the market value of the portfolio should be invested in
securities with an average weighted market cap between 10% and 200% of the
average weighted market cap of the Xxxxxxx 2000 Growth Index
- Not more than 25% of the market value of the portfolio should be invested in
securities with an average weighted market cap between 200% and 1000% of the
average weighted market cap of the Xxxxxxx 2000 Growth Index, unless the
security resides in the Xxxxxxx 2000 Growth Index
- No securities with a market cap above 1000% of the average weighted market cap
of the Xxxxxxx 2000 Growth Index, unless it still resides in that Index
G) Risk Controls
-------------
- Standard deviation of return not more than 25% greater than the Xxxxxxx 2000
Growth Index, or the median in a peer universe, over 3-5 year periods
- A minimum of 30 securities in the portfolio at all times
- A maximum of 50% in any one sector (as defined by Xxxxx Xxxxxxx Co.)
- Tracking error targeted to not exceed 10% with respect to the Xxxxxxx 2000
Growth Index over a three year period
- Elimination of any holding that exceeds cap guidelines established in
section F by current calendar quarter-end
H) Cash Management
---------------
- Typical cash balances will be maintained in a range of 0-6% under normal
circumstances.
- Cash balances will not be less than zero except during temporary overdraft
positions to efficiently manage short-term cash requirements during periods of
unusual market conditions (e.g., one to seven business days)
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IV. PERFORMANCE EVALUATION
-- The performance benchmark for the fund will be the Xxxxxxx 2000 Growth
Index. It is expected that the fund will outperform the benchmark by at
least 400 basis points over 3-5 year periods.
-- Additionally, it is expected that the fund will be in the upper second
quartile of peer universes (specify -- Xxxxxx, Xxxxxxx, Xxxxxx or
Morningstar), or better, over full market cycles.
-- The foregoing performance objectives are to be accomplished without taking
excessive risk. Specifically, volatility should not exceed the risk
control guidelines established in section (G) over 3-5 year periods, and
the Xxxxxx ratio should exceed the peer universe average.
V. COMMUNICATION
-- 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.
-- Quarterly -- portfolio manager writeups covering material similar to
monthly conference calls, but also including material specified by
Diversified's communications department.
-- Annually -- meetings between interested parties to reaffirm or change the
Investment Policy Statement, Bi-annual visits by Diversified personnel at
the sub-advisor site to update due diligence.
-- As needed on an ad hoc basis to explain major market moves between other
communications.
-- Immediate notification regarding sub-advisor 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
-- Explanation of best execution trading practices, including soft dollar
arrangements
-- Evidence of disaster recovery plan, including Y2K, and EURO conversion
plans
-- Cooperation with outside audits (Diversified's or its clients' auditors,
SEC).
Signed Xxxxxxx X. Xxxxxxxx
---------------------------------
(Xxxxx Capital Management)
Signed [Illegible]
---------------------------------
(Diversified Investment Advisors)
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SCHEDULE A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of January 3, 1994 by and between the Special Equity
Portfolio, a series of Diversified Investors Portfolios (herein called the
"Portfolio"), and Diversified Investment Advisors, Inc. a Delaware corporation
(herein called "Diversified").
WHEREAS, the Portfolio is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940 (the
"1940 Act"); and
WHEREAS, Diversified has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940; and
WHEREAS, the Portfolio desires to retain Diversified to render investment
advisory services, and Diversified is willing to so render such services on the
terms hereinafter set forth;
NOW, THEREFORE, this Agreement
WITNESSETH:
In consideration of the promises and mutual covenants herein contained, it
is agreed between the parties hereto as follows:
1. The Portfolio hereby appoints Diversified to act as investment advisor to
the Portfolio for the period and on the terms set forth in this Agreement.
Diversified accepts such appointment and agrees to render the services herein
set forth for the compensation herein provided.
2. (a) Diversified shall, at its expense, (i) employ sub-advisors or
associate with itself such entities as it believes appropriate to assist it in
performing its obligations under this Agreement and (ii) provide all services,
equipment and facilities necessary to perform its obligations under this
Agreement.
(b) The Portfolio shall be responsible for all of its expenses and
liabilities, including, but not limited to: compensation and out-of-pocket
expenses of Trustees not affiliated with any subadvisor or Diversified;
governmental fees; interest charges; taxes; membership dues; fees and expenses
of independent auditors, of legal counsel and of any transfer agent,
administrator, distributor, shareholder servicing agents, registrar or dividend
disbursing agent
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good faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the overall responsibilities of
Diversified with respect to the accounts as to which it exercises investment
discretion.
In placing orders with brokers and/or dealers, Diversified intends to seek
best price and execution for purchases and sales and may effect transactions
through itself and its affiliates on a securities exchange provided that the
commissions paid by the Portfolio are "reasonable and fair" compared to
commissions received by other broker-dealers having comparable execution
capability in connection with comparable transactions involving similar
securities and provided that the transactions in connection with which such
commissions are paid are effected pursuant to procedures established by the
Board of the Trustees of the Portfolio. All transactions are effected pursuant
to written authorizations from the Portfolio conforming to the requirements of
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder. Pursuant to such authorizations, an affiliated broker-dealer may
transmit, clear and settle transactions for the Portfolio that are executed on a
securities exchange provided that it arranges for unaffiliated brokers to
execute such transactions.
Diversified shall determine from time to time the manner in which voting
rights, rights to consent to corporate action and any other rights pertaining to
the Portfolio's securities shall be exercised, provided, however, that should
the Board of Trustees at any time make any definite determination as to
investment policy and notify Diversified thereof in writing, Diversified shall
be bound by such determination for the period, if any, specified in such notice
or until similarly notified that such determination has been revoked.
Diversified will determine what portion of securities owned by the Portfolio
shall be invested in securities described by the policies of the Portfolio and
what portion, if any, should be held uninvested. Diversified will determine
whether and to what extent to employ various investment techniques available to
the Portfolio. In effecting transactions with respect to securities or other
property for the account of the Portfolio, Diversified may deal with itself and
its affiliates, with the Trustees of the Portfolio or with other entities to the
extent such actions are permitted by the 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.
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(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 judgement 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, semi-annual and annual reports to investors, proxy
statements and tax returns;
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(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 .80% of the Portfolio's average daily
net assets. If the fees payable to Diversified pursuant to this paragraph 5
begin to accrue before the end of any month or if this Agreement terminates
before the end of any month, the fees for the period from 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
20
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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
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hereof. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. Should any part of this
Agreement be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding and shall inure to the benefit of the parties
hereto and their respective successors, to the extent permitted by law.
9. This Agreement shall be construed in accordance with the laws of the
State of New York provided that nothing herein shall be construed in a manner
inconsistent with the requirements of 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
Attest: Diversified Investors Portfolios
/s/ Xxxx X. Xxxxxx By: /s/ Xxx Xxxxxxxxxxx
----------------------------------- ----------------------------------
Xxx Xxxxxxxxxxx
Chairman and President
Attest: Diversified Investment Advisors, Inc.
/s/ Xxxxxxxxx X. Xxxx By: /s/ Xxxxxx X. Xxxx
----------------------------------- ----------------------------------
Xxxxxx X. Xxxx
Vice President and CFO
22
SCHEDULE B
The Subadvisor shall be compensated for its services under this Agreement on
the basis of the below-described annual fee schedule. The fee schedule shall
only be amended by agreement between the parties.
FEE SCHEDULE
.40% OF THE FIRST $250M OF NET ASSETS
.25% OF NET ASSETS BETWEEN $250M AND $350M
.20% OF NET ASSETS IN EXCESS OF $350M
Net assets are equal to the market value of the Subadvisor's portion of the
Portfolio. Fees will be calculated by multiplying the arithmetic average of the
beginning and ending monthly net assets by the fee schedule and dividing by
twelve. The sum of the three consecutive months will be paid in arrears on
calendar quarters.
Xxxxx agrees that if at anytime during the term of this Subadvisory Agreement,
Xxxxx offers another of its clients a lower fee than that set forth in this
Schedule B for the management of a similarly structured small-cap growth
separate account then Diversified will also be charged the lower rate.
Diversified will benefit from the lower rate from the first day that it is in
effect for Xxxxx'x other client. It is understood and agreed by both Xxxxx and
Diversified that this paragraph is applicable solely to Diversified's small-cap
growth Portfolio and not to any other fund/assets which Xxxxx now manages or
may manage in the future on Diversified's behalf.
23
SCHEDULE C
Target market for 401(a), 403(b) and 457 plans is those plans between $1 and
$250 million.
