SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-
6(E)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
THE DIVERSIFIED INVESTORS FUNDS GROUP
THE DIVERSIFIED INVESTORS FUNDS GROUP II
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
DIVERSIFIED INVESTORS PORTFOLIOS
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
INTRODUCTION.................................................................... 2
Funds Subject to this Solicitation of Proxies................................. 2
Overview of Proposals......................................................... 2
Important Voting Information.................................................. 4
Quorum, Vote Required and Manner of Voting Proxies............................ 5
Proposal I -- To Elect Board Members............................................ 6
Proposal II -- To Approve the Proposed Advisory Agreement with Transamerica Fund
Advisors, Inc. ............................................................... 16
Proposal III -- Approval of an Amendment to Declaration of Trust................ 26
Proposal IV -- To Approve Changes to the Fundamental Investment Policies of Each
Fund.......................................................................... 31
Proposal V -- Approval of Amended Plan of Distribution Pursuant to Rule 12b-1... 42
Other Business.................................................................. 44
Additional Information.......................................................... 44
Administrator, Transfer Agent and Principal Underwriter (or Placement Agent).. 44
Annual and Semi-Annual Reports................................................ 44
Proxy Solicitation............................................................ 44
Independent Registered Public Accounting Firm................................. 44
5% Interest Ownership......................................................... 46
Holder Communications to the Boards........................................... 46
Proposals by Holders of Interests in the Funds................................ 46
Fiscal Year................................................................... 46
General....................................................................... 46
Information About the Funds................................................... 46
Appendix A: Funds' Issued and Outstanding Interests or Shares................... A-1
Appendix B: Compensation of the Board Members................................... B-1
Appendix C: Nominating Committee Charter........................................ C-1
Appendix D: Comparison of Terms of Advisory Agreements.......................... D-1
Appendix E: Form of Investment Advisory Agreement Between TFAI and the Funds.... E-1
Appendix F: Diversified's and TFAI's Directors and Principal Executive
Officers...................................................................... F-1
Appendix G: Information About Current Investment Advisory Agreements............ G-1
Appendix H: Fees Paid to Diversified and Affiliates............................. H-1
Appendix I: Other Funds Advised by TFAI......................................... I-1
Appendix J: Form of New Declaration of Trust.................................... J-1
Appendix K: Current and Proposed Fundamental Investment Policies of the Funds... K-1
Appendix L: Form of Plan of Distribution Pursuant to Rule 12b-1 Under the
Investment Company Act of 1940...................................... L-1
Appendix M: Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees......... M-1
Appendix N: Beneficial Owners of 5% or More of the Outstanding Interests of the
Funds......................................................................... N-1
</Table>
i
THE DIVERSIFIED INVESTORS FUNDS GROUP ("DIFG")
THE DIVERSIFIED INVESTORS FUNDS GROUP II ("DIFG II")
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS ("DISVF")
DIVERSIFIED INVESTORS PORTFOLIOS ("DIP")
(Each an "Investment Company" and collectively, the "Investment Companies")
FOUR MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
(800) 755-5801
------------
NOTICE OF SPECIAL MEETING OF HOLDERS
TO BE HELD ON OCTOBER 30, 2007
Please take notice that a special meeting of holders of each series of the
Investment Companies (each series, a "Fund" and collectively, the "Funds") on
the attached list, will be held at the offices of Diversified Investment
Advisors, Inc. ("Diversified"), Four Manhattanville Road, Purchase, New York
10577 on October 30, 2007, at 11:00 a.m. (Eastern time) as adjourned from time
to time (each, a "Special Meeting"). At the Special Meetings, holders of
interests in the Funds will be asked to consider the following proposals (the
"Proposals"):
<Table>
I. To elect a new Board;
II. To approve a new Investment Advisory Agreement with Transamerica
Fund Advisors, Inc;
III. To approve an amendment to the Declaration of Trust;
IV. To approve changes to the fundamental investment policies of
each Fund;
V. To approve an amended 12b-1 Plan for certain Funds; and
VI. To transact such other business as may properly come before the
Special Meetings.
</Table>
The accompanying joint proxy statement ("Joint Proxy Statement") describes
which Funds vote with respect to each Proposal. As explained in the Joint Proxy
Statement, if you vote on a Proposal for a Feeder Fund (as defined in the Joint
Proxy Statement), you will also be authorizing the Feeder Fund to vote in the
same manner on any corresponding Proposals applicable to the underlying Fund in
which it invests its assets.
After careful consideration of each Proposal, the Board of each Investment
Company approved Proposals I, II, III, IV and V and recommends that holders of
the Funds vote "FOR" these Proposals.
Holders of record of each Fund at the close of business on August 15, 2007
are entitled to notice of, and to vote at, the Special Meeting of the Fund on
each Proposal applicable to the Fund. Your attention is called to the
accompanying Joint Proxy Statement. Holders who do not expect to attend the
Special Meeting in person are requested to complete, date, and sign the enclosed
proxy card and return it promptly in the envelope provided for that purpose.
Your proxy card also provides instructions for voting via telephone or the
Internet, if you wish to take advantage of these voting options. Proxies may be
revoked at any time by executing and submitting a revised proxy, by giving
written notice of revocation to the Secretary at the principal executive offices
of the Fund at the address above, or by voting in person at the Special Meeting.
By Order of the Boards,
Dennis P. Gallagher
Vice President, General Counsel and
Secretary
, 2007
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS OF THE SIZE OF YOUR INTERESTS IN A
FUND. HOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IT IS IMPORTANT
THAT YOUR PROXY CARD BE RETURNED PROMPTLY.
FOR YOUR CONVENIENCE, YOU MAY ALSO VOTE BY TELEPHONE OR VIA THE INTERNET BY
FOLLOWING THE ENCLOSED INSTRUCTIONS. IF YOU VOTE BY TELEPHONE OR VIA THE
INTERNET, PLEASE DO NOT RETURN YOUR PROXY CARD UNLESS YOU ELECT TO CHANGE YOUR
VOTE.
FUNDS PARTICIPATING IN THE SPECIAL MEETINGS
ON OCTOBER 30, 2007
<Table>
THE DIVERSIFIED INVESTORS FUNDS GROUP THE DIVERSIFIED INVESTORS FUNDS GROUP II
("DIFG") ("DIFG II")
MONEY MARKET FUND MONEY MARKET FUND
Diversified Investors Money Market Diversified Institutional Money
Fund Market Fund
BOND FUNDS BOND FUNDS
Diversified Investors High Quality Diversified Institutional High
Bond Fund Quality Bond Fund
Diversified Investors Inflation- Diversified Institutional Inflation-
Protected Securities Fund Protected Securities Fund
(formerly, Diversified Investors (formerly, Diversified
Intermediate Government Bond Fund) Institutional Intermediate
Government Bond Fund)
Diversified Investors Core Bond Fund Diversified Institutional Core Bond
Fund
Diversified Investors Total Return Diversified Institutional Total
Bond Fund Return Bond Fund
Diversified Investors High Yield Diversified Institutional High Yield
Bond Fund Bond Fund
BALANCED FUND BALANCED FUND
Diversified Investors Balanced Fund Diversified Institutional Balanced
Fund
STOCK FUNDS STOCK FUNDS
Diversified Investors Value & Income Diversified Institutional Value &
Fund Income Fund
Diversified Investors Value Fund Diversified Institutional Value Fund
Diversified Investors Growth & Diversified Institutional Growth &
Income Fund Income Fund
Diversified Investors Equity Growth Diversified Institutional Equity
Fund Growth Fund
Diversified Investors Aggressive Diversified Institutional Aggressive
Equity Fund Equity Fund
Diversified Investors Mid-Cap Value Diversified Institutional Mid-Cap
Fund Value Fund
Diversified Investors Mid-Cap Growth Diversified Institutional Mid-Cap
Fund Growth Fund
Diversified Investors Small-Cap Diversified Institutional Small-Cap
Value Fund Value Fund
Diversified Investors Special Equity Diversified Institutional Special
Fund Equity Fund
Diversified Investors Small-Cap Diversified Institutional Small-Cap
Growth Fund Growth Fund
Diversified Investors International Diversified Institutional
Equity Fund International Equity Fund
STOCK INDEX FUND STOCK INDEX FUND
Diversified Investors Stock Index Diversified Institutional Stock
Fund Index Fund
STRATEGIC ALLOCATION FUNDS STRATEGIC ALLOCATION FUNDS
Institutional Short Horizon Short Horizon Strategic Allocation
Strategic Allocation Fund Fund
Institutional Short/Intermediate Short/Intermediate Horizon Strategic
Horizon Strategic Allocation Fund Allocation Fund
Institutional Intermediate Horizon Intermediate Horizon Strategic
Strategic Allocation Fund Allocation Fund
Institutional Intermediate/Long Intermediate/Long Horizon Strategic
Horizon Strategic Allocation Fund Allocation Fund
Institutional Long Horizon Strategic Long Horizon Strategic Allocation
Allocation Fund Fund
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS ("DISVF")
Short Horizon Strategic Allocation Intermediate/Long Horizon Strategic
Variable Fund Allocation Variable Fund
Intermediate Horizon Strategic
Allocation Variable Fund
DIVERSIFIED INVESTORS PORTFOLIOS ("DIP")
Money Market Portfolio Growth & Income Portfolio
High Quality Bond Portfolio Equity Growth Portfolio
Inflation-Protected Securities Aggressive Equity Portfolio
Portfolio (formerly, Intermediate
Government Bond Portfolio)
Core Bond Portfolio Mid-Cap Value Portfolio
Total Return Bond Portfolio Mid-Cap Growth Portfolio
High Yield Bond Portfolio Small-Cap Value Portfolio
Balanced Portfolio Special Equity Portfolio
Value & Income Portfolio Small-Cap Growth Portfolio
Value Portfolio International Equity Portfolio
</Table>
II
THE DIVERSIFIED INVESTORS FUNDS GROUP
THE DIVERSIFIED INVESTORS FUNDS GROUP II
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
DIVERSIFIED INVESTORS PORTFOLIOS
FOUR MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
(800) 755-5801
JOINT PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 30, 2007
This joint proxy statement ("Joint Proxy Statement") and enclosed notice
and proxy card are being furnished in connection with the solicitation of
proxies by the Board of Trustees or the Managing Board (each, a "Board" and each
member of a Board, a "Board Member") of each of Diversified Investors Portfolios
("DIP"), The Diversified Investors Funds Group ("DIFG"), The Diversified
Investors Funds Group II ("DIFG II") and Diversified Investors Strategic
Variable Funds ("DISVF" and together with DIP, DIFG and DIFG II, the "Investment
Companies" or the "Diversified Fund Family"). The proxies are being solicited
for use at a special meeting of shareholders, interestholders or contract
holders of each fund or subaccount listed in the accompanying notice (the
"Funds"), to be held at the offices of Diversified Investment Advisors, Inc.
("Diversified"), Four Manhattanville Road, Purchase, New York 10577 on October
30, 2007, at 11:00 a.m. (Eastern time) as adjourned from time to time (for each
Fund, a "Special Meeting"), and at any and all adjournments or postponements
thereof.
The Boards have called the Special Meetings and are soliciting proxies with
respect to the following proposals (the "Proposals"):
<Table>
I. To elect a new Board;
II. To approve a new Investment Advisory Agreement with Transamerica
Fund Advisors, Inc.;
III. To approve an amendment to the Declaration of Trust;
IV. To approve changes to the fundamental investment policies of
each Fund;
V. To approve an amended 12b-1 Plan for certain Funds; and
VI. To transact such other business as may properly come before the
Special Meetings.
</Table>
The Board of each Investment Company has determined that the use of this
Joint Proxy Statement for each Special Meeting is in the best interests of each
Fund and its holders in light of the similar matters being considered and voted
on by the holders of the other Funds. The discussion of each Proposal below
describes which Funds vote with respect to the Proposal. As explained below, if
you vote on a Proposal for a Feeder Fund (as defined below), you will also be
authorizing the Feeder Fund to vote in the same manner on any corresponding
Proposals applicable to the underlying Fund in which it invests its assets.
You are entitled to vote at the Special Meeting of each Fund of which you
are a shareholder, interestholder or contractholder as of the close of business
on August 15, 2007 (the "Record Date"). You may also be receiving these
materials if you are a holder of a variable annuity contract or a participant
under a variable life insurance policy through which you have interests in a
subaccount that invests directly in a Fund that is a series of DIP and for which
you are entitled to provide voting instructions with respect to that Fund. For
purposes of convenience in this Joint Proxy Statement, shareholders,
interestholders and participants are sometimes referred to as "holders" and the
shares, beneficial interests and units that they hold in the Funds are sometimes
referred to as "interests."
This Joint Proxy Statement and the accompanying notice and the proxy card
are being first mailed to holders on or about August 27, 2007.
INTRODUCTION
FUNDS SUBJECT TO THIS SOLICITATION OF PROXIES
Each of the Investment Companies is an investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"). DIP is a trust
governed by New York law. Each of DIFG and DIFG II is a Massachusetts business
trust. DISVF is a segregated investment account of Transamerica Financial Life
Insurance Company ("TFLIC"). For purposes of this Joint Proxy Statement, each of
DIP, DIFG and DIFG II is referred to as a "Trust," and each of DIP, DIFG, DIFG
II, and DISVF is referred to as an "Investment Company." Attached as Appendix A
is a list of the Funds that are series of each Investment Company and the Funds
that are subaccounts of DISVF (also referred to as the "Strategic Variable
Funds"). In certain cases, for ease of comprehension, the term "Fund" is used in
this Joint Proxy Statement where it may be more precise to refer to the
"Investment Company" of which the Fund is a series.
The Funds operate in master-feeder and fund-of-funds arrangements. Certain
series of DIFG and DIFG II (the "Feeder Funds") invest in securities through
underlying master funds. The underlying master funds (other than the master fund
underlying the Stock Index Fund series, which master funds are not part of the
Diversified Investors fund complex) are series of DIP ("Master Portfolios").
Beneficial interests of the Master Portfolios are also held by separate accounts
of TFLIC and other investors.
Other series of DIFG and DIFG II (the "Strategic Allocation Funds") and the
Strategic Variable Funds invest in a three tier structure. The Strategic
Allocation Funds invest in securities through the Feeder Funds, and the
Strategic Variable Funds invest through funds that are series of Diversified
Investors Variable Funds, a segregated account of TFLIC organized as a unit
investment trust. The Feeder Funds and the Diversified Investors Variable Funds
themselves invest through the Master Portfolios. Diversified, an affiliate of
TFLIC, is currently the investment adviser of the Strategic Allocation Funds,
the Strategic Variable Funds and each Master Portfolio.
OVERVIEW OF PROPOSALS
The Funds in the Diversified Fund Family are managed by Diversified
Investment Advisors, Inc. ("Diversified") as investment adviser to the Funds. An
affiliate of Diversified, Transamerica Fund Advisors, Inc. ("TFAI"), serves as
investment adviser to another complex of registered investment companies (the
"TFAI Fund Family").
Both Diversified and TFAI are indirect, wholly-owned subsidiaries of AEGON,
N.V., a Netherlands corporation that is a publicly traded international
insurance group, and both are part of the AEGON Group of Companies. Diversified
and TFAI currently render comparable "manager of managers" management services
to investment companies. Diversified has decided to consolidate all "manager of
managers" investment advisory services in TFAI in order to form a premier fund
management and administration organization combining the expertise of the
personnel of both TFAI and Diversified. This consolidation is expected to result
in a combined fund management organization with significant experience,
resources and depth. Diversified and TFAI are also recommending that the TFAI
and Diversified Fund Families be consolidated. As part of the consolidation and
restructuring of funds in the Diversified Fund Family and the TFAI Fund Family
(collectively, the "Fund Complex"), it is anticipated that TFAI will, in the
future, propose the combination of certain existing Funds, though no specific
combinations have yet been proposed to the Boards of the Funds.
In order to implement these plans, at a meeting held on August 10, 2007
each Fund's Board approved a series of measures that it believes will, among
other things: (1) simplify oversight of the Funds through the election of a new
Board, composed both of current members of the Boards and new members who
currently oversee funds in the TFAI Fund Family and who already are familiar
with TFAI's investment management and fund administrative organization; (2)
benefit the Funds by making them part of a larger family of investment companies
that are managed by TFAI, an investment adviser in the AEGON Group of Companies;
and (3) simplify and modernize the Investment Companies and the Funds to permit
them to respond more quickly and favorably to changed circumstances with less
expense and delay by adopting modernized and more standardized investment
advisory agreements, declarations of trusts, fundamental investment policies,
and Rule 12b-1 distribution plans ("12b-1 Plans"). The implementation of these
measures, which are summarized below, is subject to the approval of holders of
the Funds.
2
Proposal I: Four of the current Board Members of the Investment Companies,
Neal M. Jewell, Eugene M. Mannella, Joyce Galpern Norden and Patricia L. Sawyer,
as well as five new Board Member nominees, Leo J. Hill, Russell A. Kimball, Jr.,
Norm R. Nielsen, John W. Waechter, and John K. Carter are proposed for election
to each Investment Company's Board (hereafter, the four current Board Members
and the five proposed new Board Members are referred to as the "Nominees"). Each
Nominee, except John K. Carter, is not an "interested person," as that term is
defined in the 1940 Act, of the Investment Companies. As further discussed in
this Joint Proxy Statement, Proposal I is designed to create operational and
administrative efficiencies by electing a Board composed of Board Members who
are familiar with the Investment Companies, TFAI, and the funds currently
managed by TFAI.
Proposal II: The Boards approved proposed new investment advisory
agreements between TFAI and each of the Investment Companies on behalf of each
of their series (the "Advisory Agreements"). Diversified currently serves as
investment adviser for certain of the Funds. The remaining Funds do not
currently have investment advisory agreements, and it is proposed that Advisory
Agreements be entered into with respect to these Funds as well.
- As a result of the appointment of TFAI as investment adviser, the Funds
will become part of a larger complex of investment companies, all advised
by TFAI. However, Diversified will remain involved with the Funds, either
directly by continuing to provide services and expertise to retirement
plans (as well as their sponsors and participants) that invest in the
Funds, or indirectly through personnel that will join TFAI to assist TFAI
in continuing to provide to the Funds the same level of services that
Diversified currently provides.
- The Funds anticipate benefiting from TFAI's expertise gained from
providing comparable "manager of managers" investment advisory services
to the TFAI Fund Family, as well as the potential future scale
efficiencies and economies and marketing advantages offered by retaining
the primary investment management and fund administration service
provider in the AEGON Group of Companies. The consolidation of these
activities in TFAI is expected to result in a combined Fund Complex that
will be served by an adviser with significant experience, resources and
depth.
- The investment subadvisers to each series of DIP and the investment
objectives, strategies and risks of each Fund will remain the same. As a
result, the day-to-day investment management of the Funds is expected to
remain unchanged.
- The investment advisory fees paid by the Funds to TFAI under the Advisory
Agreements will remain the same as the fees currently paid by the Funds
to Diversified. The Funds' other operating fees and expenses also are
expected to remain the same. Some Funds are subject to expense limitation
arrangements, pursuant to which Diversified has undertaken to limit the
Funds' fees and expenses to certain levels. TFAI will maintain the same
expense limitation arrangements.
- If the Advisory Agreements are approved by the holders, concurrently with
the appointment of TFAI as investment adviser, the Funds' current
transfer agent, distributor and administrator will be replaced by the
entities affiliated with TFAI and Diversified that currently render
transfer agency, distribution and administrative services to the TFAI
Fund Family. The services that these entities will provide to the Funds
will remain substantially the same as the services the Funds currently
receive.
- All of the Funds are, and after implementation of the Proposals will
continue to be, organized in a master-feeder structure, and also, for
some Funds, in fund-of-funds arrangements. It is possible, however, that
in the future, certain or all of the Funds could be reorganized into
other mutual funds for which TFAI also serves as investment adviser and
which may not be organized in a master-feeder or fund-of-funds structure.
Proposal III: The Boards of each Trust seek approval of an amendment to
the current declaration of trust that, if approved, will enable the Board to
amend the declaration of trust without the expense and delay associated with
soliciting approval of the holders. The Boards are currently able to amend the
declarations of trust in many respects without approval of the holders and, as
discussed below, whether or not Proposal III is approved by the Boards, they
intend to implement a number of changes that they deem to be in the holders'
best interests. Proposal III would allow the Boards to manage the Investment
Companies and the Funds more effectively and more efficiently by expanding their
ability to revise the declarations of trust to respond to future contingencies,
changes in industry standards, economic conditions and regulatory changes.
3
Proposal IV: The Boards seek approval of changes to the fundamental
investment policies of each Fund. Proposal IV is intended to simplify, modernize
and standardize, to the extent possible, the fundamental investment policies of
each of the Funds. If approved, the Funds' fundamental investment policies would
be the same as those of the mutual funds currently managed by TFAI. The proposed
changes are intended to provide each of the Funds with greater investment
flexibility and may facilitate the management of the Funds' assets. In addition,
the changes should simplify the process of monitoring compliance with the
policies. Since legal requirements governing the Funds are complex and change
from time to time, simplifying and standardizing compliance should benefit the
Funds. Holders should note that these proposed changes are not expected to
change the way the Funds currently are managed.
Proposal V: The Boards seek approval to amend 12b-1 Plans for the Feeder
Funds. The amended 12b-1 Plans are intended to enable each of the Feeder Funds
to promote sales of its interests and to create economies of scale. In addition,
the amended 12b-1 Plans are intended to enable the Feeder Funds to provide
personal service and maintenance with respect to holders' accounts as
appropriate for each Fund.
The implementation of any one or more Proposals is not contingent upon the
approval of any other Proposal or Proposals.
The cost of this proposed restructuring, including the costs of these proxy
materials and the costs of soliciting holders, will be borne by TFAI and/or its
affiliates, and not the Funds or their holders.
The Board of each Investment Company recommends that you vote "FOR" each of
these five Proposals for which you are entitled to vote.
IMPORTANT VOTING INFORMATION
Holders of record of each Master Portfolio at the close of business on the
Record Date are entitled to vote in the proportion that their beneficial
interests in the Master Portfolio bear to the total beneficial interests in that
Master Portfolio. Holders of record of the Funds that are series of DIFG and
DIFG II at the close of business on the Record Date are entitled to one vote for
each share held of the applicable Fund (with proportional fractional votes for
fractional shares). Holders of record of the Strategic Variable Funds at the
close of business on the Record Date are entitled to one vote per $100 (with
proportional fractional votes for amounts less than $100) of the dollar value of
the accumulation account for the holder's credit in a contract held in the
applicable Strategic Variable Fund subaccount. The total dollar value of
beneficial interests, dollar value of voting interests, or number of shares of
each Fund outstanding at the close of business on the Record Date is shown in
Appendix A.
The Fund with respect to which your vote is being solicited is named on the
proxy card included with this Joint Proxy Statement. If you have the right to
vote with respect to more than one Fund as of the Record Date, you may receive
more than one proxy card. Please sign, date and return each proxy card, or if
you prefer to provide voting instructions by telephone or over the Internet,
please vote on the Proposals affecting each applicable Fund. If you vote by
telephone or over the Internet, you will be asked to enter a unique code that
has been assigned to you, which is printed on your proxy card(s). This code is
designed to confirm your identity, provide access to the voting sites and
confirm that your voting instructions are properly recorded.
All properly executed proxies received prior to a Fund's Special Meeting
will be voted at that Special Meeting. On the matters coming before each Special
Meeting as to which a holder has specified a choice on that holder's proxy, the
holder's interests will be voted accordingly. If a proxy is properly executed
and returned and no choice is specified with respect to one or more Proposals,
the interests will be voted "FOR" each such Proposal. The duly appointed proxies
may, in their discretion, vote upon such other matters as may properly come
before the Special Meetings.
Holders who execute proxies or provide voting instructions by telephone or
the Internet may revoke them with respect to any or all Proposals at any time
before a vote is taken on a Proposal by filing with the applicable Fund a
written notice of revocation (addressed to the Secretary at the principal
executive offices of the Fund at the address above), by delivering a duly
executed proxy bearing a later date or by attending the Special Meeting and
voting in person, in all cases prior to the exercise of the authority granted in
the proxy. Merely attending the Special Meeting, however, will not revoke any
previously executed proxy. If you hold your interests through a bank or other
intermediary or if you are the holder of a variable annuity contract (as
discussed under "Quorum, Vote Required and
4
Manner of Voting Proxies" below), please consult your bank or intermediary or
your participating insurance company regarding your ability to revoke voting
instructions after such instructions have been provided.
QUORUM, VOTE REQUIRED AND MANNER OF VOTING PROXIES
QUORUM
A quorum of holders of a Fund is required to take action at that Fund's
Special Meeting. For each of the Investment Companies, a quorum of the holders
of the Investment Company as a whole is required in order to take action with
respect to Proposals I and III, and, a quorum of the holders for each particular
Fund is required in order for action to be taken by the holders of that Fund
with respect to Proposals II, IV and V, whether or not there is a quorum of the
holders of the Investment Company as a whole. Similarly for DISVF, a quorum of
the holders of DISVF as a whole is required in order to take action with respect
to Proposals I and III, and, a quorum of the holders for each particular Fund is
required in order for action to be taken by the holders of that Fund with
respect to Proposals II and IV, whether or not there is a quorum of the holders
of the DISVF as a whole.
With respect to DIP and each Master Portfolio, holders of at least one-
third (33 1/3%) of the outstanding interests of DIP or the applicable Master
Portfolio, present in person or by proxy, shall constitute a quorum for the
transaction of business at the Special Meeting. With respect to DIFG and DIFG II
and each of their series, the holders of a majority of outstanding interests of
the applicable Investment Company or Fund, present in person or by proxy, shall
constitute a quorum for the transaction of business at the Special Meeting. With
respect to DISVF and each Strategic Variable Fund, holders of at least thirty
percent (30%) of the outstanding interests of DISVF or the applicable Strategic
Variable Fund, present in person or by proxy, shall constitute a quorum for the
transaction of business at the Special Meeting.
Only proxies that are voted, abstentions and "broker non-votes" will be
counted toward establishing a quorum. "Broker non-votes" are interests held by a
broker or nominee as to which proxies have been returned but (a) instructions
have not been received from the beneficial owners or persons entitled to vote
and (b) the broker or nominee does not have discretionary voting power on a
particular matter.
In the absence of a quorum, or if a quorum is present but sufficient votes
to approve a Proposal are not received, a Special Meeting may be adjourned by
the affirmative vote of a majority of the interests present in person or
represented by proxy at the Special Meeting. The persons named as proxies may,
at their discretion, vote those proxies in favor of an adjournment of a Special
Meeting. A vote may be taken on any Proposal prior to any such adjournment if
sufficient votes have been received.
VOTE REQUIRED
Proposal I. In the case of each Investment Company, holders of all of the
Funds that are series of the Investment Company vote together as a single class
with respect to the election of nominees for Board Members of the Investment
Company. Each Nominee must be elected by a plurality of the interests that are
voted on this Proposal by holders of the applicable Investment Company.
Accordingly, assuming the presence of a quorum, abstentions and broker non-votes
have no effect on Proposal I.
Proposals II, IV and V. Each Fund votes separately with respect to
Proposals II, IV and V. With respect to each Fund, approval of each of Proposals
II, IV and V, if a quorum of the Fund's holders is present at the Special
Meeting, requires the vote of a "majority of the outstanding voting securities"
of that Fund within the meaning of the 1940 Act, which is defined as the
affirmative vote of the lesser of (a) 67% or more of the interests that are
present or represented by proxy at the Special Meeting, if the holders of more
than 50% of the outstanding interests are present or represented by proxy, or
(b) more than 50% of the Fund's outstanding interests ("1940 Act Majority
Vote"). Accordingly, assuming the presence of a quorum, abstentions and broker
non-votes have the effect of a negative vote on Proposals II, IV and V.
5
Proposal III. In the case of each Trust, holders of all of the Funds that
are series of the Investment Company vote together as a single class with
respect to the Proposal to amend the Trust's current declaration of trust.
Approval of Proposal III requires the affirmative vote of a majority of the
outstanding interests of the applicable Investment Company. Accordingly,
assuming the presence of a quorum, abstentions and broker non-votes have the
effect of a negative vote on Proposal III.
MANNER OF VOTING
Interests in the Master Portfolios are held by (i) Feeder Funds; (ii)
certain variable annuity accounts (including those sponsored by TFLIC); and
(iii) other investors. For each Proposal, each Feeder Fund will vote its
interests in the Master Portfolio in which it invests in accordance with the
voting instructions received from its holders and will vote interests in the
Master Portfolio with respect to which it has not received voting instructions
in the same proportion as the interests for which it has received instructions
from other holders (this is called "proportional voting" or "echo voting").
Because the Feeder Fund will use proportional voting to vote its interests in
its corresponding Master Portfolio, a small number of holders could determine
how a Feeder Fund votes if other holders fail to vote. Please note that, as the
Master Portfolios have holders besides the Feeder Funds, it is possible that one
or more Proposals affecting the Master Portfolios may not be approved by the
Master Portfolios, even if they are approved by the requisite Feeder Fund
holders. It is also possible that a matter may be approved by the Master
Portfolios, even if it is not approved by Feeder Fund holders.
In the case of interests in the Master Portfolios that are held by variable
annuity separate accounts established by insurance companies (including TFLIC)
to fund variable annuity contracts, ownership of the interests is legally vested
in the separate accounts. TFLIC will seek voting instructions from the variable
account holders and will vote in accordance with such instructions. A signed
proxy card or other authorization by a holder that does not specify how the
holder's interests should be voted on a Proposal may be deemed an instruction to
vote such interests in favor of the applicable Proposal. For separate accounts
that are registered under the 1940 Act, TFLIC will use proportional voting to
vote interests for which no timely instructions are received from the holders.
As a result, a small number of owners of such variable annuity contracts could
determine how TFLIC votes, if other owners fail to vote. Other participating
insurance companies may follow similar voting procedures.
As described above, the Strategic Allocation Funds and the Strategic
Variable Funds invest their assets through a fund-of-funds arrangement.
Accordingly, the Strategic Allocation Funds hold interests in the Feeder Funds
and the Strategic Variable Funds hold interests in the series of Diversified
Investors Variable Funds. For each Proposal, each Strategic Allocation Fund and
Strategic Variable Fund will vote its interests in any underlying Funds in the
same proportion in which votes are cast by other holders of the underlying Fund.
It is, therefore, possible that the Strategic Allocation Funds and the Strategic
Variable Funds may vote their interests in the underlying Funds in which they
invest differently from the way in which holders of interests in the Strategic
Allocation Funds and the Strategic Variable Funds vote on similar proposals.
When a Feeder Fund holder votes with respect to a Proposal, that vote will
also constitute instructions for the Feeder Fund to vote in the same manner on
the corresponding Proposal for the Master Portfolio in which it invests.
If you hold interests through a variable annuity contract, and if you do
not give specific voting instructions for your interests, they may not be voted
at all or, as described above, they may be voted in a manner that you may not
intend. Therefore, you are strongly encouraged to give your participating
insurance company specific instructions as to how you want your interests to be
voted.
PROPOSAL I -- TO ELECT BOARD MEMBERS
The purpose of this Proposal I is for each Investment Company to elect a
Board that will assume office upon election by the holders. At a Board meeting
held on August 10, 2007, the current Board Members of each Investment Company
nominated the nine persons listed below (the "Nominees") to serve as Board
Members.
As described above, the AEGON Group of Companies has decided to consolidate
all "manager of managers" investment advisory services in TFAI in order to form
a premier fund management and administration organization combining the
expertise of the personnel of both TFAI and Diversified. As a result of this
consolidation,
6
representatives of TFAI and Diversified proposed to the Boards a combination of
the investment and administration operations of the TFAI and Diversified Fund
Families. TFAI and Diversified also recommended the election of a single board
(the "New Board") to oversee the consolidated Fund Complex. The Boards have
concluded that the funds in the Diversified Fund Family will enjoy operational
and administrative efficiencies if the same individuals serve as Board Members
for the Investment Companies and other investment companies in the Fund Complex,
as discussed below.
Four of the Nominees, Neal M. Jewell, Eugene M. Mannella, Joyce Galpern
Norden and Patricia L. Sawyer, currently serve as members of each Board; the
other five Nominees, Leo J. Hill, Russell A. Kimball, Jr., Norm R. Nielsen, John
W. Waechter and John K. Carter, currently serve as directors or trustees of
investment companies in the TFAI Fund Family.
The Nominees were nominated by Board Members who are not "interested
persons" of the Fund Complex, as that term is defined in Section 2(a)(19) of the
1940 Act.
It is intended that the enclosed proxy card will be voted for all Nominees
for the New Board unless a proxy contains specific instructions to the contrary.
Also, by voting for Nominees, holders of a Feeder Fund will be instructing the
Feeder Fund to vote in favor of those Nominees for the Master Portfolio in which
the Feeder Fund invests its assets.
REASON FOR PROPOSED REALIGNMENT AND CONSOLIDATION
Each Board has determined that the election of the New Board to oversee the
Funds and other funds in the combined Fund Complex may provide benefits to
holders of the Funds. In reaching this conclusion, each Board identified
numerous potential advantages to the Funds and their holders, including:
- increased availability of management's time and resources for providing
services to the Funds and focusing on long-term strategic initiatives;
- greater Board access to senior management as a result of a decrease in
demands on senior management's time to prepare for and attend Board and
committee meetings of multiple Boards;
- consistent governance and operations approaches for the Funds and the
other funds in the Fund Complex;
- more efficient Board oversight, including a uniform approach to
overseeing investment and compliance operations;
- potential cost savings from a consolidation of Board Members and Board
meetings throughout the Fund Complex;
- the enhanced influence of a single Board for all funds in the Fund
Complex;
- facilitation of the anticipated future integration of other funds in the
Fund Complex, offering the possibility of additional economies of scale
for holders; and
- the benefits of having Board Members who are familiar with funds in the
Diversified Fund Family and in the TFAI Fund Family, as well as with
management personnel serving the Funds and other funds in the Fund
Complex.
The Boards also noted that a consolidated board structure would be
consistent with that of many other fund groups having a common investment
adviser.
NOMINEES
You are being asked to elect the Board Members of your Fund. If elected,
the Nominees will comprise the entire Board of each of the Investment Companies,
and each of them will hold office until his or her successor has been duly
elected or appointed, until reaching the mandatory retirement age, or until his
or her earlier death, resignation or removal.
7
Each Nominee has consented to serve on the New Board if elected by holders.
If, however, before the election, any Nominee refuses or is unable to serve,
proxies may be voted for a replacement Nominee, if any, designated by members of
your Board.
A Nominee is deemed "independent" if the Nominee is not an "interested
person" of the Fund Complex, as that term is defined in Section 2(a)(19) of the
1940 Act (an "Independent Nominee"). Each of the Nominees other than Mr. John K.
Carter is considered an "Independent Nominee." Mr. Carter is an "interested
person" under the 1940 Act by virtue of his position with TFAI and its
affiliates, as described in the table below. If elected, Mr. Carter will serve
as Chairman of the New Board.
The mailing address of each Nominee is c/o Secretary of the Funds, Four
Manhattanville Road, Purchase, New York 10577. The Nominees, their ages, their
principal occupations for the past five years (their titles may have varied
during that period), the number of funds in the Fund Complex the Nominees are
nominated to oversee if elected, and other board memberships they hold are set
forth in the table below.
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND
POSITION(S) COMPLEX OTHER BOARD
HELD WITH LENGTH OF TO BE MEMBERSHIPS
THE INVESTMENT TIME PRINCIPAL OCCUPATION(S) OVERSEEN HELD BY
NAME AND AGE COMPANIES SERVED(+) DURING PAST FIVE YEARS BY NOMINEE NOMINEE
- ------------ -------------- --------- ----------------------- ------------- ------------------
INDEPENDENT NOMINEES:(++)
Neal M. Jewell............ Nominee/Board Since 1993 Retired (2004 to present); 160 None
Age: 72 Member Trustee, DIP, DIFG, DIFG II,
and DISVF (1993 to present);
Independent Trustee, EAI
Select Managers Equity Fund
(a mutual fund) (1996 to
2004).
Eugene M. Mannella........ Nominee/Board Since 1993 Self-employed consultant 160 None
Age: 53 Member (2006 to present);
President, Arapain Partners
LLC (limited purpose
broker/dealer) (1998 to
present); Trustee, DIP,
DIFG, DIFG II, and DISVF
(1994 to present);
President, International
Fund Services (alternative
asset administration) (1993
to 2005).
Joyce Galpern Norden...... Nominee/Board Since 1993 Retired (2004 to present); 160 None
Age: 68 Member Trustee, DIP (2002 to
present); Trustee, DIFG,
DIFG II, and DISVF (1993 to
present); Vice President,
Institutional Advancement,
Reconstructionist Rabbinical
College (1996 to 2004).
Patricia L. Sawyer........ Nominee/Board Since 1993 Trustee, DIP, DIFG, DIFG II, 160 None
Age: 57 Member and DISVF (1993 to present);
President and Executive
Search Consultant, Smith &
Sawyer LLC (consulting)
(1989 to present).
</Table>
8
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND
POSITION(S) COMPLEX OTHER BOARD
HELD WITH LENGTH OF TO BE MEMBERSHIPS
THE INVESTMENT TIME PRINCIPAL OCCUPATION(S) OVERSEEN HELD BY
NAME AND AGE COMPANIES SERVED(+) DURING PAST FIVE YEARS BY NOMINEE NOMINEE
- ------------ -------------- --------- ----------------------- ------------- ------------------
Leo J. Hill............... Nominee N/A Principal, Advisor Network 160 None
Age: 51 Solutions, LLC (business
consulting) (2006 to
present); Trustee,
Transamerica IDEX Mutual
Funds ("TA IDEX") (2002 to
present); Director,
Transamerica Income Shares,
Inc. ("TI Shares") (2002 to
present); Trustee,
AEGON/Transamerica Series
Trust ("ATST") (2001 to
present); Owner and
President, Prestige
Automotive Group (2001 to
2005); President, L. J. Hill
& Company (1999 to present);
Market President, Nations
Bank of Sun Coast Florida
(1998 to 1999); President
and Chief Executive Officer,
Barnett Banks of Treasure
Coast Florida (1994 to
1998); Executive Vice
President and Senior Credit
Officer, Barnett Banks of
Jacksonville, Florida (1991
to 1994); Senior Vice
President and Senior Loan
Administration Officer,
Wachovia Bank of Georgia
(1976 to 1991).
Russell A. Kimball, Jr. .. Nominee N/A Trustee, TA IDEX (2002 to 160 None
Age: 63 present); Director, TI
Shares (2002 to present);
Trustee, ATST (1986 to
present); General Manager,
Sheraton Sand Key Resort
(1975 to present).
Norm R. Nielsen........... Nominee N/A Retired (2005 to present) 160 Buena Vista
Age: 68 Trustee, TA IDEX (2006 to University Board
present); Director, TI of Trustees (2004
Shares (2006 to present); to present)
Trustee, ATST (2006 to
present); Director, Iowa
City Area Development (1996
to 2004); Director, Iowa
Health Systems (1994 to
2003); Director, U.S. Bank
(1988 to 2006); President,
Kirkwood Community College
(1979 to 2005).
John W. Waechter.......... Nominee N/A Trustee, TA IDEX (2005 to 160 None
Age: 55 present); Director, TI
Shares (2004 to present);
Trustee, ATST (2004 to
present); employee, RBC Dain
Rauscher (securities dealer)
(March 2004 to May 2004);
Executive Vice President,
Chief Financial Officer and
Chief Compliance Officer,
William R. Hough & Co.
(securities dealer) (1979 to
2004); Treasurer, The Hough
Group of Funds (1993 to
2004).
</Table>
9
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
FUND
POSITION(S) COMPLEX OTHER BOARD
HELD WITH LENGTH OF TO BE MEMBERSHIPS
THE INVESTMENT TIME PRINCIPAL OCCUPATION(S) OVERSEEN HELD BY
NAME AND AGE COMPANIES SERVED(+) DURING PAST FIVE YEARS BY NOMINEE NOMINEE
- ------------ -------------- --------- ----------------------- ------------- ------------------
INTERESTED NOMINEE:(+++)
John K. Carter............ Nominee N/A President and Chief 160 None
Age: 46 Executive Officer, DIP,
DIFG, DIFG II and DISVF
(August 2007 to present);
Trustee (September 2006 to
present), President and
Chief Executive Officer
(July 2006 to present),
Senior Vice President (1999
to June 2006), Chief
Compliance Officer, General
Counsel and Secretary (1999
to August 2006), TA IDEX;
Trustee (September 2006 to
present), President and
Chief Executive Officer
(July 2006 to present),
Senior Vice President (1999
to June 2006), Chief
Compliance Officer, General
Counsel and Secretary (1999
to August 2006), ATST;
Director (September 2006 to
present), President and
Chief Executive Officer
(July 2006 to present),
Senior Vice President (2002
to June 2006), General
Counsel, Secretary and Chief
Compliance Officer (2002 to
August 2006), TI Shares;
President and Chief
Executive Officer (July 2006
to present), Senior Vice
President (1999 to June
2006), Director (2000 to
present), General Counsel
and Secretary (2000 to
August 2006), Chief
Compliance Officer (2004 to
August 2006), TFAI;
President and Chief
Executive Officer (July 2006
to present), Senior Vice
President (1999 to June
2006), Director (2001 to
present), General Counsel
and Secretary (2001 to
August 2006), Transamerica
Fund Services, Inc.
(''TFS"); Vice President,
AFSG Securities Corporation
(2001 to present); Chief
Executive Officer (July 2006
to present), Vice President,
Secretary and Chief
Compliance Officer (2003 to
August 2006), Transamerica
Investors, Inc. (''TII");
Senior Vice President,
General Counsel and
Secretary, Transamerica
Index Funds, Inc. (''TIFI")
(2002 to 2004); Vice
President, Transamerica
Investment Services, Inc.
(''TISI") (2003 to 2005) and
Transamerica Investment
Management, LLC (''TIM")
(2001 to 2005).
</Table>
- --------
(+) Indicates the earliest year in which the Nominee became a board member
for a fund in the Fund Complex.
(++) "Independent Nominee" means a person who is not an "interested person" as
that term is defined in Section 2(a)(19) of the 1940 Act.
(+++) Mr. Carter is an "interested person" under the 1940 Act because of his
position with TFAI and certain of its affiliates. If elected, Mr. Carter
will serve as Chairman of the New Board.
On August 10, 2007, each Board voted to establish a mandatory retirement
age of 75 for Board Members, effective on the date on which the Nominees who are
not currently Board Members of the Investment Companies (or any one of them)
accept their elections and commence service as members of the New Board (the
"Effective Date"). Pursuant to the mandatory retirement policy, any Independent
Board Member who attained the age of 75 prior to the Effective Date will be
deemed to have retired as of the Effective Date and any Independent Board Member
who attains the age of 75 after the Effective Date will be deemed to have
retired as of the last day of the calendar year in
10
which he or she attains the age of 75. The policy also allows any Independent
Board Member to elect to retire as of the Effective Date.
Each Investment Company will indemnify its Board Members and officers
against liabilities and expenses incurred in connection with litigation in which
they may be involved because of their offices with the Investment Company
unless, as to liability to the Investment Company or its holders, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Investment Company. In the case of settlement, such
indemnification will not be provided unless it has been determined by a court or
other body approving the settlement or other disposition, or by a reasonable
determination, based upon a review of readily available facts, by vote of a
majority of disinterested Board Members or in a written opinion of legal counsel
chosen by a majority of the Board Members and determined by them in their
reasonable judgment to be independent, that such officers or Board Members have
not engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
OFFICERS OF THE INVESTMENT COMPANIES
The mailing address of each officer is c/o Secretary of the Funds, Four
Manhattanville Road, Purchase, New York 10577. The following table shows
information about the officers, including their ages, their positions held with
the Investment Companies and their principal occupations during the past five
years (their titles may have varied during that period). Each officer will hold
office until his or her successor has been duly elected or appointed or until
his or her earlier death, resignation or removal.
<Table>
<Caption>
POSITION(S) HELD
WITH
THE INVESTMENT LENGTH OF TIME PRINCIPAL OCCUPATION(S)
NAME AND AGE COMPANIES SERVED* DURING THE PAST FIVE YEARS
- ------------ ---------------- -------------- --------------------------
John K. Carter....... Chief Executive Since 2007 See the table above.
Age: 46 Officer and President
Dennis P. Gallagher.. Vice President, Since 2007 Vice President, General Counsel
Age: 36 General Counsel and and Secretary, DIP, DIFG, DIFG II
Secretary and DISVF (August 2007 to
present); Senior Vice President,
General Counsel and Secretary, TA
IDEX, ATST and TI Shares
(September 2006 to present); Vice
President and Secretary, TII
(September 2006 to present);
Director, Senior Vice President,
General Counsel and Secretary,
TFAI and TFS (September 2006 to
present); Director, Deutsche
Asset Management (1998 to 2006).
Elizabeth L. Deputy General Since 2005 Deputy General Counsel and
Belanger........... Counsel, Assistant Conflicts of Interest Officer
Age: 35 Secretary and (August 2007 to present),
Conflicts of Assistant Secretary (August 2005
Interest Officer to present), DIP, DIFG, DIFG II
and DISVF (August 2007 to
present); Deputy General Counsel,
Assistant Secretary and Conflicts
of Interest Officer, TA IDEX,
ATST and TI Shares (July 2007 to
present); Vice President and
Senior Counsel, Diversified (with
Diversified since 2005);
Director, TFLIC (April 2006 to
present); Director of Compliance,
Domini Social Investments LLC
(November 2003 to May 2005);
Associate, Bingham McCutchen LLP
(September 1997 to October 2003).
Joe Carusone......... Vice President, Since 2001 Vice President (August 2007 to
Age: 41 Treasurer and present), Treasurer and Principal
Principal Financial Financial Officer (2001 to
Officer present), DIP, DIFG, DIFG II and
DISVF; Vice President, Treasurer
and Principal Financial Officer,
TA IDEX, ATST and TI Shares (July
2007 to present); Vice President,
Diversified (with Diversified
since 1999); President,
Diversified Investors Securities
Corp. ("DISC") (February 2007 to
present); Director, TFLIC (2004
to present).
</Table>
11
<Table>
<Caption>
POSITION(S) HELD
WITH
THE INVESTMENT LENGTH OF TIME PRINCIPAL OCCUPATION(S)
NAME AND AGE COMPANIES SERVED* DURING THE PAST FIVE YEARS
- ------------ ---------------- -------------- --------------------------
Christopher A. Vice President and Since 2007 Vice President and Chief
Staples............ Chief Investment Investment Officer, DIP, DIFG,
Age: 37 Officer DIFG II and DISVF (August 2007 to
present); Vice President (July
2007 to present), Chief
Investment Officer (June 2007 to
present), Senior Vice President
(June 2007 to July 2007), Senior
Vice President -- Investment
Management (July 2006 to June
2007), Vice
President -- Investment
Management (2004 to July 2006),
TA IDEX, ATST and TI Shares; Vice
President, Investment
Administration, TII (2004 to
present); Director, TFS (2005 to
present); Assistant Vice
President, Raymond James &
Associates (1999 to 2004).
Rick Resnik.......... Chief Compliance Since 2004 Chief Compliance Officer, DIP,
Age: 40 Officer DIFG, DIFG II and DISVF (August
2007 to present); Vice President
and Chief Compliance Officer,
Diversified (with Diversified
since 1998); Director, Vice
President and Chief Compliance
Officer, DISC (June 1999 to
present).
Michael Masson....... Assistant Since 2007 Assistant Treasurer, DIP, DIFG,
Age: 36 Treasurer DIFG II and DISVF (August 2007 to
present); Assistant Treasurer, TA
IDEX, ATST and TI Shares (July
2007 to present); Assistant Vice
President, ATST and TI Shares
(2005 to July 2007); Assistant
Vice President, TII (2005 to
present); Assistant Vice
President, TFS and TFAI (2005 to
present); Assistant Vice
President, JPMorgan Chase & Co.
(1999 to 2005).
Suzanne Valerio- Assistant Since 2002 Assistant Treasurer, DIP, DIFG,
Montemurro......... Treasurer DIFG II and DISVF (August 2007 to
Age: 42 present); Assistant Treasurer, TA
IDEX, ATST and TI Shares (July
2007 to present); Vice President,
Diversified (with Diversified
since 1998).
</Table>
- --------
* If an officer has held offices for different Funds for different periods of
time, the earliest applicable date is shown.
None of the officers received compensation from the Funds for the fiscal
year ended December 31, 2006, although officers may be reimbursed for reasonable
travel expenses for attending meetings of the Board.
As of June 30, 2007, all Board Members and officers as a group owned less
than 1% of the outstanding interests of each Fund.
12
NOMINEE OWNERSHIP OF EQUITY SECURITIES
The following table shows the amount of equity securities beneficially
owned by the Nominees as of June 30, 2007 in the Funds that they oversee and in
all the funds in the Fund Complex.
<Table>
<Caption>
AGGREGATE DOLLAR
RANGE OF EQUITY
SECURITIES IN ALL
FUNDS TO BE OVERSEEN
DOLLAR RANGE OF BY NOMINEE IN FAMILY
EQUITY SECURITIES IN OF INVESTMENT
NOMINEE EACH FUND COMPANIES*
- ------- ----------------------------------------------- --------------------
INDEPENDENT NOMINEES:
Neal M. Jewell......... None None
Eugene M. Mannella..... None None
Joyce Galpern Norden... None None
Patricia L. Sawyer..... None None
Leo J. Hill............ None Over $100,000
Russell A. Kimball, None Over $100,000
Jr. .................
Norm R. Nielsen........ None Over $100,000
John W. Waechter....... None Over $100,000
INTERESTED NOMINEE:
John K. Carter......... DIVERSIFIED INVESTORS PORTFOLIOS Over $100,000
High Quality Bond Portfolio -- $50,001-$100,000
Value & Income Portfolio -- $50,001-$100,000
Equity Growth Portfolio -- Over $100,000
Special Equity Portfolio -- Over $100,000
International Equity Portfolio -- $1-$10,000
</Table>
- --------
(*) The family of investment companies consists of all funds in the Fund
Complex.
None of the Independent Nominees or their immediate family members had any
interest in the investment adviser, subadvisers or distributor of the Investment
Companies, or any person controlling, controlled by or under common control with
such persons. For this purpose, "immediate family member" includes the Nominee's
spouse, children residing in the Nominee's household and dependents of the
Nominee.
COMPENSATION
Information relating to compensation paid to the Board Members for the
fiscal year ended December 31, 2006 is set forth in Appendix B hereto.
COMMITTEES AND MEETINGS OF EACH BOARD
The business and affairs of each Investment Company are managed by or under
the direction of its Board.
During the fiscal year ended December 31, 2006, each Board met eight times.
Each Board Member then in office attended at least 75% of the aggregate of the
total number of meetings of the Board and of the total number of meetings held
by all committees of the Board on which the member served. None of the
Investment Companies holds annual meetings of holders, and therefore the
Investment Companies do not have a policy regarding attendance of Board Members
at annual meetings of holders.
13
AUDIT COMMITTEE
Each Board has established a separately designated Audit Committee in
accordance with the 1940 Act. Each Board's standing Audit Committee is composed
of all of the Independent Board Members. The Audit Committee reviews the
internal and external accounting and auditing procedures of the Funds and, among
other things, considers the selection of the independent registered public
accountants for the Funds. During the fiscal year ended December 31, 2006, each
Audit Committee met four times. Each Audit Committee acts pursuant to a written
charter.
NOMINATING COMMITTEE
Each Board also has a standing Nominating Committee composed of all
Independent Board Members. The Nominating Committee has been established to (i)
identify individuals qualified to become members of the Board in the event that
a position is vacated or created, (ii) consider all candidates proposed to
become members of the Board, subject to procedures set forth in the Nominating
Committee's charter, the by-laws of the Investment Company or resolutions of the
Board, (iii) select and nominate, or recommend for nomination by the Board,
candidates for election as Board Members, and (iv) set necessary standards or
qualifications for service on the Board. The Nominating Committee did not exist
as a formal committee of the Board during the fiscal year ended December 31,
2006. Instead, all of the Independent Board Members as a whole acted in such
capacity, including in connection with the additions of Mr. Johnson and Mr.
Robinson as Board Members in 2006. Each Nominating Committee acts pursuant to a
written charter, a copy of which is attached hereto as Appendix C.
In connection with the identification, evaluation and nomination of
candidates to the Board, the Nominating Committee evaluates the qualifications
of candidates for Board membership and their independence from the Investment
Company's investment advisers and other principal service providers. The
Nominating Committee considers the effect of any relationships beyond those
delineated in the 1940 Act that might impair independence. In assessing the
qualification of a potential candidate for membership on the Board, the
Nominating Committee may consider the candidate's potential contribution to the
operation of the Board and its committees and such other factors as it may deem
relevant. Specific desired (but not required) qualities of Independent Board
Member candidates include:
- public or private sector stature sufficient to instill confidence;
- high personal and professional integrity;
- good business sense;
- ability to commit the necessary time to prepare for and attend meetings;
- not financially dependent on Board Member retainer and meeting fees;
- general understanding of financial issues, investing, financial markets
and technology;
- general understanding of balance sheets and operating statements;
- first-hand knowledge of investing;
- experience in working in a highly regulated and complex legal framework;
- demonstrated ability to maintain "independence" of management and other
service agents while maintaining a constructive working relationship;
- ability to be critical, but not confrontational;
- demonstrated ability to contribute to Board and committee process;
- ability to consider diverse issues and make timely, well-informed
decisions;
- familiarity with the securities industry; and
- qualification as an "Audit Committee Financial Expert."
14
In filling Board vacancies, the Nominating Committee may consider and
evaluate nominees recommended by holders. Nominations proposed by holders must
be properly submitted for consideration, and will be properly submitted if the
qualifications and procedures set forth in the Nominating Committee's charter
are met. Each eligible holder or group of holders may submit no more than one
nominee each calendar year.
In order for the Nominating Committee to consider holder submissions, the
following requirements must be met regarding the nominee:
- the nominee must satisfy all qualifications provided in the charter and
in the Investment Company's organizational documents, including
qualification as a possible Independent Board Member if the nominee is to
serve in that capacity;
- the nominee may not be the nominating holder, a member of the nominating
holder group or an immediate family member of either the nominating
holder or any member of the nominating holder group;
- neither the nominee nor any member of the nominee's immediate family may
be currently employed or employed within the year prior to the nomination
by any nominating holder entity or entity in a nominating holder group;
- neither the nominee nor any immediate family member of the nominee is
permitted to have accepted directly or indirectly, during the year of the
election for which the nominee's name was submitted, during the
immediately preceding calendar year, or during the year when the
nominee's name was submitted, any consulting, advisory, or other
compensatory fee from the nominating holder or any member of a nominating
holder group;
- the nominee may not be an executive officer, director or person
fulfilling similar functions of the nominating holder or any member of
the nominating holder group, or of an affiliate of the nominating holder
or any such member of the nominating holder group;
- the nominee may not control the nominating holder or any member of the
nominating holder group (or, in the case of a holder or member that is a
fund, an interested person of such holder or member as defined by Section
2(a)(19) of the 1940 Act); and
- a holder or holder group may not submit for consideration a nominee who
has previously been considered by the Nominating Committee.
In order for the Nominating Committee to consider holder submissions, the
following requirements must be satisfied regarding the holder or holder group
submitting the proposed nominee:
- Any holder or holder group submitting a proposed nominee must
beneficially own, either individually or in the aggregate, more than 5%
of a Fund's (or a series thereof) securities that are eligible to vote
both at the time of submission of the nominee and at the time of the
Board Member election. Each of the securities used for purposes of
calculating this ownership must have been held continuously for at least
two years as of the date of the nomination. In addition, such securities
must continue to be held through the date of the meeting. The nominating
holder or holder group must also bear the economic risk of the
investment.
- The nominating holder or holder group must also submit a certification
which provides the interests which the person or group has (a) sole power
to vote or direct the vote; (b) shared power to vote or direct the vote;
(c) sole power to dispose or direct the disposition of such interests;
and (d) shared power to dispose or direct the disposition of such
interests. In addition, the certification shall provide that the
interests have been held continuously for at least two years.
The written holder nomination must substantiate compliance with the
foregoing requirements, must be delivered to the Funds' Secretary and must
contain, among other information, information regarding the nominee required to
be disclosed in solicitations of proxies for elections of directors. The
Nominating Committee will consider all submissions meeting the applicable
requirements that are received by December 31 of the most recently completed
calendar year.
15
COMPENSATION COMMITTEE
None of the Boards has a standing compensation committee or other committee
performing equivalent functions. Decisions regarding compensation of Board
Members are made by each Board.
REQUIRED VOTE
This Proposal I must be approved by a plurality of the votes cast in person
or by proxy at a Special Meeting at which a quorum exists. The votes of Funds in
the same Investment Company will be counted together with respect to the
election of the Nominees to the Board and the holders of each Fund will vote
together as a single class with the holders of all other Funds that are series
of the same Investment Company. As noted above, by voting for Nominees, holders
of a Feeder Fund will be instructing the Feeder Fund to vote in favor of those
Nominees for any underlying Master Portfolio in which the Feeder Fund invests.
YOUR BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES TO THE BOARD.
PROPOSAL II -- TO APPROVE THE PROPOSED ADVISORY AGREEMENT
WITH TRANSAMERICA FUND ADVISORS, INC.
Holders of each Fund are being asked to approve an Advisory Agreement
between the Fund and a new investment adviser, TFAI. General descriptions of the
proposed Advisory Agreement with TFAI and the investment advisory agreements
currently in effect with Diversified and a general comparison of the agreements
are included below. More detailed comparisons are included in Appendix D. The
form of the proposed Advisory Agreement is attached hereto as Appendix E.
Holders of (i) each Master Portfolio, (ii) each Feeder Fund, (iii) each
Strategic Allocation Fund and (iv) each Strategic Variable Fund are being asked
to approve Advisory Agreements. Also, by voting for a Feeder Fund's Advisory
Agreement, holders will be instructing the Feeder Fund to vote in favor of a new
Advisory Agreement for the underlying Master Portfolio in which the Feeder Fund
invests its assets.
GENERAL INFORMATION
As described above, TFAI currently serves as the investment adviser to
another complex of registered investment companies composed of
AEGON/Transamerica Series Trust ("ATST"), Transamerica IDEX Mutual Funds ("TA
IDEX") and Transamerica Income Shares, Inc. ("TIS") (the "TFAI Fund Family").
TFAI renders "manager of managers" services for the TFAI Fund Family by, among
other things, selecting investment subadvisers to provide daily investment
management services. The TFAI Fund Family is currently comprised of 88 open-end
funds and one closed-end fund. As a "manager of managers," TFAI's role is to
assemble a group of investment subadvisers, closely monitor their performance,
and alter the composition of the group as necessary to adapt to market
conditions or fund performance. These services are comparable to the services
that Diversified currently renders to the Funds.
Both Diversified and TFAI are indirect, wholly-owned subsidiaries of AEGON,
N.V., a Netherlands corporation, which is a publicly traded international
insurance group, and are part of the AEGON Group of Companies. As both
Diversified and TFAI are "managers of managers" and utilize similar styles in
rendering investment management services to investment companies, the AEGON
Group of Companies has decided to consolidate all "manager of managers"
investment advisory services in one investment adviser, TFAI, in an effort to
form a premier fund investment management and administrative organization
combining the expertise of TFAI and Diversified. The consolidation of these
activities in TFAI is expected to result in a combined fund complex that will be
served by an adviser with significant experience, resources and depth.
Diversified will continue to serve as a leading provider of comprehensive
administrative and recordkeeping services to retirement plans.
Diversified manages the assets of each Master Portfolio, each Strategic
Allocation Fund, the Stock Index Fund series of DIFG and DIFG II (the "Stock
Index Funds"), and each Strategic Variable Fund pursuant to an investment
advisory agreement ("Current Advisory Agreement"). The Feeder Funds (with the
exception of the Stock Index
16
Funds) do not currently have agreements providing for investment advisory
services because each Feeder Fund invests through its Master Portfolio. The
Stock Index Funds, which invest in a master fund that is not part of the
Diversified fund complex, currently have investment advisory agreements with
Diversified. If the proposed Advisory Agreements for the Feeder Funds are
approved, the Feeder Funds will have the flexibility to have TFAI perform
advisory services directly for the Fund. The Board Members may request that TFAI
perform advisory services directly for a Feeder Fund if, for example, the Board
Members decide that it is in the holders' best interests to withdraw the Fund's
assets from its Master Portfolio, although the Board Members have no current
intention to do so. The implementation of the proposed Advisory Agreements for
the Feeder Funds would not increase the total advisory fees paid to TFAI by the
Feeder Funds, either directly or indirectly through their investment in Master
Portfolios.
The Board of each Investment Company approved on behalf of each applicable
Fund the proposed Advisory Agreements, subject to holder approval. If so
approved, these agreements will result in the replacement of Diversified by TFAI
as investment adviser to the Funds.
CONTINUITY OF ADVISORY AND OTHER SERVICES
If TFAI is approved as investment adviser to the Funds, the Funds will
become part of the TFAI Fund Family. To help ensure continuity and consistency
of management, key Diversified personnel responsible for the Funds today will
remain involved with the Funds as they will become personnel of TFAI or other
affiliated fund service providers.
The investment subadvisers and portfolio management teams to the Funds, as
well as each of the investment objectives, strategies and risks of the Funds,
will not change as a result of TFAI becoming the investment adviser to the
Funds. Consequently, the day-to-day investment activities of the Funds are
expected to remain substantially the same.
The AEGON Group of Companies has also decided to consolidate fund
administration and transfer agency operations in one administrator and transfer
agent, Transamerica Fund Services, Inc. Transamerica Fund Services is affiliated
with TFAI (and Diversified) and will replace Diversified as the current
administrator and transfer agent to the Funds. Diversified would continue to
provide certain services to the Funds as sub-transfer agent. There will also be
a consolidation of distribution services in one distributor, Transamerica
Capital, Inc., also an affiliate of TFAI (and Diversified). (For DIP,
Transamerica Capital will serve as placement agent since DIP does not have a
distributor.) These changes are expected to occur concurrently with the
appointment of TFAI as investment adviser, and will be effected at no cost to
the Funds and their holders. The proposed service providers to the Funds will be
compensated by the Funds at the same rates as the current service providers
currently receive. The proposed service providers also will provide
substantially the same services to the Funds as the Funds currently receive, so
that the holders' experience with investing in, and dealing with, the Funds on a
daily basis should be unchanged. Additional information about current and
proposed service providers is provided in the sub-section "Additional
Information -- Administrator, Transfer Agent and Principal Underwriter (or
Placement Agent)" below.
CONTINUITY OF SERVICES TO RETIREMENT PLANS
Diversified intends to continue to provide the level of service and
expertise to retirement plans and their sponsors and participants that they have
come to expect over the past 50 years. For retirement plan sponsors, no material
changes are expected to be made to the plan services agreements Diversified has
in place with them as a result of these Proposals. Retirement plan participants
will continue to enjoy the same level of services through the "Diversified
Customer Call Center" and the "Diversified Direct On-Line" service as they
currently enjoy. As such, if the proposed Advisory Agreements are approved, the
change of investment adviser and other service providers to the Funds should be
seamless to retirement plan sponsors and participants.
17
CURRENT ADVISORY ARRANGEMENTS
CURRENT INVESTMENT ADVISER
Diversified, located at Four Manhattanville Road, Purchase, New York 10577,
is an indirect, wholly-owned subsidiary of AEGON USA, Inc., a financial services
holding company whose primary emphasis is life and health insurance and annuity
and investment products. AEGON USA, Inc. is an indirect, wholly-owned subsidiary
of AEGON N.V. Diversified was incorporated in 1992 for the purpose of acting as
the investment adviser to the Funds. Diversified is an investment firm dedicated
to meeting the complete needs of retirement plan sponsors and participants from
pre- through post-retirement.
Diversified's directors and principal executive officers, together with
their addresses and principal occupations, are listed as Appendix F. No officer
or Board Member of the Funds (who is not a director of Diversified) owns
securities or has any other material direct or indirect interest in Diversified
or is a person controlling, controlled by or under common control with
Diversified.
CURRENT ADVISORY AGREEMENTS
Diversified manages the assets of each Master Portfolio, Strategic
Allocation Fund, Stock Index Fund and Strategic Variable Fund pursuant to a
Current Advisory Agreement. Variations among the agreements for the Master
Portfolios, the Stock Index Funds, the Strategic Allocation Fund and Strategic
Variable Fund, respectively, are discussed below. With respect to each Current
Advisory Agreement, the date of the agreement, the date on which the agreement
was approved by holders, the contractual investment advisory fees payable to
Diversified as investment adviser to the Fund, and the aggregate amount of
advisory fees paid to Diversified during the last fiscal year ended December 31,
2006 are set forth in Appendix G. The continuation of each Current Advisory
Agreement was last approved by the applicable Board on May 22, 2007. Fees paid
to other fund service providers affiliated with Diversified during the last
fiscal year are set forth in Appendix H.
The Current Advisory Agreement for each Fund provides that Diversified will
not be liable for any mistake in judgment or in any other event whatsoever
provided that nothing in the agreement is deemed to protect or purport to
protect Diversified against any liability to the Fund or its investors to which
Diversified would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of Diversified's duties, or by
reason of Diversified's reckless disregard of its obligations and duties, as
investment adviser to the Fund under the agreement. Each Current Advisory
Agreement was approved by the applicable Board for an initial term of two years,
and continues in effect from year to year if such continuance is approved at
least annually thereafter in accordance with the terms of the 1940 Act. The
Current Advisory Agreement for each Fund also provides that it will immediately
terminate in the event of its "assignment" (as defined in the 1940 Act), and may
be terminated without penalty by the Fund's Board or by vote of a majority of
the Fund's outstanding voting securities on 60 days' written notice to
Diversified, or by Diversified on 90 days' written notice to the Fund.
MASTER PORTFOLIOS AND STOCK INDEX FUNDS
Under each of the Current Advisory Agreements relating to the management of
the Master Portfolios and the Stock Index Funds, Diversified, subject to the
general supervision of the Board, formulates and provides an appropriate
investment program on a continuous basis in connection with the management of
the Fund, 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 Fund in accordance
with predetermined guidelines as set forth from time to time in the Fund's then-
current prospectus and statement of additional information.
Under each of the Current Advisory Agreements for the Master Portfolios,
Diversified, at its expense, employs one or more subadvisers appropriate to
assist it in performing its obligations under the agreement. Under each of the
Current Advisory Agreements for the Stock Index Funds, Diversified, at its
expense, identifies and monitors an appropriate investment portfolio in which to
invest all current and future investable assets of the Stock Index Funds, or
employs one or more subadvisers as it believes appropriate to assist it in
performing its obligations under the
18
agreement. Currently, each of the Stock Index Funds invests in a master fund,
the S&P 500 Index Master Portfolio, a series of Master Investment Portfolio,
which is advised by Barclays Global Fund Advisors.
Under each Agreement, Diversified is required to provide all services,
equipment and facilities necessary to perform its obligations. Any subadvisers
employed by Diversified pursuant to the Current Advisory Agreements make the
day-to-day investment decisions for the Funds and place the purchase and sale
orders for securities transactions, subject in all cases to the general
supervision of Diversified. Diversified is also responsible for voting all
proxies in relation to the securities held in the Master Portfolios and the
Stock Index Funds. The investment management services of Diversified for each
Fund are not deemed exclusive under the terms of each Current Advisory
Agreement, and Diversified is free to render similar services to others.
Each Fund is responsible for all of its expenses and liabilities,
including, but not limited to: compensation and out-of-pocket expenses of Board
Members not affiliated with any subadviser or Diversified; governmental fees;
interest charges; taxes; membership dues; fees and expenses of independent
auditors, legal counsel and any transfer agent, administrator, distributor,
holder servicing agent, registrar or dividend disbursing agent of the Fund;
expenses of distributing and redeeming interests and servicing holder accounts;
expenses of preparing, printing and mailing prospectuses, holder reports,
notices, proxy statements and reports to governmental officers and commissions
and to holders of the Fund; expenses connected with the execution, recording and
settlement of security transactions; insurance premiums; fees and expenses of
the custodian for all services to the Fund, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of calculating
the net asset value of interests of the Fund; expenses of holder meetings;
expenses of litigation and other extraordinary or non-recurring events and
expenses relating to the issuance, registration and qualification of interests
of the Fund.
Diversified also provides to each Fund administrative assistance in
connection with the operation of the Fund, which includes compliance with all
reasonable requests of the Fund for information, including information required
in connection with the Fund's regulatory filings. Diversified also provides each
Fund with certain services, if required, including: providing office space,
equipment and clerical personnel necessary for maintaining the organization of
the Fund and for performing administrative and management functions; supervising
the overall administration of the Fund; preparing and, if applicable, filing all
documents required for compliance by the Fund with applicable laws and
regulations; preparation of agendas and supporting documents for and minutes of
Board, committee and investor meetings; and maintaining books and records of the
Fund.
STRATEGIC ALLOCATION FUNDS AND STRATEGIC VARIABLE FUNDS
Under each of the Current Advisory Agreements relating to the management of
the Strategic Allocation Funds and Strategic Variable Funds, Diversified,
subject to the general supervision of the Board, provides each Fund with
discretionary investment services. Specifically, Diversified is responsible for
supervising and directing the investments of each Fund in accordance with its
investment objectives, program, and restrictions as provided in the Fund's then-
current prospectus and the statement of additional information. Diversified is
also responsible for effecting all security transactions on behalf of each Fund.
The Strategic Allocation Funds invest their assets in the interests of the
Feeder Funds and the Strategic Variable Funds invest their assets in units of
subaccounts of Diversified Investors Variable Funds, and such investments are
made without the payment of any commission or other sales charges. Diversified
has no discretion with respect to the exercise of voting rights. The investment
management services of Diversified for each Fund are not deemed exclusive under
the terms of each Current Advisory Agreement, and Diversified is free to render
similar services to others.
Diversified also, at its expense, provides each Strategic Allocation Fund
and Strategic Variable Fund with all services, equipment and facilities as may
be required, including: providing each Fund with certain corporate
administrative services; providing office space, equipment and clerical
personnel necessary for maintaining the organization of the Fund and for
performing administrative and management functions; supervising the overall
administration of the Fund; preparing and, if applicable, filing all documents
required for compliance by the Fund with applicable laws and regulations;
preparing agendas and supporting documents for and minutes of Board, committees
and investors meetings; and maintaining books and records of the Fund.
In addition, under the Current Advisory Agreements with respect to the
Strategic Allocation Funds, Diversified has agreed to bear all expenses of the
Funds other than the Funds' advisory fees. The agreements obligate
19
Diversified to take all necessary actions to assure that the advisory fee is the
only direct expense payable by the Funds.
PROPOSED TFAI ADVISORY ARRANGEMENT
NEW INVESTMENT ADVISER
TFAI is a Florida corporation with its principal offices located at 570
Carillon Parkway, St. Petersburg, Florida 33716. TFAI is directly owned by
Western Reserve Life Assurance Co. of Ohio (77%) ("Western Reserve") and AUSA
Holding Company (23%) ("AUSA"), both of which are indirect, wholly-owned
subsidiaries of AEGON N.V. AUSA is wholly-owned by Transamerica Holding Company,
which is wholly owned by AEGON USA, Inc. AEGON USA, Inc. is an indirect, wholly-
owned subsidiary of AEGON, N.V.
TFAI's Directors and principal executive officers, together with their
addresses and principal occupations, are listed in Appendix F. No officer or
Board Member of the Funds (who is not a director of TFAI) owns securities or has
any other material direct or indirect interest in TFAI or is a person
controlling, controlled by or under common control with TFAI.
Appendix I to this Joint Proxy Statement sets forth certain information
regarding each registered investment company portfolio advised by TFAI with an
investment objective similar to that of a Fund.
PROPOSED ADVISORY AGREEMENTS
The 1940 Act requires that each proposed Advisory Agreement be approved by
the holders of the applicable Fund in order for it to become effective. At Board
meetings held on August 10, 2007, and for the reasons discussed below (see
"Board Evaluation of the Proposed Advisory Agreements"), the Board, including a
majority of the Board Members who are not "interested persons" of the Funds,
Diversified or TFAI as defined in the 1940 Act (the "Independent Board
Members"), approved each proposed Advisory Agreement and recommended its
approval by holders. Set forth below is a general description of the proposed
Advisory Agreements. A form of the proposed Advisory Agreement is set forth in
Appendix E to this Joint Proxy Statement and qualifies this discussion in its
entirety.
Pursuant to the proposed Advisory Agreement for each Fund, TFAI is subject
to the supervision of the applicable Board and, in conformity with the stated
policies of the Investment Company and the Fund, manages the operations of the
Fund. TFAI is authorized to enter into subadvisory agreements with subadvisers
for investment advisory services in connection with the management of any Fund.
TFAI will supervise the activities of each subadviser it retains, and the
subadvisory agreement will impose on the subadviser all the conditions to which
TFAI is subject under the Advisory Agreement. TFAI reviews the performance of
all subadvisers, and makes recommendations to the applicable Board with respect
to the retention and renewal of subadvisory agreements.
The proposed Advisory Agreements reflect, consistent with recent regulatory
initiatives, an increased role for a Fund's Board particularly in areas where
TFAI may have a conflict of interest in providing services to a Fund. For
example, in recent years there has been an increased focus on the payment of
brokerage fees by investment companies in connection with their portfolio
transactions, and the role of a fund's adviser in selecting brokers to execute a
fund's trades, in particular where the adviser may benefit directly, such as in
the use of "soft dollars." The Advisory Agreements, while permitting TFAI to
select brokers for the Funds and to utilize soft dollars as now permitted under
applicable law, permit the Funds' Board to adopt policies and procedures
relating to brokerage practices that may limit the broad authority granted to
TFAI in the Advisory Agreements.
COMPARISON OF CURRENT ADVISORY AGREEMENTS TO THE PROPOSED ADVISORY AGREEMENT
Set forth below is a general description of the terms of the proposed
Advisory Agreements and a general comparison with the terms of the Current
Advisory Agreements. A copy of the form of proposed Advisory Agreement is
attached hereto as Appendix E and you should refer to Appendix E for the
complete terms of the proposed Advisory Agreement. A more detailed examination
of the material differences between the proposed Advisory Agreements and the
Current Advisory Agreements is set forth in Appendix D and you should refer to
20
Appendix D to determine how the Advisory Agreement may differ in any material
respect from your Fund's Current Advisory Agreement.
Fees. The investment advisory fees payable by each Fund to TFAI under the
proposed Advisory Agreements are identical to the fees currently payable to
Diversified under the corresponding Current Advisory Agreements. Had the
Advisory Agreements been in place during the past fiscal year, TFAI would have
received the same amount of advisory fees from the Fund as Diversified. Please
refer to Appendix G for a list of fees payable by each Fund and fees paid to
Diversified during the past fiscal year.
Investment Management Services. Each proposed Advisory Agreement provides
that, subject to the supervision of the Fund's Board, TFAI will regularly
provide the Fund with investment research, advice, management and supervision,
will furnish a continuous investment program for the Fund's portfolio of
securities and other investments consistent with the Fund's investment
objectives, policies and restrictions, will determine from time to time what
securities and other investments will be purchased, retained or sold by the
Fund, and will implement those decisions, all subject to the provisions of the
Fund's governing documents, the 1940 Act, the applicable rules and regulations
of the SEC, and other applicable federal and state law, as well as any specific
policies adopted by the Fund's Board and disclosed to TFAI. Each Current
Advisory Agreement contains similar provisions.
Subject to the Board's approval, TFAI or any Fund may enter into contracts
with one or more investment subadvisers pursuant to which TFAI delegates to such
subadvisers any or all its duties specified under the proposed Advisory
Agreement, on such terms as TFAI will determine to be necessary, desirable or
appropriate, provided that in each case TFAI shall supervise the activities of
each such subadviser and that such contracts impose on any subadviser bound
thereby all the conditions to which TFAI is subject under the Advisory Agreement
and that such contracts are entered into in accordance with and meet all
applicable requirements of the 1940 Act. The Current Advisory Agreements for the
Master Portfolios and the Stock Index Funds contain similar provisions. The
Current Advisory Agreements for the Strategic Allocation Funds and Strategic
Variable Funds do not address Diversified's ability to retain subadvisers.
As noted above, under each Fund's proposed Advisory Agreement, TFAI is
authorized to place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any broker or dealer, foreign
currency dealer, futures commission merchant or others selected by it. Subject
to any policies and procedures of the Fund's Board that may modify or restrict
TFAI's authority regarding the execution of the Fund's portfolio transactions
provided in the agreement and described below, TFAI may select brokers or
dealers who also provide brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934, as amended)
("1934 Act") to the Funds and/or the other accounts over which TFAI or its
affiliates exercise investment discretion, a practice commonly referred to as
"soft dollars." TFAI is authorized to pay a broker or dealer who provides such
brokerage and research services a commission for executing for a Fund a
portfolio transaction which is in excess of the amount of commission or spread
another broker or dealer would have charged for effecting that transaction if
TFAI determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed either in terms of that
particular transaction or the overall responsibilities that TFAI and its
affiliates have with respect to accounts over which they exercise investment
discretion. The Current Advisory Agreements for the Master Portfolios and the
Stock Index Funds contain similar provisions. The Current Advisory Agreements
for the Strategic Allocation Funds and Strategic Variable Funds provide that
Diversified shall effect all security transactions on behalf of each Fund and,
as the Funds invest all of their assets in interests of underlying Funds, such
investments are to be made without the payment of any commission or sales
charge.
Each proposed Advisory Agreement further provides that TFAI will, at the
Board's request, provide advice and recommendations with respect to other
aspects of the business and affairs of the Fund and exercise voting rights,
rights to consent to corporate action and any other rights pertaining to a
Fund's portfolio securities. The Current Advisory Agreements for the Master
Portfolios and the Stock Index Funds contain similar provisions. The Current
Advisory Agreements for the Strategic Allocation Funds and Strategic Variable
Funds provide that Diversified shall have no discretion with respect to the
exercise of voting rights.
Payment of Expenses. Each proposed Advisory Agreement requires TFAI to
bear all expenses incurred by it in the performance of its duties under the
Advisory Agreement. Except for these expenses, TFAI is not responsible
21
for a Fund's expenses under the terms of the Advisory Agreement. The Current
Advisory Agreements for the Master Portfolios, the Feeder Funds and the
Strategic Variable Funds contain similar provisions. The Current Advisory
Agreements for the Strategic Allocation Funds provide that, during the term of
those agreements, TFAI will bear all expenses of each Fund other than the Fund's
advisory fee. This expense arrangement is expected to continue going forward
under a separate expense limitation agreement between TFAI and the Strategic
Allocation Funds.
Conflicts of Interest. The proposed Advisory Agreement contains several
provisions that address potential conflicts of interest that may arise in a
typical investment advisory relationship. The Advisory Agreement provides that
TFAI may not deal with itself, or with members of a Fund's Board or any
principal underwriter of the Fund, as principals or agents, in making purchases
or sales of securities or other property for the Fund, nor may TFAI purchase any
securities from an underwriting or selling group in which TFAI or its affiliates
is participating, or arrange for purchases and sales of securities between a
Fund and another account advised by TFAI or its affiliates, except in each case
as permitted under the 1940 Act and in accordance with such policies and
procedures as may be adopted by a Fund from time to time. The Advisory Agreement
specifically provides that personnel of TFAI, even if serving the Fund as a
Board Member, officer or employee, may nonetheless engage in any other business
or devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature. In addition, TFAI may engage in any other business or render services of
any kind, including investment advisory and management services, to any other
fund, firm, individual or association. However, the Advisory Agreement also
provides that if the purchase or sale of securities consistent with the
investment policies of a Fund or one or more other accounts of TFAI is
considered at or about the same time, transactions in such securities must be
allocated among the accounts in a manner deemed equitable by TFAI. In addition,
if transactions of a Fund and another client are combined, as permitted by
applicable laws and regulations, such transactions must be consistent with
TFAI's policies and procedures as presented to the Board from time to time. The
Current Advisory Agreements address some, but not all, of these potential
conflicts.
Limitation on Liability. Under each proposed Advisory Agreement, TFAI
assumes no responsibility other than to render the services called for by the
agreement in good faith, and TFAI is not liable for any error of judgment or
mistake of law, or for any loss arising out of any investment or for any act or
omission in the execution of securities transactions for a Fund. TFAI is not
protected however, for its willful misfeasance, bad faith, or gross negligence
in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the agreement. This same limitation of liability
applies to affiliates of TFAI who may provide services to the Fund as
contemplated by the Advisory Agreement. Each Current Advisory Agreement contains
similar provisions.
Term and Continuance. If approved by holders of a Fund, the proposed
Advisory Agreement for the Fund will terminate, unless sooner terminated as set
forth therein, two years from the date of implementation. Thereafter, if not
terminated, each Advisory Agreement will continue in effect from year to year if
such continuance is specifically approved at least annually (i) by the Board or
(ii) by a vote of a majority of the outstanding voting securities of the Fund,
provided that in either event the continuance is also approved by a majority of
the Board Members who are not interested persons of any party to the Advisory
Agreement. The Current Advisory Agreements have similar provisions for their
term and continuance, although the initial dates of the agreements differ and
the initial two-year period has elapsed in most cases.
Termination. The proposed Advisory Agreement provides that the agreement
may be terminated at any time without the payment of any penalty by the Fund
upon sixty days' written notice to TFAI or by TFAI upon sixty days' written
notice written notice to the Fund. A Fund may effect termination by action of
the Board or by vote of a majority of the outstanding voting securities of the
Fund, accompanied by appropriate notice. Each Advisory Agreement will terminate
automatically in the event of its "assignment" (as defined in the 1940 Act). The
Current Advisory Agreements contain similar termination provisions, though they
require Diversified to provide ninety days' written notice to a Fund to
terminate the agreement with respect to that Fund.
Miscellaneous. The proposed Advisory Agreement provides that it shall be
binding on and shall inure to the benefit of the parties thereto and their
respective successors. With respect to the Master Portfolios, each proposed
Advisory Agreement provides that the agreement replaces the Current Advisory
Agreement, and TFAI succeeds to all rights of Diversified under all existing
subadvisory agreements for the Master Portfolios to which Diversified is a
party.
22
OTHER INFORMATION ABOUT TFAI
TFAI may rely on an Order from the U.S. Securities and Exchange Commission
(the "SEC") (Release IC-23379 dated August 5, 1998) (the "Order") that permits
it, subject to certain conditions, and without the approval of holders of the
investment companies for which it serves as investment adviser, to: (i) employ a
new unaffiliated investment subadviser for a fund pursuant to the terms of a new
investment subadvisory agreement, either as a replacement for an existing
subadviser or as an additional subadviser; (ii) materially change the terms of
any subadvisory agreement; and (iii) continue the employment of an existing
subadviser on subadvisory agreement terms where a contract has been assigned
because of a change of control of the subadviser. In such circumstances, holders
receive notice and information about the new subadviser within ninety days after
the hiring of any new subadviser. The Order is comparable to an order obtained
by the Investment Companies and Diversified to permit the appointment of
investment subadvisers to the Funds without holder approval. TFAI and the Board
intend to use the Order to appoint and replace investment subadvisers to the
Funds, subject to the terms and conditions of the Order.
There continues to be significant federal and state regulatory activity
relating to financial services companies, particularly mutual fund companies and
their investment advisers. As part of an ongoing investigation regarding
potential market timing, recordkeeping and trading compliance issues and matters
affecting TFAI, as investment adviser to ATST and IDEX, and certain affiliates
and former employees of TFAI, the SEC staff has indicated that it is likely to
take some action against TFAI and certain of its affiliates at the conclusion of
the investigation. The potential timing and the scope of any such action is
difficult to predict. The investigation does not affect any of the Investment
Companies or Funds. Although the impact of any action brought against TFAI
and/or its affiliates is difficult to assess at the present time, TFAI believes
that the likelihood that it will have a material adverse impact on TFAI is
remote. TFAI and its affiliates are actively working with the SEC in regard to
this matter; however, the exact resolution cannot be determined at this time.
TFAI will take such actions that it deems necessary or appropriate to continue
providing management services to mutual funds and to bring all matters to an
appropriate conclusion. TFAI and/or its affiliates, and not the Investment
Companies or the Funds, will bear the costs regarding these regulatory matters.
OTHER INFORMATION ABOUT DISC AND DIVERSIFIED
In February 2006, Diversified Investors Securities Corp. ("DISC") settled
an administrative proceeding with the National Association of Securities
Dealers, Inc. (the "NASD") regarding agreements with two customers who were
permitted to engage in market timing activity in the Diversified Investors
International Equity Fund from July 1, 2003 through October 24, 2003. The
settlement also addressed alleged deficiencies in DISC's procedures relating to
the retention of e-mail communications. Under the terms of the Letter of
Acceptance, Waiver and Consent ("AWC") with the NASD, under which DISC neither
admitted nor denied the allegations or findings, DISC consented to the following
sanctions: (i) censure; (ii) a fine of $1.3 million; (iii) restitution of
approximately $949,011 to the Diversified Investors International Equity Fund
for losses attributable to the trading described in the AWC; and (iv) agreement
to make certifications to the NASD regarding the review and establishment of
procedures relating to e-mail retention and to the enforcement of the funds'
policies and procedures relating to market timing.
DISC and Diversified have also responded to requests for information from
various governmental and self-regulatory agencies in connection with
investigations related to mutual fund trading activities. DISC and Diversified
have cooperated fully with each request.
Although it is not anticipated that these developments will have an adverse
effect on the Funds, there can be no assurance at this time.
BOARD EVALUATION OF THE PROPOSED ADVISORY AGREEMENTS
At a meeting of the Boards held on August 10, 2007, each Board reviewed and
considered a proposed Advisory Agreement between TFAI and the relevant
Investment Company, on behalf of the applicable Fund, to determine whether the
agreement should be approved for an initial two-year period. Pursuant to the
Advisory Agreements, TFAI would replace Diversified to provide or procure
investment management services on behalf of each Fund. Following their review
and consideration, the Board Members determined that the Advisory Agreements
will
23
enable holders of the Funds to obtain high quality services at a cost that is
appropriate, reasonable, and in the best interests of its holders. The Boards,
including the Independent Board Members, approved the Advisory Agreements to
appoint TFAI as investment adviser to the Funds.
In reaching their decisions, the Board Members requested and obtained from
TFAI and Diversified such information they deemed reasonably necessary to
evaluate the proposed Advisory Agreements. In considering the Advisory
Agreements, the Board Members evaluated a number of factors and considerations
that they believed, in light of the legal advice furnished to them by
independent legal counsel and their own business judgment, to be relevant.
The Boards, including the Independent Board Members, considered, among
other things, the following factors: (i) both TFAI and Diversified render
comparable "manager of managers" services to mutual funds and are part of the
same group of companies; (ii) a number of Diversified personnel with expertise
in fund management and administration will become personnel of TFAI or other
related fund service providers and will continue to serve the Funds; (iii) the
terms and conditions of the Advisory Agreements, including the difference from
the Current Advisory Agreements; (iv) the fact that each Fund's advisory fees
will remain the same under the Advisory Agreements; (v) the nature, scope and
quality of services that TFAI is expected to provide to the Funds, including
compliance services; (vi) the appointment of TFAI as investment adviser to the
Funds will permit the Funds to have access to the primary investment management
and fund administration service provider in the AEGON Group of Companies; (vii)
each of the current investment subadvisers and portfolio management teams to the
Funds and well as each of the investment objectives, strategies and risks of the
Funds will not change as a result of TFAI becoming the investment adviser to the
Funds and, accordingly, the day-to-day investment activities of the Funds are
expected to remain substantially the same; (viii) the appointment of TFAI as
investment adviser to the Funds will be effected at no cost to the Funds or
their holders; (ix) Diversified will continue to render various services to
retirement plans investing in the Funds; and (x) that earlier this year the
Boards had performed a full annual review of the Current Advisory Agreements and
the existing subadvisory agreements for the Master Portfolios as required by the
1940 Act.
The Board Members evaluated all information available to them on a Fund-by-
Fund basis, and their determinations were made separately in respect of each
Fund. The Board Members also based their decisions on the following
considerations, among others, although they did not identify any that was all-
important or controlling of their discussions, and each Board Member attributed
different weights to the various factors.
The nature, extent and quality of the services expected to be provided by
TFAI to the Funds. The Board Members considered the nature and quality of the
services expected to be provided by TFAI and compared those services to those
provided by Diversified. They concluded that TFAI is capable of providing high
quality services to the Funds, as indicated by the nature and quality of
services provided by TFAI to the TFAI Fund Family and the past performance of
these funds, TFAI's management capabilities demonstrated with respect to the
other mutual funds it manages, and the experience, capability and integrity of
TFAI's senior management, financial resources and management oversight process.
The Board Members noted that key Diversified personnel responsible for the Funds
today will remain involved with the Funds as they will become personnel of TFAI
or other affiliated fund service providers. The Board Members also concluded
that TFAI proposed to provide investment and related services that are
appropriate in scope and extent in light of the Funds' operations, and the
competitive landscape of the investment company industry and investor needs.
The investment performance of the Funds. TFAI has not yet served as
investment adviser to the Funds and therefore has no historical performance
related to the Funds for the Boards to review. However, the Board examined the
performance of funds managed by TFAI with investment objectives, strategies and
"manager of managers" arrangements comparable to those of the Funds. The Board
noted that those and other funds managed by TFAI have generally performed
competitively to benchmark indexes and mutual fund peers (as determined by
Lipper Inc.). On the basis of the Boards' assessment of the nature, extent and
quality of advisory services expected to be provided or procured by TFAI, the
Boards concluded that TFAI is capable of generating a level of investment
performance that is satisfactory and competitive with other investment
companies, and also determined that TFAI's performance record with respect to
the TFAI Fund Family indicates that its management of the Funds is likely to
benefit all the Funds and their holders.
24
The cost of advisory services provided and the level of profitability. The
Boards reviewed profitability information regarding TFAI's projected costs of
procuring portfolio management services, as well as the costs of provision of
administration, fund accounting and other services to the Funds and to the TFAI
Fund Family as a whole. With regard to the advisory fees and total expenses of
the Funds, the Board Members noted that the advisory fees and expense ratios of
the Funds are expected to remain the same as a result of TFAI's appointment, and
that TFAI has undertaken to maintain the expense limitation and fee waiver
arrangements currently in place for each of the Funds. The Board Members also
reviewed and considered information relating to the costs of the services
provided to the Funds and the resulting potential profitability to TFAI and its
affiliates of the relationship with the Funds, and determined that the same are
reasonable and fair, and consistent with the best interests of holders.
Whether fee levels reflect economies of scale and the extent to which
economies of scale would be realized as the Funds grow. The Boards noted that
there are no breakpoints applicable to the Funds' current advisory fees.
However, the Board concluded that the Funds' advisory fees appropriately reflect
the Funds' current size, the current economic environment for TFAI, and the
competitive nature of the investment company market. The Board Members noted
that they will have the opportunity to periodically reexamine whether the Funds
have achieved economies of scale under the management of TFAI, and the
appropriateness of management fees payable to TFAI, in the future. The Board
Members recognized that TFAI may realize economies of scale based on certain
consolidations and synergies of operations.
Benefits to TFAI or its affiliates from their relationship with the
Funds. The Boards concluded that other fall-out benefits derived by TFAI and
its affiliates from their relationships with the Funds will be reasonable and
fair, and consistent with industry practice and the best interests of the Funds
and their holders. The Boards noted that TFAI will not realize "soft dollar"
benefits from its relationship with the Funds. In addition, the Board Members
determined that the administration and fund accounting fees to be paid by the
Funds to affiliates of TFAI are reasonable, fair and in the best interests of
holders in light of the nature and quality of the services provided, the
associated costs to these affiliates of providing the services, the impact of
the costs of such services on the Funds' overall operating expenses, the
necessity of the services for the Funds' operations, and the fact that they are
identical to those currently paid by the Funds to their current service
providers.
Other considerations. The Boards noted that the AEGON Group of Companies
had indicated its intention to consolidate its investment advisory and oversight
operations in TFAI, and concluded that retention of TFAI would best ensure
continuity of management of the Funds and offered potential scale efficiencies
and marketing advantages in the future, which could benefit the Funds and their
holders. The Boards determined that TFAI is committed to the recruitment and
retention of high quality personnel, and maintains the financial, compliance and
operational resources reasonably necessary to manage the Funds in a professional
manner that is consistent with the best interests of the Funds and their
holders. In this regard, the Board Members noted TFAI's compliance program,
including policies and procedures with respect to oversight of the portfolio
management activities of subadvisers to be employed by TFAI to manage certain
Funds. The Board Members also determined that TFAI will make a significant
entrepreneurial commitment to the management and success of the Funds, reflected
by, among other things, TFAI's expense limitation and fee waiver arrangements
with respect to the Funds, the retention of certain Diversified personnel to
help ensure continuity of management, and the steps it is taking to integrate
the Funds in the TFAI Fund Family.
After requesting and reviewing such information as they deemed necessary
and discussing the same during meetings conducted by the Independent Board
Members without management, TFAI or Diversified personnel being present, the
Boards concluded that the proposed Advisory Agreements are in the best interests
of the applicable Funds and their holders. Accordingly, each Board determined to
recommend that the holders of each of its Funds approve the Advisory Agreement
applicable to such Fund. If the holders of a Fund do not approve the Advisory
Agreement, the Fund's Board will take such action as it deems to be in the best
interests of the Fund and its holders.
REQUIRED VOTE
To become effective with respect to a particular Fund, the proposed
Advisory Agreement must be approved by a "1940 Act Majority Vote" of the
outstanding interests in that Fund, as such term is defined above in "Quorum,
Vote Required and Manner of Voting Proxies." As noted above, by voting in favor
of a Feeder Fund's proposed Advisory
25
Agreement, the Feeder Fund's holders will be authorizing the Feeder Fund to vote
in favor of the proposed Advisory Agreement for the underlying Master Portfolio
in which the Feeder Fund invests its assets. Each Advisory Agreement was
approved by the Independent Board Members, separately, and by the Board of the
applicable Fund, as a whole, after consideration of all factors which it
determined to be relevant to its deliberations, including those discussed above.
The Board of each Fund also determined to submit the Fund's Advisory Agreement
for consideration by the holders of the Fund.
YOUR BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE PROPOSED
ADVISORY AGREEMENT WITH TRANSAMERICA FUND ADVISORS, INC.
PROPOSAL III -- APPROVAL OF AN AMENDMENT TO DECLARATION OF TRUST
Mutual funds are subject to comprehensive federal laws and regulations, and
in particular, the 1940 Act. Each mutual fund is also subject to state law. DIFG
and DIFG II are subject to Massachusetts law because each of these Trusts is
organized as an entity known as a Massachusetts business trust. Under
Massachusetts law, a business trust generally operates under a charter or
organization document, usually called a declaration of trust, that sets forth
various provisions relating primarily to the authority of the trust to conduct
business and the governance of the trust. DIP is subject to New York law because
it is organized as a trust under New York law. Each of the Trusts currently
operates under a declaration of trust (each, an "Existing Declaration").
At each Fund's Special Meeting, holders entitled to vote with respect to a
Fund will be asked to approve an amendment to the Existing Declaration
applicable to that Fund. By voting to approve the amendment to the Existing
Declaration, holders of a Feeder Fund will also be instructing the Feeder Fund
to vote in favor of a corresponding amendment to the Existing Declaration of
Trust governing the underlying Master Portfolio in which the Feeder Fund invests
its assets.
The proposed amendment for each Existing Declaration (the "Amendment")
would permit future amendments to the declaration of trust to be made by action
of the Board without approval of the holders. The Existing Declarations
currently may be amended by the Boards without holder approval except for (i) an
amendment affecting the voting powers specifically granted to them in the
Existing Declaration, (ii) any amendment to the amendment provisions of the
Existing Declaration, (iii) any amendment required by law or the Trust's
registration statement and (iv) any amendment submitted to holders by the
Boards.
In addition, each Existing Declaration provides that no amendment to the
Existing Declaration may be made that would impair the exemption from personal
liability of the holders, former holders, trustees, offices, employees and
agents of the Trust or to permit assessments upon holders or former holders, or
that would limit the rights to indemnification or insurance with respect to
actions or omissions of persons entitled to indemnification prior to such
amendment. The Amendment contains similar but not identical provisions.
The proposed Amendment and the corresponding provision in the Existing
Declarations for DIFG and DIFG II are set forth below. The proposed Amendment
and the corresponding provision in the Existing Declaration for DIP are
substantially similar.
26
<Table>
<Caption>
PROPOSED AMENDMENT CORRESPONDING EXISTING PROVISION
------------------ --------------------------------
Amendments to Declaration. (a) The Amendment Procedure. (a) Except as
Trustees may by vote of a majority of the specifically provided herein, the
Trustees then in office amend or Trustees may, without any Shareholder
otherwise supplement the Declaration by vote, amend or otherwise supplement the
making an amendment, a Declaration Declaration by making an amendment, a
supplemental hereto or an amended and Declaration of Trust supplemental hereto
restated Declaration, provided, however, or an amended and restated Declaration.
that an amendment to any provision of Without limiting the foregoing power
Article V hereof shall require the vote reserved to the Trustees, the Trustees
of two-thirds (2/3) of the Trustees then may, without any Shareholder vote, amend
in office. the Declaration to designate or
redesignate series or classes, to change
(b) Nothing contained in this the name or principal office of the
Declaration shall permit the amendment of Trust, to supply any omission, to cure,
this Declaration to impair the exemption correct or supplement any ambiguous,
from personal liability of any Person who defective or inconsistent provision
is or has been a Shareholder, Trustee, hereof, or if they deem it necessary or
officer, or employee of the Trust, or advisable, to conform the Declaration to
limit the rights to indemnification or the requirements of applicable law,
insurance provided in Article IX with including the 1940 Act and the Internal
respect to actions or omissions of Revenue Code of 1986, as amended, but the
persons entitled to indemnification under Trustees shall not be liable for failing
such Article prior to such amendment. to do so. Shareholders shall have the
right to vote on (i) any amendment that
would affect their right to vote granted
in Section 6.8; (ii) any amendment to
this Section 9.3(a) or to Section 9.3(b);
(iii) any amendment as may be required by
law, or by the Trust's registration
statement, to be approved by
Shareholders; and (iv) any amendment
submitted to them by the Trustees. Any
amendment on which Shareholders have the
right to vote shall require a Majority
Shareholder Vote of the Shareholders of
the Trust, or the written consent,
without a meeting, of the holders of not
less than a majority of the Shares of the
Trust. Notwithstanding the foregoing, if
the Trustees shall determine that any
amendment required or permitted to be
submitted to Shareholders would affect
only the interest of Shareholders of
particular series or classes of Shares,
then only Shareholders of such series or
classes, as applicable, shall be entitled
to vote thereon, and no vote of
Shareholders of any other series or
classes shall be required.
(b) Nothing contained in the Declaration
shall permit the amendment of the
Declaration to impair the exemption from
personal liability of the Shareholders,
former Shareholders, Trustees, officers,
employees and agents of the Trust or to
permit assessments upon Shareholders or
former Shareholders. Notwithstanding
anything else herein, any amendment to
Section 5.3 shall not limit the rights to
indemnification or insurance provided
therein with respect to actions or
omissions of persons entitled to
indemnification under such Section prior
to such amendment.
</Table>
By allowing future amendments of a declaration of trust without holder
approval, the Amendment gives the Boards the necessary authority to react
quickly to future contingencies. A Board would still be required to submit a
future amendment to a vote of a Fund's holders if such a vote were required by
applicable law, or a Board could determine at any time to submit a future
amendment to the declaration of trust for a vote of the holders, even though not
required by law or by the declaration of trust itself.
At a meeting of the Funds' Boards held in August 2007, the Boards approved
the Amendment as well as further changes to the Existing Declarations which are
designed to provide more flexibility to the Boards in governing the
27
Funds. Many of these further changes approved by the Boards may be made under
the terms of the Existing Declarations without the approval or consent of the
holders, and each Board intends to make these changes even if the Amendment is
not approved by holders. Other changes, which affect the voting rights of
holders provided in the Existing Declarations, will be made only if holders
approve the Amendment. The form of amended and restated declaration of trust for
DIFG and DIFG II, incorporating all of the changes approved by the Boards (the
"New Declaration") is attached hereto as Appendix J. The New Declaration with
respect to DIP will have substantially similar provisions relating to fund
governance matters, but differs to the extent necessary to reflect DIP's
operations as master trust. A summary of some of the more important differences
between the Existing Declarations and the New Declarations is set forth below.
The summary is qualified in its entirety by reference to Appendix J. Holders
should carefully review the New Declaration and carefully consider the
differences described below, as a vote in favor of the Amendment will have the
effect of authorizing the Trust's Board to adopt the New Declaration in its
entirety.
SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN EXISTING DECLARATIONS AND NEW
DECLARATIONS
The 1940 Act requires a vote by shareholders of mutual funds on various
matters that Congress has determined might have a material effect on
shareholders and their investments. For example, shareholder consent is required
under the 1940 Act and the regulations thereunder to approve new investment
advisory agreements in most cases, an increase in an advisory fee or a 12b-1
fee, changes to fundamental investment policies, the election of directors or
trustees in certain circumstances, and the merger or reorganization of a fund in
certain circumstances where the merger or consolidation involves an affiliated
party. The New Declarations provide for holder voting as required by the 1940
Act or other applicable laws but otherwise permit, consistent with Massachusetts
law, actions by the Boards without seeking the consent of holders. This
provision permits the Boards to act quickly in response to competitive or
regulatory conditions without the cost and delay of a meeting of the holders
when the Boards believe that the action is in the best interests of holders.
Similarly, as discussed below, the Boards have broad authority to provide for
the merger or consolidation of the trust into another trust or entity, to
reorganize the trust or any series or class into another trust or entity or a
series or class of another entity, to sell all or substantially all of the
assets of the trust or any series or class to another entity, or a series or
class of another entity, or to terminate the trust or any series or class. Under
the Existing Declarations, holders are also entitled to vote on certain
amendments to the declarations of trust, as described above, on certain fund
combinations, as further described below, and to the same extent as stockholders
of a Massachusetts business corporation as to whether or not a court action or
claim should be brought derivatively or as a class action on behalf of the Trust
or its holders. Although under both the Existing Declarations and the New
Declarations, the Boards may terminate the Trust or a Fund or a class of a Fund
without holder approval, under the Existing Declarations, but not the New
Declarations, holders are also entitled to vote to terminate the Trust, a Fund
or a class of a Fund.
The New Declarations for DIFG and DIFG II also provide for dollar-weighted
voting, where each shareholder of a Fund is entitled to one vote for each dollar
of net asset value of the Fund represented by the shareholder's shares of the
Fund, on each matter on which that shareholder is entitled to vote. This means
that shareholders with larger economic investments will have more votes than
shareholders with smaller economic investments. The Existing Declarations
provide that each share of each Fund is entitled to one vote on each matter on
which shares of that Fund are entitled to vote. Under both the Existing
Declaration and the New Declaration for DIP, holders vote proportionate to the
value of their interest in the Trust. Each of DIFG and DIFG II is composed of
multiple Funds or series. Because each Fund, as a series of a Trust, can have a
different share price than other Funds that are also series of the Trust,
shareholders of a Fund with lower-priced shares may have more voting power than
shareholders of a Fund with higher-priced shares. For example, if a Fund's
shares are selling for $10 per share, a $1,000 investment will purchase 100
shares. If another Fund in the same Trust has shares selling for $50 a share,
that same $1,000 investment will purchase only 20 shares of that Fund.
Therefore, under the Existing Declarations of DIFG and DIFG II, when
shareholders of the Trust vote together as a single class, a shareholder of the
first Fund has five times the vote of a shareholder in the second Fund, even
though the economic interest of each shareholder is the same. For this reason,
the Boards believe that the change to dollar-weighted voting, which would assure
that a shareholder's voting power matches the shareholder's economic interest in
the Trust, is appropriate.
28
The New Declarations would permit the Boards to reorganize or combine a
Trust, any Fund that is a series of the Trust or any class of a Fund, into any
corporation, association, trust or series (including another series or class of
the Trust), or other entity, whether currently existing or newly created,
without holder approval where approval of the holders is not otherwise required
under the 1940 Act. The 1940 Act requires reorganizations or fund combinations
involving affiliated funds to be approved by the holders of the fund being
acquired where certain conditions are not satisfied. The Existing Declarations
do not require holder approval to reorganize the Trust in order to change the
Trust's form of organization, or to reorganize any Fund or class of a Fund or
the Trust as a whole into a newly created entity or a newly created series or
class of an existing entity. Unlike the New Declarations, the Existing
Declarations do require holder approval for reorganizations or combinations with
other operating entities, whether or not holder approval would be required under
the 1940 Act.
Permitting the Trustees to authorize reorganizations and combinations
without seeking shareholder approval gives a Board the flexibility, when
considering reorganizations, to make decisions it feels are in the holders' best
interests, without causing the Funds to incur the time and expense of soliciting
approval of the holders. As part of the consolidation and restructuring of the
Fund Complex, it is expected that in the relatively near future, TFAI will
propose the combination of certain existing Funds. In that case, if the
Amendment is approved by holders and if a Board determines that a particular
fund combination is in the best interests of a fund and its holders, the Board
may further determine to combine the funds without seeking approval of the
holders, if approval is not otherwise required under the 1940 Act. The New
Declarations require that holders receive written notification of any such
transaction. A fund combination or reorganization could, in certain
circumstances, adversely affect a Fund's or class's expense ratio or other
aspects of a holder's investment.
If the Amendment is not approved by holders of a Trust, those provisions of
the New Declarations discussed above that would change a holder's voting rights
from those rights provided in the Existing Declarations will not go into effect
for that Trust, and the form of New Declaration for that Trust will be
accordingly revised so that it will be substantially the same as the Existing
Declarations with respect to those voting provisions.
In addition to the changes described above, the New Declarations contain a
number of other significant changes that may be effected without approval of the
holders. The New Declarations provide a detailed process for the bringing of
derivative actions by holders in order to permit legitimate inquiries and claims
while avoiding the time, expense, distraction, and other harm that can be caused
to a Fund or its holders as a result of spurious holder demands and derivative
actions. The New Declarations also incorporate recent changes in Massachusetts
corporate law requiring that demand be made in all circumstances. The New
Declarations provide that prior to bringing a derivative action, a demand by
three unrelated holders must first be made on the Fund's Board. These provisions
detail various information, certifications, undertakings and acknowledgements
that must be included in the demand. Following receipt of the demand, the Boards
have a period of 90 days, which may be extended by an additional 60 days, to
consider the demand. If a majority of the Board Members who are considered
independent for the purposes of considering the demand or a committee of such
Boards determines that maintaining the suit would not be in the best interests
of the Fund, the Boards are required to reject the demand and the complaining
holders may not proceed with the derivative action unless the holders are able
to sustain the burden of proof to a court that the decision of the Boards not to
pursue the requested action was not a good faith exercise of their business
judgment on behalf of the Fund. These provisions further provide that holders
owning interests representing at least 5% of the voting power of the affected
Fund must join in bringing the derivative action. If a demand is rejected, the
complaining holders will be responsible for the costs and expenses (including
attorneys' fees) incurred by the Fund in connection with the consideration of
the demand, if a court determines that the demand was made without reasonable
cause or for an improper purpose. If a derivative action is brought in violation
of the declaration of trust, the holders bringing the action may be responsible
for the Fund's costs, including attorneys' fees.
The New Declarations further provide that a Fund shall be responsible for
payment of attorneys' fees and legal expenses incurred by a complaining holder
only if required by law, and then only fees that are reasonable and that do not
exceed an amount calculated using reasonable hourly rates. The New Declarations
also require that actions by holders against a Fund be brought only in a
specified federal court in New York, or a specified state court in
Massachusetts, and provide that the right to jury trial be waived to the full
extent permitted by law.
29
The Existing Declarations provide that holders may not bring or maintain
any court action, proceeding or claim on behalf of a Trust without first making
demand on the Board requesting the Board to bring the action. Such demand may be
excused only when the plaintiff makes a specific showing that irreparable injury
to the Trust would otherwise result, or if a majority of the Board, or a
majority of any committee established to consider the merits of such action, has
a personal financial interest in the action at issue. Both the New Declarations
and the Existing Declarations provide that a Board Member shall not be deemed to
have a personal financial interest in an action or otherwise be disqualified
from ruling on a holder's demand by virtue of the fact that such Board Member
receives remuneration from his or her service on the Board of the Trust or on
the boards of one or more investment companies with the same or an affiliated
investment adviser or underwriter, or by virtue of the amount of such
remuneration. The Existing Declarations also set forth procedures for making
such demand and the procedures to be followed by the Boards in considering such
request, but these procedures are not as detailed as those provided in the New
Declarations.
These provisions of the New Declarations are intended to save the time and
expense of bringing a suit that a Board in its judgment does not believe would
be in the best interests of the Trust and to align more closely the rights and
powers of holders and the Board of the Trust with respect to derivative actions
to those of holders and directors, respectively, of a Massachusetts business
corporation. The effect of this change may be to discourage suits brought in the
name of a Trust or Fund by holders.
The Existing Declarations permit the Board to set a minimum amount for
holder accounts from time to time, and to redeem the interests in accounts that
fall below that level. The New Declarations would continue to permit a Fund to
involuntarily redeem interests in accounts that fall below the minimum account
size set by the Board. The New Declarations would also permit, as an
alternative, fees to be charged to holders holding accounts below the minimum
account size, and would permit a Fund to involuntarily redeem interests in order
to pay such account fees, and provides further flexibility to a Board to take
action with respect to minimum investment amounts as the Board may deem
necessary or appropriate. Each Fund currently pays certain costs that are
incurred in whole or in part on a per account basis. A large number of
relatively small holder accounts can, therefore, materially increase a Fund's
expense ratio. The Boards believe it is important for the Funds to have the
flexibility to be able to charge an additional fee for accounts falling below a
specified minimum investment level. This would allow the Funds to cause those
holders who maintain small accounts to bear a fair portion of the costs of
maintaining such accounts. While the Boards have not determined to charge small
account fees, small account fees may be imposed in the future. To the extent
that a company affiliated with a Fund's investment adviser serves as the Fund's
transfer agent or sub-transfer agent, the Fund's investment adviser would
benefit from the payment of small account fees. The New Declaration with respect
to DIP does not contain this provision because only certain types of
institutional investors are permitted to invest in the Trust.
The New Declarations are similar to the Existing Declarations with respect
to those provisions governing the election, retirement and removal of Board
Members, except that under the New Declarations, a Board Member may be removed
by action of two-thirds of the other Board Members, with or without cause. Under
the Existing Declarations, Board Members may be removed by other Board Members
only for cause. As a result, the Board Members would have the power to remove a
Board Member (including a Board Member who had been elected by holders) even
though such Board Member had not engaged in any conduct that would give rise to
"cause" for removal. A Board Member would be removed only if two-thirds of the
remaining Board Members deem such removal as necessary to ensure the effective
operation of the Board and otherwise serve the best interest of holders.
For the avoidance of doubt, the New Declarations also clarify that the
standard of care or liability imposed upon chairpersons of the Board, a member
or chairperson of a committee of the Board, an expert on any topic or in any
area (including an audit committee financial expert), the lead independent Board
Member or a Board Member who has special skills or any other special
appointment, designation or identification shall be the same as that imposed on
a Board Member in the absence of such designations, appointments, expertise or
identifications and that such a designation will not affect that Board Member's
rights or entitlement to indemnification. The Existing Declarations do not
contain this clarification.
Both the Existing Declarations and the New Declarations provide for the
indemnification of Board Members and officers to the fullest extent provided by
law. However, the Existing Declarations provide more detail in these provisions
30
than do the New Declarations. For the avoidance of doubt, the New Declarations
specifically provide that the Trust may enter into contracts to provide
indemnification to a Board Member, officer, or any other person (including a
trustee or officer of another fund that is combined with a series of the Trust),
and such contracts would not be subject to the indemnification provisions in the
declaration of trust, and further, that a person's right to indemnification
under the declaration of trust does not affect any rights such person might have
under contract or law.
Both the Existing Declarations and the New Declarations provide that no
assessments may be made against holders of the Funds. For the avoidance of
doubt, the New Declarations make clear that any sales loads or charges,
redemption or account fees or any other fees and charges not prohibited as
charges to holders under the 1940 Act or other applicable laws are not deemed to
be assessments for the purposes of this provision.
Each Trust's Board has approved the Amendment and recommends that you vote
to approve the Amendment also. The Boards believe that it is in the best
interests of holders to permit the modernization of the Funds' Existing
Declarations and to make them uniform, to the extent possible, across all the
Investment Companies in the expanded Fund Complex. It is anticipated that the
overall effect of the changes to the declarations of trust will be to make the
administration of the Funds more efficient and provide more flexibility for the
operation of the Funds, within the limits of applicable law. This increased
flexibility may allow the Boards to react more quickly to changes in competitive
and regulatory conditions. Adoption of the Amendment and any subsequent changes
to the declarations of trust will not remove any of the protections provided to
holders of mutual funds under federal law or alter in any way the Boards'
existing fiduciary obligations under both federal and state law to act with due
care and in the best interests of the holders. Before utilizing any new
flexibility that the New Declarations may afford, the Boards must first consider
holders' interests and then act in accordance with those interests.
You should note that your Fund's current investments and investment
policies will not change by virtue of the adoption of the Amendment or the New
Declarations.
REQUIRED VOTE
To become effective for a Trust, this Proposal must be approved by a "1940
Act Majority Vote" of the outstanding interests of that Trust, as such term is
defined above in "Quorum, Vote Required and Manner of Voting Proxies." The votes
of Funds that are series of the same Trust will vote together as a single class
with the holders of all other Funds that are series of the same Trust. As noted
above, by voting to approve the Amendment, holders of a Feeder Fund will also be
instructing the Feeder Fund to vote in favor of the Amendment governing the
underlying Master Portfolio in which the Feeder Fund invests its assets.
YOUR BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO
THE DECLARATION OF TRUST.
PROPOSAL IV -- TO APPROVE CHANGES TO THE FUNDAMENTAL
INVESTMENT POLICIES OF EACH FUND
The 1940 Act requires each Fund to adopt fundamental investment policies
with respect to several specific types of activities, namely a Fund's ability to
(1) borrow money; (2) issue senior securities; (3) engage in the business of
underwriting securities issued by other persons; (4) purchase or sell real
estate; (5) purchase or sell commodities; (6) make loans to other persons; and
(7) concentrate its investments in any particular industry or group of
industries. In the past, mutual funds (including certain of the Funds) have
adopted fundamental investment policies with respect to other activities, but
these are not required by law. The 1940 Act requires that any modification or
elimination of a Fund's fundamental investment policies be approved by the
Fund's holders.
Each Board is proposing that holders approve revisions to (and in some
cases, elimination of) the Funds' fundamental investment policies, as described
more fully in this Joint Proxy Statement, in an effort to standardize the Funds'
investment policies and permit the Funds the maximum investment flexibility
under current law. The revised fundamental policies are the same as those in
effect for the mutual funds managed by TFAI. By voting to approve revisions to a
Feeder Fund's fundamental investment policies, holders will also be instructing
the Feeder Fund to vote in favor of corresponding revisions to the fundamental
investment policies of the underlying Master Portfolio in which the Feeder Fund
invests its assets.
31
The current fundamental investment policies of each of the Funds, all of
which are proposed to be revised, are set forth in Appendix K to this Joint
Proxy Statement. A list of the fundamental policies that will apply to each Fund
if each proposal is approved by holders of that Fund also appears in Appendix
K.(*)
REASONS FOR PROPOSAL
The Funds' current fundamental investment policies are not uniform and, in
some cases, are more restrictive than the rules and regulations under the 1940
Act and applicable guidance by the SEC or its staff otherwise require,
potentially limiting investment strategies and resulting in operating
inefficiencies and costs.
The revised policies will provide consistency and uniformity across the
Funds and to the mutual funds managed by TFAI to the extent possible (of course,
the Funds will continue to be subject to a number of non-fundamental investment
policies that are not uniform, as contained in their respective prospectuses).
The revised fundamental policies are expected to facilitate the management of
the Funds' assets and to simplify the process of monitoring compliance with the
Funds' fundamental investment policies. The revised fundamental policies also
would facilitate consolidation among mutual funds managed by TFAI in the future.
In addition, the revised fundamental policies are intended to provide the
Funds with flexibility to respond to changing markets, new investment
opportunities and future changes in applicable law (although for certain Funds,
only technical or minor wording changes are being made for certain policies).
Accordingly, the policies are written and will be interpreted broadly. For
example, many of the revised policies allow the investment practice in question
to be conducted to the extent permitted by the 1940 Act. It is possible that as
the financial markets continue to evolve over time, the 1940 Act and the related
rules may be further amended to address changed circumstances and new investment
opportunities. It is also possible that the 1940 Act and the related rules could
change for other reasons. For flexibility, the revised policies will be
interpreted to refer to the 1940 Act and the related rules as they are in effect
from time to time. This will allow the Funds to take advantage of future changes
in applicable law without seeking additional costly and time-consuming holder
approvals. To the extent the Funds engage in new investment practices, the Funds
may be subject to additional risks. Before a material change is made in a Fund's
investment practices in response to the revised policies, the Fund's Board will
be consulted and the Fund's prospectus or statement of additional information
will be revised to disclose the change and, as applicable, any additional risks.
The revised fundamental policies also refer to engaging in certain
investment practices not only to the extent permitted under the 1940 Act (and in
one instance, the Securities Act of 1933, as amended (the "1933 Act"), but to
the full extent as interpreted or modified or otherwise permitted by regulatory
authority having jurisdiction over the Funds. For purposes of the revised
policies, this authority will be interpreted to include the SEC, members of its
staff and courts. From time to time the SEC and members of its staff, and
others, issue formal or informal views on various provisions of the 1933 Act and
the 1940 Act and the related rules, including through no-action letters and
exemptive orders. The revised policies will be interpreted to refer to these
interpretations or modifications as they are given from time to time. Again,
this will allow the Funds the flexibility to take advantage of future changes in
the thinking of regulators and others without the expense and delay of seeking
further approvals from their holders.
Lastly, when a revised policy provides that an investment practice may be
conducted as permitted by the 1933 Act or 1940 Act, the policy will be
interpreted to mean either that the applicable Act expressly permits the
practice or that the Act does not prohibit the practice.
Each Fund has an investment objective or objectives as well as fundamental
policies. The revised fundamental policies do not affect the Funds' investment
objectives, which remain unchanged.
IMPACT OF PROPOSAL IV ON THE FUNDS
While Proposal IV is intended to provide greater flexibility and efficiency
in managing each Fund's assets, should holders approve this Proposal, the Funds
would continue to be managed subject to the limitations imposed by the 1940 Act
and the rules and interpretive guidance provided thereunder, as well as the
investment objectives, strategies, and policies discussed in each Fund's
prospectus and statement of additional information. Neither TFAI
- ----------
* As noted herein and in Appendix K, certain Funds currently have not
adopted certain fundamental policies. In those cases, holders are being asked to
adopt a new fundamental policy, rather than to replace an existing fundamental
policy.
32
nor, to the best of its knowledge, any of the Funds' subadvisers presently
intend to alter the way in which it manages any of the Funds, nor do they
believe that the proposed changes will, either individually or in the aggregate,
materially affect the investment risk associated with any Fund. However, a
Fund's investment practices could change in the future and for various reasons.
If a particular Fund takes advantage of the increased ability to engage in
certain investment practices provided by the revised fundamental policies (to
borrow money, for example), there could be a material increase in the level of
investment risk associated with an investment in that Fund. Certain of the
increased risks to the Funds are described below. As noted above, before a
material change is made in a Fund's investment practices in response to the
revised policies, the Fund's Board will be consulted and the Fund's prospectus
or statement of additional information will be revised to disclose the change
and, as applicable, any additional risks.
The Funds affected by the proposed changes are indicated at the beginning
of each section below. Each section sets out the fundamental policy that will
apply to each Fund if holders of that Fund approve the policy in that section.
The descriptions in each section of the Funds' existing fundamental policies are
general, and are qualified by reference to the actual text of the existing
policies that appears in Appendix K. The charts in Appendix K set out in the
left column the current fundamental policies of each Fund that are proposed to
be revised or eliminated, and in the right column the proposed revised policy,
if applicable.
Holders of each Fund will vote separately from holders of other Funds with
respect to their Fund's fundamental policies. In addition, holders will be asked
to vote on each revised policy for their Fund separately on the enclosed proxy
card. No proposal to revise or eliminate any fundamental policy is contingent
upon the approval of any other such proposal. As a result, it may be the case
that certain of a Fund's fundamental policies will be changed or eliminated, and
others will not. If any proposal is not approved for a Fund, the Fund's existing
fundamental policy on that investment practice, as set forth in Appendix K, will
remain in effect.
In addition, approval of changes to the Funds' fundamental investment
policies will not depend upon your vote on the other Proposals discussed in this
Joint Proxy Statement Therefore, if approved by holders, these changes would
take effect regardless of the vote with respect to the other Proposals discussed
in this Joint Proxy Statement.
The revised policies that are approved will take effect when certain other
matters presented to holders in this Proxy Statement take effect; this is
currently expected to occur in the fourth quarter of 2007, although the actual
date could be later.
REQUIRED VOTE
To be approved for a Fund, each proposal must receive a "1940 Act Majority
Vote" of the outstanding interests of that Fund, as such term is defined above
in "Quorum, Vote Required and Manner of Voting Proxies." As noted above, by
voting in favor of revisions to a Fund's fundamental investment policies,
holders will be authorizing the Feeder Fund to vote in favor of corresponding
revisions to the fundamental investment policies of the underlying Master
Portfolio in which the Feeder Fund invests its assets.
EVALUATION BY THE BOARDS
Because of the opportunity afforded by the Special Meetings, each Board has
reviewed each Fund's fundamental investment policies with the goal of
simplifying, modernizing and making consistent to the extent possible the
fundamental investment policies of the Funds. The Boards believe that
simplifying the Funds' fundamental investment policies will enhance management's
ability to manage the Funds' assets efficiently in changing regulatory and
investment environments, and permit management and the Boards to review and
monitor investment policies more easily. The Boards noted that the revised
fundamental policies are the same as those in effect for the mutual funds
managed by TFAI. In addition, the proposed changes to the fundamental investment
policies of the Funds will assist the Funds in making regulatory filings in a
more efficient and cost effective manner and may facilitate the integration of
the Funds in the TFAI complex of mutual funds. The proposed changes in
fundamental investment policies may allow each Fund greater investment
flexibility to respond to future investment opportunities. The Boards do not
anticipate, however, that the changes, individually or in the aggregate,
currently will result in a material change in the level of investment risk
associated with an investment in any Fund. Due to
33
these and other considerations, the Boards recommend that holders vote to
approve the modifications to the Funds' fundamental investment policies
described below.
Holders of each Fund will be asked to provide instructions on each proposed
fundamental restriction separately on the enclosed proxy card.
YOUR BOARD RECOMMENDS THAT YOU VOTE "FOR" EACH PROPOSAL.
PROPOSED FUNDAMENTAL INVESTMENT POLICIES
Holders are being asked to approve amendments to the Funds' fundamental
investment policies in Proposals IV.A-IV.G. In addition, investment policies
that are currently deemed fundamental by a Fund but which the 1940 Act does not
require to be fundamental, are proposed to be eliminated. This is the purpose of
Proposals IV.H - IV.J.
PROPOSAL IV.A -- BORROWING
Applicable Funds -- All Funds
Proposed New Fundamental Investment Policy. If the proposed amendment is
approved, each Fund's fundamental investment policy regarding borrowing would
read:
The Fund may not borrow money, except as permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"), and as
interpreted, modified or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
Discussion of Proposed Modification. All mutual funds are required to have
a fundamental policy about the borrowing of money. The 1940 Act permits a fund
to borrow money in amounts of up to one-third of the fund's total assets from
banks for any purpose, and to borrow up to 5% of the fund's total assets from
banks or other lenders for temporary purposes. To limit the risks attendant to
borrowing, the 1940 Act requires the fund to maintain at all times an "asset
coverage" of at least 300% of the amount of its borrowings. Asset coverage means
the ratio that the value of the fund's total assets, minus liabilities other
than borrowings, bears to the aggregate amount of all borrowings. Certain
trading practices and investments, such as reverse repurchase agreements, dollar
rolls and certain derivatives, may be considered to be borrowing and thus
subject to the 1940 Act restrictions. On the other hand, certain practices and
investments may involve leverage but are not considered to be borrowing.
Currently, the borrowing policies of the DIFG Funds (excluding the
Strategic Allocation Funds) and Master Portfolios limit borrowings to one-third
of total assets. The borrowing policies of the Strategic Allocation Funds and
the Strategic Variable Funds limit borrowings to 30% of total assets. In
addition, the Diversified Investors Stock Index Fund, Diversified Institutional
Stock Index Fund, the Strategic Allocation Funds and the Strategic Variable
Funds may borrow only for limited purposes such as the facilitation of holder
redemption requests. The DIFG Funds' (excepting the Strategic Allocation Funds)
and Master Portfolios' policies also limit the ability to pledge assets. The
current borrowing policy of the DIFG II Funds (excluding the Strategic
Allocation Funds) is similar to the revised policy on borrowing. The Funds'
current borrowing policies are disclosed in their prospectuses and/or statements
of additional information.
The revised policy will permit the Funds to borrow money, and to engage in
trading practices that may be considered to be borrowing, to the fullest extent
permitted by the 1940 Act and related interpretations, as in effect from time to
time. The revised policy also will eliminate restrictions that limit pledging of
assets.
As noted above, the revised policy will be interpreted to permit a Fund to
engage in trading practices and investments that may be considered to be
borrowing, such as reverse repurchase agreements, dollar rolls, options,
futures, options on futures and forward contracts. In addition, short-term
credits necessary for the settlement of securities transactions and arrangements
with respect to securities lending will not be considered to be borrowings under
the revised policy. Practices and investments that may involve leverage but are
not considered to be borrowings are not subject to the revised policy.
If this proposal is approved, the Funds may be permitted by this
fundamental policy to borrow in situations and under circumstances in which they
previously could not do so. Borrowing may cause the value of a Fund's shares to
34
be more volatile than if the Fund did not borrow. This is because borrowing
tends to magnify the effect of any increase or decrease in the value of the
Fund's portfolio holdings. Borrowed money thus creates an opportunity for
greater gains, but also greater losses. There also are costs associated with
borrowing money, and these costs would offset and could eliminate a Fund's net
investment income in any given period.
PROPOSAL IV.B -- SENIOR SECURITIES
Applicable Funds -- All Funds
Proposed New Fundamental Investment Policy. If the proposed amendment is
approved, each Fund's fundamental investment policy regarding senior securities
would read:
The Fund may not issue any senior security, except as permitted under
the 1940 Act, and as interpreted, modified or otherwise permitted by
regulatory authority having jurisdiction, from time to time.
Discussion of Proposed Modification. All mutual funds are required to have
a fundamental policy about issuing "senior securities," which are defined as
fund obligations that have a priority over the fund's shares with respect to the
payment of dividends or the distribution of fund assets. The 1940 Act prohibits
a fund from issuing senior securities except that the fund may borrow money in
amounts of up to one-third of the fund's total assets from banks for any
purpose. A fund also may borrow up to 5% of the fund's total assets from banks
or other lenders for temporary purposes, and these borrowings are not considered
senior securities.
The revised policy on the issuance of senior securities is similar to the
Funds' current fundamental policies on this topic. Currently, the Funds are not
permitted to issue senior securities except as permitted by the 1940 Act. The
Funds' current policies concerning the issuance of senior securities are
disclosed in their prospectuses and/or statements of additional information. The
revised policy will permit the Funds to issue senior securities to the fullest
extent permitted by the 1940 Act and related interpretations, as in effect from
time to time.
Certain widely used investment practices that involve a commitment by a
fund to deliver money or securities in the future are not considered by the SEC
to be senior securities. These include repurchase and reverse repurchase
agreements, dollar rolls, options, futures and forward contracts, provided that
in each case a fund segregates cash or liquid securities in an amount necessary
to pay the obligation or the fund holds an offsetting commitment from another
party. The revised policy will not affect the Funds' existing abilities to
engage in these practices. Similarly, the revised policy will be interpreted not
to prevent collateral arrangements with respect to swaps, options, forward or
futures contracts or other derivatives, or the posting of initial or variation
margin.
PROPOSAL IV.C -- UNDERWRITING
Applicable Funds -- All Funds
Proposed New Fundamental Investment Policy. If the proposed amendment is
approved, each Fund's fundamental investment policy regarding underwriting would
read:
The Fund may not act as an underwriter of securities within the
meaning of the Securities Act of 1933, as amended, (the "Securities Act" or
the "1933 Act") except as permitted under the Securities Act, and as
interpreted, modified or otherwise permitted by regulatory authority having
jurisdiction, from time to time. Among other things, to the extent that the
Fund may be deemed to be an underwriter within the meaning of the
Securities Act, the Fund may act as an underwriter of securities in
connection with the purchase and sale of its portfolio securities in the
ordinary course of pursuing its investment objective, investment policies
and investment program.
Discussion of Proposed Modification. All mutual funds are required to have
a fundamental policy about engaging in the business of underwriting the
securities of other issuers. The 1940 Act permits a fund to have underwriting
commitments of up to 25% of its assets under certain circumstances. Those
circumstances currently are that the amount of the fund's underwriting
commitments, when added to the value of the fund's investments in issuers where
the fund owns more than 10% of the outstanding voting securities of those
issuers, cannot exceed the 25% cap. Currently, the Funds are not permitted to
underwrite the securities of others. The Funds' current underwriting policies
are disclosed in their prospectuses and/or statements of additional information.
The revised
35
policy will be interpreted to permit the Funds to engage in the underwriting
business and to underwrite the securities of other issuers to the fullest extent
permitted by the 1940 Act and related interpretations, as in effect from time to
time, and thus will give the Funds greater flexibility to respond to future
investment opportunities, subject, of course, to the investment objectives and
strategies applicable to each Fund.
The revised policy and each Fund's current fundamental policy provide that
the Fund may be deemed to be an underwriter in connection with the disposition
of portfolio securities. This limited exception refers to a technical provision
of the 1933 Act, which deems certain persons to be "underwriters" if they
purchase a security from the issuer and later sell it to the public. Although it
is not believed that the application of this 1933 Act provision would cause a
Fund to be engaged in the business of underwriting, the revised policy will be
interpreted not to prevent a Fund from engaging in transactions involving the
acquisition or disposition of portfolio securities, regardless of whether the
Fund maybe considered to be an underwriter under the 1933 Act. Under the 1933
Act, an underwriter may be liable for material omissions or misstatements in an
issuer's registration statement or prospectus.
Securities purchased from an issuer and not registered for sale under the
1933 Act are considered restricted securities. There may be a limited market for
these securities. If these securities are registered under the 1933 Act, they
may then be eligible for sale but participating in the sale may subject the
seller to underwriter liability. These risks could apply to a Fund investing in
restricted securities.
PROPOSAL IV.D -- REAL ESTATE
Applicable Funds -- All Funds
Proposed New Fundamental Investment Policy. If the proposed amendment is
approved, each Fund's fundamental investment policy regarding real estate would
read:
The Fund may not purchase or sell real estate or any interests
therein, except as permitted under the 1940 Act, and as interpreted,
modified or otherwise permitted by regulatory authority having
jurisdiction, from time to time. Notwithstanding this limitation, the Fund
may, among other things, (i) acquire or lease office space for its own use;
(ii) invest in securities of issuers that invest in real estate or
interests therein; (iii) invest in mortgage-related securities and other
securities that are secured by real estate or interests therein; or (iv)
hold and sell real estate acquired by the portfolio as a result of the
ownership of securities.
Discussion of Proposed Modification. All mutual funds are required to have
a fundamental policy about purchasing and selling real estate. The 1940 Act does
not prohibit a fund from owning real estate; however, a mutual fund is limited
in the amount of illiquid assets it may purchase (real estate is generally
considered illiquid). Investing in real estate may involve risks, including that
real estate is generally considered illiquid and may be difficult to value and
sell. Owners of real estate may be subject to various liabilities, including
environmental liabilities.
Currently, the Funds are not permitted to purchase or hold real estate in
the ordinary course of their business, but they are permitted to own securities
secured by real estate or interests therein. The Funds also are not permitted to
sell real estate, except that certain Funds may sell real estate they acquire as
a result of their ownership of securities. The Funds' current policies
concerning investment in real estate are disclosed in their prospectuses and/or
statements of additional information. As a general rule, the Funds currently do
not intend to purchase or sell real estate. However, the Funds wish to preserve
the flexibility to invest in real estate, as well as real estate-related
companies and companies whose business consists in whole or in part of investing
in real estate, to the fullest extent permitted by the 1940 Act and related
interpretations, as in effect from time to time, consistent with their
investment programs. Accordingly, the Funds will not be restricted by the
revised policy from purchasing or selling real estate (however, a Fund's
investment program may not contemplate these investments).
As noted above, the revised policy will be interpreted not to prevent the
Funds from investing in real estate-related companies, companies whose
businesses consist in whole or in part of investing in real estate, instruments
(like mortgages) that are secured by real estate or interests therein, or real
estate investment trust securities.
To the extent that investments in real estate are considered illiquid, a
Fund will be limited in the amount of illiquid assets it may purchase. The
current SEC staff position generally limits a fund's purchases of illiquid
securities to 15% of net assets (10% of net assets for money market funds).
36
PROPOSAL IV.E -- MAKING LOANS
Applicable Funds -- All Funds
Proposed New Fundamental Investment Policy. If the proposed amendment is
approved, each Fund's fundamental investment policy regarding lending would
read:
The Fund may make loans only as permitted under the 1940 Act, and as
interpreted, modified or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
Discussion of Proposed Modification. All mutual funds are required to have
a fundamental policy about lending money and other assets. The 1940 Act does not
prohibit a fund from making loans; however, SEC staff interpretations currently
prohibit funds from lending more than one-third of their total assets, except
through the purchase of debt obligations or the use of repurchase agreements. (A
repurchase agreement is an agreement to purchase a security, coupled with an
agreement to sell that security back to the original seller on an agreed-upon
date at a price that reflects current interest rates. The SEC frequently treats
repurchase agreements as loans.)
The Funds' current fundamental policies generally prohibit the making of
loans, but the current policies of the DIFG Funds (excluding the Strategic
Allocation Funds), the DIFG II Funds (excluding the Strategic Allocation Funds)
and the Master Portfolios specify that investments in debt obligations and
repurchase agreements, and the lending of portfolio securities are not subject
to the restriction. These policies limit securities lending to 30% of total
assets (taken at market value). The current fundamental policies of the
Strategic Allocation Funds and Strategic Variable Funds provide that the Funds
may not make loans, although the underlying funds in which the Funds invest may
purchase money market securities and enter into repurchase agreements. The
Funds' current lending policies are disclosed in their prospectuses and/or
statements of additional information. The revised policy will allow the Funds to
lend money and other assets, in each case to the fullest extent permitted by the
1940 Act and related interpretations, as in effect from time to time.
The revised policy will be interpreted not to prevent a Fund from
purchasing or investing in debt obligations and loans. In addition, collateral
arrangements with respect to options, forward currency and futures transactions
and other derivative instruments, as well as delays in the settlement of
securities transactions, will not be considered loans.
If this proposal is approved, certain Funds will be permitted by this
fundamental policy to make loans of securities or money in situations and under
circumstances in which they previously could not do so. This proposal would
result in a change to the fundamental investment policies of the funds so that
each may have 33 1/3% of its total assets available for lending. While lending
securities may be a source of income to the Funds, as with other extensions of
credit, there are risks of delay in recovery or even loss of rights in the
underlying securities should the borrower fail financially. However, loans would
be made only when TFAI believes the income justifies the attendant risks. The
Funds also will be permitted by this policy to make loans of money, including to
other Funds. A Fund would have to obtain exemptive relief from the SEC to make
loans to other Funds.
A Fund would engage in lending money or other assets only to the extent
consistent with its investment objective.
PROPOSAL IV.F -- CONCENTRATION
1. Applicable Funds -- All Funds other than:
<Table>
DIFG: Diversified Investors Money Market DIFG II: Diversified Institutional Money
Fund Market Fund
Diversified Investors Stock Index Diversified Institutional Stock
Fund Index Fund
DIP: Money Market Portfolio
</Table>
Proposed New Fundamental Investment Policy. If the proposed amendment is
approved, each Fund's fundamental investment policy regarding concentration
would read:
The Fund may not "concentrate" its investments in a particular
industry or group of industries (except those Funds listed above), except
as permitted under the 1940 Act, and as interpreted, modified or otherwise
permitted by regulatory authority having jurisdiction from time to time,
provided that, without limiting the
37
generality of the foregoing this limitation will not apply to securities
issued or guaranteed as to principal and/or interest by the U.S.
Government, its agencies or instrumentalities.
Discussion of Proposed Modification. All mutual funds are required to have
a fundamental policy about concentration of their investments in a particular
industry or group of industries. While the 1940 Act does not define what
constitutes "concentration" in an industry, the SEC has taken the position that
investment of 25% or more of a fund's total assets in one or more issuers
conducting their principal activities in the same industry constitutes
concentration. It is possible that interpretations of concentration could change
in the future.
Each Fund has a fundamental policy that prohibits the Fund from
concentrating its investments in a particular industry (except for the Strategic
Allocation Funds and the Strategic Variable Funds, which do not have a stated
policy regarding concentration). The Funds' current policies about concentration
are disclosed in their prospectuses and/or statements of additional information.
The existing policies reflect the 25% test noted above that is the SEC's current
interpretation of concentration. If this interpretation were to change, the
Funds would not be able to change their concentration policies without seeking
holder approval. The revised policy does not contain a stated percentage
limitation and will be interpreted to refer to concentration as it may be
determined from time to time.
The revised policy also will be interpreted to permit investment without
limit in the following: securities of the U.S. government and its agencies or
instrumentalities; securities of state, territory, possession or municipal
governments and their authorities, agencies, instrumentalities or political
subdivisions; securities of foreign governments; and repurchase agreements
collateralized by any of such obligations. Accordingly, issuers of the foregoing
securities will not be considered to be members of any industry. There also will
be no limit on investment in issuers domiciled in a single jurisdiction or
country. The revised policy also will be interpreted to give broad authority to
the Funds as to how to classify issuers within or among industries, as
applicable.
Under the revised policy, positions in futures contracts will be
interpreted not to be subject to this concentration restriction.
2. Applicable Funds:
<Table>
DIFG: Diversified Investors Money Market DIFG II: Diversified Institutional Money
Fund Market Fund
DIP: Money Market Portfolio
</Table>
Proposed New Fundamental Investment Policy. If the proposed amendment is
approved, each Fund's fundamental investment policy regarding concentration
would read:
The Fund may not "concentrate" its investments in a particular
industry or group of industries (except those Funds listed below), except
as permitted under the 1940 Act, and as interpreted, modified or otherwise
permitted by regulatory authority having jurisdiction from time to time,
provided that, without limiting the generality of the foregoing this
limitation will not apply to securities issued or guaranteed as to
principal and/or interest by the U.S. Government, its agencies or
instrumentalities, except that each of the Diversified Investors Money
Market Fund, Diversified Institutional Money Market Fund and Money Market
Portfolio may invest without limitation in obligations issued by banks.
Discussion of Proposed Modification. The SEC has taken the position that
money market funds may reserve the right to invest without limit in obligations
of banks without being deemed to concentrate their investments. Each of
Diversified Investors Money Market Fund, Diversified Institutional Money Market
Fund and Money Market Portfolio currently has a fundamental policy under which
the Fund reserves the freedom of action to concentrate 25% or more of its assets
in obligations of domestic branches of domestic banks. The Fund's existing
policy reflects the 25% test noted above that is the SEC's current
interpretation of concentration. It is proposed that these money market funds
adopt the revised policy as noted above. The revised policy does not contain a
stated percentage limitation. The revised policy will permit the Fund to invest
without limitation in bank obligations when the Fund's manager believes it makes
sense to do so.
3. Applicable Funds:
<Table>
DIFG: Diversified Investors Stock Index DIFG II: Diversified Institutional Stock
Fund Index Fund
</Table>
38
Proposed New Fundamental Investment Policy. If the proposed amendment is
approved, each Fund's fundamental investment policy regarding concentration
would read:
The Fund may not "concentrate" its investments in a particular
industry or group of industries (except those Funds listed below), except
as permitted under the 1940 Act, and as interpreted, modified or otherwise
permitted by regulatory authority having jurisdiction from time to time,
provided that, without limiting the generality of the foregoing this
limitation will not apply to securities issued or guaranteed as to
principal and/or interest by the U.S. Government, its agencies or
instrumentalities, except that this restriction shall not apply with
respect to Diversified Investors Stock Index Fund or Diversified
Institutional Stock Index Fund to any industry in which the S&P 500 Index
(or any other index which the Stock Index Fund selects to track its
performance) becomes concentrated to the extent that the Stock Index Fund
likewise becomes concentrated.
Discussion of Proposed Modification. The current fundamental policy for
each of Diversified Investors Stock Index Fund and Diversified Institutional
Stock Index Fund provides that the Fund's policy regarding concentration shall
not apply with respect to any industry in which the S&P 500 Index (or any other
index which the Fund selects to track its performance) becomes concentrated to
the extent that the Fund likewise becomes concentrated. It is proposed that this
exception to the Fund's policy regarding concentration be retained.
PROPOSAL IV.G -- COMMODITIES
Applicable Funds -- All Funds
Proposed New Fundamental Investment Policy. If the proposed amendment is
approved, each Fund's fundamental investment policy regarding commodities would
read:
The Fund may not purchase physical commodities or contracts relating
to physical commodities, except as permitted under the 1940 Act, and as
interpreted, modified or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
Discussion of Proposed Modification. All mutual funds are required to have
a fundamental policy about purchasing and selling commodities. The 1940 Act does
not prohibit a fund from owning commodities, whether physical commodities and
contracts related to physical commodities (such as oil or grains and related
futures contracts), or financial commodities and contracts related to financial
commodities (such as currencies and, possibly, currency futures). However, a
mutual fund is limited in the amount of illiquid assets it may purchase (certain
commodities (especially physical commodities) may be considered to be illiquid).
The value of commodities and commodity-related instruments may be extremely
volatile and may be affected either directly or indirectly by a variety of
factors. There also may be storage charges and risks of loss associated with
physical commodities.
Currently, the Funds are not permitted to invest in physical commodities or
commodity contracts with respect to physical commodities (except for the
Strategic Allocation Funds and the Strategic Variable Funds, which do not have a
stated policy regarding commodities), but they are permitted to invest in
certain types of derivatives and financial commodities such as futures contracts
and options on futures contracts. The Funds' current policies concerning
investment in commodities and commodity contracts are disclosed in their
prospectuses and/or statements of additional information. The revised policy
will permit the Funds to purchase or sell commodities to the fullest extent
permitted by the 1940 Act and related interpretations, as in effect from time to
time. Accordingly, the Funds will not be restricted by the revised policy from
purchasing physical or financial commodities and commodity-related instruments
(however, a Fund's investment program may not contemplate these investments).
The revised policy will not affect the Funds' ability to enter into futures
contracts, including futures contracts on interest rates, stock indices and
currencies, and options thereon, as well as forward currency transactions and
options on currencies.
There may be instances when investing in physical commodities may be
complementary to a Fund's other investments. For example, a Fund may wish to buy
shares of a gold-producing company and hedge that investment with gold futures,
or a Fund may wish to gain exposure to a particular commodity directly, as
opposed to through a financial instrument. If a Fund were to invest in a
physical commodity or a physical commodity-related instrument, the Fund would be
subject to the additional risks of the particular physical commodity and its
related market. As noted above, the value of commodities and commodity-related
instruments may be extremely volatile and may be affected
39
either directly or indirectly by a variety of factors. A Fund's prospectus or
statement of additional information would be amended to disclose these risks
before a material portion of the Fund's assets is invested in physical
commodities.
It is not believed that certain financial instruments such as interest rate
or stock index futures contracts are "commodities." In any event, the revised
policy will permit investment in these types of assets, derivatives and
instruments to the fullest extent permitted by the 1940 Act and related
interpretations. The revised policy also will be interpreted to permit
investments in exchange traded funds that invest in physical and/or financial
commodities.
To the extent that investments in commodities are considered illiquid, a
Fund will be limited in the amount of illiquid assets it may purchase. The
current SEC staff position generally limits a fund's purchases of illiquid
securities to 15% of net assets (10% of net assets for money market funds).
PROPOSAL IV.H -- MARGIN ACTIVITIES
Applicable Funds -- Strategic Allocation Funds, Strategic Variable Funds
If holders of a Fund approve this proposal, the Fund's current fundamental
policy prohibiting the Fund from purchasing securities on margin will be
eliminated.
Discussion. The 1940 Act does not require that a fund have a fundamental
policy relating to purchasing securities on margin. Margin purchases involve
borrowing money from a broker to purchase securities. The risks associated with
purchasing securities on margin are generally similar to those of borrowing
money. For a discussion of those risks, please see Proposal IV.A.
The Funds believe that this fundamental policy is unnecessary and may be
unduly restrictive. The Funds' ability to borrow is governed by the fundamental
policy on borrowing discussed in Proposal IV.A. To the extent that purchasing
securities on margin may be considered the issuance of a senior security, the
issuance of senior securities is governed by the fundamental policy discussed in
Proposal IV.B. The Funds believe that these other fundamental policies provide
adequate protection on this topic. If this fundamental policy is eliminated, the
Funds will be permitted to purchase securities on margin subject to the Funds'
other investment policies and applicable law.
The Funds do not currently intend to purchase securities on margin. The
Funds currently invest all of their assets in underlying Funds. Before changing
this investment strategy, for example, to purchase securities on margin, the
Fund's Board will be consulted and the Fund's prospectus or statement of
additional information will be revised to disclose the change in strategy.
Holders should note that it is the current position of the SEC's staff that
purchasing securities on margin by a mutual fund constitutes the issuance of a
senior security by the fund that is not permitted by the 1940 Act.
PROPOSAL IV.I -- SHORT SELLING
Applicable Funds -- Strategic Allocation Funds, Strategic Variable Funds
If holders of a Fund approve this proposal, the Fund's current fundamental
policy prohibiting the Fund from making short sales of securities will be
eliminated.
Discussion. A short sale involves the sale of a security that is borrowed
from a broker or other institution to complete the sale. Short sales expose a
fund to the risk that the fund will be required to acquire, convert or exchange
securities to replace the borrowed securities at a time when the securities sold
short have appreciated in value, thus resulting in a loss to the fund. Other
risks and costs to a fund of engaging in short sales include that the fund may
be required to sell securities it would otherwise retain in order to raise cash
to replace the borrowed securities, thus foregoing possible gains and/or selling
at inopportune times, as well as incurring transaction costs. Under the 1940
Act, a fund is restricted from making short sales unless the sale is "against
the box" and the securities sold are segregated, or the fund's obligation to
deliver the securities sold short is "covered" by segregating cash or liquid
securities in an amount equal to the market value of the securities sold short.
A sale is not made "against the box" if a fund sells a security it does not own
in anticipation of a decline in market price. Losses from short sales can
theoretically be unlimited, although, as noted above, under the 1940 Act, a fund
is required to "cover" its exposure under any short position.
40
Mutual funds are not required to have a fundamental policy about engaging
in short sales. The Funds believe this fundamental policy is unduly restrictive.
There may be circumstances in which a Fund's manager believes that a short sale
is in the best interests of holders. If this fundamental policy is eliminated,
the Funds will be able to engage in short sales subject to the Funds' other
investment policies and applicable law. Before a Fund engages in short sales to
any material extent, the Fund's Board will be consulted and the Fund's
prospectus or statement of additional information will be revised to disclose
the practice. The Fund will be subject to any limitations on engaging in short
sales imposed by the Fund's Board or investment manager from time to time, as
well as the Fund's other investment policies.
The Funds do not currently intend to engage in short sales. As noted above,
the Funds (other than the Master Portfolios) currently invest all of their
assets in underlying Funds. Before changing this investment strategy, for
example, to engage in short sales, the Fund's Board will be consulted and the
Fund's prospectus or statement of additional information will be revised to
disclose the change in strategy.
PROPOSAL IV.J -- PLEDGING ASSETS
Applicable Funds -- Strategic Allocation Funds, Strategic Variable Funds
If holders of the Fund approve this proposal, the Fund's current
fundamental policy limiting the Fund's ability to pledge its assets will be
eliminated.
Discussion. The Fund currently may pledge not more than 30% of its assets,
and pledges may be for the sole purpose of supporting limited-purpose
borrowings. The Fund believes this fundamental policy is unduly restrictive and
may prevent the Fund's manager from acting in a manner the manager believes to
be in the best interests of holders. If this fundamental policy is eliminated,
the Fund will be able to pledge its assets without limitation, subject to the
Fund's other investment policies and applicable law and interpretations.
Holders should note that in 1973 the SEC's staff took the position in a no-
action letter that a mutual fund could not pledge 100% of its assets without
there being a compelling business reason to do so. In the same no-action letter,
the staff stated that it was the general practice in the banking community to
require less than 300% collateralization on loans. In more recent no-action
letters, including letters that address the same statutory provision of the 1940
Act (Section 17) addressed in the 1973 letter, the SEC staff has not mentioned
any limitation on the amount of collateral that may be pledged to support credit
obtained. The Fund has no present intention to borrow money (other than possibly
to meet redemption requests), and intends to pledge its assets only to support
its investment practices. It is impossible to predict what the lending practices
will be in the future if and when the Fund decides to borrow money, and whether
more than 300% collateral coverage would be required. In any event, the Fund
would take into account any then applicable legal guidance, would be guided by
the judgment of the Fund's Board and investment manager regarding the terms of
any credit facility or arrangement, including any collateral required, and would
not pledge more collateral than, in their judgment, is necessary for the Fund to
obtain the credit sought.
The Funds do not currently intend to pledge assets. As noted above, the
Funds currently invest all of their assets in underlying Funds. Before changing
this investment strategy, for example, to pledge assets, the Fund's Board will
be consulted and the Fund's prospectus or statement of additional information
will be revised to disclose the change in strategy.
PROPOSAL IV.K -- FUTURES AND OPTIONS TRANSACTIONS THROUGH INVESTMENTS IN
UNDERLYING FUNDS
Applicable Funds -- Strategic Allocation Funds, Strategic Variable Funds
If holders of a Fund approve this proposal, the Fund's current fundamental
policy providing that the Fund may engage in futures and options transactions
through investments in the underlying Funds will be eliminated.
Discussion. This fundamental policy is not required by the 1940 Act. The
Funds do not invest their assets directly. Instead, as noted above, the Funds
invest all of their assets in underlying Funds. While the Funds have no current
plan to change this investment strategy, these plans could change in the future.
Before changing this investment strategy, for example, to engage in futures and
options transactions directly, the Fund's Board will be
41
consulted and the Fund's prospectus or statement of additional information will
be revised to disclose the change in strategy.
YOUR BOARD RECOMMENDS THAT YOU VOTE "FOR" PROPOSALS IV.A THROUGH IV.K (AS
APPLICABLE).
PROPOSAL V -- APPROVAL OF AMENDED PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
Each of the Feeder Funds has adopted a distribution plan in accordance with
Rule 12b-1 under the 1940 Act (a "Current Plan") and pays distribution fees
under the plan. Rule 12b-1 permits the use of fund assets to pay for
distribution services, subject to certain conditions. Each Fund is proposing an
amended plan of distribution pursuant to Rule 12b-1 under the 1940 Act (each an
"Amended Plan"). A general description of the Amended Plan and a general
comparison of the Amended Plan and the Current Plan are included below. A form
of the Amended Plan is included in this Joint Proxy Statement as Appendix L, and
qualifies the discussion below in its entirety.
At the Special Meeting, you will be asked to approve the Amended Plan. Each
Fund will vote on the Amended Plan separately.
As discussed below, the Amended Plan is a compensation-type plan, which
means that the fees for distribution services are paid regardless of the
expenses incurred. The maximum amount payable under each plan is the same, but
under the Current Plan you can only pay that amount to the extent there are
specific expenses incurred and under the Amended Plan you can pay it no matter
the expenses incurred. Appendix H sets forth the amount of distribution fees
paid by each Fund during the Fund's most recent fiscal year pursuant to its
Current Plan.
As noted in Proposal II above and as discussed in the sub-section
"Additional Information -- Administrator, Transfer Agent and Principal
Underwriter (or Placement Agent)" below, there will be a consolidation of
distribution services in one distributor, Transamerica Capital, Inc. ("TCI").
(For DIP, TCI will serve as placement agent since DIP does not have a
distributor.) DISC will continue to provide distribution and shareholder
services to the Funds in connection with its services to retirement plans that
may invest in the Funds. The change of distributor to the Funds should be
seamless to retirement plan sponsors and participants.
THE AMENDED PLAN
The Amended Plan provides that each Fund may pay one or more principal
underwriters, broker-dealers, financial intermediaries and others (each a
"Servicing Party") a service and distribution fee, provided that the aggregate
amount of all such payments does not exceed an amount calculated at an annual
rate of 0.25% of the Fund's average daily net assets. The fees payable under the
Amended Plan may be used for both distribution and servicing of accounts. More
specifically, these fees may be used by a Servicing Party for expenses related
to the Fund, including: costs of printing and distributing the Fund's
prospectuses, statements of additional information and reports to prospective
investors in the Fund; costs involved in preparing, printing and distributing
sales literature pertaining to the Fund and reports for persons other than
existing holders; an allocation of overhead and other branch office
distribution-related expenses of a Servicing Party; payments made to, and
expenses of, a Servicing Party and other persons who provide support or personal
services to Fund holders in connection with the distribution of interests in the
Fund; and interest-related expenses, or the cost of capital associated with, the
financing of any of the foregoing. The Current Plan provides that each Fund may
pay its distributor a distribution fee at an annual rate of up to 0.25% of the
Fund's average daily net assets as reimbursement for or in anticipation of costs
and expenses incurred in connection with the distribution and sales of interests
in the Fund. These fees may be used by the distributor to pay for its services
or for advertising, marketing or other promotional activities.
The Amended Plan is a compensation plan pursuant to which each Fund is
obligated to pay fees to one or more Servicing Parties as compensation for their
services and not as reimbursement for specific expenses incurred. This means
that the Funds will not be obligated to pay more than the fees provided for in
the Amended Plan even if expenses exceed those fees, and if the expenses of the
Servicing Party(ies) are less than the fees paid to them, the Servicing Party or
Parties will realize a profit. The Amended Plan provides that a Servicing Party
may retain any portions of the fees in excess of its expenses incurred. As noted
above, the Current Plan is a reimbursement plan,
42
which provides that the distributor receives payment in anticipation of, or as
reimbursement of, actual expense incurred. Historically, the Funds' distributor
has incurred more distribution expenses than the maximum amount payable under
the Current Plan, and has been reimbursed by the Funds to the fullest extent
permitted by the plan. Nonetheless, going forward, there could be material
differences in the payments made under the compensation-type Amended Plan as
compared to those that would have been payable under the reimbursement-type
Current Plan.
The Amended Plan recognizes that a Fund's investment adviser, principal
underwriter, a Servicing Party, or an affiliate of the foregoing may use its
management or advisory fee revenues, past profits or its resources from any
other source, to make payment to a Servicing Party or any other entity with
respect to any expenses incurred in connection with the distribution or
marketing and sales of interests in the Fund. The Amended Plan specifically
provides that, to the extent that such payments might be deemed to be indirect
financing of any activity primarily intended to result in the sale of interests
in a Fund within the context of Rule 12b-1, then the payments are deemed to be
authorized by the Amended Plan. The Current Plan contains similar provisions.
The Amended Plan, like the Current Plan, provides that its continuance must
be specifically approved at least annually by a vote of a majority of both the
Board and the Independent Board Members and who have no direct or indirect
financial interest in the operation of the Amended Plan or in any agreement
related to it.
The Amended Plan, like the Current Plan, may be terminated with respect to
a Fund by a majority vote of the Independent Board Members or by a vote of a
majority of holders of outstanding interests in the Fund and may not be
materially amended without the approval of a majority of both the Board and the
Independent Board Members. Under the Amended Plan, as under the Current Plan,
any amendment to the Amended Plan that would materially increase a Fund's
expenses must first be approved by the Fund's holders.
Under the Amended Plan, as under the Current Plan, the Investment Company
is required to preserve copies of any plan, agreement or report made pursuant to
the Amended Plan for a period of not less than six years from the date of the
Amended Plan, and for the first two years the Investment Company will preserve
such copies in an easily accessible place.
BOARD EVALUATION OF THE AMENDED PLAN
The Board of each Fund has determined that the approval of the Amended Plan
is in the best interests of the Fund and its holders. At a meeting on August 10,
2007, the Board Members considered, among other factors, the fees payable under
the Amended Plan and, more specifically, that the maximum amount payable under
the Current Plan and Amended Plan is the same. The Board Members considered
that, going forward, there could be material differences in the payments made
under the Amended Plan as compared to those that would have been payable under
the Current Plan, but noted that the Funds' distributor had historically
incurred more distribution expenses than the maximum amount payable under the
Current Plan, and had been reimbursed by the Funds to the fullest extent
permitted by the plan. The Board Members also considered the services covered by
the Amended Plan and the anticipated benefits to shareholders resulting from
these services. The Board Members believe that the Amended Plan will enable each
Fund to promote sales of its interests and provide personal service and
maintenance with respect to shareholder accounts as appropriate for each Fund.
The Board Members concluded that the fees provided in the Amended Plan are fair
and reasonable and in line with industry standards. As a result of these and
other factors, the Board Members believe that the Amended Plan is reasonably
likely to benefit the Funds and recommend that the holders of each Fund approve
the plan.
REQUIRED VOTE
Each Fund will vote separately on the Amended Plan. The affirmative vote of
a 1940 Act Majority Vote, as such term is defined above under "Quorum, Vote
Required and Manner of Voting Proxies," is required to approve the Amended Plan.
Each Amended Plan was approved by the Independent Board Members, separately, and
by the Board of the applicable Fund, as a whole, after consideration of all
factors which it determined to be relevant to its deliberations, including those
discussed above. The Board of each Fund also determined to submit the Fund's
Amended Plan for consideration by the holders of the Fund.
43
YOUR BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF AN AMENDED 12B-1
PLAN.
OTHER BUSINESS
The Board Members do not know of any matters to be presented at the Special
Meetings other than those set forth in this Joint Proxy Statement. If other
business should properly come before the Special Meetings, proxies will be voted
in accordance with the judgment of the persons named in the accompanying proxy.
ADDITIONAL INFORMATION
ADMINISTRATOR, TRANSFER AGENT AND PRINCIPAL UNDERWRITER (OR PLACEMENT AGENT)
Diversified serves as the current administrator and transfer agent of each
Fund. DISC is the distributor of each Fund (DISC is the placement agent for each
series of DIP, as DIP does not have a distributor). Both Diversified and DISC
are located at Four Manhattanville Road, Purchase, New York 10577.
If TFAI is approved as investment adviser to the Diversified Funds,
Transamerica Fund Services, Inc. ("TFS") will be appointed as administrator and
transfer agent of each Fund. TCI will be appointed as principal
underwriter/distributor (or placement agent) of each Fund. TFS is located at 570
Carillon Parkway, St. Petersburg, Florida 33716. TCI is located at 4600 South
Syracuse Street, Suite 1100, Denver, CO 80237. Diversified, DISC, TFAI, TFS and
TCI are all affiliated due to their common ultimate ownership by AEGON, N.V.
During the past fiscal year, each Fund paid the amount shown on Appendix H
to Diversified and DISC for transfer agency, administrative and distribution
services.
ANNUAL AND SEMI-ANNUAL REPORTS
Holders can find important information about the Funds in their annual
reports dated December 31, 2006 and their semi-annual reports dated June 30,
2007, which have been or are being mailed to holders. You may obtain copies of
these reports without charge by writing to or calling the Funds at the address
or telephone number shown on the first page of this Proxy Statement.
PROXY SOLICITATION
The principal solicitation of proxies will be by the mailing of this Joint
Proxy Statement beginning on or about August 27, 2007, but proxies may also be
solicited by telephone and/or in person by representatives of the Funds, regular
employees of TFAI, Diversified or their affiliate(s), or Computershare Fund
Services ("Computershare"), a private proxy services firm. The estimated cost of
retaining Computershare is approximately $3.9 million. If we have not received
your vote as the date of the Special Meeting approaches, you may receive a call
from these parties to ask for your vote. Arrangements will be made with
brokerage houses and custodians, nominees and fiduciaries to forward proxies and
proxy materials to their clients.
The cost of the Special Meetings, including the preparation and mailing of
the notice, Joint Proxy Statement and the solicitation of proxies, including
reimbursement to broker-dealer and others who forwarded proxy materials to their
clients, will be borne by TFAI and/or its affiliates.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board Members, including a majority of the independent Board Members,
of each Fund have selected PricewaterhouseCoopers LLP ("PwC") as the independent
registered public accounting firm for the Funds. PwC, in accordance with
Independence Standards Board Standard No. 1 (ISB No. 1), has confirmed to each
applicable Audit Committee that it is an independent registered public
accounting firm with respect to the Funds.
Each Fund's Audit Committee approved the engagement of PwC as each Fund's
independent registered public accounting firm for the Fund's most recent fiscal
year, as well as for the current fiscal year. PwC provides audit and accounting
services including audit to the annual financial statements, assistance and
consultation with respect to filings with the SEC, and preparation for annual
income tax returns.
The reports of PwC on each Fund's financial statements for each of the last
two fiscal years audited by PwC contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit
44
scope or accounting principles. There have been no disagreements with PwC during
such fiscal years and any subsequent interim period on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of PwC, would have caused
them to make reference thereto in their reports on the financial statements for
such years.
No representatives of PwC will be present at the Special Meetings.
Appendix M sets forth for each Fund, for each of the Fund's two most recent
fiscal years, the fees billed by the Fund's independent registered public
accounting firm for all audit and non-audit services provided directly to the
Fund. The fee information in Appendix M is presented under the following
captions:
(a) Audit Fees -- fees related to the audit and review of the
financial statements included in annual reports and registration
statements, and other services that are normally provided in connection
with statutory and regulatory filings or engagements.
(b) Audit-Related Fees -- fees related to assurance and related
services that are reasonably related to the performance of the audit or
review of financial statements, but not reported under "Audit Fees"
including accounting consultations, agreed-upon procedure reports,
attestation reports, comfort letters and internal control reviews not
required by regulators.
(c) Tax Fees -- fees associated with tax compliance, tax advice and
tax planning, including services relating to the filing or amendment of
federal, state or local income tax returns, regulated investment company
qualification reviews and tax distribution and analysis reviews.
(d) All Other Fees -- fees for products and services provided to the
Fund other than those reported under "Audit Fees," "Audit-Related Fees" and
"Tax Fees."
The charter of each Audit Committee requires that the Audit Committee shall
approve (a) all audit and permissible non-audit services to be provided to each
Fund and (b) all permissible non- audit services to be provided by the Fund's
independent auditors to Diversified and any service providers controlling,
controlled by or under common control with Diversified that provide ongoing
services to the Fund ("Covered Service Providers") if the engagement relates
directly to the operations and financial reporting of the Fund. The Audit
Committee may implement policies and procedures by which such services are
approved other than by the full Audit Committee.
No Audit Committee may approve non-audit services that the Audit Committee
believes may impair the independence of the independent registered public
accounting firms. Permissible non-audit services include any professional
services (including tax services) that are not prohibited services as described
below provided to the Fund by the independent registered public accounting
firms, other than those provided to a Fund in connection with an audit or a
review of the financial statements of the Fund. Permissible non-audit services
may not include (a) bookkeeping or other services related to the accounting
records or financial statements of the Fund; (b) financial information systems
design and implementation; (c) appraisal or valuation services, fairness
opinions or contribution-in-kind reports; (d) actuarial services; (e) internal
audit outsourcing services; (f) management functions or human resources; (g)
broker or dealer, investment adviser or investment banking services; (h) legal
services and expert services unrelated to the audit; and (i) any other service
the Public Company Accounting Oversight Board determines, by regulation, is
impermissible.
Pre-approval by the Audit Committee of any permissible non-audit services
is not required so long as: (a) the aggregate amount of all such permissible
non-audit services provided to a Fund, Diversified and any Covered Service
Provider constitutes not more than 5% of the total amount of revenues paid to
the independent registered public accounting firms during the fiscal year in
which the permissible non-audit services are provided to (i) the Fund, (ii)
Diversified and (iii) any Covered Service Provider during the fiscal year in
which services are provided that would not have to be approved by the Audit
Committee; (b) the permissible non-audit services were not recognized by the
Fund at the time of the engagement to be non-audit services; and (c) such
services are promptly brought to the attention of the Audit Committee and
approved by the Audit Committee (or its delegate(s)) prior to completion of the
audit.
For each Fund's two most recent fiscal years, there were no services
rendered by PwC to the Fund for which the pre-approval requirement was waived.
45
Each Audit Committee has considered whether the provision of non-audit
services that were rendered by PwC to Diversified and Covered Service Providers
that were not pre-approved (not requiring pre-approval) is compatible with
maintaining such auditor's independence. All services provided by PwC to each
Fund, Diversified or Covered Service Providers that were required to be pre-
approved were pre-approved as required.
The aggregate non-audit fees billed by PwC for services rendered to DIFG
were $114,925 and $151,450 in each of the last two fiscal years ended December
31, 2005 and December 31, 2006, respectively. The aggregate non-audit fees
billed by PwC for services rendered to DIFG II were $101,325 and $155,250 in
each of the last two fiscal years ended December 31, 2005 and December 31, 2006,
respectively. There were no non-audit fees billed by PwC for services rendered
to DISVF in each of the last two fiscal years ended December 31, 2005 and
December 31, 2006, respectively. The aggregate non-audit fees billed by PwC for
services rendered to DIP were $63,900 and $72,900 in each of the last two fiscal
years ended December 31, 2005 and December 31, 2006, respectively. In addition,
aggregate non-audit fees billed by PwC for services rendered to TFAI or any
Covered Service Provider(s) that provide ongoing services to DIFG, DIFG II,
DISVF and DIP were $254,000 and $269,000 in each of the last two fiscal years
ended December 31, 2005 and December 31, 2006, respectively.
5% INTEREST OWNERSHIP
As of August 15, 2007, the persons listed in Appendix N owned of record the
amounts indicated of the interests of the Funds indicated in Appendix N.
HOLDER COMMUNICATIONS TO THE BOARDS
Holders of a Fund may mail written communications to the Fund's Board,
addressed to the care of the Secretary of the Fund, at the Fund's address. Each
holder communication must (i) be in writing and be signed by the holder, and
(ii) identify the full name of the Fund. The Secretary is responsible for
collecting, reviewing and organizing all properly submitted holder
communications. Except as provided below, with respect to each properly
submitted holder communication, the Secretary will either (i) provide a copy of
the communication to the Board at the next regularly scheduled Board meeting, or
(ii) if the Secretary determines that the communication requires more immediate
attention, forward the communication to the Board promptly after receipt. The
Secretary may, in good faith, determine that a holder communication should not
be provided to the Board because the communication, among other things, (i) does
not reasonably relate to the Fund or its operations, management, activities,
policies, service providers, Board, officers, holders or other matters relating
to an investment in the Fund, or (ii) is ministerial in nature (such as a
request for Fund literature, share data or financial information).
PROPOSALS BY HOLDERS OF INTERESTS IN THE FUNDS
As a general matter, none of the Investment Companies holds annual meetings
of holders. Holders wishing to submit proposals for inclusion in a proxy
statement for a subsequent meeting (if any) should send their written proposals
to Dennis P. Gallagher, Secretary, Four Manhattanville Road, Purchase, New York
10577.
Proposals must be received a reasonable time prior to the date of a meeting
of Holders to be considered for inclusion in the proxy materials for the
meeting. Timely submission of a proposal does not, however, necessarily mean
that the proposal will be included. Persons named as proxies for any subsequent
holders' meeting will vote in their discretion with respect to proposals
submitted on an untimely basis.
FISCAL YEAR
The fiscal year end of each Fund is December 31.
GENERAL
Management does not intend to present and does not have reason to believe
that any other items of business will be presented at any Special Meeting.
However, if other matters are properly presented to a Special Meeting for a
vote, the proxies will be voted by the persons acting under the proxies upon
such matters in accordance with their judgment of the best interests of the
applicable Fund.
A list of holders entitled to be present and to vote at the Special
Meetings will be available at the offices of the Funds, Four Manhattanville
Road, Purchase, New York 10577, for inspection by any holder during regular
business hours beginning ten days prior to the date of the Special Meetings.
46
Failure of a quorum to be present at a Special Meeting will necessitate
adjournment. The persons named in the enclosed proxy may also move for an
adjournment of a Special Meeting to permit further solicitation of proxies with
respect to any of the proposals if they determine that adjournment and further
solicitation are reasonable and in the best interests of holders. Under each
Fund's By-Laws, an adjournment of a meeting requires the affirmative vote of a
majority of the interests present in person or represented by proxy at the
meeting.
INFORMATION ABOUT THE FUNDS
Each of the Funds is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended and certain other federal securities
statutes, and files reports and other information with the SEC. Proxy materials,
reports and other information filed by the Funds can be inspected and copied at
the Public Reference Facilities maintained by the SEC at 100 F Street, NE,
Washington, DC 20549. The SEC maintains an Internet web site (at
http://www.sec.gov), which contains other information about the Funds.
PLEASE SUBMIT YOUR VOTING INSTRUCTIONS PROMPTLY BY SIGNING AND DATING EACH
ENCLOSED PROXY CARD AND RETURNING IT IN THE ACCOMPANYING POSTAGE-PAID RETURN
ENVELOPE OR BY FOLLOWING THE ENCLOSED INSTRUCTIONS TO SIMILARLY PROVIDING VOTING
INSTRUCTIONS BY TELEPHONE OR BY THE INTERNET.
TO ENSURE THE PRESENCE OF A QUORUM AT THE SPECIAL MEETING, WE REQUEST
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY. A SELF-ADDRESSED, POSTAGE-
PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
BY ORDER OF THE BOARDS OF EACH OF THE
DIVERSIFIED INVESTORS FUNDS GROUP, THE
DIVERSIFIED INVESTORS FUNDS GROUP II,
DIVERSIFIED INVESTORS STRATEGIC VARIABLE
FUNDS AND DIVERSIFIED INVESTORS
PORTFOLIOS
----------------------------------------
Dennis P. Gallagher
Vice President, General Counsel and
Secretary
, 2007
Four Manhattanville Road
Purchase, New York 10577
47
LIST OF APPENDICES
<Table>
Appendix A: Funds' Issued and Outstanding Interests or Shares
Appendix B: Compensation of the Board Members
Appendix C: Nominating Committee Charter
Appendix D: Comparison of Terms of Advisory Agreements
Appendix E: Form of Investment Advisory Agreement Between TFAI and the Funds
Appendix F: Diversified's and TFAI's Directors and Principal Executive
Officers
Appendix G: Information About Current Investment Advisory Agreements
Appendix H Fees Paid to Diversified and Affiliates
Appendix I: Other Funds Advised by TFAI
Appendix J: Form of New Declaration of Trust
Appendix K: Current and Proposed Fundamental Investment Policies of the Funds
Appendix L: Form of Plan of Distribution Pursuant to Rule 12b-1 Under the
Investment Company Act of 1940
Appendix M: Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees
Appendix N: Beneficial Owners of 5% or More of the Outstanding Interests of
the Funds
</Table>
48
APPENDIX A
FUNDS' ISSUED AND OUTSTANDING INTERESTS OR SHARES
Following is a list of the Funds that are a series of each of DIFG, DIFG
II, DISVF and DIP.
Ownership in Funds that are series of DIP and DISVF are reflected in
interests that are measured by their dollar value, and ownership in Funds that
are series of DIFG and DIFG II are represented in shares.
<Table>
<Caption>
DOLLAR VALUE OF
INTERESTS
OR NUMBER OF SHARES
(AS APPLICABLE)
FUND AS OF THE RECORD DATE
- ---- ---------------------
THE DIVERSIFIED INVESTORS FUNDS GROUP
Diversified Investors Money Market Fund......................
Diversified Investors High Quality Bond Fund.................
Diversified Investors Inflation-Protected Securities Fund....
Diversified Investors Core Bond Fund.........................
Diversified Investors Total Return Bond Fund.................
Diversified Investors High Yield Bond Fund...................
Diversified Investors Balanced Fund..........................
Diversified Investors Value & Income Fund....................
Diversified Investors Value Fund.............................
Diversified Investors Growth & Income Fund...................
Diversified Investors Equity Growth Fund.....................
Diversified Investors Aggressive Equity Fund.................
Diversified Investors Mid-Cap Value Fund.....................
Diversified Investors Mid-Cap Growth Fund....................
Diversified Investors Small-Cap Value Fund...................
Diversified Investors Special Equity Fund....................
Diversified Investors Small-Cap Growth Fund..................
Diversified Investors International Equity Fund..............
Diversified Investors Stock Index Fund.......................
Institutional Short Horizon Strategic Allocation Fund........
Institutional Short/Intermediate Horizon Strategic Allocation
Fund......................................................
Institutional Intermediate Horizon Strategic Allocation
Fund......................................................
Institutional Intermediate/Long Horizon Strategic Allocation
Fund......................................................
Institutional Long Horizon Strategic Allocation Fund.........
THE DIVERSIFIED INVESTORS FUNDS GROUP II
Diversified Institutional Money Market Fund..................
Diversified Institutional High Quality Bond Fund.............
Diversified Institutional Inflation-Protected Securities
Fund......................................................
Diversified Institutional Core Bond Fund.....................
Diversified Institutional Total Return Bond Fund.............
Diversified Institutional High Yield Bond Fund...............
Diversified Institutional Balanced Fund......................
Diversified Institutional Value & Income Fund................
Diversified Institutional Value Fund.........................
</Table>
A-1
<Table>
<Caption>
DOLLAR VALUE OF
INTERESTS
OR NUMBER OF SHARES
(AS APPLICABLE)
FUND AS OF THE RECORD DATE
- ---- ---------------------
Diversified Institutional Growth & Income Fund...............
Diversified Institutional Equity Growth Fund.................
Diversified Institutional Aggressive Equity Fund.............
Diversified Institutional Mid-Cap Value Fund.................
Diversified Institutional Mid-Cap Growth Fund................
Diversified Institutional Small-Cap Value Fund...............
Diversified Institutional Special Equity Fund................
Diversified Institutional Small-Cap Growth Fund..............
Diversified Institutional International Equity Fund..........
Diversified Institutional Stock Index Fund...................
Short Horizon Strategic Allocation Fund......................
Short/Intermediate Horizon Strategic Allocation Fund.........
Intermediate Horizon Strategic Allocation Fund...............
Intermediate/Long Horizon Strategic Allocation Fund..........
Long Horizon Strategic Allocation Fund.......................
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
Short Horizon Strategic Allocation Variable Fund.............
Intermediate Horizon Strategic Allocation Variable Fund......
Intermediate/Long Horizon Strategic Allocation Variable
Fund......................................................
DIVERSFIED INVESTORS PORTFOLIOS
Money Market Portfolio.......................................
High Quality Bond Portfolio..................................
Inflation-Protected Securities Portfolio.....................
Core Bond Portfolio..........................................
Total Return Bond Portfolio..................................
High Yield Bond Portfolio....................................
Balanced Portfolio...........................................
Value & Income Portfolio.....................................
Value Portfolio..............................................
Growth & Income Portfolio....................................
Equity Growth Portfolio......................................
Aggressive Equity Portfolio..................................
Mid-Cap Value Portfolio......................................
Mid-Cap Growth Portfolio.....................................
Small-Cap Value Portfolio....................................
Special Equity Portfolio.....................................
Small-Cap Growth Portfolio...................................
International Equity Portfolio...............................
</Table>
A-2
APPENDIX B
COMPENSATION OF THE BOARD MEMBERS
Information relating to compensation paid to the Board Members for the
fiscal year ended December 31, 2006 is set forth below. Board Members who are
not "interested persons," as defined in the 1940 Act, receive a fee for each
meeting of the Board attended and are reimbursed for all travel and out-of-
pocket expenses relating to attendance at such meetings. Mr. Mark Mullin, an
"interested person," as defined in the 1940 Act, does not receive compensation
from the Funds or other funds in the Fund Complex, but may be reimbursed for
out-of-pocket expenses relating to attendance at such meetings.
Effective January 1, 2007, each Independent Board Member receives an annual
aggregate fee of $60,000, plus $4,000 for each Board meeting attended in person
or for certain telephone meetings, and $2,000 for certain other telephone
meetings. The lead Independent Board Member and the chairperson of the Audit
Committee receive an additional $30,000 and $15,000, respectively. Board Members
are reimbursed for travel and out-of-pocket expenses incurred in connection with
Board meetings. During the fiscal year ended December 31, 2006, all Funds
reimbursed Board Member expenses in an aggregate amount of $25,811.52.
<Table>
<Caption>
JOYCE
NEAL M. MITCHELL A. ROBERT L. EUGENE M. GALPERN LOWELL W. PATRICIA L.
FUND JEWELL JOHNSON LINDSAY* MANNELLA NORDEN ROBINSON SAWYER
- ---- ------- ----------- --------- --------- ------- --------- -----------
THE DIVERSIFIED INVESTORS FUNDS
GROUP
Diversified Investors Money
Market Fund................. $ 837 $ 245 $ 837 $ 789 $ 837 $ 538 $ 975
Diversified Investors High
Quality Bond Fund........... 685 201 685 646 685 440 797
Diversified Investors
Inflation-Protected
Securities Fund............. 192 56 192 181 192 124 224
Diversified Investors Core Bond
Fund........................ 1,792 525 1,792 1,689 1,792 1,152 2,086
Diversified Investors Total
Return Bond Fund............ 82 24 82 77 82 53 95
Diversified Investors High
Yield Bond Fund............. 447 131 447 421 447 287 520
Diversified Investors Balanced
Fund........................ 355 104 355 334 355 228 413
Diversified Investors Value &
Income Fund................. 2,589 758 2,589 2,441 2,589 1,665 3,015
Diversified Investors Value
Fund........................ 75 22 75 70 75 48 87
Diversified Investors Growth &
Income Fund................. 1,198 351 1,198 1,130 1,198 770 1,395
Diversified Investors Equity
Growth Fund................. 1,902 557 1,902 1,793 1,902 1,223 2,214
Diversified Investors
Aggressive Equity Fund...... 392 115 392 370 392 252 456
Diversified Investors Mid-Cap
Value Fund.................. 992 290 992 935 992 638 1,155
Diversified Investors Mid-Cap
Growth Fund................. 295 86 295 278 295 190 344
Diversified Investors Small-Cap
Value Fund.................. 241 71 241 228 241 155 281
Diversified Investors Special
Equity Fund................. 989 290 989 932 989 636 1,151
Diversified Investors Small-Cap
Growth Fund................. 111 32 111 104 111 71 129
Diversified Investors
International Equity Fund... 1,439 421 1,439 1,357 1,439 925 1,675
Diversified Investors Stock
Index Fund.................. 1,347 395 1,347 1,270 1,347 866 1,569
Institutional Short Horizon
Strategic Allocation Fund... 206 60 206 195 206 133 240
Institutional
Short/Intermediate Horizon
Strategic Allocation Fund... 176 52 176 166 176 113 205
Institutional Intermediate
Horizon Strategic Allocation
Fund........................ 1,293 379 1,293 1,219 1,293 831 1,506
</Table>
B-1
<Table>
<Caption>
JOYCE
NEAL M. MITCHELL A. ROBERT L. EUGENE M. GALPERN LOWELL W. PATRICIA L.
FUND JEWELL JOHNSON LINDSAY* MANNELLA NORDEN ROBINSON SAWYER
- ---- ------- ----------- --------- --------- ------- --------- -----------
Institutional Intermediate/Long
Horizon Strategic Allocation
Fund........................ 1,034 303 1,034 975 1,034 665 1,204
Institutional Long Horizon
Strategic Allocation Fund... 612 179 612 577 612 393 712
THE DIVERSIFIED INVESTORS FUNDS
GROUP II
Diversified Institutional Money
Market Fund................. 458 134 458 432 458 295 533
Diversified Institutional High
Quality Bond Fund........... 411 120 411 388 411 264 479
Diversified Institutional
Inflation-Protected
Securities Fund............. 61 18 61 58 61 39 71
Diversified Institutional Core
Bond Fund................... 1,085 318 1,085 1,023 1,085 697 1,263
Diversified Institutional Total
Return Bond Fund............ 12 4 12 11 12 8 14
Diversified Institutional High
Yield Bond Fund............. 184 54 184 173 184 118 214
Diversified Institutional
Balanced Fund............... 143 42 143 135 143 92 167
Diversified Institutional Value
& Income Fund............... 1,683 493 1,683 1,587 1,683 1,082 1,959
Diversified Institutional Value
Fund........................ 32 10 32 32 32 21 38
Diversified Institutional
Growth & Income Fund........ 439 128 439 414 439 282 511
Diversified Institutional
Equity Growth Fund.......... 1,736 508 1,736 1,637 1,736 1,116 2,021
Diversified Institutional
Aggressive Equity Fund...... 157 46 157 148 157 101 183
Diversified Institutional Mid-
Cap Value Fund.............. 381 111 381 359 381 245 443
Diversified Institutional Mid-
Cap Growth Fund............. 152 45 152 143 152 98 177
Diversified Institutional
Small-Cap Value Fund........ 94 27 94 88 94 60 109
Diversified Institutional
Special Equity Fund......... 565 165 565 532 565 363 657
Diversified Institutional
Small-Cap Growth Fund....... 56 16 56 53 56 36 65
Diversified Institutional
International Equity Fund... 1,072 314 1,072 1,010 1,072 689 1,248
Diversified Institutional Stock
Index Fund.................. 1,572 460 1,572 1,482 1,572 1,011 1,830
Short Horizon Strategic
Allocation Fund............. 420 123 420 396 420 270 489
Short/Intermediate Horizon
Strategic Allocation Fund... 436 128 436 411 436 280 508
Intermediate Horizon Strategic
Allocation Fund............. 1,790 524 1,790 1,688 1,790 1,151 2,085
Intermediate/Long Horizon
Strategic Allocation Fund... 1,732 507 1,732 1,633 1,732 1,114 2,017
Long Horizon Strategic
Allocation Fund............. 1,049 307 1,049 989 1,049 674 1,221
DIVERSIFIED INVESTORS STRATEGIC
VARIABLE FUNDS
Short Horizon Strategic
Allocation Variable Fund.... 216 63 216 204 216 139 252
Intermediate Horizon Strategic
Allocation Variable Fund.... 597 175 597 563 597 384 695
Intermediate/Long Horizon
Strategic Allocation
Variable Fund............... 936 274 936 883 936 602 1,090
</Table>
B-2
<Table>
<Caption>
JOYCE
NEAL M. MITCHELL A. ROBERT L. EUGENE M. GALPERN LOWELL W. PATRICIA L.
FUND JEWELL JOHNSON LINDSAY* MANNELLA NORDEN ROBINSON SAWYER
- ---- ------- ----------- --------- --------- ------- --------- -----------
DIVERSIFIED INVESTORS PORTFOLIOS
Money Market Portfolio......... 1,744 511 1,744 1,644 1,744 1,121 2,031
High Quality Bond Portfolio.... 1,608 471 1,608 1,516 1,608 1,033 1,872
Inflation-Protected Securities
Portfolio................... 371 109 371 350 371 238 432
Core Bond Portfolio............ 4,062 1,189 4,062 3,830 4,062 2,611 4,729
Total Return Bond Portfolio.... 165 49 165 157 165 106 193
High Yield Bond Portfolio...... 901 264 901 849 901 579 1,048
Balanced Portfolio............. 770 226 770 726 770 495 897
Value & Income Portfolio....... 6,350 1,859 6,350 5,987 6,350 4,082 7,393
Value Portfolio................ 107 32 107 102 107 69 125
Growth & Income Portfolio...... 2,294 672 2,294 2,163 2,294 1,475 2,671
Equity Growth Portfolio........ 4,998 1,464 4,998 4,712 4,998 3,213 5,819
Aggressive Equity Portfolio.... 744 218 744 702 744 478 866
Mid-Cap Value Portfolio........ 1,553 455 1,553 1,464 1,553 998 1,808
Mid-Cap Growth Portfolio....... 604 177 604 570 604 388 703
Small-Cap Value Portfolio...... 473 138 473 446 473 304 551
Special Equity Portfolio....... 2,490 729 2,490 2,348 2,490 1,601 2,900
Small-Cap Growth Portfolio..... 300 88 300 282 300 193 349
International Equity
Portfolio................... 3,716 1,088 3,716 3,503 3,716 2,389 4,326
TOTAL COMPENSATION FROM THE FUND
COMPLEX........................ 70,000 20,500 70,000 66,000 70,000 45,000 81,500
NUMBER OF FUNDS IN THE FUND
COMPLEX OVERSEEN BY BOARD
MEMBER......................... 69 69 69 69 69 69 69
</Table>
- --------
* Mr. Lindsay retired as a Board Member as of the close of business on
November 28, 2006.
None of the Funds currently provides any pension or retirement benefits to
Board Members or officers.
B-3
APPENDIX C
NOMINATING COMMITTEE CHARTER
THE DIVERSIFIED INVESTORS FUNDS GROUP
THE DIVERSIFIED INVESTORS FUNDS GROUP II
DIVERSIFIED INVESTORS PORTFOLIOS
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
(EACH, A "FUND" AND COLLECTIVELY, THE "FUNDS")
A. COMMITTEE MEMBERSHIP
The Nominating Committee (the "Committee") of the Funds' Boards (the
"Boards") shall be composed solely of trustees who are not "interested persons"
of the Funds as defined in Section 2(a)(19) of the Investment Company Act of
1940 (the "Independent Trustees"). Other members of the Boards, while not
serving as members of the Committee, may assist the Committee in the discharge
of its responsibilities, e.g., by identifying and recommending potential
candidates. In addition, at the request of the Committee, the Funds' investment
advisers and other service providers will provide administrative support and
other assistance to the Committee.
The Boards shall nominate and elect the members of the Committee and shall
designate the Chair of the Committee. The Chair shall preside at each meeting of
the Committee.
A majority of the members of the Committee shall constitute a quorum for
the transaction of business, and the act of a majority of the members of the
Committee present at any meeting at which there is a quorum shall be the act of
the Committee.
B. OBJECTIVES OF THE COMMITTEE
The primary purposes and responsibilities of the Committee are to (i)
identify individuals qualified to become members of the Boards in the event that
a position is vacated or created, (ii) consider all candidates proposed to
become members of the Boards, subject to the procedures and policies set forth
in this Charter or resolutions of the Boards, (iii) select and nominate, or
recommend for nomination by the Boards, candidates for election as Trustees and
(iv) set any necessary standards or qualifications for service on the Boards.
C. BOARD NOMINATIONS AND FUNCTIONS
1. In the event of any vacancies on the Boards, the Committee shall oversee
the process for the identification, evaluation and nomination of potential
candidates to serve on the Boards. The Committee may solicit suggestions for
nominations from any source it deems appropriate.
2. The Committee shall evaluate each candidate's qualifications for Board
membership, and, with respect to nominees for Independent Trustee membership,
their independence from the Funds' investment advisers and other principal
service providers. The Committee shall consider the effect of any relationships
beyond those delineated in the 1940 Act that might impair the independence of a
prospective Independent Trustee.
3. In assessing the qualifications of a potential candidate for membership
on the Boards, the Committee may consider the candidate's potential contribution
to the operation of the Boards and its committees, and such other factors as it
may deem relevant. Specific desired (but not required) qualities of Independent
Trustee candidates are set forth in Schedule A to this Charter. All equally
qualified nominees will be treated equally in consideration by the Committee. No
person shall be qualified to be a Board Member unless the Committee, in
consultation with legal counsel, has determined that such person, if elected as
a Trustee, would not cause the Funds to be in violation of or not in compliance
with (a) applicable law, regulation or regulatory interpretation, (b) its
organizational documents, or (c) any policy adopted by the Boards regarding
either the retirement age of Board Members or the percentage of a Board that is
to be composed of Independent Trustees.
4. While the Committee is solely responsible for the selection and
nomination of potential candidates to serve on the Boards, the Committee may
consider and evaluate nominations properly submitted by shareholders of the
C-1
Funds. Nominations proposed by shareholders will be properly submitted for
consideration by the Committee only if the qualifications and procedures set
forth in Schedule B of this Charter, as it may be amended from time to time by
the Committee or the Boards, are met and followed. It shall be in the
Committee's sole discretion whether to seek corrections of a deficient
submission or to exclude a nominee from consideration.
5. The Committee shall evaluate, as necessary, the operations and
effectiveness of the Boards as a whole and shall evaluate the composition of the
Boards to determine whether it may be appropriate to add individuals with
different backgrounds or skills from those already on the Boards.
D. OTHER POWERS AND RESPONSIBILITIES
The Committee shall meet as necessary to carry out its responsibilities
hereunder, and otherwise from time to time as the Chair of the Committee deems
appropriate.
The Committee shall have the resources and authority appropriate to
discharge its responsibilities, including the ability to engage and compensate
third party consultants from each Fund's assets.
The Committee shall periodically assess this Charter and recommend to the
Boards any revisions or modifications that the Committee deems necessary or
appropriate to the effective discharge of its responsibilities.
C-2
SCHEDULE A
RESPONSIBILITIES AND DESIRED QUALITIES
OF INDEPENDENT TRUSTEES
A. PRIMARY RESPONSIBILITIES
The Independent Trustees' primary responsibility is management oversight of
the Funds on behalf of shareholders. Diverse responsibilities include review and
negotiation of contractual arrangements with management and other service
providers, and oversight and review of service provider performance, investment
performance, compliance, shareholder services and communication with
shareholders.
B. PERSONAL ATTRIBUTES
- Public or private sector stature sufficient to instill confidence.
- High personal and professional integrity.
- Good business sense.
- Ability to commit the necessary time to prepare for and attend meetings.
- Not financially dependent on Trustee retainer and meeting fees.
C. SKILLS, EXPERIENCE AND QUALIFICATIONS FOR DECISION MAKING
- General understanding of financial issues, investing, financial markets
and technology.
- General understanding of balance sheets and operating statements.
- First-hand knowledge of investing.
- Experience in working in highly regulated and complex legal framework.
- Demonstrated ability to maintain "independence" of management and other
service agents while maintaining a constructive working relationship.
- Ability to be critical, but not confrontational.
- Demonstrated ability to contribute to Board and committee process.
- Ability to consider diverse issues and make timely, well-informed
decisions.
- Familiarity with the securities industry.
- Qualification as an "Audit Committee Financial Expert."
Note: The Personal Attributes listed in Section B above should be possessed
by all Trustees. The Skills, Experience and Qualifications listed in Section C
include items that should be possessed by all Trustees as well as items that
should be possessed by at least some Trustees.
C-3
SCHEDULE B
PROCEDURES FOR THE COMMITTEE'S CONSIDERATION OF
CANDIDATES SUBMITTED BY SHAREHOLDERS
A candidate for nomination as Trustee submitted by a shareholder will not
be deemed to be properly submitted to the Committee for the Committee's
consideration unless the following requirements have been met and procedures
followed:
1. Each eligible shareholder or shareholder group may submit no more
than one nominee each calendar year.
2. The nominee must satisfy all qualifications provided herein and in
the Funds' organizational documents, including qualification as a possible
Independent Trustee if the nominee is to serve in that capacity.
- The nominee may not be the nominating shareholder, a member of the
nominating shareholder group or a member of the immediate family of
the nominating shareholder or any member of the nominating
shareholder group.(1)
- Neither the nominee nor any member of the nominee's immediate family
may be currently employed or employed within the year prior to the
nomination by any nominating shareholder entity or entity in a
nominating shareholder group.
- Neither the nominee nor any immediate family member of the nominee
is permitted to have accepted directly or indirectly, during the
year of the election for which the nominee's name was submitted,
during the immediately preceding calendar year, or during the year
when the nominee's name was submitted, any consulting, advisory, or
other compensatory fee from the nominating shareholder or any member
of a nominating shareholder group.
- The nominee may not be an executive officer, director or person
fulfilling similar functions of the nominating shareholder or any
member of the nominating shareholder group, or of an affiliate of
the nominating shareholder or any such member of the nominating
shareholder group.
- The nominee may not control the nominating shareholder or any member
of the nominating shareholder group (or, in the case of a holder or
member that is a fund, an interested person of such holder or member
as defined by Section 2(a)(19) of the 1940 Act).
- A shareholder or shareholder group may not submit for consideration
a nominee which has previously been considered by the Committee.
3. In order for the Committee to consider shareholder submissions, the
following requirements must be satisfied regarding the shareholder or
shareholder group submitting the proposed nominee:
- Any shareholder or shareholder group submitting a proposed nominee
must beneficially own, either individually or in the aggregate, more
than 5% of a Fund's (or a series thereof) securities that are
eligible to vote both at the time of submission of the nominee and
at the time of the Board Member election. Each of the securities
used for purposes of calculating this ownership must have been held
continuously for at least two years as of the date of the
nomination. In addition, such securities must continue to be held
through the date of the meeting.
- The nominating shareholder or shareholder group must also bear the
economic risk of the investment.
- The nominating shareholder or shareholder group must also submit a
certification which provides the number of shares which the person
or group has (a) sole power to vote or direct the vote; (b) shared
power to vote or direct the vote; (c) sole power to dispose or
direct the disposition of such shares; and (d) shared power to
dispose or direct the disposition of such shares. In addition the
certification shall provide that the shares have been held
continuously for at least two years.
- ----------
(1)Terms such as "immediate family member" and "control" shall be
interpreted in accordance with the federal securities laws.
C-4
4. Shareholders or shareholder groups submitting proposed nominees
must substantiate compliance with the above requirements at the time of
submitting their proposed nominee as part of their written submission to
the attention of the Funds' Secretary, who will provide all submissions to
the Committee. This submission to the Funds must include:
- the shareholder's contact information;
- the nominee's contact information and the number of applicable Fund
shares owned by the proposed nominee;
- all information regarding the nominee that would be required to be
disclosed in solicitations of proxies for elections of directors
required by Regulation 14A under the Securities Exchange Act of
1934;
and
- a notarized letter executed by the nominee, stating his or her
intention to serve as a nominee and be named in a Fund's proxy
statement, if so designated by the Committee and the Funds' Board.
5. The Committee will consider all submissions meeting the applicable
requirements stated herein that are received by December 31 of the most
recently completed calendar year.
C-5
APPENDIX D
COMPARISON OF TERMS OF INVESTMENT ADVISORY AGREEMENTS
This Appendix D contains three charts comparing the principal terms of the
Current Advisory Agreements with the corresponding terms of the proposed
Advisory Agreement for each of the Funds. Funds are grouped on a chart based on
similarities in their Current Advisory Agreement and you should look for the
chart or charts containing a comparison of the agreements for your Fund or
Funds, as the case may be.
You should note that the charts contain only a description of the principal
provisions of the Current Advisory Agreements and may not include all of the
terms of those Agreements, or the exact wording of those provisions described.
The complete text of the form of New Advisory Agreement is included in Appendix
E and you should refer to that Appendix for the complete terms of the Agreement.
CHART 1
<Table>
Money Market Portfolio Growth & Income Portfolio
High Quality Bond Portfolio Equity Growth Portfolio
Inflation-Protected Securities Portfolio Aggressive Equity Portfolio
Core Bond Portfolio Mid-Cap Value Portfolio
Total Return Bond Portfolio Mid-Cap Growth Portfolio
High Yield Bond Portfolio Small-Cap Value Portfolio
Balanced Portfolio Special Equity Portfolio
Value & Income Portfolio Small-Cap Growth Portfolio
Value Portfolio International Equity Portfolio
</Table>
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Investment Advisory Services. Subject to Investment Advisory Services. Subject to
the general supervision of the Board of the supervision of the Trust's Board of
Trustees of the Portfolio, the Adviser Trustees, the Adviser shall regularly
shall formulate and provide an provide the Fund with investment
appropriate investment program on a research, advice, management and
continuous basis in connection with the supervision and shall furnish a
management of the Portfolio, including continuous investment program for the
research, analysis, advice, statistical Fund's portfolio of securities and other
and economic data and information and investments consistent with the Fund's
judgments of both a macroeconomic and investment objectives, policies and
microeconomic character. restrictions, as stated in the Fund's
current Prospectus and SAI.
The Adviser will determine the securities
to be purchased, sold, lent, exchanged or The Adviser shall determine from time to
otherwise disposed of or acquired by the time what securities and other
Portfolio in accordance with investments and instruments will be
predetermined guidelines as set forth purchased, retained, sold or exchanged by
from time to time in the Portfolio's the Fund and what portion of the assets
then-current prospectus and SAI. of the Fund's portfolio will be held in
the various securities and other
</Table>
D-1
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
The Adviser will determine what portion investments in which the Fund invests,
of securities owned by the Portfolio and shall implement those decisions
shall be invested in securities described (including the execution of investment
by the policies of the Portfolio and what documentation and agreements), all
portion, if any, should be held subject to the provisions of the Trust's
uninvested. The Adviser will determine Declaration of Trust and By-Laws, the
whether and to what extent to employ Investment Company Act of 1940 and the
various investment techniques available applicable rules and regulations
to the Portfolio. promulgated thereunder by the SEC and
interpretive guidance issued thereunder
As an adviser of the assets of the by the SEC staff and any other applicable
Portfolio, the Adviser shall make federal and state law, as well as the
investments for the account of the investment objectives, policies and
Portfolio in accordance with the restrictions of the Fund referred to
Adviser's best judgment and within the above, and any other specific policies
Portfolio's investment objectives, adopted by the Board and disclosed to the
guidelines, and restrictions, the Adviser.
Investment Company Act of 1940 and the
provisions of the Internal Revenue Code The Adviser is authorized as the agent of
of 1986 relating to regulated investment the Trust to give instructions to the
companies subject to policy decisions custodian of the Fund as to deliveries of
adopted by the Board of Trustees. securities and other investments and
payments of cash for the account of the
The Adviser shall determine from time to Fund. Subject to applicable provisions of
time the manner in which voting rights, the Investment Company Act of 1940 and
rights to consent to corporate action and direction from the Board, the investment
any other rights pertaining to the program to be provided hereunder may
Portfolio's securities shall be entail the investment of all or
exercised, provided, however, that should substantially all of the assets of the
the Board of Trustees at any time make Fund in one or more investment companies.
any definite determination as to
investment policy and notify the Adviser The Adviser shall, at the request of the
thereof in writing, The Adviser shall be Board, exercise voting rights, rights to
bound by such determination for the consent to corporate action and any other
period, if any, specified in such notice rights pertaining to each Fund's
or until similarly notified that such portfolio securities.
determination has been revoked.
The Adviser shall, at its expense,
[identify and monitor an appropriate
investment portfolio in which to invest
all current and future investable assets,
or] employ sub-advisors or associate with
itself such entities as it believes
appropriate to assist it in performing
its obligations under this Agreement.(1)
- -------------------------------------------------------------------------------------
</Table>
D-2
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Brokerage Transactions. The Adviser will Brokerage Transactions. The Adviser will
place orders pursuant to its investment place orders pursuant to its investment
determinations either directly with the determinations for the Fund either
issuer or with any broker or dealer who directly with the issuer or with any
deals in such securities. broker or dealer, foreign currency
dealer, futures commission merchant or
In placing orders with brokers and others selected by it.
dealers, the Adviser will use its
reasonable best efforts to obtain the In connection with the selection of such
best net price and the most favorable brokers or dealers and the placing of
execution of its orders, after taking such orders, subject to applicable law,
into account all factors it deems brokers or dealers may be selected who
relevant, including the breadth of the also provide brokerage and research
market in the security, the price of the services (as those terms are defined in
security, the financial condition and Section 28(e) of the Securities Exchange
execution capability of the broker or Act of 1934 to the Fund and/or the other
dealer, and the reasonableness of the accounts over which the Adviser or its
commission, if any, both for the specific affiliates exercise investment
transaction and on a continuing basis. discretion.
Consistent with this obligation, the
Adviser may, to the extent permitted by The Adviser is authorized to pay a broker
law, purchase and sell Portfolio or dealer who provides such brokerage and
securities to and from brokers and research services a commission for
dealers who provide brokerage and executing a portfolio transaction for the
research services (within the meaning of Fund which is in excess of the amount of
Section 28(e) of the Securities Exchange commission another broker or dealer would
Act of 1934) to or for the benefit of the have charged for effecting that
Portfolio and/or other accounts over transaction if the Adviser determines in
which the Adviser or any of its good faith that such amount of commission
affiliates exercises investment is reasonable in relation to the value of
discretion. the brokerage and research services
provided by such broker or dealer. This
Subject to the review of the Portfolio's determination may be viewed in terms of
Board of Trustees from time to time with either that particular transaction or the
respect to the extent and continuation of overall responsibilities which the
the policy, the Adviser is authorized to Adviser and its affiliates have with
pay to a broker or dealer who provides respect to accounts over which they
such brokerage and research services a exercise investment discretion. The Board
commission for effecting a securities may adopt policies and procedures that
transaction for the Portfolio which is in modify and restrict the Adviser's
excess of the amount of commission authority regarding the execution of the
another broker or dealer would have Fund's portfolio transactions provided
charged for effecting that transaction if herein.
the Adviser 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 the Adviser
with respect to the accounts as to which
it exercises investment discretion.
- -------------------------------------------------------------------------------------
Transactions with Affiliates. In placing Transactions with Affiliates. The Fund
orders with brokers and/or dealers, the hereby authorizes any entity or person
Adviser intends to seek best price and associated with the Adviser which is a
execution for purchases and sales and may member of a national securities exchange
effect transactions through itself and to effect any transaction on the exchange
its affiliates on a securities exchange for the account of the Fund which is
provided that the commissions paid by the permitted by Section 11(a) of the
Portfolio are "reasonable and fair" Securities Exchange Act of 1934 and Rule
compared to commissions received by other 11a2-2(T) thereunder, and the Fund hereby
broker-dealers having comparable consents to the retention of compensation
execution capability in connection with for such transactions in accordance with
comparable transactions involving similar Rule 11a2-2(T)(a)(2)(iv).
securities and provided that the
transactions in connection with which Notwithstanding the foregoing, the
such commissions are paid are effected Adviser agrees that it will not deal with
pursuant to procedures established by the itself, or with Trustees of the Trust or
Board of the Trustees of the Portfolio. any principal underwriter of the Fund, as
All transactions are effected pursuant to principals or agents in making purchases
written authorizations from the Portfolio or sales of securities or other property
conforming to the requirements of Section for the account of the Fund, nor will it
11(a) of the Securities Exchange Act of purchase any securities from an
1934 and Rule 11a2-2(T) thereunder. underwriting or selling group in which
Pursuant to such authorizations, an the Adviser or its affiliates is
affiliated broker-dealer may transmit, participating, or arrange for purchases
clear and settle transactions for the and sales of securities between the Fund
Portfolio that are executed on a and another account advised by the
securities exchange provided that it Adviser or its affiliates, except in each
arranges for unaffiliated brokers to case as permitted by the Investment
execute such transactions. Company Act of 1940 and in accordance
with such policies and procedures as may
In effecting transactions with respect to be adopted by the Fund from time to time,
securities or other property for the and will comply with all other provisions
account of the Portfolio, the Adviser may of the Governing Documents and the Fund's
deal with itself and its affiliates, with then-current Prospectus and SAI relative
the Trustees of the Portfolio or with to the Adviser and its directors and
other entities to the extent such actions officers.
are permitted by the Investment Company
Act of 1940.
- -------------------------------------------------------------------------------------
</Table>
D-3
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Management Services. The Adviser shall Management Services. The Adviser shall
provide the Portfolio with the following furnish or make available to each Fund
services as may be required: providing the services of executive and management
office space, equipment and clerical personnel to supervise the performance of
personnel necessary for maintaining the administrative, record-keeping,
organization of the Portfolio and for shareholder relations, regulatory
performing administrative and management reporting and compliance services, the
functions; supervising the overall services of the Fund's custodian and
administration of the Portfolio, transfer agent, and other functions of
including negotiation of contracts and the Fund. The Adviser shall also assist
fees with and the monitoring of in the preparation of reports to
performance and billings of the shareholders of each Fund as requested by
Portfolio's transfer agent, custodian and the Trust. In accordance with the
other independent contractors or agents; foregoing, the Adviser shall, at the
preparing and, if applicable, filing all request of the Board, provide advice and
documents required for compliance by the recommendations with respect to other
Portfolio with applicable laws and aspects of the business and affairs of
regulations, including registration the Fund.
statements, registration fee filings,
semi-annual and annual reports to
investors, proxy statements and tax
returns; preparation of agendas and
supporting documents for and minutes of
meeting of Trustees, committees of
Trustees and investors; and maintaining
books and records of the Portfolio.
- -------------------------------------------------------------------------------------
Subadvisers. The Adviser shall, at its Subadvisers. Subject to the Board's
expense, [identify and monitor an approval, the Adviser or any Fund may
appropriate investment portfolio to enter into contracts with one or more
invest all current and future investable investment subadvisers, including without
assets in, or] employ sub-advisors or limitation, affiliates of the Adviser, in
associate with itself such entities as it which the Adviser delegates to such
believes appropriate to assist it in investment subadvisers any or all its
performing its obligations under this duties specified hereunder, on such terms
Agreement.(2) as the Adviser will determine to be
necessary, desirable or appropriate,
provided that in each case the Adviser
shall supervise the activities of each
such subadviser and further provided that
such contracts impose on any investment
subadviser bound thereby all the
conditions to which the Adviser is
subject hereunder and that such contracts
are entered into in accordance with and
meet all applicable requirements of the
Investment Company Act of 1940.
- -------------------------------------------------------------------------------------
</Table>
D-4
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Activities of Adviser. Except to the Activities of Adviser. Nothing in this
extent necessary to perform the Adviser's Agreement shall limit or restrict the
obligations under this Agreement, nothing right of any director, officer, or
herein shall be deemed to limit or employee of the Adviser who may also be a
restrict the right of the Adviser, or any Trustee, officer or employee of the Trust
affiliate of the Adviser, or any employee or a Fund, to engage in any other
of the Adviser, to engage in any other business or to devote his or her time and
business or devote time and attention to attention in part to the management or
the management or other aspects of any other aspects of any other business,
other business, whether of a similar or whether of a similar nature or a
dissimilar nature, or to render services dissimilar nature, nor to limit or
of any kind to any other trust, restrict the right of the Adviser to
corporation, firm, individual or engage in any other business or to render
association. services of any kind, including
investment advisory and management
The investment management services of the services, to any other fund, firm,
Adviser to the Portfolio under this individual or association.
Agreement are not to be deemed exclusive
as to the Adviser and the Adviser will be If the purchase or sale of securities for
free to render similar services to a Fund and one or more other accounts of
others. the Adviser is considered at or about the
same time, transactions in such
On occasions when the Adviser deems the securities will be allocated among the
purchase or sale of a security to be in accounts in a manner deemed equitable by
the best interest of the Portfolio as the Adviser. Such transactions may be
well as other customers, the Adviser, to combined, in accordance with applicable
the extent permitted by applicable law, laws and regulations, and consistent with
may aggregate the securities to be so the Adviser's policies and procedures as
sold or purchased in order to obtain the presented to the Board from time to time.
best execution or lower brokerage
commissions, if any. The Adviser 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 the Adviser
in the manner it considers to be the most
equitable and consistent with its
fiduciary obligations to the Portfolio
and to such other customers.
- -------------------------------------------------------------------------------------
</Table>
D-5
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Expenses. The Portfolio shall be Expenses. Each Fund shall pay (i) fees
responsible for all of its expenses and payable to the Adviser pursuant to this
liabilities, including, but not limited Agreement; (ii) the cost (including
to: compensation and out-of-pocket brokerage commissions, if any) incurred
expenses of Trustees not affiliated with in connection with purchases and sales of
any subadvisor or the Adviser; the Fund's portfolio securities; (iii)
governmental fees; interest charges; expenses of organizing the Fund; (iv)
taxes; membership dues; fees and expenses filing fees and expenses relating to
of independent auditors, of legal counsel registering and qualifying and
and of any transfer agent, administrator, maintaining the registration and
distributor, shareholder servicing qualification of the Fund's shares for
agents, registrar or dividend disbursing sale under federal and state securities
agent of the Portfolio; expenses of laws; (v) its allocable share of the
distributing and redeeming shares and compensation, fees and reimbursements
servicing shareholder accounts; expenses paid to the Trust's non-interested
of preparing, printing and mailing Trustees; (vi) custodian and transfer
prospectuses, shareholder reports, agent fees; (vii) legal and accounting
notices, proxy statements and reports to expenses allocable to the Fund, including
governmental officers and commissions and costs for local representation in the
to shareholders of the Portfolio; Trust's jurisdiction of organization and
expenses connected with the execution, fees and expenses of special counsel, if
recording and settlement of Portfolio any, for the independent Trustees; (viii)
security transactions; insurance all federal, state and local tax
premiums; fees and expenses of the (including stamp, excise, income and
custodian for all services to the franchise taxes) and the preparation and
Portfolio, including safekeeping of funds filing of all returns and reports in
and securities and maintaining required connection therewith; (ix) cost of
books and accounts; expenses of certificates, if any, and delivery to
calculating the net asset value of shares purchasers; (x) expenses of preparing and
of the Portfolio; expenses of shareholder filing reports with federal and state
meetings; expenses of litigation and regulatory authorities; (xi) expenses of
other extraordinary or non-recurring shareholders' meetings and of preparing,
events and expenses relating to the printing and distributing proxy
issuance, registration and qualification statements (unless otherwise agreed to by
of shares of the Portfolio. the Trust and the Adviser); (xii) costs
of any liability, uncollectible items of
The Adviser shall, at its expense, deposit and other insurance or fidelity
provide all services, equipment and bonds; (xiii) any costs, expenses or
facilities necessary to perform its losses arising out of any liability of or
obligations under this Agreement. claim for damage or other relief asserted
against the Trust for violation of any
law; (xiv) expenses of preparing,
typesetting and printing prospectuses and
supplements thereto for existing
shareholders and of reports and
statements to shareholders; (xv) fees and
expenses in connection with membership in
investment company organizations and 12b-
1 fees; and (xvi) any extraordinary
expenses incurred by the Trust on behalf
of the Fund.
The Adviser shall pay all expenses
incurred by it in the performance of its
duties under this Agreement. The Adviser
shall authorize and permit any of its
directors, officers and employees, who
may be elected as Trustees or officers of
the Trust, to serve in the capacities in
which they are elected, and shall pay all
compensation, fees and expenses of such
Trustees and officers.
- -------------------------------------------------------------------------------------
Obligation to Provide Information. The Obligation to Provide Information. The
Adviser also shall provide to the Trust shall at all times keep the Adviser
Portfolio administrative assistance in fully informed with regard to the
connection with the operation of the securities owned by each Fund, the Fund's
Portfolio, which shall include compliance funds available, or to become available,
with all reasonable requests of the for investment, and generally as to the
Portfolio for information, including condition of the Fund's affairs. The
information required in connection with Trust shall furnish the Adviser with such
the Portfolio's filings with the SEC and other documents and information with
state securities commissions. regard to each Fund's affairs as the
Adviser may from time to time reasonably
The Adviser shall furnish to the Board of request.
Trustees periodic reports on the
investment performance of the Portfolio The Adviser shall at all times keep the
and on the performance of its obligations Trust fully informed with regard to each
under this Agreement and shall supply Fund's investment performance and
such additional reports and information investment mandate compliance, and
as the Portfolio's officers or Board of generally as to the condition of its
Trustees shall reasonably request. affairs. The Adviser shall furnish the
Trust with such other documents and
information with regard to each Fund's
affairs as the Trust may from time to
time reasonably request.
- -------------------------------------------------------------------------------------
</Table>
D-6
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Fees. In consideration of the services Fees. As compensation for the services
to be rendered by the Adviser under this performed by the Adviser, each Fund shall
Agreement, the Portfolio shall pay the pay the Adviser, as promptly as possible
Adviser a fee accrued daily and paid after the last day of each month, a fee,
monthly at an annual rate equal to computed daily at an annual rate set
[ ]% of the Portfolio's average daily forth opposite the Fund's name on
net assets [for the Fund's then-current Schedule A annexed hereto. The first
fiscal year minus the aggregate payment of the fee shall be made as
investment management fees allocated to promptly as possible at the end of the
the Fund for the Fund's then-current month succeeding the effective date of
fiscal year from any Core Portfolios in this Agreement, and shall constitute a
which it invests. If the Adviser provides full payment of the fee due the Adviser
services hereunder for less than the for all services prior to that date. If
whole of any period specified in this this Agreement is terminated as of any
section, the compensation to the Adviser date not the last day of a month, such
shall be accordingly adjusted and fee shall be paid as promptly as possible
prorated].(3) after such date of termination, shall be
based on the average daily net assets of
[If the fees payable to the Adviser the Fund in that period from the
pursuant to this paragraph begin to beginning of such month to such date of
accrue before the end of any month or if termination, and shall be that proportion
this Agreement terminates before the end of such average daily net assets as the
of any month, the fees for the period number of business days in such period
from that date to the end of that month bears to the number of business days in
or from the beginning of that month to such month. The average daily net assets
the date of termination, as the case may of the Fund shall in all cases be based
be, shall be prorated according to the only on business days and be computed as
proportion which the period bears to the of the time of the regular close of
full month in which the effectiveness or business of the New York Stock Exchange,
termination occurs. For purposes of or such other time as stated in the
calculating the monthly fees, the value Fund's then-current Prospectus or as may
of the net assets of the Portfolio shall be determined by the Board.
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.](4)
- -------------------------------------------------------------------------------------
Term. This Agreement shall be effective Term. This Agreement shall continue in
as to the Portfolio as of the date the effect with respect to each Fund, unless
Portfolio commences investment operations sooner terminated in accordance with its
after this Agreement shall have been terms, for two years from its effective
approved by the Board of Trustees of the date, and shall continue in effect from
Portfolio and the investor(s) in the year to year thereafter, provided such
Portfolio in the manner contemplated by continuance is specifically approved at
Section 15 of the Investment Company Act least annually by the vote of a majority
of 1940 and, unless sooner terminated as of the Trustees who are not parties
provided herein, shall continue until the hereto or interested persons of any such
second anniversary of the date hereof. party, cast in person at a meeting called
for the purpose of voting on the approval
Thereafter, if not terminated, this of the terms of such renewal, and by
Agreement shall continue in effect as to either the Board or the affirmative vote
the Portfolio for successive periods of of a majority of outstanding voting
12 months each, provided such continuance securities of that Fund.
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.
- -------------------------------------------------------------------------------------
</Table>
D-7
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Termination and Amendments. This Termination and Amendments. This
Agreement may be terminated by the Agreement may be terminated with respect
Portfolio at any time, without the to any Fund at any time, without penalty,
payment of any penalty, by the Board of by the Board or by the shareholders of
Trustees of the Portfolio or by vote of a the Fund acting by vote of at least a
majority of the outstanding voting majority of its outstanding voting
securities of the Portfolio on 60 days' securities, provided in either case that
written notice to the Adviser, or by the 60 days' written notice of termination be
Adviser as to the Portfolio at any time, given to the Adviser at its principal
without payment of any penalty, on 90 place of business. This Agreement may be
days' written notice to the Portfolio. terminated with respect to any Fund by
This Agreement will immediately terminate the Adviser at any time by giving 60
in the event of its assignment. (As used days' written notice of termination to
in this Agreement, the terms "majority of the Trust, addressed to its principal
the outstanding voting securities", place of business. This Agreement may be
"interested person" and "assignment" terminated with respect to any Fund upon
shall have the same meanings as such the mutual written consent of the Adviser
terms have in the Investment Company Act and the Trust. This Agreement shall
of 1940 and the rule and regulatory terminate automatically in the event of
constructions thereunder.) its assignment by the Adviser and shall
not be assignable by the Trust without
No provision of this Agreement may be the consent of the Adviser. For the
changed, waived, discharged or terminated avoidance of doubt, it is understood that
orally, but only by an instrument in this Agreement may be amended, terminated
writing signed by the party against which or not renewed as to one or more Funds
enforcement of the change, waiver, without affecting the other Funds
discharge, or termination is sought and hereunder.
no material amendment of this Agreement
shall be effective until approved by vote No provision of this Agreement may be
of the holders of a majority of the changed, waived, discharged or terminated
outstanding voting securities of the orally with respect to a Fund, but only
Portfolio. by an instrument in writing signed by the
party against which enforcement of the
change, waiver, discharge or termination
is sought. No material amendment of the
Agreement shall be effective with respect
to a Fund until approved, if so required
by the Investment Company Act of 1940, by
vote of the holders of a majority
outstanding voting securities of that
Fund. Schedule A hereto may be amended at
any time to add additional series of the
Trust as agreed by the Trust and the
Adviser.
- -------------------------------------------------------------------------------------
Limitation of Liability of the Limitation of Liability of the
Adviser. The Adviser shall give the Adviser. The Adviser may rely on
Portfolio the benefit of the Adviser's information reasonably believed by it to
best judgment and efforts in rendering be accurate and reliable. The Adviser
services under this Agreement. As an assumes no responsibility under this
inducement to the Adviser's undertaking Agreement other than to render the
to render these services, the Portfolio services called for hereunder, in good
agrees that the Adviser shall not be faith, and shall not be liable for any
liable under this Agreement for any error of judgment or mistake of law, or
mistake in judgment or in any other event for any loss arising out of any
whatsoever provided that nothing in this investment or for any act or omission in
Agreement shall be deemed to protect or the execution of securities transactions
purport to protect the Adviser against for any Fund, provided that nothing in
any liability to the Portfolio or its this Agreement shall protect the Adviser
investors to which the Adviser would against any liability to the Fund to
otherwise be subject by reason of willful which the Adviser would otherwise be
misfeasance, bad faith or gross subject by reason of willful misfeasance,
negligence in the performance of the bad faith, or gross negligence in the
Adviser's duties under this Agreement or performance of its duties or by reason of
by reason of the Adviser's reckless its reckless disregard of its obligations
disregard of its obligations and duties and duties hereunder. As used in this
hereunder. Section, the term "the Adviser" shall
include any affiliates of the Adviser
performing services for the Trust or the
Fund contemplated hereby and the
partners, shareholders, directors,
officers and employees of the Adviser and
such affiliates.
</Table>
- --------
(1) Bracketed language appears only in the advisory agreements relating to the
Diversified Institutional Stock Index Fund and the Diversified Investors
Stock Index Fund.
(2) Bracketed language appears only in the advisory agreements relating to the
Diversified Institutional Stock Index Fund and the Diversified Investors
Stock Index Fund.
(3) Bracketed language appears only in the advisory agreements relating to the
Diversified Institutional Stock Index Fund and the Diversified Investors
Stock Index Fund.
(4) Bracketed language does not appear in the advisory agreements relating to
the Diversified Institutional Stock Index Fund and the Diversified
Investors Stock Index Fund.
D-8
CHART 2
<Table>
Institutional Short Horizon Strategic Institutional Long Horizon Strategic
Allocation Fund Allocation Fund
Institutional Short/Intermediate Horizon Short Horizon Strategic Allocation Fund
Strategic Allocation Fund
Short/Intermediate Horizon Strategic
Institutional Intermediate Horizon Allocation Fund
Strategic Allocation Fund
Intermediate Horizon Strategic Allocation
Institutional Intermediate/Long Horizon Fund
Strategic Allocation Fund
Intermediate/Long Horizon Strategic
Allocation Fund
Long Horizon Strategic Allocation Fund
</Table>
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Investment Advisory Services. Subject to Investment Advisory Services. Subject to
the general supervision of the Board of the supervision of the Trust's Board of
Trustees of the Trust, the Adviser shall Trustees, the Adviser shall regularly
provide each Fund with discretionary provide the Fund with investment
investment services. Specifically, the research, advice, management and
Adviser is responsible for supervising supervision and shall furnish a
and directing the investments of each continuous investment program for the
Fund in accordance with each Fund's Fund's portfolio of securities and other
investment objectives, program, and investments consistent with the Fund's
restrictions as provided in the Funds' investment objectives, policies and
then current Prospectus and the SAI. The restrictions, as stated in the Fund's
Adviser is also responsible for effecting current Prospectus and SAI.
all security transactions on behalf of
</Table>
D-9
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
each Fund. The Funds will invest their The Adviser shall determine from time to
assets in the shares of the Underlying time what securities and other
Funds, and such investment will be made investments and instruments will be
without the payment of any commission or purchased, retained, sold or exchanged by
other sales charges. the Fund and what portion of the assets
of the Fund's portfolio will be held in
As adviser of the assets of the Funds, the various securities and other
the Adviser shall make investments for investments in which the Fund invests,
the account of the Fund in accordance and shall implement those decisions
with the Adviser 's best judgment and (including the execution of investment
within the Funds' investment objectives, documentation and agreements), all
guidelines, and restrictions, the subject to the provisions of the Trust's
Investment Company Act of 1940 and the Declaration of Trust and By-Laws, the
provisions of the Internal Revenue Code Investment Company Act of 1940 and the
of 1986 relating to regulated investment applicable rules and regulations
companies subject to policy decisions promulgated thereunder by the SEC and
adopted by the Board. interpretive guidance issued thereunder
by the SEC staff and any other applicable
The Adviser shall have no discretion with federal and state law, as well as the
respect to the exercise of voting rights; investment objectives, policies and
and, whenever an Underlying Fund shall restrictions of the Fund referred to
hold a meeting of shareholders and above, and any other specific policies
request the Fund to vote on a matter, the adopted by the Board and disclosed to the
Fund will cast all of its votes in the Adviser.
same proportion as the votes of the other
shareholders. The Adviser shall give the The Adviser is authorized as the agent of
Funds the benefit of the Adviser's best the Trust to give instructions to the
judgment and efforts in rendering custodian of the Fund as to deliveries of
services under this Agreement. securities and other investments and
payments of cash for the account of the
Fund. Subject to applicable provisions of
the Investment Company Act of 1940 and
direction from the Board, the investment
program to be provided hereunder may
entail the investment of all or
substantially all of the assets of the
Fund in one or more investment companies.
The Adviser shall, at the request of the
Board, exercise voting rights, rights to
consent to corporate action and any other
rights pertaining to each Fund's
portfolio securities.
- -------------------------------------------------------------------------------------
Brokerage Transactions. The Funds will Brokerage Transactions. The Adviser will
invest their assets in the shares of the place orders pursuant to its investment
Underlying Funds, and such investment determinations for the Fund either
will be made without the payment of any directly with the issuer or with any
commission or other sales charges. broker or dealer, foreign currency
dealer, futures commission merchant or
others selected by it.
In connection with the selection of such
brokers or dealers and the placing of
such orders, subject to applicable law,
brokers or dealers may be selected who
also provide brokerage and research
services (as those terms are defined in
Section 28(e) of the Securities Exchange
Act of 1934 to the Fund and/or the other
accounts over which the Adviser or its
affiliates exercise investment
discretion.
The Adviser is authorized to pay a broker
or dealer who provides such brokerage and
research services a commission for
executing a portfolio transaction for the
Fund which is in excess of the amount of
commission another broker or dealer would
have charged for effecting that
transaction if the Adviser determines in
good faith that such amount of commission
is reasonable in relation to the value of
the brokerage and research services
provided by such broker or dealer. This
determination may be viewed in terms of
either that particular transaction or the
overall responsibilities which the
Adviser and its affiliates have with
respect to accounts over which they
exercise investment discretion. The Board
may adopt policies and procedures that
modify and restrict the Adviser's
authority regarding the execution of the
Fund's portfolio transactions provided
herein.
- -------------------------------------------------------------------------------------
</Table>
D-10
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Transactions with Affiliates. Not Transactions with Affiliates. The Fund
specifically addressed in this agreement. hereby authorizes any entity or person
associated with the Adviser which is a
member of a national securities exchange
to effect any transaction on the exchange
for the account of the Fund which is
permitted by Section 11(a) of the
Securities Exchange Act of 1934 and Rule
11a2-2(T) thereunder, and the Fund hereby
consents to the retention of compensation
for such transactions in accordance with
Rule 11a2-2(T)(a)(2)(iv).
Notwithstanding the foregoing, the
Adviser agrees that it will not deal with
itself, or with Trustees of the Trust or
any principal underwriter of the Fund, as
principals or agents in making purchases
or sales of securities or other property
for the account of the Fund, nor will it
purchase any securities from an
underwriting or selling group in which
the Adviser or its affiliates is
participating, or arrange for purchases
and sales of securities between the Fund
and another account advised by the
Adviser or its affiliates, except in each
case as permitted by the Investment
Company Act of 1940 and in accordance
with such policies and procedures as may
be adopted by the Fund from time to time,
and will comply with all other provisions
of the Governing Documents and the Fund's
then-current Prospectus and SAI relative
to the Adviser and its directors and
officers.
- -------------------------------------------------------------------------------------
Management Services. The Adviser shall Management Services. The Adviser shall
at its expense provide each Fund with all furnish or make available to each Fund
services, equipment and facilities as may the services of executive and management
be required to perform its obligations personnel to supervise the performance of
under this Agreement including, but not administrative, record-keeping,
limited to: providing each Fund with shareholder relations, regulatory
certain corporate administrative reporting and compliance services, the
services, including: maintaining trust services of the Fund's custodian and
records, and registering and qualifying transfer agent, and other functions of
each Fund's shares under federal and the Fund. The Adviser shall also assist
state laws; monitoring the financial, in the preparation of reports to
accounting, and administrative functions shareholders of each Fund as requested by
of each Fund; maintaining liaison with the Trust. In accordance with the
the agents employed by each Fund such as foregoing, the Adviser shall, at the
the custodian; assisting each Fund in the request of the Board, provide advice and
coordination of such agents' activities; recommendations with respect to other
and permitting the Adviser's employees to aspects of the business and affairs of
serve as officers, directors, and the Fund.
committee members of each Fund without
cost to the Fund; providing office space,
equipment and clerical personnel
necessary for maintaining the
organization of the Funds and for
performing administrative and management
functions; supervising the overall
administration of the Funds, including
negotiation of contracts and fees with
and the monitoring of performance and
billings of the Funds' transfer agent,
custodian and other independent
contractors or agents; preparing and, if
applicable, filing all documents required
for compliance by the Funds with
applicable laws and regulations,
including registration statements,
registration fee filings, semi-annual and
annual reports to investors, proxy
statements and tax returns; preparation
of agendas and supporting documents for
and minutes of meeting of Trustees,
committees of Trustees and investors; and
maintaining books and records of the
Funds.
- -------------------------------------------------------------------------------------
</Table>
D-11
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Subadvisers. Not specifically addressed Subadvisers. Subject to the Board's
in this agreement. approval, the Adviser or any Fund may
enter into contracts with one or more
investment subadvisers, including without
limitation, affiliates of the Adviser, in
which the Adviser delegates to such
investment subadvisers any or all its
duties specified hereunder, on such terms
as the Adviser will determine to be
necessary, desirable or appropriate,
provided that in each case the Adviser
shall supervise the activities of each
such subadviser and further provided that
such contracts impose on any investment
subadviser bound thereby all the
conditions to which the Adviser is
subject hereunder and that such contracts
are entered into in accordance with and
meet all applicable requirements of the
Investment Company Act of 1940.
- -------------------------------------------------------------------------------------
Activities of Adviser. Except to the Activities of Adviser. Nothing in this
extent necessary to perform the Adviser's Agreement shall limit or restrict the
obligations under this Agreement, nothing right of any director, officer, or
herein shall be deemed to limit or employee of the Adviser who may also be a
restrict the right of the Adviser, or any Trustee, officer or employee of the Trust
affiliate of the Adviser, or any employee or a Fund, to engage in any other
of the Adviser, to engage in any other business or to devote his or her time and
business or devote time and attention to attention in part to the management or
the management or other aspects of any other aspects of any other business,
other business, whether of a similar or whether of a similar nature or a
dissimilar nature, or to render services dissimilar nature, nor to limit or
of any kind to any other trust, restrict the right of the Adviser to
corporation, firm, individual or engage in any other business or to render
association. services of any kind, including
investment advisory and management
The investment management services of the services, to any other fund, firm,
Adviser to the Funds under this Agreement individual or association.
are not to be deemed exclusive as to the
Adviser and the Adviser will be free to If the purchase or sale of securities for
render similar services to others. a Fund and one or more other accounts of
the Adviser is considered at or about the
same time, transactions in such
securities will be allocated among the
accounts in a manner deemed equitable by
the Adviser. Such transactions may be
combined, in accordance with applicable
laws and regulations, and consistent with
the Adviser's policies and procedures as
presented to the Board from time to time.
- -------------------------------------------------------------------------------------
</Table>
D-12
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Expenses. The Adviser shall pay all Expenses. Each Fund shall pay (i) fees
operating expenses of the Fund payable to the Adviser pursuant to this
(including, without limitation, fees and Agreement; (ii) the cost (including
expenses of independent trustees, audit brokerage commissions, if any) incurred
fees and legal fees) and take all other in connection with purchases and sales of
necessary actions to assure that the fee the Fund's portfolio securities; (iii)
payable to the Adviser shall be the only expenses of organizing the Fund; (iv)
direct expense payable by the Funds. filing fees and expenses relating to
registering and qualifying and
The Adviser agrees to bear all expenses maintaining the registration and
of the Funds other than the [ ]% qualification of the Fund's shares for
advisory fee. sale under federal and state securities
laws; (v) its allocable share of the
compensation, fees and reimbursements
paid to the Trust's non-interested
Trustees; (vi) custodian and transfer
agent fees; (vii) legal and accounting
expenses allocable to the Fund, including
costs for local representation in the
Trust's jurisdiction of organization and
fees and expenses of special counsel, if
any, for the independent Trustees; (viii)
all federal, state and local tax
(including stamp, excise, income and
franchise taxes) and the preparation and
filing of all returns and reports in
connection therewith; (ix) cost of
certificates, if any, and delivery to
purchasers; (x) expenses of preparing and
filing reports with federal and state
regulatory authorities; (xi) expenses of
shareholders' meetings and of preparing,
printing and distributing proxy
statements (unless otherwise agreed to by
the Trust and the Adviser); (xii) costs
of any liability, uncollectible items of
deposit and other insurance or fidelity
bonds; (xiii) any costs, expenses or
losses arising out of any liability of or
claim for damage or other relief asserted
against the Trust for violation of any
law; (xiv) expenses of preparing,
typesetting and printing prospectuses and
supplements thereto for existing
shareholders and of reports and
statements to shareholders; (xv) fees and
expenses in connection with membership in
investment company organizations and 12b-
1 fees; and (xvi) any extraordinary
expenses incurred by the Trust on behalf
of the Fund.
The Adviser shall pay all expenses
incurred by it in the performance of its
duties under this Agreement. The Adviser
shall authorize and permit any of its
directors, officers and employees, who
may be elected as Trustees or officers of
the Trust, to serve in the capacities in
which they are elected, and shall pay all
compensation, fees and expenses of such
Trustees and officers.
- -------------------------------------------------------------------------------------
Obligation to Provide Information. The Obligation to Provide Information. The
Adviser shall furnish to the Board of Trust shall at all times keep the Adviser
Trustees periodic reports on the fully informed with regard to the
investment performance of the Funds and securities owned by each Fund, the Fund's
on the performance of its obligations funds available, or to become available,
under this Agreement and shall supply for investment, and generally as to the
such additional reports and information condition of the Fund's affairs. The
as the Funds' officers or Board of Trust shall furnish the Adviser with such
Trustees shall reasonably request. other documents and information with
regard to each Fund's affairs as the
Adviser may from time to time reasonably
request.
The Adviser shall at all times keep the
Trust fully informed with regard to each
Fund's investment performance and
investment mandate compliance, and
generally as to the condition of its
affairs. The Adviser shall furnish the
Trust with such other documents and
information with regard to each Fund's
affairs as the Trust may from time to
time reasonably request.
</Table>
D-13
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Fees. In consideration of the services Fees. As compensation for the services
to be rendered by the Adviser under this performed by the Adviser, each Fund shall
Agreement, each Fund shall pay the pay the Adviser, as promptly as possible
Adviser a fee accrued daily and paid after the last day of each month, a fee,
monthly at an annual rate equal to computed daily at an annual rate set
[ ]% of each Fund's average daily net forth opposite the Fund's name on
assets. If the fees payable to the Schedule A annexed hereto. The first
Adviser pursuant to this paragraph begin payment of the fee shall be made as
to accrue before the end of any month, promptly as possible at the end of the
or, if this Agreement terminates before month succeeding the effective date of
the end of any month, the fees for the this Agreement, and shall constitute a
period from that date to the end of that full payment of the fee due the Adviser
month or from the beginning of that month for all services prior to that date. If
to the date of termination, as the case this Agreement is terminated as of any
may be, shall be prorated according to date not the last day of a month, such
the proportion which the period bears to fee shall be paid as promptly as possible
the full month in which the effectiveness after such date of termination, shall be
or termination occurs. For purposes of based on the average daily net assets of
calculating the monthly fees, the value the Fund in that period from the
of the net assets of each Fund shall be beginning of such month to such date of
computed in the manner specified in its termination, and shall be that proportion
Regulation Statement on Form N-1A for the of such average daily net assets as the
computation of net asset value. For number of business days in such period
purposes of this Agreement, a "business bears to the number of business days in
day" is any day the New York Stock such month. The average daily net assets
Exchange is open for trading. of the Fund shall in all cases be based
only on business days and be computed as
of the time of the regular close of
business of the New York Stock Exchange,
or such other time as stated in the
Fund's then-current Prospectus or as may
be determined by the Board.
- -------------------------------------------------------------------------------------
Term. This Agreement shall be effective Term. This Agreement shall continue in
as to the Funds as of the date the Funds effect with respect to each Fund, unless
commence investment operations after this sooner terminated in accordance with its
Agreement shall have been approved by the terms, for two years from its effective
Board of Trustees of the Trust and the date, and shall continue in effect from
investor(s) in the Funds in the manner year to year thereafter, provided such
contemplated by Section 15 of the continuance is specifically approved at
Investment Company Act of 1940 and, least annually by the vote of a majority
unless sooner terminated as provided of the Trustees who are not parties
herein, shall continue until the second hereto or interested persons of any such
anniversary of the date hereof. party, cast in person at a meeting called
Thereafter, if not terminated, this for the purpose of voting on the approval
Agreement shall continue in effect as to of the terms of such renewal, and by
each Fund for successive periods of 12 either the Board or the affirmative vote
months each, provided such continuance is of a majority of outstanding voting
specifically approved at least annually securities of that Fund.
by the vote of a majority of those
members of the Board 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 or
(b) by vote of a majority of the
outstanding voting securities of the
Funds.
- -------------------------------------------------------------------------------------
</Table>
D-14
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Termination and Amendments. This Termination and Amendments. This
Agreement may be terminated by any or all Agreement may be terminated with respect
of the Funds at any time, without the to any Fund at any time, without penalty,
payment of any penalty, by the Board or by the Board or by the shareholders of
by vote of a majority of the outstanding the Fund acting by vote of at least a
voting securities of the Funds on 60 majority of its outstanding voting
days' written notice to the Adviser, or securities, provided in either case that
by the Adviser as to any or all of the 60 days' written notice of termination be
Funds at any time, without payment of any given to the Adviser at its principal
penalty, on 90 days' written notice to place of business. This Agreement may be
the Funds. This Agreement will terminated with respect to any Fund by
immediately terminate in the event of its the Adviser at any time by giving 60
assignment. (As used in this Agreement, days' written notice of termination to
the terms "majority of the outstanding the Trust, addressed to its principal
voting securities", "interested person" place of business. This Agreement may be
and "assignment" shall have the same terminated with respect to any Fund upon
meanings as such terms have in the the mutual written consent of the Adviser
Investment Company Act of 1940 and the and the Trust. This Agreement shall
rule and regulatory constructions terminate automatically in the event of
thereunder.) This Agreement may be its assignment by the Adviser and shall
terminated with respect to any Fund and not be assignable by the Trust without
remain in full force and effect for those the consent of the Adviser. For the
Funds which were not specifically avoidance of doubt, it is understood that
terminated. this Agreement may be amended, terminated
or not renewed as to one or more Funds
No provision of this Agreement may be without affecting the other Funds
changed, waived, discharged or terminated hereunder.
orally, but only by an instrument in
writing signed by the party against which No provision of this Agreement may be
enforcement of the change, waiver, changed, waived, discharged or terminated
discharge, or termination is sought and orally with respect to a Fund, but only
except as otherwise permitted by by an instrument in writing signed by the
applicable law, no material amendment of party against which enforcement of the
this Agreement shall be effective until change, waiver, discharge or termination
approved by vote of the holders of a is sought. No material amendment of the
majority of the outstanding voting Agreement shall be effective with respect
securities of the Funds. to a Fund until approved, if so required
by the Investment Company Act of 1940, by
vote of the holders of a majority
outstanding voting securities of that
Fund. Schedule A hereto may be amended at
any time to add additional series of the
Trust as agreed by the Trust and the
Adviser.
- -------------------------------------------------------------------------------------
Limitation of Liability of the Limitation of Liability of the
Adviser. The Funds agree that the Adviser. The Adviser may rely on
Adviser shall not be liable under this information reasonably believed by it to
Agreement for any mistake in judgment or be accurate and reliable. The Adviser
in any other event whatsoever provided assumes no responsibility under this
that nothing in this Agreement shall be Agreement other than to render the
deemed to protect or purport to protect services called for hereunder, in good
the Adviser against any liability to the faith, and shall not be liable for any
Funds or its investors to which the error of judgment or mistake of law, or
Adviser would otherwise be subject by for any loss arising out of any
reason of willful misfeasance, bad faith investment or for any act or omission in
or gross negligence in the performance of the execution of securities transactions
its advisory duties under this Agreement for any Fund, provided that nothing in
or by reason of its reckless disregard of this Agreement shall protect the Adviser
its obligations and duties hereunder. against any liability to the Fund to
which the Adviser would otherwise be
subject by reason of willful misfeasance,
bad faith, or gross negligence in the
performance of its duties or by reason of
its reckless disregard of its obligations
and duties hereunder. As used in this
Section, the term "the Adviser" shall
include any affiliates of the Adviser
performing services for the Trust or the
Fund contemplated hereby and the
partners, shareholders, directors,
officers and employees of the Adviser and
such affiliates.
</Table>
D-15
CHART 3
<Table>
Short Horizon Strategic Allocation Intermediate/Long Horizon Strategic
Variable Fund Allocation Variable Fund
Intermediate Horizon Strategic Allocation
Variable Fund
</Table>
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Investment Advisory Services. Subject to Investment Advisory Services. Subject to
the general supervision of the Board of the supervision of the Trust's Board of
Directors of AUSA Life and the Managing Trustees, the Adviser shall regularly
Board of the Funds, the Adviser shall provide the Fund with investment
provide each Fund with discretionary research, advice, management and
investment services. Specifically, the supervision and shall furnish a
Adviser is responsible for supervising continuous investment program for the
and directing the investments of each Fund's portfolio of securities and other
Fund in accordance with each Fund's investments consistent with the Fund's
investment objectives, program, and investment objectives, policies and
restrictions as provided in the then restrictions, as stated in the Fund's
current Prospectus and the SAI. The current Prospectus and SAI.
Adviser is also responsible for effecting
all security transactions on behalf of The Adviser shall determine from time to
each Fund. The Funds will invest their time what securities and other
assets in the shares of the Underlying investments and instruments will be
Funds, and such investment will be made purchased, retained, sold or exchanged by
without the payment of any commission or the Fund and what portion of the assets
other sales charges. of the Fund's portfolio will be held in
the various securities and other
As adviser of the assets of the Funds, investments in which the Fund invests,
the Adviser shall make investments for and shall implement those decisions
the account of the Fund in accordance (including the execution of investment
with the Adviser's best judgment and documentation and agreements), all
within the Funds' investment objectives, subject to the provisions of the Trust's
guidelines, and restrictions, the Declaration of Trust and By-Laws, the
Investment Company Act of 1940, New York Investment Company Act of 1940 and the
Insurance Law and applicable provisions applicable rules and regulations
of the Internal Revenue Code of 1986 promulgated thereunder by the SEC and
subject to policy decisions adopted by interpretive guidance issued thereunder
the Managing Board. by the SEC staff and any other applicable
federal and state law, as well as the
The Adviser shall have no discretion with investment objectives, policies and
respect to the exercise of voting rights; restrictions of the Fund referred to
and, whenever an Underlying Fund shall above, and any other specific policies
hold a meeting of unit holders and adopted by the Board and disclosed to the
request the Fund to vote on a matter, Adviser.
AUSA Life will cast all of its votes in
the same proportion as the votes of the The Adviser is authorized as the agent of
shareholders. The Adviser shall give the the Trust to give instructions to the
Funds the benefit of the Adviser's best custodian of the Fund as to deliveries of
judgment and efforts in rendering securities and other investments and
services under this Agreement. payments of cash for the account of the
Fund. Subject to applicable provisions of
the Investment Company Act of 1940 and
direction from the Board, the investment
program to be provided hereunder may
entail the investment of all or
substantially all of the assets of the
Fund in one or more investment companies.
The Adviser shall, at the request of the
Board, exercise voting rights, rights to
consent to corporate action and any other
rights pertaining to each Fund's
portfolio securities.
- -------------------------------------------------------------------------------------
</Table>
D-16
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Brokerage Transactions. The Funds will Brokerage Transactions. The Adviser will
invest their assets in the shares of the place orders pursuant to its investment
Underlying Funds, and such investment determinations for the Fund either
will be made without the payment of any directly with the issuer or with any
commission or other sales charges. broker or dealer, foreign currency
dealer, futures commission merchant or
others selected by it.
In connection with the selection of such
brokers or dealers and the placing of
such orders, subject to applicable law,
brokers or dealers may be selected who
also provide brokerage and research
services (as those terms are defined in
Section 28(e) of the Securities Exchange
Act of 1934 to the Fund and/or the other
accounts over which the Adviser or its
affiliates exercise investment
discretion.
The Adviser is authorized to pay a broker
or dealer who provides such brokerage and
research services a commission for
executing a portfolio transaction for the
Fund which is in excess of the amount of
commission another broker or dealer would
have charged for effecting that
transaction if the Adviser determines in
good faith that such amount of commission
is reasonable in relation to the value of
the brokerage and research services
provided by such broker or dealer. This
determination may be viewed in terms of
either that particular transaction or the
overall responsibilities which the
Adviser and its affiliates have with
respect to accounts over which they
exercise investment discretion. The Board
may adopt policies and procedures that
modify and restrict the Adviser's
authority regarding the execution of the
Fund's portfolio transactions provided
herein.
- -------------------------------------------------------------------------------------
Transactions with Affiliates. Not Transactions with Affiliates. The Fund
specifically addressed in this agreement. hereby authorizes any entity or person
associated with the Adviser which is a
member of a national securities exchange
to effect any transaction on the exchange
for the account of the Fund which is
permitted by Section 11(a) of the
Securities Exchange Act of 1934 and Rule
11a2-2(T) thereunder, and the Fund hereby
consents to the retention of compensation
for such transactions in accordance with
Rule 11a2-2(T)(a)(2)(iv).
Notwithstanding the foregoing, the
Adviser agrees that it will not deal with
itself, or with Trustees of the Trust or
any principal underwriter of the Fund, as
principals or agents in making purchases
or sales of securities or other property
for the account of the Fund, nor will it
purchase any securities from an
underwriting or selling group in which
the Adviser or its affiliates is
participating, or arrange for purchases
and sales of securities between the Fund
and another account advised by the
Adviser or its affiliates, except in each
case as permitted by the Investment
Company Act of 1940 and in accordance
with such policies and procedures as may
be adopted by the Fund from time to time,
and will comply with all other provisions
of the Governing Documents and the Fund's
then-current Prospectus and SAI relative
to the Adviser and its directors and
officers.
</Table>
D-17
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Management Services. The Adviser shall Management Services. The Adviser shall
at its expense provide each Fund with all furnish or make available to each Fund
services, equipment and facilities as may the services of executive and management
be required to perform its obligations personnel to supervise the performance of
under this Agreement including, but not administrative, record-keeping,
limited to: providing each Fund with shareholder relations, regulatory
certain administrative services, reporting and compliance services, the
including: maintaining records, services of the Fund's custodian and
monitoring the financial, accounting, and transfer agent, and other functions of
administrative functions of each Fund; the Fund. The Adviser shall also assist
maintaining liaison with the agents in the preparation of reports to
employed by each Fund such as the shareholders of each Fund as requested by
custodian; assisting each Fund in the the Trust. In accordance with the
coordination of such agents' activities; foregoing, the Adviser shall, at the
providing office space, equipment and request of the Board, provide advice and
clerical personnel necessary for recommendations with respect to other
maintaining the organization of the Funds aspects of the business and affairs of
and for performing administrative and the Fund.
management functions; supervising the
overall administration of the Funds,
including negotiation of contracts and
fees with and the monitoring of
performance and billings of the Funds'
independent contractors or agents;
preparing and, if applicable, filing all
documents required for compliance by the
Funds with applicable laws and
regulations, including registration
statements, registration fee filings,
semi-annual and annual reports to
investors and proxy statements and tax
returns; preparation of agendas and
supporting documents for and minutes of
meeting of Managing Board, committees and
investors; and maintaining books and
records of the Funds.
- -------------------------------------------------------------------------------------
Subadvisers. Not specifically addressed Subadvisers. Subject to the Board's
in this agreement. approval, the Adviser or any Fund may
enter into contracts with one or more
investment subadvisers, including without
limitation, affiliates of the Adviser, in
which the Adviser delegates to such
investment subadvisers any or all its
duties specified hereunder, on such terms
as the Adviser will determine to be
necessary, desirable or appropriate,
provided that in each case the Adviser
shall supervise the activities of each
such subadviser and further provided that
such contracts impose on any investment
subadviser bound thereby all the
conditions to which the Adviser is
subject hereunder and that such contracts
are entered into in accordance with and
meet all applicable requirements of the
Investment Company Act of 1940.
- -------------------------------------------------------------------------------------
</Table>
D-18
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Activities of Adviser. Except to the Activities of Adviser. Nothing in this
extent necessary to perform the Adviser's Agreement shall limit or restrict the
obligations under this Agreement, nothing right of any director, officer, or
herein shall be deemed to limit or employee of the Adviser who may also be a
restrict the right of the Adviser, or any Trustee, officer or employee of the Trust
affiliate of the Adviser, or any employee or a Fund, to engage in any other
of the Adviser, to engage in any other business or to devote his or her time and
business or devote time and attention to attention in part to the management or
the management or other aspects of any other aspects of any other business,
other business, whether of a similar or whether of a similar nature or a
dissimilar nature, or to render services dissimilar nature, nor to limit or
of any kind to any other trust, restrict the right of the Adviser to
corporation, firm, individual or engage in any other business or to render
association. services of any kind, including
investment advisory and management
The investment management services of the services, to any other fund, firm,
Adviser to the Funds under this Agreement individual or association.
are not to be deemed exclusive as to the
Adviser and the Adviser will be free to If the purchase or sale of securities for
render similar services to others. a Fund and one or more other accounts of
the Adviser is considered at or about the
same time, transactions in such
securities will be allocated among the
accounts in a manner deemed equitable by
the Adviser. Such transactions may be
combined, in accordance with applicable
laws and regulations, and consistent with
the Adviser's policies and procedures as
presented to the Board from time to time.
- -------------------------------------------------------------------------------------
</Table>
D-19
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Expenses. The Adviser shall at its Expenses. Each Fund shall pay (i) fees
expense provide each Fund with all payable to the Adviser pursuant to this
services, equipment and facilities as may Agreement; (ii) the cost (including
be required to perform its obligations brokerage commissions, if any) incurred
under this Agreement. in connection with purchases and sales of
the Fund's portfolio securities; (iii)
expenses of organizing the Fund; (iv)
filing fees and expenses relating to
registering and qualifying and
maintaining the registration and
qualification of the Fund's shares for
sale under federal and state securities
laws; (v) its allocable share of the
compensation, fees and reimbursements
paid to the Trust's non-interested
Trustees; (vi) custodian and transfer
agent fees; (vii) legal and accounting
expenses allocable to the Fund, including
costs for local representation in the
Trust's jurisdiction of organization and
fees and expenses of special counsel, if
any, for the independent Trustees; (viii)
all federal, state and local tax
(including stamp, excise, income and
franchise taxes) and the preparation and
filing of all returns and reports in
connection therewith; (ix) cost of
certificates, if any, and delivery to
purchasers; (x) expenses of preparing and
filing reports with federal and state
regulatory authorities; (xi) expenses of
shareholders' meetings and of preparing,
printing and distributing proxy
statements (unless otherwise agreed to by
the Trust and the Adviser); (xii) costs
of any liability, uncollectible items of
deposit and other insurance or fidelity
bonds; (xiii) any costs, expenses or
losses arising out of any liability of or
claim for damage or other relief asserted
against the Trust for violation of any
law; (xiv) expenses of preparing,
typesetting and printing prospectuses and
supplements thereto for existing
shareholders and of reports and
statements to shareholders; (xv) fees and
expenses in connection with membership in
investment company organizations and 12b-
1 fees; and (xvi) any extraordinary
expenses incurred by the Trust on behalf
of the Fund.
The Adviser shall pay all expenses
incurred by it in the performance of its
duties under this Agreement. The Adviser
shall authorize and permit any of its
directors, officers and employees, who
may be elected as Trustees or officers of
the Trust, to serve in the capacities in
which they are elected, and shall pay all
compensation, fees and expenses of such
Trustees and officers.
- -------------------------------------------------------------------------------------
Obligation to Provide Information. The Obligation to Provide Information. The
Adviser shall furnish to the Managing Trust shall at all times keep the Adviser
Board periodic reports on the investment fully informed with regard to the
performance of the Funds and on the securities owned by each Fund, the Fund's
performance of its obligations under this funds available, or to become available,
Agreement and shall supply such for investment, and generally as to the
additional reports and information as condition of the Fund's affairs. The
AUSA Life officers or the Managing Board Trust shall furnish the Adviser with such
shall reasonably request. other documents and information with
regard to each Fund's affairs as the
Adviser may from time to time reasonably
request.
The Adviser shall at all times keep the
Trust fully informed with regard to each
Fund's investment performance and
investment mandate compliance, and
generally as to the condition of its
affairs. The Adviser shall furnish the
Trust with such other documents and
information with regard to each Fund's
affairs as the Trust may from time to
time reasonably request.
- -------------------------------------------------------------------------------------
Fees. In consideration of the services Fees. As compensation for the services
to be rendered by the Adviser under this performed by the Adviser, each Fund shall
Agreement, each Fund shall pay the pay the Adviser, as promptly as possible
Adviser a fee accrued daily and paid after the last day of each month, a fee,
monthly at an annual rate equal to [ ]% computed daily at an annual rate set
of each Fund's average daily net assets. forth opposite the Fund's name on
If the fees payable to the Adviser Schedule A annexed hereto. The first
pursuant to this paragraph begin to payment of the fee shall be made as
accrue before the end of any month, or, promptly as possible at the end of the
if this Agreement terminates before the month succeeding the effective date of
end of any month, the fees for the period this Agreement, and shall constitute a
from that date to the end of that month full payment of the fee due the Adviser
or from the beginning of that month to for all services prior to that date. If
the date of termination, as the case may this Agreement is terminated as of any
be, shall be prorated according to the date not the last day of a month, such
proportion which the period bears to the fee shall be paid as promptly as possible
full month in which the effectiveness or after such date of termination, shall be
termination occurs. For purposes of based on the average daily net assets of
calculating the monthly fees, the value the Fund in that period from the
of the net assets of each Fund shall be beginning of such month to such date of
computed in the manner specified in its termination, and shall be that proportion
Regulation Statement on Form N-3 for the of such average daily net assets as the
computation of net asset value. For number of business days in such period
purposes of this Agreement, a "business bears to the number of business days in
day" is any day the New York Stock such month. The average daily net assets
Exchange is open for trading. of the Fund shall in all cases be based
only on business days and be computed as
of the time of the regular close of
business of the New York Stock Exchange,
or such other time as stated in the
Fund's then-current Prospectus or as may
be determined by the Board.
- -------------------------------------------------------------------------------------
</Table>
D-20
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Term. This Agreement shall be effective Term. This Agreement shall continue in
as to the Funds as of the date the Funds effect with respect to each Fund, unless
commence investment operations after this sooner terminated in accordance with its
Agreement and shall have been approved by terms, for two years from its effective
the Managing Board and the investor(s) in date, and shall continue in effect from
the Funds in the manner contemplated by year to year thereafter, provided such
Section 15 of the Investment Company Act continuance is specifically approved at
of 1940 and, unless sooner terminated as least annually by the vote of a majority
provided herein, shall continue until the of the Trustees who are not parties
second anniversary of the date hereof. hereto or interested persons of any such
Thereafter, if not terminated, this party, cast in person at a meeting called
Agreement shall continue in effect as to for the purpose of voting on the approval
each Fund for successive periods of 12 of the terms of such renewal, and by
months each, provided such continuance is either the Board or the affirmative vote
specifically approved at least annually of a majority of outstanding voting
by the vote of a majority of those securities of that Fund.
members of the Managing Board 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
Managing Board or (b) by vote of a
majority of the outstanding voting
securities of the Funds.
- -------------------------------------------------------------------------------------
Termination and Amendments. This Termination and Amendments. This
Agreement may be terminated by any or all Agreement may be terminated with respect
of the Funds at any time, without the to any Fund at any time, without penalty,
payment of any penalty, by the Managing by the Board or by the shareholders of
Board or by vote of a majority of the the Fund acting by vote of at least a
outstanding voting securities of the majority of its outstanding voting
Funds on 60 days' written notice to the securities, provided in either case that
Adviser, or by the Adviser as to any or 60 days' written notice of termination be
all of the three Funds at any time, given to the Adviser at its principal
without payment of any penalty, on 90 place of business. This Agreement may be
days' written notice to the Funds. This terminated with respect to any Fund by
Agreement will immediately terminate in the Adviser at any time by giving 60
the event of its assignment. (As used in days' written notice of termination to
this Agreement, the terms "majority of the Trust, addressed to its principal
the outstanding voting securities", place of business. This Agreement may be
"interested person" and "assignment" terminated with respect to any Fund upon
shall have the same meanings as such the mutual written consent of the Adviser
terms have in the Investment Company Act and the Trust. This Agreement shall
of 1940 and the rule and regulatory terminate automatically in the event of
constructions thereunder.) This its assignment by the Adviser and shall
Agreement may be terminated with respect not be assignable by the Trust without
to any Fund and remain in full force and the consent of the Adviser. For the
effect for those Funds which were not avoidance of doubt, it is understood that
specifically terminated. this Agreement may be amended, terminated
or not renewed as to one or more Funds
No provision of this Agreement may be without affecting the other Funds
changed, waived, discharged or terminated hereunder.
orally, but only by an instrument in
writing signed by the party against which No provision of this Agreement may be
enforcement of the change, waiver, changed, waived, discharged or terminated
discharge, or termination is sought and orally with respect to a Fund, but only
no material amendment of this Agreement by an instrument in writing signed by the
shall be effective until approved by vote party against which enforcement of the
of the holders of a majority of the change, waiver, discharge or termination
outstanding voting securities of the is sought. No material amendment of the
Funds. Agreement shall be effective with respect
to a Fund until approved, if so required
by the Investment Company Act of 1940, by
vote of the holders of a majority
outstanding voting securities of that
Fund. Schedule A hereto may be amended at
any time to add additional series of the
Trust as agreed by the Trust and the
Adviser.
- -------------------------------------------------------------------------------------
</Table>
D-21
<Table>
<Caption>
CURRENT ADVISORY AGREEMENT NEW ADVISORY AGREEMENT
- -------------------------------------------------------------------------------------
Limitation of Liability of the Limitation of Liability of the
Adviser. AUSA Life agrees that the Adviser. The Adviser may rely on
Adviser shall not be liable under this information reasonably believed by it to
Agreement for any mistake in judgment or be accurate and reliable. The Adviser
in any other event whatsoever provided assumes no responsibility under this
that nothing in this Agreement shall be Agreement other than to render the
deemed to protect or purport to protect services called for hereunder, in good
the Adviser against any liability to the faith, and shall not be liable for any
Funds or its investors to which the error of judgment or mistake of law, or
Adviser would otherwise be subject by for any loss arising out of any
reason of willful misfeasance, bad faith investment or for any act or omission in
or gross negligence in the performance of the execution of securities transactions
its advisory duties under this Agreement for any Fund, provided that nothing in
or by reason of its reckless disregard of this Agreement shall protect the Adviser
its obligations and duties hereunder. against any liability to the Fund to
which the Adviser would otherwise be
subject by reason of willful misfeasance,
bad faith, or gross negligence in the
performance of its duties or by reason of
its reckless disregard of its obligations
and duties hereunder. As used in this
Section, the term "the Adviser" shall
include any affiliates of the Adviser
performing services for the Trust or the
Fund contemplated hereby and the
partners, shareholders, directors,
officers and employees of the Adviser and
such affiliates.
</Table>
D-22
APPENDIX E
FORM OF INVESTMENT ADVISORY AGREEMENT
TRANSAMERICA FUND ADVISORS, INC.
This Agreement, entered into as of [ ], 2007 between [Name of
Trust], a [Form of Organization] (referred to herein as the "'Trust") and
Transamerica Fund Advisors, Inc., a Florida corporation (referred to herein as
"'TFAI"), to provide certain management and advisory services to each series of
the Trust listed on Schedule A hereto (each, a "'Fund").
The Trust is registered as an open-end investment company registered under
the Investment Company Act of 1940 (collectively with the rules and regulations
promulgated thereunder and any exemptive orders thereunder, the "'1940 Act"),
and consists of more than one series, including the Funds. In managing each of
the Funds, as well as in the conduct of certain of its affairs, the Trust wishes
to have the benefit of the investment advisory services of TFAI and its
assistance in performing certain management functions. TFAI desires to furnish
services for the Trust and to perform the functions assigned to it under this
Agreement for the considerations provided. Accordingly, the parties have agreed
as follows:
1. Appointment. The Trust hereby appoints TFAI as each Fund's
investment adviser for the period and on the terms set forth in this
Agreement. TFAI accepts such appointment and agrees to render or cause to
be rendered the services set forth for the compensation herein specified.
2. Investment Advisory Services. In its capacity as investment
adviser to each Fund, TFAI shall have the following responsibilities:
(a) Subject to the supervision of the Trust's Board of Trustees
(the "'Board"), TFAI shall regularly provide the Fund with investment
research, advice, management and supervision and shall furnish a
continuous investment program for the Fund's portfolio of securities
and other investments consistent with the Fund's investment
objectives, policies and restrictions, as stated in the Fund's current
Prospectus and Statement of Additional Information. TFAI shall
determine from time to time what securities and other investments and
instruments will be purchased, retained, sold or exchanged by the Fund
and what portion of the assets of the Fund's portfolio will be held in
the various securities and other investments in which the Fund
invests, and shall implement those decisions (including the execution
of investment documentation and agreements), all subject to the
provisions of the Trust's Declaration of Trust and By-Laws
(collectively, the "'Governing Documents"), the 1940 Act and the
applicable rules and regulations promulgated thereunder by the
Securities and Exchange Commission (the "'SEC") and interpretive
guidance issued thereunder by the SEC staff and any other applicable
federal and state law, as well as the investment objectives, policies
and restrictions of the Fund referred to above, and any other specific
policies adopted by the Board and disclosed to TFAI. TFAI is
authorized as the agent of the Trust to give instructions to the
custodian of the Fund as to deliveries of securities and other
investments and payments of cash for the account of the Fund. Subject
to applicable provisions of the 1940 Act and direction from the Board,
the investment program to be provided hereunder may entail the
investment of all or substantially all of the assets of the Fund in
one or more investment companies.
(b) TFAI will place orders pursuant to its investment
determinations for the Fund either directly with the issuer or with
any broker or dealer, foreign currency dealer, futures commission
merchant or others selected by it. In connection with the selection of
such brokers or dealers and the placing of such orders, subject to
applicable law, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934, as amended (the
"'Exchange Act")) to the Fund and/or the other accounts over which
TFAI or its affiliates exercise investment discretion. TFAI is
authorized to pay a broker or dealer who provides such brokerage
E-1
and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction if TFAI determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular
transaction or the overall responsibilities which TFAI and its
affiliates have with respect to accounts over which they exercise
investment discretion. The Board may adopt policies and procedures
that modify and restrict TFAI's authority regarding the execution of
the Fund's portfolio transactions provided herein.
(c) The Fund hereby authorizes any entity or person associated
with TFAI which is a member of a national securities exchange to
effect any transaction on the exchange for the account of the Fund
which is permitted by Section 11(a) of the Exchange Act and Rule 11a2-
2(T) thereunder, and the Fund hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-
2(T)(a)(2)(iv). Notwithstanding the foregoing, TFAI agrees that it
will not deal with itself, or with Trustees of the Trust or any
principal underwriter of the Fund, as principals or agents in making
purchases or sales of securities or other property for the account of
the Fund, nor will it purchase any securities from an underwriting or
selling group in which TFAI or its affiliates is participating, or
arrange for purchases and sales of securities between the Fund and
another account advised by TFAI or its affiliates, except in each case
as permitted by the 1940 Act and in accordance with such policies and
procedures as may be adopted by the Fund from time to time, and will
comply with all other provisions of the Governing Documents and the
Fund's then-current Prospectus and Statement of Additional Information
relative to TFAI and its directors and officers.
(d) TFAI shall, at the request of the Board, exercise voting
rights, rights to consent to corporate action and any other rights
pertaining to each Fund's portfolio securities.
3. Management Services. TFAI shall furnish or make available to each
Fund the services of executive and management personnel to supervise the
performance of administrative, record-keeping, shareholder relations,
regulatory reporting and compliance services, the services of the Fund's
custodian and transfer agent, and other functions of the Fund. TFAI shall
also assist in the preparation of reports to shareholders of each Fund as
requested by the Trust. In accordance with the foregoing, TFAI shall, at
the request of the Board, provide advice and recommendations with respect
to other aspects of the business and affairs of the Fund.
4. Subadvisers. Subject to the Board's approval, TFAI or any Fund may
enter into contracts with one or more investment subadvisers, including
without limitation, affiliates of TFAI, in which TFAI delegates to such
investment subadvisers any or all its duties specified hereunder, on such
terms as TFAI will determine to be necessary, desirable or appropriate,
provided that in each case TFAI shall supervise the activities of each such
subadviser and further provided that such contracts impose on any
investment subadviser bound thereby all the conditions to which TFAI is
subject hereunder and that such contracts are entered into in accordance
with and meet all applicable requirements of the 1940 Act.
5. Activities of TFAI. Nothing in this Agreement shall limit or
restrict the right of any director, officer, or employee of TFAI who may
also be a Trustee, officer or employee of the Trust or a Fund, to engage in
any other business or to devote his or her time and attention in part to
the management or other aspects of any other business, whether of a similar
nature or a dissimilar nature, nor to limit or restrict the right of TFAI
to engage in any other business or to render services of any kind,
including investment advisory and management services, to any other fund,
firm, individual or association. If the purchase or sale of securities for
a Fund and one or more other accounts of TFAI is considered at or about the
same time, transactions in such securities will be allocated among the
accounts in a manner deemed equitable by TFAI. Such transactions may be
combined, in accordance with applicable laws and regulations, and
consistent with TFAI's policies and procedures as presented to the Board
from time to time.
E-2
6. Allocation of Charges and Expenses. During the term of this
Agreement, the Funds will bear all expenses not expressly assumed by TFAI
incurred in the operation of each Fund and the offering of its shares.
Without limiting the generality of the foregoing:
(a) Each Fund shall pay (i) fees payable to TFAI pursuant to this
Agreement; (ii) the cost (including brokerage commissions, if any)
incurred in connection with purchases and sales of the Fund's
portfolio securities; (iii) expenses of organizing the Fund; (iv)
filing fees and expenses relating to registering and qualifying and
maintaining the registration and qualification of the Fund's shares
for sale under federal and state securities laws; (v) its allocable
share of the compensation, fees and reimbursements paid to the Trust's
non-interested Trustees; (vi) custodian and transfer agent fees; (vii)
legal and accounting expenses allocable to the Fund, including costs
for local representation in the Trust's jurisdiction of organization
and fees and expenses of special counsel, if any, for the independent
Trustees; (viii) all federal, state and local tax (including stamp,
excise, income and franchise taxes) and the preparation and filing of
all returns and reports in connection therewith; (ix) cost of
certificates, if any, and delivery to purchasers; (x) expenses of
preparing and filing reports with federal and state regulatory
authorities; (xi) expenses of shareholders' meetings and of preparing,
printing and distributing proxy statements (unless otherwise agreed to
by the Trust and TFAI); (xii) costs of any liability, uncollectible
items of deposit and other insurance or fidelity bonds; (xiii) any
costs, expenses or losses arising out of any liability of or claim for
damage or other relief asserted against the Trust for violation of any
law; (xiv) expenses of preparing, typesetting and printing
prospectuses and supplements thereto for existing shareholders and of
reports and statements to shareholders; (xv) fees and expenses in
connection with membership in investment company organizations and
12b-1 fees; and (xvi) any extraordinary expenses incurred by the Trust
on behalf of the Fund.
(b) TFAI shall pay all expenses incurred by it in the performance
of its duties under this Agreement. TFAI shall authorize and permit
any of its directors, officers and employees, who may be elected as
Trustees or officers of the Trust, to serve in the capacities in which
they are elected, and shall pay all compensation, fees and expenses of
such Trustees and officers.
7. Obligation to Provide Information. Each party's obligation to
provide information shall be as follows:
(a) The Trust shall at all times keep TFAI fully informed with
regard to the securities owned by each Fund, the Fund's funds
available, or to become available, for investment, and generally as to
the condition of the Fund's affairs. The Trust shall furnish TFAI with
such other documents and information with regard to each Fund's
affairs as TFAI may from time to time reasonably request.
(b) TFAI shall at all times keep the Trust fully informed with
regard to each Fund's investment performance and investment mandate
compliance, and generally as to the condition of its affairs. TFAI
shall furnish the Trust with such other documents and information with
regard to each Fund's affairs as the Trust may from time to time
reasonably request.
8. Compensation of TFAI. As compensation for the services performed
by TFAI, each Fund shall pay TFAI, as promptly as possible after the last
day of each month, a fee, computed daily at an annual rate set forth
opposite the Fund's name on Schedule A annexed hereto[, provided however,
that if the Fund invests all or substantially all of its assets in a single
registered investment company, the annual fee computed as set forth on such
Schedule A shall be reduced by the aggregate management fees allocated to
that Fund for the Fund's then-current fiscal year from such other
registered investment company -- DIVERSIFIED FEEDER FUNDS ONLY]. The first
payment of the fee shall be made as promptly as possible at the end of the
month succeeding the effective date of this Agreement, and shall constitute
a full payment of the fee due TFAI for all services prior to that date. If
this Agreement is terminated as of any date not the last day of a month,
such fee shall be paid as promptly as possible after such date of
termination, shall be based on the average daily net assets of the Fund in
that period from the beginning of such month to such date of termination,
and shall be that proportion of such average
E-3
daily net assets as the number of business days in such period bears to the
number of business days in such month. The average daily net assets of the
Fund shall in all cases be based only on business days and be computed as
of the time of the regular close of business of the New York Stock
Exchange, or such other time as stated in the Fund's then-current
Prospectus or as may be determined by the Board.
9. Compensation of Trustees, Officers and Employees. No Trustee,
officer or employee of the Trust or a Fund shall receive from the Trust or
the Fund any salary or other compensation as such Trustee, officer or
employee while he is at the same time a director, officer, or employee of
TFAI or any affiliated company of TFAI, except as the Board may decide.
This paragraph shall not apply to Trustees, executive committee members,
consultants and other persons who are not regular members of TFAI's or any
affiliated company's staff.
10. Term. This Agreement shall continue in effect with respect to
each Fund, unless sooner terminated in accordance with its terms, for two
years from its effective date, and shall continue in effect from year to
year thereafter, provided such continuance is specifically approved at
least annually by the vote of a majority of the Trustees who are not
parties hereto or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on the approval of the terms of
such renewal, and by either the Board or the affirmative vote of a majority
of outstanding voting securities of that Fund.
11. Termination. This Agreement may be terminated with respect to any
Fund at any time, without penalty, by the Board or by the shareholders of
the Fund acting by vote of at least a majority of its outstanding voting
securities, provided in either case that 60 days' written notice of
termination be given to TFAI at its principal place of business. This
Agreement may be terminated with respect to any Fund by TFAI at any time by
giving 60 days' written notice of termination to the Trust, addressed to
its principal place of business. This Agreement may be terminated with
respect to any Fund upon the mutual written consent of TFAI and the Trust.
This Agreement shall terminate automatically in the event of its assignment
by TFAI and shall not be assignable by the Trust without the consent of
TFAI. For the avoidance of doubt, it is understood that this Agreement may
be amended, terminated or not renewed as to one or more Funds without
affecting the other Funds hereunder.
12. Use of Name. If this Agreement is terminated with respect to any
Fund and TFAI no longer serves as investment adviser to the Fund, TFAI
reserves the right to withdraw from the Trust the use of the names
[Transamerica] and [TA IDEX] with respect to that Fund or any name
misleadingly implying a continuing relationship between the Fund and TFAI
or any of its affiliates.
13. Liability of TFAI. TFAI may rely on information reasonably
believed by it to be accurate and reliable. TFAI assumes no responsibility
under this Agreement other than to render the services called for
hereunder, in good faith, and shall not be liable for any error of judgment
or mistake of law, or for any loss arising out of any investment or for any
act or omission in the execution of securities transactions for any Fund,
provided that nothing in this Agreement shall protect TFAI against any
liability to the Fund to which TFAI would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of
its duties or by reason of its reckless disregard of its obligations and
duties hereunder. As used in this Section 13, the term "'TFAI" shall
include any affiliates of TFAI performing services for the Trust or the
Fund contemplated hereby and the partners, shareholders, directors,
officers and employees of TFAI and such affiliates.
14. Meanings of Certain Terms. For the purposes of this Agreement,
each Fund's "'net assets" shall be determined as provided in the Fund's
then-current Prospectus and Statement of Additional Information and the
terms "'assignment," "interested person," and "'majority of the outstanding
voting securities" shall have the meanings given to them by Section 2(a) of
the 1940 Act, subject to such exemptions as may be granted by the SEC by
any rule, regulation or order.
E-4
15. Amendments. No provision of this Agreement may be changed,
waived, discharged or terminated orally with respect to a Fund, but only by
an instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought. No material
amendment of the Agreement shall be effective with respect to a Fund until
approved, if so required by the 1940 Act, by vote of the holders of a
majority outstanding voting securities of that Fund. Schedule A hereto may
be amended at any time to add additional series of the Trust as agreed by
the Trust and TFAI.
16. Miscellaneous. 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. 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 on and shall inure to the
benefit of the parties hereto and their respective successors. [This
Agreement replaces the investment advisory agreement between the Trust and
Diversified Investment Advisors, Inc. ("Diversified"), and TFAI succeeds to
all rights and obligations of Diversified under all existing subadvisory
agreements for the Funds to which Diversified is a party. -- DIVERSIFIED
MASTER PORTFOLIOS ONLY]
17. Governing Law. This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with the laws of the
[State of ] and the applicable provisions of the 1940 Act.
18. Limitation of Liability. [A copy of the Trust's Certificate of
Trust is on file with the State of Delaware, and notice] [A copy of the
Trust's Declaration of Trust is on file with the Commonwealth of
Massachusetts, and notice] [Notice] is hereby given that this Agreement is
executed on behalf of the Trustees as Trustees of the Trust and not
individually, and that the obligations under this Agreement are not binding
upon any of the Trustees, officers, shareholders, agents or employees of
the Trust individually, but binding only upon the assets and property of
the applicable Fund. TFAI agrees that for services rendered to a Fund, or
for any claim by it in connection with services rendered to the Fund, it
shall look only to assets of the Fund for satisfaction and that it shall
have no claim against the assets of any other series of the Trust.
[signature page to follow]
E-5
The parties hereto have caused this Agreement to be executed by their duly
authorized signatories as of the date and year first above written.
TRANSAMERICA FUND ADVISORS, INC.
By:
------------------------------------
Name:
Title:
[NAME OF TRUST]
By:
------------------------------------
Name:
Title:
E-6
SCHEDULE A
<Table>
<Caption>
INVESTMENT
FUND ADVISORY FEE
- ---- ------------
</Table>
E-7
APPENDIX F
DIVERSIFIED'S AND TFAI'S DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS
The following table lists the directors and principal executive officers of
Diversified and their principal occupations. The address of each person listed
is c/o Diversified, 4 Manhattanville Road, Purchase, New York 10577.
<Table>
<Caption>
NAME AND POSITION WITH DIVERSIFIED PRINCIPAL OCCUPATION
---------------------------------- --------------------
MARK MULLIN Chief Executive Officer and Director,
Chief Executive Officer and Director Diversified; Director, TFLIC.
PETER KUNKEL President, Chief Operating Officer,
President, Chief Operating Officer, Treasurer,
Treasurer and Director and Director, Diversified.
PATRICIA ADVANEY Senior Vice President, Diversified.
Senior Vice President
ROBERT F. COLBY Senior Vice President, General Counsel,
Senior Vice President, General Counsel, Secretary, and Director, Diversified;
Secretary and Director Vice President and General Counsel,
Diversified Investors Securities Corp.;
Vice President, Assistant Secretary, and
Director, TFLIC.
ALICE HOCKING Senior Vice President, Diversified.
Senior Vice President
GERALD L. KATZ Senior Vice President and Director,
Senior Vice President and Director Diversified.
JOSEPH J. MASTERSON Senior Vice President, Diversified.
Senior Vice President
COLETTE F. VARGAS Senior Vice President and Chief Financial
Senior Vice President and Chief Officer, Diversified.
Financial Officer
PETER J. ZUMMO Senior Vice President, Diversified.
Senior Vice President
</Table>
The following table lists the directors and principal executive officers of
TFAI and their principal occupations. The address of each person listed is c/o
TFAI, 570 Carillon Parkway, St. Petersburg, Florida 33716.
<Table>
<Caption>
NAME AND POSITION WITH TFAI PRINCIPAL OCCUPATION
--------------------------- --------------------
JOHN K. CARTER Chief Executive Officer and President,
Director, President and Chief Executive DIP, DIFG, DIFG II and DISVF (August 2007
Officer to present); Trustee (September 2006 to
present), President and Chief Executive
Officer (July 2006 to present), TA IDEX;
Trustee (September 2006 to present),
President and Chief Executive Officer
(July 2006 to present), ATST; Director
(September 2006 to present), President
and Chief Executive Officer (July 2006 to
present), TI Shares; President and Chief
Executive Officer (July 2006 to present),
Director (2000 to present), TFAI;
President and Chief Executive Officer
(July 2006 to present), Director (2001 to
present), TFS; Vice President, AFSG
Securities Corporation (2001 to present);
Chief Executive Officer, TII (July 2006
to present).
</Table>
F-1
<Table>
<Caption>
NAME AND POSITION WITH TFAI PRINCIPAL OCCUPATION
--------------------------- --------------------
DENNIS P. GALLAGHER Vice President, General Counsel and
Director, Senior Vice President, Secretary, DIP, DIFG, DIFG II and DISVF
General Counsel and Secretary (August 2007 to present); Senior Vice
President, General Counsel and Secretary,
ATST, TA IDEX and TI Shares (September
2006 to present); Vice President and
Secretary, TII (September 2006 to
present); Director, Senior Vice
President, General Counsel and Secretary,
TFAI and TFS (September 2006 to present).
CHRISTOPHER A. STAPLES Vice President and Chief Investment
Director, Senior Vice President and Officer, DIP, DIFG, DIFG II and DISVF
Chief Investment Officer (August 2007 to present); Chief
Investment Officer (June 2007 to
present), Vice President (July 2007 to
present), Senior Vice President (June
2007 to July 2007), TA IDEX, ATST and TI
Shares; Vice President -- Investment
Administration TII (2004 to present);
Director, TFS (2005 to present).
KYLE A. KEELAN Vice President, AFSG Securities Corp.
Senior Vice President -- Business (2001 to present); Senior Vice
Development President -- Business Development, TFAI
(2004 to present).
T. GREGORY REYMANN, II Chief Compliance Officer and Senior Vice
Senior Vice President and Chief President, ATST, TA IDEX and TI Shares
Compliance Officer (September 2006 to July 2007); Chief
Compliance Officer (September 2006 to
present) and Vice President, TII (2005 to
present).
KAREN D. HEBURN Sr. Vice President, Chief Financial
Senior Vice President, Chief Financial Officer and Treasurer (May 2007 to
Officer and Treasurer present), TFAI; Sr. Vice President and
Treasurer, TFS (May 2007 to present).
</Table>
F-2
APPENDIX G
INFORMATION ABOUT CURRENT INVESTMENT ADVISORY AGREEMENTS
Feeder Funds that do not currently have investment advisory agreements are
not included in the table below.
<Table>
<Caption>
DATE
AGREEMENT
LAST
SUBMITTED ADVISORY FEES
DATE OF FOR HOLDERS' CONTRACTUAL PAID DURING
FUNDS AGREEMENT APPROVAL ADVISORY FEE FYE 12/31/06
- ----- --------- ------------ ------------ -------------
THE DIVERSIFIED INVESTORS FUNDS GROUP
Institutional Short Horizon Strategic Allocation 3/1/2000 3/1/2000 0.10% $ 77,566
Fund..........................................
Institutional Short/Intermediate Horizon 3/1/2000 3/1/2000 0.10% $ 66,169
Strategic Allocation Fund.....................
Institutional Intermediate Horizon Strategic 3/1/2000 3/1/2000 0.10% $ 485,899
Allocation Fund...............................
Institutional Intermediate/Long Horizon 3/1/2000 3/1/2000 0.10% $ 388,426
Strategic Allocation Fund.....................
Institutional Long Horizon Strategic Allocation 3/1/2000 3/1/2000 0.10% $ 229,890
Fund..........................................
Diversified Investors Stock Index Fund.......... 3/1/1999 3/1/1999 0.40% $ 1,942,246*
THE DIVERSIFIED INVESTORS FUNDS GROUP II
Short Horizon Strategic Allocation Fund......... 2/20/1996 2/20/1996 0.10% $ 210,308**
Short/Intermediate Horizon Strategic Allocation 2/20/1996 5/1/1998 0.10% $ 218,230**
Fund..........................................
Intermediate Horizon Strategic Allocation Fund.. 2/20/1996 2/20/1996 0.10% $ 887,261**
Intermediate/Long Horizon Strategic Allocation 2/20/1996 2/20/1996 0.10% $ 865,217*
Fund..........................................
Long Horizon Strategic Allocation Fund.......... 2/20/1996 5/1/1998 0.10% $ 526,567
Diversified Institutional Stock Index Fund...... 5/16/2000 5/16/2000 0.10% -- ***
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
Short Horizon Strategic Allocation Variable 1/2/1997 1/2/1997 0.20% $ 21,116
Fund..........................................
Intermediate Horizon Strategic Allocation 1/2/1997 1/2/1997 0.20% $ 28,249
Variable Fund.................................
Intermediate/Long Horizon Strategic Allocation 1/2/1997 1/2/1997 0.20% $ 91,328
Variable Fund.................................
DIVERSIFIED INVESTORS PORTFOLIOS
Money Market Portfolio.......................... 1/3/1994 1/3/1994 0.25% $ 2,202,129
High Quality Bond Portfolio..................... 1/3/1994 1/3/1994 0.35% $ 2,841,710
Inflation-Protected Securities Portfolio........ 1/3/1994 1/3/1994 0.35% $ 636,252
Core Bond Portfolio............................. 1/3/1994 1/3/1994 0.35% $ 7,179,850
Total Return Bond Portfolio..................... 5/6/2005 5/6/2005 0.35% $ 207,306
High Yield Bond Portfolio....................... 8/17/1995 8/17/1995 0.55% $ 2,501,348
Balanced Portfolio.............................. 1/3/1994 1/3/1994 0.45% $ 1,69,824
Value & Income Portfolio........................ 1/3/1994 1/3/1994 0.45% $14,430,364
Value Portfolio................................. 4/27/2005 4/27/2005 0.50% $ 185,871
Growth & Income Portfolio....................... 1/3/1994 1/3/1994 0.60% $ 6,951,959
Equity Growth Portfolio......................... 1/3/1994 1/3/1994 0.62% $15,649,351
Aggressive Equity Portfolio..................... 4/19/1996 4/19/1996 0.77% $ 2,847,779
Mid-Cap Value Portfolio......................... 4/20/2001 4/20/2001 0.67% $ 5,191,219
Mid-Cap Growth Portfolio........................ 4/20/2001 4/20/2001 0.72% $ 2,183,573
Small-Cap Value Portfolio....................... 5/22/2002 5/22/2002 0.82% $ 1,912,941
Special Equity Portfolio........................ 1/3/1994 1/3/1994 0.80% $10,061,755
Small-Cap Growth Portfolio...................... 4/1/2002 4/1/2002 0.87% $ 1,108,285
International Equity Portfolio.................. 9/28/1995 9/28/1995 0.75% $14,073,337
</Table>
- --------
* Includes fees paid for administrative services to Diversified Investment
Advisors.
** Prior to May 1, 2006, Diversified was compensated for advisory services
at a rate of 0.20% of average net assets.
*** Expenses reimbursed by Diversified Investment Advisors exceeded fees
earned.
G-1
APPENDIX H
FEES PAID TO DIVERSIFIED AND AFFILIATES
The following table indicates amounts paid (after waivers and
reimbursements, if any) by each Fund to Diversified or an affiliate of
Diversified, distribution fees paid by the Feeder Funds pursuant to their 12b-1
plans, and information regarding brokerage commissions paid to affiliates of the
subadvisers of the Master Portfolios, in each case during the fiscal year ended
December 31, 2006.
<Table>
<Caption>
PERCENTAGE OF
FUND'S
AGGREGATE AGGREGATE
DISTRIBUTION BROKERAGE BROKERAGE
FEES COMMISSIONS COMMISSIONS
PAID TRANSFER PAID PAID TO
MANAGEMENT ADMINISTRATION PURSUANT TO AGENCY TO AFFILIATED AFFILIATED
FUND FEES ($) FEES ($) 12B-1 PLAN ($) FEES ($) BROKERS ($) BROKERS (%)
- ---- ---------- -------------- -------------- -------- ------------- -------------
THE DIVERSIFIED INVESTORS FUNDS GROUP
Diversified Investors Money Market Fund.... N/A 1,120,362 932,766 N/A N/A N/A
Diversified Investors High Quality Bond
Fund..................................... N/A 916,424 763,686 N/A N/A N/A
Diversified Investors Inflation-Protected
Securities Fund.......................... N/A 257,246 214,371 N/A N/A N/A
Diversified Investors Core Bond Fund....... N/A 2,397,401 1,997,834 N/A N/A N/A
Diversified Investors Total Return Bond
Fund..................................... N/A 109,497 91,247 N/A N/A N/A
Diversified Investors High Yield Bond
Fund..................................... N/A 597,677 496,586 N/A N/A N/A
Diversified Investors Balanced Fund........ N/A 474,599 395,500 N/A N/A N/A
Diversified Investors Value & Income Fund.. N/A 3,464,920 2,882,851 N/A N/A N/A
Diversified Investors Value Fund........... N/A 99,797 83,164 N/A N/A N/A
Diversified Investors Growth & Income
Fund..................................... N/A 1,603,794 1,336,495 N/A N/A N/A
Diversified Investors Equity Growth Fund... N/A 2,545,023 2,118,651 N/A N/A N/A
Diversified Investors Aggressive Equity
Fund..................................... N/A 524,506 437,088 N/A N/A N/A
Diversified Investors Mid-Cap Value Fund... N/A 1,327,286 1,106,071 N/A N/A N/A
Diversified Investors Mid-Cap Growth Fund.. N/A 395,004 329,170 N/A N/A N/A
Diversified Investors Small-Cap Value
Fund..................................... N/A 323,021 269,184 N/A N/A N/A
Diversified Investors Special Equity Fund.. N/A 1,323,398 1,100,022 N/A N/A N/A
Diversified Investors Small-Cap Growth
Fund..................................... N/A 148,217 123,514 N/A N/A N/A
Diversified Investors International Equity
Fund..................................... N/A 1,925,482 1,602,624 N/A N/A N/A
Diversified Investors Stock Index Fund..... N/A 2,103,596 1,502,569 N/A N/A N/A
Institutional Short Horizon Strategic
Allocation Fund.......................... 77,566 N/A N/A N/A N/A N/A
Institutional Short/Intermediate Horizon
Strategic Allocation Fund................ 66,169 N/A N/A N/A N/A N/A
Institutional Intermediate Horizon
Strategic Allocation Fund................ 485,899 N/A N/A N/A N/A N/A
Institutional Intermediate/Long Horizon
Strategic Allocation Fund................ 388,426 N/A N/A N/A N/A N/A
Institutional Long Horizon Strategic
Allocation Fund.......................... 229,890 N/A N/A N/A N/A N/A
</Table>
H-1
<Table>
<Caption>
PERCENTAGE OF
FUND'S
AGGREGATE AGGREGATE
DISTRIBUTION BROKERAGE BROKERAGE
FEES COMMISSIONS COMMISSIONS
PAID TRANSFER PAID PAID TO
MANAGEMENT ADMINISTRATION PURSUANT TO AGENCY TO AFFILIATED AFFILIATED
FUND FEES ($) FEES ($) 12B-1 PLAN ($) FEES ($) BROKERS ($) BROKERS (%)
- ---- ---------- -------------- -------------- -------- ------------- -------------
THE DIVERSIFIED INVESTORS FUNDS GROUP II
Diversified Institutional Money Market
Fund..................................... N/A 102,188 510,940 N/A N/A N/A
Diversified Institutional High Quality Bond
Fund..................................... N/A 91,690 458,452 N/A N/A N/A
Diversified Institutional Inflation-
Protected Securities Fund................ N/A 13,619 68,093 N/A N/A N/A
Diversified Institutional Core Bond Fund... N/A 241,931 1,209,652 N/A N/A N/A
Diversified Institutional Total Return Bond
Fund..................................... N/A 2,398 11,990 N/A N/A N/A
Diversified Institutional High Yield Bond
Fund..................................... N/A 40,984 204,920 N/A N/A N/A
Diversified Institutional Balanced Fund.... N/A 31,981 159,903 N/A N/A N/A
Diversified Institutional Value & Income
Fund..................................... N/A 375,303 1,876,513 N/A N/A N/A
Diversified Institutional Value Fund....... N/A 7,224 36,120 N/A N/A N/A
Diversified Institutional Growth & Income
Fund..................................... N/A 97,859 489,295 N/A N/A N/A
Diversified Institutional Equity Growth
Fund..................................... N/A 387,141 1,935,705 N/A N/A N/A
Diversified Institutional Aggressive Equity
Fund..................................... N/A 35,075 175,375 N/A N/A N/A
Diversified Institutional Mid-Cap Value
Fund..................................... N/A 84,896 424,479 N/A N/A N/A
Diversified Institutional Mid-Cap Growth
Fund..................................... N/A 33,930 169,651 N/A N/A N/A
Diversified Institutional Small-Cap Value
Fund..................................... N/A 20,886 104,431 N/A N/A N/A
Diversified Institutional Special Equity
Fund..................................... N/A 125,927 629,637 N/A N/A N/A
Diversified Institutional Small-Cap Growth
Fund..................................... N/A 12,487 62,436 N/A N/A N/A
Diversified Institutional International
Equity Fund.............................. N/A 239,015 1,195,074 N/A N/A N/A
Diversified Institutional Stock Index
Fund..................................... N/A 350,593 1,752,966 N/A N/A N/A
Short Horizon Strategic Allocation Fund.... 210,308 N/A N/A N/A N/A N/A
Short/Intermediate Horizon Strategic
Allocation Fund.......................... 218,230 N/A N/A N/A N/A N/A
Intermediate Horizon Strategic Allocation
Fund..................................... 887,261 N/A N/A N/A N/A N/A
Intermediate/Long Horizon Strategic
Allocation Fund.......................... 865,217 N/A N/A N/A N/A N/A
Long Horizon Strategic Allocation Fund..... 526,567 N/A N/A N/A N/A N/A
DIVERSIFIED INVESTORS STRATEGIC VARIABLE
FUNDS
Short Horizon Strategic Allocation Variable
Fund..................................... 21,116 N/A N/A N/A N/A N/A
Intermediate Horizon Strategic Allocation
Variable Fund............................ 58,249 N/A N/A N/A N/A N/A
Intermediate/Long Horizon Strategic
Allocation Variable Fund................. 91,328 N/A N/A N/A N/A N/A
DIVERSIFIED INVESTORS PORTFOLIOS
Money Market Portfolio..................... 2,202,129 N/A N/A N/A 0 0.00%
High Quality Bond Portfolio................ 2,841,710 N/A N/A N/A 0 0.00%
Inflation-Protected Securities Portfolio... 655,441 N/A N/A N/A 0 0.00%
Core Bond Portfolio........................ 7,179,850 N/A N/A N/A 0 0.00%
Total Return Bond Portfolio................ 292,277 N/A N/A N/A 0 0.00%
High Yield Bond Portfolio.................. 2,501,348 N/A N/A N/A 0 0.00%
Balanced Portfolio......................... 1,750,841 N/A N/A N/A 0 0.00%
Value & Income Portfolio................... 14,430,364 N/A N/A N/A 160,776 10.05%
Value Portfolio............................ 271,289 N/A N/A N/A 0 0.00%
Growth & Income Portfolio.................. 6,951,959 N/A N/A N/A 81,127 7.46%
Equity Growth Portfolio.................... 15,649,351 N/A N/A N/A 53,044 1.32%
Aggressive Equity Portfolio................ 2,893,873 N/A N/A N/A 0 0.00%
Mid-Cap Value Portfolio.................... 5,255,372 N/A N/A N/A 0 0.00%
Mid-Cap Growth Portfolio................... 2,197,122 N/A N/A N/A 0 0.00%
Small-Cap Value Portfolio.................. 1,958,558 N/A N/A N/A 0 0.00%
Special Equity Portfolio................... 10,061,755 N/A N/A N/A 0 0.00%
Small-Cap Growth Portfolio................. 1,316,369 N/A N/A N/A 0 0.00%
International Equity Portfolio............. 14,074,761 N/A N/A N/A 0 0.00%
</Table>
H-2
APPENDIX I
OTHER FUNDS ADVISED BY TFAI
The following table lists certain information regarding funds for which
TFAI provides investment advisory services, which have an investment objective
similar to that of one of the Funds. All of the information below is given as of
the end of the last fiscal year of each fund.
<Table>
<Caption>
ADVISORY FEE
(AS A PERCENTAGE ADVISORY FEE
OF AVERAGE DAILY (AFTER WAIVERS,
FUND ADVISER NET ASSETS ($) NET ASSETS) IF ANY) ($)
- ---- ------- -------------- ---------------- ---------------
IN THOUSANDS IN THOUSANDS
TA IDEX American Century Large Company
Value..................................... TFAI 343,554 0.84% 2,482
TA IDEX Asset Allocation -- Conservative
Portfolio................................. TFAI 533,500 0.10% 483
TA IDEX Asset Allocation -- Growth
Portfolio................................. TFAI 1,668,060 0.10% 1,355
TA IDEX Asset Allocation -- Moderate Growth
Portfolio................................. TFAI 2,984,418 0.10% 2,486
TA IDEX Asset Allocation -- Moderate
Portfolio................................. TFAI 1,713,401 0.10% 1,509
TA IDEX Bjurman, Barry Micro Emerging
Growth.................................... TFAI 55,381 1.05% 80
TA IDEX BlackRock Large Cap Value........... TFAI 506,529 0.79% 3,545
TA IDEX Federated Market Opportunity........ TFAI 83,188 0.78% 548
TA IDEX Jennison Growth..................... TFAI 130,917 0.80% 1,067
TA IDEX JPMorgan Mid Cap Value.............. TFAI 506,529 0.82% 1,873
TA IDEX Legg Mason Partners All Cap......... TFAI 206,529 0.80% 1,830
TA IDEX Legg Mason Partners Investors
Value..................................... TFAI 65,758 0.80% 837
TA IDEX Loomis Sayles Bond*................. TFAI -- -- --
TA IDEX Marsico Growth...................... TFAI 131,109 0.80% 1,097
TA IDEX Multi-Manager International Fund.... TFAI 144,641 0.10% 4
TA IDEX Neuberger Berman International...... TFAI 459,996 0.96% 3,650
TA IDEX Oppenheimer Small- & Mid-Cap Value.. TFAI 91,899 0.95% 162
TA IDEX PIMCO Real Return TIPS.............. TFAI 615,941 0.67% 3,823
TA IDEX PIMCO Total Return.................. TFAI 292,007 0.67% 1,543
TA IDEX Protected Principal Stock........... TFAI 41,178 581
TA IDEX Transamerica Balanced............... TFAI 210,583 0.80% 1,849
TA IDEX Transamerica Equity................. TFAI 1,729,897 0.74% 4,724
TA IDEX Transamerica Growth Opportunities... TFAI 359,149 0.78% 2,893
TA IDEX Transamerica High-Yield Bond........ TFAI 397,836 0.59% 2,323
TA IDEX Transamerica Money Market........... TFAI 148,195 0.40% 101
TA IDEX Transamerica Short-Term Bond........ TFAI 379,442 0.64% 1,915
TA IDEX Transamerica Small/Mid Cap Value.... TFAI 601,854 0.80% 4,314
TA IDEX Transamerica Value Balanced......... TFAI 64,387 0.75% 452
TA IDEX UBS Large Cap Value................. TFAI 226,782 0.82% 1,602
TA IDEX Van Kampen Mid-Cap Growth........... TFAI 75,092 0.80% 370
TA IDEX Van Kampen Small Company Growth..... TFAI 301,649 0.95% 2,567
American Century Large Company Value........ TFAI 176,279 0.83% 1,074
Asset Allocation -- Conservative Portfolio.. TFAI 817,890 0.10% 767
Asset Allocation -- Growth Portfolio........ TFAI 1,537,365 0.10% 1,348
Asset Allocation -- Moderate Growth
Portfolio................................. TFAI 4,100,858 0.10% 3,350
Asset Allocation -- Moderate Portfolio...... TFAI 2,634,443 0.10% 2,361
BlackRock Large Cap Value................... TFAI 1,082,468 0.78% 7,655
Capital Guardian U.S. Equity................ TFAI 260,563 0.80% 2,091
Capital Guardian Value...................... TFAI 829,683 0.79% 5,991
Federated Market Opportunity................ TFAI 551,272 0.74% 4,282
International Moderate Growth Fund.......... TFAI 51,569 0.10% 15
Jennison Growth............................. TFAI 146,012 0.80% 1,150
</Table>
I-1
<Table>
<Caption>
ADVISORY FEE
(AS A PERCENTAGE ADVISORY FEE
OF AVERAGE DAILY (AFTER WAIVERS,
FUND ADVISER NET ASSETS ($) NET ASSETS) IF ANY) ($)
- ---- ------- -------------- ---------------- ---------------
IN THOUSANDS IN THOUSANDS
JPMorgan Core Bond.......................... TFAI 167,758 0.45% 806
JPMorgan Enhanced Index..................... TFAI 200,173 0.74% 1,435
JPMorgan Mid Cap Value...................... TFAI 354,014 0.81% 2,776
Legg Mason Partners All Cap................. TFAI 383,502 0.80% 2,998
Marsico Growth.............................. TFAI 224,206 0.80% 1,626
MFS High Yield.............................. TFAI 388,554 0.74% 3,189
PIMCO Total Return.......................... TFAI 1,001,391 0.66% 5,259
Third Avenue Value.......................... TFAI 1,175,036 0.80% 8,835
Transamerica Balanced....................... TFAI 81,621 0.80% 613
Transamerica Equity......................... TFAI 3,388,898 0.69% 14,425
Transamerica Equity II...................... TFAI 19,409 0.30% 58
Transamerica Growth Opportunities........... TFAI 495,810 0.77% 3,844
Transamerica Money Market................... TFAI 498,447 0.35% 1,646
Transamerica Small/Mid Cap Value............ TFAI 425,701 0.80% 3,403
Transamerica Value Balanced................. TFAI 448,060 0.75% 3,391
T. Rowe Price Equity Income................. TFAI 870,160 0.74% 6,058
T. Rowe Price Growth Stock.................. TFAI 312,543 0.79% 2,376
T. Rowe Price Small Cap..................... TFAI 271,055 0.75% 2,249
Van Kampen Active International Allocation.. TFAI 242,785 0.85% 1,839
Van Kampen Large Cap Core................... TFAI 181,871 0.75% 1,434
Van Kampen Mid-Cap Growth................... TFAI 600,009 0.80% 5,013
</Table>
- ----------
* Fund commenced operations in January 2007.
I-2
APPENDIX J
FORM OF NEW DECLARATION OF TRUST
AMENDED AND RESTATED DECLARATION OF TRUST
OF
[NAME OF TRUST]
THIS AMENDED AND RESTATED DECLARATION OF TRUST is made as of this [ ] day
of [ ], [ ] by the Trustees hereunder.
WHEREAS, the [NAME OF TRUST] was established pursuant to a Declaration of
Trust dated [DATE OF ORIGINAL DECLARATION] (as amended to the date hereof, the
"Original Declaration") for the purposes of carrying on the business of a
management investment company;
WHEREAS, the Trustees, pursuant to Section [ ], Article [ ] of the
Original Declaration, are authorized to amend the Original Declaration with the
vote or consent of the Shareholders as required by such Section;
WHEREAS, this Amended and Restated Declaration of Trust has been amended in
accordance with the provisions of the Original Declaration in effect as of the
date hereof;
NOW, THEREFORE, the Trustees and any successor Trustees elected or
appointed in accordance with Article V hereof hereby declare that they will hold
all cash, securities and other assets and properties, which the Trust may from
time to time acquire in any manner, IN TRUST, and that they will manage and
dispose of the same and manage the affairs and business of the Trust upon the
following terms and conditions for the benefit of the holders from time to time
of shares of beneficial interest in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1. Name. This Trust shall be known as "'[Name of Trust]" and
the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
SECTION 1.2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided, the following terms have the following
respective meanings:
(a) "By-laws" means the By-laws of the Trust referred to in Section
6.8 hereof, as from time to time amended.
(b) "Class" means one or more Shares of the Trust as may be
established and designated as a Class from time to time by the Trustees
pursuant to Section 4.9 hereof.
(c) "Code" means the Internal Revenue Code of 1986 (or any successor
statute), as amended from time to time, and the rules and regulations
thereunder, as adopted or amended from time to time.
(d) "Commission" shall have the same meaning given to such term in the
1940 Act.
(e) "Complaining Shareholder" shall refer to a Shareholder making a
demand or bringing a claim pursuant to Section 9.8 hereof.
(f) "Declaration" means this Declaration of Trust as amended,
supplemented or amended and restated from time to time. Reference in this
Declaration of Trust to "'Declaration," "hereof," "herein," and
"'hereunder" shall be deemed to refer to this Declaration rather than
exclusively to the article or section in which such words appear.
(g) "He," "Him" and "His" shall include the feminine and neuter, as
well as the masculine, genders.
(h) "Interested Person" shall have the same meaning given to such term
in the 1940 Act.
J-1
(i) "1940 Act" refers to the Investment Company Act of 1940 (and any
successor statute) and the rules thereunder, all as amended from time to
time, as may apply to the Trust or a Series or Class thereof, including
pursuant to any exemptive, interpretive or other relief or guidance issued
by the Commission or the staff of the Commission under such Act.
(j) "Outstanding Shares" means those Shares shown from time to time on
the books of the Trust or its transfer agent as then issued and
outstanding, but shall not include Shares which have been redeemed,
repurchased, cancelled or terminated by the Trust.
(k) "Person" means and includes natural persons, corporations,
partnerships, limited partnerships, business trusts, limited liability
partnerships, statutory trusts, limited liability companies, trusts,
associations, joint ventures, estates, nominees and any other entity in its
own or any representative capacity, whether or not legal entities, and
governments and agencies and political subdivisions thereof, in each case
whether domestic or foreign.
(l) "Prospectus" means the prospectus and statement of additional
information with respect to the Trust or one or more Series or Classes
thereof as the context shall require, as contained in the most recent
effective registration statement filed with the Commission with respect to
the Trust or one or more such Series or Classes thereof, as the same may be
supplemented or modified from time to time in accordance with the
requirements of the federal securities laws.
(m) "Series" individually or collectively means each Series of Shares
as may be established and designated from time to time by the Trustees
pursuant to Section 4.9 hereof.
(n) "Shareholder" means a record owner of Outstanding Shares.
(o) "Shares" means the units of interest into which the beneficial
interest in the Trust shall be divided from time to time, including the
Shares of any and all Series and Classes which may be established and
designated by the Trustees, and includes fractions of Shares as well as
whole Shares.
(p) "Trust" refers to the voluntary association with transferable
shares established by this Declaration, as the same may be amended from
time to time.
(q) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or any Series.
(r) "Trustees" means, at any time, the person or persons who have
signed this Declaration and all other persons who may from time to time be
duly qualified and serving as Trustees in accordance with the provisions of
Article V hereof, in each case if they shall at that time continue in
office in accordance with the terms hereof, and reference herein to a
Trustee or the Trustees shall refer to such person or persons in his
capacity or their capacities as Trustees hereunder.
ARTICLE II
NATURE AND PURPOSE OF TRUST
The Trust set forth in this instrument shall be deemed made in the
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth as a
voluntary association with transferable shares (commonly known as a business
trust) of the type referred to in Chapter 182 of the General Laws of the
Commonwealth of Massachusetts. The Trust is not intended to be, shall not be
deemed to be, and shall not be treated as, a general or a limited partnership,
joint venture, corporation or joint stock company, nor shall the Trustees or
Shareholders or any of them for any purpose be deemed to be, or be treated in
any way whatsoever as though they were, liable or responsible hereunder as
partners or joint venturers. The purpose of the Trust is to engage in, operate
and carry on the business of an open-end management investment company through
one or more Series, and to do any and all acts or things as are necessary,
convenient, appropriate, incidental or customary in connection therewith and
without limiting the foregoing or the other provisions hereof, the Trust may
exercise all powers which may be exercised by a Massachusetts business trust.
J-2
ARTICLE III
REGISTERED AGENT; PRINCIPAL PLACE OF BUSINESS
The name and address of the registered agent of the Trust is [Corporation
Service Company, 84 State Street, Boston, MA 02109]. The principal place of
business of the Trust is Transamerica Fund Complex, 570 Carillon Parkway, St.
Petersburg, Florida 33716-1202. The Trustees may, from time to time, change the
registered agent of the Trust and the principal place of business of the Trust.
ARTICLE IV
BENEFICIAL INTERESTS; SHAREHOLDERS
SECTION 4.1. Shares of Beneficial Interest. The beneficial interest in
the Trust shall be divided into such Shares of beneficial interest, of such
Series or Classes, and of such designations and par values (if any) and with
such rights, preferences, privileges, limitations, restrictions and such other
relative terms as shall be determined by the Trustees from time to time. The
number of Shares is unlimited. The Trustees shall have full power and authority
to take such action with respect to the Shares as the Trustees may deem
desirable.
SECTION 4.2. Issuance of Shares. (a) Shares may be issued from time to
time to such Persons (including, without limitation, any Trustee, officer, or
agent of the Trust or any Person in which a Trustee, officer or agent of the
Trust has an interest) either for cash or for such other consideration (which
may be in any one or more instances a certain specified consideration or certain
specified considerations) and on such terms as the Trustees, from time to time,
may deem advisable, and the Trust may, in connection with an issuance of Shares,
acquire other assets (including the acquisition of assets subject to, and in
connection with, the assumption of liabilities), and all Shares so issued
hereunder, including without limitation Shares issued in connection with a
dividend in Shares or a split or reverse split of Shares, shall be fully paid
and nonassessable. The Trust shall have the right to refuse to issue Shares to
any Person at any time and for any reason or for no reason whatsoever.
(b) The Trust may issue Shares in fractional denominations to the same
extent as its whole Shares, and Shares in fractional denominations shall be
Shares having proportionately to the respective fractions represented thereby
all the rights of whole Shares, including, without limitation, the right to
vote, the right to receive dividends and distributions and the right to
participate upon termination of the Trust.
(c) Any Shares issued by the Trust which have been purchased, redeemed or
otherwise reacquired by the Trust shall be retired automatically and shall have
the status of unissued Shares.
SECTION 4.3. Rights of Shareholders. The ownership of the Trust Property
of every description and the right to conduct any business herein described is
vested exclusively in the Trustees. The Shareholders shall have no right or
title in or to the Trust Property or to call for any partition or division of
any property, profits, rights or interests of the Trust or any Series thereof
and the Shareholders shall have no interest therein other than the beneficial
interest conferred by their Shares. The death, incapacity, dissolution,
termination, or bankruptcy of a Shareholder during the continuance of the Trust
shall neither operate to terminate the Trust or any Series thereof nor entitle
the representative of any such Shareholder to an accounting or to take any
action in court or elsewhere against the Trust, any Series thereof or the
Trustees, but shall entitle such representative only to the rights of said
Shareholder under this Declaration. Neither the Trust nor the Trustees, nor any
officer, employee or agent of the Trust shall have any power to bind personally
any Shareholder, or to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at any
time personally agree to pay, provided however that any sales loads or charges,
redemption fees, account fees or any other fees or charges not prohibited as
charges to Shareholders under applicable law shall not be deemed to be an
assessment for the purposes of this Declaration. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration. The
holders of Shares shall not, as such holders, have any right to acquire,
purchase or subscribe for any Shares or securities of the Trust that it may
hereafter issue or sell, or have any preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may determine from time to
time. Every Shareholder, by virtue of purchasing Shares and becoming a
Shareholder, shall be held to have expressly assented and agreed to the terms of
this Declaration and shall be bound thereby.
J-3
SECTION 4.4. Ownership and Transfer of Shares; Small Accounts. (a) The
ownership and transfer of Shares shall be recorded on the books of the Trust or,
if there is a transfer or similar agent with respect to such Shares, on the
books and records of such transfer or similar agent with respect to such Shares,
which records shall be maintained separately for the Shares of each Series or
Class of the Trust. No certificates representing the ownership of Shares shall
be issued except as the Trustees may otherwise determine from time to time. The
Trustees may make such rules or impose such restrictions as they consider
necessary or appropriate for the issuance of Share certificates, transfer of
Shares and similar matters. The record books of the Trust, as kept by the Trust
or any transfer or similar agent of the Trust, shall be conclusive as to who are
the holders of Shares and as to the number of Shares held from time to time by
each Shareholder. No Shareholder shall be entitled to receive any payment of a
dividend or distribution, or to have notice given to him as provided herein or
in the By-laws, until he has provided such information as shall be required to
the Trust or, as applicable, the Trust's transfer or similar agent with respect
to his Shares.
(b) In the event any certificates representing Outstanding Shares are at
any time outstanding, the Trustees may at any time or from time to time
determine that Shares shall no longer be represented by certificates, and in
connection therewith, upon written notice to any Shareholder holding
certificates representing Outstanding Shares, such certificates shall be
cancelled, provided that such cancellation shall not affect the ownership by
such Shareholder of such Shares, and following such cancellation, ownership and
transfer of such Shares shall be recorded by book entry on the books of the
Trust or its transfer or similar agent.
(c) The Trustees may establish, from time to time, one or more minimum
investment amounts for Shareholder accounts, which may differ within and among
any Series or Classes, and may impose account fees on (which may be satisfied by
involuntarily redeeming the requisite number of Shares in any such account in
the amount of such fee), and/or require the involuntary redemption of Shares
held in, those accounts the net asset value of which for any reason falls below
such established minimum investment amounts, or may authorize the Trust to
convert any such Shares in such account to Shares of another Class or Series, or
take any other such action with respect to minimum investment amounts as may be
deemed necessary or appropriate by the Trustees, in each case upon such terms as
shall be established by the Trustees.
SECTION 4.5. Voting by Shareholders. (a) Shareholders shall not have the
power to vote on any matter except: (i) for the election or removal of Trustees
to the extent and as provided in Article V hereof, and (ii) with respect to such
additional matters relating to the Trust as may be required by law or as the
Trustees may consider and determine necessary or desirable.
(b) Each whole Share (or fractional Share) outstanding on the record date
established in accordance with the By-laws shall entitle the holder thereof to a
number of votes as to any matter on which the Shareholder is entitled to vote
equal to the net asset value of the Share (or fractional Share) in United States
dollars determined at the close of business on the record date. There shall be
no cumulative voting in the election of Trustees or on any other matter
submitted to a vote of the Shareholders. Shares may be voted in person or by
proxy. Until Shares of the Trust or any Series or Class are issued, the Trustees
may exercise all rights of Shareholders of the Trust or such Series or Class and
may take any action required or permitted by law, this Declaration or the By-
laws of the Trust to be taken by Shareholders of the Trust, such Series or
Class.
(c) On any matter submitted to a vote of the Shareholders of the Trust, all
Shares of all Series and Classes then entitled to vote shall be voted together,
except that (i) when required by the 1940 Act to be voted by individual Series
or Class, Shares shall be voted by individual Series or Class, and (ii) when the
Trustees have determined that the matter affects only the interests of
Shareholders of one or more Series or Classes, only Shareholders of such one or
more Series or Classes shall be entitled to vote thereon.
SECTION 4.6. Meetings. Meetings of the Shareholders of the Trust or any
one or more Series or Classes thereof may be called and held from time to time
for the purpose of taking action upon any matter requiring the vote or authority
of the Shareholders as herein provided or upon any other matter deemed by the
Trustees to be necessary or desirable. The Trustees may set in the By-laws
provisions relating to the calling and holding of meetings (including the
holding of meetings by electronic or other similar means), notice of meetings,
record dates, place of meetings, conduct of meetings, voting by proxy,
postponement, adjournment or cancellation of meetings and related matters.
J-4
SECTION 4.7. Quorum and Action. (a) The Trustees shall set forth in the
By-laws the quorum required for the transaction of business by the Shareholders
at a meeting, which quorum shall in no event be less than Shares representing
thirty percent (30%) of the voting power of the Shares entitled to vote at such
meeting. If a quorum is present when a duly called and held meeting is convened,
the Shareholders present may continue to transact business until adjournment,
even though the withdrawal of a number of Shareholders originally present leaves
less than the proportion or number otherwise required for a quorum.
(b) The Shareholders shall take action by the affirmative vote of the
holders of Shares representing a majority, except in the case of the election of
Trustees which shall only require a plurality, of votes cast at a meeting of
Shareholders at which a quorum is present, except as may be otherwise required
by applicable law or any provision of this Declaration or the By-laws.
SECTION 4.8. Action by Written Consent in Lieu of Meeting of
Shareholders. Any action required or permitted to be taken at a meeting of the
Shareholders may be taken, if so directed by the Trustees, without a meeting by
written action executed by Shareholders, as of a record date specified in
accordance with the By-Laws, holding not less than the minimum voting power that
would have been necessary to take the action at a meeting, assuming that all of
the Shareholders entitled to vote on that action were present and voting at that
meeting. The written action shall be effective when it has been executed by the
requisite number of Shareholders and delivered to the Secretary of the Trust,
unless a different effective time is provided in the written action. Such a
consent may be executed and delivered by electronic means in accordance with any
procedures that may be adopted by the Trustees from time to time.
SECTION 4.9. Series and Classes of Shares.
(a) Series. The current Series of the Trust are set forth on Schedule A
hereto. The Trustees may from time to time authorize the division of Shares into
additional Series. The relative rights, preferences, privileges, limitations,
restrictions and other relative terms of any Series shall be established and
designated by the Trustees, and may be modified by the Trustees from time to
time, upon and subject to the following provisions:
(i) Subject to variations between Classes of Shares of a Series, all
Shares shall be identical except that there may be such variations as shall
be fixed and determined by the Trustees from time to time between different
Series, including, without limitation, as to qualifications for ownership,
minimum purchase amounts, minimum account size, purchase price, fees and
expenses, redemptions, conversions and exchanges, and special and relative
rights as to dividends and on liquidation, and each Series shall have such
business purpose or investment objective as shall be determined by the
Trustees. Each Share of a Series shall represent a beneficial interest in
the net assets allocated or belonging to such Series only, and such
interest shall not extend to the assets of the Trust generally (except to
the extent that General Assets (as defined below) are allocated to such
Series). All references to Shares in this Declaration shall be deemed to
include references to Shares of any or all Series as the context may
require.
(ii) The number of authorized Shares of each Series and the number of
Shares of each Series that may be issued shall be unlimited. The Trustees
may divide or combine any issued or unissued Shares of any Series into a
greater or lesser number; classify or reclassify any issued or unissued
Shares into one or more Series; terminate any one or more Series; change
the name of a Series; and take such other action with respect to the Series
as the Trustees may deem desirable.
(iii) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be
(collectively, the "'Assets"), shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors of such Series, and
shall be so recorded upon the books of the Trust. Such Assets, together
with any General Assets (as hereinafter defined) allocated to that Series
as provided in the following sentence, are herein referred to as "'Assets
belonging to" that Series. In the event that there are any assets, income,
earnings, profits or proceeds thereof, funds or payments which are not
readily identifiable as Assets belonging to any particular Series
(collectively, the "'General Assets"), the Trustees shall allocate such
General Assets to and among any one or
J-5
more of the Series created from time to time in such manner and on such
basis as they deem fair and equitable; and any General Assets allocated to
a particular Series shall be Assets belonging to that Series. Each such
allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes. Separate and distinct records
shall be maintained for each Series and the Assets belonging to each Series
shall be held and accounted for in such separate and distinct records
separately from the Assets belonging to all other Series and the General
Assets of the Trust not allocated to such Series.
(iv) The Assets belonging to a particular Series shall be charged with
the debts, liabilities and obligations of the Trust in respect of that
Series and with all expenses, costs, charges and reserves attributable to
that Series (collectively, the "'Liabilities"), which Liabilities shall be
recorded upon the books of the Trust. Such Liabilities together with any
General Liabilities (as hereinafter defined) allocated to that Series as
provided in the following sentence, are herein referred to as "'Liabilities
belonging to" that Series. In the event there are any debts, liabilities,
obligations, expenses, costs, charges or reserves of the Trust that are not
readily identifiable as belonging to any particular Series (collectively,
the "'General Liabilities"), the Trustees shall allocate and charge such
General Liabilities to and among any one or more of the Series created from
time to time in such manner and on such basis as they deem fair and
equitable; and any General Liabilities so allocated to a particular Series
shall belong to that Series. Each such allocation by the Trustees shall be
conclusive and binding upon all concerned for all purposes. Without
limiting the foregoing, but subject to the right of the Trustees to
allocate General Liabilities as herein provided, the Liabilities belonging
to a particular Series shall be enforceable only against the Assets
belonging to such Series and not against the assets of the Trust generally
or against the Assets belonging to any other Series, and none of the
General Liabilities incurred, contracted for or otherwise existing with
respect to the Trust generally or any Liabilities incurred, contracted for
or otherwise existing with respect to any other Series shall be enforceable
against the Assets belonging to such Series. Any Person extending credit
to, contracting with or having any claim against any Series may look only
to the Assets belonging to that Series to satisfy or enforce any Liability
belonging to that Series. No Shareholder or former Shareholder of any
Series, in such capacity, shall have a claim on or any right to any Assets
belonging to any other Series.
(b) Classes. The current Classes are set forth on Schedule B hereto with
respect to those Series identified on such Schedule. The Trustees may from time
to time authorize the division of Shares of the Trust or any Series thereof into
additional Classes. The relative rights, preferences, privileges, limitations,
restrictions and other relative terms of a Class shall be established and
designated by the Trustees and may be modified by the Trustees from time to
time. All Shares of a Class of a Series shall be identical with each other and
with the Shares of each other Class of the same Series except for such
variations between Classes as may be authorized by the Trustees from time to
time and not prohibited by the 1940 Act, including, without limitation, as to
qualifications for ownership, minimum purchase amounts, minimum account size,
purchase price, fees and expenses, right of redemption, and the price, terms and
manner of redemption, conversion and exchange rights and features and special
and relative rights as to dividends and on liquidation. The number of authorized
Shares of each Class and the number of Shares of each Class that may be issued
shall be unlimited. The Trustees may divide or combine the issued or unissued
Shares of any Class into a greater or lesser number; classify or reclassify any
issued or unissued Shares of any Class into one or more Classes; combine two or
more Classes of a Series into a single Class of such Series; terminate any one
or more Classes of Shares; change the name or other designation of a Class; and
take such other action with respect to the Classes as the Trustees may deem
desirable. To the extent necessary or appropriate to give effect to the
preferences and special or relative rights and privileges of any Classes, the
Trustees may allocate assets, liabilities, income and expenses of a Series to a
particular Class of that Series or apportion the same among two or more Classes
of that Series. All references to Shares in this Declaration shall be deemed to
include references to Shares of any or all Classes as the context may require.
(c) Establishment and Designation of Series and Classes. The
establishment and designation of any Series or Class of Shares shall be made
either by the vote of a majority of the Trustees or by the execution by a
majority of the Trustees of an instrument, in each case setting forth such
establishment and designation, the effective date of such establishment and
designation and the relative rights, preferences, privileges, limitations,
restrictions and other relative terms of such Series and/or Class, whether
directly in such resolution or instrument or by reference to one or more
documents or instruments outside this Declaration and outside the resolutions,
as the same may be in effect
J-6
from time to time, including any Prospectus relating to such Series or Class.
Any such instrument executed by a majority of the Trustees, or, with respect to
an establishment and designation made by vote of the Trustees, an instrument
setting forth such resolutions and certified by either the Secretary or an
Assistant Secretary of the Trust (in each case, a "'Designation"), shall further
be filed in accordance with the provisions of Section 11.2 hereof. Additions or
modifications to a Designation, including, without limitation, any termination
of an existing Series or Class, shall be made in the same manner as is permitted
for the establishment and designation of such Series or Class.
SECTION 4.10. Disclosure of Shareholder Holdings. The holders of Shares
or other securities of the Trust shall upon demand disclose to the Trust in
writing such information with respect to direct and indirect ownership of Shares
or other securities of the Trust as the Trustees deem necessary to comply with
the provisions of the Code; to comply with the requirements of any other law or
regulation; or as the Trustees may otherwise decide, and ownership of Shares may
be disclosed by the Trust if so required by applicable law or as the Trustees
may otherwise decide.
SECTION 4.11. Access to Trust Records. Except to the extent otherwise
required by law, Shareholders shall only have such right to inspect the records,
documents, accounts and books of the Trust as may be granted from time to time
by the Trustees.
SECTION 4.12. Communications with Shareholders. Any notices, reports,
statements, or communications with Shareholders of any kind required under this
Declaration, including any such communications with Shareholders or their
counsel or other representatives required under Section 9.8 hereof, or otherwise
made by the Trust or its agents on behalf of the Trust shall be governed by the
provisions pertaining thereto in the By-laws.
ARTICLE V
THE TRUSTEES
SECTION 5.1. Management of the Trust. The business and affairs of the
Trust shall be managed under the direction of the Trustees, and they shall have
all powers necessary and desirable to carry out that responsibility, including,
without limitation, those powers described more fully in Article VI hereof.
SECTION 5.2. Qualification and Number. Each Trustee shall be a natural
person. A Trustee need not be a citizen of the United States or a resident of
the Commonwealth of Massachusetts. By a majority vote or consent of the Trustees
as may then be in office, the Trustees may from time to time establish the
number of Trustees. No decrease in the number of Trustees shall have the effect
of removing any Trustee from office prior to the expiration of his term, but the
number of Trustees may be decreased in conjunction with the removal of a Trustee
pursuant to Section 5.4 hereof.
SECTION 5.3. Term and Election. Except as provided in Section 5.4 below,
each Trustee shall hold office until the next meeting of Shareholders called for
the purpose of considering the election or re-election of such Trustee or of a
successor to such Trustee, and until his successor, if any, is elected,
qualified and serving as a Trustee hereunder. Any Trustee vacancy may be filled
by the affirmative vote or consent of a majority of the Trustees then in office,
except as prohibited by the 1940 Act, or, if for any reason there are no
Trustees then in office, vacancies may be filled by the officers of the Trust
elected pursuant to Section 6.2(b)(iii) hereof, or may be filled in any other
manner permitted by the 1940 Act.
SECTION 5.4. Resignation, Retirement and Removal. Any Trustee may resign
or retire as a Trustee by an instrument in writing signed by him and delivered
or mailed to the Chair, if any, the President or the Secretary, and such
resignation or retirement shall be effective upon such delivery, or at a later
date according to the terms of the instrument. Any Trustee who has attained a
mandatory retirement age or term limit established pursuant to, or who is
otherwise required to retire in accordance with, any written policy adopted from
time to time by at least two-thirds (2/3) of the Trustees shall, automatically
and without action of such Trustee or the remaining Trustees, be deemed to have
retired in accordance with the terms of such policy, effective as of the date
determined in accordance with such policy; and any Trustee who has become
incapacitated by illness or injury as determined by a majority of the other
Trustees or declared incompetent by a court of appropriate jurisdiction, may be
retired by written instrument signed
J-7
by a majority of the other Trustees. Except as aforesaid, any Trustee may be
removed from office only (i) by action of at least two-thirds (2/3) of the
voting power of the Outstanding Shares, or (ii) by the action of at least two-
thirds (2/3) of the remaining Trustees, specifying the date when such removal
shall become effective. Except to the extent expressly provided in a written
agreement to which the Trust is a party or in a written policy adopted by the
Trustees, no resigning, retiring or removed Trustee shall have any right to any
compensation for any period following his resignation, retirement or removal, or
any right to damages on account of such resignation, retirement or removal.
SECTION 5.5. Vacancies. The death, resignation, retirement, removal, or
incapacity of one or more of the Trustees, or all of them, shall not operate to
annul the Trust or to revoke any existing agency created pursuant to the terms
of this Declaration. Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided herein, or the number of Trustees as
fixed is reduced, the Trustees in office, regardless of their number, shall have
all the powers granted to the Trustees, and during the period during which any
such vacancy shall occur, only the Trustees then in office shall be counted for
the purposes of the existence of a quorum or any action to be taken by such
Trustees.
SECTION 5.6. Ownership of Assets of the Trust. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or any successor
Trustees. All right, title and interest in the assets of the Trust shall at all
times be considered as automatically vested in the Trustees as shall be from
time to time in office. Upon the resignation, retirement, removal, incapacity or
death of a Trustee, such Trustee shall automatically cease to have any right,
title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
without the execution or delivery of any conveyancing or other instruments. No
Shareholder shall be deemed to have a severable ownership in any individual
asset of the Trust or any Series thereof or any right of partition or possession
thereof.
ARTICLE VI
POWERS OF TRUSTEES
SECTION 6.1. General Powers. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust but
with full powers of delegation, except as may otherwise be expressly prohibited
by this Declaration. The Trustees shall have the power to direct the business
and affairs of the Trust and carry on the Trust's operations and maintain
offices both within and outside the Commonwealth of Massachusetts, and to do or
authorize all such other things and execute or authorize the execution of all
such instruments as they deem necessary, proper or desirable in order to promote
the interests of the Trust. With respect to any power or authority of the
Trustees hereunder, whether stated or implied, the Trustees shall have all
further powers and authority as may be necessary, incidental, relative,
conductive, appropriate or desirable for the accomplishment, carrying out or
attainment of any action authorized by the Trustees. In construing the
provisions of this Declaration, the presumption shall be in favor of a grant of
power to the Trustees. Without limiting the foregoing, the Trustees shall have
power and authority to operate and carry on the business of an investment
company and the Trustees shall exercise all the powers as are necessary,
convenient, appropriate, incidental or customary in connection therewith and may
exercise all powers which are ordinarily exercised by the trustees of a business
trust. The enumeration of any specific power herein shall not be construed as
limiting the aforesaid general powers. Such powers of the Trustees may be
exercised without order of or resort to any court. Whenever in this Declaration
the Trustees are given authority to act on behalf of the Trust or to direct,
authorize or cause the Trust to take any action, such power and authority shall
apply, mutatis mutandis, to any action of the Trust on behalf of any Series or
Class.
SECTION 6.2. Certain Specific Powers. (a) Investments. The Trustees shall
not in any way be bound or limited by present or future laws, rules,
regulations, or customs in regard to investments by fiduciaries, but shall have
full authority and power to authorize the Trust to make, invest and reinvest in,
to buy or otherwise acquire, to hold, for investment or otherwise, to borrow, to
sell, terminate, exercise or otherwise dispose of, to lend or to pledge, to
write, enter into, engage, trade or deal in any and all investments or
investment strategies as they may deem proper
J-8
at any time and from time to time to accomplish the purpose of the Trust or any
Series thereof. In furtherance of, and in no way limiting, the foregoing, the
Trustees shall have power and authority to authorize the Trust:
(i) to exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities or other assets;
(ii) to hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form or either
in the Trust's name or in the name of a custodian or a nominee or nominees;
(iii) to exercise all rights, powers and privileges of ownership or
interest in all securities and other assets included in the Trust Property,
including the right to vote thereon and otherwise act with respect thereto
and to do all acts for the preservation, protection, improvement and
enhancement in value of all such assets;
(iv) to acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real
or personal, tangible or intangible, including cash, securities,
currencies, any commodities, and any interest therein;
(v) to borrow money for any purpose and in this connection issue notes
or other evidence of indebtedness;
(vi) to secure borrowings by mortgaging, pledging or otherwise
subjecting as security all or any portion of the Trust Property;
(vii) to endorse, guarantee, or undertake the performance of any
obligation or engagement of any other Person;
(viii) to lend money or any other Trust Property;
(ix) to aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in
the Trust Property or in the affairs of which the Trustees have any direct
or indirect interest and to do all acts and things designed to protect,
preserve, improve or enhance the value of such obligation or interest;
(x) to guarantee or become surety on any or all of the contracts,
stocks, bonds, notes, debentures and other obligations of any such
corporation, company, trust, association or firm;
(xi) to consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security or
property of which is held in the Trust;
(xii) to consent to any contract, lease, mortgage, purchase, or sale
of property by such corporation or issuer;
(xiii) to pay calls or subscriptions with respect to any security held
in the Trust; and
(xiv) to join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection
to deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such power and
authority with relation to any security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to
pay, such portion of the expenses and compensation of such committee,
depositary or trustee as the Trustees shall deem proper.
(b) Additional Powers. The Trustees shall have the power and authority on
behalf of the Trust:
(i) to employ, engage or contract with, or make payments to, such
Persons as the Trustees may deem desirable for the transaction of the
business of the Trust or any Series thereof, including, without limitation,
any Trustee or officer of the Trust or any firm of which any such Trustee
or officer is a member, whether as agents or independent contractors of the
Trust or any Series thereof, or as delegates of the Trustees, officers, or
any other Person who may be involved with the management of the business
affairs of the Trust or any Series thereof, to have such titles, and such
rights, powers and duties as the Trustees may determine from time to time,
to terminate any such employment, engagement or contract or other
relationship and to delegate to any such Person the supervision of any
other Person that has been so employed, engaged or contracted with;
J-9
(ii) to authorize the Trust to enter into joint ventures, partnerships
and any other combinations or associations;
(iii) to elect and remove such officers as they consider appropriate;
(iv) to authorize the Trust to indemnify any Person with whom the
Trust has dealings, including, without limitation, any service provider
employed pursuant to Article VII hereof, to such extent as the Trustees
shall determine;
(v) to authorize the Trust to purchase, and pay for out of Trust
Property, (A) insurance policies insuring the Shareholders, Trustees,
officers, employees and any other Persons, including, without limitation,
any service provider employed pursuant to Article VII hereof, against any
or all claims arising by reason of holding any such position or by reason
of any action taken or omitted by any such Person in such capacity whether
or not the Trust would have the power to indemnify such Person against such
liability, (B) insurance for the protection of Trust Property, (C)
insurance as may be required by applicable law, or (D) such other insurance
as the Trustees shall deem advisable, in each case as the Trustees shall
determine;
(vi) to authorize the Trust to establish pension, profit-sharing,
share purchase, and other retirement, incentive and benefit plans,
including the purchasing of life insurance and annuity contracts as a means
of providing such retirement and other benefits, for any Trustees,
officers, employees and agents of the Trust;
(vii) to authorize the Trust to guarantee indebtedness or contractual
obligations of others;
(viii) to determine and change the fiscal year of the Trust or any
Series and the method by which its accounts shall be kept;
(ix) to adopt a seal for the Trust, but the absence of such seal shall
not impair the validity of any instrument executed on behalf of the Trust;
and
(x) to engage in any other lawful act or activity in connection with
or incidental to any of the powers enumerated in this Declaration, to do
everything necessary, suitable or proper for the accomplishment of any
purpose or the attainment of any object or the furtherance of any power
herein set forth, either alone or in association with others, and to do
every other act or thing incidental or appurtenant to or growing out of or
connected with the aforesaid business or purposes, objects or powers.
(c) The foregoing enumeration of the powers and authority of the Trustees
shall be read as broadly and liberally as possible, it being the intent of the
foregoing in no way to limit the Trustees' powers and authority.
SECTION 6.3. Issuance and Repurchase of Shares. The Trustees shall have
the power to authorize the Trust to issue, sell, repurchase, redeem, retire,
cancel, acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal
in Shares and in any options, warrants or other rights to purchase Shares or any
other interests in the Trust other than Shares.
SECTION 6.4. Delegation; Committees. The Trustees shall have power to
delegate from time to time to one or more of their number or to officers,
employees or agents of the Trust the doing of such things and the execution of
such instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, except to the extent such
delegation is prohibited by applicable law. Without limiting the foregoing, and
notwithstanding any provisions herein to the contrary, the Trustees may by
resolution appoint committees consisting of one or more, but less than the whole
number of, Trustees then in office and such other members as the Trustees shall
approve, which committees may be empowered to act for and bind the Trustees and
the Trust, as if the acts of such committees were the acts of all the Trustees
then in office.
SECTION 6.5. Collection and Payment. The Trustees shall have the power to
authorize the Trust or its agents to: collect all money or other property due to
the Trust; to pay all claims, including taxes, against the Trust Property; to
prosecute, defend, arbitrate, compromise or abandon any claims relating to the
Trust Property; to foreclose any security interest securing any obligations, by
virtue of which any money or other property is owed to the Trust; and to enter
into releases, agreements and other instruments; but the Trustees shall have no
liability for failing to authorize any of the foregoing.
J-10
SECTION 6.6. Expenses. The Trustees shall have the power to authorize the
Trust to incur and pay any expenses which, in the opinion of the Trustees, are
necessary or incidental to carry out any of the purposes of this Declaration, to
pay compensation from the funds of the Trust to themselves as Trustees and to
reimburse themselves from the funds of the Trust for their expenses and
disbursements. The Trustees shall fix the compensation of all officers,
employees and Trustees.
SECTION 6.7. Manner of Acting. Except as otherwise provided herein, under
applicable law or in the By-laws, any action to be taken or determination made
by the Trustees may be taken or made by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), including any meeting held by
means of a conference telephone circuit or similar communications equipment by
means of which all persons participating in the meeting can hear each other, or
by written consents of a majority of Trustees then in office. Any such action or
determination may be made by reference to one or more documents or instruments
or policies or procedures outside this Declaration and outside the resolutions
of the Trustees. Except as set forth specifically in this Declaration, any
action that may be taken by the Trustees may be taken by them in their sole
discretion and without the vote or consent of Shareholders.
SECTION 6.8. By-laws. The Trustees may adopt By-laws not inconsistent
with this Declaration to provide for the conduct of the business of the Trust
and shall have the exclusive power to amend or repeal such By-laws.
SECTION 6.9. Principal Transactions. Except in transactions not permitted
by the 1940 Act, the Trustees may authorize the Trust to buy any securities or
other assets from or sell or lend any securities or other assets of the Trust
to, any affiliate of the Trust or any account managed by an affiliate of the
Trust, any Trustee or officer of the Trust or any firm of which any such Trustee
or officer is a member acting as principal, or have any such dealings with any
service provider employed pursuant to Article VII hereof.
SECTION 6.10. Effect of Trustees' Determination. Any action taken or
determination made by or pursuant to the direction of the Trustees in good faith
and consistent with the provisions of this Declaration shall be final and
conclusive and shall be binding upon the Trust, every holder at any time of
Shares and any other Person.
ARTICLE VII
SERVICE PROVIDERS
SECTION 7.1. Investment Adviser and Administrator. The Trust may enter
into contracts with one or more Persons, to act as investment adviser,
investment sub-adviser, manager, administrator, sub-administrator or other agent
to the Trust or Series, and as such to perform such functions as the Trustees
may deem reasonable and proper, including, without limitation, investment
advisory, management, research, valuation of assets, clerical and administrative
functions, under such terms and conditions, and for such compensation, as the
Trustees may deem advisable. The Trustees may also authorize any adviser or sub-
adviser to employ one or more sub-advisers from time to time and any
administrator to employ one or more sub-administrators from time to time, upon
such terms and conditions as shall be approved by the Trustees.
SECTION 7.2. Underwriter; Transfer Agent; Shareholder Servicing Agent;
Custodian. The Trust may enter into a contract or contracts with one or more
Persons to act as underwriters, distributors or placement agents whereby the
Trust may either agree to sell Shares of the Trust or any Series or Class to the
other party or parties to the contract or appoint such other party or parties
its sales agent or agents for such Shares and with such other provisions as the
Trustees may deem reasonable and proper, and the Trust may from time to time
enter into transfer agency, sub-transfer agency and/or shareholder servicing
contract(s), in each case with such terms and conditions, and providing for such
compensation, as the Trustees may deem advisable.
All securities and cash of the Trust shall be held pursuant to a written
contract or contracts with one or more custodians and subcustodians or shall
otherwise be held in accordance with the 1940 Act.
SECTION 7.3. Parties to Contract. Any contract of the character described
in this Article VII may be entered into with any Person, including, without
limitation, the investment adviser, any investment sub-adviser or an affiliate
of the investment adviser or sub-adviser, although one or more of the Trustees,
officers, or Shareholders of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, or otherwise
J-11
interested in such contract, and no such contract shall be invalidated or
rendered voidable by reason of the existence of any such relationship, nor shall
any Person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by reason of said
contract or accountable for any profit realized directly or indirectly
therefrom, provided that the contract when entered into was not inconsistent
with the provisions of this Article VII or the By-laws. The same Person may be a
party to more than one contract entered into pursuant to this Article VII and
any individual may be financially interested or otherwise affiliated with
Persons who are parties to any or all of the contracts mentioned in this Article
VII.
SECTION 7.4. Further Authority of Trustees. The authority of the Trustees
hereunder to authorize the Trust to enter into contracts or other agreements or
arrangements shall include the authority of the Trustees to modify, amend, waive
any provision of, supplement, assign all or a portion of, novate, or terminate
such contracts, agreements or arrangements. The enumeration of any specific
contracts in this Article VII shall in no way be deemed to limit the power and
authority of the Trustees as set forth in Section 6.2 hereof to authorize the
Trust to employ, contract with or make payments to such Persons as the Trustees
may deem desirable for the transaction of the business of the Trust.
ARTICLE VIII
DISTRIBUTIONS; REDEMPTIONS; DETERMINATION OF NET ASSET VALUE
SECTION 8.1. Distributions. The Trustees may from time to time declare
and authorize the payment of, or may prescribe and set forth in a duly adopted
vote or votes of the Trustees, the bases and time or frequency, which may be
monthly or otherwise, for the declaration and payment of, such dividends and
distributions on Shares of a particular Series or Class thereof as they may deem
necessary or desirable, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with good accounting practices. All dividends and distributions on
Shares of a particular Series shall be distributed only from the Assets
belonging to that Series, as such term is defined in Section 4.9 hereof, and
shall be distributed pro rata to the Shareholders of that Series in proportion
to the number of Shares of that Series held by such Shareholders at the date and
time of record for the payment of such dividends or distributions, subject to
any variations with respect to Classes of Shares of such Series, if any, and in
a manner consistent with the 1940 Act and the Code. Such distributions may be
paid in cash and/or in securities or other property, and the composition of any
such distribution shall be determined by the Trustees and may be different among
Shareholders (including differences among Shareholders in the same Series or
Class).
SECTION 8.2. Redemption of Shares. All shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. The Trust shall redeem the Shares of the Trust or any Series or
Class thereof at the price determined as hereinafter set forth, at such offices
or agencies and in accordance with such conditions, not inconsistent with the
1940 Act, regarding the redemption of Shares as may be described in the
applicable Prospectus.
SECTION 8.3. Redemption Price. Shares of each Series and Class thereof
shall be redeemed at their net asset value determined as set forth in Section
8.7 hereof as of such time or times as the Trustees shall have theretofore
prescribed, less such fees and/or charges, if any, as may be established by the
Trustees from time to time.
SECTION 8.4. Payment. Payment of the redemption price of Shares of any
Series or Class thereof shall be made in cash or in property or any combination
thereof, out of the Assets belonging to such Series, as such term is defined in
Section 4.9 hereof, and the composition of any such payment may be different
among Shareholders (including differences among Shareholders in the same Series
or Class), at such time and in the manner as may be specified from time to time
in the applicable Prospectus. In no event shall the Trust be liable for any
delay of any other Person in transferring securities or other property selected
for delivery as all or part of any such payment.
SECTION 8.5. Redemption of Shareholder's Interest By Action of
Trust. Subject to the provisions of the 1940 Act, the Trust may redeem some or
all of the Shares of the Trust or one or more Series or Classes held by any
J-12
Shareholder for any reason and under terms set by the Trustees, including by way
of illustration, for the following reasons:
(a) the value of such Shares held by such Shareholder being less than
the minimum amount established from time to time by the Trustees;
(b) the determination that direct or indirect ownership of Shares by
any Person has become concentrated in such Shareholder to any extent that
would disqualify that Series as a regulated investment company under the
Code;
(c) the failure of a Shareholder to supply a tax identification or
other identification or if the Trust is unable to verify a Shareholder's
identity;
(d) the failure of a Shareholder to pay when due for the purchase of
Shares issued to such Shareholder;
(e) the failure of a Shareholder to meet or maintain the
qualifications for ownership of a particular Class or Series of Shares;
(f) the payment of account fees or other charges, expenses and/or fees
as set by the Trustees, including without limitation any small account fees
permitted by Section 4.4 hereof;
(g) the determination that ownership of Shares by a particular
Shareholder is not in the best interests of the remaining Shareholders of
the Trust or applicable Series or Class;
(h) the failure of a holder of Shares or other securities of the Trust
to comply with a demand pursuant to Section 4.10 hereof;
(i) in connection with the termination of any Series or Class of
Shares; or
(j) when the Trust is requested or compelled to do so by governmental
authority or applicable law.
SECTION 8.6. Suspension of Right of Redemption. Notwithstanding the
foregoing, the Trust may postpone payment of the redemption price and may
suspend the right of the holders of Shares to require the Trust to redeem Shares
to the extent permissible under the 1940 Act.
SECTION 8.7. Determination of Net Asset Value; Valuation of Portfolio
Assets. The Trustees may from time to time prescribe such bases and times for
determining the per Share net asset value of the Shares of the Trust or any
Series or Class thereof and may prescribe or approve the procedures and methods
for determining the value of portfolio assets as they may deem necessary or
desirable.
The Trust may suspend the determination of net asset value during any
period when it may suspend the right of the holders of Shares to require the
Trust to redeem Shares.
SECTION 8.8. Constant Net Asset Value. With respect to any Series that
holds itself out as a money market or stable value fund, the Trustees shall have
the power to reduce the number of Outstanding Shares of the Series by reducing
the number of Shares in the account of each Shareholder on a pro rata basis, or
to take such other measures as are not prohibited by the 1940 Act, so as to
maintain the net asset value per share of such Series at a constant dollar
amount.
SECTION 8.9. Reserves. The Trustees may set apart, from time to time, out
of any funds of the Trust or Series or out of funds allocable to a Class thereof
a reserve or reserves for any proper purpose, and may abolish any such reserve.
SECTION 8.10. Determination by Trustees. The Trustees may make any
determinations they deem necessary with respect to the provisions of this
Article VIII, including, but not limited to, the following matters: the amount
of the assets, obligations, liabilities and expenses of the Trust; the amount of
the net income of the Trust from dividends, capital gains, interest or other
sources for any period and the amount of assets at any time legally available
for the payment of dividends or distributions; which items are to be treated as
income and which as capital; the amount, purpose, time of creation, increase or
decrease, alteration or cancellation of any reserves or charges and the
propriety thereof (whether or not any obligation or liability for which such
reserves or charges were created shall have been paid or discharged); the market
value, or any other price to be applied in determining the market value, or the
fair value, of any security or other asset owned or held by the Trust; the
number of Shares of the Trust issued or issuable; the net asset value per Share;
and any of the foregoing matters as it may pertain to any Series or Class.
J-13
ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 9.1. No Personal Liability of and Indemnification of
Shareholders. No personal liability for any debt, liability or obligation or
expense incurred by, contracted for, or otherwise existing with respect to, the
Trust or any Series or Class shall attach to any Shareholder or former
Shareholder of the Trust. In case any Shareholder or former Shareholder of the
Trust shall be held to be personally liable solely by reason of his being or
having been a Shareholder and not because of his acts or omissions or for some
other reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets of the Trust or, if the Trust has more than one Series, the
applicable Series, to be held harmless from and indemnified against all loss and
expense arising from such liability; provided, however, there shall be no
liability or obligation of the Trust arising hereunder to reimburse any
Shareholder for taxes paid by reason of such Shareholder's ownership of any
Shares or for losses suffered by reason of any changes in value of any Trust
assets. The Trust shall, upon request by the Shareholder or former Shareholder,
assume the defense of any claim made against the Shareholder for any act or
obligation of the Trust and satisfy any judgment thereon.
SECTION 9.2. Limitation of Liability of Trustees and Others. (a) No
Liability to Third Parties. No person who is or has been a Trustee, officer, or
employee of the Trust shall be subject to any personal liability whatsoever to
any Person, other than the Trust or its Shareholders, in connection with the
affairs of the Trust; and all Persons shall look solely to the Trust Property or
Property of a Series for satisfaction of claims of any nature arising in
connection with the affairs of the Trust or such Series.
Every note, bond, contract, instrument, certificate, Share or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his capacity as Trustees or Trustee and neither such Trustees or
Trustee nor the Shareholders shall be personally liable thereon.
All Persons extending credit to, contracting with or having any claim
against the Trust or a Series shall look only to the assets of the Trust
Property or the Trust Property of such Series for payment under such credit,
contract or claim; and neither the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, shall be personally liable
therefor.
(b) Limitation of Liability to Trust and Shareholders. No person who is
or has been a Trustee, officer or employee of the Trust shall be liable to the
Trust or to any Shareholder for any action or failure to act except for his or
her own bad faith, willful misfeasance, gross negligence or reckless disregard
of his or her duties involved in the conduct of the individual's office, and for
nothing else, and shall not be liable for errors of judgment or mistakes of fact
or law.
(c) No Liability for Acts of Others. Without limiting the foregoing
limitations of liability contained in this Section 9.2, a Trustee shall not be
responsible for or liable in any event for any neglect or wrongdoing of any
officer, employee, investment adviser, sub-adviser, principal underwriter,
custodian or other agent of the Trust, nor shall any Trustee be responsible or
liable for the act or omission of any other Trustee (or for the failure to
compel in any way any former or acting Trustee to redress any breach of trust),
except in the case of such Trustee's own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
(d) Notice in Instruments. Every note, bond, contract, instrument,
certificate or undertaking made or issued by the Trustees or by any officers or
officer on behalf of the Trust shall give notice that this Declaration is on
file with the Secretary of the Commonwealth of Massachusetts, shall recite that
the same was executed or made by or on behalf of the Trust by them as Trustees
or as officers and not individually and that the obligations of such instrument
are not binding upon any of them or the Shareholders individually but are
binding only upon the assets and property of the Trust, and may contain such
further recitals as they or he or she may deem appropriate, but the omission
thereof shall not operate to bind any Trustees or officers or Shareholders
individually.
J-14
SECTION 9.3. Experts; No Bond or Surety. The Trustees may rely upon
advice of counsel or other experts with respect to the meaning and operation of
this Declaration and their duties as Trustees hereunder, and shall be under no
liability for any act or omission in accordance with such advice or for merely
failing to follow such advice. In discharging their duties, the Trustees, when
acting in good faith, shall be entitled to rely upon the books of account of the
Trust and upon written reports made to the Trustees by any officer appointed by
them, any independent registered public accounting firm and (with respect to the
subject matter of the contract involved) any officer, partner or responsible
employee of any other party to any contract entered into hereunder. The
appointment, designation or identification of a Trustee as chair of the
Trustees, a member or chair of a committee of the Trustees, an expert on any
topic or in any area (including an audit committee financial expert), or the
lead independent Trustee, or any other special appointment, designation or
identification of a Trustee, shall not impose on that person any standard of
care or liability that is greater than that imposed on that person as a Trustee
in the absence of the appointment, designation or identification, and no Trustee
who has special skills or expertise, or is appointed, designated or identified
as aforesaid, shall be held to a higher standard of care by virtue thereof. In
addition, no appointment, designation or identification of a Trustee as
aforesaid shall affect in any way that Trustee's rights or entitlement to
indemnification or advancement of expenses. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is required.
SECTION 9.4. Liability of Third Persons Dealing with the Trust or
Trustees. No third Person dealing with the Trust or the Trustees shall be bound
to make any inquiry concerning the validity of any transaction made or to be
made by the Trust or Trustees or to see to the application of any payments made
or property transferred to the Trust or upon its order.
SECTION 9.5. Indemnification and Advancement of Expenses. Subject to the
exceptions and limitations contained in this Section 9.5, every person who is,
or has been, a Trustee, officer, or employee of the Trust, including persons who
serve at the request of the Trust as directors, trustees, officers, employees or
agents of another organization in which the Trust has an interest as a
shareholder, creditor or otherwise (hereinafter referred to as a "'Covered
Person"), shall be indemnified by the Trust to the fullest extent permitted by
law against liability and against all expenses reasonably incurred or paid by
him in connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been such a
Trustee, director, officer, employee or agent and against amounts paid or
incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person to the
extent such indemnification is prohibited by applicable federal law.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Subject to applicable federal law, expenses of preparation and presentation
of a defense to any claim, action, suit or proceeding subject to a claim for
indemnification under this Section 9.5 shall be advanced by the Trust prior to
final disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 9.5.
To the extent that any determination is required to be made as to whether a
Covered Person engaged in conduct for which indemnification is not provided as
described herein, or as to whether there is reason to believe that a Covered
Person ultimately will be found entitled to indemnification, the Person or
Persons making the determination shall afford the Covered Person a rebuttable
presumption that the Covered Person has not engaged in such conduct and that
there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification.
As used in this Section 9.5, the words "'claim," "'action," "'suit" or
"proceeding" shall apply to all claims, demands, actions, suits, investigations,
regulatory inquiries, proceedings or any other occurrence of a similar nature,
whether actual or threatened and whether civil, criminal, administrative or
other, including appeals, and the words "'liability" and "expenses" shall
include without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
J-15
SECTION 9.6. Further Indemnification. Nothing contained herein shall
affect any rights to indemnification to which any Covered Person or other Person
may be entitled by contract or otherwise under law or prevent the Trust from
entering into any contract to provide indemnification to any Covered Person or
other Person. Without limiting the foregoing, the Trust may, in connection with
the acquisition of assets subject to liabilities pursuant to Section 4.2 hereof
or a reorganization or consolidation pursuant to Section 10.2 hereof, assume the
obligation to indemnify any Person including a Covered Person or otherwise
contract to provide such indemnification, and such indemnification shall not be
subject to the terms of this Article IX.
SECTION 9.7. Amendments and Modifications. Without limiting the
provisions of Section 11.1(b) hereof, in no event will any amendment,
modification or change to the provisions of this Declaration or the By-laws
adversely affect in any manner the rights of any Covered Person to (a)
indemnification under Section 9.5 hereof in connection with any proceeding in
which such Covered Person becomes involved as a party or otherwise by virtue of
being or having been a Trustee, officer or employee of the Trust or (b) any
insurance payments under policies maintained by the Trust, in either case with
respect to any act or omission of such Covered Person that occurred or is
alleged to have occurred prior to the time such amendment, modification or
change to this Declaration or the By-laws.
SECTION 9.8. Derivative Actions. (a) The purpose of this Section 9.8 is
to protect the interests of the Trust and its Shareholders by establishing a
process that will permit legitimate inquiries and claims to be made and
considered while avoiding the time, expense, distraction and other harm that can
be caused to the Trust and its Shareholders as a result of spurious shareholder
demands and derivative actions.
(b) No Shareholder may bring a derivative or similar action or proceeding
in the right of the Trust or any Series to recover a judgment in its favor (a
"derivative action") unless each of the following conditions is met:
(i) Each Complaining Shareholder was a Shareholder of (A) the Series
on behalf of or in the right of which the action is proposed to be brought
and (B) a Class of the Series affected by the action or failure to act
complained of, to the extent that fewer than all Classes were affected (the
"'affected Series or Class"), at the time of the action or failure to act
complained of, or acquired the Shares afterwards by operation of law from a
Person who was a Shareholder at that time;
(ii) Each Complaining Shareholder was a Shareholder of the affected
Series or Class at the time the demand required by subparagraph (iii) below
was made;
(iii) Prior to the commencement of such derivative action, the
Complaining Shareholders have made a written demand on the Trustees
requesting that the Trustees cause the Trust to file the action itself on
behalf of the affected Series or Class (a "'demand"), which demand (A)
shall be executed by or on behalf of no less than three Complaining
Shareholders, each of which shall be unaffiliated and unrelated (by blood
or by marriage) to any other Complaining Shareholder executing such written
demand and (B) shall include at least the following:
(1) a detailed description of the action or failure to act
complained of, the facts upon which each such allegation is made and
the reasonably estimated damages or other relief sought;
(2) a statement to the effect that the Complaining Shareholders
believe in good faith that they will fairly and adequately represent
the interests of similarly situated Shareholders in enforcing the
right of the affected Series or Class and an explanation of why the
Complaining Shareholders believe that to be the case;
(3) a certification that the requirements of subparagraphs (i)
and (ii) of this paragraph (b) have been met, as well as information
reasonably designed to allow the Trustees to verify that
certification;
(4) a list of all other derivative or class actions in which any
of the Complaining Shareholders is or was a named plaintiff, the court
in which such action was filed, the date of filing, the name of all
counsel to any plaintiffs and the outcome or current status of such
actions;
(5) a certification of the number of Shares of the affected
Series or Class owned beneficially or of record by each Complaining
Shareholder at the time set forth in subparagraphs (i), (ii) and (iii)
of this paragraph (b) and an undertaking that each Complaining
Shareholder will be a Shareholder of the affected
J-16
Series or Class as of the commencement of and throughout the
derivative action and will notify the Trust in writing of any sale,
transfer or other disposition by any of the Complaining Shareholders
of any such Shares within three business days thereof; and
(6) an acknowledgment of the provisions of paragraphs (f) and (g)
of this Section 9.8 below;
(iv) Shareholders owning Shares representing at least five percent
(5%) of the voting power of the affected Series or Class must join in
initiating the derivative action; and
(v) A copy of the proposed derivative complaint must be served on the
Trust, assuming the requirements of subparagraphs (i) through (iv) above
have already been met and the derivative action has not been barred in
accordance with paragraph (d) below.
(c) Within 90 calendar days of the receipt of a Shareholder demand
submitted in accordance with the requirements above, those Trustees who are
independent for purposes of considering the demand or a committee comprised of
some or all of such Trustees (the "'independent Trustees") will consider, with
the assistance of counsel who may be retained by such Trustees on behalf and at
the expense of the Trust, the merits of the claim and determine whether
maintaining a suit would be in the best interests of the Trust. If, during this
90-day period, those independent Trustees conclude that a determination as to
the maintenance of a suit cannot reasonably be made within the 90-day period,
those independent Trustees may extend the 90-day period by a period of time that
the independent Trustees consider will be sufficient to permit them to make such
a determination, not to exceed 60 calendar days from the end of the initial 90-
day period (such 90-day period, as may be extended as provided hereunder, the
"'review period"). Notice of any such decision to extend the review period shall
be sent in accordance with the provisions of Section 4.12 hereof to the
Complaining Shareholders, or the Shareholders' counsel if represented by
counsel, in writing within five business days of any decision to extend the
period. Trustees who are not deemed to be Interested Persons of the Trust are
deemed independent for all purposes, including for the purpose of approving or
dismissing a derivative action. A Trustee otherwise independent for purposes of
considering the demand shall not be considered not to be independent solely by
virtue of (i) the fact that such Trustee receives remuneration for his service
as a Trustee of the Trust or as a trustee or director of one or more investment
companies with the same or an affiliated investment adviser or underwriter, (ii)
the amount of such remuneration, (iii) the fact that such Trustee was identified
in the demand as a potential defendant or witness, or (iv) the fact that the
Trustee approved the act being challenged in the demand if the act resulted in
no material personal benefit to the Trustee or, if the Trustee is also a
Shareholder, no material personal benefit that is not shared pro rata with other
Shareholders.
(d) If the demand has been properly made under paragraph (b) of this
Section 9.8, and a majority of the independent Trustees have considered the
merits of the claim and have determined that maintaining a suit would not be in
the best interests of the Trust, the demand shall be rejected and the
Complaining Shareholders shall not be permitted to maintain a derivative action
unless they first sustain the burden of proof to the court that the decision of
the Trustees not to pursue the requested action was not a good faith exercise of
their business judgment on behalf of the Trust. If upon such consideration a
majority of the independent Trustees determine that such a suit should be
maintained, then the appropriate officers of the Trust shall cause the Trust to
commence that suit and such suit shall proceed directly rather than derivatively
or permit the Complaining Shareholders to proceed derivatively, provided however
that any counsel representing the interests of the Trust shall be approved by
the Trustees. The Trustees, or the appropriate officers of the Trust, shall
inform the Complaining Shareholders of any decision reached under this paragraph
(d) by sending in accordance with the provisions of Section 4.12 hereof written
notice to each Complaining Shareholder, or the Shareholder's counsel, if
represented by counsel, within five business days of such decision having been
reached.
(e) If notice of a decision has not been sent to the Complaining
Shareholders or the Shareholders' counsel within the time permitted by paragraph
(d) above, and subparagraphs (i) through (v) of paragraph (b) above have been
complied with, the Complaining Shareholders shall not be barred by this
Declaration from commencing a derivative action.
(f) A Complaining Shareholder whose demand is rejected pursuant to
paragraph (d) above shall be responsible for the costs and expenses (including
attorneys' fees) incurred by the Trust in connection with the Trust's
consideration of the demand if a court determines that the demand was made
without reasonable cause or for an
J-17
improper purpose. A Shareholder who commences or maintains a derivative action
in violation of this Section 9.8 shall reimburse the Trust for the costs and
expenses (including attorneys' fees) incurred by the Trust in connection with
the action if the action is dismissed on the basis of the failure to comply with
this Section 9.8. If a court determines that any derivative action has been
brought without reasonable cause or for an improper purpose, the costs and
expenses (including attorneys' fees) incurred by the Trust in connection with
the action shall be borne by the Shareholders who commenced the action.
(g) The Trust shall be responsible for payment of attorneys' fees and legal
expenses incurred by a Complaining Shareholder in any circumstances only if
required by law. The Trust shall not be obligated to pay any attorneys' fees so
incurred by a Complaining Shareholder other than fees that are reasonable and
that do not exceed an amount calculated using reasonable hourly rates.
(h) No Shareholder may make demand or commence a derivative action on
behalf of any Series of the Trust of which he or she is not a shareholder.
ARTICLE X
TERMINATION; MERGERS AND SALE OF ASSETS
SECTION 10.1. Termination of Trust or Series. (a) Unless terminated as
provided herein, the Trust shall continue without limitation of time. The Trust
or any Series of the Trust may be terminated at any time by the Trustees by
written notice to the Shareholders of the Trust or such Series as the case may
be.
(b) Upon the requisite action of the Trustees to terminate the Trust or
such Series, after paying or otherwise providing for all charges, taxes,
expenses and liabilities, whether due or accrued or anticipated, as may be
determined by the Trustees, which may include the establishment of a liquidating
trust or similar vehicle, the Trust shall, in accordance with such procedures as
the Trustees consider appropriate, reduce the remaining assets of the Trust or
assets of the particular Series thereof to distributable form in cash or other
securities, or any combination thereof, and distribute the proceeds to the
Shareholders of the Shares of the Trust or such Series in the manner determined
by the Trustees, provided that Shareholders of a particular Series shall be
entitled to receive a pro rata share of the net assets of such Series only,
subject to any variations with respect to Classes of Shares of such Series, if
any. Thereupon, the Trust or any affected Series shall terminate, and the
Trustees and the Trust shall be discharged of any and all further liabilities
and duties relating thereto or arising therefrom, and the right, title, and
interest of all parties with respect to the Trust or such Series shall be
canceled and discharged. The Trustees shall file or cause to be filed any
instruments as may be required to be filed with the Commonwealth of
Massachusetts or any other governmental office where such filing may be required
in connection with the termination of the Trust or any Series thereof.
(c) Any Class of the Trust may be terminated by the Trustees as provided in
Article IV hereof.
SECTION 10.2. Sale of Assets; Reorganization. The Trustees may authorize
the Trust or any Series or Class thereof to sell, lease, transfer, pledge,
exchange, convey or dispose of all or substantially all of the Trust Property
(or all or substantially all of the Trust Property allocated or belonging to a
particular Series or Class), including its good will, to any one or more
business or statutory trusts or other business entities or series or classes
thereof (including another Series or Class of the Trust) upon such terms and
conditions and for such consideration (which may include the assumption of some
or all of the outstanding obligations and liabilities, accrued or contingent,
whether known or unknown, of the Trust or such Series or Class) as may be
authorized by the Trustees. Without limiting the generality of the foregoing,
this provision may be utilized to permit the Trust or any Series or Class
thereof to pursue its investment program through one or more subsidiary vehicles
or to operate in a master-feeder or fund of funds structure.
SECTION 10.3. Combination of Classes. The authority of the Trustees under
this Article X with respect to the sale of assets or reorganization of any
Series of the Trust or any Class thereof is in addition to the authority of the
Trustees under Section 4.9 hereof to combine two or more Classes of a Series
into a single Class.
J-18
ARTICLE XI
AMENDMENTS; FILINGS; MISCELLANEOUS
SECTION 11.1. Amendments to Declaration. (a) The Trustees may by vote of
a majority of the Trustees then in office amend or otherwise supplement the
Declaration by making an amendment, a Declaration supplemental hereto or an
amended and restated Declaration, provided, however, that an amendment to any
provision of Article V hereof shall require the vote of two-thirds (2/3) of the
Trustees then in office.
(b) Nothing contained in this Declaration shall permit the amendment of
this Declaration to impair the exemption from personal liability of any Person
who is or has been a Shareholder, Trustee, officer, or employee of the Trust, or
limit the rights to indemnification or insurance provided in Article IX with
respect to actions or omissions of persons entitled to indemnification under
such Article prior to such amendment.
SECTION 11.2. Filings; Copies of Declaration; Counterparts; Headings. An
original or a copy of this instrument, of each amendment and/or restatement
hereto and any Designation executed in accordance with Section 4.9 hereof shall
be kept in the office of the Trust where it may be inspected by any Shareholder,
and an original or copy shall also be filed by the Trustees with the Secretary
of the Commonwealth of Massachusetts, as well as any other governmental office
where such filing may from time to time be required, provided, however, that the
failure to so file will not invalidate this instrument, any properly authorized
amendment and/or restatement hereto, or Designation. Anyone dealing with the
Trust may rely on a certificate by an officer or Trustee of the Trust as to
whether or not any such amendments, restatements or Designations have been made
and as to any matters in connection with the Trust hereunder, and with the same
effect as if it were the original, may rely on a copy certified by an officer or
Trustee of the Trust to be a copy of this instrument or of any such amendments,
restatements or Designations. This instrument, each amendment and/or restatement
hereto and any Designation may be executed in any number of counterparts, each
of which shall be deemed an original. Headings are placed herein for convenience
of reference only, and in case of any conflict, the text of this instrument,
rather than the headings, shall control.
SECTION 11.3. Trustees May Resolve Ambiguities. The Trustees may construe
any of the provisions of this Declaration insofar as the same may appear to be
ambiguous or inconsistent with any other provisions hereof, and any such
construction hereof by the Trustees in good faith shall be conclusive as to the
meaning to be given to such provisions.
SECTION 11.4. Applicable Law; Forum Selection; Jury Waiver. (a) The Trust
set forth in this instrument is created under and is to be governed by and
construed and administered according to the laws of the Commonwealth of
Massachusetts, without reference to its conflicts of law rules, as a
Massachusetts business trust, and without limiting the provisions hereof, the
Trust specifically reserves the right to exercise any of the powers and
privileges afforded to business trusts or actions that may be engaged in by
business trusts, and the absence of a specific reference herein to any such
power, privilege, or action shall not imply that the Trust may not exercise such
power or privilege or take such actions.
(b) Notwithstanding the first sentence of Section 11.4(a) hereof, there
shall not be applicable to the Trust, the Trustees, or this Declaration any
provisions of the laws (statutory or common) of the Commonwealth of
Massachusetts (other than Chapter 182 of the Massachusetts General Laws) or any
other state pertaining to trusts, including by way of illustration and without
limitation, laws that relate to or regulate: (i) the filing with any court or
governmental body or agency of trustee accounts or schedules of trustee fees and
charges; (ii) affirmative requirements to post bonds for trustees, officers,
agents, or employees of a trust; (iii) the necessity for obtaining a court or
other governmental approval concerning the acquisition, holding, or disposition
of real or personal property; (iv) fees or other sums applicable to trustees,
officers, agents or employees of a trust; (v) the allocation of receipts and
expenditures to income or principal; (vi) restrictions or limitations on the
permissible nature, amount, or concentration of trust investments or
requirements relating to the titling, storage, or other manner of holding of
trust assets; or (vii) the establishment of fiduciary or other standards or
responsibilities or limitations on the acts or powers or liabilities or
authorities and powers of trustees, if such laws are inconsistent with the
authorities and powers or limitation on liability of the Trustees set forth or
referenced in this Declaration.
J-19
(c) No provision of this Declaration shall be effective to require a waiver
of compliance with any provision of the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended or the 1940 Act, or of any valid
rule, regulation or order of the Commission thereunder.
(d) Any action commenced by a Shareholder, directly or derivatively,
against or on behalf of the Trust or a Series or Class thereof, its Trustees,
officers or employees, shall be brought only in the U.S. District Court for the
Southern District of New York or if such action may not be brought in that
court, then such action shall be brought in the Business Litigation Session of
Suffolk Superior Court in Massachusetts (each, a "'Chosen Court"). The Trust,
its Trustees, officers, employees and Shareholders (a) waive any objection to
venue in either Chosen Court and (b) waive any objection that either Chosen
Court is an inconvenient forum.
(e) In any action commenced by a Shareholder against the Trust or any
Series or Class thereof, its Trustees or officers, or as a derivative action on
behalf of the Trust, or any Series or Class thereof there shall be no right to a
jury trial. THE RIGHT TO A TRIAL BY JURY IS EXPRESSLY WAIVED TO THE FULLEST
EXTENT PERMITTED BY LAW.
SECTION 11.5. Provisions in Conflict with Law or Regulations. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any such provision, in whole or in
part, conflicts with the 1940 Act, the regulated investment company provisions
of the Code, and the regulations thereunder, or with other applicable laws and
regulations, the conflicting provision, or the conflicting part or parts
thereof, shall be deemed not to constitute a part of this Declaration; provided,
however, that such determination shall not affect any of the remaining
provisions of this Declaration or render invalid or improper any action taken or
omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable, in whole or in part, in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision, or such part or parts
thereof, in such jurisdiction and shall not in any manner affect such provision
in any other jurisdiction or any other provision of this Declaration in any
jurisdiction.
SECTION 11.6. Writings. To the fullest extent permitted by applicable
law, except as the Trustees may otherwise determine:
(a) any requirements in this Declaration or in the By-laws that any action
be taken by means of any writing, including, without limitation, any written
instrument, any written consent or any written agreement, shall be deemed to be
satisfied by means of any electronic record in such form that is acceptable to
the Trustees provided such form is capable of conversion into a written form
within a reasonable time; and
(b) any requirements in this Declaration or in the By-laws that any writing
be signed shall be deemed to be satisfied by any electronic signature in such
form that is acceptable to the Trustees.
J-20
IN WITNESS WHEREOF, the undersigned, being the Trustees of the Trust, have
executed this instrument as of the date first written above.
----------------------------------------
[Name], as Trustee
[Address]
----------------------------------------
[Name], as Trustee
[Address]
----------------------------------------
[Name], as Trustee
[Address]
----------------------------------------
[Name], as Trustee
[Address]
----------------------------------------
[Name], as Trustee
[Address]
----------------------------------------
[Name], as Trustee
[Address]
----------------------------------------
[Name], as Trustee
[Address]
----------------------------------------
[Name], as Trustee
[Address]
----------------------------------------
[Name], as Trustee
[Address]
J-21
SCHEDULE A
SERIES OF SHARES OF BENEFICIAL INTERESTS
(EFFECTIVE AS OF [ ])
WHEREAS, the Trustees of the Trust, acting pursuant to the Trust's
declaration of trust as then in effect, have previously established and
designated one or more series of shares of beneficial interest in the Trust
(each, a "'Series") pursuant to one or more designations of series (the "'Prior
Designations");
WHEREAS, in connection with the adoption of an Amended and Restated
Declaration of Trust dated as of [ ] (the "'Declaration"), pursuant to
Section 4.9(a) of the Declaration, the previously established and designated
Series are hereby included on this Schedule A, which Schedule A shall be deemed
an amendment and restatement of the Prior Designations.
NOW THEREFORE, the following Series of the Trust are established with such
relative rights, preferences, privileges, limitations, restrictions and other
relative terms as are set forth below:
[ ]
1. Each Share of each Series is entitled to all the rights and preferences
accorded to Shares under the Declaration.
2. The number of authorized Shares of each Series is unlimited.
3. Each Series shall be authorized to hold cash, invest in securities,
instruments and other property, use investment techniques, and have such goals
or objectives as from time to time described in the prospectus and statement of
additional information contained in the Trust's then currently effective
registration statement under the Securities Act of 1933 to the extent pertaining
to the offering of Shares of the Series, as the same may be amended and
supplemented from time to time ("Prospectus"). Each Share of a Series shall
represent a beneficial interest in the net assets allocated or belonging to such
Series only, and such interest shall not extend to the assets of the Trust
generally (except to the extent that General Assets (as defined in the
Declaration) are allocated to such Series), and shall be entitled to receive its
pro rata share of the net assets of the Series upon liquidation of the Series,
all as set forth in Section 4.9 of the Declaration.
4. With respect to each Series, (a) the purchase price of the Shares, (b)
fees and expenses, (c) qualifications for ownership, if any, (d) the method of
determination of the net asset value of the Shares, (e) minimum purchase
amounts, if any, (f) minimum account size, if any, (g) the price, terms and
manner of redemption of the Shares, (h) any conversion or exchange feature or
privilege, (i) the relative dividend rights, and (j) any other relative rights,
preferences, privileges, limitations, restrictions and other relative terms have
been established by the Trustees in accordance with the Declaration and are set
forth in the Prospectus with respect to such Series.
5. The Trustees may from time to time modify any of the relative rights,
preferences, privileges, limitations, restrictions and other relative terms of a
Series that have been established by the Trustees or redesignate any of the
Series without any action or consent of the Shareholders.
6. The designation of any Series hereby shall not impair the power of the
Trustees from time to time to designate additional Series of Shares of the
Trust.
7. Capitalized terms not defined herein have the meanings given to such
terms in the Declaration.
J-22
SCHEDULE B
DESIGNATION OF CLASSES OF SHARES
(EFFECTIVE AS OF [ ])
WHEREAS, the Trustees of the Trust, acting pursuant to the Trust's
declaration of trust as then in effect, have previously established and
designated one or more series of shares of beneficial interest in the Trust
(each, a "'Series") and have previously established and designated one or more
classes of Shares (each, a "'Class") for some or all of the Series pursuant to
one or more designations of Classes (the "'Prior Designations");
WHEREAS, in connection with the adoption of an Amended and Restated
Declaration of Trust dated as of [ ] (the "'Declaration"), pursuant to
Section 4.9(b) of the Declaration, the previously established and designated
Classes are hereby included on this Schedule B, which Schedule B shall be deemed
an amendment and restatement of the Prior Designations.
NOW THEREFORE, the following Classes as listed below with respect to the
identified Series of the Trust are established with such relative rights,
preferences, privileges, limitations, restrictions and other relative terms as
are set forth below:
<Table>
<Caption>
SERIES CLASSES
- ------ -------
</Table>
1. Each Share of each Class is entitled to all the rights and preferences
accorded to Shares under the Declaration.
2. The number of authorized Shares of each Class is unlimited.
3. All Shares of a Class of a Series shall be identical with each other and
with the Shares of each other Class of the same Series except for such
variations between Classes as may be authorized by the Trustees from time to
time and set forth in the Trust's then currently effective registration
statement under the Securities Act of 1933 to the extent pertaining to the
offering of Shares of the Class of such Series, as the same may be amended and
supplemented from time to time ("Prospectus"). The Trustees may change the name
or other designation of a Class; and take such other action with respect to the
Classes as the Trustees may deem desirable.
4. With respect to the Shares of a Class of a Series, (a) the time and
method of determining the purchase price, (b) the fees and expenses, (c) the
qualifications for ownership, if any, (d) minimum purchase amounts, if any, (e)
minimum account size, if any, (f) the price, terms and manner of redemption of,
(g) any conversion or exchange feature or privilege , (h) the relative dividend
rights, and (i) any other relative rights, preferences, privileges, limitations,
restrictions and other relative terms have been established by the Trustees in
accordance with the Declaration and are set forth in the Prospectus with respect
to such Class of such Series.
5. The Trustees may from time to time modify any of the relative rights,
preferences, privileges, limitations, restrictions and other relative terms of a
Class of a Series that have been established by the Trustees, divide or combine
the issued or unissued Shares of any Class of a Series into a greater or lesser
number; classify or reclassify any issued or unissued Shares of any Class of a
Series into one or more Classes of such Series; combine two or more Classes of a
Series into a single Class of such Series; in each case without any action or
consent of the Shareholders.
6. The designation of any Class hereby shall not impair the power of the
Trustees from time to time to designate additional Classes of Shares of a Series
or terminate any one or more Classes of a Series hereby designated.
7. Capitalized terms not defined herein have the meanings given to such
terms in the Declaration.
J-23
APPENDIX K
CURRENT AND PROPOSED FUNDAMENTAL INVESTMENT POLICIES OF THE FUNDS
CHART I
COMPARISON OF FUNDAMENTAL POLICIES
FOR THE FOLLOWING SERIES OF DIFG AND
FOR THE MASTER PORTFOLIOS
<Table>
THE DIVERSIFIED INVESTORS FUNDS GROUP
Diversified Investors Money Market Fund Diversified Investors Growth & Income
Diversified Investors High Quality Bond Fund
Fund Diversified Investors Equity Growth Fund
Diversified Investors Inflation- Diversified Investors Aggressive Equity
Protected Securities Fund Fund
Diversified Investors Core Bond Fund Diversified Investors Mid-Cap Value Fund
Diversified Investors Total Return Bond Diversified Investors Mid-Cap Growth Fund
Fund Diversified Investors Small-Cap Value
Diversified Investors High Yield Bond Fund
Fund Diversified Investors Special Equity Fund
Diversified Investors Balanced Fund Diversified Investors Small-Cap Growth
Diversified Investors Value & Income Fund
Fund Diversified Investors International
Diversified Investors Value Fund Equity Fund
DIVERSIFIED INVESTORS PORTFOLIOS
Money Market Portfolio Growth & Income Portfolio
High Quality Bond Portfolio Equity Growth Portfolio
Inflation-Protected Securities Aggressive Equity Portfolio
Portfolio
Core Bond Portfolio Mid-Cap Value Portfolio
Total Return Bond Portfolio Mid-Cap Growth Portfolio
High Yield Bond Portfolio Small-Cap Value Portfolio
Balanced Portfolio Special Equity Portfolio
Value & Income Portfolio Small-Cap Growth Portfolio
Value Portfolio International Equity Portfolio
</Table>
<Table>
<Caption>
SUBJECT CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
- ------- -------------------- ---------------------
BORROWING The Fund may not borrow money or The Fund may not borrow money,
mortgage or hypothecate assets of except as permitted under the
the Fund, except that in an amount Investment Company Act of 1940, as
not to exceed 1/3 of the current amended (the "1940 Act"), and as
value of the Fund's assets interpreted, modified or otherwise
(including such borrowing) less permitted by regulatory authority
liabilities (not including such having jurisdiction, from time to
borrowing), it may borrow money and time.
enter into reverse repurchase
agreements, and except that it may
pledge, mortgage or hypothecate not
more than 1/3 of such assets to
secure such borrowings or reverse
repurchase agreements, provided
that collateral arrangements with
respect to options and futures,
including deposits of initial
deposit and variation margin, are
not considered a pledge of assets
for purposes of this restriction
and except that assets may be
pledged to secure letters of credit
solely for the purpose of
participating in a captive
insurance company sponsored by the
Investment Company Institute.
For purposes of this restriction,
arrangements with respect to
securities lending are not treated
as borrowing.
</Table>
K-1
<Table>
<Caption>
SUBJECT CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
- ------- -------------------- ---------------------
UNDERWRITING The Fund may not underwrite The Fund may not act as an
SECURITIES securities issued by other persons underwriter of securities within
except insofar as the Trust or the the meaning of the Securities Act
Fund may technically be deemed an of 1933, as amended, (the
underwriter under the 1933 Act in "Securities Act" or the "1933 Act")
selling a portfolio security. except as permitted under the
Securities Act, and as interpreted,
modified or otherwise permitted by
regulatory authority having
jurisdiction, from time to time.
Among other things, to the extent
that the Fund may be deemed to be
an underwriter within the meaning
of the Securities Act, the Fund may
act as an underwriter of securities
in connection with the purchase and
sale of its portfolio securities in
the ordinary course of pursuing its
investment objective, investment
policies and investment program.
REAL ESTATE The Fund may not purchase or sell The Fund may not purchase or sell
real estate (including limited real estate or any interests
partnership interests but excluding therein, except as permitted under
securities secured by real estate the 1940 Act, and as interpreted,
or interests therein) in the modified or otherwise permitted by
ordinary course of business (the regulatory authority having
Trust may hold and sell, for the jurisdiction, from time to time.
Fund's portfolio, real estate Notwithstanding this limitation,
acquired as a result of the Fund's the Fund may, among other things,
ownership of securities). (i) acquire or lease office space
for its own use; (ii) invest in
securities of issuers that invest
in real estate or interests
therein; (iii) invest in mortgage-
related securities and other
securities that are secured by real
estate or interests therein; or
(iv) hold and sell real estate
acquired by the portfolio as a
result of the ownership of
securities.
SENIOR SECURITIES The Fund may not issue any senior The Fund may not issue any senior
security (as that term is defined security, except as permitted under
in the 1940 Act) if such issuance the 1940 Act, and as interpreted,
is specifically prohibited by the modified or otherwise permitted by
1940 Act or the rules and regulatory authority having
regulations promulgated thereunder, jurisdiction, from time to time.
provided that collateral
arrangements with respect to
options and futures, including
deposits of initial deposit and
variation margin, are not
considered to be the issuance of a
senior security for purposes of
this restriction.
MAKING LOANS The Fund may not make loans to The Fund may make loans only as
other persons except (a) through permitted under the 1940 Act, and
the lending of the Fund's portfolio as interpreted, modified or
securities and provided that any otherwise permitted by regulatory
such loans not exceed 30% of the authority having jurisdiction, from
Fund's total assets (taken at time to time.
market value), (b) through the use
of repurchase agreements or the
purchase of short-term obligations
or (c) by purchasing debt
securities of types distributed
publicly or privately.
</Table>
K-2
<Table>
<Caption>
SUBJECT CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
- ------- -------------------- ---------------------
CONCENTRATION OF The Fund may not concentrate its The Fund may not "concentrate" its
INVESTMENTS investments in any particular investments in a particular
industry (excluding U.S. Government industry or group of industries
securities), but if it is deemed (except the Diversified Investors
appropriate for the achievement of Money Market Fund described below),
the Fund's investment objective(s), except as permitted under the 1940
up to 25% of its total assets may Act, and as interpreted, modified
be invested in any one industry or otherwise permitted by
(except that the Money Market Fund regulatory authority having
reserves the freedom of action to jurisdiction from time to time,
concentrate 25% or more of its provided that, without limiting the
assets in obligations of domestic generality of the foregoing this
branches of domestic banks). limitation will not apply to
securities issued or guaranteed as
to principal and/or interest by the
U.S. Government, its agencies or
instrumentalities, except that
Diversified Investors Money Market
Fund may invest without limitation
in obligations issued by banks.
COMMODITIES The Fund may not purchase or sell The Fund may not purchase physical
interests in oil, gas or mineral commodities or contracts relating
leases, commodities or commodity to physical commodities, except as
contracts (except futures and permitted under the 1940 Act, and
option contracts) in the ordinary as interpreted, modified or
course of business. otherwise permitted by regulatory
authority having jurisdiction, from
time to time.
</Table>
CHART II
COMPARISON OF FUNDAMENTAL POLICIES FOR
THE FOLLOWING SERIES OF
DIFG II
<Table>
Diversified Institutional Money Market Diversified Institutional Growth & Income
Fund Fund
Diversified Institutional High Quality Diversified Institutional Equity Growth
Bond Fund Fund
Diversified Institutional Inflation- Diversified Institutional Aggressive
Protected Securities Fund Equity Fund
Diversified Institutional Core Bond Fund Diversified Institutional Mid-Cap Value
Diversified Institutional Total Return Fund
Bond Fund Diversified Institutional Mid-Cap Growth
Diversified Institutional High Yield Bond Fund
Fund Diversified Institutional Small-Cap Value
Diversified Institutional Balanced Fund Fund
Diversified Institutional Value & Income Diversified Institutional Special Equity
Fund Fund
Diversified Institutional Value Fund Diversified Institutional Small-Cap
Growth Fund
Diversified Institutional International
Equity Fund
Diversified Institutional Stock Index
Fund
</Table>
<Table>
<Caption>
SUBJECT CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
- ------- -------------------- ---------------------
BORROWING The Fund may not borrow money, The Fund may not borrow money,
except to the extent permitted except as permitted under the
under the 1940 Act, including the Investment Company Act of 1940, as
rules, regulations and any orders amended (the "1940 Act"), and as
obtained thereunder. For purposes interpreted, modified or otherwise
of this restriction, arrangements permitted by regulatory authority
with respect to securities lending having jurisdiction, from time to
are not treated as borrowing. time.
</Table>
K-3
<Table>
<Caption>
SUBJECT CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
- ------- -------------------- ---------------------
SENIOR SECURITIES The Fund may not issue any senior The Fund may not issue any senior
security (as that term is defined security, except as permitted under
in the 1940 Act) if such issuance the 1940 Act, and as interpreted,
is specifically prohibited by the modified or otherwise permitted by
1940 Act or the rules and regulatory authority having
regulations promulgated thereunder. jurisdiction, from time to time.
UNDERWRITING The Fund may not underwrite The Fund may not act as an
SECURITIES securities issued by other persons underwriter of securities within
except insofar as the Diversified the meaning of the Securities Act
Institutional Trust or the Fund may of 1933, as amended, (the
technically be deemed an "Securities Act" or the "1933 Act")
underwriter under the 1933 Act in except as permitted under the
selling a portfolio security. Securities Act, and as interpreted,
modified or otherwise permitted by
regulatory authority having
jurisdiction, from time to time.
Among other things, to the extent
that the Fund may be deemed to be
an underwriter within the meaning
of the Securities Act, the Fund may
act as an underwriter of securities
in connection with the purchase and
sale of its portfolio securities in
the ordinary course of pursuing its
investment objective, investment
policies and investment program.
REAL ESTATE The Fund may not purchase or sell The Fund may not purchase or sell
real estate (including limited real estate or any interests
partnership interests but excluding therein, except as permitted under
securities secured by real estate the 1940 Act, and as interpreted,
or interests therein) in the modified or otherwise permitted by
ordinary course of business (the regulatory authority having
Diversified Institutional Trust may jurisdiction, from time to time.
hold and sell, for the Fund's Notwithstanding this limitation,
portfolio, real estate acquired as the Fund may, among other things,
a result of the Fund's ownership of (i) acquire or lease office space
securities). for its own use; (ii) invest in
securities of issuers that invest
in real estate or interests
therein; (iii) invest in mortgage-
related securities and other
securities that are secured by real
estate or interests therein; or
(iv) hold and sell real estate
acquired by the portfolio as a
result of the ownership of
securities.
MAKING LOANS The Fund may not make loans to The Fund may make loans only as
other persons except (a) through permitted under the 1940 Act, and
the lending of the Fund's portfolio as interpreted, modified or
securities and provided that any otherwise permitted by regulatory
such loans not exceed 30% of the authority having jurisdiction, from
Fund's total assets (taken at time to time.
market value), (b) through the use
of repurchase agreements, fixed
time deposits, or the purchase of
short-term obligations or (c) by
purchasing debt securities of types
distributed privately to financial
institutions. The purchase of
short-term commercial paper or a
portion of an issue of debt
securities which is part of an
issue to the public shall not be
considered the making of a loan.
</Table>
K-4
<Table>
<Caption>
SUBJECT CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
- ------- -------------------- ---------------------
CONCENTRATION OF The Fund may not concentrate its The Fund may not "concentrate" its
INVESTMENTS investments in any particular investments in a particular
industry (excluding U.S. Government industry or group of industries
securities), but if it is deemed (except those Funds listed below),
appropriate for the achievement of except as permitted under the 1940
the Fund's investment objective(s), Act, and as interpreted, modified
up to 25% of its total assets may or otherwise permitted by
be invested in any one industry, regulatory authority having
except that positions in futures jurisdiction from time to time,
contacts shall not be subject to provided that, without limiting the
this restriction, (except that the generality of the foregoing this
Money Market Fund reserves the limitation will not apply to
freedom of action to concentrate securities issued or guaranteed as
25% or more of its assets in to principal and/or interest by the
obligations of domestic branches of U.S. Government, its agencies or
domestic banks) and except that instrumentalities, except that
this restriction shall not apply Diversified Institutional Money
with respect to the Stock Index Market Fund may invest without
Fund to any industry in which the limitation in obligations issued by
S&P 500 Index (or any other index banks, and except that this
which the Fund selects to track its restriction shall not apply with
performance) becomes concentrated respect to Diversified
to the extent that the Stock Index Institutional Stock Index Fund to
Fund likewise becomes concentrated. any industry in which the S&P 500
Index (or any other index which the
Stock Index Fund selects to track
its performance) becomes
concentrated to the extent that the
Stock Index Fund likewise becomes
concentrated.
COMMODITIES The Fund may not purchase or sell The Fund may not purchase physical
interests in oil, gas or mineral commodities or contracts relating
leases, commodities or commodity to physical commodities, except as
contracts (except futures and permitted under the 1940 Act, and
option contracts) in the ordinary as interpreted, modified or
course of business. otherwise permitted by regulatory
authority having jurisdiction, from
time to time.
</Table>
CHART III
COMPARISON OF FUNDAMENTAL POLICIES FOR
THE STRATEGIC ALLOCATION FUNDS
<Table>
<Caption>
THE DIVERSIFIED INVESTORS FUNDS GROUP THE DIVERSIFIED INVESTORS FUNDS GROUP II
------------------------------------- ----------------------------------------
Institutional Short Horizon Strategic Short Horizon Strategic Allocation Fund
Allocation Fund Short/Intermediate Horizon Strategic
Institutional Short/Intermediate Horizon Allocation Fund
Strategic Allocation Fund Intermediate Horizon Strategic Allocation
Institutional Intermediate Horizon Fund
Strategic Allocation Fund Intermediate/Long Horizon Strategic
Institutional Intermediate/Long Horizon Allocation Fund
Strategic Allocation Fund Long Horizon Strategic Allocation Fund
Institutional Long Horizon Strategic
Allocation Fund
</Table>
<Table>
<Caption>
SUBJECT CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
- ------- -------------------- ---------------------
BORROWING Each Strategic Allocation Fund may The Fund may not borrow money,
not borrow money, except each Fund except as permitted under the
(other than the Institutional Investment Company Act of 1940, as
Strategic Allocation Funds) may amended (the "1940 Act"), and as
</Table>
K-5
<Table>
<Caption>
SUBJECT CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
- ------- -------------------- ---------------------
borrow as a temporary measure for interpreted, modified or otherwise
extraordinary or emergency permitted by regulatory authority
purposes, and then only in amounts having jurisdiction, from time to
not exceeding 30% of its total time.
assets valued at market. No
Institutional Strategic Allocation
Fund may borrow money, except to
the extent permitted under the
1940 Act, including the rules,
regulations and any orders
obtained thereunder. Each Fund
will not borrow in order to
increase income (leveraging), but
only to facilitate redemption
requests which might otherwise
require untimely investment
liquidations.
SENIOR SECURITIES Each Strategic Allocation Fund may The Fund may not issue any senior
not issue senior securities security, except as permitted
(except permitted borrowings). under the 1940 Act, and as
interpreted, modified or otherwise
permitted by regulatory authority
having jurisdiction, from time to
time.
UNDERWRITING Each Strategic Allocation Fund may The Fund may not act as an
SECURITIES not underwrite securities issued underwriter of securities within
by other persons, except to the the meaning of the Securities Act
extent the Funds may be deemed to of 1933, as amended, (the
be underwriters within the meaning "Securities Act" or the "1933
of the Securities Act of 1933 in Act") except as permitted under
connection with the purchase and the Securities Act, and as
sale of their portfolio securities interpreted, modified or otherwise
in the ordinary course of pursuing permitted by regulatory authority
their investment programs. having jurisdiction, from time to
time. Among other things, to the
extent that the Fund may be deemed
to be an underwriter within the
meaning of the Securities Act, the
Fund may act as an underwriter of
securities in connection with the
purchase and sale of its portfolio
securities in the ordinary course
of pursuing its investment
objective, investment policies and
investment program.
REAL ESTATE Each Strategic Allocation Fund may The Fund may not purchase or sell
not purchase or sell real estate. real estate or any interests
therein, except as permitted under
the 1940 Act, and as interpreted,
modified or otherwise permitted by
regulatory authority having
jurisdiction, from time to time.
Notwithstanding this limitation,
the Fund may, among other things,
(i) acquire or lease office space
for its own use; (ii) invest in
securities of issuers that invest
in real estate or interests
therein; (iii) invest in mortgage-
related securities and other
securities that are secured by
real estate or interests therein;
or (iv) hold and sell real estate
acquired by the portfolio as a
result of the ownership of
securities.
MAKING LOANS Each Strategic Allocation Fund may The Fund may make loans only as
not make loans, although the permitted under the 1940 Act, and
underlying Portfolios may purchase as interpreted, modified or
money market securities and enter otherwise permitted by regulatory
into repurchase agreements. authority having jurisdiction,
from time to time.
</Table>
K-6
<Table>
<Caption>
SUBJECT CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
- ------- -------------------- ---------------------
CONCENTRATION OF No stated policy. The Fund may not "concentrate" its
INVESTMENTS investments in a particular
industry or group of industries,
except as permitted under the 1940
Act, and as interpreted, modified
or otherwise permitted by
regulatory authority having
jurisdiction from time to time,
provided that, without limiting
the generality of the foregoing
this limitation will not apply to
securities issued or guaranteed as
to principal and/or interest by
the U.S. Government, its agencies
or instrumentalities.
COMMODITIES No stated policy. The Fund may not purchase physical
commodities or contracts relating
to physical commodities, except as
permitted under the 1940 Act, and
as interpreted, modified or
otherwise permitted by regulatory
authority having jurisdiction,
from time to time.
PURCHASING SECURITIES Each Strategic Allocation Fund may To be removed.
ON MARGIN not purchase securities on margin.
PLEDGING Each Strategic Allocation Fund may To be removed.
not mortgage, pledge, hypothecate
or, in any manner, transfer any
security owned by the Funds as
security for indebtedness except
as may be necessary in connection
with permissible borrowings, in
which event such mortgaging,
pledging, or hypothecating may not
exceed 30% of each Fund's total
assets, valued at market.
SHORT SALES Each Strategic Allocation Fund may To be removed.
not effect short sales of
securities.
FUTURES AND Each Strategic Allocation Fund may To be removed.
OPTIONS engage in futures and options
transactions through investments
in the underlying Funds.
</Table>
CHART IV
COMPARISON OF FUNDAMENTAL POLICIES FOR
THE STRATEGIC VARIABLE FUNDS
<Table>
<Caption>
SUBJECT CURRENT RESTRICTION PROPOSED RESTRICTIONS
- ------- ------------------- ---------------------
BORROWING Each Strategic Variable Funds The Fund may not borrow money,
Subaccount may not borrow money, except as permitted under the
except each Strategic Variable Investment Company Act of 1940, as
Funds Subaccount may borrow as a amended (the "1940 Act"), and as
temporary measure for interpreted, modified or otherwise
extraordinary or emergency permitted by regulatory authority
purposes, and then only in amounts having jurisdiction, from time to
not exceeding 30% of its total time.
assets valued at market. Each
Strategic Variable Funds
Subaccount will not borrow in
order to increase income
(leveraging), but only to
facilitate redemption requests
which might otherwise require
untimely investment liquidations.
SENIOR SECURITIES Each Strategic Variable Funds The Fund may not issue any senior
Subaccount may not issue senior security, except as permitted
securities (except permitted under the 1940 Act, and as
borrowings). interpreted, modified or otherwise
permitted by regulatory authority
having jurisdiction, from time to
time.
</Table>
K-7
<Table>
<Caption>
SUBJECT CURRENT RESTRICTION PROPOSED RESTRICTIONS
- ------- ------------------- ---------------------
UNDERWRITING Each Strategic Variable Funds The Fund may not act as an
SECURITIES Subaccount may not underwrite underwriter of securities within
securities issued by other the meaning of the Securities Act
persons, except to the extent that of 1933, as amended, (the
the Strategic Variable Funds ''Securities Act" or the "1933
Account or Subaccounts may be Act") except as permitted under
deemed to be underwriters within the Securities Act, and as
the meaning of the Securities Act interpreted, modified or otherwise
of 1933 in connection with the permitted by regulatory authority
purchase and sale of their having jurisdiction, from time to
portfolio securities in the time. Among other things, to the
ordinary course of pursuing their extent that the Fund may be deemed
investment programs. to be an underwriter within the
meaning of the Securities Act, the
Fund may act as an underwriter of
securities in connection with the
purchase and sale of its portfolio
securities in the ordinary course
of pursuing its investment
objective, investment policies and
investment program.
REAL ESTATE Each Strategic Variable Funds The Fund may not purchase or sell
Subaccount may not purchase or real estate or any interests
sell real estate. therein, except as permitted under
the 1940 Act, and as interpreted,
modified or otherwise permitted by
regulatory authority having
jurisdiction, from time to time.
Notwithstanding this limitation,
the Fund may, among other things,
(i) acquire or lease office space
for its own use; (ii) invest in
securities of issuers that invest
in real estate or interests
therein; (iii) invest in mortgage-
related securities and other
securities that are secured by
real estate or interests therein;
or (iv) hold and sell real estate
acquired by the portfolio as a
result of the ownership of
securities.
MAKING LOANS Each Strategic Variable Funds The Fund may make loans only as
Subaccount may not make loans, permitted under the 1940 Act, and
although the Portfolios through as interpreted, modified or
which the Strategic Variable Funds otherwise permitted by regulatory
Subaccounts invest may purchase authority having jurisdiction,
money market securities and enter from time to time.
into repurchase agreements.
CONCENTRATION OF No stated policy. The Fund may not "concentrate" its
INVESTMENTS investments in a particular
industry or group of industries,
except as permitted under the 1940
Act, and as interpreted, modified
or otherwise permitted by
regulatory authority having
jurisdiction from time to time,
provided that, without limiting
the generality of the foregoing
this limitation will not apply to
securities issued or guaranteed as
to principal and/or interest by
the U.S. Government, its agencies
or instrumentalities.
COMMODITIES No stated policy. The Fund may not purchase physical
commodities or contracts relating
to physical commodities, except as
permitted under the 1940 Act, and
as interpreted, modified or
otherwise permitted by regulatory
authority having jurisdiction,
from time to time.
</Table>
K-8
<Table>
<Caption>
SUBJECT CURRENT RESTRICTION PROPOSED RESTRICTIONS
- ------- ------------------- ---------------------
PURCHASING SECURITIES Each Strategic Variable Funds To be removed.
ON MARGIN Subaccount may not purchase
securities on margin.
PLEDGING Each Strategic Variable Funds To be removed.
Subaccount may not mortgage,
pledge, hypothecate or, in any
manner, transfer any security
owned by the Strategic Variable
Funds Subaccounts as security for
indebtedness except as may be
necessary in connection with
permissible borrowings, in which
event such mortgaging, pledging,
or hypothecating may not exceed
30% of each Subaccount's total
assets, valued at market.
SHORT SALES Each Strategic Variable Funds To be removed.
Subaccount may not effect short
sales of securities.
FUTURES AND Each Strategic Variable Funds To be removed.
OPTIONS Subaccount may engage in futures
and options transactions through
investments in the Diversified
Portfolios.
</Table>
CHART V
COMPARISON OF FUNDAMENTAL POLICIES FOR
DIVERSIFIED INVESTORS STOCK INDEX FUND,
A SERIES OF DIFG
<Table>
<Caption>
SUBJECT CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
- ------- -------------------- ---------------------
BORROWING The Fund may not borrow money, The Fund may not borrow money,
except that as a temporary measure except as permitted under the
for extraordinary or emergency Investment Company Act of 1940, as
purposes it may borrow in an amount amended (the "1940 Act"), and as
not to exceed 1/3 of the current interpreted, modified or otherwise
value of its net assets, including permitted by regulatory authority
the amount borrowed, or purchase having jurisdiction, from time to
any securities at any time at which time.
borrowings exceed 5% of the total
assets of the Fund taken at market
value. It is intended that the Fund
would borrow money only from banks
and only to accommodate requests
for the repurchase of shares of the
Fund while effecting an orderly
liquidation of portfolio
securities.
SENIOR SECURITIES The Fund may not issue any senior The Fund may not issue any senior
security (as that term is defined security, except as permitted under
in the 1940 Act) if such issuance the 1940 Act, and as interpreted,
is specifically prohibited by the modified or otherwise permitted by
1940 Act or the rules and regulatory authority having
regulations promulgated thereunder. jurisdiction, from time to time.
</Table>
K-9
<Table>
<Caption>
SUBJECT CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
- ------- -------------------- ---------------------
UNDERWRITING The Fund may not underwrite The Fund may not act as an
SECURITIES securities issued by other persons underwriter of securities within
except that all or any portion of the meaning of the Securities Act
the assets of the Fund may be of 1933, as amended, (the
invested in one or more investment "Securities Act" or the "1933 Act")
companies, to the extent not except as permitted under the
prohibited by the 1940 Act, the Securities Act, and as interpreted,
rules and regulations thereunder, modified or otherwise permitted by
and exemptive orders granted under regulatory authority having
such Act, and except insofar as the jurisdiction, from time to time.
Fund may technically be deemed an Among other things, to the extent
underwriter under the Securities that the Fund may be deemed to be
Act in selling a security. an underwriter within the meaning
of the Securities Act, the Fund may
act as an underwriter of securities
in connection with the purchase and
sale of its portfolio securities in
the ordinary course of pursuing its
investment objective, investment
policies and investment program.
REAL ESTATE The Fund may not purchase or sell The Fund may not purchase or sell
real estate (including limited real estate or any interests
partnership interests but excluding therein, except as permitted under
securities secured by real estate the 1940 Act, and as interpreted,
or interests therein) in the modified or otherwise permitted by
ordinary course of business (the regulatory authority having
Fund reserves the freedom of action jurisdiction, from time to time.
to hold and to sell real estate Notwithstanding this limitation,
acquired as a result of the the Fund may, among other things,
ownership of securities by the (i) acquire or lease office space
Fund). for its own use; (ii) invest in
securities of issuers that invest
in real estate or interests
therein; (iii) invest in mortgage-
related securities and other
securities that are secured by real
estate or interests therein; or
(iv) hold and sell real estate
acquired by the portfolio as a
result of the ownership of
securities.
MAKING LOANS The Fund may not make loans to The Fund may make loans only as
other persons except (a) through permitted under the 1940 Act, and
the lending of its portfolio as interpreted, modified or
securities and provided that any otherwise permitted by regulatory
such loan not exceed 30% of the authority having jurisdiction, from
Fund's total assets (taken at time to time.
market value), (b) through the use
of repurchase agreements or fixed
time deposits or the purchase of
short-term obligations or (c) by
purchasing all or a portion of an
issue of debt securities of types
commonly distributed privately to
financial institutions. The
purchase of short-term commercial
paper or a portion of an issue of
debt securities which is part of an
issue to the public shall not be
considered the making of a loan.
</Table>
K-10
<Table>
<Caption>
SUBJECT CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
- ------- -------------------- ---------------------
CONCENTRATION OF The Fund may not concentrate its The Fund may not "concentrate" its
INVESTMENTS investments in any particular investments in a particular
industry, but if it is deemed industry or group of industries
appropriate for the achievement of (except the Fund described below),
the Fund's investment objective, up except as permitted under the 1940
to 25% of its assets, at market Act, and as interpreted, modified
value at the time of each or otherwise permitted by
investment, may be invested in any regulatory authority having
one industry, except that positions jurisdiction from time to time,
in futures contracts shall not be provided that, without limiting the
subject to this restriction and generality of the foregoing this
except that this restriction shall limitation will not apply to
not apply to any industry in which securities issued or guaranteed as
the S&P 500 Index (or any other to principal and/or interest by the
index which the Fund selects to U.S. Government, its agencies or
track its performance) becomes instrumentalities, except that this
concentrated to the extent the Fund restriction shall not apply with
likewise becomes concentrated. respect to Diversified Investors
Stock Index Fund to any industry in
which the S&P 500 Index (or any
other index which the Stock Index
Fund selects to track its
performance) becomes concentrated
to the extent that the Stock Index
Fund likewise becomes concentrated.
COMMODITIES The Fund may not purchase or sell The Fund may not purchase physical
interests in oil, gas or mineral commodities or contracts relating
leases, commodities or commodity to physical commodities, except as
contracts in the ordinary course of permitted under the 1940 Act, and
business (the foregoing shall not as interpreted, modified or
be deemed to preclude the Fund from otherwise permitted by regulatory
purchasing or selling futures authority having jurisdiction, from
contracts or options thereon). time to time.
</Table>
K-11
APPENDIX L
[NAME OF TRUST]
FORM OF PLAN OF DISTRIBUTION PURSUANT TO
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ], 2007
WHEREAS, [Name of Trust], a [Form of Organization] ("Trust"), is registered
under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-
end investment management company, and offers for public sale shares of
beneficial interest; and
WHEREAS, the Trust wishes to adopt a Plan of Distribution ("Plan") pursuant
to Rule 12b-1 under the 1940 Act for each series of the Trust (each a "Fund" and
collectively, the "Funds") listed on Schedule A hereto.
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with Rule
12b-1 under the 1940 Act with respect to those classes of shares (each a
"Class") of the Funds, or if a Fund's shares have not been divided into classes,
the Fund itself (in this capacity, a "Series"), listed on Schedule A hereto.
SECTION 1. Annual Fee.
(a) Service and Distribution Fee. For each Fund with one or more Classes,
the Fund may pay to one or more principal underwriters, broker-dealers,
financial intermediaries (which may include banks), and others that enter into a
distribution, underwriting, selling or service agreement with respect to shares
of a Fund or Class thereof (each of the foregoing a "Servicing Party") a service
and distribution fee, provided that the aggregate amount of all such payments
with respect to a particular Class does not exceed an amount calculated at the
annual rate set forth in Schedule A for that Class.
For each Series, the Series may pay to one or more Servicing Parties a
service and distribution fee, provided that the aggregate amount of all such
payments with respect to the Series does not exceed an amount calculated at the
annual rate set forth in Schedule A for that Fund. For each Series, the
remaining provisions of this Plan that speak in terms of Classes shall apply
mutatis mutandis to the Series.
(b) Payment of Fees. The service and distribution fee (the "Service
Fees") described above will be calculated daily and paid monthly by each Fund
with respect to each Class as provided in Schedule A.
The Trust is authorized to engage in the activities listed herein either
directly or through other entities.
SECTION 2. Expenses Covered by the Plan.
With respect to the fees payable by each Class, the Service Fees for a
Class may be used by a Servicing Party for expenses related to that Class,
including without limitation: (a) costs of printing and distributing the Fund's
prospectuses, statements of additional information and reports to prospective
investors in the Fund; (b) advertising expenses and costs involved in preparing,
printing and distributing sales literature pertaining to the Fund and reports
for persons other than existing shareholders; (c) an allocation of overhead and
other branch office distribution-related expenses of a Servicing Party,
including but not limited to, office space and equipment, and communication
facilities; (d) payments made to, and expenses of, a Servicing Party (including
on behalf of its financial consultants) and other persons who provide support or
personal services to Fund shareholders in connection with the distribution of
the Fund's shares, including but not limited to, salary, commissions (including
trail or maintenance commissions calculated with reference to the average daily
net asset value of shares held by shareholders who have a brokerage or other
service relationship with the Servicing Party), travel and related expenses of
sales employees or agents of a Servicing Party, and expenses of the following:
answering routine inquiries regarding the Fund and its operations, processing
shareholder transactions, promotional, advertising or marketing activity, sub-
accounting and recordkeeping services (in excess of ordinary payments made to
the Fund's transfer agent or other recordkeeper), obtaining shareholder
information and providing information about the Fund, asset allocation services,
compensating sales personnel, maintaining and servicing shareholder accounts
(including the payment of a continuing fee to financial consultants); and (e)
interest-related expenses, or the cost of capital associated with, the financing
of any
L-1
of the foregoing; provided, however, that (i) the Service Fee for a particular
Class that may be used by the Servicing Party to cover expenses primarily
intended to result in the sale of shares of that Class, including, without
limitation, payments to the Servicing Party and other persons as compensation
for the sale of the shares (including payments that may be deemed to be selling
concessions or commissions) may not exceed the maximum amount, if any, as may
from time to time be permitted for such services under NASD Conduct Rule 2830 or
any successor rule, in each case as amended or interpreted by the NASD ("Rule
2830"), and (ii) the Service Fee for a particular Class that may be used by the
Servicing Party to cover expenses primarily intended for personal service and/or
maintenance of shareholder accounts may not exceed the maximum amount, if any,
as may from time to time be permitted for such services under Rule 2830.
The Servicing Party may retain any portions of the Service Fees in excess
of its expenses incurred.
It is recognized that a Fund's investment adviser, principal underwriter, a
Servicing Party, or an affiliate of the foregoing may use its management or
advisory fee revenues, past profits or its resources from any other source, to
make payment to a Servicing Party or any other entity with respect to any
expenses incurred in connection with the distribution or marketing and sales of
the Fund's shares, including the activities referred to above. [Notwithstanding
any language to the contrary contained herein, to the extent that any payments
made by the Fund to its adviser or any affiliate thereof, including payments
made from such adviser or affiliate's management or advisory fee or
administrative fee or payments made for shareholder services, should be deemed
to be indirect financing of any activity primarily intended to result in the
sale of Fund shares, then such payments shall be deemed to be authorized by this
Plan but shall not be subject to the limitations set forth in Section 1.]
It is further recognized that a Fund will enter into normal and customary
custodial, transfer agency, recordkeeping and dividend disbursing agency and
other service provider arrangements, and make separate payments under the terms
and conditions of those arrangements. These arrangements shall not ordinarily be
deemed to be a part of this Plan.
SECTION 3. Sales Charges
It is understood that, under certain circumstances, as disclosed in a
Fund's prospectus, an initial sales charge may be paid by investors who purchase
Fund shares, and the Fund may pay to the Servicing Party, or the Fund may permit
such persons to retain, as the case may be, such sales charge as fully or
partial compensation for their services in connection with the sale of Fund
shares. It is also understood that, under certain circumstances, as disclosed in
a Fund's prospectus, the Fund or the Servicing Party may impose certain deferred
sales charges in connection with the repurchase of such Fund shares, and the
Fund may pay to a Servicing Party, or the Fund may permit such persons to
retain, as the case may be, all or any portion of such deferred sales charges.
SECTION 4. Approval by Shareholders.
Except to the extent that, in accordance with Section 8 below, this Plan
amends an existing plan adopted pursuant to the Rule with respect to a Fund or
Class, the Plan will not take effect, and no fee will be payable in accordance
with Section 1 of the Plan, with respect to a Class of a Fund until the Plan has
been approved by a vote of at least a majority of the outstanding voting
securities of that Class. The Plan will be deemed to have been approved with
respect to a Class of each Fund so long as a majority of the outstanding voting
securities of that Class votes for the approval of the Plan, notwithstanding
that: (a) the Plan has not been approved by a majority of the outstanding voting
securities of any other Class, or (b) the Plan has not been approved by a
majority of the outstanding voting securities of the Fund.
SECTION 5. Approval by Trustees.
Neither the Plan nor any related agreements will take effect, with respect
to a Class of a Fund, until approved by a majority vote of both (a) the Board of
Trustees ("Board") and (b) those Trustees who are not interested persons of the
Trust and who have no direct or indirect financial interest in the operation of
the Plan or in any agreements related to it (the "Qualified Trustees"), cast in
person at a meeting called for the purpose of voting on the Plan and the related
agreements.
L-2
SECTION 6. Continuance of the Plan.
The Plan shall continue in effect with respect to each Class for so long as
such continuance is specifically approved at least annually by the Trustees of
the Trust and by a majority of the Qualified Trustees in accordance with Section
5.
SECTION 7. Termination.
The Plan may be terminated at any time with respect to a Class of a Fund
(i) by the Fund without the payment of any penalty, by the vote of a majority of
the outstanding voting securities of the applicable Class of the Fund or (ii) by
a majority vote of the Qualified Trustees. The Plan may remain in effect with
respect to a particular Class of a Fund even if the Plan has been terminated in
accordance with this Section 7 with respect to any other Class of the Fund.
SECTION 8. Amendments.
The Plan may not be amended with respect to any Class so as to increase
materially the amount to be spent for distribution, unless such amendment is
approved by a vote of holders of at least a majority of the outstanding voting
securities of that Class. No material amendment to the Plan may be made unless
approved by the Trust's Board in the manner described in Section 5.
SECTION 9. Selection of Certain Trustees.
While the Plan is in effect, the Trust shall comply with Rule 12b-1(c).
SECTION 10. Written Reports.
In each year during which the Plan remains in effect, the officers of the
Fund will prepare and furnish to the Trust's Board and the Board will review, at
least quarterly, written reports complying with the requirements of the Rule,
which set out the amounts expended under the Plan and the purposes for which
those expenditures were made.
SECTION 11. Preservation of Materials.
The Trust will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 10, for a period of not less than
six years (the first two years in an easily accessible place) from the date of
the Plan.
SECTION 12. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the rules and regulations under the 1940 Act, subject to
any exemption that may be granted to the Trust under the 1940 Act, by the
Securities and Exchange Commission, or as interpreted by the Commission.
SECTION 13. Limitation of Liability
The Trust's Declaration of Trust is on file with the [Secretary of State of
Delaware] [Office of the Secretary of the Commonwealth of Massachusetts], and
notice is hereby given that this Plan has been adopted on behalf of the Fund by
the Trustees of the Trust in their capacity as Trustees of the Trust and not
individually and that the obligations of or arising out of this instrument are
not binding upon any of the Trustees, officers or shareholders individually but
are binding only upon the assets and property of the Fund.
SECTION 14. Severability
The provisions of the Plan are severable for each Fund and Class covered by
this Plan, and actions taken with respect to a Plan in conformity with the Rule
will be taken separately for each such Fund or Class.
SECTION 15. Governing Law
This plan shall be governed by, and construed in accordance with, the laws
of the [State of ] and the applicable provisions of the 1940 Act.
L-3
SCHEDULE A
<Table>
<Caption>
CLASS
FUND (IF APPLICABLE) SERVICE AND DISTRIBUTION FEE
- ---- --------------- ----------------------------
</Table>
L-4
APPENDIX M
AUDIT FEES, AUDIT-RELATED FEES, TAX FEES AND ALL OTHER FEES
Please note that none of the Funds paid any audit-related fees or any other
fees to the Funds' independent registered public accounting firm during the
fiscal years ended December 31, 2005 and December 31, 2006.
<Table>
<Caption>
AUDIT FEES TAX FEES
------------------------- -------------------------
FYE FYE FYE FYE
FUND 12/31/06($) 12/31/05($) 12/31/06($) 12/31/05($)
- ---- ----------- ----------- ----------- -----------
THE DIVERSIFIED INVESTORS FUNDS GROUP
Diversified Investors Money Market Fund...... 2,700 5,100 6,300 5,950
Diversified Investors High Quality Bond
Fund....................................... 2,700 2,550 7,200 4,675
Diversified Investors Inflation-Protected
Securities Fund............................ 2,700 2,550 7,200 4,675
Diversified Investors Core Bond Fund......... 2,700 2,550 8,300 4,675
Diversified Investors Total Return Bond
Fund....................................... 2,700 2,550 7,200 4,675
Diversified Investors High Yield Bond Fund... 2,700 5,100 6,300 5,950
Diversified Investors Balanced Fund.......... 2,700 2,550 7,200 4,675
Diversified Investors Value & Income Fund.... 2,700 5,100 6,300 5,950
Diversified Investors Value Fund............. 2,700 2,550 7,200 4,675
Diversified Investors Growth & Income Fund... 2,700 2,550 7,200 4,675
Diversified Investors Equity Growth Fund..... 2,700 5,100 6,300 5,950
Diversified Investors Aggressive Equity
Fund....................................... 2,700 2,550 7,200 4,675
Diversified Investors Mid-Cap Value Fund..... 2,700 2,550 8,600 4,675
Diversified Investors Mid-Cap Growth Fund.... 2,700 2,550 7,200 4,675
Diversified Investors Small-Cap Value Fund... 2,700 2,550 7,200 4,675
Diversified Investors Special Equity Fund.... 2,700 5,100 6,300 5,950
Diversified Investors Small-Cap Growth Fund.. 2,700 2,550 8,600 4,675
Diversified Investors International Equity
Fund....................................... 2,700 5,100 6,300 5,950
Diversified Investors Stock Index Fund....... 2,700 2,550 7,200 4,675
Institutional Short Horizon Strategic
Allocation Fund............................ 4,830 4,600 2,550 2,500
Institutional Short/Intermediate Horizon
Strategic Allocation Fund.................. 4,830 4,600 2,550 2,500
Institutional Intermediate Horizon Strategic
Allocation Fund............................ 4,830 4,600 2,550 2,500
Institutional Intermediate/Long Horizon
Strategic Allocation Fund.................. 4,830 4,600 2,550 2,500
Institutional Long Horizon Strategic
Allocation Fund............................ 4,830 4,600 2,550 2,500
THE DIVERSIFIED INVESTORS FUNDS GROUP II
Diversified Institutional Money Market Fund.. 2,700 2,550 7,200 4,675
Diversified Institutional High Quality Bond
Fund....................................... 2,700 2,550 7,200 4,675
Diversified Institutional Inflation-Protected
Securities Fund............................ 2,700 2,550 7,200 4,675
Diversified Institutional Core Bond Fund..... 2,700 2,550 7,200 4,675
Diversified Institutional Total Return Bond
Fund....................................... 2,700 2,550 7,200 4,675
Diversified Institutional High Yield Bond
Fund....................................... 2,700 2,550 7,200 4,675
Diversified Institutional Balanced Fund...... 2,700 2,550 7,200 4,675
Diversified Institutional Value & Income
Fund....................................... 2,700 2,550 7,900 4,675
</Table>
M-1
<Table>
<Caption>
AUDIT FEES TAX FEES
------------------------- -------------------------
FYE FYE FYE FYE
FUND 12/31/06($) 12/31/05($) 12/31/06($) 12/31/05($)
- ---- ----------- ----------- ----------- -----------
Diversified Institutional Value Fund......... 2,700 2,550 7,200 4,675
Diversified Institutional Growth & Income
Fund....................................... 2,700 2,550 7,200 4,675
Diversified Institutional Equity Growth
Fund....................................... 2,700 2,550 7,200 4,675
Diversified Institutional Aggressive Equity
Fund....................................... 2,700 2,550 7,200 4,675
Diversified Institutional Mid-Cap Value
Fund....................................... 2,700 2,550 8,600 4,675
Diversified Institutional Mid-Cap Growth
Fund....................................... 2,700 2,550 7,200 4,675
Diversified Institutional Small-Cap Value
Fund....................................... 2,700 2,550 7,200 4,675
Diversified Institutional Special Equity
Fund....................................... 2,700 2,550 8,300 4,675
Diversified Institutional Small-Cap Growth
Fund....................................... 2,700 2,550 8,500 4,675
Diversified Institutional International
Equity Fund................................ 2,700 2,550 8,400 4,675
Diversified Institutional Stock Index Fund... 2,700 2,550 7,200 4,675
Short Horizon Strategic Allocation Fund...... 4,830 4,600 2,550 2,500
Short/Intermediate Horizon Strategic
Allocation Fund............................ 4,830 4,600 2,550 2,500
Intermediate Horizon Strategic Allocation
Fund....................................... 4,830 4,600 2,550 2,500
Intermediate/Long Horizon Strategic
Allocation Fund............................ 4,830 4,600 2,550 2,500
Long Horizon Strategic Allocation Fund....... 4,830 4,600 2,550 2,500
DIVERSIFIED INVESTORS STRATEGIC VARIABLE
FUNDS
Short Horizon Strategic Allocation Variable
Fund....................................... 5,000 4,800 0 0
Intermediate Horizon Strategic Allocation
Variable Fund.............................. 5,000 4,800 0 0
Intermediate/Long Horizon Strategic
Allocation Variable Fund................... 5,000 4,800 0 0
DIVERSIFIED INVESTORS PORTFOLIOS
Money Market Portfolio....................... 21,420 20,400 4,050 3,550
High Quality Bond Portfolio.................. 23,520 22,400 4,050 3,550
Inflation-Protected Securities Portfolio..... 23,520 22,400 4,050 3,550
Core Bond Portfolio.......................... 26,775 25,500 4,050 3,550
Total Return Bond Portfolio.................. 26,775 25,500 4,050 3,550
High Yield Bond Portfolio.................... 23,520 22,400 4,050 3,550
Balanced Portfolio........................... 24,675 23,500 4,050 3,550
Value & Income Portfolio..................... 26,775 25,500 4,050 3,550
Value Portfolio.............................. 26,775 25,500 4,050 3,550
Growth & Income Portfolio.................... 24,675 23,500 4,050 3,550
Equity Growth Portfolio...................... 26,775 25,500 4,050 3,550
Aggressive Equity Portfolio.................. 22,470 21,400 4,050 3,550
Mid-Cap Value Portfolio...................... 19,215 18,300 4,050 3,550
Mid-Cap Growth Portfolio..................... 19,215 18,300 4,050 3,550
Small-Cap Value Portfolio.................... 19,215 18,300 4,050 3,550
Special Equity Portfolio..................... 26,775 25,500 4,050 3,550
Small-Cap Growth Portfolio................... 19,215 18,300 4,050 3,550
International Equity Portfolio............... 29,150 27,500 4,050 3,550
</Table>
M-2
APPENDIX N
BENEFICIAL OWNERS OF 5% OR MORE OF THE OUTSTANDING INTERESTS OF THE FUNDS
As of August 15, 2007, the following persons owned of record the amounts
indicated of each applicable Fund:
<Table>
<Caption>
PERCENTAGE
FUND OWNERSHIP(%) NAME ADDRESS
- ---- ------------ ---------- ----------
THE DIVERSIFIED INVESTORS FUNDS GROUP
Diversified Investors Money Market Fund...........
Diversified Investors High Quality Bond Fund......
Diversified Investors Inflation-Protected
Securities Fund.................................
Diversified Investors Core Bond Fund..............
Diversified Investors Total Return Bond Fund......
Diversified Investors High Yield Bond Fund........
Diversified Investors Balanced Fund...............
Diversified Investors Value & Income Fund.........
Diversified Investors Value Fund..................
Diversified Investors Growth & Income Fund........
Diversified Investors Equity Growth Fund..........
Diversified Investors Aggressive Equity Fund......
Diversified Investors Mid-Cap Value Fund..........
Diversified Investors Mid-Cap Growth Fund.........
Diversified Investors Small-Cap Value Fund........
Diversified Investors Special Equity Fund.........
Diversified Investors Small-Cap Growth Fund.......
Diversified Investors International Equity Fund...
Diversified Investors Stock Index Fund............
Institutional Short Horizon Strategic Allocation
Fund............................................
Institutional Short/Intermediate Horizon Strategic
Allocation Fund.................................
Institutional Intermediate Horizon Strategic
Allocation Fund.................................
Institutional Intermediate/Long Horizon Strategic
Allocation Fund.................................
Institutional Long Horizon Strategic Allocation
Fund............................................
THE DIVERSIFIED INVESTORS FUNDS GROUP II
Diversified Institutional Money Market Fund.......
Diversified Institutional High Quality Bond Fund..
Diversified Institutional Inflation-Protected
Securities Fund.................................
Diversified Institutional Core Bond Fund..........
Diversified Institutional Total Return Bond Fund..
Diversified Institutional High Yield Bond Fund....
Diversified Institutional Balanced Fund...........
Diversified Institutional Value & Income Fund.....
Diversified Institutional Value Fund..............
Diversified Institutional Growth & Income Fund....
Diversified Institutional Equity Growth Fund......
Diversified Institutional Aggressive Equity Fund..
Diversified Institutional Mid-Cap Value Fund......
</Table>
N-1
<Table>
<Caption>
PERCENTAGE
FUND OWNERSHIP(%) NAME ADDRESS
- ---- ------------ ---------- ----------
Diversified Institutional Mid-Cap Growth Fund.....
Diversified Institutional Small-Cap Value Fund....
Diversified Institutional Special Equity Fund.....
Diversified Institutional Small-Cap Growth Fund...
Diversified Institutional International Equity
Fund............................................
Diversified Institutional Stock Index Fund........
Short Horizon Strategic Allocation Fund...........
Short/Intermediate Horizon Strategic Allocation
Fund............................................
Intermediate Horizon Strategic Allocation Fund....
Intermediate/Long Allocation Fund.................
Long Horizon Strategic Fund.......................
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
Short Horizon Strategic Allocation Variable Fund..
Intermediate Horizon Strategic Allocation Variable
Fund............................................
Intermediate/Long Horizon Strategic Allocation
Variable Fund...................................
DIVERSIFIED INVESTORS PORTFOLIOS
Money Market Portfolio............................
High Quality Bond Portfolio.......................
Inflation-Protected Securities Portfolio..........
Core Bond Portfolio...............................
Total Return Bond Portfolio.......................
High Yield Bond Portfolio.........................
Balanced Portfolio................................
Value & Income Portfolio..........................
Value Portfolio...................................
Growth & Income Portfolio.........................
Equity Growth Portfolio...........................
Aggressive Equity Portfolio.......................
Mid-Cap Value Portfolio...........................
Mid-Cap Growth Portfolio..........................
Small-Cap Value Portfolio.........................
Special Equity Portfolio..........................
Small-Cap Growth Portfolio........................
International Equity Portfolio....................
</Table>
N-2
FORM OF PROXY CARD*
THE DIVERSIFIED INVESTORS FUNDS GROUP
THE DIVERSIFIED INVESTORS FUNDS GROUP II
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
DIVERSIFIED INVESTORS PORTFOLIOS
(Each an "Investment Company" and collectively, the "Investment Companies")
FOUR MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
(800) 755-5801
------------
PROXY FOR A SPECIAL MEETING OF HOLDERS ON OCTOBER 30, 2007 THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARDS OF THE FUND(S) LISTED BELOW
The undersigned hereby appoints each of John Carter, Dennis P. Gallagher
and Elizabeth L. Belanger, or any of them, as Proxies of the undersigned with
full power of substitution, to vote and act with respect to all interests in
each series of the Investment Companies with respect to which the undersigned is
entitled to vote at the Special Meeting of holders of each such series to be
held at offices of the Diversified Investment Advisors, Inc., Four
Manhattanville Road, Purchase, New York 10577, on October 30, 2007, at 11:00
a.m. (Eastern time), and at any adjournment or postponement thereof.
This proxy will be voted as instructed. If no specification is made for a
proposal, the proxy will be voted "FOR" the proposal. The proxies are authorized
in their discretion to vote upon such other matters as may come before the
meeting or any adjournment or postponement thereof.
Please vote, date and sign this proxy and return it promptly in the
enclosed envelope.
Please indicate your vote by an "x" in the appropriate box below.
PROXY VOTING INSTRUCTIONS
The Investment Companies encourage all holders to provide voting
instructions. We now provide the following convenient methods of voting:
1. PROXY CARD: Complete, sign, date and return the proxy card attached
below in the enclosed postage-paid envelope by following the enclosed
instructions; or
2. TELEPHONE; or
3. INTERNET.
[PROXY SOLICITOR TO PROVIDE TELEPHONE NUMBER AND URL]
If you choose to provide voting instructions by telephone or via the Internet,
DO NOT return your proxy card unless you later decide to change your
instructions.
- ----------
* This form of proxy card lists all proposals that have been approved by
the Boards. Holders are only being asked to vote on those proposals relevant to
them. The proxy card that each holder receives will be tailored to indicate the
Fund(s) in which that holder has interests and will list only those proposals
with respect to which the holder is entitled to vote.
THE BOARD OF EACH INVESTMENT COMPANY RECOMMENDS A VOTE FOR THE FOLLOWING
PROPOSALS.
FUNDS
[Name of applicable Fund]
[Name of applicable Fund]
[Name of applicable Fund]
[VOTING OPTIONS TO BE PROVIDED FOR EACH FUND APPLICABLE TO A HOLDER]
I. TO ELECT A NEW BOARD.
NOMINEES:
(01) Neal M. Jewell
(02) Eugene M. Mannella
(03) Joyce Galpern Norden
(04) Patricia L. Sawyer
(05) Leo J. Hill
(06) Russell A. Kimball, Jr.
(07) Norm R. Nielsen
(08) John W. Waechter
(09) John K. Carter
<Table>
[Name of Applicable Fund] [ ] FOR ALL [ ] AGAINST ALL [ ] FOR ALL EXCEPT--------
[Name of Applicable Fund] [ ] FOR ALL [ ] AGAINST ALL [ ] FOR ALL EXCEPT--------
[Name of Applicable Fund] [ ] FOR ALL [ ] AGAINST ALL [ ] FOR ALL EXCEPT--------
</Table>
If you do not wish your interests voted "FOR" a particular Nominee,
mark the "FOR ALL EXCEPT" box and write the Nominee's number on the
line provided below. Your interests will be voted for the remaining
Nominee(s).
II. TO APPROVE THE PROPOSED INVESTMENT ADVISORY AGREEMENT WITH
TRANSAMERICA FUND ADVISORS, INC.
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
III. TO APPROVE AN AMENDMENT TO THE DECLARATION OF TRUST.
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
IV. TO APPROVE CHANGES TO THE FUNDAMENTAL INVESTMENT POLICIES OF YOUR
FUND(S).
(IV.A) Borrowing
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
(IV.B) Senior Securities
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
(IV.C) Underwriting
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
(IV.D) Real Estate
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
(IV.E) Making Loans
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
(IV.F) Concentration
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
(IV.G) Commodities
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
(IV.H.) Margin Activities (Strategic Allocation Funds and Strategic
Variable Funds only)
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
(IV.I) Short Selling (Strategic Allocation Funds and Strategic
Variable Funds only)
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
(IV.J) Pledging Assets (Strategic Allocation Funds and Strategic
Variable Funds only)
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
(IV.K) Futures and Options Transactions Through Investments in
Underlying Funds (Strategic Allocation Funds and Strategic
Variable Funds only)
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
If you do not wish to approve certain fundamental investment
policy(ies), please write the reference(s) of the sub-proposal(s) on
the line provided.
V. TO APPROVE AN AMENDED 12B-1 PLAN.
<Table>
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
[Name of Applicable Fund] [ ] FOR [ ] AGAINST [ ] ABSTAIN
</Table>
<Table>
- -------------------------------------- --------------------------------------
Signature Date
- -------------------------------------- --------------------------------------
Signature (if held jointly) Date
</Table>
This proxy must be signed exactly as your name(s) appears hereon. If as an
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add titles as such. Joint owners must each sign.