DIVERSIFIED INVESTORS FUNDS GROUP, 497, 1995-12-21

DIVERSIFIED INVESTORS FUNDS GROUP
497, 1995-12-21

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<PAGE> 1

THE DIVERSIFIED INVESTORS FUNDS GROUP

PROSPECTUS DATED OCTOBER 2, 1995 AS SUPPLEMENTED
DECEMBER 19, 1995

The Diversified Investors Funds Group (the "Trust") is an open-end
management investment company that seeks to provide investors with a broad range
of investment alternatives through its eleven separate funds (the "Funds"). Each
Fund is a separate mutual fund issuing its own shares. Diversified Investment
Advisors, Inc. ("Diversified") is the investment adviser (the "Adviser") to each
Fund and selects, subject to shareholder approval, separate investment
subadvisers (the "Subadvisers") that provide investment advice for the Funds.
The Trust seeks to achieve each Fund's investment objective by investing all of
the investable assets ("Assets") of that Fund in a corresponding series of
Diversified Investors Portfolios (the "Portfolio Series"). The Portfolio Series
(like the Trust) is a diversified, open-end management investment company with
separate series (the "Portfolios") which have the same investment objectives as
the Funds. The eleven Funds offered for sale by this Prospectus are as follows:

Diversified Investors Money Market Fund Diversified Investors
High Quality Bond Fund Diversified Investors Intermediate
Government Bond Fund Diversified Investors
Government/Corporate Bond Fund Diversified Investors
High-Yield Bond Fund Diversified Investors Balanced Fund
Diversified Investors Equity Income Fund Diversified Investors
Growth & Income Fund Diversified Investors Equity Growth Fund
Diversified Investors Special Equity Fund Diversified
Investors International Equity Fund

UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN
PORTFOLIOS OF SECURITIES, THE TRUST SEEKS TO ACHIEVE EACH FUND'S INVESTMENT
OBJECTIVES BY INVESTING ALL OF THAT FUND'S ASSETS IN A CORRESPONDING PORTFOLIO.
SEE "HUB AND SPOKE(R) STRUCTURE" ON PAGE -- HEREIN. HUB AND SPOKE(R) IS A
REGISTERED SERVICE MARK OF SIGNATURE FINANCIAL GROUP, INC.

The Trust is designed to meet the long-term investment needs of, and
will be available only as a funding vehicle to, (i) certain employee retirement
plans of for-profit and not-for-profit entities including those having cash or
deferred arrangements and those covering self-employed individuals and
owner-employees (such as 401(k) Plans, 403(b) Plans, 457 Plans, Money Purchase
Plans, Profit Sharing Plans, Simplified Employee Pension Plans and Keogh Plans),
and (ii) qualified personal retirement plans such as IRAs and rollover IRAs
(collectively, "Qualified Investors").
<PAGE> 2
This Prospectus sets forth information about the Trust and the Funds
that a prospective investor should consider before investing. Investors should
read this Prospectus and retain it for future reference. Additional information,
contained in a "Statement of Additional Information," has been filed with the
Securities and Exchange Commission and is available upon request without charge
by calling the Trust at (914) 697-8000. The Statement of Additional Information,
which has the same date as this Prospectus, is incorporated by reference into
this Prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

The Money Market Fund's net asset value per share will fluctuate. Many
money market funds declare a dividend of all investment income each day in order
to maintain a stable net asset value of $1.00 per share. The Money Market Fund
intends to declare dividends of all investment income and to distribute all net
realized capital gains or losses only once a year in December. Undeclared
investment income may cause the Money Market Fund's net asset value per share to
fluctuate. INVESTMENTS IN THE MONEY MARKET FUND ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT.

In pursuing its investment objective, the High-Yield Bond Fund may
invest significantly in lower rated bonds, commonly referred to as "junk bonds".
Bonds of this type are considered to be speculative with regard to the payment
of interest and return of principal. Investments in these types of securities
have special risks and therefore may not be suitable for all investors.
Investors should carefully assess the risks associated with an investment in
this Fund.

2
<PAGE> 3
EXPENSE SUMMARY

The following tables provide (i) a summary of estimated expenses
relating to purchases and sales of shares of each Fund, and the aggregate annual
operating expenses for each Fund and its corresponding Portfolio, as a
percentage of average net assets of the Fund and as adjusted to give effect to
an anticipated fee waiver, and (ii) an example illustrating the dollar cost of
such estimated expenses on a $1,000 investment in each Fund.

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales load imposed on purchases................................... None
Sales load imposed on reinvested dividends................................ None
Deferred sales load....................................................... None
Redemption fee............................................................ None
</TABLE>

ANNUAL OPERATING EXPENSES

3
<PAGE> 4
<TABLE>
<CAPTION>
INTER-
HIGH MEDIATE HIGH- INTER-
MONEY QUALITY GOVERNMENT GOVERNMENT/ YIELD BAL- EQUITY GROWTH & EQUITY SPECIAL NATIONAL
MARKET BOND BOND CORPORATE BOND ANCED INCOME INCOME GROWTH EQUITY EQUITY
FUND FUND FUND BOND FUND FUND FUND FUND FUND FUND FUND FUND (3)
------ ------- ---------- ----------- ----- ---- ------ -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees
(After Waiver) .223% .318% .280% .322% .542% .400% .430% .552% .649% .768% .750%

Distribution
(Rule 12b-1) Fees .250% .250% .250% .250% .250% .250% .250% .250% .250% .250% .250%

Other Expenses:

Administrative
Services Fees
(After Waiver) .300% .246% .278% .246% .126% .246% .146% .146% .146% .296% .195%

Miscellaneous
Expenses (1) .027% .186% .192% .182% .182% .204% .174% .202% .205% .186% .205%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Operating Expenses
(After Reimbursements
and Waivers) (2) 0.800% 1.000% 1.000% 1.000% 1.100% 1.100% 1.000% 1.150% 1.250% 1.500% 1.400%
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====

</TABLE>

(1) "Miscellaneous Expenses" have been estimated for the High Quality Bond
Fund, Intermediate Government Bond Fund, Government/Corporate Bond
Fund, High-Yield Bond Fund, Balanced Fund, Equity Income Fund, Growth &
Income Fund, Equity Growth Fund, Special Equity Fund and International
Equity Fund based on a projected level of average daily net assets of
$50,000,000 per Fund. There can be no assurance that this level of
average daily net assets will be achieved for each such Fund. If
average daily net assets are lower than $50,000,000 for any such Fund,
"Miscellaneous Expenses" may be a higher percentage of that Fund's
average daily net assets. "Miscellaneous Expenses" for the Money Market
Fund are actual for the year ended December 31, 1994 and reflect a
voluntary reimbursement by Diversified of certain expenses. Without
such reimbursement, "Miscellaneous Expenses" for the Money Market Fund
would have been 58.41%.

(2) Without the voluntary reimbursements and waivers reflected in the
table, the Total Operating Expenses for the year ended December 31,
1994 would have been 59.21% for the Money Market Fund, 284.62% for the
High Quality Bond Fund, 257.24% for the Government/Corporate Bond Fund,
71.47% for the Balanced Fund, 106.54% for the Equity Income Fund,
140.33% for the Growth & Income Fund, 70.79% for the Equity Growth Fund
and 99.91% for the Special Equity Fund.

(3) The International Equity Fund's total operating expenses may be higher
than those of many other mutual funds that invest exclusively in U.S.
securities, since certain costs of operation, such as advisory fees and
custodian costs, are expected to be higher for a fund investing in
foreign securities.

4
<PAGE> 5
EXAMPLE

A shareholder in a Fund would pay the following expenses on a $1,000
investment assuming (i) a 5% annual return on assets and (ii) redemption at the
end of each time period.

<TABLE>
<CAPTION>
AFTER AFTER AFTER AFTER
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund $ 8 $26 $44 $ 99
High Quality Bond Fund 10 32 55 122
Intermediate Government
Bond Fund 10 32 - -
Government/Corporate
Bond Fund 10 32 55 122
High-Yield Bond Fund 11 35 - -
Balanced Fund 11 35 61 134
Equity Income Fund 10 32 55 122
Growth & Income Fund 12 37 63 140
Equity Growth Fund 13 40 69 151
Special Equity Fund 15 47 82 179
International Equity Fund 14 44 77 168
</TABLE>

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.

The purpose of the table is to assist investors in understanding the
various costs and expenses that shareholders will bear directly and indirectly.
The expense table and example reflect a voluntary undertaking by Diversified to
waive a portion of the investment advisory fees and administrative services
fees. Without such waiver, the annual administrative services fee would be .30%
for each Fund and the annual investment advisory fee would be .25% for the Money
Market Fund, .35% for the High Quality Bond Fund, .35% for the Intermediate
Government Bond Fund, .35% for the Government/Corporate Bond Fund, .55% for the
High-Yield Bond Fund, .45% for the Balanced Fund, .45% for the Equity Income
Fund, .60% for the Growth & Income Fund, .70% for the Equity Growth Fund, .80%
for the Special Equity Fund and .75% for the International Equity Fund.

The Trust has adopted a distribution plan (the "Distribution Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"1940 Act"). Under the Distribution Plan, the Trust may pay the Distributor in
anticipation of, or as reimbursement for, expenses incurred by the Distributor
in connection with the sale of shares of the Funds, a fee not to exceed on an
annual basis 0.25% of the

5
<PAGE> 6
average daily net assets of each Fund. Long term shareholders may pay more than
the economic equivalent of the maximum charges permitted by the National
Association of Securities Dealers, Inc.

For more information on the expenses of the Trust and the Portfolio
Series, see "Management of the Trust and Portfolio Series" herein.

The Trustees of the Trust believe that the aggregate per share expenses
of each Fund and its corresponding Portfolio will be less than or approximately
equal to the expenses which such Fund would incur if the Trust retained the
services of an investment adviser and the assets of such Fund were invested
directly in the types of securities being held by its corresponding Portfolio.

THE DIVERSIFIED INVESTORS FUNDS GROUP

PROSPECTUS SUMMARY

Shares of the Funds are continuously sold only to Qualified Investors,
as defined on the cover page of this Prospectus. Qualified Investors include
certain group and individual employee retirement plans. If applicable,
participants in these employee retirement plans should obtain directly from
their plan administrator, and should read in conjunction with this Prospectus,
the materials provided by their plan administrator describing the procedures by
which Fund shares may be purchased and redeemed.

The eleven Funds, their investment objectives and their Subadvisers are
as follows:

MONEY MARKET FUND: The investment objective of the Money Market Fund is
to provide liquidity and as high a level of income as is consistent with the
preservation of capital through investment in domestic and foreign U.S.
dollar-denominated money market obligations with maturities of 397 days or less.
The Subadviser to this Fund is Capital Management Group (a division of 1740
Advisers, Inc.). An investor's interest in the Money Market Fund is neither
insured nor guaranteed by the U.S. Government.

HIGH QUALITY BOND FUND: The investment objective of the High Quality
Bond Fund is to provide as high a level of current income as is consistent with
the preservation of capital through investment in high quality debt securities
with short and intermediate maturities. The Subadviser to this Fund is Merganser
Capital Management, Inc.

6
<PAGE> 7
INTERMEDIATE GOVERNMENT BOND FUND: The investment objective of the
Intermediate Government Bond Fund is to provide as high a level of current
income as is consistent with the preservation of capital through investment in
U.S. Government and U.S. Government agency and instrumentality securities with
intermediate maturities and high quality short-term obligations. The Subadviser
to this Fund is Capital Management Group (a division of 1740 Advisers, Inc.).

GOVERNMENT/CORPORATE BOND FUND: The investment objective of the
Government/Corporate Bond Fund is to achieve maximum total return through
investment in investment grade debt securities, U.S. Government and U.S.
Government agency and instrumentality securities, collateralized mortgage
obligations guaranteed by these agencies and instrumentalities and high quality
short-term obligations. The Subadviser to this Fund is Capital Management Group
(a division of 1740 Advisers, Inc.).

HIGH-YIELD BOND FUND: The investment objective of the High-Yield Bond
Fund is to provide a high level of current income from a diversified portfolio
consisting primarily of high-yielding, fixed-income and zero coupon securities,
such as bonds, debentures and notes, convertible securities and preferred
stocks. The subadvisor to this Fund is Delaware Investment Advisers (a division
of Delaware Management Company, Inc.).

BALANCED FUND: The investment objective of the Balanced Fund is to
provide a high total investment return consistent with a broad diversified mix
of stocks, bonds and money market instruments. The Subadviser to this Fund is
Institutional Capital Corporation.

EQUITY INCOME FUND: The investment objective of the Equity Income Fund
is to provide a high level of current income through investment in a diversified
portfolio of common stocks with relatively high current yields; capital
appreciation is a secondary objective. The Subadviser to this Fund is Asset
Management Group (a division of 1740 Advisers, Inc.).

GROWTH & INCOME FUND: The investment objective of the Growth & Income
Fund is to provide current income and capital appreciation through investment
primarily in a diversified portfolio of securities selected for their potential
to generate current income or long term capital appreciation. The Subadviser to
this Fund is Putnam Advisory Company, Inc.

EQUITY GROWTH FUND: The investment objective of the Equity Growth Fund
is to provide a high level of capital appreciation through investment in a
diversified portfolio of common stocks with potential for above-average growth
in earnings; current income is a secondary objective. The Subadviser to this
Fund is Jundt Associates, Inc.

7
<PAGE> 8
SPECIAL EQUITY FUND: The investment objective of the Special Equity
Fund is to provide a high level of capital appreciation through investment in a
diversified portfolio of common stocks of small to medium size companies which,
in the opinion of the Fund's investment advisers, will present an opportunity
for significant increases in earnings and/or value, without consideration for
current income. The Subadvisers to this Fund are ARK Asset Management Co., Inc.,
Liberty Investment Management, Inc., Pilgrim Baxter & Associates, Ltd. and
Westport Asset Management, Inc.

INTERNATIONAL EQUITY FUND: The investment objective of the
International Equity Fund is to provide a high level of long term capital
appreciation through investment in a diversified portfolio of securities of
foreign issuers. The Subadviser to this Fund is Capital Guardian Trust Company.

There can, of course, be no assurance that any Fund or Portfolio will
achieve its investment objective.

8
<PAGE> 9
CONDENSED FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The following table provides financial highlights for the Funds and periods
indicated. The Intermediate Government Bond Fund, High-Yield Bond Fund and
International Equity Fund are newly organized and, as such, have not issued
financial statements. The information below should be read in conjunction with
the financial statements appearing in the Annual Report to Shareholders of the
Funds and Semi-Annual Report to Shareholders of the Funds which are incorporated
by reference in the Statement of Additional Information. The financial
statements and notes, as well as the table below, covering periods through
December 31, 1994 have been audited by Coopers & Lybrand L.L.P., independent
accountants, whose report is included in such Annual Report. All amounts for
June 30, 1995 are unaudited. Copies of the Annual Report and Semi-Annual Report
may be obtained without charge from the Funds' Distributor.

<TABLE>
<CAPTION>
For The July 1, 1994 (commencement of operations) to December 31, 1994
Year ----------------------------------------------------------------------------------
Ended Govern-
12/31/94 ment/
-------- High Corp-
Money Quality orate Equity Growth & Equity Special
Market Bond Bond Balanced Income Income Growth Equity
-------- ------- ------- -------- ------ -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value beginning
of period . . . . . . . . . . 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00
Income from investment
operations:
Net investment income. . . 0.66 0.18 0.19 0.07 0.09 0.03 (0.01) --
Net gains on investments,
(both realized and
unrealized) . . . . . . (0.39) (0.12) (0.09) 0.07 (0.07) 0.22 1.36 0.84
------ ------- ------- ------- ------- ------- ------- -----

Total from investment
operations . . . . . . . . 0.27 0.06 0.10 0.14 0.02 0.25 1.35 0.84
------ ------- ------- ------- ------- ------- ------- -----
Less: Dividends and
distributions from:
Net investment income . . . (0.66) (0.18) (0.19) (0.07) (0.09) (0.03) -- --
Net realized gain on
investments . . . . . . . -- -- -- -- -- -- -- (0.09)
Tax return of capital . . . -- (0.01) -- (0.02) -- -- -- --
------ ------- ------- ------- ------- ------- ------- -----
Total from dividends and
distributions . . . . . . . . (0.66) (0.19) (0.19) (0.09) (0.09) (0.03) -- (0.09)
------ ------- ------- ------- ------- ------- ------- -----
Net asset value, end of
period . . . . . . . . . . . 9.61 9.87 9.91 10.05 9.93 10.22 11.35 10.75
====== ======= ======= ======= ======= ======= ======= ======
Net assets end of period. . . . 25,092 20,872 22,937 151,629 70,855 60,475 120,370 87,705
Ratio of net income to
average net assets. . . . . . 2.90% 4.96%* 5.18%* 2.86%* 2.74%* 0.97%* (0.21%)* 0.04%*
(net of reimbursement)
Ratio of expenses to average
net assets (net of
reimbursement) . . . . . . . 0.51% 0.55%* 0.54%* 0.49%* 0.42%* 0.43%* 0.42%* 0.54%*
Ratio of net income to
average net assets . . . . . (55.80%) (279.12%)* (251.51%)* (68.13%)* (103.39%)* (138.93%)* (71.00%)* (99.33%)*
Ratio of expenses to average
net assets . . . . . . . . . 59.21% 284.62%* 257.24%* 71.47%* 106.54%* 140.33%* 70.79%* 99.91%*
Total Return. . . . . . . . . . 3.45% 0.67% 1.10% 1.43% 0.24% 2.49% 13.58% 8.54%
Portfolio Turnover Rate . . . . N/A 36.5% 121.9% 117.6% 29.5% 20.6% 74.9% 89.9%
</TABLE>

- ----------------
*Annualized

9
<PAGE> 10
<TABLE>
<CAPTION>
Six Months Ended June 30, 1995
(unaudited)
-----------------------------------------------------------
Govern-
ment/
High Corp-
Money Quality orate Equity Growth & Equity Special
Market Bond Bond Balanced Income Income Growth Equity
------ ------- ------- -------- ------ -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value beginning
of period .................... $ 9.61 $ 9.87 $ 9.91 $ 10.05 $ 9.93 $ 10.22 $ 11.35 $ 10.75
------- ------- ------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income .... 0.21 0.26 0.30 0.14 0.12 0.04 (0.01) (0.01)
Net gains on investments,
(both realized and
unrealized) ............. 0.03 0.43 0.95 1.64 1.46 1.48 1.15 1.89
------- ------- ------- -------- -------- -------- -------- --------

Total from investment
operations ................. 0.24 0.69 1.25 1.78 1.58 1.52 1.14 1.88
Less: Dividends and
distributions from:
Net investment income .... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net realized gain on
investments ............. -- -- -- -- -- -- -- --
Tax return of capital .... -- -- -- -- -- -- -- --
------- ------- ------- -------- -------- -------- -------- --------
Total from dividends and
distributions .............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- -------- -------- -------- -------- --------
Net asset value, end of
period ..................... $ 9.85 $ 10.56 $ 11.16 $ 11.83 $ 11.51 $ 11.74 $ 12.49 $ 12.63
======= ======= ======= ======== ======== ======== ======== ========
Net assets end of period ..... 41,843 36,042 36,675 410,360 159,299 148,190 245,604 198,050
Ratio of net income to
average net assets
(net of reimbursement) ..... 5.20%* 6.42%* 6.70%* 3.70%* 3.08%* 1.13%* (0.13%)* (0.20%)*
Ratio of expenses to average
net assets (net of
reimbursement) ............. 0.50%* 0.54%* 0.54%* 0.59%* 0.48%* 0.46%* 0.47%* 0.60%*
Ratio of net income to
average net assets ......... (84.74%)* (89.70%)* (85.89%)* (6.87%)* (22.26%)* (26.90%)* (158.73%)* (19.38%)*
Ratio of expenses to average
net assets ................. 90.44%* 96.65%* 93.13%* 11.15%* 25.81%* 28.50%* 16.22%* 19.78%*
Total Return ................. 2.51% 7.03% 12.62% 17.76% 15.88% 14.84% 10.02% 17.44%
</TABLE>

- ----------------
*Annualized

10
<PAGE> 11
INVESTMENT OBJECTIVES, POLICIES AND ASSOCIATED RISK FACTORS OF THE FUNDS

As noted above, the Funds seek to achieve their investment objectives
by investing all of their Assets in Portfolios with investment objectives that
correspond with their own. Each Fund has a different investment objective which
it pursues through the investment policies described below. Since each Fund has
a different investment objective, each can be expected to have different
investment results and to be subject to different market and financial risks.

Diversified has contracted with one or more Subadvisers for each
Portfolio for certain investment advisory services. Diversified and the
Subadviser or Subadvisers for a particular Portfolio are referred to herein
collectively as the "Advisers".

The investment objectives of a Fund or a Portfolio may be changed
without the vote of the holders of the outstanding voting securities of such
Fund or Portfolio. Shareholders of a Fund will receive 30 days' prior written
notice of any change in the investment objective of that Fund or its
corresponding Portfolio. There can be no assurance that any of the investment
objectives of the Funds or the Portfolios will be met.

MONEY MARKET FUND. The investment objective of the Money Market Fund
and the Money Market Portfolio is to provide liquidity and as high a level of
current income as is consistent with the preservation of capital. The Money
Market Fund seeks to achieve its investment objective by investing all of its
Assets in the Money Market Portfolio.

The Money Market Portfolio invests in high quality short-term money
market instruments. Securities in which the Money Market Portfolio invests may
not earn as high a level of current income as long-term or lower quality
securities, which generally have less liquidity, greater market risk and more
fluctuation in market value.

To achieve its investment objective, the Money Market Portfolio invests
in U.S. dollar-denominated short-term money market obligations, including
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, time deposits, bankers' acceptances
and other short-term obligations issued by domestic banks and foreign banks, and
high quality commercial paper and other short-term corporate obligations,
including those with floating or variable rates of interest. In addition, the
Money Market Portfolio may lend its portfolio securities, enter into repurchase
agreements and reverse repurchase agreements, and invest in securities issued by
foreign banks and corporations outside the United States. The Money Market
Portfolio reserves the right to concentrate 25% or more of its total assets in
obligations of domestic banks.

11
<PAGE> 12
In accordance with Rule 2a-7 under the 1940 Act, the Money Market
Portfolio will maintain a dollar-weighted average portfolio maturity of 90 days
or less, purchase only instruments having remaining maturities of 397 days or
less and invest only in U.S. dollar-denominated securities determined in
accordance with procedures established by the Board of Trustees of the Portfolio
Series (the "Board of Trustees") to present minimal credit risks and which are
rated in one of the two highest rating categories for debt obligations by at
least two nationally recognized statistical rating organizations (an "NRSRO")
(or one NRSRO if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Board of Trustees (collectively, "Eligible Securities").

Eligible Securities include "First Tier Securities" and "Second Tier
Securities". First Tier Securities include those that possess a rating in the
highest category in the case of a single-rated security or at least two ratings
in the highest rating category in the case of multiple-rated securities or, if
the securities do not possess a rating, are determined to be of comparable
quality by the Advisers pursuant to the guidelines adopted by the Board of
Trustees. All other Eligible Securities are Second Tier Securities. The Money
Market Portfolio will invest at least 95% of its total assets in First Tier
Securities.

The NRSROs currently rating instruments of the type the Portfolio may
purchase are Moody's Investors Service, Inc., Standard & Poor's Ratings Group,
Duff & Phelps, Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc.
and Thomson BankWatch, Inc., and their rating criteria are described in the
Appendix to the Statement of Additional Information. The Statement of Additional
Information contains further information concerning the rating criteria and
other requirements governing the Portfolio's investments, including information
relating to the treatment of securities subject to a tender or demand feature
and securities deemed to possess a rating based on comparable rated securities
of the same issuer.

In addition, the Portfolio will not invest more than 5% of its total
assets in the securities (including the securities collateralizing a repurchase
agreement) of, or subject to puts (including letters of credit, guaranties or
other credit support) issued by, a single issuer, except that (i) the Portfolio
may invest more than 5% of its total assets in a single issuer for a period of
up to three business days in certain limited circumstances, (ii) the Portfolio
may invest in obligations issued or guaranteed by the U.S. Government without
any such limitation, and (iii) the limitation with respect to puts does not
apply to unconditional puts if no more than 10% of the Portfolio's total assets
is invested in securities issued or guaranteed by the issuer of the
unconditional put. Investments in Second Tier Securities will be limited to 5%
of the Portfolio's total assets, with the investment in any one such issuer
being limited to no more than the greater of 1% of the Portfolio's total assets
or $1,000,000. As to each security, these percentages are measured at the time
the Portfolio purchases the security.

12
<PAGE> 13
The Money Market Portfolio seeks to achieve its investment objective
through investments in the following types of U.S. dollar-denominated money
market instruments.

BANK OBLIGATIONS. The Portfolio may invest in U.S. dollar-denominated
certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations issued by domestic banks and domestic branches
and subsidiaries of foreign banks. Certificates of deposit are
certificates evidencing the obligation of a bank to repay funds
deposited with it for a specified period of time. Such instruments
include Yankee Certificates of Deposit, which are certificates of
deposit denominated in U.S. dollars and issued in the United States by
the domestic branch of a foreign bank. Time deposits are non-negotiable
deposits maintained in a banking institution for a specified period of
time at a stated interest rate. Time deposits which may be held by the
Portfolio are not insured by the Federal Deposit Insurance Corporation
or any other agency of the U.S. Government. The Portfolio will not
invest more than 10% of the value of its net assets in time deposits
maturing in longer than seven days and other instruments which are
illiquid or not readily marketable. The Portfolio may also invest in
certificates of deposit and time deposits issued by foreign banks
outside the United States.

The Portfolio may also invest in bankers' acceptances and other
short-term obligations. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon maturity.
The other short-term obligations may include uninsured, direct
obligations which have either fixed, floating or variable interest
rates.

To the extent the Portfolio's investments are concentrated in the
banking industry, the Portfolio will have correspondingly greater
exposure to the risk factors which are characteristic of such
investments. Sustained increases in interest rates can adversely affect
the availability or liquidity and cost of capital funds for a bank's
lending activities, and a deterioration in general economic conditions
could increase the exposure to credit losses. In addition, the value of
and the investment return on the Fund's shares could be affected by
economic or regulatory developments in or related to the banking
industry, which industry also is subject to the effects of the
concentration of loan portfolios in leveraged transactions and in
particular businesses, and competition within the banking industry, as
well as with other types of financial institutions. The Portfolio,
however, will seek to minimize its exposure to such risks by investing
only in debt securities which are determined to be of high quality.

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<PAGE> 14
U.S. GOVERNMENT AND AGENCY SECURITIES. Securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities include
U.S. Treasury securities, which differ only in their interest rates,
maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial
maturities of greater than ten years. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, for
example, Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the
agency or instrumentality; and others, such as those issued by the
Student Loan Marketing Association, only by the credit of the agency or
instrumentality. While the U.S. Government provides financial support
to such U.S. Government-sponsored agencies or instrumentalities, no
assurance can be given that it will always do so, since it is not so
obligated by law. The Portfolio will invest in such securities only
when the Advisers are satisfied that the credit risk with respect to
the issuer is minimal.

COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The
commercial paper purchased by the Portfolio will consist only of U.S.
dollar-denominated direct obligations issued by domestic and foreign
entities. The other corporate obligations in which the Portfolio may
invest consist of high quality, U.S. dollar-denominated short-term
bonds and notes issued by domestic corporations.

The Portfolio may invest in commercial paper issued by major
corporations in reliance on the exemption from registration afforded by
Section 3(a)(3) of the Securities Act of 1933, as amended (the "1933
Act"). Such commercial paper may be issued only to finance current
transactions and must mature in nine months or less. Trading of such
commercial paper is conducted primarily by institutional investors
through investment dealers, and individual investor participation in
the commercial paper market is very limited.

UNSECURED PROMISSORY NOTES. The Portfolio also may purchase unsecured
promissory notes ("Notes") which are not readily marketable and have
not been registered under the 1933 Act, provided such investments are
consistent with the Portfolio's investment objective. The Notes
purchased by the Portfolio will have remaining maturities of 13 months
or less and will be deemed by the Board of Trustees, or by the Advisers
on behalf of the Board, to present minimal credit risks and will meet
the quality criteria set forth above. The Portfolio will invest no more
than 10% of its net assets in such Notes and in other securities

14
<PAGE> 15
that are not readily marketable (which securities would include
floating and variable rate demand obligations as to which the Portfolio
cannot exercise the demand feature described in the Statement of
Additional Information and as to which there is no secondary market).

RESTRICTED SECURITIES. The Portfolio may invest in securities that are
subject to legal or contractual restrictions on resale. These
securities may be illiquid and, thus, the Portfolio may not purchase
them to the extent that more than 10% of the value of its net assets
would be invested in illiquid securities. However, if a substantial
market of qualified institutional buyers develops pursuant to Rule 144A
under the 1933 Act for such securities held by the Portfolio, the
Portfolio intends to treat such securities as liquid securities in
accordance with procedures approved by the Board of Trustees. To the
extent that for a period of time qualified institutional buyers cease
purchasing such restricted securities pursuant to Rule 144A, the
Portfolio's investing in such securities may have the effect of
increasing the level of illiquidity in the Portfolio during such
period.

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Repurchase
agreements involve the acquisition by the Portfolio of an underlying
debt instrument subject to an obligation of the seller to repurchase,
and the Portfolio to resell, the instrument at a fixed price usually
not more than one week after its purchase. The Portfolio's custodian or
a sub-custodian will have custody of securities acquired by the
Portfolio under a repurchase agreement.

Repurchase agreements may be entered into for the Portfolio with
sellers, which are usually member banks of the Federal Reserve System
or member firms of the New York Stock Exchange (or a subsidiary
thereof). Such transactions afford an opportunity for the Portfolio to
earn a return on available cash with minimal market risk. Certain costs
may be incurred by the Portfolio in connection with the sale of the
securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the securities, realization on
the securities by the Portfolio may be delayed or limited. Repurchase
agreements are considered collateralized loans under the 1940 Act.

The Portfolio may borrow funds for temporary or emergency purposes,
such as meeting larger than anticipated redemption requests, and not
for leverage, and by agreeing to sell portfolio securities to financial
institutions such as banks and broker-dealers and to repurchase them at
a mutually agreed date and price (a "reverse repurchase agreement"). At
the time the Portfolio enters into a reverse repurchase agreement it
will place in a segregated custodial account cash, U.S. Government
securities or high-grade debt obligations having a value equal to the
repurchase price, including accrued interest. Reverse repurchase
agreements involve the risk that the market value of the securities
sold by the

15
<PAGE> 16
Portfolio may decline below the repurchase price of those securities.
Reverse repurchase agreements are considered to be borrowings by the
Portfolio.

FOREIGN SECURITIES. The Portfolio may invest in U.S. dollar-denominated
foreign securities issued outside the United States, such as
obligations of foreign branches and subsidiaries of domestic banks and
foreign banks, including Eurodollar certificates of deposit, Eurodollar
time deposits and Canadian time deposits, commercial paper of Canadian
and other foreign issuers, and U.S. dollar-denominated obligations
issued or guaranteed by one or more foreign governments or any of their
agencies or instrumentalities. Foreign securities may represent a
greater degree of risk than do securities of domestic issuers due to
possible exchange rate fluctuations, possible exchange controls, less
publicly available information, more volatile markets, less securities
regulation, less favorable tax provisions (including possible
withholding taxes), changes in governmental administration or economic
or monetary policy (in the United States or abroad), war or
expropriation. For a complete description of foreign securities the
Portfolio may purchase, see "Investment Policies" in the Statement of
Additional Information.

CERTAIN OTHER OBLIGATIONS. In order to allow for investments in new
instruments that may be created in the future, upon the Trust
supplementing this Prospectus, the Portfolio may invest in obligations
other than those listed previously, provided such investments are
consistent with the Portfolio's investment objective, policies and
restrictions.

The Statement of Additional Information includes a discussion of
additional investment techniques such as zero coupon obligations,
variable rate and floating rate securities, participation interests,
guaranteed investment contracts and when-issued and forward commitment
securities. The Statement of Additional Information also includes a
discussion of nonfundamental investment policies, as well as a listing
of specific investment restrictions which constitute fundamental
policies of the Fund or the Portfolio and cannot be changed without the
approval of the holders of a "majority of the outstanding voting
securities" (as defined in the 1940 Act) of the Fund or the Portfolio,
respectively. See "Investment Restrictions" in the Statement of
Additional Information.

HIGH QUALITY BOND FUND. The investment objective of the High Quality
Bond Fund and the High Quality Bond Portfolio is to provide as high a level of
current income as is consistent with the preservation of capital. The yield of
the High Quality Bond Fund normally is expected to be higher than a money market
fund but lower than a longer-term or lower quality bond fund. Unlike a money
market fund, the Fund does not seek to maintain a stable net asset value and may
not be able to return dollar-for-

16
<PAGE> 17
dollar the money invested. The High Quality Bond Fund seeks to achieve its
investment objective by investing all of its Assets in the High Quality Bond
Portfolio.

The High Quality Bond Portfolio pursues its investment objective by
investing at least 65% of its assets under normal circumstances in high quality
debt securities with short and intermediate maturities (including repurchase
agreements and reverse repurchase agreements).

The Advisers attempt to maintain the Portfolio's "duration" between one
and four years, which means that the Portfolio's overall sensitivity to interest
rates should be slightly more than that of bonds and notes with remaining
average maturities from one to four years. The Portfolio's dollar-weighted
average maturity (or dollar-weighted average life in the case of asset-backed
and mortgage-backed securities) may be longer than four years from time to time,
but will not exceed five years under normal conditions. The Portfolio may hold
individual securities with remaining maturities of up to thirty years.

The Portfolio seeks consistency of return with minimal exposure to
negative total returns on an annual basis. The Advisers' strategy is to position
the Portfolio in those high quality sectors of the fixed income market that
offer the most attractive yields on a risk-adjusted basis. The duration of the
Portfolio will be a function of the security and sector selection process and
market conditions in general. Since the value of fixed income securities
generally fluctuates inversely with changes in interest rates, the value of
securities held by the Fund will tend to decline during periods of rising
interest rates.

The Advisers normally will select only securities having a minimum
long-term quality rating of A- by Standard & Poor's Ratings Group ("S&P") or A3
by Moody's Investors Service, Inc. ("Moody's") will at the time of purchase, or,
in the case of instruments that are not rated or are rated by other agencies
(i.e., Fitch Investors Service, Inc., Duff & Phelps, Inc., etc.) are deemed by
the Advisers to be of similar quality. Money market securities will have a
minimum short-term rating of at least A-1 or P-1 by S&P or Moody's,
respectively, or an equivalent rating by other agencies. The Portfolio may
continue to hold such securities if their ratings are reduced after purchase.

The High Quality Bond Portfolio seeks to achieve its investment
objective through investments in the following types of instruments.

U.S. GOVERNMENT AND AGENCY SECURITIES. The Portfolio may invest in U.S.
Government securities and securities issued or guaranteed by its
agencies or instrumentalities. These securities have varying degrees of
government backing. They may be backed by the credit of the government
as a whole or only by the issuing agency. For example, securities
issued by the Federal Home

17
<PAGE> 18
Loan Mortgage Corporation and the Federal National Mortgage Association
are supported by the agency's right to borrow money from the U.S.
Treasury under certain circumstances. U.S. Treasury bonds, notes and
bills, and some agency securities, such as those issued by the
Government National Mortgage Association, are backed by the full faith
and credit of the U.S. Government as to payment of principal and
interest and are the highest quality government securities. There is no
assurance that the U.S. Government will support obligations of its
agencies unless it is required to do so by law. The Fund itself, and
its share price and yield, are not guaranteed by the U.S. Government.
For additional information on U.S. Government securities, see the
Statement of Additional Information.

The Portfolio may invest a portion of its assets in short-term U.S.
Government securities with remaining maturities of one year or less and
repurchase agreements relating thereto. When the Advisers believe
market conditions warrant a temporary defensive position, the Portfolio
may invest up to 100% of its assets in these instruments.

CORPORATE BONDS. The Portfolio may purchase public or private corporate
bonds, issued by domestic or foreign issuers, that meet the Portfolio's
minimum credit quality criteria at the time of purchase. The corporate
bond market is customarily subdivided into several segments, which
include industrial, public utility, rail and transportation bonds, and
bonds issued by banks and other financial institutions.

YANKEE BONDS AND EURODOLLAR BONDS. The Portfolio may purchase Yankee
and Eurodollar issues that meet its minimum credit quality standards.
Yankee issues are dollar denominated bonds issued in the United States
market by foreign issuers and are, therefore, subject to SEC
regulations. Issuers of yankee bonds include, among others, foreign
corporations, foreign governments and agencies, and multilateral
lending institutions. Eurodollar bonds are fixed income securities that
are denominated in dollars, are underwritten by an international
syndicate, and are sold upon issuance to non-U.S. investors. U.S.-based
investors may purchase eurodollar bonds in the secondary market after a
seasoning period. Eurodollar bonds are not subject to SEC regulations.

MORTGAGE PASS-THROUGHS AND COLLATERALIZED MORTGAGE OBLIGATIONS. The
Portfolio may purchase mortgage and mortgage-related securities such as
pass-throughs, collateralized mortgage obligations, and mortgage
derivatives that meet the Portfolio's minimum credit quality criteria
(collectively, "Mortgage Securities"). Mortgage pass-throughs are
securities that pass through to investors an undivided interest in a
pool of underlying mortgages. These may be issued or guaranteed by U.S.
government agencies, or may consist of whole loans originated and
issued by private limited purpose corporations or conduits.

18
<PAGE> 19
Collateralized mortgage obligation bonds and mortgage derivatives are
obligations of special purpose corporations that are collateralized or
supported by mortgages or mortgage securities such as pass throughs.
Principal prepayments on the underlying mortgages or loans may cause
the Mortgage Securities to be retired substantially earlier than their
stated maturities or final distribution dates, resulting in a loss to
the Portfolio of all or part of the premium, if any, which the
Portfolio may pay when investing in Mortgage Securities.

ASSET-BACKED SECURITIES. The Portfolio may purchase public or private
asset- backed securities of various types, which are fixed income
securities that are collateralized or "backed" by installment
receivables (usually consumer loans) for which some type of credit
enhancement is provided. Asset-backed securities that are eligible for
purchase by the Portfolio include securities backed by automobile
receivables, credit card receivables, home equity loans, manufactured
housing loans, business and recreational vehicle loans, computer
leases, and agricultural equipment loans.

SHORT-TERM INSTRUMENTS. Cash, commercial paper, short-term obligations,
repurchase agreements or other forms of debt securities may be held to
provide a reserve for future purchases of securities during periods of
unusual market conditions or in order to reduce volatility, or as a
temporary defensive measure when the Advisers determine securities
markets to be overvalued. The Portfolio limits its short-term
investments to those U.S. dollar-denominated instruments which are
determined by or on behalf of the Board of Trustees to present minimal
credit risks and which are of "high quality" as determined by a major
rating service (i.e., rated P-1 by Moody's or A-1 by S&P) or, in the
case of instruments which are not rated, are of comparable quality
pursuant to procedures established by the Board of Trustees.
Investments in high quality short-term instruments may, in many
circumstances, result in a lower yield than would be available from
investments in instruments with a lower quality or longer term.

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. The High
Quality Bond Portfolio may enter into repurchase agreements and reverse
repurchase agreements. See "Repurchase Agreements and Reverse
Repurchase Agreements" under Money Market Fund. The Portfolio may
borrow funds for temporary or emergency purposes, such as meeting
larger than anticipated redemption requests, and not for leverage.

RESTRICTED SECURITIES. The Portfolio may purchase securities in the
United States that are not registered for sale under federal securities
laws but which can be resold to institutions under SEC Rule 144A.
Provided that a dealer or institutional trading market in such
securities exists, these restricted securities

19
<PAGE> 20
are treated as exempt from the Portfolio's 15% limit on illiquid
securities. Under the supervision of the Board of Trustees, the
Advisers determine the liquidity of restricted securities and, through
reports from the Advisers, the Board of Trustees will monitor trading
activity in restricted securities. Because Rule 144A is relatively new,
it is not possible to predict how these markets will develop. If
institutional trading in restricted securities were to decline, the
liquidity of the Portfolio could be adversely affected.

OPTIONS AND FUTURES CONTRACTS. The Portfolio may buy and sell options
and futures contracts to manage its exposure to changing interest rates
and securities prices. Some options and futures strategies, including
selling futures, buying puts, and writing calls, hedge the Portfolio's
investments against price fluctuations. Other strategies, including
buying futures, writing puts and buying calls, tend to increase market
exposure. The Portfolio may invest in options (including
over-the-counter options) and futures contracts based on any type of
security or index related to its investments.

Options and futures can be volatile investments, and involve certain
risks. If the Advisers apply a hedge at an inappropriate time or judge
interest rates incorrectly, options and futures strategies may lower
the Fund's return. The costs of hedging are not reflected in the Fund's
yield but are reflected in the Fund's total return. The Fund could also
experience losses if the Portfolio's options and futures positions were
poorly correlated with its other investments, or if it could not close
out its positions because of an illiquid secondary market.

The Portfolio currently does not intend to engage in the writing of
options, except for the purpose of terminating an existing position or
under the limited circumstances described in the Statement of
Additional Information. Nevertheless, the Portfolio has the authority
to write options and may do so in the future if the Advisers determine
that such transactions are in the best interests of the Portfolio.

DELAYED DELIVERY TRANSACTIONS. In order to help ensure the availability
of suitable securities for the Portfolio, the Advisers may purchase
securities for the Portfolio on a "when-issued" or on a "forward
delivery" basis, which means that the obligations would be delivered to
the Portfolio at a future date beyond customary settlement time. Under
normal circumstances, the Portfolio would take delivery of such
securities. In general, the Portfolio would not pay for the securities
until they are received, and would not start earning interest on the
obligations until the contractual settlement date. While awaiting
delivery of the obligations purchased on such basis, the Portfolio
would establish a segregated account consisting of cash, cash
equivalents or high grade liquid debt securities equal to the amount of
its commitments to purchase "when-issued" securities. An increase in
the percentage of the Portfolio's assets committed to the

20
<PAGE> 21
purchase of securities on a "when-issued" basis may increase the
volatility of the Fund's net asset value.

OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Portfolio may also
utilize the following investments and investment techniques and
practices: investments in foreign securities, investments in securities
denominated in foreign currencies, options on futures contracts,
foreign currency exchange transactions and options on foreign
currencies. The Portfolio does not intend to utilize any of these
investments or practices to the extent of more than 5% of its assets.
See the Statement of Additional Information for further information.

INTERMEDIATE GOVERNMENT BOND FUND. The investment objective of the
Intermediate Government Bond Fund is to provide as high a level of current
income as is consistent with the preservation of capital. The yield of the
Intermediate Government Bond Fund normally is expected to be higher than a money
market fund but lower than a longer-term or lower quality bond fund. The
Intermediate Government Bond Fund pursues its investment objective by investing
all of its Assets in the Intermediate Government Bond Portfolio.

The Intermediate Government Bond Portfolio pursues its investment
objective by investing in high quality U.S. Government obligations and high
quality short-term obligations (including repurchase agreements and reverse
repurchase agreements). The Intermediate Government Bond Portfolio normally will
invest at least 65% of its assets in U.S. Government obligations. The Advisers
attempt to maintain the Intermediate Government Bond Portfolio's "duration"
between one and five years, which means that the Intermediate Government Bond
Portfolio's overall sensitivity to interest rates should be similar to that of
bonds and notes with remaining average maturities from one to five years. The
Intermediate Government Bond Portfolio's dollar-weighted average maturity (or
dollar-weighted average life in the case of mortgage-backed securities) may be
longer than five years from time to time, but will not exceed ten years or be
less than 3 years under normal conditions. The Intermediate Government Bond
Portfolio may hold individual securities with remaining maturities of up to
thirty years.

Since the value of fixed-income securities generally fluctuates
inversely with changes in interest rates, the duration of the Intermediate
Government Bond Portfolio will vary to reflect the Advisers' assessments of
prospective changes in interest rates. The Advisers' strategy will be to adjust
the duration of the Intermediate Government Bond Portfolio so that the
Intermediate Government Bond Portfolio may benefit from relative price
appreciation when interest rates decline and may protect capital value when
interest rates rise. The success of this strategy will depend on the Advisers'
ability to manage the Intermediate Government Bond Portfolio through changes in

21
<PAGE> 22
interest rates, and there is a risk that the value of the securities held by the
Intermediate Government Bond Portfolio will decline.

The following is a discussion of the various investments of and
techniques employed by the Intermediate Government Bond Portfolio. Additional
information about the investment policies of the Intermediate Government Bond
Portfolio appears under "Diversified Investors Portfolios" in the Statement of
Additional Information.

U.S. GOVERNMENT AND AGENCY SECURITIES. The Intermediate Government Bond
Portfolio may invest in U.S. Government securities. See "U.S.
Government and Agency Securities" above under Money Market Fund. The
Intermediate Government Bond Portfolio may invest a portion of its
assets in short-term U.S. Government securities with remaining
maturities of one year or less and repurchase agreements relating
thereto. When the Advisers believe market conditions warrant a
temporary defensive position, the Portfolio may invest up to 100% of
its assets in these instruments.

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Repurchase
agreements and reverse repurchase agreements may be entered into by the
Intermediate Government Bond Portfolio. See "Repurchase Agreements and
Reverse Repurchase Agreements" under Money Market Fund. The
Intermediate Government Bond Portfolio may borrow funds for temporary
or emergency purposes, such as meeting larger than anticipated
redemption requests, and not for leverage.

RESTRICTED SECURITIES. The Intermediate Government Bond Portfolio may
invest not more than 15% of its net assets in securities that are
subject to legal or contractual restrictions on resale. See "Restricted
Securities" above under Money Market Fund.

OPTIONS AND FUTURES CONTRACTS. The Intermediate Government Bond
Portfolio may buy and sell options and futures contracts to manage its
exposure to changing interest rates and securities prices. See "Options
and Futures Contracts" above under High Quality Bond Fund.

22
<PAGE> 23
The Intermediate Government Bond Portfolio currently does not intend to
engage in the writing of options, except for the purpose of terminating
an existing position or under the limited circumstances described under
"Diversified Investors Portfolios" in the Statement of Additional
Information. Nevertheless, the Intermediate Government Bond Portfolio
has the authority to write options and may do so in the future if the
Advisers determine that such transactions are in the best interests of
the Intermediate Government Bond Portfolio.

DELAYED DELIVERY TRANSACTIONS. In order to help ensure the availability
of suitable securities for the Intermediate Government Bond Portfolio,
the Advisers may purchase securities for the Intermediate Government
Bond Portfolio on a "when-issued" or on a "forward delivery" basis,
which means that the obligations would be delivered to the Intermediate
Government Bond Portfolio at a future date beyond customary settlement
time. See "Delayed Delivery Transactions" above under the High Quality
Bond Fund.

OTHER INVESTMENT AND INVESTMENT TECHNIQUES. The Intermediate Government
Bond Portfolio may, in each case up to 5% of the Portfolio's assets,
also utilize the following investments and investment techniques and
practices: investments in foreign securities, options on futures
contracts, foreign currency exchange transactions and options on
foreign currencies. See "Diversified Investors Portfolios" in the
Statement of Additional Information for further information.

GOVERNMENT/CORPORATE BOND FUND. The investment objective of the
Government/Corporate Bond Fund and the Government/Corporate Bond Portfolio is to
achieve the maximum total return. The Government/Corporate Bond Fund yield
normally is expected to be higher than a money market fund but lower than a
longer-term or lower quality bond fund. The Government/Corporate Bond Fund seeks
to achieve its investment objective by investing all of its Assets in the
Government/Corporate Bond Portfolio.

The Government/Corporate Bond Portfolio pursues its investment
objective by investing in investment grade debt securities, U.S. Government
obligations, including U.S. Government agency and instrumentality obligations
and collateralized mortgage obligations guaranteed by these agencies and
instrumentalities, and high quality short-term obligations (including repurchase
agreements and reverse repurchase agreements). At least 65% of the Portfolio's
assets is invested in U.S. Government securities, corporate bonds and short-term
instruments.

The Advisers attempt to maintain the Government/Corporate Bond
Portfolio's "duration" between three and ten years, which means that the
Portfolio's overall sensitivity to interest rates should be slightly more than
that of bonds and notes with remaining average maturities from three to fifteen
years. The Government/Corporate

23
<PAGE> 24
Bond Portfolio's dollar-weighted average maturity (or dollar-weighted average
life in the case of mortgage-backed securities) may be longer than fifteen years
from time to time, but will not exceed thirty years under normal conditions.

The Government/Corporate Bond Portfolio may hold individual securities
with remaining maturities of up to thirty years.

Since the value of fixed income securities generally fluctuates
inversely with changes in interest rates, the duration of the Portfolio will
vary to reflect the Advisers' assessments of prospective changes in interest
rates. The Advisers' strategy will be to adjust the duration of the Portfolio so
that the Government/Corporate Bond Portfolio may benefit from relative price
appreciation when interest rates decline and may protect capital value when
interest rates rise. The success of this strategy will depend on the Advisers'
ability to manage the Portfolio through changes in interest rates, and there is
a risk that the value of the securities held by the Portfolio will decline.

The Government/Corporate Bond Portfolio seeks to achieve its investment
objective through investments in the following types of instruments.

U.S. GOVERNMENT AND AGENCY SECURITIES. The Government/Corporate Bond
Portfolio may invest in U.S. Government securities. See "U.S.
Government and Agency Securities" above under Money Market Fund. The
Portfolio may invest a portion of its assets in short-term U.S.
Government securities with remaining maturities of one year or less and
repurchase agreements relating thereto. When the Advisers believe
market conditions warrant a temporary defensive position, the Portfolio
may invest up to 100% of its assets in these instruments.

CORPORATE BONDS. The Government/Corporate Bond Portfolio may purchase
debt securities of United States corporations only if they carry a
rating of at least Baa from Moody's or BBB from S&P or which, if not
rated by these rating agencies, are judged by the Advisers to be of
comparable quality. Securities rated Baa by Moody's or BBB by S&P may
have speculative characteristics. Changes in economic condition or
other circumstances are more likely to lead to a weakened capacity to
make principal and interest payments than is the case for higher grade
securities. See the Appendix to the Statement of Additional Information
for an explanation of these ratings.

FOREIGN SECURITIES. The Government/Corporate Bond Portfolio may invest
in securities of foreign issuers. The Fund's investments in unlisted
foreign securities are subject to the overall restrictions applicable
to investments in illiquid securities. The Advisers do not intend to
concentrate more than 25% of such foreign investments in any one type
of instrument or in any foreign country. Foreign securities may
represent a greater degree of risk than do

24
<PAGE> 25
securities of domestic issuers due to possible exchange rate
fluctuations, possible exchange controls, less publicly available
information, more volatile markets, less securities regulation, less
favorable tax provisions (including possible withholding taxes),
changes in governmental administration or economic or monetary policy
(in the United States or abroad), war or expropriation. Forward foreign
currency exchange contracts may also be entered into for the purchase
or sale of foreign currency solely for hedging purposes against adverse
rate changes. A currency exchange contract allows a definite price in
dollars to be fixed for foreign securities that have been purchased or
sold (but not settled) for the Portfolio. Entering into such exchange
contracts may result in the loss of all or a portion of the benefits
which otherwise could have been obtained from favorable movements in
exchange rates. In addition, entering into such contracts means
incurring certain transaction costs and bearing the risks of incurring
losses if rates do not move in the direct anticipated.

SHORT-TERM INSTRUMENTS. Cash, commercial paper, short-term obligations,
repurchase agreements, bank certificates of deposit or other forms of
debt securities may be held to provide a reserve for future purchases
of securities, during periods of unusual market conditions or in order
to reduce volatility, or as a temporary defensive measure when the
Advisers determine securities markets to be overvalued. See "Short Term
Instruments" above under High Quality Bond Fund.

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. The
Government/Corporate Bond Portfolio may enter into repurchase
agreements and reverse repurchase agreements. See "Repurchase
Agreements and Reverse Repurchase Agreements" under Money Market Fund.
The Portfolio may borrow funds for temporary or emergency purposes,
such as meeting larger than anticipated redemption requests, and not
for leverage.

RESTRICTED SECURITIES. The Government/Corporate Bond Portfolio may
invest not more than 15% of its net assets in securities that are
subject to legal or contractual restrictions on resale. See "Restricted
Securities" above under High Quality Bond Fund.

OPTIONS AND FUTURES CONTRACTS. The Government/Corporate Bond Series may
buy and sell options and futures contracts to manage its exposure to
changing interest rates and securities prices. See "Options and Futures
Contracts" above under High Quality Bond Fund.

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<PAGE> 26
Nevertheless, the Portfolio has the authority to write options and may
do so in the future if the Advisers determine that such transactions
are in the best interests of the Portfolio.

DELAYED DELIVERY TRANSACTIONS. In order to help ensure the availability
of suitable securities for the Government/Corporate Bond Portfolio, the
Advisers may purchase securities for the Portfolio on a "when-issued"
or on a "forward delivery" basis which means that the securities would
be delivered to the Portfolio at a future date beyond customary
settlement times. See "Delayed Delivery Transactions" above under High
Quality Bond Fund.

OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Government/Corporate
Bond Portfolio may also utilize the following investments and
investment techniques and practices: options on futures contracts and
options on foreign currencies. The Portfolio does not intend to utilize
any of these investments or techniques to the extent of more than 5% of
its assets. See the Statement of Additional Information for further
information.

HIGH-YIELD BOND FUND. The investment objective of the High-Yield Bond
Fund is to seek a high level of current income. The High Yield Bond Fund seeks
to achieve its investment objective by investing all of its Assets in the
High-Yield Bond Portfolio.

The High-Yield Bond Portfolio pursues its investment objective by
investing in a diversified portfolio consisting primarily of high-yielding,
fixed-income and zero coupon securities, such as bonds, debentures and notes,
convertible securities and preferred stocks. The Portfolio may invest all or a
substantial portion of its assets in lower-rated debt securities, commonly
referred to as "junk bonds". Such investments may include foreign securities and
obligations issued or guaranteed by the U.S. government, any of its states or
territories, any foreign government or any of their respective subdivisions,
agencies or instrumentalities.

The High-Yield Bond Portfolio normally will invest at least 65% of its
assets in high-yielding, income producing debt securities and preferred stocks,
including convertible and zero coupon securities. Zero coupon securities are
debt securities that pay no cash income but are sold at substantial discounts
from their fact value. Certain zero coupon securities also are sold at
substantial discounts but provide for the commencement of regular interest
payments at a deferred date. The Portfolio may invest up to 35% of its assets in
equity securities, including common stocks, warrants and rights.

Lower-rated debt securities usually are defined as securities rated Ba
or lower by Moody's or BB or lower by S&P. Lower-rated debt securities are
considered speculative and involve greater risk of default or price changes due
to changes in the issuer's creditworthiness than higher-rated securities and are
more sensitive to

26
<PAGE> 27
changes in the issuer's capacity to pay. This is an aggressive approach to
income investing. The 1980s saw a dramatic increase in the use of lower-rated
debt securities to finance highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of future
performance of lower-rated debt securities, especially during period of
economic recession. In fact, from 1989 to 1991, the percentage of lower-rated
debt securities that defaulted rose significantly above prior levels.

Lower-rated debt securities may be thinly traded, which can adversely
affect the prices at which they can be sold and can result in high transaction
costs. If market quotations are not available, these lower-rated debt securities
will be valued in accordance with standards set by the Board of Trustees,
including the use of outside pricing services. Judgment plays a greater role in
valuing lower-rated debt securities than securities for which more extensive
quotations and last-sale information are available. Adverse publicity and
changing investor perceptions may affect the ability of outside pricing services
used by the Portfolio to value its portfolio securities, and the Portfolio's
ability to dispose of the lower-rated bonds. The market prices of lower-rated
debt securities may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates. During an
economic downturn or a prolonged period of rising interest rates, the ability of
issuers of lower-rated debt to service their payment obligations, meet
projected goals, or obtain additional financing may be impaired. The Portfolio
may choose, at its own expense or in conjunction with others, to pursue
litigation or otherwise exercise its rights as a security holder to seek to
protect the interests of security holders if it determines this to be in the
interest of Portfolio investors.

The considerations discussed above for lower-rated debt securities also
are applicable to lower quality unrated debt instruments of all types, including
loans and other direct indebtedness of businesses with poor credit standing.
Unrated debt instruments are not necessarily of lower quality than rated
securities but they may not be attractive to as many buyers.

The High-Yield Bond Portfolio may also seek to achieve its investment
objective through investments in the following types of instruments.

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<PAGE> 28
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. The High-Yield
Bond Portfolio may enter into repurchase agreements and reverse
repurchase agreements. See "Repurchase Agreements and Reverse
Repurchase Agreements" under Money Market Fund. The Portfolio may
borrow funds for temporary or emergency purposes, such as meeting
larger than anticipated redemption requests, and not for leverage.

RESTRICTED SECURITIES. The High-Yield Bond Portfolio may not invest
more than 15% of its net assets in securities that are subject to legal
or contractual restrictions on resale. See "Restricted Securities"
above under High Quality Bond Fund.

OPTIONS AND FUTURES CONTRACTS. The High-Yield Bond Portfolio may buy
and sell options and futures contracts to manage its exposure to
changing interest rates and securities prices. See "Options and Futures
Contracts" above under High Quality Bond Fund.

The Portfolio currently does not intend to engage in the writing of
options, except under the limited circumstances described in the
Statement of Additional Information. Nevertheless, the Portfolio has
the authority to write options and may do so in the future if the
Advisers determine that such transactions are in the best interests of
the Portfolio.

DELAYED DELIVERY TRANSACTIONS. In order to help ensure the availability
of suitable securities for the High-Yield Bond Portfolio, the Advisers
may purchase securities for the Portfolio on a "when-issued" or on a
"forward delivery" basis which means that the securities would be
delivered to the Portfolio at a future date beyond customary settlement
times. See "Delayed Delivery Transactions" above under High Quality
Bond Fund.

OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The High-Yield Bond
Portfolio may also utilize the following investments and investment
techniques and practices: options on futures contracts and options on
foreign currencies. The Portfolio does not intend to utilize any of
these investments or techniques to the extent of more than 5% of its
assets. See the Statement of Additional Information for further
information.

BALANCED FUND. The investment objective of the Balanced Fund and the
Balanced Portfolio is to provide a high total investment return consistent with
a broad mix of stocks, bonds and money market instruments. The Balanced Fund
seeks to achieve its investment objective by investing all of its Assets in the
Balanced Portfolio.

The Balanced Portfolio pursues its investment objective by investing in
a managed mix of common stocks (and/or equivalents including American Depository

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<PAGE> 29
Receipts), preferred stocks, debt securities of U.S. domiciled corporations,
U.S. government securities, commercial paper of U.S. corporations, and bank
obligations. The Advisers will determine the proportions of each type of
investment to achieve an asset mix they believe appropriate for an investor who
desires diversification of investment. The Balanced Portfolio will vary the
proportion of each type of asset purchased according to the Advisers'
interpretations of changes in economic conditions and the sensitivity of each
type of investment to those changes. The Advisers seek to shift emphasis among
stocks, bonds and short-term instruments to maximize participation in positive
markets and preservation of capital in negative markets and otherwise in
response to market conditions.

The Balanced Portfolio's policy is to invest its assets in a broad list
of equity and fixed-income securities, such as common stocks, preferred stocks
and bonds, including short-term obligations. The list may be diversified not
only by companies and industries, but also by type of security. Some
fixed-income securities may also have a right to purchase common stock by means
of a conversion privilege or attached warrants. The Balanced Portfolio may vary
the percentage of assets invested in any one type of security in accordance with
the Advisers' interpretation of economic and market conditions, fiscal and
monetary policy, and underlying securities values. However, at least 25% of the
total assets of the Balanced Portfolio are always invested in fixed-income
senior securities including debt securities and preferred stock. In selecting
common stocks, emphasis is placed on investing in established companies with
market capitalizations of $100,000,000 or more and seasoned management teams.
Most of the Balanced Portfolio's non-convertible long-term debt investments
consist of "investment grade" securities (rated Baa or better by Moody's or BBB
or better by S&P), although unrated debt securities may be purchased and held if
they are judged by the Advisers to be of equivalent quality. Securities rated
Baa by Moody's or BBB by S&P may have speculative characteristics. Changes in
economic conditions or other circumstances may weaken more severely the capacity
of issuers of Baa or BBB securities to make principal and interest payments than
is the case for issuers of higher grade bonds. Less than 5% of the Balanced
Portfolio's investments consist of securities rated Baa by Moody's or BBB by
S&P. For a description of these ratings, see the Appendix to the Statement of
Additional Information.

The Balanced Portfolio may invest a portion of its assets in short-term
U.S. Government securities with remaining maturities of one year or less and
repurchase agreements relating thereto. When the Advisers believe market
conditions warrant a temporary defensive position, the Portfolio may invest up
to 100% of its assets in these instruments or other money market instruments.

EQUITY INCOME FUND. The investment objective of the Equity Income Fund
and the Equity Income Portfolio is to provide a high level of current income
through investment in a diversified portfolio of common stocks with relatively
high current

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yields; capital appreciation is a secondary objective. The Equity Income Fund
seeks to achieve its investment objective by investing all of its Assets in the
Equity Income Portfolio.

The Equity Income Portfolio seeks to achieve its investment objective
by investing primarily in a diversified portfolio of stocks of companies which,
in the opinion of the Advisers, are fundamentally sound financially and which
pay relatively high dividends on a consistent basis. The Advisers attempt to
manage the Portfolio so that it will outperform other equity income funds in
negative markets. As a result of this objective, the Portfolio may underperform
relative to other equity income funds in positive markets. The Portfolio invests
primarily in common stocks and preferred stocks listed on the New York Stock
Exchange and on other national securities exchanges and, to a lesser extent, in
stocks that are traded over-the-counter. The Portfolio also invests in bonds and
short-term obligations as well as securities convertible into common stocks,
preferred stocks, debt securities and short-term obligations. The Portfolio
allocates its investments among different industries and companies, and changes
its portfolio securities for investment considerations and not for trading
purposes.

The Equity Income Portfolio's policy is to invest in a broad list of
equity and fixed-income securities, including short-term obligations. The list
may be diversified not only by companies and industries, but also by type of
security. Some fixed-income securities may also have a call on common stock by
means of a conversion privilege or attached warrants. The Portfolio may vary the
percentage of assets invested in any one type of security in accordance with the
Advisers' interpretation of economic and market conditions, fiscal and monetary
policy, and underlying security values. It is contemplated that most of the
Portfolio's non-convertible long-term debt investments will consist of
"investment grade" securities (rated Baa or better by Moody's or BBB or better
by S&P). Securities rated Baa by Moody's or BBB by S&P may have speculative risk
characteristics. The Portfolio may also invest not more than 25% of its assets
in fixed income securities which either are rated in lower than "investment
grade" categories by either Moody's or S&P or are unrated when, in the opinion
of the Advisers, such an investment presents a greater opportunity to achieve
the Portfolio's investment objectives with comparable risk to an investment in
"investment grade" securities. See the discussion of lower-rated debt securities
above under "High-Yield Bond Fund". For a description of ratings of debt
obligations which may be purchased by the Portfolio, see the Appendix to the
Statement of Additional Information.

GROWTH & INCOME FUND. The investment objective of the Growth & Income
Fund and the Growth & Income Portfolio is to provide current income and capital
appreciation. The Growth & Income Fund seeks to achieve its investment objective
by investing all of its Assets in the Growth & Income Portfolio.

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<PAGE> 31
The Growth & Income Portfolio seeks to achieve its investment objective
by investing primarily in a diversified portfolio of securities selected for
their potential to generate current income or long term capital appreciation. In
general, the objective of the Portfolio is to achieve greater potential for
capital appreciation than an income fund and less price volatility than a growth
fund. The Growth & Income Portfolio invests primarily in common stocks and
preferred stocks listed on the New York Stock Exchange and on other national
securities exchanges and, to a lesser extent, in stocks that are traded
over-the-counter. The Portfolio also invests in bonds and short-term obligations
as well as securities convertible into common stocks, preferred stocks, debt
securities and short-term obligations. The Portfolio allocates its investments
among different industries and companies and changes its portfolio securities
for investment considerations and not for trading purposes. In general, the
Portfolio seeks to invest in growing, financially stable and undervalued
companies.

The Growth & Income Portfolio's policy is to invest in a broad list of
equity and fixed income securities, including short-term obligations. The list
may be diversified not only by companies and industries, but also by type of
security. Some fixed income securities may also have a call on common stock by
means of a conversion privilege or attached warrants. The Portfolio may vary the
percentage of assets invested in any one type of security in accordance with the
Advisers' interpretation of economic and market conditions, fiscal and monetary
policy, and underlying securities values. It is contemplated that most of the
Portfolio's non-convertible long-term debt investments will consist of
"investment grade" securities (rated Baa or better by Moody's or BBB or better
by S&P). However, the Portfolio may also invest not more than 25% of its assets
in fixed income securities which either are rated in lower than "investment
grade" categories by either Moody's or S&P or are unrated when, in the opinion
of the Advisers, such an investment presents a greater opportunity to achieve
the Portfolio's investment objectives with comparable risk to an investment in
"investment grade" securities. Such lower rated or unrated fixed income
securities have speculative risk characteristics. See the discussion of lower
rated debt securities under "High-Yield Bond Fund" above.

EQUITY GROWTH FUND. The investment objective of the Equity Growth Fund
and the Equity Growth Portfolio is to provide a high level of capital
appreciation through investment in a diversified portfolio of common stocks with
potential for above average growth in earnings and dividends; current income is
a secondary objective. The Equity Growth Fund seeks to achieve its investment
objective by investing all of its Assets in the Equity Growth Portfolio.

The Equity Growth Portfolio seeks to achieve its investment objective
by investing primarily in a diversified portfolio of common stocks, but may also
invest in other types of securities such as preferred stocks, convertible and
non-convertible bonds, warrants and foreign securities including American
Depository Receipts ("ADRs"). Under normal circumstances, at least 65% of the
assets of the Portfolio

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<PAGE> 32
are invested in equity securities. This is a fundamental investment policy and
may not be changed without investor approval. The Equity Growth Portfolio
invests primarily in stocks of companies that have a market value of all their
issued and outstanding common stock of $10 to $15 billion and preferred stocks
listed on the New York Stock Exchange and on other national securities exchanges
and, to a lesser extent, in stocks that are traded over-the-counter. The
Portfolio also invests in bonds and short-term obligations as well as securities
convertible into common stocks, preferred stocks, debt securities and short-term
obligations. The Portfolio allocates its investments among different industries
and companies, and changes its portfolio securities for investment
considerations and not for trading purposes.

The Equity Growth Portfolio's policy is to invest in a broad list of
equity and fixed-income securities, including short-term obligations. The list
may be diversified not only by companies and industries, but also by type of
security. Some fixed-income securities may also have a call on common stock by
means of a conversion privilege or attached warrants. The Portfolio may vary the
percentage of assets invested in any one type of security in accordance with the
Adviser's interpretation of economic and market conditions, fiscal and monetary
policy, and underlying security values. It is contemplated that most of the
Portfolio's non-convertible long-term debt investments will consist of
"investment grade" securities (rated Baa or better by Moody's or BBB or better
by S&P). However, the Portfolio may also invest not more than 25% of its assets
in fixed income securities which either are rated in lower than "investment
grade" categories by either Moody's or S&P or are unrated when, in the opinion
of the Advisers, such an investment presents a greater opportunity to achieve
the investment objectives with comparable risk to an investment in "investment
grade" securities. Such lower rated or unrated fixed income securities have
speculative risk characteristics. See the discussion of lower rated debt
securities under "High Yield Bond Fund" above.

SPECIAL EQUITY FUND. The investment objective of the Special Equity
Fund and the Special Equity Portfolio is to provide a high level of capital
appreciation through investment in a diversified portfolio of common stocks of
small to medium size companies. The Special Equity Fund is designed for
investors in search of substantial long-term growth who can accept above-average
stock market risk and little or no current income. The Special Equity Fund seeks
to achieve its investment objective by investing all of its Assets in the
Special Equity Portfolio.

The Special Equity Portfolio seeks to achieve its investment objective
by investing primarily in a diversified portfolio of stocks of small to medium
size companies which, in the opinion of the Advisers, will present an
opportunity for significant increases in earnings and/or value, without
consideration for current income. The Portfolio's primary equity investments
will be common stocks of small and medium sized U.S. companies with market
capitalizations of less than $2 billion. Multiple managers are used to control
the volatility often associated with investments

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in small to medium size companies and to maximize opportunities in positive
markets. The Portfolio may also invest in bonds and short-term obligations as
well as securities convertible into common stocks, preferred stocks, debt
securities and short-term obligations. The Special Equity Portfolio allocates
its investments among different industries and companies, and changes its
portfolio securities for investment considerations and not for trading purposes.

While the Special Equity Portfolio's policy is to invest its assets
primarily in common stocks with potential for above average growth in earnings,
appreciation may be sought in other types of securities such as preferred
stocks, convertible and non-convertible bonds, warrants and foreign securities
including American Depository Receipts. The Special Equity Portfolio may vary
the percentage of assets invested in any one type of security in accordance with
the Advisers' interpretation of economic and market conditions, fiscal and
monetary policy, and underlying securities values. In selecting stocks, emphasis
is placed on investing in companies with small to medium market capitalizations,
i.e., the market value of all issued and outstanding common stock of the company
will be less than $2 billion. Investing in equity securities of small to medium
companies involves risks not typically associated with investment in comparable
securities of large companies. Such smaller and medium companies may have narrow
product lines and limited financial and managerial resources. Since the market
for the equity securities of small and medium companies is often characterized
by less information and liquidity than that for the equity securities of large
companies, securities of such small and medium companies may be subject to more
abrupt or erratic market movements than securities of large companies or market
averages in general. Therefore, an investment in the Special Equity Fund may be
subject to greater declines in value than an investment in an equity fund
investing in the equity securities of large companies. It is contemplated that
most of the Special Equity Portfolio's non-convertible long-term debt
investments will consist of "investment grade" securities (rated Baa or better
by Moody's or BBB or better by S&P). However, the Special Equity Portfolio may
also invest not more than 25% of its assets in fixed income securities which
either are rated in lower than "investment grade" categories by either Moody's
or S&P or are unrated when, in the opinion of the Advisers, such an investment
presents a greater opportunity to achieve the Special Equity Portfolio's
investment objectives with comparable risk to an investment in "investment
grade" securities. Such lower rated or unrated fixed income securities have
speculative risk characteristics. See the discussion of lower rated debt
securities under "High-Yield Bond Fund" above.

INTERNATIONAL EQUITY FUND. The investment objective of the
International Equity Fund is to provide a high level of long-term capital
appreciation through investment in a diversified portfolio of securities of
foreign issuers. The International Equity Fund seeks to achieve its investment
objective by investing all of its Assets in the International Equity Portfolio.

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<PAGE> 34
The International Equity Portfolio seeks to achieve its investment
objective by investing primarily in foreign securities. Foreign securities are
defined as securities of issuers, wherever organized, which trade solely on a
foreign exchange or over-the-counter market, or, in the judgment of the
Advisers, have their principal activities outside of the United States. In
determining whether an issuer's principal activities and interests are outside
the United States, the Advisers will look at such factors as the location of its
assets, operations, facilities, personnel, sales and earnings. Under normal
circumstances, at least 65% of the assets of the Portfolio are invested in
foreign equity securities. The Advisers will purchase securities of companies in
a minimum of 3 countries outside the United States.

The Advisers use an approach to investing looking to identify
fundamental values in stocks its selects; further, when allocating the
Portfolio's investments among geographic regions and individual countries, the
Advisers consider various criteria, such as prospects for relative economic
growth among countries, expected levels of inflation, government policies
influencing business conditions, and the outlook for currency relationships. The
Portfolio expects to invest most of its assets in securities of issuers located
in developed countries in these geographic areas: Canada, the Far East,
Australia and Europe.

The International Equity Portfolio may invest up to 10% of its assets
in securities of issuers in the world's emerging markets. Countries with
emerging markets include those that have an emerging stock market as defined by
the International Finance Corporation, those with low-to middle-income economies
according to the World Bank, and those listed in World Bank publications as
developing. While the Advisers believe that these investments present the
possibility for significant growth over the long-term, they also entail
significant risks. Many investments in emerging markets can be considered
speculative, and their prices can be much more volatile than those in the more
developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies.

The International Equity Portfolio may invest in all types of
securities, most of which are denominated in foreign currencies. While the
Advisers expect that opportunities for long term capital appreciation will come
primarily from common stocks, securities convertible into common stock,
non-convertible preferred stocks and depository receipts for these securities,
the Portfolio may also invest in any type or quality of debt securities if the
Advisers believe that doing so may result in long term growth. In addition, the
Portfolio may invest in high-yielding, lower rated debt securities. See the
discussion of lower rated debt securities under "High-Yield Bond Fund" above.
Forward foreign currency exchange contracts may also be entered into for the
purchase or sale of foreign currency solely for hedging purposes against adverse
rate changes on both a long and short term basis. A currency exchange contract
allows a definite price in dollars to be fixed for foreign securities that have

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<PAGE> 35
been purchased or sold (but not settled) for the Portfolio. Entering into such
exchange contracts may result in the loss of all or a portion of the benefits
which otherwise could have been obtained from favorable movements in exchange
rates. In addition, entering into such contracts means incurring certain
transaction costs and bearing the risk of incurring losses if rates do not move
in the direction anticipated.

Investments in foreign equity and debt securities involve increased or
additional risks from those encountered when investing in securities of domestic
issuers. The Advisers evaluate the risks and opportunities when investing in
particular foreign securities. Such risks include (1) currency fluctuations; (2)
restrictions on, and costs associated with, the exchange of currencies; (3) the
difficulty in obtaining or enforcing a court judgment abroad; (4) reduced levels
of publicly available information concerning issuers; (5) restrictions on
foreign investment in other jurisdictions; (6) reduced levels of governmental
regulation of foreign securities markets; (7) difficulties in effecting the
repatriation of capital invested abroad; (8) difficulties in transaction
settlements and the effect of this delay on shareholder equity; (9) foreign
withholding taxes; (10) political, economic, and similar risks, including
expropriation and nationalization; (11) different accounting, auditing, and
financial standards; (12) price volatility; and (13) the diverse structure and
liquidity of various countries and regions

CERTAIN INVESTMENT TECHNIQUES AND RESTRICTIONS

Balanced Fund, Equity Income Fund, Growth & Income Fund, Equity Growth
Fund, Special Equity Fund and International Equity Fund. Following is a
description of certain investment techniques employed by the Balanced Portfolio,
Equity Income Portfolio, Growth & Income Portfolio, Equity Growth Portfolio,
Special Equity Portfolio and International Equity Portfolio and certain types of
securities invested in by those Portfolios and associated risks For information
relating to certain of these techniques and restrictions and how they relate to
the Money Market Fund, High Quality Bond Fund, Intermediate Government Bond Fund
and Government/Corporate Bond Fund, see "Investment Objectives and Policies of
the Funds" above.

OPTIONS AND FUTURES CONTRACTS. Each Portfolio may enter into
transactions in futures contracts, options on futures contracts, options on
securities indexes and options on securities, for the purpose of hedging each
Portfolio's securities, which would have the effect of reducing the volatility
of its net asset value. In general, each such transaction involves the
establishment of a position which is expected to move in a direction opposite to
that of the security or securities being hedged.

For example, each Portfolio may sell futures contracts, or purchase put
options on futures contracts, securities indexes or securities for the purpose
of protecting against an anticipated decline in the value of securities held by
that Portfolio. In the

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<PAGE> 36
event that such decline occurs, and the hedging transaction is successful, the
reduced value of portfolio securities will be offset, in whole or in part, by a
corresponding gain on the futures or option position. Conversely, when the
Portfolio is not fully invested in the securities market, and it expects a
significant market advance, it may purchase futures contracts or call options on
futures contracts, securities indexes or securities in order to gain rapid
market exposure that may in part or entirely offset increases in the cost of
securities that that Portfolio intends to purchase.

The Statement of Additional Information includes further information
about the transactions in futures and option contracts that may be entered into
by each Portfolio.

Gain or loss to each Portfolio on transactions in security index
futures or options will depend on price movements in the stock market generally
(or in a particular industry or segment of the market), rather than price
movements of individual securities. A securities index assigns relative values
to the securities included in the index and the index fluctuates with changes in
the market values of the securities so included. Some securities index futures
or options are based on broad market indexes, such as the Standard & Poor's 500
or the New York Stock Exchange Composite Index. In contrast, certain exchanges
offer futures or options on narrower market indexes, such as the Standard &
Poor's 100 or indexes based on an industry or market segment, such as oil and
gas stocks. Options on indexes and options on securities are traded on
securities exchanges regulated by the SEC. Futures contracts and options on
futures contracts are traded only on designated contract markets regulated by
the Commodity Futures Trading Commission and through a registered futures
commission merchant which is a member of such contract market. A commission must
be paid on each completed purchase and sale transaction. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees
performance between the clearing members which are parties to each contract.

Each Portfolio currently does not intend to engage in the writing of
options, except for the purpose of terminating an existing position or under the
limited circumstances described in the Statement of Additional Information.
Nevertheless, each Portfolio has the authority to write options and may do so in
the future if the Advisers determine that such transactions are in the best
interests of the Fund.

SHORT-TERM INSTRUMENTS. Each of the Balanced Portfolio, Equity Income
Portfolio, Growth & Income Portfolio, Equity Growth Portfolio and Special Equity
Portfolio may invest in cash, commercial paper, short-term obligations,
repurchase agreements or other forms of debt securities (including, without
limitation, a short-term investment fund investing in any of such securities).
See "Short-Term Instruments" above under High Quality Bond Fund.

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REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Each of the
Balanced Portfolio, Equity Income Portfolio, Growth & Income Portfolio, Equity
Growth Portfolio, Special Equity Portfolio and International Equity Portfolio
may enter into repurchase agreements and reverse repurchase agreements and may
borrow funds for temporary or emergency purposes, such as meeting larger than
anticipated redemption requests, and not for leverage. See "Repurchase
Agreements and Reverse Repurchase Agreements" above under Money Market Fund.

RESTRICTED SECURITIES. Each of the Balanced Portfolio, Equity Income
Portfolio, Growth & Income Portfolio, Equity Growth Portfolio, Special Equity
Portfolio and International Equity Portfolio may not invest more than 15% of its
net assets in securities that are subject to legal or contractual restrictions
on resale. See "Restricted Securities" above under High Quality Bond Fund.

DELAYED DELIVERY TRANSACTIONS. In order to help insure the availability
of suitable securities for each of the Balanced Portfolio, Equity Income
Portfolio, Growth & Income Portfolio, Equity Growth Portfolio, Special Equity
Portfolio and International Equity Portfolio, the Advisers may purchase
securities for each such Portfolio on a "when-issued" or on a "forward delivery"
basis. See "Delayed Delivery Transactions" above under High Quality Bond Fund.

Changes to the securities of each Portfolio are generally made without
regard to the length of time a security has been held, or whether a sale would
result in the recognition of a profit or loss. Therefore, the rate of portfolio
turnover is not a limiting factor to trading when such trading is deemed
appropriate. Each Portfolio engages in trading if it believes a transaction net
of costs (including custodian charges) will help it achieve its investment
objective. The portfolio turnover rate for each Portfolio in 1994 is set forth
above under "Condensed Financial Information". The amount of brokerage
commissions and realized capital gains will tend to increase as the level of
portfolio activity increases. The primary consideration in placing portfolio
security transactions with broker-dealers for execution is to obtain, and
maintain the availability of, execution at the most favorable prices and in the
most effective manner possible. See "Portfolio Transactions and Brokerage
Commissions" in the Statement of Additional Information.

Balanced Fund, Equity Income Fund, Growth & Income Fund, Equity Growth
Fund and Special Equity Fund. Each such Portfolio's current policy is not to
invest more than 25% of its assets in securities of foreign issuers, including
investments in sponsored American Depository Receipts ("ADRs"). ADRs are
receipts typically issued by an American Bank or trust company evidencing
ownership of the underlying foreign securities. The Advisers do not intend to
concentrate more than 25% of such foreign investments in any one type of
instrument or in any foreign country. Each Portfolio's investments in unlisted
foreign securities, not including ADRs, are subject to the overall restrictions
applicable to investments in illiquid securities. Foreign

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<PAGE> 38
securities, including ADRs, may represent a greater degree of risk than do
securities of domestic issuers due to possible exchange rate fluctuations,
possible exchange controls, less publicly available information, more volatile
markets, less securities regulation, less favorable tax provisions (including
possible withholding taxes), changes in governmental administration or economic
or monetary policy (in the United States or abroad), war or expropriation. Each
Portfolio may invest up to 5% of its assets in closed-end investment companies
which primarily hold foreign securities. Forward foreign currency exchange
contracts may also be entered into for the purchase or sale of foreign currency
solely for hedging purposes against adverse rate changes. A currency exchange
contract allows a definite price in dollars to be fixed for foreign securities
that have been purchased or sold (but not settled) for each Portfolio. Entering
into such exchange contracts may result in the loss of all or a portion of the
benefits which otherwise could have been obtained from favorable movements in
exchange rates. In addition, entering into such contracts means incurring
certain transaction costs and bearing the risk of incurring losses if rates do
not move in the direction anticipated.

All Funds. As "diversified" funds, no more than 5% of the assets of any
Portfolio may be invested in the securities of one issuer (other than U.S.
Government securities), except that up to 25% of each Portfolio's assets may be
invested without regard to this limitation. No Portfolio will invest more than
25% of its assets in the securities of issuers in any one industry. These are
fundamental investment policies which may not be changed without investor
approval. As a non-fundamental operating policy, no more than 15% (10% in the
case of the Money Market Portfolio) of the net assets of any Portfolio may be
invested in (i) securities the resale of which are subject to legal or
contractual restrictions is restricted under federal securities laws and (ii)
illiquid or not readily marketable securities (including repurchase agreements
maturing in more than seven days). Additional fundamental investment and
operating policies of the Portfolios are contained in the Statement of
Additional Information.

LENDING OF PORTFOLIO SECURITIES. The Portfolios may lend their
portfolio securities to brokers, dealers and other financial organizations. By
lending its securities, a Portfolio can increase its income by continuing to
receive interest on the loaned securities as well as by either investing the
cash collateral in short-term securities or obtaining yield in the form of
interest paid when U.S. Government obligations are used as collateral. There may
be risks of delay in receiving additional collateral or risks of delay in
recovery of the securities or even loss of rights in the collateral should the
borrower of the securities fail financially. A Portfolio will adhere to the
following conditions whenever its securities are loaned: (i) the Portfolio must
receive at least 100% cash collateral or equivalent securities from the
borrower; (ii) the borrower must increase this collateral whenever the market
value of the loaned securities including accrued interest exceeds the level of
the collateral; (iii) the Portfolio must be able to terminate the loan at any
time; (iv) the Portfolio must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned

38
<PAGE> 39
securities, and any increase in market value; (v) the Portfolio may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower. However, if a material event
adversely affecting the loaned securities were to occur, the Portfolio would
terminate the loan and regain the right to vote the securities.

HUB & SPOKE(R) STRUCTURE

The Trust and the Portfolio Series have licensed certain proprietary
rights, know-how and financial services referred to as Hub and Spoke(R) from
Signature Financial Group, Inc. ("Signature"). The Trust invests in the
Portfolio Series through Signature's Hub and Spoke(R) mutual fund method. Hub
and Spoke(R) employs a two-tier, master/feeder fund structure. Hub and Spoke(R)
is a registered service mark of Signature.

In addition to selling beneficial interests to the Trust, the Portfolio
Series may sell beneficial interests of its Portfolios to other mutual funds,
insurance company separate accounts, collective investment vehicles or
institutional investors. Such investors will invest in the Portfolios on the
same terms and conditions as the Funds and will pay a proportionate share of the
Portfolios' expenses. However, the other investors investing in such Portfolios
are not required to sell their shares at the same public offering price as the
Funds due to variations in sales commissions and other operating expenses.
Therefore, all investors should be aware that these differences may result in
differences in returns experienced by investors in the different entities that
invest in each Portfolio. Information concerning other holders of interests in
the Portfolios is available from Diversified at (914) 697-8000.

The investment objective of a Fund may be changed without the approval
of the Fund's shareholders, but not without written notice thereof to
shareholders thirty days prior to implementing the change. If there were a
change in a Fund's investment objective, shareholders should consider whether
that Fund remains an appropriate investment in light of their then-current
financial positions and needs. The investment objective of a Portfolio may also
be changed without the approval of the investors in that Portfolio, but not
without written notice thereof to the investors in that Portfolio (and notice by
the Trust to shareholders of the Fund invested in that Portfolio) thirty days
prior to implementing the change. There can, of course, be no assurance that the
investment objective of either a Fund or a Portfolio will be achieved. See
"Investment Restrictions" herein and in the Statement of Additional Information
for a description of the fundamental policies of the Funds and the Portfolios
that cannot be changed without approval by the holders of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of the Funds or
Portfolios, respectively. Except as stated otherwise, all investment guidelines,
policies and restrictions described herein and in the Statement of Additional
Information are nonfundamental.

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<PAGE> 40
Smaller entities investing in a Portfolio may be materially affected by
the actions of larger entities investing in that Portfolio. For example, if a
large fund withdraws from a Portfolio, the remaining investors may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, the affected Portfolio may become less diverse, resulting in
increased portfolio risk. (However, this possibility also exists for any type of
collective investment vehicle which has institutional or other large investors.)
Also, investors with a greater pro rata ownership in a Portfolio could have
effective voting control of the operations of that Portfolio. Whenever the Trust
is requested to vote on matters pertaining to a Portfolio (other than a vote to
continue a Portfolio upon the withdrawal of an investor in the Portfolio), the
Trust will hold a meeting of shareholders of the affected Funds and will cast
all of its votes in the same proportion as the votes of the Fund's shareholders.
Fund shareholders who do not vote will not affect the Trust's votes at the
Portfolio meeting. The percentage of the Trust's votes representing Fund
shareholders not voting will be voted by the Trustees of the Trust in the same
proportion as the Fund shareholders who do, in fact, vote. Certain changes in
the investment objectives, policies or restrictions of a Portfolio may require
that the Trust withdraw a Fund's interest in that Portfolio. Any such withdrawal
could result in a distribution "in kind" of portfolio securities (as opposed to
a cash distribution from the series). If securities are distributed, a Fund
could incur brokerage or other charges in converting the securities to cash. In
addition, the distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of a Fund. Notwithstanding the
above, there are other means for meeting shareholders redemption requests such
as temporary borrowings.

The Trust may withdraw the investment of a Fund from its corresponding
Portfolio at any time, if the Board of Trustees of the Trust determines that it
is in the best interests of the Fund to do so. Upon any such withdrawal, the
Board of Trustees of the Trust would consider what action might be taken,
including the investment of all the Assets of a Fund in another pooled
investment entity having the same investment objective as the Fund or the
retention of an investment adviser to manage the Fund's assets in accordance
with the investment policies described herein. In the event the event the
Trustees of the Trust were unable to find a substitute investment company in
which to invest the Fund's assets and were unable to secure directly the
services of an investment adviser and investment manager, the Trustees would
determine the best course of action.

MANAGEMENT OF THE TRUST AND PORTFOLIO SERIES

The Trust has not retained the services of an investment adviser since
the Trust seeks to achieve the investment objective of each Fund by investing
all of the Assets of each Fund in a corresponding Portfolio. The respective
Boards of Trustees of the Trust and of the Portfolio Series provide broad
supervision over the affairs of the Trust and of the Portfolio Series,
respectively. The Trustees of the Trust who are not

40
<PAGE> 41
"interested persons" of the Trust are separate from and independent from the
Trustees of the Portfolio Series who are not "interested persons" of the
Portfolio Series. For further information about the Trustees and officers of the
Trust and the Portfolio Series see "Management of the Trust and Portfolio
Series" in the Statement of Additional Information. A majority of each of the
Trust's and the Portfolio Series' Trustees are not affiliated with the Advisers.

Investment Advisory Services

Subject to such policies as the Board of Trustees of the Portfolio
Series may determine and pursuant to Investment Advisory Agreements (the
"Advisory Agreements") with the Portfolio Series with respect to each Portfolio,
Diversified manages the assets of each Portfolio in accordance with the
investment policies approved by the Board of Trustees. Subject to such policies,
Diversified provides general investment advice to each Portfolio. For its
services under the Advisory Agreements, Diversified receives from each Portfolio
fees accrued daily and paid monthly at an annual rate equal to the percentages
specified in the table below of the average daily net assets. Diversified is
currently waiving a portion of its investment advisory fee. Investment
management decisions are taken by a committee of Diversified's personnel and not
by a particular individual.

Management's discussion of the Funds' performance for the fiscal year
ended December 31, 1994 is included in the Funds' Annual Report to Shareholders,
copies of which may be obtained free of charge from the Funds' Distributor.

For each Portfolio, Diversified has entered into an Investment
Subadvisory Agreement (each a "Subadvisory Agreement") with the Subadvisers
listed in the table below (each a "Subadviser", and collectively the
"Subadvisers"). For its services under each Subadvisory Agreement, the
Subadvisers receive a fee from Diversified at an annual rate equal to the
percentages specified in the table below of the corresponding Portfolio's
average net assets. Each fee will be accrued monthly by multiplying the
arithmetic average of the beginning and ending monthly net assets in the
Portfolio by the fee schedule and dividing by 12. Each fee will be paid on a
quarterly basis.

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<PAGE> 42
<TABLE>
<CAPTION>
Compen-
Diversified Investors Portfolio sation Rate (%)
Portfolio Subadvisers Adviser(1) Subadvisers
- --------- ----------- ---------- -----------
<S> <C> <C> <C>
Money Market Portfolio Capital Management 0.25 0.05
Group

High Quality Bond Portfolio Merganser Capital 0.35 (2)
Management Corporation

Intermediate Government Capital Management 0.35 0.15
Bond Portfolio Group

Government/Corporate Capital Management 0.35 0.15
Bond Portfolio Group

High-Yield Bond Portfolio Delaware Investment Advisers 0.55 (3)

Balanced Portfolio Institutional Capital 0.45 (4)
Corporation

Equity Income Portfolio Asset Management 0.45 0.25
Group

Growth & Income Portfolio Putnam Advisory Company, 0.60 (5)
Inc.

Equity Growth Portfolio Jundt Associates, Inc. 0.70 0.625

Special Equity Portfolio (6) 0.80 0.50

International Equity Portfolio Capital Guardian Trust 0.75 (7)
Company
</TABLE>

(1)The Adviser is currently waiving a portion of its fee. See "Fees
and Expenses" on page ___ for a discussion of the fee waivers currently in
effect.

(2)0.50% on the first $10,000,000 in assets, 0.375% on the next
$15,000,000 in assets, 0.25% on the next $75,000,000 in assets and 0.1875% on
all assets in excess of $100,000,000.

(3)0.40% on the first $20,000,000 in assets, 0.30% on the next
$20,000,000 in assets and 0.20% on assets in excess of $40,000,000.

(4)0.55% on the first $25,000,000 in assets, 0.45% on the next
$25,000,000 in assets and 0.35% on assets in excess of $50,000,000.

(5)0.30% on the first $10,000,000 in assets, 0.20% on assets in excess
of $100,000,000.

(6)The Special Equity Portfolio has four Subadvisers: Pilgrim Baxter &
Associates, Ltd.; Ark Asset Management Co., Inc.; Liberty Investment Management,
Inc.; and Westport Asset Management, Inc.

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<PAGE> 43
(7)0.75% on the first $25,000,000 in assets, 0.60% on the next
$25,000,000 to $50,000,000 in assets, 0.425% on the next $50,000,000 to
$250,000,000 in assets and 0.375% on all assets in excess of $250,000,000.

It is the responsibility of a Subadviser to make the day-to-day
investment decisions of the Portfolio and to place the purchase and sales orders
for securities transactions of such Portfolio, subject in all cases to the
general supervision of Diversified. Each Subadviser makes the investment
selections for its respective Portfolio consistent with the guidelines and
directions set by Diversified and the Board of Trustees of the Portfolio Series.
Each Subadviser furnishes at its own expense all services, facilities and
personnel necessary in connection with managing the corresponding Portfolio's
investments and effecting securities transactions for a Portfolio.

Diversified has entered into separate Subadvisory Agreements with
respect to each of the Money Market Portfolio, Intermediate Government Bond
Portfolio and Government/Corporate Bond Portfolio with Capital Management Group,
a division of 1740 Advisers, Inc., a wholly-owned subsidiary of The Mutual Life
Insurance Company of New York ("MONY"). The address of Capital Management Group
is 1740 Broadway, New York, New York 10019. Total assets under management by
Capital Management Group at December 31, 1994 were approximately $565 million,
all of which were assets of registered investment companies. Investment
management decisions of Capital Management Group are made by committee and not
by managers individually.

Diversified has entered into a Subadvisory Agreement with respect to
the Equity Income Portfolio with Asset Management Group, a division of 1740
Advisers, Inc. a wholly-owned subsidiary of MONY. The address of Asset
Management Group is 1740 Broadway, New York, New York 10019. Total assets under
management by Asset Management Group at December 31, 1994 were approximately
$730 million, $635 million of which were assets of registered investment
companies. Investment management decisions of Asset Management Group are made by
committee and not by managers individually.

Diversified has entered into a Subadvisory Agreement with respect to
the High Quality Bond Portfolio with Merganser Capital Management Corporation
("Merganser). Merganser was formed in September 1987 and is owned by certain of
its employees. Total assets under management for all institutional bond clients
at December 31, 1994 were approximately $1.3 billion, $144 million of which were
assets of registered investment companies. The principal business address of
Merganser is One Cambridge Center, Cambridge, Massachusetts 02142. Investment
management decisions of Merganser are made by committee and not by managers
individually.

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<PAGE> 44
Diversified has entered into a Subadvisory Agreement with respect to
the High-Yield Bond Portfolio with Delaware Investment Advisers (a division of
Delaware Management Company, Inc.). ("Delaware"). Delaware was formed in
February 1985 and is owned by Lincoln National Corp. Total assets under
management for all high-yield bond clients at December 31, 1994 were
approximately $2.5 billion, $1.2 billion of which were assets of registered
investment companies. The principal business address of Delaware is 2005 Market
Street, Philadelphia, Pennsylvania 19103. Investment management decisions of
Delaware are made by committee and not by managers individually.

Diversified has entered into a Subadvisory Agreement with respect to
the Balanced Portfolio with Institutional Capital Corporation ("Institutional
Capital"). Institutional Capital was formed in January 1970 and is owned by
certain of its employees. Total assets under management for all balanced clients
at December 31, 1994 were approximately $448 million, all of which were assets
of registered investment companies. The principal business address of
Institutional Capital is 303 West Madison Street, Chicago, IL 60606. Investment
management decisions of Institutional Capital are made by committee and not by
managers individually.

Diversified has entered into a Subadvisory Agreement with respect to
the Growth & Income Portfolio with Putnam Advisory Company, Inc. ("Putnam").
Putnam was formed in 1937 and is owned by Marsh & McLennon Companies, Inc. The
principal address of Putnam is One Post Office Square, Boston, MA 02109. Total
assets under management for growth and income clients at December 31, 1994 were
approximately $2.9 billion, $1.2 billion of which were assets of registered
investment companies. Investment management decisions of Putnam are made by
committee and not by managers individually.

Diversified has entered into a Subadvisory Agreement with respect to
the Equity Growth Portfolio with Jundt Associates, Inc. ("Jundt"). Jundt was
formed in December 1972 and is owned by certain of its employees. Total assets
under management for all core equity clients at December 31, 1994 were
approximately $2.6 billion, $438 million of which were assets of registered
investment companies. The principal business address of Jundt is 1550 Utica
Avenue South, Suite 950, St. Louis Park, MN 55416. Investment management
decisions of Jundt are made by committee and not by managers individually.

Diversified has entered into a Subadvisory Agreement with respect to
the International Equity Portfolio with Capital Guardian Trust Company ("CGTC").
CGTC was formed in 1968 and is owned by The Capital Group Companies, Inc. The
principal address of CGTC is 333 South Hope Street, Los Angeles, California
90071. Total assets under management for all international equity clients by
CGTC at December 31, 1994 were approximately $10.4 billion, and total assets
under management of registered investment companies for which CGTC acts as
subadviser

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<PAGE> 45
was $396 million as of that date. CGTC uses a system of multiple portfolio
managers pursuant to which the Portfolio is divided into segments that are
assigned to individual portfolio managers. With investment guidelines, each
portfolio manager makes individual decisions as to company, country, industry,
timing and percentage based on extensive field research and direct company
contact."

With respect to the Special Equity Portfolio, Diversified has entered
into Subadvisory Agreements with four Subadvisers as follows:

* ARK Asset Management Co., Inc. ("ARK") was formed in July 1989 and is
owned by certain employees of ARK Asset Holdings, Inc. Total assets under
management for all small capitalization clients at December 31, 1994 were
approximately $1.0 billion, $200 million of which were assets of registered
investment companies. The principal business address of ARK is 55 Water Street,
New York, NY 10041.

* Liberty Investment Management, Inc. ("Liberty") was formed in 1994
and is owned by certain of its employees. Liberty succeeded to certain of the
investment management businesses of Eagle Asset Management, Inc. Total assets
under management for all equity clients at December 31, 1994 were approximately
$397 million, $99 million of which were assets of registered investment
companies. The principal business address of Liberty is 880 Carillon Parkway,
St. Petersburg, FL 33716.

* Pilgrim Baxter & Associates, Ltd. ("Pilgrim") was formed in 1995 and
is owned by United Asset Management, Inc., a publicly-owned corporation. Pilgrim
succeeded to certain of the investment management businesses, and acquired the
corporate name of, Pilgrim Baxter & Associates, Ltd. in April 1995. Total assets
under management for all equity clients at December 31, 1994 were approximately
$2.42 billion, $1.1 billion of which were assets of registered investment
companies. The principal business address of Pilgrim is 1255 Drummers Lanes,
Wayne, PA 19087.

* Westport Asset Management, Inc. ("Westport") was formed in July 1993
and is owned by certain of its employees. Total assets under management for all
equity clients at December 31, 1994 were approximately $340 million, $115
million of which were assets of registered investment companies. The principal
business address of Westport is 253 Riverside Avenue, Westport, CT 06880.

Investment management decisions by each of these Subadvisers are made by
committee and not by managers individually.

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<PAGE> 46
Distribution Plan and Agreement

The Trustees of the Trust have adopted a Distribution Plan in
accordance with Rule 12b-1 under the 1940 Act after having concluded that there
is a reasonable likelihood that the Distribution Plan will benefit the Funds and
their shareholders. As contemplated by the Distribution Plan, the Distributor
acts as the agent of the Funds in connection with the offering of shares of the
Funds pursuant to a Distribution Agreement.

Under the Distribution Plan, the Distributor may receive a fee from
each Fund at an annual rate not to exceed 0.25% of the Fund's average daily net
assets in anticipation of, or as reimbursement for, expenses incurred in
connection with the sale of shares of the Fund, such as (i) payments of
quarterly trail or maintenance commissions to registered representatives of the
Distributor or other broker-dealers in an amount not to exceed on an annual
basis 0.25% of the average daily net assets maintained in the Fund by their
customers, (ii) reimbursements of sales commissions advanced by the Distributor
to sales brokers, and (iii) advertising expenses and the expenses of printing
(excluding typesetting) and distributing prospectuses and reports used for sales
purposes, expenses of preparing and printing sales literature and other
distribution-related expenses. The Distributor provides to the Trustees of the
Trust a quarterly written report of amounts expended by it and the purposes for
which such expenditures were made.

Administrator

Pursuant to an Administrative and Transfer Agency Services Agreement
with the Trust and under the Advisory Agreement with the Portfolio Series,
Diversified, as Administrator, provides the Trust and the Portfolio Series with
general office facilities and supervises the overall administration of the Trust
and the Portfolio Series, including, among other responsibilities, the
negotiation of contracts and fees with, and the monitoring of performance and
billings of, the independent contractors and agents of the Trust or the
Portfolio Series; the preparation and filing of all documents required for
compliance by the Trust or the Portfolio Series with applicable laws and
regulations; providing equipment and clerical personnel necessary for
maintaining the organization of the Trust or the Portfolio Series; preparation
of certain documents in connection with meetings of Trustees and shareholders of
the Trust and investors in the Portfolio Series; and the maintenance of books
and records of the Trust and the Portfolio Series. Diversified provides persons
satisfactory to the Board of Trustees of each of the Trust and the Portfolio
Series to serve as officers of the Trust or the Portfolio Series, as the case
may be. Such officers, as well as certain other employees and Trustees of the
Trust or the Portfolio Series, may be directors, officers or employees of
Diversified or its affiliates. In addition, Diversified provides transfer agency
services to the Trust. For providing these services and facilities and for
bearing the related expenses, Diversified, as Administrator, receives a fee from
each

46
<PAGE> 47
Fund accrued daily and paid monthly at an annual rate equal to 0.30% of the
average daily net assets of the Fund. The Administrator is currently waiving a
portion of its administrative services fee. Diversified acts as Administrator to
the Portfolios pursuant to the Advisory Agreement and receives no additional
compensation for providing such administrative services.

Service Agents

All shareholders must be represented by Diversified or another Service
Agent that has entered into a Service Agreement with Diversified. Diversified
acts as a Service Agent pursuant to its Administrative Services Agreement with
the Trust and receives no additional compensation from the Funds for such
shareholder services. The service fees of any other Service Agents will be paid
by Diversified from its administrative services fees. The services provided by a
Service Agent may include establishing and maintaining shareholder accounts,
processing purchase and redemption transactions, arranging for bank wires,
answering client inquiries regarding the Trust, assisting clients in changing
account designations and addresses, providing periodic statements showing the
client's account balance, transmitting proxy statements, periodic reports,
updated Prospectuses and other communications to shareholders and, with respect
to meetings of shareholders, collecting, tabulating and forwarding to the Trust
executed proxies and obtaining such other information and performing such other
services as Diversified or the Service Agent's clients may reasonably request
and agree upon with the Service Agent. Service Agents may separately charge
their clients additional fees only to cover provision of additional or more
comprehensive services not already provided under the Administrative Services
Agreement with Diversified, or of the type or scope not generally offered by a
mutual fund, such as enhanced retirement or trust reporting. Any Service Agent
must agree to transmit to shareholders who are its customers appropriate
disclosures of any fees that it may charge them directly.

PURCHASES AND REDEMPTIONS OF SHARES

Purchases

The Trust is designed to meet the long-term investment needs of, and
will be available only as a funding vehicle to, Qualified Investors (as defined
on the cover page of this Prospectus). The retirement plans which may invest in
the Funds are hereinafter referred to as "Plans" and the employees,
self-employed persons or individuals participating in such Plans are hereinafter
referred to as "Plan Participants". With respect to these Plans, the employer
and/or the Plan Participants will make contributions which may be invested in
shares of the Funds pursuant to the terms and conditions of the underlying Plan.

47
<PAGE> 48
Shares of the Funds may be purchased without a sales charge on any day
on which the Adviser and applicable Subadviser or Subadvisers are open for
business ("Fund Business Day") at the net asset value next determined after an
order in proper form is transmitted to and accepted by the Distributor. The
procedure through which a Qualified Investor or Plan Participant may transmit an
order to the Distributor will be set forth in the documents relating to the
underlying Plan. Plan Participants should contact their Plan administrator, if
appropriate, for further information on how to purchase shares of the Funds. In
addition, Qualified Investors and Plan Participants may call the Distributor at
914-697-8000 for information with respect to the proper procedure to transmit an
order; however, except for purchase orders in connection with exchanges from
other funds as described below under "Exchange Privileges", purchases may not be
effected through telephone orders. The minimum initial investment is $5,000 (the
Trust is currently waiving its minimum initial investment requirement) and there
is no minimum for subsequent investments. However, a particular Plan may impose
different minimum initial and minimum subsequent investment requirements.
Purchases will be effected on the same day the purchase order is received by the
Distributor provided such order is received prior to 4:00 p.m. New York time on
any day on which the New York Stock Exchange ("NYSE") is open for trading.
Shares earn dividends from and including the day the purchase is effected, but
not on the day of redemption.

Checks received from a Qualified Investor are invested in full and
fractional shares. If shares are purchased with a check that does not clear, the
purchase will be cancelled and any losses or fees incurred in the transaction
will be the responsibility of such Qualified Investor. Checks must be drawn on
or payable through a U.S. bank and be in U.S. dollars. If shares are purchased
by check and a redemption request relating to such shares is received within 15
days of a purchase, the Trust will release such redemption proceeds when the
check clears. It is possible, although unlikely, that this could take up to 15
days.

Underlying Plans which include fixed investment options issued by
insurance companies may restrict or prohibit the purchase of shares of certain
of the Funds with monies withdrawn from any such fixed interest investment
option.

Each Fund reserves the right to cease offering its shares for sale at
any time or to reject any order for the purchase of its shares.

Redemptions

A Qualified Investor or Plan Participant may redeem all or any portion
of the shares in its account at any time at the net asset value next determined
after a redemption request in proper form is received and accepted by the
Distributor. The proper form for a redemption request may vary in accordance
with the terms of the underlying Plan through which a Qualified Investor or Plan
Participant invests in a

48
<PAGE> 49
Fund. Plan Participants should contact their Plan administrator, if appropriate,
for further information on how to redeem shares of a Fund. In addition,
Qualified Investors and Plan Participants may call the Distributor at
914-697-8000 for information with respect to the proper procedure to transmit a
redemption request; however, except for redemption requests in connection with
loans under certain Plans and exchanges into other funds as described below
under "Exchange Privileges", redemptions may not be effected through telephone
requests.

Investment return and principal value of an investment in the Funds
will fluctuate, so that the value of shares redeemed may be more or less than
the Qualified Investor's cost. Redemptions of shares may be taxable events to
Qualified Investors otherwise subject to tax on which a Qualified Investor may
realize a gain or a loss. No Fund will make redemptions in kind.

Redemption proceeds normally will be paid or mailed within seven days
following receipt of a redemption request in good order; however, when the NYSE
is closed, when trading on the NYSE is restricted, or when the Securities and
Exchange Commission determines that an emergency exists to warrant such an
action, the Funds may suspend redemption rights or postpone the date of payment.

The Trust reserves the right to redeem shares in the account of any
Qualified Investor if at any time the total value of such account falls below
$1,000 for any reason other than a decrease in the net asset value of its
shares. A Qualified Investor will be notified that the value of its account is
less than the minimum amount and allowed 15 days to make an additional
investment before the redemption is processed. Shares will be redeemed at the
net asset value on the date of redemption.

SIGNATURE GUARANTEES. To protect Qualified Investors and the Trust from
fraud, signature guarantees are required for certain redemptions. Signature
guarantees enable the Trust to be sure that the entity requesting redemption is
the entity that is authorized to request redemption from that account. Signature
guarantees are required for: (1) any redemptions by mail if the proceeds are to
be paid to someone else or are to be sent to an address other than an investor's
address as shown on the Trust's records; (2) any redemptions by mail which
request that the proceeds be wired to a bank, (3) redemption requests for more
than $50,000; and (4) requests to transfer the registration of shares to another
owner. These requirements may be waived in certain instances.

The Trust will accept signature guarantees from all institutions which
are eligible to provide them under federal or state law, provided the individual
giving the signature guarantee is authorized to do so. Institutions which
typically are eligible to provide signature guarantees include commercial banks,
trust companies, brokers, dealers, national securities exchanges, savings and
loan associations and credit unions. A signature guarantee is not the same as a
notarized signature.

49
<PAGE> 50
Exchange Privileges

Subject to applicable legal constraints, Qualified Investors may
exchange their shares in a Fund for shares of other series of the Trust. In
addition, some underlying Plans may provide for exchange privileges with other
investment options available under such Plans. Underlying Plans which include
fixed investment options issued by insurance companies may restrict or prohibit
exchanges of shares of certain of the Funds for shares of other series of the
Trust if the shares of the Fund to be exchanged have been purchased with monies
withdrawn from any such fixed interest investment option.

There are no charges for exchanges. However, Plan Participants should
contact their Plan administrator, if appropriate, for further information
regarding exchanges. In addition, Qualified Investors and Plan Participants may
call the Distributor at 914-697-8000 for information with respect to the proper
procedures to effect such exchanges, including, when appropriate, the procedure
for effecting such exchanges by telephone. Some Plans may impose charges and
additional restrictions. An exchange order is treated the same as a redemption
followed by a purchase and will be effected at the respective net asset values
of the shares involved.

All Qualified Investors and Plan Participants should be aware that an
exchange transaction authorized by telephone and reasonably believed to be
genuine by the Trust or the Distributor may subject the Qualified Investor or
Plan Participant to risk of loss if such instruction is subsequently found not
to be genuine. The Trust and the Distributor will employ reasonable procedures,
including requiring investors to give certain identification information and
tape recording of telephone instructions, to confirm that instructions
communicated by telephone are genuine. To the extent that the Trust or the
Distributor fail to use reasonable procedures to verify the genuineness of
telephone instructions, they may be liable for any losses due to telephone
instructions that prove to be fraudulent or unauthorized.

The Trust reserves the right to terminate or modify the exchange
privilege in the future.

Performance Information

From time to time, the Trust may provide yield and/or total return
quotations for any of the Funds and may also quote fund rankings in the relevant
fund category from various sources, such as Russell Data Services (a division of
Frank Russell Company), Lipper Analytical Services, Inc., Weisenberger
Investment Company Service, Morningstar, Inc. and CDA. The current yield for a
Fund will be calculated by dividing net investment income per share during a
recent 30-day period by the net asset value per share on the last day of the
period and annualizing the resulting quotient. Total return quotations will
reflect the annual percentage change over stated periods in the

50
<PAGE> 51
value of an investment in a Fund. Yield reflects only net income as of a stated
time, while total return reflects all components of investment return over a
stated period of time. A Fund's quotations may from time to time be used in
advertisements, shareholder reports or other communications to shareholders. For
a discussion of the manner in which a Fund will calculate its yield and total
return, see the Statement of Additional Information.

Investors should note that the investment results of a Fund will
fluctuate over time, and any presentation of a Fund's current yield or total
return for any prior period should not be considered a representation of what an
investment may earn or what an investor's yield or total return may be in any
future period.

OTHER INFORMATION

Net Asset Value

The net asset value of shares of the Funds is determined each Fund
Business Day. This determination is made once each day as of the close of
regular trading on the NYSE, currently 4:00 p.m., New York time, by dividing the
value of a Fund's net assets (i.e., the value of its investment in its Portfolio
and other assets less its liabilities, including expenses payable or accrued) by
the number of shares of the Fund outstanding at the time the determination is
made.

Each Portfolio values its assets based on their current market value
when market quotations are available. Where market quotations are not available,
assets are valued at fair value as determined in good faith under the direction
of the Portfolio Series' Board of Trustees. Debt obligations with 60 days or
less remaining to maturity may be valued by the amortized cost method which the
Portfolio Series' Trustees have determined to constitute fair value for such
securities.

Distributions

The Funds intend to distribute all net investment income and net
capital gains ( i.e., the excess of net long-term capital gains over net
short-term capital losses) to shareholders. Dividends from net investment income
(which may include net short-term capital gains) and distributions from net
capital gains, if any, are normally declared and paid once a year in December.
"Net investment income" includes all dividends, interest and other income earned
by a Fund, net of a Fund's expenses.

All dividends and distributions declared by a Fund will be reinvested
in additional shares of that Fund at net asset value determined on the business
day immediately following the record date of the distribution. A Fund may make
additional

51
<PAGE> 52
distributions if necessary to avoid a 4% federal excise tax on certain
undistributed income and capital gain.

Tax Matters

The following discussion is for general information only and,
specifically, does not purport to address the taxation of Qualified Investors in
all circumstances or of contributors to, participants in, and beneficiaries
under any Qualified Investor. A prospective investor should consult with its own
adviser as to the tax consequences of an investment in the Trust, including the
state and local tax treatment of distributions from a Fund.

Each Fund intends to elect to be, and to qualify to be treated as, a
separate "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). To so qualify, the Funds (through
their interest in the Portfolios) must meet certain income, distribution and
diversification requirements. Provided a Fund meets all such requirements, no
federal income or excise taxes will be required to be paid by that Fund on that
part of its investment company taxable income (consisting generally of net
income and net short-term capital gain, if any) and net capital gain that is
distributed to shareholders. A Fund's foreign source income may, however, be
subject to foreign taxes withheld at the source. The Trust is organized as a
Massachusetts business trust, and under current law the Funds will not be liable
for any income or franchise tax in the Commonwealth of Massachusetts as long as
the Funds qualify as a regulated investment companies under the Code. The
Portfolios will also not be required to pay any federal income or excise taxes.

Retirement plans satisfying all conditions applicable to them under the
Code which invest in the Fund generally will not be subject to federal tax
liability on either distributions from the Funds or redemptions of shares of the
Funds. Rather, participants in such Plans will be taxed when they begin taking
distributions from the investing Plan in accordance with the rules under the
Code governing the taxation of such distributions. Qualified Investors otherwise
generally exempt from federal taxation of their income might nevertheless be
taxed on distributions of the Funds, and on any gain realized on redemption of
Fund shares, where the Qualified Investor is subject to the unrelated business
taxable income provisions of the Code with respect to its investment in the
Funds because, e.g., its acquisition of shares in a Fund was financed
with debt.

If, for any reason, a Qualified Investor is not exempt from income
taxation such Qualified Investor will be subject to tax on distributions
received from the Funds irrespective of the fact that such distributions are
reinvested in additional shares. Distributions to such Investors, other than of
net capital gains, will be taxable as ordinary income; distributions of net
capital gains would be taxable to such Investors

52
<PAGE> 53
as long-term capital gain without regard to the length of time they have held
shares in a Fund. Certain dividends declared in October, November or December of
a calendar year and paid to a Qualified Investor which is subject to tax on the
distribution in January of the succeeding calendar year are taxable to such
Investor as if paid on December 31 of the year in which they were declared.

The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Trust and its shareholders. Please refer
to the Statement of Additional Information for a more extensive discussion. In
addition, there may be other federal, state or local tax considerations
applicable to a particular investor. Prospective shareholders are urged to
consult their own tax advisers concerning the tax consequences of an investment
in the Trust.

Expenses

The respective expenses of the Trust and the Portfolio Series include
the compensation of their respective Trustees who are not affiliated with the
Adviser or any Subadviser; governmental fees; interest charges; taxes; fees and
expenses of independent auditors, of legal counsel and of any transfer agent,
custodian, registrar or dividend disbursing agent of the Trust or the Portfolio
Series; insurance premiums; and expenses of calculating the net asset value of,
and the net income on, interests in the Portfolios and shares of the Funds.

Expenses of the Trust also include all fees under its Administrative
Services Agreement; expenses of distributing and redeeming shares and servicing
shareholder accounts; expenses of preparing, printing and mailing prospectuses,
reports, notices, proxy statements and reports to shareholders and to
governmental officers and commissions; expenses of shareholder and Trustee
meetings; expenses relating to the issuance, registration and qualification of
shares of the Funds and the preparation, printing and mailing of prospectuses
for such purposes; and membership dues in the Investment Company Institute
allocable to the Trust.

Expenses of the Portfolio Series also include expenses connected with
the execution, recording and settlement of security transactions; fees and
expenses of the Portfolio Series' custodian for all services to the Portfolios,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of preparing and mailing reports to investors and to
governmental officers and commissions; expenses of meetings of investors and
Trustees; and the advisory fees payable to the Adviser under the Advisory
Agreements.

Description of Shares, Voting Rights and Liabilities

The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional Shares of Beneficial Interest (par value
$0.00001 per

53
<PAGE> 54
share) and to divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial interests in the
Trust. The Trust reserves the right to create and issue additional series of
shares, in which case the shares of each series would participate equally in the
earnings, dividends and assets of the particular series.

Each share of a Fund represents an equal proportionate interest in that
Fund with each other share. Shares have no preference, preemptive, conversion or
similar rights. Shares when issued are fully paid and nonassessable, except as
set forth below. Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. The Trust is not required to and has
no current intention to hold annual meetings of shareholders although the Trust
will hold special meetings of Fund shareholders when in the judgment of the
Trustees of the Trust it is necessary or desirable to submit matters for a
shareholder vote. Shares of each Fund are entitled to vote separately to approve
amendments to the Trust's distribution plan or changes in fundamental investment
policies or restrictions for that Fund, but shares of all Funds will vote
together in the election or selection of Trustees and independent accountants
for the Trust. If requested to do so by 10% of the Trust's outstanding shares, a
meeting of Trust shareholders will be called for the purpose of voting on the
removal of a Trustee or Trustees. The Trust will assist in shareholder
communications as required by Section 16(c) of the 1940 Act.

The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the Trustees of the Trust believe that the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and a Fund
itself was unable to meet its obligations.

The Portfolio Series is organized as a trust under the laws of the
State of New York. The Portfolio Series' Declaration of Trust provides that each
Fund and other entities investing in a Portfolio (e.g., other investment
companies, insurance company separate accounts and common and commingled trust
funds) will each be liable for all obligations of that Portfolio. However, the
Trustees of the Trust believe that the risk of the Funds incurring financial
loss on account of such liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet its
obligations. For more information regarding the Trustees of the Trust and the
Portfolio Series, see "Management of the Trust and Portfolio Series" in the
Statement of Additional Information. The interests in the Portfolio Series are
divided into the separate Portfolios. Investors in each Portfolio will vote
separately or together in the same manner as shareholders of the Funds will vote
with respect to the Trust.

54
<PAGE> 55
Each investor in a Portfolio, including the Trust, may add to or reduce
its investment in a Portfolio on each day the Adviser and applicable Subadviser
or Subadvisers are open for business ("Portfolio Business Day"). As of the close
of regular trading on the NYSE, currently 4:00 p.m., New York time, on each such
day, the value of each investor's beneficial interest in a Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
reductions, which are to be effected as of 4:00 p.m., New York time, on such
day, will then be effected. The investor's percentage of the aggregate
beneficial interests in the Portfolio will then be recomputed as the percentage
equal to the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of 4:00 p.m., New York time, on such day plus or
minus, as the case may be, the amount of net additions to or reductions in the
investor's investment in the Portfolio effected as of 4:00 p.m., New York time,
on such day, and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of 4:00 p.m., New York time, on such day, plus or minus, as
the case may be, the amount of net additions to or reductions in the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined will then be applied to determine the value of the investor's
interest in the Portfolio as of 4:00 p.m., New York time, on the following
Portfolio Business Day.

---------------

The Trust's Statement of Additional Information, dated October 2, 1995,
contains more detailed information about the Trust and the Portfolio Series,
including information related to (i) investment policies and restrictions, (ii)
the Trustees, officers, Adviser, Subadvisers and Administrator, (iii) portfolio
transactions and brokerage commissions, (iv) the Funds' shares, including rights
and liabilities of shareholders, (v) additional performance information,
including the method used to calculate yield and total rate of return and (vi)
the determination of the net asset value of shares of the Funds.

55
<PAGE> 56
TABLE OF CONTENTS

<TABLE>
<S> <C>
Expense Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Condensed Financial Information . . . . . . . . . . . . . . . . . . . . 9

Investment Objectives and
Policies of the Funds . . . . . . . . . . . . . . . . . . . . . . . . 11

Certain Investment Techniques
and Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Hub & Spoke(R) Structure . . . . . . . . . . . . . . . . . . . . . . . 39

Management of the Trust and
Portfolio Series . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Purchases and Redemptions
of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>

---------------

No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectus, Statement
of Additional Information or official sales literature in connection with the
offering of the Funds' shares and, if given or made, such other information or
representations must not be relied on as having been authorized by the Trust or
the Distributor. This Prospectus does not constitute an offer in any state in
which, or to any person to whom, such offer may not lawfully be made.

---------------
<PAGE> 57
MN015D STATEMENT OF ADDITIONAL INFORMATION

DATED OCTOBER 2, 1995, AS SUPPLEMENTED DECEMBER 19, 1995

THE DIVERSIFIED INVESTORS FUNDS GROUP

Diversified Investors Money Market Fund
Diversified Investors High Quality Bond Fund
Diversified Investors Intermediate Government Bond Fund
Diversified Investors Government/Corporate Bond Fund
Diversified Investors High-Yield Bond Fund
Diversified Investors Balanced Fund
Diversified Investors Equity Income Fund
Diversified Investors Growth & Income Fund
Diversified Investors Equity Growth Fund
Diversified Investors Special Equity Fund
Diversified Investors International Equity Fund

The Diversified Investors Funds Group (the "Trust") is comprised of eleven
funds. This Statement of Additional Information describes the shares of each
such fund, including Diversified Investors Money Market Fund (the "Money Market
Fund"), Diversified Investors High Quality Bond Fund (the "High Quality Bond
Fund"), Diversified Investors Intermediate Government Bond Fund (the
"Intermediate Government Bond Fund"), Diversified Investors Government/Corporate
Bond Fund (the "Government/Corporate Bond Fund"), Diversified Investors
High-Yield Bond Fund (the "High-Yield Bond Fund"), Diversified Investors
Balanced Fund (the "Balanced Fund"), Diversified Investors Equity Income Fund
(the "Equity Income Fund"), Diversified Investors Growth & Income Fund (the
"Growth & Income Fund"), Diversified Investors Equity Growth Fund (the "Equity
Growth Fund"), Diversified Investors Special Equity Fund (the "Special Equity
Fund") and Diversified Investors International Equity Fund (the "International
Equity Fund") (each a "Fund", and collectively the "Funds").

<TABLE>
<CAPTION>
Table of Contents Page
----------------- ----
<S> <C>
The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objective, Policies and
Associated Risk Factors of The Funds . . . . . . . . . . . . . . . . 4
Performance Information . . . . . . . . . . . . . . . . . . . . . . . 33
Determination of Net Asset Value; Valuation of Securities . . . . . . 39
Management of the Trust and Portfolio Series . . . . . . . . . . . . 42
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . 55
Description of the Trust; Fund Shares . . . . . . . . . . . . . . . . 55
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 57
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>

The Diversified Investors Funds Group
Four Manhattanville Road
Purchase, New York 10577
914-697-8000
<PAGE> 58
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the Funds'
Prospectus as amended from time to time ("Prospectus"). This Statement of
Additional Information should be read only in conjunction with the Prospectus, a
copy of which may be obtained by an investor without charge by contacting
Diversified Investors Securities Corp. ("DISC"), the Funds' Distributor, at the
address and telephone number shown above for The Diversified Investors Funds
Group. Terms used but not defined herein, which are defined in the Prospectus,
are used herein as defined in the Prospectus.

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.

Diversified Investors Funds Group Combined SAI Page 2
<PAGE> 59
THE DIVERSIFIED INVESTORS FUNDS GROUP

THE TRUST

The Trust is an open-end diversified management investment company which
was organized as a business trust under the laws of the Commonwealth of
Massachusetts on April 23, 1993. Shares of the Trust are divided into eleven
separate series described herein. Each such series or Fund seeks to achieve its
investment objective by investing all of its Assets in a corresponding
Portfolio, as follows:

Corresponding Name of Portfolio
Diversified Investors Fund Name in Diversified Investors Portfolios
- ------------------------------- -----------------------------------
Money Market Fund Money Market Portfolio
High Quality Bond Fund High Quality Bond Portfolio
Intermediate Government Bond Fund Intermediate Government Bond Portfolio
Government/Corporate Bond Fund Government/Corporate Bond Portfolio
High-Yield Bond Fund High-Yield Bond Portfolio
Balanced Fund Balanced Portfolio
Equity Income Fund Equity Income Portfolio
Growth & Income Fund Growth & Income Portfolio
Equity Growth Fund Equity Growth Portfolio
Special Equity Fund Special Equity Portfolio
International Equity Fund International Equity Portfolio

As of the date hereof, there are no other active series of the Trust.
However, additional series may be added from time to time. Each of the
Portfolios is a series of Diversified Investors Portfolios (the "Portfolio
Series").

Each Fund is designed to meet the long-term investment needs of, and will
be available only as a funding vehicle to, (i) certain employee retirement plans
of for-profit and not-for-profit entities including those having cash or
deferred arrangements and those covering self-employed individuals and
owner-employees (such as 401(k) Plans, 403(b) Plans, 457 Plans, Money Purchase
Plans, Profit Sharing Plans, Simplified Employee Pension Plans and Keogh Plans),
and (ii) qualified personal retirement plans such as IRAs and rollover IRAs
(collectively, "Qualified Investors").

The investment adviser of each Portfolio is Diversified Investment
Advisors, Inc. ("Diversified" or the "Adviser"). The subadviser (the
"Subadviser") of each Portfolio is set forth in the table below.

Diversified Investors Funds Group Combined SAI Page 3
<PAGE> 60
Corresponding
Fund Portfolio Subadviser
- ---- --------------------
Money Market Fund . . . . . . . . . . . . . 1740 Advisers, Inc.
High Quality Bond Fund . . . . . . . . . . Merganser Capital Management Corp.
Intermediate Government Bond Fund . . . . . 1740 Advisers, Inc.
Government/Corporate Bond Fund . . . . . . 1740 Advisers, Inc.
High-Yield Bond Fund . . . . . . . . . . . Delaware Investment Advisers
Balanced Fund . . . . . . . . . . . . . . . Institutional Capital Corporation
Equity Income Fund . . . . . . . . . . . . 1740 Advisers, Inc.
Growth & Income Fund . . . . . . . . . . . Munder Capital Management
Equity Growth Fund . . . . . . . . . . . . Jundt Associates
Special Equity Fund . . . . . . . . . . . . see below(1)
International Equity Fund . . . . . . . . . Capital Guardian Trust Company

As to each Portfolio, the Adviser and its Subadviser or Subadvisers are
referred to herein collectively as the "Advisers."

INVESTMENT OBJECTIVE, POLICIES AND ASSOCIATED RISK FACTORS

INVESTMENT OBJECTIVES

The investment objective of each Fund and Portfolio is described in the
Funds' Prospectus. There can, of course, be no assurance that a Fund or its
corresponding Portfolio will achieve their investment objective.

INVESTMENT POLICIES

Each Fund seeks to achieve its investment objective by investing all of
its Assets in its corresponding Portfolio, as shown above. The Trust may
withdraw a Fund's investment from its Portfolio at any time if the Board of
Trustees of the Trust determines that it is in the best interests of the Fund to
do so.

Since the investment characteristics of each Fund correspond directly to
those of its corresponding Portfolio, the following supplements the discussions
of the various investments of and techniques employed by the Portfolios set
forth in the Prospectus of the Funds.

- -------------------------

(1)Diversified Investors Special Equity Fund has four Subadvisers: Pilgrim
Baxter & Associates; Ark Asset Management Co., Inc.; Liberty Investment
Management, Inc.; and Westport Asset Management, Inc.

Diversified Investors Funds Group Combined SAI Page 4
<PAGE> 61
BANK OBLIGATIONS

Domestic commercial banks organized under federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System. Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. In addition, state banks are
subject to federal examination and to a substantial body of federal law and
regulation. As a result of federal or state laws and regulations, domestic
banks, among other things, generally are required to maintain specified levels
of reserves, are limited in the amounts which they can loan to a single
borrower, and are subject to other regulations designed to promote financial
soundness. However, not all of such laws and regulations apply to the foreign
branches of domestic banks.

Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as certificates of deposit
("CDs") and time deposits ("TDs"), may be general obligations of the parent
banks in addition to the issuing branch, or may be limited by the terms of a
specific obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.

Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.

In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the appropriate

Diversified Investors Funds Group Combined SAI Page 5
<PAGE> 62
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.

In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Advisers carefully evaluate such investments on a
case-by-case basis.

U.S. GOVERNMENT AND AGENCY SECURITIES

Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of greater than
ten years. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the Treasury; others, such as those issued by
the Federal National Mortgage Association, by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality. While the U.S.
Government provides financial support to such U.S. Government-sponsored agencies
or instrumentalities, no assurance can be given that it will always do so, since
it is not so obligated by law. A Portfolio will invest in such securities only
when the Advisers are satisfied that the credit risk with respect to the issuer
is minimal.

COMMERCIAL PAPER

Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note (which is a type of
commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under an agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.

Diversified Investors Funds Group Combined SAI Page 6
<PAGE> 63
The Portfolios may purchase three types of commercial paper, as classified
by exemption from registration under the Securities Act of 1933, as amended (the
"1933 Act"). The three types include open market, privately placed, and letter
of credit commercial paper. Trading of such commercial paper is conducted
primarily by institutional investors through investment dealers or directly
through the issuers. Individual investor participation in the commercial paper
market is very limited.

OPEN MARKET. "Open market" commercial paper refers to the commercial paper
of any industrial, commercial, or financial institution which is openly traded,
including directly issued paper. "Open market" paper's 1933 Act exemption is
under Section 3(a)(3) which limits the use of proceeds to current transactions,
limits maturities to 270 days and requires that the paper contain no provision
for automatic rollovers.

PRIVATELY PLACED. "Privately placed" commercial paper relies on the
exemption from registration provided by Section 4(2), which exempts transactions
by an issuer not involving any public offering. The commercial paper may only
be offered to a limited number of accredited investors. "Privately placed"
commercial paper has no maturity restriction.

LETTER OF CREDIT. "Letter of credit" commercial paper is exempt from
registration under Section 3(a)(2) of the 1933 Act. It is backed by an
irrevocable or unconditional commitment by a bank to provide funds for repayment
of the notes. Unlike "open market" and "privately placed" commercial paper,
"letter of credit" paper has no limitations on purchases.

VARIABLE RATE AND FLOATING RATE SECURITIES

The Portfolios may purchase floating and variable rate demand notes and
bonds, which are obligations ordinarily having stated maturities in excess of
397 days, but which permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding 397 days, in each case upon not
more than 30 days' notice. Variable rate demand notes include master demand
notes which are obligations that permit a Portfolio to invest fluctuating
amounts, which may change daily without penalty, pursuant to direct arrangements
between the Portfolio, as lender, and the borrower. The interest rates on these
notes fluctuate from time to time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand obligation is

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adjusted automatically at specified intervals. Frequently, such obligations are
collateralized by letters of credit or other credit support arrangements
provided by banks. Because these obligations are direct lending arrangements
between the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary market
for these obligations, although they are redeemable at face value. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, a Portfolio's right to redeem is dependent on the ability
of the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies and a Portfolio may invest in
obligations which are not so rated only if the Advisers determine that at the
time of investment the obligations are of comparable quality to the other
obligations in which the Portfolio may invest. The Advisers, on behalf of a
Portfolio, will consider on an ongoing basis the creditworthiness of the issuers
of the floating and variable rate demand obligations held by the Portfolio. The
Portfolios will not invest more than 15% (10% in the case of the Money Market
Portfolio) of the value of their net assets in floating or variable rate demand
obligations as to which they cannot exercise the demand feature on not more than
seven days' notice if there is no secondary market available for these
obligations, and in other securities that are not readily marketable. See
"Investment Restrictions" below.

PARTICIPATION INTERESTS

A Portfolio may purchase from financial institutions participation
interests in securities in which such Portfolio may invest. A participation
interest gives a Portfolio an undivided interest in the security in the
proportion that the Portfolio's participation interest bears to the total
principal amount of the security. These instruments may have fixed, floating or
variable rates of interest, with remaining maturities of 13 months or less. If
the participation interest is unrated, or has been given a rating below that
which is permissible for purchase by the Portfolio, the participation interest
will be backed by an irrevocable letter of credit or guarantee of a bank, or the
payment obligation otherwise will be collateralized by U.S. Government
securities, or, in the case of unrated participation interests, the Advisers
must have determined that the instrument is of comparable quality to those
instruments in which a Portfolio may invest. For certain participation
interests, a Portfolio will have the right to demand payment, on not more than
seven days' notice, for all or any part of the Portfolio's participation
interest in the security, plus accrued interest. As to these instruments, a
Portfolio intends to exercise its right to demand payment only upon a default
under the terms of the security, as needed to provide liquidity to meet
redemptions, or to maintain or improve the quality of its investment portfolio.
A Portfolio will not invest more than 15% (10% in the case of the Money Market
Portfolio) of its net assets in participation interests that do not have this
demand feature, and in other

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securities that are not readily marketable. See "Investment Restrictions"
below.

ILLIQUID SECURITIES

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the 1933 Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the 1933 Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them which,
if possible at all, would result in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.

In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.

The Securities and Exchange Commission (the "SEC") has recently adopted
Rule 144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act for resales of certain securities to qualified institutional buyers.

The Advisers will monitor the liquidity of Rule 144A securities for each
Portfolio under the supervision of the Portfolio's Board of Trustees. In
reaching liquidity decisions, the Advisers will consider, among other things,
the following factors: (1) the frequency of trades and quotes for the security,
(2) the number of dealers and other potential purchasers wishing to purchase or
sell the security, (3) dealer undertakings to make a market in the security and
(4) the nature of the security and of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the

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mechanics of the transfer).

UNSECURED PROMISSORY NOTES

A Portfolio also may purchase unsecured promissory notes ("Notes") which
are not readily marketable and have not been registered under the 1933 Act,
provided such investments are consistent with the Portfolio's investment
objective. The Notes purchased by the Portfolio will have remaining maturities
of 13 months or less and will be deemed by the Board of Trustees of the
Portfolio to present minimal credit risks and will meet the quality criteria set
forth above under "Investment Policies." The Portfolio will invest no more than
15% (10% in the case of the Money Market Portfolio) of its net assets in such
Notes and in other securities that are not readily marketable (which securities
would include floating and variable rate demand obligations as to which the
Portfolio cannot exercise the demand feature described above and as to which
there is no secondary market). See "Investment Restrictions" below.

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REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS

Repurchase agreements are agreements by which a person purchases a
security and simultaneously commits to resell that security to the seller (which
is usually a member bank of the Federal Reserve System or a member firm of the
New York Stock Exchange (or a subsidiary thereof)) at an agreed-upon date within
a number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the seller to pay
the agreed-upon price, which obligation is in effect secured by the value of the
underlying security, usually U.S. Government or government agency issues. Under
the Investment Company Act of 1940, as amended (the "1940 Act"), repurchase
agreements may be considered to be loans by the buyer. A Portfolio's risk is
limited to the ability of the seller to pay the agreed upon amount on the
delivery date. If the seller defaults, the underlying security constitutes
collateral for the seller's obligation to pay although a Portfolio may incur
certain costs in liquidating this collateral and in certain cases may not be
permitted to liquidate this collateral. All repurchase agreements entered into
by the Portfolios are fully collateralized, with such collateral being marked to
market daily.

The Portfolios may borrow funds for temporary or emergency purposes, such
as meeting larger than anticipated redemption requests, and not for leverage.
One means of borrowing is by agreeing to sell portfolio securities to financial
institutions such as banks and broker-dealers and to repurchase them at a
mutually agreed date and price (a "reverse repurchase agreement"). At the time a
Portfolio enters into a reverse repurchase agreement it will place in a
segregated custodial account cash, U.S. Government securities or high-grade debt
obligations having a value equal to the repurchase price, including accrued
interest. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Portfolio may decline below the repurchase price
of those securities.

FOREIGN SECURITIES - ALL PORTFOLIOS

The Portfolios may invest their assets in securities of foreign issuers.
Investing in securities issued by companies whose principal business activities
are outside the United States may involve significant risks not present in
domestic investments. For example, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing and financial
reporting requirements comparable to those applicable to domestic issuers.

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Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, brokerage or other taxation, limitation on the removal of
funds or other assets of a Portfolio, political or financial instability or
diplomatic and other developments which would affect such investments. Further,
economies of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the United States.

It is anticipated that in most cases the best available market for foreign
securities would be on exchanges or in over-the-counter markets located outside
the United States. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United States,
and securities of some foreign issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
United States companies. Foreign security trading practices, including those
involving securities settlement where a Portfolio's assets may be released prior
to receipt of payment, may expose a Portfolio to increased risk in the event of
a failed trade or the insolvency of a foreign broker-dealer. In addition,
foreign brokerage commissions are generally higher than commissions on
securities traded in the United States and may be non-negotiable. In general,
there is less overall governmental supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.

FOREIGN SECURITIES - MONEY MARKET PORTFOLIO

The Money Market Portfolio may invest in the following foreign securities:
(i) U.S. dollar-denominated obligations of foreign branches and subsidiaries of
domestic banks and foreign banks (such as Eurodollar CDs, which are U.S.
dollar-denominated CDs issued by branches of foreign and domestic banks located
outside the United States; Eurodollar TDs ("ETDs"), which are U.S.
dollar-denominated deposits in a foreign branch of a foreign or domestic bank;
and Canadian TDs, which are essentially the same as ETDs except they are issued
by branches of major Canadian banks), (ii) high quality, U.S. dollar-denominated
short-term bonds and notes (including variable amount master demand notes)
issued by foreign corporations, (including Canadian commercial paper, which is
commercial paper issued by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, and Europaper, which is U.S. dollar-denominated commercial
paper of a foreign issuer) and (iii) U.S. dollar-denominated obligations issued
or guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities that are determined by the Adviser
to be of comparable quality to the other obligations in which the Money Market
Portfolio may invest. Such securities also include debt obligations of
supranational entities. Supranational entities include international
organizations designated or

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supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.

FOREIGN SECURITIES - PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO

Not more than 5% of a Portfolio's assets may be invested in closed-end
investment companies which primarily hold foreign securities. Investments in
such companies may entail the risk that the market value of such investments may
be substantially less than their net asset value and that there would be
duplication of investment management and other fees and expenses. Securities of
foreign issuers include investments in sponsored American Depository Receipts
("ADRs"). ADRs are depository receipts for securities of foreign issuers and
provide an alternative method for a Portfolio to make foreign investments. These
securities will not be denominated in the same currency as the securities into
which they may be converted. Generally, ADRs, in registered form, are designed
for use in U.S. securities markets. ADRs are receipts typically issued by a U.S.
bank or trust company evidencing ownership of the underlying securities.

The Portfolios may invest in foreign securities that impose restrictions
on transfer within the United States or to United States persons. Although
securities subject to such transfer restrictions may be marketable abroad, they
may be less liquid than foreign securities of the same class that are not
subject to such restrictions.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

Because some Portfolios may buy and sell securities denominated in
currencies other than the U.S. dollar and receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Portfolios from time to
time may enter into foreign currency exchange transactions to convert to and
from different foreign currencies and to convert foreign currencies to and from
the U.S. dollar. The Portfolios either enter into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or use forward contracts to purchase or sell foreign currencies.

A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts

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are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. A Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.

The Portfolios may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. With respect to Portfolios other than the
International Equity Portfolios consideration of the prospect for currency
parities will be incorporated into the Advisers' long-term investment decisions,
therefore these Portfolios will not routinely enter into foreign currency
hedging transactions with respect to security transactions; however, the
Advisers believe that it is important to have the flexibility to enter into
foreign currency hedging transactions when they determine that the transactions
would be in a Portfolio's best interest. Although these transactions tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to limit any potential gain that might be realized
should the value of the hedged currency increase. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of such
securities between the date the forward contract is entered into and the date it
matures. The projection of currency market movements is extremely difficult, and
the successful execution of a hedging strategy is highly uncertain.

While these contracts are not presently regulated by the Commodity Futures
Trading Commission ("CFTC"), the CFTC may in the future assert authority to
regulate forward contracts. In such event a Portfolio's ability to utilize
forward contracts in the manner set forth in the Prospectus may be restricted.
Forward contracts may reduce the potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for a
Portfolio than if it had not entered into such contracts. The use of foreign
currency forward contracts may not eliminate fluctuations in the underlying U.S.
dollar equivalent value of the prices of or rates of return on a Portfolio's
foreign currency denominated portfolio securities and the use of such techniques
will subject the Portfolio to certain risks.

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The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, a Portfolio may not always be able to enter into foreign currency
forward contracts at attractive prices and this will limit a Portfolio's ability
to use such contract to hedge or cross-hedge its assets. Also, with regard to a
Portfolio's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying a
Portfolio's cross-hedges and the movements in the exchange rates of the foreign
currencies in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.

GUARANTEED INVESTMENT CONTRACTS

The Portfolios may invest in guaranteed investment contracts ("GICs")
issued by insurance companies. Pursuant to such contracts, a Portfolio makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the fund guaranteed interest. The GICs
provide that this guaranteed interest will not be less than a certain minimum
rate. The insurance company may assess periodic charges against a GIC for
expenses and service costs allocable to it, and the charges will be deducted
from the value of the deposit fund. Because a Portfolio may not receive the
principal amount of a GIC from the insurance company on seven days' notice or
less, the GIC is considered an illiquid investment and, together with other
instruments in a Portfolio which are not readily marketable, will not exceed 15%
(10% in the case of the Money Market Portfolio) of the Portfolio's net assets.
The term of a GIC will be 13 months or less. In determining average weighted
portfolio maturity, a GIC will be deemed to have a maturity equal to the longer
of the period of time remaining until the next readjustment of the guaranteed
interest rate or the period of time remaining until the principal amount can be
recovered from the issuer through demand.

WHEN-ISSUED SECURITIES

The Portfolios may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that, under normal circumstances, the Portfolios
would take delivery of such securities. When a Portfolio commits to purchase a
security on a "when-issued" or on a "forward delivery" basis, the Portfolio
establishes procedures consistent with the relevant policies of the SEC. Since
those policies currently recommend that an amount of a Portfolio's assets equal
to the amount of the purchase be held aside or segregated to be used to pay for
the commitment, the Portfolio expects always to have cash, cash equivalents, or
high quality debt securities sufficient to cover any commitments or to limit any

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potential risk. However, although a Portfolio does not intend to make such
purchases for speculative purposes and intends to adhere to the provisions of
SEC policies, purchases of securities on such bases may involve more risk than
other types of purchases. For example, a Portfolio may have to sell assets which
have been set aside in order to meet redemptions. Also, if a Portfolio
determines it is advisable as a matter of investment strategy to sell the
"when-issued" or "forward delivery" securities, a Portfolio would be required to
meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale of
the "when-issued" or "forward delivery" securities themselves (which may have a
value greater or less than the Portfolio's payment obligation).

ZERO COUPON OBLIGATIONS

A Portfolio may acquire zero coupon obligations when consistent with its
investment objective and policies. Such obligations have greater price
volatility than coupon obligations and will not result in payment of interest
until maturity. Since dividend income is accrued throughout the term of the zero
coupon obligation but is not actually received until maturity, a Portfolio may
have to sell other securities to pay said accrued dividends prior to maturity of
the zero coupon obligation.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS - PORTFOLIOS OTHER THAN MONEY
MARKET PORTFOLIO

General. The successful use of such instruments draws upon the
Advisers' skill and experience with respect to such instruments. Should interest
or exchange rates move in an unexpected manner, a Portfolio may not achieve the
anticipated benefits of futures contracts or options on futures contracts or may
realize losses and thus will be in a worse position than if such strategies had
not been used. In addition, the correlation between movements in the price of
futures contracts or options on futures contracts and movements in the price of
the securities and currencies hedged or used for cover will not be perfect and
could produce unanticipated losses.

Futures Contracts. A Portfolio may enter into contracts for the
purchase or sale for future delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices including any index of U.S.
Government securities, foreign government securities or corporate debt
securities. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the

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contracts as between the clearing members of the exchange. A Portfolio may enter
into futures contracts which are based on debt securities that are backed by the
full faith and credit of the U.S. Government, such as long-term U.S. Treasury
Bonds, Treasury Notes, Government National Mortgage Association modified
pass-through mortgage-backed securities and three-month U.S. Treasury Bills. A
Portfolio may also enter into futures contracts which are based on bonds issued
by entities other than the U.S. Government.

Purchases or sales of stock index futures contracts are used to attempt to
protect the Portfolio's current or intended stock investments from broad
fluctuations in stock prices. For example, the Portfolio may sell stock index
futures contracts in anticipation of or during a decline in the market value of
the Portfolio's securities. If such decline occurs, the loss in value of
portfolio securities may be offset, in whole or part, by gains on the futures
position. When a Portfolio is not fully invested in the securities market and
anticipates a significant market advance, it may purchase stock index futures
contracts in order to gain rapid market exposure that may, in part or entirely,
offset increases in the cost of securities that the Portfolio intends to
purchase. As such purchases are made, the corresponding positions in stock index
futures contracts will be closed out. In a substantial majority of these
transactions, the Portfolio will purchase such securities upon termination of
the futures position, but under unusual market conditions, a long futures
position may be terminated without a related purchase of securities.

At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.

At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.

Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is

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effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, a Portfolio will incur brokerage fees when it
purchases or sells futures contracts.

The purpose of the acquisition or sale of a futures contract, in the case
of a Portfolio which holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities or
foreign currencies. For example, if interest rates were expected to increase, a
Portfolio might enter into futures contracts for the sale of debt securities.
Such a sale would have much the same effect as selling an equivalent value of
the debt securities owned by the Portfolio. If interest rates did increase, the
value of the debt security in a Portfolio would decline, but the value of the
futures contracts to the Portfolio would increase at approximately the same
rate, thereby keeping the net asset value of the Portfolio from declining as
much as it otherwise would have. The Portfolio could accomplish similar results
by selling debt securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the futures market is
more liquid than the cash market, the use of futures contracts as an investment
technique allows a Portfolio to maintain a defensive position without having to
sell its portfolio securities.

Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Portfolio could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market. To the extent a Portfolio enters into futures contracts for
this purpose, the assets in the segregated asset account maintained to cover the
Portfolio's obligations with respect to such futures contracts will consist of
cash, cash equivalents or high quality liquid debt securities from its portfolio
in an amount equal to the difference between the fluctuating market value of
such futures contracts and the aggregate value of the initial and variation
margin payments made by the Portfolio with respect to such futures contracts.

The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting

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transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Advisers may still not
result in a successful transaction.

In addition, futures contracts entail risks. Although the Advisers believe
that use of such contracts will benefit the Portfolios, if the Advisers'
investment judgment about the general direction of interest rates is incorrect,
a Portfolio's overall performance would be poorer than if it had not entered
into any such contract. For example, if a Portfolio has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held by it and interest rates decrease instead, the
Portfolio will lose part or all of the benefit of the increased value of its
debt securities which it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if a Portfolio has
insufficient cash, it may have to sell debt securities to meet daily variation
margin requirements. Such sales of bonds may be, but will not necessarily be, at
increased prices which reflect the rising market. A Portfolio may have to sell
securities at a time when it may be disadvantageous to do so.

Options on Futures Contracts. The Portfolios intend to purchase and write
options on futures contracts for hedging purposes. The purchase of a call option
on a futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when a Portfolio is not fully invested it may
purchase a call option on a futures contract to hedge against a market advance
due to declining interest rates.

The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's portfolio holdings. The

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writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions,
the Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.

The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Portfolio may purchase a put option on a futures contract to hedge
its portfolio against the risk of rising interest rates.

The amount of risk a Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.

The Board of Trustees of the Portfolio has adopted the requirement that
futures contracts and options on futures contracts be used either (i) as a hedge
without regard to any quantitative limitation, or (ii) for other purposes to the
extent that immediately thereafter the aggregate amount of margin deposits on
all (non-hedge) futures contracts of the Portfolio and premiums paid on
outstanding (non-hedge) options on futures contracts owned by the Portfolio does
not exceed 5% of the market value of the total assets of the Portfolio. In
addition, the aggregate market value of the outstanding futures contracts
purchased by the Portfolio may not exceed 50% of the market value of the total
assets of the Portfolio. Neither of these restrictions will be changed by the
Portfolio's Board of Trustees without considering the policies and concerns of
the various applicable federal and state regulatory agencies.

Options on Foreign Currencies. A Portfolio may purchase and write options
on foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,

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the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, a Portfolio will have the right to sell such currency
for a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.

A Portfolio may write options on foreign currencies for the same types of
hedging purposes. For example, where a Portfolio anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Portfolio also may be required
to forego all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.

The Portfolios intend to write covered call options on foreign currencies.
A call option written on a foreign currency by a Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated

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account by its custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Portfolio has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash,
U.S. Government securities and other high quality liquid debt securities in a
segregated account with its custodian.

The Portfolios also intend to write call options on foreign currencies
that are not covered for cross-hedging purposes. A call option on a foreign
currency is for cross-hedging purposes if it is not covered, but is designed to
provide a hedge against a decline in the U.S. dollar value of a security which
the Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the exchange rate. In
such circumstances, the Portfolio collateralizes the option by maintaining in a
segregated account with its custodian, cash or U.S. Government securities or
other high quality liquid debt securities in an amount not less than the value
of the underlying foreign currency in U.S. dollars marked to market daily.

Additional Risks of Options on Futures Contracts, Forward Contracts and
Options on Foreign Currencies. Unlike transactions entered into by a Portfolio
in futures contracts, options on foreign currencies and forward contracts are
not traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.

Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities

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exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.

As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which may not
be present in the case of exchange-traded currency options. A Portfolio's
ability to terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, each Portfolio
will treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. With respect to options written
with primary dealers in U.S. Government securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase formula.

In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours

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in the United States, (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the United States, and (v)
lesser trading volume.

OPTIONS ON SECURITIES - PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO

The Portfolios may write (sell) covered call and put options to a limited
extent on its portfolio securities ("covered options"). However, a Portfolio may
forego the benefits of appreciation on securities sold or may pay more than the
market price on securities acquired pursuant to call and put options written by
the Portfolio.

When a Portfolio writes a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
the option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which a Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, a Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security above the exercise price.

When a Portfolio writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in the amount of the
premium received for writing the option. If the put option is exercised, a
decision over which a Portfolio has no control, the Portfolio must purchase the
underlying security from the option holder at the exercise price. By writing a
covered put option, a Portfolio, in exchange for the net premium received,
accepts the risk of a decline in the market value of the underlying security
below the exercise price. A Portfolio will only write put options involving
securities for which a determination is made at the time the option is written
that the Portfolio wishes to acquire the securities at the exercise price.

A Portfolio may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration date
as the option previously written. This transaction is called a "closing purchase
transaction." Where a Portfolio cannot effect a closing purchase transaction, it
may be forced to incur brokerage commissions or dealer spreads in selling
securities it receives or it may be forced to hold underlying securities until
an option is exercised or expires.

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When a Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The amount
of the deferred credit will be subsequently marked to market to reflect the
current market value of the option written. The current market value of a traded
option is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.

A Portfolio may purchase call and put options on any securities in which
it may invest. A Portfolio would normally purchase a call option in anticipation
of an increase in the market value of such securities. The purchase of a call
option would entitle the Portfolio, in exchange for the premium paid, to
purchase a security at a specified price during the option period. A Portfolio
would ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.

A Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle a Portfolio, in exchange for the premium paid, to sell
a security, which may or may not be held in the Portfolio's portfolio, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's portfolio securities. Put options also may be purchased by a
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. A Portfolio would
ordinarily recognize a gain if the value of the securities decreased below the
exercise price sufficiently to cover the premium and would recognize a loss if
the value of the securities remained at or above the exercise price. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying portfolio securities.

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The Portfolios have adopted certain other nonfundamental policies
concerning option transactions which are discussed below. A Portfolio's
activities in options may also be restricted by the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company.

The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and there can be
no assurance that viable exchange markets will develop or continue.

The Portfolios may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolios will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Advisers will monitor
the creditworthiness of dealers with whom a Portfolio enters into such options
transactions under the general supervision of the Portfolios' Trustees.

OPTIONS ON SECURITIES INDICES - PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO

In addition to options on securities, the Portfolios may also purchase and
write (sell) call and put options on securities indices. Such options give the
holder the right to receive a cash settlement during the term of the option
based upon the difference between the exercise price and the value of the index.
Such options will be used for the purposes described above under "Options on
Securities."

Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although the
Portfolios generally will only purchase or write such an option if the Advisers
believe the option can be closed out.

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Use of options on securities indices also entails the risk that trading in
such options may be interrupted if trading in certain securities included in the
index is interrupted. The Portfolios will not purchase such options unless the
Advisers believe the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.

Price movements in the Portfolios' securities may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities indices
require settlement in cash, the Advisers may be forced to liquidate portfolio
securities to meet settlement obligations.

SHORT SALES "AGAINST THE BOX" - PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO

In a short sale, a fund sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. A Portfolio may
engage in short sales only if at the time of the short sale it owns or has the
right to obtain, at no additional cost, an equal amount of the security being
sold short. This investment technique is known as a short sale "against the
box".

In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If a Portfolio engages in a short sale, the collateral for the short
position will be maintained by its custodian or qualified sub-custodian. While
the short sale is open, a Portfolio maintains in a segregated account an amount
of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position.

The Portfolios will not engage in short sales against the box for
investment purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security (or a security convertible or exchangeable for such
security), or when a Portfolio wants to sell the security at an attractive
current price, but also wishes to defer recognition of gain or loss for federal
income tax purposes or for purposes of satisfying certain tests applicable to
regulated investment companies under the Code. In such case, any future losses
in a Portfolio's long position should be reduced by a gain in the short
position. Conversely, any gain in the long position should be reduced by a loss
in the short position. The extent to which such gains or losses are reduced
depends upon the amount of the security sold short relative to the amount a
Portfolio owns. There are certain additional transaction costs associated with
short sales

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against the box, but the Portfolios endeavor to offset these costs with the
income from the investment of the cash proceeds of short sales.

As a nonfundamental operating policy, the Advisers do not expect that more
than 40% of a Portfolio's total assets would be involved in short sales against
the box. The Advisers do not currently intend to engage in such sales.

CERTAIN OTHER OBLIGATIONS

In order to allow for investments in new instruments that may be created
in the future, upon the Trust supplementing the Prospectus, a Portfolio or
Portfolios may invest in obligations other than those listed previously,
provided such investments are consistent with a Fund's and its corresponding
Portfolio's investment objective, policies and restrictions.

RATING SERVICES

The ratings of rating services represent their opinions as to the quality
of the securities that they undertake to rate. It should be emphasized, however,
that ratings are relative and subjective and are not absolute standards of
quality. Although these ratings are an initial criterion for selection of
portfolio investments, the Advisers also make their own evaluations of these
securities, subject to review by the Board of Trustees. After purchase by a
Portfolio, an obligation may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Portfolio. Neither event would
require a Portfolio to dispose of the obligation, but the Advisers will consider
such an event in their determination of whether a Portfolio should continue to
hold the obligation. A description of the ratings used herein and in the Funds'
Prospectus is set forth in the Appendix to this Statement of Additional
Information.

Except as stated otherwise, all investment policies and restrictions
described herein are nonfundamental, and may be changed without prior
shareholder approval.

INVESTMENT RESTRICTIONS

The following investment restrictions are "fundamental policies" of each
Fund and each Portfolio and may not be changed with respect to the Fund or the
Portfolio without the approval of a "majority of the outstanding voting
securities" of the Fund or the Portfolio, as the case may be. "Majority of the
outstanding voting securities" under the 1940 Act and as used in this Statement
of Additional Information and the Prospectus means, with respect to the Fund (or
the Portfolio), the lesser of (i) 67% or more of the outstanding voting

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securities of the Fund (or of the total beneficial interests of the Portfolio)
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund (or of the total beneficial interests of the Portfolio)
are present or represented by proxy, or (ii) more than 50% of the outstanding
voting securities of the Fund (or of the total beneficial interests of the
Portfolio). Whenever the Trust is requested to vote on a fundamental policy of a
Portfolio, the Trust will hold a meeting of the corresponding Fund's
shareholders and will cast its vote as instructed by that Fund's shareholders.
If a percentage or a rating restriction on investment or utilization of assets
is adhered to at the time an investment is made or assets are so utilized, a
later change in such percentage resulting from changes in a Portfolio's total
assets or the value of a Portfolio's securities, or a later change in the rating
of a portfolio security, will not be considered a violation of the relevant
policy.

As a matter of fundamental policy, no Portfolio (or Fund) may (except that
no investment restriction of a Fund shall prevent a Fund from investing all of
its assets in an open-end investment company with substantially the same
investment objectives as that Fund):

(1) borrow money or mortgage or hypothecate assets of the Portfolio
(Fund), except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (Fund's) assets (including such borrowing) less liabilities (not
including such borrowing), it may borrow money and 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;

(2) underwrite securities issued by other persons except insofar as the
Portfolio Series or the Portfolio (the Trust or the Fund) may technically be
deemed an underwriter under the 1933 Act in selling a portfolio security;

(3) make loans to other persons except (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such loans not
exceed 30% of the Portfolio's (Fund's) total assets (taken at 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;

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(4) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein), interests
in oil, gas or mineral leases, commodities or commodity contracts (except
futures and option contracts) in the ordinary course of business (the Portfolio
Series (Trust) may hold and sell, for the Portfolio's (Fund's) portfolio, real
estate acquired as a result of the Portfolio's (Fund's) ownership of
securities);

(5) concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the achievement of
the Portfolio's (Fund's) investment objective(s), up to 25% of its total assets
may be invested in any one industry (except that the Money Market Portfolio
(Money Market Fund) reserves the freedom of action to concentrate 25% or more of
its assets in obligations of domestic branches of domestic banks);

(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, 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.

State and Federal Restrictions. In order to comply with certain state and
federal statutes and policies each Portfolio (or the Trust, on behalf of each
Fund) will not as a matter of operating policy (except that no operating policy
shall prevent a Fund from investing all of its assets in an open-end investment
company with substantially the same investment objective as that Fund):

(i) borrow money for any purpose in excess of 10% of the Portfolio's
(Fund's) total assets (taken at cost), except that the Portfolio
(Fund) may borrow for temporary or emergency purposes up to 1/3 of
its assets;

(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's (Fund's) net assets (taken at market value),
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation margin,
reverse repurchase agreements, when-issued securities and other
similar investment techniques are not considered a pledge of assets
for purposes of this restriction;

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<PAGE> 87
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;

(iv) invest for the purpose of exercising control or management;

(v) purchase securities issued by any other investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though
not made in the open market, is part of a plan of merger or
consolidation; provided, however, that securities of any investment
company will not be purchased for the Portfolio (Fund) if such
purchase at the time thereof would cause (a) more than 10% of the
Portfolio's (Fund's) total assets (taken at the greater of cost or
market value) to be invested in the securities of such issuers; (b)
more that 5% of the Portfolio's (Fund's) total assets (taken at the
greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Portfolio (Fund);
and provided further that the Portfolio (Fund) may not purchase any
security from any open-end investment company;

(vi) purchase securities of any issuer if such purchase at the time
thereof would cause the Portfolio (Fund) to hold more than 10% of
any class of securities of such issuer, for which purposes all
indebtedness of an issuer shall be deemed a single class and all
preferred stock of an issuer shall be deemed a single class, except
that futures or option contracts shall not be subject to this
restriction;

(vii) purchase or retain in the Portfolio's (Fund's) portfolio any
securities issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Trustee of the
Portfolio (Trust), or is an officer or partner of the Adviser or
Subadviser, if after the purchase of the securities of such issuer
for the Portfolio (Fund) one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or
both, all taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all
taken at market value;

Diversified Investors Funds Group Combined SAI Page 31
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(viii) invest more than 5% of the Portfolio's (Fund's) net assets in
warrants or rights (valued at the lower of cost or market), but not
more than 2% of the Portfolio's (Fund's) net assets may be invested
in warrants not listed on the New York Stock Exchange or the
American Stock Exchange; and

(ix) make short sales of securities or maintain a short position
(excluding short sales if the Portfolio (Fund) owns an equal amount
of such securities or securities convertible into or exchangeable
for, without payment of any further consideration, securities of
equivalent kind and amount) if such short sales represent more than
25% of the Portfolio's (Fund's) net assets (taken at market value);
provided, however, that the value of the Portfolio's (Fund's) short
sales of securities (excluding U.S. Government securities) of any
one issuer may not be greater than 2% of the value (taken at market
value) of the Portfolio's (Fund's) net assets or more than 2% of the
securities of any class of any issuer.

(x) enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are not
readily marketable (which securities would include participation
interests that are not subject to the demand feature described in
the Fund's then-current Prospectus and floating and variable rate
demand obligations as to which no secondary market exists and the
Portfolio cannot exercise the demand feature described in the Fund's
then-current Prospectus on not more than seven days' notice), if, in
the aggregate, more than 15% (10% in the case of the Money Market
Portfolio(Fund)) of its net assets would be so invested. A
Portfolio (Fund) may not invest in TDs maturing in more than seven
days.

Policies (i) through (x) may be changed by the Board of Trustees of the
Portfolio or the Trust.

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

Except as may be required to ensure satisfaction of certain tests
applicable to regulated investment companies under the Code, portfolio changes
are made without regard to the length of time a security has been held, or
whether a sale would result in the recognition of a profit or loss. Therefore,
the rate of portfolio turnover is not a limiting factor when changes are
appropriate. Portfolio trading is engaged in for a Portfolio if the Advisers
believe that a transaction net of costs (including custodian charges) will help
achieve the Portfolio's investment objective.

Diversified Investors Funds Group Combined SAI Page 32
<PAGE> 89
A Portfolio's purchase and sales of securities may be principal
transactions, that is, securities may be purchased directly from the issuer or
from an underwriter or market maker for the securities. There usually are no
brokerage commissions paid for such purchases and, therefore, the Portfolios do
not anticipate paying brokerage commissions in such transactions. Any
transactions for which a Portfolio pays a brokerage commission will be effected
at the best price and execution available. Purchases from underwriters of
securities include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and the asked price.

Allocations of transactions, including their frequency, to various dealers
is determined by the Subadvisers in their best judgement and in a manner deemed
to be in the best interest of the investors in a Portfolio rather than by any
formula. The primary consideration is prompt execution of orders in an effective
manner at the most favorable price.

Investment decisions for a Portfolio will be made independently from those
for any other account or investment company that is or may in the future become
managed by the Advisers or their affiliates. If, however, a Portfolio and other
investment companies or accounts managed by the Subadvisers are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by a Portfolio or the size of the position obtainable for the
Portfolio. In addition, when purchases or sales of the same security for a
Portfolio and for other investment companies managed by the Subadvisers occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
Furthermore, in certain circumstances affiliates of the Subadvisers whose
investment portfolios are managed internally, rather than by the Subadvisers,
might seek to purchase or sell the same type of investments at the same time as
a Portfolio. Such an event might also adversely affect that Portfolio.

PERFORMANCE INFORMATION

MONEY MARKET FUND

For the Money Market Fund, yield is computed in accordance with a
standardized method which involves determining the net change in the value of a
hypothetical pre-existing Money Market Fund account having a balance of one
share at the beginning of a seven calendar day period for which yield is to be
quoted, dividing the net change by the value of the account at the beginning of
the period to obtain the base period return, and annualizing the results (i.e.,

Diversified Investors Funds Group Combined SAI Page 33
<PAGE> 90
multiplying the base period return by 365/7). The net change in the value of the
account reflects the value of additional shares purchased with dividends
declared on the original share and any such additional shares and fees that may
be charged to shareholder accounts, in proportion to the length of the base
period and the Money Market Fund's average account size, but does not include
realized gains and losses or unrealized appreciation and depreciation. Effective
annualized yield is computed by adding 1 to the base period return (calculated
as described above), raising that sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.

Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held by the Money Market Portfolio, portfolio
maturity and operating expenses. An investor's principal in the Money Market
Fund is not guaranteed. See "Determination of Net Asset Value" for a discussion
of the manner in which the Money Market Fund's price per share is determined.

From time to time, the Money Market Fund in its advertising and sales
literature may refer to the growth of assets managed or administered by the
Adviser over certain time periods.

Comparative performance information may be used from time to time in
advertising or marketing the Money Market Fund's shares, including data from
Lipper Analytical Services, Inc., IBC/Donoghue's Money Fund Report. Morningstar,
Inc., CDA and other publications.

ALL FUNDS

Standard Performance Information

From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner for each Fund:

TOTAL RETURN: The Fund's total return will be calculated for certain
periods by determining the average annual compounded rates of return over
those periods that would cause an investment of $1,000 (with all
distributions reinvested) to reach the value of that investment at the end
of the periods. The Fund may also calculate (i) a total return assuming an
initial account value of $1,000 and/or (ii) total rates of return which
represent aggregate performance over a period of year-by-year performance.

Diversified Investors Funds Group Combined SAI Page 34
<PAGE> 91
YIELD: The Fund's yield quotation will be based on the annualized net
investment income per share of the Fund over a 30-day period. The current
yield for the Fund is calculated by dividing the net investment income per
share of the Fund earned during the period by the net asset value per
share of the Fund on the last day of that period. The resulting figure is
then annualized. Net investment income per share is determined by dividing
(i) the dividends and interest earned during the period, minus accrued
expenses for the period, by (ii) the average number of Fund shares
entitled to receive dividends during the period multiplied by the net
asset value per share on the last day of the period.

Total returns calculated for any of the Funds for any period which
includes a period prior to the reorganization date will reflect the performance
of the corresponding Pooled Separate Account. The reorganization date is the
date on which the corresponding Pooled Separate Account of The Mutual Life
Insurance Company of New York ("MONY") set forth below contributed all of its
assets to the corresponding Portfolio of Diversified Investors Portfolios in
which the corresponding Fund invests its assets:

FUND MONY POOLED SEPARATE ACCOUNT

Money Market Pooled Account No. 4
High Quality Bond Pooled Account No. 15
Intermediate Government Bond Pooled Account No. 10d
Government/Corporate Bond Pooled Account No. 5
Balanced Pooled Account No. 14
Equity Income Pooled Account No. 6
Growth & Income Pooled Account No. 10a
Equity Growth Pooled Account No. 1
Special Equity Pooled Account No. 10b
International Equity Pooled Account No. 12

Such total returns calculated for each of the Funds will reflect the
performance of the corresponding Pooled Separate Account only from the date that
such corresponding Pooled Separate Account adopted investment objectives,
policies and practices substantially similar to those of the corresponding
Portfolio of Diversified Investors Portfolios invested in by the Fund. All total
return percentages for such periods will reflect the historical rates of return
of the corresponding Pooled Separate Account for such period adjusted to assume
that all charges, expenses and fees of the applicable Fund which are presently
in effect were deducted during such period. The corresponding Pooled Separate
Accounts were not registered under the Investment Company Act of 1940 and,
therefore, were not subject to certain investment restrictions imposed by that
Act. If the corresponding Pooled Separate Accounts had been registered under
that Act, investment performance might have been adversely affected.

Diversified Investors Funds Group Combined SAI Page 35
<PAGE> 92
As of June 30 1995, the average annual total returns for each of the
Funds, including the pooled accounts noted above, were as follows:

<TABLE>
<CAPTION>
For The For The For The For The For The
Period Since 12 Months 3 Years 5 Years 10 Years
Inception Through Ended Ended Ended Ended
FUND June 30, 1995 June 30, 1995 June 30, 1995 June 30, 1995 June 30, 1995
- ---- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Money Market 8.05 4.64 3.32 4.25 5.71
High Quality Bond 6.93 7.77 5.40 6.93 --
Intermediate Government
Bond 7.71 8.81 6.07 -- --
Government/Corporate
Bond 9.07 13.83 8.27 9.70 9.38
Balanced 11.77 19.71 -- -- --
Equity Income 13.09 16.35 11.64 10.40 12.58
Growth & Income 11.79 18.30 10.29 9.28 --
Equity Growth 9.04 25.49 -- -- --
Special Equity 13.82 27.93 17.91 13.52 --
International Equity 15.22 2.78 -- -- --
</TABLE>

The average annual total returns for the High-Yield Bond Fund reflect
annualized returns for all private accounts and collective investment vehicles
managed by Delaware Investment Advisers during the periods indicated with
investment objectives, policies and restrictions substantially similar to the
High-Yield Bond Fund, and which have been managed as the High- Yield Bond Fund
is expected to be managed. These returns are adjusted to assume that all
charges, expenses and fees of the High-Yield Bond which are presently in effect
were deducted during such periods. At June 30, 1995, the annualized total
returns for the High-Yield Bond Fund were as follows: Since Inception - 12.01%;
1 Year - 8.71%; 3 Years - 8.93%; 5 Years - 11.06%; and 10 Years - 10.37%.

Effective November 14, 1995, Putnam Advisory Company, Inc. ("Putnam")
became the subadvisor to the Growth & Income Fund. The average annual total
returns at June 30, 1995 for all private accounts and collective investment
vehicles managed by Putnam with investment objectives, policies and restrictions
substantially similar to the Growth & Income Fund, adjusted to assume that all
charges, expenses and fees of the Growth & Income Fund presently in effect were
deducted, are as follows: Since Inception - 16.71%; 1 Year - 24.94%; 3 Years
- - 15.53%; 5 Years - 13.89%; and 10 Years - _______%.

Any yield or total return quotation provided for the Fund should not be
considered as representative of the performance of the Fund in the future since
the net asset value of shares of the Fund will vary based not only on the type,
quality and maturities of the securities held in the Portfolio, but also on
changes in the current value of such securities and on changes in the expenses
of the Fund and the Portfolio. These factors and possible differences in the
methods used to calculate yields and total return should be considered when
comparing the yield and total return of the Fund to yields and total rates of

Diversified Investors Funds Group Combined SAI Page 36
<PAGE> 93
return published for other investment companies or other investment vehicles.
Total return reflects the performance of both principal and income.

COMPARISON OF FUND PERFORMANCE

Comparison of the quoted non-standardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of a Fund with performance quoted with respect to other investment
companies or types of investments.

In connection with communicating its performance to current or prospective
shareholders, a Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. A Portfolio may invest in
some instruments not eligible for inclusion in such an index, and may be
prohibited from investing in some instruments included in this index.
Evaluations of a Fund's performance made by independent sources may also be used
in advertisements concerning a Fund. Sources for a Fund's performance
information may include, but are not limited to, the following:

Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.

Changing Times, The Kiplinger Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.

Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.

Donoghue's Money Fund Report, a weekly publication of the Donoghue Organization,
Inc., of Holliston, Massachusetts, reporting on the performance of the nation's

Diversified Investors Funds Group Combined SAI Page 37
<PAGE> 94
money market funds, summarizing money market fund activity, and including
certain averages as performance benchmarks, specifically "Donoghue's Money Fund
Average" and "Donoghue's Government Money Fund Average."

Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

World Investor, a European publication that periodically reviews the performance
of U.S. mutual funds investing internationally.

Investor's Daily, a daily newspaper that features financial, economic and
business news.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.

New York Times, a nationally distributed newspaper which regularly covers
financial news.

Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.

Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.

U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.

Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.

Diversified Investors Funds Group Combined SAI Page 38
<PAGE> 95
Weisenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.

Working Women, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.

DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES

The Trust determines the net asset value of the shares of each Fund each
day that the Advisers of the corresponding Portfolio are open for business. (As
a result, a Fund will normally determine its net asset value every weekday
except for the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas.) This
daily determination of net asset value is made as of the close of regular
trading on the New York Stock Exchange, currently 4:00 p.m., New York time, by
dividing the total assets of a Fund less all of its liabilities, by the total
number of shares of a Fund outstanding at the time the determination is made.
Purchases and redemptions will be effected at the time of determination of net
asset value next following the receipt of any purchase or redemption order
deemed to be in good order. (See "Purchases and Redemptions of Shares" in the
Prospectus.)

Trading in securities on most non-U.S. exchanges and over-the-counter
markets is normally completed before the close of regular trading on the New
York Stock Exchange and may also take place on days on which the New York Stock
Exchange is closed. If events materially affecting the value of non-U.S.
securities occur between the time when the exchange on which they are traded
closes and the time when a Fund's net asset value is calculated, such securities
will be valued at fair value in accordance with procedures established by and
under the general supervision of the Board of Trustees of the Trust.

Equity securities are valued at the last sale price on the exchange on
which they are primarily traded or at the ask price on the NASDAQ system for
unlisted national market issues, or at the last quoted bid price for securities
in which there were no sales during the day or for unlisted securities not
reported on the NASDAQ system. Bonds and other fixed income securities (other
than short-term obligations, but including listed issues) are valued on the
basis of valuations furnished by a pricing service, the use of which has been
approved by the Board of Trustees. In making such valuations, the pricing
service utilizes both dealer-supplied valuations and electronic data processing
techniques that take into account appropriate factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data, without exclusive
reliance upon quoted prices or exchange or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of such
securities. Short-term obligations which mature in 60 days or less are valued at
amortized cost, which approximates fair value as determined by the Board of

Diversified Investors Funds Group Combined SAI Page 39
<PAGE> 96
Trustees. Futures and option contracts that are traded on commodities or
securities exchanges are normally valued at the settlement price on the exchange
on which they are traded. Portfolio securities (other than short-term
obligations) for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Board of
Trustees.

Interest income on long-term obligations is determined on the basis of
interest accrued plus amortization of discount (generally, the difference
between issue price and stated redemption price at maturity) and premiums
(generally, the excess of purchase price over stated redemption price at
maturity). Interest income on short-term obligations is determined on the basis
of interest and discount accrued less amortization of premium.

Any assets or liabilities initially denominated in terms of foreign
currencies are translated into U.S. dollars at the official exchange rate or,
alternatively, at the mean of the current bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing service
that takes into account the quotes provided by a number of such major banks. If
neither of these alternatives is available or both are deemed not to provide a
suitable methodology for converting a foreign currency into U.S. dollars, the
Board of Trustees, in good faith, will establish a conversion rate for such
currency.

A determination of value used in calculating net asset value must be a
fair value determination made in good faith utilizing procedures approved by the
Portfolio Series' Board of Trustees. While no single standard for determining
fair value exists, as a general rule, the current fair value of a security would
appear to be the amount which a Portfolio could expect to receive upon its
current sale. Some, but not necessarily all, of the general factors which may be
considered in determining fair value include: (i) the fundamental analytical
data relating to the investment; (ii) the nature and duration of restrictions on
disposition of the securities; and (iii) an evaluation of the forces which
influence the market in which these securities are purchased and sold. Without
limiting or including all of the specific factors which may be considered in
determining fair value, some of the specific factors include: type of security,
financial statements of the issuer, cost at date of purchase, size of holding,
discount from market value, value of unrestricted securities of the same class
at the time of purchase, special reports prepared by analysts, information as to
any transactions or offers with respect to the security, existence of merger
proposals or tender offers affecting the securities, price and extent of public
trading in similar securities of the issuer or comparable companies, and other
relevant matters.

Each investor in each Portfolio, including the corresponding Fund, may add
to or reduce its investment in the Portfolio on each day that the Adviser and
the Subadviser of the Portfolio are open for business. As of 4:00 p.m. (New York

Diversified Investors Funds Group Combined SAI Page 40
<PAGE> 97
time) on each such day, the value of each investor's interest in a Portfolio
will be determined by multiplying the net asset value of the Portfolio by the
percentage representing that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or reductions which are to be effected
on that day will then be effected. The investor's percentage of the aggregate
beneficial interests in the Portfolio will then be recomputed as the percentage
equal to the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of 4:00 p.m. on such day plus or minus, as the
case may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of 4:00 p.m. on such
day plus or minus, as the case may be, the amount of the net additions to or
reductions in the aggregate investments in the Portfolio by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in a Portfolio as of 4:00 p.m. on the following
day the New York Stock Exchange is open for trading.

Diversified Investors Funds Group Combined SAI Page 41
<PAGE> 98
MANAGEMENT OF THE TRUST AND PORTFOLIO SERIES

The respective Trustees and officers of the Trust and the Portfolio Series
and their principal occupations during the past five years are set forth below.
Their titles may have varied during that period. Asterisks indicate those
Trustees who are "interested persons" (as defined in the 1940 Act) of the Trust
or the Portfolio Series, as the case may be. Unless otherwise indicated, the
address of each Trustee and officer of the Trust and the Portfolio Series is
Four Manhattanville Road, Purchase, New York 10577.

TRUSTEES OF THE TRUST

Donald E. Flynn* Vice President, AEGON USA, Inc., 1988 to present;
Executive Vice President, AEGON USA Investment
Management, Inc., 1988 to present; Vice President,
AEGON USA Managed Portfolios, Inc., 1988 to present.

Robert Lester Lindsay Retired; Executive Vice President, The Mutual Life
Insurance Company of New York (prior to July 1989);
His address is Two Huguenot Center, Tenafly, New
Jersey 07670-2520.

Nikhil Malvania Partner, Deaner-Malvania Associates (since [] 1991);
Manager and Vice President, Strategic Planning
Associates (prior to [] 1991). His address is 88
Perry Street, New York, New York 10014.

Joyce Galpern Norden 5/95 to present - Co-Director, Urman's Health
Clinical Research Program Medical Center, University
of Pennsylvania. 10/93 to 5/95 - Foundations
Director, American Jewish Committee; 2/91 to 9/93 -
Executive Director, Food-People Allied to Combat
Hunger Inc. Her address is Nine Evergreen Way, North
Tarrytown, New York 10591.

Tom A. Schlossberg* President, Diversified, 10/92 to present; Executive
Vice President and Head of Pension Operations, The
Mutual Life Insurance Company of New York, 1/93 to
12/93.

Diversified Investors Funds Group Combined SAI Page 42
<PAGE> 99
TRUSTEES OF THE PORTFOLIO SERIES

In addition to the Trustees below, Messrs. Schlossberg and Flynn serve as
Trustees of the Portfolio Series.

Neal M. Jewell 1/95 to present - Consultant, 11/91 to 1/95 Executive
Vice President, 1/90 to 10/91 - Director of Oversees
Pensions, American International Group Asset
Management. His address is 355 Thornridge Drive,
Stamford, Connecticut 06903.

Eugene M. Mannella Vice President, Investment Management Services, Inc.
(since August 1993); Senior Vice President, Lehman
Brothers Inc. (May 1986 to August 1993). His address
is Two Orchard Neck Road, Center Moriches, New York
11934.

Patricia L. Sawyer Executive Vice President and Director, Robert L.
Smith & Co. (since July 1990); Vice President,
American Express (September 1988 to July 1990). Her
address is 256 West 10th Street, New York, New York
10014.

OFFICERS

Mr. Schlossberg is President, Chief Executive Officer and Chairman of the
Board and Mr. Flynn is Vice President of the Trust and the Portfolio Series.
Each other officer also holds the same position indicated with the Trust and the
Portfolio Series.

Robert F. Colby Secretary; Vice President and Chief Corporate
Counsel, Mutual Life Insurance Company of New York,
4/93 to 12/93; Vice President and General Counsel,
Diversified, 11/93 to present; Vice President of
DISC, 11/93 to present.

Alfred C. Sylvain Treasurer and Assistant Secretary; Vice President and
Treasurer of Diversified, 11/93 to present; Treasurer
of DISC., 11/93 to present; Vice President, Mutual
Life Insurance Company of New York, 1/91 to presesnt.

John F. Hughes Assistant Secretary; Senior Counsel, Mutual Life
Insurance Company of New York, 1/88 to present; Vice
President and Senior Counsel, Diversified, 11/93 to
present; Assistant Secretary, DISC. 11/93 to present.

The Declaration of Trust provides that the Trust will indemnify its

Diversified Investors Funds Group Combined SAI Page 43
<PAGE> 100
Trustees and officers as described below under "Description of the Trust; Fund
Shares."

PRINCIPAL HOLDERS OF SECURITIES

At June 30, 1995, the following investors held more than 5% of the
outstanding shares of the following Funds.

Money Market Fund: Diversified Investment Advisors, Inc., 4 Manhattanville Road,
Purchase, New York 10577 (1,472 shares owned - - 56%); Joanne Green, 34 Barton
Hill, East Hampton, Connecticut 06424 (646 shares owned - - 24%).

High Quality Bond Fund: Diversified Investment Advisors, Inc., 4 Manhattanville
Road, Purchase, New York 10577 (1,275 shares owned - - 60%); Joanne Green, 34
Barton Hill, East Hampton, Connecticut 06424 (179 shares owned - - 8.5%).

Government/Corporate Bond Fund: Diversified Investment Advisors, Inc., 4
Manhattanville Road, Purchase, New York 10577 (1,275 shares owned - - 55%);
Joanne Green 34 Barton Hill, East Hampton, Connecticut 06424 (326 shares owned -
- - 15.7%); Robert J. Zannetti, 20 Sunnyside Lane, Westport, Connecticut 06880
(306 shares owned - - 13.2%).

Balanced Fund: Diversified Investment Advisors, Inc., 4 Manhattanville Road,
Purchase, New York 10577 (1,261 shares owned - - 8%); Fred E. Gevirtzman, 1785
215th Street, Bayside, New York 11360 (1,155 shares owned - - 7.7%); Naomi
Gevirtzman, 17-85 215th Street, Bayside, New York 11360 (1,093 shares owned - -
7.3%); Wanda Sue Feight, 207 Adrian Council Bluff, Iowa 51503 (808 shares owned
- - - 5.4%).

Equity Income Fund: Diversified Investment Advisors, Inc., 4 Manhattanville
Road, Purchase, New York (1,261 shares - - 18%); Margery P. Hall, 65 Soundview
Avenue, White Plains, New York 10606 (681 shares - - 11%); Carleen S. Cleary,
11110 28th Street, Santa Fe, Texas 77510 (493 shares - - 7.9%); Kenneth J. Vitt,
P.O. Box 3424, Cuyahoge Falls, Ohio 44223 (444 shares - - 7.2%); John J. Taylor,
1 Lanyard Lane, Baldwinsville, New York 13027 (435 shares owned - - 7.0%);
Robert P. Patrissi; 5 Poplar Street, White Plains, New York 10607 (424 shares
owned - - 6.8%).

Growth & Income Fund: Diversified Investment Advisors, Inc., 4 Manhattanville
Road, Purchase, New York 10577 (1,254 shares owned - - 21%); Richard D. Jamison,
607 East Street, Sidney, Iowa 51652 (942 shares owned - - 16%); Marilyn H.
Rabney, 444 E. 82nd Street, New York, New York 10028 (521 shared owned - -
8.8%); Peggy S. Intrator, 11 Riverside Drive, New York, New York 10023 (383
shares owned - - 6.5%); Andree F. Rabney, 444 E. 82nd Street, New York, New York
10028 (374 shares owned - - 6.3%).

Equity Growth Fund: Diversified Investment Advisors, Inc., 4 Manhattanville
Road, Purchase, New York 10577 (1,250 shares owned - - 12%); John A. Haynes,
4260 Highway 79, Brandenburg, Kentucky 40108 (1,134 shares owned - - 10.7%);
Richard D. Jamison, 601 East Street, Sidney, Iowa 51652 (854 shares owned - -
8.1%); Lesley C. Loke, 42 Eighth Street, Charlestown, Massachusetts, 02129 (592
shares owned - - 5.6%).

Diversified Investors Funds Group Combined SAI Page 44
<PAGE> 101
Special Equity Fund: Diversified Investment Advisors, Inc., 4 Manhattanville
Road, Purchase, New York, 10577 (1,261 shares owned - - 15%); Constance U. Day,
315 Linden Street, Fort Atkinson, Wisconsin 53538 (596 shares owned - - 7.3%);
Vincent Jarvis, 1725 York Avenue, New York, New York 10128 (446 shares owned - -
5.5).

At June 30, 1995, AUSA Life Insurance Company, Inc. ("AUSA"), 4
Manhattanville Road, Purchase, New York 10577 and The Mutual Life Insurance
Company ("MONY"), 1740 Broadway, New York, New York 10019 owned the following
percentage interests of the outstanding beneficial interests of the Portfolios
indicated (all such interests being held in separate accounts of AUSA and MONY,
respectively):

<TABLE>
<CAPTION>
AUSA MONY
<S> <C> <C>
Money Market 31% 65%
High Quality Bond 38% 60%
Government/Corporate Bond 14% 83%
Balanced 76% 23%
Equity Income 50% 50%
Growth & Income 41% 56%
Equity Growth 67% 31%
Special Equity 28% 71%
</TABLE>

COMPENSATION

For the fiscal year ended December 31, 1994, the Trust provided the
following compensation to its trustees

<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Compensation
Name of Compensa- Benefits Accrued Estimated Annual From Registrant
Person, tion From As Part of Fund Benefits Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Trustees
- -------- ---------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Tom A. Schlossberg - 0 - None N/A - 0 -
Trustee

Donald E. Flynn - 0 - None N/A - 0 -
Trustee

Robert L. Lindsay $9,000 None N/A $9,000
Trustee
</TABLE>

Diversified Investors Funds Group Combined SAI Page 45
<PAGE> 102
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Compensation
Name of Compensa- Benefits Accrued Estimated Annual From Registrant
Person, tion From As Part of Fund Benefits Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Trustees
- -------- ---------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Nikhil Malvania $9,000 None N/A $9,000
Trustee

Joyce Galpern Norden $9,000 None N/A $9,000
Trustee
</TABLE>

For the fiscal year ended December 31, 1994, the Portfolio Series provided
the following compensation to its trustees.

<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Compensation
Name of Compensa- Benefits Accrued Estimated Annual From Registrant
Person, tion From As Part of Fund Benefits Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Directors
- -------- ---------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Tom A. Schlossberg - 0 - None N/A - 0 -
Trustee

Donald E. Flynn - 0 - None N/A - 0 -
Trustee

Neal M. Jewell $10,000 None N/A $10,000
Trustee

Eugene M. Manella $10,000 None N/A $10,000
Trustee

Patricia L. Sawyer $10,000 None N/A $10,000
Trustee
</TABLE>

INVESTMENT ADVISORY SERVICES

The Adviser manages the assets of each Portfolio pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with the Portfolio Series with
respect to that Portfolio and the investment policies described herein and in
the Prospectus for the corresponding Fund. Subject to such further policies as
the Portfolio Series's Board of Trustees may determine, the Adviser provides
general investment advice to each Portfolio. For its services under each
Advisory Agreement, Diversified receives from each Portfolio fees accrued daily
and paid monthly at an annual rate equal to the percentages specified in the
table below of the corresponding Portfolio's average daily net assets.

For each Portfolio, the Adviser has entered into an Investment Subadvisory

Diversified Investors Funds Group Combined SAI Page 46
<PAGE> 103
Agreement (each a "Subadvisory Agreement") with each Subadviser.

Each Advisory Agreement provides that the Adviser or a Subadviser, as the
case may be, may render services to others. Each agreement is terminable without
penalty on not more than 60 days' nor less than 30 days' written notice by a
Portfolio when authorized either by majority vote of the investors in the
Portfolio (with the vote of each being in proportion to the amount of its
investment) or by a vote of a majority of the Board of Trustees of the Portfolio
Series, or by the Adviser or a Subadviser on not more than 60 days' nor less
than 30 days' written notice, as the case may be, and will automatically
terminate in the event of its assignment. Each agreement provides that neither
the Adviser nor Subadviser nor their personnel shall 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 security transactions for the
corresponding Portfolio, except for willful misfeasance, bad faith, gross
negligence or reckless disregard of its or their obligations and duties under
the Advisory Agreement and the Subadvisory Agreement, as the case may be.

The Adviser's and Subadviser's fees are described in the Funds'
Prospectus. The Adviser, if required by applicable state law, shall reimburse a
Fund or waive all or part of its fees up to, but not exceeding, its investment
advisory fees from the corresponding Portfolio. Such reimbursement, if required,
will be equal to the combined aggregate annual expenses of the appropriate Fund
and its corresponding Portfolio which exceed that expense limitation with the
lowest threshold prescribed by any state in which such Fund is qualified for
offer or sale. Management of each of the Trust and the Portfolios has been
advised that the lowest such threshold currently in effect is 2 1/2% of net
assets up to $30,000,000, 2% of the next $70,000,000 of net assets and 1 1/2% of
net assets in excess of that amount.

Diversified is an investment firm dedicated to meeting the complete needs
of retirement plan sponsors and participants from pre- through post-retirement.
Diversified provides flexible, high-quality services coupled with the employment
of independent investment managers in an innovative investment structure.

Diversified services over $8 billion in retirement plan assets and has
offices in Boston, Charlotte, Chicago, Cincinnati, Dallas, Houston, New Orleans,
New York, Philadelphia, Portland and San Francisco. It maintains recordkeeping
for 300,000 participants and has 490 employees dedicated to retirement plan
investment and administration. Its employees average more than seven years of
retirement plan experience.

As experts in customizing retirement solutions, Diversified offers
comprehensive programs of high-quality investments and administrative services

Diversified Investors Funds Group Combined SAI Page 47
<PAGE> 104
to defined benefit, defined contribution and not-for-profit pension plan
sponsors. Diversified forms a partnership with its clients to provide
exceptional plan design, participant communication programs, recordkeeping
services and technical guidance.

Diversified's investment structure provides access to an array of
complementary investment alternatives representing the major asset classes along
the risk/reward spectrum. Subadvisers are selected from more than 2,000 highly
accomplished independent firms. Each subadviser's performance is carefully
monitored by Diversified taking into consideration fund performance in light of
investment objectives and policies and level of risk.

Through a rigorous portfolio manager selection process which includes
researching each subadviser's asset class, track record, organizational
structure, management team, consistency of performance and assets under
management, five to ten subadvisers are chosen. Out of that group, Diversified
then carefully chooses the three most qualified subadvisers based on performance
evaluation, ownership structure, personnel and philosophy to return for an
on-site visit and a quantitative and qualitative analysis by the investment
committee. Out of those three subadvisers, Diversified then hires the most
qualified, independent subadviser for each Portfolio, subject to approval by the
Portfolio Series' Board of Trustees including a majority of the Trustees who are
not "interested persons" of the Portfolio Series.

Diversified brings comprehensive monitoring and control to the investment
management process. It seeks superior portfolio management and moves
purposefully in replacing managers when warranted. From a plan sponsor's
perspective, replacing a manager, and not the investment fund, is a key
advantage in avoiding the expense and difficulty of re-enrolling participants or
disrupting established plan administration. Replacing a Subadviser, however,
will necessitate a shareholder proxy solicitation which involves other expenses
to a Fund.

Highly disciplined manager evaluation on both a quantitative and
qualitative basis, is an ongoing process. Diversified's Manager Monitoring Group
gathers and analyzes performance and Diversified's Investment Committee reviews
it. Performance attribution, risk/return ratios and purchase/sale assessments
are prepared monthly and, each quarter, a more comprehensive review is completed
which consists of manager visits, fundamental analysis and statistical analysis.
Extensive quarterly analysis is conducted to ensure that the investment fund is
being managed in line with the stated objectives. Semiannually, the Investment
Committee reviews the back-up manager selection, regression analysis and
universe comparisons.

Diversified Investors Funds Group Combined SAI Page 48
<PAGE> 105
A number of "red flags" signal a more extensive and frequent manager
review. These flags consist of a return inconsistent with the investment
objective, changes in subadviser leadership, ownership or portfolio managers,
large changes in assets under management and changes in philosophy or
discipline. The immediate response to any red flag is to assess the potential
impact on the manager's ability to meet investment objectives. Diversified
monitors "back-up" additional independent managers for each investment so that,
should a manager change be warranted, the transition can be effected on a timely
basis.

ADMINISTRATOR

The Administrative Services Agreements between Diversified, as
Administrator, and each of the Portfolio Series and the Trust are described in
the Prospectus. Each agreement provides that Diversified may render services to
others as administrator. In addition, each agreement terminates automatically if
it is assigned and may be terminated without penalty, in the case of the
Portfolio Series, by majority vote of the Funds and of the other investors in
the Portfolio Series (with the vote of each being in proportion to the amount of
its investment) or, in the case of the Trust, by majority vote of the Trust's
shareholders, or by either party on not more than 60 days' nor less than 30
days' written notice. Each Administrative Services Agreement also provides that
neither Diversified nor its personnel shall be liable for any error of judgment
or mistake of law or for any act or omission in connection with any Fund or
Portfolio, except for willful misfeasance, bad faith or gross negligence in the
performance of its or their duties or by reason of reckless disregard of its or
their duties or obligations under said agreements.

CUSTODIAN AND TRANSFER AGENT

Pursuant to the Administrative and Transfer Agency Services Agreement,
Diversified acts as transfer agent for each of the Funds (the "Transfer Agent").
The Transfer Agent maintains an account for each shareholder of a Fund, performs
other transfer agency functions, and acts as dividend disbursing agent for each
Fund.

Pursuant to two Custodian Agreements, Investors Bank & Trust Company acts
as the custodian of each Fund's assets, i.e., each Fund's interest in its
corresponding Portfolio, and as the custodian of each Portfolio's assets (the
"Custodian"). The Custodian's responsibilities include safeguarding and
controlling the Portfolios' cash and securities, handling the receipt and
delivery of securities, determining income and collecting interest on the
Portfolios' investments, maintaining books of original entry for portfolio
accounting and other required books and accounts, and calculating the daily net
asset value of beneficial interests in each Portfolio. Securities held by the

Diversified Investors Funds Group Combined SAI Page 49
<PAGE> 106
Portfolios may be deposited into the Federal Reserve-Treasury Department Book
Entry System or the Depository Trust Company and may be held by a subcustodian
bank if such arrangements are reviewed and approved by the Trustees of the
Portfolio Series. The Custodian does not determine the investment policies of
the Portfolios or decide which securities the Portfolios will buy or sell. A
Portfolio may, however, invest in securities of the Custodian and may deal with
the Custodian as principal in securities and foreign exchange transactions. For
its services, the Custodian will receive such compensation as may from time to
time be agreed upon by it and the Trust and the Portfolio Series.

TAXATION

TAXATION OF THE FUNDS

Each Fund intends to qualify as a regulated investment company ("RIC") for
federal income tax purposes by meeting all applicable requirements of Subchapter
M of the Code, including requirements as to the nature of the Fund's gross
income, the amount of Fund distributions and the composition and holding period
of the Fund's portfolio assets. Because each Fund intends to distribute all of
its net investment income and net realized capital gains to its shareholders in
accordance with the timing requirements imposed by the Code, it is expected that
no Fund will be required to pay any federal income or excise taxes, although
foreign-source income may be subject to foreign withholding taxes. If a Fund
should fail to qualify as a "regulated investment company" in any year, the Fund
will incur a regular corporate federal income tax upon its taxable income
(thereby reducing the return realized by Fund shareholders) and Fund
distributions would constitute ordinary corporate dividends when issued to the
Qualified Investors. However, such Investors would not, in that event, incur any
income tax liability on such distributions provided they remain exempt from
federal income tax.

Under interpretations of the Internal Revenue Service (1) each Portfolio
will be treated for federal income tax purposes as a partnership which is not a
publicly traded partnership and (2) for purposes of determining whether a Fund
satisfies requirements of Subchapter M of the Code, the Fund, as an investor in
its corresponding Portfolio, will be deemed to own a proportionate share of that
Portfolio's assets and will be deemed to be entitled to the Portfolio's income
attributable to that share. The Portfolio Series has advised the Funds that it
intends to conduct the Portfolios' operations so as to enable investors,
including the Funds, to satisfy those requirements.

As RICs, the Funds will not be subject to federal income tax on their
investment company taxable income and net capital gain (the excess of net
long-term capital gain over net short-term capital loss), if any, that it
distributes

Diversified Investors Funds Group Combined SAI Page 50
<PAGE> 107
to its shareholders. Thus, each Fund intends to distribute to its shareholders,
at least annually, substantially all of its investment company taxable income
and net capital gain.

Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, each Fund must, and intends to, distribute
during each calendar year substantially all of its ordinary income for that year
and of its capital gain in excess of its capital losses for the one-year period
ending on October 31 of that year, plus any undistributed ordinary income and
capital gains from previous years. For this and other purposes, a distribution
will be treated as paid on December 31 if it is declared by a Fund in October,
November or December with a record date in such a month and paid by the Fund
during January of the following calendar year. Accordingly, those distributions
will be taxable to shareholders for the taxable year in which that December 31
falls.

Each Fund is designed to meet the long-term investment needs of, and will
be available only to, certain individual and group retirement plans which,
subject to specific requirements, may qualify for tax-exempt status under the
Code. Each Fund has been designed and will be managed with the assumption that
all shareholders are such tax-qualified individual or group plans. Accordingly,
Fund shares are not appropriate investments for individuals or participants in
group plans which would be subject to tax liability upon the occurrence of
distributions from a Fund, including redemptions of shares and exchanges between
Funds. Potential shareholders should consult their tax advisors prior to
purchasing Fund shares to ensure that any such purchase will be carried out
through an appropriate individual or group retirement plan and will be
consistent with the terms and restrictions of such plan. Where applicable,
participants in group retirement plans should consult their plan administrator
for additional information about restrictions on investments and other terms of
an underlying plan.

DISTRIBUTIONS

Tax-qualified retirement plans which invest in any Fund generally will not
be subject to tax liability on either distributions from a Fund or redemptions
of shares of a Fund. Rather, participants are taxed when they take distributions
from the underlying plan in accordance with the rules under the Code governing
the taxation of such distributions. Qualified Investors otherwise generally
exempt from federal taxation of their income might nevertheless be taxed on
distributions of the Fund, and any gain realized on redemption of Fund shares,
where the Investor is subject to the unrelated business taxable income
provisions of the Code with respect to its investment in the Fund because, e.g.,
its acquisition of shares in the Fund was financed with debt.

If, for any reason, a Qualified Investor is not exempt from income
taxation

Diversified Investors Funds Group Combined SAI Page 51
<PAGE> 108
such Qualified Investor will be subject to tax on distributions received from
the Fund irrespective of the fact that such distributions are reinvested in
additional shares. Distributions to such Investors, other than of net capital
gains, will be taxable as ordinary income; distributions of net capital gains
would be taxable to such Investors as long-term capital gain without regard to
the length of time they have held in shares in the Fund. Certain dividends
declared in October, November or December of a calendar year and paid to a
Qualified Investor which is subject to tax on the distribution in January of the
succeeding calendar year are taxable to such Investor as if paid on December 31
of the year in which they were declared.

SALE OF SHARES

Any gain or loss realized by a shareholder subject to federal income tax
upon the sale or other disposition of shares of a Fund, or upon receipt of a
distribution in complete liquidation of a Fund, generally will be a capital gain
or loss that will be long-term or short-term depending upon the shareholder's
holding period for the shares. Any loss realized on a sale or exchange of a
Fund's shares by such a shareholder will be disallowed to the extent the shares
disposed of are replaced (including by shares acquired pursuant to reinvested
distribution) within a period of 61 days beginning 30 days before and ending 30
days after the disposition. In such a case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss. Any loss realized by such a
shareholder on a disposition of a Fund's shares held for six months or less will
be treated as a long-term capital loss to the extent of any distributions of net
capital gain received by the shareholder with respect to such shares.

FOREIGN SHAREHOLDERS

The tax consequences to a foreign shareholder of an investment in a Fund
may be different from those described herein. Foreign shareholders are advised
to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Fund.

TAXATION OF THE PORTFOLIO SERIES

The Portfolio Series, if treated for tax purposes as a partnership, would
not be subject to federal income taxation. Instead, a Fund would take into
account, in computing its federal income tax liability, its share of the
Portfolio Series's income, gains, losses, deductions, credits and tax preference
items, without regard to whether it has received any cash distributions from the
Portfolio Series.

Withdrawals by a Fund from its corresponding Portfolio generally will not
result in such Fund recognizing any gain or loss for federal income tax
purposes, except that (1) gain will be recognized to the extent that any cash
distributed exceeds the basis of a Fund's interest in its Portfolio prior to the

Diversified Investors Funds Group Combined SAI Page 52
<PAGE> 109
distribution, (2) income or gain will be realized if the withdrawal is in
liquidation of a Fund's entire interest in the Portfolio Series and includes a
disproportionate share of any unrealized receivables held by the Portfolio
Series, and (3) loss will be recognized if the distribution is in liquidation of
that entire interest and consists solely of cash and/or unrealized receivables.
The basis of a Fund's interest in the Portfolio Series generally equals the
amount of cash and the basis of any property that the Fund invests in its
corresponding Portfolio, increased by the Fund's share of income from that
Portfolio and decreased by the amount of any cash distributions and the basis of
any property distributed from its corresponding Portfolio.

FOREIGN WITHHOLDING TAXES

Income received by a Portfolio from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries; it is not
expected that the Portfolios or the Funds will be able to "pass through" to the
Fund shareholders subject to tax any foreign tax credits with respect to these
taxes.

Tax conventions between certain countries and the United States may reduce
or eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of assets to be invested in various
countries will vary.

HEDGING STRATEGIES

The use of hedging strategies, such as a Portfolio's entry into interest
rate futures contracts and purchasing options thereon, involves complex rules
that will determine for income tax purposes the character and timing of
recognition of the income received in connection therewith.

The Portfolios will limit their activities in options, futures contracts
and forward contracts to the extent necessary to allow the Funds to qualify as
RICs. As a result, however, a Portfolio may be forced to defer the closing out
of certain options and futures contracts beyond the time when it otherwise would
be advantageous to do so.

OTHER TAXATION

The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor any Fund is liable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that each Fund
continues to qualify as a RIC for federal income tax purposes. The investment by
each Fund in its corresponding Portfolio does not cause a Fund to be liable for
any income or

Diversified Investors Funds Group Combined SAI Page 53
<PAGE> 110
franchise tax in the State of New York.

The Portfolio Series is organized as a New York trust. The Portfolio
Series is not subject to any income or franchise tax in the State of New York
or, so long as it is treated as a partnership (not taxable as a publicly traded
partnership) for federal income tax purposes, the Commonwealth of Massachusetts.

Shareholders of the Funds may be subject to state and local taxes on a
Fund's distributions to them. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in a Fund.

DISTRIBUTION PLAN

The Trust has adopted a Distribution Plan (the "Distribution Plan") in
accordance with Rule 12b-1 under the 1940 Act after having concluded that there
is a reasonable likelihood that the Distribution Plan will benefit the Funds and
their shareholders. The Distribution Plan provides that the Distributor may
receive a fee from each Fund at an annual rate not to exceed 0.25% of that
Fund's average daily net assets in anticipation of, or as reimbursement for,
expenses incurred in connection with the sale of shares of the Fund, such as
advertising expenses and the expenses of printing (excluding typesetting) and
distributing Prospectuses and reports used for sales purposes, expenses of
preparing and printing of sales literature and other distribution-related
expenses.

The Distribution Plan will continue in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trust's Trustees and a majority of the Trust's Trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the operation of the Distribution Plan or in any agreement related to such Plan
("Qualified Trustees"). The Distribution Plan requires that at least quarterly
the Trust and the Distributor shall provide to the Board of Trustees and the
Board of Trustees shall review a written report of the amounts expended (and the
purposes therefor) under the Distribution Plan. The Distribution Plan further
provides that the selection and nomination of the Trust's disinterested Trustees
shall be committed to the discretion of the Trust's disinterested Trustees then
in office. The Distribution Plan may be terminated with respect to a Fund at any
time by a vote of a majority of the Trust's Qualified Trustees or by vote of a
majority of the outstanding voting securities of that Fund. The Distribution
Plan may not be amended to increase materially the amount of permitted expenses
thereunder without the approval of a majority of the outstanding voting
securities of the Fund and may not be materially amended in any case without a
vote of the majority of both the Trust's Trustees and the Trust's Qualified
Trustees. The Distributor will preserve copies of any plan, agreement or report

Diversified Investors Funds Group Combined SAI Page 54
<PAGE> 111
made pursuant to the Distribution Plan for a period of not less than six years
from the date of the Distribution Plan, and for the first two years the
Distributor will preserve such copies in an easily accessible place.

As contemplated by the Distribution Plan, Diversified Investors Securities
Corp. acts as the agent of the Funds in connection with the offering of shares
of the Funds pursuant to a Distribution Agreement (the "Distribution
Agreement"). After the Prospectuses and periodic reports have been prepared, set
in type and mailed to existing shareholders, the Distributor pays for the
printing and distribution of copies of the Prospectuses and periodic reports
which are used in connection with the offering of shares of the Funds to
prospective investors. The Prospectus contains a description of fees payable to
the Distributor under the Distribution Agreement.

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P. serves as the Funds' and the Portfolios'
independent accountants providing audit and accounting services including (i)
audit of the annual financial statements, (ii) assistance and consultation with
respect to the preparation of filings with the SEC and (iii) preparation of
annual income tax returns.

DESCRIPTION OF THE TRUST; FUND SHARES

The Trust is a Massachusetts business trust established under a
Declaration of Trust dated as of April 23, 1993. Its authorized capital consists
of an unlimited number of shares of beneficial interest of $0.00001 par value
which may be issued in separate series. Currently, the Trust has eleven active
series including the Funds, although additional series may be established from
time to time. If additional series are established, each share of a series will
represent an equal proportionate interest in that series with each other share
of the series.

The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Trust. Expenses with respect to any two or more series are to
be allocated in proportion to the asset value of the respective series except
where allocations of direct expenses can otherwise be fairly made. The officers
of the Trust, subject to the general supervision of the Trustees, have the power
to determine which liabilities are allocable to a given series, or which are

Diversified Investors Funds Group Combined SAI Page 55
<PAGE> 112
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the value of the underlying assets of such
shares available for distribution to shareholders.

Shares of the Trust entitle their holder to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon only by shareholders of the series involved.

The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust unless, as
to liability to the Trust or its shareholders, 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
Trust. 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 Trustees or in a
written opinion of independent counsel, that such officers or Trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.

Under Massachusetts law, shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of each Fund
and provides for indemnification and reimbursement of expenses out of Fund
property for any shareholder held personally liable for the obligations of a
particular Fund. The Declaration of Trust also provides for the maintenance, by
or on behalf of the Trust and the Funds, of appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Funds, their shareholders, Trustees, officers, employees and agents covering
possible tort and other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance existed and a Fund itself was unable to meet
its obligations.

Diversified Investors Funds Group Combined SAI Page 56
<PAGE> 113
EXPERTS

The financial statements included herein have been so included in reliance
on the report of Coopers & Lybrand L.L.P. independent accountants, given on the
authority of said firm as experts in auditing and accounting.

FINANCIAL STATEMENTS

The audited financial statements of the Trust (Statements of Assets and
Liabilities at December 31, 1994, Statements of Operations for the applicable
periods ended December 31, 1994, Statements of Changes in Net Assets for the
applicable periods ended December 31, 1994, Notes to Financial Statements and
Report of Independent Accountants) and the audited financial statements of the
Portfolio Series (Portfolio of Investments at December 31, 1994, Statements of
Assets and Liabilities at December 31, 1994, Statements of Operations for the
applicable periods ended December 31, 1994, Statements of Changes in Net Assets
for the applicable periods ended December 31, 1994, Notes to Financial
Statements and Report of Independent Accountants), each of which is included in
the 1994 Annual Report to Shareholders of the Trust are incorporated by
reference into this Statement of Additional Information. A copy of the Annual
Report for the Trust accompanies this Statement of Additional Information.

The unaudited financial statements of the Trust (Statements of Assets and
Liabilities at June 30, 1995, Statements of Operations for the six month period
ended June 30, 1995, Statements of Changes in Net Assets for the six month
period ended June 30, 1995, and Notes to Financial Statements) and the unaudited
financial statements of the Portfolio Series (Portfolio of Investments at June
30, 1995, Statements of Assets and Liabilities at June 30, 1995, Statements of
Operations for the six month period ended June 30, 1995, Statements of Changes
in Net Assets for the six month period ended June 30, 1995, and Notes to
Financial Statements), each of which is included in the Semi-Annual Report to
Shareholders of the Trust at June 30, 1995 are incorporated by reference into
this Statement of Additional Information. A copy of the Semi-Annual Report for
the Trust accompanies this Statement of Additional Information.

Diversified Investors Funds Group Combined SAI Page 57
<PAGE> 114
APPENDIX A

Description of Security Ratings

STANDARD & POOR'S

Corporate and Municipal Bonds

AAA - Debt rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.

AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small
degree.

A - Debt rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debts
in higher rated categories.

BBB - Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debts in this category than for debts
in higher rated categories.

BB - Debt rated BB is regarded as having less near-term vulnerability to
default than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments.

Commercial Paper, including Tax Exempt

A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety.

A-1 - This designation indicates that the degree of safety regarding
timely payment is very strong.

Diversified Investors Funds Group Combined SAI Page 58
<PAGE> 115
MOODY'S

Corporate and Municipal Bonds

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.

Diversified Investors Funds Group Combined SAI Page 59
<PAGE> 116
Commercial Paper

Prime-1 - Issuers rated P-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:

- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.

Diversified Investors Funds Group Combined SAI Page 60
<PAGE> 117
Investment Adviser of the Portfolio Series,
Administrator and Transfer
Agent

Diversified Investment Advisors, Inc. THE DIVERSIFIED INVESTORS FUNDS
Four Manhattanville Road GROUP
Purchase, NY 10577

Diversified Investors Money Market
Fund
Diversified Investors High Quality
Bond Fund
Diversified Investor Intermediate
Government Bond Fund
Diversified Investors
Government/Corporate Bond Fund
Diversified Investors High-Yield Bond
Fund
Diversified Investors Balanced Fund
Diversified Investors Equity Income
Fund
Diversified Investors Growth & Income
Fund
Diversified Investors Equity Growth
Fund
Diversified Investors Special Equity
Fund
Diversified Investors International
Equity Fund

Investment Subadvisers of the Portfolios

Diversified Investors Money Market Fund,
Diversified Investors Intermediate Government
Bond Fund
and Diversified Investors Government/Corporate
Bond Fund
Capital Management Group
1740 Broadway
New York, NY 10019

Diversified Investors High Quality Bond Fund
Merganser Capital Management Corp.
One Cambridge Center
Cambridge, MA 02142

Diversified Investors High-Yield Bond Fund
Delaware Investment Advisors
2005 Market Street
Philadelphia, Pennsylvania 19103

Diversified Investors Balanced Fund
Institutional Capital Corporation
303 West Madison Street
Chicago, IL 60606

Diversified Investors Equity Income Fund
Asset Management Group

Diversified Investors Funds Group Combined SAI Page 61
<PAGE> 118
1740 Broadway
New York, NY 10019

Diversified Investors Growth & Income Fund
Putnam Advisory Company, Inc.
One Post Office Square
Boston, MA 02109

Diversified Investors Equity Growth Fund
Jundt Associates, Inc.
1550 Utica Avenue South
Suite 950
St. Louis Park, MN 55416

Diversified Investors Special Equity Fund
Pilgrim Baxter & Associates
1255 Drummers Lane
Wayne, PA 19087
Ark Management Co., Inc.
One New York Plaza
New York, NY 10004
Liberty Investment Management, Inc.
880 Cerillon Parkway
St. Petersburg, FL 33716
Westport Asset Management, Inc.
53 Riverside Avenue
Westport, CT 06880

Diversified Investors International
Equity Fund
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071

Distributor

Diversified Investors Securities
Corp.
Four Manhattanville Road
Purchase, NY 10577

Custodian

Investors Bank & Trust Company
89 South Street
Boston, MA 02205-1537

Diversified Investors Funds Group Combined SAI Page 62
<PAGE> 119
Independent Accountants

Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019

MN015D

Diversified Investors Funds Group Combined SAI Page 63

<PAGE> 1
INVESTMENT SUBADVISORY AGREEMENT

INVESTMENT SUBADVISORY AGREEMENT, dated as of November 13, 1995, by and
between Diversified Investment Advisors, Inc., a Delaware corporation
("Diversified") and the Putnam Advisory Company, Inc., a Massachusetts
corporation ("Subadvisor").

WITNESSETH:

WHEREAS, Diversified has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940 and has been
retained to provide investment advisory services to the Growth and Income
Portfolio ("Portfolio"), a series of Diversified Investors Portfolios, a
diversified open-end management investment company registered under the
Investment Company Act of 1940 ("1940 Act");

WHEREAS, Diversified desires to retain the Subadvisor to furnish it
with portfolio investment advisory services in connection with Diversified's
investment advisory activities on behalf of the Portfolio, and the Subadvisor is
willing to furnish such services to Diversified;

NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:

1. Duties of the Subadvisor. In accordance with and subject to
the Investment Advisory Agreement between the Portfolio and Diversified,
attached hereto as Schedule A (the "Advisory Agreement"), Diversified hereby
appoints the Subadvisor to perform the portfolio investment advisory services
described herein for the investment and reinvestment of the Portfolio's assets,
subject to the control and direction of Diversified and the Diversified
Investors Portfolios' Board of Trustees, for the period and on the terms
hereinafter set forth.

The Subadvisor shall provide Diversified with such investment advice
and supervision as the latter may from time to time consider necessary for the
proper supervision of the Portfolio's assets. The Subadvisor shall furnish
continuously an investment program and shall determine from time to time what
securities shall be purchased, sold or exchanged and what portion of the assets
of the Portfolio shall be held uninvested, subject always to the provisions of
the 1940 Act and to the Portfolio's then-current Prospectus and Statement of
Additional Information ("SAI").
<PAGE> 2
In particular, the Subadvisor shall, without limiting the foregoing:
(i) continuously review, supervise and implement the investment program of the
Portfolio; (ii) monitor regularly the relevant securities for the Portfolio to
determine if adjustments are warranted and, if so, to make such adjustments;
(iii) determine, in the Subadvisor's discretion, the securities to be purchased
or sold or exchanged in order to keep the Portfolio in balance with its
designated investment strategy; (iv) determine, in the Subadvisor's discretion,
whether to exercise warrants or other rights with respect to the Portfolio's
securities; (v) determine, in the Subadvisor's discretion, whether the merit of
an investment has been substantially impaired by extraordinary events or
financial conditions, thereby warranting the removal of such securities from the
Portfolio; (vi) as promptly as practicable after the end of each calendar month,
furnish a report showing: (a) all transactions during such month, (b) all assets
of the Portfolio on the last day of such month, rates of return, and (c) such
other information relating to the Portfolio as Diversified may reasonably
request; (vii) meet at least four times per year with Diversified and with such
other persons as may be designated on reasonable notice and at reasonable
locations, at the request of Diversified, to discuss general economic
conditions, performance, investment strategy, and other matters relating to the
Portfolio; (viii) provide the Portfolio with records concerning the Subadvisor's
activities which the Portfolio is required to by law maintain; and (ix) render
regular reports to the Portfolio's officers and Directors concerning the
Subadvisor's discharge of the foregoing responsibilities.

The Subadvisor shall also make recommendations to Diversified as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Portfolio's securities shall be exercised.

Should the Board of Trustees at any time make any definite
determination as to investment policy with respect to the Portfolio and notify
the Subadvisor thereof in writing, the Subadvisor shall be bound by such
determination for the period, if any, specified in such notice or until
similarly notified that such policy has been revoked.

The Subadvisor shall take, on behalf of the Portfolio, all actions
which it deems necessary to implement the investment policies determined as
provided above, and in particular to place all orders for the purchase or sale
of Portfolio securities for the Portfolio's account with brokers or dealers
selected by it, and to that end the Subadvisor is authorized as the agent of the
Portfolio to give instructions to the custodian of the Portfolio as to
deliveries of securities and payments of cash for the account of the Portfolio.
Subject to the primary objective of obtaining the best available prices and
execution, the Subadvisor may place orders for the purchase and sale of
portfolio securities with such broker/dealers who provide statistical, factual
and financial information and services to the Portfolio, to the Subadvisor, or
to any other fund or account for which the Subadvisor provides investment
advisory services and may place such orders with broker/dealers who sell shares
of the Portfolio or who sell

2
<PAGE> 3
shares of any other fund for which the Subadvisor provides investment advisory
services.

Notwithstanding the provisions of the previous paragraph and subject to
such policies and procedures as may be adopted by the Board of Trustees and
officers of the Portfolio, the Subadvisor may pay a member of an exchange,
broker or dealer an amount of commission for effecting a securities transaction
in excess of the amount of commission another member of an exchange, broker or
dealer would have charged for effecting that transaction, in such instances
where the Subadvisor has determined in good faith that such amount of commission
was reasonable in relation to the value of the brokerage and research services
provided by such member, broker or dealer, viewed in terms of either that
particular transaction or the Subadvisor's overall responsibilities with respect
to the Portfolio and to other funds and separate accounts for which the
Subadvisor exercises investment discretion.

2. Allocation of Charges and Expenses. The Subadvisor shall
furnish at its own expense all necessary services, facilities and personnel in
connection with its responsibilities under Section 1 above. It is understood
that the Portfolio will pay all of its own expenses and liabilities including,
without limitation, compensation and out-of-pocket expenses of Trustees not
affiliated with the Subadvisor or Diversified; governmental fees; interest
charges; taxes; membership dues; fees and expenses of independent auditors, of
legal counsel and of any transfer agent, administrator, distributor, shareholder
servicing agents, registrar or dividend disbursing agent of the Portfolio;
expenses of distributing and redeeming shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders of the Portfolio; expenses connected with the
execution, recording and settlement of Portfolio security transactions;
insurance premiums; fees and expenses of the custodian for all services to the
Portfolio, including safekeeping of funds and securities and maintaining
required books and accounts; expenses of calculating the net asset value of
shares of the Portfolio; expenses of shareholder meetings; expenses of
litigation and other extraordinary or non-recurring events and expenses relating
to the issuance, registration and qualification of shares of the Portfolio.

3. Compensation of the Subadvisor. For the services to be rendered,
Diversified shall pay to the Subadvisor an investment advisory fee computed in
accordance with the terms of Schedule B herewith attached. If the Subadvisor
serves for less than the whole of any period specified, its compensation shall
be prorated.

4. Covenants and Representations of the Subadvisor. The Subadvisor
represents and warrants that it is duly registered as an investment advisor
under the Investment Advisers Act of 1940, and that it will remain so throughout
the term of this Agreement. The Subadvisor agrees that it will not deal with
itself, or with the

3
<PAGE> 4
Trustees of the Portfolio or with Diversified, or the principal underwriter or
distributor as principals in making purchases or sales of securities or other
property for the account of the Portfolio, except as permitted by the 1940 Act,
will not take a long or short position in the shares of the Portfolio except as
permitted by the Articles, and will comply with all other provisions of the
Articles and By-Laws and any current Prospectus of the Portfolio relative to the
Subadvisor, Advisor and its Trustees and officers.

5. Limits on Duties. The Subadvisor shall be responsible only for
managing the assets in good faith and in accordance with the investment
objectives, fundamental policies and restrictions, and shall have no
responsibility whatsoever for, and shall incur no liability on account of (i)
diversification, selection or establishment of such investment objectives,
fundamental policies and restrictions (ii) advice on, or management of, any
other assets for Diversified or the Portfolio, (iii) filing of any tax or
information returns or forms, withholding or paying any taxes, or seeking any
exemption or refund, (iv) registration with any government or agency, or (v)
administration of the plans and trusts investing through the Portfolio, or (vi)
overall Portfolio compliance with the requirements of the 1940 Act, which
requirements are outside of the Subadvisor's control, and Subchapter M of the
Internal Revenue Code of 1986, as amended, and shall be indemnified and held
harmless by Diversified for any loss in carrying out the terms and provisions of
this Agreement, including reasonable attorney's fees, indemnification to the
Portfolio, or any shareholder thereof and, brokers and commission merchants,
fines, taxes, penalties and interest; provided, however, that Diversified shall
not be required to indemnify Subadvisor for any such liability, damages, or
expenses arising out of Subadvisor's negligence, bad faith, malfeasance, or
disregard of its duties under this Agreement.

The Subadvisor may apply to Diversified at any time for instructions
and may consult counsel for Diversified or its own counsel with respect to any
matter arising in connection with the duties of the Subadvisor. Also, the
Subadvisor shall be protected in acting upon advice of Diversified and/or
Diversified's counsel and upon any document which Subadvisor reasonably believes
to be genuine and to have been signed by the proper person or persons.

6. Exclusivity. The Subadvisor represents to Diversified that during
the first two years of this Agreement the Subadvisor will not enter into any new
subadvisory agreements with a manager unaffiliated with the Subadvisor to manage
any commingled fund(s) of the same investment discipline and which the
Subadvisor believes is primarily intended for companies in Diversified's target
market. (See Schedule C.) At the end of two years, this exclusive management
provision may be continued if both parties to this Agreement agree in writing to
do so. This exclusivity provision also ends if either party to the Agreement
terminates the Agreement.

4
<PAGE> 5
7. Duration, Termination and Amendments of this Agreement. This
Agreement shall become effective as of the day and year first above written and
shall govern the relations between the parties hereto thereafter, and, unless
terminated earlier as provided below, shall remain in force for two years, on
which date it will terminate unless its continuance thereafter is specifically
approved at least annually (a) by the vote of a majority of the Trustees of the
Portfolio who are not "interested persons" to this Agreement or of the
Subadvisor or Diversified at an in person meeting specifically called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. However, if the shareholders of the Portfolio fail to approve the
Agreement as provided herein, the Subadvisor may continue to serve hereunder in
the manner and to the extent permitted by the Investment Company Act of 1940 and
Rules thereunder.

This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the vote of a majority of the outstanding voting
securities of the Portfolio, or by Diversified. The Subadvisor may terminate the
Agreement only upon giving 60 days' advance written notice to Diversified. This
Agreement shall automatically terminate in the event of its assignment.

This Agreement may be amended only if such amendment is approved by the
vote of a majority of the outstanding voting securities of the Portfolio and by
vote of a majority of the Board of Trustees of the Fund who are not parties to
this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval.

The terms "specifically approved at least annually", "vote of a
majority of the outstanding voting securities", "assignment", "affiliated
person", and "interested persons", when used in this Agreement, shall have the
respective meanings specified in, and shall be construed in a manner consistent
with, the 1940 Act, subject, however, to such exemptions as may be granted by
the Securities and Exchange Commission under said Act.

8. Certain Records. Any records to be maintained and preserved pursuant
to the provisions of Rule 31a-1 and Rule 31a-2 adopted under the 1940 Act which
are prepared or maintained by the Subadvisor on behalf of the Portfolio are the
property of the Portfolio and will be surrendered promptly to the Portfolio on
request.

9. Survival of Compensation Rates. All rights to compensation under
this Agreement shall survive the termination of this Agreement.

10. Entire Agreement. This Agreement states the entire agreement of the
parties with respect to investment advisory services to be provided to the
Portfolio by

5
<PAGE> 6
the Subadvisor and may not be amended except in a writing signed by the parties
hereto and approved in accordance with Section 7 hereof.

11. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York.

12. Change of Management and Pending Litigation. Subadvisor represents
to Diversified that it will disclose to Diversified promptly after it has
knowledge of any significant change or variation in its management structure or
personnel or any significant change or variation in its management style or
investment philosophy. In addition, Subadvisor represents to Diversified that it
will similarly disclose to Diversified, promptly after it has knowledge, the
existence of any pending legal action being brought against it whether in the
form of a lawsuit or a non-routine investigation by any federal or state
governmental agency.

Diversified represents to Subadvisor that any information received by
Diversified pursuant to this section will be kept strictly confidential and will
not be disclosed any third party.

13. Use of Name. Subadvisor hereby agrees that Diversified may use the
Subadvisor's name in its marketing or advertising materials. Diversified agrees
to allow the Subadvisor to examine and approve any such materials prior to use.

IN WITNESS WHEREOF, the parties thereto have caused this Agreement to
be executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.

Diversified Investment Advisors, Inc.

By:__________________________________

Putnam Advisory Company, Inc.

By:__________________________________

6
<PAGE> 7

SCHEDULE A

INVESTMENT ADVISORY AGREEMENT

AGREEMENT made as of January 3, 1994 by and between the Growth & Income
Portfolio, a series of Diversified Investors Portfolios (herein called the
"Portfolio"), and Diversified Investment Advisors, Inc. a Delaware corporation
(herein called "Diversified").

WHEREAS, the Portfolio is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940 (the
"1940 Act"); and

WHEREAS, Diversified has been organized to operate as an investment
advisor registered under the Investment Advisers Act of 1940; and

WHEREAS, the Portfolio desires to retain Diversified to render
investment advisory services, and Diversified is willing to so render such
services on the terms hereinafter set forth;

NOW, THEREFORE, this Agreement

WITNESSETH:

In consideration of the promises and mutual covenants herein contained,
it is agreed between the parties hereto as follows:

1. The Portfolio hereby appoints Diversified to act as investment advisor to
the Portfolio for the period and on the terms set forth in this Agreement.
Diversified accepts such appointment and agrees to render the services herein
set forth for the compensation herein provided.

2. (a) Diversified shall, at its expense, (i) employ sub-advisors or associate
with itself such entities as it believes appropriate to assist in performing its
obligations under this Agreement and (ii) provide all services, equipment and
facilities necessary to perform its obligations under this Agreement.

(b) The Portfolio shall be responsible for all of its expenses and
liabilities, including, but not limited to: compensation and out-of-pocket
expenses of Trustees not affiliated with any subadvisor or Diversified;
governmental fees; interest charges; taxes; membership dues; fees and expenses
of independent auditors, of legal counsel and of any transfer agent,
administrator, distributor, shareholder servicing agents, registrar or dividend
disbursing agent

<PAGE> 8

of the Portfolio; expenses of distributing and redeeming shares and servicing
shareholder accounts; expenses of preparing, printing and mailing prospectuses,
shareholder reports, notices, proxy statements and reports to governmental
officers and commissions and to shareholders of the Portfolio; expenses
connected with the execution, recording and settlement of Portfolio security
transactions; insurance premiums; fees and expenses of the custodian for all
services to the Portfolio, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of shares of the Portfolio; expenses of shareholder meetings; expenses of
litigation and other extraordinary or non-recurring events and expenses relating
to the issuance, registration and qualification of shares of the Portfolio.

3. (a) Subject to the general supervision of the Board of Trustees of
the Portfolio, Diversified shall formulate and provide an appropriate investment
program on a continuous basis in connection with the management of the
Portfolio, including research, analysis, advice, statistical and economic data
and information and judgments of both a macroeconomic and microeconomic
character.

Diversified will determine the securities to be purchased, sold, lent,
exchanged or otherwise disposed of or acquired by the Portfolio in accordance
with predetermined guidelines as set forth from time to time in the Portfolio's
then-current prospectus and Statement of Additional Information ("SAI") and
will place orders pursuant to its determinations either directly with the
issuer or with any broker or dealer who deals in such securities. In placing
orders with brokers and dealers, Diversified will use its reasonable best
efforts to obtain the best net price and the most favorable execution of its
orders, after taking into account all factors it deems relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Consistent with this obligation, Diversified may, to the
extent permitted by law, purchase and sell Portfolio securities to and from
brokers and dealers who provide brokerage and research services (within the
meaning of Section 28(e) of the Securities Exchange Act of 1934) to or for the
benefit of the Portfolio and/or other accounts over which Diversified or any of
its affiliates exercises investment discretion.

Subject to the review of the Portfolio's Board of Trustees from time to
time with respect to the extent and continuation of the policy, Diversified is
authorized to pay to a broker or dealer who provides such brokerage and
research services a commission for effecting a securities transaction for the
Portfolio which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if Diversified
determines in

<PAGE> 9

good faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the overall responsibilities of
Diversified with respect to the accounts as to which it exercises investment
discretion.

In placing orders with brokers and/or dealers, Diversified intends to
seek best price and execution for purchases and sales and may effect
transactions through itself and its affiliates on a securities exchange
provided that the commissions paid by the Portfolio are "reasonable and fair"
compared to commissions received by other broker-dealers having comparable
execution capability in connection with comparable transactions involving
similar securities and provided that the transactions in connection with which
such commissions are paid are effected pursuant to procedures established by
the Board of the Trustees of the Portfolio. All transactions are effected
pursuant to written authorizations from the Portfolio conforming to the
requirements of Section 11(a) of the Securities Exchange Act of 1934 and Rule
11a2-2(T) thereunder. Pursuant to such authorizations, an affiliated
broker-dealer may transmit, clear and settle transactions for the Portfolio
that are executed on a securities exchange provided that it arranges for
unaffiliated brokers to execute such transactions.

Diversified shall determine from time to time the manner in which
voting rights, rights to consent to corporate action and any other rights
pertaining to the Portfolio's securities shall be exercised, provided, however,
that should the Board of Trustees at any time make any definite determination
as to investment policy and notify Diversified thereof in writing, Diversified
shall be bound by such determination for the period, if any, specified in such
notice or until similarly notified that such determination has been revoked.
Diversified will determine what portion of securities owned by the Portfolio
shall be invested in securities described by the policies of the Portfolio and
what portion, if any, should be held uninvested. Diversified will determine
whether and to what extent to employ various investment techniques available to
the Portfolio. In effecting transactions with respect to securities or other
property for the account of the Portfolio, Diversified may deal with itself and
its affiliates, with the Trustees of the Portfolio or with other entities to
the extent such actions are permitted by the 1940 Act.

(b) Diversified also shall provide to the Portfolio administrative
assistance in connection with the operation of the Portfolio, which shall
include compliance with all reasonable requests of the Portfolio for
information, including information required in connection with the Portfolio's
filings with the Securities and Exchange Commission and state securities
commissions.

<PAGE> 10

(c) As manager of the assets of the Portfolio, Diversified shall make
investments for the account of the Portfolio in accordance with Diversified's
best judgment and within the Portfolio's investment objectives, guidelines, and
restrictions, the 1940 Act and the provisions of the Internal Revenue Code of
1986 relating to regulated investment companies subject to policy decisions
adopted by the Board of Trustees.

(d) Diversified shall furnish to the Board of Trustees periodic reports
on the investment performance of the Portfolio and on the performance of its
obligations under this Agreement and shall supply such additional reports and
information as the Portfolio's officers or Board of Trustees shall reasonably
request.

(e) On occasions when Diversified deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
customers, Diversified, to the extent permitted by applicable law, may
aggregate the securities to be so sold or purchased in order to obtain the best
execution or lower brokerage commissions, if any. Diversified may also on
occasion purchase or sell a particular security for one or more customers in
different amounts. On either occasion, and to the extent permitted by
applicable law and regulations, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made by
Diversified in the manner it considers to be the most equitable and consistent
with its fiduciary obligations to the Portfolio and to such other customers.

(f) Diversified shall also provide the Portfolio with the following
services as may be required:

(i) providing office space, equipment and clerical personnel
necessary for maintaining the organization of the Portfolio and
for performing administrative and management functions;

(ii) supervising the overall administration of the Portfolio,
including negotiation of contracts and fees with and the
monitoring of performance and billings of the Portfolio's
transfer agent, custodian and other independent contractors
or agents;

(iii) preparing and, if applicable, filing all documents required
for compliance by the Portfolio with applicable laws and
regulations, including registration statements, registration
fee filings, semi-annual and annual reports to investors,
proxy statements and tax returns;

<PAGE> 11
(iv) preparation of agendas and supporting documents for and minutes
of meeting of Trustees, committees of Trustees and investors; and

(v) maintaining books and records of the Portfolio.

4. Diversified shall give the Portfolio the benefit of Diversified's
best judgment and efforts in rendering services under this Agreement. As an
inducement to Diversified's undertaking to render these services, the Portfolio
agrees that Diversified shall not be liable under this Agreement for any mistake
in judgment or in any other event whatsoever provided that nothing in this
Agreement shall be deemed to protect or purport to protect Diversified against
any liability to the Portfolio or its investors to which Diversified would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties under this Agreement or by
reason of the Adviser's reckless disregard of its obligations and duties
hereunder.

5. In consideration of the services to be rendered by Diversified
under this Agreement, the Portfolio shall pay Diversified a fee accrued daily
and paid monthly at an annual rate equal to .60% of the Portfolio's average
daily net assets. If the fees payable to Diversified pursuant to this paragraph
5 begin to accrue before the end of any month or if this ________ any Agreement
terminates before the end of any month, the fees for the period from that date
to the end of that month or from the beginning of that month to the date of
termination, as the case may be, shall be prorated according to the proportion
which the period bears to the full month in which the effectiveness or
termination occurs. For purposes of calculating the monthly fees, the value of
the net assets of the Portfolio shall be computed in the manner specified in
its Regulation Statement on Form N-1A for the computation of net asset value.
For purposes of this Agreement, a "business day" is any day the New York Stock
Exchange is open for trading.

In compliance with the requirements of Rule 31a-3 under the 1940 Act,
Diversified hereby agrees that all records which it maintains for the Portfolio
are property of the Portfolio and further agrees to surrender promptly to the
Portfolio any such records upon the Portfolio's request. Diversified further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
any such records required to be maintained by Rule 31a-1 under the 1940 Act.

6. This Agreement shall be effective as to the Portfolio as of the
date the Portfolio commences investment operations after this Agreement shall
have been approved by the Board of Trustees of the Portfolio and the
investor(s) in the Portfolio in the manner

<PAGE> 12
contemplated by Section 15 of the 1940 Act and, unless sooner terminated as
provided herein, shall continue until the second anniversary of the date hereof.
Thereafter, if not terminated, this Agreement shall continue in effect as to the
Portfolio for successive periods of 12 months each, provided such continuance is
specifically approved at least annually by the vote of a majority of those
members of the Board of Trustees of the Portfolio who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and either (a) by the vote of
a majority of the full Board of Trustees or (b) by vote of a majority of the
outstanding voting securities of the Portfolio; provided, however, that this
Agreement may be terminated by the Portfolio at any time, without the payment of
any penalty, by the Board of Trustees of the Portfolio or by vote of a majority
of the outstanding voting securities of the Portfolio on 60 days' written notice
to Diversified, or by Diversified as to the Portfolio at any time, without
payment of any penalty, on 90 days' written notice to the Portfolio. This
Agreement will immediately terminate in the event of its assignment. (As used in
this Agreement, the terms "majority of the outstanding voting securities",
"interested person" and "assignment" shall have the same meanings as such terms
have in the 1940 Act and the rule and regulatory constructions thereunder.)

7. Except to the extent necessary to perform Diversified's obligations
under this Agreement, nothing herein shall be deemed to limit or restrict the
right of Diversified, or any affiliate of Diversified, or any employee of
Diversified, to engage in any other business or devote time and attention to
the management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other trust,
corporation, firm, individual or association.

8. The investment management services of Diversified to the Portfolio
under this Agreement are not to be deemed exclusive as to Diversified and
Diversified will be free to render similar services to others.

Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.

No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought and no material amendment of this Agreement shall be effective until
approved by vote of the holders of a majority of the outstanding voting
securities of the Portfolio.

This Agreement embodies the entire agreement and understanding between
the parties hereto and supersedes all prior agreements and understandings
relating to the subject matter

6
<PAGE> 13

hereof. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. Should any part of this
Agreement be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding and shall inure to the benefit of the parties hereto
and their respective successors, to the extent permitted by law.

9. This Agreement shall be construed in accordance with the laws of
the State of New York provided that nothing herein shall be construed in a
manner inconsistent with the requirements of 1940 Act.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.

Attest: Diversified Investors Portfolios

/s/ John F. Hughes
- ---------------------- By: /s/ Tom Schlossberg
--------------------------------
Tom Schlossberg
Chairman and President

Attest: Diversified Investment Advisors, Inc.

/s/ Catherine A. Mohr
- ---------------------- By: /s/ Gerald L. Katz
--------------------------------
Gerald L. Katz
Vice President and CFO

<PAGE> 14

SCHEDULE A
<PAGE> 15
SCHEDULE B

The Subadvisor shall be compensated for its services under this Agreement on the
basis of the below-described annual fee schedule. The fee schedule shall only be
amended by agreement between the parties.

FEE SCHEDULE

.30% of initial $100 million of net assets
.20% of net assets in excess of $100 million

Net assets are equal to the market value of the Portfolio. Fees will be
calculated by multiplying the arithmetic average of the beginning and ending
monthly net assets by the fee schedule and dividing by twelve. The fee will be
paid quarterly.
<PAGE> 16
SCHEDULE C

Target market for 401(a) plans is those plans with assets between $1 and $50
million.

For 403(b) plans, the target market is those plans that have an employee base
between 300 - 2000 lives, and with assets between $1 and $15 million.