Filed under Rule 497(c)
File Nos. 33-61810 and 811-7674
Prospectus
THE DIVERSIFIED INVESTORS FUNDS GROUP
THE DIVERSIFIED INVESTORS STRATEGIC ALLOCATION FUNDS
Diversified Investment Advisors, Inc.,
investment adviser
MONEY MARKET FUND
Diversified Investors Money Market Fund
BOND FUNDS
Diversified Investors High Quality Bond Fund
Diversified Investors Intermediate Government Bond Fund
Diversified Investors Government/Corporate Bond Fund
Diversified Investors High-Yield Bond Fund
BALANCED FUND
Diversified Investors Balanced Fund
STOCK FUNDS
Diversified Investors Stock Index Fund Diversified Investors Equity Income Fund
Diversified Investors Equity Value Fund Diversified Investors Growth & Income
Fund Diversified Investors Equity Growth Fund Diversified Investors Special
Equity Fund Diversified Investors Aggressive Equity Fund Diversified Investors
International Equity Fund
STRATEGIC ALLOCATION FUNDS
Short Horizon Strategic Allocation Fund
Short/Intermediate Horizon Strategic Allocation Fund
Intermediate Horizon Strategic Allocation Fund
Intermediate/Long Horizon Strategic Allocation Fund
Long Horizon Strategic Allocation Fund
The mutual funds described in this prospectus are designed to meet a variety of
investment goals. the funds employ a wide range of stock and bond strategies
covering the full risk/reward spectrum. you may choose to allocate your
investment among the stock, bond and money market funds, which each invest in
securities through an underlying mutual fund, or you may choose to invest in a
strategic allocation fund. the strategic allocation funds invest in
combinations of the other funds determined by diversified investment advisors.
no fund, by itself, is a complete investment program.
The Securities and Exchange Commission has
not approved or disapproved these securities
or passed upon the adequacy or accuracy of this prospectus,
and any representation to the contrary
is a criminal offense.
May 3, 1999
<PAGE>
TABLE OF CONTENTS
The Funds at a Glance.........................................................
Money Market Fund.......................................................
Bond Funds..............................................................
Balanced Fund...........................................................
Stock Funds.............................................................
Strategic Allocation Funds..............................................
Shareholder Services..........................................................
How to Reach the Funds..................................................
How to Purchase Shares..................................................
How the Price of Your Shares is Calculated..............................
How to Sell Shares......................................................
Shareholder Services and Policies.......................................
Dividends and Distributions...................................................
Tax Matters...................................................................
Management....................................................................
More About the Funds..........................................................
Money Market Fund.......................................................
Bond Funds..............................................................
Balanced Fund...........................................................
Stock Funds.............................................................
Strategic Allocation Funds..............................................
Risks...................................................................
General Information...........................................................
Additional Performance Information............................................
Financial Highlights..........................................................
Appendix A -- Strategic Allocation Funds......................................
Appendix B -- Instructions for Purchases and Sales from the Distributor.......
Appendix C -- Composite Performance of Subadvisers............................
<PAGE>
THE FUNDS AT A GLANCE
- -------------------------------------------------------------------------------
MONEY MARKET FUND
- -------------------------------------------------------------------------------
DIVERSIFIED INVESTORS MONEY MARKET FUND
THIS SUMMARY BRIEFLY DESCRIBES THE MONEY MARKET FUND AND THE PRINCIPAL RISKS OF
INVESTING IN IT.
FUND GOAL
The Fund's goal is to provide liquidity and as high a level of income as is
consistent with the preservation of capital.
MAIN INVESTMENT STRATEGIES
The Fund invests in securities through an underlying mutual fund (called a
Portfolio) having the same investment goals and strategies. All references in
this prospectus to the Fund include the Fund's underlying Portfolio, unless
otherwise noted. The Fund invests primarily in high quality, short-term money
market instruments. These instruments include short-term U.S. government
obligations, corporate bonds and notes, bank obligations (such as certificates
of deposit and bankers' acceptances), commercial paper and repurchase
agreements. The Fund may invest more than 25% of its total assets in
obligations of U.S. banks.
MAIN RISKS
The value of the Fund's shares will change under certain circumstances. This
means that your Fund shares may be worth more or less when you sell them than
when you bought them. You may lose money if you invest in the Fund.
o The Fund's rate of income will vary from day to day depending on
short-term interest rates. Investing in high quality, short-term
instruments may result in a lower yield (the income on your investment)
than investing in lower quality or longer-term instruments.
o The Fund does not maintain a stable net asset value of $1.00 per share
and does not declare dividends on a daily basis (many money market
funds do). Undeclared investment income, or a default on a portfolio
security, may cause the Fund's net asset value to fluctuate.
o If the Fund concentrates in U.S. bank obligations, the Fund will be
particularly sensitive to adverse events affecting U.S. banks. Banks
are sensitive to changes in money market and general economic
conditions, as well as decisions by regulators that can affect banks'
profitability.
Please note that an investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
WHO MAY WANT TO INVEST
Consider investing in the Money Market Fund if you are a conservative investor
who is seeking liquidity and preservation of capital. Because the Fund
emphasizes stability, it may be an appropriate component of a savings plan.
<PAGE>
FUND PERFORMANCE
The following bar chart and tables can help you evaluate the risks of investing
in the Fund, and how the Fund's returns have varied over time.
o The bar chart shows changes in the Fund's performance from year to year over
the last five calendar years.
o The tables show the Fund's best and worst quarters during the years covered
by the bar chart, and how the Fund's average annual returns for the periods
indicated compare to those of a broad measure of market performance. Please
remember that, unlike the Fund, the market index does not include the costs
of buying and selling securities and other Fund expenses.
When you consider this information, please remember that the Fund's past
performance is not necessarily an indication of how it will perform in the
future.
TOTAL RETURN
(per calendar year)
1994 1995 1996 1997 1998
[bar chart -- for calendar years 1994
through 1998]
1994...........3.45%
1995...........5.50%
1996...........4.87%
1997...........4.98%
1998...........4.91%
- ----------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 1.78% June 30, 1995
- ----------------- ----------- ----------------------
Lowest 0.56% March 31, 1994
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ------------------ --------------- -----------------
Since Inception
1 Year January 1, 1994
- ------------------ --------------- -----------------
Money Market
Fund 4.91% 4.74%
- ------------------ --------------- -----------------
Salomon Bros.
3-Month T-Bill
Index 5.05% 5.10%
- ------------------ --------------- -----------------
<PAGE>
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE MONEY MARKET FUND.
- -------------------------------------------------------------------------------
SHAREHOLDER FEES (fees paid directly from your investment)
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases None
- -------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- -------------------------------------------------------------------------------
Redemption Fee None
- -------------------------------------------------------------------------------
Exchange Fee None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSEs (expenses that are deducted
from Fund assets) as a % of average net assets (1)
- -------------------------------------------------------------------------------
Advisory Fee .25%
- -------------------------------------------------------------------------------
Distribution (12b-1) Fees .25%
- -------------------------------------------------------------------------------
Other Expenses
- -------------------------------------------------------------------------------
Administrative Services Fee .30%
- -------------------------------------------------------------------------------
Miscellaneous Expenses .17%
- -------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES .97%
- -------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement(2) .17%
- -------------------------------------------------------------------------------
NET EXPENSES .80%
- -------------------------------------------------------------------------------
1The Fund invests in securities through an underlying mutual fund. This table
and the example below reflect the expenses of the Fund and that underlying
fund.
2The Adviser has contractually agreed to reimburse certain of the Fund's
expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the Money
Market Fund to the cost of investing in other mutual funds. The example assumes
that:
o you invest $10,000 in the Fund for the time periods indicated; and
o you then sell all your shares at the end of those periods.
The example also assumes that:
o your investment has a 5% return each year; and
o the Fund's operating expenses shown in the table above, after fee waivers
and reimbursements, remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
- --------------- ------------- ------------- -------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------- ------------- ------------- -------------
$82 $255 $444 $990
- --------------- ------------- ------------- -------------
<PAGE>
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BOND FUNDS
- -------------------------------------------------------------------------------
DIVERSIFIED INVESTORS HIGH QUALITY BOND FUND
DIVERSIFIED INVESTORS INTERMEDIATE GOVERNMENT BOND FUND
DIVERSIFIED INVESTORS GOVERNMENT/CORPORATE BOND FUND
DIVERSIFIED INVESTORS HIGH-YIELD BOND FUND
THIS SUMMARY BRIEFLY DESCRIBES THE BOND FUNDS AND THE PRINCIPAL RISKS OF
INVESTING IN THEM.
FUND GOALS
HIGH QUALITY BOND FUND The Fund's goal is to provide a high
risk-adjusted return while focusing on
the preservation of capital.
INTERMEDIATE GOVERNMENT BOND FUND The Fund's goal is to provide as high a
level of current income as is
consistent with the preservation of
capital.
GOVERNMENT/CORPORATE BOND FUND The Fund's goal is to achieve maximum
total return.
HIGH-YIELD BOND FUND The Fund's goal is to provide a high
level of current income.
MAIN INVESTMENT STRATEGIES
HIGH QUALITY BOND FUND
The High Quality Bond Fund invests in securities through an underlying mutual
fund (called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund includes the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in a diverse
portfolio of high quality bonds and other debt securities with short and
intermediate maturities. Under normal circumstances the Fund invests at least
65% of its assets in these securities.
The Fund considers securities rated A- or better by Standard & Poor's or A3 or
better by Moody's (and securities that the Fund's advisers believe are of
comparable quality) to be high quality.
The dollar-weighted average maturity of the Fund generally does not exceed
three years under normal circumstances.
The Fund may, but is not required to, engage in certain investment strategies
involving derivatives. These investment strategies may be employed only in
connection with hedging activities.
INTERMEDIATE GOVERNMENT BOND FUND
The Intermediate Government Bond Fund invests in securities through an
underlying mutual fund (called a Portfolio) having the same investment goals
and strategies. All references in this prospectus to the Fund includes the
Fund's underlying Portfolio, unless otherwise noted. The Fund invests primarily
in U.S. government obligations and repurchase agreements secured by U.S.
government obligations. Under normal circumstances the Fund invests at least
65% of its assets in these securities.
The Fund's dollar-weighted average maturity generally is between three and ten
years under normal circumstances.
<PAGE>
The Fund may, but is not required to, engage in certain investment strategies
involving derivatives. These investment strategies may be employed only in
connection with hedging activities.
GOVERNMENT/CORPORATE BOND FUND
The Government/Corporate Bond Fund invests in securities through an underlying
mutual fund (called a Portfolio) having the same investment goals and
strategies. All references in this prospectus to the Fund includes the Fund's
underlying Portfolio, unless otherwise noted. The Fund invests primarily in
investment grade debt securities and U.S. government obligations (including
mortgage-backed securities guaranteed by U.S. government agencies and
instrumentalities). Under normal circumstances the Fund invests at least 65% of
its assets in U.S. government securities and corporate bonds. The Fund also
invests in securities of foreign issuers.
Investment grade debt securities carry a rating of at least BBB from Standard &
Poor's or Baa from Moody's or are of comparable quality as determined by the
Fund's advisers.
The Fund's dollar-weighted average maturity generally is between five and
fifteen years (and does not exceed thirty years) under normal circumstances.
The Fund may, but is not required to, engage in certain investment strategies
involving derivatives. These investment strategies may be employed only in
connection with hedging activities.
HIGH-YIELD BOND FUND
The High-Yield Bond Fund invests in securities through an underlying mutual
fund (called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund includes the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in high-yielding,
income producing debt securities and preferred stocks. Under normal
circumstances the Fund invests at least 65% of its assets in debt securities
and preferred stock.
The Fund may invest all or a substantial portion of its assets in lower-rated
debt securities, commonly referred to as "junk bonds." Investing in junk bonds
is an aggressive approach to income investing.
The Fund may, but is not required to, engage in certain investment strategies
involving derivatives. These investment strategies may be employed only in
connection with hedging activities.
MAIN RISKS
The value of each Fund's shares will change daily as the value of its
underlying securities change. This means that your Fund shares may be worth
more or less when you sell them than when you bought them. You may lose money
if you invest in a Fund.
o MARKET RISK. This is the risk that the prices of securities will rise
or fall due to changing economic, political or market conditions, or
due to a company's individual situation.
o INTEREST RATE RISK. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise. A change
in interest rates could cause a Fund's share price to go down.
Generally, the longer the average maturity of the bonds in a Fund,
the more the Fund's share price will fluctuate in response to
interest rate changes.
o PREPAYMENT RISK. The issuers of debt securities held by a Fund may be
able to prepay principal due on the securities, particularly during
periods of declining interest rates. The Fund may not be able to
<PAGE>
reinvest that principal at attractive rates, reducing income to the
Fund. On the other hand, rising interest rates may cause prepayments
to occur at slower than expected rates. This effectively lengthens
the maturities of the affected securities, making them more sensitive
to interest rate changes and the Fund's share price more volatile.
Mortgage-backed securities are particularly susceptible to prepayment
risk and their prices may be volatile.
o CREDIT RISK. Some issuers may not make payments on debt securities
held by a Fund, causing a loss. Or, an issuer's financial condition
may deteriorate, lowering the credit quality of a security and
leading to greater volatility in the price of the security and in
shares of a Fund. Investments held by the High-Yield Bond Fund will
be particularly susceptible to credit risk. U.S. government
securities are generally considered not to be subject to credit risk.
o FOREIGN SECURITIES. Investments in foreign securities involve risks
relating to adverse political, social and economic developments
abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are
subject. These risks may include expropriation of assets,
confiscatory taxation, withholding taxes on dividends and interest
paid on Fund investments, currency exchange controls and other
limitations on the use or transfer of Fund assets and political or
social instability. There may be rapid changes in the value of
foreign currencies or securities, causing a Fund's share price to be
volatile. Also, in certain circumstances, a Fund could realize
reduced or no value in U.S. dollars from its investments in foreign
securities, causing the Fund's share price to go down.
o DERIVATIVES. Each Fund may, but is not required to, engage in certain
investment strategies involving derivatives (such as options,
futures, swaps and forward currency contracts). These investment
strategies may be employed only in connection with hedging
activities. The success or failure of a hedging transaction will
depend on the advisers' ability to predict movements in the hedge,
the investment being hedged and the market in general (and the
correlation between these factors). Derivatives may not always be
available on terms that make economic sense (for example, they may be
too costly), and, when used, their transaction costs and premiums may
adversely affect Fund performance.
Please note that an investment in the Funds is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
WHO MAY WANT TO INVEST
Consider investing in the Bond Funds if you are seeking current income (or, for
the Government/Corporate Bond Fund, high total return, meaning the total return
on your investment, including both income and growth of capital). Consider the
HIGH QUALITY BOND FUND if you are seeking a higher yield than a money market
fund through investments in high quality, short-term debt securities. Consider
the INTERMEDIATE GOVERNMENT BOND FUND if you are seeking a higher yield than a
money market fund and more price stability than a lower quality or longer-term
bond fund. This Fund offers an added measure of protection against credit risk
with its focus on U.S. government securities. Consider the GOVERNMENT/CORPORATE
BOND FUND if you are seeking a higher level of current income than is generally
available from short-term securities and are willing to accept the greater
price fluctuations associated with higher levels of income. Consider the
HIGH-YIELD BOND FUND if you are seeking a higher level of current income than
is generally available from a higher quality bond fund and are willing to
accept significant price volatility and risk of loss.
<PAGE>
FUND PERFORMANCE
The following bar charts and tables can help you evaluate the risks of
investing in the Bond Funds, and how the Funds' returns have varied over time.
o The bar charts show changes in the Funds' performance from year to year.
o The tables show the Funds' best and worst quarters during the years covered
by the bar charts, and how the Funds' average annual returns for the
periods indicated compare to that of a broad measure of market performance.
Please remember that, unlike the Funds, the market indices do not include
the costs of buying and selling securities and other Fund expenses.
When you consider this information, please remember that a Fund's past
performance is not necessarily an indication of how it will perform in the
future.
HIGH QUALITY BOND FUND
TOTAL RETURN
(per calendar year)
1995 1996 1997 1998
[bar chart -- for calendar years 1995
through 1998]
1995...........11.85%
1996............4.51%
1997............5.11%
1998............6.08%
- ----------------------------------------------------
HIGHEST AND LoWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 2.79% March 31, 1995
- ----------------- ----------- ----------------------
Lowest 0.27% March 31, 1996
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ----------------- ---------------- -----------------
Since Inception
1 Year July 1, 1994
- ----------------- ---------------- -----------------
High Quality
Bond Fund 6.08% 6.22%
- ----------------- ---------------- -----------------
Merrill Lynch
1-3 Year
Treasury
Index 7.00% 6.77%
- ----------------- ---------------- -----------------
<PAGE>
INTERMEDIATE GOVERNMENT BOND FUND
TOTAL RETURN
(per calendar year)
1997 1998
[bar chart -- for calendar years 1997
and 1998]
1997............6.88%
1998............6.47%
@@
- ----------------------------------------------------
HIGHEST AND LoWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 4.20% March 31, 1995
- ----------------- ----------- ----------------------
Lowest -0.64% March 31, 1996
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ----------------- ---------------- -----------------
Since Inception
February 22,
1 Year 1996
- ----------------- ---------------- -----------------
Intermediate
Government
Bond Fund 6.47% 5.91%
- ----------------- ---------------- -----------------
Lehman Bros.
Intermediate
Gov. Bond
Index 8.49% 7.23%
- ----------------- ---------------- -----------------
<PAGE>
GOVERNMENT/CORPORATE BOND FUND
TOTAL RETURN
(per calendar year)
1995 1996 1997 1998
[bar chart -- for calendar years 1995
through 1998]
1995...........20.30%
1996............2.74%
1997............8.14%
1998............7.13%
- ----------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 8.16% June 30, 1995
- ----------------- ----------- ----------------------
Lowest -2.43% March 31, 1996
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ----------------- ---------------- -----------------
Since Inception
1 Year July 1, 1994
- ----------------- ---------------- -----------------
Government/
Corporate
Bond Fund 7.13% 8.56%
- ----------------- ---------------- -----------------
Lehman Bros.
Gov./Corp.
Bond Index 9.46% 9.22%
- ----------------- ---------------- -----------------
<PAGE>
HIGH-YIELD BOND FUND
TOTAL RETURN
(per calendar year)
1997 1998
[bar chart -- for calendar years 1997
and 1998]
1997...........12.28%
1998............2.20%
- ----------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 4.87% June 30, 1997
- ----------------- ----------- ----------------------
Lowest -4.76% September 30, 1998
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ----------------- ---------------- -----------------
Since Inception
January 30,
1 Year 1996
- ----------------- ---------------- -----------------
High-Yield Bond
Fund 2.20% 7.87%
- ----------------- ---------------- -----------------
Salomon
Bros. High
Yield Cash
Pay Index 4.42% 9.15%
- ----------------- ---------------- -----------------
<PAGE>
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE BOND FUNDS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT/
SHAREHOLDER FEES (fees paid HIGH QUALITY GOVERNMENT CORPORATE HIGH-YIELD
directly from your investment) BOND FUND BOND FUND BOND FUND BOND FUND
- --------------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases None None None None
- --------------------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) None None None None
- --------------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None None
- --------------------------------------------------------------------------------------------
Redemption Fee None None None None
- --------------------------------------------------------------------------------------------
Exchange Fee None None None None
- --------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING
EXPENSES (expenses that are
deducted from Fund assets) as
a % of average net assets (1)
- --------------------------------------------------------------------------------------------
Advisory Fee .35% .35% .35% .55%
- --------------------------------------------------------------------------------------------
Distribution (12b-1) Fees .25% .25% .25% .25%
- --------------------------------------------------------------------------------------------
Other Expenses
- --------------------------------------------------------------------------------------------
Administrative
Services Fee .30% .30% .30% .30%
- --------------------------------------------------------------------------------------------
Miscellaneous Expenses .32% .29% .15% .30%
- --------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.22% 1.19% 1.05% 1.40%
- --------------------------------------------------------------------------------------------
Fee Waiver and/or Expense
Reimbursement (2) .22% .19% .05% .30%
- --------------------------------------------------------------------------------------------
NET EXPENSES 1.00% 1.00% 1.00% 1.10%
- --------------------------------------------------------------------------------------------
</TABLE>
1 Each Fund invests in securities through an underlying mutual fund. This
table and the example below reflect the expenses of the Fund and that
underlying fund.
2The Adviser has contractually agreed to reimburse certain of the Funds'
expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in a Bond
Fund to the cost of investing in other mutual funds. The example assumes that:
o you invest $10,000 in a Fund for the time periods indicated; and
o you then sell all your shares at the end of those periods.
The example also assumes that:
o your investment has a 5% return each year; and
o the Fund's operating expenses shown in the table above, after fee waivers
and reimbursements, remain the same.
<PAGE>
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
- -------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT/
HIGH QUALITY GOVERNMENT CORPORATE HIGH-YIELD
BOND FUND BOND FUND BOND FUND BOND FUND
- -------------------------------------------------------------------------------
1 year $102 $102 $102 $112
- -------------------------------------------------------------------------------
3 years $318 $318 $318 $350
- -------------------------------------------------------------------------------
5 years $552 $552 $552 $606
- -------------------------------------------------------------------------------
10 years $1,225 $1,225 $1,225 $1,340
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BALANCED FUND
- -------------------------------------------------------------------------------
DIVERSIFIED INVESTORS BALANCED FUND
THIS SUMMARY BRIEFLY DESCRIBES THE BALANCED FUnD AND THE PRINCIPAL RISKS OF
INVESTING IN IT.
FUND GOAL
The Fund's goal is to provide a high total investment return through investment
in a broadly diversified portfolio of stocks, bonds and money market
instruments.
MAIN INVESTMENT STRATEGIES
The Fund invests in securities through an underlying mutual fund (called a
Portfolio) having the same investment goals and strategies. All references in
this prospectus to the Fund include the Fund's underlying Portfolio, unless
otherwise noted. The Fund invests in a managed mix of equity and debt
securities of predominately U.S. issuers. The Fund may also invest in foreign
securities including securities of issuers located in emerging markets.
The Fund varies the percentage of assets invested in any one type of security
in accordance with its adviser's interpretation of economic and market
conditions, fiscal and monetary policy, and underlying securities values. Under
normal circumstances, the Fund invests approximately 60% of its assets in
equity securities and 40% of its assets in fixed income and money market
securities.
The Fund may, but is not required to, engage in certain investment strategies
involving derivatives. These investment strategies may be employed only in
connection with hedging activities.
MAIN RISKS
The value of the Fund's shares will change daily as the value of its underlying
securities change. This means that your Fund shares may be worth more or less
when you sell them than when you bought them. You may lose money if you invest
in the Fund.
o MARKET RISK. This is the risk that the prices of securities will rise
or fall due to changing economic, political or market conditions, or
due to a company's individual situation. Historically, equity
securities have been more volatile than debt securities in response
to market risk.
<PAGE>
o INTEREST RATE RISK. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise. A change
in interest rates could cause the Fund's share price to go down.
Generally, the longer the average maturity of the bonds in the Fund,
the more the Fund's share price will fluctuate in response to
interest rate changes.
o CREDIT RISK. Some issuers may not make payments on debt securities
held by the Fund, causing a loss. Or, an issuer's financial condition
may deteriorate, lowering the credit quality of a security and
leading to greater volatility in the price of the security and in
shares of the Fund. The prices of lower rated securities often are
more volatile than those of higher rated securities.
o PREPAYMENT RISK. The issuers of debt securities held by the Fund may
be able to prepay principal due on the securities, particularly
during periods of declining interest rates. The Fund may not be able
to reinvest that principal at attractive rates, reducing income to
the Fund. On the other hand, rising interest rates may cause
prepayments to occur at slower than expected rates. This effectively
lengthens the maturities of the affected securities, making them more
sensitive to interest rate changes and the Fund's share price more
volatile. Mortgage-backed securities are particularly susceptible to
prepayment risk and their prices may be volatile.
o FOREIGN SECURITIES. Investments in foreign securities involve risks
relating to adverse political, social and economic developments
abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are
subject. These risks may include expropriation of assets,
confiscatory taxation, withholding taxes on dividends and interest
paid on Fund investments, currency exchange controls and other
limitations on the use or transfer of Fund assets and political or
social instability. There may be rapid changes in the value of
foreign currencies or securities, causing the Fund's share price to
be volatile. Also, in certain circumstances, the Fund could realize
reduced or no value in U.S. dollars from its investments in foreign
securities, causing the Fund's share price to go down.
The Balanced Fund may invest in issuers located in emerging, or
developing, markets. All of the risks of investing in foreign
securities are heightened by investing in these markets.
o DERIVATIVES. The Fund may, but is not required to, engage in certain
investment strategies involving derivatives (such as options,
futures, swaps and forward currency contracts). These investment
strategies may be employed only in connection with hedging
activities. The success or failure of a hedging transaction will
depend on the advisers' ability to predict movements in the hedge,
the investment being hedged and the market in general (and the
correlation between these factors). Derivatives may not always be
available on terms that make economic sense (for example, they may be
too costly), and, when used, their transaction costs and premiums may
adversely affect Fund performance.
Please note that an investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
WHO MAY WANT TO INVEST
Consider investing in the Balanced Fund if you are seeking a diversified
investment program through both stocks and bonds.
<PAGE>
FUND PERFORMANCE
The following bar chart and tables can help you evaluate the risks of investing
in the Fund, and how the Fund's returns have varied over time.
o The bar chart shows changes in the Fund's performance from year to year
over the last four calendar years.
o The tables show the Fund's best and worst quarters during the years
covered by the bar chart, and how the Fund's average annual returns for
the periods indicated compare to those of a broad measure of stock
performance and a broad measure of bond performance. Please remember that,
unlike the Fund, the market indices do not include the costs of buying and
selling securities and other Fund expenses.
When you consider this information, please remember that the Fund's past
performance is not necessarily an indication of how it will perform in the
future.
TOTAL RETURN
(per calendar year)
1995 1996 1997 1998
[bar chart -- for calendar years 1995
through 1998]
1995...........28.47%
1996...........16.39%
1997...........18.67%
1998...........11.81%
- ----------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 10.69% December 31, 1998
- ----------------- ----------- ----------------------
Lowest -8.74% September 30, 1998
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ----------------- ---------------- -----------------
Since Inception
1 Year July 1, 1994
- ----------------- ---------------- -----------------
Balanced
Fund 11.81% 16.79%
- ----------------- ---------------- -----------------
S&P 500
Index 28.75% 28.16%
- ----------------- ---------------- -----------------
Lehman Bros.
Gov./Corp.
Bond Index 9.46% 9.22%
- ----------------- ---------------- -----------------
<PAGE>
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAy PAY IF YOU BUY AND HOLD
SHARES OF THE BALANCED FUND.
- -------------------------------------------------------------------------------
SHAREHOLDER FEES (fees paid directly from your investment)
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases None
- -------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- -------------------------------------------------------------------------------
Redemption Fee None
- -------------------------------------------------------------------------------
Exchange Fee None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSEs (expenses that are deducted
from Fund assets) as a % of average net assets(1)
- -------------------------------------------------------------------------------
Advisory Fee .45%
- -------------------------------------------------------------------------------
Distribution (12b-1) Fees .25%
- -------------------------------------------------------------------------------
Other Expenses
- -------------------------------------------------------------------------------
Administrative Services Fee .30%
- -------------------------------------------------------------------------------
Miscellaneous Expenses .11%
- -------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.11%
- -------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement(2) .01%
- -------------------------------------------------------------------------------
NET EXPENSES 1.10%
- -------------------------------------------------------------------------------
1The Fund invests in securities through an underlying mutual fund. This
table and the example below reflect the expenses of the Fund and that
underlying fund.
2The Adviser has contractually agreed to reimburse certain of the Fund's
expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the
Balanced Fund to the cost of investing in other mutual funds. The example
assumes that:
o you invest $10,000 in the Fund for the time periods indicated; and
o you then sell all your shares at the end of those periods.
The example also assumes that:
o your investment has a 5% return each year; and
o the Fund's operating expenses shown in the table above, after fee waivers
and reimbursement, remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
- --------------- ------------- ------------- -------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------- ------------- ------------- -------------
$112 $350 $606 $1,340
- --------------- ------------- ------------- -------------
<PAGE>
- -------------------------------------------------------------------------------
STOCK FUNDS
- -------------------------------------------------------------------------------
DIVERSIFIED INVESTORS STOCK INDEX FUND
DIVERSIFIED INVESTORs EQUITY INCOME FUND
DIVERSIFIED INVESTORS EQUITY VALUE FUND
DIVERSIFIED INVESTORS GROWTH & INCOME FUND
DIVERSIFIED INVESTORS EQUITY GROWTH FUND
DIVERSIFIED INVESTORS SPECIAL EQUITY FUND
DIVERSIFIED INVESTORS AGGRESSIVE EQUITY FUND
DIVERSIFIED INVESTORS INTERNATIONAL EQUITY FUND
THIS SUMMARY BRIEFLY DESCRIBES THE STOCK FUNDS AND THE PRINCIPAL RISKS OF
INVESTING IN THEM.
FUND GOALS
STOCK INDEX FUND The Fund's goal is to match the performance of
the Standard & Poor's 500 Composite Stock Price
Index.
EQUITY INCOME FUND The Fund's goal is to provide a high level of
current income through investment in a
diversified portfolio of common stocks with
relatively high current yield. Capital
appreciation is a secondary goal.
EQUITY VALUE FUND The Fund's goal is to provide a high total
investment return through investment primarily in
a diversified portfolio of common stocks.
GROWTH & INCOME FUND The Fund's goal is to provide capital
appreciation and current income.
EQUITY GROWTH FUND The Fund's goal is to provide a high level of
capital appreciation through investment in a
diversified portfolio of common stocks with a
potential for above-average growth in earnings.
Current income is a secondary goal.
SPECIAL EQUITY FUND The Fund's goal is to provide a high level of
capital appreciation through investment in a
diversified portfolio of common stocks of small
to medium size companies.
AGGRESSIVE EQUITY FUND The Fund's goal is to provide a high level of
capital appreciation primarily through
investing in a diversified portfolio of common
stocks.
INTERNATIONAL EQUITY FUND The Fund's goal is to provide a high level of
long-term capital appreciation through
investment in a diversified portfolio of
securities of foreign issuers.
MAIN INVESTMENT STRATEGIES
<PAGE>
STOCK INDEX FUND
The Stock Index Fund invests in securities through an underlying mutual fund
(called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests substantially all of its
assets (at least 90% under normal conditions) in the stocks comprising the
Standard & Poor's 500 Composite Stock Price Index1. In attempting to match the
return of the S&P 500 Index, the Fund invests approximately the same percentage
of its assets in each stock as the stock represents in the S&P 500 Index. The
Fund may also use various investment techniques such as buying and selling
futures contracts and options, entering into swap agreements and purchasing
indexed securities.
EQUITY INCOME FUND
The Equity Income Fund invests in securities through an underlying mutual fund
(called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in common stocks
of companies which, in the opinion of the Fund's advisers, are fundamentally
sound financially and which pay relatively high dividends on a consistent
basis. The Fund may, but is not required to, engage in certain investment
strategies involving derivatives. These investment strategies may be employed
only in connection with hedging activities.
EQUITY VALUE FUND
The Equity Value Fund invests in securities through an underlying mutual fund
(called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in common stocks
of companies which, in the opinion of the Fund's advisers, are trading at low
valuations relative to market and/or historical levels. The Fund may, but is
not required to, engage in certain investment strategies involving derivatives.
These investment strategies may be employed only in connection with hedging
activities.
GROWTH & INCOME FUND
The Growth & Income Fund invests in securities through an underlying mutual
fund (called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in securities
selected in large part for their potential to generate long-term capital
appreciation. The Fund may also select securities based on their potential to
generate current income. The Fund emphasizes common stocks and securities of
growing, financially stable and undervalued companies. The Fund may, but is not
required to, engage in certain investment strategies involving derivatives.
These investment strategies may be employed only in connection with hedging
activities.
___________
1 Standard & Poor's does not sponsor the Stock Index Fund, nor is it affiliated
in any way with the Fund's advisers. "Standard & Poor's(," "S&P 500(," and
"Standard & Poor's 500("are trademarks of The McGraw-Hill Companies, Inc. The
Stock Index Fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's and Standard & Poor's makes no representation or warranty, express or
implied, regarding the advisability of investing in the Stock Index Fund.
<PAGE>
EQUITY GROWTH FUND
The Equity Growth Fund invests in securities through an underlying mutual fund
(called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in common stocks
of companies that its advisers believe have the potential for above average
growth in earnings and dividends. The Fund uses multiple managers to control
the volatility often associated with growth funds. The Fund may, but is not
required to, engage in certain investment strategies involving derivatives.
These investment strategies may be employed only in connection with hedging
activities.
SPECIAL EQUITY FUND
The Special Equity Fund invests in securities through an underlying mutual fund
(called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in stocks of
small to medium size companies which, in the opinion of the Fund's advisers,
present an opportunity for significant increases in earnings, revenue and/or
value, without consideration for current income. The Fund emphasizes common
stocks of U.S. companies with market capitalizations of less than $1 billion.
The Fund uses multiple managers to control the volatility often associated with
investments in companies of this size. The Fund may, but is not required to,
engage in certain investment strategies involving derivatives. These investment
strategies may be employed only in connection with hedging activities.
AGGRESSIVE EQUITY FUND
The Aggressive Equity Fund invests in securities through an underlying mutual
fund (called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in high growth
companies without regard to market capitalization. The Fund seeks to invest in
companies which present an opportunity for significant increases in earnings,
revenue and/or value, without consideration for current income. The Fund
invests primarily in common stocks. The value of shares of this Fund may be
quite volatile. The Fund may, but is not required to, engage in certain
investment strategies involving derivatives. These investment strategies may be
employed only in connection with hedging activities.
INTERNATIONAL EQUITY FUND
The International Equity Fund invests in securities through an underlying
mutual fund (called a Portfolio) having the same investment goals and
strategies. All references in this prospectus to the Fund include the Fund's
underlying Portfolio, unless otherwise noted. The Fund invests primarily in
foreign securities. Under normal circumstances, the Fund invests at least 65%
of its assets in equity securities of issuers in at least three countries other
than the United States. The Fund may invest up to 10% of its assets in
securities of issuers in developing countries. The Fund may, but is not
required to, engage in certain investment strategies involving derivatives.
These investment strategies may be employed only in connection with hedging
activities.
MAIN RISKS
The value of each Fund's shares will change daily as the value of its
underlying securities change. This means that your Fund shares may be worth
more or less when you sell them than when you bought them. You may lose money
if you invest in the Fund.
o MARKET RISK. This is the risk that the prices of securities will rise
or fall due to changing economic, political or market conditions, or
<PAGE>
due to a company's individual situation. Historically, equity
securities have been more volatile than debt securities in response
to market risk.
o GROWTH SECURITIES. Growth securities typically are quite sensitive to
market movements because their market prices tend to reflect future
expectations. When it appears those expectations will not be met, the
prices of growth securities typically fall. The success of a Fund's
investment in growth securities depends largely on the Fund's
advisers' skill in assessing the growth potential of the companies
that issued the securities.
o VALUE INVESTING. The success of a value investing strategy depends
largely on the skill of a Fund's advisers in identifying securities
of companies that are in fact undervalued, but have good longer term
business prospects. A security may not achieve its expected value
because the circumstances causing it to be underpriced worsen
(causing the price to decline further) or do not change, or because
the advisers are incorrect in their determinations. In addition, the
Fund may underperform certain other stock funds (those emphasizing
growth stocks, for example) during periods when value stocks are out
of favor. The Equity Value Fund and the Growth & Income Fund are
particularly susceptible to the risks of value investing.
o SMALLER COMPANIES. The securities of smaller capitalized companies
may have more risks than those of larger, more seasoned companies.
They may be particularly susceptible to market downturns because of
limited product lines, markets, distribution channels or financial
and management resources. Also, there may be less publicly available
information about small cap companies. As a result, their prices may
be more volatile, causing a Fund's share price to be volatile.
Investments held by the Special Equity Fund are likely to be
particularly susceptible to the risks of small cap companies.
o FOREIGN SECURITIES. Investments in foreign securities involve risks
relating to adverse political, social and economic developments
abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are
subject. These risks may include expropriation of assets,
confiscatory taxation, withholding taxes on dividends and interest
paid on Fund investments, currency exchange controls and other
limitations on the use or transfer of Fund assets and political or
social instability. There may be rapid changes in the value of
foreign currencies or securities, causing a Fund's share price to be
volatile. Also, in certain circumstances, a Fund could realize
reduced or no value in U.S. dollars from its investments in foreign
securities, causing the Fund's share price to go down.
The International Equity Fund may invest in issuers located in
emerging, or developing, markets. All of the risks of investing in
foreign securities are heightened by investing in these markets.
o DERIVATIVES. Each Fund may, but is not required to, engage in certain
investment strategies involving derivatives (such as options,
futures, swaps and forward currency contracts). These investment
strategies may be employed only in connection with hedging
activities. The success or failure of a hedging transaction will
depend on the advisers' ability to predict movements in the hedge,
the investment being hedged and the market in general (and the
correlation between these factors). Derivatives may not always be
available on terms that make economic sense (for example, they may be
too costly), and, when used, their transaction costs and premiums may
adversely affect Fund performance.
o INTEREST RATE RISK. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise. Longer
term obligations are usually more sensitive to interest rate changes
<PAGE>
than shorter term obligations. A change in interest rates could cause
a Fund's share price to go down. Generally, the longer the average
maturity of the bonds in a Fund, the more the Fund's share price will
fluctuate in response to interest rate changes.
o CREDIT RISK. Some issuers may not make payments on debt securities
held by a Fund, causing a loss. Or, an issuer's financial condition
may deteriorate, lowering the credit quality of a security and
leading to greater volatility in the price of the security and in
shares of the Fund. The prices of lower rated securities often are
more volatile than those of higher rated securities.
Please note that an investment in the Funds is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
WHO MAY WANT TO INVEST
Consider investing in the Stock Funds if you can tolerate stock market
fluctuations and changes in the value of your investment. Consider the STOCK
INDEX FUND if you wish to keep investment expenses low while seeking
potentially high long-term returns from investments in large companies.
Consider the EQUITY INCOME FUND if you are seeking capital appreciation with an
income component to temper volatility. Consider the GROWTH & INCOME FUND if you
are seeking a greater potential for capital appreciation than an income fund
and less price volatility than a growth fund. Consider the EQUITY VALUE FUND,
EQUITY GROWTH FUND, SPECIAL EQUITY Fund, AGGRESSIVE EQUITY FUND and
INTERNATIONAL EQUITY FUND if you are seeking growth from equity investments,
can tolerate substantial changes in the value of your investment and do not
require current income from your investment. The Special Equity Fund emphasizes
securities of small to medium size companies. The Aggressive Equity Fund
emphasizes securities of high growth companies without regard to market
capitalization. As a result, the Special Equity Fund and the Aggressive Equity
Fund may be particularly volatile.
FUND PERFORMANCE
The following bar charts and tables can help you evaluate the risks of
investing in the Stock Funds, and how the Funds' returns have varied over time.
o The bar charts show changes in the Funds' performance from year to year.
o The tables show the Funds' best and worst quarters during the years
covered by the bar charts, and how the Funds' average annual returns for
the periods indicated compare to those of broad measures of market
performance. Please remember that, unlike the Funds, the market indices do
not include the costs of buying and selling securities and other Fund
expenses.
When you consider this information, please remember that a Fund's past
performance is not necessarily an indication of how it will perform in the
future.
STOCK INDEX FUND
The Fund began operations on March 1, 1999 and does not have a full calendar
year of investment returns at the date of this prospectus.
<PAGE>
EQUITY INCOME FUND
TOTAL RETURN
(per calendar year)
1995 1996 1997 1998
[bar chart -- for calendar years 1995
through 1998]
1995...........34.62%
1996...........17.91%
1997...........29.31%
1998...........12.47%
- ----------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 15.50% June 30, 1997
- ----------------- ----------- ----------------------
Lowest -9.54% September 30, 1998
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ----------------- ---------------- -----------------
Since Inception
1 Year July 1, 1994
- ----------------- ---------------- -----------------
Equity
Income Fund 12.47% 20.47%
- ----------------- ---------------- -----------------
S&P 500
Index 28.75% 28.16%
- ----------------- ---------------- -----------------
Russell 1000
Value Index 15.63% 24.23%
- ----------------- ---------------- -----------------
<PAGE>
EQUITY VALUE FUND
TOTAL RETURN
(per calendar year)
1997 1998
[bar chart -- for calendar years 1997
and 1998]
1997...........21.43%
1998...........10.79%
- ----------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 13.63% June 30, 1997
- ----------------- ----------- ----------------------
Lowest -9.32% September 30, 1998
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ----------------- ---------------- -----------------
Since Inception
1 Year June 13, 1996
- ----------------- ---------------- -----------------
Equity
Value Fund 10.79% 16.12%
- ----------------- ---------------- -----------------
S&P 500
Index 28.75% 28.93%
- ----------------- ---------------- -----------------
Russell 1000
Value Index 15.63% 25.63%
- ----------------- ---------------- -----------------
<PAGE>
GROWTH & INCOME FUND
TOTAL RETURN
(per calendar year)
1995 1996 1997 1998
[bar chart -- for calendar years 1995
through 1998]
1995...........32.11%
1996...........21.61%
1997...........34.14%
1998...........34.63%
- ----------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 24.96% December 31, 1998
- ----------------- ----------- ----------------------
Lowest -12.01% September 30, 1998
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ----------------- ---------------- -----------------
Since Inception
1 Year July 1, 1994
- ----------------- ---------------- -----------------
Growth &
Income Fund 34.63% 27.38%
- ----------------- ---------------- -----------------
S&P 500
Index 28.75% 28.16%
- ----------------- ---------------- -----------------
<PAGE>
EQUITY GROWTH FUND
TOTAL RETURN
(per calendar year)
1995 1996 1997 1998
[bar chart -- for calendar years 1995
through 1998]
1995...........18.50%
1996...........17.93%
1997...........26.54%
1998...........35.97%
- ----------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 29.77% December 31, 1998
- ----------------- ----------- ----------------------
Lowest -11.31% September 30, 1998
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ----------------- ---------------- -----------------
Since Inception
1 Year July 1, 1994
- ----------------- ---------------- -----------------
Equity
Growth Fund 35.97% 24.99%
- ----------------- ---------------- -----------------
S&P 500
Index 28.75% 28.16%
- ----------------- ---------------- -----------------
Russell 1000
Growth Index 38.71% 30.53%
- ----------------- ---------------- -----------------
<PAGE>
SPECIAL EQUITY FUND
TOTAL RETURN
(per calendar year)
1995 1996 1997 1998
[bar chart -- for calendar years 1995
through 1998]
1995...........41.50%
1996...........25.76%
1997...........25.82%
1998............3.10%
- ----------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 20.84% December 31, 1998
- ----------------- ----------- ----------------------
Lowest -20.13% September 30, 1998
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ----------------- ---------------- -----------------
Since Inception
1 Year July 1, 1994
- ----------------- ---------------- -----------------
Special
Equity Fund 3.10% 22.63%
- ----------------- ---------------- -----------------
S&P 500
Index 28.75% 28.16%
- ----------------- ---------------- -----------------
Russell 2000
Index -2.55% 14.96%
- ----------------- ---------------- -----------------
<PAGE>
AGGRESSIVE EQUITY FUND
TOTAL RETURN
(per calendar year)
1997 1998
[bar chart -- for calendar years 1997
and 1998]
1997............6.13%
1998...........41.79%
- ----------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 32.85% December 31, 1998
- ----------------- ----------- ----------------------
Lowest -18.48 December 31, 1997
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ----------------- ---------------- -----------------
Since Inception
1 Year June 11, 1996
- ----------------- ---------------- -----------------
Aggressive
Equity Fund 41.79% 14.81%
- ----------------- ---------------- -----------------
S&P 500
Index 28.75% 29.81%
- ----------------- ---------------- -----------------
Russell 2000
Growth Index 1.23% 2.38%
- ----------------- ---------------- -----------------
<PAGE>
INTERNATIONAL EQUITY FUND
TOTAL RETURN
(per calendar year)
1997 1998
[bar chart -- for calendar years 1997
and 1998]
1997............7.74%
1998...........10.47%
- ----------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
- ----------------------------- ----------------------
Quarter Ending
- ----------------- ----------- ----------------------
Highest 16.67% December 31, 1998
- ----------------- ----------- ----------------------
Lowest -16.75% September 30, 1998
- ----------------- ----------- ----------------------
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
- ----------------- ---------------- -----------------
Since Inception
1 Year January 18, 1996
- ----------------- ---------------- -----------------
International
Equity Fund 10.47% 10.84%
- ----------------- ---------------- -----------------
MSCI World
EX-US Index 19.11% 9.46%
- ----------------- ---------------- -----------------
<PAGE>
FUND FEES AND EXPENSES
THE TABLES BELOW DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF THE STOCK FUNDS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (fees paid STOCK EQUITY EQUITY GROWTH &
directly from your investment) INDEX FUND INCOME FUND VALUE FUND INCOME FUND
- -------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases None None None None
- -------------------------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) None None None None
- -------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None None
- -------------------------------------------------------------------------------------------------
Redemption Fee None None None None
- -------------------------------------------------------------------------------------------------
Exchange Fee None None None None
- -------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING
EXPENSES (expenses that are
deducted from Fund assets) as
a % of average net assets(1)
- -------------------------------------------------------------------------------------------------
Advisory Fee .40% .45% .57% .60%
- -------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees .25% .25% .25% .25%
- -------------------------------------------------------------------------------------------------
Other Expenses
- -------------------------------------------------------------------------------------------------
Administrative
Services Fee (2) .30% .30% .30%
- -------------------------------------------------------------------------------------------------
Miscellaneous Expenses None .09% .16% .09%
- -------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES .65% 1.09% 1.28% 1.24%
- -------------------------------------------------------------------------------------------------
Fee Waiver and/or Expense
Reimbursement(3) None .09% .18% .09%
- -------------------------------------------------------------------------------------------------
NET EXPENSES .65% 1.00% 1.10% 1.15%
- -------------------------------------------------------------------------------------------------
</TABLE>
1Each Fund invests in securities through an underlying mutual fund. This
table and the example below reflect the expenses of the Fund and that
underlying fund.
2Administrative services fees of the Fund are included in the Advisory Fee
for the Fund.
3 The Adviser has contractually agreed to reimburse certain of the Funds'
expenses.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
EQUITY
SHAREHOLDER FEES (fees paid GROWTH SPECIAL AGGRESSIVE INTERNATIONAL
directly from your investment) FUND EQUITY FUND EQUITY FUND EQUITY FUND
- -------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) None None None None
Imposed on Purchases
- -------------------------------------------------------------------------------------------------
Maximum Deferred Sales None None None None
Charge (Load)
- -------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) None None None None
Imposed on Reinvested Dividends
- -------------------------------------------------------------------------------------------------
Redemption Fee None None None None
- -------------------------------------------------------------------------------------------------
Exchange Fee None None None None
- -------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING
EXPENSES (expenses that are
deducted from Fund assets) as
a % of average net assets(1)
- -------------------------------------------------------------------------------------------------
Advisory Fee .62% .80% .97% .75%
- -------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees .25% .25% .25% .25%
- -------------------------------------------------------------------------------------------------
Other Expenses
- -------------------------------------------------------------------------------------------------
Administrative
Services Fee .30% .30% .30% .30%
- -------------------------------------------------------------------------------------------------
Miscellaneous Expenses .09% .11% .35% .23%
- -------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.26% 1.46% 1.87% 1.53%
- -------------------------------------------------------------------------------------------------
Fee Waiver and/or Expense
Reimbursement (2) .02% .01% .37% .13%
- -------------------------------------------------------------------------------------------------
NET EXPENSES 1.24% 1.45% 1.50% 1.40%
- -------------------------------------------------------------------------------------------------
</TABLE>
1Each Fund invests in securities through an underlying mutual fund. This
table and the example below reflect the expenses of the Fund and that
underlying fund.
2The Adviser has contractually agreed to reimburse certain of the Funds'
expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in a Stock
Fund to the cost of investing in other mutual funds. The example assumes that:
o you invest $10,000 in a Fund for the time periods indicated; and
o you then sell all your shares at the end of those periods.
The example also assumes that:
o your investment has a 5% return each year; and
o the Fund's operating expenses shown in the tables above, after fee waivers
and reimbursements, remain the same.
<PAGE>
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
- -------------------------------------------------------------------------------
STOCK EQUITY EQUITY GROWTH &
INDEX FUND INCOME FUND VALUE FUND INCOME FUND
- -------------------------------------------------------------------------------
1 year $66 $102 $112 $117
- -------------------------------------------------------------------------------
3 years $208 $318 $350 $365
- -------------------------------------------------------------------------------
5 years N/A $552 $606 $633
- -------------------------------------------------------------------------------
10 years N/A $1,225 $1,340 $1,398
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EQUITY SPECIAL AGGRESSIVE INTERNATIONAL
GROWTH FUND EQUITY FUND EQUITY FUND EQUITY FUND
- -------------------------------------------------------------------------------
1 year $126 $148 $153 $143
- -------------------------------------------------------------------------------
3 years $393 $459 $474 $443
- -------------------------------------------------------------------------------
5 years $681 $792 $818 $766
- -------------------------------------------------------------------------------
10 years $1,500 $1,735 $1,791 $1,680
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
STRATEGIC ALLOCATION FUNDS
- -------------------------------------------------------------------------------
SHORT HORIZON STRATEGIC ALLOCATION FUND
SHORT/INTERMEDIATE HORIZON STRATEGIC ALLOCATION FUND
INTERMEDIATE HORIZON STRATEGIC ALLOCATION FUND
INTERMEDIATE/LONG HORIZON STRATEGIC ALLOCATION FUND
LONG HORIZON STRATEGIC ALLOCATION FUND
THIS SUMMARY BRIEFLY DESCRIBES EACH OF THE STRATEGIC ALLOCATION FUNDS AND THE
PRINCIPAL RISKS OF INVESTING IN THEM.
FUND GOALS
SHORT HORIZON
STRATEGIC ALLOCATION FUND The Fund's goal is to provide a high level
of income and preservation of capital.
SHORT/INTERMEDIATE HORIZON
STRATEGIC ALLOCATION FUND The Fund's goal is to achieve reasonable
returns with considerably less than average
volatility as compared to other balanced
funds.
INTERMEDIATE HORIZON
STRATEGIC ALLOCATION FUND The Fund's goal is to achieve long-term
returns from a combination of investment
income and capital appreciation with
slightly less than average volatility as
compared to other balanced funds.
<PAGE>
INTERMEDIATE/LONG HORIZON
STRATEGIC ALLOCATION FUND The Fund's goal is to achieve long-term
returns from a combination of investment
income and capital appreciation with
slightly more than average volatility as
compared to other balanced funds.
LONG HORIZON
STRATEGIC ALLOCATION FUND The Fund's goal is to provide long-term
returns from growth of capital and growth of
income.
MAIN INVESTMENT STRATEGIES
The Strategic Allocation Funds are asset allocation funds. Each Fund invests in
a combination of the Funds (other than the Balanced Fund and the Stock Index
Fund) described above in this prospectus. Diversified selects the combination
and amount of underlying Funds to invest in based on each Strategic Allocation
Fund's investment goal.
The following chart shows approximately how much of the assets of each
Strategic Allocation Fund are invested in the Money Market, Bond and Stock
Funds. These allocations reflect Diversified's present strategy for asset
allocation during normal market conditions, and may be changed at any time.
Under severe market conditions, Diversified may allocate the assets of each
Strategic Allocation Fund without limit to the Money Market Fund. For specific
allocations to the underlying Funds, see Appendix A.
------------------------------------------
MONEY MARKET BOND STOCK
FUND FUNDS FUNDS
- -------------------------------------------------------------------------------
SHORT HORIZON 10% 80% 10%
- -------------------------------------------------------------------------------
SHORT/INTERMEDIATE HORIZON None 70% 30%
- -------------------------------------------------------------------------------
INTERMEDIATE HORIZON None 50% 50%
- -------------------------------------------------------------------------------
INTERMEDIATE/LONG HORIZON None 30% 70%
- -------------------------------------------------------------------------------
LONG HORIZON None None 100%
- -------------------------------------------------------------------------------
Each Strategic Allocation Fund is a non-diversified fund, meaning that it is
not limited by the Investment Company Act of 1940 as to the amount of its
assets that may be invested in a single issuer (although certain
diversification requirements under the Internal Revenue Code still apply).
MAIN RISKS
Please remember that the risks of investing in each Strategic Allocation Fund
depend on the underlying Funds in which the Strategic Allocation Fund invests
and, in turn, on the securities that the underlying Funds hold and the
investment strategies they use. For example, the Short Horizon and
Short/Intermediate Horizon Strategic Allocation Funds invest more of their
assets in the Bond Funds. As a result, the Short Horizon and Short/Intermediate
Horizon Funds may be more susceptible to interest rate risk and credit risk
than the Strategic Allocation Funds investing more of their assets in the Stock
Funds. Similarly, the Strategic Allocation Funds investing more of their assets
in the Stock Funds may be susceptible to greater price volatility under certain
market conditions than the Strategic Allocation Funds investing more of their
assets in the Bond Funds. The value of each Strategic Allocation Fund's shares
will change daily as the value of its underlying securities change. This means
that your Fund shares may be worth more or less when you sell them than when
you bought them. You may lose money if you invest in a Strategic Allocation
Fund.
o MARKET RISK. This is the risk that the prices of securities will rise
or fall due to changing economic, political or market conditions, or
<PAGE>
due to a company's individual situation. Historically, equity
securities have been more volatile than debt securities in response
to market risk.
It is also possible that the Funds will not perform as intended. For
example, the Short Horizon Strategic Allocation Fund is expected to
be the least volatile of the Funds. However, under certain market
conditions this Fund could be the most volatile.
o INTEREST RATE RISK. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise. A change
in interest rates could cause the Funds' share prices to go down.
Generally, the longer the average maturity of the bonds in a Fund,
the more the Fund's share price will fluctuate in response to
interest rate changes.
o CREDIT RISK. Some issuers may not make payments on debt securities
held by the underlying Funds, causing a loss. Or, an issuer's
financial condition may deteriorate, lowering the credit quality of a
security and leading to greater volatility in the price of the
security and in shares of a Fund. The prices of lower rated
securities often are more volatile than those of higher rated
securities.
o PREPAYMENT RISK. The issuers of debt securities held by a Fund may be
able to prepay principal due on the securities, particularly during
periods of declining interest rates. The Fund may not be able to
reinvest that principal at attractive rates, reducing income to the
Fund. On the other hand, rising interest rates may cause prepayments
to occur at slower than expected rates. This effectively lengthens
the maturities of the affected securities, making them more sensitive
to interest rate changes and the Fund's share price more volatile.
Mortgage-backed securities are particularly susceptible to prepayment
risk and their prices may be volatile.
o FOREIGN SECURITIES. Investments in foreign securities involve risks
relating to adverse political, social and economic developments
abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are
subject. These risks may include expropriation of assets,
confiscatory taxation, withholding taxes on dividends and interest
paid on Fund investments, currency exchange controls and other
limitations on the use or transfer of Fund assets and political or
social instability. There may be rapid changes in the value of
foreign currencies or securities, causing a Fund's share price to be
volatile. Also, in certain circumstances, a Fund could realize
reduced or no value in U.S. dollars from its investments in foreign
securities, causing the Fund's share price to go down.
o GROWTH SECURITIES. Growth securities typically are quite sensitive to
market movements because their market prices tend to reflect future
expectations. When it appears those expectations will not be met, the
prices of growth securities typically fall. The success of an
underlying Fund's investment in growth securities depends largely on
the Fund's advisers' skill in assessing the growth potential of the
companies that issued the securities.
o SMALLER COMPANIES. The securities of smaller capitalized companies
may have more risks than those of larger, more seasoned companies.
They may be particularly susceptible to market downturns and their
prices may be more volatile, causing a Fund's share price to be
volatile.
o DERIVATIVES. Each Fund may, but is not required to, engage in certain
investment strategies involving derivatives (such as options,
futures, swaps and forward currency contracts). These investment
strategies may be employed only in connection with hedging
<PAGE>
activities. The success or failure of a hedging transaction will
depend on the advisers' ability to predict movements in the hedge,
the investment being hedged and the market in general (and the
correlation between these factors). Derivatives may not always be
available on terms that make economic sense (for example, they may be
too costly), and, when used, their transaction costs and premiums may
adversely affect Fund performance.
Please note that an investment in the Funds is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
WHO MAY WANT TO INVEST
Consider investing in the Strategic Allocation Funds if you are seeking a
long-term, professionally managed asset allocation investment program. You
should not invest in the Strategic Allocation Funds to provide for short-term
financial needs or to play short-term swings in the stock or bond markets.
Consider the SHORT HORIZON STRATEGIC ALLOCATION FUND if you are seeking current
income through investment primarily in the Money Market and Bond Funds.
Consider the SHORT/INTERMEDIATE HORIZON STRATEGIC ALLOCATION FUND if you are
seeking current income through investment primarily in the Bond Funds with
slightly more volatility than the Short Horizon Strategic Allocation Fund and
less volatility than the other Strategic Allocation Funds. Consider the
INTERMEDIATE HORIZON STRATEGIC ALLOCATION FUND if you are seeking high
long-term returns through a diversified investment portfolio of stocks, fixed
income and money market securities. Consider the INTERMEDIATE/LONG HORIZON
STRATEGIC ALLOCATION FUND if you are seeking long-term returns through
investment primarily in the Stock and Bond Funds with slightly more volatility
as compared to other balanced funds. Consider the LONG HORIZON STRATEGIC
ALLOCATION FUND if you are seeking long-term growth through equity investments
and can tolerate substantial changes in the value of your investment.
FUND PERFORMANCE
The following bar charts and tables can help you evaluate the risks of
investing in the Strategic Allocation Funds, and how the Funds' returns have
varied over time.
o The bar charts show changes in the Funds' performance from year to year.
o The tables show the Funds' best and worst quarters during the years covered
by the bar charts, and how the Funds' average annual returns for the
periods indicated compare to those of broad measures of market performance.
Please remember that, unlike the Funds, the market indices do not include
the costs of buying and selling securities and other Fund expenses.
When you consider this information, please remember that a Fund's past
performance is not necessarily an indication of how it will perform in the
future.
<PAGE>
SHORT HORIZON STRATEGIC ALLOCATION FUND
TOTAL RETURN
(per calendar year)
1997 1998
[bar chart -- for calendar years 1997
and 1998]
1997...........8.69%
1998...........6.35%
- --------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- --------------------------------------------------------
- ------------------------------------ -------------------
Quarter Ending
- ------------------------------------ -------------------
- --------------------- -------------- -------------------
Highest 3.91% June 30, 1997
- --------------------- -------------- -------------------
Lowest 0.14% March 31, 1997
- --------------------- -------------- -------------------
- --------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- --------------------------------------------------------
- --------------------- --------------- ------------------
Since Inception
1 Year April 15, 1996
- --------------------- --------------- ------------------
Short Horizon
Strategic
Allocation Fund 6.35% 7.70%
- --------------------- --------------- ------------------
Lehman
Aggregate Index 8.69%* 8.68%*
- --------------------- --------------- ------------------
* A combined index consisting of 80% Lehman Aggregate Index, 10% Salomon
Brothers Treasury Bill Index, and 10% Russell 1000 Value Index had a one year
return of 9.23% and a return of 9.88% for the period since the Fund's
inception.
SHORT/INTERMEDIATE HORIZON STRATEGIC ALLOCATION FUND
The Fund began operations on May 1, 1998 and does not have a full calendar year
of investment returns at the date of this prospectus.
<PAGE>
INTERMEDIATE HORIZON STRATEGIC ALLOCATION FUND
TOTAL RETURN
(per calendar year)
1997 1998
[bar chart -- for calendar years 1997
and 1998]
1997...........14.29%
1998...........12.31%
- --------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- --------------------------------------------------------
- ------------------------------------ -------------------
Quarter Ending
- --------------------- -------------- -------------------
Highest 10.56% December 31, 1998
- --------------------- -------------- -------------------
Lowest -6.07% September 30, 1998
- --------------------- -------------- -------------------
- --------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- --------------------------------------------------------
- --------------------- --------------- ------------------
Since Inception
1 Year April 15, 1996
- --------------------- --------------- ------------------
Intermediate
Horizon Strategic
Allocation Fund 12.31% 12.75%
- --------------------- --------------- ------------------
S&P 500 Index 28.75%* 28.83%*
- --------------------- --------------- ------------------
Lehman Bros.
Gov./Corp. Bond
Index 9.46%* 8.96%*
- --------------------- --------------- ------------------
* A combined index consisting of 50% Lehman Aggregate Index, 30% Russell 1000
Index, 12% Russell 2000 Index and 8% MSCI World EX-US Index had a one year
return of 14.16% and a return of 9.88% for the period since the Fund's
inception.
<PAGE>
INTERMEDIATE/LONG HORIZON STRATEGIC ALLOCATION FUND
TOTAL RETURN
(per calendar year)
1997 1998
[bar chart -- for calendar years 1997
and 1998]
1997...........18.95%
1998...........14.05%
- --------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- --------------------------------------------------------
- ------------------------------------ -------------------
Quarter Ending
- --------------------- -------------- -------------------
Highest 14.65% June 30, 1997
- --------------------- -------------- -------------------
Lowest -8.63% September 30, 1998
- --------------------- -------------- -------------------
- --------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- --------------------------------------------------------
- --------------------- --------------- ------------------
Since Inception
1 Year April 15, 1996
- --------------------- --------------- ------------------
Intermediate/Long
Horizon Strategic
Allocation Fund 14.05% 15.86%
- --------------------- --------------- ------------------
S&P 500 Index 28.75%* 28.83%*
- --------------------- --------------- ------------------
* A combined index consisting of 42% Russell 1000 Index, 30% Lehman Aggregate
Index, 18% Russell 2000 Index, and 10% MSCI World EX-US Index had a one year
return of 15.70% and a return of 17.26% for the period since the Fund's
inception.
<PAGE>
LONG HORIZON STRATEGIC ALLOCATION FUND
The Fund began operations on May 1, 1998 and does not have a full calendar year
of investment returns at the date of this prospectus.
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE STRATEGIC ALLOCATION FUNDS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
SHORT/ INTERMEDIATE/
SHORT INTERMEDIATE INTERMEDIATE LONG LONG
HORIZON HORIZON HORIZON HORIZON HORIZON
STRATEGIC STRATEGIC STRATEGIC STRATEGIC STRATEGIC
SHAREHOLDER FEES (fees paid ALLOCATION ALLOCATION ALLOCATION ALLOCATION ALLOCATION
directly from your investment) FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------
Maximum Sales Charge
(Load) Imposed on Purchases None None None None None
- --------------------------------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) None None None None None
- --------------------------------------------------------------------------------------------------------
Maximum Sales Charge
(Load) Imposed on Reinvested
Dividends None None None None None
- --------------------------------------------------------------------------------------------------------
Redemption Fee None None None None None
- --------------------------------------------------------------------------------------------------------
Exchange Fee None None None None None
- --------------------------------------------------------------------------------------------------------
ANNUAL FUND OPErATING
EXPENSES (expenses that are
deducted from Fund assets) as
a % of average net assets
- --------------------------------------------------------------------------------------------------------
Advisory Fee .20% .20% .20% .20% .20%
- --------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees None None None None None
- --------------------------------------------------------------------------------------------------------
Other Expenses
- --------------------------------------------------------------------------------------------------------
Administrative
Services Fee None None None None None
- --------------------------------------------------------------------------------------------------------
Miscellaneous Expenses None None None None None
- --------------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING
EXPENSES(1) .20% .20% .20% .20% .20%
- --------------------------------------------------------------------------------------------------------
</TABLE>
1EACH STRATEGIC ALLOCATION FUND ALSO BEARS ITS PRO RATA SHARE OF THE FEES
AND EXPENSES (INCLUDING ADVISORY AND RULE 12B-1 FEES) OF THE UNDERLYING
FUNDS IN WHICH IT INVESTS AND THE INVESTMENT RETURNS FOR THE STRATEGIC
ALLOCATION FUND WILL BE NET OF THE EXPENSES OF THE STRATEGIC ALLOCATION FUND
AND THOSE UNDERLYING FUNDS. Based on the expense ratios for the Money
Market, Bond and Stock Funds in which the Strategic Allocation Funds invest,
the average weighted expense ratios are expected to be: from 1.12% to 1.26%
for the Short Horizon Strategic Allocation Fund; from 1.16% to 1.37% for the
Short/Intermediate Horizon Strategic Allocation Fund; from 1.22% to 1.43%
for the Intermediate Horizon Strategic Allocation Fund; from 1.27% to 1.49%
for the Intermediate/Long Horizon Strategic Allocation Fund; and from 1.31%
to 1.58% for the Long Horizon Strategic Allocation Fund. A range of expense
ratios is given because the percentage of each Strategic Allocation Fund's
assets invested in the underlying Funds will fluctuate. Based on these
ranges, the target ratios of 1.19%, 1.29%, 1.33%, 1.38% and 1.45%,
<PAGE>
respectively, are used to calculate the expenses a shareholder would incur
as reflected in the example below.
EXAMPLE
This example is intended to help you compare the cost of investing in a
Strategic Allocation Fund to the cost of investing in other mutual funds. The
example assumes that:
o you invest $10,000 in a Fund for the time periods indicated; and
o you then sell all your shares at the end of those periods.
The example also assumes that:
o your investment has a 5% return each year; and
o the Fund's operating expenses shown in the table above remain the same
before taking into consideration any fee waivers or reimbursements.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
SHORT/ INTERMEDIATE INTERMEDIATE/
SHORT HORIZON INTERMEDIATE HORIZON LONG HORIZON LONG HORIZON
STRATEGIC HORIZON STRATEGIC STRATEGIC STRATEGIC STRATEGIC
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
- ----------------------------------------------------------------------------------------------------------------
1 year $121 $131 $136 $142 $149
- ----------------------------------------------------------------------------------------------------------------
3 years $378 $409 $425 $440 $462
- ----------------------------------------------------------------------------------------------------------------
5 years $654 $708 $734 $761 $797
- ----------------------------------------------------------------------------------------------------------------
10 years $1,443 $1,556 $1,613 $1,669 $1,746
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SHAREHOLDER SERVICES
This section describes how to do business with the Funds and shareholder
services that are available.
- -------------------------------------------------------------------------------
HOW TO REACH THE FUNDS
- -------------------------------------------------------------------------------
BY TELEPHONE Call toll free at (800) 926-0044
BY MAIL The Diversified Investors Funds Group
(or The Diversified Investors Strategic Allocation Funds)
4 Manhattanville Road
Purchase, New York 10577
- -------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
- -------------------------------------------------------------------------------
Shares of the Funds are available to individual and institutional investors.
You may be able to establish new accounts in a Fund under certain retirement
plans. These plans include, but are not limited to, 401(k), 403(b) and 457
Plans, Money Purchase Plans, Profit Sharing Plans, Simplified Employee Pension
Plans, Keogh Plans and IRAs. Consult with your Service Agent and your tax and
retirement advisers. If you are a participant in a plan, you should obtain the
plan's conditions for participation from your plan administrator. Plans may
<PAGE>
prohibit purchases or redemptions of Fund shares during certain circumstances,
such as a change in plan administrators. Consult your plan administrator for
more information.
Each Fund's shares are sold without a sales charge. Purchases may be made
Monday through Friday, except on certain holidays. Shares are purchased at net
asset value (NAV) next calculated after your investment is received in good
order and is accepted by the Distributor.
You may purchase shares in a Fund through the Distributor directly or by
authorizing your retirement plan to purchase shares on your behalf. See
Appendix B for information on purchases directly through the Distributor. See
your plan administrator to obtain purchase instructions if you are a
participant in a retirement plan. Plans which include fixed investment options
may restrict or prohibit the purchase of shares of certain of the Funds with
monies withdrawn from those fixed investment options.
The minimum initial investment is $5,000. The Funds are currently waiving this
minimum. There is no minimum for subsequent investments. A retirement plan may,
however, impose minimum investment requirements. Plan participants should
consult their plan administrator.
Each Fund reserves the right to cease offering its shares for sale at any time
or to reject any order for the purchase of shares.
- -------------------------------------------------------------------------------
HOW THE PRICE OF YOUR SHARES IS CALCULATED
- -------------------------------------------------------------------------------
Each Fund calculates its NAV every day that the New York Stock Exchange is open
for trading. This calculation is made at the close of regular trading on the
Exchange, normally 4 p.m. Eastern time. No Fund calculates its NAV on days when
the New York Stock Exchange is closed. The New York Stock Exchange is normally
closed on the following national holidays: New Year's Day, Martin Luther King
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
- -------------------------------------------------------------------------------
What is NAV?
NAV refers to a Fund's NET ASSET VALUE. Net asset value per share is calculated
by dividing the total value of a Fund's securities and other assets, less
liabilities, by the total number of shares outstanding. Securities are valued
at market value or, if a market quotation is not readily available, at their
fair value determined in good faith under procedures established by and under
the supervision of the Trustees. Foreign securities are valued based on
quotations from the primary market in which they are traded, and converted from
the local currency into U.S. dollars using current exchange rates. Money market
instruments maturing within sixty days are valued at amortized cost, which
approximates market value.
- -------------------------------------------------------------------------------
Please note that trading may take place in foreign securities held by a Fund on
days when the Fund is not open for business. As a result, the Fund's NAV may
change on days on which it is not possible to purchase or sell shares of the
Fund.
- -------------------------------------------------------------------------------
HOW TO SELL SHARES
- -------------------------------------------------------------------------------
On any business day, you may sell (redeem) all or a portion of your shares.
Your transaction will be processed at the applicable Fund's NAV the next time
it is calculated after your redemption request in good order is received by the
Distributor. Redemption proceeds normally will be paid or mailed within seven
days. A redemption is treated as a sale for tax purposes, and could result in
taxable gain or loss in a non-tax-sheltered account.
<PAGE>
Participants in a retirement plan should obtain redemption instructions from
their plan administrator. If you purchased shares directly through the
Distributor, see Appendix B for redemption instructions.
A signature guarantee is required for the following:
o any redemption by mail if the proceeds are to be paid to someone else
or are to be mailed to an address other than your address of record;
o any redemption by mail if the proceeds are to be wired to a bank;
o any redemption request for more than $50,000; and
o requests to transfer registration of shares to another owner.
At the Funds' discretion signature guarantees may also be required for other
redemptions. A signature guarantee assures that a signature is genuine and
protects shareholders from unauthorized account transfers. Banks, savings and
loan associations, trust companies, credit unions, broker-dealers and member
firms of a national securities exchange may guarantee signatures. Call your
financial institution to see if it has this capability. A signature guarantee
is not the same as a notarized signature.
- -------------------------------------------------------------------------------
SHAREHOLDER SERVICES AND POLICIES
- -------------------------------------------------------------------------------
EXCHANGES
On any business day you may exchange all or a portion of your shares for shares
of any other available Fund. To make exchanges, please follow the procedures
for sales described above under "How to Sell Shares." Plan participants should
contact their plan administrator. Exchanges are processed at NAV the next time
it is calculated after your exchange request in good order is received and
approved. The Funds reserve the right to reject any exchange request or to
modify or terminate the exchange privilege at any time. An exchange is the sale
of shares of one Fund and purchase of shares of another, and could result in
taxable gain or loss in a non-tax-sheltered account.
REDEMPTION PROCEEDS
The Funds intend to pay redemption proceeds in cash, but reserve the right to
pay in kind by delivery of investment securities equal to the redemption price.
In these cases, you might incur brokerage costs in converting the securities to
cash.
Your right to receive payment of redemption proceeds may be suspended, or
payment may be postponed, in certain circumstances. These circumstances include
any period the New York Stock Exchange is closed (other than weekends or
holidays) or trading on the Exchange is restricted, any period when an
emergency exists and any time the Securities and Exchange Commission permits
mutual funds to postpone payments for the protection of investors.
INVOLUNTARY REDEMPTIONS
If your account balance falls below $1,000 as a result of a redemption or
exchange, your account may be closed and the proceeds sent to you. You will be
given notice before this occurs.
TELEPHONE TRANSACTIONS
You may initiate redemptions and exchanges by telephone. The Funds and their
agents will not be responsible for any losses resulting from unauthorized
<PAGE>
transactions when procedures designed to verify the identity of the caller are
followed. During periods of unusual market activity, severe weather or other
abnormal circumstances, it may be difficult for you to reach a representative
of the Funds by telephone. In that case, please consider sending written
instructions.
ADDRESS CHANGES
To change the address on your account contact your plan administrator or call
(800) 926-0044 and send a written request signed by all account owners. Include
the name of your Fund(s), the account numbers(s), the name(s) on the account
and both the old and new addresses.
REGISTRATION CHANGES
To change the name on an account, the shares are generally transferred to a new
account. In some cases, legal documentation may be required. For more
information, contact your plan administrator or call (800) 926-0044. If your
shares are held of record by a financial institution, contact that financial
institution for ownership changes.
STATEMENTS AND REPORTS
The Funds will send you a confirmation statement quarterly reflecting regularly
scheduled contributions and other transactions affecting your account. The
Funds will also send you a confirmation statement after every transaction that
affects your account registration. Information regarding the tax status of
income dividends and capital gains distributions will be mailed to investors
with non-tax-sheltered accounts early each year.
Financial reports for the Funds will be mailed semiannually to all
shareholders.
DIVIDENDS AND DISTRIBUTIONS
As a Fund shareholder, you are entitled to your share of a Fund's net income
and gains on its investments. Each Fund passes substantially all of its
earnings along to its investors as distributions. When a Fund earns dividends
from stocks and interest from bonds and other debt securities and distributes
those earnings to shareholders, it is called a DIVIDEND DISTRIBUTION. A Fund
realizes capital gains when it sells securities for a higher price than it
paid. When these gains are distributed to shareholders, it is called a CAPITAL
GAIN DISTRIBUTION.
Each Fund pays substantially all of its net income from dividends and interest
to its shareholders of record annually during the month of DECEMBER.
Each Fund distributes any net realized short-term and long-term capital gains
to its shareholders at least annually, in December. Each Fund may also make
additional distributions to its shareholders to the extent necessary to avoid
the application of the 4% non-deductible excise tax on certain undistributed
income and net capital gains of mutual funds.
You will receive all distributions from a Fund in additional shares of the same
Fund issued at NAV.
TAX MATTERS
This discussion of taxes is for general information only. You should consult
your own tax adviser about your particular situation, and the status of your
account under state and local laws.
<PAGE>
TAXES OF DISTRIBUTIONS
If you are otherwise subject to federal income taxes, you will normally have to
pay federal income taxes on the distributions you receive from a Fund, even if
you reinvest the distributions in additional shares. Distributions designated
by a Fund as capital gain dividends are taxable as long-term capital gains.
Other distributions are generally taxable as ordinary income. Some
distributions paid in January may be taxable to you as if they had been paid
the previous December.
TAXES ON SALE OR EXCHANGES
If you are otherwise subject to federal income taxes, anytime you sell or
exchange shares, it is considered a taxable event for you. Depending on the
purchase price and the sale price of the shares you sell or exchange, you may
have a gain or a loss on the transaction. You are responsible for any tax
liabilities generated by your transaction.
OTHER TAX MATTERS
Retirement plans that invest in a Fund and satisfy applicable Internal Revenue
Code conditions generally will not be subject to federal tax liability on
either distributions from a Fund or redemptions of shares of a Fund.
Participants in these retirement plans will be taxed when they begin taking
distributions from the plan in accordance with Internal Revenue Code rules.
Fund distributions will reduce a Fund's net asset value per share. As a result,
if you are otherwise subject to federal income taxes, and you buy shares in a
Fund just before the Fund makes a distribution, you may pay the full price for
the shares and then effectively receive a portion of the purchase price back as
a taxable distribution.
By law, each Fund must withhold 31% of your distributions and proceeds if you
have not provided complete, correct taxpayer information or are otherwise
subject to "backup withholding". Funds may also be required to withhold a
portion of any distributions and redemption proceeds otherwise due to
shareholders who are not U.S. citizens or residents.
Early each year, each Fund will notify its shareholders (other than retirement
plan participants) of the amount and tax status of distributions paid to
shareholders for the preceding year.
MANAGEMENT
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INVESTMENT ADVISERS
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FUNDS OTHER THAN THE STOCK INDEX FUND
Diversified Investment Advisors, Inc. is the investment adviser of each of the
underlying mutual funds (called Portfolios) in which these Funds invest.
Diversified also advises each Strategic Allocation Fund. Diversified is an
indirect, wholly-owned subsidiary of AEGON USA, Inc., a financial services
holding company whose primary emphasis is life and health insurance and annuity
and investment products. AEGON USA is an indirect, wholly-owned subsidiary of
AEGON N.V., a Netherlands corporation which is a publicly traded international
insurance group.
Diversified has selected subadvisers for each Portfolio. Diversified provides
general supervision of the subadvisers and also manages the assets of each
Strategic Allocation Fund, subject in each case to policies set by the
Trustees. Diversified's investment management decisions are made by a committee
of Diversified's personnel.
<PAGE>
The subadvisers make the day-to-day investment decisions for the Portfolios and
place the purchase and sale orders for securities transactions, subject in all
cases to the general supervision of Diversified. The subadvisers are listed
below; see "Subadvisers."
STOCK INDEX FUND
Diversified is the investment adviser of the Stock Index Fund, providing
general supervision of the Fund's investment in its underlying Portfolio,
subject to policies set by the Trustees.
Barclays Global Fund Advisors is the investment adviser of the Portfolio in
which the Stock Index Fund invests. Barclays Global Fund Advisors was formed in
October, 1996 and is a direct subsidiary of Barclays Global Investors, N.A.
(which, in turn, is an indirect subsidiary of Barclays Bank PLC). Barclays
Global Fund Advisors has been a registered investment adviser since 1996. The
principal business address of Barclays Global Fund Advisors is 45 Fremont
Street, San Francisco, California 94105. Investment management decisions of
Barclays Global Fund Advisors are made by committee and not by managers
individually.
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SUBADVISERS
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The subadvisers described in this section are responsible for the daily
management of the Portfolios underlying the Funds named below. Diversified
provides general supervision of the subadvisers. Except as otherwise noted,
investment decisions are made by a committee of each subadviser's personnel.
MONEY MARKET FUND
INTERMEDIATE GOVERNMENT BOND FUND
GOVERNMENT/CORPORATE BOND FUND
Capital Management Group. Capital Management Group is a division of 1740
Advisers, Inc., a wholly-owned subsidiary of The MONY Group, Inc. Capital
Management Group has been a registered investment adviser since 1971. The
address of Capital Management Group is 1740 Broadway, New York, New York 10019.
The following representatives of Capital Management Group are primarily
responsible for the day-to-day management of the Funds indicated:
Money Market Fund: David E. Wheeler, Investment Vice President and Portfolio
Manager, has been responsible for the day-to-day management of the Money Market
Fund since 1997. Mr. Wheeler has been employed by Capital Management Group
since 1994 and was employed at AIG Investment Advisers prior to 1994.
Intermediate Government Bond Fund and Government/Corporate Bond Fund: Gregory
Staples, Vice President, has been responsible for the day-to-day management of
both the Intermediate Government Bond Fund and the Government/Corporate Bond
Fund since 1994. Mr. Staples has been employed by Capital Management Group
since 1987.
HIGH QUALITY BOND FUND
Merganser Capital Management Corporation. Merganser was formed in 1984 and is
owned by certain of its employees. Merganser has been a registered investment
adviser since 1984. The principal business address of Merganser is One
Cambridge Center, Cambridge, Massachusetts 02142.
<PAGE>
HIGH-YIELD BOND FUND
Delaware Investment Advisers. Delaware Investment Advisers is a series of
Delaware Management Business Trust. Delaware is indirectly owned by Lincoln
National Corp. Delaware and its predecessors have been registered investment
advisers since 1952. The principal business address of Delaware Investment
Advisers is 2005 Market Street, Philadelphia, Pennsylvania 19103.
BALANCED FUND
Aeltus Investment Management, Inc.
Payden & Rygel
Aeltus Investment Management, Inc. Aeltus was formed in 1972 and is an indirect
wholly-owned subsidiary of Aetna Inc. Aeltus has been a registered investment
adviser since 1972. The principal business address of Aeltus is 10 State House
Square, Hartford, Connecticut 06103-3602.
Payden & Rygel. Payden was formed in 1984 and is owned by Joan A. Payden, John
P. Isaacson and Scott A. King. Payden (or its predecessors) has been a
registered investment adviser since 1983. The principal business address of
Payden is 333 South Grand Avenue, 32nd Floor, Los Angeles, California 90071.
EQUITY INCOME FUND
Asset Management Group. Asset Management Group is a division of 1740 Advisers,
Inc., which is a wholly-owned subsidiary of The MONY Group, Inc. Asset
Management Group has been a registered investment adviser since 1971. The
address of Asset Management Group is 1740 Broadway, New York, New York 10019.
EQUITY VALUE FUND
Ark Asset Management Co., Inc. Ark was formed in August of 1989 and is owned by
Ark Asset Holdings, Inc. Ark Asset Holdings, Inc. is owned by Ark employees.
Ark has been a registered investment adviser since 1989. The principal address
of Ark is 125 Broad Street, New York, New York 10004.
GROWTH & INCOME FUND
Putnam Advisory Company, Inc. Putnam was formed in 1937 and is owned by Marsh &
McLennon Companies, Inc. Putnam has been a registered investment adviser since
1968. The principal address of Putnam is One Post Office Square, Boston,
Massachusetts 02109.
EQUITY GROWTH FUND
Dresdner RCM Global Investors LLC
Montag & Caldwell Incorporated
Dresdner RCM Global Investors LLC was established in 1996, when Dresdner Bank
AG acquired RCM Capital Management. Dresdner RCM has been a registered
investment adviser since 1972. The principal address of Dresdner RCM is Four
Embarcadero Center, San Francisco, California 94111.
Montag & Caldwell Incorporated was established in 1945 and is owned by
Alleghany Corporation. Montag & Caldwell has been a registered investment
adviser since 1968. The principal address of Montag & Caldwell is 3343
Peachtree Road, N.E., Suite 1100, Atlanta, Georgia 30326-1022.
<PAGE>
SPECIAL EQUITY FUND
Goldman Sachs Asset Management
Pilgrim Baxter & Associates, Ltd.
RS Investment Management, L.P.
Westport Asset Management, Inc.
Goldman Sachs Asset Management is a separate operating division of Goldman,
Sachs & Co., a worldwide investment banking firm, with numerous offices
throughout the United States and globally. Goldman, Sachs & Co. acquired
Liberty Investment Management, Inc., the predecessor firm, in January of 1997.
Liberty had been a registered investment adviser since 1994. Liberty's
predecessor, Eagle Asset Management, Inc., had been a registered investment
adviser since 1984. The business address of the Goldman Sachs branch office
responsible for managing the Fund is 2502 Rocky Point Drive, Suite 500, Tampa,
Florida 33607.
Herbert E. Ehlers, Managing Director, and Timothy G. Ebright, Portfolio
Manager, have been responsible for the day-to-day management of the Special
Equity Fund on behalf of Liberty, and now Goldman Sachs, since 1994. Mr. Ehlers
and Mr. Ebright have been employed by Goldman Sachs since 1997. Before that,
they were employed by Liberty Investment Management, Inc. or its predecessor,
Eagle Asset Management, Inc., since 1980 and 1988, respectively.
Pilgrim Baxter & Associates, Ltd. was formed in 1995 and is owned by United
Asset Management, Inc., a publicly-owned corporation. Pilgrim (or its
predecessor) has been a registered investment adviser since 1982. The principal
business address of Pilgrim is 825 Duportail Road, Wayne, Pennsylvania 19087.
Gary Pilgrim, Chief Executive Officer, has been responsible for the day-to-day
management of the Special Equity Fund on behalf of Pilgrim since September
1998. He is a founding partner of Pilgrim and has been employed by Pilgrim
since 1982.
RS Investment Management, L.P. RS was formed in 1999 and is indirectly owned by
BankAmerica Corporation. RS (or its predecessor) has been a registered
investment adviser since 1984. The principal business address of RS is 555
California Street, San Francisco, California 94104.
Geoffrey A. Brod, Portfolio Manager, has been responsible for the day-to-day
supervision of the management of the Balanced Fund on behalf of Aeltus
since 1999 and has been employed by Aeltus or its parent company since 1966.
Westport Asset Management, Inc. was formed in 1983 and is owned by certain of
its employees. Westport has been a registered investment adviser since 1983.
The principal business address of Westport is 253 Riverside Avenue, Westport,
Connecticut 06880.
Andrew Knuth, Portfolio Manager, has been responsible for the day-to day
management of the Special Equity Fund on behalf of Westport since 1994 and has
been employed by Westport since 1983.
AGGRESSIVE EQUITY FUND
McKinley Capital Management, Inc. McKinley was formed in March of 1991 and is
owned by Robert B. Gillam. McKinley has been a registered investment adviser
since 1991. The principal business address of McKinley is 3301 C Street,
Anchorage, Alaska 99503.
Robert B. Gillam, Portfolio Manager, has been responsible for the day-to-day
supervision of management of the Aggressive Equity Fund since 1996 and has been
employed by McKinley since 1991.
INTERNATIONAL EQUITY FUND
Capital Guardian Trust Company. Capital Guardian was formed in 1968 and is
owned by Capital Group International, Inc., which is owned by The Capital Group
<PAGE>
Companies, Inc. Capital Guardian is a trust company regulated by the California
Department of Financial Institutions. The principal address of Capital Guardian
is 333 South Hope Street, Los Angeles, California 90071.
Capital Guardian uses a system of multiple portfolio managers. Within
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.
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ADVISORY FEES
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For the fiscal year ended December 31, 1998, Diversified and the subadvisers
received aggregate advisory fees (after waivers) equal to that percentage of
each Fund's average daily net assets set forth in the table below. The Stock
Index Fund commenced operations in 1999 and pays investment management fees
(after waivers) equal to 0.40% of its net asset value.
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Money Market Fund 0.25%
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High Quality Bond Fund 0.35%
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Intermediate Government Bond Fund 0.35%
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Government/Corporate Bond Fund 0.35%
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High-Yield Bond Fund 0.55%
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Balanced Fund 0.45%
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Equity Income Fund 0.45%
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Equity Value Fund 0.57%
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Growth & Income Fund 0.60%
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Equity Growth Fund 0.62%
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Special Equity Fund 0.80%
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Aggressive Equity Fund 0.90%
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International Equity Fund 0.75%
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Short Horizon Strategic Allocation Fund 0.20%*
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Short/Intermediate Horizon Strategic Allocation Fund 0.20%*
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Intermediate Horizon Strategic Allocation Fund 0.20%*
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Intermediate/Long Horizon Strategic Allocation Fund 0.20%*
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Long Horizon Strategic Allocation Fund 0.20%*
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* In addition, this Fund bears its pro rata share of the advisory fees of the
underlying Funds in which it invests.
MORE ABOUT THE FUNDS
Each Fund's goal and principal investment strategies, and the main risks of
investing in the Funds, are summarized at the beginning of this prospectus.
More information on investment strategies, investments and risks appears in
this section. These are the strategies that, in the opinion of each Fund's
advisers, are most likely to be important in trying to achieve the Fund's
investment goal. There can, of course, be no assurance that any Fund will
achieve its investment goal. Except as noted below, each Fund's goal and
strategies may be changed without shareholder approval.
Please note that each Fund may also use strategies and invest in securities
that are not described below but which are described in the Statement of
Additional Information. Of course, the Fund's advisers may decide, as a matter
of investment strategy, not to use the investments and investment techniques
described below and in the Statement of Additional Information at any
particular time.
<PAGE>
Each Fund (other than the Stock Index Fund) is actively managed, and the
portfolio managers may trade securities frequently, resulting, from time to
time, in an annual portfolio turnover rate of over 100%. Trading securities may
produce capital gains, which are taxable when distributed to investors with
non-tax-sheltered accounts. Active trading may also increase the amount of
commissions or mark-ups to broker-dealers that the Fund pays when it buys and
sells securities. The "Financial Highlights" section of this prospectus shows
each Fund's historical portfolio turnover rate.
Each Fund may, from time to time, take temporary defensive positions that are
inconsistent with the Fund's principal investment strategies in attempting to
respond to adverse market, political or other conditions. When doing so, the
Fund may invest without limit in high quality money market and other short-term
instruments, and may not be pursuing its investment goal. These investments may
result in a lower yield than would be available from investments with a lower
quality or longer term.
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What are Money Market Instruments?
A MONEY MARKET INSTRUMENT is a short-term IOU issued by banks or other
corporations, the U.S. or a foreign government or state or local governments.
Money market instruments have maturity dates of 13 months or less. Money market
instruments may include CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES, VARIABLE
RATE DEMAND NOTES (where the interest rate is reset periodically and the holder
may demand payment from the issuer at any time), FIXED-TERM OBLIGATIONS,
COMMERCIAL PAPER (short term unsecured debt of corporations), ASSET-BACKED
SECURITIES (which are backed by pools of accounts receivable such as car
installment loans or credit card receivables) and REPURCHASE AGREEMENTS. In a
repurchase agreement, the seller sells a security and agrees to buy it back at
a later date (usually within seven days) and at a higher price, which reflects
an agreed upon interest rate.
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MONEY MARKET FUND
- -------------------------------------------------------------------------------
This Fund invests primarily in high quality, short-term money market
instruments. The Fund may invest more than 25% of its total assets in
obligations of U.S. banks.
The Fund complies with industry regulations applicable to money market funds.
These regulations require that the Fund's investments mature or be deemed to
mature within 397 days from the date of acquisition, that the average maturity
of the Fund's investments (on a dollar-weighted basis) be ninety days or less,
and that all of the Fund's investments be in U.S. dollar-denominated high
quality securities which have been determined by the Fund to present minimal
credit risks. 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 a longer term.
The Fund does not maintain a stable net asset value of $1.00 per share and does
not declare dividends on a daily basis (many money market funds do). Investment
income that has not yet been declared as a dividend, or a default on a
portfolio security, may cause the Fund's net asset value to fluctuate.
If the Fund concentrates in bank obligations, the Fund will be particularly
sensitive to adverse events affecting U.S. banks. Banks are sensitive to
changes in money market and general economic conditions, as well as decisions
by regulators that can affect banks' profitability.
The Fund's portfolio managers employ a "top down" approach when selecting
securities for the Fund. This means that the portfolio managers look first at
broad market factors, and, on the basis of those market factors, choose certain
sectors or industries in which to invest. The managers then look at individual
companies within those sectors or industries. The managers use the same top
down approach when deciding which securities to sell. Securities are sold when
the Fund needs cash to meet redemptions, or when the managers believe that
better opportunities exist or that particular securities no longer fit within
the overall strategy for achieving the Fund's goal. In general, the portfolio
<PAGE>
managers attempt to temper income volatility in the Fund by investing
significant portions of the portfolio in securities with maturities of thirty
to forty-five days.
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BOND FUNDS
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What is a Bond?
A BOND, which is also called a DEBT SECURITY or DEBT OBLIGATION, is like a
loan. The issuer of the bond, which could be the U.S. government, a
corporation, or a city or state, borrows money from investors and agrees to pay
back the loan amount (the PRINCIPAL) on a certain date (the MATURITY DATE).
Usually, the issuer also agrees to pay interest on certain dates during the
period of the loan. Some bonds, such as ZERO COUPON BONDS, do not pay interest,
but instead pay back more at maturity than the original loan. Most bonds pay a
fixed rate of interest (or income), but some bonds' interest rates may change
based on market or other factors.
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The HIGH QUALITY BOND FUND invests primarily in high quality debt securities
with short and intermediate maturities, such as corporate bonds and notes,
mortgage-backed and asset-backed securities, U.S. Treasury and government
agency obligations, securities of foreign issuers (such as Yankee bonds) and
repurchase agreements. Under normal circumstances the Fund invests at least 65%
of its assets in these securities.
The dollar-weighted average maturity of the Fund generally does not exceed
three years under normal circumstances. Individual securities held by the Fund
may have longer maturities. Short-term debt securities generally fluctuate less
in price, and have lower yields, than longer-term securities of comparable
quality. The Fund's duration generally is between one and three years. Duration
is a way of measuring the Fund's overall sensitivity to interest rate
fluctuations. The net asset value of a fund with a shorter duration will
generally fluctuate less in response to interest rate changes than that of a
fund with a longer duration.
The Fund considers securities rated A- or better by Standard & Poor's or A3 or
better by Moody's (and securities that the Fund's advisers believe are of
comparable quality) to be high quality. Ratings are described in the Statement
of Additional Information. Investments in higher quality instruments may result
in a lower yield than would be available from investments in lower quality
instruments.
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What are U.S. Government Obligations?
U.S. GOVERNMENT OBLIGATIONS are securities that are issued or guaranteed as to
principal and interest by the U.S. government or one of its agencies or
instrumentalities. Some obligations of U.S. government agencies and
instrumentalities are supported by the "full faith and credit" of the United
States, others by the right of the issuer to borrow from the U.S. Treasury, and
others only by the credit of the agency or instrumentality. U.S. government
obligations generally have less credit risk than other debt obligations.
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The INTERMEDIATE GOVERNMENT BOND FUND invests primarily in U.S. government
obligations and repurchase agreements secured by U.S. government obligations.
Under normal circumstances the Fund invests at least 65% of its assets in these
securities. U.S. government obligations are issued or guaranteed as to
principal and interest by the U.S. government or one of its agencies or
instrumentalities. Some obligations of U.S. government agencies and
instrumentalities are supported by the "full faith and credit" of the United
States, others by the right of the issuer to borrow from the U.S. Treasury, and
others only by the credit of the agency or instrumentality.
<PAGE>
The Fund also invests in mortgage-backed securities backed by pass-through
certificates issued or guaranteed by the U.S. government or its agencies, and
in other high quality, short-term obligations (such as corporate bonds and
notes, bank obligations and repurchase agreements). ALTHOUGH THE FUND INVESTS
IN U.S. GOVERNMENT OBLIGATIONS, AN INVESTMENT IN THE FUND IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT.
The Fund's duration generally is between one and five years, and its
dollar-weighted average maturity generally is between three and ten years under
normal circumstances. The Fund may invest in securities with maturities of as
much as thirty years.
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What are Mortgage-Backed Securities?
Home mortgage loans are typically grouped together into "POOLS" by banks and
other lending institutions. Interests in these pools (called MORTGAGE-BACKED
SECURITIES) are then sold to investors, allowing the bank or other lending
institution to have more money available to loan to home buyers. When
homeowners make interest and principal payments, these payments are passed on
to the investors in the pool. Most of these pools are guaranteed by U.S.
government agencies or by government sponsored private corporations --
familiarly called "GINNIE MAES", "FANNIE MAES" and "FREDDIE MACS."
Mortgaged-backed securities include COLLATERALIZED MORTGAGE OBLIGATIONS, or
CMOs.
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The GOVERNMENT/CORPORATE BOND FUND invests primarily in investment grade debt
securities and U.S. government obligations (including mortgage-backed
securities guaranteed by U.S. government agencies and instrumentalities). Under
normal circumstances the Fund invests at least 65% of its assets in U.S.
government securities and corporate bonds.
The Fund also invests in high quality, short-term obligations and repurchase
agreements, and in securities of foreign issuers.
Investment grade debt securities carry a rating of at least BBB from Standard &
Poor's or Baa from Moody's or are of comparable quality as determined by the
Fund's advisers.
The Fund's duration generally is between three and ten years, and its
dollar-weighted average maturity generally is between five and fifteen years
(and does not exceed thirty years) under normal circumstances. While
longer-term securities tend to have higher yields than short-term securities,
they are subject to greater price fluctuations as a result of interest rate
changes and other factors.
The portfolio managers of the HIGH QUALITY BOND FUND, INTERMEDIATE GOVERNMENT
BOND FUND and GOVERNMENT/CORPORATE BOND FUND use "top down" economic analysis
to determine economic outlook and to forecast interest rates. They also analyze
the yield curve under multiple market conditions in making maturity and
duration decisions for portfolio securities. The managers of the High Quality
Bond Fund and the Intermediate Government Bond Fund then attempt to select
securities that will enable each Fund to maintain a stable share price and at
the same time to achieve a high level of income. The managers of the
Government/Corporate Bond Fund attempt to select securities that will enable
the Fund to achieve growth of capital and a high level of income. The managers
use the same top down approach when deciding which securities to sell.
Securities are sold when a Fund needs cash to meet redemptions, or when the
managers believe that better opportunities exist or that particular securities
no longer fit within the overall strategy for achieving the Fund's goal.
The HIGH-YIELD BOND FUND invests primarily in high-yielding, income producing
debt securities, such as debentures and notes, and in convertible and
non-convertible preferred stocks. Under normal circumstances the Fund invests
at least 65% of its assets in these securities.
<PAGE>
The Fund may invest all or a substantial portion of its assets in lower-rated
debt securities, commonly referred to as "junk bonds." Lower-rated debt
securities offer yields that fluctuate over time but that generally are
superior to the yields offered by higher-rated securities. However, these
securities also involve significantly greater risks, including price volatility
and risk of default in the payment of interest and principal, than higher-rated
securities. Lower-rated debt securities usually are defined as securities rated
BB or lower by Standard & Poor's or Ba or lower by Moody's. See the Statement
of Additional Information for more information on ratings.
Lower quality securities tend to be issued by companies that are less secure
financially. In addition, in the event these companies have financial
difficulty, banks or other senior lenders often have priority in being repaid.
As a result, when selecting investments, the Fund's advisers rely on
fundamental research to identify companies with adequate cash flows, attractive
valuations and strong management teams.
In selecting investments for the Fund, the Fund's advisers exclude securities
that are in default or that pay interest in the form of additional debt
securities. As a result, the Fund may be somewhat more conservative than
certain other high-yield funds. The Fund is designed to outperform more
aggressive high-yield funds in high-yield market downturns, and its performance
may lag these funds in high-yield market upturns. Of course, it is possible
that the Fund will not perform as expected.
The Fund may also invest in equity securities, including common stocks,
warrants and rights. Investors should carefully consider the special risks of
investing in this Fund.
* * *
Fixed income securities may bear fixed, fixed and contingent, or variable rates
of interest and may involve equity features, such as conversion or exchange
rights or warrants for the acquisition of stock of the same or a different
issuer or participations based on revenues, sales or profits. Changes in
interest rates will generally cause bigger changes in prices of longer-term
securities than in prices of shorter-term securities.
Each of the Bond Funds may use derivatives solely for hedging purposes. These
may include options, futures, swaps and forward currency contracts.
Each of the Bond Funds will use short-term debt and money market instruments,
including short-term U.S. government and corporate obligations, commercial
paper, bank obligations and repurchase agreements, in varying amounts for
liquidity and cash management, and as a risk management tool.
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BALANCED FUND
- -------------------------------------------------------------------------------
The Balanced Fund seeks to meet its investment objective by maintaining a
broadly diversified portfolio of stocks and bonds. The Fund invests in a
managed mix of equity and debt securities of predominately U.S. issuers.
However, the Fund may invest in securities of foreign issuers, including
issuers located in emerging, or developing, markets.
The Fund's equity securities include common and preferred stocks (and their
equivalents such as American Depositary Receipts). The Fund's debt securities
include corporate bonds, notes and commercial paper, U.S.
government securities and bank obligations.
The Fund varies the percentage of assets invested in any one type of security
in accordance with its adviser's interpretation of economic and market
conditions, fiscal and monetary policy, and underlying securities values. Under
normal circumstances, the Fund invests approximately 60% of its assets in
equity securities and approximately 40% of its assets in fixed income
securities (investing at least 25% in fixed-income senior securities, including
debt securities and preferred stock).
<PAGE>
In selecting common stocks, the Fund emphasizes established companies. Most of
the Fund's long-term debt investments are investment grade (rated BBB or better
by Standard & Poor's or Baa or better by Moody's) or considered by the Fund's
advisers to be of comparable quality.
The Fund may use derivatives solely for hedging purposes. These may include
options, futures, swaps and forward currency contracts.
The Fund will use short-term debt and money market instruments, including
short-term U.S. government and corporate obligations, commercial paper, bank
obligations and repurchase agreements, in varying amounts for liquidity and
cash management, and as a risk management tool.
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STOCK FUNDS
- -------------------------------------------------------------------------------
The STOCK INDEX FUND seeks its objective by investing in the stocks comprising
the Standard & Poor's 500 Composite Stock Price Index. The weightings of stocks
in the S&P 500 Index are based on each stock's relative total market
capitalization; that is, its market price per share times the number of shares
outstanding. The Fund invests approximately the same percentage of its assets
in each stock as the stock represents in the S&P 500 Index. Under normal market
conditions, the Fund invests at least 90% of its assets in securities
comprising the S&P 500 Index.
The Stock Index Fund attempts to achieve, in both rising and falling markets, a
correlation of at least 95% between its total return before expenses and the
total return of the S&P 500 Index. The Fund's ability to match the investment
performance of the S&P 500 Index may be affected by, among other things, Fund
expenses, the amount of cash and cash equivalents held by the Fund, the manner
in which the total return of the S&P 500 Index is calculated and the timing,
frequency and size of cash flows into and out of the Fund. The Fund's advisers
regularly monitor the Fund's correlation to the S&P 500 Index. In the unlikely
event that the Fund cannot achieve a correlation of at least 95%, the Fund's
Trustees will consider alternative arrangements.
In the future, the Stock Index Fund may select another index if it is deemed to
be more representative of the performance of publicly traded common stocks in
the aggregate.
In seeking to replicate the performance of the S&P 500 Index, the Stock Index
Fund may use various investment techniques, such as buying and selling futures
contracts and options, entering into swap agreements and purchasing indexed
securities. The Fund may also lend its portfolio securities. These techniques
may increase the Fund's volatility and may involve a small investment of cash
relative to the magnitude of the risk being taken.
The Stock Index Fund may invest not more than 10% of its total assets under
normal market conditions in cash and high-quality money market instruments.
These investments are made to provide liquidity and when there is an unexpected
or abnormal level of investments in or redemptions from the Fund.
The EQUITY INCOME FUND invests primarily in stocks of companies which, in the
opinion of the Fund's advisers, are fundamentally sound financially and which
pay relatively high dividends on a consistent basis. The Fund emphasizes common
stocks and preferred stocks listed on the New York Stock Exchange and on other
national securities exchanges and, to a lesser extent, stocks that are traded
over-the-counter.
<PAGE>
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What is Value Investing?
Funds that use a VALUE-ORIENTED STRATEGY search for those companies that appear
to be trading below their true worth. These companies tend to have relatively
low price/earnings ratios and/or relatively low price/book value ratios. Low
price/earnings ratios or price/book value ratios mean that a stock is less
expensive than average relative to the company's earnings or book value,
respectively. These funds use research to identify potential investments,
examining such features as a firm's financial condition, business prospects,
competitive position and business strategy. They look for companies that appear
likely to come back into favor with investors, for reasons that may range from
good prospective earnings or strong management teams to new products or
services.
- -------------------------------------------------------------------------------
The EQUITY VALUE FUND invests primarily in stocks of companies which, in the
opinion of the Fund's advisers, are trading at low valuations relative to
market and/or historical levels. These stocks tend to have relatively low
price/earnings ratios and/or relatively low price/book value ratios. Low
price/earnings ratios or price/book value ratios mean that the stock is less
expensive than average relative to the company's earnings or book value,
respectively. The Fund emphasizes common stocks and preferred stocks listed on
the New York Stock Exchange and on other national securities exchanges and, to
a lesser extent, stocks that are traded over-the-counter.
The portfolio managers of the EQUITY INCOME FUND and EQUITY VALUE FUND use a
"bottom up" value-oriented approach in selecting investments for the Funds.
When portfolio managers use a "bottom up" approach, they look primarily at
individual companies against the context of broader market factors. A
value-oriented approach attempts to identify companies that appear to be
trading below their true worth. The managers use the same bottom up approach
when deciding which securities to sell. Securities are sold when a Fund needs
cash to meet redemptions, or when the managers believe that better
opportunities exist or that particular securities no longer fit within the
overall strategy for achieving the Fund's goals.
The GROWTH & INCOME FUND invests primarily in securities selected in large part
for their potential to generate long-term capital appreciation. The Fund also
may select securities based on their potential to generate current income. The
Fund emphasizes securities of growing, financially stable and undervalued
companies. This Fund attempts to achieve more capital appreciation than an
income fund and less price volatility than a growth fund. The Fund emphasizes
common stocks and preferred stocks listed on the New York Stock Exchange and on
other national securities exchanges and, to a lesser extent, stocks that are
traded over-the-counter.
The EQUITY GROWTH FUND invests primarily in common stocks of companies with
potential for above average growth in earnings and dividends. Under normal
circumstances the Fund invests at least 65% of its assets in equity securities.
The Fund emphasizes common and preferred stocks listed on the New York Stock
Exchange and other national securities exchanges and, to a lesser extent,
stocks that are traded over-the-counter. The Fund uses multiple managers to
control the volatility often associated with growth funds.
<PAGE>
- -------------------------------------------------------------------------------
What is Growth Investing?
Funds that use a GROWTH-ORIENTED STRATEGY search for companies growing faster
than the economy as a whole. Often, these companies are in expanding
industries, such as computers and pharmaceuticals. While the size of a company
is not necessarily a factor in determining whether its stock is suitable for a
growth fund, a growth strategy that focuses on larger companies is generally
considered less aggressive than one that focuses on smaller companies. Many
stocks owned by growth funds do not pay dividends and can be more volatile than
other types of investments. As a result, growth funds are appropriate for
investors who have long-term investment horizons.
- -------------------------------------------------------------------------------
The SPECIAL EQUITY FUND invests primarily in stocks of small to medium size
companies which, in the opinion of the Fund's advisers, present an opportunity
for significant increases in earnings, revenue and/or value, without
consideration for current income. The Special Equity Fund emphasizes common
stocks of U.S. companies with market capitalizations of less than $1 billion.
The Fund uses multiple managers to control the volatility often associated with
investments in companies of this size. The Fund utilizes two growth-style
managers and two value-oriented managers. The Fund is designed to provide an
opportunity for higher returns relative to the broad small cap market during
periods when a particular style is out of favor.
Investing in securities of smaller companies involves special risks. Investors
should carefully consider the risks of investing in the Special Equity Fund.
The AGGRESSIVE EQUITY FUND invests primarily in high growth companies without
regard to market capitalization. The Fund seeks to invest in companies which
present an opportunity for significant increases in earnings, revenue and/or
value, without consideration for current income, to achieve excess market
returns relative to its benchmark, the Russell 2000 Growth Index. The Fund also
emphasizes stocks of companies with consistent, above-average and accelerating
profitability and growth. The investment characteristics, such as
price-to-earnings ratio, of the Fund can undergo major changes at any time. As
a result, the value of shares of this Fund may be very volatile.
The portfolio managers of the GROWTH & INCOME FUND, EQUITY GROWTH FUND, SPECIAL
EQUITY FUND and AGGRESSIVE EQUITY FUND use a "bottom up" approach in selecting
securities, relying primarily on stock selection against the context of broader
market factors. These managers look for companies that they believe are in
dynamic high growth sectors of the world economy, and that are thought to have
dominant or strong competitive positions within their sectors. They also look
for companies that are expected to have strong earnings growth potential. The
managers use the same bottom up approach when deciding which securities to
sell. Securities are sold when a Fund needs cash to meet redemptions, or when
the managers believe that better opportunities exist or that particular
securities no longer fit within the overall strategy for achieving the Fund's
goal.
The INTERNATIONAL EQUITY FUND invests primarily in foreign securities, meaning
securities of issuers that, in the opinion of the Fund's advisers, have their
principal activities outside the United States or whose securities are traded
primarily outside the United States. Under normal circumstances the Fund
invests at least 65% of its assets in equity securities of issuers in at least
three countries other than the United States. The Fund invests most of its
assets in securities of issuers in Canada, Australia and developed countries in
Europe and the Far East. The Fund may invest up to 10% of its assets in
securities of issuers in developing countries. The Fund may also invest in any
type or quality of debt securities, including lower-rated securities, and may
enter into forward currency exchange contracts solely for hedging purposes.
The portfolio managers of the International Equity Fund use a "bottom up"
approach in which stock selection is based on indepth local research. In
<PAGE>
selecting individual securities, the portfolio managers use a value-oriented
strategy to identify companies that appear to be trading below their true
worth. The managers blend their basic, fundamental approach with macroeconomics
and political judgments on the outlook for economies, industries, currencies
and markets. The managers also use a bottom up approach when deciding which
securities to sell. Securities are sold when the Fund needs cash to meet
redemptions, or when the managers believe that better opportunities exist or
that particular securities no longer fit within the overall strategy for
achieving the Fund's goal.
* * *
Each of the Stock Funds may use derivatives solely for hedging purposes. These
may include options, futures, swaps and forward currency contracts.
Each of the Stock Funds 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. These Funds will use short-term
obligations and money market securities, including commercial paper, bank
obligations and repurchase agreements, in varying amounts for liquidity and
cash management, and as a risk management tool.
- -------------------------------------------------------------------------------
STRATEGIC ALLOCATION FUNDS
- -------------------------------------------------------------------------------
Each Strategic Allocation Fund invests in a combination of the Funds (other
than the Balanced Fund and the Stock Index Fund) described above in this
prospectus. This policy of investing in the other Funds is a fundamental policy
that cannot be changed without shareholder approval. Diversified selects the
combination and amount of underlying Funds based on each Strategic Allocation
Fund's investment objective.
The following chart shows target allocations for the assets of each Strategic
Allocation Fund among the Money Market, Bond and Stock Funds. These allocations
reflect Diversified's present strategy for asset allocation during normal
market conditions, and may be changed at any time. Under severe market
conditions, Diversified also may allocate the assets of each Strategic
Allocation Fund without limit to the Money Market Fund. For specific
allocations to the underlying Funds, see Appendix A.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
------------------- ------------------- --------------------
MONEY MARKET BOND STOCK
FUND FUNDS FUNDS
- ------------------------------------ ------------------- ------------------- --------------------
SHORT HORIZON 10% 80% 10%
- ------------------------------------ ------------------- ------------------- --------------------
SHORT/INTERMEDIATE HORIZON None 70% 30%
- ------------------------------------ ------------------- ------------------- --------------------
INTERMEDIATE HORIZON None 50% 50%
- ------------------------------------ ------------------- ------------------- --------------------
INTERMEDIATE/LONG HORIZON None 30% 70%
- ------------------------------------ ------------------- ------------------- --------------------
LONG HORIZON None None 100%
- ------------------------------------ ------------------- ------------------- --------------------
</TABLE>
Each Strategic Allocation Fund is a non-diversified fund, meaning that it is
not limited by the Investment Company Act of 1940 as to the amount of its
assets that may be invested in a single issuer (although certain
diversification requirements under the Internal Revenue Code still apply). Each
Strategic Allocation Fund invests in the underlying Funds, which are
diversified.
- -------------------------------------------------------------------------------
RISKS
- -------------------------------------------------------------------------------
Investing in a mutual fund involves risk. Before investing, you should consider
the risks you will assume. Certain of these risks are described below. More
information about risks appears in the Funds' Statement of Additional
Information. The value of a Fund's shares will change daily as the value of its
<PAGE>
underlying securities change. This means that your Fund shares may be worth
more or less when you sell them than when you bought them. You may receive
little or no return on your investment in the Funds. You may lose money if you
invest in the Funds.
Please remember that the risks of investing in each Fund depend on the
securities that the Fund holds and the investment strategies it uses. For
example, Funds investing more of their assets in fixed income securities may be
more susceptible to interest rate risk and credit risk than Funds investing
more of their assets in equity securities. Similarly, Funds investing more of
their assets in equity securities may be susceptible to greater price
volatility under certain circumstances than Funds investing more of their
assets in fixed income securities. Please remember that an investment in the
Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
MARKET RISK. This is the risk that the prices of securities will rise or fall
due to changing economic, political or market conditions, or due to a company's
individual situation. Historically, equity securities have been more volatile
than debt securities in response to market risk.
INTEREST RATE RISK. In general, the prices of debt securities rise when
interest rates fall, and fall when interest rates rise. Longer term obligations
are usually more sensitive to interest rate changes than shorter term
obligations. A change in interest rates could cause a Fund's share price to go
down. Generally, the longer the average maturity of the bonds in a Fund, the
more the Fund's share price will fluctuate in response to interest rate
changes.
CREDIT RISK. Some issuers may not make payments on debt securities held by a
Fund, causing a loss. Or, an issuer may suffer adverse changes in its financial
condition that could lower the credit quality of a security, leading to greater
volatility in the price of the security and in shares of a Fund. A change in
the quality rating of a bond or other security can also affect the security's
liquidity and make it more difficult for a Fund to sell. The lower quality debt
securities in which the Funds may invest are more susceptible to these problems
than higher quality obligations. Investments held by the High-Yield Bond Fund
will be particularly susceptible to credit risk. U.S. government securities are
generally considered not to be subject to credit risk.
GROWTH SECURITIES. Growth securities typically are quite sensitive to market
movements because their market prices tend to reflect future expectations. When
it appears those expectations will not be met, the prices of growth securities
typically fall. The success of a Fund's investment in growth securities depends
largely on the Fund's advisers' skill in assessing the growth potential of the
companies that issued the securities. In addition, a Fund investing in growth
securities may underperform certain other stock funds (those emphasizing value
stocks, for example) during periods when growth stocks are out of favor.
VALUE INVESTING. When a Fund's portfolio managers use a value oriented approach
in managing the Fund, they look for securities that they believe are currently
undervalued, or priced below their true worth, but whose issuers have good
longer term prospects. An issuer may be undervalued relative to the stock
market in general, relative to the underlying value of its assets or relative
to what a sophisticated private investor would pay for the entire company.
Value investing is based on the belief that securities of companies which are
temporarily underpriced may provide a higher total return over time than
securities of companies whose positive attributes are reflected in the
securities' current price.
A security may not achieve its expected value because the circumstances causing
it to be undervalued worsen (causing the price to decline further) or do not
change, or because an adviser is incorrect in its determination that the
security is undervalued. In addition, Funds with a value orientation may
underperform certain other stock funds (those emphasizing growth stocks, for
example) during periods when value stocks are not in favor.
<PAGE>
SMALLER COMPANIES. The securities of smaller capitalization companies may have
more risks than those of larger, more seasoned companies. They may be
particularly susceptible to market downturns because of limited product lines,
markets, distribution channels or financial and management resources. Also,
there may be less publicly available information about small cap companies.
Investments in small cap companies may be in anticipation of future products or
services to be provided by the companies. If those products or services are
delayed, the prices of the securities of the companies may drop. Sometimes, the
prices of the securities of smaller capitalized companies rise and fall based
on investor perception rather than economics. Securities of small cap companies
may be thinly traded, making their disposition more difficult. For all these
reasons, the prices of the securities of small cap companies may be more
volatile, causing a Fund's share price to be volatile. Funds that invest a
higher percentage of their assets in small cap stocks are generally more
volatile than funds investing a higher percentage of their assets in larger,
more established companies. Investments held by the Special Equity Fund are
likely to be particularly susceptible to the risks of small cap companies.
FOREIGN SECURITIES. Each Fund may invest a portion of its assets in foreign
securities. The International Equity Fund will invest a substantial portion of
its assets in foreign securities. Investing in foreign securities involves
risks in addition to those of investing in U.S. securities, including risks
relating to political, social and economic developments abroad, as well as
risks resulting from the differences between the regulations to which U.S. and
foreign issuers and markets are subject.
o These risks may include expropriation of assets, confiscatory
taxation, withholding taxes on dividends and interest paid on Fund
investments, currency exchange controls and other limitations on the
use or transfer of Fund assets and political or social instability.
o Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may
be less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S.
markets. Rapid increases in money supply may result in speculative
investing, contributing to volatility. Also, equity securities may
trade at price-earnings multiples that are higher than those of
comparable U.S. companies, and that may not be sustainable. As a
result, there may be rapid changes in the value of foreign
securities.
o Foreign markets may offer less protection to investors. Enforcing
legal rights may be difficult, costly and slow. There may be special
problems enforcing claims against foreign governments.
o Since foreign securities often trade in currencies other than the
U.S. dollar, changes in currency exchange rates will affect a Fund's
net asset value, the value of dividends and interest earned, and
gains and losses realized on the sale of securities. An increase in
the U.S. dollar relative to these other currencies will adversely
affect the value of the Fund. In addition, some foreign currency
values may be volatile and there is the possibility of governmental
controls on currency exchanges or governmental intervention in
currency markets. Controls or intervention could limit or prevent a
Fund from realizing value in U.S. dollars from its investment in
foreign securities.
o The International Equity Fund and the Balanced Fund may invest in
issuers located in emerging, or developing, markets.
o Emerging or developing countries are generally defined as
countries in the initial stages of their industrialization
cycles with low per capita income.
<PAGE>
o All of the risks of investing in foreign securities are
heightened by investing in developing countries.
o The markets of developing countries have been more volatile than
the markets of developed countries with more mature economies.
These markets often have provided higher rates of return, and
greater risks, to investors, but they also may provide lower
rates of return or negative returns, for extended periods.
PREPAYMENT RISK. The issuers of debt securities held by a Fund may be able to
prepay principal due on the securities, particularly during periods of
declining interest rates. The Fund may not be able to reinvest that principal
at attractive rates, reducing income to the Fund. On the other hand, rising
interest rates may cause prepayments to occur at slower than expected rates.
This effectively lengthens the maturities of the affected securities, making
them more sensitive to interest rate changes and the Fund's share price more
volatile. Mortgage-backed securities are particularly susceptible to prepayment
risk and their prices may be volatile.
CONVERTIBLE SECURITIES. Convertible securities, which are debt securities that
may be converted into stock, are subject to the market risk of stocks, and,
like other debt securities, are also subject to interest rate risk and the
credit risk of their issuers. Call provisions may allow the issuer to repay the
debt before it matures.
DERIVATIVES. Each Fund may, but is not required to, engage in certain
investment strategies involving derivatives (such as options, futures, swaps
and forward currency contracts). These investment strategies may be employed
only in connection with hedging activities such as the following:
o protecting against a decline in value of a Fund's current or
anticipated securities holdings;
o as a substitute for buying or selling portfolio holdings; and
o seeking to generate income to offset expenses or increase return.
A hedge is designed to neutralize a loss on a portfolio position with a gain in
the hedge position. A properly executed hedge will result in a loss in the
portfolio position being offset by a gain in the hedge position, or vice versa.
However, the market movement of a hedge may not be of the same magnitude as the
market movement of the hedged position. The success or failure of a hedging
transaction will depend on the advisers' ability to predict movements in the
hedge, the investment being hedged and the market in general (and the
correlation between these factors). Derivatives may not always be available on
terms that make economic sense (for example, they may be too costly), and, when
used, their transaction costs and premiums may adversely affect Fund
performance. The ability to use derivatives to hedge may also be restricted by
limits established by securities and commodities exchanges and by tax
considerations.
STRATEGIC ALLOCATION FUNDS. Each Strategic Allocation Fund invests solely in
the underlying Funds, as a matter of fundamental policy. As a result, each
Strategic Allocation Fund's performance is directly related to the performance
of the underlying Funds, and investors in the Strategic Allocation Funds are
subject to all of the risks associated with investments in the underlying
Funds.
YEAR 2000 RISK. The Funds could be adversely affected if the computer systems
used by the Funds or their service providers are not programmed to accurately
process information on or after January 1, 2000. Diversified's owner, AEGON,
has adopted and has in place a Year 2000 Assessment and Planning Project to
review and analyze its internal information technology and systems to determine
if they are Year 2000 compatible and to assess Year 2000 issues relating to
third parties with whom it has critical relationships. AEGON has tested and
modified, where necessary, substantially all of its critical internal
information technology systems. AEGON will continue to test non-critical
systems throughout 1999. However, to mitigate the effect of outside influences
<PAGE>
upon the success of the project, AEGON has undertaken communications with its
significant customers, suppliers and other third parties to determine their
Year 2000 compatibility and readiness. AEGON has received written confirmation
from several vendors regarding their Year 2000 status and continues to work
with its business partners to ensure that systems can properly interface.
The primary equipment and electronic devices AEGON uses are computers and
telephone related equipment. This type of hardware can have date sensitive
embedded technology which could have Year 2000 problems. Because of this
exposure, AEGON has reviewed its computer hardware and telephone systems, with
assistance from the applicable vendors, and has upgraded, or replaced, or is in
the process of replacing any equipment that will not properly process date
sensitive data in the Year 2000 or beyond. This undertaking has been
substantially completed for all operations.
AEGON is placing significant emphasis on risk management and Year 2000 business
resumption contingency planning in 1999 by modifying its existing business
resumption and disaster recovery plans to address potential Year 2000 issues.
Since the Year 2000 computer problem and its resolution is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of AEGON and the Funds, their
ability to function unaffected to and through Year 2000 may be adversely
affected by actions (or failures to act) of third parties beyond their
knowledge or control.
The Funds also could be adversely affected if the issuers of securities held by
the Funds do not solve their Year 2000 problems, or if it costs them large
amounts of money to solve these problems. To the extent that a Fund invests in
foreign securities, it may be particularly susceptible to these Year 2000
problems. The Funds consider these factors when investing in securities.
GENERAL INFORMATION
DISTRIBUTION ARRANGEMENTS. Diversified Investors Securities Corp., Four
Manhattanville Road, Purchase, New York 10577, is the distributor of shares of
each of the Money Market, Bond, Balanced and Stock Funds. Under a Distribution
Plan which has been adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940, each Fund (other than the Strategic Allocation Funds) may pay
monthly fees at an annual rate of up to 0.25% of the Fund's average daily net
assets. These fees may be used by the Distributor to pay for its services or
for advertising, marketing or other promotional activities.
- -------------------------------------------------------------------------------
What are Distribution (12b-1) Fees?
DISTRIBUTION FEES, also called 12B-1 FEES, are fees that are deducted from Fund
assets and are used to compensate those financial professionals who sell Fund
shares and provide ongoing services to shareholders and to pay other marketing
and advertising expenses. Because you pay these fees during the whole period
that you own the shares, over time, you may pay more than if you had paid other
types of sales charges.
- -------------------------------------------------------------------------------
INVESTMENT STRUCTURE. Each Fund (except for the Strategic Allocation Funds)
invests in securities through an underlying mutual fund having the same
investment goal and strategies. A Fund may stop investing in its underlying
mutual fund at any time, and will do so if the Fund's Trustees believe that to
be in the best interests of the Fund's shareholders. The Fund could then invest
in another mutual fund or pooled investment vehicle or invest directly in
<PAGE>
securities. If a Fund were to stop investing in its underlying mutual fund, the
Fund could receive securities from the underlying mutual fund instead of cash,
causing the Fund to incur brokerage, tax and other charges or leaving it with
securities which may or may not be readily marketable or widely diversified.
BROKERAGE TRANSACTIONS. Each Fund's advisers may use brokers or dealers for
Fund transactions who also provide brokerage and research services to the Fund
or other accounts over which the advisers exercise investment discretion. A
Fund may "pay up" for brokerage services, meaning that it is authorized to pay
a broker or dealer who provides these brokerage and research services a
commission for executing a portfolio transaction which is higher than the
commission another broker or dealer would have charged. However, a Fund will
"pay up" only if the applicable adviser determines in good faith that the
higher commission is reasonable in relation to the brokerage and research
services provided, viewed in terms of either the particular transaction or all
of the accounts over which the adviser exercises investment discretion.
SHARE CLASSES. Each of the Money Market, High-Yield Bond, Equity Value, Equity
Growth, Special Equity and International Equity Funds currently offers three
classes of shares. Diversified Class shares are described in this prospectus.
The other two classes of shares, Stephens Premium Class shares and Stephens
Institutional Class shares, may have different expenses, which may affect the
performance of those shares. Call the Distributor at (800) 926-0044 for more
information.
ADDITIONAL PERFORMANCE INFORMATION
Fund performance may be quoted in advertising, shareholder reports and other
communications. Each Fund may provide its yield and/or total return for certain
periods and may also quote fund rankings 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 (7-day period for the Money
Market Fund) by the net asset value per share on the last day of the period and
annualizing the result. Total return refers to the change over a stated period
in the value of an investment in a Fund, reflects any change in net asset value
and is compounded to include the value of any shares purchased with dividends
or capital gains declared during the period. 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. For more information about the calculation
of yield and total return, see the Statement of Additional Information.
Please note that the investment results of each Fund will fluctuate over time.
All performance information is historical and should not be considered a
representation of what an investment in the Funds may earn in the future.
- -------------------------------------------------------------------------------
TOTAL RETURNS
- -------------------------------------------------------------------------------
Before the Funds and Portfolios commenced operations, the assets that were
contributed to certain Portfolios were managed in Pooled Separate Accounts of
MONY Life Insurance Company (formerly The Mutual Life Insurance Company of
New York). The total return for each Fund (other than the High-Yield Bond,
Stock Index, Equity Value and Aggressive Equity Funds) for any period which
includes a period prior to the contribution by the Pooled Separate Account
will reflect the performance of the Pooled Separate Account. Pooled Separate
Account performance will only be included, however, from the date that the
Pooled Separate Account adopted investment objectives, policies and practices
and was managed in a manner that are in all material respects the same as for
the applicable Fund. This Pooled Separate Account performance will be adjusted
to reflect current Fund fees and expenses, after waivers and reimbursements. The
Pooled Separate Accounts were not registered under the Investment Company Act
<PAGE>
of 1940 and were not subject to certain investment restrictions imposed by that
Act or the Internal Revenue Code. If the Pooled Separate Accounts had been so
registered, investment performance might have been adversely affected.
As of December 31, 1998, the average annual total returns for each of the
following Funds, including the Pooled Separate Accounts referred to above, were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
FOR THE
PERIOD
FOR THE FOR THE FOR THE FOR THE SINCE
YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
INCEPTION ENDED ENDED ENDED ENDED THROUGH
DATE 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98
- ---------------------------------------------------------------------------------------------
MONEY MARKET 11/78 4.91% 4.92% 4.74% 5.17% 7.52%
- ---------------------------------------------------------------------------------------------
HIGH QUALITY BOND 7/90 6.08% 5.23% 5.56% -- 6.46%
- ---------------------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT BOND 7/90 6.47% 5.64% 5.56% -- 7.06%
- ---------------------------------------------------------------------------------------------
GOVERNMENT/CORPORATE BOND 1/78 7.13% 5.98% 6.69% 8.76% 8.74%
- ---------------------------------------------------------------------------------------------
HIGH-YIELD BOND 8/95 2.20% 8.11% -- -- 8.87%
- ---------------------------------------------------------------------------------------------
BALANCED 12/92 11.81% 15.59% 14.47% -- 14.23%
- ---------------------------------------------------------------------------------------------
EQUITY INCOME 1/78 12.47% 19.69% 18.10% 14.92% 14.49%
- ---------------------------------------------------------------------------------------------
EQUITY VALUE 4/96 10.79% -- -- -- 15.67%
- ---------------------------------------------------------------------------------------------
GROWTH & INCOME 1/86 34.63% 29.98% 22.87% 17.41% 16.50%
- ---------------------------------------------------------------------------------------------
EQUITY GROWTH 3/93 35.97% 26.60% 20.20% -- 18.37%
- ---------------------------------------------------------------------------------------------
SPECIAL EQUITY 1/86 3.10% 17.72% 18.21% 16.75% 15.78%
- ---------------------------------------------------------------------------------------------
AGGRESSIVE EQUITY 4/96 41.79% -- -- -- 18.09%
- ---------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY 12/92 10.47% 11.11% 10.16% -- 13.50%
- ---------------------------------------------------------------------------------------------
SHORT HORIZON STRATEGIC
ALLOCATION FUND 6/96 6.35% -- -- -- 7.70%
- ---------------------------------------------------------------------------------------------
SHORT/INTERMEdIATE HORIZON
STRATEGIC ALLOCATION FUND 4/98 -- -- -- -- --
- ---------------------------------------------------------------------------------------------
INTERMEDIAtE HORIZON
STRATEGIC ALLOCATION FUND 6/96 12.31% -- -- -- 12.75%
- ---------------------------------------------------------------------------------------------
INTERMEDIATE/LONG HORIZON
STRATEGIC ALLOCATION FUND 6/96 14.05 -- -- -- 15.86
- ---------------------------------------------------------------------------------------------
LONG HORIZON STRATEGIC
ALLOCATION FUND 4/98 -- -- -- -- --
- ---------------------------------------------------------------------------------------------
</TABLE>
The Stock Index Fund began operations on March 1, 1999 and therefore had no
performance history as of December 31, 1998.
- -------------------------------------------------------------------------------
COMPOSITE PERFORMANCE OF DIVERSIFIED AND THE SUBADVISERS
- -------------------------------------------------------------------------------
The table below shows total returns calculated for all private accounts and
collective investment vehicles managed by Diversified during the periods
indicated with investment objectives, policies and restrictions substantially
similar to the Strategic Allocation Funds and which have been managed as these
Funds are managed. Diversified has managed these collective investment vehicles
since October 1, 1992. The returns are adjusted to assume that all charges,
expenses and fees of the Strategic Allocation Funds which are presently in
effect were deducted during the periods.
The average annual total returns at December 31, 1998 for all such private
accounts and collective investment vehicles managed by Diversified, adjusted to
assume that all charges, expenses and fees presently in effect were deducted,
are as follows:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
INCEPTION SINCE
DATE 1 YEAR 3 YEARS 5 YEARS INCEPTION
- --------------------------------------------------------------------------------------------------
SHORT HORIZON
STRATEGIC ALLOCATION FUND 10/92 6.35% 6.30% 6.58% 6.70%
- --------------------------------------------------------------------------------------------------
SHORT/INTERMEDIATE HORIZON STRATEGIC
ALLOCATION FUND* 5/98 -- -- -- --
- --------------------------------------------------------------------------------------------------
INTERMEDIATE HORIZON
STRATEGIC ALLOCATION FUND 10/92 12.31% 11.74% 10.72% 10.95%
- --------------------------------------------------------------------------------------------------
INTERMEDIATE/LONG HORIZON STRATEGIC
ALLOCATION FUND 10/92 14.05% 16.24% 14.59% 14.87%
- --------------------------------------------------------------------------------------------------
LONG HORIZON
STRATEGIC ALLOCATION FUND* 5/98 -- -- -- --
- --------------------------------------------------------------------------------------------------
</TABLE>
* This Fund is newly organized.
See Appendix C for the past performance of the subadvisers to the High-Yield
Bond Fund, Equity Value Fund, Growth & Income Fund, Equity Growth Fund and
Aggressive Equity Fund in managing substantially similar accounts.
FINANCIAL HIGHLIGHTS
This table is intended to help you understand each Fund's performance and other
financial information for the fiscal periods indicated. "Total return" shows
how much your investment in a Fund would have increased or decreased during
each period, assuming you had reinvested all dividends and distributions. The
financial information in this table, and the notes thereto, have been audited
by PricewaterhouseCoopers LLP, independent accountants for the Funds, whose
report is included in the Funds' annual report. The Funds' annual report is
incorporated into this registration statement by reference. Copies of the
Funds' annual report may be obtained without charge by calling (800)926-0044.
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
MONEY MARKET
FOR THE YEAR ENDED
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
-------------- ------------- ------------ ----------- ----------
Net asset value, beginning of period........ $ 10.26 $ 10.11 $ 9.83 $ 9.61 $ 10.00
-------------- ------------- ------------ ----------- ----------
Income from investment operations:
Net investment income...................... 0.51 0.51 0.19 0.31 0.66
Net gains on investments
(both realized and unrealized)............ -- (0.01) 0.30 0.22 (0.39)
Total from investment operations............ 0.51 0.50 0.49 0.53 0.27
-------------- ------------- ------------ ----------- ----------
Less: Dividends and distributions from:
Net investment income...................... (0.33) (0.35) (0.19) (0.31) (0.66)
Net realized gain on investments........... -- -- -- -- --
Tax return of capital...................... (0.00)** -- (0.02) -- --
Total dividends and distributions........... (0.33) (0.35) (0.21) (0.31) (0.66)
Net asset value, end of period.............. $ 10.44 $ 10.26 $ 10.11 $ 9.83 $ 9.61
Total return................................ 4.91% 4.98% 4.87% 5.50% 3.45%
============== ============= ============ =========== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period.................... $63,979,337 $21,513,791 $3,783,802 $113,491 $25,092
Ratio of expenses to average net assets,
including expenses of the Series 0.97% 1.12% 4.35% 67.48% 59.21%
Portfolios.................................
<PAGE>
Ratio of expenses to average net assets,
including expenses of the Series 0.80% 0.80% 0.80% 0.76% 0.51%
Portfolios (net of reimbursement)...........
Ratio of net investment income to
average net assets.......................... 4.65% 4.55% 1.20% (61.47)% (55.80)%
Ratio of net investment income to
average net assets (net of
reimbursement).............................. 4.82% 4.87% 4.76% 5.24% 2.90%
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
HIGH QUALITY BOND(1)
FOR THE YEAR ENDED
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
------------- ------------- ---------- --------- ---------
Net asset value, beginning of period......... $ 11.13 $ 10.89 10.61 $ 9.87 $ 10.00
------------- ------------- ---------- --------- ---------
Income from investment operations:
Net investment income....................... 0.61 0.63 0.20 0.42 0.18
Net gains on investments
(both realized and unrealized)............. 0.06 (0.07) 0.28 0.74 (0.12)
Total from investment operations............. 0.67 0.56 0.48 1.16 0.06
------------- ------------- --------- --------- ---------
Less: Dividends and distributions from:
Net investment income....................... (0.41) (0.32) (0.20) (0.42) (0.18)
Net realized gain on investments............ -- -- -- -- --
Tax return of capital....................... -- (0.00)** -- -- (0.01)
Total dividends and distributions............ (0.41) (0.32) (0.20) (0.42) (0.19)
Net asset value, end of period............... $ 11.39 $ 11.13 $ 10.89 10.61 $ 9.87
Total return................................. 6.08% 5.11% 4.51% 11.85% 0.67%
============= ============= ======== ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period..................... $21,031,334 $8,480,842 $966,031 $71,167 $20,872
Ratio of expenses to average net assets,
including expenses of the Series
Portfolios.................................. 1.22% 1.77% 12.60% 91.16% 284.62%*
Ratio of expenses to average net assets,
including expenses of the Series
Portfolios (net of reimbursement)........... 1.00% 1.00% 0.98% 1.00% 0.55%*
Ratio of net investment income to average
net assets................................... 5.05% 4.81% 5.58% (83.53)% (279.12)%*
Ratio of net investment income to average
net assets (net of reimbursement)............ 5.27% 5.58% 6.03% 6.63% 4.96%*
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT BOND(2)
FOR THE YEAR ENDED
<S> <C> <C> <C>
1998 1997 1996
------------ ----------- ---------
Net asset value, beginning of period..... $ 10.67 $ 10.21 $ 10.00
------------ ----------- ---------
Income from investment operations:
Net investment income................... 0.54 0.54 0.14
Net gains on investments
(both realized and unrealized)......... 0.15 0.16 0.22
Total from investment operations......... 0.69 0.70 0.36
------------ ---------- ---------
Less: Dividends and distributions from:
Net investment income................... (0.37) (0.24) (0.14)
Net realized gain on investments........ (0.01) -- --
Tax return of capital................... (0.00)** 0.00)** (0.01)
Total dividends and distributions........ (0.38) (0.24) (0.15)
Net asset value, end of period........... $ 10.98 $ 10.67 $ 10.21
Total return............................. 6.47% 6.88% 4.15%*
============ ============ =========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period................. $25,893,328 $8,515,888 $893,261
Ratio of expenses to average net assets,
including expenses of the Series 1.19% 1.91% 17.46%*
Portfolios..............................
Ratio of expenses to average net assets,
including expenses of the Series 1.00% 1.00% 0.94%*
Portfolios (net of reimbursement).......
Ratio of net investment income to average
net assets............................. 4.65% 4.13% (11.28)%*
Ratio of net investment income to average
net assets (net of reimbursement)..... 4.84% 5.05% 5.24%*
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
GOVERNMENT/CORPORATE BOND(1)
FOR THE YEAR ENDED
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
------------ ------------- ------------ ----------- -----------
Net asset value, beginning of period.......... $ 12.27 $ 11.69 $ 11.60 $ 9.91 $ 10.00
------------ ------------- ------------ ----------- -----------
Income from investment operations:
Net investment income........................ 0.68 0.72 0.22 0.30 0.19
Net gains on investments
(both realized and unrealized).............. 0.20 0.24 0.10 1.71 (0.09)
Total from investment operations.............. 0.88 0.96 0.32 2.01 0.10
------------ ------------- ------------ ----------- -----------
Less: Dividends and distributions from:
Net investment income........................ (0.54) (0.38) (0.23) (0.28) (0.19)
Net realized gain on investments (0.01)** -- -- (0.04) --
Tax return of capital........................ (0.00)** (0.00)** -- -- --
Total dividends and distributions............. (0.55) (0.38) (0.23) (0.32) (0.19)
Net asset value, end of period................ $ 12.60 $ 12.27 $ 11.69 $ 11.60 $ 9.91
Total return.................................. 7.13% 8.14% 2.74% 20.30% 1.10%
============= ============= ============ =========== ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period...................... $65,605,780 $21,504,827 $2,056,127 $175,079 $22,937
Ratio of expenses to average net assets,
including expenses of the Series 1.05% 1.32% 7.50% 56.91% 257.24%*
Portfolios...................................
Ratio of expenses to average net assets,
including expenses of the Series Portfolios 1.00% 1.00% 0.99% 0.85% 0.54%*
(net of reimbursement).......................
Ratio of net investment income to average net 5.30% 5.52% 0.66% (50.11)% (251.51)%*
assets.......................................
Ratio of net investment income to average net 5.35% 5.85% 5.85% 5.92% 5.18%*
assets (net of reimbursement)................
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
BALANCED(1)
FOR THE YEAR ENDED
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
------------- ------------ ----------- --------- ---------
Net asset value, beginning of period......... $ 14.58 $ 13.27 $ 12.04 $ 10.05 $ 10.00
------------- ------------ ----------- --------- ---------
Income from investment operations:
Net investment income....................... 0.40 0.44 0.21 0.24 0.07
Net gains on investments
(both realized and unrealized) 1.31 2.02 1.77 2.61 0.07
Total from investment operations............. 1.71 2.46 1.98 2.85 0.14
------------- ------------ ----------- -------- ---------
Less: Dividends and distributions from:
Net investment income....................... (0.29) (0.91) (0.21) (0.24) (0.07)
Net realized gain on investments (0.25) (0.24) (0.54) (0.51) --
Tax return of capital....................... -- -- -- (0.11) (0.02)
Total dividends and distributions (0.54) (1.15) (0.75) (0.86) (0.09)
Net asset value, end of period............... $ 15.75 $ 14.58 $ 13.27 $ 12.04 $ 10.05
Total return................................. 11.81% 18.67% 16.39% 28.47% 1.43%
============= ============ =========== ========= ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period..................... $103,470,279 $49,014,319 $5,182,113 $895,351 $151,629
Ratio of expenses to average net assets,
including expenses of the Series
Portfolios.................................. 1.11% 1.21% 3.08% 9.95% 71.47%*
Ratio of expenses to average net assets,
including expenses of the Series Portfolios 1.10% 1.10% 0.97% 0.87% 0.49%*
(net of reimbursement)......................
Ratio of net investment income to average net 2.57% 2.88% 0.78% (5.68)% (68.13)%*
assets......................................
Ratio of net investment income to average net 2.58% 2.99% 2.98% 3.40% 2.86%*
assets (net of reimbursement)...............
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
EQUITY INCOME(1)
FOR THE YEAR ENDED
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
------------- ------------- ----------- ---------- ---------
Net asset value, beginning of period......... $ 19.22 $ 15.25 $ 13.09 $ 9.93 $ 10.00
------------- ------------- ----------- ---------- ---------
Income from investment operations:
Net investment income....................... 0.35 0.32 0.16 0.16 0.09
Net gains on investments
(both realized and unrealized) 2.02 4.14 2.18 3.28 (0.07)
Total from investment operations............. 2.37 4.46 2.34 3.44 0.02
------------- ------------- ----------- --------- ---------
Less: Dividends and distributions from:
Net investment income....................... (0.28) (0.20) (0.14) (0.16) (0.09)
Net realized gain on investments............ (0.36) (0.29) (0.04) (0.04) --
Tax return of capital....................... (0.02) -- -- (0.08) --
Total dividends and distributions............ (0.66) (0.49) (0.18) (0.28) (0.09)
Net asset value, end of period............... $ 20.93 $ 19.22 $ 15.25 $ 13.09 $ 9.93
Total return................................. 12.47% 29.31% 17.91% 34.62% 0.24%
============= ============= =========== ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period..................... $124,478,213 $62,936,623 $7,455,379 $590,381 $70,855
Ratio of expenses to average net assets,
including expenses of the Series
Portfolios.................................. 1.09% 1.20% 3.22% 17.88% 106.54%*
Ratio of expenses to average net assets,
including expenses of the Series Portfolios 1.00% 1.00% 1.00% 0.90% 0.42%*
(net of reimbursement)......................
Ratio of net investment income to average net 1.63% 1.51% 0.11% (14.15)% (103.39)%*
assets......................................
Ratio of net investment income to average net 1.72% 1.71% 2.33% 2.82% 2.74%*
assets (net of reimbursement)...............
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
EQUITY VALUE(3)
FOR THE YEAR ENDED
<S> <C> <C> <C>
1998 1997 1996
------------ ------------ ----------
Net asset value, beginning of period $ 12.27 $ 10.75 $ 10.00
Income from investment operations:
Net investment income.................. 0.13 0.12 0.02
Net gains on investments
(both realized and unrealized)........ 1.17 2.17 0.86
Total income from investment operation.. 1.30 2.29 0.88
------------ ------------ ----------
Less: Dividends and distributions from:
Net investment income.................. (1.07) (0.71) (0.01)
Net realized gain on investments (0.12) (0.06) (0.12)
Tax return of capital.................. -- -- --
Total dividends and distributions (1.19) (0.77) (0.13)
Net asset value, end of period.......... $ 12.38 $ 12.27 $ 10.75
Total return............................ 10.79% 21.43% 16.61%*
============ ============= ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period................ $54,085,925 $21,309,839 $385,208
Ratio of expenses to average net assets,
including expenses of the Series 1.28% 1.66% 56.35%*
Portfolios.............................
Ratio of expenses to average net assets,
including expenses of the Series 1.10% 1.10% 1.07%*
Portfolios (net of reimbursement)......
Ratio of net investment income to average
net assets............................. 0.80% 0.36% (54.60)%*
Ratio of net investment income to average
net assets (net of reimbursement)...... 0.98% 0.93% 1.09%*
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
GROWTH & INCOME(1)
FOR THE YEAR ENDED
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
------------- ------------- ------------ --------- -------
Net asset value, beginning of period.... $ 18.16 $ 13.78 $ 11.47 $ 10.22 $ 10.00
Income from investment operations:
Net investment income.................. (0.05) 0.02 0.19 0.06 0.03
Net gains on investments
(both realized and unrealized)........ 6.32 4.67 2.29 3.18 0.22
Total from investment operations........ 6.27 4.69 2.48 3.24 0.25
-------------- ------------- ------------ --------- --------
Less: Dividends and distributions from:
Net investment income.................. (0.01) (0.06) (0.15) (0.06) (0.03)
Net realized gain on investments (0.01) (0.25) (0.02) (0.95) --
Tax return of capital.................. (0.42) -- -- (0.98) --
Total dividends and distributions (0.44) (0.31) (0.17) (1.99) (0.03)
Net asset value, end of period.......... $ 23.99 $ 18.16 $ 13.78 $ 11.47 $ 10.22
Total return............................ 34.63% 34.14% 21.61% 32.11% 2.49%
============== ============= ============ ========= ========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period................ $200,946,409 $61,020,784 $5,483,747 $443,638 $60,475
Ratio of expenses to average net assets,
including expenses of the Series 1.24% 1.39% 3.99% 21.71% (140.33)%*
Portfolios.............................
Ratio of expenses to average net assets,
including expenses of the Series 1.15% 1.15% 1.14% 1.03% 0.43%*
Portfolios (net of reimbursement)
Ratio of net investment income to average (0.32)% (0.15)% (2.38)% (19.66)% (138.93)%*
net assets.............................
Ratio of net investment income to
average net assets (net of
reimbursement)......................... (0.22)% 0.10% 0.47% 1.02% 0.97%*
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
EQUITY GROWTH(1)
FOR THE YEAR ENDED
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
-------------- ------------ ------------ ---------- ---------
Net asset value, beginning of period...... $ 17.73 $ 14.50 $ 13.36 $ 11.35 $ 10.00
-------------- ------------ ------------ ---------- ---------
Income from investment operations:
Net investment income.................... (0.07) (0.03) -- 0.01 (0.01)
Net gains on investments
(both realized and unrealized).......... 6.41 3.85 2.41 2.09 1.36
Total from investment operations.......... 6.34 3.82 2.41 2.10 1.35
Less: Dividends and distributions from:
Net investment income.................... (0.09) (0.26) -- (0.01) --
Net realized gain on investments (0.66) (0.33) (1.18) -- --
Tax return of capital.................... -- (0.00)** (0.09) (0.08) --
Total dividends and distributions (0.75) (0.59) (1.27) (0.09) --
Net asset value, end of period............ $ 23.32 $ 17.73 $ 14.50 $ 13.36 $ 11.35
Total return.............................. 35.97% 26.54% 17.93% 18.50% 13.58%
============= ============ =========== ========= ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period.................. $150,958,507 $57,186,689 $3,859,931 $618,317 $120,370
Ratio of expenses to average net assets,
including expenses of the Series 1.26% 1.37% 4.34% 14.34% 70.79%*
Portfolios...............................
Ratio of expenses to average net assets,
including expenses of the Series 1.24% 1.25% 1.20% 1.01% 0.42%*
Portfolios (net of reimbursement)........
Ratio of net investment income to average (0.38)% (0.31)% (3.64)% (13.13)% (71.00)%*
net assets...............................
Ratio of net investment income to average (0.36)% (0.19)% 0.50% 0.20% (0.21%)*
net assets (net of reimbursement)........
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
SPECIAL EQUITY(1)
FOR THE YEAR ENDED
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
-------------- ------------ ----------- ---------- ---------
Net asset value, beginning of period........... $ 20.56 $ 17.09 $ 13.95 $ 10.75 $ 10.00
-------------- ------------ ----------- ---------- ---------
Income from investment operations:
Net investment income......................... (0.09) (0.04) -- -- --
Net gains on investments
(both realized and unrealized)............... 0.72 4.41 3.58 4.43 0.84
Total from investment operations............... 0.63 4.37 3.58 4.43 0.84
-------------- ------------ ----------- --------- ---------
Less: Dividends and distributions from:
Net investment income......................... (0.07) (0.39) -- -- --
In excess of net investment income -- -- (0.03) -- --
Net realized gain on investments (0.05) (0.51) (0.38) (0.89) (0.09)
In excess of net realized gain on
investments.................................. -- -- -- -- --
Tax return of capital.......................... (0.09) -- (0.03) (0.34) --
Total dividends and distributions (0.21) (0.90) (0.44) (1.23) (0.09)
Net asset value, end of period................. $ 20.98 $ 20.56 $ 17.09 $ 13.95 $ 10.75
Total return................................... 3.10% 25.82% 25.76% 41.50% 8.54%
============== ============ =========== ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period....................... $125,863,140 $63,237,963 $7,736,347 $600,294 $87,705
Ratio of expenses to average net assets,
including expenses of the Series 1.46% 1.57% 3.63% 15.76% 99.91%*
Portfolios....................................
Ratio of expenses to average net assets,
including expenses of the Series Portfolios 1.45% 1.50% 1.49% 1.33% 0.54%*
(net of reimbursement)........................
Ratio of net investment income to average
net assets.................................... (0.47)% (0.26)% (2.48)% (14.58)% (99.33)%*
Ratio of net investment income to average
net assets (net of reimbursement)............. (0.46)% (0.18)% (0.34)% (0.18)% 0.04%*
</TABLE>
- -------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY(4)
FOR THE YEAR ENDED
<S> <C> <C> <C>
1998 1997 1996
------------ ----------- -----------
Net asset value, beginning of period $ 10.00 $ 9.43 $ 10.00
------------ ----------- -----------
Income from investment operations:
Net investment income.......................... (0.09) (0.06) 0.05
Net gains on investments
(both realized and unrealized)................ 4.24 0.63 (0.58)
Total from investment operations................ 4.15 0.57 (0.53)
------------ ----------- -----------
Less: Dividends and distributions from:
Net investment income.......................... -- -- (0.04)
Net realized gain on investments............... (0.00)** -- --
In excess of net realized gain on investments.. -- -- --
Tax return of capital.......................... (0.31) -- --
Total dividends and distributions............... (0.31) -- (0.04)
Net asset value, end of period.................. $ 13.84 $ 10.00 $ 9.43
Total return.................................... 41.79% 6.13% (9.51)%*
============ =========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period........................ $34,154,980 $8,855,719 $326,476
Ratio of expenses to average net assets,
including expenses of the Series
Portfolios..................................... 1.87% 2.70% 64.34%*
Ratio of expenses to average net assets,
including expenses of the Series
Portfolios (net of reimbursement).............. 1.50% 1.43% 1.41%*
Ratio of net investment income to average
net assets..................................... (1.19)% (1.81)% (64.36)%*
Ratio of net investment income to average
net assets (net of reimbursement).............. (0.82)% (0.54)% (1.05)%*
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
HIGH YIELD BOND(5)
FOR THE YEAR ENDED
<S> <C> <C> <C>
1998 1997 1996
------------ ----------- --------
Net asset value, beginning of period........... $ 11.38 $ 10.68 $ 10.00
------------ ----------- --------
Income from investment operations:
Net investment income......................... 0.96 0.94 0.21
Net gains on investments (0.70) 0.37 0.66
(both realized and unrealized)...............
Total from investment operations............... 0.26 1.31 0.87
------------ ---------- --------
(0.08) (0.58) (0.19)
Less: Dividends and distributions from:
Net investment income......................... -- -- --
Net realized gain on investments.............. (0.01) (0.03) --
In excess of net realized gain on investments. -- -- --
Tax return of capital.......................... -- -- --
Total dividends and distributions.............. (0.09) (0.61) (0.19)
Net asset value, end of period................. $ 11.55 $ 11.38 $ 10.68
Total return................................... 2.20% 12.28% 9.50%*
============ ========== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period....................... $22,994,590 $8,430,804 $738,100
Ratio of expenses to average net assets,
including expenses of the Series
Portfolios.................................... 1.40% 1.88% 25.60%*
Ratio of expenses to average net assets,
including expenses of the Series
Portfolios (net of reimbursement)............. 1.10% 1.10% 1.10%*
Ratio of net investment income to average
net assets.................................... 7.89% 7.44% (16.15)%*
Ratio of net investment income to average
net assets (net of reimbursement)............. 8.19% 8.22% 8.35%*
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY(6)
FOR THE YEAR ENDED
<S> <C> <C> <C>
1998 1997 1996
------------ ------------ -----------
Net asset value, beginning of period $ 11.86 $ 11.27 $ 10.00
------------ ------------ -----------
Income from investment operations:
Net investment income......................... 0.06 0.04 0.01
Net gains on investments...................... 1.18 0.83 1.37
(both realized and unrealized)................
Total from investment operations............... 1.24 0.87 1.38
------------ ----------- -----------
(0.01) (0.20) (0.01)
Less: Dividends and distributions from:
Net investment income.......................... -- -- --
Net realized gain on investments............... (0.12) (0.08) (0.04)
In excess of net realized gain on investments.. -- -- (0.04)
Tax return of capital........................... (0.10) (0.00)** (0.02)
Total dividends and distributions............... (0.23) (0.28) (0.11)
Net asset value, end of period.................. $ 12.87 $ 11.86 $ 11.27
Total return.................................... 10.47% 7.74% 14.59%*
============ =========== ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period........................ $63,404,266 $30,063,542 $2,398,279
Ratio of expenses to average net assets,
including expenses of the Series
Portfolios..................................... 1.53% 1.72% 9.79%*
Ratio of expenses to average net assets,
including expenses of the Series
Portfolios (net of reimbursement).............. 1.40% 1.40% 1.41%*
Ratio of net investment income to average
net assets..................................... 0.35% (0.03)% (7.91)%*
Ratio of net investment income to average
net assets (net of reimbursement).............. 0.48% 0.29% 0.48%*
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations July 1, 1994
(2) Commencement of operations February 22, 1996
(3) Commencement of operations June 13, 1996
(4) Commencement of operations June 11, 1996
(5) Commencement of operations January 30, 1996
(6) Commencement of operations January 18, 1996
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
SHORT HORIZON
STRATEGIC ALLOCATION FUND
FOR THE YEAR ENDED
<S> <C> <C> <C>
1998 1997 1996(1)
------------ ----------- ------------
Net asset value, beginning of period..... $ 10.70 $ 10.34 $ 10.00
Income from investment operations:
Net investment income................... 0.44 0.49 0.18
Net gains on investments
(both realized and unrealized)......... 0.24 0.41 0.36
Total from investment operations......... 0.68 0.90 0.54
Less: Dividends and distributions from:
Net investment income................... (0.41) (0.52) (0.18)
Net realized gain on investments........ (0.05) (0.02) (0.01)
Tax return of capital................... (0.00)** -- (0.01)
Total dividends and distributions........ (0.46) (0.54) (0.20)
Net asset value, end of period........... $ 10.92 $ 10.70 $ 10.34
Total return............................. 6.37% 8.69% 7.74%*
============ =========== ============
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period................. $13,019,430 $6,015,072 $ 742,127
Ratio of expenses to average net assets.. 0.20% 0.02% 0.20%*
Ratio of net investment income to
average net assets...................... 4.00% 4.49% 11.60%*
Ratio of net investment income to
average net assets (net of
reimbursement).......................... 113% 348% 466%
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations April 15, 1996
(2) Commencement of operations May 1, 1998
<PAGE>
For the average shares outstanding for each year:
SHORT INTERMEDIATE
HORIZON STRATEGIC
ALLOCATION FUND FOR THE
YEAR ENDED 1998(2)
Net asset value, beginning of period...... $ 10.00
Income from investment operations:
Net investment income.................... 0.46
Net gains on investments
(both realized and unrealized).......... (0.09)
Total from investment operations.......... 0.37
Less: Dividends and distributions from:
Net investment income.................... (0.27)
Net realized gain on investments (0.06)
Tax return of capital.................... (0.00)**
Total dividends and distributions (0.33)
Net asset value, end of period............ $ 10.04
Total return.............................. 3.73%*
============
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period.................. $3,657,312
Ratio of expenses to average net assets,
including expenses of the Series 0.20%
Portfolios...............................
Ratio of net investment income to average
net assets............................... 6.94%
Ratio of net investment income to average
net assets (net of reimbursement)........ 260%
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations April 15, 1996
(2) Commencement of operations May 1, 1998
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
INTERMEDIATE HORIZON
STRATEGIC ALLOCATION FUND
FOR THE YEAR ENDED
<S> <C> <C> <C>
1998 1997 1996(1)
------------- ------------- -------------
Net asset value, beginning of period... $ 10.98 $ 10.32 $ 10.00
Income from investment operations:
Net investment income.................... 0.34 0.48 0.13
Net gains on investments
(both realized and unrealized).......... 1.00 0.99 0.42
Total from investment operations.......... 1.34 1.47 0.55
------------- ------------ ------------
Less: Dividends and distributions from:
Net investment income.................... (0.35) (0.72) (0.13)
Net realized gain on investments (0.14) (0.08) (0.10)
Tax return of capital.................... (0.00)** (0.01) --
Total dividends and distributions (0.49) (0.81) (0.23)
Net asset value, end of period............ $ 11.83 $ 10.98 $ 10.32
Total return.............................. 12.27% 14.29% 7.94%*
============= ============ ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period.................. $57,365,875 $24,664,668 $2,820,072
Ratio of expenses to average net assets,
including expenses of the Series 0.20% 0.02% 0.02%
Portfolios...............................
Ratio of net investment income to average
net assets............................... 2.97% 4.26% 7.88%*
Ratio of net investment income to average
net assets (net of reimbursement)........ 124% 322% 469%
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations April 15, 1996
(2) Commencement of operations May 1, 1998
<PAGE>
For the average shares outstanding for each year:
<TABLE>
<CAPTION>
INTERMEDIATE LONG HORIZON
STRATEGIC ALLOCATION FUND
FOR THE YEAR ENDED
<S> <C> <C>
1998 1997 1996(1)
------------ ----------- -----------
Net asset value, beginning of period..... $ 11.32 $ 10.30 $ 10.00
Income from investment operations:
Net investment income................... 0.28 0.09 0.09
Net gains on investments
(both realized and unrealized)......... 1.29 1.53 0.47
Total from investment operations......... 1.57 1.94 0.56
Less: Dividends and distributions from:
Net investment income................... (0.39) (0.80) (0.09)
Net realized gain on investments (0.18) (0.11) (0.17)
Tax return of capital................... (0.00)** (0.01) --
Total dividends and distributions (0.57) (0.92) (0.26)
Net asset value, end of period........... $ 12.32 $ 11.32 $ 10.30
Total return............................. 14.02% 18.95% 8.02%*
============ =========== ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period................. $62,688,689 $25,866,529 $2,173,362
Ratio of expenses to average net assets,
including expenses of the Series 0.20% 0.20% 0.20%*
Portfolios..............................
Ratio of net investment income to
average net
assets................................. 2.33% 3.55% 2.03%*
Ratio of net investment income to
average net
assets (net of reimbursement)........... 135% 336% 418%
</TABLE>
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations April 15, 1996
(2) Commencement of operations May 1, 1998
<PAGE>
For the average shares outstanding for each year:
LONG HORIZON
STRATEGIC ALLOCATION FUND
FOR THE YEAR ENDED
1998(2)
Net asset value, beginning of period... $ 10.00
-----------
Income from investment operations:
Net investment income................. 0.21
Net gains on investments
(both realized and unrealized) 0.16
Total from investment operations....... 0.37
Less: Dividends and distributions from:
Net investment income................. (0.12)
Net realized gain on investments (0.17)
Tax return of capital................. (0.00)**
Total dividends and distributions (0.29)
Net asset value, end of period......... $ 10.08
Total return........................... 3.81%*
===========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period............... $10,672,299
Ratio of expenses to average net assets,
including expenses of the Series
Portfolios............................ 0.20%*
Ratio of net investment income to
average net assets.................... 3.35%*
Ratio of net investment income to
average net
assets (net of reimbursement)......... 276%
- ------------------------------
* Annualized
** Less than one penny per share
(1) Commencement of operations April 15, 1996
(2) Commencement of operations May 1, 1998
<PAGE>
APPENDIX A
STRATEGIC ALLOCATION FUNDS
Under normal circumstances, the Strategic Allocation Funds are allocated among
the Money Market, Bond and Stock Funds as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
--------------------- ---------------------- ---------------------
SHORT HORIZON SHORT/INTERMEDIATE INTERMEDIATE HORIZON
STRATEGIC HORIZON STRATEGIC STRATEGIC
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
- ---------------------------- --------------------- ---------------------- ---------------------
---------- ---------- ---------- ----------- ---------- ----------
TARGET TARGET TARGET
NORMAL WITHIN NORMAL WITHIN NORMAL WITHIN
RANGE RANGE RANGE RANGE RANGE RANGE
---------- ---------- ---------- ----------- ---------- ----------
- ---------------------------- ---------- ---------- ---------- ----------- ---------- ----------
Money Market 0-20% 10% 0-10% 0% 0-10% 0%
- ---------------------------- ---------- ---------- ---------- ----------- ---------- ----------
High Quality Bond 10-30% 20% 5-25% 15% 0-20% 10%
- ---------------------------- ---------- ---------- ---------- ----------- ---------- ----------
Intermediate Government Bond 10-30% 20% 0-15% 5% 0-15% 5%
- ---------------------------- ---------- ---------- ---------- ----------- ---------- ----------
Government/Corporate Bond 20-40% 30% 25-45% 35% 15-35% 25%
- ---------------------------- ---------- ---------- ---------- ----------- ---------- ----------
High-Yield Bond 0-20% 10% 5-25% 15% 0-20% 10%
- ---------------------------- ---------- ---------- ---------- ----------- ---------- ----------
Equity Income 0-20% 10% 0-15% 5% 0-20% 9%
- ---------------------------- ---------- ---------- ---------- ----------- ---------- ----------
Equity Value N/A N/A 0-15% 4% 0-15% 6%
- --------------------------- ---------- ---------- ---------- ----------- ---------- ----------
Growth & Income N/A N/A 0-15% 5% 0-20% 8%
- ---------------------------- ---------- ---------- ---------- ----------- ---------- ----------
Equity Growth N/A N/A 0-15% 4% 0-15% 7%
- ---------------------------- ---------- ---------- ---------- ----------- ---------- ----------
Special Equity N/A N/A 0-15% 6% 0-20% 10%
- ---------------------------- ---------- ---------- ---------- ----------- ---------- ----------
Aggressive Equity N/A N/A 0-10% 2% 0-10% 3%
- ---------------------------- ---------- ---------- ---------- ----------- ---------- ----------
International Equity N/A N/A 0-15% 4% 0-15% 7%
- ---------------------------- ---------- ---------- ---------- ----------- ---------- ----------
</TABLE>
--------------------- ----------------------
INTERMEDIATE/LONG LONG HORIZON
HORIZON STRATEGIC STRATEGIC
ALLOCATION FUND ALLOCATION FUND
- ---------------------------- --------------------- ----------------------
---------- ---------- ---------- -----------
TARGET TARGET
NORMAL WITHIN NORMAL WITHIN
RANGE RANGE RANGE RANGE
---------- ---------- ---------- -----------
- ---------------------------- ---------- ---------- ---------- -----------
Money Market 0-10% 0% 0-10% 0%
- ---------------------------- ---------- ---------- ---------- -----------
High Quality Bond 0-15% 5% 0-10% 0%
- ---------------------------- ---------- ---------- ---------- -----------
Intermediate Government Bond 0-15% 5% 0-10% 0%
- ---------------------------- ---------- ---------- ---------- -----------
Government/Corporate Bond 0-20% 12% 0-10% 0%
- ---------------------------- ---------- ---------- ---------- -----------
High-Yield Bond 0-15% 8% 0-10% 0%
- ---------------------------- ---------- ---------- ---------- -----------
Equity Income 0-20% 12% 10-30% 18%
- ---------------------------- ---------- ---------- ---------- -----------
Equity Value 0-20% 9% 0-20% 12%
- ---------------------------- ---------- ---------- ---------- -----------
Growth & Income 0-20% 11% 5-25% 15%
- ---------------------------- ---------- ---------- ---------- -----------
Equity Growth 0-20% 10% 5-25% 15%
- ---------------------------- ---------- ---------- ---------- -----------
Special Equity 0-20% 14% 10-30% 20%
- ---------------------------- ---------- ---------- ---------- -----------
Aggressive Equity 0-10% 4% 0-15% 5%
- ---------------------------- ---------- ---------- ---------- -----------
International Equity 0-20% 10% 5-25% 15%
- ---------------------------- ---------- ---------- ---------- -----------
<PAGE>
APPENDIX B
INSTRUCTIONS FOR PURCHASES AND SALES FROM THE DISTRIBUTOR
PURCHASES
Initial and subsequent purchases may be made by check or wire transfer. Checks
should be in U.S. dollars and drawn on a U.S. bank. Checks for shares of the
Money Market, Bond, Balanced and Stock Funds should be made payable to The
Diversified Investors Funds Group and mailed to:
The Diversified Investors Funds Group
4 Manhattanville Road
Purchase, New York 10577
Checks for shares of the Strategic Allocation Funds should be made payable to
The Diversified Investors Strategic Allocation Funds and mailed to
The Diversified Investors Strategic Allocation Funds
4 Manhattanville Road
Purchase, New York 10577
In the case of an initial purchase, the check must be accompanied by a
completed Account Application. If shares are purchased with a check that does
not clear, the purchase will be canceled and any losses or fees incurred in the
transaction will be the responsibility of the investor. If shares are purchased
with a check and a redemption request relating to such shares is received
within fifteen days of such purchase, the redemption proceeds will be paid only
when the check clears.
If you would like to purchase shares in a Fund by a wire transfer, please call
(800)926-0044 for wire transfer instructions and direct your bank to transmit
immediately available funds in accordance with such instructions. Investors who
make initial purchases by wire transfer must complete an Account Application
and mail it to The Diversified Investors Fund Group (in case of a purchase of a
Money Market, Bond, Balanced or Stock Fund) or The Diversified Investors
Strategic Allocation Funds (in case of a purchase of a Strategic Allocation
Fund), in each case at the address above.
SALES (REDEMPTIONS)
Redemption requests may be made by mail and, in certain circumstances,
telephone. The proceeds of the redemption will be sent by mail or, if
authorized on the Account Application, wire transfer.
Redemption requests by mail must specify the dollar amount or number of shares
to be redeemed, the account number and the name of the Fund. The redemption
request must be signed in exactly the same way that the account is registered.
If there is more than one owner of the shares, each owner must sign the
redemption request.
<PAGE>
Requests to redeem shares in any of the Money Market, Bond, Balanced or Stock
Funds should be mailed to The Diversified Investors Funds Group at:
The Diversified Investors Fund Group
Four Manhattanville Road
Purchase, New York 10577
Requests to redeem shares in any of the Strategic Allocation Funds should be
mailed to The Diversified Investors Strategic Allocation Funds at:
The Diversified Investors Strategic Allocation Funds
Four Manhattanville Road
Purchase, New York 10577
You may redeem shares by telephone if you authorized telephone redemptions on
your Account Application. The Funds reserve the right to refuse telephone
redemptions and may limit the number of telephone redemptions or the amount
that can be redeemed by telephone at any time.
<PAGE>
APPENDIX C
COMPOSITE PERFORMANCE OF SUBADVISERS
The following table sets forth the composite average annual total returns of
all institutional private accounts and collective investment vehicles managed
by the subadvisers to the High-Yield Bond Fund, Equity Value Fund, Growth &
Income Fund, Equity Growth Fund and Aggressive Equity Fund, where the amounts
and investment vehicles have investment objectives, policies and restrictions
substantially similar to the applicable Fund and have been managed in
substantially the same way that the underlying Portfolio in which each Fund
invests is managed. The data is provided to illustrate the past performances of
the subadvisers in managing substantially similar accounts as measured against
specified market indices and does not represent the performance of the Funds.
Investors should not consider this performance data as an indication of future
performance of the Funds or the subadvisers. These composite returns are not
intended to predict or suggest the returns that might be experienced by the
Funds or an individual investing in any of the Funds.
The institutional private accounts and collective investment vehicles that are
included in the subadvisers' composites are not subject to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Funds or the Portfolios by the Investment Company Act of 1940 or the
Internal Revenue Code. The performance results of the subadvisers' composites
could have been adversely affected if the institutional private accounts and
collective investment vehicles included in the composites had been regulated as
investment companies under the federal securities law. The subadvisers'
composites presented below are unaudited. The use of a methodology different
from that used to calculate the performance data set forth below could result
in different performance data.
The subadvisers' composite performance data shown below were calculated in
accordance with recommended standards of the Association for Investment
Management and Research, retroactively applied to all time periods. All returns
presented were calculated on a total return basis and include all dividends and
interest, accrued income and realized and unrealized gains and losses, and
deductions for brokerage commissions and execution costs. Returns for each
period are adjusted to assume that all charges, expenses and fees of each Fund
and its corresponding Portfolio which are presently in effect were deducted
during such periods. All returns are for the periods ended on December 31,
1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- ------------------------------------- ---------- --------- ---------- ---------- ----------
DELAWARE INVESTMENT ADVISERS,
SUBADVISER TO HIGH-YIELD BOND FUND
- ------------------------------------- ---------- --------- ---------- ---------- ----------
SUBADVISER'S COMPOSITE(1).......... 3.65% 8.19% 7.06% 9.19% 11.58%
- ------------------------------------- ---------- --------- ---------- ---------- ----------
SALOMON BROTHERS HIGH-YIELD
MARKET INDEX(2).................... 4.42% 9.40% 9.14% 10.68% 9.81%
- ------------------------------------- ---------- --------- ---------- ---------- ----------
LIPPER HIGH CURRENT YIELD
FUND INDEX(3)...................... -0.08% 8.50% 7.63% 9.52% 10.90%
- ------------------------------------- ---------- --------- ---------- ---------- ----------
ARK ASSET MANAGEMENT CO., INC.,
SUBADVISER TO EQUITY VALUE FUND
- ------------------------------------- ---------- --------- ---------- ---------- ----------
SUBADVISER'S COMPOSITE(4)........... 10.58% 18.56% 18.37% 16.57% 16.95%
- ------------------------------------- ---------- --------- ---------- ---------- ----------
RUSSELL 1000 VALUE INDEX(5)......... 15.63% 23.89% 20.85% 17.39% 17.46%
- ------------------------------------- ---------- --------- ---------- ---------- ----------
LIPPER GROWTH & INCOME FUND
INDEX(6)............................ 13.58% 20.25% 17.82% 15.54% 15.46%
- ------------------------------------- ---------- --------- ---------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ------------------------------------- ---------- ---------- --------- ---------- ----------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- ------------------------------------- ---------- ---------- --------- ---------- ----------
- ------------------------------------- ---------- ---------- --------- ---------- ----------
PUTNAM ADVISORY COMPANY, INC.,
SUBADVISER TO GRoWTH & INCOME FUND
- ------------------------------------- ---------- ---------- --------- ---------- ----------
SUBADVISER'S COMPOSITE(7)......... 35.09% 30.07% 23.85% 21.17% 21.17%
- ------------------------------------- ---------- ---------- --------- ---------- ----------
STANDARD & POOR'S 500 COMPOSITE
STOCK PRICE INDEX(8)........... 28.75% 28.39% 24.14% 19.22% 19.22%
- ------------------------------------- ---------- ---------- --------- ---------- ----------
LIPPER GROWTH & INCOME FUND
INDEX(6)....................... 13.58% 20.25% 17.82% 15.54% 15.54%
- ------------------------------------- ---------- ---------- --------- ---------- ----------
- ------------------------------------- ---------- ---------- --------- ---------- ----------
DRESDNER RCM GLOBAL INVESTORS LLC,
SUBADVISER TO EQUITY GROWTH FUND
- ------------------------------------- ---------- ---------- --------- ---------- ----------
SUBADVISER'S COMPOSITE(9)...... 46.21% 32.15% 25.56% 20.11% 18.21%
- ------------------------------------- ---------- ---------- --------- ---------- ----------
RUSSELL 1000 GROWTH INDEX(10).. 38.71% 30.62% 25.70% 20.56% 22.84%
- ------------------------------------- ---------- ---------- --------- ---------- ----------
LIPPER GROWTH FUND INDEX (11).. 25.69% 23.66% 19.82% 17.21% 15.71%
- ------------------------------------- ---------- ---------- --------- ---------- ----------
- ------------------------------------- ---------- ---------- --------- ---------- ----------
MONTAG & CALDWElL INCORPORATED
SUBADVISER TO EQUITY GROWTH FUND
- ------------------------------------- ---------- ---------- --------- ---------- ----------
SUBADVISER'S COMPOSITE(12)..... 28.60% 30.76% 25.13% 20.98% 19.13%
- ------------------------------------- ---------- ---------- --------- ---------- ----------
RUSSELL 1000 GROWTH INDEX(10).. 38.71% 30.62% 25.70% 20.56% 22.84%
- ------------------------------------- ---------- ---------- --------- ---------- ----------
LIPPER GROWTH FUND INDEX (11).. 25.69% 23.66% 19.82% 17.21% 15.71%
- ------------------------------------- ---------- ---------- --------- ---------- ----------
- ------------------------------------- ---------- ---------- --------- ---------- ----------
MCKINLEY CAPITAL MANAGEMENT, INC.,
SUBADVISER TO AGGRESSIVE EQUITY FUND
- ------------------------------------- ---------- ---------- --------- ---------- ----------
SUBADVISER'S COMPOSITE(13)..... 42.98% 21.12% 18.88% -- 26.49%
- ------------------------------------- ---------- ---------- --------- ---------- ----------
RUSSELL 2000 GROWTH INDEX(14).. 1.23% 8.35% 10.22% -- 4.24%
- ------------------------------------- ---------- ---------- --------- ---------- ----------
LIPPER MID CAP FUND INDEX(15).. 13.92% 15.89% 15.20% -- 19.46%
- ------------------------------------- ---------- ---------- --------- ---------- ----------
</TABLE>
- ------------
(1) Commencement of investment operations is January 1, 1980 for the
subadviser's composite.
(2) The Salomon Brothers High-Yield Market Index tracks the performance of
below investment-grade corporate bonds issued in the United States. The index
includes cashpay and deferred-interest bonds that are public, have a fixed
coupon and are non convertible. To enter the index, bonds must also have $50
million or more in face value outstanding, one year or more left to maturity,
and one high-yield rating by Moody's or Standard & Poor's. The index excludes
bonds of bankrupt issuers.
(3) The Lipper High Current Yield Fund Index tracks the net performance of
mutual funds which, as determined by Lipper Analytical Services, Inc., are
managed in accordance with an investment objective defined as follows: "Aim at
high (relative) current yield from fixed income securities. No quality or
maturity restrictions. Tend to invest in lower grade debt issues".
(4) Commencement of investment operations is April 1, 1985 for the
subadviser's composite.
(5) The Russell 1000 Value Index measures the performance of those
companies included in the Russell 1000 Index with lower price-to-book ratios
and lower forecasted growth values. The Russell 1000 Index measures the
performance of the one thousand largest U.S. companies based on total market
capitalization, which represents approximately 88% of the investable U.S.
equity market.
(6) The Lipper Growth & Income Fund Index tracks the net performance of
mutual funds which, as determined by Lipper Analytical Services, Inc., are
managed in accordance with an investment objective defined as follows: "A fund
which combines a growth of earnings orientation and an income requirement for
level and/or rising dividends".
(7) Commencement of investment operations is January 1, 1989 for the
subadviser's composite.
(8) The Standard & Poor's 500 Composite Stock Price Index is used as a
broad-based measurement of changes in domestic stock market conditions and is
based on the average performance of 500 widely held common stocks traded in the
United States.
(9) Commencement of investment operations is January 1, 1986 for the
subadviser's composite.
<PAGE>
(10) The Russell 1000 Growth Index measures the performance of those
companies included in the Russell 1000 Index with higher price-to-book ratios
and higher forecasted growth values. The Russell 1000 Index measures the
performance of the one thousand largest companies in the Russell 3000 Index,
which represents approximately 90% of the total market capitalization of the
Russell 3000 Index (the Russell 3000 Index represents approximately 98% of the
investable U.S. equity market).
(11) The Lipper Growth Fund Index tracks the net performance of mutual
funds which, as determined by Lipper Analytical Services, Inc., are managed in
accordance with an investment objective defined as follows: "A fund which
normally invests in companies whose long-term earnings are expected to grow
significantly faster than the earnings of the stocks represented in the major
unmanaged stock indices".
(12) Commencement of investment operations is January 1, 1986 for the
subadviser's composite.
(13) Commencement of investment operations is October 1, 1990 for the
subadviser's composite.
(14) The Russell 2000 Growth Index measures the performance of those
companies included in the Russell 2000 Index with higher price-to-book ratios
and higher forecasted growth values. The Russell 2000 Index measures the
performance of the two thousand smallest companies in the Russell 3000 Index,
which represents approximately 10% of the total market capitalization of the
Russell 3000 Index (the Russell 3000 Index represents approximately 90% of the
investable U.S. equity market).
(15) The Lipper Mid Cap Fund Index tracks the net performance of mutual
funds which, as determined by Lipper Analytical Services, Inc., are managed in
accordance with an investment objective defined as follows: "A fund which
limits its investments to companies with average market capitalizations between
$800 million and the average market capitalization of the Wilshire 4500 Index".
<PAGE>
The Statement of Additional Information (SAI) provides more details about the
Funds and their policies. The SAI is incorporated by reference into this
prospectus and is legally part of it.
Additional information about each Fund's investments is available in the Funds'
Annual and Semi-Annual Reports to Shareholders. In the Funds' Annual Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected each Fund's performance.
The Annual and Semi-Annual Reports for the Funds list their portfolio holdings
and describe their performance.
To obtain free copies of the SAI and the Annual and Semi-Annual Reports or to
make other inquiries, please call toll free (800)926-0044.
The SAI is also available from the Securities and Exchange Commission. You can
find it on the SEC Internet site at http://www.sec.gov. Information about the
Fund (including the SAI) can also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. You can get information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can receive
copies of this information by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, DC 20549-6009.
SEC file numbers: 811-7674
811-07495
<PAGE>
Filed under Rule 497(c)
File Nos. 33-61810 and 811-7674
Prospectus
The Diversified Investors Funds Group
Diversified Investment Advisors, Inc.,
investment adviser
Stephens Institutional Class Shares
Money Market Fund
Diversified Investors Money Market Fund
Bond Funds
Stephens Intermediate Bond Fund
Diversified Investors High-Yield Bond Fund
Stock Funds
Diversified Investors Equity Value Fund
Diversified Investors Equity Growth Fund
Diversified Investors Special Equity Fund
Stephens Select Equity Fund
Diversified Investors International Equity Fund
This prospectus describes the Stephens Institutional Class shares.
Stephens Premium Class shares are also available.
The mutual funds described in this prospectus are designed to meet a variety
of investment goals. The Funds employ a wide range of stock and bond
strategies covering the full risk/reward spectrum. No Fund by itself is
a complete investment program.
The Securities and Exchange Commission has
not approved or disapproved these securities
or passed upon the adequacy or accuracy of
this prospectus, and any representation to
the contrary is a criminal offense.
May 3, 1999
<PAGE>
Table of Contents
The Funds at a Glance.........................................................
Money Market Fund.......................................................
Bond Funds..............................................................
Stock Funds.............................................................
Shareholder Services..........................................................
How to Reach the Funds..................................................
How to Purchase Shares..................................................
How the Price of Your Shares is Calculated..............................
How to Sell Shares......................................................
Shareholder Services and Policies.......................................
Dividends and Distributions...................................................
Tax Matters...................................................................
Management....................................................................
More About the Funds..........................................................
Money Market Fund.......................................................
Bond Funds..............................................................
Stock Funds.............................................................
Risks...................................................................
General Information...........................................................
Additional Performance Information............................................
Financial Highlights..........................................................
Appendix A -- Composite Performance of Subadvisers............................
<PAGE>
The Funds at a Glance
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Money Market Fund
- -------------------------------------------------------------------------------
Diversified Investors Money Market Fund
This summary briefly describes the Money Market Fund and the principal risks of
investing in it.
Fund Goal
The Fund's goal is to provide liquidity and as high a level of income as is
consistent with the preservation of capital.
Main Investment Strategies
The Fund invests in securities through an underlying mutual fund (called a
Portfolio) having the same investment goals and strategies. All references in
this prospectus to the Fund include the Fund's underlying Portfolio, unless
otherwise noted. The Fund invests primarily in high quality, short-term money
market instruments. These instruments include short-term U.S. government
obligations, corporate bonds and notes, bank obligations (such as certificates
of deposit and bankers' acceptances), commercial paper and repurchase
agreements. The Fund may invest more than 25% of its total assets in
obligations of U.S. banks.
Main Risks
The value of the Fund's shares will change under certain circumstances. This
means that your Fund shares may be worth more or less when you sell them than
when you bought them. You may lose money if you invest in the Fund.
o The Fund's rate of income will vary from day to day depending on
short-term interest rates. Investing in high quality, short-term
instruments may result in a lower yield (the income on your
investment) than investing in lower quality or longer-term
instruments.
o The Fund does not maintain a stable net asset value of $1.00 per
share and does not declare dividends on a daily basis (many money
market funds do). Undeclared investment income, or a default on a
portfolio security, may cause the Fund's net asset value to
fluctuate.
o If the Fund concentrates in U.S. bank obligations, the Fund will be
particularly sensitive to adverse events affecting U.S. banks. Banks
are sensitive to changes in money market and general economic
conditions, as well as decisions by regulators that can affect banks'
profitability.
Please note that an investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Who May Want to Invest
Consider investing in the Money Market Fund if you are a conservative investor
who is seeking liquidity and preservation of capital. Because the Fund
emphasizes stability, it may be an appropriate component of a savings plan.
<PAGE>
Fund Performance
The following bar chart and tables can help you evaluate the risks of investing
in the Fund, and how the Fund's returns have varied over time. All information
is for the Stephens Institutional Class shares of the Fund. Stephens
Institutional Class shares were first issued on January 2, 1998.
o The bar chart shows the Fund's performance for the last calendar year.
o The tables show the Fund's best and worst quarters for the last year, and
how the Fund's average annual returns for the periods indicated compare to
those of a broad measure of market performance. Please remember that,
unlike the Fund, the market index does not include the costs of buying and
selling securities and other Fund expenses.
When you consider this information, please remember that the Fund's past
performance is not necessarily an indication of how it will perform in the
future.
Total Return
(per calendar year - Stephens Institutional Class)
1998
[bar chart -- for calendar year 1998]
1998............5.01%
- ----------------------------------------------------
Highest and Lowest Returns
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
Quarter Ending
- ----------------------------------------------------
Highest 1.27% December 31, 1998
- ----------------------------------------------------
Lowest 1.19% June 30, 1998
- ----------------------------------------------------
- ----------------------------------------------------
Average Annual Total Returns
(through December 31, 1998 - Stephens
Institutional Class)
- ------------------------------------
Since Inception
January 2, 1998
- ------------------------------------
Money Market
Fund 5.01%
- ------------------------------------
Salomon Bros.
3-Month T-Bill
Index 5.05%
- ------------------------------------
<PAGE>
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
Stephens Institutional Class shares of the Money Market Fund.
- -------------------------------------------------------------------------------
Shareholder Fees (fees paid directly from your investment)
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases None
- -------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- -------------------------------------------------------------------------------
Redemption Fee None
- -------------------------------------------------------------------------------
Exchange Fee None
- -------------------------------------------------------------------------------
Annual Fund Operating Expenses (expenses that are deducted
from Fund assets) as a % of average net assets (1)
- -------------------------------------------------------------------------------
Advisory Fee .25%
- -------------------------------------------------------------------------------
Distribution (12b-1) Fees .25%
- -------------------------------------------------------------------------------
Other Expenses
- -------------------------------------------------------------------------------
Administrative Services Fee .30%
- -------------------------------------------------------------------------------
Miscellaneous Expenses .87%
- -------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.67%
- -------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement(2) .92%
- -------------------------------------------------------------------------------
Net Expenses .75%
- -------------------------------------------------------------------------------
1The Fund invests in securities through an underlying mutual fund. This table
and the example below reflect the expenses of the Fund and that underlying
fund.
2The Adviser has contractually agreed to reimburse certain of the Fund's
expenses.
Example
This example is intended to help you compare the cost of investing in the Money
Market Fund to the cost of investing in other mutual funds. The example assumes
that:
o you invest $10,000 in the Fund for the time periods indicated; and
o you then sell all your shares at the end of those periods.
The example also assumes that:
o your investment has a 5% return each year; and
o the Fund's operating expenses shown in the table above, after fee
waivers and reimbursements, remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
---------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------
$77 $240 $417 $930
---------------------------------------------------------
<PAGE>
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Bond Funds
- -------------------------------------------------------------------------------
Stephens Intermediate Bond Fund
Diversified Investors High-Yield Bond Fund
This summary briefly describes the Bond Funds and the principal risks of
investing in them.
Fund Goals
Stephens Intermediate Bond Fund The Fund's goal is to generate a high
level of current income consistent with
a goal to preserve the value of its
investors' investment.
High-Yield Bond Fund The Fund's goal is to provide a high
level of current income.
Main Investment Strategies
Stephens Intermediate Bond Fund
The Stephens Intermediate Bond Fund invests in securities through an underlying
mutual fund (called a Portfolio) having the same investment goals and
strategies. All references in this prospectus to the Fund include the Fund's
underlying Portfolio, unless otherwise noted. The Fund invests in a broad range
of fixed income securities, including U.S. government obligations, foreign
government debt securities (including securities issued by developing
countries), and preferred stock and debt securities issued by U.S. and foreign
companies. Under normal circumstances the Fund invests at least 65% of its
assets in these securities.
The Fund's dollar-weighted average maturity generally does not exceed ten years
under normal circumstances.
The Fund may, but is not required to, engage in certain investment strategies
involving derivatives. These investment strategies may be employed only in
connection with hedging activities.
High-Yield Bond Fund
The High Yield Bond Fund invests in securities through an underlying mutual
fund (called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in high-yielding,
income producing debt securities and preferred stocks. Under normal
circumstances the Fund invests at least 65% of its assets in debt securities
and preferred stock.
The Fund may invest all or a substantial portion of its assets in lower-rated
debt securities, commonly referred to as "junk bonds." Investing in junk bonds
is an aggressive approach to income investing.
The Fund may, but is not required to, engage in certain investment strategies
involving derivatives. These investment strategies may be employed only in
connection with hedging activities.
<PAGE>
Main Risks
The value of each Fund's shares will change daily as the value of its
underlying securities change. This means that your Fund shares may be worth
more or less when you sell them than when you bought them. You may lose money
if you invest in a Fund.
o Market Risk. This is the risk that the prices of securities will rise
or fall due to changing economic, political or market conditions, or
due to a company's individual situation.
o Interest Rate Risk. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise. A change
in interest rates could cause a Fund's share price to go down.
Generally, the longer the average maturity of the bonds in a Fund,
the more the Fund's share price will fluctuate in response to
interest rate changes.
o Prepayment Risk. The issuers of debt securities held by a Fund may be
able to prepay principal due on the securities, particularly during
periods of declining interest rates. The Fund may not be able to
reinvest that principal at attractive rates, reducing income to the
Fund. On the other hand, rising interest rates may cause prepayments
to occur at slower than expected rates. This effectively lengthens
the maturities of the affected securities, making them more sensitive
to interest rate changes and the Fund's share price more volatile.
Mortgage-backed securities are particularly susceptible to prepayment
risk and their prices may be volatile.
o Credit Risk. Some issuers may not make payments on debt securities
held by a Fund, causing a loss. Or, an issuer's financial condition
may deteriorate, lowering the credit quality of a security and
leading to greater volatility in the price of the security and in
shares of a Fund. Investments held by the High-Yield Bond Fund will
be particularly susceptible to credit risk. U.S. government
securities are generally considered not to be subject to credit risk.
o Foreign Securities. Investments in foreign securities involve risks
relating to adverse political, social and economic developments
abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are
subject. These risks may include expropriation of assets,
confiscatory taxation, withholding taxes on dividends and interest
paid on Fund investments, currency exchange controls and other
limitations on the use or transfer of Fund assets and political or
social instability. There may be rapid changes in the value of
foreign currencies or securities, causing a Fund's share price to be
volatile. Also, in certain circumstances, a Fund could realize
reduced or no value in U.S. dollars from its investments in foreign
securities, causing the Fund's share price to go down.
o Derivatives. Each Fund may, but is not required to, engage in certain
investment strategies involving derivatives (such as options,
futures, swaps and forward currency contracts). These investment
strategies may be employed only in connection with hedging
activities. The success or failure of a hedging transaction will
depend on the advisers' ability to predict movements in the hedge,
the investment being hedged and the market in general (and the
correlation between these factors). Derivatives may not always be
available on terms that make economic sense (for example, they may be
too costly), and, when used, their transaction costs and premiums may
adversely affect Fund performance.
Please note that an investment in the Funds is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
<PAGE>
Who May Want to Invest
Consider investing in the Bond Funds if you are seeking current income.
Consider the Intermediate Bond Fund if you are seeking a higher level of
current income than is generally available from a shorter-term bond fund and
are willing to accept the greater price fluctuations associated with higher
levels of income. Consider the High-Yield Bond Fund if you are seeking a higher
level of current income than is generally available from a higher quality bond
fund and are willing to accept significant price volatility and risk of loss.
Fund Performance
The following bar charts and tables can help you evaluate the risks of
investing in the Bond Funds, and how the Funds' returns have varied over time.
All information is for Stephens Institutional Class shares of the Funds.
Stephens Institutional Class shares were first issued on January 2, 1998.
o The bar charts show changes in the Funds' performance for the last
calendar year.
o The tables show the Funds' best and worst quarters for the last year, and
how the Funds' average annual returns for the periods indicated compare to
that of a broad measure of market performance. Please remember that,
unlike the Funds, the market indices do not include the costs of buying
and selling securities and other Fund expenses.
When you consider this information, please remember that a Fund's past
performance is not necessarily an indication of how it will perform in the
future.
Stephens Intermediate Bond Fund
Total Return
(per calendar year - Stephens Institutional Class)
1998
[bar chart -- for calendar year 1998]
1998............6.22%
- ----------------------------------------------------
Highest and Lowest Returns
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
Quarter Ending
- ----------------------------------------------------
Highest 4.84% September 30, 1998
- ----------------------------------------------------
Lowest -0.30% March 31, 1998
- ----------------------------------------------------
- ----------------------------------------------------
Average Annual Total Returns
(through December 31, 1998 - Stephens
Institutional Class)
- ----------------------------------------------------
Since Inception
January 2, 1998
- ----------------------------------------------------
Stephens Intermediate
Bond Fund 6.22%
- ----------------------------------------------------
Lehman Intermediate
Government Bond Index 8.49%
- ----------------------------------------------------
<PAGE>
High-Yield Bond Fund
Total Return
(per calendar year - Stephens Institutional Class)
1998
[bar chart -- for calendar year 1998]
1998............2.14%
- ----------------------------------------------------
Highest and Lowest Returns
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
Quarter Ending
- ----------------------------------------------------
Highest 4.00% March 31, 1998
- ----------------------------------------------------
Lowest -4.75% September 30, 1998
- ----------------------------------------------------
- ----------------------------------------------------
Average Annual Total Returns
(through December 31, 1998 - Stephens
Institutional Class)
- ---------------------------------
Since Inception
January 2, 1998
- ---------------------------------
High-Yield
Bond Fund 2.14%
- ---------------------------------
Salomon Bros.
High-Yield Cash
Pay Index 4.42%
- ---------------------------------
<PAGE>
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
Stephens Institutional Class shares of the Bond Funds.
- -------------------------------------------------------------------------------
Stephens
Shareholder Fees Intermediate High-Yield
(fees paid directly from your investment) Bond Fund Bond Fund
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases None None
- -------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None None
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends None None
- -------------------------------------------------------------------------------
Redemption Fee None None
- -------------------------------------------------------------------------------
Exchange Fee None None
- -------------------------------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
as a % of average net assets
- -------------------------------------------------------------------------------
Advisory Fee .10% .55%
- -------------------------------------------------------------------------------
Distribution (12b-1) Fees .25% .25%
- -------------------------------------------------------------------------------
Other Expenses
- -------------------------------------------------------------------------------
Administrative
Services Fee .30% .30%
- -------------------------------------------------------------------------------
Miscellaneous Expenses .95% 2.37%
- -------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.60%* 3.47%
- -------------------------------------------------------------------------------
Fee Waiver and/or Expense
Reimbursement (1) .80% 2.37%
- -------------------------------------------------------------------------------
Net Expenses .80% 1.10%(2)
- -------------------------------------------------------------------------------
1 The Adviser has contractually agreed to reimburse certain of the Funds'
expenses.
2The High-Yield Bond Fund invests in securities through an underlying mutual
fund. This table and the example below reflect the expenses of the Fund and
that underlying fund.
Example
This example is intended to help you compare the cost of investing in a Bond
Fund to the cost of investing in other mutual funds. The example assumes that:
o you invest $10,000 in a Fund for the time periods indicated; and
o you then sell all your shares at the end of those periods.
The example also assumes that:
o your investment has a 5% return each year; and
o the Fund's operating expenses shown in the table above, after fee waivers
and reimbursements, remain the same.
<PAGE>
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
----------------------------------------------------------------------
Stephens
Intermediate High-Yield
Bond Fund Bond Fund
----------------------------------------------------------------------
1 year $82 $112
----------------------------------------------------------------------
3 years $255 $350
----------------------------------------------------------------------
5 years $444 $606
----------------------------------------------------------------------
10 years $990 $1,340
----------------------------------------------------------------------
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Stock Funds
- -------------------------------------------------------------------------------
Diversified Investors Equity Value Fund
Diversified Investors Equity Growth Fund
Diversified Investors Special Equity Fund
Stephens Select Equity Fund
Diversified Investors International Equity Fund
This summary briefly describes the Stock Funds and the principal risks of
investing in them.
Fund Goals
Equity Value Fund The Fund's goal is to provide a high total
investment return through investment
primarily in a diversified portfolio of
common stocks.
Equity Growth Fund The Fund's goal is to provide a high level of
capital appreciation through investment in a
diversified portfolio of common stocks with a
potential for above-average growth in
earnings. Current income is a secondary goal.
Special Equity Fund The Fund's goal is to provide a
high level of capital appreciation through
investment in a diversified portfolio of
common stocks of small to medium size
companies.
Select Equity Fund The Fund's goal is to provide a high total
return.
International Equity Fund The Fund's goal is to provide a high level of
long-term capital appreciation through
investment in a diversified portfolio of
securities of foreign issuers.
Main Investment Strategies
Equity Value Fund
The Equity Value Fund invests in securities through an underlying mutual fund
(called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in common stocks
<PAGE>
of companies which, in the opinion of the Fund's advisers, are trading at low
valuations relative to market and/or historical levels. The Fund may, but is
not required to, engage in certain investment strategies involving derivatives.
These investment strategies may be employed only in connection with hedging
activities.
Equity Growth Fund
The Equity Growth Fund invests in securities through an underlying mutual fund
(called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in common stocks
of companies that its advisers believe have the potential for above average
growth in earnings and dividends. The Fund uses multiple managers to control
the volatility often associated with growth funds. The Fund may, but is not
required to, engage in certain investment strategies involving derivatives.
These investment strategies may be employed only in connection with hedging
activities.
Special Equity Fund
The Special Equity Fund invests in securities through an underlying mutual fund
(called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio,unless otherwise noted. The Fund invests primarily in stocks of small
to medium size companies which, in the opinion of the Fund's advisers, present
an opportunity for significant increases in earnings, revenue and/or value,
without consideration for current income. The Fund emphasizes common stocks of
U.S. companies with market capitalizations of less than $1 billion. The Fund
uses multiple managers to control the volatility often associated with
investments in companies of this size. The Fund may, but is not required to,
engage in certain investment strategies involving derivatives. These investment
strategies may be employed only in connection with hedging activities.
Stephens Select Equity Fund
The Stephens Select Equity Fund invests in securities through an underlying
mutual fund (called a Portfolio) having the same investment goals and
strategies. All references in this prospectus to the Fund include the Fund's
underlying Portfolio, unless otherwise noted. The Fund may invest in small
capitalization issuers. The Fund may, but is not required to, engage in certain
investment strategies involving derivatives. These investment strategies may be
employed only in connection with hedging activities.
International Equity Fund
The International Equity Fund invests in securities through an underlying
mutual fund (called a Portfolio) having the same investment goals and
strategies. All references in this prospectus to the Fund include the Fund's
underlying Portfolio, unless otherwise noted. The Fund invests primarily in
foreign securities. Under normal circumstances, the Fund invests at least 65%
of its assets in equity securities of issuers in at least three countries other
than the United States. The Fund may invest up to 10% of its assets in
securities of issuers in developing countries. The Fund may, but is not
required to, engage in certain investment strategies involving derivatives.
These investment strategies may be employed only in connection with hedging
activities.
Main Risks
The value of each Fund's shares will change daily as the value of its
underlying securities change. This means that your Fund shares may be worth
more or less when you sell them than when you bought them. You may lose money
if you invest in a Fund.
<PAGE>
o Market Risk. This is the risk that the prices of securities will rise
or fall due to changing economic, political or market conditions, or
due to a company's individual situation. Historically, equity
securities have been more volatile than debt securities in response
to market risk.
o Growth Securities. Growth securities typically are quite sensitive to
market movements because their market prices tend to reflect future
expectations. When it appears those expectations will not be met, the
prices of growth securities typically fall. The success of a Fund's
investment in growth securities depends largely on the Fund's
advisers' skill in assessing the growth potential of the companies
that issued the securities.
o Value Investing. The success of a value investing strategy depends
largely on the skill of a Fund's advisers in identifying securities
of companies that are in fact undervalued, but have good longer term
business prospects. A security may not achieve its expected value
because the circumstances causing it to be underpriced worsen
(causing the price to decline further) or do not change, or because
the advisers are incorrect in their determinations. In addition, the
Fund may underperform certain other stock funds (those emphasizing
growth stocks, for example) during periods when value stocks are out
of favor. The Equity Value Fund will be particularly susceptible to
the risks of value investing.
o Smaller Companies. The securities of smaller capitalized companies
may have more risks than those of larger, more seasoned companies.
They may be particularly susceptible to market downturns because of
limited product lines, markets, distribution channels or financial
and management resources. Also, there may be less publicly available
information about small cap companies. As a result, their prices may
be more volatile, causing a Fund's share price to be volatile.
Investments held by the Special Equity and Select Equity Funds are
likely to be particularly susceptible to the risks of small cap
companies.
o Foreign Securities. Investments in foreign securities involve risks
relating to adverse political, social and economic developments
abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are
subject. These risks may include expropriation of assets,
confiscatory taxation, withholding taxes on dividends and interest
paid on Fund investments, currency exchange controls and other
limitations on the use or transfer of Fund assets and political or
social instability. There may be rapid changes in the value of
foreign currencies or securities, causing a Fund's share price to be
volatile. Also, in certain circumstances, a Fund could realize
reduced or no value in U.S. dollars from its investments in foreign
securities, causing the Fund's share price to go down.
The International Equity Fund may invest in issuers located in
emerging, or developing, markets. All of the risks of investing in
foreign securities are heightened by investing in these markets.
o Derivatives. Each Fund may, but is not required to, engage in certain
investment strategies involving derivatives (such as options,
futures, swaps and forward currency contracts). These investment
strategies may be employed only in connection hedging activities. The
success or failure of a hedging transaction will depend on the
advisers' ability to predict movements in the hedge, the investment
being hedged and the market in general (and the correlation between
these factors). Derivatives may not always be available on terms that
make economic sense (for example, they may be too costly), and, when
used, their transaction costs and premiums may adversely affect Fund
performance.
<PAGE>
o Interest Rate Risk. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise. Longer
term obligations are usually more sensitive to interest rate changes
than shorter term obligations. A change in interest rates could cause
a Fund's share price to go down. Generally, the longer the average
maturity of the bonds in a Fund, the more the Fund's share price will
fluctuate in response to interest rate changes.
o Credit Risk. Some issuers may not make payments on debt securities
held by a Fund, causing a loss. Or, an issuer's financial condition
may deteriorate, lowering the credit quality of a security and
leading to greater volatility in the price of the security and in
shares of the Fund. The prices of lower rated securities often are
more volatile than those of higher rated securities.
Please note that an investment in the Funds is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Who May Want to Invest
Consider investing in the Stock Funds if you are seeking growth from equity
investments, can tolerate substantial changes in the value of your investment
and do not require current income from your investment. The Special Equity Fund
emphasizes securities of small to medium size companies. As a result, the
Special Equity Fund may be particularly volatile.
Fund Performance
The following bar charts and tables can help you evaluate the risks of
investing in the Stock Funds, and how the Funds' returns have varied over time.
All information is for Stephens Institutional Class shares of the Funds.
Stephens Institutional Class shares were first issued on January 2, 1998.
o The bar charts show changes in the Funds' performance over the last year.
o The tables show the Funds' best and worst quarters for the last year, and
how the Funds' average annual returns for the periods indicated compare to
those of broad measures of market performance. Please remember that,
unlike the Funds, the market indices do not include the costs of buying
and selling securities and other Fund expenses.
When you consider this information, please remember that a Fund's past
performance is not necessarily an indication of how it will perform in the
future.
<PAGE>
Equity Value Fund
Total Return
(per calendar year - Stephens Institutional Class)
1998
[bar chart -- for calendar year 1998]
1998...........10.68%
- ----------------------------------------------------
Highest and Lowest Returns
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
Quarter Ending
- ----------------------------------------------------
Highest 12.00% March 31, 1998
- ----------------------------------------------------
Lowest -9.36% September 30, 1998
- ----------------------------------------------------
- ----------------------------------------------------
Average Annual Total Returns
(through December 31, 1998 -
Stephens Institutional Class)
- ----------------------------------
Since Inception
January 2, 1998
- ----------------------------------
Equity
Value Fund 10.68%
- ----------------------------------
S&P 500
Index 28.75%
- ----------------------------------
Russell 1000
Value Index 15.63%
- ----------------------------------
<PAGE>
Equity Growth Fund
Total Return
(per calendar year - Stephens Institutional Class)
1998
[bar chart -- for calendar year 1998]
1998...........36.54%
- ----------------------------------------------------
Highest and Lowest Returns
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
Quarter Ending
- ----------------------------------------------------
Highest 29.91% December 31, 1998
- ----------------------------------------------------
Lowest -11.31% September 30, 1998
- ----------------------------------------------------
- ----------------------------------------------------
Average Annual Total Returns
(through December 31, 1998 - Stephens
Institutional Class)
- ---------------------------------
Since Inception
January 2, 1998
- ---------------------------------
Equity
Growth Fund 36.54%
- ---------------------------------
S&P 500
Index 28.75%
- ----------------------------------
Russell 1000
Growth Index 38.71%
- ----------------------------------
<PAGE>
Special Equity Fund
Total Return
(per calendar year - Stephens Institutional Class)
1998
[bar chart -- for calendar year 1998]
1998............4.11%
- ----------------------------------------------------
Highest and Lowest Returns
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
Quarter Ending
- ----------------------------------------------------
Highest 20.92% December 31, 1998
- ----------------------------------------------------
Lowest -20.06% September 30, 1998
- ----------------------------------------------------
- ----------------------------------------------------
Average Annual Total Returns
(through December 31, 1998 - Stephens
Institutional Class)
- ---------------------------------
Since Inception
January 2, 1998
- ---------------------------------
Special
Equity Fund 4.11%
- ----------------- ---------------
S&P 500
Index 28.75%
- ---------------------------------
Russell 2000
Index -2.55%
- ---------------------------------
<PAGE>
Stephens Select Equity Fund
Total Return
(per calendar year - Stephens Institutional Class)
1998
[bar chart -- for calendar year 1998]
1998............5.41%
- ----------------------------------------------------
Highest and Lowest Returns
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
Quarter Ending
- ----------------------------------------------------
Highest 2.24% December 31, 1998
- ----------------------------------------------------
Lowest 0.80% March 31, 1998
- ----------------------------------------------------
- ----------------------------------------------------
Average Annual Total Returns
(through December 31, 1998 - Stephens
Institutional Class)
- ----------------------------------------------------
Since Inception
January 2, 1998
- ----------------------------------------------------
Stephens
Select Equity Fund 5.41%
- ----------------------------------------------------
Russell Mid-Cap
Value Index 5.08%
- ----------------------------------------------------
<PAGE>
International Equity Fund
Total Return
(per calendar year - Stephens Institutional Class)
1998
[bar chart -- for calendar year 1998]
1998...........10.27%
- ----------------------------------------------------
Highest and Lowest Returns
(for calendar quarters covered by the bar chart)
- ----------------------------------------------------
Quarter Ending
- ----------------------------------------------------
Highest 16.69% December 31, 1998
- ----------------------------------------------------
Lowest -16.67% September 30, 1998
- ----------------------------------------------------
- ----------------------------------------------------
Average Annual Total Returns
(through December 31, 1998 - Stephens
Institutional Class)
- ----------------------------------
Since Inception
January 2, 1998
- ----------------------------------
International
Equity Fund 10.27%
- ----------------------------------
MSCI World
Ex-US Index 19.11%
- ----------------------------------
<PAGE>
Fund Fees and Expenses
The tables below describe the fees and expenses that you may pay if you buy and
hold Stephens Institutional Class shares of the Stock Funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Stephens
Shareholder Fees (fees Equity Equity Special Select International
paid directly from your Value Growth Equity Equity Equity
investment) Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------
Maximum Sales Charge None None None None None
(Load) Imposed on
Purchases
- ---------------------------------------------------------------------------------------------------
Maximum Deferred Sales None None None None None
Charge (Load)
- ---------------------------------------------------------------------------------------------------
Maximum Sales Charge None None None None None
(Load) Imposed on
Reinvested Dividends
- ---------------------------------------------------------------------------------------------------
Redemption Fee None None None None None
- ---------------------------------------------------------------------------------------------------
Exchange Fee None None None None None
- ---------------------------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that
are deducted from Fund
assets) as a % of average
net assets (1)
- ---------------------------------------------------------------------------------------------------
Advisory Fee .57% .62% .80% .15% .75%
- ---------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees .25% .25% .25% .25% .25%
- ---------------------------------------------------------------------------------------------------
Other Expenses
- ---------------------------------------------------------------------------------------------------
Administrative
Services Fee .30% .30% .30% .35% .30%
- ---------------------------------------------------------------------------------------------------
Miscellaneous
Expenses .64% 1.02% .92% .10% 1.10%
- ---------------------------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses 1.76% 2.19% 2.27% 3027.05% 2.40%
- ---------------------------------------------------------------------------------------------------
Fee Waivers/and or
Reimbursements (2) .66% 1.19% 1.07% 3026.20% 1.15%
- ---------------------------------------------------------------------------------------------------
Net Expenses 1.10% 1.00% 1.20% .85% 1.25%
- ---------------------------------------------------------------------------------------------------
</TABLE>
1Each Fund (except the Select Equity Fund) invests in securities through an
underlying mutual fund. This table and the example below reflect the expenses
of the Fund and that underlying fund.
2The Adviser has contractually agreed to reimburse certain of the Funds'
expenses.
<PAGE>
Example
This example is intended to help you compare the cost of investing in a Stock
Fund to the cost of investing in other mutual funds. The example assumes that:
o you invest $10,000 in a Fund for the time periods indicated; and
o you then sell all your shares at the end of those periods.
The example also assumes that:
o your investment has a 5% return each year; and
o the Fund's operating expenses shown in the tables above, after fee waivers
and reimbursements, remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Stephens
Equity Equity Special Select International
Value Fund Growth Fund Equity Fund Equity Fund Equity Fund
- ---------------------------------------------------------------------------------------------
1 year $112 $102 $122 $87 $127
- ---------------------------------------------------------------------------------------------
3 years $350 $318 $381 $271 $397
- ---------------------------------------------------------------------------------------------
5 years $606 $552 $660 $471 $686
- ---------------------------------------------------------------------------------------------
10 years $1,340 $1,225 $1,455 $1,049 $1,511
- ---------------------------------------------------------------------------------------------
</TABLE>
Shareholder Services
This section describes how to do business with the Funds and shareholder
services that are available.
- -------------------------------------------------------------------------------
How to Reach the Funds
- -------------------------------------------------------------------------------
By telephone Call toll free at (800) 643-9691, Ext. 4361
By mail Stephens Inc.
111 Center Street
Little Rock, AR 72201
Attention: Stephens Capital Management
- -------------------------------------------------------------------------------
How to Purchase Shares
- -------------------------------------------------------------------------------
Stephens Institutional Class shares are available only to investment clients of
Stephens Inc.
Each Fund's shares are sold without a sales charge. Purchases may be made
Monday through Friday, except on certain holidays. Shares are purchased at net
asset value (NAV) next calculated after your investment is received in good
order and is accepted by the Distributor.
Initial and subsequent purchases may be made by check or wire transfer. There
is no minimum initial or subsequent investment amount. Checks should be in U.S.
dollars and drawn on a U.S. bank. Checks should be made payable to Stephens
Inc. and mailed to the address listed above under "How to Reach the Funds."
<PAGE>
In the case of an initial purchase, the check must be accompanied by a
completed Account Application. If shares are purchased with a check that does
not clear, the purchase will be canceled and any losses or fees incurred in the
transaction will be the responsibility of the investor. If shares are purchased
with a check and a redemption request relating to such shares is received
within 15 days of such purchase, the redemption proceeds will be paid only when
the check clears.
If you would like to purchase shares in a Fund by a wire transfer, please call
Stephens Capital Management at (800) 643-9691, Ext. 4361 for wire transfer
instructions and direct your bank to transmit immediately available funds in
accordance with such instructions. Investors who make initial purchases by wire
transfer must complete an Account Application and mail it to Stephens Capital
Management at the address above.
Each Fund reserves the right to cease offering its shares for sale at any time
or to reject any order for the purchase of shares.
- -------------------------------------------------------------------------------
How the Price of Your Shares is Calculated
- -------------------------------------------------------------------------------
Each Fund calculates its NAV every day that the New York Stock Exchange is open
for trading. This calculation is made at the close of regular trading on the
Exchange, normally 4 p.m. Eastern time. No Fund calculates its NAV on days when
the New York Stock Exchange is closed. The New York Stock Exchange is normally
closed on the following national holidays: New Year's Day, Martin Luther King
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
- -------------------------------------------------------------------------------
What is NAV?
NAV refers to a Fund's net asset value. Net asset value per share is calculated
by dividing the total value of a Fund's securities and other assets, less
liabilities, by the total number of shares outstanding. Securities are valued
at market value or, if a market quotation is not readily available, at their
fair value determined in good faith under procedures established by and under
the supervision of the Trustees. Foreign securities are valued based on
quotations from the primary market in which they are traded, and converted from
the local currency into U.S. dollars using current exchange rates. Money market
instruments maturing within sixty days are valued at amortized cost, which
approximates market value.
- -------------------------------------------------------------------------------
Please note that trading may take place in foreign securities held by a Fund on
days when the Fund is not open for business. As a result, the Fund's NAV may
change on days on which it is not possible to purchase or sell shares of the
Fund.
- -------------------------------------------------------------------------------
How to Sell Shares
- -------------------------------------------------------------------------------
On any business day, you may sell (redeem) all or a portion of your shares.
Your transaction will be processed at the applicable Fund's NAV the next time
it is calculated after your redemption request in good order is received by the
Distributor. Redemption proceeds normally will be paid or mailed within seven
days. A redemption is treated as a sale for tax purposes, and could result in
taxable gain or loss in a non-tax-sheltered account.
Redemption requests may be made by mail and, in certain circumstances,
telephone. The proceeds of the redemption will be sent by mail or, if
authorized, wire transfer.
Redemption requests by mail must specify the dollar amount or number of shares
to be redeemed, the account number and the name of the Fund. The redemption
<PAGE>
request must be signed in exactly the same way that the account is registered.
If there is more than one owner of the shares, each owner must sign the
redemption request.
Requests to redeem shares should be mailed to Stephens at the address listed
above under "How to Reach the Funds."
At the Funds' discretion signature guarantees may also be required for other
redemptions. A signature guarantee assures that a signature is genuine and
protects shareholders from unauthorized account transfers. Banks, savings and
loan associations, trust companies, credit unions, broker-dealers and member
firms of a national securities exchange may guarantee signatures. Call your
financial institution to see if it has this capability. A signature guarantee
is not the same as a notarized signature.
- -------------------------------------------------------------------------------
Shareholder Services and Policies
- -------------------------------------------------------------------------------
Exchanges
On any business day you may exchange all or a portion of your Stephens
Institutional Class shares for Stephens Institutional Class shares of any other
available Fund. To make exchanges, please call the transfer desk of Stephens
Capital Management at (800) 643-9691, Ext. 4361. Exchanges are processed at NAV
the next time it is calculated after your exchange request in good order is
received and approved. The Funds reserve the right to reject any exchange
request or to modify or terminate the exchange privilege at any time. An
exchange is the sale of shares of one Fund and purchase of shares of another,
and could result in taxable gain or loss in a non-tax-sheltered account.
Redemption proceeds
The Funds intend to pay redemption proceeds in cash, but reserve the right to
pay in kind by delivery of investment securities equal to the redemption price.
In these cases, you might incur brokerage costs in converting the securities to
cash.
Your right to receive payment of redemption proceeds may be suspended, or
payment may be postponed, in certain circumstances. These circumstances include
any period the New York Stock Exchange is closed (other than weekends or
holidays) or trading on the Exchange is restricted, any period when an
emergency exists and any time the Securities and Exchange Commission permits
mutual funds to postpone payments for the protection of investors.
Telephone transactions
You may initiate redemptions and exchanges by telephone. The Funds and their
agents will not be responsible for any losses resulting from unauthorized
transactions when procedures designed to verify the identity of the caller are
followed. During periods of unusual market activity, severe weather or other
abnormal circumstances, it may be difficult for you to reach a representative
of the Funds by telephone. In that case, please consider sending written
instructions.
Address changes
To change the address on your account contact the transfer desk of Stephens
Capital Management at (800) 643-9691, Ext. 4361 and send a written request
signed by all account owners. Include the name of your Fund(s), the account
numbers(s), the name(s) on the account and both the old and new addresses.
<PAGE>
Registration changes
To change the name on an account, the shares are generally transferred to a new
account. In some cases, legal documentation may be required. For more
information, contact the transfer desk of Stephens Capital Management at (501)
374-4361.
Statements and reports
The Funds will send you a confirmation statement quarterly reflecting regularly
scheduled contributions and other transactions affecting your account. The
Funds will also send you a confirmation statement after every transaction that
affects your account registration. Information regarding the tax status of
income dividends and capital gains distributions will be mailed to investors
with non-tax-sheltered accounts early each year.
Financial reports for the Funds will be mailed semiannually to all
shareholders.
Dividends and Distributions
As a Fund shareholder, you are entitled to your share of a Fund's net income
and gains on its investments. Each Fund passes substantially all of its
earnings along to its investors as distributions. When a Fund earns dividends
from stocks and interest from bonds and other debt securities and distributes
those earnings to shareholders, it is called a dividend distribution. A Fund
realizes capital gains when it sells securities for a higher price than it
paid. When these gains are distributed to shareholders, it is called a capital
gain distribution.
Each Fund pays substantially all of its net income from dividends and interest
to its shareholders of record annually during the month of December.
Each Fund distributes any net realized short-term and long-term capital gains
to its shareholders at least annually, in December. Each Fund may also make
additional distributions to its shareholders to the extent necessary to avoid
the application of the 4% non-deductible excise tax on certain undistributed
income and net capital gains of mutual funds.
You will receive all distributions from a Fund in additional shares of the same
Fund issued at NAV.
Tax Matters
This discussion of taxes is for general information only. You should consult
your own tax adviser about your particular situation, and the status of your
account under state and local laws.
Taxes of Distributions
If you are otherwise subject to federal income taxes, you will normally have to
pay federal income taxes on the distributions you receive from a Fund, even if
you reinvest the distributions in additional shares. Distributions designated
by a Fund as capital gain dividends are taxable as long-term capital gains.
Other distributions are generally taxable as ordinary income. Some
distributions paid in January may be taxable to you as if they had been paid
the previous December.
<PAGE>
Taxes on Sale or Exchanges
If you are otherwise subject to federal income taxes, anytime you sell or
exchange shares, it is considered a taxable event for you. Depending on the
purchase price and the sale price of the shares you sell or exchange, you may
have a gain or a loss on the transaction. You are responsible for any tax
liabilities generated by your transaction.
Other Tax Matters
Retirement plans that invest in a Fund and satisfy applicable Internal Revenue
Code conditions generally will not be subject to federal tax liability on
either distributions from a Fund or redemptions of shares of a Fund.
Participants in these retirement plans will be taxed when they begin taking
distributions from the plan in accordance with Internal Revenue Code rules.
Fund distributions will reduce a Fund's net asset value per share. As a result,
if you are otherwise subject to federal income taxes, and you buy shares in a
Fund just before the Fund makes a distribution, you may pay the full price for
the shares and then effectively receive a portion of the purchase price back as
a taxable distribution.
By law, each Fund must withhold 31% of your distributions and proceeds if you
have not provided complete, correct taxpayer information or are otherwise
subject to "backup withholding". Funds may also be required to withhold a
portion of any distributions and redemption proceeds otherwise due to
shareholders who are not U.S. citizens or residents.
Early each year, each Fund will notify its shareholders (other than retirement
plan participants) of the amount and tax status of distributions paid to
shareholders for the preceding year.
Management
- -------------------------------------------------------------------------------
Investment Adviser
- -------------------------------------------------------------------------------
Diversified Investment Advisors, Inc. is the investment adviser of each of the
underlying mutual funds in which the Funds invest. Diversified also advises the
Intermediate Bond and Select Equity Funds. Diversified is an indirect,
wholly-owned subsidiary of AEGON USA, Inc., a financial services holding
company whose primary emphasis is life and health insurance and annuity and
investment products. AEGON USA is an indirect, wholly-owned subsidiary of AEGON
N.V., a Netherlands corporation which is a publicly traded international
insurance group. Diversified was incorporated in 1992 for the purpose of acting
as the investment adviser to the Funds.
Diversified has selected subadvisers for each underlying mutual fund.
Diversified provides general supervision of the subadvisers and also manages
the assets of the Intermediate Bond and Select Equity Funds, subject in each
case to policies set by the Trustees. Diversified's investment management
decisions are made by a committee of Diversified's personnel.
The subadvisers make the day-to-day investment decisions for the underlying
mutual funds and place the purchase and sale orders for securities
transactions, subject in all cases to the general supervision of Diversified.
The subadvisers are listed below.
<PAGE>
- -------------------------------------------------------------------------------
Subadvisers
- -------------------------------------------------------------------------------
The subadvisers described in this section are responsible for the daily
management of the Portfolios underlying the Funds named below. Diversified
provides general supervision of the subadvisers. Except as otherwise noted,
investment decisions are made by a committee of each subadviser's personnel.
Money Market Fund
Capital Management Group. Capital Management Group is a division of 1740
Advisers, Inc., a wholly-owned subsidiary of The MONY Group, Inc. Capital
Management Group has been a registered investment adviser since 1971. The
address of Capital Management Group is 1740 Broadway, New York, New York 10019.
David E. Wheeler, Investment Vice President and Portfolio Manager, has been
responsible for the day-to-day management of the Money Market Fund since 1997.
Mr. Wheeler has been employed by Capital Management Group since 1994 and was
employed at AIG Investment Advisers prior to 1994.
Intermediate Bond Fund
and Select Equity Fund
Stephens Capital Management. Stephens Capital Management is a division of
Stephens Inc., which is an indirect, wholly-owned subsidiary of Stephens Group,
Inc. The Funds are the first registered investment companies for which Stephens
Capital Management performs investment advisory functions. The principal
business address of Stephens Capital Management is 111 Center Street, Little
Rock, Arkansas 72201.
High-Yield Bond Fund
Delaware Investment Advisers. Delaware Investment Advisers is a series of
Delaware Management Business Trust. Delaware is indirectly owned by Lincoln
National Corp. Delaware and its predecessors have been registered investment
advisers since 1952. The principal business address of Delaware Investment
Advisers is 2005 Market Street, Philadelphia, Pennsylvania 19103.
Equity Value Fund
Ark Asset Management Co., Inc. Ark was formed in August of 1989 and is owned by
Ark Asset Holdings, Inc. Ark Asset Holdings, Inc. is owned by Ark employees.
Ark has been a registered investment adviser since 1989. The principal address
of Ark is 125 Broad Street, New York, New York 10004.
Equity Growth Fund
Dresdner RCM Global Investors LLC
Montag & Caldwell Incorporated
Dresdner RCM Global Investors LLC was established in 1996, when Dresdner Bank
AG acquired RCM Capital Management. Dresdner RCM has been a registered
investment adviser since 1972. The principal address of Dresdner RCM is Four
Embarcadero Center, San Francisco, California 94111.
<PAGE>
Montag & Caldwell Incorporated was established in 1945 and is owned by
Alleghany Corporation. Montag & Caldwell has been a registered investment
adviser since 1968. The principal address of Montag & Caldwell is 3343
Peachtree Road, N.E., Suite 1100, Atlanta, Georgia 30326-1022.
Special Equity Fund
Goldman Sachs Asset Management
Pilgrim Baxter & Associates, Ltd.
RS Investment Management, L.P.
Westport Asset Management, Inc.
Goldman Sachs Asset Management is a separate operating division of Goldman,
Sachs & Co., a worldwide investment banking firm, with numerous offices
throughout the United States and globally. Goldman, Sachs & Co. acquired
Liberty Investment Management, Inc., the predecessor firm, in January of 1997.
Liberty had been a registered investment adviser since 1994. Liberty's
predecessor, Eagle Asset Management, Inc., had been a registered investment
adviser since 1984. The business address of the Goldman Sachs branch office
responsible for managing the Fund is 2502 Rocky Point Drive, Suite 500, Tampa,
Florida 33607.
Herbert E. Ehlers, Managing Director, and Timothy G. Ebright, Portfolio
Manager, have been responsible for the day-to-day management of the Special
Equity Fund on behalf of Liberty, and now Goldman Sachs, since 1994. Mr. Ehlers
and Mr. Ebright have been employed by Goldman Sachs since 1997. Before that,
they were employed by Liberty Investment Management, Inc. or its predecessor,
Eagle Asset Management, Inc., since 1980 and 1988, respectively.
Pilgrim Baxter & Associates, Ltd. was formed in 1995 and is owned by United
Asset Management, Inc., a publicly-owned corporation. Pilgrim (or its
predecessor) has been a registered investment adviser since 1982. The principal
business address of Pilgrim is 825 Duportail Road, Wayne, Pennsylvania 19087.
Gary Pilgrim, Chief Executive Officer, has been responsible for the day-to-day
management of the Special Equity Fund on behalf of Pilgrim since September
1998. He is a founding partner of Pilgrim and has been employed by Pilgrim
since 1982.
RS Investment Management, L.P. RS was formed in 1999 and is indirectly owned
by BankAmerica Corporation. RS (or its predecessor) has been a registered
investment adviser since 1984. The principal business address of RS is 555
California Street, San Francisco, California 94104.
Westport Asset Management, Inc. was formed in 1983 and is owned by certain of
its employees. Westport has been a registered investment adviser since 1983.
The principal business address of Westport is 253 Riverside Avenue, Westport,
Connecticut 06880.
Andrew Knuth, Portfolio Manager, has been responsible for the day-to day
management of the Special Equity Fund on behalf of Westport since 1994 and has
been employed by Westport since 1983.
<PAGE>
International Equity Fund
Capital Guardian Trust Company. Capital Guardian was formed in 1968 and is
owned by Capital Group International, Inc., which is owned by The Capital Group
Companies, Inc. Capital Guardian is a trust company regulated by the California
Department of Financial Institutions. The principal address of Capital Guardian
is 333 South Hope Street, Los Angeles, California 90071.
Capital Guardian uses a system of multiple portfolio managers. Within
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.
- -------------------------------------------------------------------------------
Advisory Fees
- -------------------------------------------------------------------------------
For the fiscal year ended December 31, 1998, Diversified and the subadvisers
received aggregate advisory fees (after waivers) equal to that percentage of
each Fund's average daily net assets set forth in the table below.
------------------------------------------------------------------
Money Market Fund 0.25%
------------------------------------------------------------------
Intermediate Bond Fund 0.10%
------------------------------------------------------------------
High-Yield Bond Fund 0.52%
------------------------------------------------------------------
Equity Value Fund 0.56%
------------------------------------------------------------------
Equity Growth Fund 0.62%
------------------------------------------------------------------
Special Equity Fund 0.80%
------------------------------------------------------------------
Select Equity Fund 0.15%
------------------------------------------------------------------
International Equity Fund 0.75%
------------------------------------------------------------------
More About the Funds
Each Fund's goal and principal investment strategies, and the main risks of
investing in the Funds, are summarized at the beginning of this prospectus.
More information on investment strategies, investments and risks appears in
this section. These are the strategies that, in the opinion of each Fund's
advisers, are most likely to be important in trying to achieve the Fund's
investment goal. There can, of course, be no assurance that any Fund will
achieve its investment goal. Except as noted below, each Fund's goal and
strategies may be changed without shareholder approval.
Please note that each Fund may also use strategies and invest in securities
that are not described below but which are described in the Statement of
Additional Information. Of course, the Fund's advisers may decide, as a matter
of investment strategy, not to use the investments and investment techniques
described below and in the Statement of Additional Information at any
particular time.
Each Fund is actively managed, and the portfolio managers may trade securities
frequently, resulting, from time to time, in an annual portfolio turnover rate
of over 100%. Trading securities may produce capital gains, which are taxable
when distributed to investors with non-tax-sheltered accounts. Active trading
may also increase the amount of commissions or mark-ups to broker-dealers that
the Fund pays when it buys and sells securities. The "Financial Highlights"
section of this prospectus shows each Fund's historical portfolio turnover
rate.
Each Fund may, from time to time, take temporary defensive positions that are
inconsistent with the Fund's principal investment strategies in attempting to
respond to adverse market, political or other conditions. When doing so, the
Fund may invest without limit in high quality money market and other short-term
instruments, and may not be pursuing its investment goal. These investments may
result in a lower yield than would be available from investments with a lower
quality or longer term.
<PAGE>
- -------------------------------------------------------------------------------
What are Money Market Instruments?
A money market instrument is a short-term IOU issued by banks or other
corporations, the U.S. or a foreign government or state or local governments.
Money market instruments have maturity dates of 13 months or less. Money market
instruments may include certificates of deposit, bankers' acceptances, variable
rate demand notes (where the interest rate is reset periodically and the holder
may demand payment from the issuer at any time), fixed-term obligations,
commercial paper (short term unsecured debt of corporations), asset-backed
securities (which are backed by pools of accounts receivable such as car
installment loans or credit card receivables) and repurchase agreements. In a
repurchase agreement, the seller sells a security and agrees to buy it back at
a later date (usually within seven days) and at a higher price, which reflects
an agreed upon interest rate.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Money Market Fund
- -------------------------------------------------------------------------------
This Fund invests primarily in high quality, short-term money market
instruments. The Fund may invest more than 25% of its total assets in
obligations of U.S. banks.
The Fund complies with industry regulations applicable to money market funds.
These regulations require that the Fund's investments mature or be deemed to
mature within 397 days from the date of acquisition, that the average maturity
of the Fund's investments (on a dollar-weighted basis) be ninety days or less,
and that all of the Fund's investments be in U.S. dollar-denominated high
quality securities which have been determined by the Fund to present minimal
credit risks. 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 a longer term.
The Fund does not maintain a stable net asset value of $1.00 per share and does
not declare dividends on a daily basis (many money market funds do). Investment
income that has not yet been declared as a dividend, or a default on a
portfolio security, may cause the Fund's net asset value to fluctuate.
If the Fund concentrates in bank obligations, the Fund will be particularly
sensitive to adverse events affecting U.S. banks. Banks are sensitive to
changes in money market and general economic conditions, as well as decisions
by regulators that can affect banks' profitability.
The Fund's portfolio managers employ a "top down" approach when selecting
securities for the Fund. This means that the portfolio managers look first at
broad market factors, and, on the basis of those market factors, choose certain
sectors or industries in which to invest. The managers then look at individual
companies within those sectors or industries. The managers use the same top
down approach when deciding which securities to sell. Securities are sold when
the Fund needs cash to meet redemptions, or when the managers believe that
better opportunities exist or that particular securities no longer fit within
the overall strategy for achieving the Fund's goal. In general, the portfolio
managers attempt to temper income volatility in the Fund by investing
significant portions of the portfolio in securities with maturities of thirty
to forty-five days.
<PAGE>
- -------------------------------------------------------------------------------
Bond Funds
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
What is a Bond?
A bond, which is also called a debt security or debt obligation, is like a
loan. The issuer of the bond, which could be the U.S. government, a
corporation, or a city or state, borrows money from investors and agrees to pay
back the loan amount (the principal) on a certain date (the maturity date).
Usually, the issuer also agrees to pay interest on certain dates during the
period of the loan. Some bonds, such as zero coupon bonds, do not pay interest,
but instead pay back more at maturity than the original loan. Most bonds pay a
fixed rate of interest (or income), but some bonds' interest rates may change
based on market or other factors.
- -------------------------------------------------------------------------------
The Intermediate Bond Fund invests in a broad range of fixed income securities,
including U.S. government obligations, foreign government debt securities
(including securities issued by developing countries), and preferred stock and
debt securities issued by U.S. and foreign companies. Under normal
circumstances the Fund invests at least 65% of its assets in these securities.
The Fund's duration generally is between one and six years, and its
dollar-weighted average maturity generally does not exceed ten years under
normal circumstances. Duration is a way of measuring the Fund's overall
sensitivity to interest rate fluctuations. Short-term debt securities generally
fluctuate less in price, and have lower yields, than longer-term securities of
comparable quality.
The portfolio managers of the Intermediate Bond Fund use "top down" economic
analysis to determine economic outlook and to forecast interest rates. They
also analyze the yield curve under multiple market conditions in making
maturity and duration decisions for portfolio securities. The managers then
attempt to select securities that will enable the Fund to maintain a stable
share price and at the same time to achieve a high level of income.
- -------------------------------------------------------------------------------
What are U.S. Government Obligations?
U.S. government obligations are securities that are issued or guaranteed as to
principal and interest by the U.S. government or one of its agencies or
instrumentalities. Some obligations of U.S. government agencies and
instrumentalities are supported by the "full faith and credit" of the United
States, others by the right of the issuer to borrow from the U.S. Treasury, and
others only by the credit of the agency or instrumentality. U.S. government
obligations generally have less credit risk than other debt obligations.
- -------------------------------------------------------------------------------
The High-Yield Bond Fund invests primarily in high-yielding, income producing
debt securities, such as debentures and notes, and in convertible and
non-convertible preferred stocks. Under normal circumstances the Fund invests
at least 65% of its assets in these securities.
The Fund may invest all or a substantial portion of its assets in lower-rated
debt securities, commonly referred to as "junk bonds." Lower-rated debt
securities offer yields that fluctuate over time but that generally are
superior to the yields offered by higher-rated securities. However, these
securities also involve significantly greater risks, including price volatility
and risk of default in the payment of interest and principal, than higher-rated
securities. Lower-rated debt securities usually are defined as securities rated
BB or lower by Standard & Poor's or Ba or lower by Moody's. See the Statement
of Additional Information for more information on ratings.
Lower quality securities tend to be issued by companies that are less secure
financially. In addition, in the event these companies have financial
difficulty, banks or other senior lenders often have priority in being repaid.
As a result, when selecting investments, the Fund's advisers rely on
fundamental research to identify companies with adequate cash flows, attractive
valuations and strong management teams.
<PAGE>
In selecting investments for the Fund, the Fund's advisers exclude securities
that are in default or that pay interest in the form of additional debt
securities. As a result, the Fund may be somewhat more conservative than
certain other high-yield funds. The Fund is designed to outperform more
aggressive high-yield funds in high-yield market downturns, and its performance
may lag these funds in high-yield market upturns. Of course, it is possible
that the Fund will not perform as expected.
The Fund may also invest in equity securities, including common stocks,
warrants and rights. Investors should carefully consider the special risks of
investing in this Fund.
* * *
Fixed income securities may bear fixed, fixed and contingent, or variable rates
of interest and may involve equity features, such as conversion or exchange
rights or warrants for the acquisition of stock of the same or a different
issuer or participations based on revenues, sales or profits. Changes in
interest rates will generally cause bigger changes in prices of longer-term
securities than in prices of shorter-term securities.
Each of the Bond Funds may use derivatives solely for hedging purposes. These
may include options, futures, swaps and forward currency contracts.
Each of the Bond Funds will use short-term debt and money market instruments,
including short-term U.S. government and corporate obligations, commercial
paper, bank obligations and repurchase agreements, in varying amounts for
liquidity and cash management, and as a risk management tool.
- -------------------------------------------------------------------------------
Stock Funds
- -------------------------------------------------------------------------------
The Equity Value Fund invests primarily in stocks of companies which, in the
opinion of the Fund's advisers, are trading at low valuations relative to
market and/or historical levels. These stocks tend to have relatively low
price/earnings ratios and/or relatively low price/book value ratios. Low
price/earnings ratios or price/book value ratios mean that the stock is less
expensive than average relative to the company's earnings or book value,
respectively. The Fund emphasizes common stocks and preferred stocks listed on
the New York Stock Exchange and on other national securities exchanges and, to
a lesser extent, stocks that are traded over-the-counter.
The portfolio manager of the Equity Value Fund uses a "bottom up"
value-oriented approach in selecting investments for the Fund. When portfolio
managers use a "bottom up" approach, they look primarily at individual
companies against the context of broader market factors. A value-oriented
approach attempts to identify companies that appear to be trading below their
true worth. The managers use the same bottom up approach when deciding which
securities to sell. Securities are sold when the Fund needs cash to meet
redemptions, or when the managers believe that better opportunities exist or
that particular securities no longer fit within the overall strategy for
achieving the Fund's goal.
- -------------------------------------------------------------------------------
What is Value Investing?
Funds that use a value-oriented strategy search for those companies that appear
to be trading below their true worth. These funds use research to identify
potential investments, examining such features as a firm's financial condition,
business prospects, competitive position and business strategy. They look for
companies that appear likely to come back into favor with investors, for
reasons that may range from good prospective earnings or strong management
teams to new products or services.
- -------------------------------------------------------------------------------
<PAGE>
The Equity Growth Fund invests primarily in common stocks of companies with
potential for above average growth in earnings and dividends. Under normal
circumstances the Fund invests at least 65% of its assets in equity securities.
The Fund emphasizes common and preferred stocks listed on the New York Stock
Exchange and other national securities exchanges and, to a lesser extent,
stocks that are traded over-the-counter. The Fund uses multiple managers to
control the volatility often associated with growth funds.
- -------------------------------------------------------------------------------
What is Growth Investing?
Funds that use a growth-oriented strategy search for companies growing faster
than the economy as a whole. Often, these companies are in expanding
industries, such as computers and pharmaceuticals. While the size of a company
is not necessarily a factor in determining whether its stock is suitable for a
growth fund, a growth strategy that focuses on larger companies is generally
considered less aggressive than one that focuses on smaller companies. Many
stocks owned by growth funds do not pay dividends and can be more volatile than
other types of investments. As a result, growth funds are appropriate for
investors who have long-term investment horizons.
- -------------------------------------------------------------------------------
The Special Equity Fund invests primarily in stocks of small to medium size
companies which, in the opinion of the Fund's advisers, present an opportunity
for significant increases in earnings, revenue and/or value, without
consideration for current income. The Special Equity Fund emphasizes common
stocks of U.S. companies with market capitalizations of less than $1 billion.
The Fund uses multiple managers to control the volatility often associated with
investments in companies of this size. The Fund utilizes two growth-style
managers and two value-oriented managers. The Fund is designed to provide an
opportunity for higher returns relative to the broad small cap market during
periods when a particular style is out of favor. Investing in securities of
smaller companies involves special risks. Investors should carefully consider
the risks of investing in the Special Equity Fund.
The Select Equity Fund invests primarily in equity securities of U.S.
corporations. Under normal circumstances, at least 65% of the Fund's assets are
invested in common stocks and other securities with equity characteristics such
as preferred stocks, warrants, rights and convertible securities. The Fund may
invest in common stock of any class or series or any similar equity interest,
such as trust or limited partnership interests. These equity investments may or
may not pay dividends and may or may not carry voting rights. The Fund invests
primarily in securities listed on a securities exchange or traded in
over-the-counter markets, and may invest in certain restricted or unlisted
securities. The Fund may invest in small capitalization companies. Investing in
securities of smaller companies involves special risks. Investors should
carefully consider the risks of investing in the Select Equity Fund.
The portfolio managers of the Equity Growth Fund, Special Equity Fund and
Select Equity Fund use a "bottom up" approach in selecting securities, relying
primarily on stock selection against the context of broader market factors.
These managers look for companies that they believe are in dynamic high growth
sectors of the world economy, and that are thought to have dominant or strong
competitive positions within their sectors. They also look for companies that
are expected to have strong earnings growth potential. The managers use the
same bottom up approach when deciding which securities to sell. Securities are
sold when a Fund needs cash to meet redemptions, or when the managers believe
that better opportunities exist or that particular securities no longer fit
within the overall strategy for achieving the Fund's goal.
The International Equity Fund invests primarily in foreign securities, meaning
securities of issuers that, in the opinion of the Fund's advisers, have their
principal activities outside the United States or whose securities are traded
primarily outside the United States. Under normal circumstances the Fund
invests at least 65% of its assets in equity securities of issuers in at least
three countries other than the United States. The Fund invests most of its
<PAGE>
assets in securities of issuers in Canada, Australia and developed countries in
Europe and the Far East. The Fund may invest up to 10% of its assets in
securities of issuers in developing countries. The Fund may also invest in any
type or quality of debt securities, including lower-rated securities, and may
enter into forward currency exchange contracts solely for hedging purposes.
The portfolio managers of the International Equity Fund use a "bottom up"
approach in which stock selection is based on in-depth local research. In
selecting individual securities, the portfolio managers use a value-oriented
strategy to identify companies that appear to be trading below their true
worth. The managers blend their basic, fundamental approach with macroeconomic
and political judgments on the outlook for economies, industries, currencies
and markets. The managers also use a bottom up approach when deciding which
securities to sell. Securities are sold when the Fund needs cash to meet
redemptions, or when the managers believe that better opportunities exist or
that particular securities no longer fit within the overall strategy for
achieving the Fund's goal.
* * *
Each of the Stock Funds may use derivatives solely for hedging purposes. These
may include options, futures, swaps and forward currency contracts.
Each of the Stock Funds 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. These Funds will use short-term
obligations and money market securities, including commercial paper, bank
obligations and repurchase agreements, in varying amounts for liquidity and
cash management, and as a risk management tool.
- -------------------------------------------------------------------------------
Risks
- -------------------------------------------------------------------------------
Investing in a mutual fund involves risk. Before investing, you should consider
the risks you will assume. Certain of these risks are described below. More
information about risks appears in the Funds' Statement of Additional
Information. The value of a Fund's shares will change daily as the value of its
underlying securities change. This means that your Fund shares may be worth
more or less when you sell them than when you bought them. You may receive
little or no return on your investment in the Funds. You may lose money if you
invest in the Funds.
Please remember that the risks of investing in each Fund depend on the
securities that the Fund holds and the investment strategies it uses. For
example, Funds investing more of their assets in fixed income securities may be
more susceptible to interest rate risk and credit risk than Funds investing
more of their assets in equity securities. Similarly, Funds investing more of
their assets in equity securities may be susceptible to greater price
volatility under certain circumstances than Funds investing more of their
assets in fixed income securities. Please remember that an investment in the
Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
Market Risk. This is the risk that the prices of securities will rise or fall
due to changing economic, political or market conditions, or due to a company's
individual situation. Historically, equity securities have been more volatile
than debt securities in response to market risk.
Interest Rate Risk. In general, the prices of debt securities rise when
interest rates fall, and fall when interest rates rise. Longer term obligations
are usually more sensitive to interest rate changes than shorter term
obligations. A change in interest rates could cause a Fund's share price to go
down. Generally, the longer the average maturity of the bonds in a Fund, the
more the Fund's share price will fluctuate in response to interest rate
changes.
<PAGE>
Credit Risk. Some issuers may not make payments on debt securities held by a
Fund, causing a loss. Or, an issuer may suffer adverse changes in its financial
condition that could lower the credit quality of a security, leading to greater
volatility in the price of the security and in shares of a Fund. A change in
the quality rating of a bond or other security can also affect the security's
liquidity and make it more difficult for a Fund to sell. The lower quality debt
securities in which the Funds may invest are more susceptible to these problems
than higher quality obligations. Investments held by the High-Yield Bond Fund
will be particularly susceptible to credit risk. U.S. government securities are
generally considered not to be subject to credit risk.
Growth Securities. Growth securities typically are quite sensitive to market
movements because their market prices tend to reflect future expectations. When
it appears those expectations will not be met, the prices of growth securities
typically fall. The success of a Fund's investment in growth securities depends
largely on the Fund's advisers' skill in assessing the growth potential of the
companies that issued the securities. In addition, a Fund investing in growth
securities may underperform certain other stock funds (those emphasizing value
stocks, for example) during periods when growth stocks are out of favor.
Value Investing. When a Fund's portfolio managers use a value oriented approach
in managing the Fund, they look for securities that they believe are currently
undervalued, or priced below their true worth, but whose issuers have good
longer term prospects. An issuer may be undervalued relative to the stock
market in general, relative to the underlying value of its assets or relative
to what a sophisticated private investor would pay for the entire company.
Value investing is based on the belief that securities of companies which are
temporarily underpriced may provide a higher total return over time than
securities of companies whose positive attributes are reflected in the
securities' current price.
A security may not achieve its expected value because the circumstances causing
it to be undervalued worsen (causing the price to decline further) or do not
change, or because an adviser is incorrect in its determination that the
security is undervalued. In addition, Funds with a value orientation may
underperform certain other stock funds (those emphasizing growth stocks, for
example) during periods when value stocks are not in favor.
Smaller Companies. The securities of smaller capitalization companies may have
more risks than those of larger, more seasoned companies. They may be
particularly susceptible to market downturns because of limited product lines,
markets, distribution channels or financial and management resources. Also,
there may be less publicly available information about small cap companies.
Investments in small cap companies may be in anticipation of future products or
services to be provided by the companies. If those products or services are
delayed, the prices of the securities of the companies may drop. Sometimes, the
prices of the securities of smaller capitalized companies rise and fall based
on investor perception rather than economics. Securities of small cap companies
may be thinly traded, making their disposition more difficult. For all these
reasons, the prices of the securities of small cap companies may be more
volatile, causing a Fund's share price to be volatile. Funds that invest a
higher percentage of their assets in small cap stocks are generally more
volatile than funds investing a higher percentage of their assets in larger,
more established companies. Investments held by the Special Equity Fund are
likely to be particularly susceptible to the risks of small cap companies.
Foreign Securities. Each Fund may invest a portion of its assets in foreign
securities. The International Equity Fund will invest a substantial portion of
its assets in foreign securities. Investing in foreign securities involves
risks in addition to those of investing in U.S. securities, including risks
relating to political, social and economic developments abroad, as well as
risks resulting from the differences between the regulations to which U.S. and
foreign issuers and markets are subject.
o These risks may include expropriation of assets, confiscatory
taxation, withholding taxes on dividends and interest paid on Fund
investments, currency exchange controls and other limitations on the
use or transfer of Fund assets and political or social instability.
<PAGE>
o Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may
be less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S.
markets. Rapid increases in money supply may result in speculative
investing, contributing to volatility. Also, equity securities may
trade at price-earnings multiples that are higher than those of
comparable U.S. companies, and that may not be sustainable. As a
result, there may be rapid changes in the value of foreign
securities.
o Foreign markets may offer less protection to investors. Enforcing
legal rights may be difficult, costly and slow. There may be special
problems enforcing claims against foreign governments.
o Since foreign securities often trade in currencies other than the
U.S. dollar, changes in currency exchange rates will affect a Fund's
net asset value, the value of dividends and interest earned, and
gains and losses realized on the sale of securities. An increase in
the U.S. dollar relative to these other currencies will adversely
affect the value of the Fund. In addition, some foreign currency
values may be volatile and there is the possibility of governmental
controls on currency exchanges or governmental intervention in
currency markets. Controls or intervention could limit or prevent a
Fund from realizing value in U.S. dollars from its investment in
foreign securities.
o The International Equity Fund may invest in issuers located in
emerging, or developing, markets.
o Emerging or developing countries are generally defined as
countries in the initial stages of their industrialization
cycles with low per capita income.
o All of the risks of investing in foreign securities are
heightened by investing in developing countries.
o The markets of developing countries have been more volatile than
the markets of developed countries with more mature economies.
These markets often have provided higher rates of return, and
greater risks, to investors, but they also may provide lower
rates of return or negative returns, for extended periods.
Prepayment Risk. The issuers of debt securities held by a Fund may be able to
prepay principal due on the securities, particularly during periods of
declining interest rates. The Fund may not be able to reinvest that principal
at attractive rates, reducing income to the Fund. On the other hand, rising
interest rates may cause prepayments to occur at slower than expected rates.
This effectively lengthens the maturities of the affected securities, making
them more sensitive to interest rate changes and the Fund's share price more
volatile. Mortgage-backed securities are particularly susceptible to prepayment
risk and their prices may be volatile.
Convertible Securities. Convertible securities, which are debt securities that
may be converted into stock, are subject to the market risk of stocks, and,
like other debt securities, are also subject to interest rate risk and the
credit risk of their issuers. Call provisions may allow the issuer to repay the
debt before it matures.
<PAGE>
Derivatives. Each Fund may, but is not required to, engage in certain
investment strategies involving derivatives (such as options, futures, swaps
and forward currency contracts). These investment strategies may be employed
only in connection with hedging activities such as the following:
o protecting against a decline in value of a Fund's current or
anticipated securities holdings;
o as a substitute for buying or selling portfolio holdings; and
o seeking to generate income to offset expenses or increase return.
A hedge is designed to neutralize a loss on a portfolio position with a gain in
the hedge position. A properly executed hedge will result in a loss in the
portfolio position being offset by a gain in the hedge position, or vice versa.
However, the market movement of a hedge may not be of the same magnitude as the
market movement of the hedged position. The success or failure of a hedging
transaction will depend on the advisers' ability to predict movements in the
hedge, the investment being hedged and the market in general (and the
correlation between these factors). Derivatives may not always be available on
terms that make economic sense (for example, they may be too costly), and, when
used, their transaction costs and premiums may adversely affect Fund
performance. The ability to use derivatives to hedge may also be restricted by
limits established by securities and commodities exchanges and by tax
considerations.
Year 2000 Risk. The Funds could be adversely affected if the computer systems
used by the Funds or their service providers are not programmed to accurately
process information on or after January 1, 2000. Diversified's owner, AEGON,
has adopted and has in place a Year 2000 Assessment and Planning Project to
review and analyze its internal information technology and systems to determine
if they are Year 2000 compatible and to assess Year 2000 issues relating to
third parties with whom it has critical relationships. AEGON has tested and
modified, where necessary, substantially all of its critical internal
information technology systems. AEGON will continue to test non-critical
systems throughout 1999. However, to mitigate the effect of outside influences
upon the success of the project, AEGON has undertaken communications with its
significant customers, suppliers and other third parties to determine their
Year 2000 compatibility and readiness. AEGON has received written confirmation
from several vendors regarding their Year 2000 status and continues to work
with its business partners to ensure that systems can properly interface.
The primary equipment and electronic devices AEGON uses are computers and
telephone related equipment. This type of hardware can have date sensitive
embedded technology which could have Year 2000 problems. Because of this
exposure, AEGON has reviewed its computer hardware and telephone systems, with
assistance from the applicable vendors, and has upgraded, or replaced, or is in
the process of replacing any equipment that will not properly process date
sensitive data in the Year 2000 or beyond. This undertaking has been
substantially completed for all operations.
AEGON is placing significant emphasis on risk management and Year 2000 business
resumption contingency planning in 1999 by modifying its existing business
resumption and disaster recovery plans to address potential Year 2000 issues.
Since the Year 2000 computer problem and its resolution is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of AEGON and the Funds, their
ability to function unaffected to and through Year 2000 may be adversely
affected by actions (or failures to act) of third parties beyond their
knowledge or control.
<PAGE>
The Funds also could be adversely affected if the issuers of securities held by
the Funds do not solve their Year 2000 problems, or if it costs them large
amounts of money to solve these problems. To the extent that a Fund invests in
foreign securities, it may be particularly susceptible to these Year 2000
problems. The Funds consider these factors when investing in securities.
General Information
Distribution Arrangements. Diversified Investors Securities Corp., Four
Manhattanville Road, Purchase, New York 10577, is the distributor of shares of
each of the Funds. Under a Distribution Plan which has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940, each Fund may pay monthly
fees at an annual rate of up to 0.25% of the Fund's average daily net assets.
These fees may be used by the Distributor to pay for its services or for
advertising, marketing or other promotional activities.
- -------------------------------------------------------------------------------
What are Distribution (12b-1) Fees?
Distribution fees, also called 12b-1 fees, are fees that are deducted from Fund
assets and are used to compensate those financial professionals who sell Fund
shares and provide ongoing services to shareholders and to pay other marketing
and advertising expenses. Because you pay these fees during the whole period
that you own the shares, over time, you may pay more than if you had paid other
types of sales charges.
- -------------------------------------------------------------------------------
Investment Structure. Each Fund (except for the Intermediate Bond and Select
Equity Funds which invest directly in securities) invests in securities through
an underlying mutual fund having the same investment goal and strategies. A
Fund may stop investing in its underlying mutual fund at any time, and will do
so if the Fund's Trustees believe that to be in the best interests of the
Fund's shareholders. The Fund could then invest in another mutual fund or
pooled investment vehicle or invest directly in securities. If a Fund were to
stop investing in its underlying mutual fund, the Fund could receive securities
from the underlying mutual fund instead of cash, causing the Fund to incur
brokerage, tax and other charges or leaving it with securities which may or may
not be readily marketable or widely diversified.
Brokerage Transactions. Each Fund's advisers may use brokers or dealers for
Fund transactions who also provide brokerage and research services to the Fund
or other accounts over which the advisers exercise investment discretion. A
Fund may "pay up" for brokerage services, meaning that it is authorized to pay
a broker or dealer who provides these brokerage and research services a
commission for executing a portfolio transaction which is higher than the
commission another broker or dealer would have charged. However, a Fund will
"pay up" only if the applicable adviser determines in good faith that the
higher commission is reasonable in relation to the brokerage and research
services provided, viewed in terms of either the particular transaction or all
of the accounts over which the adviser exercises investment discretion.
Share Classes. Each of the Funds issues more than one class of shares. Each
Fund issues Stephens Institutional Class shares and Stephens Premium Class
shares. Each Fund other than the Intermediate Bond and Select Equity Funds also
issues Diversified Class shares. Stephens Institutional Class shares are
described in this prospectus. The other two classes of shares, Diversified
Class shares and Stephens Premium Class shares, may have different expenses,
which may affect the performance of those shares. Call the Distributor at (914)
697-8000 for more information.
<PAGE>
Additional Performance Information
Fund performance may be quoted in advertising, shareholder reports and other
communications. Each Fund may provide its yield and/or total return for certain
periods and may also quote fund rankings 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 (7-day period for the Money
Market Fund) by the net asset value per share on the last day of the period and
annualizing the result. Total return refers to the change over a stated period
in the value of an investment in a Fund, reflects any change in net asset value
and is compounded to include the value of any shares purchased with dividends
or capital gains declared during the period. 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. For more information about the calculation
of yield and total return, see the Statement of Additional Information.
Please note that the investment results of each Fund will fluctuate over time.
All performance information is historical and should not be considered a
representation of what an investment in the Funds may earn in the future.
Before the Funds and Portfolios commenced operations, the assets that were
contributed to certain Portfolios were managed in Pooled Separate Accounts of
MONY Life Insurance Company (formerly The Mutual Life Insurance Company of New
York). The total return for each Fund (other than the High-Yield Bond and Equity
Value Funds) for any period which includes a period prior to the contribution by
the Pooled Separate Account will reflect the performance of the Pooled Separate
Account. Pooled Separate Account performance will only be included, however,
from the date that the Pooled Separate Account adopted investment objectives,
policies and practices and was managed in a manner that are in all material
respects the same as for the applicable Fund. This Pooled Separate Account
performance will be adjusted to reflect current Fund fees and expenses, after
waivers and reimbursements. The Pooled Separate Accounts were not registered
under the Investment Company Act of 1940 and were not subject to certain
investment restrictions imposed by that Act or the Internal Revenue Code. If
the Pooled Separate Accounts had been so registered, investment performance
might have been adversely affected.
Historical performance information for periods prior to the establishment of
the Stephens Institutional Class shares for a Fund (other than the Intermediate
Bond and Select Equity Funds) will be that of the respective Diversified Class
shares for that Fund and will be presented in accordance with the applicable
interpretations of the Securities and Exchange Commission.
<PAGE>
As of December 31, 1998, the average annual total returns for the Stephens
Institutional Class shares of each of the following Funds, including the Pooled
Separate Accounts referred to above, were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
For The
Period
For The For The For The For The Since
Year 3 Years 5 Years 10 Years Inception
Inception Ended Ended Ended Ended Through
Date 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98
- ---------------------------------------------------------------------------------------------
Money Market 11/78 5.01% 4.92% 4.74% 5.17% 7.52%
- ---------------------------------------------------------------------------------------------
Intermediate Bond 1/98 6.22% -- -- -- 6.22%
- ---------------------------------------------------------------------------------------------
High-Yield Bond 8/95 2.14% 8.11% -- -- 8.87%
- ---------------------------------------------------------------------------------------------
Equity Value 4/96 10.68% -- -- -- 15.67%
- ---------------------------------------------------------------------------------------------
Equity Growth 3/93 36.54% 26.60% 20.20% -- 18.37%
- ---------------------------------------------------------------------------------------------
Special Equity 1/86 4.11% 17.72% 18.21% 16.75% 15.78%
- ---------------------------------------------------------------------------------------------
Select Equity 1/98 5.41% -- -- -- 5.41%
- ---------------------------------------------------------------------------------------------
International Equity 12/92 10.27% 11.11% 10.16% -- 13.50%
- ---------------------------------------------------------------------------------------------
</TABLE>
See Appendix A for the past performance of the subadvisers to the High-Yield
Bond Fund, Equity Value Fund and Equity Growth Fund with investment objectives,
policies and restrictions substantially similar to each Fund and which have
been managed in the same way that the underlying Portfolio in which each Fund
invests is managed.
Financial Highlights
This table is intended to help you understand each Fund's performance and other
financial information for the fiscal periods indicated. "Total return" shows
how much your investment in a Fund would have increased or decreased during
each period, assuming you had reinvested all dividends and distributions. The
financial information in this table, and the notes thereto, have been audited
by PricewaterhouseCoopers LLP, independent accountants for the Funds, whose
report is included in the Fund's annual report.
<PAGE>
For the average shares outstanding for the year ended December 31, 1998, for:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Money Equity Equity Special
Market Value Growth Equity
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
---------- ---------- ---------- --------
Income from investment operations:
Net investment income 0.49 0.11 (0.01) (0.02)
Net realized and unrealized gains (losses) on 0.01 0.94 3.65 0.44
investments................................. ---------- ---------- ---------- --------
Total income from investment operations........ 0.50 1.05 3.64 0.42
---------- ---------- ---------- --------
Less: Dividends and distributions from:
Net investment income......................... (0.27) (0.80) (0.06) --
Net realized gain on investments.............. -- (0.09) (0.23) --
Tax return of capital......................... -- -- -- (0.08)
---------- ---------- ---------- --------
Total dividends and distributions.............. (0.27) (0.89) (0.29) (0.08)
---------- ---------- ---------- --------
Net asset value, end of period................. $ 10.23 $ 10.16 $ 13.35 $ 10.34
========== =========== ========== ========
Total return................................... 5.01% 10.68% 36.54% 4.11%
========== =========== ========== ========
Ratios/supplemental data:
Net assets end of period....................... $8,810,497 $13,052,169 $5,004,424 $7,937,781
========== =========== ========== ==========
Ratio of expenses to average net assets*....... 1.67% 1.76% 2.19% 2.27%
Ratio of expenses to average net assets (net of
reimbursement)*............................... 0.75% 1.10% 1.00% 1.20%
Ratio of net investment income to average net
assets*....................................... 3.94% 0.38% (1.30)% (1.26)%
Ratio of net investment income to average net
assets (net of reimbursement)*................ 4.86% 1.04% (0.11)% (0.19)%
</TABLE>
- ----------------
* Annualized
** Less than one penny per share
<PAGE>
For the average shares outstanding for the year ended December 31, 1998, for:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Stephens Stephens
High International Intermediate Select
Yield Equity Bond Equity
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
---------- ---------- ----------- --------
Income from investment operations:
Net investment income 0.81 0.07 0.46 0.54
Net realized and unrealized gains (losses) on (0.60) 0.95 0.16 0.00
investments................................. ---------- ---------- ----------- --------
Total income from investment operations........ 0.21 1.02 0.62 0.54
---------- ---------- ----------- --------
Less: Dividends and distributions from:
Net investment income......................... (0.06) (0.07) (0.35) (0.53)
Net realized gain on investments.............. -- (0.09) -- --
Tax return of capital......................... -- (0.06) (0.00)** --
---------- ---------- ----------- --------
Total dividends and distributions.............. (0.06) (0.22) (0.35) (0.53)
---------- ---------- ----------- --------
Net asset value, end of period................. $ 10.15 $ 10.80 $ 10.27 $ 10.01
========== ========== =========== ========
Total return................................... 2.14% 10.27% 6.22% 5.41%
========== ========== =========== ========
Ratios/supplemental data:
Net assets end of period....................... $2,145,712 $6,386,429 $16,743,039 $ 1,054
========== ========== =========== ========
Ratio of expenses to average net assets*....... 3.47% 2.40% 1.60% 3027.05%
Ratio of expenses to average net assets (net of
reimbursement)*............................... 1.10% 1.25% 0.80% 0.85%
Ratio of net investment income to average net
assets*....................................... 5.68% (0.45)% 3.74% (3,020.89)%
Ratio of net investment income to average net
assets (net of reimbursement)*................ 8.05% 0.70% 4.55% 5.31%
</TABLE>
- ---------------
* Annualized
** Less than one penny per share
<PAGE>
Appendix A
COMPOSITE PERFORMANCE OF SUBADVISERS
The following table sets forth the composite average annual total returns of
all institutional private accounts and collective investment vehicles managed
by the subadvisers to the High-Yield Bond Fund, Equity Value Fund and Equity
Growth Fund, where the amounts and the investment vehicles have investment
objectives, policies and restrictions substantially similar to the applicable
Fund and have been managed in substantially the same way that the underlying
Portfolio in which each Fund invests is managed. The data is provided to
illustrate the past performances of the subadvisers in managing substantially
similar accounts as measured against specified market indices and does not
represent the performance of the Funds. Investors should not consider this
performance data as an indication of future performance of the Funds or the
subadvisers. These composite returns are not intended to predict or suggest the
returns that might be experienced by the Funds or an individual investing in
any of the Funds.
The institutional private accounts and collective investment vehicles that are
included in the subadvisers' composites are not subject to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Funds or the Portfolios by the Investment Company Act of 1940 or the
Internal Revenue Code. The performance results of the subadvisers' composites
could have been adversely affected if the institutional private accounts and
collective investment vehicles included in the composites had been regulated as
investment companies under the federal securities law. The subadvisers'
composites presented below are unaudited. The use of a methodology different
from that used to calculate the performance data set forth below could result
in different performance data.
The subadvisers' composite performance data shown below were calculated in
accordance with recommended standards of the Association for Investment
Management and Research, retroactively applied to all time periods. All returns
presented were calculated on a total return basis and include all dividends and
interest, accrued income and realized and unrealized gains and losses, and
deductions for brokerage commissions and execution costs. Returns for each
period are adjusted to assume that all charges, expenses and fees of each Fund
and its corresponding Portfolio which are presently in effect were deducted
during such periods. All returns are for the periods ended on December 31,
1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Since
1 Year 3 Years 5 Years 10 Years Inception
- -------------------------------------------------------------------------------------------
Delaware Investment Advisers,
Subadviser to High-Yield Bond Fund
- -------------------------------------------------------------------------------------------
Subadviser's composite(1)......... 3.65% 8.19% 7.06% 9.19% 11.58%
- -------------------------------------------------------------------------------------------
Salomon Brothers High-Yield
Market Index(2)................... 4.42% 9.40% 9.14% 10.68% 9.81%
- -------------------------------------------------------------------------------------------
Lipper High Current Yield Fund
Index(3).......................... -0.08% 8.50% 7.63% 9.52% 10.90%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Ark Asset Management Co., Inc.,
Subadviser to Equity Value Fund
- -------------------------------------------------------------------------------------------
Subadviser's composite(4).......... 10.58% 18.56% 18.37% 16.57% 16.95%
- -------------------------------------------------------------------------------------------
Russell 1000 Value Index(5)........ 15.63% 23.89% 20.85% 17.39% 17.46%
- -------------------------------------------------------------------------------------------
Lipper Growth Income Fund
Index(6)........................... 13.58% 20.25% 17.82% 15.54% 15.46%
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Since
1 Year 3 Years 5 Years 10 Years Inception
- -------------------------------------------------------------------------------------------
Dresdner RCM Global Investors LLC,
Subadviser to Equity Growth Fund
- -------------------------------------------------------------------------------------------
Subadviser's composite(7).......... 46.21% 32.15% 25.56% 20.11% 18.21%
- -------------------------------------------------------------------------------------------
Russell 1000 Growth Index(8)....... 38.71% 30.62% 25.70% 20.56% 22.84%
- -------------------------------------------------------------------------------------------
Lipper Growth Fund Index(9)........ 25.69% 23.66% 19.82% 17.21% 15.71%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Montag & Caldwell Incorporated
Subadviser to Equity Growth Fund
- -------------------------------------------------------------------------------------------
Subadviser's composite(10)......... 28.60% 30.76% 25.13% 20.98% 19.13%
- -------------------------------------------------------------------------------------------
Russell 1000 Growth Index(8)....... 38.71% 30.62% 25.70% 20.56% 22.84%
- -------------------------------------------------------------------------------------------
Lipper Growth Fund Index(9)........ 25.69% 23.66% 19.82% 17.21% 15.71%
- -------------------------------------------------------------------------------------------
(1) Commencement of investment operations is January 1, 1980 for the
subadviser's composite.
(2) The Salomon Brothers High-Yield Market Index tracks the performance of below investment-grade corporate bonds issued in
the United States. The index includes cashpay and deferred-interest bonds that are public, have a fixed coupon and are non
convertible. To enter the index, bonds must also have $50 million or more in face value outstanding, one year or more left to
maturity, and one high-yield rating by Moody's or Standard & Poor's. The index excludes bonds of bankrupt issuers.
(3) The Lipper High Current Yield Fund Index tracks the net performance of mutual funds which, as determined by Lipper
Analytical Services, Inc., are managed in accordance with an investment objective defined as follows: "Aim at high (relative)
current yield from fixed income securities. No quality or maturity restrictions. Tend to invest in lower grade debt issues".
(4) Commencement of investment operations is April 1, 1985 for the subadviser's composite.
(5) The Russell 1000 Value Index measures the performance of those companies included in the Russell 1000 Index with lower
price-to-book ratios and lower forecasted growth values. The Russell 1000 Index measures the performance of the one thousand
largest U.S. companies based on total market capitalization, which represents approximately 88% of the investable U.S. equity
market.
(6) The Lipper Growth Income Fund Index tracks the net performance of mutual funds which, as determined by Lipper Analytical
Services, Inc., are managed in accordance with an investment objective defined as follows: "A fund which combines a growth of
earnings orientation and an income requirement for level and/or rising dividends".
(7) Commencement of investment operations is January 1, 1986 for the subadviser's composite.
(8) The Russell 1000 Growth Index measures the performance of those companies included in the Russell 1000 Index with higher
price-to-book ratios and higher forecasted growth values. The Russell 1000 Index measures the performance of the one thousand
largest companies in the Russell 3000 Index, which represents approximately 90% of the total market capitalization of the Russell
3000 Index (the Russell 3000 Index represents approximately 98% of the investable U.S. equity market).
(9) The Lipper Growth Fund Index tracks the net performance of mutual funds which, as determined by Lipper Analytical
Services, Inc., are managed in accordance with an investment objective defined as follows: "A fund which normally invests in
companies whose long-term earnings are expected to grow significantly faster than the earnings of the stocks represented in
the major unmanaged stock indices".
(10) Commencement of investment operations is January 1, 1986 for the subadviser's composite.
</TABLE>
<PAGE>
The Statement of Additional Information (SAI) provides more details about the
Funds and their policies. The SAI is incorporated by reference into this
prospectus and is legally part of it.
Additional information about each Fund's investments is available in the Funds'
Annual and Semi-Annual Reports to Shareholders. In the Funds' Annual Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected each Fund's performance.
The Annual and Semi-Annual Reports for the Funds list their portfolio holdings
and describe their performance.
To obtain free copies of the SAI and the Annual and Semi-Annual Reports or to
make other inquiries, please call toll free (800) 643-9691, Ext. 4361.
The SAI is also available from the Securities and Exchange Commission. You can
find it on the SEC Internet site at http://www.sec.gov. Information about the
Fund (including the SAI) can also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. You can get information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can receive
copies of this information by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, DC 20549-6009.
SEC file number: 811-7674
<PAGE>
Filed under Rule 497(c)
File Nos. 33-61810 and 811-7674
Prospectus
THE DIVERSIFIED INVESTORS FUNDS GROUP
Diversified Investment Advisors, Inc.,
investment adviser
STEPHENS PREMIUM CLASS SHARES
MONEY MARKET FUND
Diversified Investors Money Market Fund
BOND FUNDS
Stephens Intermediate Bond Fund
Diversified Investors High-Yield Bond Fund
STOCK FUNDS
Diversified Investors Equity Value Fund
Diversified Investors Equity Growth Fund
Diversified Investors Special Equity Fund
Stephens Select Equity Fund
Diversified Investors International Equity Fund
This prospectus describes the Stephens Premium Class shares.
Stephens Institutional Class shares are also available.
The mutual funds described in this prospectus are designed to meet a variety
of investment goals. The Funds employ a wide range of stock and bond
strategies covering the full risk/reward spectrum. No Fund by itself is
a complete investment program.
The Securities and Exchange Commission has
not approved or disapproved these securities
or passed upon the adequacy or accuracy of
this prospectus, and any representation
to the contrary is a criminal offense.
May 3, 1999
<PAGE>
TABLE OF CONTENTS
The Funds at a Glance..................................................
Money Market Fund..............................................
Bond Funds.....................................................
Stock Funds....................................................
Shareholder Services...................................................
How to Reach the Funds.........................................
How to Purchase Shares.........................................
How the Price of Your Shares is Calculated.....................
How to Sell Shares.............................................
Shareholder Services and Policies..............................
Dividends and Distributions............................................
Tax Matters............................................................
Management.............................................................
More About the Funds...................................................
Money Market Fund..............................................
Bond Funds.....................................................
Stock Funds....................................................
Risks..........................................................
General Information....................................................
Additional Performance Information.....................................
Financial Highlights...................................................
Appendix A -- Composite Performance of Subadvisers.....................
<PAGE>
THE FUNDS AT A GLANCE
- -------------------------------------------------------------------------------
MONEY MARKET FUND
- -------------------------------------------------------------------------------
DIVERSIFIED INVESTORS MONEY MARKET FUND
THIS SUMMARY BRIEFLY DESCRIBES THE MONEY MARKET FUND AND THE PRINCIPAL RISKS OF
INVESTING IN IT.
FUND GOAL
The Fund's goal is to provide liquidity and as high a level of income as is
consistent with the preservation of capital.
MAIN INVESTMENT STRATEGIES
The Fund invests in securities through an underlying mutual fund (called a
Portfolio) having the same investment goals and strategies. All references in
this prospectus to the Fund include the Fund's underlying Portfolio, unless
otherwise noted. The Fund invests primarily in high quality, short-term money
market instruments. These instruments include short-term U.S. government
obligations, corporate bonds and notes, bank obligations (such as certificates
of deposit and bankers' acceptances), commercial paper and repurchase
agreements. The Fund may invest more than 25% of its total assets in
obligations of U.S. banks.
MAIN RISKS
The value of the Fund's shares will change under certain circumstances. This
means that your Fund shares may be worth more or less when you sell them than
when you bought them. You may lose money if you invest in the Fund.
o The Fund's rate of income will vary from day to day depending on
short-term interest rates. Investing in high quality, short-term
instruments may result in a lower yield (the income on your investment)
than investing in lower quality or longer-term instruments.
o The Fund does not maintain a stable net asset value of $1.00 per share
and does not declare dividends on a daily basis (many money market funds
do). Undeclared investment income, or a default on a portfolio security,
may cause the Fund's net asset value to fluctuate.
o If the Fund concentrates in U.S. bank obligations, the Fund will be
particularly sensitive to adverse events affecting U.S. banks. Banks are
sensitive to changes in money market and general economic conditions, as
well as decisions by regulators that can affect banks' profitability.
Please note that an investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
WHO MAY WANT TO INVEST
Consider investing in the Money Market Fund if you are a conservative investor
who is seeking liquidity and preservation of capital. Because the Fund
emphasizes stability, it may be an appropriate component of a savings plan.
<PAGE>
FUND PERFORMANCE
The following bar chart and tables can help you evaluate the risks of investing
in the Fund, and how the Fund's returns have varied over time. All information
is for Stephens Premium Class shares of the Fund. Stephens Premium Class shares
were first issued on January 2, 1998.
o The bar chart shows the Fund's performance for the last calendar year.
o The tables show the Fund's best and worst quarters for the last year, and
how the Fund's average annual returns for the periods indicated compare to
those of a broad measure of market performance. Please remember that,
unlike the Fund, the market index does not include the costs of buying and
selling securities and other Fund expenses.
When you consider this information, please remember that the Fund's past
performance is not necessarily an indication of how it will perform in the
future.
TOTAL RETURN
(per calendar year - Stephens Premium Class)
1998
[bar chart -- for calendar year 1998]
1998............4.79%
- --------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- --------------------------------------------------------
Quarter Ending
- --------------------------------------------------------
Highest 1.20% December 31, 1998
- --------------------------------------------------------
Lowest 1.15% June 30 ,1998
- --------------------------------------------------------
- --------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998 - Stephens Premium Class)
- --------------------------------------------------------
Since Inception
January 2, 1998
- ------------------------------------
Money Market Fund
4.79%
- ------------------------------------
Salomon Bros.
3-Month T-Bill
Index 5.05%
- ------------------------------------
<PAGE>
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
STEPHENS PREMIUM CLASS SHARES OF THE MONEY MARKET FUND.
- -------------------------------------------------------------------------------
SHAREHOLDER FEES (fees paid directly from your investment)
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases None
- -------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- -------------------------------------------------------------------------------
Redemption Fee None
- -------------------------------------------------------------------------------
Exchange Fee None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSEs (expenses that are deducted
from Fund assets) as a % of average net assets (1)
- -------------------------------------------------------------------------------
Advisory Fee .25%
- -------------------------------------------------------------------------------
Distribution (12b-1) Fees .25%
- -------------------------------------------------------------------------------
Other Expenses
- -------------------------------------------------------------------------------
Administrative Services Fee .30%
- -------------------------------------------------------------------------------
Miscellaneous Expenses 41.03%
- -------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 41.83%
- -------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement(2) 40.88%
- -------------------------------------------------------------------------------
NET EXPENSES .95%
- -------------------------------------------------------------------------------
1The Fund invests in securities through an underlying mutual fund. This
table and the example below reflect the expenses of the Fund and that
underlying fund.
2The Adviser has contractually agreed to reimburse certain of the Fund's
expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the Money
Market Fund to the cost of investing in other mutual funds. The example assumes
that:
o you invest $10,000 in the Fund for the time periods indicated; and
o you then sell all your shares at the end of those periods.
The example also assumes that:
o your investment has a 5% return each year; and
o the Fund's operating expenses shown in the table above, after fee waivers
and reimbursements, remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
---------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------
$97 $303 $525 $1,166
---------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
BOND FUNDS
- -------------------------------------------------------------------------------
STEPHENS INTERMEDIATE BOND FUND
DIVERSIFIED INVESTORS HIGH-YIELD BOND FUND
THIS SUMMARY BRIEFLY DESCRIBES THE BOND FUNDS AND THE PRINCIPAL RISKS OF
INVESTING IN THEM.
<TABLE>
<CAPTION>
FUND GOALS
<S> <C>
STEPHENS INTERMEDIATE BOND FUND The Fund's goal is to generate a high level of current
income consistent with a goal to preserve the value of its
investors' investment.
HIGH-YIELD BOND FUND The Fund's goal is to provide a high level of current
income.
</TABLE>
<PAGE>
MAIN INVESTMENT STRATEGIES
STEPHENS INTERMEDIATE BOND FUND
The Stephens Intermediate Bond Fund invests in securities through an underlying
mutual fund (called a Portfolio) having the same investment goals and
strategies. All references in this prospectus to the Fund include the Fund's
underlying Portfolio, unless otherwise noted. The Fund invests in a broad range
of fixed income securities, including U.S. government obligations, foreign
government debt securities (including securities issued by developing
countries), and preferred stock and debt securities issued by U.S. and foreign
companies. Under normal circumstances the Fund invests at least 65% of its
assets in these securities.
The Fund's dollar-weighted average maturity generally does not exceed ten years
under normal circumstances.
The Fund may, but is not required to, engage in certain investment strategies
involving derivatives. These investment strategies may be employed only in
connection with hedging activities.
HIGH-YIELD BOND FUND
The High Yield Bond Fund invests in securities through an underlying mutual
fund (called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in high-yielding,
income producing debt securities and preferred stocks. Under normal
circumstances the Fund invests at least 65% of its assets in debt securities
and preferred stock.
The Fund may invest all or a substantial portion of its assets in lower-rated
debt securities, commonly referred to as "junk bonds." Investing in junk bonds
is an aggressive approach to income investing.
The Fund may, but is not required to, engage in certain investment strategies
involving derivatives. These investment strategies may be employed only in
connection with hedging activities.
<PAGE>
MAIN RISKS
The value of each Fund's shares will change daily as the value of its
underlying securities change. This means that your Fund shares may be worth
more or less when you sell them than when you bought them. You may lose money
if you invest in a Fund.
o MARKET RISK. This is the risk that the prices of securities will rise
or fall due to changing economic, political or market conditions, or
due to a company's individual situation.
o INTEREST RATE RISK. In general, the prices of debt securities rise when
interest rates fall, and fall when interest rates rise. A change in
interest rates could cause a Fund's share price to go down. Generally,
the longer the average maturity of the bonds in a Fund, the more the
Fund's share price will fluctuate in response to interest rate changes.
o PREPAYMENT RISK. The issuers of debt securities held by a Fund may be
able to prepay principal due on the securities, particularly during
periods of declining interest rates. The Fund may not be able to
reinvest that principal at attractive rates, reducing income to the
Fund. On the other hand, rising interest rates may cause prepayments to
occur at slower than expected rates. This effectively lengthens the
maturities of the affected securities, making them more sensitive to
interest rate changes and the Fund's share price more volatile.
Mortgage-backed securities are particularly susceptible to prepayment
risk and their prices may be volatile.
o CREDIT RISK. Some issuers may not make payments on debt securities held
by a Fund, causing a loss. Or, an issuer's financial condition may
deteriorate, lowering the credit quality of a security and leading to
greater volatility in the price of the security and in shares of a
Fund. Investments held by the High-Yield Bond Fund will be particularly
susceptible to credit risk. U.S. government securities are generally
considered not to be subject to credit risk.
o FOREIGN SECURITIES. Investments in foreign securities involve risks
relating to adverse political, social and economic developments abroad,
as well as risks resulting from the differences between the regulations
to which U.S. and foreign issuers and markets are subject. These risks
may include expropriation of assets, confiscatory taxation, withholding
taxes on dividends and interest paid on Fund investments, currency
exchange controls and other limitations on the use or transfer of Fund
assets and political or social instability. There may be rapid changes
in the value of foreign currencies or securities, causing a Fund's
share price to be volatile. Also, in certain circumstances, a Fund
could realize reduced or no value in U.S. dollars from its investments
in foreign securities, causing the Fund's share price to go down.
o DERIVATIVES. Each Fund may, but is not required to, engage in certain
investment strategies involving derivatives (such as options, futures,
swaps and forward currency contracts). These investment strategies may
be employed only in connection with hedging activities. The success or
failure of a hedging transaction will depend on the advisers' ability
to predict movements in the hedge, the investment being hedged and the
market in general (and the correlation between these factors).
Derivatives may not always be available on terms that make economic
sense (for example, they may be too costly), and, when used, their
transaction costs and premiums may adversely affect Fund performance.
Please note that an investment in the Funds is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
<PAGE>
WHO MAY WANT TO INVEST
Consider investing in the Bond Funds if you are seeking current income.
Consider the INTERMEDIATE BOND FUND if you are seeking a higher level of
current income than is generally available from a shorter-term bond fund and
are willing to accept the greater price fluctuations associated with higher
levels of income. Consider the HIGH-YIELD BOND FUND if you are seeking a higher
level of current income than is generally available from a higher quality bond
fund and are willing to accept significant price volatility and risk of loss.
FUND PERFORMANCE
The following bar charts and tables can help you evaluate the risks of
investing in the Bond Funds, and how the Funds' returns have varied over time.
All information is for Stephens Premium Class shares of the Funds. Stephens
Premium Class shares were first issued on January 2, 1998.
o The bar charts show the Funds' performance for the last calendar year.
o The tables show the Funds' best and worst quarters for the last year, and
how the Funds' average annual returns for the periods indicated compare to
that of a broad measure of market performance. Please remember that, unlike
the Funds, the market indices do not include the costs of buying and selling
securities and other Fund expenses.
When you consider this information, please remember that a Fund's past
performance is not necessarily an indication of how it will perform in the
future.
STEPHENS INTERMEDIATE BOND FUND
TOTAL RETURN
(per calendar year - Stephens Premium Class)
1998
[bar chart -- for calendar year 1998]
1998............6.08%
- --------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- --------------------------------------------------------
Quarter Ending
- --------------------------------------------------------
Highest 4.84% September 30, 1998
- --------------------------------------------------------
Lowest -0.40% March 31, 1998
- --------------------------------------------------------
- --------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998 - Stephens Premium Class)
- --------------------------------------------------------
Since Inception
January 2, 1998
- --------------------------------------------------------
Stephens Intermediate
Bond Fund 6.08%
- --------------------------------------------------------
Lehman Government
Bond Index 8.49%
- --------------------------------------------------------
<PAGE>
HIGH-YIELD BOND FUND
TOTAL RETURN
(per calendar year - Stephens Premium Class)
1998
[bar chart -- for calendar year 1998]
1998............1.85%
- --------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- --------------------------------------------------------
Quarter Ending
- --------------------------------------------------------
Highest 3.90% March 31, 1998
- --------------------------------------------------------
Lowest -4.95% September 30, 1998
- --------------------------------------------------------
- --------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998 - Stephens Premium Class)
- --------------------------------------------------------
Since Inception
January 2, 1998
- -------------------------------------
High-Yield
Bond Fund 1.85%
- -------------------------------------
Salomon
Bros. High
Yield Cash
Pay Index
4.42%
- -------------------------------------
<PAGE>
<TABLE>
<CAPTION>
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
STEPHENS PREMIUM CLASS SHARES OF THE BOND FUNDS.
<S> <C> <C>
- ---------------------------------------------------------------------------------------
STEPHENS
SHAREHOLDER FEES INTERMEDIATE HIGH-YIELD BOND
(fees paid directly from your investment) BOND FUND FUND
- ---------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases None None
- ---------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None None
- ---------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends None None
- ---------------------------------------------------------------------------------------
Redemption Fee None None
- ---------------------------------------------------------------------------------------
Exchange Fee None None
- ---------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
as a % of average net assets
- ---------------------------------------------------------------------------------------
Advisory Fee .10% .55%
- ---------------------------------------------------------------------------------------
Distribution (12b-1) Fees .25% .25%
- ---------------------------------------------------------------------------------------
Other Expenses
- ---------------------------------------------------------------------------------------
Administrative
Services Fee .30% .30%
- ---------------------------------------------------------------------------------------
Miscellaneous Expenses 2.21% 7.68%
- ---------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 2.86% 8.78%
- ---------------------------------------------------------------------------------------
Fee Waiver and/or Expense
Reimbursement (1) 1.96% 7.48%.
- ---------------------------------------------------------------------------------------
NET EXPENSES .90% 1.30% (2)
- ---------------------------------------------------------------------------------------
</TABLE>
1 The Adviser has contractually agreed to reimburse certain of the Funds'
expenses.
2 The High-Yield Bond Fund invests in securities through an underlying
mutual fund. This table and the example below reflect the expenses of the
Fund and that underlying fund.
EXAMPLE
This example is intended to help you compare the cost of investing in a Bond
Fund to the cost of investing in other mutual funds. The example assumes that:
o you invest $10,000 in a Fund for the time periods indicated; and
o you then sell all your shares at the end of those periods.
The example also assumes that:
o your investment has a 5% return each year; and
o the Fund's operating expenses shown in the table above, after waivers and
reimbursements, remain the same.
<PAGE>
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
---------------------------------------------------------------------
STEPHENS
INTERMEDIATE HIGH-YIELD
BOND FUND BOND FUND
---------------------------------------------------------------------
1 year $92 $132
---------------------------------------------------------------------
3 years $287 $412
---------------------------------------------------------------------
5 years $498 $713
---------------------------------------------------------------------
10 years $1,108 $1,568
---------------------------------------------------------------------
- -------------------------------------------------------------------------------
STOCK FUNDS
- -------------------------------------------------------------------------------
DIVERSIFIED INVESTORS EQUITY VALUE FUND
DIVERSIFIED INVESTORs EQUITY GROWTH FUND
DIVERSIFIED INVESTORS SPECIAL EQUITY FUND
STEPHENS SELECT EQUITY FUND
DIVERSIFIED INVESTORS INTERNATIONAL EQUITY FUND
THIS SUMMARY BRIEFLY DESCRIBES THE STOCK FUNDS AND THE PRINCIPAL RISKS OF
INVESTING IN THEM.
FUND GOALS
EQUITY VALUE FUND The Fund's goal is to provide a high total
investment return through investment
primarily in a diversified portfolio of
common stocks.
EQUITY GROWTH FUND The Fund's goal is to provide a high level
of capital appreciation through investment
in a diversified portfolio of common
stocks with a potential for above-average
growth in earnings. Current income is a
secondary goal.
SPECIAL EQUITY FUND The Fund's goal is to provide a high level
of capital appreciation through investment
in a diversified portfolio of common
stocks of small to medium size companies.
SELECT EQUITY FUND The Fund's goal is to provide a high total
return.
INTERNATIONAL EQUITY FUND The Fund's goal is to provide a high level
of long-term capital appreciation through
investment in a diversified portfolio of
securities of foreign issuers.
MAIN INVESTMENT STRATEGIES
EQUITY VALUE FUND
The Equity Value Fund invests in securities through an underlying mutual fund
(called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in common stocks
<PAGE>
of companies which, in the opinion of the Fund's advisers, are trading at low
valuations relative to market and/or historical levels. The Fund may, but is
not required to, engage in certain investment strategies involving derivatives.
These investment strategies may be employed only in connection with hedging
activities.
EQUITY GROWTH FUND
The Equity Growth Fund invests in securities through an underlying mutual fund
(called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in common stocks
of companies that its advisers believe have the potential for above average
growth in earnings and dividends. The Fund uses multiple managers to control
the volatility often associated with growth funds. The Fund may, but is not
required to, engage in certain investment strategies involving derivatives.
These investment strategies may be employed only in connection with hedging
activities.
SPECIAL EQUITY FUND
The Special Equity Fund invests in securities through an underlying mutual fund
(called a Portfolio) having the same investment goals and strategies. All
references in this prospectus to the Fund include the Fund's underlying
Portfolio, unless otherwise noted. The Fund invests primarily in stocks of
small to medium size companies which, in the opinion of the Fund's advisers,
present an opportunity for significant increases in earnings, revenue and/or
value, without consideration for current income. The Fund emphasizes common
stocks of U.S. companies with market capitalizations of less than $1 billion.
The Fund uses multiple managers to control the volatility often associated with
investments in companies of this size. The Fund may, but is not required to,
engage in certain investment strategies involving derivatives. These investment
strategies may be employed only in connection with hedging activities.
STEPHENS SELECT EQUITY FUND
The Stephens Select Equity Fund invests in securities through an underlying
mutual fund (called a Portfolio) having the same investment goals and
strategies. All references in this prospectus to the Fund include the Fund's
underlying Portfolio, unless otherwise noted. The Fund invests primarily in
equity securities of U.S. corporations. Under normal circumstances, the Fund
invests at least 65% of its assets in common stocks and other stocks with
equity characteristics such as preferred stocks, warrants, rights and
convertible securities. The Fund emphasizes securities listed on a securities
exchange or traded in over-the-counter markets, and may invest in certain
restricted or unlisted securities. The Fund may invest in small capitalization
issuers. The Fund may, but is not required to, engage in certain investment
strategies involving derivatives. These investment strategies may be employed
only in connection with hedging activities.
INTERNATIONAL EQUITY FUND
The International Equity Fund invests in securities through an underlying
mutual fund (called a Portfolio) having the same investment goals and
strategies. All references in this prospectus to the Fund include the Fund's
underlying Portfolio, unless otherwise noted. The Fund invests primarily in
foreign securities. Under normal circumstances, the Fund invests at least 65%
of its assets in equity securities of issuers in at least three countries other
than the United States. The Fund may invest up to 10% of its assets in
securities of issuers in developing countries. The Fund may, but is not
required to, engage in certain investment strategies involving derivatives.
These investment strategies may be employed only in connection with hedging
activities.
<PAGE>
MAIN RISKS
The value of each Fund's shares will change daily as the value of its
underlying securities change. This means that your Fund shares may be worth
more or less when you sell them than when you bought them. You may lose money
if you invest in a Fund.
o MARKET RISK. This is the risk that the prices of securities will rise
or fall due to changing economic, political or market conditions, or
due to a company's individual situation. Historically, equity
securities have been more volatile than debt securities in response to
market risk.
o GROWTH SECURITIES. Growth securities typically are quite sensitive to
market movements because their market prices tend to reflect future
expectations. When it appears those expectations will not be met, the
prices of growth securities typically fall. The success of a Fund's
investment in growth securities depends largely on the Fund's advisers'
skill in assessing the growth potential of the companies that issued
the securities.
o VALUE INVESTING. The success of a value investing strategy depends
largely on the skill of a Fund's advisers in identifying securities of
companies that are in fact undervalued, but have good longer term
business prospects. A security may not achieve its expected value
because the circumstances causing it to be underpriced worsen (causing
the price to decline further) or do not change, or because the advisers
are incorrect in their determinations. In addition, the Fund may
underperform certain other stock funds (those emphasizing growth
stocks, for example) during periods when value stocks are out of favor.
The Equity Value Fund will be particularly susceptible to the risks of
value investing.
o SMALLER COMPANIES. The securities of smaller capitalized companies may
have more risks than those of larger, more seasoned companies. They may
be particularly susceptible to market downturns because of limited
product lines, markets, distribution channels or financial and
management resources. Also, there may be less publicly available
information about small cap companies. As a result, their prices may be
more volatile, causing a Fund's share price to be volatile. Investments
held by the Special Equity and Select Equity Funds are likely to be
particularly susceptible to the risks of small cap companies.
o FOREIGN SECURITIES. Investments in foreign securities involve risks
relating to adverse political, social and economic developments abroad,
as well as risks resulting from the differences between the regulations
to which U.S. and foreign issuers and markets are subject. These risks
may include expropriation of assets, confiscatory taxation, withholding
taxes on dividends and interest paid on Fund investments, currency
exchange controls and other limitations on the use or transfer of Fund
assets and political or social instability. There may be rapid changes
in the value of foreign currencies or securities, causing a Fund's
share price to be volatile. Also, in certain circumstances, a Fund
could realize reduced or no value in U.S. dollars from its investments
in foreign securities, causing the Fund's share price to go down.
The International Equity Fund may invest in issuers located in
emerging, or developing, markets. All of the risks of investing in
foreign securities are heightened by investing in these markets.
o DERIVATIVES. Each Fund may, but is not required to, engage in certain
investment strategies involving derivatives (such as options, futures,
swaps and forward currency contracts). These investment strategies may
<PAGE>
be employed only in connection hedging activities. The success or
failure of a hedging transaction will depend on the advisers' ability
to predict movements in the hedge, the investment being hedged and the
market in general (and the correlation between these factors).
Derivatives may not always be available on terms that make economic
sense (for example, they may be too costly), and, when used, their
transaction costs and premiums may adversely affect Fund performance.
o INTEREST RATE RISK. In general, the prices of debt securities rise when
interest rates fall, and fall when interest rates rise. Longer term
obligations are usually more sensitive to interest rate changes than
shorter term obligations. A change in interest rates could cause a
Fund's share price to go down. Generally, the longer the average
maturity of the bonds in a Fund, the more the Fund's share price will
fluctuate in response to interest rate changes.
o CREDIT RISK. Some issuers may not make payments on debt securities held
by a Fund, causing a loss. Or, an issuer's financial condition may
deteriorate, lowering the credit quality of a security and leading to
greater volatility in the price of the security and in shares of the
Fund. The prices of lower rated securities often are more volatile than
those of higher rated securities.
Please note that an investment in the Funds is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
WHO MAY WANT TO INVEST
Consider investing in the Stock Funds if you are seeking growth from equity
investments, can tolerate substantial changes in the value of your investment
and do not require current income from your investment. The Special Equity Fund
emphasizes securities of small to medium size companies. As a result, the
Special Equity Fund may be particularly volatile.
FUND PERFORMANCE
The following bar charts and tables can help you evaluate the risks of
investing in the Stock Funds, and how the Funds' returns have varied over time.
All information is for Stephens Premium Class shares of the Funds. Stephens
Premium Class shares were first issued on January 2, 1998.
o The bar charts show the Funds' performance over the last year.
o The tables show the Funds' best and worst quarters for the last year, and
how the Funds' average annual returns for the periods indicated compare to
those of broad measures of market performance. Please remember that, unlike
the Funds, the market indices do not include the costs of buying and
selling securities and other Fund expenses.
When you consider this information, please remember that a Fund's past
performance is not necessarily an indication of how it will perform in the
future.
<PAGE>
EQUITY VALUE FUND
TOTAL RETURN
(per calendar year - Stephens Premium Class)
1998
[bar chart -- for calendar year 1998]
1998...........10.32%
- --------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- --------------------------------------------------------
Quarter Ending
- --------------------------------------------------------
Highest 11.90% March 31, 1998
- --------------------------------------------------------
Lowest -9.37% September 30, 1998
- --------------------------------------------------------
- --------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998 - Stephens Premium Class)
- --------------------------------------------------------
Since Inception
January 2, 1998
- -------------------------------------
Equity
Value Fund 10.32%
- -------------------------------------
S&P 500 Index
28.75%
- -------------------------------------
Russell 1000
Value Index 15.63%
- -------------------------------------
<PAGE>
EQUITY GROWTH FUND
TOTAL RETURN
(per calendar year - Stephens Premium Class)
1998
[bar chart -- for calendar year 1998]
1998...........36.20%
- --------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- --------------------------------------------------------
Quarter Ending
- --------------------------------------------------------
Highest 29.71% December 31, 1998
- --------------------------------------------------------
Lowest -11.32% September 30, 1998
- --------------------------------------------------------
- --------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998 - Stephens Premium Class)
- --------------------------------------------------------
Since Inception
January 2, 1998
- -----------------------------------
Equity Growth
Fund 36.20%
- -----------------------------------
S&P 500 Index
28.75%
- -----------------------------------
Russell 1000
Growth Index 38.71%
- -----------------------------------
<PAGE>
SPECIAL EQUITY FUND
TOTAL RETURN
(per calendar year - Stephens Premium Class)
1998
[bar chart -- for calendar year 1998]
1998............3.95%
- --------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- --------------------------------------------------------
Quarter Ending
- --------------------------------------------------------
Highest 20.87% December 31, 1998
- --------------------------------------------------------
Lowest -20.15% September 30, 1998
- --------------------------------------------------------
- --------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998 - Stephens Premium Class)
- --------------------------------------------------------
Since Inception
January 2, 1998
- ------------------------------------
Special Equity
Fund 3.95%
- ------------------------------------
S&P 500 Index
28.75%
- ------------------------------------
Russell 2000
Index -2.55%
- ------------------------------------
<PAGE>
STEPHENS SELECT EQUITY FUND
TOTAL RETURN
(per calendar year - Stephens Premium Class)
1998
[bar chart -- for calendar year 1998]
1998............5.00%
- --------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- --------------------------------------------------------
Quarter Ending
- --------------------------------------------------------
Highest 2.04% December 31, 1998
- --------------------------------------------------------
Lowest 0.80% March 31 ,1998
- --------------------------------------------------------
- --------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998 - Stephens Premium Class)
- --------------------------------------------------------
Since Inception
January 2, 1998
- --------------------------------------------------------
Stephens
Select Equity Fund 5.0%
- --------------------------------------------------------
Russell Mid-Cap
Value Index 5.08%
- --------------------------------------------------------
<PAGE>
INTERNATIONAL EQUITY FUND
TOTAL RETURN
(per calendar year - Stephens Premium Class)
1998
[bar chart -- for calendar year 1998]
1998...........10.11%
- --------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- --------------------------------------------------------
Quarter Ending
- --------------------------------------------------------
Highest 16.64% December 31, 1998
- --------------------------------------------------------
Lowest -16.75% September 30, 1998
- --------------------------------------------------------
- --------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998 - Stephens Premium Class)
- --------------------------------------------------------
Since Inception
January 2, 1998
- -------------------------------------
International
Equity Fund 10.11%
- -------------------------------------
MSCI World
EX-US Index 19.11%
- -------------------------------------
<PAGE>
<TABLE>
<CAPTION>
FUND FEES AND EXPENSES
THE TABLES BELOW DESCRIBE THE FEES AND EXPeNSES THAT YOU MAY PAY IF YOU BUY AND
HOLD STEPHENS PREMIUM CLASS SHARES OF THE STOCK FUNDS.
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
STEPHENS
SHAREHOLDER FEES (fees EQUITY EQUITY SPECIAL SELECT INTERNATIONAL
paid directly from your VALUE FUND GROWTH FUND EQUITY FUND EQUITY FUND EQUITY
investment) FUND
- ---------------------------------------------------------------------------------------------------
Maximum Sales Charge None None None None None
(Load) Imposed on
Purchases
- ---------------------------------------------------------------------------------------------------
Maximum Deferred Sales None None None None None
Charge (Load)
- ---------------------------------------------------------------------------------------------------
Maximum Sales Charge None None None None None
(Load) Imposed on
Reinvested Dividends
- ---------------------------------------------------------------------------------------------------
Redemption Fee None None None None None
- ---------------------------------------------------------------------------------------------------
Exchange Fee None None None None None
- ---------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING
EXPENSES (expenses that
are deducted from Fund
assets) as a % of average
net assets (1)
- ---------------------------------------------------------------------------------------------------
Advisory Fee .57% .62% .80% .15% .75%
- ---------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees .25% .25% .25% .25% .25%
- ---------------------------------------------------------------------------------------------------
Other Expenses
- ---------------------------------------------------------------------------------------------------
Administrative
Services Fee .30% .30% .30% .30% .30%
- ---------------------------------------------------------------------------------------------------
Miscellaneous
Expenses 1.58% 11.87% 2.71% .20% 2.87%
- ---------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 2.70% 13.04% 4.06% 3030.02% 4.17%
- ---------------------------------------------------------------------------------------------------
Fee Waivers/and or
Reimbursements (2) 1.35% 11.84% 3.02 3029.12% 2.72%
- ---------------------------------------------------------------------------------------------------
NET EXPENSES 1.35% 1.20% 1.04 .90% 1.45%
- ---------------------------------------------------------------------------------------------------
</TABLE>
1Each Fund (except the Select Equity Fund) invests in securities through an
underlying mutual fund. This table and the example below reflect the
expenses of the Fund and that underlying fund.
2The Adviser has contractually agreed to reimburse certain of the Funds'
expenses.
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in a Stock
Fund to the cost of investing in other mutual funds. The example assumes that:
o you invest $10,000 in a Fund for the time periods indicated; and
o you then sell all your shares at the end of those periods.
The example also assumes that:
o your investment has a 5% return each year; and
o the Fund's operating expenses shown in the tables above, after waivers
and reimbursements, remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
STEPHENS
EQUITY EQUITY GROWTH SPECIAL SELECT INTERNATIONAL
VALUE FUND FUND EQUITY FUND EQUITY FUND EQUITY FUND
- ----------------------------------------------------------------------------------------------
1 year $137 $122 $143 $92 $148
- ----------------------------------------------------------------------------------------------
3 years $428 $381 $443 $287 $459
- ----------------------------------------------------------------------------------------------
5 years $739 $660 $766 $498 $792
- ----------------------------------------------------------------------------------------------
10 years $1,624 $1,455 $1,680 $1,108 $1,735
- ----------------------------------------------------------------------------------------------
</TABLE>
SHAREHOLDER SERVICES
This section describes how to do business with the Funds and shareholder
services that are available.
- -------------------------------------------------------------------------------
HOW TO REACH THE FUNDS
- -------------------------------------------------------------------------------
BY TELEPHONE Call toll free at (800) 643-9691, Ext. 4361
BY MAIL Stephens Inc.
111 Center Street
Little Rock, AR 72201
Attention: Stephens Capital Management
- -------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
- -------------------------------------------------------------------------------
Stephens Premium Class shares are available only to investment clients of
Stephens Inc.
Each Fund's shares are sold without a sales charge. Purchases may be made
Monday through Friday, except on certain holidays. Shares are purchased at net
asset value (NAV) next calculated after your investment is received in good
order and is accepted by the Distributor.
Initial and subsequent purchases may be made by check or wire transfer. There
is no minimum initial or subsequent investment amount. Checks should be in U.S.
dollars
<PAGE>
and drawn on a U.S. bank. Checks should be made payable to Stephens Inc. and
mailed to the address listed above under "How to Reach the Funds."
In the case of an initial purchase, the check must be accompanied by a
completed Account Application. If shares are purchased with a check that does
not clear, the purchase will be canceled and any losses or fees incurred in the
transaction will be the responsibility of the investor. If shares are purchased
with a check and a redemption request relating to such shares is received
within 15 days of such purchase, the redemption proceeds will be paid only when
the check clears.
If you would like to purchase shares in a Fund by a wire transfer, please call
Stephens Capital Management at (800) 643-9691, Ext. 4361 for wire transfer
instructions and direct your bank to transmit immediately available funds in
accordance with such instructions. Investors who make initial purchases by wire
transfer must complete an Account Application and mail it to Stephens Capital
Management at the address above.
Each Fund reserves the right to cease offering its shares for sale at any time
or to reject any order for the purchase of shares.
- -------------------------------------------------------------------------------
HOW THE PRICE OF YOUR SHARES IS CALCULATED
- -------------------------------------------------------------------------------
Each Fund calculates its NAV every day that the New York Stock Exchange is open
for trading. This calculation is made at the close of regular trading on the
Exchange, normally 4 p.m. Eastern time. No Fund calculates its NAV on days when
the New York Stock Exchange is closed. The New York Stock Exchange is normally
closed on the following national holidays: New Year's Day, Martin Luther King
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
- -------------------------------------------------------------------------------
What is NAV?
NAV refers to a Fund's NET ASSET VALUE. Net asset value per share is calculated
by dividing the total value of a Fund's securities and other assets, less
liabilities, by the total number of shares outstanding. Securities are valued
at market value or, if a market quotation is not readily available, at their
fair value determined in good faith under procedures established by and under
the supervision of the Trustees. Foreign securities are valued based on
quotations from the primary market in which they are traded, and converted from
the local currency into U.S. dollars using current exchange rates. Money market
instruments maturing within sixty days are valued at amortized cost, which
approximates market value.
- -------------------------------------------------------------------------------
Please note that trading may take place in foreign securities held by a Fund on
days when the Fund is not open for business. As a result, the Fund's NAV may
change on days on which it is not possible to purchase or sell shares of the
Fund.
- -------------------------------------------------------------------------------
HOW TO SELL SHARES
- -------------------------------------------------------------------------------
On any business day, you may sell (redeem) all or a portion of your shares.
Your transaction will be processed at the applicable Fund's NAV the next time
it is calculated after your redemption request in good order is received by the
Distributor. Redemption proceeds normally will be paid or mailed within seven
days. A redemption is treated as a sale for tax purposes, and could result in
taxable gain or loss in a non-tax-sheltered account.
Redemption requests may be made by mail and, in certain circumstances,
telephone. The proceeds of the redemption will be sent by mail or, if
authorized, wire transfer.
<PAGE>
Redemption requests by mail must specify the dollar amount or number of shares
to be redeemed, the account number and the name of the Fund. The redemption
request must be signed in exactly the same way that the account is registered.
If there is more than one owner of the shares, each owner must sign the
redemption request.
Requests to redeem shares should be mailed to Stephens at the address listed
above under "How to Reach the Funds."
At the Funds' discretion signature guarantees may also be required for other
redemptions. A signature guarantee assures that a signature is genuine and
protects shareholders from unauthorized account transfers. Banks, savings and
loan associations, trust companies, credit unions, broker-dealers and member
firms of a national securities exchange may guarantee signatures. Call your
financial institution to see if it has this capability. A signature guarantee
is not the same as a notarized signature.
- -------------------------------------------------------------------------------
SHAREHOLDER SERVICES AND POLICIES
- -------------------------------------------------------------------------------
EXCHANGES
On any business day you may exchange all or a portion of your Stephens Premium
Class shares for Stephens Premium Class shares of any other available Fund. To
make exchanges, please call the transfer desk of Stephens Capital Management at
(800) 643-9691, Ext. 4361. Exchanges are processed at NAV the next time it is
calculated after your exchange request in good order is received and approved.
The Funds reserve the right to reject any exchange request or to modify or
terminate the exchange privilege at any time. An exchange is the sale of shares
of one Fund and purchase of shares of another, and could result in taxable gain
or loss in a non-tax-sheltered account.
REDEMPTION PROCEEDS
The Funds intend to pay redemption proceeds in cash, but reserve the right to
pay in kind by delivery of investment securities equal to the redemption price.
In these cases, you might incur brokerage costs in converting the securities to
cash.
Your right to receive payment of redemption proceeds may be suspended, or
payment may be postponed, in certain circumstances. These circumstances include
any period the New York Stock Exchange is closed (other than weekends or
holidays) or trading on the Exchange is restricted, any period when an
emergency exists and any time the Securities and Exchange Commission permits
mutual funds to postpone payments for the protection of investors.
TELEPHONE TRANSACTIONS
You may initiate redemptions and exchanges by telephone. The Funds and their
agents will not be responsible for any losses resulting from unauthorized
transactions when procedures designed to verify the identity of the caller are
followed. During periods of unusual market activity, severe weather or other
abnormal circumstances, it may be difficult for you to reach a representative
of the Funds by telephone. In that case, please consider sending written
instructions.
ADDRESS CHANGES
To change the address on your account contact the transfer desk of Stephens
Capital Management at (800) 643-9691, Ext. 4361 and send a written request
signed by all account owners. Include the name of your Fund(s), the account
numbers(s), the name(s) on the account and both the old and new addresses.
<PAGE>
REGISTRATION CHANGES
To change the name on an account, the shares are generally transferred to a new
account. In some cases, legal documentation may be required. For more
information, contact the transfer desk of Stephens Capital Management at (800)
643-9691, Ext. 4361.
STATEMENTS AND REPORTS
The Funds will send you a confirmation statement quarterly reflecting regularly
scheduled contributions and other transactions affecting your account. The
Funds will also send you a confirmation statement after every transaction that
affects your account registration. Information regarding the tax status of
income dividends and capital gains distributions will be mailed to investors
with non-tax-sheltered accounts early each year.
Financial reports for the Funds will be mailed semiannually to all
shareholders.
DIVIDENDS AND DISTRIBUTIONS
As a Fund shareholder, you are entitled to your share of a Fund's net income
and gains on its investments. Each Fund passes substantially all of its
earnings along to its investors as distributions. When a Fund earns dividends
from stocks and interest from bonds and other debt securities and distributes
those earnings to shareholders, it is called a DIVIDEND DISTRIBUTION. A Fund
realizes capital gains when it sells securities for a higher price than it
paid. When these gains are distributed to shareholders, it is called a CAPITAL
GAIN DISTRIBUTION.
Each Fund pays substantially all of its net income from dividends and interest
to its shareholders of record annually during the month of DECEMBER.
Each Fund distributes any net realized short-term and long-term capital gains
to its shareholders at least annually, in December. Each Fund may also make
additional distributions to its shareholders to the extent necessary to avoid
the application of the 4% non-deductible excise tax on certain undistributed
income and net capital gains of mutual funds.
You will receive all distributions from a Fund in additional shares of the same
Fund issued at NAV.
TAX MATTERS
This discussion of taxes is for general information only. You should consult
your own tax adviser about your particular situation, and the status of your
account under state and local laws.
TAXES OF DISTRIBUTIONS
If you are otherwise subject to federal income taxes, you will normally have to
pay federal income taxes on the distributions you receive from a Fund, even if
you reinvest the distributions in additional shares. Distributions designated
by a Fund as capital gain dividends are taxable as long-term capital gains.
Other distributions are generally taxable as ordinary income. Some
distributions paid in January may be taxable to you as if they had been paid
the previous December.
<PAGE>
TAXES ON SALE OR EXCHANGES
If you are otherwise subject to federal income taxes, anytime you sell or
exchange shares, it is considered a taxable event for you. Depending on the
purchase price and the sale price of the shares you sell or exchange, you may
have a gain or a loss on the transaction. You are responsible for any tax
liabilities generated by your transaction.
OTHER TAX MATTERS
This discussion of taxes is for general information only. You should consult
your own tax adviser about your particular situation, and the status of your
account under state and local laws.
Retirement plans that invest in a Fund and satisfy applicable Internal Revenue
Code conditions generally will not be subject to federal tax liability on
either distributions from a Fund or redemptions of shares of a Fund.
Participants in these retirement plans will be taxed when they begin taking
distributions from the plan in accordance with Internal Revenue Code rules.
Fund distributions will reduce a Fund's net asset value per share. As a result,
if you are otherwise subject to federal income taxes, and you buy shares in a
Fund just before the Fund makes a distribution, you may pay the full price for
the shares and then effectively receive a portion of the purchase price back as
a taxable distribution.
By law, each Fund must withhold 31% of your distributions and proceeds if you
have not provided complete, correct taxpayer information or are otherwise
subject to "backup withholding". Funds may also be required to withhold a
portion of any distributions and redemption proceeds otherwise due to
shareholders who are not U.S.
citizens or residents.
Early each year, each Fund will notify its shareholders (other than retirement
plan participants) of the amount and tax status of distributions paid to
shareholders for the preceding year.
MANAGEMENT
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Diversified Investment Advisors, Inc. is the investment adviser of each of the
underlying mutual funds in which the Funds invest. Diversified also advises the
Intermediate Bond and Select Equity Funds. Diversified is an indirect,
wholly-owned subsidiary of AEGON USA, Inc., a financial services holding
company whose primary emphasis is life and health insurance and annuity and
investment products. AEGON USA is an indirect, wholly-owned subsidiary of AEGON
N.V., a Netherlands corporation which is a publicly traded international
insurance group. Diversified was incorporated in 1992 for the purpose of acting
as the investment adviser to the Funds.
Diversified has selected subadvisers for each underlying mutual fund.
Diversified provides general supervision of the subadvisers and also manages
the assets of the Intermediate Bond and Select Equity Funds, subject in each
case to policies set by the Trustees. Diversified's investment management
decisions are made by a committee of Diversified's personnel.
The subadvisers make the day-to-day investment decisions for the underlying
mutual funds and place the purchase and sale orders for securities
transactions, subject in all cases to the general supervision of Diversified.
The subadvisers are listed below.
<PAGE>
- -------------------------------------------------------------------------------
SUBADVISERS
- -------------------------------------------------------------------------------
The subadvisers described in this section are responsible for the daily
management of the Portfolios underlying the Funds named below. Diversified
provides general supervision of the subadvisers. Except as otherwise noted,
investment decisions are made by a committee of each subadviser's personnel.
MONEY MARKET FUND
Capital Management Group. Capital Management Group is a division of 1740
Advisers, Inc., a wholly-owned subsidiary of The MONY Group, Inc. Capital
Management Group has been a registered investment adviser since 1971. The
address of Capital Management Group is 1740 Broadway, New York, New York 10019.
David E. Wheeler, Investment Vice President and Portfolio Manager, has been
responsible for the day-to-day management of the Money Market Fund since 1997.
Mr. Wheeler has been employed by Capital Management Group since 1994 and was
employed at AIG Investment Advisers prior to 1994.
INTERMEDIATE BOND FUND
AND SELECT EQUITY FUND
Stephens Capital Management. Stephens Capital Management is a division of
Stephens Inc., which is an indirect, wholly-owned subsidiary of Stephens Group,
Inc. The Funds are the first registered investment companies for which Stephens
Capital Management performs investment advisory functions. The principal
business address of Stephens Capital Management is 111 Center Street, Little
Rock, Arkansas 72201.
HIGH-YIELD BOND FUND
Delaware Investment Advisers. Delaware Investment Advisers is a series of
Delaware Management Business Trust. Delaware is indirectly owned by Lincoln
National Corp. Delaware and its predecessors have been registered investment
advisers since 1952. The principal business address of Delaware Investment
Advisers is 2005 Market Street, Philadelphia, Pennsylvania 19103.
EQUITY VALUE FUND
Ark Asset Management Co., Inc. Ark was formed in August of 1989 and is owned by
Ark Asset Holdings, Inc. Ark Asset Holdings, Inc. is owned by Ark employees.
Ark has been a registered investment adviser since 1989. The principal address
of Ark is 125 Broad Street, New York, New York 10004.
EQUITY GROWTH FUND
Dresdner RCM Global Investors LLC
Montag & Caldwell Incorporated
Dresdner RCM Global Investors LLC was established in 1996, when Dresdner Bank
AG acquired RCM Capital Management. Dresdner RCM has been a registered
investment adviser since 1972. The principal address of Dresdner RCM is Four
Embarcadero Center, San Francisco, California 94111.
Montag & Caldwell Incorporated was established in 1945 and is owned by
Alleghany Corporation. Montag & Caldwell has been a registered investment
adviser since 1968. The principal address of Montag & Caldwell is 3343
Peachtree Road, N.E., Suite 1100, Atlanta, Georgia 30326-1022.
<PAGE>
SPECIAL EQUITY FUND
Goldman Sachs Asset Management
Pilgrim Baxter & Associates, Ltd.
RS Investment Management, L.P.
Westport Asset Management, Inc.
Goldman Sachs Asset Management is a separate operating division of Goldman,
Sachs & Co., a worldwide investment banking firm, with numerous offices
throughout the United States and globally. Goldman, Sachs & Co. acquired
Liberty Investment Management, Inc., the predecessor firm, in January of 1997.
Liberty had been a registered investment adviser since 1994. Liberty's
predecessor, Eagle Asset Management, Inc., had been a registered investment
adviser since 1984. The business address of the Goldman Sachs branch office
responsible for managing the Fund is 2502 Rocky Point Drive, Suite 500, Tampa,
Florida 33607.
Herbert E. Ehlers, Managing Director, and Timothy G. Ebright, Portfolio
Manager, have been responsible for the day-to-day management of the Special
Equity Fund on behalf of Liberty, and now Goldman Sachs, since 1994. Mr. Ehlers
and Mr. Ebright have been employed by Goldman Sachs since 1997. Before that,
they were employed by Liberty Investment Management, Inc. or its predecessor,
Eagle Asset Management, Inc., since 1980 and 1988, respectively.
Pilgrim Baxter & Associates, Ltd. was formed in 1995 and is owned by United
Asset Management, Inc., a publicly-owned corporation. Pilgrim (or its
predecessor) has been a registered investment adviser since 1982. The principal
business address of Pilgrim is 825 Duportail Road, Wayne, Pennsylvania 19087.
Gary Pilgrim, Chief Executive Officer, has been responsible for the day-to-day
management of the Special Equity Fund on behalf of Pilgrim since September
1998. He is a founding partner of Pilgrim and has been employed by Pilgrim
since 1982.
RS Investment Management, L.P. RS was formed in 1999 and is indirectly owned
by BankAmerica Corporation. RS (or its predecessor) has been a registered
investment adviser since 1984. The principal business address of RS is 555
California Street, San Francisco, California 94104
Westport Asset Management, Inc. was formed in 1983 and is owned by certain of
its employees. Westport has been a registered investment adviser since 1983.
The principal business address of Westport is 253 Riverside Avenue, Westport,
Connecticut 06880.
Andrew Knuth, Portfolio Manager, has been responsible for the day-to day
management of the Special Equity Fund on behalf of Westport since 1994 and has
been employed by Westport since 1983.
INTERNATIONAL EQUITY FUND
Capital Guardian Trust Company. Capital Guardian was formed in 1968 and is
owned by Capital Group International, Inc., which is owned by The Capital Group
Companies, Inc. Capital Guardian is a trust company regulated by the California
Department of Financial Institutions. The principal address of Capital Guardian
is 333 South Hope Street, Los Angeles, California 90071.
<PAGE>
Capital Guardian uses a system of multiple portfolio managers. Within
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.
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ADVISORY FEES
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For the fiscal year ended December 31, 1998, Diversified and the subadvisers
received aggregate advisory fees (after waivers) equal to that percentage of
each Fund's average daily net assets set forth in the table below.
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Money Market Fund 0.25%
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Intermediate Bond Fund 0.10%
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High-Yield Bond Fund 0.52%
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Equity Value Fund 0.56%
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Equity Growth Fund 0.62%
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Special Equity Fund 0.80%
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Select Equity Fund 0.15%
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International Equity Fund 0.75%
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MORE ABOUT THE FUNDS
Each Fund's goal and principal investment strategies, and the main risks of
investing in the Funds, are summarized at the beginning of this prospectus.
More information on investment strategies, investments and risks appears in
this section. These are the strategies that, in the opinion of each Fund's
advisers, are most likely to be important in trying to achieve the Fund's
investment goal. There can, of course, be no assurance that any Fund will
achieve its investment goal. Except as noted below, each Fund's goal and
strategies may be changed without shareholder approval.
Please note that each Fund may also use strategies and invest in securities
that are not described below but which are described in the Statement of
Additional Information. Of course, the Fund's advisers may decide, as a matter
of investment strategy, not to use the investments and investment techniques
described below and in the Statement of Additional Information at any
particular time.
Each Fund is actively managed, and the portfolio managers may trade securities
frequently, resulting, from time to time, in an annual portfolio turnover rate
of over 100%. Trading securities may produce capital gains, which are taxable
when distributed to investors with non-tax-sheltered accounts. Active trading
may also increase the amount of commissions or mark-ups to broker-dealers that
the Fund pays when it buys and sells securities. The "Financial Highlights"
section of this prospectus shows each Fund's historical portfolio turnover
rate.
Each Fund may, from time to time, take temporary defensive positions that are
inconsistent with the Fund's principal investment strategies in attempting to
respond to adverse market, political or other conditions. When doing so, the
Fund may invest without limit in high quality money market and other short-term
instruments, and may not be pursuing its investment goal. These investments may
result in a lower yield than would be available from investments with a lower
quality or longer term.
<PAGE>
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What are Money Market Instruments?
A MONEY MARKET INSTRUMENT is a short-term IOU issued by banks or other
corporations, the U.S. or a foreign government or state or local governments.
Money market instruments have maturity dates of 13 months or less. Money market
instruments may include CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES, VARIABLE
RATE DEMAND NOTES (where the interest rate is reset periodically and the holder
may demand payment from the issuer at any time), FIXED-TERM OBLIGATIONS,
COMMERCIAL PAPER (short term unsecured debt of corporations), ASSET-BACKED
SECURITIES (which are backed by pools of accounts receivable such as car
installment loans or credit card receivables) and REPURCHASE AGREEMENTS. In a
repurchase agreement, the seller sells a security and agrees to buy it back at
a later date (usually within seven days) and at a higher price, which reflects
an agreed upon interest rate.
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MONEY MARKET FUND
- -------------------------------------------------------------------------------
This Fund invests primarily in high quality, short-term money market
instruments. The Fund may invest more than 25% of its total assets in
obligations of U.S. banks.
The Fund complies with industry regulations applicable to money market funds.
These regulations require that the Fund's investments mature or be deemed to
mature within 397 days from the date of acquisition, that the average maturity
of the Fund's investments (on a dollar-weighted basis) be ninety days or less,
and that all of the Fund's investments be in U.S. dollar-denominated high
quality securities which have been determined by the Fund to present minimal
credit risks. 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 a longer term.
The Fund does not maintain a stable net asset value of $1.00 per share and does
not declare dividends on a daily basis (many money market funds do). Investment
income that has not yet been declared as a dividend, or a default on a
portfolio security, may cause the Fund's net asset value to fluctuate.
If the Fund concentrates in bank obligations, the Fund will be particularly
sensitive to adverse events affecting U.S. banks. Banks are sensitive to
changes in money market and general economic conditions, as well as decisions
by regulators that can affect banks' profitability.
The Fund's portfolio managers employ a "top down" approach when selecting
securities for the Fund. This means that the portfolio managers look first at
broad market factors, and, on the basis of those market factors, choose certain
sectors or industries in which to invest. The managers then look at individual
companies within those sectors or industries. The managers use the same top
down approach when deciding which securities to sell. Securities are sold when
the Fund needs cash to meet redemptions, or when the managers believe that
better opportunities exist or that particular securities no longer fit within
the overall strategy for achieving the Fund's goal. In general, the portfolio
managers attempt to temper income volatility in the Fund by investing
significant portions of the portfolio in securities with maturities of thirty
to forty-five days.
<PAGE>
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BOND FUNDS
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What is a Bond?
A BOND, which is also called a DEBT SECURITY or DEBT OBLIGATION, is like a
loan. The issuer of the bond, which could be the U.S. government, a
corporation, or a city or state, borrows money from investors and agrees to pay
back the loan amount (the PRINCIPAL) on a certain date (the MATURITY DATE).
Usually, the issuer also agrees to pay interest on certain dates during the
period of the loan. Some bonds, such as ZERO COUPON BONDS, do not pay interest,
but instead pay back more at maturity than the original loan. Most bonds pay a
fixed rate of interest (or income), but some bonds' interest rates may change
based on market or other factors.
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The INTERMEDIATE BOND FUND invests in a broad range of fixed income securities,
including U.S. government obligations, foreign government debt securities
(including securities issued by developing countries), and preferred stock and
debt securities issued by U.S. and foreign companies. Under normal
circumstances the Fund invests at least 65% of its assets in these securities.
The Fund's duration generally is between one and six years, and its
dollar-weighted average maturity generally does not exceed ten years under
normal circumstances. Duration is a way of measuring the Fund's overall
sensitivity to interest rate fluctuations. Short-term debt securities generally
fluctuate less in price, and have lower yields, than longer-term securities of
comparable quality.
The portfolio managers of the Intermediate Bond Fund use "top down" economic
analysis to determine economic outlook and to forecast interest rates. They
also analyze the yield curve under multiple market conditions in making
maturity and duration decisions for portfolio securities. The managers then
attempt to select securities that will enable the Fund to maintain a stable
share price and at the same time to achieve a high level of income.
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What are U.S. Government Obligations?
U.S. GOVERNMENT OBLIGATIONS are securities that are issued or guaranteed as to
principal and interest by the U.S. government or one of its agencies or
instrumentalities. Some obligations of U.S. government agencies and
instrumentalities are supported by the "full faith and credit" of the United
States, others by the right of the issuer to borrow from the U.S. Treasury, and
others only by the credit of the agency or instrumentality. U.S. government
obligations generally have less credit risk than other debt obligations.
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The HIGH-YIELD BOND FUND invests primarily in high-yielding, income producing
debt securities, such as debentures and notes, and in convertible and
non-convertible preferred stocks. Under normal circumstances the Fund invests
at least 65% of its assets in these securities.
The Fund may invest all or a substantial portion of its assets in lower-rated
debt securities, commonly referred to as "junk bonds." Lower-rated debt
securities offer yields that fluctuate over time but that generally are
superior to the yields offered by higher-rated securities. However, these
securities also involve significantly greater risks, including price volatility
and risk of default in the payment of interest and principal, than higher-rated
securities. Lower-rated debt securities usually are defined as securities rated
BB or lower by Standard & Poor's or Ba or lower by Moody's. See the Statement
of Additional Information for more information on ratings.
Lower quality securities tend to be issued by companies that are less secure
financially. In addition, in the event these companies have financial
<PAGE>
difficulty, banks or other senior lenders often have priority in being repaid.
As a result, when selecting investments, the Fund's advisers rely on
fundamental research to identify companies with adequate cash flows, attractive
valuations and strong management teams.
In selecting investments for the Fund, the Fund's advisers exclude securities
that are in default or that pay interest in the form of additional debt
securities. As a result, the Fund may be somewhat more conservative than
certain other high-yield funds. The Fund is designed to outperform more
aggressive high-yield funds in high-yield market downturns, and its performance
may lag these funds in high-yield market upturns. Of course, it is possible
that the Fund will not perform as expected.
The Fund may also invest in equity securities, including common stocks,
warrants and rights. Investors should carefully consider the special risks of
investing in this Fund.
* * *
Fixed income securities may bear fixed, fixed and contingent, or variable rates
of interest and may involve equity features, such as conversion or exchange
rights or warrants for the acquisition of stock of the same or a different
issuer or participations based on revenues, sales or profits. Changes in
interest rates will generally cause bigger changes in prices of longer-term
securities than in prices of shorter-term securities.
Each of the Bond Funds may use derivatives solely for hedging purposes. These
may include options, futures, swaps and forward currency contracts.
Each of the Bond Funds will use short-term debt and money market instruments,
including short-term U.S. government and corporate obligations, commercial
paper, bank obligations and repurchase agreements, in varying amounts for
liquidity and cash management, and as a risk management tool.
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STOCK FUNDS
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The EQUITY VALUE FUND invests primarily in stocks of companies which, in the
opinion of the Fund's advisers, are trading at low valuations relative to
market and/or historical levels. These stocks tend to have relatively low
price/earnings ratios and/or relatively low price/book value ratios. Low
price/earnings ratios or price/book value ratios mean that the stock is less
expensive than average relative to the company's earnings or book value,
respectively. The Fund emphasizes common stocks and preferred stocks listed on
the New York Stock Exchange and on other national securities exchanges and, to
a lesser extent, stocks that are traded over-the-counter.
The portfolio manager of the Equity Value Fund uses a "bottom up"
value-oriented approach in selecting investments for the Fund. When portfolio
managers use a "bottom up" approach, they look primarily at individual
companies against the context of broader market factors. A value-oriented
approach attempts to identify companies that appear to be trading below their
true worth. The managers use the same bottom up approach when deciding which
securities to sell. Securities are sold when the Fund needs cash to meet
redemptions, or when the managers believe that better opportunities exist or
that particular securities no longer fit within the overall strategy for
achieving the Fund's goals.
<PAGE>
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What is Value Investing?
Funds that use a VALUE-ORIENTED STRATEGY search for those companies that appear
to be trading below their true worth. These funds use research to identify
potential investments, examining such features as a firm's financial condition,
business prospects, competitive position and business strategy. They look for
companies that appear likely to come back into favor with investors, for
reasons that may range from good prospective earnings or strong management
teams to new products or services.
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The EQUITY GROWTH FUND invests primarily in common stocks of companies with
potential for above average growth in earnings and dividends. Under normal
circumstances the Fund invests at least 65% of its assets in equity securities.
The Fund emphasizes common and preferred stocks listed on the New York Stock
Exchange and other national securities exchanges and, to a lesser extent,
stocks that are traded over-the-counter. The Fund uses multiple managers to
control the volatility often associated with growth funds.
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What is Growth Investing?
Funds that use a GROWTH-ORIENTED STRATEGY search for companies growing faster
than the economy as a whole. Often, these companies are in expanding
industries, such as computers and pharmaceuticals. While the size of a company
is not necessarily a factor in determining whether its stock is suitable for a
growth fund, a growth strategy that focuses on larger companies is generally
considered less aggressive than one that focuses on smaller companies. Many
stocks owned by growth funds do not pay dividends and can be more volatile than
other types of investments. As a result, growth funds are appropriate for
investors who have long-term investment horizons.
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The SPECIAL EQUITY FUND invests primarily in stocks of small to medium size
companies which, in the opinion of the Fund's advisers, present an opportunity
for significant increases in earnings, revenue and/or value, without
consideration for current income. The Special Equity Fund emphasizes common
stocks of U.S. companies with market capitalizations of less than $1 billion.
The Fund uses multiple managers to control the volatility often associated with
investments in companies of this size. The Fund utilizes two growth-style
managers and two value-oriented managers. The Fund is designed to provide an
opportunity for higher returns relative to the broad small cap market during
periods when a particular style is out of favor. Investing in securities of
smaller companies involves special risks. Investors should carefully consider
the risks of investing in the Special Equity Fund.
The SELECT EQUITY FUND invests primarily in equity securities of U.S.
corporations. Under normal circumstances, at least 65% of the Fund's assets are
invested in common stocks and other securities with equity characteristics such
as preferred stocks, warrants, rights and convertible securities. The Fund may
invest in common stock of any class or series or any similar equity interest,
such as trust or limited partnership interests. These equity investments may or
may not pay dividends and may or may not carry voting rights. The Fund invests
primarily in securities listed on a securities exchange or traded in
over-the-counter markets, and may invest in certain restricted or unlisted
securities. The Fund may invest in small capitalization companies. Investing in
securities of smaller companies involves special risks. Investors should
carefully consider the risks of investing in the Select Equity Fund.
The portfolio managers of the EQUITY GROWTH FUND, SPECIAL EQUITY FUND and
SELECT EQUITY FUND use a "bottom up" approach in selecting securities, relying
primarily on stock selection against the context of broader market factors.
These managers look for companies that they believe are in dynamic high growth
sectors of the world economy, and that are thought to have dominant or strong
<PAGE>
competitive positions within their sectors. They also look for companies that
are expected to have strong earnings growth potential. The managers use the
same bottom up approach when deciding which securities to sell. Securities are
sold when a Fund needs cash to meet redemptions, or when the managers believe
that better opportunities exist or that particular securities no longer fit
within the overall strategy for achieving the Fund's goal.
The INTERNATIONAL EQUITY FUND invests primarily in foreign securities, meaning
securities of issuers that, in the opinion of the Fund's advisers, have their
principal activities outside the United States or whose securities are traded
primarily outside the United States. Under normal circumstances the Fund
invests at least 65% of its assets in equity securities of issuers in at least
three countries other than the United States. The Fund invests most of its
assets in securities of issuers in Canada, Australia and developed countries in
Europe and the Far East. The Fund may invest up to 10% of its assets in
securities of issuers in developing countries. The Fund may also invest in any
type or quality of debt securities, including lower-rated securities, and may
enter into forward currency exchange contracts solely for hedging purposes.
The portfolio managers of the International Equity Fund use a "bottom up"
approach in which stock selection is based on in-depth local research. In
selecting individual securities, the portfolio managers use a value-oriented
strategy to identify companies that appear to be trading below their true
worth. The managers blend their basic, fundamental approach with macroeconomics
and political judgments on the outlook for economies, industries, currencies
and markets. The managers also use a bottom up approach when deciding which
securities to sell. Securities are sold when the Fund needs cash to meet
redemptions, or when the managers believe that better opportunities exist or
that particular securities no longer fit within the overall strategy for
achieving the Fund's goal.
* * *
Each of the Stock Funds may use derivatives solely for hedging purposes. These
may include options, futures, swaps and forward currency contracts.
Each of the Stock Funds 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. These Funds will use short-term
obligations and money market securities, including commercial paper, bank
obligations and repurchase agreements, in varying amounts for liquidity and
cash management, and as a risk management tool.
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RISKS
- -------------------------------------------------------------------------------
Investing in a mutual fund involves risk. Before investing, you should consider
the risks you will assume. Certain of these risks are described below. More
information about risks appears in the Funds' Statement of Additional
Information. The value of a Fund's shares will change daily as the value of its
underlying securities change. This means that your Fund shares may be worth
more or less when you sell them than when you bought them. You may receive
little or no return on your investment in the Funds. You may lose money if you
invest in the Funds.
Please remember that the risks of investing in each Fund depend on the
securities that the Fund holds and the investment strategies it uses. For
example, Funds investing more of their assets in fixed income securities may be
more susceptible to interest rate risk and credit risk than Funds investing
more of their assets in equity securities. Similarly, Funds investing more of
their assets in equity securities may be susceptible to greater price
volatility under certain circumstances than Funds investing more of their
assets in fixed income securities. Please remember that an investment in the
Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
<PAGE>
MARKET RISK. This is the risk that the prices of securities will rise or fall
due to changing economic, political or market conditions, or due to a company's
individual situation. Historically, equity securities have been more volatile
than debt securities in response to market risk.
INTEREST RATE RISK. In general, the prices of debt securities rise when
interest rates fall, and fall when interest rates rise. Longer term obligations
are usually more sensitive to interest rate changes than shorter term
obligations. A change in interest rates could cause a Fund's share price to go
down. Generally, the longer the average maturity of the bonds in a Fund, the
more the Fund's share price will fluctuate in response to interest rate
changes.
CREDIT RISK. Some issuers may not make payments on debt securities held by a
Fund, causing a loss. Or, an issuer may suffer adverse changes in its financial
condition that could lower the credit quality of a security, leading to greater
volatility in the price of the security and in shares of a Fund. A change in
the quality rating of a bond or other security can also affect the security's
liquidity and make it more difficult for a Fund to sell. The lower quality debt
securities in which the Funds may invest are more susceptible to these problems
than higher quality obligations. Investments held by the High-Yield Bond Fund
will be particularly susceptible to credit risk. U.S. government securities are
generally considered not to be subject to credit risk.
GROWTH SECURITIES. Growth securities typically are quite sensitive to market
movements because their market prices tend to reflect future expectations. When
it appears those expectations will not be met, the prices of growth securities
typically fall. The success of a Fund's investment in growth securities depends
largely on the Fund's advisers' skill in assessing the growth potential of the
companies that issued the securities. In addition, a Fund investing in growth
securities may underperform certain other stock funds (those emphasizing value
stocks, for example) during periods when growth stocks are out of favor.
VALUE INVESTING. When a Fund's portfolio managers use a value oriented approach
in managing the Fund, they look for securities that they believe are currently
undervalued, or priced below their true worth, but whose issuers have good
longer term prospects. An issuer may be undervalued relative to the stock
market in general, relative to the underlying value of its assets or relative
to what a sophisticated private investor would pay for the entire company.
Value investing is based on the belief that securities of companies which are
temporarily underpriced may provide a higher total return over time than
securities of companies whose positive attributes are reflected in the
securities' current price.
A security may not achieve its expected value because the circumstances causing
it to be undervalued worsen (causing the price to decline further) or do not
change, or because an adviser is incorrect in its determination that the
security is undervalued. In addition, Funds with a value orientation may
underperform certain other stock funds (those emphasizing growth stocks, for
example) during periods when value stocks are not in favor.
SMALLER COMPANIES. The securities of smaller capitalization companies may have
more risks than those of larger, more seasoned companies. They may be
particularly susceptible to market downturns because of limited product lines,
markets, distribution channels or financial and management resources. Also,
there may be less publicly available information about small cap companies.
Investments in small cap companies may be in anticipation of future products or
services to be provided by the companies. If those products or services are
delayed, the prices of the securities of the companies may drop. Sometimes, the
prices of the securities of smaller capitalized companies rise and fall based
on investor perception rather than economics. Securities of small cap companies
may be thinly traded, making their disposition more difficult. For all these
<PAGE>
reasons, the prices of the securities of small cap companies may be more
volatile, causing a Fund's share price to be volatile. Funds that invest a
higher percentage of their assets in small cap stocks are generally more
volatile than funds investing a higher percentage of their assets in larger,
more established companies. Investments held by the Special Equity Fund are
likely to be particularly susceptible to the risks of small cap companies.
FOREIGN SECURITIES. Each Fund may invest a portion of its assets in foreign
securities. The International Equity Fund will invest a substantial portion of
its assets in foreign securities. Investing in foreign securities involves
risks in addition to those of investing in U.S. securities, including risks
relating to political, social and economic developments abroad, as well as
risks resulting from the differences between the regulations to which U.S. and
foreign issuers and markets are subject.
o These risks may include expropriation of assets, confiscatory taxation,
withholding taxes on dividends and interest paid on Fund investments,
currency exchange controls and other limitations on the use or transfer
of Fund assets and political or social instability.
o Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may be
less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S. markets.
Rapid increases in money supply may result in speculative investing,
contributing to volatility. Also, equity securities may trade at
price-earnings multiples that are higher than those of comparable U.S.
companies, and that may not be sustainable. As a result, there may be
rapid changes in the value of foreign securities.
o Foreign markets may offer less protection to investors. Enforcing legal
rights may be difficult, costly and slow. There may be special problems
enforcing claims against foreign governments.
o Since foreign securities often trade in currencies other than the U.S.
dollar, changes in currency exchange rates will affect a Fund's net
asset value, the value of dividends and interest earned, and gains and
losses realized on the sale of securities. An increase in the U.S.
dollar relative to these other currencies will adversely affect the
value of the Fund. In addition, some foreign currency values may be
volatile and there is the possibility of governmental controls on
currency exchanges or governmental intervention in currency markets.
Controls or intervention could limit or prevent a Fund from realizing
value in U.S. dollars from its investment in foreign securities.
o The International Equity Fund may invest in issuers located in
emerging, or developing, markets.
o Emerging or developing countries are generally defined as countries
in the initial stages of their industrialization cycles with low per
capita income.
o All of the risks of investing in foreign securities are heightened
by investing in developing countries.
o The markets of developing countries have been more volatile than the
markets of developed countries with more mature economies. These
markets often have provided higher rates of return, and greater
risks, to investors, but they also may provide lower rates of return
or negative returns, for extended periods.
<PAGE>
PREPAYMENT RISK. The issuers of debt securities held by a Fund may be able to
prepay principal due on the securities, particularly during periods of
declining interest rates. The Fund may not be able to reinvest that principal
at attractive rates, reducing income to the Fund. On the other hand, rising
interest rates may cause prepayments to occur at slower than expected rates.
This effectively lengthens the maturities of the affected securities, making
them more sensitive to interest rate changes and the Fund's share price more
volatile. Mortgage-backed securities are particularly susceptible to prepayment
risk and their prices may be volatile.
CONVERTIBLE SECURITIES. Convertible securities, which are debt securities that
may be converted into stock, are subject to the market risk of stocks, and,
like other debt securities, are also subject to interest rate risk and the
credit risk of their issuers. Call provisions may allow the issuer to repay the
debt before it matures.
DERIVATIVES. Each Fund may, but is not required to, engage in certain
investment strategies involving derivatives (such as options, futures, swaps
and forward currency contracts). These investment strategies may be employed
only in connection with hedging activities such as the following:
o protecting against a decline in value of a Fund's current or
anticipated securities holdings;
o as a substitute for buying or selling portfolio holdings; and
o seeking to generate income to offset expenses or increase return.
A hedge is designed to neutralize a loss on a portfolio position with a gain in
the hedge position. A properly executed hedge will result in a loss in the
portfolio position being offset by a gain in the hedge position, or vice versa.
However, the market movement of a hedge may not be of the same magnitude as the
market movement of the hedged position. The success or failure of a hedging
transaction will depend on the advisers' ability to predict movements in the
hedge, the investment being hedged and the market in general (and the
correlation between these factors). Derivatives may not always be available on
terms that make economic sense (for example, they may be too costly), and, when
used, their transaction costs and premiums may adversely affect Fund
performance. The ability to use derivatives to hedge may also be restricted by
limits established by securities and commodities exchanges and by tax
considerations.
YEAR 2000 RISK. The Funds could be adversely affected if the computer systems
used by the Funds or their service providers are not programmed to accurately
process information on or after January 1, 2000. Diversified's owner, AEGON,
has adopted and has in place a Year 2000 Assessment and Planning Project to
review and analyze its internal information technology and systems to determine
if they are Year 2000 compatible and to assess Year 2000 issues relating to
third parties with whom it has critical relationships. AEGON has tested and
modified, where necessary, substantially all of its critical internal
information technology systems. AEGON will continue to test non-critical
systems throughout 1999. However, to mitigate the effect of outside influences
upon the success of the project, AEGON has undertaken communications with its
significant customers, suppliers and other third parties to determine their
Year 2000 compatibility and readiness. AEGON has received written confirmation
from several vendors regarding their Year 2000 status and continues to work
with its business partners to ensure that systems can properly interface.
The primary equipment and electronic devices AEGON uses are computers and
telephone related equipment. This type of hardware can have date sensitive
embedded technology which could have Year 2000 problems. Because of this
exposure, AEGON has reviewed its computer hardware and telephone systems, with
<PAGE>
assistance from the applicable vendors, and has upgraded, or replaced, or is in
the process of replacing any equipment that will not properly process date
sensitive data in the Year 2000 or beyond. This undertaking has been
substantially completed for all operations.
AEGON is placing significant emphasis on risk management and Year 2000 business
resumption contingency planning in 1999 by modifying its existing business
resumption and disaster recovery plans to address potential Year 2000 issues.
Since the Year 2000 computer problem and its resolution is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of AEGON and the Funds, their
ability to function unaffected to and through Year 2000 may be adversely
affected by actions (or failures to act) of third parties beyond their
knowledge or control.
The Funds also could be adversely affected if the issuers of securities held by
the Funds do not solve their Year 2000 problems, or if it costs them large
amounts of money to solve these problems. To the extent that a Fund invests in
foreign securities, it may be particularly susceptible to these Year 2000
problems. The Funds consider these factors when investing in securities.
GENERAL INFORMATION
DISTRIBUTION ARRANGEMENTS. Diversified Investors Securities Corp., Four
Manhattanville Road, Purchase, New York 10577, is the distributor of shares of
each of the Funds. Under a Distribution Plan which has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940, each Fund may pay monthly
fees at an annual rate of up to 0.25% of the Fund's average daily net assets.
These fees may be used by the Distributor to pay for its services or for
advertising, marketing or other promotional activities.
- -------------------------------------------------------------------------------
What are Distribution (12b-1) Fees?
DISTRIBUTION FEES, also called 12B-1 FEES, are fees that are deducted from Fund
assets and are used to compensate those financial professionals who sell Fund
shares and provide ongoing services to shareholders and to pay other marketing
and advertising expenses. Because you pay these fees during the whole period
that you own the shares, over time, you may pay more than if you had paid other
types of sales charges.
- -------------------------------------------------------------------------------
INVESTMENT STRUCTURE. Each Fund (except for the Intermediate Bond and Select
Equity Funds which invest directly in securities) invests in securities through
an underlying mutual fund having the same investment goal and strategies. A
Fund may stop investing in its underlying mutual fund at any time, and will do
so if the Fund's Trustees believe that to be in the best interests of the
Fund's shareholders. The Fund could then invest in another mutual fund or
pooled investment vehicle or invest directly in securities. If a Fund were to
stop investing in its underlying mutual fund, the Fund could receive securities
from the underlying mutual fund instead of cash, causing the Fund to incur
brokerage, tax and other charges or leaving it with securities which may or may
not be readily marketable or widely diversified.
BROKERAGE TRANSACTIONS. Each Fund's advisers may use brokers or dealers for
Fund transactions who also provide brokerage and research services to the Fund
or other accounts over which the advisers exercise investment discretion. A
<PAGE>
Fund may "pay up" for brokerage services, meaning that it is authorized to pay
a broker or dealer who provides these brokerage and research services a
commission for executing a portfolio transaction which is higher than the
commission another broker or dealer would have charged. However, a Fund will
"pay up" only if the applicable adviser determines in good faith that the
higher commission is reasonable in relation to the brokerage and research
services provided, viewed in terms of either the particular transaction or all
of the accounts over which the adviser exercises investment discretion.
SHARE CLASSES. Each of the Funds issues more than one class of shares. Each
Fund issues Stephens Premium Class shares and Stephens Institutional Class
shares. Each Fund other than the Intermediate Bond and Select Equity Funds also
issues Diversified Class shares. Stephens Premium Class shares are described in
this prospectus. The other two classes of shares, Diversified Class shares and
Stephens Institutional Class shares, may have different expenses, which may
affect the performance of those shares. Call the Distributor at (914) 697-8000
for more information.
ADDITIONAL PERFORMANCE INFORMATION
Fund performance may be quoted in advertising, shareholder reports and other
communications. Each Fund may provide its yield and/or total return for certain
periods and may also quote fund rankings 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 (7-day period for the Money
Market Fund) by the net asset value per share on the last day of the period and
annualizing the result. Total return refers to the change over a stated period
in the value of an investment in a Fund, reflects any change in net asset value
and is compounded to include the value of any shares purchased with dividends
or capital gains declared during the period. 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. For more information about the calculation
of yield and total return, see the Statement of Additional Information.
Please note that the investment results of each Fund will fluctuate over time.
All performance information is historical and should not be considered a
representation of what an investment in the Funds may earn in the future.
Before the Funds and Portfolios commenced operations, the assets that were
contributed to certain Portfolios were managed in Pooled Separate Accounts of
MONY Life Insurance Company (formerly The Mutual Life Insurance Company of New
York). The total return for each Fund (other than the High-Yield Bond and Equity
Value Funds) for any period which includes a period prior to the contribution by
the Pooled Separate Account will reflect the performance of the Pooled Separate
Account. Pooled Separate Account performance will only be included, however,
from the date that the Pooled Separate Account adopted investment objectives,
policies and practices and was managed in a manner that are in all material
respects the same as for the applicable Fund. This Pooled Separate Account
performance will be adjusted to reflect current Fund fees and expenses, after
waivers and reimbursements. The Pooled Separate Accounts were not registered
under the Investment Company Act of 1940 and were not subject to certain
investment restrictions imposed by that Act or the Internal Revenue Code. If
the Pooled Separate Accounts had been so registered, investment performance
might have been adversely affected.
Historical performance information for periods prior to the establishment of
the Stephens Premium Class shares for a Fund (other than the Intermediate Bond
and Select Equity Funds) will be that of the respective Diversified Class
shares for that Fund and will be presented in accordance with the applicable
interpretations of the Securities and Exchange Commission.
<PAGE>
As of December 31, 1998, the average annual total returns for the Stephens
Premium Class shares of each of the following Funds, including the Pooled
Separate Accounts referred to above, were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
FOR THE
PERIOD
FOR THE FOR THE FOR THE FOR THE SINCE
YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
INCEPTION ENDED ENDED ENDED ENDED THROUGH
DATE 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98
- ---------------------------------------------------------------------------------------------
MONEY MARKET 11/78 4.79% 4.92% 4.74% 5.17% 7.52%
- ---------------------------------------------------------------------------------------------
INTERMEDIATE BOND 1/98 6.08% -- -- -- 6.08%
- ---------------------------------------------------------------------------------------------
HIGH-YIELD BOND 8/95 1.85% 8.11% -- -- 8.87%
- ---------------------------------------------------------------------------------------------
EQUITY VALUE 4/96 10.32% -- -- -- 15.67%
- ---------------------------------------------------------------------------------------------
EQUITY GROWTH 3/93 36.20% 26.60% 20.20% -- 18.37%
- ---------------------------------------------------------------------------------------------
SPECIAL EQUITY 1/86 3.95% 17.72% 18.21% 16.75% 15.78%
- ---------------------------------------------------------------------------------------------
SELECT EQUITY 1/98 1 0.11% -- -- -- 5.00%
- ---------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY 12/92 10.47% 11.11% 10.16% -- 13.50%
- ---------------------------------------------------------------------------------------------
</TABLE>
See Appendix A for the past performance of the subadvisers to the High-Yield
Bond Fund, Equity Value Fund and Equity Growth Fund with investment objectives,
policies and restrictions substantially similar to each Fund and which have
been managed in the same way that the underlying Portfolio in which each Fund
invests is managed.
<PAGE>
FINANCIAL HIGHLIGHTS
This table is intended to help you understand each Fund's performance and other
financial information for the fiscal periods indicated. "Total return" shows
how much your investment in a Fund would have increased or decreased during
each period, assuming you had reinvested all dividends and distributions. The
financial information in this table, and notes thereto, have been audited by
PricewaterhouseCoopers LLP, independent accountants for the Funds, whose report
is included in the Fund's annual report.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
MONEY EQUITY EQUITY SPECIAL
MARKET VALUE GROWTH EQUITY
Net asset value, beginning of period............ $ 10.00 $ 10.00 $ 10.00 $ 10.00
--------- ---------- ---------- ----------
Income from investment operations:
Net investment income.......................... 0.47 0.08 (0.04) (0.04)
Net realized and unrealized gains (losses) on
investments.................................. 0.01 0.93 3.64 0.42
--------- ---------- ---------- ----------
Total income from investment operations......... 0.48 1.01 3.60 0.38
--------- ---------- ---------- ----------
Less: Dividends and distributions from:
Net investment income.......................... (0.14) (0.97) (0.03) --
Net realized gain on investments............... -- (0.11) (0.24) --
Tax return of capital.......................... (0.00)** -- -- (0.30)
--------- ---------- ---------- ----------
Total dividends and distributions............... (0.14) (1.08) (0.27) (0.30)
--------- ---------- ---------- ----------
Net asset value, end of period.................. $ 10.34 $ 9.93 $ 13.33 $ 10.08
========= ========== ========== ==========
Total return.................................... 4.79% 10.32% 36.20% 3.95%
========= ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period........................ $ 183,285 $2,771,720 $ 238,696 $1,554,404
========= ========== ========== ==========
Ratio of expenses to average net assets*........ 41.83% 2.70% 13.04% 4.06%
Ratio of expenses to average net assets (net of
reimbursement)*................................ 0.95% 1.35% 1.20% 1.40%
Ratio of net investment income to average net
assets*........................................ (36.29)% (0.61)% (12.19)% (3.90)%
Ratio of net investment income to average net
assets (net of reimbursement)*................. 4.59% 0.74% (0.35)% (0.43)%
</TABLE>
- ----------
* Annualized
** Less than one penny per share
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INTER- STEPHENS STEPHENS
HIGH NATIONAL INTERMEDIATE SELECT
YIELD EQUITY BOND EQUITY
Net asset value, beginning of period............ $ 10.00 $ 10.00 $ 10.00 $ 10.00
--------- --------- ---------- ---------
Income from investment operations:
Net investment income........................... 0.86 0.06 0.45 0.50
Net realized and unrealized gains (losses)
on investments................................ (0.67) 0.95 0.16 --
--------- --------- ---------- ---------
Total income from investment operations......... 0.19 1.01 0.61 0.50
--------- --------- ---------- ---------
Less: Dividends and distributions from:
Net investment income......................... (0.06) (0.07) (0.46) (0.50)
Net realized gain on investments.............. -- (0.11) -- --
Tax return of capital......................... -- (0.07) (0.00)** --
--------- --------- ---------- ---------
Total dividends and distributions............... (0.06) (0.25) (0.46) (0.50)
--------- --------- ---------- ---------
Net asset value, end of period.................. $ 10.13 $ 10.76 $ 10.15 $ 10.00
========= ========= ========== =========
Total return.................................... 1.85% 10.11% 6.08% 5.00%
========= ========= ========== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period........................ $ 315,312 $1,405,830 $4,155,696 $ 1,050
========= ========== ========== ==========
Ratio of expenses to average net assets*........ 8.78% 4.17% 2.86% 3030.02%
Ratio of expenses to average net assets (net
of reimbursement)*............................. 1.30% 1.45% 0.90% 0.90%
Ratio of net investment income to average
net assets*................................... 1.01% (2.18)% 2.54% (3,024.12)%
Ratio of net investment income to average
net assets (net of reimbursement)*........... 8.49% 0.54% 4.50% 5.00%
</TABLE>
- ----------
* Annualized
** Less than one penny per share
<PAGE>
APPENDIX A
COMPOSITE PERFORMANCE OF SUBADVISERS
The following table sets forth the composite average annual total returns of
all institutional private accounts and collective investment vehicles managed
by the subadvisers to the High-Yield Bond Fund, Equity Value Fund and Equity
Growth Fund, where the amounts and investment vehicles have investment
objectives, policies and restrictions substantially similar to the applicable
Fund and have been managed in substantially the same way that the underlying
Portfolio in which each Fund invests is managed. The data is provided to
illustrate the past performances of the subadvisers in managing substantially
similar accounts as measured against specified market indices and does not
represent the performance of the Funds. Investors should not consider this
performance data as an indication of future performance of the Funds or the
subadvisers. These composite returns are not intended to predict or suggest the
returns that might be experienced by the Funds or an individual investing in
any of the Funds.
The institutional private accounts and collective investment vehicles that are
included in the subadvisers' composites are not subject to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Funds or the Portfolios by the Investment Company Act of 1940 or the
Internal Revenue Code. The performance results of the subadvisers' composites
could have been adversely affected if the institutional private accounts and
collective investment vehicles included in the composites had been regulated as
investment companies under the federal securities law. The subadvisers'
composites presented below are unaudited. The use of a methodology different
from that used to calculate the performance data set forth below could result
in different performance data.
The subadvisers' composite performance data shown below were calculated in
accordance with recommended standards of the Association for Investment
Management and Research, retroactively applied to all time periods. All returns
presented were calculated on a total return basis and include all dividends and
interest, accrued income and realized and unrealized gains and losses, and
deductions for brokerage commissions and execution costs. Returns for each
period are adjusted to assume that all charges, expenses and fees of each Fund
and its corresponding Portfolio which are presently in effect were deducted
during such periods. All returns are for the periods ended on December 31,
1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- --------------------------------------------------------------------------------------------
DELAWARE INVESTMENT ADVISERS,
SUBADVISER TO HIGH-YIELD BOND FUND
- --------------------------------------------------------------------------------------------
SUBADVISER'S COMPOSITE(1)........ 3.65% 8.19% 7.06% 9.19% 11.58%
- --------------------------------------------------------------------------------------------
SALOMON BROTHERS HIGH-YIELD
MARKET INDEX(2).................. 4.42% 9.40% 9.14% 10.68% 9.81%
- --------------------------------------------------------------------------------------------
LIPPER HIGH CURRENT YIELD FUND
INDEX(3)......................... -0.08% 8.50% 7.63% 9.52% 10.90%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
ARK ASSET MANAGEMENT CO., INC.,
SUBADVISER TO EQUITY VALUE FUND
- --------------------------------------------------------------------------------------------
SUBADVISER'S COMPOSITE(4)........ 10.58% 18.56% 18.37% 16.57% 16.95%
- --------------------------------------------------------------------------------------------
RUSSELL 1000 VALUE INDEX(5)...... 15.63% 23.89% 20.85% 17.39% 17.46%
- --------------------------------------------------------------------------------------------
LIPPER GROWTH & INCOME FUND
INDEX(6)......................... 13.58% 20.25% 17.82% 15.54% 15.46%
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- --------------------------------------------------------------------------------------------
DRESDNER RCM GLOBAL INVESTORS LLC,
SUBADVISER TO EQUITY GROWTH FUND
- --------------------------------------------------------------------------------------------
SUBADVISER'S COMPOSITE(7)........... 46.21% 32.15% 25.56% 20.11% 18.21%
- --------------------------------------------------------------------------------------------
RUSSELL 1000 GROWTH INDEX(8)........ 38.71% 30.62% 25.70% 20.56% 22.84%
- --------------------------------------------------------------------------------------------
LIPPER GROWTH FUND INDEX(9)......... 25.69% 23.66% 19.82% 17.21% 15.71%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
MONTAG & CALDWELL INCORPORATED
SUBADVISER TO EQUITY GROWTH FUND
- --------------------------------------------------------------------------------------------
SUBADVISER'S COMPOSITE(10).......... 28.60% 30.76% 25.13% 20.98% 19.13%
- --------------------------------------------------------------------------------------------
RUSSELL 1000 GROWTH INDEX(8)........ 38.71% 30.62% 25.70% 20.56% 22.84%
- --------------------------------------------------------------------------------------------
LIPPER GROWTH FUND INDEX (9)........ 25.69% 23.66% 19.82% 17.21% 15.71%
- --------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Commencement of investment operations is January 1, 1980 for the
subadviser's composite.
(2) The Salomon Brothers High-Yield Market Index tracks the performance of
below investment-grade corporate bonds issued in the United States. The index
includes cashpay and deferred-interest bonds that are public, have a fixed
coupon and are non convertible. To enter the index, bonds must also have $50
million or more in face value outstanding, one year or more left to maturity,
and one high-yield rating by Moody's or Standard & Poor's. The index excludes
bonds of bankrupt issuers.
(3) The Lipper High Current Yield Fund Index tracks the net performance of
mutual funds which, as determined by Lipper Analytical Services, Inc., are
managed in accordance with an investment objective defined as follows: "Aim at
high (relative) current yield from fixed income securities. No quality or
maturity restrictions.
Tend to invest in lower grade debt issues".
(4) Commencement of investment operations is April 1, 1985 for the subadviser's
composite.
(5) The Russell 1000 Value Index measures the performance of those companies
included in the Russell 1000 Index with lower price-to-book ratios and lower
forecasted growth values. The Russell 1000 Index measures the performance of
the one thousand largest U.S. companies based on total market capitalization,
which represents approximately 88% of the investable U.S. equity market.
(6) The Lipper Growth Income Fund Index tracks the net performance of mutual
funds which, as determined by Lipper Analytical Services, Inc., are managed in
accordance with an investment objective defined as follows: "A fund which
combines a growth of earnings orientation and an income requirement for level
and/or rising dividends".
(7) Commencement of investment operations is January 1, 1986 for the
subadviser's composite.
(8) The Russell 1000 Growth Index measures the performance of those companies
included in the Russell 1000 Index with higher price-to-book ratios and higher
forecasted growth values. The Russell 1000 Index measures the performance of
the one thousand largest companies in the Russell 3000 Index, which represents
approximately 90% of the total market capitalization of the Russell 3000 Index
(the Russell 3000 Index represents approximately 98% of the investable U.S.
equity market).
(9) The Lipper Growth Fund Index tracks the net performance of mutual funds
which, as determined by Lipper Analytical Services, Inc., are managed in
accordance with an investment objective defined as follows: "A fund which
normally invests in companies whose long-term earnings are expected to grow
significantly faster than the earnings of the stocks represented in the major
unmanaged stock indices".
(10) Commencement of investment operations is January 1, 1986 for the
subadviser's composite.
<PAGE>
The Statement of Additional Information (SAI) provides more details about the
Funds and their policies. The SAI is incorporated by reference into this
prospectus and is legally part of it.
Additional information about each Fund's investments is available in the Funds'
Annual and Semi-Annual Reports to Shareholders. In the Funds' Annual Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected each Fund's performance.
The Annual and Semi-Annual Reports for the Funds list their portfolio holdings
and describe their performance.
To obtain free copies of the SAI and the Annual and Semi-Annual Reports or to
make other inquiries, please call toll free (800) 643-9691, Ext. 4361.
The SAI is also available from the Securities and Exchange Commission. You can
find it on the SEC Internet site at http://www.sec.gov. Information about the
Fund (including the SAI) can also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. You can get information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can receive
copies of this information by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, DC 20549-6009.
SEC file number: 811-7674
<PAGE>
Filed under Rule 497(c)
File Nos. 33-61810 and 811-7674
THE DIVERSIFIED INVESTORS FUNDS GROUP
THE DIVERSIFIED INVESTORS STRATEGIC ALLOCATION FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MAY 3, 1999
Money Market Fund: Diversified Investors Money Market Fund
Bond Funds: Diversified Investors High Quality Bond Fund
Diversified Investors Intermediate Government Bond Fund
Stephens Intermediate Bond Fund
Diversified Investors Government/Corporate Bond Fund
Diversified Investors High-Yield Bond Fund
Balanced Fund: Diversified Investors Balanced Fund
Stock Funds: Diversified Investors Stock Index Fund
Diversified Investors Equity Income Fund
Diversified Investors Equity Value Fund
Diversified Investors Growth & Income Fund
Diversified Investors Equity Growth Fund
Diversified Investors Special Equity Fund
Stephens Select Equity Fund
Diversified Investors Aggressive Equity Fund
Diversified Investors International Equity Fund
Strategic Allocation
Funds: Short Horizon Strategic Allocation Fund
Short/Intermediate Horizon Strategic Allocation Fund
Intermediate Horizon Strategic Allocation Fund
Intermediate/Long Horizon Strategic Allocation Fund
Long Horizon Strategic Allocation Fund
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
separate Prospectuses dated May 3, 1999, as supplemented from time to time
(each, a "Prospectus"), for each of the classes of shares of the Funds. This
Statement of Additional Information should be read only in conjunction with a
Prospectus, a copy of which may be obtained by an investor without charge. To
obtain a Prospectus for Diversified Class shares, please contact Diversified
Investors Securities Corp., the Funds' Distributor, at the address and
telephone number listed on the next page. To obtain a Prospectus for Stephens
Premium Class shares or Stephens Institutional Class shares, please contact the
Transfer Desk of Stephens Capital Management at (800)926-0044.
This Statement of Additional Information incorporates by reference the
financial statements of the Funds. These financial statements can be found in
the Funds' annual reports to shareholders, copies of which accompany this
Statement of Additional Information.
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.
<PAGE>
The Diversified Investors Funds Group
The Diversified Investors Strategic Allocation Funds
Four Manhattanville Road
Purchase, New York 10577
800-926-0044
The Diversified Investors Funds Group is a Massachusetts business trust
whose shares currently are divided into sixteen separate series of shares, or
funds. The Diversified Investors Strategic Allocation Funds is a Massachusetts
business trust whose shares currently are divided into five separate series of
shares, or funds. This Statement of Additional Information relates to the
shares of each Fund listed on the first page hereof.
Shares of the Funds are divided into separate classes. Each Fund other
than the Stephens Intermediate Bond Fund and Stephens Select Equity Fund issues
Diversified Class shares. In addition, each of the Money Market, Intermediate
Bond, HighYield Bond, Equity Value, Equity Growth, Special Equity, Select
Equity and International Equity Funds also issues Stephens Premium Class shares
and Stephens Institutional Class shares. For more information on classes of
shares, see page 38 and the Prospectuses.
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
PAGE
The Trusts..................................................................................1
Investment Objectives, Policies and Associated Risk Factors of the Funds....................2
Performance Information....................................................................28
Determination of Net Asset Value; Valuation of Securities .................................31
Management.................................................................................33
Investment Advisory Services...............................................................38
Custodian and Transfer Agent...............................................................47
Miscellaneous..............................................................................48
Taxation...................................................................................49
Distribution Plans.........................................................................52
Independent Accountants....................................................................54
Description of the Trusts; Fund Shares.....................................................54
Financial Statements.......................................................................55
Appendix A -- Description of Security Ratings..........................................App. A
</TABLE>
<PAGE>
THE DIVERSIFIED INVESTORS FUNDS GROUP
THE DIVERSIFIED INVESTORS STRATEGIC ALLOCATION FUNDS
THE TRUSTS
Each of The Diversified Investors Funds Group (the "Diversified
Investors Trust") and The Diversified Investors Strategic Allocation Funds (the
"Strategic Allocation Trust" and, together with the Diversified Investors
Trust, the "Trusts") is a diversified, openend management investment company.
The Diversified Investors Trust was organized as a business trust under the
laws of the Commonwealth of Massachusetts on April 23, 1993. Shares of the
Diversified Investors Trust are divided into sixteen separate series described
herein. The Strategic Allocation Trust was organized as a business trust under
the laws of the Commonwealth of Massachusetts on January 5, 1996. Shares of the
Strategic Allocation Trust are divided into five separate series described
herein. Each of the Trusts may create additional series from time to time.
Each of the Money Market, Bond (other than Stephens Intermediate Bond),
Balanced and Stock (other than Stephens Select Equity) Funds seeks its
investment objective by investing all of its assets in an underlying Portfolio
having the same investment objectives and policies. All references in this
Statement of Additional Information to one of these Funds include the Fund's
underlying Portfolio, unless otherwise noted. The Stephens Intermediate Bond
and Stephens Select Equity Funds seek their investment objectives by investing
directly in securities pursuant to the investment strategies and techniques
described herein and in the Prospectus for these Funds. Each of the Strategic
Allocation Funds seeks its investment objective by investing in a combination
of the Money Market, Bond and Stock Funds.
Each of the Portfolios (except the S&P 500 Index Master Portfolio) is a
series of Diversified Investors Portfolios. The S&P 500 Index Master Portfolio1
is a series of Master Investment Portfolio. Diversified Investors Portfolios
and Master Investment Portfolio are referred to as the "Underlying Portfolio
Trusts."
Diversified Investment Advisors, Inc. ("Diversified") is the investment
adviser of each Portfolio (except the S&P 500 Index Master Portfolio), the
Stock Index Fund, each Strategic Allocation Fund and the Stephens Intermediate
Bond and Stephens Select Equity Funds. Barclays Global Fund Advisors is the
investment adviser of the S&P 500 Index Master Portfolio.
Diversified delegates the daily management of each Portfolio of which it
is the investment adviser and each of the Stephens Funds to one or more
Subadvisers. Diversified supervises and monitors the Subadvisers. The
Subadvisers are as follows:
- --------
1 Standard & Poor's does not sponsor S&P 500 Index Master Portfolio,
nor is it affiliated in any way with Barclays Global Fund Advisors or S&P 500
Index Portfolio. "Standard & Poor's(R)," "S&P 500(R)," and "Standard & Poor's
500(R)"are trademarks of The McGraw-Hill Companies, Inc. The Portfolio is not
sponsored, endorsed, sold or promoted by Standard & Poor's and Standard &
Poor's makes no representation or warranty, express or implied, regarding the
advisability of investing in S&P 500 Index Master Portfolio.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FUND OR PORTFOLIO SUBADVISER
Money Market Portfolio....................... Capital Management Group
High Quality Bond Portfolio.................. Merganser Capital Management Corporation
Intermediate Government Bond Portfolio....... Capital Management Group
Stephens Intermediate Bond Fund.............. Stephens Capital Management
Government/Corporate Bond Portfolio.......... Capital Management Group
HighYield Bond Portfolio..................... Delaware Investment Advisers
Balanced Portfolio........................... Aeltus Investment Management, Inc.
Payden & Rygel
Equity Value Portfolio....................... Ark Asset Management Co., Inc.
Equity Income Portfolio...................... Asset Management Group
Growth & Income Portfolio.................... Putnam Advisory Company, Inc.
Equity Growth Portfolio...................... Dresdner RCM Global Investors, LLC
Montag & Caldwell Incorporated
Special Equity Portfolio..................... Pilgrim Baxter & Associates, Ltd.
RS Investment Management, L.P.
Goldman Sachs Asset Management
Westport Asset Management, Inc.
Stephens Select Equity Fund.................. Stephens Capital Management
Aggressive Equity Portfolio.................. McKinley Capital Management, Inc.
International Equity Portfolio............... Capital Guardian Trust Company
</TABLE>
INVESTMENT OBJECTIVES, POLICIES AND
ASSOCIATED RISK FACTORS
INVESTMENT OBJECTIVES
The investment objective of each Fund is described in the Prospectus for
that Fund. There can, of course, be no assurance that a Fund will achieve its
investment objective.
INVESTMENT POLICIES
The following supplements the discussion of the various investment
strategies and techniques employed by the Funds as set forth in the
Prospectuses.
The Stock Index Fund, while not prohibited from investing in the various
types of securities described below or utilizing the investment techniques
described below, will invest primarily in the stocks that make up the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500 Index"), money market
and other short-term instruments and S&P 500 Index futures.
BANK OBLIGATIONS
Bank obligations include certificates of deposit, time deposits (including
Eurodollar time deposits) and bankers' acceptances and other shortterm debt
obligations issued by domestic banks, foreign subsidiaries or foreign branches
of domestic banks, domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. The Funds have
established certain minimum credit quality standards for bank obligations in
which they invest.
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
<PAGE>
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
and time deposits, 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 risks that are
different from or are in addition to 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. 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: (a) 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 regulatory authority; and (b) 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.
U.S. GOVERNMENT AND AGENCY SECURITIES
U.S. Treasury obligations include bills, notes and bonds issued by the
U.S. Treasury and separately traded interest and principal component parts of
these obligations that are transferable through the Federal bookentry system
known as Separately Traded Registered Interest and Principal Securities
(STRIPS). STRIPS are sold as zero coupon securities. These securities are
usually structured with two classes that receive different portions of the
interest and principal payments from the underlying obligation. The yield to
maturity on the interestonly class is extremely sensitive to the rate of
principal payments on the underlying obligation. The market value of the
principalonly class generally is unusually volatile in response to changes in
interest rates. See "Zero Coupon Securities" below for more information.
U.S. Treasury securities 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.
Certain Federal agencies such as the Government National Mortgage
Association (GNMA) have been established as instrumentalities of the U.S.
government to supervise and finance certain types of activities. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, GNMA passthrough certificates, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
<PAGE>
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. Governmentsponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by law.
COMMERCIAL PAPER
Commercial paper consists of shortterm (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.
The Funds 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. "Letter of credit" paper has no limitations on
purchasers.
VARIABLE RATE AND FLOATING RATE SECURITIES
The Funds 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 Fund to invest fluctuating amounts, which
may change daily without penalty, pursuant to direct arrangements between the
Fund, 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
<PAGE>
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 adjusted
automatically at specified intervals. The interest rate on these securities may
be reset daily, weekly, quarterly, or some other reset period and may have a
floor or ceiling on interest rate charges. There is a risk that the current
interest rate on such obligations may not accurately reflect existing market
interest rates. Frequently, such obligations are backed 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 Fund'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 Fund may invest in obligations which are not so rated
only if the Fund's Subadviser determines that at the time of investment the
obligations are of comparable quality to the other obligations in which the
Fund may invest. The applicable Subadviser, on behalf of a Fund, will consider
on an ongoing basis the creditworthiness of the issuers of the floating and
variable rate demand obligations held by the Fund. The Funds will not invest
more than 15% (10% in the case of the Money Market and Stock Index Funds) 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 Fund may purchase from financial institutions participation interests in
securities in which such Fund may invest. A participation interest gives a Fund
an undivided interest in the security in the proportion that the Fund'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 Fund, 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 Fund's Subadviser must have determined
that the instrument is of comparable quality to those instruments in which a
Fund may invest. For certain participation interests, a Fund will have the
right to demand payment, on not more than seven days' notice, for all or any
part of the Fund's participation interest in the security, plus accrued
interest. As to these instruments, a Fund 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 Fund will not invest more than 15% (10% in the
case of the Money Market Fund) of its net assets in participation interests
that do not have this demand feature, and in other securities that are not
readily marketable. See "Investment Restrictions" below.
ILLIQUID SECURITIES
Each Fund may invest up to 15% (10% for the Money Market Fund) of its net
assets in illiquid securities, including restricted securities that are
illiquid.
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
<PAGE>
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. The absence
of a trading market can make it difficult to ascertain a market value for these
investments. In addition, 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.
Rule 144A under the 1933 Act 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 applicable Subadviser will monitor the liquidity of Rule 144A
securities for each Fund under the supervision of the applicable Portfolio
Trust's or Trust's Board of Trustees. In reaching liquidity decisions, the
Subadviser will consider, among other things, the following factors: (a) the
frequency of trades and quotes for the security, (b) the number of dealers and
other potential purchasers wishing to purchase or sell the security, (c) dealer
undertakings to make a market in the security and (d) 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 mechanics of the transfer).
Institutional trading in Rule 144A securities is relatively new and the
liquidity of these investments could be impaired if trading in Rule 144A
securities does not develop or if qualified institutional buyers become, for a
time, uninterested in purchasing Rule 144A securities.
UNSECURED PROMISSORY NOTES
A Fund 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 Fund's investment objective.
The Notes purchased by the Fund will have remaining maturities of 13 months or
less. The Fund will invest no more than 15% (10% in the case of the Money
Market Fund) 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 Fund cannot exercise the demand feature
described above and as to which there is no secondary market). See "Investment
Restrictions" below.
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 agreedupon date
within a number of days (usually not more than seven) from the date of
<PAGE>
purchase. The resale price reflects the purchase price plus an agreedupon
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 agreedupon 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
Fund'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 Fund 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 Funds are fully collateralized, with such collateral being marked
to market daily.
The Funds 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 brokerdealers and to repurchase them at a
mutually agreed date and price (a "reverse repurchase agreement"). At the time
a Fund enters into a reverse repurchase agreement it will place in a segregated
custodial account cash, U.S. Government securities or highgrade debt
obligations having a value equal to the repurchase price, including accrued
interest. The segregation of assets could impair the Fund's ability to meet its
current obligations or impede investment management if a large portion of the
Fund's assets are involved. Reverse repurchase agreements also involve the risk
that the market value of the securities sold by the Fund may decline below the
repurchase price of those securities.
The Funds may, together with other registered investment companies managed
by the Funds' Subadvisers or their affiliates, transfer uninvested cash
balances into a single joint account, the daily aggregate balance of which will
be invested in one or more repurchase agreements, including tri-party
subcustody repurchase arrangements.
FOREIGN SECURITIES--ALL FUNDS
The Funds 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.
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 Fund, 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 overthecounter 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 Fund's assets may be
released prior to receipt of payment, may expose a Fund to increased risk in
the event of a failed trade or the insolvency of a foreign brokerdealer. In
<PAGE>
addition, foreign brokerage commissions are generally higher than commissions
on securities traded in the United States and may be nonnegotiable. In general,
there is less overall governmental supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
MONEY MARKET FUND
The Money Market Fund may invest in the following foreign securities: (a)
U.S. dollardenominated obligations of foreign branches and subsidiaries of
domestic banks and foreign banks (such as Eurodollar CDs, which are U.S.
dollardenominated CDs issued by branches of foreign and domestic banks located
outside the United States; Eurodollar TDs ("ETDs"), which are U.S.
dollardenominated 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); (b) high quality, U.S. dollardenominated
shortterm 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 subsidiary of a
U.S. corporation, and Europaper, which is U.S. dollardenominated commercial
paper of a foreign issuer); and (c) U.S. dollardenominated obligations issued
or guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities that are determined by the Fund's
Subadviser to be of comparable quality to the other obligations in which the
Money Market Fund may invest. Such securities also include debt obligations of
supranational entities. Supranational entities include international
organizations designated or 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.
FUNDS OTHER THAN THE MONEY MARKET FUND
Not more than 5% of a Fund's assets may be invested in closedend
investment companies which primarily hold foreign securities. Investments in
such companies 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.
American Depository Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of foreign issuers provide an alternative method for a
Fund to make foreign investments. These securities are not denominated in the
same currency as the securities into which they may be converted and fluctuate
in value based on the underlying security. Generally, ADRs, in registered form,
are designed for use in U.S. securities markets and EDRs and GDRs, in bearer
form, are designed for use in European and global securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. EDRs and GDRs are European and global receipts
evidencing a similar arrangement.
The Funds 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
Forward currency exchange contracts may be entered into for each Fund for
the purchase or sale of foreign currency to hedge against adverse rate changes
or otherwise to achieve the Fund's investment objectives. A currency exchange
<PAGE>
contract allows a definite price in dollars to be fixed for securities of
foreign issuers that have been purchased or sold (but not settled) for the
Fund.
Because some Funds 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 Funds 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 Funds 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 Fund 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 are
affected 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 Fund 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 Fund's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Funds 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.
Each Fund may also enter into proxy hedges and cross hedges. In a proxy
hedge, which generally is less costly than a direct hedge, a Fund, having
purchased a security, will sell a currency whose value is believed to be
closely linked to the currency in which the security is denominated. Interest
rates prevailing in the country whose currency was sold would be expected to be
closer to those in the U.S. and lower than those of securities denominated in
the currency of the original holding. This type of hedging entails greater risk
than a direct hedge because it is dependent on a stable relationship between
the two currencies paired as proxies and the relationships can be very unstable
at times. A Fund may enter into a cross hedge if a particular currency is
expected to decrease against another currency. The Fund would sell the currency
expected to decrease and purchase a currency which is expected to increase
against the currency sold in an amount equal to some or all of the Fund's
holdings denominated in the currency sold.
Entering into 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.
The Funds (other than the International Equity Fund) will not routinely
enter into foreign currency hedging transactions with respect to security
transactions; however, the Funds may do so when their Subadvisers determine
that the transactions would be in a Fund'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
<PAGE>
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 Fund's ability to utilize forward
contracts in the manner set forth in the Prospectus for the Fund 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 Fund 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 Fund's foreign currency denominated portfolio securities and the use of such
techniques will subject the Fund to certain risks.
Even if a hedge is generally successful, 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 Fund may not always be able to
enter into foreign currency forward contracts at attractive prices and this
will limit a Fund's ability to use such contract to hedge or crosshedge its
assets. Also, with regard to a Fund's use of crosshedges, 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 Fund's cross-hedges and the movements in the exchange
rates of the foreign currencies in which the Fund's assets that are the subject
of such crosshedges are denominated.
GUARANTEED INVESTMENT CONTRACTS
The Funds may invest in guaranteed investment contracts ("GICs") issued by
insurance companies. Pursuant to such contracts, a Fund 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 Fund 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 Fund which are not readily marketable, will not exceed 15%
(10% in the case of the Money Market Fund) of the Fund'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
Forward commitments or purchases of securities on a whenissued basis are
transactions where the price of the securities is fixed at the time of
commitment and the delivery and payment ordinarily takes place beyond customary
settlement time. The interest rate realized on these securities is fixed as of
the purchase date and no interest accrues to the buyer before settlement. The
securities are subject to market fluctuation due to changes in market interest
rates; the securities are also subject to fluctuation in value pending
settlement based upon public perception of the creditworthiness of the issuer
of these securities.
<PAGE>
It is expected that, under normal circumstances, the Funds would take
delivery of such securities. When a Fund commits to purchase a security on a
"whenissued" or on a "forward delivery" basis, the Fund establishes procedures
consistent with the relevant policies of the SEC. Since those policies
currently require that an amount of a Fund's assets equal to the amount of the
purchase be held aside or segregated to be used to pay for the commitment, the
Funds expect always to have cash, cash equivalents, or high quality debt
securities sufficient to cover any commitments or to limit any potential risk.
However, although the Funds do 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 Fund may have to sell assets which have been set
aside in order to meet redemptions. Also, if a Fund determines it is advisable
as a matter of investment strategy to sell the "whenissued" or "forward
delivery" securities, the Fund 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 "whenissued" or "forward
delivery" securities themselves (which may have a value greater or less than
the Fund's payment obligation).
ZERO COUPON OBLIGATIONS
A zero coupon security pays no interest or principal to its holder during
its life. A zero coupon security is sold at a discount, frequently substantial,
and redeemed at face value at its maturity date. The market prices of zero
coupon securities are generally more volatile than the market prices of
securities of similar maturity that pay interest periodically, and zero coupon
securities are likely to react more to interest rate changes than nonzero
coupon securities with similar maturity and credit qualities.
A Fund may acquire zero coupon obligations when consistent with its
investment objective and policies. Since interest income is accrued throughout
the term of the zero coupon obligation but is not actually received until
maturity, a Fund may have to sell other securities to pay dividends based on
such accrued income prior to maturity of the zero coupon obligation.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS AND FOREIGN CURRENCIES--
FUNDS OTHER THAN THE MONEY MARKET FUND
Futures Contracts. A Fund may enter into contracts for the purchase or
sale for future delivery of fixedincome securities or foreign currencies, or
contracts based on financial indices including any index of U.S. or foreign
stocks, 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 contracts as between the clearing members of the exchange. A
Fund 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
longterm U.S. Treasury Bonds, Treasury Notes, Government National Mortgage
Association modified passthrough mortgagebacked securities and threemonth U.S.
Treasury Bills. A Fund 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 may be used to attempt
to protect the Fund's current or intended stock investments from broad
fluctuations in stock prices. For example, the Fund may sell stock index
futures contracts in anticipation of or during a decline in the market value of
the Fund'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.
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When a Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 may 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 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
Fund 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 Fund which holds or intends to acquire fixedincome securities, is to
attempt to protect the Fund from fluctuations in interest or foreign exchange
rates without actually buying or selling fixedincome securities or foreign
currencies. For example, if interest rates were expected to increase, a Fund
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 Fund. If interest rates did increase, the value of the
debt security in a Fund would decline, but the value of the futures contracts
to the Fund would increase at approximately the same rate, thereby keeping the
net asset value of the Fund from declining as much as it otherwise would have.
The Fund 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 generally more liquid than the
cash market, the use of futures contracts as an investment technique allows a
Fund 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 Fund 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 Fund could then buy debt securities on
the cash market.
When a Fund enters into futures contracts, the Fund will establish a
segregated account to cover the Fund's obligations with respect to such futures
contracts. The assets in the account will consist of cash, cash equivalents or
high quality liquid debt securities from its portfolio in an amount equal to
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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 Fund 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
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 or other trends by the applicable
Subadviser may still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Subadvisers
believe that use of such contracts will benefit the Funds, if the Subadvisers'
investment judgment about the general direction of interest rates is incorrect,
a Fund's overall performance would be poorer than if it had not entered into
any such contract. For example, if a Fund 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 Fund 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 Fund 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 Fund may have to sell securities at a time when it may be
disadvantageous to do so.
Options on Futures Contracts. The Funds may 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 securities, it may or may not be less risky than ownership of
the futures contract or underlying securities. As with the purchase of futures
contracts, when a Fund 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 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 Fund 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 Fund 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 writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or 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 Fund will retain the full amount of
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the option premium which provides a partial hedge against any decline that may
have occurred in the Fund's portfolio holdings. The 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 Fund will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Fund intends to purchase. If a put or call option the Fund has
written is exercised, the Fund will incur a loss which will be reduced by the
amount of the premium it receives. In the case of a call option written by the
Fund, the loss is potentially unlimited. 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 Fund's losses from options on futures may
to some extent be reduced or increased by changes in the value of portfolio
securities.
The Boards of Trustees of Diversified Investors Portfolios and the Trusts
have adopted the requirement that futures contracts and options on futures
contracts be used either (a) as a hedge without regard to any quantitative
limitation, or (b) for other purposes to the extent that immediately thereafter
the aggregate amount of margin deposits on all (nonhedge) futures contracts of
a Fund and premiums paid on outstanding (nonhedge) options on futures contracts
owned by the Fund does not exceed 5% of the market value of the total assets of
the Fund. In addition, the aggregate market value of the outstanding futures
contracts purchased by the Fund may not exceed 50% of the market value of the
total assets of the Fund. Neither of these restrictions will be changed by a
Board of Trustees without considering the policies and concerns of the various
applicable federal and state regulatory agencies.
Options on Foreign Currencies. A Fund 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, may 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,
the Fund may purchase put options on the foreign currency. If the value of the
currency does decline, a Fund 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 Fund 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 Fund 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 Fund 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 Fund may write options on foreign currencies for the same types of
hedging purposes. For example, where a Fund 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 Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
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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 Fund 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 Fund 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.
Losses from the writing of call options are potentially unlimited.
Accordingly, the Funds intend that any call options on foreign currencies that
they write (other than for cross-hedging purposes as described below) will be
covered. A call option written on a foreign currency by a Fund is "covered" if
the Fund 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 account by its custodian) upon conversion or exchange of another
foreign currency held in its portfolio. A call option is also covered if the
Fund 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 Fund
in cash, U.S. Government securities and other high quality liquid debt
securities in a segregated account with its custodian.
The Funds may also write call options on foreign currencies that are not
covered for crosshedging purposes. A call option on a foreign currency is for
crosshedging 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 Fund 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 Fund 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 Fund in
futures contracts, forward contracts and options on foreign currencies 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 marketmakers, 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 overthecounter. In an overthecounter 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. 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 exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default.
<PAGE>
Further, a liquid secondary market in options traded on a national securities
exchange may be more readily available than in the overthecounter market,
potentially permitting a Fund 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 exchangetraded 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, exchangetraded options on foreign
currencies involve certain risks not presented by the overthecounter 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 overthecounter and involve liquidity and credit risks which may not
be present in the case of exchangetraded currency options. A Fund's ability to
terminate overthecounter options will be more limited than with exchangetraded
options. It is also possible that brokerdealers participating in overthecounter
options transactions will not fulfill their obligations. Until such time as the
staff of the SEC changes its position, each Fund will treat purchased
overthecounter options and assets used to cover written overthecounter 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 (a) other complex foreign
political and economic factors, (b) lesser availability than in the United
States of data on which to make trading decisions, (c) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (d) the imposition of different
exercise and settlement terms and procedures and margin requirements than in
the United States, and (e) lesser trading volume.
The successful use of futures contracts, options on futures contracts and
options on foreign currencies draws upon the applicable Subadviser's skill and
experience with respect to such instruments. Should stock prices, interest or
exchange rates move in an unexpected manner, a Fund may not achieve the
anticipated benefits of futures contracts or options on futures contracts or
foreign currencies 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 or
foreign currencies and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
OPTIONS ON SECURITIES--FUNDS OTHER THAN THE MONEY MARKET FUND
The Funds may write (sell) covered call and put options to a limited
extent on their portfolio securities ("covered options"). However, a Fund 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 Fund.
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When a Fund 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 Fund 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 Fund has no control, the Fund must
sell the underlying security to the option holder at the exercise price. By
writing a covered call option, a Fund 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 Fund writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Fund at the specified
exercise price at any time during the option period. If the option expires
unexercised, the Fund 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
Fund has no control, the Fund must purchase the underlying security from the
option holder at the exercise price. By writing a covered put option, a Fund,
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 Fund will
only write put options involving securities for which a determination is made
at the time the option is written that the Fund wishes to acquire the
securities at the exercise price.
A Fund 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 Fund 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.
When a Fund writes an option, an amount equal to the net premium received
by the Fund is included in the liability section of the Fund'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
Fund enters into a closing purchase transaction, the Fund 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 Fund 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. Securities against
which call options are written will be segregated on the books of the custodian
for the Fund.
A Fund may purchase call and put options on any securities in which it may
invest. A Fund 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 Fund, in exchange for the premium paid, to purchase a
security at a specified price during the option period. A Fund 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 Fund 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 Fund, in exchange for the premium paid, to sell a
<PAGE>
security, which may or may not be held in the Fund'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 Fund's
portfolio securities. Put options also may be purchased by a Fund for the
purpose of affirmatively benefiting from a decline in the price of securities
which the Fund does not own. A Fund 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.
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 Funds may engage in overthecounter options transactions with
brokerdealers who make markets in these options. The ability to terminate
overthecounter option positions is more limited than with exchangetraded option
positions because the predominant market is the issuing broker rather than an
exchange, and may involve the risk that brokerdealers participating in such
transactions will not fulfill their obligations. To reduce this risk, the Funds
will purchase such options only from brokerdealers 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 applicable Subadviser
will monitor the creditworthiness of dealers with whom a Fund enters into such
options transactions under the general supervision of Diversified and the
applicable Board of Trustees.
OPTIONS ON SECURITIES INDICES--FUNDS OTHER THAN THE MONEY MARKET FUND
In addition to options on securities, the Funds 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
Funds generally will only purchase or write such an option if the applicable
Subadviser believes the option can be closed out.
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. A Fund will not purchase such options unless the
applicable Subadviser believes 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 Funds' 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, a Fund may be forced to liquidate portfolio
securities to meet settlement obligations.
<PAGE>
SHORT SALES "AGAINST THE BOX"--FUNDS OTHER THAN THE MONEY MARKET FUND
In a short sale, a Fund sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. A Fund 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 Fund engages in a short sale, the collateral for the short
position will be maintained by its custodian or qualified subcustodian. While
the short sale is open, a Fund 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 Fund's long position.
The Funds will not engage in short sales against the box for investment
purposes. A Fund 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). In such
case, any future losses in a Fund'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 Fund owns. There are certain additional transaction costs
associated with short sales against the box, but the Funds endeavor to offset
these costs with the income from the investment of the cash proceeds of short
sales.
As a nonfundamental operating policy, it is not expected that more than
40% of a Fund's total assets would be involved in short sales against the box.
The Funds do not currently intend to engage in such sales.
REAL ESTATE INVESTMENT TRUSTS
Real Estate Investment Trusts ("REITs") pool investors' funds for
investment primarily in income producing real estate or real estate related
loans or interests. A REIT is not taxed on income distributed to its
shareholders or unitholders if it complies with regulatory requirements
relating to its organization, ownership, assets and income and a regulatory
requirement that it distribute to its shareholders or unitholders as least 95%
of its taxable income for each taxable year. Generally, REITs can be classified
as Equity REITs, Mortgage REITs and hybrid REITs. Equity REITs invest the
majority of their assets directly in real property and derive their income
primarily through rents and capital gains from appreciation realized through
property sales. Equity REITs may be affected by changes in the value of the
underlying property owned by the REITs. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive their income primarily from
interest payments. Mortgage REITs are sensitive to the credit quality of the
underlying borrowers. Hybrid REITs combine the characteristics of both Equity
and Mortgage REITs. The value of REITs may be affected by management skill,
cash flow and tax and regulatory requirements. REITs are also subject to risks
generally associated with investments in real estate. A Fund will indirectly
bear its proportionate share of any expenses, including management fees, paid
by a REIT in which it invests.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend securities from its portfolio to brokers, dealers and
financial institutions (but not individuals) if cash, U.S. Government
securities or other high quality debt obligations equal to at least 100% of the
<PAGE>
current market value of the securities loaned (including accrued interest
thereon) plus the interest payable to the Fund with respect to the loan is
maintained with the Fund. In determining whether or not to lend a security to a
particular broker, dealer or financial institution, the Fund's Subadviser
considers all relevant facts and circumstances, including the size,
creditworthiness and reputation of the broker, dealer or financial institution.
Any loans of portfolio securities are fully collateralized based on values that
are marked to market daily. No Fund enters into any portfolio security lending
arrangements having a duration longer than one year. Any securities that a Fund
receives as collateral do not become part of its portfolio at the time of the
loan and, in the event of a default by the borrower, the Fund will, if
permitted by law, dispose of such collateral except for such part thereof that
is a security in which the Fund is permitted to invest. During the time
securities are on loan, the borrower will pay the Fund any accrued income on
those securities, and the Fund may invest the cash collateral and earned income
or receive an agreed-upon fee from a borrower that has delivered
cash-equivalent collateral. In the event of the bankruptcy of the other party
to a securities loan, the Fund could experience delays in recovering either the
securities lent or cash. To the extent that, in the meantime, the value of the
securities lent has increased or the value of the securities purchased has
decreased, a Fund could experience a loss. No Fund will lend securities having
a value that exceeds one-third of the current value of its total assets. Loans
of securities by a Fund are subject to termination at the Fund's or the
borrower's option. A Fund may pay reasonable administrative and custodial fees
in connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker.
INVESTMENTS IN WARRANTS
The Stock Index Fund may invest up to 5% of net assets at the time of
purchase in warrants (other than those that have been acquired in units or
attached to other securities), including not more than 2% of each of their net
assets in warrants which are not listed on the New York or American Stock
Exchange. A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specified amount of the corporation's
capital stock at a set price for a specified period of time. The prices of
warrants do not necessarily correlate with the prices of the underlying
securities. The Stock Index fund may only purchase warrants on securities in
which the Fund may invest directly.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may, from time to time, take temporary defensive positions that
are inconsistent with the Fund's principal investment strategies in attempting
to respond to adverse market, political or other conditions. When doing so, the
Fund may invest without limit in high quality money market and other short-term
instruments, and may not be pursuing its investment goal. These investments may
result in a lower yield than would be available from investments with a lower
quality or longer term.
CERTAIN OTHER OBLIGATIONS
Each Fund may invest in instruments other than those listed previously,
provided such investments are consistent with the Fund'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 Subadvisers also make their own
<PAGE>
evaluations of these securities. After purchase by a Fund, an obligation may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event would require a Fund to dispose of the
obligation, but the applicable Subadviser will consider such an event in its
determination of whether the Fund should continue to hold the obligation. A
description of the ratings used herein and in the Prospectuses is set forth in
Appendix A.
Except as stated otherwise, all investment policies and restrictions
described herein are nonfundamental, and may be changed without prior
shareholder approval.
INVESTMENT RESTRICTIONS
The "fundamental policies" of each Fund and each Portfolio 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 each
Prospectus means, with respect to a Fund (or a Portfolio), the lesser of (i)
67% or more of the outstanding voting 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 a Money Market, Bond, Balanced or Stock Fund is requested to vote
on a fundamental policy of a Portfolio, the Fund (except in limited
circumstances as permitted by applicable rules and regulations) will either
hold a meeting of its shareholders and cast its vote as instructed by
shareholders, or otherwise vote in accordance with applicable law. Whenever a
Strategic Allocation Fund is requested to vote on a fundamental policy of an
underlying Fund, the Strategic Allocation Fund will vote its shares in
proportion to the vote of all shares of the underlying Fund. 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 Fund's or Portfolio's total assets
or the value of a Fund's or Portfolio's securities, or a later change in the
rating of a portfolio security, will not be considered a violation of the
relevant policy.
MONEY MARKET, BOND, BALANCED AND STOCK FUNDS AND PORTFOLIOS (OTHER THAN THE
STOCK INDEX FUND AND THE S&P 500 INDEX MASTER PORTFOLIO)
Fundamental Policies. As a matter of fundamental policy, no Money Market,
Bond, Balanced or Stock Portfolio (or Money Market, Bond, Balanced or Stock
Fund, except for the Stock Index Fund and the S&P 500 Index Master Portfolio)
may (except that no investment restriction of a Fund shall prevent a Fund from
investing all of its assets in an openend investment company with substantially
the same investment objective 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.
<PAGE>
(2) Underwrite securities issued by other persons except insofar as
the Portfolio Trusts 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
shortterm obligations or (c) by purchasing debt securities of types
distributed publicly or privately.
(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 Trust (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.
For purposes of restriction (1) above, arrangements with respect to
securities lending are not treated as borrowing.
As a matter of fundamental policy, the Stock Index Fund may not (except
that no investment restriction of the Fund shall prevent the Fund from
investing all of its assets in an openend investment company with the same or a
similar investment objective as the Fund):
(1) Borrow money, except that as a temporary measure for
extraordinary or emergency purposes it may borrow in an amount not to
exceed 1/3 of the current value of its net assets, including the amount
borrowed, or purchase any securities at any time at which borrowings
exceed 5% of the total assets of the Fund taken at market value. It is
intended that the Fund would borrow money only from banks and only to
accommodate requests for the repurchase of shares of the Fund while
effecting an orderly liquidation of portfolio securities.
(2) Underwrite securities issued by other persons except that all or
any portion of the assets of the Fund may be invested in one or more
investment companies, to the extent not prohibited by the 1940 Act, the
rules and regulations thereunder, and exemptive orders granted under such
Act, and except insofar as the Fund may technically be deemed an
underwriter under the Securities Act in selling a security.
(3) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loan not exceed 30% of the
Fund's total assets (taken at market value), (b) through the use of
<PAGE>
repurchase agreements or fixed time deposits or the purchase of short-term
obligations or (c) by purchasing all or a portion of an issue of debt
securities of types commonly distributed privately to financial
institutions. The purchase of short-term commercial paper or a portion of
an issue of debt securities which is part of an issue to the public shall
not be considered the making of a loan.
(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 in the ordinary course of business (the foregoing
shall not be deemed to preclude the Fund from purchasing or selling
futures contracts or options thereon, and the Fund reserves the freedom of
action to hold and to sell real estate acquired as a result of the
ownership of securities by the Fund).
(5) Concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of the Fund's investment
objective, up to 25% of its assets, at market value at the time of each
investment, may be invested in any one industry, except that positions in
futures contracts shall not be subject to this restriction and except that
this restriction shall not apply to any industry in which the S&P 500
Index (or any other index which the Fund selects to track its performance)
becomes concentrated to the extent the Fund likewise becomes concentrated.
(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.
Non-Fundamental Policies. Each Fund (other than the Stock Index Fund and
the Stephens Intermediate Bond and Stephens Select Equity Funds) will not, as a
matter of operating policy, acquire any securities of registered open-end
investment companies or registered unit investment trusts in reliance on
Section 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act. This policy does not
prevent a Fund from investing in securities of registered open-end investment
companies or registered unit investment trusts in reliance on any other
provision of applicable law or regulation.
Each Portfolio will not, as a matter of operating policy, acquire any
securities of registered open-end investment companies or registered unit
investment trusts in reliance on Section 12(d)(1)(F) or Section 12(d)(1)(G) of
the 1940 Act.
These policies may be changed by the Board of Trustees of Diversified
Investors Portfolios or the Diversified Investors Trust.
STRATEGIC ALLOCATION FUNDS
Fundamental Policies. As a matter of fundamental policy, each Strategic
Allocation Fund may not:
(1) borrow money, except each Fund may borrow as a temporary measure for
extraordinary or emergency purposes, and then only in amounts not
exceeding 30% of its total assets valued at market. Each Fund will
not borrow in order to increase income (leveraging), but only to
facilitate redemption requests which might otherwise require untimely
investment liquidations;
(2) make loans, although the underlying Portfolios may purchase money
market securities and enter into repurchase agreements;
<PAGE>
(3) purchase securities on margin;
(4) mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the Funds as security for indebtedness except as
may be necessary in connection with permissible borrowings, in which
event such mortgaging, pledging, or hypothecating may not exceed 30%
of each Fund's total assets, valued at market;
(5) purchase or sell real estate;
(6) issue senior securities (except permitted borrowings);
(7) effect short sales of securities; or
(8) underwrite securities issued by other persons, except to the extent
the Funds may be deemed to be underwriters within the meaning of the
Securities Act of 1993 in connection with the purchase and sale of
their portfolio securities in the ordinary course of pursuing their
investment programs.
In addition, as a matter of fundamental policy, each Strategic Allocation
Fund may engage in futures and options transactions through investments in the
underlying Funds.
Non-Fundamental Policies. Because of its investment objectives and
policies, each Strategic Allocation Fund will concentrate more than 25% of its
assets in the mutual fund industry. In accordance with the Strategic Allocation
Funds' investment programs set forth in the Prospectus, each Strategic
Allocation Fund may invest more than 25% of its assets in certain of the Money
Market, Bond and Stock Funds. However, each of the Funds in which each
Strategic Allocation Fund will invest will not concentrate more than 25% of its
total assets in any one industry (except that the Money Market Fund (through
the Money Market Portfolio) reserves the right to concentrate 25% or more of
its assets in obligations of domestic branches of domestic banks).
S&P 500 INDEX MASTER PORTFOLIO
As a matter of fundamental policy, the S&P 500 Index Master Portfolio may
not:
(1) Invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of its total assets may be
invested, and securities issued or guaranteed by the U.S. Government,
or its agencies or instrumentalities may be purchased, without regard
to such limitation.
(2) Hold more than 10% of the outstanding voting securities of any single
issuer. This Investment Restriction applies only with respect to 75%
of its total assets.
(3) Invest in commodities, except that the Portfolio may purchase and
sell (i.e., write) options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts
or indexes.
(4) Purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but the Portfolio may
purchase and sell securities that are secured by real estate or
issued by companies that invest or deal in real estate.
(5) Borrow money, except to the extent permitted under the 1940 Act,
except that the Portfolio may borrow up to 20% of the current value
<PAGE>
of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up
to 20% of the current value of its net assets (but investments may
not be purchased while any such outstanding borrowing in excess of 5%
of its net assets exists). For purposes of this investment
restriction, the Portfolio's entry into options, forward contracts,
futures contracts, including those relating to indexes, and options
on future contracts or indexes shall not constitute borrowing to the
extent certain segregated accounts are established and maintained by
the Portfolio.
(6) Make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements. However, the Portfolio may
lend its portfolio securities in an amount not to exceed one-third of
the value of its total assets. Any loans of portfolio securities will
be made according to guidelines established by the Securities and
Exchange Commission and Master Investment Portfolio's Board of
Trustees.
(7) Act as an underwriter of securities of other issuers, except to the
extent the Portfolio may be deemed an underwriter under the
Securities Act of 1933, as amended, by virtue of disposing of
portfolio securities.
(8) Invest 25% or more of its total assets in the securities of issuers
in any particular industry or group of closely related industries and
except that there shall be no limitation with respect to investments
in (i) obligations of the U.S. Government, its agencies or
instrumentalities; and (ii) any industry in which the S&P 500 Index
becomes concentrated to the same degree during the same period.
(9) Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act), except to the extent the activities permitted in
Investment Restriction Nos. 3 and 5 may be deemed to give rise to a
senior security.
(10) Purchase securities on margin, but the Portfolio may make margin
deposits in connection with transactions in options, forward
contracts, futures contracts, including those related to indexes, and
options on futures contracts or indexes.
Non-fundamental Policies: The S&P 500 Index Master Portfolio may not as a
matter of operating policy:
(1) Invest in the securities of a company for the purpose of exercising
management or control, but the Portfolio will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
(2) Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to
the purchase of securities on a when-issued or forward commitment
basis and the deposit of assets in escrow in connection with writing
covered put and call options and collateral and initial or variation
margin arrangements with respect to options, forward contracts,
futures contracts, including those relating to indexes, and options
on futures contracts or indexes.
(3) Purchase, sell or write puts, calls or combinations thereof, except
as may be described in the Portfolio's offering documents.
(4) Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors)
<PAGE>
unless the securities are fully guaranteed or insured by the U.S.
Government, a state, commonwealth, possession, territory, the
District of Columbia or by an entity in existence at least three
years, or the securities are backed by the assets and revenues of any
of the foregoing, if such purchase would cause the value of its
investments in all such companies to exceed 5% of the value of its
total assets.
(5) Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are
illiquid, if, in the aggregate, more than 15% of the value of the
Portfolio's net assets would be so invested.
(6) Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
(7) Purchase or retain securities of any issuer if the officers or
Trustees of Diversified Investors Trust, Master Investment Portfolio,
or either Barclays or Diversified owning beneficially more than
onehalf of one percent (0.5%) of the securities of the issuer
together owned beneficially more than 5% of such securities.
The non-fundamental policies (1) through (7) may be changed by the Board
of Trustees of the Master Investment Portfolio at any time.
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 Fund if the applicable
Subadviser believes that a transaction net of costs (including custodian
charges) will help achieve the Fund's investment objective.
A Fund's purchases 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 Funds do not anticipate
paying brokerage commissions in such transactions.
BROKERAGE TRANSACTIONS. Each Fund's advisers may use brokers or dealers
for Fund transactions who also provide brokerage and research services to the
Fund or other accounts over which the advisers exercise investment discretion.
A Fund may "pay up" for brokerage services, meaning that it is authorized to
pay a broker or dealer who provides these brokerage and research services a
commission for executing a portfolio transaction which is higher than the
commission another broker or dealer would have charged. However, a Fund will
"pay up" only if the applicable adviser determines in good faith that the
higher commission is reasonable in relation to the brokerage and research
services provided, viewed in terms of either the particular transaction or all
of the accounts over which the adviser exercises investment discretion.
Investment decisions for a Fund will be made independently from those for
any other account or investment company that is or may in the future become
managed by the Fund's Subadviser or its affiliates. If, however, the Fund and
other investment companies or accounts managed by the Subadviser 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
<PAGE>
received by the Fund or the size of the position obtainable for the Fund. In
addition, when purchases or sales of the same security for the Fund 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.
The following Portfolios paid the approximate brokerage commissions
indicated for the fiscal years noted below:
Balanced Portfolio:
Fiscal year ended December 31, 1996: $317,179
Fiscal year ended December 31, 1997: $324,465
Fiscal year ended December 31, 1998: $488,301
Equity Income Portfolio
Fiscal year ended December 31, 1996: $565,943
Fiscal year ended December 31, 1997: $659,256
Fiscal year ended December 31, 1998: $855,733
Equity Value Portfolio
Fiscal year ended December 31, 1996: $64,207
Fiscal year ended December 31, 1997: $548,229
Fiscal year ended December 31, 1998: $890,565
Growth & Income Portfolio
Fiscal year ended December 31, 1996: $397,075
Fiscal year ended December 31, 1997: $390,268
Fiscal year ended December 31, 1998: $728,627
Equity Growth Portfolio
Fiscal year ended December 31, 1996: $670,631
Fiscal year ended December 31, 1997: $483,139
Fiscal year ended December 31, 1998: $853,305
Special Equity Portfolio
Fiscal year ended December 31, 1996: $678,431
Fiscal year ended December 31, 1997: $1,017,376
Fiscal year ended December 31, 1998: $1,495,526
Aggressive Equity Portfolio
Fiscal year ended December 31, 1996: $15,490
Fiscal year ended December 31, 1997: $48,943
Fiscal year ended December 31, 1998: $114,263
International Equity Portfolio
Fiscal year ended December 31, 1996: $211,629
Fiscal year ended December 31, 1997: $295,967
Fiscal year ended December 31, 1998: $414,060
<PAGE>
PERFORMANCE INFORMATION
Fund performance may be quoted in advertising, shareholder reports and
other communications. Each Fund may provide its yield and/or total return for
certain periods and may also quote fund rankings 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. These performance figures are calculated in the following manner for each
Fund:
YIELD
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 preexisting Money Market Fund account having a balance of one
share of a class 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., multiplying the base period return by 365/7). The net change
in the value of the account reflects the value of additional shares of a class
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 Fund, 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 price per share of each class of the Money Market Fund 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
Diversified or the Fund's Subadviser over certain time periods.
Comparative performance information may be used from time to time in
advertising or marketing the shares of each class of the Money Market Fund,
including data from Lipper Analytical Services, Inc., Morningstar, Inc., CDA
and other publications.
The annualized current seven-day yield of the Diversified Class shares of
the Money Market Fund for the year ended December 31, 1998 was 5.00%. For the
same period, the annualized effective seven-day yield, based upon dividends
declared daily and reinvested monthly, of the Diversified Class shares of the
Money Market Fund was 5.12%.
ALL OTHER FUNDS:
The yield quotation of each class will be based on the annualized net
investment income per share of the Class over a 30day period. The current yield
for each class is calculated by dividing the net investment income per share of
the class earned during the period by the net asset value per share of the
class on the last day of that period. The resulting figure is then annualized.
<PAGE>
Net investment income per share of a class is determined by dividing (i) the
dividends and interest earned during the period attributable to a class, minus
accrued expenses for the period attributable to a class, by (ii) the average
number of shares of the class entitled to receive dividends during the period.
TOTAL RETURNS
The total return of each class 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 in a class (with all distributions
reinvested) to reach the value of that investment at the end of the periods.
The Funds may also calculate total rates of return which represent aggregate
performance over a period of year-by-year performance.
Total returns calculated for any of the following 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
MONY Group, Inc. ("MONY") (formerly known as The Mutual Life Insurance Company
of New York) 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
Pooled Separate Account performance will only be included, however, from
the date that the Pooled Separate Account adopted investment objectives,
policies and practices that are, and was managed in a manner that is, in all
material respects the same as the applicable Fund. This Pooled Separate Account
performance has been adjusted in a one-time recalculation to reflect fees,
charges and expenses in effect at the time the Portfolios commenced operations.
The 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 or the Code. If the Pooled Separate Accounts had been so
registered under that Act, investment performance might have been adversely
affected.
Historical performance information for periods prior to the establishment
of the Stephens Premium Class shares or Stephens Institutional Class shares for
a Fund (other than the Stephens Intermediate Bond and Select Equity Funds) will
be that of the respective Diversified Class shares for that Fund and will be
presented in accordance with applicable SEC staff interpretations.
Any yield or total return quotation provided for a class of shares of a
Fund should not be considered as representative of the performance of that
class of shares in the future since the net asset value of shares of the class
will vary based not only on the type, quality and maturities of the securities
held in the Fund or Portfolio(s), but also on changes in the current value of
<PAGE>
such securities and on changes in the expenses of the class of shares and of
the Fund and corresponding 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 a class to yields and total rates of
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 nonstandardized 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.
Financial Times, Europe's business newspaper, which features from
time to time articles on international or countryspecific 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.
Investor's Daily, a daily newspaper that features financial, economic
and business news.
<PAGE>
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis,
a weekly publication of industrywide 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.
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.
World Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
The performance of the Strategic Allocation Funds may also be compared to
benchmarks consisting of a combination of unmanaged indices, such as the Lehman
Aggregate Bond Index, the Russell 1000 Value Index, the Russell 2000 Small Cap
Index, the Salomon 90-Day Treasury Index, and the EAFE GDP Equity Index. When a
Strategic Allocation Fund's performance is compared to such a combined
benchmark, the percentage of each unmanaged index included in the benchmark
will be disclosed.
DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES
Each Fund determines the net asset value of each class of its shares each
day on which the New York Stock Exchange is open for trading. As a result, a
Fund will normally determine the net asset value of its classes every weekday
except for the following holidays or the days on which they are observed: New
Year's Day, Martin Luther King Jr. 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, normally 4:00 p.m., New York time, by dividing the
total assets of a Fund attributable to a class less all of the liabilities
<PAGE>
attributable to that class, by the total number of shares of that class
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.
Trading in securities on most nonU.S. exchanges and overthecounter 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 nonU.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 may be valued at
fair value in accordance with procedures established by and under the general
supervision of the Boards of Trustees of the Portfolio Trusts and the Trusts.
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 shortterm 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 dealersupplied valuations and electronic data processing
techniques that take into account appropriate factors such as institutionalsize
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 overthecounter prices, since such
valuations are believed to reflect more accurately the fair value of such
securities. Shortterm obligations which mature in 60 days or less are valued at
amortized cost, which approximates fair value as determined by the applicable
Board of 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 shortterm
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 Boards of
Trustees of the applicable Trust or Portfolio Trust.
Interest income on longterm 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 shortterm 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, Diversified, under the supervision of the Board of Trustees of the
applicable Trust or Portfolio Trust, in good faith, will establish a conversion
rate for such currency.
A determination of fair value used in calculating net asset value must be
made in good faith utilizing procedures approved by the Boards of Trustees of
the Trusts and the Portfolio Trusts. 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 Fund 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: (a) the fundamental analytical
data relating to the investment; (b) the nature and duration of restrictions on
<PAGE>
disposition of the securities; and (c) 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 a Fund, may add to or reduce
its investment in the Portfolio on each day that the New York Stock Exchange is
open for trading. As of 4:00 p.m. (New York time) (or any earlier close of
regular trading on the Exchange) 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 (a) the numerator of which
is the value of such investor's investment in the Portfolio as of 4:00 p.m. (or
the earlier close of regular trading on the Exchange) 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 (b) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m. (or the earlier close of regular trading on the Exchange) 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. (or the
earlier close of regular trading on the Exchange) on the following day the New
York Stock Exchange is open for trading.
MANAGEMENT
Each Fund other than the Strategic Allocation Funds is supervised by the
Board of Trustees of The Diversified Investors Funds Group. Each Strategic
Allocation Fund is supervised by the Board of Trustees of The Diversified
Investors Strategic Allocation Funds. Each Portfolio other than the S&P 500
Index Master Portfolio is supervised by the Board of Trustees of Diversified
Investors Portfolios. The S&P 500 Index Master Portfolio is supervised by the
Board of Trustees of the Master Investment Portfolio.
The respective Trustees and officers of each Trust and the Portfolio
Trusts 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 a
Trust or a Portfolio Trust, as the case may be. Unless otherwise indicated, the
address of each Trustee and officer of the Trusts and Diversified Investors
Portfolios is Four Manhattanville Road, Purchase, New York 10577 and the
address of each Trustee and officer of the Master Investment Portfolio is 111
Center Street, Little Rock, Arkansas 72201.
TRUSTEES OF EACH TRUST
Robert Lester Lindsay............ Retired. Executive Vice President, The
MONY Group, Inc. (f/k/a The Mutual Life
Insurance Company of New York) (prior to
July 1989); His address is Two Huguenot
Center, Tenafly, New Jersey 076702520. Age:
64.
<PAGE>
Nikhil Malvania.................. Management Consultant and Principal,
Redding Consultants (since 1999); Partner,
DeanerMalvania Associates (1991 to 1999).
Manager and Vice President, Strategic
Planning Associates (prior to 1991). His
address is 88 Perry Street, New York, New
York 10014. Age: 47.
Mark Mullin*..................... Vice President, Diversified (since April,
1995). Portfolio Manager, AEGON Netherlands
(April 1993 to March 1995). Age: 35.
Joyce Galpern Norden............. Vice President, Institutional Advancement,
Reconstructionist Rabbinical College (since
September 1996). CoDirector, Woman's Health
Clinical Research Program Medical Center,
University of Pennsylvania (1993 -
September 1995). Her address is 505 Redleaf
Road, Wynnewood, Pennsylvania. Age: 59.
Tom A. Schlossberg*.............. President and Chief Executive Officer,
Diversified (since December 1993).
Executive Vice President and Head of
Pension Operations, The MONY Group, Inc.
(The Mutual Life Insurance Company of New
York) (January 1993 to December 1993). Age:
49.
TRUSTEES OF DIVERSIFIED INVESTORS PORTFOLIOS
In addition to the Trustees below, Messrs. Schlossberg and Mullin serve
as Trustees of Diversified Investors Portfolios.
Neal M. Jewell................... Consultant (since 1995). Independent
Trustee, EAI Select (a registered
investment company) (since 1995); Executive
Vice President (November 1991 to January
1995), Director of Overseas Pensions
(January 1990 to October 1991), American
International Group Asset Management. His
address is 355 Thornridge Drive, Stamford,
Connecticut 06903. Age: 64.
Eugene M. Mannella............... Executive Vice President, Investment
Management Services, Inc. (since August
1993). President, Brooks Asset Management
LLC; President Arapahs Partners LLC; Senior
Vice President, Lehman Brothers Inc. (May
1986 to August 1993). His address is Two
Orchard Neck Road, Center Moriches, New
York 11934. Age: 45.
Patricia L. Sawyer............... President and Executive Search Consultant,
Smith & Sawyer LLC (since 1990). Her
address is Smith & Sawyer LLC, P.O. Box
8063, Vero Beach, Florida 32963. Age: 48.
OFFICERS OF EACH TRUST AND DIVERSIFIED INVESTORS PORTFOLIOS
Mr. Schlossberg is President, Chief Executive Officer and Chairman of the
Board. Each other officer also holds the same position indicated with each
Trust and Diversified Investors Portfolios.
<PAGE>
Robert F. Colby.................. Secretary; Vice President and Chief
Corporate Counsel, Mutual Life Insurance
Company of New York (April 1993 to December
1993); Vice President and General Counsel,
Diversified (since November 1993); Vice
President of Diversified Investors
Securities Corp. ("DISC") (since November
1993); Vice President and Assistant
Secretary, AUSA Life Insurance Company,
Inc. (since March, 1995). Age: 43.
Alfred C. Sylvain................ Treasurer; Vice President (since April
1994), Treasurer and Assistant Secretary
(since November 1993) of Diversified;
Director (since February 1995) and
Treasurer (since January 1994) of DISC.
Age: 47.
John F. Hughes................... Assistant Secretary; Vice President and
Senior Counsel, Diversified (since November
1993); Vice President, AUSA Life Insurance
Company (since November, 1993) Assistant
Secretary, DISC (since November 1993). Age:
57.
The Declaration of Trust of each Trust provides that each Trust will
indemnify its Trustees and officers as described below under "Description of
the Trusts; Fund Shares."
TRUSTEES OF THE MASTER INVESTMENT PORTFOLIOS
Jack S. Euphrat.................. Private Investor. His address is 415 Walsh
Road, Atherton, California 94027. Age: 76.
R. Greg Feltus*.................. Senior Executive Vice President of Stephens
Inc.; Manager of Financial Services Group;
President of Stephens Insurance Services,
Inc.; Senior Vice President of Stephens
Sports Management Inc.; and President of
Investors Brokerage Insurance, Inc. Age:
47.
W. Rodney Hughes................. Private Investor. His address is 31
Dellwood Court, San Rafael, California
94901. Age: 72.
OFFICERS OF THE MASTER INVESTMENT PORTFOLIO
Mr. Feltus is President of the Master Investment Portfolio.
Richard H. Blank, Jr............. Chief Operating Officer, Secretary and
Treasurer of Master Investment Portfolios;
Vice President of Stephens Inc.; Director
of Stephens Sports Management Inc.; and
Director of Capo Inc. Age: 42.
<PAGE>
COMPENSATION
For the fiscal year ended December 31, 1998, the Trusts provided the
following compensation to the Trustees.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
PENSION OR
AGGREGATE AGGREGATE RETIREMENT COMPENSATION
COMPENSATION COMPENSATION BENEFITS ESTIMATED FROM THE TRUSTS
FROM THE FROM THE ACCRUED AS PART ANNUAL BENEFITS AND FUND
DIVERSIFIED STRATEGIC OF FUND UPON COMPLEX PAID TO
NAME OF PERSON, POSITION INVESTORS TRUST ALLOCATION TRUST EXPENSES RETIREMENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------
TOM A. SCHLOSSBERG
TRUSTEE None None None None None
- -------------------------------------------------------------------------------------------------------------------
ROBERT L. LINDSAY
TRUSTEE $9,750 $3,250 None None $13,000
- -------------------------------------------------------------------------------------------------------------------
NIKHIL MALVANIA
TRUSTEE $9,750 $3,250 None None $13,000
- -------------------------------------------------------------------------------------------------------------------
MARK MULLIN
TRUSTEE None None None None None
- -------------------------------------------------------------------------------------------------------------------
JOYCE GALPERN NORDEN
TRUSTEE $9,750 $3,250 None None $13,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal year ended December 31, 1998, Diversified Investors
Portfolios provided the following compensation to its Trustees.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
AGGREGATE
COMPENSATION PENSION OR COMPENSATION
FROM DIVERSIFIED RETIREMENT BENEFITS ESTIMATED ANNUAL FROM THE TRUSTS AND
INVESTORS ACCRUED AS PART OF BENEFITS UPON FUND COMPLEX PAID
NAME OF PERSON,POSITION PORTFOLIOS FUND EXPENSES RETIREMENT TO TRUSTEES
- -------------------------------------------------------------------------------------------------------------
TOM A. SCHLOSSBERG
TRUSTEE None None None None
- -------------------------------------------------------------------------------------------------------------
NEAL M. JEWELL
TRUSTEE $9,750 None $4,500 $14,250
- -------------------------------------------------------------------------------------------------------------
EUGENE M. MANNELLA
TRUSTEE $9,750 None $4,500 $14,250
- -------------------------------------------------------------------------------------------------------------
MARK MULLIN
TRUSTEE None None $3,250 $3,250
- -------------------------------------------------------------------------------------------------------------
PATRICIA L. SAWYER
TRUSTEE $13,000 None None $13,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
For the fiscal year ended February 28, 1999, the Master Investment
Portfolio provided the following compensation to its Trustees:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
AGGREGATE PENSION OR
COMPENSATION RETIREMENT ESTIMATED COMPENSATION
FROM THE BENEFITS ACCRUED ANNUAL BENEFITS FROM THE TRUSTS AND
MASTER INVESTMENT AS PART OF FUND UPON FUND COMPLEX PAID
NAME OF PERSON, POSITION PORTFOLIO EXPENSES RETIREMENT TO TRUSTEES1
- -------------------------------------------------------------------------------------------------------------
JACK S. EUPHRAT
TRUSTEE None None None $11,250
- -------------------------------------------------------------------------------------------------------------
R. GREG FELTUS
TRUSTEE None None None None
- -------------------------------------------------------------------------------------------------------------
THOMAS S. GOHO
TRUSTEE None None None $11,250
- -------------------------------------------------------------------------------------------------------------
W. RODNEY HUGHES
TRUSTEE None None None $11,000
- -------------------------------------------------------------------------------------------------------------
J. TUCKER MORSE
TRUSTEE None None None $11,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------
1. Master Investment Portfolio and Masterworks Funds Inc. are considered to be
members of the same fund complex as such term is defined in Form N-1A under
the 1940 Act (the "Barclays Fund Complex"). Stagecoach Funds, Inc.,
Stagecoach Trust and Life & Annuity Trust together form a separate fund
complex (the "Wells Fargo Fund Complex"). Each of the Trustees and the
principal officer of the Master Investment Portfolio serves in the
identical capacity as directors/trustees and/or officer of each registered
open-ended management investment company in both the Barclays and Wells
Fargo Fund Complexes. The Trustees are compensated by other companies and
trusts within the fund complexes for their services as Directors/Trustees
to such companies and trusts.
PRINCIPAL HOLDERS OF SECURITIES
At March 31, 1999, the Trustees and officers of the Trusts and the
Portfolio Trusts as a group held less than 1% of the outstanding shares of each
class of each Fund. The following investors owned of record or beneficially
more than 5% of the outstanding Diversified Class shares of the following
Funds.
At March 31, 1999, AUSA Life Insurance Company, Inc. ("AUSA"), Four
Manhattanville Road, Purchase, New York 10577, and The MONY Group, Inc.
("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):
AUSA MONY
Money Market 23.15% 21.44%
High Quality Bond 46.97% 24.34%
Intermediate Government Bond 43.86% 17.36%
Government/Corporate Bond 28.33% 38.43%
HighYield Bond 30.20% 10.23%
Balanced 59.24% 1.78%
Equity Income 57.38% 24.58%
Equity Value 22.75% 5.07%
Growth & Income 46.85% 3.54%
Equity Growth 63.67% ---
<PAGE>
Special Equity 44.30% 19.63%
Aggressive Equity 38.01% ---
International Equity 38.19% 15.73%
At March 31, 1999, all of the outstanding Stephens Premium Class shares
and all of the outstanding Stephens Institutional Class shares were owned in
nominee name by Stephens Inc., Special Custody Account for the Exclusive
Benefit of Customers, 111 Center Street, Little Rock, Arkansas 72203.
At March 31, 1999, the S&P 500 Stock Fund of Master Works Funds Inc., 111
Center Street, Little Rock, Arkansas 72201, owned approximately 66.5% of the
outstanding voting securities of the S&P 500 Index Master Portfolio and could
be considered a controlling person of the Portfolio for purposes of the 1940
Act. At March 31, 1999, Mass Mutual Indexed Equity Fund, 1295 State Street,
Springfield, Massachusetts 01111, owned approximately 11.94% of the
outstanding voting securities of the Portfolio.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISERS
Diversified manages the assets of (a) each of the Stephens Intermediate
Bond, Stock Index, Stephens Select Equity and Strategic Allocation Funds and
(b) each Portfolio (except the S&P 500 Index Master Portfolio), in each case
pursuant to an Investment Advisory Agreement (the "Diversified Advisory
Agreement") with the Trust or Diversified Investors Portfolios, as the case may
be, with respect to each such Fund or Portfolio, and subject to the investment
policies described herein and in the Prospectus for the Funds. Subject to such
further policies as the Boards of Trustees of the Trusts and Diversified
Investors Portfolios may determine, Diversified provides general investment
advice to each such Fund and each Portfolio.
Barclays Global Fund Advisors manages the assets of the S&P 500 Index
Master Portfolio pursuant to an Investment Advisory Agreement with the Master
Investment Portfolio (the "Barclays Advisory Agreement"). Subject to such
further policies as the Board of Trustees of the Diversified Investors Trust
may determine, Diversified provides general supervision of the Stock Index
Fund's investment in the S&P 500 Index Master Portfolio.
Barclays provides investment guidance and policy direction in connection
with the management of the S&P 500 Index Master Portfolio's assets. As of
December 31, 1998, Barclays and its affiliates provided advisory services for
approximately $650 billion in assets.
Barclays, Barclays Bank PLC, the indirect parent of Barclays, and their
affiliates deal, trade and invest for their own account in the types of
securities in which the S&P 500 Index Master Portfolio may invest and may have
deposit, loan and commercial banking relationships with the issuers of
securities purchased by the S&P 500 Index Master Portfolio.
For the Stephens Intermediate Bond and Stephens Select Equity Funds and
each Portfolio (except the S&P 500 Index Master Portfolio), Diversified has
entered into an Investment Subadvisory Agreement (each a "Subadvisory
Agreement") with a Subadviser.
The Diversified Advisory Agreement and each Subadvisory Agreement provides
that Diversified 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 the Fund or Portfolio when authorized
either by majority vote of the investors in the Fund or Portfolio (with the
<PAGE>
vote of each being in proportion to its interest) or by a vote of a majority of
the Board of Trustees of the Trust or Diversified Investors Portfolios, as the
case may be, or by Diversified on not more than 60 days' nor less than 30 days'
written notice, or by the applicable Subadviser or not less than 90 days'
written notice, and will automatically terminate in the event of its
assignment. Each agreement provides that neither Diversified nor the 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 Fund or Portfolio, except for
willful misfeasance, bad faith, gross negligence or reckless disregard of its
or their obligations and duties under the Diversified Advisory Agreement and
the Subadvisory Agreement, as the case may be. The Barclays Advisory Agreement
is terminable without penalty on 60 days written notice by either party.
Diversified is an indirect, wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"), a financial services holding company whose primary emphasis is life
and health insurance and annuity and investment products. AEGON is an indirect,
wholly-owned subsidiary of Aegon N.V., a Netherlands corporation which is a
publicly traded international insurance group. Diversified was incorporated in
1992 for the purpose of acting as the investment adviser to the Portfolios.
Diversified is an investment firm dedicated to meeting the complete needs
of retirement plan sponsors and participants from pre through postretirement.
Diversified provides flexible, highquality services coupled with the employment
of independent investment managers in an innovative investment structure.
Diversified provides services with respect to $23 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 500,000 participants and has 700 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 highquality investments and administrative services
to defined benefit, defined contribution and notforprofit 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 4,000 independent firms. Through a
rigorous portfolio manager selection process which includes researching each
potential subadviser's asset class, track record, organizational structure,
management team, consistency of performance and assets under management, five
to ten potential subadvisers are chosen. Out of that group, Diversified then
carefully chooses the three most qualified potential subadvisers based on
performance evaluation, ownership structure, personnel and philosophy to return
for an onsite visit and a quantitative and qualitative analysis by the
investment committee. Out of those three potential subadvisers, Diversified
then hires the most qualified, independent subadviser for each Portfolio,
subject to approval by the Board of Trustees of Diversified Investors
Portfolios, including a majority of the Trustees who are not "interested
persons" of Diversified Investors Portfolios. With respect to the Stephens
Intermediate Bond and Stephens Select Equity Funds only, Diversified appointed
Stephens Capital Management ("Stephens") as the Subadviser in the context of a
broad strategic alliance with Stephens through which the Diversified Investors
Trust makes available its Stephens Premium Class shares and Stephens
<PAGE>
Institutional Class shares exclusively to customers of Stephens. Pursuant to
the requirements of the 1940 Act, the selection of Stephens as the Subadviser
to the Intermediate Bond and Select Equity Funds was approved by the Board of
Trustees of the Diversified Investors Trust, including a majority of the
Trustees who are not "interested persons" of the Diversified Investors Trust,
and the initial shareholder of each of the Intermediate Bond and Select Equity
Funds.
Each Subadviser's performance on behalf of a Fund or Portfolio is
carefully monitored by Diversified taking into consideration investment
objectives and policies and level of risk. 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
reenrolling participants or disrupting established plan administration.
Diversified Investors Portfolios has obtained an exemptive order from the
Securities and Exchange Commission which permits the Portfolios to obtain the
services of one or more subadvisers without investor or shareholder approval.
The exemptive order also permits the terms of sub-advisory agreements to be
changed and the employment of subadvisers to be continued after events that
would otherwise cause an automatic termination of a sub-advisory agreement, in
each case without shareholder approval if those changes or continuation are
approved by the Portfolio's Board of Trustees. If a subadviser were added or
changed without shareholder approval, the Prospectuses would be revised and
shareholders notified. Before a Portfolio relies on the exemptive order, the
Portfolio's investors must approve it.
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 backup manager selection,
regression analysis and universe comparisons.
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 "backup" additional independent managers for each investment class so
that, should a manager change be warranted, the transition can be effected on a
timely basis.
Morrison and Foerster LLP, counsel to the Master Investment Portfolio, has
advised the Master Investment Portfolio that Barclays and its affiliates may
perform the services contemplated by the investment advisory agreement between
Barclays and the Portfolio and the Prospectuses without violation of the
Glass-Steagall Act. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If Barclays were prohibited from performing any such services, it is
expected that a new agreement would be proposed or entered into with another
entity or entities qualified to perform such services.
<PAGE>
SUBADVISERS
The Subadvisers make the day-to-day investment decisions for the
Portfolios (other than the S&P 500 Index Master Portfolio, which is advised by
Barclays Global Fund Advisors) and for the Stephens Intermediate Bond and
Stephens Select Equity Funds, subject in all cases to the general supervision
of Diversified. The Subadvisers are listed below.
MONEY MARKET PORTFOLIO
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
GOVERNMENT/CORPORATE BOND PORTFOLIO
Capital Management Group. Capital Management Group is a division of 1740
Advisers, Inc., a wholly-owned subsidiary of The MONY Group, Inc.
HIGH QUALITY BOND PORTFOLIO
Merganser Capital Management Corporation. Merganser was formed in 1984 and is
owned by certain of its employees.
STEPHENS INTERMEDIATE BOND FUND
STEPHENS SELECT EQUITY FUND
Stephens Capital Management. Stephens Capital Management is a division of
Stephens Inc., which is an indirect, wholly-owned subsidiary of Stephens Group,
Inc.
HIGH-YIELD BOND PORTFOLIO
Delaware Investment Advisers. Delaware Investment Advisers is a series of
Delaware Management Business Trust. Delaware is indirectly owned by Lincoln
National Corp.
BALANCED PORTFOLIO
Aeltus Investment Management, Inc.
Payden & Rygel
Aeltus Investment Management, Inc. Aeltus was formed in November of 1972 and is
an indirect wholly-owned subsidiary of Aetna, Inc.
Payden & Rygel. Payden was formed in April of 1984 and is owned by Joan A.
Payden, John P. Isaacson and Scott A. King
EQUITY INCOME PORTFOLIO
Asset Management Group. Asset Management Group is a division of 1740 Advisers,
Inc., which is a wholly-owned subsidiary of The MONY Group, Inc.
EQUITY VALUE PORTFOLIO
Ark Asset Management Co., Inc. Ark was formed in August of 1989 and is owned by
Ark Asset Holdings, Inc. Ark Asset Holdings, Inc. is owned by Ark employees.
<PAGE>
GROWTH & INCOME PORTFOLIO
Putnam Advisory Company, Inc. Putnam was formed in 1937 and is owned by Marsh &
McLennon Companies, Inc.
EQUITY GROWTH PORTFOLIO
Dresdner RCM Global Investors LLC
Montag & Caldwell Incorporated
Dresdner RCM Global Investors LLC was established in 1996, when Dresdner Bank
AG acquired RCM Capital Management, LLC.
Montag & Caldwell Incorporated was established in 1945 and is owned by
Alleghany Corporation.
SPECIAL EQUITY PORTFOLIO
Goldman Sachs Asset Management
Pilgrim Baxter & Associates, Ltd.
RS Investment Management, L.P.
Westport Asset Management, Inc.
Goldman Sachs Asset Management is a separate operating division of Goldman,
Sachs & Co., a worldwide investment banking firm, with numerous offices
throughout the United States and globally. Goldman, Sachs & Co. acquired
Liberty Investment Management, Inc., the predecessor firm, in January of 1997.
In the late spring or early summer of 1999, the Goldman Sachs Group, L.P., the
holding company that controls Goldman, Sachs & Co., will pursue an initial
public offering. Simultaneously with the offering, the Goldman Sachs Group,
L.P. will merge into The Goldman Sachs Group, Inc.
Pilgrim Baxter & Associates, Ltd. was formed in 1995 and is owned by United
Asset Management, Inc., a publicly-owned corporation.
RS Investment Management, L.P. was established in 1999 and is indirectly owned
by BankAmerica Corporation.
Westport Asset Management, Inc. was formed in 1983 and is owned by certain of
its employees.
AGGRESSIVE EQUITY PORTFOLIO
McKinley Capital Management, Inc. McKinley was formed in March of 1991 and is
owned by Robert B. Gillam.
INTERNATIONAL EQUITY PORTFOLIO
Capital Guardian Trust Company. Capital Guardian was formed in 1968 and is
owned by Capital Group International, Inc., which is owned by The Capital Group
Companies, Inc.
ADVISORY FEES
The Advisers' fees with respect to each Fund are described in the
Prospectuses. Each of the Subadvisers is entitled to receive a fee from
Diversified at an annual percentage of each Fund's average daily net assets.
The rates are shown in the table below.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPENSATION COMPENSATION
(%) (%)
PORTFOLIO SUBADVISERS TO ADVISER (1) TO SUBADVISERS
Money Market Portfolio Capital Management Group 0.25 0.05
High Quality Bond Merganser Capital Management 0.35 (2)
Portfolio Corporation
Intermediate Capital Management Group 0.35 0.15
Government Bond
Portfolio
Government/Corporate Capital Management Group 0.35 0.15
Bond Portfolio
High-Yield Bond Delaware Investment Advisers 0.55 (3)
Portfolio
Balanced Portfolio Aeltus Investment Management, 0.45 (5)
Inc.
Payden & Rygel (4)
Equity Income Portfolio Asset Management Group 0.45 (6)
Equity Value Portfolio Ark Asset Management Co., Inc. 0.57 (7)
Growth & Income Putnam Advisory Company, Inc. 0.60 (8)
Portfolio
Equity Growth Portfolio Dresdner RCM Global Investors 0.62 (9)
LLC
Montag & Caldwell, Inc.
Special Equity Portfolio Pilgrim Baxter & Associates, 0.80 0.50
Ltd.
Goldman Sachs Asset
Management
RS Investment Management,
L.P.
Westport Asset Management,
Inc.
Aggressive Equity McKinley Capital Management, 0.97 (10)
Portfolio Inc.
International Equity Capital Guardian Trust 0.75 (11)
Portfolio Company
</TABLE>
- ----------------------------------
(1) The Adviser is currently waiving a portion of its fees.
<PAGE>
(2) 0.25% on the first $100,000,000 of average net assets of the High Quality
Bond Portfolio and 0.15% on all assets in excess of $100,000,000.
(3) 0.40% on the first $20,000,000 of average net assets of the High-Yield Bond
Portfolio, 0.30% on the next $20,000,000 in assets and 0.20% on assets in
excess of $40,000,000.
(4) For Aeltus, 0.20% on the first $200,000,000 of average net assets, 0.15% on
the next $300,000,000 of average net assets, 0.125% on the next
$500,000,000 of average net assets, and 0.10% on all assets in excess of
$1,000,000,000. For Payden & Rygel, 0.20% on the first $50,000,000 of
average net assets, 0.15% on the next $50,000,000 of average net assets,
and 0.10% on all assets in excess of $100,000,000.
(5) 0.35% on the first $50,000,000 of average net assets of the Balanced
Portfolio, 0.30% on the next $50,000,000 in assets and 0.25% on assets in
excess of $100,000,000.
(6) 0.25% on the first $100,000,000 of average net assets of the Equity Income
Portfolio and 0.20% on assets in excess of $100,000,000.
(7) 0.45% on the first $100,000,000 of average net assets of the Equity Value
Portfolio, 0.40% on the next $50,000,000 in assets and 0.35% on the next
$50,000,000 in assets; when the Portfolio achieves $200,000,000 in assets,
the rate shall be 0.40% on assets up to $200,000,000 and 0.35% on assets in
excess of $200,000,000 so long as the Portfolio continues to have more than
$200,000,000 in assets.
(8) 0.30% on the first $100,000,000 of average net assets of the Growth &
Income Portfolio, 0.20% on assets in excess of $100,000,000.
(9) With respect to assets of the Equity Growth Portfolio allocated to each
Subadviser: 0.50% on the first $50,000,000 of average net assets, 0.25% on
the next $50,000,000 in assets and 0.20% on all assets in excess of
$100,000,000.
(10)0.90% on the first $10,000,000 of average net assets of the Aggressive
Equity Portfolio, 0.80% on the next $15,000,000 in assets, 0.60% on the
next $25,000,000 in assets, 0.40% on the next $50,000,000 in assets and
0.35% on assets in excess of $100,000,000.
(11)0.75% on the first $25,000,000 of average net assets of the International
Equity Portfolio, 0.60% on the next $25,000,000 in assets, 0.425% from
$50,000,000 in assets to $250,000,000 in assets, and 0.375% on all assets
in excess of $250,000,000.
Diversified has agreed to waive its investment advisory fees to the extent
necessary to limit the total operating expenses of each Portfolio to a
specified level. Diversified also may contribute to the Portfolios from time to
time to help them maintain competitive expense ratios. These arrangements are
voluntary and may be terminated at any time.
<PAGE>
For the fiscal year ended December 31, 1996, Diversified earned and
voluntarily waived advisory fees as indicated with respect to the following
Portfolios:
PORTFOLIO EARNED WAIVED
--------- ------ ------
Money Market.......................... $ 445,832 $ 680
High Quality Bond.................... 627,049 --
Intermediate Government Bond.......... 340,989 27,685
Government/Corporate Bond............. 1,232,524 --
High-Yield Bond....................... 60,742 60,742
Balanced.............................. 995,489 --
Equity Income......................... 3,895,211 --
Equity Value.......................... 84,055 70,088
Growth & Income....................... 1,052,349 39,117
Equity Growth......................... 1,730,632 1,462
Special Equity........................ 3,255,893 47,350
Aggressive Equity..................... 95,060 57,964
International Equity.................. 799,760 69,256
For the fiscal year ended December 31, 1997, Diversified earned and
voluntarily waived advisory fees as indicated with respect to the following
Funds and Portfolios:
PORTFOLIO EARNED WAIVED
--------- ------ ------
Money Market.......................... $ 553,205 $--
High Quality Bond..................... 707,143 --
Intermediate Government Bond.......... 340,670 15,525
Government/Corporate Bond............. 1,174,374 --
High-Yield Bond....................... 182,367 46,946
Balanced.............................. 1,547,690 --
Equity Income......................... 4,950,239 --
Equity Value.......................... 882,508 56,044
Growth & Income....................... 1,679,535 --
Equity Growth......................... 2,405,212 --
Special Equity........................ 4,986,640 --
Aggressive Equity..................... 182,991 61,577
International Equity.................. 1,434,770 16,399
Short Horizon Strategic Allocation.... 7,102 --
Intermediate Horizon Strategic
Allocation........................... 26,257 --
Intermediate/Long Horizon
Strategic Allocation................. 26,906 --
<PAGE>
For the fiscal year ended December 31, 1998, Diversified earned and
voluntarily waived advisory fees as indicated with respect to the following
Funds and Portfolios:
PORTFOLIO EARNED WAIVED
--------- ------ ------
Money Market.......................... $ 654,703 $ --
High Quality Bond..................... 753,726 --
Intermediate Government Bond.......... 491,360 2,380
Intermediate Bond..................... 12,711 12,711
Government/Corporate Bond............. 1,606,383 --
Balanced.............................. 2,065,391 --
Equity Income......................... 5,830,442 --
Equity Value.......................... 2,104,570 42,746
Growth & Income....................... 3,258,008 --
Equity Growth......................... 3,276,416 11,336
Special Equity........................ 6,306,553 5,925
Select Equity......................... -- --
Aggressive Equity..................... 470,377 51,355
High-Yield Bond....................... 423,436 27,930
International Equity.................. 2,029,625 30,764
Short Horizon Strategic Allocation.... 18,752
Short/Intermediate Horizon Strategic..
Allocation........................... 2,667 --
Intermediate Horizon Strategic
Allocation........................... 77,416 --
Intermediate/Long Horizon
Strategic Allocation................. 84,894 --
Long Horizon Strategic Allocation..... 7,044 --
ADMINISTRATOR
Diversified provides administrative services to the Funds (other than the
Stock Index and Strategic Allocation Funds) under the Administrative Services
and Transfer Agency Services Agreement with Diversified Investors Trust. These
administrative services include regulatory reporting and the provision of
office facilities, equipment and personnel. For these services Diversified
receives a fee, which is calculated daily and paid monthly, at an annual rate
of 0.30% of the average daily net assets of each Fund. Diversified acts as
Administrator to the Strategic Allocation Funds, the Stock Index Fund and the
Portfolios pursuant to the respective Advisory Agreements and receives no
additional compensation for providing such administrative services.
Each such 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
Diversified Investors Portfolios, by majority vote of the investors in
Diversified Investors Portfolios (with the vote of each being in proportion to
its interest) or, in the case of a Trust, by majority vote of such Trust's
shareholders, or by either party on not more than 60 days' nor less than 30
days' written notice. Each 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 administrative services provided to
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.
<PAGE>
The table below shows the total dollar amounts paid to Diversified during
each of the past three fiscal years under the Administrative Services and
Transfer Agency Services Agreement with Diversified Investors Trust for each
Fund listed.
- -------------------------------------------------------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
12/31/98 12/31/97 12/31/96
- -------------------------------------------------------------------------------
MONEY MARKET 127,340 46,057 4,041
- -------------------------------------------------------------------------------
HIGH QUALITY BOND 41,881 12,485 995
- -------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT BOND 47,617 10,766 702
- -------------------------------------------------------------------------------
INTERMEDIATE BOND 38,134 N/A N/A
- -------------------------------------------------------------------------------
GOVERNMENT/CORPORATE BOND 128,256 32,264 1,854
- -------------------------------------------------------------------------------
BALANCED 230,507 96,418 7,590
- -------------------------------------------------------------------------------
EQUITY INCOME 271,046 108,499 7,552
- -------------------------------------------------------------------------------
EQUITY VALUE 155,106 25,218 185
- -------------------------------------------------------------------------------
GROWTH & INCOME 352,106 89,771 5,720
- -------------------------------------------------------------------------------
EQUITY GROWTH 287,621 111,789 4,949
- -------------------------------------------------------------------------------
SPECIAL EQUITY 284,099 106,285 7,274
- -------------------------------------------------------------------------------
SELECT EQUITY N/A N/A N/A
- -------------------------------------------------------------------------------
AGGRESSIVE EQUITY 57,689 11,835 169
- -------------------------------------------------------------------------------
HIGH-YIELD BOND 54,840 18,353 465
- -------------------------------------------------------------------------------
INTERNATIONAL EQUITY 149,103 52,034 1,546
- -------------------------------------------------------------------------------
Stephens Inc. located at 111 Center Street, Little Rock, Arkansas 72201,
and Barclays Global Investors, N.A., located at 45 Fremont Street, San
Francisco, CA 94105, serve as the S&P 500 Index Master Portfolio's
co-administrators pursuant to a CoAdministration Agreement with the Portfolio.
Under the CoAdministration Agreement, Stephens and Barclays Global Investors
provide general supervision of the operations of the Portfolio, other than the
provision of investment advice. The administrative services provided to the
Portfolio also include coordination of the other services provided to the
Portfolio, compilation of information for reports to the SEC and state
securities commissions, preparation of proxy statements and interest holder
reports and general supervision of data compilation in connection with
preparing periodic reports to the Portfolio's Board of Trustees and Officers.
In addition, Stephens furnishes office space and certain facilities to conduct
business, and compensates the Portfolio's trustees, officers and employees who
are affiliated with Stephens. Stephens has delegated certain of its
administrative duties to Investors Bank & Trust Company. Stephens and Barclays
Global Investors will not be entitled to receive compensation for these
services for so long as each receives compensation for providing
coadministration services to a fund that invests in the Portfolio. Stephens
also services as the placement agent of the Portfolio's shares.
CUSTODIAN AND TRANSFER AGENT
Pursuant to the Administrative and Transfer Agency Services Agreement
(or the Advisory Agreement in the case of the Stock Index Fund) with the
Diversified Investors Trust and the Advisory Agreement with the Strategic
Allocation Trust, 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 Custodian Agreements, Investors Bank & Trust Company acts as
the custodian of each Fund's and Portfolio's assets (the "Custodian"). The
Custodian's responsibilities include safeguarding and controlling the cash and
securities of each Fund and Portfolio, handling the receipt and delivery of
securities, determining income and collecting interest on the investments of
<PAGE>
each Fund and Portfolio, 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 Fund and Portfolio. Securities held
by the Funds or Portfolios may be deposited into the Federal ReserveTreasury
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 Board
of Trustees of the applicable Trust or the Portfolio Trusts, as the case may
be. The Custodian does not determine the investment policies of the Funds or
Portfolios or decide which securities the Funds or Portfolios will buy or sell.
A Fund or 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 Trusts and the Portfolio
Trusts.
MISCELLANEOUS
STRATEGIC ALLIANCE AGREEMENT
Diversified and Stephens have entered into a Strategic Alliance Agreement
pursuant to which Diversified has agreed (subject to and consistent with its
fiduciary and other responsibilities, including those under the Investment
Company Act of 1940 and the Investment Advisers Act of 1940), among other
things, to (a) recommend the establishment of the Stephens Institutional Class
and the Stephens Premium Class of the Funds, (b) recommend the establishment of
the Stephens Intermediate Bond and Select Equity Funds, and (c) provide
services necessary to establish such Classes and Funds. Under the terms of the
Agreement, Diversified would retain from all revenues attributable to the
Stephens Institutional Class and the Stephens Premium Class of the Funds
("Gross Revenues") a fee equal to the following percentages of the average
daily net assets attributable to the Stephens Institutional Class Shares and
the Stephens Premium Class Shares of the Funds: 0.14% of the first $250 million
in assets; 0.125% of the next $500 million in assets; 0.09% of the next $750
million in assets; 0.04% of the next $250 million in assets; 0.02% of the next
$250 million in assets; and 0.01% of all assets over $2 billion. In addition,
Diversified shall be entitled to pay (or be reimbursed) from Gross Revenues,
fees and expenses attributable to ongoing registration and compliance regarding
the shares of the Stephens Institutional Class and the Stephens Premium Class,
including costs attributable to registration, custodial, accounting and legal
services. All other Gross Revenues are to be retained by Stephens.
Pursuant to the Strategic Alliance Agreement, Diversified has agreed
(subject to and consistent with its fiduciary and other responsibilities,
including those under the Investment Company Act of 1940 and the Investment
Advisers Act of 1940) not to recommend that additional classes of shares of The
Diversified Investors Funds Group be established if such shares would be
available for sales through a competitor of Stephens in certain markets in
which Stephens participates. The Agreement renews automatically each year for a
one-year period unless terminated by any party upon written notice to the other
party.
ADDITIONAL EXPENSES OF THE FUNDS
In addition to amounts payable as described elsewhere in this Statement of
Additional Information, each Fund is responsible for its own expenses,
including the compensation of Trustees that are not affiliated with
Diversified, any government fees, taxes, accounting and legal fees, expenses of
communicating with shareholders, interest expense and insurance premiums. Each
Fund is also responsible for its proportionate share of the expenses of the
corresponding Portfolio, if any.
<PAGE>
TAXATION
TAXATION OF THE FUNDS AND PORTFOLIOS
FEDERAL TAXATION OF THE FUNDS. Each Fund is treated as a separate entity
for federal tax purposes. Each Fund has elected to be treated, and intends to
qualify each year 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 of the Fund's portfolio
assets. provided all such requirements are met, no U.S. federal income or
excise taxes generally will be required to be paid by the Funds. 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
shareholders. However, taxqualified retirement plans ("Plans") which hold the
shares of a Fund on their participants' behalf would not, in that event, incur
any income tax liability on such distributions provided such Plans remain
exempt from federal income tax. Similarly, the Strategic Allocation Funds, as
shareholders of the other Funds, would not necessarily incur any income tax
liability on such distributions provided they continue to qualify as
"registered investment companies" and distribute their net investment income
and net capital gains to their shareholders in accordance with the timing
requirements imposed by the Code. The failure of the underlying Funds to
maintain their status as "regulated investment companies" may adversely affect
the ability of the Strategic Allocation Funds to maintain their status as such,
however.
Withdrawals by a Fund from a 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 distribution, (2)
income or gain will be realized if the withdrawal is in liquidation of a Fund's
entire interest in the Portfolio Trusts and includes a disproportionate share
of any unrealized receivables held by the Portfolio Trusts, 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 Trusts generally equals the amount of cash and the
basis of any property that the Fund invests in a 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 that
Portfolio.
FEDERAL TAXATION OF THE PORTFOLIOS. 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, if such Fund is an investor in a Portfolio, will be
deemed to own a proportionate share of that Portfolio's assets and will be
deemed to be entitled to that Portfolio's income attributable to that share. If
the Portfolio Trusts are treated for tax purposes as a partnership as expected,
none would 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 Trusts' income, gains, losses, deductions, credits and tax preference
items, without regard to whether it has received any cash distributions from
the Portfolio Trusts. The Portfolio Trusts have advised the Funds that they
intend to conduct the Portfolios' operations so as to enable investors which
invest substantially all of their assets in the Portfolios, including the
Funds, to satisfy those requirements.
FOREIGN WITHHOLDING TAXES. Income received by a Fund or 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
<PAGE>
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.
CERTAIN STATE TAXATION. The Trusts are organized as Massachusetts business
trusts and, under current law, neither any 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.
Diversified Investors Portfolios is organized as a New York trust. Diversified
Investors Portfolios is not subject to any income or franchise tax in the State
of New York. The investment by certain Funds in a Portfolio does not cause that
Fund to be liable for any income or franchise tax in the State of New York.
TAXATION OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS. 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. Plans which are 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 Plan 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.
Individual and institutional investors, and Plans which for any reason
prove not to be exempt from federal income taxation, will be subject to federal
income 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 longterm capital gain without regard to the length of time they have held
the shares in the Fund. Certain dividends declared in October, November or
December of a calendar year and paid to an investor who 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.
Distributions to taxable investors may also be subject to state and local
income taxes, although in that case distributions of a Fund that are derived
from interest on obligations of the U.S. Government and certain of its agencies
and instrumentalities (but generally not from capital gains realized upon the
disposition of such obligations) may be exempt from state and local taxes. Each
Fund intends to advise shareholders of the extent, if any, to which its
distributions consist of such interest.
DIVIDENDS-RECEIVED DEDUCTION. a portion of the dividends received from a
Fund investing in corporate stocks of U.S. issuers (but none of that Fund's
capital gain distributions) may qualify for the dividends-received deduction
for corporations. Availability of the deduction for particular corporate
shareholders is subject to certain limitations, and deducted amounts may be
subject to the alternative minimum tax and may result in certain basis
adjustments.
BUYING A DIVIDEND. Fund distributions will reduce a Fund's net asset value
per share. Shareholders who buy shares shortly before a Fund makes a
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a distribution, subject to tax
in the case of investors otherwise subject to income taxation.
<PAGE>
SPECIAL CONSIDERATIONS FOR NON U.S. PERSONS. Distributions and certain
other payments to persons who are not citizens or residents of the United
States or U.S. entities ("Non-U.S. Persons") are generally subject to U.S. tax
withholding at the rate of 30%. Each Fund intends to withhold U.S. federal
income tax at the rate of 30% on taxable distributions and other payments to
Non-U.S. Persons that are subject to withholding, regardless of whether a lower
rate may be permitted under an applicable treaty. Any amounts overwithheld may
be recovered by such persons by filing a claim for refund with the U.S.
Internal Revenue Service within the time period appropriate to such claims.
Distributions received from a Fund by Non-U.S. Persons may also be subject to
tax under the laws of their own jurisdictions.
BACKUP WITHHOLDING. Each Fund is also required in certain circumstances to
apply backup withholding at the rate of 31% on taxable distributions and
redemption proceeds paid to any shareholder (including a non-U.S. Person) who
does not furnish to the Fund certain information and certifications or who is
otherwise subject to backup withholding. Backup withholding will not, however,
be applied to payments that have been subject to 30% withholding applicable to
Non U.S. Persons.
DISPOSITION 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
generally will be a capital gain or loss that will be longterm or shortterm
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 longterm capital
loss to the extent of any distributions of net capital gain received by the
shareholder with respect to such shares.
EFFECTS OF CERTAIN INVESTMENTS AND INVESTMENT POLICIES
A Fund's current dividend and accounting policies will affect the amount,
timing, and character of distributions to shareholders, and may, under certain
circumstances, make an economic return of capital taxable to shareholders
otherwise subject to taxation.
CERTAIN DEBT INSTRUMENTS. Any investment in zero coupon securities,
deferred interest bonds, payment-in-kind bonds, certain stripped securities,
and certain securities purchased at a market discount will cause a Fund to
recognize income prior to the receipt of cash payments with respect to those
securities. In order to distribute this income and avoid a tax on the Fund, a
Portfolio may be required to liquidate portfolio securities that it might
otherwise have continued to hold, potentially resulting in additional taxable
gain or loss to the Fund.
OPTIONS, ETC. A Fund's transactions in options, futures contracts and
forward contracts and short sales "against the box" will be subject to special
tax rules that may affect the amount, timing and character of Fund income and
distributions to shareholders. For example, certain positions held by a Fund on
the last business day of each taxable year will be marked to market (i.e.,
treated as if closed out) on that day, and any gain or loss associated with the
positions will be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by a Fund that substantially diminish its risk of
loss with respect to other positions in its portfolio may constitute
"straddles," and may be subject to special tax rules that would cause deferral
of Fund losses, adjustments in the holding periods of Fund securities, and
<PAGE>
conversion of short-term into long-term capital losses. Certain tax elections
exist for straddles that may alter the effects of these rules. The Fund will
limit its activities in options, futures contracts, and forward contracts to
the extent necessary to meet the requirements of Subchapter M of the Code. 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.
FOREIGN INVESTMENTS. Special tax considerations apply with respect to
foreign investments of a Fund. Foreign exchange gains and losses realized by
the Fund will generally be treated as ordinary income and loss. The holding of
foreign currencies for nonhedging purposes and investment by a Fund in certain
"passive foreign investment companies" may be limited in order to avoid a tax
on the Fund. A Fund may elect to mark to market any investments in "passive
foreign investment companies" on the last day of each year. This election may
cause the Fund to recognize income prior to the receipt of cash payments with
respect to those investments: In order to distribute this income and avoid a
tax on the Fund, the Fund may be required to liquidate portfolio securities
that it might otherwise have continued to hold.
The foregoing should not be viewed as a comprehensive discussion of the items
referred to nor as covering all provisions relevant to investors. 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 PLANS
The Diversified Investors Trust has adopted a separate Distribution Plan
with respect to each class of shares of each of the Money Market, Bond,
Balanced and Stock Funds (each a "Distribution Plan") in accordance with Rule
12b1 under the 1940 Act after having concluded that there is a reasonable
likelihood that each Distribution Plan will benefit the Diversified Investors
Trust, the class of shares of each Fund covered by that Distribution Plan, and
the holders of shares of each such class. The Distribution Plans provide that
the Distributor may receive a fee from each of the Money Market, Bond, Balanced
and Stock Funds at an annual rate not to exceed 0.25% of the average daily net
assets of such Fund attributable to Diversified Class shares, 0.25% of the
average daily net assets of such Fund attributable to Stephens Premium Class
shares, and 0.25% of the average daily net assets of such Fund attributable to
Stephens Institutional Class shares, in anticipation of, or as reimbursement
for, expenses incurred in connection with the sale of shares of such 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 distributionrelated
expenses.
Each Distribution Plan will continue in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Diversified Investors Trust's Trustees and a majority of the Diversified
Investors 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"). Each Distribution Plan requires that at least quarterly the
Diversified Investors 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. Each
Distribution Plan further provides that the selection and nomination of the
Diversified Investors Trust's disinterested Trustees shall be committed to the
discretion of the Trust's disinterested Trustees then in office. Each
Distribution Plan may be terminated at any time by a vote of a majority of the
Diversified Investors Trust's Qualified Trustees or by vote of a majority of
the outstanding voting securities of the applicable class of shares. Each
<PAGE>
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 applicable class and may not be materially
amended in any case without a vote of the majority of both the Trustees and the
Qualified Trustees. The Distributor will preserve copies of any plan, agreement
or report made pursuant to each Distribution Plan for a period of not less than
six years from the date of such plan, agreement, or report, and for the first
two years the Distributor will preserve such copies in an easily accessible
place.
As contemplated by each Distribution Plan, Diversified Investors
Securities Corp. acts as the agent of each of the Money Market, Bond, Balanced
and Stock Funds in connection with the offering of shares of such Funds
pursuant to a separate Distribution Agreement with respect to each class of
shares (each a "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 such Funds to prospective investors. Each Prospectus
contains a description of fees payable to the Distributor under the
Distribution Agreement with respect to the class(es) of shares offered pursuant
to that Prospectus.
The table below shows the total dollar amounts paid to the Distributor
during each of the last three fiscal years under the Distribution Agreement
with respect to each class of shares of the Funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
12/31/98 12/31/97 12/31/96
- -----------------------------------------------------------------------------------------------
MONEY MARKET
DIVERSIFIED CLASS 94,032 38,381 3,368
STEPHENS PREMIUM CLASS 141 -- --
STEPHENS INSTITUTIONAL CLASS 11,944 -- --
- -----------------------------------------------------------------------------------------------
HIGH QUALITY BOND
DIVERSIFIED CLASS 34,09 10,404 829
- -----------------------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT BOND
DIVERSIFIED CLASS 39,681 8,972 585
- -----------------------------------------------------------------------------------------------
INTERMEDIATE BOND
STEPHENS PREMIUM CLASS 8,280 -- --
STEPHENS INSTITUTIONAL CLASS 23,499 -- --
- -----------------------------------------------------------------------------------------------
GOVERNMENT/CORPORATE BOND
DIVERSIFIED CLASS 106,880 26,886 1,545
- -----------------------------------------------------------------------------------------------
BALANCED
DIVERSIFIED CLASS 192,089 80,348 6,325
- -----------------------------------------------------------------------------------------------
EQUITY INCOME
DIVERSIFIED CLASS 225,871 90,416 6,293
- -----------------------------------------------------------------------------------------------
EQUITY VALUE
DIVERSIFIED CLASS 101,902 21,105 154
STEPHENS PREMIUM CLASS 5,469 -- --
STEPHENS INSTITUTIONAL CLASS 21,884 -- --
- -----------------------------------------------------------------------------------------------
GROWTH & INCOME
DIVERSIFIED CLASS 293,422 74,809 4,767
- -----------------------------------------------------------------------------------------------
EQUITY GROWTH
DIVERSIFIED CLASS 230,315 93,157 4,124
STEPHENS PREMIUM CLASS 506 -- --
STEPHENS INSTITUTIONAL CLASS 8,863 -- --
- -----------------------------------------------------------------------------------------------
SPECIAL EQUITY
DIVERSIFIED CLASS 223,254 88,571 6,061
STEPHENS PREMIUM CLASS 2,640 -- --
STEPHENS INSTITUTIONAL CLASS 10,855 -- --
- -----------------------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------
SELECT EQUITY
STEPHENS PREMIUM CLASS -- -- --
STEPHENS INSTITUTIONAL CLASS -- -- --
- -----------------------------------------------------------------------------------------------
AGGRESSIVE EQUITY
DIVERSIFIED CLASS 48,074 9,862 141
- -----------------------------------------------------------------------------------------------
HIGH-YIELD BOND
DIVERSIFIED CLASS 41,637 15,294 387
STEPHENS PREMIUM CLASS 811 -- --
STEPHENS INSTITUTIONAL CLASS 3,252 -- --
- -----------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY
DIVERSIFIED CLASS 112,375 43,362 1,288
STEPHENS PREMIUM CLASS 2,570 -- --
STEPHENS INSTITUTIONAL CLASS 9,307 -- --
- -----------------------------------------------------------------------------------------------
</TABLE>
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP serves as the Funds' and the Portfolios'
(except for the S&P 500 Index Master Portfolio) independent accountants
providing audit and accounting services including (a) audit of the annual
financial statements, (b) assistance and consultation with respect to filings
with the SEC and (c) preparation of annual income tax returns. KPMG Peat
Marwick LLP is the independent accountant of the S&P 500 Index Master
Portfolio.
DESCRIPTION OF THE TRUST; FUND SHARES
The Diversified Investors Trust is a Massachusetts business trust
established under a Declaration of Trust dated as of April 23, 1993. The
Strategic Investors Trust is a Massachusetts business trust established under a
Declaration of Trust dated as of January 5, 1996. The authorized capital of
each Trust consists of an unlimited number of shares of beneficial interest of
$0.00001 par value which may be issued in separate series. Currently, the
Diversified Investors Trust has sixteen active series and the Strategic
Allocation Trust has five active series, although additional series may be
established from time to time Each Trust may also establish classes of shares
within each series at any time. Each share of a series represents an equal
proportionate interest in that series with each other share of that series,
except that due to varying expenses borne by different classes, distributions
and net asset values may be different for different classes. Shareholders of
each series are entitled, upon liquidation or dissolution, to a pro rata share
in the net assets of that series that are available for distribution to
shareholders, except to the extent of different expenses borne by different
classes as noted above. All consideration received by a Trust for shares of any
series and all assets in which such consideration is invested belong to that
series and are subject to the liabilities related thereto.
Shares of each Trust entitle their holder to one vote per share; however,
separate votes are taken by each class or series on matters affecting an
individual class or series. For example, a change in the distribution fee
applicable to a class would be voted only by shareholders of the class
involved. Similarly, a change in investment policy for a series would be voted
upon only by shareholders of the series involved. Because the Trusts are
Massachusetts business trusts, the Funds are not required to hold annual
shareholder meetings. Shareholder approval will usually be sought only for
changes in certain investment restrictions and for the election of Trustees
under certain circumstances. Trustees may be removed by shareholders under
certain circumstances.
The Declaration of Trust of each 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
<PAGE>
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 of each 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 of each 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.
FINANCIAL STATEMENTS
The financial statements of The Diversified Investors Funds Group, The
Diversified Investors Strategic Allocation Funds and Diversified Investors
Portfolios as of December 31, 1998 have been filed with the Securities and
Exchange Commission as part of the annual reports of The Diversified Investors
Funds Group and The Diversified Investors Strategic Allocation Funds, pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder, and are hereby
incorporated herein by reference from such reports. Copies of such reports will
be provided without charge to each person receiving this Statement of
Additional Information. The Stock Index Fund is newly organized and had no
operations during 1998.
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA--An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA--An obligation rated AA differs from the highest rated obligations only
in a small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
A--An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB--An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB--An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
Plus (+) or minus (-)--The ratings from AA to BB may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.
Commercial Paper, including Tax Exempt
A1--A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2--A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to
meet its financial commitment on the obligation is satisfactory.
A-3--A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
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 edged". Interest payments are protected by a large or by an exceptionally
<PAGE>
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 risk appear somewhat larger than the 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 some time 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 wellassured. 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.
Commercial Paper
PRIME-1--Issuers rated Prime1 (or supporting institutions) have a superior
ability for repayment of senior shortterm debt obligations. Prime1 repayment
ability will often be evidenced by many of the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure 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.
<PAGE>
Investment Adviser of certain Funds
and the Portfolios, Administrator
and Transfer Agent
Diversified Investment Advisors, Inc.
Four Manhattanville Road
Purchase, NY 10577
Investment Adviser of the S&P 500 Index Master Portfolio
Barclays Global Fund Advisors
45 Fremont Street
San Francisco, California 94105
Investment Subadvisers of the Funds
Stephens Intermediate Bond Fund
and Stephens Select Equity Fund
Stephens Capital Management
111 Center Street
Little Rock, Arkansas 72201
Investment Subadvisers of the Portfolios
Diversified Investors Money Market Fund,
Diversified Investors Intermediate Government
Bond Portfolio and Diversified Investors
Government/Corporate Bond Portfolio:
Capital Management Group
1740 Broadway
New York, NY 10019
Diversified Investors High Quality Bond Portfolio:
Merganser Capital Management Corporation
One Cambridge Center
Cambridge, MA 02142
Diversified Investors HighYield Bond Portfolio:
Delaware Investment Advisers
2005 Market Street
Philadelphia, Pennsylvania 19103
Diversified Investors Balanced Portfolio:
Aeltus Investment Management, Inc.
10 State House Square
Hartford, CT 06103-3602
Payden & Rygel
333 South Grand Avenue, 32nd Floor
Los Angeles, CA 90071
<PAGE>
Diversified Investors Equity Income Portfolio:
Asset Management Group
1740 Broadway
New York, NY 10019
Diversified Investors Equity Value Portfolio:
Ark Asset Management Co., Inc.
125 Broad Street
New York, NY 10041
Diversified Investors Growth & Income Portfolio:
Putnam Advisory Company, Inc.
One Post Office Square
Boston, MA 02109
Diversified Investors Equity Growth Portfolio:
Dresdner RCM Global Investors, LLC
Four Embarcadero Center
San Francisco, CA 94111
Montag & Caldwell Incorporated
3343 Peachtree Road, N.E., Suite 1100
Atlanta, Georgia 30326
Diversified Investors Special Equity Portfolio:
Pilgrim Baxter & Associates
825 Duportail Road
Wayne, PA 19087
Goldman Sachs Asset Management
2502 Rocky Point Drive
Tampa, FL 33607
Westport Asset Management, Inc.
53 Riverside Avenue
Westport, CT 06880
RS Investment Management, L.P.
555 California Street
SanFrancisco, CA 94104
Diversified Investors Aggressive Equity Portfolio:
McKinley Capital Management, Inc.
3301 C Street
Anchorage, AK 99503
Diversified Investors International Equity Portfolio:
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, CA 90071
<PAGE>
Distributor
Diversified Investors Securities Corp.
Four Manhattanville Road
Purchase, NY 10577
<PAGE>
Custodian
Investors Bank & Trust Company
89 South Street
Boston, MA 022051537
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
KPMG Peat Marwick LLP (Master Investment Portfolios only)
3 Embarcadero Center
San Francisco, California 94111
<PAGE>
