DIVERSIFIED INVESTORS FUNDS GROUP, 485BPOS, 2000-09-11

DIVERSIFIED INVESTORS FUNDS GROUP
485BPOS, 2000-09-11

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File Nos. 33-61810
811-7674

As filed with the Securities and Exchange Commission on September 11, 2000

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 / /
POSTEFFECTIVE AMENDMENT NO. 18 /X/

and

REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 19 /X/

THE DIVERSIFIED INVESTORS FUNDS GROUP
(Exact Name of Registrant as Specified in Charter)

Four Manhattanville Road, Purchase, New York 10577
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: (914) 697-8000

Robert F. Colby, Esq.
Diversified Investment Advisors, Inc.
Four Manhattanville Road
Purchase, New York 10577
(Name and Address of Agent for Service)

Copy to:
Roger P. Joseph, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110

It is proposed that this filing will become effective September 11, 2000.

This filing relates soley to the shares of the
Trust's Strategic Allocation series.

<PAGE>
Prospectus

THE DIVERSIFIED INVESTORS FUNDS GROUP
THE DIVERSIFIED INVESTORS STRATEGIC ALLOCATION FUNDS

Diversified Investment Advisors, Inc.,
investment adviser

MONEY MARKET FUND
Diversified Institutional Money Market Fund

BOND FUNDS
Diversified Institutional High Quality Bond Fund
Diversified Institutional Intermediate Government Bond Fund
Diversified Institutional Core Bond Fund
Diversified Institutional High-Yield Bond Fund

BALANCED FUND
Diversified Institutional Balanced Fund

STOCK FUNDS
Diversified Institutional Stock Index Fund
Diversified Institutional Value & Income Fund
Diversified Institutional Growth & Income Fund
Diversified Institutional Equity Growth Fund
Diversified Institutional Special Equity Fund
Diversified Institutional Aggressive Equity Fund
Diversified Institutional International Equity Fund

STRATEGIC ALLOCATION FUNDS
Institutional Short Horizon Strategic Allocation Fund
Institutional Short/Intermediate Horizon Strategic Allocation Fund
Institutional Intermediate Horizon Strategic Allocation Fund
Institutional Intermediate/Long Horizon Strategic Allocation Fund
Institutional Long Horizon Strategic Allocation Fund

The 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.

September 11, 2000

<PAGE>

(This page intentionally left blank.)

<PAGE>

TABLE OF CONTENTS

The Funds at a Glance.......................... 2
Money Market Fund......................... 2
Bond Funds................................ 4
Balanced Fund............................. 7
Stock Funds............................... 11
Strategic Allocation Funds................ 17
Shareholder Services........................... 22
How to Reach the Funds.................... 22
How to Purchase Shares.................... 22
How the Price of Your Shares is Calculated 22
How to Sell Shares........................ 23
Shareholder Services and Policies......... 23
Dividends and Distributions.................... 24
Tax Matters.................................... 24
Management..................................... 25
More About the Funds........................... 29
Money Market Fund......................... 29
Bond Funds................................ 30
Balanced Fund............................. 32
Stock Funds............................... 32
Strategic Allocation Funds................ 35
Risks..................................... 35
General Information............................ 38
Additional Performance Information............. 38
Appendix A-- Strategic Allocation Funds........ 42
Appendix B-- Instructions for Purchases and Sales
from the Distributor......................... 43

<PAGE>

THE FUNDS AT A GLANCE

MONEY MARKET FUND

DIVERSIFIED INSTITUTIONAL 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 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.

The Fund complies with SEC 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.

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.

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.

FUND PERFORMANCE

The Fund was organized on April 5, 2000 and does not have a full calendar year
of investment returns at the date of this prospectus.

<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 None
Reinvested Dividends
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets) as a % of average net
assets(1)(2)
Advisory Fee 0.25%
Distribution (12b-1) Fees 0.25%
Other Expenses
Administrative Services Fee 0.05%
Miscellaneous Expenses 0.11%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.66%
Fee Waiver and/or Expense Reimbursement(3) 0.16%
NET EXPENSES 0.50%

(1) The 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.
(2) Based on estimated expenses for the current fiscal year.
(3) The Adviser has contractually agreed to reimburse certain of the Fund's
expenses. This agreement has a term of 10 years.

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
$51 $160

<PAGE>

BOND FUNDS

DIVERSIFIED INSTITUTIONAL HIGH QUALITY BOND FUND
DIVERSIFIED INSTITUTIONAL INTERMEDIATE GOVERNMENT BOND FUND
DIVERSIFIED INSTITUTIONAL CORE BOND FUND
DIVERSIFIED INSTITUTIONAL 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.

CORE 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 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 BBB- or better by Standard & Poor's or Baa3
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.

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 includes the Fund's underlying Portfolio, unless
otherwise noted.

INTERMEDIATE GOVERNMENT BOND FUND

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.

The Fund's 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.

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.

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 includes the Fund's underlying Portfolio, unless
otherwise noted.

<PAGE>

CORE BOND FUND

The Core 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. Treasury and agency 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.

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 includes the Fund's underlying Portfolio, unless
otherwise noted.

HIGH-YIELD BOND FUND

The High-Yield Bond 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.

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 includes the Fund's underlying Portfolio, unless
otherwise noted.

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 these Funds.

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. The value of securities held by the
High-Yield Bond Fund may be quite 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 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 AND EXTENSION 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. The Fund would also lose the
benefit of falling interest rates on the price of the repaid bond.
Securities subject to prepayment risk generally offer less potential for
gains when interest rates decline, and may offer a greater potential for
loss when interest rates rise. Also, 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.

<PAGE>

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 PORTFOLIO SELECTION. The advisers of the Bond Funds may not pick
securities that perform well because they are unable to predict
accurately the direction of interest rates or the repayment of certain
debt obligations or to assess accurately fundamental changes affecting
credit quality or other factors. In that case, investors in a Bond Fund
may lose money, or their investment in a Bond Fund may not do as well as
investments in other fixed income funds.

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). If these
predictions are wrong, or if the derivatives do not work as anticipated,
the Fund could suffer greater losses than if the Fund had not used
derivatives. Derivatives may involve a small investment of cash relative
to the magnitude of the risk being taken. 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 Core 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 CORE 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.

FUND PERFORMANCE

The Bond Funds were organized on April 5, 2000 and do not have a full calendar
year of investment returns at the date of this prospectus.

<PAGE>

<TABLE>
<CAPTION>
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.

INTERMEDIATE
SHAREHOLDER FEES (FEES PAID HIGH QUALITY GOVERNMENT CORE 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)(2)
Advisory Fee 0.35% 0.35% 0.35% 0.55%
Distribution (12b-1) Fees 0.25% 0.25% 0.25% 0.25%
Other Expenses
Administrative Services Fee 0.05% 0.05% 0.05% 0.05%
Miscellaneous Expenses 0.11% 0.12% 0.10% 0.13%
TOTAL ANNUAL FUND
OPERATING EXPENSES 0.76% 0.77% 0.75% 0.98%
Fee Waiver and/or Expense
Reimbursement(3) 0.11% 0.12% 0.10% 0.13%
NET EXPENSES 0.65% 0.65% 0.65% 0.85%

</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.
(2) Based on estimated expenses for the current fiscal year.
(3) The Adviser has contractually agreed to reimburse certain of the Funds'
expenses. Each of these agreements has a term of 10 years.

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.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INTERMEDIATE
HIGH QUALITY GOVERNMENT CORE HIGH-YIELD
BOND FUND BOND FUND BOND FUND BOND FUND
---------------- ---------------- ---------------- -------------
1 year $ 66 $ 66 $ 66 $ 87
3 years $ 208 $ 208 $ 208 $ 271

</TABLE>

<PAGE>

BALANCED FUND

DIVERSIFIED INSTITUTIONAL 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 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'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.
Generally, the Fund invests approximately 60% of its assets in equity
securities and 40% of its assets in fixed income and money market securities.

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, 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 most debt securities in response to market risk.

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 AND EXTENSION 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. The Fund would also lose the
benefit of falling interest rates on the price of the repaid bond.
Securities subject to prepayment risk generally offer less potential for

<PAGE>

gains when interest rates decline, and may offer a greater potential for
loss when interest rates rise. Also, 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 PORTFOLIO SELECTION. The advisers of the Balanced Fund may not pick
securities that perform well because they are unable to predict
accurately the direction of interest rates or the repayment of certain
debt obligations or to assess accurately fundamental changes affecting
credit quality or other factors. In that case, investors in the Balanced
Fund may lose money or their investment in the Fund may not do as well as
investments in other balanced funds.

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). If these
predictions are wrong, or if the derivatives do not work as anticipated,
the Fund could suffer greater losses than if the fund had not used
derivatives. Derivatives may involve a small investment of cash relative
to the magnitude of the risk being taken. 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.

FUND PERFORMANCE

The Fund was organized on April 5, 2000 and does not have a full calendar year
of investment returns at the date of this prospectus.

<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 None
Dividends
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets) as a % of average net assets(1)(2)
Advisory Fee 0.45%
Distribution (12b-1) Fees 0.25%
Other Expenses
Administrative Services Fee 0.05%
Miscellaneous Expenses 0.13%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.88%
Fee Waiver and/or Expense Reimbursement(3) 0.13%
NET EXPENSES 0.75%

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
$ 77 $240

<PAGE>

STOCK FUNDS

DIVERSIFIED INSTITUTIONAL STOCK INDEX FUND
DIVERSIFIED INSTITUTIONAL VALUE & INCOME FUND
DIVERSIFIED INSTITUTIONAL GROWTH & INCOME FUND
DIVERSIFIED INSTITUTIONAL EQUITY GROWTH FUND
DIVERSIFIED INSTITUTIONAL SPECIAL EQUITY FUND
DIVERSIFIED INSTITUTIONAL AGGRESSIVE EQUITY FUND
DIVERSIFIED INSTITUTIONAL 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.

VALUE & 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.

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

STOCK INDEX FUND

The Stock Index 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 Index. 1 The S&P 500 Index consists of 500 stocks chosen
for market capitalization, liquidity and industry group representation. 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 invest no more than 10% of its
assets under normal market conditions in cash and high quality money market
instruments. 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.

--------------
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(R)," "S&P
500(R)," and "Standard & Poor's 500(R)" 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>

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.

VALUE & INCOME FUND

The Value & 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 also emphasizes
stocks of companies which, in the opinion of the Fund's advisers, are
undervalued. 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 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 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 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.

EQUITY GROWTH FUND

The Equity Growth Fund invests primarily in common stocks of companies that its
advisers believe have the potential for above average growth in earnings. Under
normal circumstances the Fund invests at least 65% of its assets in these
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.

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 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 $2 billion. The Fund uses
multiple managers to control the volatility often associated with investments
in companies of this size. The 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%.

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>

AGGRESSIVE 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. The Fund invests primarily in
common stocks. The value of shares of this Fund may be quite volatile. The 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%.

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 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. 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 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

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 most debt securities in response to market risk.
The value of some securities held by each Fund may be quite volatile.

o VALUE INVESTING. 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. In addition, a Fund using a value
approach may underperform certain other stock funds (those emphasizing
growth stocks, for example) during periods when value stocks are out of
favor. The Value & Income and the International Equity Funds are
particularly susceptible to the risks of value investing.

o PORTFOLIO SELECTION. The success of the Growth & Income and Equity Growth
Funds' investment strategy depends largely on the skill of those Funds'
advisers in assessing the growth potential of companies in which the
Funds invest. The advisers may fail to pick stocks that outperform the
market or that do as well as the market. In that case, investors in these
Funds may lose money or their investment may not do as well as an
investment in another stock fund using a growth approach.

The success of a Fund using a value approach, such as the Value & Income
and International Equity Funds, depends largely on the advisers' skill in
identifying securities of companies that are in fact undervalued, but
have good longer term business prospects. The advisers may not be correct
in their determinations. In that case, investors in these Funds may lose
money or their investment in the Fund may not do as well as an investment
in another stock fund using a value approach.

<PAGE>

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.

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). If these
predictions are wrong, or if the derivatives do not work as anticipated,
the Fund could suffer greater losses than if the fund had not used
derivatives. Derivatives may involve a small investment of cash relative
to the magnitude of the risk being taken. 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 PORTFOLIO TURNOVER. The Special Equity and Aggressive Equity Funds are
actively managed, and their portfolio managers may trade securities
frequently, resulting, from time to time, in annual portfolio turnover
rates 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 Funds pay when they buy and sell
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 to
participate in the long term growth potential of U.S. large capitalization
stocks. Consider the VALUE & 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 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 Stock Funds were organized on April 5, 2000 and do not have a full calendar
year of investment returns at the date of this prospectus.

<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.

SHAREHOLDER FEES (FEES PAID STOCK VALUE & GROWTH EQUITY
DIRECTLY FROM YOUR INVESTMENT) INDEX INCOME & GROWTH
FUND FUND INCOME FUND
FUND
Maximum Sales Charge (Load)
Imposed on Purchases None None None None
Maximum Deferred Sales Charge None None None None
(Load)
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)(2)
Advisory Fee 0.10% 0.45% 0.60% 0.62%
Distribution (12b-1) Fees 0.25% 0.25% 0.25% 0.25%
Other Expenses
Administrative Services Fee (3) 0.05% 0.05% 0.05%
Miscellaneous Expenses 0.08% 0.09% 0.10% 0.10%
TOTAL ANNUAL FUND OPERATING
EXPENSES 0.43% 0.84% 1.00% 1.02%
Fee Waiver and/or Expense
Reimbursement(4) 0.13% 0.09% 0.10% 0.12%
NET EXPENSES 0.30% 0.75% 0.90% 0.90%

(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.
(2) Based on estimated expenses for the current fiscal year.
(3) Administrative services fees of the Fund are included in the Advisory Fee
for the Fund.
(4) The Adviser has contractually agreed to reimburse certain of the Funds'
expenses. Each of these agreements has a term of 10 years.

<PAGE>

SPECIAL AGGRESSIVE
SHAREHOLDER FEES (FEES PAID EQUITY EQUITY INTERNATIONAL
DIRECTLY FROM YOUR INVESTMENT) FUND FUND EQUITY FUND
Maximum Sales Charge (Load)
Imposed on Purchases None None None
Maximum Deferred Sales Charge None None None
(Load)
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends None None None
Redemption Fee None None None
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from
Fund assets) as a % of average net
assets(1)(2)
Advisory Fee 0.80% 0.97% 0.75%
Distribution (12b-1) Fees 0.25% 0.25% 0.25%
Other Expenses
Administrative Services Fee 0.05% 0.05% 0.05%
Miscellaneous Expenses 0.12% 0.11% 0.19%
TOTAL ANNUAL FUND OPERATING
EXPENSES 1.22% 1.38% 1.24%
Fee Waiver and/or Expense
Reimbursement(3) 0.12% 0.13% 0.09%
NET EXPENSES 1.10% 1.25% 1.15%

(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.
(2) Based on estimated expenses for the current fiscal year.
(3) The Adviser has contractually agreed to reimburse certain of the Funds'
expenses. Each of these agreements has a term of 10 years.

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:

<S> <C> <C> <C> <C> <C> <C> <C>
AGGRESSIVE
STOCK INDEX VALUE & GROWTH & INCOME EQUITY GROWTH SPECIAL EQUITY EQUITY INTERNATIONAL
FUND INCOME FUND FUND FUND FUND FUND EQUITY FUND
1 year $ 31 $ 77 $ 92 $ 92 $ 112 $ 127 $ 117
3 years $ 97 $ 240 $ 287 $ 287 $ 350 $ 397 $ 365
</TABLE>

<PAGE>

STRATEGIC ALLOCATION FUNDS

INSTITUTIONAL SHORT HORIZON STRATEGIC ALLOCATION FUND
INSTITUTIONAL SHORT/INTERMEDIATE HORIZON STRATEGIC ALLOCATION FUND
INSTITUTIONAL INTERMEDIATE HORiZON STRATEGIC ALLOCATION FUND
INSTITUTIONAL INTERMEDIATE/LONG HORIZON STRATEGIC ALLOCATION FUND
INSTITUTIONAL LONG HORIZON STRATEGIC ALLOCATION FUND

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.

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 and Stock Index Funds)
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%

<PAGE>

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 these Funds.

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 most 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 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.

<PAGE>

o ALLOCATION AND PORTFOLIO SELECTION. The success of each Strategic
Allocation Fund's investment strategy depends in part on the adviser's
skill in identifying long term performance of and relationships between
the Money Market, Bond and Stock Funds in which the Strategic Allocation
Funds invest. The success of each Strategic Allocation Fund's strategy
also depends on the skill of the advisers of the underlying Funds in
assessing growth potential or credit quality of companies in which the
Funds invest, or in predicting accurately the direction of interest rates
or the repayment of certain debt obligations, or other factors. If the
advisers are not successful, the investors in the Strategic Allocation
Funds may lose money or their investment may not do as well as an
investment in another asset allocation fund.

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). If these
predictions are wrong, or if the derivatives do not work as anticipated,
the Fund could suffer greater losses than if the fund had not used
derivatives. Derivatives may involve a small investment of cash relative
to the magnitude of the risk being taken. 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 Strategic Allocation Funds were organized on April 5, 2000 and do not have
a full calendar year of investment returns at the date of this prospectus.

<PAGE>

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 None None None None None
(Load)
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(1)
Advisory Fee 0.10% 0.10% 0.10% 0.10% 0.10%
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(2) 0.10% 0.10% 0.10% 0.10% 0.10%
</TABLE>

(1) Based on estimated expenses for the current fiscal year.
(2) EACH STRATEGIC ALLOCATION FUND ALSO BEARS ITS PRO RATA SHARE OF THE FEES
AND EXPENSES 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 0.74% to 0.79% for the Short
Horizon Strategic Allocation Fund; from 0.82% to 0.91% for the
Short/Intermediate Horizon Strategic Allocation Fund; from 87% to 0.97%
for the Intermediate Horizon Strategic Allocation Fund; from 0.92% to
1.03% for the Intermediate/Long Horizon Strategic Allocation Fund; and
from 0.96% to 1.11% 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 0.77%, 0.87%,
0.92%, 0.98% and 1.05 %, respectively, are used to calculate the
expenses a shareholder would incur as reflected in the example below.

<PAGE>

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:

SHORT/ INTERMEDIATE/
SHORT HORIZON INTERMEDIATE INTERMEDIATE LONG HORIZON LONG HORIZON
STRATEGIC HORIZON STRATEGIC HORIZON STRATEGIC STRATEGIC STRATEGIC
ALLOCATION ALLOCATION ALLOCATION ALLOCATION ALLOCATION
FUND FUND FUND FUND FUND
---------------- ----------------- ----------------- ------------- --------------
1 year $ 79 $ 89 $ 94 $ 100 $ 107
3 years $ 246 $ 278 $ 293 $ 312 $ 334
</TABLE>

<PAGE>

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 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 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) the next time it is 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.

<PAGE>

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 be
impacted 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.

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.

<PAGE>

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 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.

Each Fund distributes any net realized short-term and long-term capital gains
to its shareholders. 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

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.

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."

The Portfolios have 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 Prospectus would be revised and shareholders
notified. Before a Portfolio relies on the exemptive order, the Portfolio's
investors must approve it. To date, investors in the High Quality Bond, Core
Bond, Balanced, Value & Income, Equity Growth and Special Equity Portfolios
have approved the exemptive order.

<PAGE>

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.

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 AND
INTERMEDIATE GOVERNMENT 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, is responsible for the day-to-day management of the Money Market Fund.
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: Gregory Staples, Vice President, is
responsible for the day-to-day management of the Intermediate Government Bond
Fund. Mr. Staples has been employed by Capital Management Group since 1987.

CORE BOND FUND

Payden & Rygel. Payden was formed in 1984 and is owned by certain of its
employees. Payden (or its predecessor) 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.

HIGH QUALITY BOND FUND

Merganser Capital Management Limited Partnership. Merganser was formed in 2000,
as the successor to a business formed in 1984, and is owned by certain of its
employees. Merganser, or its predecessor, has been a registered investment
adviser since 1984. The principal business address of Merganser is One
Cambridge Center, Cambridge, Massachusetts 02142.

HIGH-YIELD BOND FUND

Eaton Vance Management. Eaton Vance was formed in 1990, and is owned by Eaton
Vance Corp. Eaton Vance has been a registered investment adviser since 1990.
The principal business address of Eaton Vance is 255 State Street, Boston,
Massachusetts 02109.

BALANCED FUND

Aeltus Investment Management, Inc.
Payden & Rygel

<PAGE>

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.

Geoffrey A. Brod, Portfolio Manager, is responsible for the day-to-day
supervision of management of the Balanced Fund on behalf of Aeltus and has been
employed by Aeltus or its parent company since 1966.

VALUE & INCOME FUND

Asset Management Group
Sanford C. Bernstein & Co., Inc.

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.

Sanford C. Bernstein & Co., Inc. Sanford Bernstein was incorporated in 1969 and
is owned by Sanford C. Bernstein Inc. On April 21, 2000, Alliance Capital
Management L.P. announced that it had agreed it purchase Sonford Bernstein.
Sanford Bernstein has been a registered investment adviser since 1975. The
address of Sanford Bernstein is 767 Fifth Avenue, New York, New York 10153.

GROWTH & INCOME FUND

Putnam Advisory Company, Inc. Putnam is owned by Putnam Investments, Inc.,
which is in turn, other than a minority interest owned by employees, owned by
Marsh & McLennan Companies, Inc. Putnam Advisory Company manages institutional
assets, and 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 3455
Peachtree Road, N.E., Suite 1200, Atlanta, Georgia 30326-3248.

SPECIAL EQUITY FUND

Goldman Sachs Asset Management
Husic Capital Management
RS Investment Management, L.P.
Westport Asset Management, Inc.

Goldman Sachs Asset Management. Goldman Sachs is a unit of the Investment
Management Division of Goldman, Sachs & Co., a worldwide investment banking
firm, with numerous offices throughout the United States and globally. 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, are responsible for the day-to-day management of the Special Equity

<PAGE>

Fund on behalf of Goldman Sachs. 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.

Husic Capital Management. Husic was founded in March 1986 and is a California
limited partnership. The General Partner of Husic is Frank J. Husic & Co., a
California corporation. Mr. Frank J. Husic is the sole shareholder of Husic &
Co. Husic has been a registered investment adviser since 1986. The principal
business address of Husic is 555 California Street, Suite 2900, San Francisco,
California 94104.

Mr. Husic and Ronald J. Leong are jointly responsible for the day-to-day
management of the Special Equity Fund on behalf of Husic. Mr. Husic is the
founder of the firm and is Chief Investment Officer. Mr. Leong has been
employed by Husic since 1988.

RS Investment Management, L.P. RS was formed in 1999 and is owned by certain of
its employees. RS (or its predecessor) has been a registered investment adviser
since 1984. The principal business address of RS is 388 Market Street, Suite
200, San Francisco, Ca 94111.

David J. Evans, Portfolio Manager, is responsible for the day-to-day
supervision of management of the Special Equity Fund on behalf of RS Investment
Management, L.P. and has been employed by RS Investment Management, L.P. since
1989.

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, is responsible for the day-to day management
of the Special Equity Fund on behalf of Westport 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. In 1998 and 1999 McKinley awarded equity interest to
key employees. 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, is responsible for the day-to-day
supervision of management of the Aggressive Equity Fund 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
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 ending December 31, 2000, the Fund will pay Diversified and
the subadvisers 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%
High Quality Bond Fund 0.35%
Intermediate Government Bond Fund 0.35%
Core Bond Fund 0.35%
High-Yield Bond Fund 0.55%
Balanced Fund 0.45%
Stock Index Fund 0.10%

<PAGE>

Value & Income Fund 0.45%
Growth & Income Fund 0.60%
Equity Growth Fund 0.62%
Special Equity Fund 0.80%
Aggressive Equity Fund 0.97%
International Equity Fund 0.75%
Short Horizon Strategic Allocation Fund 0.10%*
Short/Intermediate Horizon Strategic Allocation Fund 0.10%*
Intermediate Horizon Strategic Allocation Fund 0.10%*
Intermediate/Long Horizon Strategic Allocation Fund 0.10%*
Long Horizon Strategic Allocation Fund 0.10%*

* In addition, this Fund will bear 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. Except as noted below, each Fund's goal and strategies may be
changed without shareholder approval. There can, of course, be no assurance
that any Fund will achieve its investment goal.

Please note that each Fund may also use strategies and invest in securities
that 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 or in the Statement of
Additional Information at any particular time.

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.

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 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.

<PAGE>

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.

Management of the Fund reflects the goal of maximizing yield, subject to the
portfolio manager's outlook for short-term interest rates and anticipated
liquidity needs. The Fund is constructed from an approved list of money market
issues that have passed and maintain rigorous credit quality standards.
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.

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.

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 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 BBB- or better by Standard & Poor's or Baa3
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.

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.

<PAGE>

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.

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.

The portfolio managers of the HIGH QUALITY BOND FUND and INTERMEDIATE
GOVERNMENT 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 these Funds 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 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.

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 --
interests in the pools are then referred to as "GINNIE MAES", "FANNIE MAES" and
"FREDDIE MACS." Mortgaged-backed securities include COLLATERALIZED MORTGAGE
OBLIGATIONS, or CMOs.

The CORE 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. Treasury and agency 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.

Payden & Rygel uses both "top down" and "bottom up" analysis to determine
sector, security and duration positions for the Core Bond Portfolio. These
three factors are jointly determined and are interdependent. The overall
position in the corporate sector, for example, is established in conjunction
with assessments of relative value for specific corporate securities. Extensive
bottom up analysis using a variety of valuation tools is conducted for sector
allocation and security selection. Duration policy is primarily a result of
sector allocations and expected long-term interest rate trends (rather than
short-term interest rate forecasting). Yield curve positioning is also a key
aspect of duration management. Security sales decisions are driven by the same
criteria as purchase decisions.

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

<PAGE>

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.

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.

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.
Generally, 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).

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.

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

<PAGE>

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 VALUE & 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.

The portfolio managers of the VALUE & INCOME 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.

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. A fund's adviser may not be correct in its determination of companies
that are in fact undervalued, but have good longer term business prospects.

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

<PAGE>

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. A Fund's advisers may fail to
pick stocks that outperform the economy or that do as well as the economy.

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 $2 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 Fund invests primarily in common stocks. 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 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, other than the Stock Index Fund, may use derivatives
solely for hedging purposes. These may include options, futures, swaps and
forward currency contracts. The Stock Index Fund may use derivatives to
generate income.

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

<PAGE>

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 and Stock Index Funds) 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.

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 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. The value of some securities held by certain of the Funds
may be quite volatile. Historically, equity securities have been more volatile
than most 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

<PAGE>

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.

PORTFOLIO SELECTION. The advisers of the Bond Funds and the Balanced Fund may
not pick securities that perform well because they are unable to predict
accurately the direction of interest rates or the repayment of certain debt
obligations or to assess accurately fundamental changes affecting credit
quality or other factors. In that case, investors in Bond Fund or the Balanced
Fund may lose money, or their investment in a Bond Fund or the Balanced Fund
may not do as well as investments in other fixed income funds or balanced
funds.

The success of the Growth & Income and Equity Growth Funds' investment strategy
depends largely on the skill of those Funds' advisers in assessing the growth
potential of companies in which the Funds invest. The advisers may fail to pick
stocks that outperform the market or that do as well as the market. In that
case, investors in those Funds may lose money or their investment may not do as
well as an investment in another stock fund using a growth approach.

The success of a Fund using a value approach, such as the Value & Income and
International Equity Funds, depends largely on the adviser's skill in
identifying securities of companies that are in fact undervalued, but have good
longer term business prospects. The advisers may not be correct in their
determinations. In that case, investors in these Funds may lose money or their
investment in the Fund may not do as well as an investment in another stock
fund using a value approach.

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 and the Balanced Fund may invest in issuers
located in emerging, or developing, markets. Emerging or developing
countries are generally defined as countries in the initial stages of
their industrialization cycles with low per capita income. All of the
risks of investing in foreign securities are heightened by investing in
developing countries. 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 AND EXTENSION 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. The Fund would also lose the benefit of falling
interest rates on the price of the repaid bond. Securities subject to
prepayment risk generally offer less potential for gains when interest rates
decline, and may offer a greater potential for loss when interest rates rise.
Also, 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). If these predictions are wrong, or if the

<PAGE>

derivatives do not work as anticipated, the Fund could suffer greater losses
than if the fund had not used derivatives. Derivatives may involve a small
investment of cash relative to the magnitude of the risk being taken.
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.

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
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.

TRUSTS AND SHARE CLASSES. Each Fund other than the Strategic Allocation Funds
is a series of The Diversified Investors Strategic Allocation Funds, which is a
Massachusetts business trust. Each Strategic Allocation Fund is a series of The
Diversified Investors Funds Group, which also is a Massachusetts business
trust.

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.

<PAGE>

TOTAL RETURNS

The Funds are newly organized and therefore have no historical performance.

The table below reflects the total return for each Fund's corresponding
Portfolio from the inception of that Portfolio until the commencement of
operations of the Fund. In addition, before the Portfolios commenced
operations, certain Pooled Separate Accounts of MONY Life Insurance Company
(formerly The Mutual Life Insurance Company of New York) contributed
substantially all of their assets to the Portfolio. The total return for such
Funds for any period which includes a period prior to the contribution of
assets by the Pooled Separate Account to the corresponding Portfolio will
reflect the performance of the Pooled Separate Account.

Portfolio and Pooled Separate Account performance is only included, however,
from the date that the Portfolio or Pooled Separate Account, as appropriate,
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.
Furthermore this Portfolio performance is adjusted to reflect current Fund fees
and expenses, after waivers and reimbursements, to the extent such fees and
expenses exceeded the actual expenses of the Portfolio. This Pooled Separate
Account performance is adjusted to reflect current Fund fees and expenses,
after waivers and reimbursements.

Investors should not consider this performance data as an indication of future
performance of the Funds. These composite returns are not intended to predict
or suggest the returns that might be experienced by the Funds in the future or
an individual investing in any of these Funds.

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. None
of the Pooled Separate Accounts was organized for the purpose of establishing a
performance record for a Portfolio.

As of December 31, 1999, the average annual total returns for each of the
following Funds, including the Portfolios and Pooled Separate Accounts referred
to above, were as follows:

FOR THE
FOR THE FOR THE FOR THE FOR THE PERIOD SINCE
YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
INCEPTION ENDED ENDED ENDED ENDED THROUGH
DATE 12/31/99 12/31/99 12/31/99 12/31/99 12/31/99
Money Market 11/78 4.90% 5.12% 5.23% 5.03% 7.71%
High Quality Bond 7/90 3.01% 4.93% 6.01% N/A 6.27%
Intermediate Government Bond 7/90 1.35% 5.09% 6.41% N/A 6.69%
Core Bond 1/78 -1.12% 4.87% 7.05% 7.47% 8.52%
High-Yield Bond 8/95 0.34% 4.96% N/A N/A 6.78%
Balanced 12/92 11.29% 14.11% 17.33% N/A 14.05%
Stock Index 3/99 20.65% 27.32% 28.28% N/A 22.54%
Value & Income 1/78 7.99% 16.42% 20.1% 13.64% 14.39%
Growth & Income 1/86 30.47% 33.26% 30.63% 18.50% 17.68%
Equity Growth 3/93 37.53% 33.55% 27.26% N/A 21.28%
Special Equity 1/86 25.72% 18.01% 23.88% 16.35% 16.81%
Aggressive Equity 4/96 64.18% 35.38% N/A N/A 29.35%
International Equity 12/92 64.23% 25.23% 20.54% N/A 19.69%
Short Horizon Strategic
Allocation Fund 6/96 1.45% 5.45% N/A N/A 5.88%
Short/Intermediate Horizon
Strategic Allocation Fund 4/98 7.70% N/A N/A N/A 6.88%
Intermediate Horizon
Strategic Allocation Fund 6/96 13.14% 13.25% N/A N/A 12.86%
Intermediate/Long Horizon
Strategic Allocation Fund 6/96 19.06% 17.33% N/A N/A 16.77%
Long Horizon Strategic Allocation
Fund 4/98 27.41% N/A N/A N/A 18.27%
</TABLE>

COMPOSITE PERFORMANCE OF DIVERSIFIED AND CERTAIN SUBADVISERS

The table below shows total returns calculated for private accounts and
collective investment vehicles managed by Diversified during the periods

<PAGE>

indicated. Each of these private accounts and collective investment vehicles
have investment objectives, policies and restrictions substantially similar to
the Strategic Allocation Funds and have been managed as these Funds are
managed. Diversified has managed these collective investment vehicles since
October 1, 1992. Certain of these private accounts and collective investment
vehicles are not registered under the Investment Company Act of 1940 and are
not subject to certain investment restrictions imposed on the Funds by that Act
or the Internal Revenue Code. If these private accounts and collective
investment vehicles were so registered, investment performance might have been
adversely affected. 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.

This data is provided to illustrate the past performance of Diversified in
managing substantially similar accounts as the Strategic Allocation Funds and
does not represent the performance of these Funds. Investors should not
consider this performance data as an indication of future performance of the
Funds or Diversified. These composite returns are not intended to predict or
suggest the returns that might be experienced by the Strategic Allocation Funds
in the future or an individual investing in any of these Funds.

The average annual total returns at December 31, 1999 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:

INCEPTION SINCE
DATE 1 YEAR 3 YEARS 5 YEARS INCEPTION
--------- -------- -------- ----------- -----------
SHORT HORIZON
STRATEGIC ALLOCATION FUND 10/92 1.89% 5.91% 7.58% 6.42%
INTERMEDIATE HORIZON
STRATEGIC ALLOCATION FUND 10/92 13.59% 13.69% 13.88% 11.68%
INTERMEDIATE/LONG HORIZON
STRATEGIC ALLOCATION FUND 10/92 19.52% 17.78% 18.66% 15.88%
</TABLE>

The table below shows the total returns calculated for the period indicated for
all institutional private accounts and collective investment vehicles managed
by a subadviser that has less than a three year track record with the Fund and
that is the sole subadviser to that Fund.

Each of these institutional private accounts and collective investment vehicles
have investment objectives, policies and restrictions substantially similar to
the applicable Fund and have been managed in substantially the same way that
Fund is managed. The institutional private accounts and collective investment
vehicles that are included in the subadvisers' composites are not registered
under the Investment Company Act of 1940 and are not subject to certain
investment restrictions imposed by that Act or the Internal Revenue Code. If
the institutional private accounts and collective investment vehicles included
in the composites were so registered, investment performance may have been
adversely affected.

This data is provided to illustrate the past performances of a subadviser in
managing substantially similar accounts as measured against specified market
indices and does not represent the performance of a Fund. 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 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 unless otherwise indicated.
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, 1999.

SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
Eaton Vance Management, Subadviser to
High-Yield Bond Fund
Subadviser's composite(1) 12.40% 10.53% 12.20% 11.57% 11.57%
Credit Suisse First Boston High Yield
Index(2) 3.28% 5.37% 9.07% 11.06% 11.06%
Lipper High Yield Bond Fund Index(3) 4.78% 5.82% 9.46% 10.34% 10.58%

<PAGE>

(1) Commencement of investment operations is January 1, 1990 for the
subadviser's composite.

(2) The Credit Suisse First Boston High Yield Index is an unmanaged
portfolio which is revised on a monthly basis and constructed to mirror
the high yield debt market. The index includes all fixed income,
non-convertible, U.S. dollar denominated securities meeting certain
inclusion criteria.

(3) The Lipper High Yield Bond 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".

<PAGE>

APPENDIX A

STRATEGIC ALLOCATION FUNDS

Under normal circumstances, the Strategic Allocation Funds are allocated among
the Money Market, Bond and Stock Funds, other than the Stock Index Fund, as
follows:

<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 10-30% 20% 0-15% 5% 0-15% 5%
Bond
Core Bond 20-40% 30% 25-45% 35% 15-35% 25%
High-Yield Bond 0-20% 10% 5-25% 15% 0-20% 10%
Value & Income 0-20% 10% 0-20% 9% 5-25% 15%
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 0-15% 5% 0-10% 0%
BOND
CORE BOND 0-20% 12% 0-10% 0%
HIGH-YIELD BOND 0-15% 8% 0-10% 0%
VALUE & INCOME 10-30% 21% 20-40% 30%
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 II and mailed to:

The Diversified Investors Funds Group II
4 Manhattanville Road
Purchase, New York 10577

Checks for shares of the Strategic Allocation Funds should be made payable to
The Diversified Investors Funds Group II and mailed to

The Diversified Investors Funds Group
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 Funds Group II (in case of a purchase
of a Money Market, Bond, Balanced or Stock Fund) or The Diversified Investors
Funds Group (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.

Requests to redeem shares in any of the Money Market, Bond, Balanced or Stock
Funds should be mailed to The Diversified Investors Funds Group II at:

The Diversified Investors Funds Group II
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 Funds Group at:

The Diversified Investors Funds Group
Four Manhattanville Road
Purchase, New York 10577

<PAGE>

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>

(This page intentionally left blank.)

<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 1-202-942-8090. You can receive
copies of this information by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, DC 20549-0102.

SEC file numbers: 811-7674
811-07495

<PAGE>
<TABLE>
<CAPTION>
THE DIVERSIFIED INVESTORS FUNDS GROUP
THE DIVERSIFIED INVESTORS STRATEGIC ALLOCATION FUNDS

STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 11, 2000

<S> <C>
MONEY MARKET FUNDS: STOCK FUNDS:
Diversified Investors Money Market Fund Diversified Investors Stock Index Fund
Diversified Institutional Money Market Fund Diversified Investors Value & Income Fund
Diversified Investors Equity Value Fund
BOND FUNDS: Diversified Investors Growth & Income Fund
Diversified Investors High Quality Bond Fund Diversified Investors Equity Growth Fund
Diversified Investors Intermediate Government Bond Fund Diversified Investors Special Equity Fund
Stephens Intermediate Bond Fund Stephens Select Equity Fund
Diversified Investors Core Bond Fund Diversified Investors Aggressive Equity Fund
Diversified Investors High-Yield Bond Fund Diversified Investors International Equity Fund

Diversified Institutional High Quality Bond Fund Diversified Institutional Stock Index Fund
Diversified Institutional Intermediate Government Bond Fund Diversified Institutional Value & Income Fund
Diversified Institutional Core Bond Fund Diversified Institutional Equity Value Fund
Diversified Institutional High-Yield Bond Fund Diversified Institutional Growth & Income Fund
Diversified Institutional Equity Growth Fund
BALANCED FUNDS: Diversified Institutional Special Equity Fund
Diversified Investors Balanced Fund Diversified Institutional Aggressive Equity Fund
Diversified Institutional Balanced Fund Diversified Institutional International Equity Fund
</TABLE>

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

Institutional Short Horizon Strategic Allocation Fund
Institutional Short/Intermediate Horizon Strategic Allocation Fund
Institutional Intermediate Horizon Strategic Allocation Fund
Institutional Intermediate/Long Horizon Strategic Allocation Fund
Institutional Long Horizon Strategic Allocation Fund

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 1, 2000 and September 11, 2000, as supplemented from
time to time (each, a "Prospectus"), for 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 twenty-one separate series of shares, or
funds. Each of the Diversified Investors Money Market, High Quality Bond,
Intermediate Government Bond, Core Bond, High-Yield Bond, Balanced, Stock
Index, Value & Income, Equity Value, Growth & Income, Equity Growth, Special
Equity, Aggressive Equity and International Equity Funds, the Stephens
Intermediate Bond and Select Equity Funds, and the Diversified Institutional
Strategic Allocation Funds, is a series of The Diversified Investors Funds
Group. The Diversified Investors Strategic Allocation Funds is a Massachusetts
business trust whose shares currently are divided into eighteen separate series
of shares, or funds. Each of the Diversified Institutional Money Market, High
Quality Bond, Intermediate Government Bond, Core Bond, High-Yield Bond,
Balanced, Stock Index, Value & Income, Growth & Income, Equity Growth, Special
Equity, Aggressive Equity and International Equity Funds and the Strategic
Allocation Funds, is a series of The Diversified Investors Strategic Allocation
Funds. This Statement of Additional Information relates to the shares of each
Fund listed on the first page hereof.

Shares of the Diversified Institutional Money Market, Bond, Balanced and Stock
Funds and the Institutional Strategic Allocation Funds are issued in a single
class. Shares of all of the other Funds are divided into separate classes. Each
Diversified Investors Money Market, Bond (other than the Stephens Intermediate
Bond Fund), Balanced and Stock (other than the Stephens Select Equity Fund)
Fund issues Diversified Class shares. The Stephens Intermediate Bond Fund and
Stephens Select Equity Fund each issue Stephens Premium Class shares and
Stephens Institutional Class shares. In addition, each of the Diversified
Investors Money Market, Intermediate Bond, High-Yield Bond, Value & Income,
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
43 and the Prospectuses.

TABLE OF CONTENTS

PAGE
The Trusts..................................... 4
Investment Objectives, Policies and
Associated Risk Factors
of the Funds................................. 4
Performance Information........................ 23
Determination of Net Asset Value; 26
Valuation of Securities......................
Management..................................... 28
Investment Advisory Services................... 32
Administrator.................................. 37
Custodian and Transfer Agent................... 38
Miscellaneous.................................. 39
Taxation....................................... 39
Distribution Plans............................. 42
Independent Accountants........................ 43
Description of the Trusts; Fund Shares......... 43
Financial Statements........................... 44
Appendix A -- Description of Security Ratings.. A-1

<PAGE>

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, open-end 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 twenty-one 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 eighteen separate
series described herein. Each of the Trusts may create additional series from
time to time.

Each of the Diversified Investors Money Market, Bond (other than Stephens
Intermediate Bond), Balanced and Stock (other than Stephens Select Equity)
Funds and each of the Diversified Institutional Money Market, Bond, Balanced
and Stock Funds seeks its investment objective by investing all of its assets
in an underlying Portfolio having the same investment objectives and policies
as the applicable Diversified Investors Fund and Diversified Institutional
Fund. The Funds and their corresponding Portfolios are set forth below:
<TABLE>
<CAPTION>

<S> <C>
FUND PORTFOLIO
Diversified Investors Money Market Fund and
Diversified Institutional Money Market Fund...................... Money Market Portfolio
Diversified Investors High Quality Bond Fund and
Diversified Institutional High Quality Bond Fund................. High Quality Bond Portfolio
Diversified Investors Intermediate Government Bond Fund and
Diversified Institutional Intermediate Government Bond Fund...... Intermediate Government Bond Portfolio
Diversified Investors Core Bond Fund and
Diversified Institutional Core Bond Fund......................... Core Bond Portfolio
Diversified Investors High-Yield Bond Fund and
Diversified Institutional High-Yield Bond Fund................... High-Yield Bond Portfolio
Diversified Investors Balanced Fund and
Diversified Institutional Balanced Fund.......................... Balanced Portfolio
Diversified Investors Stock Index Fund and
Diversified Institutional Stock Index Fund....................... S&P 500 Index Master Portfolio
Diversified Investors Value & Income Fund and
Diversified Institutional Value & Income Fund.................... Value & Income Portfolio
Diversified Investors Equity Value Fund.......................... Equity Value Portfolio
Diversified Investors Growth & Income Fund and
Diversified Institutional Growth & Income Fund................... Growth & Income Portfolio
Diversified Investors Equity Growth Fund and
Diversified Institutional Equity Growth Fund..................... Equity Growth Portfolio
Diversified Investors Special Equity Fund and
Diversified Institutional Special Equity Fund.................... Special Equity Portfolio
Diversified Investors Aggressive Equity Fund and
Diversified Institutional Aggressive Equity Fund................. Aggressive Equity Portfolio
Diversified Investors International Equity Fund and
Diversified Institutional International Equity Fund.............. International Equity Portfolio
</TABLE>

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.

<PAGE>

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:

<TABLE>
<CAPTION>
<S> <C>
FUND OR PORTFOLIO SUBADVISER
Money Market Portfolio.................. Capital Management Group
High Quality Bond Portfolio............. Merganser Capital Management
Limited Partnership
Intermediate Government Bond Portfolio.. Capital Management Group
Stephens Intermediate Bond Fund......... Stephens Capital Management
Core Bond Portfolio..................... Payden & Rygel
High-Yield Bond Portfolio............... Eaton Vance Management
Balanced Portfolio...................... Aeltus Investment Management, Inc.
Payden & Rygel
Equity Value Portfolio.................. Sanford Bernstein & Co., Inc.
Value & Income Portfolio................ Asset Management Group
Sanford Bernstein & Co., Inc.
Growth & Income Portfolio............... Putnam Advisory Company, Inc.
Equity Growth Portfolio................. Dresdner RCM Global Investors, LLC
Montag & Caldwell Incorporated
Special Equity Portfolio................ Husic Capital Management
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>

--------

1 Standard & Poor's does not sponsor the S&P 500 Index Master Portfolio, nor
is it affiliated in any way with Barclays Global Fund Advisors or the 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>

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 Funds, 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 short-term 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
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 book-entry system known

<PAGE>

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
interest-only class is extremely sensitive to the rate of principal payments on
the underlying obligation. The market value of the principal-only 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
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the Treasury; others, such as those issued
by the Federal National Mortgage Association, by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality. While the
U.S. Government provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it will always do
so, since it is not so obligated by law.

COMMERCIAL PAPER

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

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

<PAGE>

amount of the obligations plus accrued interest upon a specified number of
days' notice to the holders of such obligations. The interest rate on a
floating rate demand obligation is based on a known lending rate, such as a
bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand obligation is 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 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 each 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 each 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
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.

<PAGE>

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).

The liquidity of Rule 144A securities could be impaired if trading in these
investments 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 each 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 agreed-upon date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the seller to pay
the agreed-upon price, which obligation is in effect secured by the value of
the underlying security, usually U.S. Government or government agency issues.
Under the Investment Company Act of 1940, as amended (the "1940 Act"),
repurchase agreements may be considered to be loans by the buyer. A 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 broker-dealers 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 high-grade 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

<PAGE>

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 over-the-counter markets located outside
the United States. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United States,
and securities of some foreign issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable United States companies. Foreign security trading practices,
including those involving securities settlement where a 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 broker-dealer. In
addition, foreign brokerage commissions are generally higher than commissions
on securities traded in the United States and may be non-negotiable. In
general, there is less overall governmental supervision and regulation of
foreign securities exchanges, brokers and listed companies than in the United
States.

MONEY MARKET FUNDS

Each Money Market Fund may invest in the following foreign securities: (a) U.S.
dollar-denominated obligations of foreign branches and subsidiaries of domestic
banks and foreign banks (such as Eurodollar CDs, which are U.S.
dollar-denominated CDs issued by branches of foreign and domestic banks located
outside the United States; Eurodollar TDs ("ETDs"), which are U.S.
dollar-denominated deposits in a foreign branch of a foreign or domestic bank;
and Canadian TDs, which are essentially the same as ETDs except they are issued
by branches of major Canadian banks); (b) high quality, U.S. dollar-denominated
short-term bonds and notes (including variable amount master demand notes)
issued by foreign corporations (including Canadian commercial paper, which is
commercial paper issued by a Canadian corporation or a Canadian subsidiary of a
U.S. corporation, and Europaper, which is U.S. dollar-denominated commercial
paper of a foreign issuer); and (c) U.S. dollar-denominated obligations issued
or guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities that are determined by the 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 FUNDS

Not more than 5% of a Fund's assets may be invested in closed-end 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
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

<PAGE>

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
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 cross-hedge its
assets. Also, with regard to a Fund's use of cross-hedges, there can be no
assurance that historical correlations between the movement of certain foreign
currencies relative to the U.S. dollar will continue. Thus, at any time poor
correlation may exist between movements in the exchange rates of the foreign
currencies underlying a 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 cross-hedges are denominated.

<PAGE>

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 each 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 when-issued 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.

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
"when-issued" 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 "when-issued" 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 "when-issued" 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 non-zero 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 FUNDS

Futures Contracts. A Fund may enter into contracts for the purchase or sale for
future delivery of fixed-income securities or foreign currencies, or contracts
based on financial indices including any index of U.S. 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
long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage
Association modified pass-through mortgage-backed securities and three-month
U.S. Treasury Bills. A Fund may also enter into futures contracts which are
based on bonds issued by entities other than the U.S. Government.

<PAGE>

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.
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 fixed-income securities, is to attempt
to protect the Fund from fluctuations in interest or foreign exchange rates
without actually buying or selling fixed-income securities or foreign
currencies. For example, if interest rates were expected to increase, a 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 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

<PAGE>

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 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 (non-hedge) futures contracts of a Fund and
premiums paid on outstanding (non-hedge) 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.

<PAGE>

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 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 cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to provide a hedge
against a decline in the U.S. dollar value of a security which the 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 market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to SEC regulation. Similarly, options on currencies may be traded
over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of
time. 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

<PAGE>

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

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

In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (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 FUNDS

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.

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.

<PAGE>

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 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 over-the-counter options transactions with
broker-dealers who make markets in these options. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Funds will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New
York and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The 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 FUNDS

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.

<PAGE>

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.

SHORT SALES "AGAINST THE BOX" -- FUNDS OTHER THAN THE MONEY MARKET FUNDS

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 sub-custodian. 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
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,

<PAGE>

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.

TEMPORARY DEFENSIVE POSITIONS

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 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.

<PAGE>

DIVERSIFIED INVESTORS 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 Diversified Investors 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 open-end 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.

(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
short-term 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.

DIVERSIFIED INSTITUTIONAL MONEY MARKET, BOND, BALANCED AND STOCK FUNDS

Fundamental Policies. As a matter of fundamental policy, no Diversified
Institutional Money Market, Bond, Balanced or Stock Fund may (except that no
investment restriction of a Fund shall prevent a Fund from investing all or any
portion of its assets in one or more investment companies, to the extent not
prohibited by the 1940 Act, the rules and regulations and any orders obtained
thereunder):

(1) Borrow money; except to the extent permitted under the 1940 Act,
including the rules, regulations and any orders obtained thereunder.

(2) Underwrite securities issued by other persons except insofar as the
Strategic Allocation 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 Fund's
portfolio securities and provided that any such loans not exceed 30% of the
Fund's total assets (taken at market value), (b) through the use of

<PAGE>

repurchase agreements, fixed time deposits, or the purchase of short-term
obligations or (c) by purchasing debt securities of types distributed
privately to financial institutions. The purchase of short-term commercial
paper or a portion of an issue of debt securities which is part of an issue
to the public shall not be considered the making of a loan.

(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
Strategic Allocation Trust may hold and sell, for the Fund's portfolio, real
estate acquired as a result of the 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 Fund's investment objective(s), up to 25% of its total assets may be
invested in any one industry, except that positions in futures contacts
shall not be subject to this restriction, (except that the Money Market Fund
reserves the freedom of action to concentrate 25% or more of its assets in
obligations of domestic branches of domestic banks) and except that this
restriction shall not apply with respect to the Stock Index Fund to any
industry in which the S&P 500 Index (or any other index which the Fund
selects to track its performance) becomes concentrated to the extent that
the Stock Index 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.

For purposes of restriction (1) above, arrangements with respect to securities
lending are not treated as borrowing.

DIVERSIFIED INVESTORS STOCK INDEX FUND

As a matter of fundamental policy, the Diversified Investors 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 open-end 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
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.

<PAGE>

(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 Funds 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 (other than the Institutional Strategic
Allocation Funds) 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. No Institutional Strategic Allocation
Fund may borrow money, except to the extent permitted under the 1940
Act, including the rules, regulations and any orders obtained
thereunder. Each Fund will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might
otherwise require untimely investment liquidations;

(2) make loans, although the underlying Portfolios may purchase money market
securities and enter into repurchase agreements;

(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:

<PAGE>

(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 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
approximately the same degree during the same period, the
Portfolio will be concentrated as specified above, only to the
extent the percentage of its assets invested in those categories
of investments is sufficiently large that 25% or more of its
total assets would be invested in a single industry.

(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 is subject to
the following investment restrictions, all of which are non-fundamental:

(1) The Portfolio may invest in shares of other open-end management
investment companies, subject to the limitations of Section
12(d)(1) of the 1940 Act. Under the 1940 Act, a Portfolio's
investment in such securities currently is limited, subject to
certain exceptions, to (i) 3% of the total voting stock of any
one investment company, (ii) 5% of such Portfolio's net assets
with respect to any one investment company, and (iii) 10% of
such Portfolio's net assets in the aggregate. Other investment
companies in which the Portfolios invest can be expected to
charge fees for operating expenses, such as investment advisory
and administration fees, that would be in addition to those
charged by the Portfolio.

<PAGE>

(2) The Portfolio may not invest more than 15% of its net assets in
illiquid securities. For this purpose, illiquid securities
include, among others, (a) securities that are illiquid by
virtue of the absence of a readily available market or legal or
contractual restrictions on resale, (b) fixed time deposits that
are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not
terminable within seven days.

(3) The Portfolio may lend securities from its portfolio to brokers,
dealers and financial institutions, in amounts not to exceed (in
the aggregate) one-third of a Portfolio's total assets. Any such
loans of portfolio securities will be fully collateralized based
on values that are marked to market daily. The Portfolio will
not enter into any portfolio security lending arrangement having
a duration of longer than one year.

The non-fundamental policies (1) through (3) 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 than may otherwise have been 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
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, 1997: $324,465
Fiscal year ended December 31, 1998: $488,301
Fiscal year ended December 31, 1999: $826,394

VALUE & INCOME PORTFOLIO
Fiscal year ended December 31, 1997: $659,256
Fiscal year ended December 31, 1998: $855,733
Fiscal year ended December 31, 1999: $1,129,249

EQUITY VALUE PORTFOLIO
Fiscal year ended December 31, 1997: $548,229
Fiscal year ended December 31, 1998: $890,565
Fiscal year ended December 31, 1999: $742,561

<PAGE>

GROWTH & INCOME PORTFOLIO
Fiscal year ended December 31, 1997: $390,268
Fiscal year ended December 31, 1998: $728,627
Fiscal year ended December 31, 1999: $1,093,564

EQUITY GROWTH PORTFOLIO
Fiscal year ended December 31, 1997: $483,139
Fiscal year ended December 31, 1998: $853,305
Fiscal year ended December 31, 1999: $749,655

SPECIAL EQUITY PORTFOLIO
Fiscal year ended December 31, 1997: $1,017,376
Fiscal year ended December 31, 1998: $1,495,526
Fiscal year ended December 31, 1999: $1,349,955

AGGRESSIVE EQUITY PORTFOLIO
Fiscal year ended December 31, 1997: $48,943
Fiscal year ended December 31, 1998: $114,263
Fiscal year ended December 31, 1999: $235,606

INTERNATIONAL EQUITY PORTFOLIO
Fiscal year ended December 31, 1997: $295,967
Fiscal year ended December 31, 1998: $414,060
Fiscal year ended December 31, 1999: $494,520

PERFORMANCE INFORMATION

YIELD

MONEY MARKET FUNDS:

For the Money Market Funds, yield is computed in accordance with a standardized
method which involves determining the net change in the value of a hypothetical
pre-existing Money Market Fund account having a balance of one share 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 a Money Market Fund, portfolio maturity and
operating expenses. An investor's principal in a 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 Money Market Fund and each class of
the Diversified Investors Money Market Fund is determined.

From time to time, the Money Market Funds in their 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.

<PAGE>

Comparative performance information may be used from time to time in
advertising or marketing the shares of the Money Market Funds and each class of
the Diversified Investors 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
Diversified Investors Money Market Fund for the year ended December 31, 1999
was 4.93%. 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 5.05%.

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 30-day 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. 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 Fund or each class of each Fund 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 Diversified Investors Money
Market, Bond, Balanced and Stock 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 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:

MONY POOLED SEPARATE
FUND ACCOUNT

Money Market Pooled Account No. 4

High Quality Bond Pooled Account No. 15

Intermediate Government Pooled Account No. 10d
Bond

Core Bond Pooled Account No. 5

Balanced Pooled Account No. 14

Value & 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

Total returns calculated for any of the Diversified Institutional Money Market,
Bond, Balanced and Stock Funds for any period which includes the period from

<PAGE>

the inception of that Fund's corresponding Portfolio until the commencement of
operations of the Fund will reflect the performance of the corresponding
Portfolio. Total returns calculated for any of these Funds for any period prior
to the "reorganization date" will reflect the performance of the corresponding
Pooled Separate Account.

Portfolio and Pooled Separate Account performance will only be included,
however, from the date that the Portfolio or 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. In
the case of the Diversified Investors Money Market, Bond, Balanced and Stock
Funds, 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. In the case of the Diversified Institutional
Money Market, Bond, Balanced and Stock Funds, the Portfolio performance has
been adjusted in a one-time recalculation to reflect fees, charges and expenses
in effect at the time those Funds commenced operations, to the extent such fees
and expenses exceeded the actual expenses of the Portfolio. The Pooled Separate
Account performance has been adjusted in a one-time recalculation to reflect
fees, charges and expenses in effect at the time the Funds commenced
operations. The Pooled Separate Accounts were not registered under 1940 Act
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 Fund or 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 or 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 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 non-standardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a Fund with performance quoted with respect to other investment companies or
types of investments.

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

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

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

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

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

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

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

<PAGE>

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.

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

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

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

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

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

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

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

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

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
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 non-U.S. exchanges and over-the-counter markets
is normally completed before the close of regular trading on the New York Stock

<PAGE>

Exchange and may also take place on days on which the New York Stock Exchange
is closed. If events materially affecting the value of non-U.S. securities
occur between the time when the exchange on which they are traded closes and
the time when a Fund's net asset value is calculated, such securities 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 as of 4:00 p.m. (or the
earlier close of regular trading on the Exchange) on the exchange on which they
are primarily traded or at the ask price on the NASDAQ system for unlisted
national market issues, or at the last quoted bid price for securities in which
there were no sales during the day or for unlisted securities not reported on
the NASDAQ system. Bonds and other fixed income securities (other than
short-term obligations, but including listed issues) are valued on the basis of
valuations furnished by a pricing service, the use of which has been approved
by the Board of Trustees. In making such valuations, the pricing service
utilizes both dealer-supplied valuations and electronic data processing
techniques that take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Short-term obligations which
mature in 60 days or less are valued at amortized cost, which approximates fair
value as determined by the 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 short-term obligations) for which there are no
such quotations or valuations are valued at fair value as determined in good
faith by or at the direction of the Boards of Trustees of the applicable Trust
or Portfolio Trust.

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

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

<PAGE>

MANAGEMENT

Each of the Diversified Investors Money Market, Bond, Balanced and Stock Funds
and the Institutional Strategic Allocation Funds is supervised by the Board of
Trustees of The Diversified Investors Funds Group. Each of the Institutional
Money Market, Bond, Balanced and Stock Funds and the 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. (formerly The Mutual Life
Insurance Company of New York) (prior to
July 1989); His address is Two Huguenot
Center, Tenafly, New Jersey 07670-2520. Age:
66.

NIKHIL MALVANIA Management Consultant and Principal, Redding
Consultants (since 1999); Partner,
Deaner-Malvania 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. His business address is The
Equitable Life Assurance Society, 1290
Avenue of the Americas, New York, NY 10104.
Age: 48.

MARK MULLIN* Vice President, Diversified (since April,
1995). Portfolio Manager, AEGON Netherlands
(April 1993 to March 1995). Age: 37.

JOYCE GALPERN NORDEN Vice President, Institutional Advancement,
Reconstructionist Rabbinical College (since
September 1996). Co-Director, Woman's Health
Clinical Research Program Medical Center,
University of Pennsylvania (1993 --
September 1995). Her address is 505 Redleaf
Road, Wynnewood, Pennsylvania 19096. Age:
61.

TOM A. SCHLOSSBERG* President and Chief Executive Officer,
Diversified (since December 1993). Executive
Vice President and Head of Pension
Operations, The MONY Group, Inc. (formerly
The Mutual Life Insurance Company of New
York) (January 1993 to December 1993). Age:
50.

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

<PAGE>

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: 65.

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: 46.

PATRICIA L. SAWYER President and Executive Search Consultant,
Smith & Sawyer LLC (since 1990). Her address
is Smith & Sawyer LLP, P.O. Box 8063, Vero
Beach, Florida 32963. Age: 50.

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.

ROBERT F. COLBY Secretary; Vice President and Chief
Corporate Counsel, The Mony Group, Inc.
(formerly 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: 44.

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: 49.

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:
59.

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 MASTER INVESTMENT PORTFOLIO

JACK S. EUPHRAT Private Investor. His address is 415 Walsh
Road, Atherton, California 94027. Age: 78.

R. GREG FELTUS* Executive Vice President of Stephens Inc.;
President of Stephens Insurance Services,
Inc.; Senior Vice President of Stephens
Sports Management Inc.; President of
Investors Brokerage Insurance, Inc. Age: 49.

<PAGE>

W. RODNEY HUGHES Private Investor. His address is 31 Dellwood
Court, San Rafael, California 94901. Age:
74.

LEO SOONG(1) Managing Director of Crystal Geyser Roxane
Geyser Water Co.; Co-Founder and President
of Crystal Geyser Water Co. Age: 54.

(1) Mr. Soong was elected to the Board of Trustees of Master Investment
Portfolio on February 9, 2000.

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 Portfolio;
Vice President of Stephens Inc.; Director of
Stephens Sports Management Inc.; Director of
Capo Inc. Age: 44.

COMPENSATION

For the fiscal year ended December 31, 1999, the Trusts provided the following
compensation to the Trustees.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>

AGGREGATE AGGREGATE PENSION OR TOTAL
COMPENSATION COMPENSATION RETIREMENT ESTIMATED COMPENSATION
FROM THE FROM THE BENEFITS ANNUAL FROM THE TRUSTS
DIVERSIFIED STRATEGIC ACCRUED AS BENEFITS AND FUND
NAME OF PERSON, INVESTORS ALLOCATION PART OF FUND UPON COMPLEX PAID
POSITION TRUST TRUST EXPENSES RETIREMENT TO 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>

<PAGE>

For the fiscal year ended December 31, 1999, Diversified Investors Portfolios
provided the following compensation to its Trustees.

TOTAL
AGGREGATE PENSION OR COMPENSATION
COMPENSATION RETIREMENT ESTIMATED FROM THE
FROM BENEFITS ANNUAL TRUSTS AND
DIVERSIFIED ACCRUED AS BENEFITS FUND COMPLEX
NAME OF PERSON, INVESTORS PART OF FUND UPON PAID
POSITION PORTFOLIOS 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 None None
Patricia L. Sawyer
Trustee $9,750 None $4,500 $14,250

For the fiscal year ended February 29, 2000, the Master Investment Portfolio
provided the following compensation to its Trustees:

TOTAL
AGGREGATE PENSION OR COMPENSATION
COMPENSATION RETIREMENT ESTIMATED FROM THE
FROM THE BENEFITS ANNUAL TRUSTS AND
MASTER ACCRUED AS BENEFITS FUND COMPLEX
NAME OF PERSON, INVESTMENT PART OF FUND UPON PAID TO
POSITION PORTFOLIO EXPENSES RETIREMENT TRUSTEES(1)
Jack S. Euphrat
Trustee $5,875 None None $11,750
R. Greg Feltus
Trustee None None None None
Thomas S. Goho(2)
Trustee $1,500 None None $3,000
W. Rodney Hughes
Trustee $5,875 None None $11,750
J. Tucker Morse(2)
Trustee $1,500 None None $3,000

(1) Master Investment Portfolio and Barclays Global Investors 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").
Each of the Trustees and the principal officer of the Master Investment
Portfolio serves in the identical capacity as director and/or officer of
Barclays Global Investors Funds, Inc.

(2) Retired from the Board of Trustees of Master Investment Portfolio on
April 28, 1999.

CODE OF ETHICS

The Trustees of the Trusts, Diversified and Diversified Investors Securities
Corp., the investment adviser and the broker-dealer, respectively, have adopted
a combined Code of Ethics (the "Code"). The Code prohibits specific types of
personal securities transactions which would create a conflict of interest. It
also establishes reporting requirements and preventive procedures pursuant to
the provisions of Rule 17j-1(b)(1) under the 1940 Act.

<PAGE>

PRINCIPAL HOLDERS OF SECURITIES

At August 31, 2000, 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. No investor owned of record or beneficially more than 5%
of the outstanding Diversified Class shares of the Diversified Investors Money
Market, Bond, Balanced and Stock Funds.

At August 31, 2000, no shares of the Diversified Institutional Money Market,
Bond, Balanced and Stock Funds were outstanding.

At August 31, 2000, 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 19.79% 13.37%
High Quality Bond 37.43% 15.50%
Intermediate Government 37.83% 22.31%
Bond
Core Bond 26.11% 17.57%
High-Yield Bond 24.51% 1.93%
Balanced 51.96% 0.53%
Stock Index 0.00% 2.64%
Value & Income 52.85% 5.53%
Growth & Income 41.53% 1.63%
Equity Growth 52.09% 1.20%
Special Equity 36.00% 15.36%
Aggressive Equity 34.59% 0.09%
International Equity 34.57% 8.42%]

At August 31, 2000, 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 August 31, 2000, the S&P 500 Stock Fund of Barclays Global Investors Funds,
Inc., 111 Center Street, Little Rock, Arkansas 72201, owned approximately
62.5% 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.

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 Diversified Investors Trust, Strategic Allocation 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 Master Investment

<PAGE>

Portfolio (the "Barclays Advisory Agreement"). Subject to such further policies
as the Boards of Trustees of the Trusts may determine, Diversified provides
general supervision of the Stock Index Funds' 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, 1999, Barclays and its affiliates provided advisory services for
approximately $783 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 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 post-retirement.
Diversified provides flexible, high-quality services coupled with the
employment of independent investment managers in an innovative investment
structure.

Diversified provides services with respect to $26 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 more than 500,000 participants and has 750
employees dedicated to retirement plan investment and administration. Its
employees average more than seven years of retirement plan experience.

As experts in customizing retirement solutions, Diversified offers
comprehensive programs of high-quality investments and administrative services
to defined benefit, defined contribution and not-for-profit pension plan
sponsors. Diversified forms a partnership with its clients to provide
exceptional plan design, participant communication programs, recordkeeping
services and technical guidance. Diversified's investment structure provides
access to an array of complementary investment alternatives representing the
major asset classes along the risk/reward spectrum.

Subadvisers are selected from more than 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 on-site 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,

<PAGE>

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
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 re-enrolling
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 each individual Portfolio relies on the exemptive
order, the Portfolio's investors must approve it. To date, the High Quality
Bond, Core Bond, Value & Income, Balanced, Equity Growth and Special Equity
Portfolios' investors have approved the exemptive order.

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

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

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

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 Limited Partnership. Merganser was formed in 2000,
as the successor to the business of an investment adviser formed in 1984, and
is owned by certain of its employees.

CORE BOND PORTFOLIO

Payden & Rygel. Payden was formed in April of 1984 and is owned by certain of
its employees.

<PAGE>

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

Eaton Vance Management. Eaton Vance Management was organized as a Massachusetts
business trust in 1990 and is wholly owned by Eaton Vance 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 certain of
its employees.

VALUE & 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.

Sandford C. Bernstein & Co., Inc. Sanford Bernstein was incorporated in 1969
and is owned by Sanford C. Bernstein Inc. On June 21, 2000, Alliance Capital
Management L.P. agreed to purchase Sanford Bernstein.

EQUITY VALUE PORTFOLIO

GROWTH & INCOME PORTFOLIO

Putnam Advisory Company, Inc. Putnam is owned by Putnam Investments, Inc.,
which is in turn, other than a minority interest, owned by employees, owned by
Marsh & McLennan 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
Husic Capital Management
RS Investment Management, L.P.
Westport Asset Management, Inc.

Goldman Sachs Asset Management. Goldman Sachs is a unit of the Investment
Management Division of Goldman Sachs & Co. The Investment Management Division
was established in 1999.

<PAGE>

Husic Capital Management was formed in 1986 and is owned by Frank J. Husic &
Co., a California corporation.

RS Investment Management, L.P. was established in 1984 and is owned by certain
of its employees.

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. In 1998 and 1999 McKinley awarded equity interest to
key employees.

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.

For the fiscal year ended December 31, 1997, Diversified earned and voluntarily
waived advisory fees as indicated with respect to the following Diversified
Investors Money Market, Bond, Balanced and Stock Funds, Strategic Allocation
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 --
Value & 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 --

For the fiscal year ended December 31, 1998, Diversified earned and voluntarily
waived advisory fees as indicated with respect to the following Diversified
Investors Money Market, Bond, Balanced and Stock Funds, Strategic Allocation
Funds and Portfolios:

PORTFOLIO EARNED WAIVED
Money Market $ 654,703 $ --
High Quality Bond 753,726 --
Intermediate Government Bond 491,360 2,380
Core Bond (formerly Government/Corporate 1,606,383 --
Bond)
High-Yield Bond 423,436 27,930
Balanced 2,065,391 --
Value & Income (formerly 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
International Equity 2,029,625 30,764

<PAGE>

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 --

For the fiscal year ended December 31, 1999, Diversified earned and voluntarily
waived advisory fees as indicated with respect to the following Diversified
Investors Money Market, Bond, Balanced and Stock Funds, Strategic Allocation
Funds, and Portfolios:

PORTFOLIO EARNED WAIVED
Money Market $ 925,652 --
High Quality Bond 794,958 --
Intermediate Government Bond 605,483 --
Core Bond (formerly Government/Corporate 1,995,476 --
Bond)
High-Yield Bond 617,744 --
Balanced 2,284,131 --
Value & Income (formerly Equity Income) 16,502,830 --
Equity Value 2,378,610 --
Growth & Income 5,981,552 --
Equity Growth 5,900,858 --
Special Equity 7,623,496 --
Aggressive Equity 1,394,114 --
International Equity 3,213,534 --
Short Horizon Strategic Allocation -- --
Short/Intermediate Horizon Strategic Allocation -- --
Intermediate Horizon Strategic Allocation -- --
Intermediate/Long Horizon Strategic Allocation -- --
Long Horizon Strategic Allocation -- --

Each of the Institutional Money Market, Bond, Balanced and Stock Funds and the
Institutional Strategic Allocation Funds were organized on April 5, 2000 and
did not pay advisory fees in 1999.

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 Agreements with Diversified Investors Trust and
Strategic Allocation 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.

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. The Administrative Services and Transfer Agency Services Agreement with
Strategic Allocation Trust was not entered into until April 5, 2000.

<PAGE>

YEAR YEAR YEAR
ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97
Money Market 278,128 127,340 46,057
High Quality Bond 87,637 41,881 12,485
Intermediate Government Bond 100,035 47,617 10,766
Intermediate Bond 74,236 38,134 N/A
Core Bond 268,959 128,256 32,264
Balanced 368,175 230,507 96,418
Value & Income 485,212 271,046 108,499
Equity Value 275,070 155,106 25,218
Growth & Income 964,584 352,106 89,771
Equity Growth 423,008 287,621 111,789
Special Equity 500,988 284,099 106,285
Select Equity 6 N/A N/A
Aggressive Equity 189,448 57,689 11,835
High-Yield Bond 103,841 54,840 18,353
International Equity 346,251 149,103 52,034

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 Co-Administration Agreement with the Portfolio. Under the
Co-Administration 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
co-administration 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 Agreements (or the
Advisory Agreement in the case of the Stock Index Funds) with the Trusts and
the Advisory Agreements with the Strategic Allocation Funds, 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
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 Reserve-Treasury
Department Book Entry System or the Depository Trust Company and may be held by
a subcustodian bank if such arrangements are reviewed and approved by the 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.

<PAGE>

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.

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, tax-qualified 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

<PAGE>

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

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
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 have to 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.

<PAGE>

DISTRIBUTION PLANS

The Diversified Investors Trust has adopted a separate Distribution Plan with
respect to each class of shares of each of the Diversified Investors Money
Market, Bond, Balanced and Stock Funds in accordance with Rule 12b-1 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. Similarly, the Strategic Allocation Trust has
adopted a Distribution Plan with respect to the Institutional Money Market
Bond, Balanced and Stock Funds in accordance with Rule 12b-1 under the 1940 Act
after having concluded that there is a reasonable likelihood that the
Distribution Plan will benefit the Strategic Allocation Trust, the shares of
each Fund covered by that Distribution Plan and the holder of shares. The
Distribution Plans provide that the Distributor may receive a fee from each of
the Funds at an annual rate not to exceed 0.25% of the average daily net assets
of such Fund or class of shares, as applicable, 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
distribution-related 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 each
Trust's Trustees and a majority of each 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 each Trust and the Distributor shall provide to the Boards of
Trustees and the Boards 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
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 Trust's Qualified
Trustees or by vote of a majority of the outstanding voting securities of the
applicable class of shares. Each 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 Diversified Investors Money Market,
Bond, Balanced and Stock Funds.

YEAR YEAR YEAR
ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97
MONEY MARKET
DIVERSIFIED CLASS 218,990 94,032 38,381
STEPHENS PREMIUM CLASS 466 141 --
STEPHENS INSTITUTIONAL CLASS 12,318 11,944 --
HIGH QUALITY BOND
DIVERSIFIED CLASS 73,031 34,901 10,404
INTERMEDIATE GOVERNMENT
BOND
DIVERSIFIED CLASS 83,363 39,681 8,972
INTERMEDIATE BOND
STEPHENS PREMIUM CLASS 10,802 8,280 --
STEPHENS INSTITUTIONAL CLASS 51,062 23,499 --
CORE BOND
DIVERSIFIED CLASS 223,966 106,880 26,886

<PAGE>

BALANCED
DIVERSIFIED CLASS 306,812 192,089 80,348
VALUE & INCOME
DIVERSIFIED CLASS 404,343 225,871 90,416
STEPHENS PREMIUM CLASS
STEPHENS INSTITUTIONAL CLASS
EQUITY VALUE
DIVERSIFIED CLASS 182,186 101,902 21,105
STEPHENS PREMIUM CLASS 9,686 5,469 --
STEPHENS INSTITUTIONAL CLASS 39,354 21,884 --
GROWTH & INCOME
DIVERSIFIED CLASS 803,820 293,422 74,809
EQUITY GROWTH
DIVERSIFIED CLASS 574,459 230,315 93,157
STEPHENS PREMIUM CLASS 4,323 506 --
STEPHENS INSTITUTIONAL CLASS 23,724 8,863 --
SPECIAL EQUITY
DIVERSIFIED CLASS 388,718 223,254 88,571
STEPHENS PREMIUM CLASS 5,259 2,640 --
STEPHENS INSTITUTIONAL CLASS 23,513 10,855 --
SELECT EQUITY
STEPHENS PREMIUM CLASS 3 -- --
STEPHENS INSTITUTIONAL CLASS 3 -- --
AGGRESSIVE EQUITY
DIVERSIFIED CLASS 157,873 48,074 9,862
HIGH-YIELD BOND
DIVERSIFIED CLASS 78,459 41,637 15,294
STEPHENS PREMIUM CLASS 1,325 811 --
STEPHENS INSTITUTIONAL CLASS 6,750 3,252 --
INTERNATIONAL EQUITY
DIVERSIFIED CLASS 261,095 112,375 43,362
STEPHENS PREMIUM CLASS 5,001 2,570 --
STEPHENS INSTITUTIONAL CLASS 22,446 9,307 --

Each of the Institutional Money Market, Bond, Balanced and Stock Funds and the
Institutional Strategic Allocation Funds were recently organized and did not
pay distribution fees in 1999.

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 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
Allocation 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 twenty-one active series and the Strategic
Allocation Trust has eighteen 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.

<PAGE>

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
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, 1999 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.

<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

A-1 -- This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.

A-3 -- Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.

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
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.

<PAGE>

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 well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

COMMERCIAL PAPER

PRIME-1 -- Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:

o Leading market positions in well established industries.

o High rates of return on funds employed.

o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

o 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 and
Diversified Investors Intermediate Government
Bond Portfolio:
Capital Management Group
1740 Broadway
New York, NY 10019

Core Bond Portfolio:
Payden & Rygel
333 South Grand Avenue, 32nd Floor
Los Angeles, CA 90071

Diversified Investors High Quality Bond Portfolio:
Merganser Capital Management Limited Partnership
One Cambridge Center
Cambridge, MA 02142

Diversified Investors High-Yield Bond Portfolio:
Eaton Vance Management
255 State Street
Boston, MA 02109

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 Value & Income Portfolio:
Asset Management Group
1740 Broadway
New York, NY 10019

Sanford C. Bernstein & Co., Inc.
767 Fifth Avenue
New York, New York 10153

Diversified Investors Equity Value Portfolio:
Sanford C. Bernstein & Co., Inc.
767 Fifth Avenue
New York, New York 10153

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
3455 Peachtree Road, N.E., Suite 1200
Atlanta, Georgia 30326

Diversified Investors Special Equity Portfolio:
Husic Capital Management
555 California Street, Suite 2900
San Francisco, CA 94104

Goldman Sachs Asset Management
2502 Rocky Point Drive
Tampa, FL 33607

Westport Asset Management, Inc.
253 Riverside Avenue
Westport, CT 06880

RS Investment Management, L.P.
388 Market Street, Suite 200
San Francisco, CA 94111

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

CUSTODIAN

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

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

KPMG LLP (Master Investment Portfolios only)
3 Embarcadero Center
San Francisco, California 94111

<PAGE>
PART C

OTHER INFORMATION

Item 23. Exhibits.

(a)(1) Declaration of Trust of the Registrant; Amended and Restated
Establishment and Designation of Series of Shares of Beneficial
Interest. ***

(a)(2) Amended and Restated Establishment and Designation of Series of
Shares of Beneficial Interest. ****** and **********

(b) By-Laws of the Registrant. ***

(d)(1) Investment Advisory Agreement between the Registrant and
Diversified Investment Advisors, Inc. ("Diversified"). ***** and
**********

(d)(2) Form of Investment Subadvisory Agreement between Diversified and
Stephens Capital Management, a division of Stephens Inc. *****

(d)(3) Investment Subadvisory Agreement between Diversified and Eaton
Vance Management.

(e)(1) Distribution Agreement between the Registrant and Diversified
Investors Securities Corp. ("DISC"). *

(e)(2) Distribution Agreement between the Registrant and DISC regarding
Stephens Premium Class shares. *****

(e)(3) Distribution Agreement between the Registrant and DISC regarding
Stephens Institutional Class shares. *****

(g) Custodian Agreement between the Registrant and Investors Bank &
Trust Company. *

(h)(1) Administrative and Transfer Agency Services Agreement between the
Registrant and Diversified. *

(h)(2) Shareholder Services Agreement between the Registrant and Stephens
Inc. regarding Stephens Premium Class shares and Stephens
Institutional Class shares. *****

(h)(3) Third Party Feeder Agreement between the Registrant, DISC and
Master Investment Portfolio. ******* and **********

(h)(4) Form of Expense Reimbursement Letter Agreement between Diversified
and the Registrant. **********

(i)(1) Opinion of Counsel. *

(i)(2) Consent of Counsel. *********

(j) Auditor's Consent.

(l) Investor Representation Letter of Initial Shareholder. *

<PAGE>

(m)(1) Distribution Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act"). *

(m)(2) Distribution Plan pursuant to Rule 12b-1 under the 1940 Act
regarding Stephens Premium Class shares. *****

(m)(3) Distribution Plan pursuant to Rule 12b-1 under the 1940 Act
regarding Stephens Institutional Class shares. *****

(o) Multiple Class Plan. *****

(p) Powers of Attorney. **** and ******

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

* Incorporated herein by reference from Pre-Effective Amendment No.
2 to the Registrant's Registration Statement (the "Registration
Statement") on Form N-1A (File No. 33-61810) as filed with the
U.S. Securities and Exchange Commission (the "Commission") on
January 3, 1994.

** Incorporated herein by reference from Post-Effective Amendment No.
2 to the Registration Statement as filed with the Commission on
April 28, 1995.

*** Incorporated herein by reference from Post-Effective Amendment No.
7 to the Registration Statement as filed with the Commission on
February 28, 1997.

**** Incorporated herein by reference from Post-Effective Amendment No.
8 to the Registration Statement as filed with the Commission on
April 29, 1997.

***** Incorporated herein by reference from Post-Effective Amendment No.
10 to the Registration Statement as filed with the Commission on
October 3, 1997.

****** Incorporated herein by reference from Post-Effective Amendment No.
13 to the Registration Statement as filed with the Commission on
November 24, 1998.

******* Incorporated herein by reference from Post-Effective Amendment No.
15 to the Registration Statement as filed with the Commission on
April 30, 1999.

******** Incorporated herein by reference from Post-Effective Amendment No.
16 to the Registration Statement as filed with the Commission on
March 2, 2000.

********* Incorporated herein by reference from Post-Effective Amendment No.
17 as filed with the Commission on April 6, 2000.

********** Incorporated herein by reference from Post-Effective Amendment No.
18 as filed with the Commission on June 28, 2000.

Item 24. Persons Controlled by or Under Common Control with Registrant.

See "Management" in the Statement of Additional Information filed as part
of this Registration Statement.

<PAGE>

Item 25. Indemnification.

Reference is made to Article V of the Registrant's Declaration of Trust,
filed as an Exhibit herewith.

Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to Trustees, officers
and controlling persons of the Trust pursuant to the Trust's Declaration of
Trust, or otherwise, the Trust has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Trust of expenses
incurred or paid by a Trustee, officer or controlling person of the Trust in
the successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Trust will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.

Item 26. Business and Other Connections of Investment Adviser.

Diversified Investment Advisors, Inc. ("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 is an indirect, wholly-owned subsidiary of AEGON
N.V., a Netherlands corporation which is a publicly traded international
insurance group.

Information as to the name, address and principal business of the
directors and executive officers of Diversified is included in its Form ADV as
filed with the Commission, and such information is hereby incorporated herein
by reference from such Form ADV.

Barclays Global Fund Advisors ("Barclays") is a wholly-owned
subsidiary of Barclays Global Investors, a national banking association
("BGI"). Barclays Global Fund Advisors' business is that of a registered
investment adviser to certain openend management investment companies and
various other institutional investors.

To the knowledge of the Registrant, none of the directors or executive
officers of Barclays is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature.

<PAGE>
Item 27. Principal Underwriters.

(a) Diversified Investors Securities Corp. is the principal
underwriter (the "Distributor") of the Registrant. The Distributor also serves
as the exclusive placement agent for Diversified Investors Portfolios.

(b) The names, titles and principal business addresses of the officers
and directors of the Distributor are as stated on Form U4 filed by each
individual officer and on Form BD including Schedule A thereof (File No.
845671), the text of which is hereby incorporated herein by reference.

Item 28. Location of Accounts and Records.

Diversified Investment Advisors, Inc.
4 Manhattanville Road
Purchase, New York 10577
(administrator and transfer agent)

Diversified Investors Securities Corp.
4 Manhattanville Road
Purchase, New York 10577
(distributor)

Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 022051537
(custodian)

Item 29. Management Services.

Not applicable.

Item 30. Undertakings.

Not applicable.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this registration statement under Rule 485(b)
under the Securities Act of 1933, as amended, and has caused this Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in
the County of Westchester and the State of New York, on this 11th day of
September, 2000.

THE DIVERSIFIED INVESTORS FUNDS GROUP

By: /s/ Tom A. Schlossberg
-----------------------------------------
Tom A. Schlossberg
Trustee, President, Chief Executive Officer
and Chairman of the Board of Trustees

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated on September 11, 2000.

Signatures Title

/s/ Tom A. Schlossberg
---------------------------
Tom A. Schlossberg Trustee, President, Chief Executive Officer
and Chairman of the Board of Trustees

/s/ Robert Lester Lindsay*
---------------------------
Robert Lester Lindsay Trustee

/s/ Nikhil Malvania*
---------------------------
Nikhil Malvania Trustee

/s/ Mark Mullin*
---------------------------
Mark Mullin Trustee

/s/ Joyce Galpern Norden*
---------------------------
Joyce Galpern Norden Trustee

/s/ Alfred C. Sylvain*
---------------------------
Alfred C. Sylvain Treasurer, Chief Financial Officer and
Principal Accounting Officer

*By: /s/ Robert F. Colby
----------------------
Robert F. Colby
Attorneyinfact pursuant to powers of attorney previously filed

<PAGE>

EXHIBIT INDEX

Exhibit No. Description

(d)(3) Investment Subadvisory Agreement between Diversified
Investment Advisors, Inc. and Eaton Vance Management.

(j) Auditor's Consent.