DIVERSIFIED INVESTORS VARIABLE FUNDS, 485APOS, 1996-02-16

DIVERSIFIED INVESTORS VARIABLE FUNDS
485APOS, 1996-02-16

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 1996

REGISTRATION NOS. 33-73734
811-8264
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM N-4
------------------------

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /

PRE-EFFECTIVE AMENDMENT NO. / /

POST-EFFECTIVE AMENDMENT NO. 4 /X/

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /

AMENDMENT NO. 4 /X/

(CHECK APPROPRIATE BOX OR BOXES.)

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

DIVERSIFIED INVESTORS VARIABLE FUNDS
(EXACT NAME OF REGISTRANT)

AUSA LIFE INSURANCE COMPANY, INC.
(NAME OF DEPOSITOR)

4 MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
(ADDRESS AND DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)

(914) 697-8000
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

ROBERT F. COLBY, ESQ.
AUSA LIFE INSURANCE COMPANY, INC.
4 MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577

It is proposed that this filing will become effective on May 1, 1996 pursuant to
paragraph (a) of Rule 485.

The registrant has registered an indefinite amount of securities (variable
annuity contracts) pursuant to Rule 24f-2 under the Investment Company Act of
1940. The Rule 24f-2 Notice will be filed on February 23, 1996.

Diversified Investors Portfolios has also executed this Registration
Statement.

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

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<PAGE> 2

CROSS REFERENCE SHEET
(REQUIRED BY RULES 481(a) AND 495)

PART A

<TABLE>
<CAPTION>
ITEM NO. LOCATION
- --------- ----------------------------------------------------------------------------------
<S> <C>
Item 1. Cover Page..............................................................Cover Page
Item 2. Definitions............................................................Definitions
Item 3. Synopsis..................................................................Synopsis
Item 4. Condensed Financial Information....................Condensed Financial Information
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies.......................AUSA Life Insurance Company, Inc.,
Diversified Investors Variable Funds,
Diversified Investors Portfolios
Item 6. Deductions and Expenses....................................................Charges
Item 7. General Description of Variable Annuity Contracts.........Summary of The Contracts
Item 8. Annuity Period.....................................................Payment Options
Item 9. Death Benefit.............................Death Benefit; Payments To A Beneficiary
Following The Annuitant's Death
Item 10. Purchases and Contract Value...Credit of Purchase Payments; Allocation of Purchase
Payments; Determination of Unit Value
Item 11. Redemptions................Redemption During The Accumulation Period; Restrictions
Under The Texas Optional Retirement Program
Item 12. Taxes.........Federal Tax Status; Tax Treatment of AUSA; Section 403(b) Annuities;
Section 401(a) Plans; Section 408 (IRA) Contracts; Section 457 Plans;
Section 457(f) Plans; Section 72 Flexible Annuities; Non-Qualified Deferred
Compensation Contracts; Income Tax Withholding
Item 13. Legal Proceedings................................................Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information............................Table of Contents of Statement
of Additional Information
PART B
Item 15. Cover Page..............................................................Cover Page
Item 16. Table of Contents................................................Table of Contents
Item 17. General Information and History.................................... Not Applicable
Item 18. Services........................................................... Not Applicable
Item 19. Purchases and Securities Being Offered............................. Not Applicable
Item 20. Underwriters...............................Sale of Contracts/Principal Underwriter
Item 21. Calculation of Performance Data...................................Performance Data
Item 22. Annuity Payments................................................... Not Applicable
Item 23. Financial Statements........Financial Statements and Notes to Financial Statements
</TABLE>

PART C

INFORMATION REQUIRED TO BE INCLUDED IN PART C IS SET FORTH UNDER THE APPROPRIATE
ITEM, SO NUMBERED IN PART C OF THIS REGISTRATION STATEMENT.

<TABLE>
<S> <C>
Item 24. Financial Statements and Exhibits............................................. C-1
Item 25. Directors and Officers of the Depositor....................................... C-2
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant.................................................................. C-2
Item 27. Number of Contractowners...................................................... C-2
Item 28. Indemnification............................................................... C-2
Item 29. Principal Underwriters........................................................ C-2
Item 30. Location of Accounts and Records.............................................. C-3
Item 31. Management Services........................................................... C-3
Item 32. Undertakings.................................................................. C-3
</TABLE>

(i)
<PAGE> 3

DIVERSIFIED INVESTORS VARIABLE FUNDS

GROUP VARIABLE ANNUITY CONTRACTS
SECTIONS 401(A), 401(K), 403(B), 408(IRA), 457, 457(F), 72 (FLEXIBLE ANNUITIES)
AND NQDC

ISSUED BY

AUSA LIFE INSURANCE COMPANY, INC. ("AUSA")
4 MANHATTANVILLE ROAD, PURCHASE, NEW YORK 10577; (914) 697-8000

The Group Variable Annuity Contracts ("Contracts") described in this
Prospectus are designed and offered as funding vehicles for retirement Plans
maintained by state educational organizations, certain tax-exempt organizations,
IRA Contractholders, taxed organizations in the case of the Section 401(a)
and/or Section 401(k) Contracts and corporate non-qualified deferred
compensation contracts ("NQDC"). The Contracts described in this Prospectus
include certain group variable annuity contracts of the above described types
which were originally issued by The Mutual Life Insurance Company of New York
and which have been assumed by AUSA. See page for a description of this
assumption reinsurance.

Insofar as possible, the provisions of the Contracts are identical, and the
information provided in this Prospectus is generally applicable to all
Contracts. However, whenever statutory or administrative considerations require
significant differences among the Contracts, such differences are explained
separately for each.

Purchase Payments under the Contracts are allocated to a segregated
investment account of AUSA Life Insurance Company, Inc. which account has been
designated the Diversified Investors Variable Funds. Purchase Payments directed
to the Diversified Investors Variable Funds may be allocated among such of the
Subaccounts in the Diversified Investors Variable Funds as are made available
under the Contracts. The assets in each Subaccount are invested in a series of
Diversified Investors Portfolios or in the Calvert Socially Responsible Series
("Calvert Series") at their net asset value. (See "Diversified Investors
Portfolios" at page and Calvert Series at page .) The thirteen currently
available series of Diversified Investors Portfolios are the Money Market
Series, High Quality Bond Series, Intermediate Government Bond Series,
Government/Corporate Bond Series, High-Yield Bond Series, Balanced Series,
Equity Income Series, Equity Value Series, Growth & Income Series, Equity Growth
Series, Special Equity Series, Aggressive Equity Series and International Equity
Series. The Calvert Series is an actively managed, diversified portfolio of
common and preferred stocks, bonds, and money market instruments which offer
income and capital growth opportunity and which satisfy the social concern
criteria established by the Calvert Series. A copy of the Calvert Series
Prospectus appear at the end of this Diversified Investors Variable Funds
Prospectus.

SUBACCOUNTS OF DIVERSIFIED INVESTORS VARIABLE FUNDS WHICH INVEST IN
DIVERSIFIED INVESTORS PORTFOLIOS DO SO UNDER A "HUB AND SPOKE" ARRANGEMENT.
UNLIKE OTHER FUNDING VEHICLES INTO WHICH PURCHASE PAYMENTS MAY BE INVESTED
THROUGH VARIABLE ANNUITY CONTRACTS ISSUED BY INSURANCE COMPANIES, DIVERSIFIED
INVESTORS PORTFOLIOS OFFERS ITS INTERESTS FOR SALE TO OTHER TYPES OF COLLECTIVE
INVESTMENT VEHICLES IN ADDITION TO INSURANCE COMPANY SEPARATE ACCOUNTS
REGISTERED AS INVESTMENT COMPANIES UNDER THE INVESTMENT COMPANY ACT OF 1940.
SUCH INVESTORS MAY INCLUDE MUTUAL FUNDS, BANK COLLECTIVE TRUSTS AND UNREGISTERED
INSURANCE COMPANY SEPARATE ACCOUNTS. SEE "DIVERSIFIED INVESTORS
PORTFOLIOS -- HUB AND SPOKE(R) STRUCTURE" ON PAGE HEREIN. HUB AND SPOKE(R) IS
A REGISTERED SERVICE MARK OF SIGNATURE FINANCIAL GROUP, INC.

The value of the Accumulation Accounts maintained in the Diversified
Investors Variable Funds will vary based upon the investment experience of the
Subaccounts to which Purchase Payments are allocated. The investment experience
of the Subaccounts will vary based on the underlying investment performance of
the series of Diversified Investors Portfolios and the Calvert Series.

This Prospectus sets forth the basic information that a prospective
purchaser should know before investing. Please keep this Prospectus for future
reference.

A Statement of Additional Information dated May 1, 1996 incorporated herein
by reference, and containing additional information about the Contracts and
Diversified Investors Portfolios, has been filed with the Securities and
Exchange Commission. The Statement of Additional Information is available from
AUSA without charge upon written request to the above address or by telephoning
(914) 697-8000. The Table of Contents of the Statement of Additional Information
can be found on page of this Prospectus.

This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy the Contracts in any jurisdiction in which such may not be lawfully
made.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS
PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED (OR PRECEDED) BY A CURRENT PROSPECTUS
FOR THE CALVERT SERIES.

DATED MAY 1, 1996

<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions........................................................................... 4
Synopsis.............................................................................. 6
Table of Fees....................................................................... 6
The Contracts....................................................................... 8
Diversified Investors Variable Funds................................................ 8
Charges............................................................................. 9
Credit And Allocation Of Purchase Payments.......................................... 9
Redemption.......................................................................... 9
Transfers........................................................................... 9
Payment Options..................................................................... 10
Voting Rights....................................................................... 10
Death Benefit....................................................................... 10
Distribution Of The Contracts....................................................... 10
Financial Information............................................................... 10
AUSA.................................................................................. 12
Diversified Investors Variable Funds.................................................. 12
Calvert Series...................................................................... 12
Diversified Investors Portfolios.................................................... 13
Charges............................................................................. 15
Charges for Mortality and Expense Risks............................................. 15
Annual Contract Charge.............................................................. 15
Investment Management Fee........................................................... 16
Premium Tax......................................................................... 17
Summary Of The Contracts............................................................ 17
Eligible Purchasers................................................................. 17
Ownership........................................................................... 17
Purchase Payments................................................................... 17
Employer Sponsored Plan Requirements................................................ 18
Rights Of The Participant Under The Contract........................................ 18
Rights Upon Suspension Of Contract or Termination Of Plan........................... 18
403(b) Contract..................................................................... 18
401(a) Contract/401(k) Contract and NQDC............................................ 18
457, 457(f), Flexible Annuity, and 408 (IRA) Contracts.............................. 18
Failure Of Qualification............................................................ 19
Transfers........................................................................... 19
Rights Reserved By AUSA............................................................... 19
Credit Of Purchase Payments........................................................... 20
Allocation Of Purchase Payments..................................................... 20
Determination Of Unit Values........................................................ 20
Death Benefit......................................................................... 20
Redemption During The Accumulation Period............................................. 21
Restrictions Under The Texas Optional Retirement Program.............................. 22
Payment Options....................................................................... 22
Annuity Purchase Date............................................................... 22
Fixed Annuity....................................................................... 22
Fixed Annuity Options............................................................... 23
Payments To A Beneficiary Following The Annuitant's Death........................... 24
</TABLE>

2
<PAGE> 5

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Voting Rights......................................................................... 24
Distribution Of The Contracts......................................................... 25
Federal Tax Status.................................................................... 25
Tax Treatment of AUSA............................................................... 26
Taxation of Diversified Investors Portfolios........................................ 26
Section 403(b) Annuities............................................................ 26
Section 401(a) Plans................................................................ 27
Section 408 (IRA) Contracts......................................................... 27
Minimum Distribution Requirements................................................... 28
Section 457 Plans................................................................... 28
Section 457(f) Plans................................................................ 28
Section 72 Flexible Annuities....................................................... 28
Non-Qualified Deferred Compensation Contracts....................................... 29
Income Tax Withholding.............................................................. 29
Assumption Reinsurance................................................................ 29
Performance Data...................................................................... 30
Diversified Investors Portfolios...................................................... 31
Hub & Spoke(R)...................................................................... 32
Investment Objectives and Policies.................................................. 33
Investment Techniques and Restrictions.............................................. 48
Management of Diversified Investors Portfolios...................................... 51
Other Information Regarding Diversified Investors Portfolios........................ 55
Purchase and Redemption of Interests in Diversified Investors Portfolios............ 55
Independent Accountants............................................................... 57
Legal Proceedings..................................................................... 58
Financial Statements.................................................................. 58
Additional Information................................................................ 58
Table Of Contents Of Statement Of Additional Information.............................. 59
Request For Diversified Investors Variable Funds Statement Of Additional
Information......................................................................... 60
APPENDIX.............................................................................. A-1
</TABLE>

3
<PAGE> 6

DEFINITIONS

As used in this Prospectus, the following terms have the indicated meaning:

ACCUMULATION ACCOUNT: an account maintained for each Participant in which
is recorded the number of Units held for his/her credit.

ACCUMULATION PERIOD: the accumulation period for each Participant is the
period during which Purchase Payments may be made on his/her behalf. It begins
when the Participant begins participation under the Plan and ends as of his/her
Annuity Purchase Date (See "Annuity Purchase Date" on page ), or earlier
termination of his/her Accumulation Account.

AGGRESSIVE EQUITY SERIES: Diversified Investors Aggressive Equity
Portfolio, a series of Diversified Investors Portfolios.

BALANCED SERIES: Diversified Investors Balanced Portfolio, a series of
Diversified Investors Portfolios.

CALVERT SERIES: the Calvert Responsibly Invested Balanced Portfolio, a
series of Acacia Capital Corporation, an open-end management investment company
registered under the Investment Company Act of 1940, as amended.

CONTRACT(S): the group variable annuity contract(s) offered by AUSA to
Contractholders or IRA Contractholders as described in this Prospectus.

CONTRACTHOLDER: a state educational organization or certain tax-exempt
organization employer or employer association for affiliated employers, taxed
subsidiaries of tax-exempt organizations and taxed stand alone organizations.

CONTRACT YEAR: a period of 12 months measured from the date of the Contract
issued to or adopted by the Contractholder, and anniversaries thereof.

DIVERSIFIED: Diversified Investment Advisors, Inc., a registered investment
adviser under the Investment Advisers Act of 1940, as amended, and an affiliate
of AUSA.

DIVERSIFIED INVESTORS PORTFOLIOS: Diversified Investors Portfolios, an
open-end diversified management investment company registered under the
Investment Company Act of 1940, as amended.

EQUITY GROWTH SERIES: Diversified Investors Equity Growth Portfolio, a
series of Diversified Investors Portfolios.

EQUITY INCOME SERIES: Diversified Investors Equity Income Portfolio, a
series of Diversified Investors Portfolios.

EQUITY VALUE SERIES: Diversified Investors Equity Value Portfolio, a series
of Diversified Investors Portfolios.

FIXED ANNUITY: an annuity with payments which remain fixed throughout the
payment period and which do not reflect the investment experience of a separate
account.

GOVERNMENT/CORPORATE BOND SERIES: Diversified Investors
Government/Corporate Bond Portfolio, a series of Diversified Investors
Portfolios.

GROWTH & INCOME SERIES: Diversified Investors Growth & Income Portfolio, a
series of Diversified Investors Portfolios.

HIGH QUALITY BOND SERIES: Diversified Investors High Quality Bond
Portfolio, a series of Diversified Investors Portfolios.

HIGH-YIELD BOND SERIES: Diversified Investors High-Yield Bond Portfolio, a
series of Diversified Investors Portfolios.

INTERMEDIATE GOVERNMENT BOND SERIES: Diversified Investors Intermediate
Government Bond Portfolio, a series of Diversified Investors Portfolios.

4
<PAGE> 7

INTERNATIONAL EQUITY SERIES: Diversified Investors International Equity
Portfolio, a series of Diversified Investors Portfolios.

IRA CONTRACTHOLDER: a tax-exempt, or taxed organization or an association
of members who share a common interest.

MONEY MARKET SERIES: Diversified Investors Money Market Portfolio, a series
of Diversified Investors Portfolios.

NQDC: Non-qualified deferred compensation arrangement available to taxed
organizations only.

PARTICIPANT: an employee participating under a Contract issued to or
adopted by his/her employer or an individual participating under a Contract
issued to an IRA Contractholder.

PLAN: a retirement plan or program under which benefits are to be provided
pursuant to a Contract described herein or by a Participant.

PURCHASE PAYMENT: the amount contributed and remitted to AUSA by an
employer on behalf of a Participant.

SPECIAL EQUITY SERIES: Diversified Investors Special Equity Portfolio, a
series of Diversified Investors Portfolios.

SUBACCOUNT: a subdivision of Diversified Investors Variable Funds which is
available for the allocation of Purchase Payments under the Contracts. Thirteen
Subaccounts invest in a corresponding series of Diversified Investors
Portfolios. The Calvert Series Subaccount invests in the Calvert Series.

UNIT: the measure by which the value of an investor's interest in each
Subaccount is determined.

VALUATION DATE: each day at the close of business of the New York Stock
Exchange (currently at 4:00 p.m. New York City time), each day that the New York
Stock Exchange is open for trading, or any other day on which there is
sufficient trading in securities of a series of Diversified Investors Portfolios
or the Calvert Series to affect materially the value of the Units of the
corresponding Subaccount. If the New York Stock Exchange extends its closing
beyond 4:00 p.m. New York City time, and continues to value after the time of
closing of the New York Stock Exchange, AUSA reserves the right to treat any
payment or communication received after 4:00 p.m. New York City time as being
received as of the beginning of the next day.

VALUATION PERIOD: The period between the ending of two successive Valuation
Dates.

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL IN SUCH STATE. NO PERSON IS AUTHORIZED TO MAKE
ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS.

5
<PAGE> 8

SYNOPSIS

AUSA LIFE INSURANCE COMPANY, INC.
DIVERSIFIED INVESTORS VARIABLE FUNDS

TABLE OF FEES(1)

Total Separate Account Annual Expenses (as a percentage of average account
value)

Mortality and Expense Risk Fees...........................................90%(2)

(1) In addition to the mortality and expense risk fees, AUSA reserves the
right to deduct an annual contract charge from a Participant's Accumulation
Account not to exceed $50. See "Charges -- Annual Contract Charge" at page .

(2) AUSA reserves the right to charge maximum mortality and expense risk
fees of up to 1.25% upon notice.

Portfolio Company Annual Expenses:

DIVERSIFIED INVESTORS PORTFOLIOS,
CALVERT SERIES AND INTERNATIONAL EQUITY SERIES

ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
HIGH INTERMEDIATE GOVERNMENT/
MONEY QUALITY GOVERNMENT CORPORATE HIGH-YIELD EQUITY
MARKET BOND BOND BOND BOND BALANCED INCOME
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------ ------- ------------- ----------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (After Fee
Reimbursements)(1)...............
Other Expenses(2)..................
Reimbursement from AUSA(3)......... (.200 %) -- -- -- -- -- --
----- ---- ---- ---- ---- ---- ----
Total Annual Expenses After Fee .100 % .400% .400% .400% .600% .500% .500%
Reimbursements...................
</TABLE>

<TABLE>
<CAPTION>
EQUITY GROWTH & EQUITY SPECIAL AGGRESSIVE INTERNATIONAL
VALUE INCOME GROWTH EQUITY EQUITY EQUITY CALVERT
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------ -------- ------ ------- ---------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (After Fee
Reimbursements)(1).....................
Other Expenses(2)........................
Reimbursement from AUSA(3)............... -- -- (.250 %) -- -- -- --
----- ---- ---- ---- ---- ---- ----
Total Annual Expenses After Fee .600% .650% .500 % .850% 1.00% .900% .810%
Reimbursements.........................
</TABLE>

6
<PAGE> 9

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

(1) The fees shown on the line "Management Fees" are the fees charged to each
series of Diversified Investors Portfolios by Diversified after waiver. For
the Calvert Series, the fees shown are those charged by Calvert Asset
Management Company to the Calvert Series.

(2) "Other expenses" have been estimated for the current fiscal year based upon
the following projected level of average daily net assets for the following
series of Diversified Investors Portfolios: High Quality Bond Series -- $150
million; High-Yield Bond Series -- $50 million; Equity Value Series -- $50
million; Aggressive Equity Series -- $50 million; and International Equity
Series -- $90 million. There can be no assurance that these levels of
average daily net assets will be achieved. If average net assets are lower
for any such series, "Other Expenses" may be a higher percentage than
indicated above of such series' average daily net assets. "Other Expenses"
for all other Series are actual for the year ended December 31, 1995.

(3) AUSA has agreed to provide reimbursements to limit total expenses for
Diversified Investors Variable Funds Participants in the Money Market Series
and the Equity Growth Series to .100%, .500% respectively, of average net
assets of the applicable series, with AUSA reserving the right to raise the
limit upon notice.

The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly and indirectly and reflects
expenses of the separate account as well as the portfolio company. (See Charges
at page for a more complete description of applicable costs and expenses.)

EXAMPLE

If you surrender your contract at the end of the applicable time period,
you would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets.

<TABLE>
<CAPTION>
AFTER AFTER AFTER AFTER
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market............................................. $ 10 $33 $57 $126
High Quality Bond........................................ $ 14 $42 -- --
Intermediate Government Bond............................. $ 14 $42 $73 $161
Government/Corporate Bond................................ $ 14 $42 $73 $161
High-Yield Bond.......................................... $ 16 $49 -- --
Balanced................................................. $ 15 $46 $79 $173
Equity Income............................................ $ 15 $46 $79 $173
Equity Value............................................. $ 16 $49 -- --
Growth & Income.......................................... $ 16 $50 $87 $190
Equity Growth............................................ $ 15 $46 $79 $173
Special Equity........................................... $ 18 $57 $98 $212
Calvert.................................................. $ 18 $56 $96 $208
Aggressive Equity........................................ $ 20 $62 -- --
International Equity..................................... $ 19 $58 -- --
</TABLE>

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

The expense table for Portfolio Company Annual Expenses and the example
reflect a voluntary undertaking by Diversified to waive a portion of the
investment advisory fees payable by series of Diversified Investors Portfolios.
Without such a waiver, the annual investment advisory fee would be .25% for the
Money Market Series, % for the High Quality Bond Series, .35% for the
Intermediate Government Bond Series, .35% for the Government/Corporate Bond
Series, % for the High-Yield Bond Series, .45% for the Balanced Series, .45%
for the Equity Income Series, % for the Equity Value Series, .60% for the
Growth & Income Series, .70% for the Equity Growth Series, .80% for the Special
Equity Series, % for the Aggressive Equity Series and % for the
International Equity Series.

7
<PAGE> 10

THE CONTRACTS

The Group Variable Annuity Contract(s) ("Contract(s)") described in this
Prospectus are designed and offered as funding vehicles for retirement Plans
maintained by state educational organizations, certain tax-exempt organizations,
IRA Contractholders and for taxed organizations for Section 401(a) and/or
Section 401(k) Contracts and corporate non-qualified deferred compensation
Contracts ("NQDC"). The Section 401(k) Contract will fund the benefits for
tax-qualified pension and profit-sharing plans from employee/employer
contributions of such organizations. The Section 403(b) Contract will purchase
tax-deferred annuities for employees of these same organizations. The Section
457 Contract will provide deferred compensation eligible for deferred tax
treatment and the Section 457(f) Contract will provide deferred compensation
which is not eligible for deferred tax treatment to these same organizations.
The Section 72 (flexible annuity) Contract will fund after-tax benefits. The
Section 401(a) Contract will fund benefits for tax-qualified pension and
profit-sharing Plans of such tax-exempt organizations as well as taxed
subsidiaries of these organizations and stand alone taxed organizations; the
NQDC Contracts will fund benefits for taxed organizations. The Section 408
(Individual Retirement Account ("IRA")) Contract is a Group Variable Annuity
Contract which will provide for on-going or rollover contributions from
individuals who are eligible under Section 408 to make such contributions.
Section references are to the Internal Revenue Code of 1986, as amended (the
"Code").

With respect to the Section 401(a), Section 401(k) and NQDC Contracts, the
employer and/or the employee will make contributions pursuant to the terms and
conditions of the underlying retirement Plan. As to the Section 403(b), Section
457 and Section 457(f) Contracts, the employer will make Purchase Payments for
each participating employee pursuant to either a salary reduction agreement or
an agreement to forego a salary increase under which the employee decides the
level and number of Purchase Payments to his/her Accumulation Account, except
with respect to employer-sponsored Section 401(a) Plans under which the employer
will make contributions pursuant to the underlying retirement Plan. As to the
Section 72 flexible annuities Contract, the employer will make Purchase Payments
for each participating employee pursuant to a salary deduction agreement. In the
case of the Section 408 IRA Contract, Purchase Payments will be made by the
employer on behalf of and as determined by each participating employee pursuant
to a salary deduction agreement or by the Participant.

The Contracts described in this Prospectus include group variable annuity
contracts of the types described above which were originally issued by The
Mutual Life Insurance Company of New York and have been assumed by AUSA. (See
"Assumption Reinsurance" on page .)

DIVERSIFIED INVESTORS VARIABLE FUNDS

Purchase Payments under the Contract(s) are allocated to the Diversified
Investors Variable Funds which is a separate account of AUSA. Diversified
Investors Variable Funds is divided into Subaccounts, thirteen of which
correspond to Diversified Investors Portfolios' Money Market, High Quality Bond,
Intermediate Government Bond, Government/Corporate Bond, High-Yield Bond,
Balanced, Equity Income, Equity Value, Growth & Income, Equity Growth, Special
Equity, Aggressive Equity and International Equity Series, respectively. The
Calvert Series Subaccount invests in the Calvert Series. The assets in each
Subaccount are invested in the corresponding series of Diversified Investors
Portfolios or the Calvert Series at their net asset value. (See "Diversified
Investors Portfolios" at page and "Calvert Series" at page .) Each series of
Diversified Investors Portfolios is managed by Diversified, an affiliate of
AUSA. Diversified Investors Securities Corp., a wholly-owned subsidiary of
Diversified, is the principal underwriter and distributor. The Calvert Series is
a series of Acacia Capital Corporation, an open-end management company whose
investment adviser is Calvert Asset Management Company, Inc.

8
<PAGE> 11

The value of a Participant's Accumulation Account maintained in Diversified
Investors Variable Funds will vary based upon the investment experience of the
series of Diversified Investors Portfolios or the Calvert Series to which
Purchase Payments are allocated.

The Calvert Series is an actively managed portfolio of common and preferred
stocks, bonds, and money market instruments which offer income and capital
growth opportunity and which satisfy the social concern criteria established by
the Calvert Series. A copy of the Calvert Series Prospectus and the
International Equity Series Prospectus appears at the end of this Diversified
Investors Variable Funds Prospectus. Diversified Investors Portfolios is an
open-end, diversified management investment company which has thirteen series
with differing investment objectives available under the Contracts. See
"Diversified Investors Portfolios" at page herein.

CHARGES

AUSA makes daily charges against the net assets of Diversified Investors
Variable Funds at a maximum annual rate of 1.25%, consisting of .80% for
mortality risks and .45% for administrative expense risks. Currently, the annual
rate charged is .90% consisting of .60% for mortality risks and .30% for
administrative expense risk. However, AUSA reserves the right to charge a
maximum fee of 1.25% upon notice thereafter. (See "Charges -- Charges for
Mortality and Expense Risks" on page ). In addition, AUSA reserves the right
to deduct an annual contract charge not to exceed $50 from a Participant's
Accumulation Account (see "Charges -- Annual Contract Charge" on page ).

In addition to the charges set forth above, Diversified, which serves as
investment adviser to each series of Diversified Investors Portfolios and
Calvert Asset Management Company, Inc., which serves as investment adviser to
the Calvert Series impose a charge against the net asset value of each series of
Diversified Investors Portfolios or the Calvert Series or the International
Equity Series, as appropriate, computed daily, for investment advisory services
and other expenses.

Premium taxes may be payable on annuity considerations. (See
"Charges -- Premium Tax" on page ).

CREDIT AND ALLOCATION OF PURCHASE PAYMENTS

Purchase Payments will be credited to the Subaccounts designated by the
Participant in the form of Units. The number of Units credited will not change
but the dollar value of a Unit will vary depending upon the investment
experience of the series of Diversified Investors Portfolios or the Calvert
Series or the International Equity Series, as appropriate. (See "Credit of
Purchase Payments" on page ).

REDEMPTION

A Participant may redeem at any time prior to the time an annuity benefit
takes effect and prior to his death all or a portion of the Units credited to
his Accumulation Account without any charge, subject to any limitations in the
underlying Plan. There are no redemption charges. (See "Restrictions Under the
Texas Optional Retirement Program" on page for withdrawal restrictions
applicable to Contracts issued under the Texas Optional Retirement Program.)

A penalty tax may be payable under the Code upon the redemption of amounts
from an Accumulation Account under a Contract and other significant withdrawal
restrictions may be imposed by the Code.

TRANSFERS

A Participant may transfer all or a portion of his/her Accumulation Account
in Diversified Investors Variable Funds among the various Subaccounts. No
transfer charges are imposed, and there is no limit to the number of transfers.
While AUSA has no present intention to do so, it reserves the right to impose
transfer charges at a later date. Transfers may be made in writing or by
telephone by calling (914) 697-8000. (See "Transfers" on page ). AUSA reserves
the right to discontinue allowing telephone transfers.

9
<PAGE> 12

PAYMENT OPTIONS

Unless a Fixed Annuity is elected, a Participant will receive a lump sum
payment at the end of the Accumulation Period. The Contracts may provide for
several Fixed Annuity options: Life Annuity, Life Annuity With Period Certain,
Specified Fixed Period Annuity, Contingent Annuity and Contingent Annuity With
Period Certain. For NQDC, an installment payment option may also be available.
(See "Payment Options" on page ).

VOTING RIGHTS

To the extent required by law, AUSA will vote the interests in Diversified
Investors Portfolios and the Calvert Series held in Diversified Investors
Variable Funds in accordance with the instructions received from
Contractholders, IRA Contractholders and NQDC Contractholders; the
Contractholders will instruct AUSA in accordance with the instructions received
from Participants. (See "Voting Rights" on page ).

DEATH BENEFIT

If a Participant dies before the Annuity Purchase Date, the Accumulation
Account value will be paid to his/her beneficiary in a lump sum. (See "Death
Benefit" on page ).

DISTRIBUTION OF THE CONTRACTS

Diversified Investors Securities Corp. ("DISC") will be the principal
underwriter and distributor of the Contracts which will be sold by registered
representatives who are also licensed insurance agents of AUSA. The Contracts
may also be sold through registered representatives of other broker-dealers
authorized by DISC and applicable law who may be insurance agents licensed by an
insurance company other than AUSA. (See "Distribution of the Contracts" on page
).

FINANCIAL INFORMATION

Information about the performance of Diversified Investors Variable Funds
is contained in the Annual Report of Diversified Investors Variable Funds which
is available, free of charge, by contacting AUSA at the address or telephone
number set forth on the cover of this Prospectus.

10
<PAGE> 13

CONDENSED FINANCIAL INFORMATION
DIVERSIFIED INVESTORS VARIABLE FUNDS
ACCUMULATION UNIT VALUES

[TO BE FILED BY AMENDMENT]

11
<PAGE> 14

AUSA

AUSA Life Insurance Company, Inc. is a stock life insurance company which
was organized under the laws of the State of New York. Its principal place of
business is 4 Manhattanville Road, Purchase, N.Y. 10577; (914) 697-8000.

DIVERSIFIED INVESTORS VARIABLE FUNDS

Diversified Investors Variable Funds was established by AUSA under New York
Insurance Law on November 30, 1993 as a separate account. Diversified Investors
Variable Funds will hold assets that are segregated from all of AUSA's other
assets and at present is used only to support the Contracts. AUSA is the legal
holder of the assets in Diversified Investors Variable Funds and will at all
times maintain assets in Diversified Investors Variable Funds with a total
market value at least equal to the contract liabilities for Diversified
Investors Variable Funds. The obligations under the Contracts are obligations of
AUSA. Income, gains, and losses, whether or not realized, from assets allocated
to Diversified Investors Variable Funds, are, in accordance with the Contracts,
credited to or charged against Diversified Investors Variable Funds without
regard to other income, gains, or losses of AUSA. The assets in Diversified
Investors Variable Funds may not be charged with liabilities which arise from
any other business AUSA conducts. Diversified Investors Variable Funds assets
may include accumulation of the charges AUSA makes against a Contract
participating in Diversified Investors Variable Funds. From time to time, any
such additional assets may be transferred in cash to AUSA's general account.

Diversified Investors Variable Funds is registered with the Securities and
Exchange Commission ("SEC") under the Investment Company Act of 1940, as
amended, ("1940 Act") as a unit investment trust, which is a type of investment
company. This does not involve any supervision by the SEC of the management or
investment policies or practices of Diversified Investors Variable Funds. For
state law purposes, Diversified Investors Variable Funds is treated as a part or
division of AUSA.

There are currently fourteen Subaccounts within Diversified Investors
Variable Funds which are available for allocation of Purchase Payments under the
Contracts. The Calvert Series Subaccount invests only in the Calvert Responsibly
Invested Balanced Portfolio (the "Calvert Series"), a series of Acacia Capital
Corporation, an open-end management investment company registered with the SEC
under the 1940 Act. The thirteen other Subaccounts invest in thirteen respective
series of Diversified Investors Portfolios, an open-end diversified management
investment company registered with the SEC under the 1940 Act. Set forth below
is a brief description of the Calvert Series and the thirteen series of
Diversified Investors Portfolios. A full description of the Calvert Series, its
investment objectives, policies and restrictions, its expenses, the risks
attendant in investing therein and other aspects of its operations are contained
in the accompanying prospectus for the Calvert Series. Full descriptions of the
thirteen series of Diversified Investors Portfolios, their investment
objectives, policies and restrictions, their expenses, the risks attendant to
investing therein and other aspects of their operations are set forth herein
under "Diversified Investors Portfolios" at page . Further disclosure appears
in the Statement of Additional Information. Each Participant should periodically
consider his/her allocation among the Subaccounts in light of current market
conditions and the investment risks attendant to investment in the various
series of Diversified Investors Portfolios and the Calvert Series.

CALVERT SERIES

The Calvert Series is a series of Acacia Capital Corporation ("Acacia"), a
Maryland Corporation registered with the SEC under the 1940 Act as an open-end
management company, whose investment adviser is Calvert Asset Management
Company, Inc. The shares of Acacia are currently sold only to insurance
companies for allocation to their separate accounts to fund the benefits under
certain variable annuity and variable life insurance policies issued by such
companies. Because the Calvert Series sells its shares to insurance companies
offering both variable annuity and variable life insurance policies, potential
for conflict between the interests of Contractholders of these contracts may
arise. The Board of Directors of Acacia will monitor the Calvert Series for the
existence of any material irreconcilable conflicts between interests of
Contractholders of all separate accounts investing in the Calvert Series. If it
is determined by a majority of the

12
<PAGE> 15

Board of Directors of Acacia that such material conflict exists, then AUSA will
take whatever steps are necessary to eliminate the material conflict including
withdrawing the assets allocable to the Calvert Series and reinvesting them in a
different investment medium. For additional risk exposure, see the Calvert
Series prospectus which follows this prospectus. The Calvert Series Subaccount
of Diversified Investors Variable Funds will purchase and redeem shares from the
Calvert Series at net asset value.

The investment objective of the Calvert Series is set forth in the
prospectus for the Calvert Series which appears at the end of this Diversified
Investors Variable Funds prospectus. Briefly, the objective is to achieve a
total return above the rate of inflation through an actively managed,
diversified portfolio of common and preferred stocks, bonds and money market
instruments which offer income and capital growth opportunity and which satisfy
the social concern criteria established for the Calvert Series. There can be no
assurance that the objective of the Calvert Series will be realized.

DIVERSIFIED INVESTORS PORTFOLIOS

Each of the other eight Subaccounts of Diversified Investors Variable Funds
listed below invests exclusively in the corresponding series of Diversified
Investors Portfolios set forth below:

<TABLE>
<CAPTION>
DIVERSIFIED SUBACCOUNT SERIES OF DIVERSIFIED INVESTORS PORTFOLIOS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Diversified Investors Variable Funds
Money Market Subaccount.................... Diversified Investors Money Market Portfolio
(the "Money Market Series")
</TABLE>

<TABLE>
<S> <C>
Diversified Investors Variable Funds
High Quality Bond Subaccount............... Diversified Investors High Quality Bond
Portfolio (the "High Quality Bond Series")
Diversified Investors Variable Funds
Intermediate Government Bond Subaccount.... Diversified Investors Intermediate Government
Bond Portfolio (the "Intermediate Government
Bond Series")
Diversified Investors Variable Funds
Government/Corporate Bond Subaccount....... Diversified Investors Government/Corporate
Bond Portfolio (the "Government/Corporate
Bond Series")
Diversified Investors Variable Funds
High-Yield Bond Subaccount................. Diversified Investors High-Yield Bond
Portfolio (the "High-Yield Bond Series")
Diversified Investors Variable Funds
Balanced Subaccount........................ Diversified Investors Balanced Portfolio (the
"Balanced Series")
Diversified Investors Variable Funds
Equity Value Subaccount.................... Diversified Investors Equity Value Portfolio
(the "Equity Value Series")
Diversified Investors Variable Funds
Equity Income Subaccount................... Diversified Investors Equity Income Portfolio
(the "Equity Income Series")
Diversified Investors Variable Funds
Growth & Income Subaccount................. Diversified Investors Growth & Income
Portfolio (the "Growth & Income Series")
Diversified Investors Variable Funds
Equity Growth Subaccount................... Diversified Investors Equity Growth Portfolio
(the "Equity Growth Series")
Diversified Investors Variable Funds
Special Equity Subaccount.................. Diversified Investors Special Equity
Portfolio (the "Special Equity Series")
Diversified Investors Variable Funds
Aggressive Equity Subaccount............... Diversified Investors Aggressive Equity
Portfolio (the "Aggressive Equity Series")
Diversified Investors Variable Funds
International Equity Subaccount............ Diversified Investors International Equity
Portfolio (the "International Equity Series")
</TABLE>

13
<PAGE> 16

Diversified Investors Portfolios is registered with the SEC under the 1940
Act as an open-end diversified management investment company. This registration
does not involve supervision by the SEC of the management or investment
practices or policies of Diversified Investors Portfolios.

Diversified acts as investment adviser and administrator to each series of
Diversified Investors Portfolios. Diversified has contracted with one or more
subadvisers for certain investment advisory services for each series.
Diversified and the subadviser or subadvisers for a particular series of
Diversified Investors Portfolios are referred to herein collectively as the
"Advisers". The investment objectives of the series of Diversified Investors
Portfolios currently available under the Contracts through Diversified
Subaccounts are described briefly below. There can be no assurance that the
investment objectives of any of the series will be met.

MONEY MARKET SERIES: To provide liquidity and as high a level of current
income as is consistent with the preservation of capital through investment in
domestic and foreign U.S. dollar-denominated money market obligations with
maturities of 397 days or less. An investor's interest in the Diversified
Investors Variable Funds Money Market Subaccount is neither insured nor
guaranteed by the U.S. Government.

HIGH QUALITY BOND SERIES: To provide as high a level of current income as
is consistent with the preservation of capital through investment in high
quality debt securities with short and intermediate maturities.

INTERMEDIATE GOVERNMENT BOND SERIES: To provide as high a level of current
income as is consistent with the preservation of capital through investment in
U.S. Government and U.S. Government agency and instrumentality securities with
intermediate maturities and high quality short-term obligations.

GOVERNMENT/CORPORATE BOND SERIES: To achieve the maximum total return
through investment in investment grade debt securities, U.S. Government and U.S.
Government agency and instrumentality securities collateralized mortgage
obligations guaranteed by these agencies and instrumentalities and high quality
short-term obligations.

HIGH-YIELD BOND SERIES: To provide a high level of current income from a
diversified portfolio consisting primarily of high-yielding, fixed-income and
zero coupon securities, such as bonds, debentures and notes, convertible
securities and preferred stocks.

BALANCED SERIES: To provide a high total return consistent with a broad
diversified mix of stocks, bonds and money market instruments.

EQUITY INCOME SERIES: To provide a high level of current income through
investment in a diversified portfolio of common stocks with relatively high
current yields; capital appreciation is a secondary objective.

EQUITY VALUE SERIES: To provide a high total investment return through
investment in a diversified portfolio of common stocks. The Series emphasizes
stocks which, in the opinion of the Equity Value Series' Advisers, are trading
at low valuations relative to market and/or historical levels.

GROWTH & INCOME SERIES: To provide current income and capital appreciation
through investment primarily in a diversified portfolio of securities selected
for their potential to generate current income or long term capital
appreciation.

EQUITY GROWTH SERIES: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks with potential
for above average growth in earnings; current income is a secondary objective.

SPECIAL EQUITY SERIES: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks of small to
medium size companies without consideration for current income. The Series
emphasizes stocks which, in the opinion of the Special Equity Series' Advisers,
will present an opportunity for significant increases in earnings and/or value.

14
<PAGE> 17

AGGRESSIVE EQUITY SERIES: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks of small to
medium size companies without consideration for current income. The Series
emphasizes stocks which, in the opinion of the Aggressive Equity Series'
Advisers, present an opportunity for significant increases in earning, revenue
and/or value.

INTERNATIONAL EQUITY SERIES: To provide a high level of long term capital
appreciation through investment in a diversified portfolio of securities of
foreign issuers.

See "Diversified Investors Portfolios" at page and the Statement of
Additional Information for more information on each of the series of Diversified
Investors Portfolios described above.

INTERNATIONAL EQUITY SERIES SUBSTITUTION

Prior to May 1, 1996, Purchase Payments allocated to the International
Equity Subaccount were invested in shares of the International Portfolio of the
Scudder Variable Life Investment Fund (the "Scudder International Fund"), an
actively managed, diversified portfolio of marketable foreign equity investments
which offer the opportunity for long-term growth of capital. On April , 1996,
the SEC issued an order pursuant to certain provisions of the 1940 Act approving
an application made by AUSA and Diversified Investors Variable Funds to
substitute interests in the International Equity Series for the shares of the
Scudder International Fund held by the International Equity Subaccount. In
accordance with such SEC order, the International Equity Subaccount effected the
redemption of the shares of the Scudder International Fund and immediately
reinvested the proceeds in the International Equity Series on May 1, 1996.

CHARGES

CHARGES FOR MORTALITY AND EXPENSE RISKS

The maximum daily charges against Diversified Investors Variable Funds for
mortality and expense risks assumed by AUSA are computed and deducted from the
value of the net assets of Diversified Investors Variable Funds. The maximum
daily charge will be at the rate of 0.003425% (equivalent to an annual rate of
1.25%) of the average daily net assets of Diversified Investors Variable Funds.
The daily charge will be deducted from the net asset value of each Subaccount of
Diversified Investors Variable Funds on each Valuation Date. Where the previous
day (or days) was not a Valuation Date, the maximum deduction on the Valuation
Date will be 0.003425% multiplied by the number of days since the last Valuation
Date. The sum of these charges on an annual basis will not exceed 1.25% of the
average net assets invested in Diversified Investors Variable Funds. Of this
charge, AUSA estimates that .80% is for mortality risk and .45% is for expense
risk. (The daily charge from Diversified Investors Variable Funds based on an
annual mortality and expense risk rate of .90%, .60% for mortality risks and
.30% for administrative expense risks, is 0.002466%).

The mortality risk is that individuals may live for a longer period of time
than projected and therefore a greater amount of annuity benefits than projected
will be payable. The expense risk is that expenses incurred in issuing and
administering the Contract will exceed the administrative expense charge
provided in the Contract. AUSA believes that this level of charge is within the
range of industry practice for comparable group variable annuity contracts.

Sales distribution expenses and any other expenses in excess of the
described charges will be paid from AUSA's general account and not directly from
Diversified Investors Variable Funds or from the mortality and expense risk
charges. However, asset charges for AUSA's assumption of mortality and expense
risks might be a source of contribution to the surplus in AUSA's general
account.

ANNUAL CONTRACT CHARGE

AUSA reserves the right to deduct an annual contract charge from a
Participant's Accumulation Account to reimburse AUSA for administrative expenses
relating to the maintenance of the Contracts. AUSA has no present intention to
impose such a charge, however, AUSA may, in the future, impose such a charge in

15
<PAGE> 18

accordance with the provisions of the Contracts. Any such annual charge will not
exceed $50. AUSA also reserves the right, if such a charge is imposed, to waive,
on a temporary or permanent basis, all or part of such charge for certain
classes of Contracts or for certain new classes of Contracts which may be sold
in the future. If imposed, this charge would represent reimbursement for
administrative costs expected to be incurred over the life of the Contracts.
AUSA does not anticipate any profit from this charge.

INVESTMENT MANAGEMENT FEE

Because Diversified Investors Variable Funds purchases interests in certain
series of Diversified Investors Portfolios and the Calvert Series, the net
assets of Diversified Investors Variable Funds will reflect the investment
management fee and other expenses incurred by these series of Diversified
Investors Portfolios and the Calvert Series.

Diversified serves as the investment adviser to each series of Diversified
Investors Portfolios. For information with respect to the arrangements under
which Diversified provides such advisory services, including charges and
arrangements with subadvisers, reference is made to the information set forth
under "Management of Diversified Investors Portfolios" at page .

The Calvert Series' investment adviser is the Calvert Asset Management
Company, Inc. ("Investment Adviser") which is located at 4550 Montgomery Avenue,
Suite 1000N, Bethesda, Maryland 20814. The Investment Adviser is a wholly-owned
subsidiary of Calvert Group, Ltd., which is in turn a wholly-owned subsidiary of
Acacia Mutual Life Insurance Company. Pursuant to its investment advisory
agreement with the Calvert Series, the Investment Adviser manages the
fixed-income investments of the Calvert Series and is responsible for the
overall management of the business affairs of the Calvert Series subject to the
direction and authority of the Board of Directors of Acacia. The subadvisor to
the Calvert Series is NCM Capital Management Group, Inc. ("NCM"). Pursuant to
its Investment Subadvisory Agreement with the Investment Adviser, NCM manages
the equity portion of investments for the Calvert Series. NCM is an
employee-owned subsidiary of Sloan Financial Group. Sloan Financial Group is
controlled by Maceo K. Sloan and Justin K. Beckett and is one of the largest
minority-owned investment management firms in the country. The Investment
Adviser receives from the Calvert Series a monthly base fee, computed on a daily
basis at an annual rate of 0.70% of the average daily net assets of the Calvert
Series. The Investment Adviser pays NCM a base fee of 0.25% of one-half of the
Calvert Series' net assets. In addition, the Investment Adviser and NCM may earn
(or have their fees reduced by) performance fee adjustments based on the extent
to which performance of the Calvert Series exceeds or trails the Lipper Balanced
Funds Index. Payment of the performance fee adjustment begins July 1, 1996. The
specific adjustments are as follows:

INVESTMENT ADVISER'S PERFORMANCE FEE ADJUSTMENT

<TABLE>
<CAPTION>
PERFORMANCE VERSUS THE PERFORMANCE FEE
LIPPER BALANCED FUND INDEX ADJUSTMENT
-------------------------- ---------------
<S> <C> <C>
6% to <12% 0.05%
12% to <18% 0.10%
18% or more 0.15%
</TABLE>

NCM'S PERFORMANCE FEE ADJUSTMENT

The performance fee adjustment to NCM is paid out of the fee the Investment
Adviser receives from the Calvert Series. The initial performance period will be
the twelve month period between July 1, 1995 and July 1, 1996. Each month an
additional month's performance will be factored into the calculation until a
total

16
<PAGE> 19

of 36 months comprises the performance computation period. Payment by the
Calvert Series of the performance fee adjustment will be conditioned on (i) the
performance of the Calvert Series as a whole having exceeded the Lipper Balanced
Fund Index and (ii) payment of the performance fee adjustment not causing the
Calvert Series' performance to fall below the Lipper Balanced Fund Index.

PREMIUM TAX

Under the laws of certain jurisdictions, premium taxes are payable on
annuity considerations which can include Purchase Payments or the Accumulation
Account under the Contracts. Any applicable premium taxes will generally be
deducted when the Accumulation Account under a Contract is applied to purchase
an annuity. Under present laws, the range of premium taxes is from .5% to 4.0%.
Attached as an Appendix to this Prospectus is a schedule of applicable premium
taxes payable upon annuitization which are in effect as of the date of this
Prospectus. The laws of the various jurisdictions relating to annuity taxes and
the interpretations of such laws are subject to changes which may affect the
deductions, if any, under the Contracts for such taxes.

SUMMARY OF THE CONTRACTS

ELIGIBLE PURCHASERS

State educational organizations and organizations that qualify for
tax-exempt status under Code Section 501(c)(3), including associations thereof
that qualify for tax-exempt status under Code Section 501(c)(3), are eligible
purchasers. In addition, any organization qualifying as an IRA Contractholder
may purchase or hold an IRA Contract. Any type of non-profit organization as
well as taxed subsidiaries of tax-exempt organizations and taxed stand-alone
organizations may purchase a Section 401(a) and/or a Section 401(k) or an NQDC
Contract(s).

OWNERSHIP

The organization purchasing or holding a Contract is the owner of the
Contract for the benefit of the Participants. The Contract will cover all
eligible Participants under a Plan. Each Participant will receive a certificate
at the time his/her first annuity payment becomes payable, or earlier, if
required by applicable law. The certificate summarizes the Participant's
benefits under the Contract.

PURCHASE PAYMENTS

With respect to the Section 401(a) Contract, the employer and/or employee
will make contributions pursuant to the underlying retirement Plan. The Section
401(k) and NQDC Contracts will accept employer and/or employee contributions
pursuant to the terms and conditions of the underlying Plan. As to the Section
403(b) Contract, the employer will make Purchase Payments in accordance with a
salary reduction agreement or an agreement to forego a salary increase, except
with respect to employer-sponsored Section 403(b) Plans under which the employer
will make contributions pursuant to the underlying retirement Plan. As to the
Section 72 flexible annuities Contract, the employer will make Purchase Payments
for each participating employee pursuant to a salary deduction agreement. In the
case of the Section 408 IRA Contract, Purchase Payments will be made by the
employer on behalf of and as determined by each participating employee pursuant
to a salary deduction agreement or by the Participant. An Accumulation Account
will be established for each Participant which will record the number of Units
held in each Subaccount. Purchase Payments may be allocated among any of the
Subaccounts.

All Purchase Payments in Diversified Investors Variable Funds credited to
an Accumulation Account are vested and nonforfeitable. However, Purchase
Payments made by employers, including all such payments made under a Section
401(a) Contract, which are not the result of a reduction in salary or a give up
in salary agreement, under an employer-sponsored Plan may be forfeitable but are
generally subject to the vesting requirements, where applicable, of the Employee
Retirement Income Security Act of 1974, as amended. In general, all Purchase
Payments made to NQDC, Section 457 and Section 457(b) Contracts may be
forfeitable even though partially or fully vested.

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<PAGE> 20

EMPLOYER SPONSORED PLAN REQUIREMENTS

Since the Contracts are intended to implement the Plans of state
educational organizations, organizations that qualify for tax-exempt status
under Code Section 501(c)(3), IRA Contractholders and, in the case of Section
401(a) and/or Section 401(k) and NQDC Contracts, for taxed subsidiaries of such
organizations and stand-alone taxed organizations and since such Plans may be
sponsored by employers or associations who may have their own desires regarding
certain Plan details and the manner in which the Plan is to be administered,
there will be some variations in details in the Contract and Plan to reflect
such desires. Reference to the provisions of the Plan in which the individual is
a Participant must be made in all cases for particulars.

RIGHTS OF THE PARTICIPANT UNDER THE CONTRACT

There are no stipulated or required Purchase Payments to be made under the
Contract. Except for the 15 days prior to a Participant's Annuity Purchase Date
(See "Annuity Purchase Date" on page ) during which no Purchase Payments will
be accepted by AUSA, during a Participant's Accumulation Period Purchase
Payments may be made in the amount authorized by the Participant. The Contract
permits the Participant to elect his/her Annuity Purchase Date, to allocate
Purchase Payments, to redeem all or a portion of the Units in his/her
Accumulation Account, to designate beneficiaries, and to elect Fixed Annuity
options, except that employer-sponsored Plans may affect these rights.

During a Participant's Accumulation Period, one's rights and those of the
Contractholder or IRA Contractholder shall be as set forth in the Contract and
Plan. On and after the Annuity Purchase Date, or on the Participant's death, if
earlier, all rights, as specified in the Contract and Plan, shall belong to the
Participant or beneficiary as the case may be.

RIGHTS UPON SUSPENSION OF CONTRACT OR TERMINATION OF PLAN

403(b) Contract

In the event that the making or receipt of all Purchase Payments under
certain 403(b) Contracts is discontinued or a Contractholder terminates its Plan
or discontinues Purchase Payments for a Participant, AUSA shall give written
notice thereof to the appropriate Participant(s) together with notice of the
right of the Participant to elect to have the value of his/her Accumulation
Account applied under one of the following options: (1) to be held and
distributed by AUSA in accordance with the terms of the Contract, (2) to be paid
to him/her in cash, or (3) in the event of suspension of the Contract or
termination of the Plan, to be transferred to an alternate funding agency (e.g.,
another insurance company). Certain other 403(b) Contracts require the
Contractholder, not AUSA, to give written notice thereof to Participants.

401(a) Contract/401(k) Contract and NQDC Contracts

If the Contractholder terminates its Plan or discontinues Purchase
Payments, it is the Contractholder's responsibility, and not AUSA's, to give
written notice thereof to the affected Participants. In such cases, the
Contractholder shall elect to have the entire balance held under the Contract
applied under one of the following options: (1) to be held and distributed by
AUSA in accordance with the terms of the Contract; (2) to be transferred to an
alternate funding agency (e.g., another insurance company); or (3) to purchase
deferred, paid-up life annuity benefits for Participants.

457, 457(f), Flexible Annuity, and 408(IRA) Contracts

If the Contractholder or IRA Contractholder terminates its Plan or
discontinues Purchase Payments for a Participant, AUSA shall give written notice
thereof to the appropriate Participant(s) together with notice of the right of
the Participant to elect to have the value of his/her Accumulation Account
applied under either of the following options: (1) to be held and distributed by
AUSA in accordance with the terms of the Contract or (2) to be paid to him/her
in cash, except that, under the terms of certain 457 Contracts, the
Contractholder, not AUSA, shall give notice to affected Participants.

18
<PAGE> 21

FAILURE OF QUALIFICATION

In the event that a Plan, Contractholder or IRA Contractholder or a
Participant, thereunder becomes ineligible for any previously applicable tax
benefits under the Code, AUSA upon notice thereof shall refuse during the period
of such ineligibility to accept Purchase Payments with respect to that Plan or
Participant. A failure of qualification under a particular Contract shall have
no effect on other issued and outstanding Contracts.

TRANSFERS

No transfers may be made between any of the Contracts; however, the
following transfers are permissible with respect to each Contract.

401(a), 401(k), 403(b), 457, 457(f), Flexible Annuity, 408(IRA) and NQDC
Contracts

Transfers from the Section 403(b), 401(a) and (k) and NQDC Group Fixed
Annuity Contracts to a Participant's Accumulation Account under the Diversified
Investors Variable Funds Contracts are permitted only to the Subaccounts which
invest in the Balanced Series, Equity Income Series, Growth & Income Series,
Equity Growth Series, Special Equity Series, Calvert Series or International
Equity Series. Certain other restrictions which apply to transfers from the AUSA
Section 403(b), Section 401(a), Section 401(k), NQDC and Section 408(IRA) Group
Fixed Annuity Contracts to the Diversified Investors Variable Funds Contracts
are contained in the AUSA Section 403(b) and Section 401(a) and NQDC and
408(IRA) Group Fixed Annuity Contracts.

Transfers may be made in writing or by telephoning (914) 697-8000.
Transfers are effective within 48 hours of receipt of instructions. All
Participants should be aware that a transfer authorized by telephone and
reasonably believed to be genuine by AUSA may subject the Participant to risk of
loss if such instruction is subsequently found not to be genuine. AUSA will
employ reasonable procedures, including requiring Participants to give certain
identification information and tape recording of telephone instructions, to
confirm that instructions communicated by telephone are genuine. To the extent
that AUSA fails to use reasonable procedures to verify the genuineness of
telephone instructions, AUSA may be liable for any losses due to telephone
instructions that prove to be fraudulent or unauthorized.

RIGHTS RESERVED BY AUSA

Subject to compliance with applicable laws and, when required by law,
approval of the Contractholders, IRA Contractholders, NQDC Contractholders
and/or Participants and any appropriate regulatory authority, AUSA reserves the
right to make the following changes:

(1) To operate Diversified Investors Variable Funds in any form permitted
under the 1940 Act or in any other form permitted by law;

(2) To take any action necessary to comply with or obtain and continue any
exemptions from the 1940 Act;

(3) To transfer any assets in a Subaccount to another Subaccount or to one
or more separate accounts, or to AUSA's general account to the extent
permitted by law or to add, combine or remove Subaccounts in a separate
account;

(4) To substitute, for the interests in a series of Diversified Investors
Portfolios or the Calvert Series held in any Subaccount, interests in
another series of Diversified Investors Portfolios or interests in
another investment company or any other investment permitted by law;
and

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<PAGE> 22

(5) To make any necessary technical changes in the Contracts in order to
conform with any of the above-described actions or as may be required
or permitted by applicable laws affecting Diversified Investors
Variable Funds or the Contracts.

CREDIT OF PURCHASE PAYMENTS

A Participant's initial Purchase Payment will be credited to the
Participant's Accumulation Account to provide Units as of a Valuation Date for
the Valuation Period, not later than (1) two business days after receipt of the
Purchase Payment by AUSA at 4 Manhattanville Road, Purchase, New York 10577, if
the contract application and/or Participant's enrollment form is complete upon
receipt, or (2) two business days after an application and/or enrollment form
which is incomplete upon receipt by AUSA is made complete, provided that if such
information is not made complete within five business days after receipt, (i)
the prospective Participant will be informed of the reasons for the delay, and
(ii) the initial Purchase Payment will be returned immediately and in full,
unless the prospective Participant specifically consents to AUSA retaining the
Purchase Payment until such information is made complete.

Subsequent Purchase Payments will be credited to the Participant's
Accumulation Account to provide Units as of the Valuation Date for the Valuation
Period in which the Purchase Payment is received in good order by AUSA.

ALLOCATION OF PURCHASE PAYMENTS

Upon receipt of a Purchase Payment, it will be credited to the Subaccount
designated by the Participant in the form of Units. The number of Units to be
credited is determined by dividing the dollar amount allocated to the particular
Subaccount(s) by the Unit value of that Subaccount for the Valuation Date for
the Valuation Period on which the Purchase Payment is received. The number of
Units shall not be changed by any subsequent change in the value of a Unit, but
the dollar allocation value of a Unit will vary in amount depending upon the
investment experience of the applicable Subaccount.

Allocation instructions may be changed at any time by sending to AUSA a
correctly completed allocation form. Any change in allocations will be effective
within 10 business days following receipt of the allocation form by AUSA. If an
allocation form is incorrectly completed, Purchase Payments will be credited in
accordance with the most recent allocation form on record. AUSA reserves the
right to limit a Participant's right to change allocation instructions to four
times a calendar year.

DETERMINATION OF UNIT VALUE

The Unit value for a Subaccount for any Valuation Date is determined by
subtracting (b) from (a) and dividing the result by (c), where

(a) is the aggregate net asset value on the Valuation Date of all
investments by the Subaccount in the series of Diversified Investors
Portfolios or the Calvert Series in which the Subaccount invests, and

(b) is the mortality and expense risk charge accrued as of that Valuation
Date; and,

(c) is the total number of Units held in the Subaccount on the Valuation
Date before the purchase or redemption of any Units on that Date.

DEATH BENEFIT

Under Section 403(b), Section 457, Section 457(f), flexible annuity and
408(IRA) Contract, if a Participant dies before the Annuity Purchase Date (See
"Annuity Purchase Date" on page ,em ), the value of his/her Accumulation Account
will be paid to the beneficiary in a lump sum. If the beneficiary is under the
age of 75 at the time of the Participant's death, the beneficiary may elect to
have this lump sum applied to provide a Fixed Annuity. A lump sum payment to
some extent may be taxed as ordinary income to the beneficiary in the year
received. A beneficiary should consider the possible tax advantages to electing
an

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<PAGE> 23

annuity. (See "Section 403(b) Annuities" on page ). Under Section 401(a)
and/or Section 401(k) Contracts, however, the underlying tax-qualified Plan is
generally required to provide that in the case of a married Participant, a
survivorship annuity death benefit will be paid to the surviving spouse if the
Participant dies prior to retirement. In each case involving Section 401(a)
and/or Section 401(k) Contracts, reference must be made to the underlying Plan
for particulars.

If the Participant dies before the Annuity Purchase Date, his/her entire
interest must generally be distributed within five years after the date of
death, or if payable to a designated beneficiary must be annuitized over the
life of that designated beneficiary or over a period not extending beyond the
life expectancy of that beneficiary, within one year after the date of death. If
the beneficiary is the Participant's spouse, distributions are not required to
be made until the April 1st after the end of the calendar year in which the
Participant would have attained age 70 1/2; if the spouse dies before
distributions begin, the rules discussed above will apply as if the spouse were
the Participant (owner).

If a lump sum payment is elected, the Accumulation Account value will be
determined on the Valuation Date for the Valuation Period in which a certified
copy of the death certificate evidencing the Participant's death is received by
AUSA. If a Fixed Annuity is elected, the Accumulation Account value will be
determined on the Valuation Date for the Valuation Period of the beneficiary's
Annuity Purchase Date. For Section 401(a) and/or Section 401(k) and NQDC
Contracts, the underlying Plan should be consulted to determine the options
available.

For NQDC Contracts, the remaining value will be paid to a designated
beneficiary. If no such beneficiary is so designated or in existence, the
remaining value will be paid in the following order: Participant's (1) spouse,
(2) children, (3) parents, (4) siblings and (5) estate.

For all Contracts except NQDC Contracts, the death benefit is guaranteed to
be not less than the total amount of all contributions, less any withdrawals,
made by the Participant.

REDEMPTION DURING THE ACCUMULATION PERIOD

For Section 403(b), Section 457, Section 457(f), flexible annuity and
Section 408(IRA) Contracts and subject to applicable federal tax law
restrictions, a Participant at any time during his/her Accumulation Period and
prior to his/her death may redeem all or a portion of the Units credited to the
Accumulation Account. There is no redemption charge. (See "Federal Tax Status"
on page ).

The Accumulation Account value redeemed or the Units remaining after a
partial redemption will be determined on the Valuation Date for the Valuation
Period in which a written request for a redemption on a form approved by AUSA is
received by AUSA. The Accumulation Account will be reduced by the lesser of the
number of Units obtained by dividing the amount of the redemption request by the
Unit value for that day or the number of Units remaining in the Accumulation
Account.

A full or partial redemption payment will be made within seven days after
receipt of the written request. A request for a partial redemption must specify
the Subaccount(s) from which the partial withdrawal is to be made. Payment may
be postponed as permitted by the 1940 Act. Currently, deferment is permissible
only when the New York Stock Exchange is closed or trading is restricted, when
an emergency exists as a result of which disposal of interests in Diversified
Investors Portfolios, the Calvert Series or the International Equity Series held
by Diversified Investors Variable Funds is not reasonably practicable or it is
not reasonably practicable to determine fairly the value of these assets, or
when the SEC has provided for such deferment for the protection of Participants.

A withdrawal will generally have federal income tax consequences which may
include penalties. (See "Federal Tax Status" on page ).

With respect to Section 401(a), Section 401(k) and NQDC Contracts, the
ability to withdraw funds during the Accumulation Period is generally more
limited; however, in each instance the underlying Plan document should be
consulted to determine what options, if any, are available.

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<PAGE> 24

RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM

The Texas Optional Retirement Program ("Program") imposes on participants
in such Program certain restrictions on withdrawal, which affect redemptions
with respect to any variable annuity contract issued under the Program. Under
section 830.104 of the Texas Government Code, such participant in the Program,
in order to withdraw accumulated contributions from the retirement system, must
complete the required application form prescribed by the board of trustees. A
person who withdraws contributions pursuant to section 830.104 relinquishes all
accrued rights in the retirement system.

Nothing in section 830.105 of the Texas Government Code, entitled
Termination of Participation, precludes the election by a participant to
withdraw accumulated contributions pursuant to section 830.104. However, section
830.105 restricts the availability of an annuity purchased under the Program to
situations where the participant attains age 70 1/2 or terminates participation
in the Program by: death, retirement, or termination of employment in all
institutions of higher education.

PAYMENT OPTIONS

With respect to Section 403(b), Section 457, Section 457(f), flexible
annuity and Section 408(IRA) Contracts, unless a Fixed Annuity as described
below is elected, payment to the Participant shall be made at the end of his/her
Accumulation Period in a lump sum calculated in the same manner as if a total
withdrawal request of one's Accumulation Account had been received by AUSA on
his/her Annuity Purchase Date. (See page for "Redemption During the Accumulation
Period"). However, Section 401(a), Section 401(k) and NQDC Contracts provide the
funding for the Plans and reference to the particular Plan must be made in each
case for details. For example, tax-qualified Plans must generally provide by law
that in the case of a married Participant who does not properly elect otherwise,
retirement annuity benefits will be paid in the form of a contingent annuity
with a survivorship annuity benefit for his surviving spouse at least equal to
50% of the amount which would have been payable if the Participant were living.
For NQDC Contracts, the employer may also provide for installment payments
without the purchase of an annuity.

ANNUITY PURCHASE DATE

The Annuity Purchase Date is the first day of the month coincident with or
following the receipt by AUSA of written notice, submitted through the
Participant's employer, of the Participant's retirement (i.e., the termination
of employment with his/her employer). Subject to the terms of the Plan, a
Participant may elect to retire at any time and receive annuity benefits. As a
general rule, benefits must begin no later than April 1 of the calendar year
following the year in which the Participant attains age 70 1/2 at which time an
election to receive an annuity or lump sum benefit must be made.

In the case of a beneficiary who elects a Fixed Annuity, the Annuity
Purchase Date will be the first day of the month following receipt by AUSA of
the election of a Fixed Annuity; however, if any election is received during the
last 15 days of a month, the Annuity Purchase Date will be the first day of the
second month after receipt of the election.

For Section 408(IRA) Contracts, the Annuity Purchase Date is the date the
annuity first begins under the terms of the IRA Contract.

FIXED ANNUITY

Fixed Annuity payments are not made from Diversified Investors Variable
Funds but are made from the general account of AUSA which supports insurance and
annuity obligations. Because of exemptive and exclusionary provisions, Fixed
Annuity payments and interests in the general account have not been registered
under the Securities Act of 1933, as amended, (the "1933 Act") nor is the
general account registered as an investment company under the 1940 Act.
Accordingly, neither the general account nor any interests therein are generally
subject to the provisions of the 1933 or 1940 Acts. The SEC staff has not
reviewed the disclosures in this Prospectus that relate to the Fixed Annuity
payments and interests in the general account. Disclosures regarding Fixed
Annuity payments and the general account in this Prospectus, however, may be

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<PAGE> 25

subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.

A Fixed Annuity may not be elected if the initial monthly payment under the
form elected would be less than $20. Fixed Annuity payments will be made monthly
unless the annuitant elects to receive payments annually, semi-annually or
quarterly. Any such election must be made at the same time that the annuitant
elects to receive a Fixed Annuity and cannot be changed during the annuity
period. Once a Fixed Annuity takes effect, it may not be redeemed, surrendered
or changed to any other form of annuity.

FIXED ANNUITY OPTIONS

The following Fixed Annuity options may be available:

i) Life Annuity -- Annuity payments will be made during the lifetime of
the annuitant. It would be possible for the annuitant to receive no
annuity payment if he/she died prior to the date of the first annuity
payment.

ii) Life Annuity With Period Certain -- Annuity payments will be made
during the lifetime of the annuitant with the guarantee that if the
annuitant dies before a period certain elected, the beneficiary will
receive payments for the duration of the period. The period certain
may be any number of years between 5 and 20 inclusive.

iii) Specified Fixed Period Annuity -- Annuity payments will be made for a
specified fixed period selected by the annuitant. If the annuitant
dies during the specified fixed period, the annuity payments for the
remainder of the period will be paid to the beneficiary. No annuity
payments are made after the expiration of the specified fixed period
even if the annuitant survives. The specified fixed period may be for
any number of years between 10 and 30 years inclusive.

iv) Contingent Annuity -- Annuity payments will be made during the joint
lifetimes of the annuitant and a designated second person ("contingent
annuitant") with payments continued during the remaining lifetime of
the contingent annuitant. Annuity payments to the contingent annuitant
may be made in the same amount paid while both annuitants lived or a
lesser percentage of this amount. For Section 401(a) and/or Section
401(k) Contracts, in the absence of a proper election by the
Participant, a contingent annuity with a survivorship annuity benefit
for the surviving spouse at least equal to 50% of the amount which
would have been payable if the Participant were living will be the
normal form of benefit.

If the contingent annuitant dies before the first annuity payment to
the annuitant, the contingent annuity election will be void and the
annuitant will receive a Life Annuity. If the contingent annuitant dies
after the first annuity payment to the annuitant, but before the death
of the annuitant, annuity payments under the Contingent Annuity
election will be made to the annuitant during his/her lifetime. If the
annuitant and the contingent annuitant die before the date of the first
annuity payment, no annuity payments will be made.

v) Contingent Annuity With Period Certain -- Annuity payments will be made
during the joint lifetimes of the annuitant and a designated second
person ("contingent annuitant"). Annuity payments to the contingent
annuitant may be in the same amount as paid to the annuitant or a
lessor percentage of that amount and will be made for a period certain
of any number of years between 5 and 20 years inclusive.

The Life Annuity With Period Certain and the Specified Fixed Period Annuity
may only be elected for a number of years that will not exceed an annuitant's
life expectancy. The annuity benefit option elected by the Participant will
affect the level of annuity payments the Participant will receive. The longer
annuity payments are projected to continue based upon actuarial possibilities,
the lower annuity payments will be.

The annuity purchase rates for these Fixed Annuity benefits shall not
exceed, during the initial period set forth in the Contract, the maximum rates
set forth in the Contract. Thereafter, the annuity purchase rate will be the
rate in effect as declared by AUSA the Annuity Purchase Date. The guaranteed
level of Fixed Annuity

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<PAGE> 26

payments will be determined based upon (i) a Participant's Accumulation Account
value on the Annuity Purchase Date, (ii) the applicable annuity purchase rate on
the Annuity Purchase Date which will reflect the age of the Participant and
(iii) the type of Fixed Annuity option elected.

PAYMENTS TO A BENEFICIARY FOLLOWING THE ANNUITANT'S DEATH

If any annuity payment is payable to the beneficiary after the death of an
annuitant on or after his/her Annuity Purchase Date but during a period certain,
it shall be payable as each payment becomes due to the beneficiary. If the
benefit is payable to more than one beneficiary, it shall be paid in equal
shares to such beneficiaries, the survivors or survivor, unless the annuitant
has elected otherwise. Upon the death of the last surviving beneficiary, AUSA
shall pay the commuted value of any remaining payments in a lump sum cash
payment to the estate of such last surviving beneficiary in lieu of any further
income payments.

The annuitant's beneficiary may direct in writing to AUSA that any income
payable after the death of the annuitant or contingent annuitant be terminated
and a single commuted value be paid to the beneficiary. The commuted values
referred to above shall be based upon the value of the payments for the balance
of the period certain determined as of the date AUSA receives written notice of
the beneficiary's election to receive the commuted value on the basis of the
interest rate (compounded annually) inherent in the annuity purchase rate
applied to provide the annuitant's Fixed Annuity.

VOTING RIGHTS

The assets held in the Subaccounts of Diversified Investors Variable Funds
will be invested in the corresponding series of Diversified Investors Portfolios
or the Calvert Series. AUSA is the legal holder of these interests and shares
held in a Subaccount and as such has the right to vote to elect the governing
Boards of Diversified Investors Portfolios and Acacia, to vote upon certain
matters that are required by the 1940 Act to be approved or ratified by the
shareholders of a mutual fund, and to vote upon any other matter that may be
voted upon at a shareholders' meeting. To the extent required by law, AUSA will
vote at regular and special shareholder meetings in accordance with the
instructions received from Contractholders, IRA Contractholders and NQDC
Contractholders. The record date for any such vote shall be selected by the
governing Boards of Diversified Investors Portfolios or Acacia. AUSA will
furnish Contractholders, IRA Contractholders and NQDC Contractholders with the
proper forms to enable them to give it these instructions.

Each Contractholder, IRA Contractholder and NQDC Contractholder will have
the equivalent of one vote per $100 of the dollar value of the Accumulation
Accounts in a Contract held in each Subaccount of Diversified Investors Variable
Funds, with fractional votes for amounts less than $100. These votes,
represented as votes per $100 of Accumulation Account value in each Subaccount
of Diversified Investors Variable Funds, are converted into a proportionate
number of votes in beneficial interests in a series of Diversified Investors
Portfolios or shares of the Calvert Series. Interests held in each Subaccount
for which no timely instructions from Contractholders, IRA Contractholders or
NQDC Contractholders are received will be voted by AUSA in the same proportion
as those interests in that Subaccount for which instructions are received.
Should applicable federal securities laws or regulations permit, AUSA may elect
to vote in its own right.

A Participant will have the right to instruct the Contractholder, IRA
Contractholder or NQDC Contractholder with respect to interests in the series of
Diversified Investors Portfolios or the Calvert Series or the International
Equity Series attributable to his/her portion of the Accumulation Account held
in each Subaccount of Diversified Investors Variable Funds. Each Participant
under the Contract shall receive a statement of the amount attributable to
his/her participation in each Subaccount and stating his/her right to instruct
the Contractholder as to how to vote such interest. AUSA will provide voting
instruction materials to the Contractholder, IRA Contractholder or NQDC
Contractholder and to the Participants.

The Contractholder, IRA Contractholder and NQDC Contractholder shall
provide voting instructions to AUSA with respect to interests attributable to
the Accumulation Account values held in a Subaccount in accordance with
instructions received by Participants. For interests for which no timely
instructions from

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<PAGE> 27

Participants are received, the Contractholder, IRA Contractholder or NQDC
Contractholder will instruct AUSA to vote these interests in the same proportion
as those shares for which instructions from Participants are received.

Matters on which the Contractholder, IRA Contractholder or NQDC
Contractholder may give voting instructions include the following: (1) election
of the governing Boards of Diversified Investors Portfolios or Acacia; (2)
ratification of the independent accountant of a series of Diversified Investors
Portfolios or the Calvert Series corresponding to the Contractholders, IRA
Contractholder's or NQDC Contractholder's selected Subaccount(s); (3) approval
of any change in the Investment Advisory Agreement or any Subadvisory Agreement
for a series of Diversified Investors Portfolios or the Calvert Series
corresponding to the Contractholder's, IRA Contractholder's or NQDC
Contractholder's selected Subaccount(s); (4) any change in the fundamental
investment policies of a series of Diversified Investors Portfolios or the
Calvert Series corresponding to the Contractholder's, IRA Contractholder's or
NQDC Contractholder's selected Subaccount(s); and (5) any other matter requiring
a vote of the shareholders of Diversified Investors Portfolios or the Calvert
Series. With respect to approval of the Investment Advisory Agreements or
Subadvisory Agreements or any change in a fundamental investment policy,
Contractholders, IRA Contractholders and NQDC Contractholders participating in
that Subaccount will vote separately on the matter pursuant to the requirements
of Rule 18f-2 under the 1940 Act.

AUSA may, if required by state insurance officials, disregard voting
instructions if those instructions would require voting to cause a change in the
subclassification or investment objectives or policies of one or more of the
series of Diversified Investors Portfolios or the Calvert Series, or to approve
or disapprove an investment adviser or principal underwriter for one or more
series of Diversified Investors Portfolios or the Calvert Series. In addition,
AUSA may disregard voting instructions that would require changes in the
investment objectives or policies of any series of Diversified Investors
Portfolios or the Calvert Series or in an investment adviser or principal
underwriter for Diversified Investors Portfolios or the Calvert Series, if AUSA
reasonably disapproves those changes in accordance with applicable federal
regulations. If AUSA disregards voting instructions, it will advise
Contractholders, IRA Contractholders, NQDC Contractholders and Participants of
that action and its reasons for the action in the next semiannual report to
Contractholders, IRA Contractholders, NQDC Contractholders and Participants.

DISTRIBUTION OF THE CONTRACTS

DISC will act as the principal underwriter and the distributor of the
Contracts. DISC will perform all sales, marketing and administrative functions
relative to the Contracts which participate in Diversified Investors Variable
Funds, with certain exceptions in connection with the use of other authorized
broker-dealers. DISC is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended, and is a member of the National Association of
Securities Dealers, Inc. The Contracts are sold by individuals who are
registered representatives of DISC and who are also licensed as insurance agents
for AUSA. The Contracts may also be sold through registered representatives of
other broker-dealers authorized by DISC and applicable law who may be insurance
agents licensed by an insurance company other than AUSA. Commissions and other
expenses directly related to the sale of the Contracts will not exceed 8 percent
of Purchase Payments. Additional expense allowance may be paid for other
services not directly related to the sale of the Contracts. Such services
include the training of personnel and the production of promotional literature.

FEDERAL TAX STATUS

The ultimate effect of federal income taxes on Fixed Annuity payments and
on the economic benefit to the Participant, annuitant, payee and beneficiary
depends on the tax and employment status of the individual concerned.

The discussion which follows on the treatment of AUSA and of the Contracts
under federal income tax law is general in nature, is based upon AUSA's
understanding of current federal income tax laws, and is not

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<PAGE> 28

intended as tax advice. No representation is made regarding the likelihood of
continuation of the present federal income tax law or of the current
interpretations by the Internal Revenue Service. No attempt is made to consider
any applicable state or other tax laws. Each Contractholder, IRA Contractholder,
NQDC Contractholders and Participant contemplating investment in the Contracts
should consult a qualified tax adviser.

Participants receiving large distributions (generally those in excess of
$150,000 per year; or lump sum distributions in excess of $150,000) from
qualified retirement Plans, including those funded through Section 401(a),
Section 408(IRA) and Section 403(b) Contracts, may be subject to a 15% excise
tax on their distributions in excess of a specified amount.

TAX TREATMENT OF AUSA

AUSA is taxed as a life insurance company under the Code. Investment income
from the assets of Diversified Investors Variable Funds are reinvested and taken
into account in determining the value of Diversified Investors Variable Funds.
Under existing federal income tax law, the investment income of Diversified
Investors Variable Funds, including realized capital gains, is substantially not
taxed to AUSA.

TAXATION OF DIVERSIFIED INVESTORS PORTFOLIOS

Diversified Investors Portfolios is organized as a New York trust. None of
its series are subject to any income or franchise tax in the State of New York.
AUSA, as an investor in a series of Diversified Investors Portfolios will be
taxable on its share (as determined in accordance with the governing instruments
of Diversified Investors Portfolios) of such series' ordinary income and capital
gain in determining its income tax liability. The determination of such share
will be made in accordance with the Code and regulations promulgated thereunder.
See "Tax Treatment of AUSA" above.

SECTION 403(b) ANNUITIES

Purchase Payments made under a Contract meeting the requirements of Section
403(b) of the Code afford certain federal income tax benefits to employees of
state educational organizations, and organizations which are tax-exempt under
Section 501(c)(3) of the Code.

The employer may make contributions to the Contract or the employer may
agree with the Participant that in return for employer contributions to the
Contract, the Participant will take a reduction in salary or give up a salary
increase. The agreement may not be changed with respect to earnings of the
Participant while the agreement is in effect. The Participant can only make one
agreement with his/her employer during the year, but the Participant may
terminate the agreement at any time with respect to amounts not yet earned. No
federal income tax is payable by the Participant on increases in the value of
his/her Accumulation Account until payments are received by the Participant.

Purchase Payments meeting the requirements of Sections 402(g), Section
403(b) and Section 415 of the Code are not includable in the gross income of the
Participant at the time they are made. Under Section 402(g) of the Code,
Purchase Payments made under a reduction in salary or a give up in salary
increase agreement ("elective deferrals") are excluded from a Participant's
gross income to the extent of the lesser of $9,500 or the Participant's
exclusion allowance. The $9,500 limit will be reduced on a dollar for dollar
basis by employee pre-tax elective deferrals made by that individual under a
Section 401(k) Plan, a simplified employee pension plan, or other tax deferred
annuity. Under Section 403(b) of the Code, Purchase Payments made under a
reduction in salary or a give up in salary agreement and/or contributed by the
employer are excluded from a Participant's gross income to the extent of the
applicable "exclusion allowance". The "exclusion allowance" is equal to 20% of a
Participant's includable compensation (taxable earnings) for the tax year,
multiplied by the number of years of employment, reduced by the total of
Purchase Payments made in prior tax years.

When Fixed Annuity payments commence, or if the Participant obtains a
partial or full redemption of the Units credited to his/her Accumulation Account
under the Contract, the amount received will be includable

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<PAGE> 29

as ordinary income in the year received, except that such portion of any amount
received as is deemed to represent a return of Purchase Payments originally
included as gross income made by the Participant will not be taxed. Full
redemptions do not qualify for special capital gains treatment nor 5-year income
averaging applicable to qualified plan lump sum distributions. However, if a
Participant makes a full redemption after attaining age 59 1/2 or on account of
a separation from service, he/she may delay including the distribution in income
by making a rollover transfer, subject to requirements set by the Code, to an
Individual Retirement Account or another Section 403(b) annuity. A partial
redemption of at least 50% of the balance to the credit of a Participant on
account of a separation from service may be rolled over to an Individual
Retirement Account, subject to requirements set by the Code.

If the Participant receives any amount under the Contract, the Participant
must pay an additional tax of 10% of the amount of the distribution includable
in gross income for the taxable year. This additional tax shall not apply to
distributions which are (1) made after the date on which the Participant attains
age 59 1/2, (2) made to a beneficiary on or after the death of the Participant,
(3) attributable to the Participant's becoming permanently disabled, (4) made
after separation from service in a series of substantially equal periodic
payments made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his beneficiary, (5)
made to a Participant after separation of service after attainment of age 55,
(6) made to a Participant for medical care (not to exceed the amount deductible
by the employee), or (7) paid to alternate payees under a qualified domestic
relations order.

RESTRICTIONS ON WITHDRAWALS OF ELECTIVE CONTRIBUTIONS. Effective January 1,
1989 and thereafter, any funds in the Participant's account balance other than
funds attributable to assets held at the close of the last year beginning before
January 1, 1989 will be restricted from withdrawal except upon attainment of age
59 1/2, separation from service, death, disability or hardship (hardship
withdrawals are to be limited to the amount of the Participant's own
contributions exclusive of earnings). However, any funds in the Participant's
account balance attributable to employer contributions, if any, and the earnings
thereon will not be restricted unless specifically provided for by the
employer's plan.

In tax years beginning after 1988, Section 403(b) Plans (other than church
plans) will be subject to nondiscrimination and coverage requirements, as well
as special rules with respect to minimum distributions.

SECTION 401(a) PLANS

An employer maintaining a pension or profit sharing Plan which satisfies
the requirements of Section 401(a) of the Code may make contributions to the
Contract which are generally currently deductible by the employer and are not
currently taxed to the Participants. The Code prescribes various limitations on
the maximum amount which may be contributed on behalf of any Participant. In
addition, Participants may make after-tax contributions to the Contract if their
Section 401(a) Plan permits.

When Fixed Annuity payments commence, or if the Participant obtains a
partial redemption of the Units credited to his/her Accumulation Account under
the Contract, the amount received will be includable as ordinary income in the
year received, except that such portion of any amount received as is deemed to
represent a return of Participant after-tax Purchase Payments will not be taxed.
Full redemptions may qualify for special capital gains treatment or 5-year or
10-year income averaging if the payment constitutes a "lump sum distribution,"
as that term is defined in the Code.

The rules governing rollovers of distributions from a Section 401(a) Plan
are parallel to those dealing with distributions from Section 403(b) annuities.
In addition, the 10% penalty on premature distributions from Section 403(b)
annuities is also applicable to Section 401(a) Plan distributions.

SECTION 408 (IRA) CONTRACTS

An individual, participating under a Contract which satisfies the
requirements of Section 408 of the Code, may make contributions to the Contract.
The Code prescribes various limitations on the maximum amounts which may be
contributed by or on behalf of the Participant and on the deductibility of the
contributions for

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federal income tax purposes. No federal income tax is payable by the Participant
on increases in the value of his/her Accumulation Account until payments are
received by the Participant.

When Fixed Annuity payments commence, or if the Participant obtains a
partial redemption of the Units credited to his/her Accumulation Account under
the Contract, the amount received will be includable as ordinary income in the
year received, except that such portion of any amount received which is deemed
to represent a return of Participant non-deductible Purchase Payments will not
be taxed. Full or partial redemptions do not qualify for special capital gains
treatment nor 10-year income averaging applicable to certain qualified plan
distributions.

If the Participant receives any amount under the Contract prior to
attainment of age 59 1/2, the Participant must pay an additional excise tax of
10% of the amount of the distribution includable in gross income for the taxable
year. The additional tax shall not apply to distributions which are (1) made to
a beneficiary on or after the death of the Participant, (2) attributable to the
Participant's becoming permanently disabled or (3) made in a series of
substantially equal periodic payments made for the life (or life expectancy) of
the Participant or the joint lives (or joint life expectancies) of the
Participant and his/her beneficiary. Any full or partial redemption will not be
includable in ordinary income if the Participant rolls over the distribution
within 60 days to another IRA.

MINIMUM DISTRIBUTION REQUIREMENTS

If the actual distributions from a qualified retirement plan, eligible
state or local government deferred compensation plan or an IRA are less than the
minimum required to be distributed commencing by April 1 in the calendar year
following the year the Participant attains age 70 1/2 (see "Annuity Purchase
Date", on page ) the difference is considered to be an excess accumulation and
the IRS may impose a 50% excise tax on this excess amount.

SECTION 457 PLANS

Section 457 of the Code allows employees of or independent contractors who
furnish services to a state or local government to establish a deferred
compensation plan allowing the deferral of certain limited amounts of
compensation by way of salary reduction. State and local government includes a
state, a political subdivision of a state, any agency or instrumentality of
either of them, a tax-exempt rural electric cooperative or its tax-exempt
affiliates. Contributions are based on a special definition of compensation and
include any amounts contributed to a Section 403(b) tax sheltered annuity for
determining the contribution limits. All amounts deferred property bought with
those amounts or income earned on those amounts remain the property of the
employer and are subject to the claims of its general creditors. Distributions
from a Section 457 Plan are subject to Section 401(a)(9) of the Code in addition
to the rules applicable under Section 457 of the Code and must begin no later
than the April 1st of the calendar year following the year in which the
participant attains age 70 1/2.

SECTION 457(f) PLANS

In the case of a Plan for an eligible employer providing for the deferral
of compensation for an employee but which is not eligible for deferred tax
treatment, the compensation shall be included in the gross income of the
Participant or beneficiary for the first taxable year in which there is no
substantial risk of forfeiture of the rights to such compensation and taxed in
accordance with Section 72 of the Code.

SECTION 72 FLEXIBLE ANNUITIES

The term annuity includes all periodic payments resulting from the
systematic liquidation of a principal sum. Section 72 determines what portion of
each payment is excludable from gross income as a return of the purchaser's
investment and what portion is taxed as interest earned on that investment.

Section 72 of the Code places a penalty on premature distributions but
generally exempts qualified distributions from a qualified retirement plan.

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NON-QUALIFIED DEFERRED COMPENSATION CONTRACTS

Taxed employers may establish a non-qualified deferred compensation
arrangement funded by non-qualified deferred compensation contracts allowing the
deferral of compensation through salary reduction. Such Plans include, but are
not limited to, excess benefit plans, plans maintained by an employer primarily
for a select group of management or highly compensated employees, as well as
rabbi and secular trusts. Taxed employers for these non-qualified deferred
compensation Plans include corporations, partnerships, S corporations and any of
their affiliates or subsidiaries. Contributions are determined on the Plan's
definition of compensation. All amounts deferred by employees and any income
earned thereon remain the property of the employer and are subject to the claims
of its general creditors. In-service withdrawals from deferred compensation
Plans may be permitted for reasons of hardship under certain conditions as
specified in the Plans. Distributions from these Plans are permitted when the
Participant terminates employment, becomes permanently disabled, retires, dies
or as otherwise specified in the Plan. As a general rule, the Participant is
subject to taxation upon receipt of the funds, and there is usually no tax
consequences to the employer, i.e., no deduction is available for an employee's
salary reduction agreement until paid out.

Such non-qualified deferred compensation arrangements for taxable employers
may be funded by either a Diversified Investors Variable Funds Contract alone or
by a Diversified Investors Variable Funds Contract in combination with a Fixed
Annuity Contract.

INCOME TAX WITHHOLDING

Unless the Participant or payee elects to have no withholding, the taxable
portion of distributions under a Contract will be subject to income tax
withholding under federal and certain state laws. AUSA will notify recipients of
taxable distributions under a Contract of their right to elect not to have
withholding apply.

For NQDC Contracts, no withholding is made and no election is needed.

Effective January 1, 1992, distributions from qualified retirement plans
and Section 403(b) Contracts, other than individual retirement arrangements
("IRAs") generally are subject to mandatory federal income tax withholding
unless they either are:

1. Part of a series of substantially equal periodic payments (at least
annually) for the participant's life or life expectancy, the joint lives or
life expectancies of the participant and his/her beneficiary, or a period
certain of not less than 10 years, or

2. Required by the Code upon the participant's attainment of age
70 1/2 or death.

Such withholding will apply even if the distribution is rolled over into
another qualified plan including an IRA. The withholding can be avoided if the
participant's interest is directly transferred by the old plan to another
eligible qualified plan including an IRA. A direct transfer to the new plan can
be made only in accordance with the terms of the old plan. If withholding is not
avoided, the amount withheld may be subject to income tax and penalties.

Pursuant to Revenue Ruling 90-24 of the Code, an exchange of a Section
403(b) annuity contract for another Section 403(b) annuity contract may qualify
as a tax-free exchange.

ASSUMPTION REINSURANCE

The Contracts described in this Prospectus include group variable annuity
contracts which were originally issued by The Mutual Life Insurance Company of
New York ("MONY") and are assumed by AUSA pursuant to certain assumption
reinsurance agreements executed by MONY and AUSA effective December 31, 1993.
Pursuant to the terms of these agreements and applicable state insurance laws,
affected MONY contractholders may elect to participate and "opt in" or choose to
remain contractholders of MONY and "opt out" of the assumption. All affected
MONY contractholders shall receive a Notice of Election which describes the
assumption and procedures for opting in or opting out. This Prospectus should be
read carefully

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before deciding whether to opt in. In certain jurisdictions a contractholder
that fails to opt out may be deemed under the terms of the assumption to have
opted in.

The former holders of MONY contracts who opt in to the assumption of their
contracts by AUSA will experience no differences in the terms or charges under
the Contracts. All investment options available to MONY contractholders will be
available under the Contracts under Subaccounts which correspond to investment
options under the MONY contracts. In addition, such assumed AUSA Contractholders
may be able to direct the investment of their funds into certain additional
investment options which were not available under the MONY contracts.

PERFORMANCE DATA

From time to time the performance of one or more of the Subaccounts may be
advertised. The performance data contained in these advertisements is based upon
historical earnings and is not indicative of future performance. The data for
each Subaccount reflects the results of the corresponding series of Diversified
Investors Portfolios, the Calvert Series or the International Equity Series and
recurring charges and deductions borne by or imposed on the Subaccount and on
the corresponding series of the Diversified Investors Portfolios or the Calvert
Series. Set forth below for each Subaccount is the manner in which the data
contained in such advertisements will be calculated.

MONEY MARKET SUBACCOUNT. The performance data for this Subaccount will
reflect the "yield", "effective yield" and "total return". The "yield" of the
Subaccount refers to the income generated by an investment in the Subaccount
over the seven day period stated in the advertisement. This income is
"annualized", that is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an investment in the
Subaccount is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. The total return is calculated as shown below.

INTERMEDIATE GOVERNMENT BOND, HIGH QUALITY BOND, GOVERNMENT/CORPORATE BOND,
HIGH-YIELD BOND, BALANCED, EQUITY INCOME, EQUITY VALUE, GROWTH & INCOME, EQUITY
GROWTH, SPECIAL EQUITY, AGGRESSIVE EQUITY, CALVERT SERIES AND INTERNATIONAL
EQUITY SERIES SUBACCOUNTS. The performance data for these Subaccounts will
reflect the "yield" and "total return". The "yield" of each of these Subaccounts
refers to the income generated by an investment in that Subaccount over the 30
day period stated in the advertisement and is the result of dividing that income
by the value of the Subaccount. The value of each Subaccount is the average
daily number of Units outstanding multiplied by the Unit Value on the last day
of the period. The "yield" reflects deductions for all charges, expenses, and
fees of both the Series and the Subaccount. "Annualized total return" for each
of these Subaccounts and the Money Market Subaccount refers to the return a
Contractholder would receive during the period indicated if a $1,000 Purchase
Payment was made the indicated number of years ago. It reflects historical
investment results less charges and deductions of both the Series and the
Subaccount, with the distribution being made in cash rather than in the form of
one of the settlement options, at the close of the period for which the
"annualized total return" data is given.

Total return is historical in nature and is not intended to indicate future
performance. Total return will be quoted for the most recent one-year period,
and the annualized total return will be quoted for the most recent five- and
ten-year periods, or the period from the commencement of the public offering of
the Contracts, if shorter.

Actual total return quotations may also be advertised for other specified
periods, such as calendar years and calendar quarters. Cumulative total return
for periods of more than one year may also be quoted. These figures will be
accompanied by the standard, annualized total return quotations.

From time to time, any series of Diversified Investors Portfolios, the
Calvert Series or the International Equity Series may provide information
concerning general economic conditions and supply comparative performance data
and rankings, with respect to comparable investments for the same period, for
unmanaged

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market indices such as the Dow Jones Industrial Average and the Standard and
Poor's 500, and from recognized independent sources such as Donoghue's Money
Fund Report, Bank Rate Monitor, Money, Forbes, Barron's, Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Frank Russell Universe Data,
Wiesenberger Investment Companies Service, Mutual Fund Values, Mutual Fund
Forecaster, VARDS and Morningstar.

In addition, reference may be made in advertisements to various indices
including, without limitation, the Standard & Poor's 500 Stock Index, Salomon
Brothers Broad Investment Grade Index and Lehman Brothers Government/Corporate
Bond Index, and Russell Price Driven Index, in order to provide the reader a
basis of comparison for performance.

DIVERSIFIED INVESTORS PORTFOLIOS

Thirteen Subaccounts of Diversified Investors Variable Funds invest
exclusively in corresponding series of Diversified Investors Portfolios.
Diversified Investors Portfolios is a trust organized on September 1, 1993 under
the laws of the State of New York and is registered under the 1940 Act as an
open-end, diversified management investment company. The investment objectives
of the series of Diversified Investors Portfolios currently available under the
Contracts through such Subaccounts are as follows:

MONEY MARKET SERIES: To provide liquidity and as high a level of income as
is consistent with the preservation of capital through investment in domestic
and foreign U.S. dollar-denominated money market obligations with maturities of
397 days or less. An investor's interest in the Money Market Series is neither
insured nor guaranteed by the U.S. Government.

INTERMEDIATE GOVERNMENT BOND SERIES: To provide as high a level of current
income as is consistent with preservation of capital through investment in U.S.
Government and U.S. Government agency and instrumentality securities with
intermediate maturities, and high quality short-term obligations.

GOVERNMENT/CORPORATE BOND SERIES: To achieve maximum total return through
investment in investment grade debt securities, U.S. Government and U.S.
Government agency and instrumentality securities collateralized mortgage
obligations guaranteed by these agencies and instrumentalities and high quality
short-term obligations.

BALANCED SERIES: To provide a high total investment return consistent with
a broad diversified mix of stocks, bonds and money market instruments.

EQUITY VALUE SERIES: To provide a high total investment return through
investment in a diversified portfolio of common stocks. The series emphasizes
stocks which, in the opinion of the Equity Value Series' Advisers, are trading
at low valuations relative to market and/or historical levels.

EQUITY GROWTH SERIES: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks with potential
for above-average growth in earnings; current income is a secondary objective.

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SPECIAL EQUITY SERIES: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks of small to
medium size companies without consideration for current income. The Series
emphasizes stocks which, in the opinion of the Series' Advisers, will present an
opportunity for significant increases in earnings and/or value.

AGGRESSIVE EQUITY SERIES: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks of small to
medium size companies. The Series emphasizes stocks without consideration for
current income which, in the opinion of the Aggressive Equity Series' Advisers,
present an opportunity for significant increases in earning, revenue and/or
value.

INTERNATIONAL EQUITY SERIES: To provide a high level of long term capital
appreciation through investment in a diversified portfolio of securities of
foreign issuers.

There can, of course, be no assurance that any series of Diversified
Investors Portfolios will achieve its investment objectives.

HUB AND SPOKE(R)STRUCTURE

AUSA and Diversified Investors Portfolios have licensed certain proprietary
rights, know-how and financial services referred to as Hub and Spoke(R) from
Signature Financial Group, Inc. ("Signature"). Each Subaccount which invests in
a series of Diversified Investors Portfolio (the "spoke" or feeder fund) invests
in such corresponding series of Diversified Investors Portfolios (the "hub" or
master fund) through Signature's Hub and Spoke(R) method. Hub and Spoke employs
a two-tier, master/feeder fund structure. Hub and Spoke(R) is a registered
service mark of Signature.

In addition to selling beneficial interests to such Subaccounts,
Diversified Investors Portfolios may sell beneficial interests of its series to
other insurance company separate accounts, mutual funds, collective investment
vehicles or institutional investors. Such investors will invest in a series of
Diversified Investors Portfolios on the same terms and conditions as the
applicable Subaccount and will pay a proportionate share of the series'
expenses. However, the other investors investing in such series are not required
to sell their shares at the same public offering price as the Subaccount due to
variations in sales commissions and other operating expenses. Therefore,
Contractholders should be aware that these differences may result in differences
in returns experienced by investors in the different entities that invest in
each series of Diversified Investors Portfolios.

Smaller entities investing in a series of Diversified Investors Portfolios
may be materially affected by the actions of larger entities investing in that
series. For example, if a large fund withdraws from a series of Diversified
Investors Portfolios, the remaining investors may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the affected
series may become less diverse, resulting in increased portfolio risk. (However,
this possibility also exists for any type of collective investment vehicle which
has institutional or other large investors.) Also, investors with a greater pro
rata ownership in a series of Diversified Investors Portfolios could have
effective voting control of the operations of that series. Whenever a Subaccount
is requested to vote on matters pertaining to a series of the Diversified
Investors Portfolios (other than a vote to continue a series upon the withdrawal
of an investor in the series), AUSA, as the legal owner of all assets in the
Subaccount, shall vote in accordance with the procedures set forth under "Voting
Rights" at page , including, to the extent required by law, procedures through
which AUSA shall receive instructions with respect to such vote from
Contractholders and/or Participants. Certain changes in the investment
objectives, policies or restrictions of a series of Diversified Investors
Portfolios may require that AUSA withdraw a Subaccount's interest in that
series. Any such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the series). If
securities are distributed, the Subaccount could incur brokerage or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Subaccount. Notwithstanding the above, there are
other ways for Diversified Investors Portfolios to meet redemption requests from
its investors, such as temporary borrowings.

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INVESTMENT OBJECTIVES AND POLICIES

Each of the Subaccounts described above seeks to achieve its investment
objective by investing all of its assets in a corresponding series of
Diversified Investors Portfolios, which is a diversified, open-end management
investment company. The investment objective of each series of Diversified
Investors Portfolios may be changed without the approval of the investors in
that series, but not without written notice thereof to its investors (including
the Subaccount) 30 days prior to implementing the change. AUSA may withdraw the
investment of a Subaccount from its corresponding series of Diversified
Investors Portfolios on any Portfolio Business Day (see page ). Upon any such
withdrawal, AUSA would consider what action might be taken, including the
investment of all the assets of such Subaccount in another pooled investment
entity having the same investment objective.

Each series of Diversified Investors Portfolios has a different investment
objective which it pursues through the investment policies described below.
Since each series of Diversified Investors Portfolios has a different investment
objective, each can be expected to have different investment results and be
subject to different market and financial risks. See "Investment Techniques and
Restrictions" herein and in the Statement of Additional Information for a
description of the fundamental policies of each series of Diversified Investors
Portfolios that cannot be changed without approval by the holders of a "majority
of the outstanding voting securities" (as defined in the 1940 Act) of such
series. Except as stated otherwise, all investment guidelines, policies and
restrictions of each series described herein and in the Statement of Additional
Information are non-fundamental.

Each series of Diversified Investors Portfolios has a different portfolio
turnover rate which is the percentage computed by dividing the lesser of
portfolio purchases or sales by the average value of the series in each case
excluding securities with maturities at the time of acquisition of one year or
less. Brokerage expenses can be expected to be higher as a result of higher
portfolio turnover rates. The rate of portfolio turnover is not a limiting
factor when it is deemed appropriate to purchase or sell securities of a series.

With respect to each series of Diversified Investors Portfolios,
Diversified has contracted for certain investment advisory services with one or
more subadvisers. Diversified and the subadvisers for a particular series of
Diversified Investors Portfolios are referred to herein collectively as the
"Advisers". There can be no guarantee that the investment objective of any of
the series of Diversified Investors Portfolios will be met. The following
sections describe the investment objective and policies of each series of
Diversified Investors Portfolio currently available under the Contracts through
Subaccounts.

MONEY MARKET SERIES. The investment objective of the Money Market Series is
to provide liquidity and as high a level of current income as is consistent with
the preservation of capital. The Money Market Series invests in high quality
short-term money market instruments. Securities in which the Money Market Series
invests may not earn as high a level of current income as long-term or lower
quality securities which generally have less liquidity, greater market risk and
more fluctuation in market value.

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

In accordance with Rule 2a-7 under the 1940 Act, the Money Market Series
will maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 days or less and
invest only in U.S. dollar-denominated securities determined in accordance with
procedures established by the Board of Trustees of Diversified Investors
Portfolios (the "Board of Trustees") to present minimal credit risks and which
are rated in one of the two highest rating categories for debt

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obligations by at least two nationally recognized statistical rating
organizations (an "NRSRO") (or one NRSRO if the instrument was rated by only one
such organization) or, if unrated, are of comparable quality as determined in
accordance with procedures established by the Board of Trustees (collectively,
"Eligible Securities").

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

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

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

The Money Market Series seeks to achieve its investment objective through
investments in the following types of U.S. dollar-denominated money market
instruments.

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

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

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

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

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

The Money Market Series may invest in commercial paper issued by major
corporations in reliance on the exemption from registration afforded by
Section 3(a)(3) of the 1933 Act. Such commercial paper may be issued only
to finance current transactions and must mature in nine months or less.

Trading of such commercial paper is conducted primarily by institutional
investors through investment dealers, and individual investor participation
in the commercial paper market is very limited.

UNSECURED PROMISSORY NOTES. The Money Market Series 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 Money Market Series' investment objective. The Notes
purchased by the Money Market Series will have remaining maturities of 13
months or less and will be deemed by the Board of Trustees, or by the
Advisers on its behalf, to present minimal credit risks and will meet the
quality criteria set forth above. The Money Market Series will invest no
more than 10% 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 Money Market Series cannot
exercise the demand feature described in the Statement of Additional
information and as to which there is no secondary market).

RESTRICTED SECURITIES. The Money Market Series may invest in securities
that are subject to legal or contractual restrictions on resale. These
securities may be illiquid and, thus, the Money Market Series

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may not purchase them to the extent that more than 10% of the value of its
net assets would be invested in illiquid securities. However, if a
substantial market of qualified institutional buyers develops pursuant to
Rule 144A under the 1933 Act for such securities held by the Money Market
Series, the Money Market Series intends to treat such securities as liquid
securities in accordance with procedures approved by the Board of Trustees.
To the extent that for a period of time, qualified institutional buyers
cease purchasing such restricted securities pursuant to Rule 144A, the
Money Market Series' investing in such securities may have the effect of
increasing the level of illiquidity in the Money Market Series during such
period.

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

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

The Money Market Series 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 the Money Market Series enters into a
reverse repurchase agreement it will place in a segregated custodial
account cash, U.S. Government securities or high-grade debt obligations
having a value equal to the repurchase price, including accrued interest.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Money Market Series may decline below the repurchase
price of those securities. Reverse repurchase agreements are considered to
be borrowings by the Money Market Series.

FOREIGN SECURITIES. The Money Market Series may invest in U.S.
dollar-denominated foreign securities issued outside the United States,
such as obligations of foreign branches and subsidiaries of domestic banks
and foreign banks, including Eurodollar certificates of deposit, Eurodollar
time deposits and Canadian time deposits, commercial paper of Canadian and
other foreign issuers, and U.S. dollar-denominated obligations issued or
guaranteed by one or more foreign governments or any of their agencies or
instrumentalities. The Advisers do not intend to concentrate more than 25%
of such foreign investments in any one type of instrument or in any foreign
country. Foreign securities may represent a greater degree of risk than do
securities of domestic issuers due to less publicly available information,
more volatile markets, less securities regulation, less favorable tax
provisions (including possible withholding taxes), changes in governmental
administration or economic or monetary policy (in the United States or
abroad), war or expropriation. For a complete description of foreign
securities the Money Market Series may purchase, see "Investment Policies"
in the Statement of Additional Information.

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

The Statement of Additional Information includes a discussion of additional
investment techniques such as zero coupon obligations, variable rate and
floating rate securities, participation interests, guaranteed

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investment contracts and when-issued and forward commitment securities. The
Statement of Additional Information also includes a discussion of
non-fundamental investment policies, as well as a listing of specific
investment restrictions which constitute fundamental policies of the Money
Market Series which cannot be changed without the approval of the holders
of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Money Market Series. See "Diversified Investors
Portfolios -- Investment Restrictions" in the Statement of Additional
Information.

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

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

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

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

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

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

U.S. GOVERNMENT AND AGENCY SECURITIES. The Series may invest in U.S.
Government securities and securities issued or guaranteed by its agencies
or instrumentalities. See "U.S. Government and Agency Securities" above
under Money Market Series.

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

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

YANKEE BONDS AND EURODOLLAR BONDS. The Series may purchase Yankee and
Eurodollar issues that meet its minimum credit quality standards. Yankee
issues are dollar denominated bonds issued in the

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United States market by foreign issuers and are, therefore, subject to SEC
regulations. Issuers of yankee bonds include, among others, foreign
corporations, foreign governments and agencies, and multilateral lending
institutions. Eurodollar bonds are fixed income securities that are
denominated in dollars, are underwritten by an international syndicate, and
are sold upon issuance to non-U.S. investors. U.S.-based investors may
purchase eurodollar bonds in the secondary market after a seasoning period.
Eurodollar bonds are not subject to SEC regulations.

MORTGAGE PASS-THROUGHS AND COLLATERALIZED MORTGAGE OBLIGATIONS. The Series
may purchase mortgage and mortgage-related securities such as
pass-throughs, collateralized mortgage obligations, and mortgage
derivatives that meet the Series' minimum credit quality criteria
(collectively, "Mortgage Securities"). Mortgage pass-throughs are
securities that pass through to investors an undivided interest in a pool
of underlying mortgages. These may be issued or guaranteed by U.S.
government agencies, or may consist of whole loans originated and issued by
private limited purpose corporations or conduits. Collateralized mortgage
obligation bonds and mortgage derivatives are obligations of special
purpose corporations that are collateralized or supported by mortgages or
mortgage securities such as pass throughs. Principal prepayments on the
underlying mortgages or loans may cause the Mortgage Securities to be
retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss to the Series of all or part of the
premium, if any, which the Series may pay when investing in Mortgage
Securities.

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

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

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. The Series may
enter into repurchase agreements and reverse repurchase agreements. See
"Repurchase Agreements and Reverse Repurchase Agreements" above under Money
Market Series.

The High Quality Bond Series may borrow funds for temporary or emergency
purposes, such as meeting larger than anticipated redemption requests, and
not for leverage. One mans 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 the High Quality Bond Series enters
into a reverse repurchase agreement it will place in a segregated custodial
account cash, U.S. Government securities or high-grade debt obligations
having a value equal to the repurchase price, including accrued interest.
Reverse repurchase agreements are considered to be borrowings by the High
Quality Bond Series.

RESTRICTED SECURITIES. The Series may purchase securities in the United
States that are not registered for sale under federal securities laws but
which can be resold to institutions under SEC Rule 144A. Provided that a
dealer or institutional trading market in such securities exists, these
restricted securities are treated as exempt from the Series' 15% limit on
illiquid securities. Under the supervision of the Board of

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Trustees, the Advisers determine the liquidity of restricted securities
and, through reports from the Advisers, the Board of Trustees will monitor
trading activity in restricted securities. Because Rule 144A is relatively
new, it is not possible to predict how these markets will develop. If
institutional trading in restricted securities were to decline, the
liquidity of the Series could be adversely affected.

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

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

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

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

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

INTERMEDIATE GOVERNMENT BOND SERIES. The investment objective of the
Intermediate Government Bond Series is to provide as high a level of current
income as is consistent with the preservation of capital. The yield of the
Intermediate Government Bond Series normally is expected to be higher than a
money market fund but lower than a longer-term or lower quality bond fund. The
Intermediate Government Bond Series pursues its investment objective by
investing in high quality U.S. Government obligations and high quality
short-term obligations (including repurchase agreements and reverse repurchase
agreements).

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

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<PAGE> 42

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

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

U.S. GOVERNMENT AND AGENCY SECURITIES. The Intermediate Government Bond
Series may invest in U.S. Government securities. See "U.S. Government and
Agency Securities" above under Money Market Series.

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

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Repurchase
agreements and reverse repurchase agreements may be entered into the
Intermediate Government Bond Series. See "Repurchase Agreements and Reverse
Repurchase Agreements" under Money Market Series.

The Intermediate Government Bond Series may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Intermediate
Government Bond Series may decline below the repurchase price of those
securities. Reverse repurchase agreements are considered to be borrowings
by the Intermediate Government Bond Series.

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

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

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

The Intermediate Government Bond Series currently does not intend to engage
in the writing of options, except for the purpose of terminating an
existing position or under the limited circumstances described under
"Diversified Investors Portfolios" in the Statement of Additional
Information. Nevertheless, the

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<PAGE> 43

Intermediate Government Bond Series has the authority to write options and
may do so in the future if the Advisers determine that such transactions
are in the best interests of the Intermediate Government Bond Series.

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

OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Intermediate Government
Bond Series may, in each case up to 5% of the Series' assets, also utilize
the following investments and investment techniques and practices:
investments in foreign securities, options on futures contracts, foreign
currency exchange transactions and options on foreign currencies. The
Intermediate Government Bond Series does not intend to utilize any of these
investment practices to the extent of more than 5% of its assets. See
"Diversified Investors Portfolios" in the Statement of Additional
Information for further information.

GOVERNMENT/CORPORATE BOND SERIES. The investment objective of the
Government/Corporate Bond Series is to achieve the maximum total return. The
Government/Corporate Bond Series' yield normally is expected to be higher than a
money market fund but lower than a longer-term or lower quality bond fund. The
Government/Corporate Bond Series pursues its investment objective by investing
in investment grade debt securities, U.S. Government obligations, including U.S.
Government agency and instrumentality obligations, collateralized mortgage
obligations guaranteed by these agencies and instrumentalities and high quality
short-term obligations (including repurchase agreements and reverse repurchase
agreements). At least 65% of the Government Corporate Bond Series' assets is
invested in U.S. Government securities, corporate bonds and short-term
instruments.

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

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

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

U.S. GOVERNMENT AND AGENCY SECURITIES. The Government/Corporate Bond Series
may invest in U.S. Government securities. See "U.S. Government and Agency
Securities" above under Money Market Series.

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

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

FOREIGN SECURITIES. The Government/Corporate Bond Series may invest in
securities of foreign issuers. The Government/Corporate Bond Series'
investments in unlisted foreign securities are subject to the overall
restrictions applicable to investments in illiquid securities. The Advisers
do not intend to concentrate more than 25% of such foreign investments in
any one type of instrument or in any foreign country. Foreign securities
may represent a greater degree of risk than do securities of domestic
issuers due to possible exchange rate fluctuations, possible exchange
controls, less publicly available information, more volatile markets, less
securities regulation, less favorable tax provisions (including possible
withholding taxes), changes in governmental administration or economic or
monetary policy (in the United States or abroad), war or expropriation.
Forward foreign currency exchange contracts may also be entered into for
the purchase or sale of foreign currency solely for hedging purposes
against adverse rate changes. A currency exchange contract allows a
definite price in dollars to be fixed for foreign securities that have been
purchased or sold (but not settled) for the Government/Corporate Bond
Series. Entering into such exchange contracts may result in the loss of all
or a portion of the benefits which otherwise could have been obtained from
favorable movements in exchange rates. In addition, entering into such
contracts means incurring certain transaction costs and bearing the risks
of incurring losses if rates do not move in the direction anticipated.

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

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

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

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

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

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

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

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

Lower-rated debt securities usually are defined as securities rated Ba or
lower by Moody's or BB or lower by S&P. Lower-rated debt securities are
considered speculative and involve greater risk of default or price changes due
to changes in the issuer's creditworthiness than higher-rated securities and are
more sensitive to changes in the issuer's capacity to pay. Investing in
lower-rated debt securities is an aggressive approach to income investing. The
1980s saw a dramatic increase in the use of lower-rated debt securities to
finance highly leveraged corporate acquisitions and restructurings. Past
experience may not provide an accurate indication of future performance of
lower-rated debt securities, especially during period of economic recession. In
fact, from 1989 to 1991, the percentage of lower-rated debt securities that
defaulted rose significantly above prior levels.

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

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

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

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temporary defensive measure when the Advisers determine securities markets
to be overvalued. See "Short Term Instruments" above under High Quality
Bond Series.

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

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

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

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

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

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

BALANCED SERIES. The investment objective of the Balanced Series is to
provide a high total investment return consistent with a broad mix of stocks,
bonds and money market instruments. The Balanced Series pursues its investment
objective by investing in a managed mix of common stocks (and/or equivalents
including American Depository Receipts), preferred stocks, debt securities of
U.S. domiciled corporations, U.S. government securities, commercial paper of
U.S. corporations, and bank obligations. The Advisers will determine the
proportions of each type of investment to achieve an asset mix they believe
appropriate for an investor who desires diversification of investment. The
Balanced Series will vary the proportion of each type of asset purchased
according to the Advisers' interpretations of changes in economic conditions and
the sensitivity of each type of investment to those changes. The Advisers seek
to shift emphasis among stocks, bonds and short-term instruments to maximize
participation in positive markets and preservation of capital in negative
markets and otherwise in response to market conditions.

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

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Securities rated Baa by Moody's or BBB by S&P may have speculative
characteristics. Changes in economic conditions or other circumstances may
weaken more severely the capacity of issuers of Baa or BBB securities to make
principal and interest payments than in the case for issuers of higher grade
bonds. Less than 5% of the Balanced Series investments consist of securities
rated Baa by Moody's or BBB by S&P. For a description of these ratings, see the
Appendix to the Statement of Additional Information.

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

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

The Equity Income Series' policy is to invest in a broad list of equity and
fixed-income securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type of security.
Some fixed-income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Equity Income Series may vary the
percentage of assets invested in any one type of security in accordance with the
Advisers' interpretation of economic and market conditions, fiscal and monetary
policy, and underlying security values.

EQUITY VALUE SERIES. The investment objective of the Equity Value Series
is to provide a high total investment return through investment in a diversified
portfolio of common stocks. The Equity Value Series seeks to achieve its
investment objective by investing primarily in a diversified portfolio of stocks
of companies which, in the opinion of the Advisers, are trading at low
valuations relative to market and/or historical levels. These stocks tend to
have relatively low price/earnings ratios and/or relatively low price/book value
ratios. Low price/earnings ratios or price/book value ratios means that the
stock is less expensive than average relative to the company's earnings or book
value, respectively. The Series invests primarily in common stocks listed on the
New York Stock Exchange and on other national securities exchanges and, to a
lesser extent, in stocks that are traded over-the-counter. The Series may also
invest in bonds and short-term obligations as well as securities convertible
into common stocks, preferred stocks, debt securities and short-term
obligations. The Series allocates its investments among different industries and
companies, and changes its portfolio securities for investment considerations
and not for trading purposes.

The Equity Income Portfolio's policy is to invest in a broad list of equity
and fixed-income securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type of security.
Some fixed-income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Portfolio may vary the percentage
of assets invested in any one type of security in accordance with the Advisers'
interpretation of economic and market conditions, fiscal and monetary policy,
and underlying security values.

GROWTH & INCOME SERIES. The investment objective of the Growth & Income
Series is to provide current income and capital appreciation. The Growth &
Income Series seeks to achieve its investment objective by investing primarily
in a diversified portfolio of securities selected for their potential to
generate

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

The Growth & Income Series' policy is to invest in a broad list of equity
and fixed income securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type of security.
Some fixed income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Growth & Income Series may vary
the percentage of assets invested in any one type of security in accordance with
the Advisers' interpretation of economic and market conditions, fiscal and
monetary policy, and underlying securities values.

EQUITY GROWTH SERIES. The investment objective of the Equity Growth Series
is to provide a high level of capital appreciation through investment in a
diversified portfolio of common stocks with potential for above average growth
in earnings and dividends; current income is a secondary objective. The Equity
Growth Series seeks to achieve its investment objective by investing primarily
in a diversified portfolio of common stocks, but may also invest in other types
of securities such as preferred stocks, convertible and non-convertible bonds,
warrants and foreign securities including American Depository Receipts. Under
normal circumstances, at least 65% of the assets of the Equity Growth Series are
invested in equity securities. This is a fundamental investment policy and may
not be changed without investor approval. The Equity Growth Series invests
primarily in stocks of companies that have a market value of all their issued
and outstanding common stock of $10 to $15 billion and preferred stocks listed
on the New York Stock Exchange and on other national securities exchanges and,
to a lesser extent, in stocks that are traded over-the-counter. The Equity
Growth Series also invests in bonds and short-term obligations as well as
securities convertible into common stocks, preferred stocks, debt securities and
short-term obligations. The Equity Growth Series allocates its investments among
different industries and companies, and changes its portfolio securities for
investment considerations and not for trading purposes.

The Equity Growth Series' policy is to invest in a broad list of equity and
fixed-income securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type of security.
Some fixed-income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Equity Growth Series may vary the
percentage of assets invested in any one type of security in accordance with the
Adviser's interpretation of economic and market conditions, fiscal and monetary
policy, and underlying security values.

SPECIAL EQUITY SERIES. The investment objective of the Special Equity
Series is to provide a high level of capital appreciation through investment in
a diversified portfolio of common stocks of small to medium size companies. The
Special Equity Series is designed for investors in search of substantial
long-term growth who can accept above-average stock market risk and little or no
current income. The Special Equity Series seeks to achieve its investment
objective by investing primarily in a diversified portfolio of stocks of small
to medium size companies which, in the opinion of the Advisers, will present an
opportunity for significant increases in earnings and/or value, without
consideration for current income. The Special Equity Series' primary equity
investments will be common stocks of small and medium sized U.S. companies with
market capitalizations of less than $2 billion. Multiple managers are used to
control the volatility often associated with investments in small to medium size
companies and to maximize opportunities in positive markets. The Special Equity
Series may also invest in bonds and short-term obligations as well as securities
convertible into common stocks, preferred stocks, debt securities and short-term
obligations. The Special Equity Series allocates its investments among different
industries and companies, and changes its portfolio securities for investment
considerations and not for trading purposes.

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While the Special Equity Series' policy is to invest its assets primarily
in common stocks with potential for above average growth in earnings,
appreciation may be sought in other types of securities such as preferred
stocks, convertible and non-convertible bonds, warrants and foreign securities
including American Depository Receipts. The Special Equity Series may vary the
percentage of assets invested in any one type of security in accordance with the
Advisers' interpretation of economic and market conditions, fiscal and monetary
policy, and underlying securities values. In selecting stocks, emphasis is
placed on investing in companies with small to medium market capitalizations,
i.e., the market value of all issued and outstanding common stock of the company
will be less than $2 billion. Investing in equity securities of small to medium
companies involves risks not typically associated with investment in comparable
securities of large companies. Such smaller and medium companies may have narrow
product lines and limited financial and managerial resources. Since the market
for the equity securities of small and medium companies is often characterized
by less information and liquidity than that for the equity securities of large
companies, securities of such small and medium companies may be subject to more
abrupt or erratic market movements than securities of large companies or market
averages in general. Therefore, an investment in the Special Equity Series may
be subject to greater declines in value than an investment in an equity fund
investing in the equity securities of large companies.

AGGRESSIVE EQUITY SERIES. The investment objective of the Aggressive
Equity Series is to provide a high level of capital appreciation through
investment in a diversified portfolio of common stocks of small to medium size
companies. The Aggressive Equity Series is designed for investors in search of
substantial long-term growth who can accept above-average stock market risk and
little or no current income. The Aggressive Equity Series seeks to achieve its
investment objective by investing primarily in a diversified portfolio of stocks
of small to medium size companies which, in the opinion of the Advisers, will
present an opportunity for significant increases in earnings, revenue and/or
value, without consideration for current income. The Series' primary equity
investments common stocks of small and medium sized U.S. companies with market
capitalizations between $750 million and $2.5 billion. The Series may also
invest in bonds and short-term obligations as well as securities convertible
into common stocks, preferred stocks, debt securities and short-term
obligations. The Aggressive Equity Series allocates its investments among
different industries and companies, and changes its portfolio securities for
investment considerations and not for trading purposes.

While the Aggressive Equity Series' policy is to invest its assets
primarily in common stocks with potential for above average growth in earnings
and/or revenue, appreciation may be sought in other types of securities such as
preferred stocks, convertible and non-convertible bonds, warrants and foreign
securities including American Depository Receipts. The Aggressive Equity Series
may vary the percentage of assets invested in any one type of security in
accordance with the Advisers' interpretation of economic and market conditions,
fiscal and monetary policy, and underlying securities values.

In selecting stocks, emphasis is placed on investing in companies with
consistent, above-average and accelerating profitability and growth. These
companies tend to have higher price/earnings ratios which means that the stock
is more expensive than average relative to the company's earnings. Investing in
equity securities of small to medium companies involves risks not typically
associated with investment in comparable securities of large companies. Such
smaller and medium companies may have narrow product lines and limited financial
and managerial resources. Since the market for the equity securities of small
and medium companies is often characterized by less information and liquidity
than that for the equity securities of large companies, securities of such small
and medium companies may be subject to more abrupt or erratic market movements
than securities of large companies or market averages in general. Therefore, an
investment in the Aggressive Equity Fund may be subject to greater declines in
value than an investment in an equity fund investing in the equity securities of
large companies.

INTERNATIONAL EQUITY FUND. The investment objective of the International
Equity Series is to provide a high level of long-term capital appreciation
through investment in a diversified portfolio of securities of foreign issuers.
The International Equity Series seeks to achieve its investment objective by
investing primarily in foreign securities. Foreign securities are defined as
securities of issuers, wherever organized, which trade solely on a foreign
exchange or over-the-counter market, or, in the judgment of the Advisers, have
their principal activities outside of the United States. In determining whether
an issuer's principal activities and interests are outside the United States,
the Advisers will look at such factors as the location of its assets,
operations,

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facilities, personnel, sales and earnings. Under normal circumstances, at least
65% of the assets of the Portfolio are invested in foreign equity securities.
The Advisers will purchase securities of companies in a minimum of 3 countries
outside the United States.

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

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

The International Equity Series may invest in all types of securities, most
of which are denominated in foreign currencies. While the Advisers expect that
opportunities for long term capital appreciation will come primarily from common
stocks, securities convertible into common stock, non-convertible preferred
stocks and depository receipts for these securities, the Series may also invest
in any type or quality of debt securities if the Advisers believe that doing so
may result in long term growth. In addition, the Series may invest in high-
yielding, lower rated debt securities. See the discussion of lower rated debt
securities under "High-Yield Bond Series" above. Forward foreign currency
exchange contracts may also be entered into for the purchase or sale of foreign
currency solely for hedging purposes against adverse rate changes on both a long
and short term basis. A currency exchange contract allows a definite price in
dollars to be fixed for foreign securities that have been purchased or sold (but
not settled) for the Series. Entering into such exchange contracts may result in
the loss of all or a portion of the benefits which otherwise could have been
obtained from favorable movements in exchange rates. In addition, entering into
such contracts means incurring certain transaction costs and bearing the risk of
incurring losses if rates do not move in the direction anticipated.

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

INVESTMENT TECHNIQUES AND RESTRICTIONS

INVESTMENT TECHNIQUES FOR THE BALANCED SERIES, EQUITY INCOME SERIES, EQUITY
VALUE SERIES, GROWTH & INCOME SERIES, EQUITY GROWTH SERIES SPECIAL EQUITY
SERIES, AGGRESSIVE EQUITY SERIES AND INTERNATIONAL EQUITY SERIES.

OPTIONS AND FUTURES CONTRACTS. Each Series may enter into transactions in
futures contracts, options on futures contracts, options on securities indexes
and options on securities, for the purpose of hedging each Series' securities,
which would have the effect of reducing the volatility of its net asset value.
In general, each

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such transaction involves the establishment of a position which is expected to
move in a direction opposite to that of the security or securities being hedged.

For example, each Series may sell futures contracts, or purchase put
options on futures contracts, securities indexes or securities for the purpose
of protecting against an anticipated decline in the value of securities held by
that Series. In the event that such decline occurs, and the hedging transaction
is successful, the reduced value of portfolio securities will be offset, in
whole or in part, by a corresponding gain on the futures or option position.
Conversely, when the Series is not fully invested in the securities market, and
it expects a significant market advance, it may purchase futures contracts or
call options on futures contracts, securities indexes or securities in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that that Series intends to purchase.

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

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

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

SHORT-TERM INSTRUMENTS. Each of the Balanced Series, Equity Income Series,
Growth & Income Series, Equity Growth Series and Special Equity Series may
invest in cash, commercial paper, short-term obligations, repurchase agreements
or other forms of debt securities. See "Short-Term Instruments" above under High
Quality Bond Series.

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

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

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

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Changes to the securities of each Series are generally made without regard
to the length of time a security has been held, or whether a sale would result
in the recognition of a profit or loss. Therefore, the rate of portfolio
turnover is not a limiting factor to trading when such trading is deemed
appropriate. Each Series engages in trading if it believes a transaction net of
costs (including custodian charges) will help it achieve its investment
objective. The portfolio turnover rate for the common stock portion of the
Balanced Series and for each Series as a whole is expected to be less than 100%
annually. The amount of brokerage commissions and realized capital gains will
tend to increase as the level of portfolio activity increases. The primary
consideration in placing portfolio security transactions with broker-dealers for
execution is to obtain, and maintain the availability of, execution at the most
favorable prices and in the most effective manner possible. See "Portfolio
Transactions and Brokerage Commissions" in the Statement of Additional
Information.

INVESTMENT TECHNIQUES FOR THE BALANCED SERIES, EQUITY INCOME SERIES, EQUITY
VALUE SERIES, GROWTH & INCOME SERIES, EQUITY GROWTH SERIES, SPECIAL EQUITY
SERIES AND AGGRESSIVE GROWTH SERIES. Each Series' current policy is not to
invest more than 25% of its assets in securities of foreign issuers, including
investments in sponsored American Depository Receipts ("ADRs"). ADRs are
receipts typically issued by an American bank or trust company evidencing
ownership of the underlying foreign securities. The Advisers do not intend to
concentrate more than 25% of such foreign investments in any one type of
instrument or in any foreign country. Each such Series' investments in unlisted
foreign securities, not including ADRs, are subject to the overall restrictions
applicable to investments in illiquid securities. Foreign securities, including
ADRs, may represent a greater degree of risk than do securities of domestic
issuers due to possible exchange rate fluctuations, possible exchange controls,
less publicly available information, more volatile markets, less securities
regulation, less favorable tax provisions (including possible withholding
taxes), changes in governmental administration or economic or monetary policy
(in the United States or abroad), war or expropriation. Each Series may invest
up to 5% of its assets in closed-end investment companies which primarily hold
foreign securities. Forward foreign currency exchange contracts may also be
entered into for the purchase or sale of foreign currency solely for hedging
purposes against adverse rate changes. A currency exchange contract allows a
definite price in dollars to be fixed for foreign securities that have been
purchased or sold (but not settled) for each Series. Entering into such exchange
contracts may result in the loss of all or a portion of the benefits which
otherwise could have been obtained from favorable movements in exchange rates.
In addition, entering into such contracts means incurring certain transaction
costs and bearing the risk of incurring losses if rates do not move in the
direction anticipated.

INVESTMENT RESTRICTIONS FOR ALL SERIES OF DIVERSIFIED INVESTORS PORTFOLIO.

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

LENDING OF PORTFOLIO SECURITIES

The Series have the authority to lend portfolio securities to brokers,
dealers and other financial organizations. By lending its securities, a Series
can increase its income by continuing to receive interest on the loaned
securities as well as by either investing the cash collateral in short-term
securities or obtaining yield in the form of interest paid when U.S. Government
obligations are used as collateral. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. A Series will adhere to the following conditions

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<PAGE> 53

whenever its securities are loaned: (i) the Series must receive at least 100%
cash collateral or equivalent securities from the borrower; (ii) the borrower
must increase this collateral whenever the market value of the loaned securities
including accrued interest exceeds the level of the collateral; (iii) the Series
must be able to terminate the loan at any time; (iv) the Series must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (v)
the Series may pay only reasonable custodian fees in connection with the loan;
and (vi) voting rights on the loaned securities may pass to the borrower.
However, if a material event adversely affecting the loaned securities were to
occur, the Series would terminate the loan and regain the right to vote the
securities.

MANAGEMENT OF DIVERSIFIED INVESTORS PORTFOLIOS

The Board of Trustees of Diversified Investors Portfolios provides broad
supervision over the affairs of Diversified Investors Portfolios. For further
information about the Board of Trustees, see "Diversified Investors Portfolios"
in the Statement of Additional Information. A majority of the Board of Trustees
are not affiliated with the Advisers.

INVESTMENT ADVISORY SERVICES. Diversified Investment Advisors, Inc.
("Diversified") manages the assets of each series of Diversified Investors
Portfolios pursuant to an Investment Advisory Agreement (the "Advisory
Agreement") with Diversified Investors Portfolios with respect to each series
and in accordance with the investment policies described herein and in the
Statement of Additional Information. Subject to such further policies as the
Board of Trustees may determine, Diversified provides general investment advice
to each series. For its services under the Advisory Agreements, Diversified
receives from each series fees accrued daily and paid monthly at an annual rate
equal to the percentages specified in the table below of the corresponding
series' average daily net assets. Diversified is currently waiving a portion of
its investment advisory fee. Investment management decisions are taken by a
committee of Diversified's personnel and not by a particular individual.

Diversified is an indirect, wholly-owned subsidiary of AEGON USA, Inc.
("AEGON") which is 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 investment adviser to Diversified Investors
Portfolios. Accordingly, Diversified Investors Portfolios is the first family of
investment companies for which Diversified serves as investment adviser. It is
Diversified's responsibility to select, subject to the review and approval of
the Diversified Investors Portfolios' Board of Trustees, appropriate subadvisers
with distinguished backgrounds and to review such subadviser's continued
performance.

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

<TABLE>
<CAPTION>
COMPENSATION RATES(%)
DIVERSIFIED INVESTORS PORTFOLIO -------------------------
PORTFOLIO SERIES SUBADVISERS ADVISER(1) SUBADVISERS
- --------------------------------------- ---------------------------------- ---------- ----------
<S> <C> <C> <C>
Money Market Series Capital Management Group 0.25 0.05
High Quality Bond Series Merganser Capital Management 0.35 (2)
Corporation
Intermediate Government Bond Series Capital Management Group 0.35 0.15
Government/Corporate Bond Series Capital Management Group 0.35 0.15
High-Yield Bond Series Delaware Investment Advisers 0.55 (3)
</TABLE>

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<PAGE> 54

<TABLE>
<CAPTION>
COMPENSATION RATES(%)
DIVERSIFIED INVESTORS PORTFOLIO -------------------------
PORTFOLIO SERIES SUBADVISERS ADVISER(1) SUBADVISERS
- --------------------------------------- ---------------------------------- ---------- ----------
<S> <C> <C> <C>
Balanced Series Institutional Capital Corporation 0.45 (4)
Equity Income Series Asset Management Group 0.45 0.25
Equity Value Series Ark Asset Management Co., Inc. 0.57 (5)
Growth & Income Series Putnam Advisory Company, Inc. 0.60 (6)
Equity Growth Series Jundt Associates, Inc. 0.70 0.625
Special Equity Series (7) 0.80 0.50
Aggressive Equity Series McKinley Capital Management Inc. 0.97 (8)
International Equity Series Capital Guardian Trust 0.75 (9)
Company
</TABLE>

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

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

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

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

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

(5) 0.45% on the first $100,000,000 in assets, 0.40% on the next $50,000,000 in
assets and 0.35% on the next $50,000,000 in assets; when the Portfolio
achieves $200,000,000 in assets, the rate shall be 0.40% on assets up to
$200,000,000 and 0.35% on assets in excess of $200,000,000 so long as the
Portfolio continues to have more than $200,000,000 in assets.

(6) 0.30% on the first $100,000,000 in assets, 0.20% on assets in excess of
$100,000,000.

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

(8) 0.90% on the first $10,000,000 in assets, 0.80% on the next $15,000,000 in
assets, 0.60% on the next $25,000,000 in assets, 0.40% on the next
$50,000,000 in assets and 0.35% on assets in excess of $100,000,000.

(9) 0.75% on the first $25,000,000 in assets, 0.60% on the next $25,000,000 to
$50,000,000 in assets, 0.425% on the next $50,000,000 to $250,000,000 in
assets and 0.375% on all assets in excess of $250,000,000.

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

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<PAGE> 55

Diversified has entered into a Subadvisory Agreement with respect to the
High Quality Bond Series with Merganser Capital Management Corporation
("Merganser). Merganser was formed in September 1987 and is owned by certain of
its employees. Total assets under management for all institutional bond clients
at December 31, 1995 were approximately $2.1 billion, $203.5 million of which
were assets of registered investment companies. The principal business address
of Merganser is One Cambridge Center, Cambridge, Massachusetts 02142. Investment
management decisions of Merganser are made by committee and not by managers
individually.

Diversified has entered into separate Subadvisory Agreements with respect
to each of the Money Market Series, Intermediate Government Bond Series and
Government/Corporate Bond Series with Capital Management Group, a division of
1740 Advisers, Inc., a wholly-owned subsidiary of MONY. The address of Capital
Management Group is 1740 Broadway, New York, New York 10019. Total assets under
management by Capital Management Group at December 31, 1995 were approximately
$639 million of which $594 million were assets of registered investment
companies. Investment management decisions of Capital Management Group are made
by committee and not by managers individually.

Diversified has entered into a Subadvisory Agreement with respect to the
Equity Income Series with Asset Management Group, a division of 1740 Advisers,
Inc. a wholly-owned subsidiary of MONY. The address of Asset Management Group is
1740 Broadway, New York, New York 10019. Total assets under management by Asset
Management Group at December 31, 1995 were approximately $1.0 billion, $910
million of which were assets of registered investment companies. Investment
management decisions of Asset Management Group are made by committee and not by
managers individually.

Diversified has entered into a Subadvisory Agreement with respect to the
High-Yield Bond Series with Delaware Investment Advisers (a division of Delaware
Management Company, Inc.) ("Delaware"). Delaware was formed in February 1985 and
is owned by Lincoln National Corp. Total assets under management for all
high-yield bond clients at December 31, 1995 were approximately $ billion,
$ billion of which were assets of registered investment companies. The
principal business address of Delaware is 2005 Market Street, Philadelphia,
Pennsylvania 19103. Investment management decisions of Delaware are made by
committee and not by managers individually.

Diversified has entered into a Subadvisory Agreement with respect to the
Balanced Series with Institutional Capital Corporation ("Institutional
Capital"). Institutional Capital was formed in January 1970 and is owned by
certain of its employees. Total assets under management for all balanced clients
at December 31, 1995 were approximately $579 million, $183 million of which were
assets of registered investment companies. The principal business address of
Institutional Capital is 303 West Madison Street, Chicago, IL 60606. Investment
management decisions of Institutional Capital are made by committee and not by
managers individually.

Diversified has entered into a Subadvisory Agreement with respect to the
Equity Value Series with Ark Asset Management Co., Inc. ("Ark"). Ark was formed
in July 1989 and is owned by certain employees of ARK Asset Holdings, Inc. The
principal address of Ark is 55 Water Street, New York, NY 10041. Total assets
under management for equity value clients at December 31, 1995 were
approximately $9.8 billion, $75 million of which were assets of registered
investment companies. Investment management decisions of Ark are made by
committee and not by managers individually.

Diversified has entered into a Subadvisory Agreement with respect to the
Growth & Income Series with Putnam Advisory Company, Inc. ("Putnam"). Putnam was
formed in 1937 and is owned by Marsh & McLennon Companies, Inc. The principal
address of Putnam is One Post Office Square, Boston, MA 02109. Total assets
under management for growth and income clients at December 31, 1995 were
approximately $868 billion, $125 billion of which were assets of registered
investment companies. Investment management decisions of Putnam are made by
committee and not by managers individually.

Diversified has entered into a Subadvisory Agreement with respect to the
Equity Growth Series with Jundt Associates, Inc. ("Jundt"). Jundt was formed in
December 1972 and is owned by certain of its employees. Total assets under
management for all core equity clients at December 31, 1995 were approxi-

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<PAGE> 56

mately $2.4 billion, $363 million of which were assets of registered investment
companies. The principal business address of Jundt is 1550 Utica Avenue South,
Suite 950, St. Louis Park, MN 55416. Investment management decisions of Jundt
are made by committee and not by managers individually.

Diversified has entered into a Subadvisory Agreement with respect to the
Aggressive Equity Portfolio with McKinley Capital Management, Inc. ("McKinley").
McKinley was formed in March 1991 and is owned by Robert Gillam. Total assets
under management for all aggressive equity clients at December 31, 1995 were
approximately $375 million, none of which were assets of registered investment
companies. The principal business address of McKinley is 3301 C Street,
Anchorage, Alaska 99503. Investment management decisions of McKinley are made by
committee and not by managers individually.

Diversified has entered into a Subadvisory Agreement with respect to the
International Equity Portfolio with Capital Guardian Trust Company ("CGTC").
CGTC was formed in 1968 and is owned by The Capital Group Companies, Inc. The
principal address of CGTC is 333 South Hope Street, Los Angeles, California
90071. Total assets under management for all international equity clients by
CGTC at December 31, 1995 were approximately $48,375 million, and total assets
under management of registered investment companies for which CGTC acts as
subadviser was $ million as of that date. CGTC uses a system of multiple
portfolio managers pursuant to which the Portfolio is divided into segments that
are assigned to individual portfolio managers. With investment guidelines, each
portfolio manager makes individual decisions as to company, country, industry,
timing and percentage based on extensive field research and direct company
contact.

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

- ARK Asset Management Co., Inc. ("ARK") was formed in July 1989 and is
owned by certain employees of ARK Asset Holdings, Inc. Total assets under
management for all small capitalization clients at December 31, 1995 were
approximately $1.7 billion, $83 million of which were assets of
registered investment companies. The principal business address of Ark is
55 Water Street, New York, NY 10041.

- Liberty Investment Management, Inc. ("Liberty") was formed in 1994 and is
owned by certain of its employees. Liberty succeeded to certain of the
investment management businesses of Eagle Asset Management, Inc. Total
assets under management for all equity clients at December 31, 1995 were
approximately $401 million, $91 million of which were assets of
registered investment companies. The principal business address of Eagle
is 880 Carillon Parkway, St. Petersburg, FL 33716.

- Pilgrim Baxter & Associates, Ltd. ("Pilgrim") was formed in 1995 and is
owned by United Asset Management, Inc., a publicly-owned corporation.
Pilgrim succeeded to certain of the investment management businesses, and
acquired the corporate name of, Pilgrim Baxter & Associates, Ltd. in
April 1995. Total assets under management for all equity clients at
December 31, 1995 were approximately $4.7 billion, $2.6 billion of which
were assets of registered investment companies. The principal business
address of Pilgrim is 1255 Drummers Lanes, Wayne, PA 19087.

- Westport Asset Management, Inc. ("Westport") was formed in July 1993 and
is owned by certain of its employees. Total assets under management for
all equity clients at December 31, 1995 were approximately $520 million,
$119 million of which were assets of registered investment companies. The
principal business address of Westport is 253 Riverside Avenue, Westport,
CT 06880.

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

ADMINISTRATOR. Pursuant to an Administrative Services Agreement,
Diversified, as Administrator, provides Diversified Investors Portfolios with
general office facilities and supervises the overall administration of
Diversified Investors Portfolios, including, among other responsibilities, the
negotiation of contracts and fees with, and the monitoring of performance and
billings of, the independent contractors and agents of Diversified Investors
Portfolios; the preparation and filing of all documents required for compliance
by Diversified Investors Portfolios with applicable laws and regulations;
providing equipment and clerical personnel necessary

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<PAGE> 57

for maintaining the organization of Diversified Investors Portfolios;
preparation of certain documents in connection with meetings of Trustees and
investors of Diversified Investors Portfolios; and the maintenance of books and
records of Diversified Investors Portfolios. Diversified provides persons
satisfactory to the Board of Trustees of Diversified Investors Portfolios to
serve as officers of Diversified Investors Portfolios. Such officers, as well as
certain other employees and Trustees of Diversified Investors Portfolios, may be
directors, officers or employees of Diversified or its affiliates. The
Administrator receives no additional fee for its administrative services to
Diversified Investors Portfolios.

EXPENSES. The expenses of Diversified Investors Portfolios include the
compensation of its Trustees who are not affiliated with the Adviser or
Diversified; governmental fees; interest charges; taxes; fees and expenses of
independent auditors, of legal counsel and of any transfer agent, depository,
registrar or dividend disbursing agent of Diversified Investors Portfolios;
insurance premiums; and expenses of calculating the net asset value of, and the
net income on, beneficial interests in the series of Diversified Investors
Portfolios. Expenses of Diversified Investors Portfolios also include the
expenses connected with the execution, recording and settlement of securities
transactions; fees and expenses of Diversified Investors Portfolios' custodian
for all services to the series of Diversified Investors Portfolios, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of preparing and mailing reports to investors and to governmental
officers and commissions; expenses of meetings of investors and Trustees of
Diversified Investors Portfolios; and the advisory fees payable to Diversified
under the Advisory Agreement.

CUSTODIAN AND DIVIDEND DISBURSING AGENT. Investors Bank & Trust Company is
the custodian of the securities held by Diversified Investors Portfolios and is
authorized to use the facilities of the Depository Trust Company and the
facilities of the book-entry system for the Federal Reserve Bank. Investors Bank
& Trust Company is also dividend-disbursing agent for Diversified Investors
Portfolios.

EXCLUSIVE PLACEMENT AGENT. Diversified Investors Portfolios has retained
the services of Diversified Investors Securities Corp., ("DISC") as Exclusive
Placement Agent. The principal business address of DISC is 4 Manhattanville
Road, Purchase, New York 10577. DISC receives no compensation as Exclusive
Placement Agent.

OTHER INFORMATION REGARDING
DIVERSIFIED INVESTORS PORTFOLIOS

PURCHASE AND REDEMPTION OF INTERESTS IN DIVERSIFIED INVESTORS
PORTFOLIOS. Beneficial interests in the series of Diversified Investors
Portfolios are described in this Prospectus currently being offered by DISC to
AUSA for allocation to the appropriate Diversified Subaccount to fund benefits
payable under the Contracts. Investments in Diversified Investors Portfolios may
only be made by investment companies, insurance company separate accounts,
common or commingled trust funds or similar organizations or entities that are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Prospectus does not constitute an offer to sell, or the solicitation of an
offer to buy, any beneficial interests in any of the series of Diversified
Investors Portfolios.

The net asset value of each series is determined each day during which the
Advisers of that series are open for business ("Portfolio Business Day"). This
determination is made once each day as of 4:00 p.m., New York time (the
"Valuation Time").

Each investor in a series of Diversified Investors Portfolios may add to or
reduce its investment in such series on each Portfolio Business Day. As of the
Valuation Time on each such day, the value of each investor's beneficial
interest in a series will be determined by multiplying the net asset value of
the series by the percentage, effective for that day, which represents that
investor's share of the aggregate beneficial interests in the series. Any
additions or reductions, which are to be effected as of the Valuation Time on
such day, will then be effected. The investor's percentage of the aggregate
beneficial interests in a series will then be recomputed as the percentage equal
to the fraction (i) the numerator of which is the value of such investor's
investment in the series as of the Valuation Time on such day plus or minus, as
the case may be, the amount of net additions to or reductions in the investor's
investment in the series effected as of the Valuation Time,

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and (ii) the denominator of which is the aggregate net asset value of the series
as of the Valuation Time on such day, plus or minus, as the case may be, the
amount of net additions to or reductions in the aggregate net asset value of the
series as of the Valuation Time on such day, plus or minus as the case may be,
the amount of net additions to or reductions in the aggregate investments in the
series by all investors in such series. The percentage so determined will then
be applied to determine the value of the investor's interest in the series as of
the Valuation time on the following Portfolio Business Day.

An investor in a series of Diversified Investors Portfolios may withdraw
all or any portion of its investment at the net asset value next determined if a
withdrawal request in proper form is furnished by the investor to Diversified
Investors Portfolios by the designated cut-off time for each accredited
investor. The proceeds of a reduction or a withdrawal will be paid by
Diversified Investors Portfolios in federal funds normally on the Portfolio
Business Day the withdrawal is effected, but in any event within seven days.
Diversified Investors Portfolios, on behalf of each of its series, reserves the
right to pay redemptions in kind. Unless requested by an investor, Diversified
Investors Portfolios will not make a redemption in kind to the investor, except
in situations where that investor may make redemptions in kind. Diversified
Investors Portfolios, on behalf of each of its series, has elected, however, to
be governed by Rule 18f-1 under the 1940 Act, as a result of which Diversified
Investors Portfolios is obligated to redeem beneficial interests in each series
with respect to any one investor during any 90 day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the series at the
beginning of the period. Investments in a Series may not be transferred.

The right to redeem beneficial interests or to receive payment with respect
to any redemption may be suspended only (i) for any period during which trading
on the New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission or when the New York Stock Exchange is closed (other than
customary weekend and holiday closings), (ii) for any period during which an
emergency exists as defined by the Securities and Exchange Commission as a
result of which disposal of a series' securities or determination of the net
asset value of each series is not reasonably practicable, and (iii) for such
other periods as the SEC may by order permit for the protection of investors in
any series of Diversified Investors Portfolios.

NET ASSET VALUE. Diversified Investors Portfolios values the securities of
the Money Market Series based on the amortized cost method of valuation.
Securities of other series of Diversified Investors Portfolios are valued based
on their current market value when market quotations are available. Where market
quotations are not available, assets are valued at fair value as determined in
good faith under the direction of the Board of Trustees of Diversified Investors
Portfolios. Debt obligations with 60 days or less remaining to maturity may be
valued by the amortized cost method, which the Board of Trustees of Diversified
Investors Portfolios has determined to constitute fair value for such
securities. For more information on the valuation of portfolio securities, see
"Diversified Investors Portfolios" in the Statement of Additional Information.

TAXATION OF DIVERSIFIED INVESTORS PORTFOLIOS. Diversified Investors
Portfolios is organized as a New York trust. None of its series is subject to
any income or franchise tax in the State of New York. However, each investor in
a series will be taxable on its share (as determined in accordance with the
governing instruments of Diversified Investors Portfolio) of the series'
ordinary income and capital gain in determining its income tax liability. The
determination of such share will be made in accordance with the Code, and
regulations promulgated thereunder.

Diversified Investors Portfolios, since it is taxed as a partnership, is
not subject to federal income taxation. Instead, any investor in Diversified
Investors Portfolios must take into account, in computing its federal income tax
liability, its share of Diversified Investors Portfolios' income, gains, losses,
deductions, credits and tax preference items, without regard to whether it has
received any cash distributions from Diversified Investors Portfolios.

Withdrawals by any investor in Diversified Investors Portfolios from its
corresponding series generally will not result in 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 such investor's interest
in the series prior to the distribution, (2) income or gain will be realized if
the withdrawal is in liquidation of such investor's entire interest in the
series and includes a disproportionate share of any unrealized receivables held

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by the series and (3) loss will be recognized if the distribution is in
liquidation of that entire interest and consists solely of cash and/or
unrealized receivables. The basis of any investor's interest in Diversified
Investors Portfolios generally equals the amount of cash and the basis of any
property that such investor invests in a series, increased by such investor's
share of income from that series and decreased by the amount of any cash
distributions and the basis of any property distributed from that series.

DESCRIPTION OF BENEFICIAL INTERESTS, VOTING RIGHTS AND
LIABILITIES. Diversified Investors Portfolios is organized as a series trust
under the laws of the State of New York. Under the Declaration of Trust, the
Trustees are authorized to issue beneficial interests in one or more series
(each a "Series"). Investment in each series may not be transferred, but an
investor may withdraw all or any portion of its investment at any time at net
asset value. Investors in a series (e.g., investment companies, insurance
company separate accounts and common and commingled trust funds) will each be
liable for all obligations of that series (and of no other series). However, the
risk of an investor in a series incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and the series itself was unable to meet its obligations. Investments in each
series have no preemptive or conversion rights and are fully paid and
nonassessable, except as set forth below.

Each investor is entitled to a vote in proportion to the amount of its
investment in each series. Investors in a series will vote as a separate class,
except as to voting for election of Trustees of Diversified Investors
Portfolios, as otherwise required by the 1940 Act, or if determined by the
Trustees of Diversified Investors Portfolios to be a matter which affects all
series. As to any matter which does not affect a particular series, only
investors in the one or more affected series are entitled to vote. Diversified
Investors Portfolios is not required and has no current intention of holding
special meetings of investors, but special meetings of investors will be held
when in the judgment of the Trustees of Diversified Investors Portfolios it is
necessary or desirable to submit matters for an investor vote. Changes in
fundamental policies will be submitted to investors for approval. Investors
under certain circumstances (e.g., upon application and submission of certain
specified documents to the Trustees by a specified number of investors) have the
right to communicate with other investors in connection with requesting a
meeting of investors for the purpose of removing one or more Trustees of
Diversified Investors Portfolios. Investors also have the right to remove one or
more Trustees of Diversified Investors Portfolios without a meeting by a
declaration in writing by a specified number of investors. Upon liquidation of a
series, investors would be entitled to share pro rata in the net assets of that
series (and no other series) available for distribution to investors. See Voting
Rights at page .

Each series determines its net income and realized capital gains, if any,
on each Portfolio Business Day (as defined below) and allocates all such income
and gain pro rata among the investors in such series at the time of such
determination.

The "net income" of each series shall consist of (i) all income accrued,
less the amortization of any premium, on the assets of the series, less (ii) all
actual and accrued expenses of the series determined in accordance with
generally accepted accounting principles. Interest income includes discount
earned (including both original issue and market discount) on discount paper
accrued ratably to the date of maturity and any net realized gains or losses on
the assets of a series. All the net income of each series is allocated pro rata
among the investors in the series (and no other series).

Inquiries regarding Diversified Investors Portfolios may be directed to 4
Manhattanville Road, Purchase, New York 10577 (914-697-8000).

INDEPENDENT ACCOUNTANTS

The financial statements of AUSA included in the Statement of Additional
Information have been audited by Ernst & Young LLP, independent accountants, Des
Moines, Iowa. The financial statements of Diversified Investors Variable Funds
and Diversified Investors Portfolios included in the Statement of Additional
Information have been audited by Coopers & Lybrand LLP, independent accountants,
New York, New York.

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LEGAL PROCEEDINGS

There are no material legal proceedings to which AUSA or Diversified
Investors Variable Funds is a party.

FINANCIAL STATEMENTS

The financial statements for AUSA, included in the Statement of Additional
Information, should be distinguished from the financial statements of
Diversified Investors Variable Funds and should be considered only as bearing on
the ability of AUSA to meet its obligations under the Contracts. The financial
statements of AUSA should not be considered as bearing on the investment
performance of the assets held in Diversified Investors Variable Funds.

ADDITIONAL INFORMATION

This prospectus does not contain all the information set forth in the
registration statement, certain portions of which have been omitted (including
financial statements relating to AUSA) pursuant to the rules and regulations of
the SEC. The omitted information may be obtained from the SEC's principal office
in Washington, D.C., upon payment of the fees prescribed by the Commission.

For further information with respect to AUSA, the Contracts offered by this
Prospectus and Diversified Investors Portfolios, including the Statement of
Additional Information (which includes financial statements relating to AUSA),
contact AUSA at its address or phone number set forth on the cover of this
Prospectus.

For further information with respect to the Calvert Series, Acacia Capital
Corporation or Calvert Asset Management Company, Inc., including a Statement of
Additional Information, contact Acacia Capital Corporation at 4550 Montgomery

Avenue, Suite 1000N, Bethesda, Maryland 20814, or call (301) 951-4820.

58
<PAGE> 61

TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
ITEM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Independent Accountants............................................................... 2
Sale of Contracts/Principal Underwriter............................................... 2
Performance Data...................................................................... 2
Diversified Investors Portfolios...................................................... 3
Investment Objectives, Policies and Restrictions...................................... 3
Determination of Net Asset Value; Valuation of Securities............................. 21
Management of Diversified Investors Portfolios........................................ 22
Independent Accountant................................................................ 25
Capital Stock and Other Securities.................................................... 25
Taxation.............................................................................. 26
Financial Statements of AUSA.......................................................... 27
Appendix.............................................................................. A-1
Index to Financial Statements......................................................... F-1
</TABLE>

59
<PAGE> 62

REQUEST FOR DIVERSIFIED INVESTORS VARIABLE FUNDS

STATEMENT OF ADDITIONAL INFORMATION

Detach and return in an envelope addressed to:

AUSA
4 Manhattanville Road
Purchase, New York 10577

Please make sure that your name and the address to which you wish AUSA to
send the current Diversified Investors Variable Funds Statement of Additional
Information appears below:

Name
- --------------------------------------------------------------------------------

Address
- --------------------------------------------------------------------------------

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

Employer
- --------------------------------------------------------------------------------

60
<PAGE> 63

APPENDIX

APPLICABLE PREMIUM TAX RATES

<TABLE>
<CAPTION>
PREMIUM TAX RATE PERCENT
-----------------------------
QUALIFIED NON-QUALIFIED
--------- -------------
<S> <C> <C>
California.......................................................... .50% 2.35%
District of Columbia................................................ 2.25% 2.25%
Kentucky............................................................ 2.00% 2.00%
Maine............................................................... -- 2.00%
Nevada.............................................................. -- 3.50%
Pennsylvania........................................................ -- 2.00%
Puerto Rico......................................................... 1.00% 1.00%
South Dakota........................................................ -- 1.25%
West Virginia....................................................... 1.00% 1.00%
Wyoming............................................................. -- 1.00%
</TABLE>

A-1
<PAGE> 64

STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 1996

GROUP VARIABLE ANNUITY CONTRACTS

ISSUED BY

DIVERSIFIED INVESTORS VARIABLE FUNDS

AND

AUSA LIFE INSURANCE COMPANY, INC.
4 MANHATTANVILLE ROAD, PURCHASE, N.Y. 10577; (914) 697-8000

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT IT RELATES TO,
AND SHOULD BE READ IN CONJUNCTION WITH, THE PROSPECTUS DATED MAY 1, 1996 FOR THE
GROUP VARIABLE ANNUITY CONTRACTS ISSUED BY AUSA LIFE INSURANCE COMPANY, INC.
("AUSA") WHICH INVEST IN DIVERSIFIED INVESTORS VARIABLE FUNDS ("THE FUNDS") .
THE PROSPECTUS IS AVAILABLE, AT NO CHARGE, BY WRITING AUSA LIFE AT 4
MANHATTANVILLE RD., PURCHASE, NEW YORK 10577 OR BY CALLING (914) 697-8000.

A SEPARATE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE WITHOUT CHARGE FOR
ACACIA CAPITAL CORPORATION OF WHICH THE CALVERT RESPONSIBLY INVESTED BALANCED
PORTFOLIO IS A PART BY WRITING TO ACACIA CAPITAL CORPORATION AT 4550 MONTGOMERY
AVENUE, SUITE 1000N, BETHESDA, MARYLAND 20814 OR BY TELEPHONING 301-951-4820.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Independent Accountants............................................................... 2
Sale of Contract/Principal Underwriter................................................ 2
Texas Optional Retirement Program..................................................... 2
Performance Data...................................................................... 2
Diversified Investors Portfolios...................................................... 5
Investment Objectives, Policies and Restrictions.................................... 5
Determination of Net Asset Value; Valuation of Securities........................... 21
Management of Diversified Investors Portfolios...................................... 23
Independent Accountants............................................................. 25
Capital Stock and Other Securities.................................................. 25
Taxation............................................................................ 27
Financial Statements of AUSA.......................................................... 28
Appendix.............................................................................. A-1
Index To Financial Statements......................................................... F-1
</TABLE>
<PAGE> 65

INDEPENDENT ACCOUNTANTS

The financial statements of Diversified Investors Variable Funds and
Diversified Investors Portfolios appearing on the following pages have been
audited by Coopers & Lybrand L.L.P., independent accountants, New York, New
York. The financial statements of AUSA appearing on the following pages have
been audited by Ernst & Young LLP, independent auditors, Des Moines, Iowa.

SALE OF CONTRACTS/PRINCIPAL UNDERWRITER

Diversified Investors Securities Corp. ("DISC") is the principal
underwriter and distributor of the Contracts which will be sold by registered
representatives who are also licensed insurance agents of AUSA. The Contracts
may also be sold through other broker-dealers authorized by DISC and applicable
law and who may be insurance agents licensed by an insurance company other than
AUSA. DISC is registered with the Securities and Exchange Commission as a
broker-dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc.

DISC will not receive underwriting commissions. Registration as a
broker-dealer does not mean that the SEC has passed upon the financial standing,
fitness or conduct of any broker or dealer, or upon the merits of any security
offering or upon any other matter relating to the business of any broker or
dealer.

TEXAS OPTIONAL RETIREMENT PROGRAM

Participants in the Texas Optional Retirement Program (the "Program") are
subject to certain restrictions pertaining to redemptions. (See "Restrictions
Under The Texas Optional Retirement Program" in the prospectus). Pursuant to
Rule 6c-7 of the Investment Company Act of 1940, as amended, ("1940 Act"), the
Registrant hereby represents that Rule 6c-7 of the 1940 Act is being relied upon
and that the provisions of paragraphs (a) through (d) of each Rule have been
complied with.

PERFORMANCE DATA

MONEY MARKET SUBACCOUNT

For the seven day period ended December 31, 1995, the yield for the Money
Market Subaccount was -- 6.46% and the effective yield was %.

The yield is calculated by dividing the result of subtracting the value of
one Unit at the end of the seven day period ("Seventh Day Value") from the value
of one Unit at the beginning of the seven day period ("First Day Value") by the
First Day Value (the resulting quotient being the "Base Period Return") and
multiplying the Base Period Return by 365 divided by 7 to obtain the annualized
yield.

The effective yield is calculated by compounding the Base Period Return
calculated in accordance with the preceding paragraph, adding 1 to Base Period
Return, raising that sum to a power equal to 365 divided by 7 and subtracting 1
from the result.

As the Money Market Subaccount invests only in the Money Market Series (the
"Money Market Series") of Diversified Investors Portfolios, the First Day Value
reflects the net asset value of the interest in the Money Market Series held in
the Money Market Subaccount. The Seventh Day Value reflects increases or
decreases in the net asset value of the interest in the Money Market Series held
in the Money Market Subaccount due to the declaration of dividends, net
investment income and the daily charges and deductions from the Subaccount for
mortality and expense risk. Net investment income reflects earnings on
investments less expenses of the Money Market Series including the investment
management fee.

2
<PAGE> 66

AVERAGE ANNUAL TOTAL RETURNS: The annualized total return for the
Subaccounts is shown for the periods indicated in the table below.

<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE FOR THE FOR THE FOR THE SINCE
12 MONTHS 3 YEARS 5 YEARS 10 YEARS INCEPTION
ENDED ENDED ENDED ENDED THROUGH
12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Subaccount:
Money Market(1)...........................
High Quality Bond(1)......................
Intermediate Government Bond(1)...........
Government/Corporate Bond(1)..............
Balanced(1)...............................
Equity Income(1)..........................
Growth & Income(1)(3).....................
Equity Growth(1)..........................
Special Equity(1).........................
International Equity (1)..................
Calvert(2)................................
</TABLE>

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

(1) Each of the corresponding Pooled Separate Accounts of The Mutual Life
Insurance Company of New York ("MONY") set forth below contributed all of
its assets to, and thereby established, the corresponding Series of
Diversified Investors Portfolios in which a corresponding Subaccount invests
its assets:

<TABLE>
<CAPTION>
MONY POOLED
SERIES SEPARATE ACCOUNT
--------------------------------------------- -----------------------
<S> <C>
Money Market................................. Pooled Account No. 4
High Quality Bond............................ Pooled Account No. 15
Intermediate Government Bond................. Pooled Account No. 10d
Government/Corporate Bond.................... Pooled Account No. 5
Balanced..................................... Pooled Account No. 14
Equity Income................................ Pooled Account No. 6
Equity Growth................................ Pooled Account No. 1
Growth & Income.............................. Pooled Account No. 10a
Special Equity............................... Pooled Account No. 10b
International Equity......................... Pooled Account No. 12
</TABLE>

Total returns calculated for any period for each of the Money Market,
High Quality Bond, Intermediate Government Bond, Government/Corporate Bond,
Balanced, Equity Income, Growth & Income, Equity Growth, Special Equity and
International Equity Subaccounts reflect the performance of the
corresponding Pooled Separate Account for any period prior to its
establishment and the performance of the corresponding series of
Diversified Investors Portfolios thereafter. Such total returns calculated
for each of the Subaccounts reflect the performance of the corresponding
Pooled Separate Account only from the date that such corresponding Pooled
Separate Account adopted investment objectives, policies and practices
substantially similar to those of the corresponding series of Diversified
Investors Portfolios invested in by the Subaccount. All total return
percentages reflect the historical rates of return for such period adjusted
to assume that all charges, expenses and fees of the applicable Subaccount
and the corresponding series of Diversified Investors Portfolios which are
presently in effect were deducted during such period. The corresponding
Pooled Separate Accounts were not registered under the Investment Company
Act of 1940 and, therefore, were not subject to certain investment
restrictions imposed by the Act. If the corresponding Pooled Separate
Accounts had been registered under the Act, investment performance might
have been adversely affected.

3
<PAGE> 67

(2) The annualized total returns for the Calvert Series Subaccount reflect the
annualized total returns of the Calvert Series. The commencement date of the
Calvert Series is September 30, 1986.

(3) Effective November 14, 1995, Putnam Advisory Company, Inc. ("Putnam") became
the subadvisor to the Growth & Income Fund. The average annual total returns
at December 31, 1995 for all private accounts and collective investment
vehicles managed by Putnam with investment objectives, policies and
restrictions substantially similar to the Growth & Income Fund, adjusted to
assume that all charges, expenses and fees of the Growth & Income Fund
presently in effect were deducted, are as follows: Since
Inception -- 16.26%; 1 Year -- 24.47%; 3 Years -- 15.09%; and 10
Years -- 13.45%.

The average annual total returns for the High-Yield Bond Series reflect
annualized returns for all private accounts and collective investment vehicles
managed by Delaware Investment Advisers during the periods indicated with
investment objectives, policies and restrictions substantially similar to the
High-Yield Bond Series, and which have been managed as the High-Yield Bond
Series is expected to be managed. These returns are adjusted to assume that all
charges, expenses and fees of the High-Yield Series which are presently in
effect were deducted during such periods. At December 31, 1995, the annualized
total returns for the High-Yield Bond Fund were as follows: Since
Inception -- %; 1 Year -- %; 3 Years -- %; 5 Years -- %; and 10
Years -- %.

The average annual total returns for the Equity Value Series reflect
annualized returns for all private accounts and collective investment vehicles
managed by Ark Asset Management Co., Inc. during the periods indicated with
investment objectives, policies and restrictions substantially similar to the
Equity Value Series, and which have been managed as the Equity Value Series is
expected to be managed. These returns are adjusted to assume that all charges,
expenses and fees of the Equity Value Series which are presently in effect were
deducted during such periods. At December 31, 1995, the annualized total returns
for the High-Yield Bond Series were as follows: Since Inception -- %; 1
Year -- %; 3 Years -- %; 5 Years -- %; and 10 Years -- %.

The average annual total returns for the Aggressive Equity Series reflect
annualized returns for all private accounts and collective investment vehicles
managed by McKinley Capital Management, Inc. during the periods indicated with
investment objectives, policies and restrictions substantially similar to the
Aggressive Equity Series, and which have been managed as the Aggressive Equity
Fund is expected to be managed. These returns are adjusted to assume that all
charges, expenses and fees of the Aggressive Equity Series which are presently
in effect were deducted during such periods. At December 31, 1995, the
annualized total returns for the High-Yield Bond Series were as follows: Since
Inception -- %; 1 Year -- %; 3 Years -- %; 5 Years -- %; and 10
Years -- %.

The table above assumes that a $1,000 payment was made to each Subaccount
at the beginning of the period shown, that no further payments were made, that
any distribution from the corresponding series (or its predecessor investment
vehicle) were reinvested, and that a Contractholder surrendered the Contract for
cash, rather than electing commencement of annuity benefits in the form of one
of the Settlement Options available, at the end of the period shown. The average
annual total return percentages shown in the table reflect the annualized
historical rates of return and deductions for all charges, expenses, and fees
which would be imposed on the payment assumed by both the corresponding series
and Diversified Investors Variable Funds.

4
<PAGE> 68

DIVERSIFIED INVESTORS PORTFOLIOS

The thirteen series of Diversified Investors Portfolios which are described
in this Statement of Additional Information are presently available for
investment under the Contracts through corresponding Subaccounts of Diversified
Investors Variable Funds. This section of the Statement of Additional
Information describes each such series, including Diversified Investors Money
Market Portfolio (the "Money Market Series), Diversified Investors High Quality
Bond Portfolio (the "High Quality Bond Series"), Diversified Investors
Intermediate Government Bond Portfolio (the "Intermediate Government Bond
Series"), Diversified Investors Government/Corporate Bond Portfolio (the
"Government/Corporate Bond Series"), Diversified Investors High-Yield Bond
Series (the "High-Yield Bond Series"), Diversified Investors Balanced Portfolio
(the "Balanced Series"), Diversified Investors Equity Income Portfolio (the
"Equity Income Series"), Diversified Investors Equity Value Portfolio (the
"Equity Value Series"), Diversified Investors Growth & Income Portfolio (the
"Growth & Income Series"), Diversified Investors Equity Growth Portfolio (the
"Equity Growth Series"), Diversified Investors Special Equity Portfolio (the
"Special Equity Series"), Diversified Investors Aggressive Equity Portfolio (the
"Aggressive Equity Series") and Diversified Investors International Equity
Portfolio (the "International Equity Series"). These series of Diversified
Investors Portfolios available under the Contracts may be collectively referred
to herein as the "Series".

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

INVESTMENT OBJECTIVES

The investment objective of each Series is described in the Prospectus of
Diversified Investors Variable Funds. There can, of course, be no assurance that
a Series will achieve its investment objective.

INVESTMENT POLICIES

The following discussion supplements the information regarding the
investment objective of each Series and the policies to be employed to achieve
this objective as set forth in the Prospectus of Diversified Investors Variable
Funds.

BANK OBLIGATIONS

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

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

5
<PAGE> 69

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

In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the appropriate
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.

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

U.S. GOVERNMENT AND AGENCY SECURITIES

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

COMMERCIAL PAPER

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

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

VARIABLE RATE AND FLOATING RATE SECURITIES

Each Series 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 Series to invest fluctuating amounts, which may change
daily without penalty, pursuant to direct arrangements between the Series, as
lender, and the borrower. The interest rates on these notes fluctuate from time
to time.

6
<PAGE> 70

The issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured 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 Series' 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 Series may invest in obligations which are not so rated only if the
Advisers determine that at the time of investment the obligations are of
comparable quality to the other obligations in which the Series may invest. The
Advisers, on behalf of a Series, will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations held by the Series. A Series will not invest more than 15% (10% in
the case of the Money Market Series) of the value of its net assets in floating
or variable rate demand obligations as to which it 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 Series may purchase from financial institutions participation interests
in securities in which such Series may invest. A participation interest gives a
Series an undivided interest in the security in the proportion that the Series'
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 Series, the participation interest will be backed by an irrevocable
letter of credit or guarantee of a bank, or the payment obligation otherwise
will be collateralized by U.S. Government securities, or, in the case of unrated
participation interests, the Advisers must have determined that the instrument
is of comparable quality to those instruments in which a Series may invest. For
certain participation interests, a Series will have the right to demand payment,
on not more than seven days' notice, for all or any part of the Series'
participation interest in the security, plus accrued interest. As to these
instruments, a Series 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 Series will not invest more than 15% (10% in the case of the Money
Market Series) 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

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

7
<PAGE> 71

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

The SEC has recently adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restriction on
their resale to the general public. Rule 144A establishes a "safe harbor" from
the registration requirements of the 1933 Act of resales of certain securities
to qualified institutional buyers. The Advisers anticipate that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this new regulation and the development of automated
systems for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.

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

UNSECURED PROMISSORY NOTES

A Series 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 Series' investment objective. The Notes
purchased by a Series will have remaining maturities of 13 months or less and
will be deemed by the Board of Trustees of Diversified Investors Portfolios to
present minimal credit risks and will meet the quality criteria set forth above
under "Investment Policies." A Series will invest no more than 15% (10% in the
case of the Money Market Series) 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 Series 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 Series' 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 Series 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 a Series
are fully collateralized, with such collateral being marked to market daily.

A Series may borrow funds for temporary or emergency purposes, such as
meeting larger than anticipated redemption requests, and not for leverage, and
by agreeing to sell portfolio securities to financial institutions such as banks
and broker-dealers and to repurchase them at a mutually agreed date and price (a
"reverse repurchase agreement"). At the time a Series enters into a reverse
repurchase agreement it will place in a

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segregated custodial account cash, U.S. Government securities or high-grade debt
obligations having a value equal to the repurchase price, including accrued
interest. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Series may decline below the repurchase price of
those securities. Reverse repurchase agreements are considered to be borrowings
by a Series.

FOREIGN SECURITIES -- ALL SERIES

Each Series may invest its assets in securities of foreign issuers.
Investing in securities issued by companies whose principal business activities
are outside the United States may involve significant risks not present in
domestic investments. For example, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing and financial
reporting requirements comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, brokerage or other taxation, limitation on the removal of
funds or other assets of a Series, 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 U.S.

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 U.S. Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the U.S., and securities of some foreign
issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. companies. Foreign security
trading practices, including those involving securities settlement where a
Series' assets may be released prior to receipt of payment, may expose a Series
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 U.S. 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 U.S.

FOREIGN SECURITIES -- MONEY MARKET SERIES

The Money Market Series may invest in foreign securities, including only
U.S. dollar-denominated obligations of foreign branches and subsidiaries of
domestic banks and foreign banks, such as Eurodollar certificates of deposit,
which are U.S. dollar-denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, and Yankee CDs,
which are certificates of deposit issued by a U.S. branch of a foreign bank
denominated in U.S. dollars and held in the United States; Eurodollar time
deposits ("ETD"), which are U.S. dollar-denominated deposits in a foreign branch
of a foreign or domestic bank, and Canadian time deposits, which are essentially
the same as ETDs except they are issued by branches of major Canadian banks;
high quality, U.S. dollar-denominated short-term bonds and notes (including
variable amount master demand notes) issued by foreign corporations including
Canadian commercial paper, which is commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation, and Europaper,
which is U.S. dollar-denominated commercial paper of a foreign issuer; and U.S.
dollar-denominated obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Adviser to be of comparable quality
to the other obligations in which the Money Market Series 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.

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FOREIGN SECURITIES -- SERIES OTHER THAN MONEY MARKET SERIES

Not more than 5% of a Series' assets may be invested in closed-end
investment companies which primarily hold foreign securities. Investments in
such companies may entail the risk that the market value of such investments may
be substantially less than their net asset value and that there would be
duplication of investment management and other fees and expenses.

Securities of foreign issuers include investments in sponsored American
Depository Receipts ("ADRs"). ADRs are depository receipts for securities of
foreign issuers and provide an alternative method for a Series to make foreign
investments. These securities will not be denominated in the same currency as
the securities into which they may be converted. Generally, ADRs, in registered
form, are designed for use in U.S. securities markets. ADRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying securities.

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

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

Because some Series may buy and sell securities denominated in currencies
other than the U.S. dollar and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, such Series 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. Such Series 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 Series
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
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. A Series 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 Series' securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.

The Series may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. With respect to Series other than the
International Equity Series, consideration of the prospect for currency parities
will be incorporated into the Advisers' long-term investment decisions.
Therefore, these Series will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, the Advisers
believe that it is important to have the flexibility to enter into foreign
currency hedging transactions when they determine that the transactions would be
in a Series' 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.

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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 Series' ability to utilize forward
contracts in the manner set forth herein and in the Prospectus may be
restricted. Forward contracts may reduce the potential gain from a positive
change in the relationship between the U.S. dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for a Series 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
Series' foreign currency denominated portfolio securities and the use of such
techniques will subject a Series to certain risks.

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
Series may not always be able to enter into foreign currency forward contracts
at attractive prices and this will limit a Series' ability to use such contract
to hedge or cross-hedge its assets. Also, with regard to a Series' 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 Series' cross-hedges and
the movements in the exchange rates of the foreign currencies in which a Series'
assets that are the subject of such cross-hedges are denominated.

GUARANTEED INVESTMENT CONTRACTS

Each Series may invest in guaranteed investment contracts ("GICs") issued
by insurance companies. Pursuant to such contracts, a Series 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 Series 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
Series which are not readily marketable, will not exceed 15% (10% in the case of
the Money Market Series) of the Series' net assets. The term of a GIC will be
thirteen 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

Each Series may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that, under normal circumstances, a Series would
take delivery of such securities. When a Series commits to purchase a security
on a "when-issued" or on a "forward delivery" basis, the Series establishes
procedures consistent with the relevant policies of the Securities and Exchange
Commission. Since those policies currently recommend that an amount of a Series'
assets equal to the amount of the purchase be held aside or segregated to be
used to pay for the commitment, the Series expects always to have cash, cash
equivalents, or high quality debt securities sufficient to cover any commitments
or to limit any potential risk. However, although a Series does not intend to
make such purchases for speculative purposes and intends to adhere to the
provisions of Securities and Exchange Commission policies, purchases of
securities on such bases may involve more risk than other types of purchases.
For example, a Series may have to sell assets which have been set aside in order
to meet redemptions. Also, if a Series determines it is advisable as a matter of
investment strategy to sell the "when-issued" or "forward delivery" securities,
the Series 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 Series' payment
obligation).

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ZERO COUPON OBLIGATIONS

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

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- SERIES OTHER THAN THE
MONEY MARKET SERIES

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

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

At the same time a futures contract is purchased or sold, the Series 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 Series would
provide or receive cash that reflects any decline or increase in the contract's
value.

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

Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
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 Series 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 Series which holds or intends to acquire fixed-income securities, is to
attempt to protect the Series 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 Series
might enter into futures contracts for the sale of debt

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securities. Such a sale would have much the same effect as selling an equivalent
value of the debt securities owned by the Series. If interest rates did
increase, the value of the debt securities in a Series would decline, but the
value of the futures contracts to the Series would increase at approximately the
same rate, thereby keeping the net asset value of the Series from declining as
much as it otherwise would have. The Series could accomplish similar results by
selling debt securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the futures market is
more liquid than the cash market, the use of futures contracts as an investment
technique allows a Series 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 Series 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 Series could then buy debt securities on
the cash market. To the extent a Series enters into futures contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Series' obligations with respect to such futures contracts will consist of cash,
cash equivalents or high quality liquid debt securities from its portfolio in an
amount equal to the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial and variation margin
payments made by the Series with respect to such futures contracts.

The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Advisers may still not
result in a successful transaction.

In addition, futures contracts entail risks. Although the Advisers believe
that use of such contracts will benefit the Series, if the Advisers' investment
judgment about the general direction of interest rates is incorrect, a Series'
overall performance would be poorer than if it had not entered into any such
contract. For example, if a Series 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 Series 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 Series 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 Series may have to sell securities at a time when it may be
disadvantageous to do so.

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

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

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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 Series will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Series intends to
purchase. If a put or call option the Series has written is exercised, the
Series will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Series' losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.

The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Series 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 Series assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.

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

OPTIONS ON FOREIGN CURRENCIES. A Series may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
a Series may purchase put options on the foreign currency. If the value of the
currency does decline, the Series will have the right to sell such currency for
a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Series 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 a Series 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, a Series 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 Series may write options on foreign currencies for the same types of
hedging purposes. For example, where a Series 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 Series
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Series to hedge such
increased cost up to the

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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 Series 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 Series also may be required to forego all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
exchange rates.

The Series intend to write covered call options on foreign currencies. A
call option written on a foreign currency by a Series is "covered" if the Series
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 other foreign currency held in
its portfolio. A call option is also covered if the Series 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 Series in cash, U.S. Government
securities and other high quality liquid debt securities in a segregated account
with its custodian.

The Series also intend to write call options on foreign currencies that are
not covered for cross-hedging purposes. A call option on a foreign currency is
for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the Series
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, a Series 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 Series in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.

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

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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 Series' 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 Series will
treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. With respect to options written
with primary dealers in U.S. Government Securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase formula.

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

OPTIONS ON SECURITIES -- SERIES OTHER THAN MONEY MARKET SERIES

The Series may write (sell) covered call and put options to a limited
extent on its portfolio securities ("covered options") in an attempt to increase
income. However, a Series may forgo 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 Series.

When a Series 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 Series 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 Series has no control, the Series must
sell the underlying security to the option holder at the exercise price. By
writing a covered call option, a Series 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 Series writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Series at the specified
exercise price at any time during the option period. If the option expires
unexercised, the Series 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 Series has no control, the Series must purchase the underlying security
from the option holder at the exercise price. By writing a covered put option, a
Series, 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
Series will only write put options involving securities for which a
determination is made at the time the option is written that the Series wishes
to acquire the securities at the exercise price.

A Series 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 Series cannot effect a closing purchase transaction, it
may be forced to incur brokerage commissions or dealer spreads in selling
securities it receives or it may be forced to hold underlying securities until
an option is exercised or expires.

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<PAGE> 80

When a Series writes an option, an amount equal to the net premium received
by the Series is included in the liability section of the Series' 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 Series
enters into a closing purchase transaction, the Series 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 Series will realize a gain or
loss from the sale of the underlying security and the proceeds of the sale will
be increased by the premium originally received. The writing of covered call
options may be deemed to involve the pledge of the securities against which the
option is being written. Securities against which call options are written will
be segregated on the books of the custodian for the Series.

A Series may purchase call and put options on any securities in which it
may invest. A Series 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 Series, in exchange for the premium paid, to purchase a
security at a specified price during the option period. A Series 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 Series 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 Series, in exchange for the premium paid, to sell a
security, which may or may not be held in the Series' 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 Series'
portfolio securities. Put options also may be purchased by a Series for the
purpose of affirmatively benefiting from a decline in the price of securities
which the Series does not own. A Series 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 Series have adopted certain other nonfundamental policies concerning
option transactions which are discussed below. A Series' activities in options
may also be restricted by the requirements of the Internal Revenue Code of 1986,
as amended (the "Code"), for qualification as a regulated investment company.

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

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

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<PAGE> 81

OPTIONS ON SECURITIES INDICES -- SERIES OTHER THAN MONEY MARKET SERIES

In addition to options on securities, the Series 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
Series generally will only purchase or write such an option if the Advisers
believe the option can be closed out.

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

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

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

In a short sale, a Series sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. A Series 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 Series 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 Series 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 Series' long position.

The Series will not engage in short sales against the box for investment
purposes. A Series may, however, make a short sale as a hedge, when it believes
that the price of a security may decline, causing a decline in the value of a
security (or a security convertible or exchangeable for such security), or when
a Series wants to sell the security at an attractive current price, but also
wishes to defer recognition of gain or loss for federal income tax purposes or
for purposes of satisfying certain tests applicable to regulated investment
companies under the Code. In such case, any future losses in a Series' 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 Series owns. There are certain
additional transaction costs associated with short sales against the box, but
the Series endeavor to offset these costs with the income from the investment of
the cash proceeds of short sales.

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

CERTAIN OTHER OBLIGATIONS

In order to allow for investments in new instruments that may be created in
the future, a Series may, upon supplementing this Statement of Additional
Information, invest in obligations other than those listed previously, provided
such investments are consistent with a Series' investment objective, policies
and restrictions.

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<PAGE> 82

RATING SERVICES

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

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

INVESTMENT RESTRICTIONS

The following investment restrictions are "fundamental policies" of each
Series and may not be changed without the approval of a "majority of the
outstanding voting securities" of the Series. "Majority of the outstanding
voting securities" under the 1940 Act and as used in this Statement of
Additional Information and the Prospectus, means, with respect to a Series, the
lesser of (i) 67% or more of the total beneficial interests of the Series
present at a meeting if the holders of more than 50% of the total beneficial
interests of the Series are present or represented by proxy or (ii) more than
50% of the total beneficial interests of the Series. 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 Series' total assets or the value of a Series'
securities, or a later change in the rating of a portfolio security, will not be
considered a violation of the relevant policy.

As a matter of fundamental policy, no Series may:

(1) borrow money or mortgage or hypothecate assets of the Series,
except that in an amount not to exceed 1/3 of the current value of the
Series' 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
Diversified Investors Portfolios or a Series 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
portfolio securities and provided that any such loans not exceed 30% of the
Series' 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), except in the ordinary
course of business a Series may hold and sell portfolio real estate
acquired as a result of a Series' 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 Series' investment objective(s), up to 25% of its total
assets may be invested in any one industry (except that the Money Market
Series reserves the right to concentrate 25% or more of its assets in
obligations of domestic branches of domestic banks);

19
<PAGE> 83

(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; or

(7) enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are not readily
marketable (which securities would include participation interests and
floating and variable rate demand obligations as to which no secondary
market exists and the Series cannot exercise a demand feature on not more
than seven days' notice), if, in the aggregate, more than 15% (10% in the
case of the Money Market Series) of its net assets would be so invested. A
Series may not invest in time deposits maturing in more than seven days.

State and Federal Restrictions. In order to comply with certain state and
federal statutes and policies each Series will not as a matter of operating
policy:

<TABLE>
<S> <C>
(i) borrow money for any purpose in excess of 10% of the Series' total assets (taken
at cost), except that the Series may borrow for temporary or emergency purposes
up to 1/3 of its assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of the Series'
net assets (taken at market value), provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, reverse repurchase agreements, when issued securities and
other similar investment techniques are not considered a pledge of assets for
purposes of this restriction;
(iii) purchase any security or evidence of interest therein on margin, except that
such short-term credit as may be necessary for the clearance of purchases and
sales of securities may be obtained and except that deposits of initial deposit
and variation margin may be made in connection with the purchase, ownership,
holding or sale of futures;
(iv) invest for the purpose of exercising control or management;
(v) purchase securities issued by any other investment company except by purchase in
the open market where no commission or profit to a sponsor or dealer results
from such purchase other than the customary broker's commission, or except when
such purchase, though not made in the open market, is part of a plan of merger
or consolidation; provided, however, that securities of any investment company
will not be purchased for a Series if such purchase at the time thereof would
cause (a) more than 10% of the Series' total assets (taken at the greater of
cost or market value) to be invested in the securities of such issuers; (b) more
that 5% of the Series' total assets (taken at the greater of cost or market
value) to be invested in any one investment company; or (c) more than 3% of the
outstanding voting securities of any such issuer to be held for the Series; and
provided further that a Series may not purchase any security from any open-end
investment company;
(vi) purchase securities of any issuer if such purchase at the time thereof would
cause the Series to hold more than 10% of any class of securities of such
issuer, for which purposes all indebtedness of an issuer shall be deemed a
single class and all preferred stock of an issuer shall be deemed a single
class, except that futures or option contracts shall not be subject to this
restriction;
(vii) purchase or retain in a Series' portfolio any securities issued by an issuer any
of whose officers, directors, trustees or security holders is an officer or
Trustee of Diversified Investors Portfolios or is an officer or partner of the
Adviser or Subadviser, if after the purchase of the securities of such issuer
for a Series one or more of such persons owns beneficially more than 1/2 of 1%
of the shares or securities, or both, all taken at market value, of such issuer,
and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities, or both,
all taken at market value;
</TABLE>

20
<PAGE> 84

<TABLE>
<S> <C>
(viii) invest more than 5% of a Series' net assets in warrants or rights (valued at the
lower of cost or market), but not more than 2% of a Series' net assets may be
invested in warrants not listed on the New York Stock Exchange or the American
Stock Exchange; or
(ix) make short sales of securities or maintain a short position (excluding short
sales if the Series owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, securities of equivalent kind and amount) if such short sales
represent more than 25% of the Series' net assets (taken at market value);
provided, however, that the value of the Series' short sales of securities
(excluding U.S. Government Securities) of any one issuer may not be greater than
2% of the value (taken at market value) of the Series' net assets or more than
2% of the securities of any class of any issuer.
</TABLE>

Policies (i) through (ix) may be changed by the Board of Trustees of
Diversified Investors Portfolios.

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

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 Series if the
Advisers believe that a transaction net of costs (including custodian charges)
will help achieve the Series' investment objectives.

A Series' 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 Series do not anticipate
paying brokerage commissions in such transactions. Any transactions for which a
Series pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and the
asked price.

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

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

DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES

Beneficial interests in each Series of Diversified Investors Portfolios are
issued solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act.

Portfolio securities are valued on the basis of market quotations when they
are readily available. Each Series values mortgage-backed and other debt
securities for which market quotations are not readily available at their fair
value as determined in good faith, utilizing procedures approved by the Board of
Trustees of Diversified Investors Portfolios, on the basis of valuations
provided either by dealers or a pricing service. Debt

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<PAGE> 85

securities having a remaining maturity of sixty days or less when purchased and
debt securities originally purchased with maturities in excess of sixty days but
which currently have maturities of sixty days or less are valued at cost
adjusted for amortization of premiums and accretion of discounts.

Interest rate futures contracts held by a Series are valued on the basis of
closing market quotations, which are normally available daily. When market
quotations are not readily available, the fair value of these contracts will be
determined in good faith utilizing procedures approved by the Board of Trustees
of Diversified Investors Portfolios.

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

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<PAGE> 86

MANAGEMENT OF DIVERSIFIED INVESTORS PORTFOLIOS

The Trustees and officers of Diversified Investors Portfolios 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 Diversified Investors
Portfolios. Unless otherwise indicated, the address of each Trustee and officer
of Diversified Investors Portfolios is 4 Manhattanville Road, Purchase, New York
10577.

TRUSTEES AND OFFICERS OF DIVERSIFIED INVESTORS PORTFOLIOS

TRUSTEES

Tom A. Schlossberg*........ President, Diversified, 10/92 to present; Executive
Vice President and Head of Pension Operations,
Mutual Life Insurance Company of New York, 1/89 to
12/93.

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

Neal M. Jewell............. Consultant, January 1995; former Executive Vice
President, American International Group Asset
Management (since November 1991); Director of
Oversees Pensions, American International Group
Asset Management (December 1990 to October 1991);
Executive Vice President Pensions, Mutual of New
York (prior to June 1989). His address is 355
Thornridge Drive, Stamford, Connecticut 06903.

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

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

OFFICERS

Mr. Schlossberg is President, Chief Executive Officer and Chairman of the
Board of Diversified Investors Portfolios.

Robert F. Colby............ Secretary; Vice President and Chief Corporate
Counsel, Mutual Life Insurance Company of New York,
1/88 to 12/93; Vice President and General Counsel,
Diversified, 11/93 to present.

Alfred C. Sylvain.......... Treasurer and Assistant Secretary; Vice President
and Treasurer of Diversified, 11/93 to present;
Vice President, Mutual Life Insurance Company of
New York, 1/88 to present.

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

The Declaration of Trust provides that the Diversified Investors Portfolios
will indemnify its Trustees and officers as described below under "Description
of the Trust; Fund Shares."

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<PAGE> 87

For the fiscal year ended December 31, 1995, the Diversified Investors
Portfolios provided the following compensation to its trustees.

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM REGISTRANT
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF BENEFITS UPON COMPLEX PAID
NAME OF PERSON, POSITION FROM REGISTRANT FUND EXPENSES RETIREMENT TO TRUSTEES
- ----------------------------------- --------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Tom A. Schlossberg................. -0- None N/A -0-
Trustee
Donald E. Flynn.................... -0- None N/A -0-
Trustee
Neal M. Jewell..................... $10,000 None N/A $ 10,000
Trustee
Eugene M. Mannella................. $10,000 None N/A $ 10,000
Trustee
Patricia L. Sawyer................. $10,000 None N/A $ 10,000
Trustee
</TABLE>

INVESTMENT ADVISORY SERVICES

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

For each Series of Diversified Investors Portfolios, Diversified has
entered into an Investment Subadvisory Agreement (each a "Subadvisory
Agreement") with one or more subadvisers (each "Subadviser," and collectively
the "Subadvisers").

It is the responsibility of a Subadviser to make the day to day investment
decisions for its Series and to place the purchase and sales orders for
securities transactions of such Series, subject in all cases to the general
supervision of Diversified. Each Subadviser furnishes at its own expense all
services, facilities and personnel necessary in connection with managing the
corresponding Series' investments and effecting securities transactions for a
Series.

Each Advisory 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 a
Series when authorized either by majority vote of the investors in the Series
(with the vote of each being in proportion to the amount of their investment) or
by a vote of a majority of its Board of Trustees, or by Diversified or a
Subadviser on not more than 60 days' nor less than 30 days' written notice, as
the case may be, and will automatically terminate in the event of its
assignment. Each agreement provides that neither Diversified nor Subadviser nor
their personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in the
execution of security transactions for the corresponding Series, except for
willful misfeasance, bad faith, gross negligence or reckless disregard of its or
their obligations and duties under the Advisory Agreement and the Subadvisory
Agreement, as the case may be.

Diversified's and each Subadviser's fees are described in the Prospectus.
Diversified, if required by applicable state law, shall reimburse a Series or
waive all or part of its fees up to, but not exceeding, its investment advisory
fees from the Series. Such reimbursement, if required, will be equal to the
combined aggregate annual expenses which exceed that expense limitation with the
lowest threshold prescribed by any state in which such Series is qualified for
offer or sale. Management of Diversified Investors Portfolios has

24
<PAGE> 88

been advised that the lowest such threshold currently in effect is 2 1/2% of net
assets up to $30,000,000, 2% of the next $70,000,000 of net assets and 1/2% of
net assets in excess of that amount.

ADMINISTRATOR

The Administrative Services Agreement between Diversified, as
Administrator, and Diversified Investors Portfolios is described in the
Prospectus. The agreement provides that Diversified may render services to
others as administrator. In addition, the agreement terminates automatically if
it is assigned and may be terminated without penalty by majority vote of the
investors in Diversified Investors Portfolios (with the vote of each being in
proportion to the amount of their investment). The Administrative Services
Agreement also provides that neither Diversified nor its personnel shall be
liable for any error of judgment or mistake of law or for any act or omission in
connection with any Series, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their duties or obligations under said agreements.

CUSTODIAN

Pursuant to a Custodian Contract, Investors Bank & Trust Company acts as
the custodian of each Series' assets (the "Custodian"). The Custodian's business
address is 89 South Street, Boston, Massachusetts 02205-1537. The Custodian's
responsibilities include safeguarding and controlling cash and securities,
handling the receipt and delivery of securities, determining income and
collecting interest on the Series' investments, maintaining books of original
entry for portfolio accounting and other required books and accounts, and
calculating the daily net asset value of beneficial interests in each Series.
Securities held by a Series 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 Diversified Investors Portfolios. The Custodian does not
determine the investment policies of any Series or decide which securities any
Series will buy or sell. A Series 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 Diversified
Investors Portfolios.

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P., serves as the independent accountants for
Diversified Investors Portfolios providing audit and accounting services
including (i) examination of the annual financial statements, (ii) assistance
and consultation with respect to the preparation of filings with the Securities
and Exchange Commission and (iii) preparation of annual income tax returns.

CAPITAL STOCK AND OTHER SECURITIES

Diversified Investors Portfolios is organized as a trust under the law of
the State of New York. Under Diversified Investors Portfolios' Declaration of
Trust, the Trustees are authorized to issue beneficial interests in one or more
Series. Currently there are eleven active series of Diversified Investors
Portfolios. Investors in a Series will be held personally liable for the
obligations and liabilities of that Series (and of no other Series), subject,
however, to indemnification by Diversified Investors Portfolios in the event
that there is imposed upon an investor a greater portion of the liabilities and
obligations of the Series than its proportionate beneficial interest in the
Series. The Declaration of Trust also provides that Diversified Investors
Portfolios shall maintain appropriate insurance (for example, a fidelity bond
and errors and omissions insurance) for the protection of Diversified Investors
Portfolios, its investors, Trustees of Diversified Investors Portfolios,
officers, employees and agents, and covering possible tort and other
liabilities. Thus, the risk of an investor incurring financial loss on account
of investor liability is limited to circumstances in which both inadequate
insurance existed and Diversified Investors Portfolios itself was unable to meet
its obligations.

25
<PAGE> 89

Investors in a Series are entitled to participate pro rata in distributions
of taxable income, loss, gain and credit of their respective Series only. Upon
liquidation or dissolution of a Series, investors are entitled to share pro rata
in that Series' (and no other Series) net assets available for distribution to
its investors. Diversified Investor Portfolios reserves the right to create and
issue additional Series of beneficial interest, in which case the beneficial
interests in each new Series would participate equally in the earnings,
dividends and assets of that particular Series only (and no other Series). Any
property of Diversified Investors Portfolios is allocated and belongs to a
specific Series to the exclusion of all other Series. All consideration received
by Diversified Investors Portfolios for the issuance and sale of beneficial
interests in a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings and proceeds
thereof, and any funds or payments derived from any reinvestment of such
proceeds, is held by the Trustees of Diversified Investors Portfolios in a
separate subtrust (a Series) for the benefit of investors in that Series and
irrevocably belongs to that Series for all purposes. Neither a Series no
investors in that Series possess any right to or interest in the assets
belonging to any other Series.

Investments in a Series have no preference, preemptive, conversion or
similar rights and are fully paid and nonassessable, except as set forth below.
Investments in a Series may not be transferred.

Each investor is entitled to a vote in proportion to the amount of its
investment in each Series. Investors in a Series do not have cumulative voting
rights, and investors holding more than 50% of the aggregate beneficial
interests in all outstanding Series may elect all of the Trustees if they choose
to do so and in such event other investors would not be able to elect any
Trustees. Investors in each Series will vote as a separate class except as to
voting for the election of Trustees, as otherwise required by the 1940 Act, or
if determined by the Trustees to be a matter which affects all Series. As to any
matter which does not affect the interest of a particular Series, only investors
in the one or more affected Series are entitled to vote. Diversified Investors
Portfolios is not required and has no current intention of holding annual
meetings of investors, but will hold special meetings of investors when in the
judgment of Trustees it is necessary or desirable to submit matters for an
investor vote. The Declaration of Trust may be amended without the vote of
investors, except that investors have the right to approve by affirmative
majority vote any amendment which would affect their voting rights, alter the
procedures to amend the Declaration of Trust, or as required by law or by
Diversified Investors Portfolios' registration statement, or as submitted to
them by the Trustees. Any amendment submitted to investors which the Trustees
determine would affect the investors of any Series shall be authorized by vote
of the investors of such Series and no vote will be required of investors in a
Series not affected.

Diversified Investors Portfolios or any Series may enter into a merger or
consolidation, or sell all or substantially all of its assets, if approved (a)
at a meeting of investors by investors representing the lesser of (i) 67% or
more of the beneficial interest in the affected Series present or represented at
such meeting, if investors in more that 50% of all such beneficial interests are
present or represented by proxy, or (ii) more than 50% of all such beneficial
interests, or (b) by an instrument in writing without a meeting, consented to by
investors representing not less than a majority of the beneficial interest in
the affected Series. Diversified Investors Portfolios or any Series may also be
terminated (i) upon liquidation and distribution of its assets if approved by
the vote of two thirds of its investors (with the vote of each being in
proportion to the amount of its investment), (ii) by the Trustees by written
notice to its investors, or (iii) upon the bankruptcy or expulsion of an
investor in the affected Series, unless the investors in such Series, by
majority vote, agree to continue the Series. Diversified Investors Portfolios
will be dissolved upon the dissolution of the last remaining Series.

The Declaration of Trust provides that obligations of Diversified Investors
Portfolios are not binding upon the Trustees individually but only upon the
property of Diversified Investors Portfolios and that the Trustees will not be
liable for any action or failure to act, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.

The Declaration of Trust further provides that it 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

26
<PAGE> 90

Diversified Investors Portfolios, unless, as to liability to Diversified
Investors Portfolios or its investors, it is finally adjudicated that they
engaged in wilful 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 Diversified
Investors Portfolios. 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 wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.

TAXATION

Diversified Investors Portfolios is organized as a New York trust. The
Trust and each Series are not subject to any income or franchise tax in the
State of New York. However, each investor in a Series will be taxable on its
share (as determined in accordance with the governing instruments of the Trust)
of the Series' ordinary income and capital gain in determining its income tax
liability. The determination of such share will be made in accordance with the
Code and regulations promulgated thereunder.

Each Series, since it is taxed as a partnership, is not subject to federal
income taxation. Instead, and investor must take into account, in computing its
federal income tax liability, its share of the Series' income, gains, losses,
deductions, credits and tax preference items, without regard to whether it has
received any cash distributions from the Series.

Withdrawals by investors from each Series generally will not result in
their 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 the investor's interest in the Series prior to the distribution, (2)
income or gain will be realized if the withdrawal is in liquidation of the
investor's entire interest in the Series and includes a disproportionate share
of any unrealized receivables held by the Series, and (3) loss will be
recognized if the distribution is in liquidation of that entire interest and
consists solely of cash and/or unrealized receivables. The basis of an
investor's interest in a Series generally equals the amount of cash and the
basis of any property that the investor invests in the Series, increased by the
investor's share of income from the Series and decreased by the amount of any
cash distributions and the basis of any property distributed from the Series.

Each Series' taxable year-end will be December 31. Although, as described
above, the Series will not be subject to federal income tax, each will file
appropriate income tax returns.

It is intended that each Series' assets, income and distributions will be
managed in such a way that an investor in each Series will be able to satisfy
the requirements of Subchapter M of the Code.

There are certain tax issues that will be relevant to only certain of the
investors, specifically investors that are segregated asset accounts and
investors who contribute assets rather than cash to a Series. It is intended
that such segregated asset accounts will be able to satisfy diversification
requirements applicable to them and that such contributions of assets will not
be taxable provided certain requirements are met. Such Investors are advised to
consult their own tax advisors as to the tax consequences of an investment in a
Series.

HEDGING STRATEGIES

The use of hedging strategies, such as a Series' entering into interest
rate futures contracts and purchasing options thereon, involves complex rules
that will determine for income tax purposes the character and timing of
recognition of the income received in connection therewith. Income from the
disposition of futures contracts and options thereon will be subject to the
limitation that a Series must derive less than 30% of its gross income from the
sale or other disposition of securities, options or futures contracts held for
less than three months (the "Short-Short Limitation").

If certain requirements are satisfied, any increase in value on a position
that is part of a "designated hedge" will be offset by an decrease in value
(whether realized or not) of the offsetting hedging position

27
<PAGE> 91

during the period of the hedge for purposes of determining whether the
Short-Short Limitation is satisfied. Thus, only the net gain (if any) from the
designated hedge will be included in gross income for purposes of that
limitation. Each Series intends to qualify for this treatment when it engages in
hedging transactions, but at the present time it is not clear whether this
treatment will be available for all of a Series' hedging transactions. To the
extent this treatment is not available, a Series 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, in order for an investor in the Series
to qualify as a RIC.

OTHER TAXATION

The investment by an investor in a Series does not cause the investor to be
liable for any income or franchise tax in the State of New York. Investors are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Series.

FINANCIAL STATEMENTS OF AUSA

The financial statements of AUSA that are included in this Statement of
Additional Information are different from the financial statements of
Diversified Investors Variable Funds. The financial statements of AUSA should be
considered only as bearing upon the ability of AUSA to meet its obligations
under the Contracts and should not be considered as bearing on the investment
performance of the assets held in the Diversified Investors Variable Funds.

28
<PAGE> 92

APPENDIX

BOND AND COMMERCIAL PAPER RATINGS

STANDARD & POOR'S BOND RATINGS

A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt rated
"AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong. Debt rated "AA" has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree.

The rating "AA" may be modified by the addition of a plus or minus sign to
show relative standing within such category.

MOODY'S BOND RATINGS

Excerpts from Moody's description of its corporate bond ratings:
Aaa -- judged to be the best quality, carry the smallest degree of investment
risk; Aa -- judged to be of high quality by all standards.

FITCH INVESTORS SERVICE BOND RATINGS

AAA. Securities of this rating are regarded as strictly high-grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions, an
liable to but slight market fluctuation other than through changes in the money
rate. The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong companies, and are
most numerous in the railway and public utility fields, though some industrial
obligations have this rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Other features may enter in, such as a wide margin
of protection through collateral security or direct lien on specific property as
in the case of high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary reduction of the
debt by call or purchase are often factors, while guarantee or assumption by
parties other than the original debtor may also influence the rating.

AA. Securities in this group are of safety virtually beyond question, and
as a class are readily salable while many are highly active. Their merits are
not greatly unlike those of the AAA class, but a security so rated may be of
junior though strong lien--in many cases directly following an AAA security--or
the margin of safety is less strikingly broad. The issue may be the obligation
of a small company, strongly secured but influenced as to ratings by the lesser
financial power of the enterprise and more local type of market.

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.

MOODY'S COMMERCIAL PAPER RATINGS

Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.

A-1
<PAGE> 93

Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.

FITCH-1, FITCH-2, DUFF 1 AND DUFF 2 COMMERCIAL PAPER RATINGS

Commercial paper rated "Fitch-1" is considered to be the highest grade
paper and is regarded as having the strongest degree of assurance for timely
payment. "Fitch-2" is considered very good grade paper and reflects an assurance
of timely payment only slightly less in degree than the strongest issue.

Commercial paper issues rate "Duff 1" by Duff & Phelps, Inc. have the
following characteristics: very high certainty of timely payment, excellent
liquidity factors supported by strong fundamental protection factors, and risk
factors which are very small. Issues rated "Duff 2" have a good certainty of
timely payment, sound liquidity factors and company fundamentals, small risk
factors, and good access to capital markets.

A-2
<PAGE> 94

FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

[TO BE FILED BY AMENDMENT]

F-1
<PAGE> 95

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

The following Financial Statements (To be filed by amendment)

(b) Exhibits

Any form of Form N-4 Exhibits (1) and (3) through (7) and (9) previously
filed with the Commission as part of Pre-Effective Amendment No. 1 dated
July 7, 1994 to the Registrant's N-4 Registration
Statement -- Registration No. 33-73734 under the Securities Act of 1933
are incorporated herein by reference.

Exhibits (4), (13) and (14) filed with the Commission as part of
Post-Effective Amendment No. 1 dated April 28, 1995 to the Registrant's
N-4 Registration Statement -- Registration No. 33-73734 under the
Securities Act of 1933 are incorporated herein by reference.

(2) Not applicable.

(8) Not applicable.

(10) Opinion and Consent of Independent Public Accountants. (To be filed
by amendment)

(11) Not applicable.

(12) Not applicable.

(15) Powers of Attorney filed herewith.

ITEM 25. DIRECTORS AND OFFICERS OF AUSA

The Directors and officers of AUSA are set forth below.

DIRECTORS

Andrew R. Baer............. KEKST & COMPANY, 437 Madison Ave., New York, New
York 10022.

William L. Busler.......... AEGON USA, Inc., 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499.

Jack R. Dykhouse........... AEGON USA, Inc. 9151 Grapevine Highway, North
Richland Hills, Texas 76180.

Peter P. Post.............. EMMERLING POST, Inc., 135 East 55th Street, New
York, New York 10022.

Cor H. Verhagen............ AEGON INSURANCE GROUP, 51 JFK Parkway, Short Hills,
New Jersey 07078.

Professor E. Kirby
Warren..................... COLUMBIA UNIVERSITY SCHOOL OF BUSINESS, 725 Uris
Hall, 116th Street & Broadway, New York, New York
10027.

Steven E. Frushtick........ WIENER, FRUSHTICK & STRAUB, 500 Fifth Avenue, New
York, New York 10110.

Vice Admiral Thor Hanson... National Multiple Sclerosis Society, 900 Birdseye
Road, P.O. Box 112, Orient, New York 11957-0112.

B. Larry Jenkins........... Monumental Life Insurance Company, 2 East Chase
Street, Baltimore, Maryland 21202.

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<PAGE> 96

DIRECTOR-OFFICERS

Larry G. Brown............. Chairman of the Board and Secretary, AEGON USA,
Inc., 111 North Charles Street, Baltimore, Maryland
21201.

Vera F. Mihaic............. Vice President, INTERNATIONAL LIFE INVESTORS
INSURANCE Company 666 Fifth Avenue New York,
New York 10103-0001.

Tom Schlossberg............ President, DIVERSIFIED INVESTMENT ADVISORS, Inc., 4
Manhattanville Road, Purchase, New York 10577.

Douglas C. Kolsrud......... Chief Actuary, AEGON USA, Inc., 4333 Edgewood Road,
N.E., Cedar Rapids, Iowa 52499.

ITEM 26. PERSONS CONTROLLED BY OR UNDER CONTROL WITH THE DEPOSITOR OR
REGISTRANT

No person is directly or indirectly controlled by the Registrant. The
Registrant is a separate account of the Depositor.

The following is a diagram showing all corporations directly or indirectly
controlled or under common control with the Depositor, showing the state or
other sovereign power under the laws of which each is organized and the
percentage ownership of voting securities giving rise to the control
relationship. (See diagram on following page.)

ITEM 27. AS OF DECEMBER 31, 1996 THERE WERE CONTRACTHOLDERS.

ITEM 28. INDEMNIFICATION

Any person made a party to any action, suit, or proceeding by reason of the
fact that he, his testator or intestate, is or was a director, officer, or
employee of the Company or of any Company which he served as such at the request
of the Company, shall be indemnified by the Company against the reasonable
expenses, including attorney's fees, actually and necessarily incurred by him in
connection with the defense of such action, suite or proceeding, or in
connection with appeal therein, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such officer,
Director, or employee is liable for negligence or misconduct in the performance
of his duties. The Company may also reimburse to any Director, officer, or
employee the reasonable costs of settlement of any such action, suit, or
proceeding, if it shall be found by a majority of a committee composed of the
Directors not involved in the matter in controversy (whether or not a quorum)
that it was in the interest of the Company that such settlement be made and that
such Director, officer or employee was not guilty of negligence or misconduct.
The amount to be paid by way of indemnity shall be determined and paid, in each
instance, pursuant to action of the Board of Directors, and the stockholders
shall be given notice thereof in accordance with applicable provisions of law.
Such right of indemnification shall not be deemed exclusive of any other rights
to which such Director, officer, or employee may be entitled.

ITEM 29. PRINCIPAL UNDERWRITERS

(a) Diversified Investors Securities Corp. ("DISC") is the principal
underwriter of the Registrant. The names, titles and principal business
addresses of the officers and directors of "DISC" are as stated on Forms U-4 of
Form BD (File No. 8-45671) as declared effective May 18, 1993, as amended, the
text of which is herein incorporated by reference. Diversified Investment
Advisors, Inc. an affiliate of AUSA, acts as investment advisor and
administrator to each series of Diversified Investors Portfolios. With respect
to each series of Diversified Investors Portfolios, Diversified has contracted
for certain investment advisory services with one or more subadvisors.

(b) The names, titles and principal business addresses of the officers of
DISC are listed on Schedule A of Form BD for DISC (Registration No. 8-45691) and
Form U-4 filed by each individual officer, the text of which is hereby
incorporated by reference.

C-2
<PAGE> 97

(c) Refer to Prospectus pages 8 and 15, "Charges" and Part B, Statement of
Additional Information, page 2, "Sale of Contracts/Principal Underwriter" for
information regarding compensation.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

Accounts, books, and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder
are primarily maintained by AUSA Insurance Company, Inc. in whole or in part, at
its principal offices at 4 Manhattanville Road, Purchase, NY 10577.

ITEM 31. MANAGEMENT SERVICES

Not applicable.

ITEM 32. UNDERTAKINGS

(a) Registrant hereby undertakes to file post-effective amendments to the
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the group variable annuity contract may be
accepted;

(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a Contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of Additional
Information;

(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.

(d) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.

(e) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant 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 Act and will be governed by the final adjudication of
such issue.

C-3
<PAGE> 98

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant (certifies that it meets the
requirements of Securities Act Rule 485(a) for the effectiveness of this
registration statement) has duly caused this Post-Effective Amendment No. 4 to
its Registration Statement to be signed on its behalf, by the undersigned
thereunto duly authorized, in the County of Westchester and the State of New
York, on this 16th day of February, 1996.

DIVERSIFIED INVESTORS VARIABLE FUNDS
(Registrant)

By: /s/ TOM A. SCHLOSSBERG
----------------------------------
Tom A. Schlossberg

AUSA LIFE INSURANCE COMPANY, INC.
(Depositor)

By: /s/ TOM A. SCHLOSSBERG
----------------------------------
Tom A. Schlossberg
(Director and President)

Pursuant to the requirement of the Securities Act of 1933 this
Post-Effective Amendment No. 4 to its Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- -------------------------------- ------------------
<S> <C> <C>
/s/ TOM A. SCHLOSSBERG Director and President February 16, 1996
- -------------------------------------
(Tom A. Schlossberg)

*/s/ ANDREW R. BAER Director February 16, 1996
- -------------------------------------
(Andrew R. Baer)

*/s/ LARRY G. BROWN Director February 16, 1996
- -------------------------------------
(Larry G. Brown)

*/s/ WILLIAM L. BUSLER Director February 16, 1996
- -------------------------------------
(William L. Busler)

*/s/ JACK R. DYKHOUSE Director February 16, 1996
- -------------------------------------
(Jack R. Dykhouse)

*/s/ STEVEN E. FRUSCHTICK Director February 16, 1996
- -------------------------------------
(Steven E. Fruschtick)

*/s/ CARL T. HANSON Director February 16, 1996
- -------------------------------------
(Carl T. Hanson)

*By: /s/ TOM A. SCHLOSSBERG February 16, 1996
- -------------------------------------
Tom A. Schlossberg
Attorney-in-Fact
</TABLE>

C-4
<PAGE> 99

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- -------------------------------- ------------------
<S> <C> <C>
*/s/ B. LARRY JENKINS Director February 16, 1996
- -------------------------------------
(B. Larry Jenkins)

*/s/ DOUGLAS C. KOLSRUD Director February 16, 1996
- -------------------------------------
(Douglas C. Kolsrud)

*/s/ VERA F. MIHAIC Director February 16, 1996
- -------------------------------------
(Vera F. Mihaic)

*/s/ PETER P. POST Director February 16, 1996
- -------------------------------------
(Peter P. Post)

*/s/ COR H. VERHAGEN Director February 16, 1996
- -------------------------------------
(Cor H. Verhagen)

*/s/ E. KIRBY WARREN Director February 16, 1996
- -------------------------------------
(E. Kirby Warren)

*By: /s/ TOM A. SCHLOSSBERG
- -------------------------------------
Tom A. Schlossberg
Attorney-in-Fact
</TABLE>

C-5
<PAGE> 100

SIGNATURES

As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(a) for the effectiveness of this registration statement and has duly
caused this Post-Effective Amendment No. 4 to its Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, in the County
of Westchester, State of New York, on the 16th day of February, 1996.

DIVERSIFIED INVESTORS PORTFOLIOS

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

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 to its Registration Statement has been signed
below by the following persons in the capacities indicated on the 16th day of
February, 1996.

<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ TOM A. SCHLOSSBERG Trustee, President, Chief Executive Officer
- --------------------------------------------- and Chairman of the Board of Trustees of the
Tom A. Schlossberg Portfolios

*/s/ NEAL M. JEWELL Trustee of the Portfolios
- ---------------------------------------------
Neal M. Jewell

*/s/ EUGENE M. MANNELLA Trustee of the Portfolios
- ---------------------------------------------
Eugene M. Mannella

*/s/ PATRICIA L. SAWYER Trustee of the Portfolios
- ---------------------------------------------
Patricia L. Sawyer

*By /s/ ROBERT F. COLBY
- ---------------------------------------------
Robert F. Colby
Attorney-in-Fact
</TABLE>

C-6
<PAGE> 101

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------- -------------
<S> <C> <C>
99.(10) Consent of Independent Accountants (To be filed by amendment)
99.(15) Powers of Attorney
</TABLE>

C-7

<PAGE> 1

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Tom A. Schlossberg,
Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statement, and any and all amendments thereto, filed by Diversified Investors
Portfolios with the Securities and Exchange Commission under the Investment
Company Act of 1940 and any and all instruments which such attorneys and agents,
or any of them, deem necessary or advisable to enable the Company to comply with
such Act, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.

/s/ Tom A. Schlossberg
--------------------------------------
Tom A. Schlossberg

STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )

On the 25th day of January, 1995, before me personally came Tom Schlossberg to
me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.

[SEAL]

/s/ Catherine A. Mohr

<PAGE> 2

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Tom A. Schlossberg,
Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statement, and any and all amendments thereto, filed by Diversified
Investors Portfolios with the Securities and Exchange Commission under the
Investment Company Act of 1940 and any and all instruments which such attorneys
and agents, or any of them, deem necessary or advisable to enable the Company to
comply with such Act, the rules, regulations and requirements of the Securities
and Exchange Commission, and the securities or Blue Sky laws of any state or
other jurisdiction, and the undersigned hereby ratifies and confirms as his own
act and deed any and all acts that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents have, and may exercise, all of the powers hereby conferred.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.

/s/ Eugene M. Mannella
--------------------------------------
Eugene M. Mannella

STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )

On the 25th day of January, 1995, before me personally came Eugene M. Mannella
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.

[SEAL]

/s/ Catherine A. Mohr

<PAGE> 3

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Tom A. Schlossberg,
Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statement, and any and all amendments thereto, filed by The Diversified
Investors Portfolios with the Securities and Exchange Commission under the
Investment Company Act of 1940 and any and all instruments which such attorneys
and agents, or any of them, deem necessary or advisable to enable the Company to
comply with such Act, the rules, regulations and requirements of the Securities
and Exchange Commission, and the securities or Blue Sky laws of any state or
other jurisdiction, and the undersigned hereby ratifies and confirms as his own
act and deed any and all acts that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents have, and may exercise, all of the powers hereby conferred.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.

/s/ Patricia L. Sawyer
--------------------------------------
Patricia L. Sawyer

STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )

On the 25th day of January, 1995, before me personally came Patricia L. Sawyer
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.

[SEAL]

/s/ Catherine A. Mohr

<PAGE> 4

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.

/s/ Neal M. Jewell
--------------------------------------
Neal M. Jewell

STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )

On the 25th day of January, 1995, before me personally came Neal M. Jewell to
me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.

[SEAL]

/s/ Catherine A. Mohr

<PAGE> 5

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.

/s/ Donald E. Flynn
--------------------------------------
Donald E. Flynn

STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )

On the 25th day of January, 1995, before me personally came Donald E. Flynn to
me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.

[SEAL]

/s/ Catherine A. Mohr