DIVERSIFIED INVESTORS PORTFOLIOS, POS AMI, 1998-04-30

DIVERSIFIED INVESTORS PORTFOLIOS
POS AMI, 1998-04-30

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File No. 811-8272

As filed with the Securities and Exchange Commission on April 30, 1998

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

FORM N-1A
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 6

DIVERSIFIED INVESTORS PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)

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

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

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

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

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EXPLANATORY NOTE

Beneficial interests in the Registrant are not registered under the
Securities Act of 1933, as amended (the "1933 Act"), because such interests are
issued solely in private placement transactions which do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act.
Investments in the Registrant may be made only by investment companies, common
or commingled trust funds or similar organizations or entities which are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any beneficial interests in the Registrant.

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PART A

Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.

Item 4. General Description of Registrant.

Diversified Investors Portfolios (the "Trust") currently consists of the
following separate series (each a "Portfolio" and collectively the
"Portfolios"): Money Market Portfolio; High Quality Bond Portfolio;
Intermediate Government Bond Portfolio; Government/Corporate Bond Portfolio;
High-Yield Bond Portfolio; Balanced Portfolio; Equity Income Portfolio; Equity
Value Portfolio; Growth & Income Portfolio; Equity Growth Portfolio; Special
Equity Portfolio; Aggressive Equity Portfolio; and International Equity
Portfolio. Diversified Investment Advisors, Inc. ("Diversified" or the
"Adviser") is the investment adviser of each of the Portfolios. Diversified
employs one or more investment subadvisers ("Subadvisers") to perform the daily
management of each Portfolio's securities. Diversified provides general
supervision of the Subadvisers subject to the policies set by the Trust's Board
of Trustees.

The Trust is a diversified, open-end management investment company which
was organized as a trust under the laws of the State of New York on September
1, 1993. Beneficial interests in the Portfolios are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the U.S. Securities Act of 1933, as amended (the
"1933 Act"). Investments in the Portfolios may be made only by investment
companies, common or commingled trust funds or similar organizations or
entities which are "accredited investors" within the meaning of Regulation D
under the 1933 Act. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any "security" within the meaning
of the 1933 Act.

INVESTMENT OBJECTIVES AND POLICIES:

INVESTMENT OBJECTIVES

The investment objective of the MONEY MARKET PORTFOLIO is to provide
liquidity and as high a level of current income as is consistent with the
preservation of capital.

The investment objective of the HIGH QUALITY BOND PORTFOLIO is to provide
a high risk-adjusted return while focusing on the preservation of capital.

The investment objective of the INTERMEDIATE GOVERNMENT BOND PORTFOLIO is
to provide as high a level of current income as is consistent with the
preservation of capital.

The investment objective of the GOVERNMENT/CORPORATE BOND PORTFOLIO is to
achieve a maximum total return.

The investment objective of the HIGH-YIELD BOND PORTFOLIO is to provide a
high level of current income.

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The investment objective of the BALANCED PORTFOLIO is to provide a high
total investment return through investment in a balanced portfolio of stocks,
bonds and money market instruments.

The investment objective of the EQUITY INCOME PORTFOLIO is to provide a
high level of current income through investment in a diversified portfolio of
common stocks with relatively high current yields; capital appreciation is a
secondary objective.

The investment objective of the EQUITY VALUE PORTFOLIO is to provide a
high total investment return through investment primarily in a diversified
portfolio of common stocks.

The investment objective of the GROWTH & INCOME PORTFOLIO is to provide
capital appreciation and current income.

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

The investment objective of the SPECIAL EQUITY PORTFOLIO is to provide a
high level of capital appreciation through investment in a diversified
portfolio of common stocks of small to medium size companies.

The investment objective of the AGGRESSIVE EQUITY PORTFOLIO is to provide
a high level of capital appreciation primarily through investing in a
diversified portfolio of common stocks.

The investment objective of the INTERNATIONAL EQUITY PORTFOLIO is to
provide a high level of long-term capital appreciation through investment in a
diversified portfolio of securities of foreign issuers.

The investment objective of each Portfolio may be changed without
investor approval. Of course, there can be no assurance that any Portfolio will
achieve its investment objective.

INVESTMENT POLICIES

MONEY MARKET PORTFOLIO. The Money Market Portfolio invests primarily in
high quality, short-term money market instruments. These instruments include
short-term U.S. government obligations, corporate bonds, bank obligations
(including certificates of deposit, bankers' acceptances and fixed time
obligations), commercial paper and other short-term debt obligations and
repurchase agreements.

The Portfolio complies with industry regulations applicable to money
market funds. These regulations require that the Portfolio's investments mature
or be deemed to mature within 397 days from the date of acquisition, that the
average maturity of the Portfolio's investments (on a dollar-weighted basis) be
90 days or less, and that all of the Portfolio's investments be in U.S.
dollar-denominated high quality securities which have been determined by the
Portfolio to present minimal credit risks. The Portfolio reserves the right to
concentrate 25% or more of its total assets in domestic bank obligations.
Investments in high quality, short-term instruments may, in many circumstances,
result in a lower yield than would be available from investments in instruments
with a lower quality or a longer term.

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Unlike many money market funds, the Portfolio does not declare dividends
on a daily basis. Undeclared investment income may cause the Portfolio's net
asset value to fluctuate.

Capital Management Group ("Capital") currently is the Subadviser of the
Money Market Portfolio.

HIGH QUALITY BOND PORTFOLIO. The High Quality Bond Portfolio invests 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 Portfolio's duration
generally is between one and three years. Duration is a way of measuring the
Portfolio's overall sensitivity to interest rate fluctuations. The
dollar-weighted average maturity of the Portfolio generally will not exceed
three years under normal circumstances. Individual securities held by the
Portfolio may have longer maturities. Short-term debt securities generally
fluctuate less in price, and have lower yields, than longer-term securities of
comparable quality.

The Portfolio considers high quality debt securities to be those rated A
or better by Standard & Poor's or A3 or better by Moody's and securities of
comparable quality as determined by the Portfolio's advisers. Ratings are
described in Part B of this Registration Statement. Investments in higher
quality instruments may result in a lower yield than would be available from
investments in lower quality instruments.

Merganser Capital Management Corporation currently is the Subadviser to
the High Quality Bond Portfolio.

INTERMEDIATE GOVERNMENT BOND PORTFOLIO. The Intermediate Government Bond
Portfolio invests in U.S. government obligations and high quality, short-term
obligations (including repurchase agreements and reverse repurchase
agreements). Under normal circumstances the Portfolio invests at least 65% of
its assets in U.S. government obligations and repurchase agreements secured by
U.S. government obligations. U.S. government obligations are issued or
guaranteed as to principal and interest by the U.S. government or one of its
agencies or instrumentalities. Some obligations of U.S. government agencies and
instrumentalities are supported by the "full faith and credit" of the United
States, others by the right of the issuer to borrow from the U.S. Treasury, and
others only by the credit of the agency or instrumentality. The Portfolio also
invests in mortgage-backed securities backed by pass-through certificates
issued or guaranteed by the U.S. government or its agencies. ALTHOUGH THE
PORTFOLIO INVESTS IN U.S. GOVERNMENT OBLIGATIONS, AN INVESTMENT IN THE
PORTFOLIO IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.

The Portfolio's duration generally is between one and five years, and its
dollar-weighted average maturity generally is between three and five years (and
does not exceed ten years) under normal circumstances. The Portfolio may invest
in securities with maturities of as much as 30 years.

Capital currently is the Subadviser to the Intermediate Government Bond
Portfolio.

GOVERNMENT/CORPORATE BOND PORTFOLIO. The Government/Corporate Bond
Portfolio invests in investment grade debt securities, U.S. government
obligations (including U.S. government agency and instrumentality obligations
and collateralized mortgage obligations guaranteed by these agencies and
instrumentalities), and high quality short-term obligations (including

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repurchase agreements and reverse repurchase agreements). Under normal
circumstances the Portfolio invests at least 65% of its assets in U.S.
government securities, corporate bonds and short-term instruments.

Investment grade debt securities carry a rating of at least BBB from
Standard & Poor's or Baa from Moody's or are of comparable quality as
determined by the Portfolio's advisers. The Portfolio also invests in
securities of foreign issuers.

The Portfolio's duration generally is between three and ten years, and
its dollar-weighted average maturity generally is between five and fifteen
years (and does not exceed thirty years) under normal circumstances. While
longer-term securities tend to have higher yields than short-term securities,
they are subject to greater price fluctuations as a result of interest rate
changes and other factors.

Capital currently is the Subadviser to the Government/Corporate Bond
Portfolio.

HIGH-YIELD BOND PORTFOLIO. The High-Yield Bond Portfolio invests at least
65% of its assets under normal circumstances in high-yielding, income producing
debt securities, such as debentures and notes, and preferred stocks, including
convertible and zero coupon securities. The Portfolio may invest in equity
securities, including common stocks, warrants and rights. The Portfolio may
invest all or a substantial portion of its assets in lower-rated debt
securities, commonly referred to as "junk bonds." Investing in junk bonds is an
aggressive approach to income investing. Investors should carefully consider
the special risks of investing in this Portfolio. See "Risk Considerations."

Delaware Investment Advisers currently is the Subadviser to the
High-Yield Bond Portfolio.

BALANCED PORTFOLIO. The Balanced Portfolio invests in a managed mix of
common and preferred stocks (and their equivalents including American
Depositary Receipts), debt securities and commercial paper of U.S.
corporations, U.S. government securities and bank obligations. The Portfolio
varies the percentage of assets invested in any one type of security in
accordance with its advisers' interpretation of economic and market conditions,
fiscal and monetary policy, and underlying securities values. Under normal
circumstances, approximately 60% of the Portfolio's assets will be invested in
equity securities and 40% of the Portfolio's assets will be invested in fixed
income securities (at least 25% of which will be invested in fixed-income
senior securities, including debt securities and preferred stock). In selecting
common stocks, emphasis is placed on investing in established companies. Most
of the Portfolio's non-convertible long-term debt investments consist of
investment grade securities (those rated BBB or better by Standard & Poor's or
Baa or better by Moody's) and those of equivalent quality as determined by the
Portfolio's advisers. Less than 5% of the Portfolio's investments consist of
securities rated BBB by Standard & Poor's or Baa by Moody's. These ratings are
described in the Part B of this Registration Statement.

Institutional Capital Corporation currently is the Subadviser to the
Balanced Portfolio.

EQUITY INCOME PORTFOLIO. The Equity Income Portfolio invests primarily in
stocks of companies which, in the opinion of the Portfolio's advisers, are
fundamentally sound financially and which pay relatively high dividends on a
consistent basis.

Asset Management Group currently is the Subadviser to the Equity Income
Portfolio.

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EQUITY VALUE PORTFOLIO. The Equity Value Portfolio invests primarily in
stocks of companies which, in the opinion of the Portfolio's advisers, are
trading at low valuations relative to market and/or historical levels. These
stocks tend to have relatively low price/earnings ratios and/or relatively low
price/book value ratios. Low price/earnings ratios or price/book value ratios
mean that the stock is less expensive than average relative to the company's
earnings or book value, respectively.

Ark Asset Management Co., Inc. ("Ark") currently is the Subadviser to the
Equity Value Portfolio.

GROWTH & INCOME PORTFOLIO. The Growth & Income Portfolio invests
primarily in a diversified portfolio of securities selected in large part for
their potential to generate long term capital appreciation. The Portfolio also
may select securities based on their potential to generate current income. The
Portfolio emphasizes securities of growing, financially stable and undervalued
companies. This Portfolio attempts to achieve more capital appreciation than an
income fund and less price volatility than a growth fund.

Putnam Advisory Company, Inc. currently is the Subadviser to the Growth &
Income Portfolio.

In selecting investments, the Equity Income, Equity Value and Growth &
Income Portfolios emphasize common stocks and preferred stocks listed on the
New York Stock Exchange and on other national securities exchanges and, to a
lesser extent, stocks that are traded over-the-counter.

EQUITY GROWTH PORTFOLIO. The Equity Growth Portfolio invests primarily in
a diversified portfolio of common stocks, of companies with potential for above
average growth in earnings and dividends. As a fundamental policy that cannot
be changed without investor approval, under normal circumstances, at least 65%
of the assets of the Portfolio are invested in equity securities. The Portfolio
emphasizes common and preferred stocks listed on the New York Stock Exchange
and other national securities exchanges and, to a lesser extent, stocks that
are traded over-the-counter. Multiple managers are used to control the
volatility often associated with growth funds.

Dresdner RCM Global Investors LLC and Montag & Caldwell, Inc. currently
are the Subadvisers to the Equity Growth Portfolio.

SPECIAL EQUITY PORTFOLIO. The Special Equity Portfolio invests primarily
in a diversified portfolio of stocks of small to medium size companies which,
in the opinion of the Portfolio's advisers, present an opportunity for
significant increases in earnings, revenue and/or value, without consideration
for current income. The Special Equity Portfolio emphasizes common stocks of
U.S. companies with market capitalizations of less than $1 billion. Investing
in securities of smaller companies involves special risks. Multiple managers
are used to control the volatility often associated with investments in
companies of this size. Investors should carefully consider the risks of
investing in the Special Equity Portfolio. See "Risk Considerations".

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

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AGGRESSIVE EQUITY PORTFOLIO. The Aggressive Equity Portfolio invests
primarily in high growth companies without regard to market capitalization. The
Portfolio seeks to invest in companies which present an opportunity for
significant increases in earnings, revenue and/or value, without consideration
for current income, to achieve excess market returns relative to its benchmark,
the Russell 2000 Growth Index. The Portfolio also emphasizes stocks of
companies with consistent, above-average and accelerating profitability and
growth. The investment characteristics, such as price-to-earnings ratio, of the
Portfolio can undergo major changes at any time. As a result, the price of
shares of this fund may be very volatile.

McKinley Capital Management, Inc. currently is the Subadviser to the
Aggressive Equity Portfolio.

INTERNATIONAL EQUITY PORTFOLIO. The International Equity Portfolio
invests primarily in foreign securities, meaning securities of issuers that, in
the opinion of the Portfolio's advisers, have their principal activities
outside the United States or whose securities are traded primarily outside the
United States. Under normal circumstances, at least 65% of the Portfolio's
assets are invested in equity securities of issuers in at least three countries
other than the United States. The Portfolio invests most of its assets in
securities of issuers in Canada, Australia and developed countries in Europe
and the Far East. The Portfolio may invest up to 10% of its assets in
securities of issuers in developing countries. The Portfolio may also invest in
any type or quality of debt securities, including lower-rated securities, and
may enter into forward currency exchange contracts solely for hedging purposes.
See "Risk Considerations".

Capital Guardian Trust Company currently is Subadviser to the
International Equity Portfolio.

Each of the Equity Income, Equity Value, Growth & Income, Equity Growth,
Special Equity Agressive Equity and International Equity Portfolios 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. See "Additional Investment Policies" below.

ADDITIONAL INVESTMENT POLICIES

FOREIGN SECURITIES. Each Portfolio may invest a portion of its assets in
foreign securities. The International Equity Portfolio will invest a
substantial portion of its assets in foreign securities. Investing in foreign
securities involves risks in addition to those of investing in U.S. securities.
These risks are heightened for investments in securities of issuers in
developing countries. See "Risk Considerations."

TEMPORARY INVESTMENTS. During periods of unusual economic or market
conditions or for temporary defensive purposes or liquidity, each Portfolio may
invest without limit in cash and in U.S. dollar-denominated high quality money
market and short-term instruments. In addition, the International Equity
Portfolio may invest in foreign currencies. These investments may result in a
lower yield than would be available from investments with a lower quality or
longer term.

OTHER PERMITTED INVESTMENTS. For more information regarding the
Portfolios' permitted investments and investment practices, see "Permitted
Investments and Investment Practices" below. The Portfolios will not
necessarily invest or engage in each of the investments and investment

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practices listed in the "Permitted Investments and Investment Practices" but
reserve the right to do so. The Money Market Portfolio will invest or engage in
the investments and investment practices listed in the "Permitted Investments
and Investment Practices" section only to the extent consistent with industry
regulations applicable to money market funds.

INVESTMENT RESTRICTIONS. Part B of this Registration Statement contains a
list of specific investment restrictions which govern the investment policies
of the Portfolios. Under its investment restrictions, each Portfolio may borrow
money and enter into reverse repurchase agreements in an amount not to exceed
331/3% of the Portfolio's assets (including the borrowing) less liabilities
(not including the borrowing). Except as otherwise noted, the Portfolios'
investment objectives and policies may be changed without investor approval. If
a percentage or rating restriction (other than a restriction as to borrowing)
is adhered to at the time an investment is made, a later change in percentage
or rating resulting from changes in a Portfolio's securities is not a violation
of policy.

PORTFOLIO TURNOVER. Securities of a Portfolio are sold whenever the
Portfolio's advisers believe it is appropriate to do so in light of the
Portfolio's investment objective, without regard to the length of time a
particular security may have been held. See "Brokerage Allocation and Other
Practices" in Part B for the turnover rates for each Portfolio. The amount of
brokerage commissions and realization of taxable capital gains will tend to
increase as the level of portfolio activity increases.

BROKERAGE TRANSACTIONS. The primary consideration in placing each
Portfolio's securities 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. A Portfolio may execute brokerage or
other agency transactions through an investment adviser of the Portfolio. These
entities may be paid for these transactions.

RISK CONSIDERATIONS

The risks of investing in each Portfolio vary depending upon the nature
of the securities held, and the investment practices employed, on its behalf.
Certain of these risks are described in this section.

CHANGES IN NET ASSET VALUE. Each Portfolio's net asset value will
fluctuate based on changes in the values of its underlying portfolio
securities. Equity securities fluctuate in response to general market and
economic conditions and other factors, including actual and anticipated
earnings, changes in management, political developments and the potential for
takeovers and acquisitions. The value of debt securities generally goes down
when interest rates go up, and up when interest rates go down. Changes in
interest rates will generally cause larger changes in the prices of longer-term
securities than in the prices of shorter-term securities. Prices of debt
securities also fluctuate based on changes in the actual and perceived
creditworthiness of issuers. The prices of lower-rated securities often
fluctuate more than those of higher-rated securities.

CREDIT RISK OF DEBT SECURITIES. Investors should be aware that securities
offering above-average yields may involve above-average risks. It is possible
that some issuers will not make payments on debt securities held by a
Portfolio.

Lower-rated debt securities, generally referred to as "junk bonds",
usually are defined as securities rated BB or lower by Standard & Poor's or Ba

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or lower by Moody's. See Part B of this Registration Statement for more
information on ratings. Lower-rated debt securities are considered speculative
and involve greater volatility of price and greater risk of loss than
higher-rated securities due to changes in creditworthiness and ability to pay.
In adverse economic or other circumstances, issuers of these securities are
more likely to have difficulty making principal and interest payments than
issuers of higher grade obligations. A Portfolio may incur additional expenses
to the extent that is it required to seek recovery upon a default in the
payment of lower-rated debt security. The values of lower-rated debt securities
tend to reflect individual corporate developments or adverse economic changes
to a greater extent than higher-rated securities, which react primarily to
fluctuations in the general level of interest rates. Periods of economic
uncertainty and changes generally result in increased volatility in the market
prices of such securities, and thus in a Portfolio's net asset value.

In the event of default, lower-rated debt securities are frequently
subordinated to the prior payment of senior indebtedness and are traded in
markets that may be relatively less liquid that the market for higher-rated
securities. Under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, a Portfolio may find
it more difficult to sell these securities when it may be advisable to do so or
may be able to sell these securities only at prices lower than if the
securities were more widely held.

FOREIGN SECURITIES. In general, investments in foreign securities entail
risks relating to political, social and economic developments abroad. There are
also risks from the differences between the regulations to which U.S. and
foreign issuers and markets are subject. These risks may include expropriation,
confiscatory taxation, withholding taxes on dividends and interest, limitations
on the use or transfer of portfolio assets and political or social instability.
Asserting legal rights and claims may be difficult, costly and slow in foreign
countries. In addition, foreign companies may be subject to accounting
standards or governmental supervision less extensive than in the U.S.,
resulting in less public information about their operations.

Foreign markets may be less liquid and more volatile than U.S. markets,
and may offer less protection to investors such as the Portfolios. Prices at
which a Portfolio may acquire securities may be affected by persons trading
with material non-public information and by brokers effecting securities
transactions in anticipation of transactions by the Portfolios. In addition,
costs of trading may be higher than those in the U.S., due to the differing
compensation and commission structures in foreign securities markets.

Equity securities traded in certain foreign countries may trade at
price-earnings multiples higher than those of comparable companies trading on
securities markets in the United States. These multiples may not be
sustainable. Rapid increases in money supply in certain countries may result in
speculative investment in equity securities which may contribute to volatility
of trading markets.

Because foreign securities often trade in currencies other than the U.S.
dollar, changes in currency exchange rates will affect a Portfolio's net asset
value, the value of dividends and interest earned and gains and losses realized
on the sale of securities. In addition, some foreign currency values may be
volatile and there is the possibility of governmental controls on currency
exchanges or governmental intervention in currency markets.

The costs attributable to foreign investing, such as the costs of
maintaining custody of securities in foreign countries, frequently are higher
than those involved in U.S. investing. As a result, the operating expense
ratios of the Portfolios may be higher than those of investment companies
investing exclusively in U.S. securities.

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The Equity Income, Equity Value, Growth & Income, Equity Growth, Special
Equity, Agressive Equity and in particular the International Equity Portfolio,
may invest in issuers located in developing countries, which are generally
defined as countries in the initial stages of their industrialization cycles
with low per capita income. All of the risks of investing in foreign securities
are heightened by investing in developing countries. Historical experience
indicates that the markets of developing countries have been more volatile than
the markets of developed countries with more mature economies; these markets
often have provided wider fluctuations in rates of return, and greater risks,
to investors.

SMALLER COMPANIES. Investors in the Equity Income, Equity Value, Growth &
Income, Equity Growth, Agressive Equity, International Equity Portfolios and
particularly the Special Equity Portfolio, should be aware that the securities
of companies with small market capitalizations may have more risks than the
securities of other companies. Smaller companies may be more susceptible to
market downturns or setbacks because they may have limited product lines,
markets, distribution channels, and financial and management resources. There
is often less publicly available information about smaller companies than about
more established companies. As a result, the prices of securities issued by
smaller companies may be volatile. Interests in the Equity Income, Equity
Value, Growth & Income, Equity Growth, Agressive Equity, International Equity
Portfolios and particularly the Special Equity Portfolio, may fluctuate in
value more than those of an equity fund with more investments in larger, more
established companies.

INVESTMENT PRACTICES. Certain of the investment practices employed for
the Portfolios may entail certain risks. These risks are in addition to the
risks described above and are described in "Permitted Investments and
Investment Practices" below.

PERMITTED INVESTMENTS AND INVESTMENT PRACTICES

U.S. TREASURY OBLIGATIONS. U.S. Treasury obligations include bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of these obligations that are transferable through
the Federal book-entry system known as Separately Traded Registered Interest
and Principal Securities (STRIPS). STRIPS are sold as zero coupon securities.
These securities are usually structured with two classes that receive different
portions of the interest and principal payments from the underlying obligation.
The yield to maturity on the interest-only class is extremely sensitive to the
rate of principal payments on the underlying obligation. The market value of
the principal-only class generally is unusually volatile in response to changes
in interest rates. See "Zero Coupon Securities" for more information.

U.S. GOVERNMENT AGENCIES. Certain Federal agencies such as the Government
National Mortgage Association (GNMA) have been established as instrumentalities
of the U.S. government to supervise and finance certain types of activities.
Issues of these agencies, while not direct obligations of the U.S. government,
are either backed by the full faith and credit of the United States (e.g.,
GNMA) or supported by the issuing agencies' right to borrow from the Treasury.
The issues of other agencies are supported only by the credit of the
instrumentality (e.g., Federal National Mortgage Association).

RECEIPTS. Receipts are interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
and brokerage firms and are created by depositing U.S. Treasury obligations

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into a special account at a custodian bank. The custodian holds the interest
and principal payments for the benefit of the registered owners of the
certificates or receipts. Receipts include Treasury Receipts (TRs), Treasury
Investment Growth Receipts (TIGRs) and Certificates of Accrual on Treasury
Securities (CATS). TRs, TIGRs, and CATS are sold as zero coupon securities.

ZERO COUPON SECURITIES. A zero coupon security pays no interest or
principal to its holder during its life. A zero coupon security is sold at a
discount, frequently substantial, and redeemed at face value at its maturity
date. The market prices of zero coupon securities are generally more volatile
than the market prices of securities of similar maturity that pay interest
periodically, and zero coupon securities are likely to react more to interest
rate changes than non-zero coupon securities with similar maturity and credit
qualities.

BANK OBLIGATIONS. Bank obligations include certificates of deposit, time
deposits (including Eurodollar time deposits) and bankers' acceptances and
other short-term debt obligations issued by domestic banks, foreign
subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. The Portfolios have established certain minimum credit
quality standards for bank obligations in which they invest.

BANKERS' ACCEPTANCES. A banker's acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.

CERTIFICATES OF DEPOSIT. A certificate of deposit is a negotiable
interest-bearing instrument with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds and normally can be traded in the secondary market prior to
maturity.

TIME DEPOSITS. A time deposit is a non-negotiable receipt issued by a
bank in exchange for the deposit of funds. Like a certificate of deposit, it
earns a specified rate of interest over a definite period of time; however, it
cannot be traded in the secondary market. Time deposits with a withdrawal
penalty are considered to be illiquid securities.

COMMERCIAL PAPER. Commercial paper is the term used to designate
unsecured short-term promissory notes issued by corporations and other
entities. Maturities on these issues vary from one to 270 days.

MONEY MARKET FUNDS. A money market fund is a mutual fund that limits its
investments to high quality money market instruments with a weighted average
maturity of 90 days or less. Consistent with applicable regulations the
Portfolios may not invest more than certain percentages of their assets in
other mutual funds. Investing in other mutual funds causes investors to bear
not only Portfolio expenses, but also expenses of the underlying mutual funds.

VARIABLE AND FLOATING RATE INSTRUMENTS. Certain obligations may carry
variable or floating rates of interest and may involve a conditional or
unconditional demand feature permitting the holder to demand payment of
principal at any time or at specified intervals. These obligations may include
variable amount master demand notes. Such instruments bear interest at rates
which are not fixed, but which vary with changes in specified market rates or

<PAGE>

indices, such as a Federal Reserve composite index. A demand instrument with a
demand notice period exceeding seven days may be considered illiquid if there
is no secondary market for such security. The interest rate on these securities
may be reset daily, weekly, quarterly, or some other reset period and may have
a floor or ceiling on interest rate charges. There is a risk that the current
interest rate on such obligations may not accurately reflect existing market
interest rates.

REPURCHASE AGREEMENTS. A repurchase agreement is an agreement where a
person buys a security and simultaneously commits to sell the security to the
seller at an agreed upon price (including principal and interest) on an agreed
upon date within a number of days from the date of purchase. A Portfolio bears
a risk of loss in the event the other party defaults on its obligations and the
Portfolio is delayed or prevented from its right to dispose of the collateral
securities or if the Portfolio realizes a loss on the sale of the collateral
securities. Certain Portfolios may, together with other registered investment
companies managed by those Portfolio's Subadvisers or their affiliates,
transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.

REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve the
sale of securities held by a Portfolio and the agreement by the Portfolio to
repurchase the securities at an agreed-upon price, date and interest payment.
When a Portfolio enters into reverse repurchase transactions, securities of a
dollar amount equal in value to the securities subject to the agreement will be
maintained in a segregated account with the Portfolio's custodian. The
segregation of assets could impair the Portfolio's ability to meet its current
obligations or impede investment management if a large portion of the
Portfolio's assets are involved. Reverse repurchase agreements are considered
to be a form of borrowing.

MORTGAGE-BACKED SECURITIES. The Portfolios may purchase mortgage-backed
securities issued or guaranteed as to payment of principal and interest by the
U.S. government or one of its agencies and backed by the full faith and credit
of the U.S. government, including direct pass-through certificates of GNMA, as
well as mortgage-backed securities for which principal and interest payments
are backed by the credit of particular agencies of the U.S. government.
Mortgage-backed securities are generally backed or collateralized by a pool of
mortgages. These securities are sometimes called collateralized mortgage
obligations or CMOs.

Even if the U.S. government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment because the underlying mortgages are refinanced to
take advantage of the lower rates. Thus, prices of mortgage-backed securities
may not increase as much as prices of other debt obligations when interest
rates decline, and mortgage-backed securities may not be an effective means of
locking in a particular interest rate. In addition, any premium paid for a
mortgage-backed security may be lost when it is prepaid. When interest rates
increase, mortgage-backed securities experience lower rates of prepayment. This
has the effect of lengthening the expected maturity of a mortgage-backed
security. As a result, prices of mortgage-backed securities may decrease more
than prices of other debt obligations when interest rates increase.

Additionally mortgage-backed securities are also subject to maturity
extension risk, that is, the possibility that rising interest rates may cause
prepayments to occur at a slower than expected rate. This particular risk may
effectively convert a security that was considered short or intermediate-term

<PAGE>

at the time of purchase into a long-term security. Long-term securities
generally fluctuate more widely in response to changes in interest rates than
short or intermediate-term securities. Thus, a rising interest rate would not
only likely decrease the value of a Portfolio's securities, but would also
increase the inherent volatility of the Portfolio by effectively converting
short term debt instruments into long term debt instruments.

FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS. Forward
commitments or purchases of securities on a when-issued basis are transactions
where the price of the securities is fixed at the time of commitment and the
delivery and payment ordinarily takes place beyond customary settlement time.
The interest rate realized on these securities is fixed as of the purchase date
and no interest accrues to the buyer before settlement. The securities are
subject to market fluctuation due to changes in market interest rates; the
securities are also subject to fluctuation in value pending settlement based
upon public perception of the creditworthiness of the issuer of these
securities.

YANKEE BONDS AND EURODOLLAR BONDS. Yankee bonds are U.S. dollar
denominated bonds issued in the United States market by foreign issuers and are
subject to the regulations of the Securities and Exchange Commission.
Eurodollar bonds are fixed income securities that are denominated in U.S.
dollars, underwritten by an international syndicate and sold to foreign
investors. U.S.-based investors may purchase eurodollar bonds in the secondary
market after a seasoning period. Eurodollar bonds are not subject to regulation
by the Securities and Exchange Commission.

ASSET-BACKED SECURITIES. The Portfolios may invest in corporate
asset-backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card or automobile
loan receivables, representing the obligations of a number of different
parties. Corporate asset-backed securities present certain risks. For instance,
in the case of credit card receivables, these securities may not have the
benefit of any security interest in the related collateral.

STANDBY COMMITMENTS. A security purchased subject to a standby commitment
may be sold at a fixed price prior to maturity and may be sold at any time at
market rates. A premium may be paid for a standby commitment and will have the
effect of reducing the yield otherwise payable on the underlying security.

GUARANTEED INVESTMENT CONTRACTS (GIC). A GIC is a contract between an
insurance company and, generally, an institutional investor that guarantees the
investor a specified interest rate for a specific period and the return of the
investor's principal.

COMMON AND PREFERRED STOCK. Common stocks are generally more volatile
than other securities. Preferred stocks share some of the characteristics of
both debt and equity investments and are generally preferred over common stocks
with respect to dividends and in liquidation.

CONVERTIBLE SECURITIES. Convertible securities have characteristics
similar to both fixed income and equity securities. Because of the conversion
feature, the market value of convertible securities tends to move together with
the market value of the underlying stock. The value of convertible securities
is also affected by prevailing interest rates, the credit quality of the
issuer, and any call provisions. Convertible securities include both debt
obligations and preferred stock.

<PAGE>

AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS. American
Depositary Receipts (ADRs) are securities, typically issued by a U.S. financial
institution, that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer. European Depositary Receipts and shares
(EDRs), which are sometimes referred to as Continental Depositary Receipts and
shares (CDRs), are securities, typically issued by a foreign financial
institution, that evidence ownership interests in a security or a pool of
securities issued by either a U.S. or foreign issuer. ADRs, EDRs and CDRs may
be available for investment through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of the security
underlying the receipt and a depositary, whereas an unsponsored facility may be
established by a depositary without participation by the issuer of the
receipt's underlying security. Holdings of an unsponsored depositary receipt
generally bear all the costs of the unsponsored facility and the depositary of
an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security
or to pass voting rights through to the holders of the receipts in respect of
the deposited securities. Investments in securities of foreign issuers
(including ADRs, EDRs and CDRs) are subject to special risks. See "Risk
Considerations."

FOREIGN CURRENCY TRANSACTIONS. Forward currency exchange contracts may be
entered into for each Portfolio for the purchase or sale of foreign currency to
hedge against adverse rate changes or otherwise to achieve the Portfolio's
investment objectives. A currency exchange contract allows a definite price in
dollars to be fixed for securities of foreign issuers that have been purchased
or sold (but not settled) for the Portfolio.

Each Portfolio may also enter into proxy hedges and cross hedges. In a
proxy hedge, which generally is less costly than a direct hedge, a Portfolio,
having purchased a security, will sell a currency whose value is believed to be
closely linked to the currency in which the security is denominated. Interest
rates prevailing in the country whose currency was sold would be expected to be
closer to those in the U.S. and lower than those of securities denominated in
the currency of the original holding. This type of hedging entails greater risk
than a direct hedge because it is dependent on a stable relationship between
the two currencies paired as proxies and the relationships can be very unstable
at times. A Portfolio may enter into a cross hedge if a particular currency is
expected to decrease against another currency. The Portfolio would sell the
currency expected to decrease and purchase a currency which is expected to
increase against the currency sold in an amount equal to some or all of the
Portfolio's holdings denominated in the currency sold.

Entering into exchange contracts may result in the loss of all or a
portion of the benefits which otherwise could have been obtained from favorable
movements in exchange rates. In addition, entering into such contracts means
incurring certain transaction costs and bearing the risk of incurring losses if
rates do not move in the direction anticipated.

WARRANTS. A warrant is an instrument issued by a corporation which gives
the holder the right to subscribe to a specified amount of the corporation's
capital stock at a set price for a specified period of time. Each Portfolio may
invest up to 5% of its net assets in warrants, except that this limitation does
not apply to warrants acquired in units or attached to securities. Included in
this limitation, but not to exceed 2% of the Portfolio's net assets, may be
warrants not listed on the New York Stock Exchange or American Stock Exchange.

SECURITIES LENDING. Consistent with applicable regulatory requirements
and in order to generate additional income, each Portfolio may lend securities
to broker-dealers and other institutional borrowers. The Portfolio must be able

<PAGE>

to terminate the loan at any time and the loan must be continuously secured by
collateral (usually cash or U.S. government securities) in an amount not less
than the market value, determined daily, of the securities loaned. It is
intended that the value of securities loaned by a Portfolio would not exceed
331/3% of the Portfolio's total assets. In the event of the bankruptcy of the
other party to a securities loan, a Portfolio could experience delays in
recovering either the securities lent or cash. To the extent that, in the
meantime, the value of the securities lent has increased or the value of the
securities purchased has decreased, the Portfolio could experience a loss. The
voting rights of such securities may pass to the borrower; however, the lending
Portfolio will seek to call loans, to vote proxies, or otherwise to obtain
rights to vote or consent if a material event affecting the investment is to
occur.

RESTRICTED OR ILLIQUID SECURITIES. Securities that may not be sold freely
to the public absent registration or securities for which there is no readily
available market are referred to as restricted or illiquid securities,
respectively. Each Portfolio may invest up to 15% (10% for the Money Market
Portfolio) of its net assets in illiquid securities, including restricted
securities that are illiquid. The absence of a trading market can make it
difficult to ascertain a market value for these investments. Disposing of
illiquid securities may involve time-consuming negotiation and legal expense,
and it may be difficult or impossible for a Portfolio to sell them promptly at
an acceptable price.

RULE 144A SECURITIES. A Portfolio may purchase restricted securities that
are not registered for sale to the general public if it is determined that
there is a dealer or institutional market in the securities. In that case, the
securities will not be treated as illiquid for purposes of the Portfolio's
investment limitation described above. The Trustees will review these
determinations. These securities are known as "Rule 144A securities" because
they are traded under SEC Rule 144A among qualified institutional buyers.
Institutional trading in Rule 144A securities is relatively new and the
liquidity of these investments could be impaired if trading in Rule 144A
securities does not develop or if qualified institutional buyers become, for a
time, uninterested in purchasing Rule 144A securities.

OPTIONS. The Portfolios may engage in writing call options from time to
time. Under a call option, the purchaser of the option has the right to
purchase, and the writer (the Portfolio) the obligation to sell, the underlying
security at the exercise price during the option period. Options written on
individual securities are written solely as covered call options (such as
options written on securities owned by the Portfolio) and may be written for
hedging purposes. Such options must be listed on a national securities
exchange.

There are risks associated with options transactions, including that the
success of a hedging strategy may depend on the ability of the Adviser to
predict movements in the prices of individual securities, market fluctuations
and movements in interest rates; there may be an imperfect correlation between
the movement in prices of securities held by a Portfolio and price movements of
the related options; there may not be a liquid secondary market for options;
and while a Portfolio will receive a premium when it writes covered call
options, it may not participate fully in a rise in the market value of the
underlying security.

FUTURES AND OPTIONS ON FUTURES. Futures contracts provide for the future
sale by one party and purchase by another party of a specified amount of a
specified security at a specified future time and at a specified price. An
option on a futures contract gives the purchaser the right, in exchange for a
premium, to assume a position in a futures contract at a specified exercise
price during the term of the option. The Portfolios may enter into futures

<PAGE>

contracts and options on futures contracts provided that the sum of a
Portfolio's initial margin deposits on open futures contracts which are not for
hedging purposes plus the amount paid for premiums for unexpired options on
futures contracts which are not for hedging purposes does not exceed 5% of the
market value of the Portfolio's total assets. In addition, the outstanding
obligations to purchase securities under futures contracts will not exceed 50%
of the Portfolio's total assets.

The Portfolios may purchase and sell interest rate futures contracts and
options on interest rate futures contracts, stock index futures contracts and
options on stock index futures contracts; and currency futures contracts and
options on currency futures contracts.

The Portfolios intend to use futures contracts and related options only
for bona fide hedging purposes, i.e., to offset unfavorable changes in the
value of securities otherwise held or expected to be acquired for investment
purposes. There are risks associated with these hedging activities. See
"Options."

OTHER INVESTMENT COMPANIES. Subject to applicable statutory and
regulatory limitations, assets of each Portfolio may be invested in shares of
other investment companies and foreign investment trusts. Each Portfolio may
invest up to 5% of its assets in closed-end investment companies which
primarily hold securities of foreign issuers.

CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or
receive payments in specified currencies. Currency swaps usually involve the
delivery of the entire principal value of one designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Adviser is incorrect in its forecasts
of market values and currency exchange rates, the investment performance of the
Portfolio would be less favorable that it would have been if this investment
technique were not used.

SHORT SALES "AGAINST THE BOX". In a short sale, a Portfolio sells a
borrowed security and has a corresponding obligation to the lender to return
the identical security. A Portfolio may engage in a short sale 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." A Portfolio may make a
short sale as a hedge, when it believes that the value of a security owned by
the Portfolio (or a security convertible or exchangeable for such security) may
decline.

REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs are pooled investment
vehicles that invest primarily in either real estate or real estate related
loans. The value of a REIT is affected by changes in the value of the
properties owned by the REIT or collateralizing mortgage loans held by the
REIT. REITs are dependent upon management skills and cash flow from their
investments to repay financing costs. REITs are also subject to risks generally
associated with investments in real estate. A Portfolio will indirectly bear
its proportionate share of any expenses, including management fees, paid by a
REIT in which it invests.

<PAGE>

Item 5. Management of the Portfolios.

TRUSTEES AND OFFICERS: Each Portfolio is supervised by the Board of
Trustees of the Trust. A majority of the Trustees are not affiliated with
Diversified. More information on the Trustees and officers of the Portfolios
appears under "Management of the Trust" in Part B to this Registration
Statement.

INVESTMENT ADVISER. Diversified Investment Advisors, Inc. is the
investment adviser (the "Adviser") of each Portfolio.

Diversified is an indirect, wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"), a financial services holding company whose primary emphasis is life
and health insurance and annuity and investment products. AEGON is an indirect,
wholly-owned subsidiary of AEGON nv, a Netherlands corporation which is a
publicly traded international insurance group. Diversified was incorporated in
1992 for the purpose of acting as the investment adviser to the Portfolios.

Diversified has selected Subadvisers for each Portfolio which have been
approved by the Trustees of the Trust and the investors in that Portfolio.
Diversified provides general supervision of the Subadvisers for the Portfolios
subject to the policies set by the Trustees of the Trust. Investment management
decisions are made by a committee of Diversified's personnel and not by any
particular individual.

It is the responsibility of the Subadviser(s) to each Portfolio to make
the day-to day investment decisions for the Portfolio and to place the purchase
and sale orders for securities transactions, subject in all cases to the
general supervision of Diversified and the policies set by the Trustees of the
Trust. The Subadvisers are as follows:

MONEY MARKET PORTFOLIO,
INTERMEDIATE GOVERNMENT
BOND PORTFOLIO AND
GOVERNMENT/CORPORATE BOND PORTFOLIO:

Capital Management Group, a division of
1740 Advisers, Inc., a wholly-owned
subsidiary of The Mutual Life Insurance
Company of New York. Capital has been a
registered investment adviser since 1971.
The address of Capital is 1740 Broadway,
New York 10019.

The following representatives of Capital
are primarily responsible for the day-to
day management of the Portfolios:

Money Market Portfolio: David E. Wheeler,
Investment Vice President and Portfolio
Manager, has been responsible for the
day-to-day management of the Portfolio
since 1997. Mr. Wheeler has been employed
by Capital since 1994 and was employed at
AIG Investment Advisers prior to 1994.

<PAGE>

Intermediate Government Bond Portfolio and
Government/Corporate Bond Portfolio:
Gregory Staples, Vice President, has been
responsible for the day-to day management
of the Intermediate Government Bond
Portfolio since 1996 and the
Government/Corporate Bond Portfolio since
1994. Mr. Staples has been employed by
Capital since 1987.

HIGH QUALITY BOND PORTFOLIO:

Merganser Capital Management Corporation.
Merganser Capital Management Corporation
("Merganser") was formed in 1987 and is
owned by certain of its employees.
Merganser has been a registered investment
adviser since 1987. 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.

HIGH-YIELD BOND PORTFOLIO:

Delaware Investment Advisers. Delaware
Investment Advisers is a series of Delaware
Management Business Trust ("Delaware").
Delaware is indirectly owned by Lincoln
National Corp. Delaware and its
predecessors have been registered
investment advisers since 1952. The
principal business address of Delaware
Investment Advisers is 2005 Market Street,
Philadelphia, Pennsylvania 19103.

Investment management decisions of Delaware
Investment Advisers are made by committee
and not by managers individually.

BALANCED PORTFOLIO:

Institutional Capital Corporation.
Institutional Capital Corporation
("Institutional Capital") was formed in
January of 1970 and is owned by certain of
its employees. Institutional Capital has
been a registered investment adviser since
1975. The principal business address of
Institutional Capital is 303 West Madison
Street, Chicago, Illinois 60606.

Investment management decisions of
Institutional Capital are made by committee
and not by managers individually.

<PAGE>

EQUITY INCOME PORTFOLIO:
Asset Management Group, a division of 1740
Advisers, Inc., which is a wholly-owned
subsidiary of MONY. Asset Management Group
has been a registered investment adviser
since 1971. The address of Asset Management
Group is 1740 Broadway, New York, New York
10019.

Investment management decisions at Asset
Management Group are made by committee and
not by managers individually.

EQUITY VALUE PORTFOLIO:

Ark Asset Management Co., Inc. Ark was
formed in August of 1989 and is owned by
Ark Asset Holdings, Inc. Ark Asset
Holdings, Inc. is owned by Ark employees.
Ark has been a registered investment
adviser since 1989. The principal address
of Ark is 125 Broad Street, New York, New
York 10004.

Investment management decisions of Ark are
made by committee and not by managers
individually.

GROWTH & INCOME PORTFOLIO:
Putnam Advisory Company, Inc. Putnam
Advisory Company, Inc. ("Putnam") was
formed in 1937 and is owned by Marsh &
McLennon Companies, Inc. Putnam has been a
registered investment adviser since 1968.
The principal address of Putnam is One Post
Office Square, Boston, Massachusetts 02109.

The investment management decisions of
Putnam are made by committee and not by
managers individually.

EQUITY GROWTH PORTFOLIO:

Dresdner RCM Global Investors LLC
Montag & Caldwell, Inc.

Dresdner RCM Global Investors LLC. Dresdner
RCM Global Investors LLC ("Dresdner RCM")
was established in 1996, when Dresdner Bank
acquired RCM Capital Management, LLC.
Dresdner RCM has been a registered
investment adviser since 1972. The
principal address of Dresdner RCM is Four
Embarcadero Center, Suite 2900, San
Francisco, California 94111.

Investment management decisions of Dresdner
RCM are made by committee and not by
managers individually.

Montag & Caldwell, Inc. Montag & Caldwell,
Inc. ("Montag") was established in 1945 and

<PAGE>

is owned by Alleghany Corporation. Montag
has been a registered investment adviser
since 1968. The principal address of Montag
is 3343 Peachtree Road, N.E., Suite 1100,
Atlanta, Georgia 30326-1022.

Investment management decisions of Montag
are made by committee and not by managers
individually.

SPECIAL EQUITY PORTFOLIO:
Ark Asset Management Co., Inc.
Liberty Investment Management
Pilgrim Baxter & Associates, Ltd.
Westport Asset Management, Inc.

Ronald Wiener, Vice Chairman and Portfolio
Manager, has been primarily responsible for
the day-to-day management of the Portfolio
on behalf of Ark since 1994. Mr. Wiener has
been employed by Ark since 1986 and was
employed at Lehman Management Co., Inc. as
Senior Vice President and Senior Portfolio
Manager, Specialty Growth Equity
Management, from 1986 to 1989.

Liberty Investment Management. Liberty
Investment Management ("Liberty") is a
division of Goldman Sachs Asset Management
and was established in January of 1997 when
Goldman, Sachs & Co. acquired Liberty
Investment Management, Inc. Goldman Sachs
Asset Management is a separate operating
division of Goldman, Sachs & Co., a
worldwide investment banking firm. Liberty
has been a registered investment adviser
since 1994. (Liberty's predecessor, Eagle
Asset Management, Inc., has been a
registered investment adviser since 1984.)
The principal business address of Liberty
is 2502 Rocky Point Drive, Suite 500,
Tampa, Florida 33607.

Herbert E. Ehlers, Managing Director, and
Timothy G. Ebright, Portfolio Manager, have
been responsible for the day-to-day
management of the Portfolio on behalf of
Liberty since 1994. Mr. Ehlers and Mr.
Ebright have been employed at Liberty, or
its predecessor Eagle Asset Management,
Inc., since 1980 and 1988, respectively.

<PAGE>

Pilgrim Baxter & Associates, Ltd. Pilgrim
Baxter & Associates, Ltd. ("Pilgrim") was
formed in 1995 and is owned by United Asset
Management, Inc., a publicly-owned
corporation. Pilgrim has been a registered
investment adviser since 1982. The
principal business address of Pilgrim is
825 Duportail Road, Wayne, Pennsylvania
19087.

John Force, Portfolio Manager, has been
responsible for the day-to-day management
of the Portfolio on behalf of Pilgrim since
1994 and has been employed by Pilgrim since
January 1993.

Westport Asset Management, Inc. Westport
Asset Management, Inc. ("Westport") was
formed in 1993 and is owned by certain of
its employees. Westport has been a
registered investment adviser since 1983.
The principal business address of Westport
is 253 Riverside Avenue, Westport,
Connecticut 06880.

Andrew Knuth, Portfolio Manager, has been
responsible for the day-to day management
of the Portfolio on behalf of Westport
since 1994 and has been employed by
Westport since 1983.

AGGRESSIVE EQUITY PORTFOLIO
McKinley Capital Management, Inc. McKinley
Capital Management Inc. ("McKinley") was
formed in March of 1991 and is owned by
Robert B. Gillam. McKinley has been a
registered investment adviser since 1991.
The principal business address of McKinley
is 3301 C Street, Anchorage Alaska 99503.

Robert B. Gillam, Portfolio Manager, has
been responsible for the day-to-day
supervision of management of the Portfolio
since 1996 and has been employed by
McKinley since 1991.

INTERNATIONAL EQUITY PORTFOLIO
Capital Guardian Trust Company. Capital
Guardian Trust Company ("Captain Guardian")
was formed in 1968 and is owned by The
Capital Group Companies, Inc. Capital
Guardian is a trust company registered by
the California Department of Financial
Institutions. The principal address of
Capital Guardian is 333 South Hope Street,
Los Angeles, California 90071.

Capital Guardian uses a system of multiple
portfolio managers. Within investment
guidelines, each portfolio manager makes

<PAGE>

individual decisions as to company,
country, industry, timing and percentage
based on extensive field research and
direct company contact.

Management's discussion of Portfolio performance is included in the
Annual Report, which may be obtained without charge by calling (914) 697-8000.

Advisory Fees. Diversified is entitled to receive investment advisory
fees, which are accrued daily and payable monthly, at an annual percentage of
each Portfolio's average daily net assets. The rates for the Portfolios are
shown in the table below.

Each of the Subadvisers is entitled to receive a fee from Diversified at
an annual percentage of each Portfolio's average daily net assets. The rates
are shown in the table below.
<TABLE>
<CAPTION>

COMPENSATION COMPENSATION
PORTFOLIO SUBADVISERS (%) (%)
TO ADVISER(1) TO SUBADVISERS

Money Market Portfolio Capital Management Group 0.25 0.05

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

Intermediate Capital Management Group 0.35 0.15
Government Bond
Portfolio

Government/Corporate Capital Management Group 0.35 0.15
Bond Portfolio

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

Balanced Portfolio Institutional Capital 0.45 (4)
Corporation

Equity Income Portfolio Asset Management Group 0.45 (5)

Equity Value Portfolio Ark Asset Management Co., Inc. 0.57 (6)

Growth & Income Putnam Advisory Company, Inc. 0.60 (7)
Portfolio

Equity Growth Dresdner RCM Global Investors LLC 0.62 (8)
Portfolio Montag & Caldwell, Inc.

<PAGE>

Special Equity Portfolio Pilgrim Baxter & Associates, Ltd. 0.80 0.50
Ark Asset Management Co., Inc.
Liberty Investment Management
Westport Asset Management, Inc.

Aggressive Equity McKinley Capital Management 0.97 (8)
Portfolio

International Equity Capital Guardian Trust Company 0.75 (10)
Portfolio

</TABLE>

- ----------------------------------
(1) The Adviser is currently waiving a portion of its fees.

(2) 0.25% on the first $100,000,000 of average net assets of the High Quality
Bond Portfolio and 0.15% on all assets in excess of $100,000,000.

(3) 0.40% on the first $20,000,000 of average net assets of the High-Yield Bond
Portfolio, 0.30% on the next $20,000,000 in assets and 0.20% on assets in
excess of $40,000,000.

(4) 0.35% on the first $50,000,000 of average net assets of the Balanced
Portfolio, 0.30% on the next $50,000,000 in assets and 0.25% on assets in
excess of $100,000,000.

(5) 0.25% on the first $100,000,000 of average net assets of the Equity Income
Portfolio and 0.20% on assets in excess of $100,000,000.

(6) 0.45% on the first $100,000,000 of average net assets of the Equity Value
Portfolio, 0.40% on the next $50,000,000 in assets and 0.35% on the next
$50,000,000 in assets; when the Portfolio achieves $200,000,000 in assets,
the rate shall be 0.40% on assets up to $200,000,000 and 0.35% on assets in
excess of $200,000,000 so long as the Portfolio continues to have more than
$200,000,000 in assets.

(7) 0.30% on the first $100,000,000 of average net assets of the Growth &
Income Portfolio, 0.20% on assets in excess of $100,000,000.

(8) With respect to assets of the Equity Growth Portfolio allocated to each
Subadviser: 0.50% on the first $50,000,000 of average net assets, 0.25% on
the next $50,000,000 in assets and 0.20% on all assets in excess of
$100,000,000.

(9) 0.90% on the first $10,000,000 of average net assets of the Aggressive
Equity Portfolio, 0.80% on the next $15,000,000 in assets, 0.60% on the
next $25,000,000 in assets, 0.40% on the next $50,000,000 in assets and
0.35% on assets in excess of $100,000,000.

(10)0.75% on the first $25,000,000 of average net assets of the International
Equity Portfolio, 0.60% on the next $25,000,000 in assets, 0.425% from
$50,000,000 in assets to $250,000,000 in assets, and 0.375% on all assets
in excess of $250,000,000.

<PAGE>

Diversified has agreed to waive its investment advisory fees to the
extent necessary to limit the total operating expenses of each Portfolio to a
specified level. Diversified also may contribute to the Portfolios from time to
time to help them maintain competitive expense ratios. These arrangements are
voluntary and may be terminated at any time.

The following chart shows the investment advisory fees paid by each
Portfolio for the fiscal year ended December 31, 1997, after any applicable fee
waivers. These fees are expressed as a percentage of average daily net assets.

Advisory fees paid
Money Market Portfolio 0.25%
High Quality Bond Portfolio 0.35%
Intermediate Government Bond Portfolio 0.34%
Government/Corporate Bond Portfolio 0.35%
High-Yield Bond Portfolio 0.45%
Balanced Portfolio 0.45%
Equity Income Portfolio 0.45%
Equity Value Portfolio 0.54%
Growth & Income Portfolio 0.60%
Equity Growth Portfolio 0.62%
Special Equity Portfolio 0.80%
Aggressive Equity Portfolio 0.70%
International Equity Portfolio 0.74%

ADMINISTRATOR AND TRANSFER AGENT. Diversified provides administrative
services to the Trust, including regulatory reporting, office facilities and
equipment and personnel. In addition, Diversified acts as transfer agent for
the Portfolio. Diversified receives no additional compensation for providing
such administrative and transfer agent services.

The exclusive placement agent for the Portfolios is Diversified Investors
Securities Corp. ("DISC"). The address of DISC is 4 Manhattanville Road,
Purchase, New York 10577. DISC receives no compensation for serving as the
exclusive placement agent for the Portfolios.

CUSTODIAN. Investors Bank & Trust Company, 89 South Street, Boston,
Massachusetts 02205, is the Portfolios' custodian. The Portfolio' securities
may be held by a sub-custodian bank approved by the Trustees.

EXPENSES. In addition to amounts payable under the Advisory Agreement,
the Trust's expenses include, among other things, the costs of securities
transactions, the compensation of Trustees that are not affiliated with
Diversified, government fees, taxes, accounting and legal fees, expenses of
communicating with investors, interest expense, and insurance premiums.

The following table shows each Portfolio's expenses, after waivers and
reimbursements, for the fiscal year ended December 31, 1997, expressed as a
percentage of average net assets.

Expenses

Money Market Portfolio 0.28%
High Quality Bond Portfolio 0.38%
Intermediate Government Bond Portfolio 0.40%
Government/Corporate Bond Portfolio 0.38%

<PAGE>

High-Yield Bond Portfolio 0.60%
Balanced Portfolio 0.48%
Equity Income Portfolio 0.47%
Equity Value Portfolio 0.59%
Growth & Income Portfolio 0.63%
Equity Growth Portfolio 0.65%
Special Equity Portfolio 0.83%
Aggressive Equity Portfolio 1.00%
International Equity Portfolio 0.89%

YEAR 2000

The Portfolios could be adversely affected if the computer systems used
by the Portfolios or their service providers are not programmed to accurately
process information on or after January 1, 2000. AEGON (the "Company") has
adopted and has in place a Year 2000 Assessment and Planning Project (the
"Project") to review and analyze its information technology and systems to
determine if they are Year 2000 compatible. The Company has begun to convert or
modify, where necessary, critical data processing systems. It is contemplated
that the plan will be substantially completed by early 1999. The Company does
not expect this Project to have a significant effect on operations. However, to
mitigate the effect of outside influences upon the success of the Project, the
Company has undertaken communications with its significant customers, suppliers
and other third parties to determine their Year 2000 compatibility and
readiness. AEGON management believes that the issues associated with the Year
2000 will be resolved with no material financial impact on the Company.

Since the Year 2000 computer problem and its resolution is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived Project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of AEGON and the Portfolios,
their ability to function unaffected to and through Year 2000 may be adversely
affected by actions (or failures to act) of third parties beyond their
knowledge or control.

Item 6. Capital Stock and Other Securities.

The Portfolio is a separate series of the Trust, which is organized as a
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"), including the Portfolio. Currently, the Portfolio is one of
thirteen active Series of the Trust. Investments in the Portfolio 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 the Portfolio (e.g., investment
companies, insurance company separate accounts and common and commingled trust
funds) will each be liable for all obligations of the Portfolio (and of no
other Series). However, the risk of an investor in the Portfolio incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance existed and the Portfolio itself was unable to
meet its obligations. Investments in the Portfolio have no preemptive or
conversion rights and are fully paid and nonassessable, except as set forth
below. For more information regarding the Trustees of the Trust, see
"Management of the Fund" in Part B.

Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio will vote as a separate

<PAGE>

class, except as to voting 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 a particular Series, only investors in the one
or more affected Series are entitled to vote. The Portfolio is not required and
has no current intention of holding special meetings of investors, but the
Portfolio will hold special meetings of investors when in the judgment of the
Trustees 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. Investors also have the right to remove one or more Trustees without
a meeting by a declaration in writing by a specified number of investors. Upon
liquidation of the Portfolio, investors would be entitled to share pro rata in
the net assets of the Portfolio (and no other Series) available for
distribution to investors.

The Portfolio 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 the Portfolio at the time of
such determination.

The "net income" of the Portfolio consists of (i) all income accrued,
less the amortization of any premium, on the assets of the Portfolio, less (ii)
all actual and accrued expenses of the Portfolio 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 the Portfolio. All the net income of the Portfolio is allocated
pro rata among the investors in the Portfolio (and no other Series).

Under the anticipated method of operation of the Portfolio, the Portfolio
will not be subject to any income tax. However, each investor in the Portfolio
will be taxable on its share (as determined in accordance with the governing
instruments of the Trust) of the Portfolio's ordinary income and capital gain
in determining its income tax liability. The determination of such share will
be made in accordance with the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations promulgated thereunder.

It is intended that the Portfolio's assets, income and distributions will
be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the
investor invested all of its assets in the Portfolio.

Investor inquiries regarding the Portfolio may be directed to the
Placement Agent at Four Manhattanville Road, Purchase, New York 10577, (914)
697-8000.

Item 7. Purchase of Securities.

Beneficial interests in the Portfolios are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolios may only
be made by investment companies, common or commingled trust funds or similar
organizations or entities which are "accredited investors" within the meaning
of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.

<PAGE>

An investment in each Portfolio is made without a sales load. All
investments are made at net asset value next determined after an order is
received by a Portfolio. There is no minimum initial or subsequent investment
in a Portfolio. However, since each Portfolio intends to be as fully invested
at all times as is reasonably practicable in order to enhance the yield on its
assets, investments must be made in federal funds (i.e., moneys credited to the
account of a Portfolio's custodian bank by a U.S. Federal Reserve Bank).

The Trust reserves the right to cease accepting investments for any
Portfolio at any time or to reject any investment order.

Each investor in a Portfolio may add to or reduce its investment in the
Portfolio on each Business Day. As of the close of regular trading on the
Exchange, on each Business Day, the value of each investor's beneficial
interest in a Portfolio is determined by multiplying the net asset value of the
Portfolio by the percentage, effective for that day, which represents that
investor's share of the aggregate beneficial interests in the Portfolio. Any
additions or withdrawals, which are to be effected on that day, are then
effected. Thereafter, the investor's percentage of the aggregate beneficial
interests in the Portfolio is then re-computed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of the close of regular trading on such day plus or minus,
as the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the same time on such day plus or minus, as the case may be, the amount of the
net additions to or withdrawals from the aggregate investments in the Portfolio
by all investors in the Portfolio. The percentage so determined is then applied
to determine the value of the investor's interest in the Portfolio as of the
close of regular trading on the following Business Day of the Portfolio.

Item 8. Redemption or Repurchase.

An investor in a Portfolio may withdraw all or any portion of its
investment at any time after a withdrawal request in proper form is received by
the Portfolio from the investor. The proceeds of a withdrawal will be paid by
the Portfolio in federal funds normally on the Business Day the withdrawal is
effected, but in any event within seven days. See "Purchase, Redemption and
Pricing of Securities" in Part B of this Registration Statement regarding the
Trust's right to pay the redemption price in kind with readily marketable
securities (instead of cash). If securities are distributed, an investor could
incur brokerage, tax or other charges in converting the securities to cash.
Investments in a Portfolio may not be transferred.

The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds postponed
during any period in which the Exchange is closed (other than weekends or
holidays) or trading on the Exchange is restricted, or, to the extent otherwise
permitted by the 1940 Act, if an emergency exists.

Item 9. Pending Legal Proceedings.

Not applicable.

<PAGE>
PART B

Item 10. Cover Page.

Not applicable.

Item 11. Table of Contents.
Page

General Information and History............................ B-1
Investment Objectives and Policies......................... B-1
Management of the Trust......................................B-20
Control Persons and Principal Holders of Securities..........B-22
Investment Advisory and Other Services.......................B-23
Brokerage Allocation and Other Practices.....................B-27
Capital Stock and Other Securities...........................B-29
Purchase, Redemption and Pricing of Securities...............B-31
Tax Status...................................................B-32
Underwriters.................................................B-33
Calculations of Performance Data.............................B-33
Financial Statements.........................................B-34

Item 12. General Information and History.

Not applicable.

Item 13. Investment Objectives and Policies.

INVESTMENT OBJECTIVES

Part A contains information about the investment objectives and
policies of the following Portfolios (each a "Portfolio" and collectively the
"Portfolios") : Money Market Portfolio; High Quality Bond Portfolio;
Intermediate Government Bond Portfolio; Government/Corporate Bond Portfolio;
High-Yield Bond Portfolio; Balanced Portfolio; Equity Income Portfolio; Equity
Value Portfolio; Growth & Income Portfolio; Equity Growth Portfolio; Special
Equity Portfolio; Aggressive Equity Portfolio; and International Equity
Portfolio. This Part B should be read in conjunction with Part A.

INVESTMENT POLICIES

The following supplements the discussion of the various investment
strategies and techniques employed by the Portfolios as set forth in Part A.

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

<PAGE>

regulation. As a result of federal or state laws and regulations, domestic
banks, among other things, generally are required to maintain specified levels
of reserves, are limited in the amounts which they can loan to a single
borrower, and are subject to other regulations designed to promote financial
soundness. However, not all of such laws and regulations apply to the foreign
branches of domestic banks.

Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as certificates of deposit
and time deposits, may be general obligations of the parent banks in addition
to the issuing branch, or may be limited by the terms of a specific obligation
and governmental regulation. Such obligations are subject to risks that are
different from or are in addition to those of domestic banks. These risks
include foreign economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal and interest on the
obligations, foreign exchange controls and foreign withholding and other taxes
on interest income. These foreign branches and subsidiaries are not necessarily
subject to the same or similar regulatory requirements that apply to domestic
banks, such as mandatory reserve requirements, loan limitations, and
accounting, auditing and financial record keeping requirements. In addition,
less information may be publicly available about a foreign branch of a domestic
bank or about a foreign bank than about a domestic bank. A domestic branch of a
foreign bank with assets in excess of $1 billion may be subject to reserve
requirements imposed by the Federal Reserve System or by the state in which the
branch is located if the branch is licensed in that state.

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

U.S. GOVERNMENT AND AGENCY SECURITIES

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.

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

<PAGE>

periodically fluctuating rates of interest under an agreement between a
commercial paper issuer and an institutional lender pursuant to which the
lender may determine to invest varying amounts.

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

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

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

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

VARIABLE RATE AND FLOATING RATE SECURITIES

The Portfolios may purchase floating and variable rate demand notes and
bonds, which are obligations ordinarily having stated maturities in excess of
397 days, but which permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding 397 days, in each case upon not
more than 30 days' notice. Variable rate demand notes include master demand
notes which are obligations that permit a Portfolio to invest fluctuating
amounts, which may change daily without penalty, pursuant to direct
arrangements between the Portfolio, as lender, and the borrower. The interest
rates on these notes fluctuate from time to time. The issuer of such
obligations normally has a corresponding right, after a given period, to prepay
in its discretion the outstanding principal amount of the obligations plus
accrued interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating rate demand obligation is based on
a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a variable
rate demand obligation is adjusted automatically at specified intervals.
Frequently, such obligations are collateralized by letters of credit or other
credit support arrangements provided by banks. Because these obligations are
direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value. Accordingly, where these obligations are not
secured by letters of credit or other credit support arrangements, a

<PAGE>

Portfolio's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and a Portfolio may invest in obligations which are not
so rated only if Diversified Investment Advisors, Inc., the investment adviser
of each Portfolio ("Diversified" or the "Adviser") or the appropriate
subadviser or subadvisers for each Portfolio as set forth in Part A (each a
"Subadviser" or collectively with the Advisers, the "Advisers") determine that
at the time of investment the obligations are of comparable quality to the
other obligations in which the Portfolio may invest. The Advisers, on behalf of
a Portfolio, will consider on an ongoing basis the creditworthiness of the
issuers of the floating and variable rate demand obligations held by the
Portfolio. The Portfolios will not invest more than 15% (10% in the case of the
Money Market Portfolio) of the value of their net assets in floating or
variable rate demand obligations as to which they cannot exercise the demand
feature on not more than seven days' notice if there is no secondary market
available for these obligations, and in other securities that are not readily
marketable. See "Investment Restrictions" below.

PARTICIPATION INTERESTS

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

ILLIQUID SECURITIES

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

In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including

<PAGE>

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

Rule 144A under the 1933 Act allows a broader institutional trading
market for securities otherwise subject to restriction on their resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers.

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

UNSECURED PROMISSORY NOTES

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

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS

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

The Portfolios may borrow funds for temporary or emergency purposes, such
as meeting larger than anticipated redemption requests, and not for leverage.

<PAGE>

One means of borrowing is by agreeing to sell portfolio securities to financial
institutions such as banks and broker-dealers and to repurchase them at a
mutually agreed date and price (a "reverse repurchase agreement"). At the time
a Portfolio enters into a reverse repurchase agreement it will place in a
segregated custodial account cash, U.S. Government securities or high-grade
debt obligations having a value equal to the repurchase price, including
accrued interest. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the
repurchase price of those securities.

Certain Portfolios may, together with other registered investment
companies managed by those Portfolios' subadvisers or their affiliates,
transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.

FOREIGN SECURITIES--ALL PORTFOLIOS

The Portfolios may invest their assets in securities of foreign issuers.
Investing in securities issued by companies whose principal business activities
are outside the United States may involve significant risks not present in
domestic investments. For example, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing and financial
reporting requirements comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, brokerage or other taxation, limitation on the removal
of funds or other assets of a Portfolio, political or financial instability or
diplomatic and other developments which would affect such investments. Further,
economies of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the United States.

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

FOREIGN SECURITIES--MONEY MARKET PORTFOLIO

The Money Market Portfolio may invest in the following foreign
securities: (a) U.S. dollar- denominated obligations of foreign branches and
subsidiaries of domestic banks and foreign banks (such as Eurodollar CDs, which
are U.S. dollar-denominated CDs issued by branches of foreign and domestic
banks located outside the United States; Eurodollar TDs ("ETDs"), which are
U.S. dollar-denominated deposits in a foreign branch of a foreign or domestic
bank; and Canadian TDs, which are essentially the same as ETDs except they are
issued by branches of major Canadian banks); (b) high quality, U.S.
dollar-denominated short-term bonds and notes (including variable amount master

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demand notes) issued by foreign corporations (including Canadian commercial
paper, which is commercial paper issued by a Canadian corporation or a Canadian
subsidiary of a U.S. corporation, and Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer); and (c) U.S.
dollar-denominated obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Advisers to be of comparable
quality to the other obligations in which the Money Market Portfolio may
invest. Such securities also include debt obligations of supranational
entities. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.

FOREIGN SECURITIES--PORTFOLIOS OTHER THAN THE MONEY MARKET PORTFOLIO

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

American Depository Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of foreign issuers provide an alternative method for a
Portfolio to make foreign investments. These securities are not denominated in
the same currency as the securities into which they may be converted and
fluctuate in value based on the underlying security. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets and EDRs and
GDRs, in bearer form, are designed for use in European and global securities
markets. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. EDRs and GDRs are European
and global receipts evidencing a similar arrangement.

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

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

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

A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract. Forward foreign
currency exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A

<PAGE>

forward foreign currency exchange contract generally has no deposit requirement
and is traded at a net price without commission. A Portfolio maintains with its
custodian a segregated account of high grade liquid assets in an amount at
least equal to its obligations under each forward foreign currency exchange
contract. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.

The Portfolios may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes
in foreign currency exchange rates that would adversely affect a portfolio
position or an anticipated investment position. The Portfolios may enter into
foreign currency cross hedging transactions if a particular currency is
expected to decrease against another currency. A Portfolio would sell the
currency expected to decrease and purchase a currency which is expected to
increase against the currency sold in an amount equal to some or all of the
Portfolio's holdings denominated in the currency sold.

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

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

Even if a hedge is generally successful, the matching of the increase in
value of a forward contract and the decline in the U.S. dollar equivalent value
of the foreign currency denominated asset that is the subject of the hedge
generally will not be precise. In addition, a Portfolio may not always be able
to enter into foreign currency forward contracts at attractive prices and this
will limit a Portfolio's ability to use such contract to hedge or cross-hedge
its assets. Also, with regard to a Portfolio's use of cross-hedges, there can
be no assurance that historical correlations between the movement of certain

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foreign currencies relative to the U.S. dollar will continue. Thus, at any time
poor correlation may exist between movements in the exchange rates of the
foreign currencies underlying a Portfolio's cross-hedges and the movements in
the exchange rates of the foreign currencies in which the Portfolio's assets
that are the subject of such cross-hedges are denominated.

GUARANTEED INVESTMENT CONTRACTS

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

WHEN-ISSUED SECURITIES

The Portfolios may purchase securities on a "when-issued" or on a
"forward delivery" basis. It is expected that, under normal circumstances, the
Portfolios would take delivery of such securities. When a Portfolio commits to
purchase a security on a "when-issued" or on a "forward delivery" basis, the
Portfolio establishes procedures consistent with the relevant policies of the
SEC. Since those policies currently require that an amount of a Portfolio's
assets equal to the amount of the purchase be held aside or segregated to be
used to pay for the commitment, the Portfolios expect always to have cash, cash
equivalents, or high quality debt securities sufficient to cover any
commitments or to limit any potential risk. However, although the Portfolios do
not intend to make such purchases for speculative purposes and intends to
adhere to the provisions of SEC policies, purchases of securities on such bases
may involve more risk than other types of purchases. For example, a Portfolio
may have to sell assets which have been set aside in order to meet redemptions.
Also, if a Portfolio determines it is advisable as a matter of investment
strategy to sell the "when-issued" or "forward delivery" securities, the
Portfolio would be required to meet its obligations from the then available
cash flow or the sale of securities, or, although it would not normally expect
to do so, from the sale of the "when-issued" or "forward delivery" securities
themselves (which may have a value greater or less than the Portfolio's payment
obligation).

ZERO COUPON OBLIGATIONS

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

<PAGE>

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

Futures Contracts. A Portfolio may enter into contracts for the purchase
or sale for future delivery of fixed-income securities or foreign currencies,
or contracts based on financial indices including any index of U.S. Government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the CFTC, and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange. A Portfolio may
enter into futures contracts which are based on debt securities that are backed
by the full faith and credit of the U.S. Government, such as long-term U.S.
Treasury Bonds, Treasury Notes, Government National Mortgage Association
modified pass-through mortgage-backed securities and three-month U.S. Treasury
Bills. A Portfolio may also enter into futures contracts which are based on
bonds issued by entities other than the U.S. Government.

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

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

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

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

<PAGE>

transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded, a
Portfolio will incur brokerage fees when it purchases or sells futures
contracts.

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

Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of
futures contracts should be similar to those of debt securities, a Portfolio
could take advantage of the anticipated rise in the value of debt securities
without actually buying them until the market had stabilized. At that time, the
futures contracts could be liquidated and the Portfolio could then buy debt
securities on the cash market.

To the extent a Portfolio enters into futures contracts, the assets in
the segregated asset account maintained to cover the Portfolio's obligations
with respect to such futures contracts will consist of cash, cash equivalents
or high quality liquid debt securities from its portfolio in an amount equal to
the difference between the fluctuating market value of such futures contracts
and the aggregate value of the initial and variation margin payments made by
the Portfolio with respect to such futures contracts.

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

In addition, futures contracts entail risks. Although the Advisers
believe that use of such contracts will benefit the Portfolios, if the
Advisers' investment judgment about the general direction of interest rates is
incorrect, a Portfolio's overall performance would be poorer than if it had not
entered into any such contract. For example, if a Portfolio has hedged against

<PAGE>

the possibility of an increase in interest rates which would adversely affect
the price of debt securities held by it and interest rates decrease instead,
the Portfolio will lose part or all of the benefit of the increased value of
its debt securities which it has hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if a Portfolio has
insufficient cash, it may have to sell debt securities to meet daily variation
margin requirements. Such sales of bonds may be, but will not necessarily be,
at increased prices which reflect the rising market. A Portfolio may have to
sell securities at a time when it may be disadvantageous to do so.

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

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

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

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

The Board of Trustees of the Trust has adopted the requirement that
futures contracts and options on futures contracts be used either (a) as a
hedge without regard to any quantitative limitation, or (b) for other purposes
to the extent that immediately thereafter the aggregate amount of margin
deposits on all (non-hedge) futures contracts of the Portfolio and premiums
paid on outstanding (non-hedge) options on futures contracts owned by the
Portfolio does not exceed 5% of the market value of the total assets of the

<PAGE>

Portfolio. In addition, the aggregate market value of the outstanding futures
contracts purchased by the Portfolio may not exceed 50% of the market value of
the total assets of the Portfolio. Neither of these restrictions will be
changed by the Trust's Board of Trustees without considering the policies and
concerns of the various applicable federal and state regulatory agencies.

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

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

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

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

Losses from the writing of call options are potentially unlimited.
Accordingly, the Portfolios intend that any call options on foreign currencies
that they write (other than for cross-hedging purposes as described below) will
be covered. A call option written on a foreign currency by a Portfolio is
"covered" if the Portfolio owns the underlying foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration
held in a segregated account by its custodian) upon conversion or exchange of

<PAGE>

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

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

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

Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
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 Portfolio to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in the event of adverse
market movements.

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

<PAGE>

orderly settlement of foreign currency option exercises, or would result in
undue burdens on the OCC or its clearing member, impose special procedures on
exercise and settlement, such as technical changes in the mechanics of delivery
of currency, the fixing of dollar settlement prices or prohibitions on
exercise.

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

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

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

OPTIONS ON SECURITIES--PORTFOLIOS OTHER THAN THE MONEY MARKET PORTFOLIO

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

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

<PAGE>

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

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

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

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

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

<PAGE>

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

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

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

OPTIONS ON SECURITIES INDICES--PORTFOLIOS OTHER THAN THE MONEY MARKET PORTFOLIO

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

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

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

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

<PAGE>

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

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

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

The Portfolios will not engage in short sales against the box for
investment purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security (or a security convertible or exchangeable for such
security). In such case, any future losses in a Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced depends upon the amount of the security
sold short relative to the amount a Portfolio owns. There are certain
additional transaction costs associated with short sales against the box, but
the Portfolios endeavor to offset these costs with the income from the
investment of the cash proceeds of short sales.

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

REAL ESTATE INVESTMENT TRUSTS

Real Estate Investment Trusts ("REITs") pool investors' funds for
investment primarily in income producing real estate or real estate related
loans or interests. A REIT is not taxed on income distributed to its
shareholders or unitholders if it complies with regulatory requirements
relating to its organization, ownership, assets and income and a regulatory
requirement that it distribute to its shareholders or unitholders as least 95%
of its taxable income for each taxable year. Generally, REITs can be classified
as Equity REITs, Mortgage REITs and hybrid REITs. Equity REITs invest the
majority of their assets directly in real property and derive their income
primarily through rents and capital gains from appreciation realized through
property sales. Equity REITs may be affected by changes in the value of the
underlying property owned by the REITs. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive their income primarily from
interest payments. Mortgage REITs are sensitive to the credit quality of the
underlying borrowers. Hybrid REITs combine the characteristics of both Equity
and Mortgage REITs. The value of REITs may be effected by management skill,
cash flow and tax and regulatory requirements.

CERTAIN OTHER OBLIGATIONS

In order to allow for investments in new instruments that may be created
in the future, if the Prospectus for a Portfolio is supplemented, the Portfolio

<PAGE>

may invest in obligations other than those listed previously, provided such
investments are consistent with the Portfolio's investment objective, policies
and restrictions.

RATING SERVICES

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

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

INVESTMENT RESTRICTIONS

The "fundamental policies" of each Portfolio may not be changed with
respect to the Portfolio without the approval of a "majority of the outstanding
voting securities" of the Portfolio. "Majority of the outstanding voting
securities" under the 1940 Act and as used herein and in Part A means, with
respect to the Portfolio, the lesser of (i) 67% or more of the total beneficial
interests of the Portfolio present at a meeting, if the holders of more than
50% of the total beneficial interests of the Portfolio are present or
represented by proxy, or (ii) more than 50% of the total beneficial interests
of the Portfolio.

If a percentage or a rating restriction on investment or utilization of
assets is adhered to at the time an investment is made or assets are so
utilized, a later change in such percentage resulting from changes in a
Portfolio's total assets or the value of a Portfolio's securities, or a later
change in the rating of a portfolio security, will not be considered a
violation of the relevant policy.

Fundamental Policies. As a matter of fundamental policy, no Portfolio
may:

(1) borrow money or mortgage or hypothecate assets of the Portfolio,
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's assets (including such borrowing) less liabilities (not
including such borrowing), it may borrow money and enter into reverse
repurchase agreements, and except that it may pledge, mortgage or
hypothecate not more than 1/3 of such assets to secure such borrowings or
reverse repurchase agreements, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered a pledge of assets for purposes of
this restriction and except that assets may be pledged to secure letters
of credit solely for the purpose of participating in a captive insurance
company sponsored by the Investment Company Institute;

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

<PAGE>

(3) make loans to other persons except (a) through the lending of
the Portfolio's portfolio securities and provided that any such loans not
exceed 30% of the Portfolio's total assets (taken at market value), (b)
through the use of repurchase agreements or the purchase of short-term
obligations or (c) by purchasing debt securities of types distributed
publicly or privately;

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

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

(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.

Non-Fundamental Policies.

Each Portfolio (other than the Intermediate Bond Portfolio and the Select
Equity Portfolio) will not, as a matter of operating policy, acquire any
securities of registered open-end investment companies or registered unit
investment trusts in reliance on Section 12(d)(1)(F) or 12(d)(1)(G) of the 1940
Act. This policy may be changed by the Board of Trustees of the Trust.

Item 14. Management of the Trust.

The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate that those Trustees and officers are
"interested persons" (as defined in the 1940 Act) of the Trust. Unless
otherwise indicated below, the address of each Trustee and officer is 4
Manhattanville Road, Purchase, New York 10577. The address of the Trust is 4
Manhattanville Road, Purchase, New York 10577.

TRUSTEES OF THE TRUST

Donald E. Flynn*................. Vice President, AEGON USA, Inc. (1988 to
present). Executive Vice President,
AEGON USA Investment Management, Inc.
(1988 to present); Vice President, AEGON
USA Managed Portfolios, Inc. (1988 to
present). Age: 57.

<PAGE>

Neal M. Jewell................... Consultant (since 1995). Executive Vice
President (November 1991 to January 1995),
Director of Overseas Pensions (January
1990 to October 1991), American
International Group Asset Management.
His address is 355 Thornridge Drive,
Stamford, Connecticut 06903. Age: 63.

Eugene M. Mannella............... Vice President, Investment Management
Services, Inc. (since August 1993).
President, Brooks Asset Management LLC
(since May 1996). Senior Vice President,
Lehman Brothers Inc. (May 1986 to
August 1993). His address is Two Orchard
Neck Road, Center Moriches, New York
11934. Age: 44.

Patricia L. Sawyer............... President, Smith & Sawyer, Inc. (since
1990). Partner, Smith & Sawyer LLC
(since 1997). Vice President, American
Express (September 1988 to July 1990).
Her address is 256 West 10th Street,
New York, New York 10014. Age: 47.

Tom A. Schlossberg*.............. President, Diversified (since October
1992). Executive Vice President and
Head of Pension Operations, The Mutual
Life Insurance Company of New York
(January 1993 to December 1993). Age: 48.

OFFICERS

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

Robert F. Colby.................. Secretary; Vice President and Chief
Corporate Counsel, Mutual Life Insurance
Company of New York (April 1993 to
December 1993); Vice President and
General Counsel, Diversified (since
November 1993); Vice President of
Diversified Investors Securities Corp.
("DISC") (since November 1993). Age: 42.

Alfred C. Sylvain................ Treasurer and Assistant Secretary; Vice
President and Treasurer of Diversified,
(since November 1993); Treasurer of DISC
(since November 1993); Vice President,
Mutual Life Insurance Company of New York
(since January 1991). Age: 46.

John F. Hughes................... Assistant Secretary; Senior Counsel,
Mutual Life Insurance Company of New York
(since January 1988); Vice President and
Senior Counsel, Diversified (since
November 1993); Assistant Secretary, DISC
(since November 1993). Age: 56.

<PAGE>

COMPENSATION

For the fiscal year ended December 31, 1997, the Trust provided the
following compensation to its Trustees.

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ESTIMATED FROM THE TRUSTS
NAME OF COMPENSATION ACCRUED AS ANNUAL AND FUND
PERSON, FROM THE PART OF BENEFITS UPON COMPLEX PAID
POSITION TRUST 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 $9,750 None N/A $9,750
Trustee

Eugene M. Mannella $9,750 None N/A $9,750
Trustee

Patricia L. Sawyer $9,750 None N/A $9,750
Trustee
</TABLE>

The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust unless, as to liability to the Trust or its investors, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Trust. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable
determination, based upon a review of readily available facts, by vote of a
majority of disinterested Trustees of the Trust, or in a written opinion of
independent counsel, that such officers or Trustees have not engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties.

Item 15. Control Persons and Principal Holders of Securities.

At March 31, 1998, the Trustees and officers of the Trust as a group
owned beneficially less than 1% of the of the outstanding interests in each of
the Portfolios.

At March 31, 1998, AUSA Life Insurance Company, Inc. ("AUSA"), Four
Manhattanville Road, Purchase, New York 10577, and The Mutual Life Insurance
Company ("MONY"), 1740 Broadway, New York, New York 10019, owned the following
percentage interests of the outstanding beneficial interests of the Portfolios
indicated (all such interests being held in separate accounts of AUSA and MONY,
respectively):

<PAGE>

AUSA MONY

Money Market 31.75% 32.52%
High Quality Bond 48.18% 31.66%
Intermediate Government Bond 50.41% 21.62%
Intermediate Bond 0.00% 0.00%
Government/Corporate Bond 27.68% 51.44%
High-Yield Bond 34.48% 16.28%
Balanced 67.98% 2.02%
Equity Income 62.23% 25.57%
Equity Value 24.48% 2.59%
Growth & Income 51.18% 7.66%
Equity Growth 70.78% 3.84%
Special Equity 53.35% 25.55%
Aggressive Equity 39.14% 2.41%
International Equity 42.44% 20.28%

Item 16. Investment Advisory and Other Services.

The Adviser manages the assets of each Portfolio pursuant to an
Investment Advisory Agreement (the "Advisory Agreement") with the Trust with
respect to that Portfolio, and subject to the investment policies described
herein and in Part A. Subject to such further policies as the Boards of
Trustees of the Trust may determine, the Adviser provides general investment
advice to each Portfolio.

For each Portfolio, the Adviser has entered into an Investment
Subadvisory Agreement (each a "Subadvisory Agreement") with one or more
Subadvisers.

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

The Adviser's and Subadviser's fees are described in Part A.

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

Diversified provides services with respect to $10 billion in retirement
plan assets and has offices in Boston, Charlotte, Chicago, Cincinnati, Dallas,

<PAGE>

Houston, New Orleans, New York, Philadelphia, Portland and San Francisco. It
maintains recordkeeping for 400,000 participants and has 600 employees
dedicated to retirement plan investment and administration. Its employees
average more than seven years of retirement plan experience.

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

Subadvisers are selected from more than 2,000 independent firms. Through
a rigorous portfolio manager selection process which includes researching each
potential subadviser's asset class, track record, organizational structure,
management team, consistency of performance and assets under management, five
to ten potential subadvisers are chosen. Out of that group, Diversified then
carefully chooses the three most qualified potential subadvisers based on
performance evaluation, ownership structure, personnel and philosophy to return
for an on-site visit and a quantitative and qualitative analysis by the
investment committee. Out of those three potential subadvisers, Diversified
then hires the most qualified, independent subadviser for each Portfolio,
subject to approval by the Board of Trustees of the Trust, including a majority
of the Trustees who are not "interested persons" of the Trust.

Each Subadviser's performance on behalf of a Portfolio is carefully
monitored by Diversified taking into consideration investment objectives and
policies and level of risk. Diversified brings comprehensive monitoring and
control to the investment management process. It seeks superior portfolio
management and moves purposefully in replacing managers when warranted. From a
plan sponsor's perspective, replacing a manager, and not the investment fund,
is a key advantage in avoiding the expense and difficulty of re-enrolling
participants or disrupting established plan administration. Diversified and the
Trust have applied for an Exemptive Order from the Securities and Exchange
Commission which would permit Diversified to obtain the services of one or more
subadvisers without investor approval. If if the Exemptive Order is received,
investors in a Portfolio would be asked to vote on the Portfolio's operation
under that Exemptive Order.

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

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

<PAGE>

that, should a manager change be warranted, the transition can be effected on a
timely basis.

For the fiscal year ended December 31, 1995, Diversified earned and
voluntarily waived advisory fees as indicated with respect to the following
Portfolios:

PORTFOLIO EARNED WAIVED

Money Market.......................... $ 391,657 $22,086
High Quality Bond..................... 562,958 9,897
Intermediate Government Bond.......... 286,019 44,808
Government/Corporate Bond............. 1,011,116 --
High-Yield Bond....................... 11,146 11,146
Balanced.............................. 639,345 51,146
Equity Income......................... 2,878,308 --
Growth & Income....................... 639,911 28,140
Equity Growth......................... 1,272,213 --
Special Equity........................ 2,018,861 82,511
International Equity.................. 143,910 6,191

For the fiscal year ended December 31, 1996, Diversified earned and
voluntarily waived advisory fees as indicated with respect to the following
Portfolios:

PORTFOLIO EARNED WAIVED

Money Market.......................... $ 445,832 $ 680
High Quality Bond..................... 627,049 --
Intermediate Government Bond.......... 340,989 27,685
Government/Corporate Bond............. 1,232,524 --
High-Yield Bond....................... 60,742 60,742
Balanced.............................. 995,489 --
Equity Income......................... 3,895,211 --
Equity Value.......................... 84,055 70,088
Growth & Income....................... 1,052,349 39,117
Equity Growth......................... 1,730,632 1,462
Special Equity........................ 3,255,893 47,350
Aggressive Equity..................... 95,060 57,964
International Equity.................. 799,760 69,256

For the fiscal year ended December 31, 1997, Diversified earned and
voluntarily waived advisory fees as indicated with respect to the following
Portfolios:

<PAGE>

PORTFOLIO EARNED WAIVED

Money Market.......................... $ 553,205 -
High Quality Bond..................... $ 707,143 -
Intermediate Government Bond.......... $ 340,670 $15,525
Government/Corporate Bond............. $1,174,374 -
High-Yield Bond....................... $ 182,367 $46,946
Balanced.............................. $1,547,690 -
Equity Income......................... $4,950,239 -
Equity Value.......................... $ 882,508 $56,044
Growth & Income....................... $1,679,535 -
Equity Growth......................... $2,405,212 -
Special Equity........................ $4,986,640 -
Aggressive Equity..................... $ 182,991 $61,577
International Equity.................. $1,434,770 $16,399

ADMINISTRATOR

Diversified provides administrative services to the Portfolios under the
Advisory Agreement with the Trust. The Advisory Agreement provides that
Diversified may render services to others as administrator. In addition, the
Advisory Agreement terminates automatically if it is assigned and may be
terminated without penalty by majority vote of the investors in the Trust (with
the vote of each being in proportion to the amount of its investment). The
Advisory Agreement also provides that neither Diversified nor its personnel
shall be liable for any error of judgment or mistake of law or for any act or
omission in connection with administrative services provided to any Portfolio,
except for willful misfeasance, bad faith or gross negligence in the
performance of its or their duties or by reason of reckless disregard of its or
their duties or obligations under said agreements. Diversified receives no
additional compensation for providing such administrative services.

CUSTODIAN

Pursuant to Custodian Agreements, Investors Bank & Trust Company acts as
the custodian of each Portfolio's assets (the "Custodian"). The Custodian's
responsibilities include safeguarding and controlling the cash and securities
of each Portfolio, handling the receipt and delivery of securities, determining
income and collecting interest on the investments of each Portfolio,
maintaining books of original entry for portfolio accounting and other required
books and accounts, and calculating the daily net asset value of beneficial
interests in each Portfolio. Securities held by the Portfolios may be deposited
into the Federal Reserve-Treasury Department Book Entry System or the
Depository Trust Company and may be held by a subcustodian bank if such
arrangements are reviewed and approved by the Board of Trustees of the Trust.
The Custodian does not determine the investment policies of the Portfolios or
decide which securities the Portfolios will buy or sell. A Portfolio may,
however, invest in securities of the Custodian and may deal with the Custodian
as principal in securities and foreign exchange transactions. For its services,
the Custodian will receive such compensation as may from time to time be agreed
upon by it and the Trust.

<PAGE>

INDEPENDENT ACCOUNTANTS

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

Item 17. Brokerage Allocation and Other Practices

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

Set forth below are the turnover rates for the Portfolios. A rate of 100%
indicates that the equivalent of all the Portfolio's assets have been sold and
reinvested in a year. High portfolio turnover may result in realization of
substantial net capital gains or losses. To the extent net short term capital
gains are realized, any distributions resulting from such gains are considered
ordinary income for federal income tax purposes.

<TABLE>
<CAPTION>
PORTFOLIO TURNOVER TURNOVER TURNOVER
RATES 1995 RATES 1996 RATES 1997
---------- ---------- ----------
<S> <C> <C> <C>

High Quality Bond..................... 25% 66% 62%
Intermediate Government Bond.......... 59% 60% 45%
Government/Corporate Bond............. 122% 146% 64%
High-Yield Bond....................... 21% 107% 109%
Balanced.............................. 124% 113% 87%
Equity Income......................... 23% 26% 33%
Equity Value (*)...................... --- 65% 120%
Growth & Income....................... 155% 142% 87%
Equity Growth......................... 62% 133% 91%
Special Equity........................ 155% 140% 146%
Aggressive Equity (*)................. --- 186% 243%
International Equity.................. 7% 29% 31%
</TABLE>
___________
(*) Not annualized for 1996. Commencement of operations, April 19, 1996.

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

<PAGE>

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

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

The following Portfolios paid the approximate brokerage commissions
indicated for the fiscal years noted below:

Balanced Portfolio:
Fiscal year ended December 31, 1995: $199,128
Fiscal year ended December 31, 1996: $317,179
Fiscal year ended December 31, 1997: $324,465

Equity Income Portfolio
Fiscal year ended December 31, 1995: $377,904
Fiscal year ended December 31, 1996: $565,943
Fiscal year ended December 31, 1997: $659,256

Equity Value Portfolio
Fiscal year ended December 31, 1996: $ 64,207
Fiscal year ended December 31, 1997: $548,229

Growth & Income Portfolio
Fiscal year ended December 31, 1995: $348,828
Fiscal year ended December 31, 1996: $397,075
Fiscal year ended December 31, 1997: $390,268

Equity Growth Portfolio
Fiscal year ended December 31, 1995: $174,716
Fiscal year ended December 31, 1996: $670,631
Fiscal year ended December 31, 1997: $483,139

<PAGE>

Special Equity Portfolio
Fiscal year ended December 31, 1995: $ 425,803
Fiscal year ended December 31, 1996: $ 678,431
Fiscal year ended December 31, 1997: $1,017,376

Aggressive Equity Portfolio
Fiscal year ended December 31, 1996: $15,490
Fiscal year ended December 31, 1997: $48,943

International Equity Portfolio
Fiscal year ended December 31, 1995: $ 38,261
Fiscal year ended December 31, 1996: $211,629
Fiscal year ended December 31, 1997: $295,967

Item 18. Capital Stock and Other Securities.

Each Portfolio is a series of the Trust, which is organized under the
laws of the State of New York. Under the Trust's Declaration of Trust, the
Trustees are authorized to issue beneficial interests in one or more series
(each a "Series"), including the Portfolios. Currently, the thirteen Portfolios
are the only active Series of the Trust. 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 the Trust 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 the Trust shall maintain
appropriate insurance (for example, a fidelity bond and errors and omissions
insurance) for the protection of the Trust, its investors, Trustees, 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 the Trust itself was unable to meet its obligations.

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. The Trust reserves the right to
create and issue additional Series of beneficial interests, 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 the Trust is allocated and belongs to a specific
Series to the exclusion of all other Series. All consideration received by the
Trust 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 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 nor 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. Certificates representing an
investor's beneficial interest in a Series are issued only upon the written
request of an investor.

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

<PAGE>

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 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. The Trust is not required and has
no current intention of holding annual meetings of investors, but the Trust
will hold special meetings of investors when in the judgment of the Trustees it
is necessary or desirable to submit matters for an investor vote.

The Trust's 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 the
Trust's 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.

The Trust or any Series (including the Portfolio) 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 interests in the affected Series present of
represented at such meeting, if investors in more than 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 interests in the affected Series. The Trust or any Series (including
any Portfolio) 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. The Trust will be
dissolved upon the dissolution of the last remaining Series.

The Trust's Declaration of Trust provides that obligations of the Trust
are not binding upon the Trustees individually but only upon the property of
the Trust 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 willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.

The Trust's 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 the Trust, unless, as to liability to the Trust or its investors,
it is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their offices,
or unless with respect to any other matter it is finally adjudicated that they
did not act in good faith in the reasonable belief that their actions were in
the best interests of the Trust. In the case of settlement, such
indemnification will not be provided unless it has been determined by a court
or other body approving the settlement or other disposition, or by a reasonable
determination, based upon a review of readily available facts, by vote of a
majority of disinterested Trustees or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties.

<PAGE>

Item 19. Purchase, Redemption and Pricing of Securities.

Beneficial interests in each Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in each Portfolio may only
be made by investment companies, common or commingled trust funds or similar
organizations or entities which are "accredited investors" within the meaning
of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.

The net asset value of each Portfolio (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued)
is determined each day during which the New York Stock Exchange (the
"Exchange") is open for trading ("Business Day"). As of the date of this
Registration Statement, the Exchange is open for trading every weekday except
for the following holidays (or the days on which they are observed): New Year's
Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. This
determination of net asset value of each Portfolio is made once each day as of
the close of regular trading on the Exchange (normally 4:00 p.m. Eastern time).
As set forth in more detail below, purchases and withdrawals will be effected
at the time of determination of net asset value next following the receipt of
any purchase or withdrawal order.

For the purpose of calculating a Portfolio's net asset value, all assets
and liabilities initially expressed in non-U.S. currencies will be converted
into U.S. dollars at the prevailing market rates at the time of valuation.
Equity securities are valued at the last sale price on the exchange on which
they are primarily traded or on the NASDAQ system for unlisted national market
issues, or at the last quoted bid price for securities in which there were no
sales during the day or for unlisted securities not reported on the NASDAQ
system. Securities listed on a foreign exchange generally are valued at the
last quoted sale price available before the time when net assets are valued.
Bonds and other fixed income securities (other than short-term obligations) are
valued on the basis of valuations furnished by a pricing service, use of which
has been approved by the Board of Trustees of the Trust. In making such
valuations, the pricing service utilizes both dealer-supplied valuations and
electronic data processing techniques that take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon quoted prices or
exchange or over-the-counter prices, since such valuations are believed to
reflect more accurately the fair value of such securities. Short-term
obligations (maturing in 60 days or less) are valued at amortized cost, which
constitutes fair value as determined by the Board of Trustees. Futures
contracts are normally valued at the settlement price on the exchange on which
they are traded. Securities for which there are no such valuations are valued
at fair value as determined in good faith by or at the direction of the Board
of Trustees.

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

<PAGE>

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

Each investor in a Portfolio may add to or withdraw from its investment
in the applicable Portfolio on each Business Day. As of the close of regular
trading on the Exchange, on each Business Day, the value of each investor's
beneficial interest in a Portfolio is determined by multiplying the net asset
value of the Portfolio by the percentage, effective for that day, that
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals, that are to be effected on that day,
are then effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio is then re-computed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of the close of regular trading on such day plus or minus,
as the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the same time on such day plus or minus, as the case may be, the amount of the
net additions to or withdrawals from the aggregate investments in the Portfolio
by all investors in the Portfolio. The percentage so determined is then applied
to determine the value of the investor's interest in the Portfolio as of the
close of regular trading on the following Business Day of the Portfolio.

Subject to compliance with applicable regulations, the Trust has reserved
the right to pay the redemption price of beneficial interests in a Portfolio,
either totally or partially, by a distribution in kind of readily marketable
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the beneficial interests being sold. If a holder of beneficial interests
received a distribution in kind, such holder could incur brokerage or other
charges in converting the securities to cash.

The Trust may suspend the right of redemption or postpone the date of
payment for beneficial interests in a Portfolio more than seven days during any
period when (a) trading in the markets the Portfolio normally utilizes is
restricted, or an emergency, as defined by the rules and regulations of the
SEC, exists making disposal of the Portfolio's investments or determination of
its net asset value not reasonably practicable; (b) the Exchange is closed
(other than customary weekend and holiday closings); or (c) the SEC has by
order permitted such suspension.

Item 20. Tax Status.

The Trust is organized as a New York trust. The Portfolios are not
subject to any income or franchise tax in the State of New York or the
Commonwealth of Massachusetts. However each investor in a Portfolio will be
taxable on its share (as determined in accordance with the governing
instruments of the Trust) of the Portfolio's 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.

Under interpretations of the Internal Revenue Service (1) each Portfolio
will be treated for federal income tax purposes as a partnership which is not a
publicly traded partnership and (2) for purposes of determining whether an
investor in a Portfolio satisfies requirements of Subchapter M of the Code, the

<PAGE>

investor will be deemed to own a proportionate share of the Portfolio's assets
and will be deemed to be entitled to the Portfolio's income attributable to
that share. The Trust has advised the initial investors that it intends to
conduct its operations so as to enable investors to satisfy those requirements.

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

Withdrawals by investors from a Portfolio 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 Portfolio 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 Portfolio and includes a disproportionate
share of any unrealized receivables held by the Portfolio, 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 Portfolio generally equals the amount of cash and the
basis of any property that the investor invests in the Portfolio, increased by
the investor's share of income from the Portfolio and decreased by the amount
of any cash distributions and the basis of any property distributed from the
Portfolio.

The Portfolios' taxable year-end will be December 31. Although, as
described above, a Portfolio will not be subject to federal income tax, it will
file appropriate income tax returns.

It is intended that each Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio 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 Portfolio. 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
Portfolio.

Item 21. Underwriters.

Not applicable.

Item 22. Calculations of Performance Data.

Not applicable.

<PAGE>

Item 23. Financial Statements.

The financial statement of the Trust as of December 1997, have been filed
with the Securities and Exchange Commission as part of the Trust's annual
report pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder,
and are hereby incorporated herein by reference from such report. A copy of
such report will be provided without charge to each person receiving this Part
B.

<PAGE>

APPENDIX A

DESCRIPTION OF SECURITY RATINGS

STANDARD & POOR'S

Corporate and Municipal Bonds

AAA--An obligation rated AAA has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

AA--An obligation rated AA differs from the highest rated obligations
only in a small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.

A--An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB--An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

BB--An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

Plus (+) or minus (-)--The ratings from AA to BB may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.

Commercial Paper, including Tax Exempt

A-1--A short-term obligation rated A-1 is rated in the highest category
by Standard & Poor's. The obligor's capacity to meet its financial commitment
on the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.

A-2--A short-term obligation rated A-2 is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to
meet its financial commitment on the obligation is satisfactory.

A-3--A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

<PAGE>

MOODY'S

Corporate and Municipal Bonds

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

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

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

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

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

Commercial Paper

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

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

<PAGE>

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements:

The financial statements incorporated by reference into Part B are as
follows:

DIVERSIFIED INVESTORS PORTFOLIOS
Statements of Assets and Liabilities at December 31, 1997.
Statements of Operations For the Year Ended December 31, 1997.
Statements of Changes in Net Assets For the Years Ended December 31, 1997
and December 31, 1996.
Portfolio of Investments at December 31, 1997.
Notes to Financial
Statements at December 31, 1997.
Financial Highlights.
Report of Independent Accountants.

(b) Exhibits:

1. Declaration of Trust of the Registrant. (1)

2. By-Laws of the Registrant. (1)

5(a). Form of Investment Advisory Agreement between the Registrant and
Diversified Investment Advisors, Inc. ("Diversified"). (1)

5(b). Form of Investment Subadvisory Agreement. (1)

8. Form of Custodian Contract between the Registrant and Investors
Bank & Trust Company. (1)

13. Investment representation letters from initial investors. (1)

17. Financial Data Schedules. (*)
- --------------------------
(1) Incorporated herein by reference from the Registrant's Registration
Statement (the "Registration Statement") on Form N-1A (File No. 811-8272)
as filed with the U.S. Securities and Exchange Commission (the
"Commission") on April 30, 1997.

(*) Filed herewith.

<PAGE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

Not Applicable.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS APRIL 15, 1998
<S> <C>

Money Market 11
High Quality Bond 9
Intermediate Government Bond 9
Government/Corporate Bond 10
High-Yield Bond 8
Balanced 9
Equity Income 10
Equity Value 9
Growth & Income 8
Equity Growth 9
Special Equity 10
Aggressive Equity 8
International Equity 8

</TABLE>

ITEM 27. INDEMNIFICATION.

Reference is made to Article V of the Registrant's Declaration of Trust,
incorporated by reference from the registration statement on Form N1-A of
Diversified Investors Portfolios (File No. 811-8272) as filed with the
Securities and Exchange Commission on April 30, 1997.

The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under a
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940,
as amended.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

Diversified Investment Advisors, Inc. ("Diversified") is an indirect,
wholly-owned subsidiary of AEGON USA, Inc., a financial services holding
company whose primary emphasis is life and health insurance and annuity and
investment products. AEGON is an indirect, wholly-owned subsidiary of AEGON nv,
a Netherlands corporation which is a publicly traded international insurance
group.

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

ITEM 29. PRINCIPAL UNDERWRITERS.

Not applicable.

<PAGE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

Diversified Investors Portfolios
4 Manhattanville Road
Purchase, New York 10577

Diversified Investment Advisors, Inc.
4 Manhattanville Road
Purchase, New York 10577

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

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

ITEM 31. MANAGEMENT SERVICES.

Not applicable.

ITEM 32. UNDERTAKINGS.

Not applicable.

<PAGE>

SIGNATURES

Pursuant ot the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Post-Effective Amendment to the 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 the 30th
day of April, 1998.

DIVERSIFIED INVESTORS PORTFOLIOS

By: /s/ Robert F. Colby
-------------------------------
Robert F. Colby
Secretary

<PAGE>

EXHIBIT LIST

EXHIBIT NO. DESCRIPTION

17. Financial Data Schedules.

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET PORTFOLIO
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 231,820,751
<INVESTMENTS-AT-VALUE> 231,820,751
<RECEIVABLES> 554,131
<ASSETS-OTHER> 21,560
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 232,396,442
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 83,984
<TOTAL-LIABILITIES> 83,984
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 232,312,458
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 223,312,458
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,424,923
<OTHER-INCOME> 0
<EXPENSES-NET> 626,712
<NET-INVESTMENT-INCOME> 11,798,211
<REALIZED-GAINS-CURRENT> (8,941)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 11,789,270
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 47,300,204
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 533,205
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 73,507
<AVERAGE-NET-ASSETS> 221,411,707
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> HIGH QUALITY BOND PORTFOLIO
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 215,075,338
<INVESTMENTS-AT-VALUE> 216,200,655
<RECEIVABLES> 2,069,634
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 218,270,289
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 100,851
<TOTAL-LIABILITIES> 100,851
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 217,044,121
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,125,317
<NET-ASSETS> 218,169,438
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,137,754
<OTHER-INCOME> 0
<EXPENSES-NET> 74,998
<NET-INVESTMENT-INCOME> 12,355,613
<REALIZED-GAINS-CURRENT> (2,349,712)
<APPREC-INCREASE-CURRENT> 1,093,124
<NET-CHANGE-FROM-OPS> 11,099,025
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 20,874,775
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 707,143
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 782,141
<AVERAGE-NET-ASSETS> 201,980,811
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> INTERMEDIATE GOVERNMENT BOND
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 137,284,969
<INVESTMENTS-AT-VALUE> 138,361,761
<RECEIVABLES> 1,345,530
<ASSETS-OTHER> 2,470
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139,709,761
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,523,364
<TOTAL-LIABILITIES> 10,523,364
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 128,109,605
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,076,792
<NET-ASSETS> 129,186,397
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,860,944
<OTHER-INCOME> 0
<EXPENSES-NET> 381,873
<NET-INVESTMENT-INCOME> 5,479,071
<REALIZED-GAINS-CURRENT> 43,123
<APPREC-INCREASE-CURRENT> 1,403,813
<NET-CHANGE-FROM-OPS> 6,926,007
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 26,126,517
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 340,670
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 56,728
<AVERAGE-NET-ASSETS> 97,405,778
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> GOVERNMENT-CORPORATE BOND PORTFOLIO
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 347,640,619
<INVESTMENTS-AT-VALUE> 358,428,670
<RECEIVABLES> 5,381,818
<ASSETS-OTHER> 1,540
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 363,812,028
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,179,143
<TOTAL-LIABILITIES> 2,179,143
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 350,844,834
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,788,051
<NET-ASSETS> 361,632,885
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,025,657
<OTHER-INCOME> 0
<EXPENSES-NET> 1,278,424
<NET-INVESTMENT-INCOME> 21,747,233
<REALIZED-GAINS-CURRENT> 747,528
<APPREC-INCREASE-CURRENT> 5,790,454
<NET-CHANGE-FROM-OPS> 28,285,215
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 38,956,868
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,174,374
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 104,050
<AVERAGE-NET-ASSETS> 335,010,704
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> BALANCED PORTFOLIO
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 519,240,006
<INVESTMENTS-AT-VALUE> 539,284,731
<RECEIVABLES> 4,513,431
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 543,798,162
<PAYABLE-FOR-SECURITIES> 396,940
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 148,631,309
<TOTAL-LIABILITIES> 149,028,249
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 374,725,188
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,044,725
<NET-ASSETS> 394,769,913
<DIVIDEND-INCOME> 2,816,529
<INTEREST-INCOME> 11,074,669
<OTHER-INCOME> (4,815)
<EXPENSES-NET> 1,652,989
<NET-INVESTMENT-INCOME> 12,233,394
<REALIZED-GAINS-CURRENT> 44,754,963
<APPREC-INCREASE-CURRENT> 1,725,897
<NET-CHANGE-FROM-OPS> 58,714,254
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 129,860,074
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,547,690
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 105,299
<AVERAGE-NET-ASSETS> 344,184,433
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> EQUITY INCOME PORTFOLIO
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 904,107,201
<INVESTMENTS-AT-VALUE> 1,278,052,081
<RECEIVABLES> 2,340,823
<ASSETS-OTHER> 5,922
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,280,398,826
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 65,327,657
<TOTAL-LIABILITIES> 65,327,657
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 841,126,289
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 373,944,880
<NET-ASSETS> 1,215,071,169
<DIVIDEND-INCOME> 26,727,291
<INTEREST-INCOME> 3,484,499
<OTHER-INCOME> (54,612)
<EXPENSES-NET> 5,193,107
<NET-INVESTMENT-INCOME> 24,964,071
<REALIZED-GAINS-CURRENT> 112,649,761
<APPREC-INCREASE-CURRENT> 145,312,803
<NET-CHANGE-FROM-OPS> 282,926,635
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 258,250,500
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,950,239
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 242,868
<AVERAGE-NET-ASSETS> 1,100,160,953
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> GROWTH & INCOME PORTFOLIO
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 340,473,543
<INVESTMENTS-AT-VALUE> 409,228,146
<RECEIVABLES> 3,872,290
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 413,100,436
<PAYABLE-FOR-SECURITIES> 7,071,880
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,768,148
<TOTAL-LIABILITIES> 36,840,028
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 307,505,805
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 68,754,603
<NET-ASSETS> 376,260,408
<DIVIDEND-INCOME> 2,946,154
<INTEREST-INCOME> 653,364
<OTHER-INCOME> (5,745)
<EXPENSES-NET> 1,781,552
<NET-INVESTMENT-INCOME> 1,812,221
<REALIZED-GAINS-CURRENT> 30,338,224
<APPREC-INCREASE-CURRENT> 46,717,933
<NET-CHANGE-FROM-OPS> 78,868,378
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 168,647,982
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,679,535
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 102,017
<AVERAGE-NET-ASSETS> 280,384,526
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> EQUITY GROWTH PORTFOLIO
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 382,816,316
<INVESTMENTS-AT-VALUE> 461,496,638
<RECEIVABLES> 3,809,860
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 465,306,498
<PAYABLE-FOR-SECURITIES> 2,714,882
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,279,428
<TOTAL-LIABILITIES> 38,994,310
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 347,631,866
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 73,680,322
<NET-ASSETS> 426,312,188
<DIVIDEND-INCOME> 3,590,774
<INTEREST-INCOME> 599,436
<OTHER-INCOME> 0
<EXPENSES-NET> 2,505,625
<NET-INVESTMENT-INCOME> 1,684,585
<REALIZED-GAINS-CURRENT> 24,114,431
<APPREC-INCREASE-CURRENT> 64,960,988
<NET-CHANGE-FROM-OPS> 90,760,004
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 127,184,502
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,405,212
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 100,413
<AVERAGE-NET-ASSETS> 388,285,823
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> SPECIAL EQUITY PORTFOLIO
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 709,556,795
<INVESTMENTS-AT-VALUE> 857,116,157
<RECEIVABLES> 5,764,475
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 862,880,632
<PAYABLE-FOR-SECURITIES> 6,249,742
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 113,242,629
<TOTAL-LIABILITIES> 119,492,371
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 595,828,899
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 147,559,362
<NET-ASSETS> 743,388,261
<DIVIDEND-INCOME> 5,129,430
<INTEREST-INCOME> 2,682,418
<OTHER-INCOME> (19,304)
<EXPENSES-NET> 5,218,552
<NET-INVESTMENT-INCOME> 2,573,992
<REALIZED-GAINS-CURRENT> 73,438,581
<APPREC-INCREASE-CURRENT> 69,900,579
<NET-CHANGE-FROM-OPS> 145,913,152
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 236,124,018
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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</TABLE>

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<NAME> HIGH YIELD BOND PORTFOLIO
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<S> <C>
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> INTERNATIONAL EQUITY PORTFOLIO
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<S> <C>
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> AGGRESSIVE EQUITY PORTFOLIO
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<S> <C>
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> EQUITY VALUE PORTFOLIO
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<S> <C>
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</TABLE>