RUSSELL FRANK INVESTMENT CO, 497, 1997-08-21

RUSSELL FRANK INVESTMENT CO
497, 1997-08-21

Previous: CENTRUM INDUSTRIES INC, DEF 14A, 1997-08-21

Next: NATIONWIDE SEPARATE ACCOUNT TRUST, DEFS14A, 1997-08-21

<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET, TACOMA, WA 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (253) 627-7001

Frank Russell Investment Company (the "Investment Company") is a "series
mutual fund" with 28 different investment portfolios referred to as the
"Funds." This Prospectus describes and offers shares of beneficial interest in
the Class D and Class E Shares of the five Funds listed below (the "LifePoints
Funds"). Each of the LifePoints Funds invests in different combinations of
other Funds (the "Underlying Funds") which, in turn, invest in different
combinations of stocks, bonds and cash equivalents. The Investment Company
believes that these combinations offer varying degrees of potential risk and
reward.

Equity Balanced Strategy Fund Moderate Strategy Fund
Aggressive Strategy Fund Conservative Strategy Fund
Balanced Strategy Fund

Frank Russell Investment Management Company ("FRIMCo") operates and
administers all of the Funds which comprise the Investment Company. FRIMCo is
a wholly owned subsidiary of Frank Russell Company, which researches and
recommends to FRIMCo, and to the Investment Company, one or more investment
management organizations to manage the portfolio of each of the Underlying
Funds in which the LifePoints Funds may invest.

SHARES OF THE FUNDS ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION (THE "FDIC") OR BY ANY OTHER GOVERNMENT AGENCY; ARE NOT
OBLIGATIONS OF THE FDIC OR ANY OTHER GOVERNMENT AGENCY; ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK; ARE NOT ENDORSED OR GUARANTEED BY ANY BANK; ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED; AND MAY FLUCTUATE IN VALUE, SO THAT WHEN THEY ARE SOLD, THEY MAY BE
WORTH MORE OR LESS THAN WHEN THEY WERE PURCHASED.

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

Frank Russell Investment Company is organized as a Massachusetts business
trust under an amended Master Trust Agreement dated July 26, 1984. The
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment funds, which interests
may be offered in one or more classes. The Investment Company is a
diversified, open-end management investment company, commonly known as a
"mutual fund."

This Prospectus sets forth concisely information about the Investment
Company and the Class D and Class E Shares of its five LifePoints Funds that a
prospective investor ought to know before investing. The Investment Company
has filed a Statement of Additional Information dated August 18, 1997, with
the Securities and Exchange Commission (the "SEC") which contains additional
information regarding the LifePoints Funds. The Statement of Additional
Information is incorporated herein by reference. The Statement of Additional
Information, or a paper copy of this Prospectus, if you have received your
Prospectus electronically, may be obtained without charge by writing to the
Secretary, Frank Russell Investment Company, at the address shown above or by
telephoning (800) 972-0700. This Prospectus should be read carefully and
retained for future reference. This Prospectus relates only to the Class D and
Class E Shares of the LifePoints Funds. The Funds also have authorized Class S
shares which are not offered at the date of this Prospectus for public
investment.

The Statement of Additional Information, material incorporated by reference
into this Prospectus, and other information regarding the Investment Company
and the Funds is maintained electronically with the SEC at its Internet web
site (http://www.sec.gov).

PROSPECTUS DATED AUGUST 18, 1997
<PAGE>

Each LifePoints Fund diversifies its assets by investing, at present, in the
Class S Shares of six to eight Underlying Funds. Allocation decisions reflect
FRIMCo's outlook for the economy, financial markets and the relative
valuations of the Underlying Funds. Each LifePoints Fund seeks to achieve a
specific investment objective by investing in different combinations of the
Underlying Funds. Each LifePoints Fund and its investment objective are set
forth below. An investor can select investments in one or more LifePoints
Funds appropriate to the present investment aims, lifestyle and economic
status of the investor or the investor's clients, and can use reallocation of
assets among LifePoints Funds to reflect changes in these factors which occur
over time.

EQUITY BALANCED STRATEGY FUND seeks to achieve high, long-term capital
appreciation, while recognizing the possibility of high fluctuations in year-
to-year market values.

AGGRESSIVE STRATEGY FUND seeks to achieve high, long-term capital
appreciation, with low current income while recognizing the possibility of
substantial fluctuations in year-to-year market values.

BALANCED STRATEGY FUND seeks a moderate level of current income and, over
time, above-average capital appreciation with moderate risk.

MODERATE STRATEGY FUND seeks to achieve moderate long-term capital
appreciation with high current income, while recognizing the possibility of
moderate fluctuations in year-to-year market values.

CONSERVATIVE STRATEGY FUND seeks to achieve moderate total rate of return
through low capital appreciation and reinvestment of a high level of current
income.

This Prospectus describes and offers both Class D and Class E Shares of the
five LifePoints Funds. The LifePoints Funds had not yet commenced operations
as of May 23, 1997, and did not have any aggregate assets as of that date.

The Investment Company's Funds had aggregate net assets of approximately $10
billion on May 5, 1997.

2
<PAGE>

HIGHLIGHTS AND TABLE OF CONTENTS

ANNUAL FUND OPERATING EXPENSES OF THE CLASS D AND CLASS E SHARES OF THE
LIFEPOINTS FUNDS summarizes the fees paid by shareholders and provides an
example showing the effect of these fees together with the indirect expenses
of the Underlying Funds on a $1,000 investment over time without the manager
waiver in effect. PAGE 6.

THE PURPOSE OF THE LIFEPOINTS FUNDS is to provide a simple and effective
means for an Eligible Investor to employ a diversified mutual fund investment
allocation program suited to pursuing the long-term investment goals of the
investor or its clients. The LifePoints Funds are especially useful for
participants in tax-deferred retirement plans. The LifePoints Funds take
advantage of FRIMCo's asset allocation technology, as well as the Underlying
Funds' use of FRIMCo's and Frank Russell Company's "multi-style, multi-manager
diversification" techniques and money manager evaluation services, on an
economical and efficient basis. PAGE 10.

FRANK RUSSELL COMPANY -- CONSULTANT TO THE FUNDS has been primarily engaged
since 1969 in providing asset management consulting services to large
corporate employee benefit funds. Major components of its consulting services
are: (i) quantitative and qualitative research and evaluation aimed at
identifying the most appropriate investment management firms to invest large
pools of assets in accord with specific investment objectives and styles; and
(ii) the development of strategies for investing assets using "multi-style,
multi-manager diversification." PAGE 10.

MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION is a method for investing large
pools of assets by dividing the assets into segments to be invested using
different investment styles, and selecting money managers for each segment
based upon their expertise in that style of investment. Each LifePoints Fund
provides an additional layer of "multi-asset" diversification by allocating
its assets among several Underlying Funds, most of which employ multiple money
managers in pursuit of their investment objectives. PAGE 10.

INVESTMENT OBJECTIVES AND ASSET ALLOCATION FRAMEWORKS OF THE LIFEPOINTS
FUNDS are designed to meet the investment goals of long-term Eligible
Investors. While the LifePoints Funds invest primarily in the Underlying
Funds, each LifePoints Fund pursues a different investment objective by
allocating its assets among a number of Underlying Funds which pursue a
variety of their investment objectives. PAGE 11.

INVESTMENT POLICIES, RESTRICTIONS AND RISKS OF THE LIFEPOINTS FUNDS should
be considered in deciding whether to invest in a LifePoints Fund.
"Fundamental" investment objectives, policies, and restrictions may not be
changed without the approval of a majority of the shareholders of an affected
LifePoints Fund. While the LifePoints Funds' principal investment will be in
the Class S Shares of Underlying Funds, they may also invest in other types of
securities. Risks associated with certain investment policies of the
Underlying Funds should be considered when investing in the LifePoints Funds.
PAGE 14.

ELIGIBLE INVESTORS are principally those institutional investors and
financial intermediaries which have entered into an Asset Management Services
Agreement with FRIMCo and institutions or individuals who have acquired shares
through such institutions or financial intermediaries. Institutions and
financial intermediaries selling Class E Shares of the LifePoints Funds may
only offer to sell Class E Shares to certain of their clients. PAGE 16.

GENERAL MANAGEMENT OF THE UNDERLYING FUNDS AND THE LIFEPOINTS FUNDS is
provided by FRIMCo, which employs the officers and staff required to manage
and administer the Underlying Funds and the LifePoints

3
<PAGE>

Funds on a day-to-day basis. All services necessary for the operation of the
LifePoints Funds (including accounting, custody, auditing, legal and
shareholder servicing) are arranged for by FRIMCo pursuant to the Special
Services Agreement (the "Services Agreement") between FRIMCo and each
LifePoints Fund and each Underlying Fund in which it invests. Frank Russell
Company provides to the Underlying Funds and FRIMCo comprehensive consulting
and money manager evaluation services. PAGE 17.

OPERATING EXPENSES OF THE LIFEPOINTS FUNDS are allocated among and borne by
the Underlying Funds in which the LifePoints Funds invest or by FRIMCo, in
either case pursuant to the Services Agreement. Except as to a 0.25%
management fee and a 0.25% Shareholder Services Fee applicable to the Class D
and Class E Shares and a 0.25% Rule 12b-1 distribution fee applicable only to
Class D Shares, the LifePoints Funds are not subject to any operating
expenses, because each LifePoints Fund's operating expense will be paid by the
Underlying Funds to the extent that the Underlying Funds receive an economic
benefit. Any operating expense of a LifePoints Fund in excess of the economic
benefit realized by the Underlying Funds will be paid by FRIMCo. As noted
above, each Lifepoints Fund has agreed to pay FRIMCo a management fee equal to
0.25% of the Fund's average daily net assets for providing investment
supervisory services. Currently, this fee is being voluntarily waived by
FRIMCo. In addition to the management fee, the LifePoints Funds will
indirectly bear their proportionate share of operating expenses that include
the management fees paid by the Underlying Funds in which they invest. While a
shareholder of a LifePoints Fund will also bear a proportionate part of
management fees paid by an Underlying Fund, each of the management fees paid
is based upon the services received by the respective Fund. PAGE 19.

THE MONEY MANAGERS FOR THE UNDERLYING FUNDS are evaluated and recommended by
FRIMCo and Frank Russell Company. The money managers have complete discretion
to purchase and sell portfolio securities for their segment of an Underlying
Fund consistent with the Underlying Fund's investment objectives, policies and
restrictions, and the specific strategies developed by Frank Russell Company
and FRIMCo. The LifePoints Funds do not employ money managers, other than
FRIMCo, and therefore, do not pay management fees. The determination of how
the LifePoints Funds' assets will be allocated among the Underlying Funds is
made by FRIMCo pursuant to each LifePoints Fund's investment objectives and
policies. The LifePoints Funds, as shareholders of the Underlying Funds,
benefit from the multi-style, multi-manager services provided to the
Underlying Funds. PAGE 20.

INVESTMENT OBJECTIVES, POLICIES AND RISKS OF THE UNDERLYING FUNDS should be
considered when deciding whether to invest in a LifePoints Fund. "Fundamental"
investment objectives, policies and restrictions may not be changed without
the approval of a majority of the shareholders of an affected Underlying Fund.
Risks associated with certain investment policies of the Underlying Funds,
such as market volatility risk, political risk, and credit risk, are disclosed
in connection with a description of the policies giving rise to such risks.
PAGE 20.

DIVIDENDS AND DISTRIBUTIONS may be reinvested in additional shares or
received in cash. Dividends from net investment income are declared quarterly
by each of the LifePoints Funds. All LifePoints Funds declare distributions
from net realized capital gains, if any, at least annually. PAGE 26.

INCOME TAXES PAID BY THE LIFEPOINTS FUNDS should be nominal. Taxable
shareholders of the LifePoints Funds will be subject to federal taxes on
dividends and capital gains distributions and may also be subject to state or
local taxes. PAGE 27.

LIFEPOINTS FUND PERFORMANCE, including yields and total return information,
is calculated in accordance with formulas prescribed by the Securities and
Exchange Commission. PAGE 28.

4
<PAGE>

VALUATION OF LIFEPOINTS FUND SHARES occurs each business day. Class D and
Class E Shares are purchased or redeemed based upon the next computed net
asset value per share of each LifePoints Fund. Unless otherwise indicated,
"shares" in this Prospectus refers to the Class D and Class E Shares of the
LifePoints Funds. PAGE 30.

PURCHASE OF LIFEPOINTS FUND SHARES may be accomplished on each business day.
The Class D Shares are presently subject to a management fee of 0.25%, a Rule
12b-1 distribution fee of 0.25% and a Shareholder Service Fee of up to 0.25%.
The Class E Shares are presently subject to a management fee of 0.25%, and a
Shareholder Service Fee of up to 0.25%. PAGE 30.

REDEMPTION OF LIFEPOINTS FUND SHARES may be requested on any business day.
There is no redemption charge. The redemption price is the next computed net
asset value after receipt of the redemption request. The LifePoints Funds
reserve the right to redeem in kind any portion of a redemption request. PAGE
32.

ADDITIONAL INFORMATION is also included in this Prospectus concerning the:
Distributor, Custodian, Independent Accountants and Reports; Organization,
Capitalization and Voting; and Money Manager Profiles. PAGE 34.

The LifePoints Funds are authorized to offer one other class of shares, the
Class S Shares, which is designed to meet different investor needs. Class S
Shares of the LifePoints Funds are not, as of the date of this Prospectus,
being offered to investors. PAGE 35.

5
<PAGE>

ANNUAL FUND OPERATING EXPENSES OF THE CLASS D AND CLASS E SHARES OF THE
LIFEPOINTS FUNDS

The purpose of the following table is to assist the investor in
understanding the various costs and expenses that an investor in the Class D
and Class E Shares of the LifePoints Funds will bear directly or indirectly.
Each LifePoints Fund will indirectly bear its pro rata share of the expenses
of the Underlying Funds in which the LifePoints Fund invests. THE EXAMPLE
PROVIDED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

CLASS D SHARES

<TABLE>
<CAPTION>
EQUITY
BALANCED AGGRESSIVE BALANCED MODERATE CONSERVATIVE
STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
FUND FUND FUND FUND FUND
-------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
CLASS D SHARES SHAREHOLDER
TRANSACTION EXPENSES:
Sales Load Imposed on Pur-
chases................... None None None None None
Sales Load Imposed on Re-
invested Dividends....... None None None None None
Deferred Sales Load....... None None None None None
Redemption Fees........... None None None None None
Exchange Fees............. None None None None None
ANNUAL CLASS D SHARES
OPERATING EXPENSES:#
(as a percentage of average
net assets)
Management Fees ##........ 0.25% 0.25% 0.25% 0.25% 0.25%
12b-1 Fees*............... 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (After Re-
imbursement)**
Custodian Fees (After Re-
imbursement)**.......... None None None None None
Transfer Agent Fees (Af-
ter Reimbursement)**.... None None None None None
Other Fees (After Reim-
bursement)+ **.......... 0.25% 0.25% 0.25% 0.25% 0.25%
Total Other Expenses (Af-
ter Reimbursement)**.... 0.25% 0.25% 0.25% 0.25% 0.25%
Total Class D Operating
Expenses (After
Reimbursement)** *** ## 0.75% 0.75% 0.75% 0.75% 0.75%
</TABLE>

- ---------------------
# Annual Class D Shares operating expenses are estimated based on average net
assets expected to be invested during the fiscal year ending December 31,
1997. During the course of this period, expenses may be more or less than
the average amount shown.

+ Class D Shares of each LifePoints Fund can pay up to 0.25% of average net
assets as a Shareholder Service Fee.

## FRIMCo has voluntarily agreed to waive its Management fee of 0.25% of
average net assets. This waiver is intended to be in effect through
December 31, 1997 but may be revised or eliminated at any time without
notice to shareholders.

* Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by rules of the National
Association of Securities Dealers, Inc. See "Distribution and Shareholder
Services Plans."

6
<PAGE>

** The LifePoints Funds' operating expenses will be paid by the Underlying
Funds and/or FRIMCo, as more fully described below. If there were no waiver
of Management fees or reimbursement of operating expenses by the Underlying
Funds or FRIMCo, the estimated "Total Other Expenses" would be 5.59% for
the Equity Balanced Strategy Fund, 4.91% for the Aggressive Strategy Fund,
0.76% for the Balanced Strategy Fund, 3.97% for the Moderate Strategy Fund,
and 4.15% for the Conservative Strategy Fund, and the "Total Class D
Operating Expenses" would have been 6.09% for the Equity Balanced Strategy
Fund, 5.41% for the Aggressive Strategy Fund, 1.26% for the Balanced
Strategy Fund, 4.47% for the Moderate Strategy Fund, and 4.65% for the
Conservative Strategy Fund.

*** Investors purchasing Class D Shares of the LifePoints Funds through a
financial intermediary, such as a bank, broker or an investment adviser,
may also be required to pay additional fees to the financial intermediary
for services provided by the intermediary. Such investors should contact
the intermediary for information concerning what additional fees, if any,
will be charged by the intermediary.

CLASS E SHARES

<TABLE>
<CAPTION>
EQUITY
BALANCED AGGRESSIVE BALANCED MODERATE CONSERVATIVE
STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
FUND FUND FUND FUND FUND
-------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
CLASS E SHARES SHAREHOLDER
TRANSACTION EXPENSES:
Sales Load Imposed on Pur-
chases................... None None None None None
Sales Load Imposed on Re-
invested Dividends....... None None None None None
Deferred Sales Load....... None None None None None
Redemption Fees........... None None None None None
Exchange Fees............. None None None None None
ANNUAL CLASS E SHARES OPER-
ATING EXPENSES:#
(as a percentage of average
net assets)
Management Fees ##........ 0.25% 0.25% 0.25% 0.25% 0.25%
12b-1 Fees................ None None None None None
Other Expenses (After Re-
imbursement)**:
Custodian Fees (After Re-
imbursement)**.......... None None None None None
Transfer Agent Fees (Af-
ter Reimbursement)**.... None None None None None
Other Fees (After Reim-
bursement)+ **.......... 0.25% 0.25% 0.25% 0.25% 0.25%
Total Other Expenses (Af-
ter Reimbursement)**.... 0.25% 0.25% 0.25% 0.25% 0.25%
Total Class E Operating
Expenses (After
Reimbursement)** *** ##.. 0.50% 0.50% 0.50% 0.50% 0.50%
</TABLE>

- ---------------------
# Annual Class E Shares operating expenses are estimated based on average net
assets expected to be invested during the fiscal year ending December 31,
1997. During the course of this period, expenses may be more or less than
the average amount shown.

+ Class E Shares of each LifePoints Fund can pay up to 0.25% of average net
assets as a Shareholder Service Fee.

## FRIMCo has voluntarily agreed to waive the Management fee of 0.25% of
average net assets. This waiver is intended to be in effect through
December 31, 1997 but may be revised or eliminated at any time without
notice to shareholders.

7
<PAGE>

** The LifePoints Funds' operating expenses will be paid by the Underlying
Funds and/or FRIMCo, as more fully described below. If there were no waiver
of Management fees or reimbursement of operating expenses by the Underlying
Funds or FRIMCo, the estimated "Total Other Expenses" would be 5.59% for
the Equity Balanced Strategy Fund, 4.91% for the Aggressive Strategy Fund,
0.76% for the Balanced Strategy Fund, 3.97% for the Moderate Strategy Fund,
and 4.15% for the Conservative Strategy Fund, and the "Total Class E
Operating Expenses" would have been 5.84% for the Equity Balanced Strategy
Fund, 5.16% for the Aggressive Strategy Fund, 1.01% for the Balanced
Strategy Fund, 4.22% for the Moderate Strategy Fund, and 4.40% for the
Conservative Strategy Fund.

*** Investors purchasing Class E Shares of the LifePoints Funds through a
financial intermediary, such as a bank, broker or an investment adviser,
may also be required to pay additional fees to the financial intermediary
for services provided by the intermediary. Such investors should contact
the intermediary for information concerning what additional fees, if any,
will be charged by the intermediary.

Although Class D and Class E Shares of the LifePoints Funds will be subject
to a 0.25% management fee and a 0.25% Shareholder Service Fee and the Class D
Shares will be subject to an additional 0.25% Rule 12b-1 distribution fee,
neither class will bear any operating expenses. The operational expenses will
be paid by the Underlying Funds in which they invest to the extent that an
Underlying Fund receives a net reduction in its otherwise anticipated
operating expenses as a result of the LifePoints Funds' investment in that
Underlying Fund's shares. The operating expense-savings that are expected to
be realized by the Underlying Funds from the LifePoints Funds result primarily
from the assumed reduction in the number of accounts that each Underlying Fund
has to maintain due to the existence of the LifePoints Funds (i.e., one
account per investor as opposed to one for each Underlying Fund per investor
if the investor duplicated a LifePoints Fund's investment program by investing
directly in the Underlying Funds) and from the assumed reductions in investor
trading activity. Any LifePoints Funds operational expenses that are in excess
of the estimated savings to the Underlying Funds will be borne by FRIMCo, an
arrangement that can be terminated at any time by FRIMCo in its sole
discretion without notice to shareholders but which will not be terminated
prior to April 30, 1998. (See "Expenses of the LifePoints Funds" for an
explanation of the Special Service Agreement under which the LifePoints Funds'
operating expenses are allocated among and borne by the Underlying Funds in
which the LifePoints Funds invest.) However, while the LifePoints Funds are
expected to operate without expense (except as to the management fee and any
Rule 12b-1 and Shareholder Service Fees), shareholders in a LifePoints Fund
will bear indirectly the proportionate expenses of the Underlying Funds in
which the LifePoints Fund invests. The following table provides the expense
ratios for each of the Underlying Funds in which the LifePoints Funds may
invest (based on information as of December 31, 1996). Where applicable,
expense ratios are restated to reflect current fees. As explained in this
Prospectus, each LifePoints Fund intends to invest in some, but not all, of
the Underlying Funds.

8
<PAGE>

<TABLE>
<CAPTION>
TOTAL OPERATING
UNDERLYING FUND EXPENSE RATIOS
--------------- ---------------
<S> <C>
Diversified Equity Fund................................... .94%
Special Growth Fund....................................... 1.19%
Quantitative Equity Fund.................................. .93%
International Securities Fund............................. 1.30%
Diversified Bond Fund..................................... .61%
Volatility Constrained Bond Fund.......................... .76%
Multistrategy Bond Fund................................... .80%
Real Estate Securities Fund............................... 1.04%
Emerging Markets Fund..................................... 1.71%
</TABLE>

The following table illustrates the indirect expense ratio that each
LifePoints Fund would have incurred based on its allocation strategy in the
Underlying Funds for the year ended December 31, 1996 if it had been
operational:

<TABLE>
<CAPTION>
INDIRECT
LIFEPOINTS FUND EXPENSE RATIOS
--------------- --------------
<S> <C>
Equity Balanced Strategy Fund.............................. 1.08%
Aggressive Strategy Fund................................... 1.05%
Balanced Strategy Fund..................................... .92%
Moderate Strategy Fund..................................... .85%
Conservative Strategy Fund................................. .80%
</TABLE>

EXAMPLE:

You would pay the following expenses on a $1,000 investment in the Class D
and Class E Shares of each of the LifePoints Funds including the indirect
expenses of the Underlying Funds, assuming at any time during the periods
noted below (1) 5% annual return and (2) redemption at the end of each time
period:

<TABLE>
<CAPTION>
CLASS D SHARES: 1 YEAR 3 YEARS
--------------- ------ -------
<S> <C> <C>
Equity Balanced Strategy Fund.............................. $18 $58
Aggressive Strategy Fund................................... $18 $57
Balanced Strategy Fund..................................... $17 $53
Moderate Strategy Fund..................................... $16 $50
Conservative Strategy Fund................................. $16 $49
<CAPTION>
CLASS E SHARES: 1 YEAR 3 YEARS
--------------- ------ -------
<S> <C> <C>
Equity Balanced Strategy Fund.............................. $16 $50
Aggressive Strategy Fund................................... $16 $49
Balanced Strategy Fund..................................... $14 $45
Moderate Strategy Fund..................................... $13 $43
Conservative Strategy Fund................................. $13 $41
</TABLE>

9
<PAGE>

THE PURPOSE OF THE LIFEPOINTS FUNDS

The LifePoints Funds have been organized to provide a simple and effective
means for Eligible Investors to structure a diversified mutual fund investment
allocation program that is suited to the long-term investment goals of the
investor, and that permits an investor to access and use FRIMCo's and Frank
Russell Company's "multi-style, multi-manager diversification" method of
investment. The LifePoints Funds, by investing in the Class S Shares of the
Underlying Funds, obtain FRIMCo's and Frank Russell Company's money manager
evaluation services, on a pooled and cost-effective basis.

FRANK RUSSELL COMPANY--CONSULTANT TO THE FUNDS

Frank Russell Company, founded in 1936, has been providing comprehensive
asset management consulting services since 1969 for institutional pools of
investment assets, principally those of large corporate employee benefit
plans. The Company and its affiliates have offices in Tacoma, New York,
Toronto, London, Zurich, Paris, Sydney, Auckland and Tokyo, and have
approximately 1,300 associates.

Three functions are at the core of Frank Russell Company's consulting
service:

Objective Setting: Defining appropriate investment objectives and desired
investment returns based upon the client's unique situation and tolerance for
risk.

Asset Allocation: Allocating a client's assets among different asset
classes--such as common stocks, fixed-income securities, international
securities, temporary cash investments and real estate--in the manner most
likely to achieve the client's objectives.

Money Manager Research: Evaluating and recommending professional investment
advisory and management organizations to make specific portfolio investments
for each asset class in accord with the specified objectives, investment
styles and strategies.

When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique with the goals of
reducing risk and increasing returns.

MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION

FRIMCo and Frank Russell Company believe that capital market history shows
that no one particular asset class provides consistent and/or above-average
total return results, either on an absolute or relative basis, over extended
periods of time. For example, there are periods of time when equity securities
outperform fixed-income securities, and vice versa. Similarly, there are
periods when securities selected for particular characteristics, or using
particular investment styles, outperform other types of securities. For
example, there are periods of time when equity securities with growth
characteristics outperform equities with income characteristics, and vice
versa. While these performance cycles tend to repeat themselves, they do so
with no regularity. The blending of asset classes and investment styles on a
complementary basis can obtain more consistent returns over longer time
periods with a reduction of risk (volatility), although a particular asset
class or investment style--or a particular Fund investing in one asset class
or using a particular style--may not achieve above-average performance at any
given point in the market.

10
<PAGE>

Similarly, FRIMCo and Frank Russell Company believe financial markets
generally are efficient, and few money managers have shown the ability to time
the major highs and lows in the securities markets with any high degree of
consistency. However, some money managers have shown a consistent ability to
achieve superior results within selected asset classes and styles and have
demonstrated expertise in particular areas. Thus, by combining a mix of
investment styles within each asset class and then selecting money managers
for their ability to invest in a particular style, the investor may seek to
achieve increased returns.

Substantial pools of investment assets are required to achieve the cost
effective and efficient allocation of assets among various asset classes and
investment styles, to use multiple money managers, and to support the research
and evaluation efforts required to select appropriate money managers. By
pooling the assets of institutions and individuals with smaller to medium-
sized accounts in a series of Funds, including the LifePoints Funds, with
different objectives and policies, FRIMCo believes that they are able to
provide its and Frank Russell Company's multi-style, multi-manager, multi-
asset diversification techniques and money manager evaluation services to
Eligible Investors on a basis which is both efficient and cost effective for
the investor, FRIMCo and Frank Russell Company.

The advantages of diversifying among a mixture of investment styles and
money managers are potentially even greater with the LifePoints Funds, where
each LifePoints Fund will typically invest in shares of from six to eight
Underlying Frank Russell Investment Company Funds. The LifePoints Funds have
been created in response to increasing demand by mutual fund investors for a
simple and effective means of structuring a diversified mutual fund investment
program suited to their general needs. The proliferation of mutual funds has
left many investors confused and in search of a simpler means to manage their
investments. FRIMCo has long stressed the value of diversifying investments in
a number of mutual funds (e.g., a money market fund for liquidity and price
stability, a growth fund for long-term appreciation, an income fund for
current income and relative safety of principal, an international fund for
greater potential diversification, etc.), and has offered its advisory
expertise in assisting investors to determine such issues as which mutual
funds to select, how much of their assets to commit to each fund, and when to
reallocate their selections.

INVESTMENT OBJECTIVES AND ASSET ALLOCATION FRAMEWORKS
OF THE LIFEPOINTS FUNDS

The investment objectives of the LifePoints Funds are subject to the
investment restrictions and asset allocation policies described in this
Prospectus. The investment objective of each LifePoints Fund is as follows:

. EQUITY BALANCED STRATEGY FUND seeks to achieve high, long-term capital
appreciation, while recognizing the possibility of high fluctuations in
year-to-year market values.

. AGGRESSIVE STRATEGY FUND seeks to achieve high, long-term capital
appreciation, with low current income while recognizing the possibility
of substantial fluctuations in year-to-year market values.

. BALANCED STRATEGY FUND seeks a moderate level of current income and, over
time, above-average capital appreciation with moderate risk.

. MODERATE STRATEGY FUND seeks to achieve moderate long-term capital
appreciation with high current income, while recognizing the possibility
of moderate fluctuations in year-to-year market values.

. CONSERVATIVE STRATEGY FUND seeks to achieve moderate total rate of return
through low capital appreciation and reinvestment of a high level of
current income.

11
<PAGE>

The investment objectives of the LifePoints Funds are summarized below in a
chart that illustrates the degree to which each LifePoints Fund seeks to
obtain capital appreciation, income, and stability of principal:

<TABLE>
<CAPTION>
POSSIBILITY
CAPITAL OF
LIFEPOINTS FUND NAME APPRECIATION INCOME FLUCTUATION
-------------------- ------------ -------- -----------
<S> <C> <C> <C>
Equity Balanced Strategy Fund.............. High Low High
Aggressive Strategy Fund................... High Low High
Balanced Strategy Fund..................... Moderate Moderate Moderate
Moderate Strategy Fund..................... Moderate High Moderate
Conservative Strategy Fund................. Low High Low
</TABLE>

There is no assurance that a LifePoints Fund will achieve its stated
objective. The investment objective of each LifePoints Fund is fundamental and
cannot be changed without the approval of a majority of shareholders of the
particular LifePoints Fund.

Each of the LifePoints Funds allocates its assets by investing in shares of
a diversified group of from six to eight Underlying Funds. Each of the
LifePoints Funds will adjust its investments within set limits based on
FRIMCo's outlook for the economy, financial markets and relative market
valuation of the asset classes represented by each Underlying Fund. However,
the LifePoints Funds may deviate from set limits when, in FRIMCo's opinion, it
is necessary to do so to pursue a LifePoints Fund's investment objective. The
amounts allocated to each Underlying Fund by each LifePoints Fund will
generally vary within 10% of the ranges specified below:

<TABLE>
<CAPTION>
EQUITY
BALANCED AGGRESSIVE BALANCED MODERATE CONSERVATIVE
STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
UNDERLYING FUND FUND FUND FUND FUND FUND
--------------- -------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Diversified Equity Fund.... 30% 21% 16% 11% 5%
Special Growth Fund........ 10% 11% 5% 2% --
Quantitative Equity Fund... 30% 21% 16% 11% 6%
International Securities
Fund...................... 20% 19% 14% 9% 5%
Diversified Bond Fund...... -- -- 25% 27% 18%
Volatility Constrained Bond
Fund...................... -- -- -- 33% 60%
Multistrategy Bond Fund.... -- 18% 16% -- --
Real Estate Securities
Fund...................... 5% 5% 5% 5% 5%
Emerging Markets Fund...... 5% 5% 3% 2% 1%
</TABLE>

12
<PAGE>

(INSERT FIVE PIE CHARTS
REFLECTING UNDERLYING FUND
COMPOSITION IN GRAPHIC FORM,
OF EACH LIFEPOINTS FUND)

13
<PAGE>

INVESTMENT POLICIES, RESTRICTIONS
AND RISKS OF THE LIFEPOINTS FUNDS

Each LifePoints Fund's investment policies and practices are subject to
further restrictions and risks which are described in the Statement of
Additional Information. The LifePoints Funds will not make a material change
in their investment objectives or their fundamental policies without obtaining
shareholder approval. The LifePoints Funds' allocation ranges, as described in
the previous section, unless otherwise specified, are not fundamental policies
and may be changed without shareholder approval. Shareholders will be notified
of any material change in such investment programs.

Cash Reserves. Each LifePoints Fund is authorized to invest its cash
reserves (i.e., funds awaiting investment in the Underlying Funds) in money
market instruments and in debt securities which are at least comparable in
quality to the permitted investments of the Underlying Funds which may be
acquired by that LifePoints Fund. Each LifePoints Fund may also invest its
cash reserves in the Investment Company's Money Market Fund. The Investment
Company's Money Market Fund, described in a separate prospectus, seeks to
maximize current income to the extent consistent with the preservation of
capital and liquidity, and the maintenance of a stable $1.00 per share net
asset value by investing solely in short-term, high-grade, money market
instruments. A LifePoints Fund investing in the Money Market Fund will
indirectly bear its proportionate share of the management fee and other
expenses incurred by the Money Market Fund.

Repurchase Agreements. Each LifePoints Fund may enter into repurchase
agreements with a bank or broker-dealer that agrees to repurchase the
securities at the Fund's cost plus interest within a specified time (normally
the next business day). If the party agreeing to repurchase should default and
if the value of the securities held by the LifePoints Fund as collateral (102%
of the amount of cash paid by the LifePoints Fund to such party at time of the
agreement) should fall below the repurchase price, the LifePoints Fund could
incur a loss. Subject to the overall limitations described in "Illiquid
Securities" below, no LifePoints Fund will invest more than 15% of its net
assets (taken at current market value) in repurchase agreements maturing in
more than seven days.

Reverse Repurchase Agreements. Each LifePoints Fund may enter into reverse
repurchase agreements to meet redemption requests where the liquidation of
portfolio securities is deemed by FRIMCo to be inconvenient or
disadvantageous. A reverse repurchase agreement is a transaction whereby a
LifePoints Fund transfers possession of a portfolio security to a bank or
broker-dealer in return for a percentage of the portfolio security's market
value. The LifePoints Fund retains record ownership of the security involved,
including the right to receive interest and principal payments. At an agreed
upon future date, the LifePoints Fund repurchases the security by paying an
agreed upon purchase price plus interest. Liquid assets of the LifePoints Fund
equal in value to the repurchase price, including any accrued interest, will
be segregated on the Fund's records while a reverse repurchase agreement is in
effect, subject to the limitations described in "Investment Policies--Illiquid
Securities."

Illiquid Securities. The LifePoints Funds will not purchase or otherwise
acquire any security if, as a result, more than 15% of a Fund's net assets
(taken at current value) would be invested in securities, including repurchase
agreements of more than seven days' duration, that are illiquid by virtue of
the absence of a readily available market or because of legal or contractual
restrictions on resale. In addition, the LifePoints Funds will not invest more
than 15% of their respective net assets (taken at current value) in securities
of issuers which may not be sold to the public without registration under the
Securities Act of 1933 (the "1933 Act"). There may be undesirable delays in
selling illiquid securities at prices representing their fair value. Investing
in illiquid

14
<PAGE>

securities that are considered to be SEC Rule 144A securities could have the
effect of increasing the level of a LifePoints Fund's illiquidity to the
extent that qualified institutional buyers became, for a time, uninterested in
purchasing such securities.

Diversification. Each LifePoints Fund is a "nondiversified" investment
company for purposes of the Investment Company Act of 1940, as amended (the
"1940 Act") because it invests in the securities of a limited number of mutual
funds. Each of the Underlying Funds in which the LifePoints Funds may invest
is a diversified investment company. Each LifePoints Fund intends to qualify
as a diversified investment company for purposes of Subchapter M of the
Internal Revenue Code.

INVESTMENT RESTRICTIONS OF THE LIFEPOINTS FUNDS

The LifePoints Funds have fundamental investment restrictions which cannot
be changed without shareholder approval. The principal restrictions are the
following, which, unless otherwise noted, apply on a Fund-by-Fund basis at the
time an investment is being made. No LifePoints Fund will:

1. Invest in any security if, as a result of such investment, less than
75% of its total assets would be represented by cash; cash items;
securities of the US government, its agencies, or instrumentalities;
securities of other investment companies (including the Underlying Funds);
and other securities limited in respect of each issuer to an amount not
greater in value than 5% of the total assets of such LifePoints Fund.

2. Invest 25% or more of the value of the LifePoints Fund's total assets
in the securities of companies primarily engaged in any one industry (other
than the US government, its agencies and instrumentalities, and shares of
the Underlying Funds).

3. Acquire more than 5% of the outstanding voting securities, or 10% of
all of the securities, of any one issuer, as noted below, except with
respect to shares of Funds that are investment portfolios of the Investment
Company.

4. Borrow amounts in excess of 5% of its total assets taken at cost or at
market value, whichever is lower, and then only from banks as a temporary
measure for extraordinary or emergency purposes (reverse repurchase
agreements are not deemed to be borrowings for the purposes of this
limitation).

5. Invest more than 15% of its net assets in illiquid securities,
provided that each LifePoints Fund will not invest more than 5% of its net
assets in restricted securities (other than securities eligible for resale
under Rule 144A of the 1933 Act.

SPECIAL RISKS AND CONSIDERATIONS OF THE LIFEPOINTS FUNDS

Investors should consider the following factors when investing in the
LifePoints Funds:

. The investments of each LifePoints Fund will consist primarily of shares
of the Underlying Funds, so each LifePoints Fund's investment performance
is directly related to the investment performances of the Underlying
Funds in which the LifePoints Fund invests.

. As a matter of policy, the LifePoints Funds will generally allocate their
investments among the Underlying Funds within certain ranges. As a
result, the LifePoints Funds may have less flexibility to invest than a
mutual fund without such constraints.

. In addition to their principal investments, some or all of the Underlying
Funds may: invest varying percentages of their assets in foreign
securities; enter into forward currency transactions; lend their

15
<PAGE>

portfolio securities; enter into stock index, interest rate and currency
futures contracts, and options on such contracts; engage in options
transactions; make short sales; purchase zero coupon bonds and payment-
in-kind bonds; and engage in various other investment practices which
result in market risk, currency risk, and the risks of investing in
foreign securities.

. The officers, the Trustees, and FRIMCo (the investment manager of the
LifePoints Funds) presently serve as officers, Trustees and investment
manager of the Underlying Funds. Therefore, conflicts may arise as those
persons and FRIMCo fulfill their fiduciary responsibilities to the
LifePoints Funds and to the Underlying Funds.

. Some of the LifePoints Funds may invest in the Emerging Markets Fund, and
the Aggressive Strategy Fund may invest in the Multistrategy Bond Fund.
The Emerging Markets Fund may invest up to 5% of its net assets, and the
Multistrategy Bond Fund may invest up to 25% of its net assets, in lower-
rated securities, which are subject to the risks resulting from high
yield investing.

ELIGIBLE INVESTORS

Shares of the LifePoints Funds are currently offered only to Eligible
Investors. These investors are principally institutional investors and
financial intermediaries that have entered into Asset Management Services
Agreements (collectively, the "Agreements," and each, an "Agreement") with
FRIMCo or distribution agreements with the Investment Company's distributor,
and institutions or individuals who acquire shares through such institutions
or financial intermediaries. Employees, officers, trustees and directors of
FRIMCo or of its affiliates may also invest in the LifePoints Funds.

Broker-dealers, banks, investment advisers and other financial
intermediaries selling Class E Shares of the LifePoints Funds may only offer
to sell Class E Shares to certain of their clients. Although the initial
minimum aggregate investment in the Class D or Class E Shares of any
combination of the LifePoints Funds is $5 million, that initial required
minimum investment is waived until further notice. FRIMCo, on behalf of each
Fund, reserves the right to change, as to any Fund or any class of that Fund,
the categories of investors eligible to purchase shares of that Fund or class
of that Fund. Institutions and financial intermediaries which may have a
particular interest in the LifePoints Funds include:

.Bank trust departments managing discretionary institutional or personal
trust accounts

.Banks, other than through their trust departments

.Registered investment advisors

.Endowment funds and charitable foundations

.Broker-dealers

.Employee welfare plans

.Pension or profit sharing plans

.Insurance companies

The Agreement provides, in general, for the officers and staff of FRIMCo,
using the facilities and resources of Frank Russell Company, to assist the
Eligible Investor or its client to define its investment objectives, desired
returns and tolerance for risk, and to develop a plan for the allocation of
assets among different asset classes and

16
<PAGE>

different Underlying Funds by identifying the LifePoints Funds that are best
suited to the Eligible Investor's long-term investment goals. Once these
decisions have been made, the assets are then invested in one or more of the
Funds, which may include one or more LifePoints Funds. A client may change the
allocation of its assets among the Funds, including the LifePoints Funds, or
withdraw some or all of its assets from the Funds at any time by redeeming
Fund shares.

Shares of the Funds generally are not offered or "retailed" directly to
individual investors, although FRIMCo may enter into Agreements with
individual investors. Bank trust departments, registered investment advisors,
broker-dealers and other Eligible Investors ("Financial Intermediaries") which
have entered into Agreements with FRIMCo may acquire shares of the Funds for
their customers. FRIMCo provides objective-setting and asset-allocation
assistance to such Financial Intermediaries, which in turn provide the
objective-setting and asset-allocation services to their customers. These
Financial Intermediaries may charge their customers a fee for providing these
and possibly other trust or investment-related services. LifePoints Funds may
be made available to investors other than under the terms of an Agreement, for
instance, pursuant to a distribution agreement with the Investment Company's
distributor.

GENERAL MANAGEMENT OF THE UNDERLYING FUNDS AND THE
LIFEPOINTS FUNDS

The Investment Company's Board of Trustees is responsible for overseeing
generally the operation of the Funds, including reviewing and approving the
Funds' contracts with FRIMCo, Frank Russell Company and the money managers.
The Investment Company's officers, all of whom are employed by and are
officers of FRIMCo or its affiliates, are responsible for the day-to-day
management and administration of the Funds' operations. The money managers are
responsible for selection of individual portfolio securities for the assets in
the Underlying Funds assigned to them.

FRIMCo: (i) provides or oversees the provision of all general management and
administration, investment advisory and portfolio management, and distribution
services for the Funds; (ii) provides the Funds with office space, equipment
and personnel necessary to operate and administer the Funds' business, and to
supervise the provision of services by third parties such as the money
managers and custodian; (iii) develops the investment programs, recommends
money managers to the Board of Trustees, allocates assets among money managers
and monitors the money managers' investment programs and results; (iv) is
authorized to select and hire portfolio managers to select individual
portfolio securities held in the Underlying Funds' Liquidity Portfolios or as
cash reserves for the Funds; and (v) provides the Funds with transfer agent,
dividend disbursing and shareholder recordkeeping services. FRIMCo bears the
expenses it incurs in providing these services (other than transfer agent,
dividend disbursing and shareholder recordkeeping) as well as the costs of
preparing and distributing explanatory materials concerning the Funds.

The responsibility of overseeing the money managers rests upon the officers
and employees of FRIMCo. These officers and employees, including their
business experience for the past five years, are identified below:

. Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
1989.

. Jean E. Carter, who has been a Portfolio Manager of FRIMCo since 1994.
From 1990 to 1994, Ms. Carter was a Client Executive in the Investment
Group of the Frank Russell Company. Ms. Carter jointly with another
portfolio manager identified herein has primary responsibility for
management of the International, International Securities and Emerging
Markets Funds.

17
<PAGE>

. James M. Imhof, Manager of Portfolio Trading of FRIMCo, who has
supervised the day to day management of the Funds and ongoing analysis
and monitoring of Fund money managers since 1989.

. James A. Jornlin, who has been a Senior Investment Officer of FRIMCo
since April 1995. From 1991 to March 1995, Mr. Jornlin was employed as a
Senior Research Analyst with Frank Russell Company. Mr. Jornlin jointly
with another portfolio manager identified herein has primary responsible
for management of the Real Estate Securities Fund.

. Randal C. Burge, who has been a Portfolio Manager of FRIMCo since June
1995. From 1990 to 1995, Mr. Burge was a Client Executive for Frank
Russell Australia. Mr. Burge has primary responsibility for management of
the Fixed I, Fixed Income II, Fixed Income III, Diversified Bond,
Volatility Constrained Bond, Multistrategy Bond, Limited Volatility Tax
Free, International, International Securities and Emerging Markets Funds.

. Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of the US
Equity Manager Research Department with Frank Russell Company. Mr.
Trittin currently with another portfolio manager identified herein has
primary responsibility for management of the Equity I, Equity II, Equity
III, Equity Q, Equity T, Diversified Equity, Quantitative Equity, Special
Growth and Equity Income Funds.

. C. Nola Williams, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1994 to 1995, Ms. Williams was a member of the Alpha
Strategy Group. From 1988 to 1994, Ms. Williams was Senior Research
Analyst with Frank Russell Company. Ms. Williams currently with another
portfolio manager identified herein has primary responsibility for
management of the Equity I, Equity II, Equity III, Equity Q, Equity T,
Diversified Equity, Quantitative Equity, Special Growth and Equity Income
Funds.

Frank Russell Company provides to the Funds and FRIMCo the asset management
consulting services -- including the objective-setting and asset-allocation
technology, and the money manager research and evaluation assistance -- which
Frank Russell Company provides to its other consulting clients. Frank Russell
Company receives no compensation from the Funds or FRIMCo for its consulting
services. Frank Russell Company and FRIMCo as affiliated companies may
establish certain intercompany cost allocations for budgeting and product
profitability purposes which may reflect Frank Russell Company's consulting
services supplied to FRIMCo.

George F. Russell, Jr., Chairman of the Board of Trustees of the Investment
Company, is the Chairman of the Board and controlling shareholder of Frank
Russell Company. FRIMCo is a wholly owned subsidiary of Frank Russell Company.

The Investment Company has received an exemptive order from the SEC which
permits the Investment Company, with the approval of its Board of Trustees, to
engage and terminate money managers without a shareholder vote and to
disclose, on an aggregate basis, the fees paid to the money managers of each
Underlying Fund. The Investment Company received shareholder approval to
operate under the order at a special meeting of the shareholders held on
January 22, 1996.

For its investment supervisory services, FRIMCo receives a management fee
from each LifePoints Fund at the annual rate of 0.25% of the average daily net
assets of each Fund, payable to FRIMCo monthly on a pro rata basis. Currently,
FRIMCo has voluntarily agreed to waive all of this fee. In addition to the
management fee payable by the LifePoints Funds, the LifePoints Funds will
indirectly bear a proportionate share of operating expenses that include the
management fees paid by the Underlying Funds in which they invest. While a

18
<PAGE>

shareholder of a LifePoints Fund will also bear a proportionate part of
management fees paid by an Underlying Fund, each of the management fees paid
is based upon the services received by the respective Fund. As noted above,
FRIMCo receives a management fee from each Underlying Fund. From this fee,
FRIMCo, acting as agent for the Investment Company, is responsible for paying
the money managers for their investment selection services. The remainder is
retained by FRIMCo as compensation for the services described above and to pay
expenses. The annual rate of the management fees, payable to FRIMCo monthly on
a pro rata basis, are the following percentages of the average daily net
assets of each Underlying Fund: Diversified Equity Fund, 0.78%; Special Growth
Fund, 0.95%; Quantitative Equity Fund, 0.78%; International Securities Fund,
0.95%; Diversified Bond Fund, 0.45%; Volatility Constrained Bond Fund, 0.50%;
Multistrategy Bond Fund, 0.65%; Real Estate Securities Fund, 0.85%; and
Emerging Markets Fund, 1.20%. The fees of the Underlying Funds, other than the
Diversified Bond, Volatility Constrained Bond, and Multistrategy Bond Funds,
may be higher than the fees charged by some mutual funds with similar
objectives which use only a single money manager. FRIMCo has voluntarily
agreed to waive all or a portion of its management fee with respect to certain
Underlying Funds.

OPERATING EXPENSES OF THE LIFEPOINTS FUNDS

Each LifePoints Fund seeks to operate at a low operating expense ratio.
While each LifePoints Fund will incur its pro rata share of the fees and
expenses of the Underlying Funds in which it invests, each Underlying Fund has
agreed to pay a pro rata share of the operational expenses of the LifePoints
Funds that invest in the Underlying Funds, but only to the extent that the
Underlying Funds receive a net reduction in its otherwise anticipated expenses
from maintaining numerous investor accounts and from investor trading
activity. This arrangement is subject to a Special Service Agreement (the
"Service Agreement") between FRIMCo, each LifePoints Fund and the Underlying
Funds in which it invests, as well as to certain voluntary expense
reimbursement undertakings made by FRIMCo, which can be terminated by FRIMCo
in its sole discretion, but which will not be terminated prior to April 30,
1998. Each LifePoints Fund has entered into an Investment Management Agreement
with FRIMCo, as well as a Portfolio Management Agreement which governs the
providing of sub-advisory services.

The Services Agreement is entered into, on a yearly basis, between FRIMCo,
the LifePoints Funds and the Underlying Funds. The Services Agreement provides
that all services necessary for the operation of a LifePoints Fund (including
expenses for Fund accounting, custody, auditing, legal and transfer agent
services (collectively, "Operating Expenses") (but not including services
covered by the management fee and any Rule 12b-1 distribution fee or
Shareholder Service Fees which will be borne directly by the LifePoints Funds)
will be paid by the Underlying Funds in which the LifePoints Fund invests
and/or FRIMCo. In consideration of the benefits derived by the Underlying
Funds from the establishment and operation of the LifePoints Funds, each of
the Underlying Funds will agree to pay a portion of the LifePoints Fund
Operating Expenses. The Operating Expenses will be allocated among and borne
by the Underlying Funds in proportion to the average daily value of shares of
the Underlying Funds owned by each LifePoints Fund, but in no event will any
Underlying Fund bear Operating Expenses in excess of its estimated cost
savings. Such savings are expected to result primarily from the elimination of
numerous separate shareholder accounts which would have been established to
hold the LifePoints Funds' assets if they had been invested directly in the
Underlying Funds and the resulting reduction in shareholder servicing costs
from less investor trading activity. Although such cost savings cannot be
computed precisely at this time, the estimated savings to the Underlying Funds
generated by the operation of the LifePoints Funds, and the consequent
payments by the Underlying Funds, are expected to be sufficient to offset
most, if not all, of the Operating Expenses incurred by the LifePoints Funds.
Under the Services Agreement, FRIMCo has agreed to pay any Operating Expenses
of the LifePoints Funds which exceed the estimated savings to each of the
Underlying Funds.

19
<PAGE>

THE MONEY MANAGERS FOR THE UNDERLYING FUNDS

The assets of each Underlying Fund are allocated currently among the money
managers listed in the section "Money Manager Profiles." THE ALLOCATION OF AN
UNDERLYING FUND'S ASSETS AMONG MONEY MANAGERS MAY BE CHANGED AT ANY TIME BY
FRIMCO. THE MONEY MANAGERS MAY BE EMPLOYED OR THEIR SERVICES MAY BE TERMINATED
AT ANY TIME BY FRIMCO, SUBJECT TO APPROVAL BY THE BOARD OF TRUSTEES OF THE
INVESTMENT COMPANY.

From its management fees, FRIMCo, as agent for the Investment Company, pays
all fees to the money managers for their services to the Underlying Funds.
Quarterly, each money manager is paid the pro rata portion of an annual fee,
based on the quarterly average of all the assets allocated to the money
manager. For the fiscal year ended December 31, 1996, management fees paid to
the money managers were equivalent to the following annual rates expressed as
a percentage of the average daily net assets of each Underlying Fund:
Diversified Equity Fund, 0.24%; Special Growth Fund, 0.40%; Quantitative
Equity Fund, 0.21%; International Securities Fund, 0.42%; Diversified Bond
Fund, 0.08%; Volatility Constrained Bond Fund, 0.18%; Multistrategy Bond Fund,
0.21%; Real Estate Securities Fund, 0.31%; and Emerging Markets Fund, 0.72%.

Fees paid to the money managers are not affected by any voluntary expense
limitations. Some money managers may receive investment research prepared by
Frank Russell Company as additional compensation, or may receive brokerage
commissions for executing portfolio transactions for the Underlying Funds
through broker-dealer affiliates. Each money manager has agreed that once the
Investment Company has advanced fees to FRIMCo as agent to make payment of the
money manager's fee, the money manager will look only to FRIMCo for the
payment of its fee.

The money managers are selected for the Underlying Funds based primarily
upon the research and recommendations of Frank Russell Company, which
evaluates quantitatively and qualitatively the manager's skills and results in
managing assets for specific asset classes, investment styles and strategies.
Short-term investment performance, by itself, is not a controlling factor in
selecting or terminating a money manager.

Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of an Underlying Fund within the Underlying Fund's
investment objectives, restrictions and policies, and the more specific
strategies developed by Frank Russell Company and FRIMCo. Although the money
managers' activities are subject to general oversight by the Board of Trustees
and officers of the Investment Company, NEITHER THE BOARD, THE OFFICERS,
FRIMCO, NOR FRANK RUSSELL COMPANY EVALUATE THE INVESTMENT MERITS OF THE MONEY
MANAGERS' INDIVIDUAL SECURITY SELECTIONS.

INVESTMENT OBJECTIVES, POLICIES AND RISKS
OF THE UNDERLYING FUNDS

Each Underlying Fund has certain "fundamental" investment objectives,
restrictions and policies which may be changed only with the approval of a
majority of the Underlying Fund's shareholders. Other policies reflect current
practices of the Underlying Funds, and may be changed by the Underlying Funds
without the approval of shareholders. Certain of the objectives, policies, and
risks are described in this section, and further information about the
Underlying Funds is contained in the Statement of Additional Information as
well as in the prospectuses of the Underlying Funds. Because the LifePoints
Funds invest in the Underlying Funds, investors of the LifePoints Funds will
be affected by the Underlying Funds' investment policies in direct

20
<PAGE>

proportion to the amount of assets each LifePoints Fund allocates to the
Underlying Fund pursuing such policies. To request a copy of a prospectus for
an Underlying Fund, contact the Investment Company at 800/972-0700 (in
Washington, 253/627-7001).

Each Underlying Fund's objective is "fundamental," as are the types of
securities in which it will invest. Ordinarily, each Underlying Fund will
invest more than 65% of its total assets in the types of securities identified
in its statement of objectives. However, the Underlying Funds may hold assets
as cash reserves for temporary and defensive purposes when their money
managers deem that a more conservative approach is desirable or when suitable
purchase opportunities do not exist.

DIVERSIFIED EQUITY FUND

The Diversified Equity Fund's objective is to provide income and capital
growth by investing principally in equity securities. The Fund may invest in
common and preferred stocks, securities convertible into common stocks, rights
and warrants.

SPECIAL GROWTH FUND

The Special Growth Fund's objective is to maximize total return primarily
through capital appreciation and by assuming a higher level of volatility than
is ordinarily expected from the Diversified Equity Fund, by investing in
equity securities. Current income is a secondary consideration in selecting
securities. The Fund may invest in common and preferred stock, convertible
securities, rights and warrants. The Fund's investments may include companies
whose securities have been publicly traded for less than five years and
smaller companies, such as companies not listed in the Russell 1000(R) Index.

QUANTITATIVE EQUITY FUND

The Quantitative Equity Fund's objectives are to provide a total return
greater than the total return of the US stock market as measured by the
Russell 1000(R) Index over a market cycle of four to six years, while
maintaining volatility and diversification similar to the Index by investing
in equity securities. The Fund will maintain industry weights and economic
sector weights near those of the Index. Over time, the Fund's average
price/earnings ratio, yield and other fundamental characteristics are expected
to be near the averages for the Index. However, the Fund's money managers may
temporarily deviate from Index characteristics based upon the managers'
investment judgment that this will increase the Fund's total return. The money
managers of the Fund generally make stock selections from the set of stocks
comprising the Russell 1000(R) Index. The Fund will attempt to be fully
invested in common stock at all times. However, the Fund reserves the right to
hold up to 20% of Fund assets in liquid reserve for redemption needs.

INTERNATIONAL SECURITIES FUND

The International Securities Fund's objectives are to provide favorable
total return and additional diversification for US investors by investing
primarily in equity and fixed-income securities of non-US companies, and
securities issued by non-US governments. The Fund invests primarily in equity
securities issued by companies domiciled outside of the United States. The
Fund may also invest in fixed-income securities, including instruments issued
by non-US governments and their agencies, and in US companies which derive, or
are expected to derive, a substantial portion of their revenues from
operations outside the United States.

21
<PAGE>

The Fund may invest in equity and debt securities denominated in other than
US dollars and gold-related equity investments, including gold mining stocks
and gold-backed debt instruments. However, as a matter of fundamental policy,
the Fund will not invest more than 20% of its net assets in gold-related
investments.

EMERGING MARKETS FUND

The Emerging Markets Fund's objective is to provide maximum total return,
primarily through capital appreciation and by assuming a higher level of
volatility than is ordinarily expected from developed market international
portfolios, by investing primarily in equity securities. Under normal
circumstances, the Fund will invest at least 65% of its total assets in equity
securities of companies in countries having emerging markets.

The Fund may invest in common and preferred stocks of emerging market
companies, including companies involved in real estate development and gold
mining. The Fund may also invest in other types of equity securities and
equity derivative securities, such as convertible securities, rights, units,
warrants, American Depository Receipts (ADRs) and European Depository Receipts
(EDRs). The Fund's equity securities will primarily be denominated in foreign
currencies and may be held outside the United States.

The Fund may invest up to 5% of its net assets in debt securities that are
rated below "investment grade" (i.e., rated lower than BBB by Standard &
Poor's Rating Group ("S&P") or Baa by Moody's Investors Service, Inc.
("Moody's")) or in unrated securities judged by the money managers of the Fund
to be of comparable quality. These lower rated debt securities may include
obligations that are in default or that face the risk of default with respect
to principal or interest. Such securities are sometimes referred to as "junk
bonds." For additional information on the ratings used by S&P and Moody's and
a description of lower rated debt securities, see "Investment Policies and
Risks of the Underlying Funds--High Risk Bonds" and refer to the Statement of
Additional Information.

REAL ESTATE SECURITIES FUND

The Real Estate Securities Fund's objective is to generate a high level of
total return through above average current income, while maintaining the
potential for capital appreciation by investing primarily in the equity
securities of companies in the real estate industry. Under normal
circumstances, the Fund will invest at least 65% of its total assets in
income-oriented equity securities of real estate companies, which include
shares of real estate investment trusts, partnership units of master limited
partnerships, common and preferred stock, and convertible debt securities
believed to have attractive equity characteristics. Up to 35% of the Fund's
total assets may be invested in other debt securities of real estate
companies.

The Fund will attempt to be invested fully at all times. However, the Fund
reserves the right to hold up to 20% of the Fund's assets in liquid reserves
for redemption needs.

22
<PAGE>

DIVERSIFIED BOND FUND

The Diversified Bond Fund's objectives are to provide effective
diversification against equities and a stable level of cash flow by investing
in fixed-income securities. The Fund's portfolio will consist primarily of
conventional debt instruments, including bonds, debentures, US government and
US government agency securities, preferred and convertible preferred stocks,
and variable amount demand master notes. (These notes represent a borrowing
arrangement under a letter agreement between a commercial paper issuer and an
institutional lender, such as the Fund.) Investment selections will be based
on fundamental economic, market, and other factors leading to valuation by
sector, maturity, quality and such other criteria as are appropriate to meet
the stated objectives. The Fund will ordinarily invest at least 65% of its net
assets in securities rated no less than A or A-2 by S&P or A or Prime-2 by
Moody's, or judged by the money manager to be of at least equal credit quality
to those designations.

VOLATILITY CONSTRAINED BOND FUND

The Volatility Constrained Bond Fund's objectives are the preservation of
capital and the generation of current income consistent with the preservation
of capital by investing primarily in fixed-income securities with low-
volatility characteristics. The Fund will invest primarily in fixed-income
securities, emphasizing those which mature in two years or less from the date
of acquisition or which have similar volatility characteristics. To minimize
credit risk and fluctuations in net asset value per share, the Fund intends to
maintain an average portfolio maturity of less than five years. The Fund's
money managers will seek to identify and invest in a managed portfolio of
high-quality debt securities denominated in the US dollar and a range of
foreign currencies.

In selecting particular investments for the Fund, the money managers will
seek to minimize investment risk by limiting their portfolio investments to
debt securities of high-quality issuers.

MULTISTRATEGY BOND FUND

The Multistrategy Bond Fund's objective is to provide maximum total return,
primarily through capital appreciation and by assuming a higher level of
volatility than is ordinarily expected from broad fixed-income market
portfolios, by investing in fixed-income securities. The Fund will invest
primarily in fixed-income securities, including: US government securities;
obligations of foreign governments or their subdivisions, agencies and
instrumentalities; securities of international agencies or supranational
agencies; corporate debt securities; loan participations; corporate commercial
paper; indexed commercial paper; variable and floating rate and zero coupon
securities; mortgage and other asset-backed securities; municipal obligations;
variable amount demand master notes (these notes represent a borrowing
arrangement between a commercial paper issuer and an institutional lender,
such as the Fund); bank certificates of deposit, fixed time deposits and
bankers' acceptances; repurchase agreements and reverse repurchase agreements;
and foreign currency exchange related securities.

The Fund may invest up to 25% of its net assets in debt securities that are
rated below "investment grade" or in unrated securities judged by the money
managers of the Fund to be of comparable quality. For a description of lower
rated debt securities, see "Investment Policies and Risks of the Underlying
Funds--High Risk Bonds" and refer to the Statement of Additional Information.

23
<PAGE>

INVESTMENT POLICIES AND RISKS OF THE UNDERLYING FUNDS

Investment in Foreign Securities. The Underlying Funds may invest in foreign
securities traded on US or foreign exchanges or in the over-the-counter
market. Investing in securities issued by foreign governments and corporations
involves considerations and possible risks not typically associated with
investing in obligations issued by the US government and domestic
corporations. Less information may be available about foreign companies than
about domestic companies, and foreign companies generally are not subject to
the same uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic companies. The values of foreign investments are affected by changes
in currency rates or exchange control regulations, application of foreign tax
laws, including withholding taxes, changes in governmental administration or
economic or monetary policy (in the United States or abroad) or changed
circumstances in dealings between nations. Costs are incurred in connection
with conversions between various currencies. In addition, foreign brokerage
commissions are generally higher than in the United States, and foreign
securities markets may be less liquid, more volatile and less subject to
governmental supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the United States,
including nationalization, expropriation, confiscatory taxation, lack of
uniform accounting and auditing standards and potential difficulties in
enforcing contractual obligations and could be subject to extended settlement
periods or restrictions affecting the prompt return of capital to the United
States.

Depository Receipts. The Underlying Funds may invest in securities of
foreign issuers in the form of American Depository Receipts ("ADRs") or other
similar securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically
issued by a United States bank or trust company evidencing ownership of the
underlying securities. Generally, ADRs in registered form are designed for use
in U.S. securities markets.

Forward Foreign Currency Exchange Contracts ("forward currency
contracts"). The International Securities, Diversified Bond, Volatility
Constrained Bond, Multistrategy Bond and Emerging Markets Funds may enter into
forward currency contracts, which are agreements to exchange one currency for
another--for example, to exchange a certain amount of US dollars for a certain
amount of Japanese yen--at a future date. The date (which may be any agreed
upon fixed number of days in the future), the amount of currency to be
exchanged and the price at which the exchange will take place will be
negotiated and fixed for the term of the contract at the time that an
Underlying Fund enters into a contract. The Underlying Funds may engage in
forward contracts that involve a currency whose changes in value are
considered to be linked (a proxy) to a currency or currencies in which some or
all of the Funds' portfolio securities are denominated. Forward currency
contracts are (a) traded in an interbank market conducted directly between
currency traders (typically, commercial banks or other financial institutions)
and their customers, (b) generally have no deposit requirements and (c) are
consummated without payment of any commissions. The Underlying Funds may,
however, enter into forward currency contracts containing either or both
deposit requirements and commissions. In order to assure that the Underlying
Funds' forward currency contracts are not used to achieve investment leverage,
the Funds will segregate liquid assets in an amount at all times equal to or
exceeding the Funds' commitment with respect to these contracts.

Forward currency contracts will be used only to hedge against anticipated
future changes in exchange rates which otherwise might either adversely affect
the value of an Underlying Fund's portfolio securities or adversely affect the
price of securities which the Funds intend to purchase at a later date. The
amount the Underlying Funds may invest in forward currency contracts is
limited to the amount of the Funds' aggregate investments in foreign
currencies.

24
<PAGE>

Options. The Underlying Funds may purchase and sell (write) call and put
options on securities and securities indexes provided such options are traded
on a national securities exchange or in an over-the-counter market. The
Underlying Funds may also purchase and sell put and call options on foreign
currencies.

An Underlying Fund may invest up to 5% of its net assets, represented by the
premium paid, in call and put options. An Underlying Fund may write a call or
put option to the extent that the aggregate value of all securities or other
assets used to cover all such outstanding options does not exceed 25% of the
value of its net assets.

The purchase and writing of options involves certain risks. If a put or call
option purchased by an Underlying Fund is not sold when it has remaining
value, and if the market price of the underlying security, in the case of a
put, remains equal to or greater than the exercise price or, in the case of a
call, remains less than or equal to the exercise price, the Fund will lose its
entire investment (i.e., the premium paid) on the option. Also, where a put or
call option on a particular security is purchased to hedge against price
movements in a related security, the price of the put or call option may move
more or less than the price of the related security.

Where an Underlying Fund writes a call option, it has, in return for the
premium it receives, given up the opportunity to profit from a price increase
in the underlying security above the exercise price, but, as long as its
obligation as a writer continues, has retained the risk of loss should the
price of the underlying security decline. Where an Underlying Fund writes a
put option, it is exposed during the term of the option to a decline in the
price of the underlying security.

There can be no assurance that a liquid market will exist when an Underlying
Fund seeks to close out an option position. Furthermore, if trading
restrictions or suspensions are imposed on the options markets, an Underlying
Fund may be unable to close out a position.

Futures Contracts and Options on Futures Contracts. The Underlying Funds may
invest in interest rate futures contracts, stock index futures contracts and
foreign currency futures contracts and options thereon that are traded on a
United States or foreign exchange or board of trade.

Each Underlying Fund may also purchase and write call options and put
options on futures contracts. An option on a futures contract gives the holder
the right, in return for the premium paid, to assume a long position (in the
case of a call) or a short position (in the case of a put) in a futures
contract at a specified exercise price prior to the expiration of the option.
Upon exercise of a call option, the holder acquires a long position in the
futures contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true. An option on a futures
contract may be closed out (before exercise or expiration) by an offsetting
purchase or sale of an option on a futures contract of the same series.

There are several risks associated with the use of futures and options on
futures contracts for hedging purposes. There can be no guarantee that there
will be a correlation between price movements in the hedging vehicle and in
the portfolio securities being hedged. An incorrect correlation could result
in a loss on both the hedged securities in an Underlying Fund and the hedging
vehicle so that the portfolio return might have been greater had hedging not
been attempted.

High Risk Bonds. The Emerging Markets Fund may invest up to 5% of its net
assets, and the Multistrategy Bond Fund may invest up to 25% of its net
assets, in lower rated securities or in unrated securities judged by their
money managers to be of comparable quality. While lower rated securities
generally offer a higher yield than that available from higher grade issues,
lower rated debt securities also involve higher risks, in that they are

25
<PAGE>

especially subject to adverse changes in general economic conditions and in
the industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuations in response to changes in
interest rates. For additional information, please refer to the Statement of
Additional Information.

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS

The Board of Trustees presently intends that dividends will be declared from
net investment income and net short-term capital gains, if any, for each
LifePoints Fund on a quarterly basis, with payment being made sometime in:
April, July, October and December.

Dividends paid by a LifePoints Fund with respect to its Class D and Class E
Shares are calculated in the same manner and at the same time. Both Class D
and Class E Shares will share proportionally in any investment income and
expenses of a LifePoints Fund, except that the per share dividends of Class D
Shares will ordinarily be less than the per share dividends of Class E Shares
as a result of the Rule 12b-1 distribution fees charged to Class D Shares.

CAPITAL GAINS DISTRIBUTIONS

The Board intends that distributions will be declared from capital gains
through October 31 (excess of capital gains over capital losses) annually,
generally in mid-December. In addition, in order to satisfy certain
distribution requirements, a LifePoints Fund may declare special year-end
dividend and capital gains distributions during October, November or December
to shareholders of record in such month. Such distributions, if received by
shareholders by January 31, are deemed to have been paid by a LifePoints Fund
and received by shareholders on December 31 of the prior year. Capital gains
realized during November and December will be distributed during the month of
February of the following year.

In addition, the LifePoints Funds receive capital gains distributions from
the Underlying Funds. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, the LifePoints Funds
may generate capital gains through rebalancing the portfolios to meet the
Funds' allocation percentages.

Investors should be aware that by purchasing shares shortly before the
record date of a dividend or capital gains distribution, they will pay the
full price for the shares and then receive some portion of the price back as a
taxable dividend or capital gains distribution. Investors should also be aware
that all shareholders, new and old alike, will share in and be taxed on
distributions of gain realized by a LifePoints Fund on the sale of securities
that have increased in value.

AUTOMATIC REINVESTMENT

All dividends and distributions will be automatically reinvested, at the net
asset value per share at the close of business on the record date, in
additional shares of the LifePoints Fund paying the dividend or making the
distribution, unless a shareholder elects to have dividends or distributions
paid in cash or invested in another Fund. Any election may be changed by
delivering written notice no later than ten days prior to the payment date to
Frank Russell Investment Management Company, the Investment Company's transfer
and dividend paying agent (the "Transfer Agent"), at Operations Department,
P.O. Box 1591, Tacoma, WA 98401.

26
<PAGE>

TAXES

Each LifePoints Fund intends to qualify for taxation as a "regulated
investment company" under the Internal Revenue Code (the "Code"). By
distributing substantially all of its net investment income and capital gains
to shareholders and meeting certain other requirements, a LifePoints Fund will
generally not be liable for federal income or excise taxes. The LifePoints
Funds may be subject to nominal, if any, state and local taxes.

For taxable shareholders: Dividends from net investment income and short-
term capital gains will be taxable as ordinary dividends, whether paid in cash
or reinvested in additional shares. Long-term capital gains distributions
declared by the Investment Company's Board are taxed as long-term gains
regardless of the length of time a shareholder has held such shares.
Distributions paid in excess of a LifePoints Fund's earnings will be treated
as a non-taxable return of capital. Dividends and distributions may otherwise
also be subject to state or local taxes.

The sale of shares of a LifePoints Fund is a taxable event and may result in
capital gain or loss. A capital gain or loss may be realized from an ordinary
redemption of shares or an exchange of shares between two mutual funds (or two
series or portfolios of a mutual fund). Any loss incurred on sale or exchange
of a LifePoints Fund's shares, held for six months or less, will be treated as
a long-term capital loss to the extent of capital gain dividends received with
respect to such shares.

Shareholders of the LifePoints Funds will be notified after each calendar
year of the amounts of ordinary income dividends and long-term capital gains
distributions, including any amounts which are deemed paid on December 31 of
the prior year.

A LifePoints Fund is required to withhold 31% of all taxable dividends,
distributions and redemption proceeds payable to any non-corporate shareholder
which does not provide the LifePoints Fund with the shareholder's certified
taxpayer identification number or required certifications or which is subject
to backup withholding.

Shareholders who are not US persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the
applicability of income, estate or other taxes (including income tax
withholding) on their investment in a LifePoints Fund or on dividends and
distributions received by them from a LifePoints Fund and the application of
foreign tax laws.

Shareholders should consult their tax advisors with respect to the
applicability of any state and local intangible property or income taxes to
their shares of a LifePoints Fund and distributions and redemption proceeds
received from a LifePoints Fund.

Additional information on these and other tax matters relating to the
LifePoints Funds and their shareholders is included in the section entitled
"Taxes" in the Statement of Additional Information.

27
<PAGE>

CALCULATION OF FUND PERFORMANCE

From time to time, the LifePoints Funds may advertise their performance in
terms of average annual total return, which is computed by finding the average
annual compounded rates of return over a period that would equate the initial
amount invested to the ending redeemable value. The calculation assumes that
all dividends and distributions are reinvested on the reinvestment dates
during the relevant time period, and includes all recurring fees that are
charged to all shareholder accounts.

Performance will be calculated separately for Class D and Class E Shares of
the LifePoints Funds. The Class D Shares have different expenses from the
Class E Shares which may affect performance.

The Moderate and Conservative Strategy Funds also may from time to time
advertise their yields. Yield, which is based on historical earnings and is
not intended to indicate future performance, is calculated by dividing the net
investment income per share earned during the most recent 30-day (or one
month) period by the maximum offering price per share on the last day of the
month. This income is then annualized. That is, the amount of income generated
by the investment during that 30-day (or one month) period is assumed to be
generated each month over a 12-month period and is shown as a percentage of
the investment. For purposes of the yield calculation, interest income is
computed based on the yield to maturity of each debt obligation and dividend
income is computed based upon the stated dividend rate of each security in a
LifePoints Fund's portfolio. The calculation includes all recurring fees that
are charged to all shareholder accounts.

Each LifePoints Fund may also advertise non-standardized performance
information which is for periods in addition to those required to be
presented.

FRIMCO'S HISTORICAL PERFORMANCE

Since the LifePoints Funds are new portfolios, there is no information
regarding their past investment performance. However, FRIMCo has a history of
investment performance managing model investment portfolios with investment
objectives, strategies, policies, and restrictions substantially similar to
those of the LifePoints Funds. Set forth below are historical performance data
provided by FRIMCo pertaining to those model investment portfolios. The data
is provided to illustrate FRIMCo's past performance in managing similar
portfolios. The results presented are not intended to predict or suggest the
return to be experienced by any LifePoints Fund or the return an individual
investor might achieve by investing in a LifePoints Fund. A LifePoints Fund's
investment returns may differ from those of the relevant model portfolio
because, among other things, the LifePoints Fund's fees and expenses may
differ from those of the applicable portfolio.

28
<PAGE>

PERCENTAGE TOTAL RETURNS/1/

PERIODS ENDING DECEMBER 31, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
ANNUALIZED
------------------------------------
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS TO DATE DATE
---- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
FRANK RUSSELL INVESTMENT COMPANY ASSET
ALLOCATION MODEL:
EQUITY BALANCED MODEL
FRIC Equity Balanced Fund comparable ... 19.7 13.8 13.1 -- 9/5/85
AGGRESSIVE STRATEGY MODEL
FRIC Aggressive Strategy Fund comparable
....................................... 16.5 12.5 12.5 -- 9/5/85
BALANCED STRATEGY MODEL
FRIC Balanced Strategy Fund comparable
....................................... 13.1 10.8 11.3 -- 9/5/85
MODERATE STRATEGY MODEL
FRIC Moderate Strategy Fund comparable.. 10.5 9.3 10.0 -- 9/5/85
CONSERVATIVE STRATEGY MODEL
FRIC Conservative Strategy Fund compara-
ble ................................... 8.1 -- -- 8.1 1/1/96
</TABLE>
- ---------------------

1 Performance is calculated based on the SEC standardized method. Periods of
12 months and over are annualized. Total returns of model portfolios are
presented gross of fees and expenses, and do not reflect deductions of any
management fees and Rule 12b-1 or Shareholder Services Fees, which are
deducted from net asset value of the Class D or Class E Shares of the
LifePoints Funds. The performance for a model portfolio would have been
reduced if such Fees had been deducted. Model portfolio performance is based
upon the actual mix of Underlying Funds recommended at each specific point
in time, which may differ slightly from the current mix. Detail of the
changes is available upon request. The Underlying Funds in existence for
less than the time periods shown were added to the mix on the following
dates: Quantitative Equity Fund, 07/01/87; Real Estate Securities Fund,
01/01/90; Multistrategy Bond Fund, 02/01/93; and Emerging Markets Fund,
04/01/95 (Fund performance for the Emerging Markets Fund is calculated gross
of investment services fees, descriptions of which can be obtained from
FRIMCo. Investment services fees will reduce performance). Equity Income
Fund was removed from the Conservative, Moderate, Balanced, and Aggressive
model portfolios as of January 1, 1996.

29
<PAGE>

VALUATION OF LIFEPOINTS FUND SHARES

NET ASSET VALUE PER SHARE

The net asset value per share is calculated for shares of each class of each
LifePoints Fund on each business day on which shares are offered or orders to
redeem are tendered. For all Funds, a business day is one on which the New
York Stock Exchange is open for trading. Net asset value per share is computed
for the Class D and Class E Shares by dividing the current value of the
LifePoints Fund's assets (i.e., shares of the Underlying Funds plus any other
assets held in the portfolio) attributable to a particular class, less
liabilities attributable to that class, by the number of shares of the class
outstanding, and rounding to the nearest cent. All Funds determine net asset
value as of the close of the New York Stock Exchange (currently 4:00 p.m.
Eastern time). The determination is made by appraising each LifePoints Fund's
underlying investments on each business day (i.e., the Underlying Funds at the
current net asset value per share of such Underlying Fund).

VALUATION OF PORTFOLIO SECURITIES

Money market instruments held by a LifePoints Fund and maturing within 60
days of the valuation date are valued on the basis of amortized cost, a method
by which each portfolio instrument is initially valued at cost, and thereafter
a constant accretion/amortization to maturity of any discount or premium is
assumed. The LifePoints Funds utilize the amortized cost valuation method in
accordance with Rule 2a-7 of the 1940 Act. Such money market instruments are
valued at "amortized cost" unless the Board determines that amortized cost
does not represent fair value. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the LifePoints Fund would
receive if it sold the instrument.

PURCHASE OF LIFEPOINTS FUND SHARES

Shares of the LifePoints Funds are sold on each business day at the net
asset value next determined after an order is received in proper form, and the
order has been accepted. All purchases must be made in US dollars. The
LifePoints Funds reserve the right to reject any purchase order.

DISTRIBUTION AND SHAREHOLDER SERVICES PLANS

Under a distribution plan (the "Distribution Plan") for the Class D Shares,
the Investment Company may pay to the distributor, or any banks, broker-
dealers or other financial institutions that have entered into sales support
agreements ("Selling Agents"), an amount (the "12b-1 Fee") for the Selling
Agents' activities or expenses primarily intended to result in the sale of the
Class D Shares of the LifePoints Funds subject to the Distribution Plan. The
12b-1 Fee payments are calculated daily and paid quarterly by the Investment
Company, at an annual rate of up to 0.75% of the average daily net assets of a
LifePoints Fund's Class D Shares. At the present time, the Board of Trustees
has presently determined to limit payments under the Distribution Plan to
0.25% of average daily net assets. The 12b-1 Fee may only be increased when
the Trustees determine that it is in the best interests of shareholders of the
Class D Shares of the LifePoints Funds to do so.

The 12b-1 Fees may be used to compensate (a) Selling Agents for sales
support services provided, and related expenses incurred with respect to,
Class D Shares, by such Selling Agents, and (b) the distributor for
distribution services provided by it, and related expenses incurred, including
payments by the distributor to

30
<PAGE>

compensate Selling Agents for providing support services. The Distribution
Plan is a compensation-type plan. As such, the Investment Company makes no
payments to the distributor except as described above. Therefore, the
Investment Company does not pay for unreimbursed expenses of the distributor,
including amounts expended by the distributor in excess of amounts received by
it from the Investment Company, interest, carrying or other financing charges
in connection with excess amounts expended, or the distributor's overhead
expenses. However, the distributor may be able to recover such amount or may
earn a profit from future payments made by the Investment Company under the
Distribution Plan.

In addition, the Investment Company has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments to the distributor or
any investment advisors, banks, broker-dealers, financial planners or other
financial institutions ("Servicing Agents") for any activities or expenses
primarily intended to assist, support or service the Servicing Agents' clients
who beneficially own Class D or Class E Shares of the LifePoints Funds.
Payments under the Services Plan are calculated daily and paid quarterly by
the Investment Company, at an annual rate of up to 0.25% of the average daily
net assets of a LifePoints Fund's Class D or Class E Shares.

ORDER PROCEDURES

Orders by all eligible investors (except for participants in the Three Day
Settlement Program described below) to purchase LifePoints Funds shares must
be received by the Transfer Agent, either by telephone, mail or entry into the
shareholder recordkeeping system on a day when shares of the Funds are offered
and orders in proper form accepted prior to the close of the New York Stock
Exchange (currently 4:00 p.m. Eastern time).

Payment Procedures: Payment for the purchase of Fund shares must be received
by the Funds' Transfer Agent or custodian, depending on the method of payment,
on the day the order is accepted (except for participants in the Three Day
Settlement Program described below). There are several ways to pay for orders
for the Funds:

Federal Funds Wire. Payment for orders may be made by wiring federal funds
to the Funds' custodian, State Street Bank and Trust Company (the
"Custodian").

Automated Clearing House ("ACH"). Payment for orders may be made through the
ACH to the Custodian. However, funds transferred by ACH may or may not be
converted into federal funds the same day depending on the time the funds are
received and on the bank wiring the funds. If the funds are not converted the
same day, they will be converted the next business day. Therefore, the order
would be placed the next business day.

Check. Payment for orders may be made by check or other negotiable bank
draft payable to "Frank Russell Investment Company" and mailed to a Financial
Intermediary or the Transfer Agent, P.O. Box 1591, Tacoma, WA 98401-1591.
Certified checks are not necessary, but checks are accepted subject to
collection at full face value in US funds and must be drawn in US dollars on a
US bank. Investments in the Funds will be effected upon receipt of the check
or draft by the Transfer Agent when the check or draft is received prior to
the close of the New York Stock Exchange (currently 4:00 p.m. Eastern time).
When the check or draft is received by the Transfer Agent after the close of
the New York Stock Exchange, the order will be effected on the following
business day.

31
<PAGE>

THREE DAY SETTLEMENT PROGRAM

The Investment Company will accept orders from financial institutions to
purchase Class D or Class E Shares of the LifePoints Funds for settlement on
the third business day following the receipt of an order to be paid by federal
wire if the financial institution has agreed in writing to indemnify the
LifePoints Funds against any losses as a result of nonreceipt of payment. For
further information on this program, contact the Investment Company.

THIRD PARTY TRANSACTIONS

Investors purchasing LifePoints Fund shares through a program of services
offered by a Financial Intermediary, such as a bank, broker-dealer, or others,
may be required to pay additional fees by such Intermediary. Investors should
contact such Financial Intermediary for information concerning what additional
fees, if any, may be charged.

EXCHANGE PRIVILEGE

Shareholders may exchange Class D or Class E Shares of any LifePoints Fund
offered by this Prospectus for shares of the same class of another LifePoints
Fund offered by this Prospectus on the basis of current net asset value per
share at the time of the exchange. Shares of a LifePoints Fund offered by this
Prospectus may only be exchanged for shares of a Fund offered by the
Investment Company through another prospectus under certain conditions and
only in states where the exchange may legally be made. For additional
information, including a prospectus of other Investment Company Funds, contact
a Financial Intermediary or the Investment Company. Exchanges may be made (i)
by telephone if the registrations of the two accounts are identical; or (ii)
in writing addressed to the Investment Company.

An exchange is a redemption of the shares and is treated as a sale for
income tax purposes, and a short or long-term capital gain or loss may be
realized. The Fund shares to be acquired will be purchased when the proceeds
from the redemption become available (up to seven days from the receipt of the
request). Each investor is encouraged to talk with the investor's tax advisor.

REDEMPTION OF LIFEPOINTS FUND SHARES

SHAREHOLDERS UNCERTAIN OF REQUIREMENTS FOR REDEMPTION SHOULD TELEPHONE THE
FINANCIAL INTERMEDIARY FROM WHOM THEY RECEIVED THIS PROSPECTUS OR THE FUNDS AT
(800) 972-0700; IN WASHINGTON (253) 627-7001.

Fund shares may be redeemed on any business day at the net asset value next
determined after the receipt of a redemption request in proper form as
described below.

Payment will ordinarily be made in seven days. Generally, redemption
proceeds will be wire-transferred to the shareholder's account or to an
alternate account provided such request is given to the Transfer Agent in
proper form, at a domestic commercial bank which is a member of the Federal
Reserve System. Although the Funds currently do not charge such a fee, the
Funds reserve the right to charge a fee for the cost of wire-transferred
redemptions of less than $1,000. Payment for redemption requests of recent
investments made by check may be withheld for up to 15 days after the date of
purchase to assure that checks in payment for orders to purchase shares are
collected by the Funds. Upon request, redemption proceeds will be mailed to
the shareholder's address of record or to an alternate address provided such
request is sent to the Transfer Agent in proper form.

32
<PAGE>

Request Procedures. Requests by all investors to redeem Investment Company
Fund shares must be received by the Transfer Agent, either by telephone, mail,
entry into the shareholder recordkeeping system, or through the Systematic
Withdrawal Payment Program on the days requests to redeem are tendered prior
to the close of the New York Stock Exchange (currently 4:00 p.m. Eastern
time).

Requests for redemption by telephone or entry into the shareholder
recordkeeping system must follow the procedures set forth in the Account
Registration and Investment Instruction Form, or alternate procedures may be
followed provided such requests are given to the Transfer Agent in proper
form. In the unexpected event telephone lines are unavailable, shareholders
should use the mail redemption procedures described below.

Mail. Redemption requests may be made in writing directly to the Financial
Intermediary from whom this prospectus was obtained or Frank Russell
Investment Management Company, Attention: Frank Russell Investment Company,
Operations Department, P.O. Box 1591, Tacoma, WA 98401. The redemption price
will be the net asset value next determined after receipt by FRIMCo of all
required documents in good order. "Good order" means that the request must
include the following:

A. A letter of instruction or a stock assignment designating specifically
the number of shares or dollar amount to be redeemed, signed by all owners
of the shares in the exact names in which they appear on the account,
together with a guarantee of the signature of each owner by a bank, trust
company or member of a recognized stock exchange; and

B. Such other supporting legal documents as are required by applicable
law in the case of estates, trusts, guardianships, custodianships,
corporations, and pension and profit sharing plans.

Systematic Withdrawal Payment. The Systematic Withdrawal Payment ("SWP")
program is an automated method for redeeming a predetermined dollar amount
from a Fund shareholder account to meet a standing request. The program can be
used to meet any request for periodic distributions of assets from Fund
shareholder accounts.

SWP Offering Date and Payment Procedures. SWP distributions occur once a
month and are paid by wire or check, according to the instructions provided on
the SWP form. If a client has more than one Fund from which a SWP is to be
received, the client will receive one wire or check for each SWP Fund. SWP
transactions are recorded on the twenty-fifth day of each month. If the
twenty-fifth day falls on a weekend or holiday, the transaction will be
recorded on the preceding business day. SWP payment dates are the first
business day after the trade date.

Distribution Frequency. Payments can be scheduled as monthly, quarterly,
semiannual or annual distributions.

SWP Distribution by Wire. Federal Funds Wire payments will be sent to the
designated bank on the payment date.

SWP Distribution by Check. Checks will be sent by US Postal Service first
class mail, to the requested address on the payment date.

A Systematic Withdrawal Payment form must be completed and mailed to the
Financial Intermediary from whom this prospectus was obtained or Frank Russell
Investment Management Company, Attention: Frank Russell Investment Company,
Operations Department, P.O. Box 1591, Tacoma, WA 98401-1591. The

33
<PAGE>

Systematic Withdrawal Payment form must be received by Frank Russell
Investment Management Company five business days before the initial
distribution date.

Redemption in Kind. A Fund may pay any portion of the redemption amount by a
distribution in kind of securities from the Fund's portfolio, in lieu of cash.
The Funds reserve the right to suspend the right of redemption or postpone the
date of payment if any unlikely emergency conditions, as specified in the 1940
Act or determined by the SEC, should develop.

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, INDEPENDENT ACCOUNTANTS, AND REPORTS

Russell Fund Distributors, Inc., a wholly owned subsidiary of FRIMCo, is the
principal Distributor for Investment Company shares. The Distributor receives
no compensation from the Investment Company for its services.

State Street Bank and Trust Company ("State Street"), Boston, Massachusetts,
holds all portfolio securities and cash assets of the Funds, and provides
portfolio recordkeeping services. State Street is authorized to deposit
securities in securities depositories or to use the services of subcustodians.
State Street has no responsibility for the supervision and management of the
LifePoints Funds.

Coopers & Lybrand L.L.P., Boston, Massachusetts, are the Funds' independent
accountants. Shareholders will receive unaudited semiannual financial
statements and annual financial statements audited by Coopers & Lybrand L.L.P.
Shareholders may also receive additional reports concerning the LifePoints
Funds, or their accounts, from FRIMCo.

ORGANIZATION, CAPITALIZATION AND VOTING

The Investment Company was organized as a Maryland corporation on March 6,
1981, and commenced offering shares on October 15, 1981. On January 2, 1985,
the Investment Company reorganized by changing its domicile and legal status
to a Massachusetts business trust and now operates under an amended Master
Trust Agreement dated July 26, 1984. Frank Russell Company has the right to
grant the nonexclusive use of the name "Frank Russell" or any derivation
thereof to any other investment company or other business enterprise, and to
withdraw from the Investment Company the use of the name "Frank Russell."

The Investment Company issues shares of beneficial interest divisible into
an unlimited number of funds, each of which funds is a separate trust under
Massachusetts law, and the funds' shares may be offered in multiple classes.
Shares of each class of a Fund represent proportionate interests in the assets
of that Fund attributable to that class, and have the same voting and other
rights and preferences as the shares of other classes of the Fund. Shares of
each class of a Fund are entitled to such dividends and distributions earned
on the assets belonging to the Fund as may be declared by the Board of
Trustees. Shares of each class of a Fund have a par value of $.01 per share,
are fully paid and nonassessable, and have no preemptive or conversion rights.
Each share of a class of a Fund has one vote; there are no cumulative voting
rights. There are no annual meetings of shareholders, but special meetings may
be held. On any matter which affects only a particular Fund or class, only
shareholders of that Fund or class, as applicable, will vote, unless otherwise
required by the 1940 Act or the amended Master Trust Agreement.

34
<PAGE>

In addition to offering Class D and Class E Shares, the LifePoints Funds are
authorized to offer beneficial interests in Class S Shares. Class S Shares are,
as of the date of this Prospectus, not offered for public investment.

The Trustees hold office for the life of the Investment Company. A Trustee
may resign or retire, and a Trustee may be removed at any time by, in
substance, a vote of two-thirds of the Investment Company shares. A vacancy in
the Board of Trustees shall be filled by the vote of a majority of the
remaining Trustees so long as, in substance, two-thirds of the Trustees have
been elected by shareholders.

At May 20, 1997, FRIMCo may be deemed by the 1940 Act to control the
LifePoints Funds because it owns more than 25% of the voting shares.

MONEY MANAGER PROFILES

The money managers have no other affiliations with the Underlying Funds,
FRIMCo, or with Frank Russell Company. Each money manager has been in business
for at least three years, and is principally engaged in managing institutional
investment accounts. These managers may also serve as managers or advisers to
other Investment Company Funds, or to other clients of Frank Russell Company,
including its wholly owned subsidiary, Frank Russell Trust Company.

DIVERSIFIED EQUITY FUND

Alliance Capital Management L.P., 601 2nd Ave. South, Suite 5000,
Minneapolis, MN 55402-4322, is a limited partnership whose (i) general partner
is a wholly owned subsidiary of The Equitable Companies Incorporated ("The
Equitable") and (ii) majority unit holder is ACM, Inc., a wholly owned
subsidiary of The Equitable. As of March 1, 1995, 60.5% of The Equitable was
owned by AXA, a French insurance holding company.

Barclays Global Investors, 45 Fremont Street, 17th Floor, San Francisco, CA
94105, is an indirect, wholly-owned subsidiary of Barclays Bank PLC.

Equinox Capital Management, Inc., 590 Madison Avenue, 41st Floor, New York,
NY 10022. Equinox is a registered investment adviser with majority ownership
held by Ron Ulrich.

INVESCO Capital Management, Inc., 1315 Peachtree Street N.E., Suite 300,
Atlanta, GA 30309, is a corporation whose indirect parent is AMVESCO, PLC, a
London-based financial services holding company.

Lincoln Capital Management Company, 200 South Wacker Drive, Suite 2100,
Chicago, IL 60606. Lincoln Capital Management, Inc. is a division of Lincoln
Capital Management Company, and is a registered investment adviser with
majority ownership held by John Croghan, Parker Hall, Ken Meyer, Tim Ubben and
Ray Zemon.

Peachtree Asset Management, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308, Peachtree is a unit of the Smith Barney Asset
Management division of Smith Barney Mutual Funds Management, Inc., which is a
wholly owned subsidiary of Travelers Group Inc.

Schneider Capital Management, 460 E. Swedesford Road, Suite 1080, Wayne, PA
19087, is an SEC registered investment adviser owned by Arnold Schneider. As of
the date of this Prospectus, the Investment

35
<PAGE>

Company understands that an injunction is being sought against Arnold
Schneider in Massachusetts Middlesex County Superior Court by partners of
Wellington Management Company L.L.P. ("Wellington"). The proceedings were
instituted on December 13, 1996. The Investment Company believes that the
injunction request seeks to prevent Mr. Schneider from engaging in the
investment advisory or investment management business in competition with
Wellington.

Suffolk Capital Management, Inc., 250 West 57th Street, Suite 420, New York,
NY 10107. Suffolk Capital Management, Inc. is a registered investment adviser
and a wholly owned subsidiary of United Asset Management Company, a publicly
traded corporation.

Trinity Investment Management Corporation, 75 Park Plaza, Boston, MA 02116,
is a corporation with seven shareholders, with Stanford M. Calderwood holding
majority ownership.

SPECIAL GROWTH FUND

Delphi Management, Inc., 50 Rowes Wharf, Suite 440, Boston, MA 02110, is
100% owned by Scott Black.

Fiduciary International, Inc., 2 World Trade Center, New York, NY 10048, an
investment advisor registered with the SEC, is an indirect wholly-owned
subsidiary of Fiduciary Trust Company International, a New York state
chartered bank.

GlobeFlex Capital, L.P., 4365 Executive Drive, Suite 720, San Diego, CA
92121, is a California limited partnership and a SEC registered investment
advisor. Its general partners are Robert J. Anslow, Jr. and Marina L.
Marrelli.

Jacobs Levy Equity Management, Inc., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068, is 100% owned by Bruce Jacobs and Kenneth Levy.

Sirach Capital Management, Inc., One Union Square, Suite 3323, 600 Union
Street, Seattle, WA 98101, is a wholly owned subsidiary of United Asset
Management Company, a publicly traded corporation.

Wellington Management Company, LLP, 75 State Street, Boston, MA 02109, is a
private Massachusetts limited liability partnership, of which the following
persons are managing partners: Robert W. Doran, Duncan M. McFarland and John
R. Ryan

QUANTITATIVE EQUITY FUND

Barclays Global Investors, See: Diversified Equity Fund.

Franklin Portfolio Associates LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104, is a Massachusetts business trust owned by Mellon
Financial Services Corporation, a holding company of Mellon Bank Corporation.

J.P. Morgan Investment Management, Inc., 522 Fifth Ave., 14th Floor, New
York, NY 10036, is a wholly owned subsidiary of J.P. Morgan & Co., Inc., a
publicly held bank holding company.

36
<PAGE>

INTERNATIONAL SECURITIES FUND

J.P. Morgan Investment Management, Inc., See: Quantitative Equity Fund.

Marathon Asset Management Limited, Orion House, 5 Upper St. Martins Lane.,
London, England WC2H 9EA, is a corporation 33.3% owned by each of the
following: Jeremy Hosking, William Arah and Neil Ostrer.

Oechsle International Advisors, One International Place, 44th Floor, Boston,
MA 02110, is a limited partnership which is 100% controlled by its general
partners. The general partners are: S. Dewey Keesler, Stephen P. Langer,
Walter Oechsle, L. Sean Roche, Steven H. Schaefer and Tetsuo Shiozumi.

Rowe Price-Fleming International, Inc., 100 East Pratt Street, 9th Floor,
Baltimore, MD 21202, and 4th Floor, 25 Copthall Ave., London, England EC2R
7DR, which is a joint venture of T. Rowe Price Associates, Inc., and The
Fleming Group, each of which owns 50% of the company. Ownership of The Fleming
Group holding is split equally between Copthall Overseas Limited, a subsidiary
of Robert Fleming Holdings, and Jardine Fleming International Holdings
Limited, a subsidiary of Jardine Fleming Holdings. Robert Fleming Holdings is
a London-based UK holding company with the majority of the shares distributed:
51% to public companies and 38% to the Fleming family. Jardine Fleming is a
Hong Kong-based holding company which is owned 50% by Robert Fleming Holdings
and 50% by Jardine Matheson & Co., the Hong Kong trading company, a wholly
owned subsidiary of Jardine Matheson Holdings Limited. The stock of T. Rowe
Price Associates, Inc., is publicly traded with a substantial percentage of
such stock owned by the company's active management.

Sanford C. Bernstein & Co., Inc., 767 Fifth Avenue, New York, NY 10153, is a
registered investment adviser. Founded in 1967, Bernstein is controlled by its
Board of Directors, which consists of the following individuals: Andrew S.
Adelson, Zalman C. Bernstein, Kevin R. Rine, Charles C. Cahn, Jr., Marilyn
Goldstein Fedak, Michael L. Goldstein, Roger Hertog, Lewis A. Sanders and
Francis H. Trainer, Jr.

The Boston Company Asset Management, Inc., One Boston Place, Boston, MA
02108, is 100% owned by Mellon Bank Corporation, a publicly held corporation.

EMERGING MARKETS FUND

Genesis Asset Managers, Ltd., 21 Knights Bridge, London, SW1X 7LY, is a
limited liability company organized under the laws of the state of Guernsey,
the Channel Islands, and has been engaged in the investment advisory business
since 1990. Genesis Asset Managers, Ltd. is registered as an investment
advisor under the Investment Advisers Act of 1940, as amended. Genesis Asset
Managers Ltd. is affiliated with and has common investment executives with the
Genesis Group of fund management companies. The Genesis Group, whose holding
company is Genesis Holdings International Ltd., is controlled 55% by
management and associated interests and the balance held by outside
shareholders, with the largest single holding being 15%.

J.P. Morgan Investment Management, Inc., See: Quantitative Equity Fund.

Montgomery Asset Management, L.P., 600 Montgomery Street, 17th Floor, San
Francisco, CA 94111, is a Delaware limited liability company with majority
ownership held by Commerzbank AG, a foreign banking organization.

37
<PAGE>

REAL ESTATE SECURITIES FUND

Cohen & Steers Capital Management, 757 Third Avenue, New York, NY 10017, is
a corporation whose two principals, Robert H. Steers and Martin Cohen, control
the corporation within the meaning of the 1940 Act.

AEW Capital Management, L.P., 225 Franklin Street, Boston, MA 02110-2803, is
a wholly-owned affiliate of New England Investment Companies, L.P. ("NEIC").
NEIC is a publicly-held limited partnership. Metropolitan Life Insurance
Company, a publicly-held corporation, owns approximately 53% of NEIC. AEW
Capital Management, Inc., a wholly-owned subsidiary of NEIC, is the general
partner, and NEIC is the sole limited partner, of AEW Capital Management, L.P.

DIVERSIFIED BOND FUND

Lincoln Capital Management Company, See: Diversified Equity Fund.

Pacific Investment Management Company, 840 Newport Center Drive, Suite 360,
Newport Beach, CA 92660, is a subsidiary partnership of PIMCO Advisers L.P.
("Partnership"). PIMCO Partners, G.P. is the sole general partner of the
Partnership. Pacific Financial Asset Management Corporation indirectly holds a
majority interest in PIMCO Partners, G.P., with the remainder held indirectly
by a group comprised of PIMCO Managing Directors.

Standish, Ayer & Wood, Inc., One Financial Center, Boston, MA 02111, whose
ownership is divided among seventeen directors, with no director having more
than a 25% ownership interest.

VOLATILITY CONSTRAINED BOND FUND

BlackRock Financial Management, 345 Park Ave., 31st Floor, New York, NY
10154, is a wholly-owned indirect subsidiary of PNC Bank.

Standish, Ayer & Wood, Inc., See: Diversified Bond Fund.

STW Fixed Income Management Ltd., Trinity Hall, 43 Cedar Avenue, Hamilton HM
KX, Bermuda, is a Bermuda exempted company. William H. Williams III is the
sole shareholder.

38
<PAGE>

MULTISTRATEGY BOND FUND

BEA Associates, 153 East 53rd Street, 58th Floor, New York, NY 10022, is a
--------------
general partnership of Credit Suisse Capital Corporation ("CS Capital") and
Basic Appraisals, Inc. ("Basic"). CS Capital is an 80% partner, and is a
wholly owned subsidiary of Credit Suisse Investment Corporation, which is in
turn a wholly-owned subsidiary of Credit Suisse, a Swiss bank, which is in
turn a subsidiary of CS Holding, a Swiss corporation. No one person or entity
possesses a controlling interest in Basic, the 20% partner. BEA Associates is
a registered investment advisor.

Pacific Investment Management Company, See: Diversified Bond Fund.
-------------------------------------

Standish, Ayer & Wood, Inc., See: Diversified Bond Fund.
---------------------------

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST
NOT BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE FUNDS OR THE MONEY MANAGERS SINCE THE DATE HEREOF; HOWEVER, IF
ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE
DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.

39
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET, TACOMA, WASHINGTON 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (253) 627-7001

MONEY MANAGERS

DIVERSIFIED EQUITY REAL ESTATE SECURITIES
Alliance Capital Management L.P. Cohen & Steers Capital Management
Barclays GlobalInvestors AEW Capital Management, L.P.
Peachtree Asset Management
Equinox Capital Management, Inc.
INVESCO Capital Management, Inc. EMERGING MARKETS
Lincoln Capital Management Company Genesis Asset Managers, Ltd.
Schneider Capital Management J.P. Morgan Investment Management, Inc.
Suffolk Capital Management, Inc. Montgomery Asset Management, L.P.
Trinity Investment Management
Corporation
MANAGER, TRANSFER AND DIVIDEND PAYING
AGENT
SPECIAL GROWTH Frank Russell Investment Management
Delphi Management, Inc. Company
Fiduciary International, Inc. 909 A Street
GlobeFlex Capital, L.P. Tacoma, Washington 98402
Jacobs Levy Equity Management, Inc.
Sirach Capital Management, Inc.
Wellington Management Company, LLP CONSULTANT
Frank Russell Company
909 A Street
QUANTITATIVE EQUITY Tacoma, Washington 98402
Barclays Global Investors
Franklin Portfolio Associates LLC
J.P. Morgan Investment Management, Inc. DISTRIBUTOR
Russell Fund Distributors, Inc.
909 A Street
INTERNATIONAL SECURITIES Tacoma, Washington 98402
J.P. Morgan Investment Management, Inc.
Marathon Asset Management Limited
Oechsle International Advisors INDEPENDENT ACCOUNTANTS
Rowe Price-Fleming International, Inc. Coopers & Lybrand L.L.P.
Sanford C. Bernstein & Co., Inc. One Post Office Square
The Boston Company Asset Boston, Massachusetts 02109
Management, Inc.

LEGAL COUNSEL
DIVERSIFIED BOND Stradley, Ronon, Stevens & Young, LLP
Lincoln Capital Management Company 2600 -- One Commerce Square
Pacific Investment Management Company Philadelphia, Pennsylvania 19103-7098
Standish, Ayer & Wood, Inc.

OFFICE OF SHAREHOLDER INQUIRIES
VOLATILITY CONSTRAINED BOND 909 A Street
BlackRock Financial Management Tacoma, Washington 98402
Standish, Ayer & Wood, Inc. (800) 972-0700
STW Fixed Income Management Ltd. In Washington (253) 627-7001

MULTISTRATEGY BOND
BEA Associates
Pacific Investment Management Company
Standish, Ayer & Wood, Inc.

40
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700

LIFEPOINTS FUNDS
STATEMENT OF ADDITIONAL INFORMATION

August 18, 1997

Frank Russell Investment Company is a single legal entity organized as a
Massachusetts business trust. The Investment Company operates 28 different
investment portfolios referred to as "Funds." The Investment Company offers
shares of beneficial interest in the Funds in five separate prospectuses.

This Statement of Additional Information ("Statement") describes both the Class
D and Class E Shares of the five Funds listed below (the "LifePoints Funds"),
each of which invests in different combinations of other Funds (the "Underlying
Funds") which invests in different combinations of stocks, bonds and cash
equivalents. As of the date of the Statement, the Investment Company offers
Class D and Class E Shares in the following LifePoints Funds:

FUND PROSPECTUS DATE
---- ---------------

Equity Balanced Strategy Fund August 18, 1997
Aggressive Strategy Fund August 18, 1997
Balanced Strategy Fund August 18, 1997
Moderate Strategy Fund August 18, 1997
Conservative Strategy Fund August 18, 1997

The LifePoints Funds were not offered for public investment prior to the date of
this Statement. The Underlying Funds commenced operations on the date set forth
below opposite the respective Fund's name:

FUND INCEPTION DATE
---- --------------
Diversified Equity Fund September 5, 1985
Special Growth Fund September 5, 1985
Quantitative Equity Fund May 15, 1987
International Securities Fund September 5, 1985
Diversified Bond Fund September 5, 1985
Volatility Constrained Bond Fund September 5, 1985
Multistrategy Bond Fund January 29, 1993
Real Estate Securities Fund July 28, 1989
Emerging Markets Fund January 29, 1993
<PAGE>

The Underlying Funds, and the Investment Company's other Funds, had aggregate
net assets of approximately $10 billion on May 5, 1997.

Each of the LifePoints Funds presently offers interests in Class D and Class E
Shares. While each of the LifePoints Funds is authorized to offer shares of
beneficial interest in one other class of shares, the Class S Shares, such class
of shares is not presently offered for public investment. This Statement
relates solely to the Class D and Class E Shares of the LifePoints Funds.

This Statement supplements or describes in greater detail information concerning
the Investment Company, the LifePoints Funds, the Underlying Funds and the Class
D and Class E Shares contained in the Prospectus of the LifePoints Funds dated
August 18, 1997. This Statement is not a prospectus; the Statement should be
read in conjunction with the LifePoints Funds' Prospectus. The Prospectus may be
obtained without charge by telephoning or writing your financial intermediary or
to the Investment Company at the number or address shown above.

Capitalized terms not otherwise defined in this Statement shall have the
meanings assigned to them in the Prospectus.

-2-
<PAGE>

TABLE OF CONTENTS

Page
STRUCTURE AND GOVERNANCE...................................... 4
Organization and Business History........................... 4
Shareholder Meetings........................................ 4
Controlling Shareholders.................................... 4
Trustees and Officers....................................... 5

OPERATION OF THE INVESTMENT COMPANY........................... 7
Service Providers........................................... 7
Consultant.................................................. 7
Manager..................................................... 8
Money Managers.............................................. 9
Distributor................................................. 9
Custodian................................................... 9
Transfer and Dividend Disbursing Agent...................... 10
Independent Accountants..................................... 10
Plan Pursuant to Rule 18f-3................................. 10
Distribution Plan........................................... 10
Shareholder Services Plan................................... 11
Underlying Fund Expenses.................................... 12
LifePoints Fund Operating Expenses.......................... 12
Valuation of the LifePoints Fund Shares..................... 12
Pricing of Securities....................................... 12
Portfolio Turnover Rates of the LifePoints Funds............ 13
Portfolio Transaction Policies of the Underlying Funds...... 13
Brokerage Allocations....................................... 14
Brokerage Commissions....................................... 14
Yield and Total Return Quotations........................... 16

INVESTMENT RESTRICTIONS, POLICIES AND PRACTICES OF THE
LIFEPOINTS FUNDS
Investment Restrictions..................................... 17
Investment Policies and Practices of the LifePoints Funds... 18

INVESTMENT POLICIES OF THE UNDERLYING FUNDS................... 19
INVESTMENT PRACTICES.......................................... 24
TAXES......................................................... 39
RATINGS OF DEBT INSTRUMENTS................................... 40

-3-
<PAGE>

STRUCTURE AND GOVERNANCE

Organization and Business History. The Investment Company commenced business
- ---------------------------------
operations as a Maryland corporation in October 1981 and on January 2, 1985
reorganized as a Massachusetts business trust.

The Investment Company is currently organized and operates under an amended
Master Trust Agreement dated July 26, 1984 and the provisions of Massachusetts
law governing the operation of a Massachusetts business trust. The Board of
Trustees may amend the Master Trust Agreement from time to time; provided,
however, that any amendment which would materially and adversely affect
shareholders of the Investment Company as a whole, or shareholders of a
particular Fund, must be approved by the holders of a majority of the shares of
the Investment Company or Fund, respectively.

The Investment Company is authorized to issue shares of beneficial interest, and
may divide the shares into two or more series, each of which evidences a pro
rata ownership interest in a different investment portfolio -- a "Fund." The
Trustees may, without seeking shareholder approval, create additional Funds at
any time. The amended Master Trust Agreement provides that a shareholder may be
required to redeem shares in a Fund under circumstances set forth in the Master
Trust Agreement.

The Investment Company's Funds are authorized to issue shares of beneficial
interest in one or more classes. Each of the five LifePoints Funds described in
this Statement offers shares of beneficial interest in the Class D and Class E
Shares. The Class D and Class E Shares are both subject to a shareholder
services fee of up to 0.25%. In addition, the Class D Shares are subject to a
Rule 12b-1 Fee of up to 0.75% (presently limited to 0.25%). While the
LifePoints Funds are authorized to offer shares of beneficial interest in
another class of shares--the Class S Shares--those shares are not currently
available for public investment. Unless otherwise indicated, "shares" in this
Statement refers to the Class D and Class E Shares of the LifePoints Funds.

Under certain unlikely circumstances, as is the case with any Massachusetts
business trust, a shareholder of a Fund may be held personally liable for the
obligations of the Fund. The Master Trust Agreement provides that shareholders
shall not be subject to any personal liability for the acts or obligations of a
Fund and that every written agreement, obligation or other undertaking of the
Funds shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The amended Master Trust Agreement also provides
that the Investment Company shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of a Fund and satisfy any
judgment thereon. Thus, the risk of any shareholder incurring financial loss
beyond his investment on account of shareholder liability is limited to
circumstances in which a Fund itself would be unable to meet its obligations.

-4-
<PAGE>

Shareholder Meetings. The Investment Company will not have an annual meeting of
- --------------------
shareholders, but special meetings may be held. Special meetings may be convened
by (i) the Board of Trustees, (ii) upon written request to the Board by
shareholders holding at least 10% of the outstanding shares, or (iii) upon the
Board's failure to honor the shareholders' request described above, by
shareholders holding at least 10% of the outstanding shares by giving notice of
the special meeting to shareholders.

Controlling Shareholders. The Trustees have the authority and responsibility to
- ------------------------
manage the business of the Investment Company, and hold office for life unless
they resign or are removed by, in substance, a vote of two-thirds of the
Investment Company shares outstanding. Under these circumstances, no one person,
entity or shareholder "controls" the Investment Company.

The following shareholders owned 5% or more of the voting shares of the
Investment Company or of the Underlying Funds at May 30, 1997:

Emerging Markets: U.S. National Bank of Oregon, Bancorp Tower Building, 111
S.W. Fifth Avenue, Suite 1, Portland, OR 97204, 18.37%, record.

Diversified Equity: FMB Trust, One Financial Plaza, 10717 Adams Street,
Holland, MI 49423, 5.67%, record.

Special Growth - Class S: FMB Trust, 9.72%, record.

Quantitative Equity - Class S: FMB Trust, 8.12%, record.

International Securities - Class S: FMB Trust, 5.44%, record.

Real Estate Securities - Class S: U.S. National Bank of Oregon, 12.98%, record.

Diversified Bond - Class S: Citizens Bank (Saginaw), 101 N. Washington,
Saginaw, MI 48607-1207, 14.32%, record; FMB Trust, 9.88%, record; Hawaiian
Trust Investment Services, 130 Merchant Street, 10th Floor Tower, Honolulu, HI
96813, 5.18%, record; Key Trust Company, PO Box 94871, Cleveland, OH 44101-
4871, 5.41%, record.

The LifePoints Funds were not offered for public investment prior to the date of
this Statement.

Trustees and Officers. The Board of Trustees is responsible for overseeing
- ---------------------
generally the operation of the Funds. The officers, all of whom are employed by
and are officers of Frank Russell Investment Management Company or its
affiliates, are responsible for the day-to-day management and administration of
the Funds' operations.

-5-
<PAGE>

The Investment Company paid $103,244 for the year ended December 31, 1996 to the
Trustees as a group who are not officers or employees of FRIMCo or its
affiliates. Trustees are paid an annual fee plus travel and other expenses
incurred in attending Board meetings. The Investment Company's officers and
employees are paid by Frank Russell Investment Management Company or its
affiliates.

The following lists the Trustees and officers and their positions with the
Investment Company, their ages, their present and principal occupations during
the past five years and the mailing addresses of Trustees who are not affiliated
with the Investment Company. The mailing address for all Trustees and officers
affiliated with the Investment Company is Frank Russell Investment Company, 909
A Street, Tacoma, WA 98402.

An asterisk (*) indicates that the Trustee or officer is an "interested person"
of the Investment Company as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). As used in the table, "Frank Russell Company" includes
its corporate predecessor, Frank Russell Co., Inc.

*George F. Russell, Jr.--64 years old--Trustee and Chairman of the Board.
Trustee and Chairman of the Board, Russell Insurance Funds, Director and
Chairman of the Board, Frank Russell Company; Director, Chief Executive Officer
and Chairman of the Board, Russell Building Management Company, Inc.; Director
and Chairman of the Board, Frank Russell Securities, Inc. and Frank Russell
Trust Company; Director, Frank Russell Investment Management Company; Director,
Chairman of the Board and President, Russell 20-20 Association. Chairman of the
Board, Director, Frank Russell Investments (Delaware), Inc. March 1988 to April
1992, Director of Russell-Zisler, Inc. (real estate consulting); January 1957 to
March 1993, Chief Executive Officer of Frank Russell Company; March 1982 to
November 1995, Chairman of the Board of Frank Russell Investment Management
Company.

*Lynn L. Anderson--57 years old--Trustee, President and Chief Executive Officer.
Trustee, President and Chief Executive Officer, Russell Insurance Funds,
Director, Chief Executive Officer and Chairman of the Board, Russell Fund
Distributors, Inc.; Trustee and President, The SSgA Funds (investment company);
Director, Chief Executive Officer and Chairman of the Board, Frank Russell
Investment Management Company; Director, Chief Executive Officer and President,
Frank Russell Trust Company; Director and Chairman, Frank Russell Investment
Company Public Limited Company; Director, Frank Russell Company; November 1995
to February 1997 Director and Chairman of the Board, Frank Russell Company
(Delaware); March 1989 to June 1993, Director, Frank Russell Company; Director
of Frank Russell Investments (Ireland) Limited. Until September 1994, Director
and President, The Laurel Funds, Inc. (investment company).

Paul E. Anderson--65 years old--Trustee. 23 Forest Glen Lane, Tacoma, Washington
98409. Trustee, Russell Insurance Funds, Forest Limited Partnership; 1984 to
1996, President, Vancouver Door Company, Inc.

-6-
<PAGE>

Paul Anton, Ph.D.--77 years old--Trustee. 2218 55th Street, N.W., Gig Harbor,
Washington 98335. Trustee, Russell Insurance Funds, President, Paul Anton and
Associates (Marketing Consultant on emerging international markets for small
corporations). From 1986 to 1991, Visiting Associate Professor, International
Marketing School of Business Administration and International Trade Institute,
Portland State University, Portland, Oregon; 1991-1994, Adjunct Professor,
International Marketing, University of Washington, Tacoma, Washington.

William E. Baxter--71 years old--Trustee. 800 North C Street, Tacoma, Washington
98403. Trustee, Russell Insurance Funds, Retired.

Lee C. Gingrich--66 years old--Trustee. 1730 North Jackson, Tacoma, Washington
98406. Trustee, Russell Insurance Funds, President, Gingrich Enterprises, Inc.
(Business and Property Management).

Eleanor W. Palmer--68 years old--Trustee. 2025 Narrows View Circle, P. O. Box
1057, Gig Harbor, Washington 98335. Trustee, Russell Insurance Funds and Frank
Russell Trust Company, Retired.

*George W. Weber--45 years old--Treasurer and Chief Accounting Officer. Trustee
and Chief Accounting Officer, Russell Insurance Funds, Director of Finance and
Operations, Frank Russell Trust Company; Director, Fund Administration and
Operations of Frank Russell Investment Management Company and Russell Fund
Distributors, Inc.; Senior Vice President and Fund Treasurer of The Ssga Funds
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.

*Randall P. Lert--43 years old--Director of Investments. Director of
Investments, Russell Insurance Funds, Senior Investment Officer and Director of
Investment Services, Frank Russell Trust Company; Director and Chief Investment
Officer, Frank Russell Investment Management Company; Director and Chief
Investment Officer, Russell Fund Distributors, Inc.; April 1990 to November
1995, Director of Investments of Frank Russell Investment Management Company.

*Karl J. Ege--55 years old--Secretary and General Counsel. Director, Secretary
and General Counsel, Russell Insurance Funds, Secretary and General Counsel of
Frank Russell Company; Secretary and General Counsel of Frank Russell Investment
Management Company, Frank Russell Trust Company and Russell Fund Distributors,
Inc.; Director and Secretary of Russell Building Management Company; Director
and Assistant Secretary of Frank Russell Company Limited and Russell Systems
Ltd.; Director, Frank Russell Investment Company LLC, Frank Russell Investments
(Cayman) Ltd., Frank Russell Investment Company Public Limited Company and Frank
Russell Investments (Ireland) Limited; Director and Secretary, Frank Russell
Investments (Delaware), Inc. and Frank

-7-
<PAGE>

Russell International Services, Co., Inc.; Director, Secretary and General
Counsel, Russell Fiduciary Services Company and Frank Russell Capital Inc.;
Director of Frank Russell Company, S.A., Frank Russell Japan, Frank Russell
Company (N.Z.) Limited and Russell Investment Nominee Co. PTY Ltd., Frank
Russell Company PTY Limited, and Frank Russell Investments (UK) Limited;
Director and Secretary, Russell 20-20 Association. From November 1995 to
February 1997, Director and Secretary, Frank Russell Company (Delaware); July
1992 to June 1994, Director, President and Secretary of Frank Russell Shelf
Corporation. From 1972 to 1991, Partner, Bogle and Gates (law firm).

*Peter Apanovitch--51 years old--Manager of Short-Term Investment Funds.
Manager of Short-Term Investment Funds, Russell Insurance Funds, Manager of
Short-Term Investment Funds, Frank Russell Investment Management Company and
Frank Russell Trust Company.

<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
(FOR FISCAL YEAR ENDED 12/31/96)
- ----------------------------------------------------------------------------------------

TRUSTEE AGGREGATE PENSION OR ESTIMATED TOTAL
COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS COMPENSATION
FROM THE ACCRUED AS PART OF UPON FROM THE
INVESTMENT THE INVESTMENT RETIREMENT INVESTMENT
COMPANY COMPANY EXPENSES COMPANY PAID
TO TRUSTEES

Lynn L. Anderson $0 $0 $0 $0

Paul E. Anderson $20,000 $0 $0 $20,000

Paul Anton, PhD. $20,000 $0 $0 $20,000

William E. Baxter $20,000 $0 $0 $20,000

Lee C. Gingrich $20,000 $0 $0 $20,000

Eleanor W. Palmer $20,000 $0 $0 $20,000

George F. Russell $0 $0 $0 $0
- ----------------------------------------------------------------------------------------
</TABLE>

OPERATION OF THE INVESTMENT COMPANY

Service Providers. Most of the Investment Company's necessary day-to-day
- -----------------
operations are performed by separate business organizations under contract to
the Investment Company. The principal service providers are:

Consultant Frank Russell Company
Manager, Transfer and Dividend Frank Russell Investment Management
Disbursing Agent Company
Money Managers for the Multiple professional discretionary
Underlying Funds investment management organizations
Custodian and Portfolio State Street Bank and Trust Company
Accountant

Consultant. Frank Russell Company, the corporate parent of Frank Russell
- ----------
Investment Management Company ("FRIMCo"), was responsible for organizing the
Investment

-8-
<PAGE>

Company and provides ongoing consulting services, described in the Prospectus,
to the Investment Company and FRIMCo. FRIMCo does not pay Frank Russell Company
an annual fee for consulting services.

Frank Russell Company provides comprehensive consulting and money manager
evaluation services to institutional clients, including FRIMCo and Frank Russell
Trust Company, and to high net worth individuals and families ($100 million)
through its Russell Private Investment Division. Frank Russell Company also
provides: (i) consulting services for international investment to these and
other clients through its International Division and its wholly owned
subsidiaries, Frank Russell Company London (Frank Russell Company Limited),
Frank Russell Canada (Frank Russell Canada Limited/Limitee), Frank Russell
Australia (Frank Russell Company Pty., Limited), Frank Russell Japan, Frank
Russell AG (Zurich), Frank Russell Company S.A. (Paris) and Frank Russell
Company (N.Z.) Limited (Auckland), and Frank Russell Investments (Delaware),
Inc., and (ii) investment account and portfolio evaluation services to corporate
pension plan sponsors and institutional money managers through its Russell Data
Services Division. Frank Russell Securities, Inc., a wholly owned subsidiary of
Frank Russell Company, carries on an institutional brokerage business as a
member of the New York Stock Exchange. Frank Russell Capital Inc., a wholly
owned subsidiary of Frank Russell Company, carries on an investment banking
business as a registered broker-dealer. Frank Russell Trust Company, a wholly-
owned subsidiary of Frank Russell Company, provides comprehensive trust and
investment management services to corporate pension and profit-sharing plans.
Frank Russell Investments (Cayman) Ltd., a wholly owned subsidiary of Frank
Russell Company, provides investment advice and other services. Frank Russell
Investment (Ireland) Ltd., a wholly owned subsidiary of Frank Russell Company,
provides investment advice and other services. Frank Russell International
Services Co., Inc., a wholly owned subsidiary of Frank Russell Company, provides
services to U.S. personnel secunded to overseas enterprises. Russell Fiduciary
Services Company, a wholly owned subsidiary of Frank Russell Company, provides
fiduciary services to pension and welfare benefit plans and other institutional
investors. The mailing address of Frank Russell Company is 909 A Street, Tacoma,
WA 98402.

Manager. FRIMCo provides or oversees the provision of all general management and
- -------
administration, investment advisory and portfolio management, and distribution
services for the Funds. FRIMCo provides the Funds with office space, equipment
and the personnel necessary to operate and administer the Funds' business and to
supervise the provision of services by third parties such as the money managers
(in the case of the Underlying Funds) and custodian. FRIMCo also develops the
investment programs for each of the Funds, selects money managers for the
Underlying Funds (subject to approval by the Board of Trustees), allocates
assets among money managers, monitors the money managers' investment programs
and results, and may exercise investment discretion over assets invested in the
Underlying Funds' Liquidity Portfolios. (See, "Investment Policies of the
Underlying Funds -- Liquidity Portfolios.") FRIMCo also acts as the Investment
Company's transfer agent and dividend disbursing agent. FRIMCo, as agent for the
Investment Company, pays

-9-
<PAGE>

the money managers' fees for the Underlying Funds, as a fiduciary for the
Underlying Funds.

Each of the Funds pays an annual management fee directly to FRIMCo, billed
monthly on a pro rata basis and calculated as a specified percentage of the
average daily net assets of each of the Underlying Funds. (See the Prospectuses
for the Underlying Funds' annual percentage rates.)

Each of the LifePoints Funds had not commenced operations on January 1, 1997
and therefore paid no management fees to FRIMCo during any of the prior three
years.

The Underlying Funds paid FRIMCo the listed management fees for the years ended
December 31, 1996, 1995 and 1994:

YEARS ENDED
----------------------------------
<S> <C> <C> <C>
12/31/96 12/31/95 12/31/94
---------- ---------- ----------
Diversified Equity $4,728,098 $3,842,471 $3,156,276
Special Growth 3,306,695 2,588,270 2,028,150
Quantitative Equity 4,454,628 3,469,134 2,712,324
International Securities 6,497,074 5,723,534 5,096,797
Diversified Bond 2,359,767 2,308,823 2,263,561
Volatility Constrained Bond 836,818 985,215 1,094,128
Multistrategy Bond 1,673,473 1,217,039 945,756
Real Estate Securities 2,943,165 2,065,552 1,541,758
Emerging Markets* 2,773,817 1,380,549 N/A
</TABLE>

*Prior to April 1, 1995, the Emerging Markets Fund paid no management fees to
FRIMCo, as each shareholder of such Funds had entered into a written Asset
Management Services Agreement with the FRIMCo. Under such Agreements, the
shareholders had agreed to pay annual fees, billed quarterly on a pro rata basis
and calculated as a specified percentage of the average assets which the
shareholder had invested at each month end in any of such Funds. Beginning April
1, 1995, the Investment Company's Management Agreement was amended to provide
that the Emerging Markets Fund would pay an annual management fee, billed
monthly on a pro rata basis and calculated as a specified percentage of the
average daily net assets of the Fund. When applicable, a shareholder of the
Emerging Markets Fund continues to enter into a written Asset Management
Services Agreement with FRIMCo to obtain separately individual shareholder
services, and pays fees under such agreement based on a specified percentage of
average assets which are subject to the Asset Management Services Agreement
relating to FRIMCo's provision of individual shareholder investment services
with respect to that shareholder.

Effective May 1, 1996, FRIMCo agreed to waive its management fee for the
Emerging Markets and Multistrategy Bond Funds, to the extent Fund level expenses
of these Funds exceed 1.95% and 0.80% of average daily net assets on an annual
basis, respectively. In 1996, waivers and reimbursements for Multistrategy Bond
Fund amounted to $157,752. No waiver nor reimbursement was necessary for the
Emerging Markets Funds. As a result of the waivers and reimbursements,
management fees paid by the Multistrategy Bond Fund amounted to $1,515,721.

-10-
<PAGE>

Through March 31, 1995, FRIMCo reimbursed the Emerging Markets Fund for all
expenses exceeding 0.80% of average daily net assets on an annual basis.
Effective April, 1995 through April 30, 1996, FRIMCo reimbursed the Emerging
Markets Fund for all expenses exceeding 2.00% of average daily net assets on an
annual basis. In 1995, reimbursements for the Emerging Markets Fund were
$37,115. As a result of the reimbursements, management fees paid by the Emerging
Markets Fund amounted to $1,343,434.

While FRIMCo will perform investment management services for the LifePoints
Funds (i.e., determining the percentages of the Underlying Funds which will be
purchased by each LifePoints Fund, and periodically adjusting the percentages),
FRIMCo presently intends to waive its entire 0.25% management fee through
December 31, 1997 but may terminate its waiver at any time without notice to
shareholders. Each of the LifePoints Funds will indirectly bear their
proportionate share of the management fees paid by the Underlying Funds in which
they invest, while a Shareholder of a LifePoints Fund will also bear a
proportionate part of the management fees paid by an Underlying Fund, each of
the management fees paid is based upon the services received by the respective
Fund.

FRIMCo also provides, through its Russell Private Investment Division
Investment, investment advisory, consulting and money manager evaluation
services to high net worth individuals and families.

FRIMCo is a wholly owned subsidiary of Frank Russell Company. FRIMCo's mailing
address is 909 A Street, Tacoma, WA 98402.

Money Managers. The money managers of the Underlying Funds have no affiliations
- --------------
or relationships with the Investment Company or FRIMCo other than as
discretionary managers for all or a portion of a Fund's portfolio, except some
money managers (and their affiliates) may effect brokerage transactions for the
Underlying Funds (see, "Brokerage Allocations" and "Brokerage Commissions").
Money managers may serve as advisors or discretionary managers for Frank Russell
Trust Company, other consulting clients of Frank Russell Company, other off-
shore vehicles and/or for accounts which have no business relationship with the
Frank Russell Company organization.

Distributor. Russell Fund Distributors, Inc. serves as the distributor of the
- -----------
Investment Company shares. The distributor receives no compensation from the
Investment Company for its services. The distributor is a wholly owned
subsidiary of FRIMCo and its mailing address is 909 A Street, Tacoma, WA 98402.

Custodian. State Street Bank and Trust Company ("State Street") serves as the
- ---------
custodian for the Investment Company. State Street also provides the basic
portfolio recordkeeping required by each of the Underlying Funds for regulatory
and financial reporting purposes. For these services, State Street is paid an
annual fee, in accordance with the following: domestic custody - (i) an annual
fee of $3,000 per portfolio per fund, (ii) an annual fee, payable monthly on a
pro rata basis, based on the following percentages of the month end net assets
of all domestic funds: $0 up to and including $10 billion - .0075%; over $10
billion -.0065%; global custody - an annual fee, payable monthly on a pro rata
basis, based on other month-end net assets and geographic classification of the
investments in the international funds; fund accounting - (i) an annual fee of
$10,000 - $24,000 per portfolio per fund, (ii) an annual fee of 0.015% - 0.030%,
payable monthly on a pro rata basis, based on daily average

-11-
<PAGE>

net assets of each Fund; securities transaction charges from $6.50 to $100.00
per transaction; monthly pricing fees of $375.00 per portfolio and $6.00 to
$12.00 per security; multiple class fee of $15,000 per year for reach additional
class of shares; and yield calculation fees of $4,200 per fixed income fund per
year. State Street is reimbursed by the Funds for supplying certain out-of-
pocket expenses including postage, transfer fees, stamp duties, taxes, wire
fees, telexes and freight. Additionally, the following fees will be assessed in
the Fund of Funds environment: (i) daily priced accounting fee of $1,000 per
month (ii) monthly priced accounting fee of $500 per month and (iii) transaction
fee of $5 per transaction. In addition, interest earned on uninvested cash
balances is used to offset the custodian expense. The mailing address for State
Street Bank and Trust Company is 1776 Heritage Drive, North Quincy, MA 02171.

Transfer and Dividend Disbursing Agent. FRIMCo serves as Transfer Agent for the
- --------------------------------------
Investment Company. For this service, FRIMCo is paid a fee of $20.00 per
shareholder transaction by each Underlying Fund. FRIMCo is also reimbursed by
the Investment Company for certain out-of-pocket expenses including postage,
taxes, wires, stationery and telephone. LifePoints Funds investments into the
Underlying Funds will not be charged a fee. FRIMCo's mailing address is 909 A
Street, Tacoma, WA 98402.

Independent Accountants. Coopers & Lybrand L.L.P. serves as the independent
- -----------------------
accountants of the Investment Company. Coopers & Lybrand L.L.P. is responsible
for performing annual audits of the financial statements and financial
highlights in accordance with generally accepted auditing standards and a review
of federal tax returns. The mailing address of Coopers & Lybrand L.L.P. is One
Post Office Square, Boston, MA 02109.

Plan Pursuant to Rule 18f-3. On February 23, 1995, the Securities and Exchange
- ---------------------------
Commission (the "SEC") adopted Rule 18f-3 under the 1940 Act, which permits a
registered open-end investment company whose shares are registered on Form N-1A
to issue multiple classes of shares in accordance with a written plan approved
by the investment company's board of directors/trustees and filed with the SEC.
At a meeting held on April 22, 1996, the Investment Company's Board of Trustees
(the "Trustees") adopted and, on November 4, 1996 amended, a plan pursuant to
Rule 18f-3 (the "Rule 18f-3 plan") on behalf of each Fund that issues multiple
classes of shares (each a "Multiple Class Fund"). The key features of the Rule
18f-3 plan are as follows: shares of each class of a Multiple Class Fund
represent an equal pro rata interest in the underlying assets of that Fund, and
generally have identical voting, dividend, liquidation, and other rights,
preferences, powers, restrictions, limitations, qualifications and terms and
conditions, except that: (1) each class of shares offered in connection with a
Rule 12b-1 plan would bear certain fees under its respective plan and would have
exclusive voting rights on matters pertaining to that plan and any related
agreements; (2) each class of shares may contain a conversion feature; (3) each
class of shares may bear differing amounts of certain expenses allowable to such
class; (4) different policies may be established with respect to the payment of
distributions on the classes of shares of a Multiple Class Fund to equalize the
net asset values of the classes or, in the

-12-
<PAGE>

absence of such policies, the net asset value per share of the different classes
may differ at certain times; (5) a class of shares of a Multiple Class Fund
might have different exchange privileges from another class; (6) each class of
shares of a Multiple Class Fund would have a different class designation from
another class of that Fund; and (7) each class of shares offered in connection
with a shareholder servicing plan would bear certain fees under its respective
plan.

Distribution Plan. Under the 1940 Act, the SEC has adopted Rule 12b-1 (the
- -----------------
"Rule"), which regulates the circumstances under which the Funds may, directly
or indirectly, bear distribution expenses. The Rule provides that the Funds may
pay for such expenses only pursuant to a plan adopted in accordance with the
Rule. Accordingly, each of the LifePoints Funds has adopted a distribution plan
(the "Distribution Plan") for the LifePoints Funds' Class D Shares, which are
described in the Prospectus. In adopting the Distribution Plan, a majority of
the Trustees, including a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Investment Company and who have no
direct or indirect financial interest in the operation of the Distribution Plan
or in any agreements entered into in connection with the Distribution Plan (the
"Disinterested Trustees"), have concluded, in conformity with the requirements
of the 1940 Act, that there is a reasonable likelihood that the Distribution
Plan will benefit each respective LifePoints Fund and its shareholders. In
connection with the Trustees' consideration of whether to adopt the Distribution
Plan, the LifePoints Funds' principal underwriter (the "Distributor")
represented to the Trustees that the Distributor believes that the Distribution
Plan should result in increased sales and asset retention for the LifePoints
Funds by enabling the LifePoints Funds to reach and retain more investors and
financial intermediaries (including brokers, banks, financial planners, and
other financial institutions), although it is impossible to know for certain, in
the absence of the Distribution Plan or under an alternative distribution
agreement, the level of sales and asset retention that a LifePoints Fund would
enjoy.

The Distribution Plan provides that each LifePoints Fund may spend annually,
directly or indirectly, up to 0.75% of the average daily net asset value of its
Class D Shares for any activities or expenses primarily intended to result in
the sale of Class D Shares of a LifePoints Fund. Such payments by the Company
will be calculated daily and paid periodically and shall not be made less
frequently than quarterly. The Board of Trustees has presently determined to
limit payment under the Distribution Plan to 0.25% of average daily net assets.
Any amendment to increase materially the amount that may be spent for
distribution pursuant to the Distribution Plan must be approved by a vote of the
holders of the lesser of (a) more than fifty percent (50%) of the outstanding
Class D Shares of a LifePoints Fund or (b) sixty-seven percent (67%) or more of
the Class D Shares of a LifePoints Fund present at a shareholders' meeting, if
the holders of more than 50% of the outstanding shares of such LifePoints Fund
are present or represented by proxy. The Distribution Plan does not provide for
the LifePoints Funds to be charged for interest, carrying or any other financing
charges on any distribution expenses carried forward to subsequent years. A
quarterly report of the amounts expended under the Distribution Plan, and the
purposes for which such expenditures were incurred, must be made to the Trustees

-13-
<PAGE>

for their review. Continuation of the Distribution Plan must be approved
annually by a majority of the Trustees including a majority of the Independent
Trustees. While the Distribution Plan is in effect, the selection and
nomination of the Independent Trustees shall be committed to the discretion of
such Independent Trustees. The Distribution Plan is terminable, as to a
LifePoints Fund's Class D Shares, without penalty, at any time, by (a) a vote of
a majority of the Disinterested Trustees, or (b) a vote of the holders of the
lesser of (i) more than fifty percent (50%) of the outstanding Class D Shares of
a LifePoints Fund or (ii) sixty-seven (67%) or more of the Class D Shares of a
LifePoints Fund present at a shareholders' meeting, if the holders of more than
50% of the outstanding shares of such Fund are present or represented by proxy.

Under the Distribution Plan, the LifePoints Funds may also enter into agreements
("Selling Agent Agreements") with financial intermediaries ("Selling Agents"),
to provide the distribution activities provided by the Selling Agents with
respect to LifePoints Fund Class D Shares held by or for the customers of the
Selling Agents. Such arrangements are more fully described in the Prospectus
under "Distribution and Shareholder Service Plans."

Shareholder Services Plan. A majority of the Trustees, including a majority of
- -------------------------
the Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Investment Company and who have no direct or indirect financial interest in
the operation of the Service Plan (as defined below) or in any agreements
entered into in connection with the Service Plan (the "Independent Trustees"),
has also adopted, on behalf of each LifePoints Fund, a Shareholder Services Plan
pertaining to the LifePoints Funds' Class D Shares and Class E Shares (the
"Service Plan"), effective November 5, 1996.

Under the Service Plan, the Investment Company may compensate the Distributor or
any investment advisors, banks, broker-dealers, financial planners or other
financial institutions that are dealers of record or holders of record or that
have a servicing relationship with the beneficial owners or record holders of
Class D or Class E Shares of any of the LifePoints Funds offering such shares
("Servicing Agents"), for any activities or expenses primarily intended to
assist, support or service their clients who beneficially own or are primarily
intended to assist, support or service their clients who beneficially own or are
record holders of Class D or Class E Shares of the LifePoints Funds. Such
payments by the Investment Company will be calculated daily and paid quarterly
at a rate or rates set from time to time by the Trustees, provided that no rate
set by the Trustees for Class D or Class E Shares of any LifePoints Fund may
exceed, on an annual basis, 0.25% of the average daily net asset value of that
Fund's Class D or Class E Shares.

Among other things, the Service Plan provides that (1) the Distributor shall
provide to the Investment Company's officers and Trustees, and the Trustees
shall review at least quarterly, a written report of the amounts expended by the
Investment Company pursuant to the Service Plan, or by Servicing Agents pursuant
to the Service Plans, and the purposes for which such expenditures were made;
(2) the Service Plan shall continue in effect for so long as its continuance is
specifically approved at least annually by the Trustees, including a majority of

-14-
<PAGE>

the Independent Trustees, cast in person at a meeting called for that purpose;
(3) while the Service Plan is in effect, the selection and nomination of the
Independent Trustees shall be committed to the discretion of such Independent
Trustees; and (4) the Service Plan is terminable, as to a LifePoints Funds'
Class D or Class E Shares, by a vote of a majority of the Independent Trustees.

Underlying Fund Expenses. The Underlying Funds will pay all their expenses other
- ------------------------
than those expressly assumed by FRIMCo. The principal expense of the Underlying
Funds is the annual management fee payable to FRIMCo. The Underlying Funds'
other expenses include: fees for independent accountants, legal, transfer agent,
registrar, custodian, dividend disbursement, and portfolio and shareholder
recordkeeping services, and maintenance of tax records payable to Frank Russell
Company; state taxes; brokerage fees and commissions; insurance premiums;
association membership dues; fees for filing of reports and registering shares
with regulatory bodies; and such extraordinary expenses as may arise, such as
federal taxes and expenses incurred in connection with litigation proceedings
and claims and the legal obligations of the Investment Company to indemnify its
Trustees, officers, employees, shareholders, distributors and agents with
respect thereto.

Whenever an expense can be attributed to a particular Underlying Fund, the
expense is charged to that Underlying Fund. Other common expenses are allocated
among the Underlying Funds based primarily upon their relative net assets.

As of the date of this Statement, FRIMCo has voluntarily agreed to waive all or
a portion of its management fee with respect to certain Underlying Funds. These
limits may be changed or rescinded at any time.

LifePoints Fund Operating Expenses. Each LifePoints Fund is expected to have
- ----------------------------------
low operating expense ratio although, as a shareholder of the Underlying Funds,
each LifePoints Fund indirectly bears its pro rata share of the management fees
charged to, and expenses of operating, the Underlying Funds in which it invests.
It is currently contemplated that all other operating expenses (shareholder
servicing, legal, accounting, etc.) except for the 0.25% management fee and any
Rule 12b-1 Fees and Shareholder Service Fees will be paid for in accordance with
these Special Servicing Agreements (each a "Servicing Agreement") among each
LifePoints Fund, its Underlying Funds and FRIMCo. Under the Servicing
Agreement, FRIMCo arranges for all services pertaining to the operations of the
LifePoints Funds, including transfer agency services but not including any
services covered by the LifePoints Funds' management fee or any Rule 12b-1 or
Shareholder Service Fees. However, it is expected that the additional assets
invested in the Underlying Funds by the LifePoints Funds will produce economies
of operations and other savings for the Underlying Funds which will exceed the
cost of the services required for the operation of the LifePoints Funds. In
this case, the Servicing Agreement provides that, the officers of the Investment
Company, at the direction of the Trustees, may apply such savings to payment of
the aggregate operating expenses of

-15-
<PAGE>

LifePoints Funds which have invested in that Underlying Fund, so that the
Underlying Fund will bear those operating expenses in proportion to the average
daily value of the shares owned by the LifePoints Fund, provided that no
Underlying Fund will bear such operating expenses in excess of the estimated
savings to it. In the event that the aggregate financial benefits to the
Underlying Funds do not exceed the costs of the LifePoints Funds, the Agreement
provides that either FRIMCo or the Underlying Funds will bear that portion of
costs determined to be greater than the benefits. Those costs include Fund
accounting, custody, auditing, legal, blue sky and, as well as organizational,
transfer agency, prospectus, shareholder reporting, proxy, general
administrative and miscellaneous expenses.

Valuation of the LifePoints Fund Shares. The net asset value per share of Class
- ---------------------------------------
D and Class E Shares is calculated separately for each LifePoints Fund on each
business day on which shares are offered or orders to redeem are tendered. A
business day is one on which the New York Stock Exchange is open for trading.
Currently, the New York Stock Exchange is open for trading every weekday, except
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.

Pricing of Securities. The Class S Shares of the Underlying Funds held by each
- ---------------------
LifePoints Fund are valued at the net asset value of each Underlying Fund. The
Emerging Markets, International Securities, Diversified Bond, and Multistrategy
Bond Funds' portfolio securities actively trade on foreign exchanges which may
trade on Saturdays and on days that the Underlying Funds do not offer or redeem
shares. The trading of portfolio securities on foreign exchanges on such days
may significantly increase or decrease the net asset value of the Class S Shares
of the Underlying Fund when a shareholder (such as a LifePoints Fund) is not
able to purchase or redeem Underlying Fund shares. Further, because foreign
securities markets may close prior to the time the Underlying Funds determine
net asset value, events affecting the value of the portfolio securities
occurring between the time prices are determined and the time the Underlying
Funds calculate net asset value may not be reflected in the calculation of net
asset value unless FRIMCo determines that a particular event would materially
affect the net asset value.

Portfolio Turnover Rates of the LifePoints Funds. The portfolio turnover rate
- ------------------------------------------------
for each LifePoints Fund is calculated by dividing the lesser of purchases or
sales of Underlying Fund shares for the particular year, by the monthly average
value of the Underlying Fund shares owned by the Fund during the year. Each
LifePoints Fund's portfolio turnover rate is expected not to exceed 25%. The
LifePoints Funds will purchase or sell Underlying Fund shares to: (i)
accommodate purchases and sales of each Fund's shares; (ii) change the
percentages of each Fund's assets invested in each of the Underlying Funds in
response to market conditions; and (iii) maintain or modify the allocation of
each Fund's assets among the Underlying Funds generally within the percentage
limits described in the Prospectus.

Portfolio Transaction Policies of the Underlying Funds. Decisions to buy and
- ------------------------------------------------------
sell securities for the Underlying Funds are made by the money managers for the
assets assigned to them, and by FRIMCo or the money manager for the Underlying
Funds' Liquidity Portfolios. The

-16-
<PAGE>

Underlying Funds do not give significant weight to attempting to realize long-
term, rather than short-term, capital gains while making portfolio investment
decisions. The portfolio turnover rates for certain Underlying Funds are likely
to be somewhat higher than the rates for comparable mutual funds with a single
money manager. The money managers make decisions to buy or sell securities
independently from other money managers. Thus, one money manager could be
selling a security when another money manager for the same Underlying Fund (or
for another series of the Investment Company) is purchasing the same security.
In addition, when a money manager's services are terminated and another
retained, the new manager may significantly restructure the portfolio. These
practices may increase the Underlying Funds' portfolio turnover rates,
realization of gains or losses, brokerage commissions and other transaction
based costs. The annual portfolio turnover rates for each of the Underlying
Funds for the periods ended December 31, 1996 and 1995, respectively, were as
follows: Diversified Equity Fund, 100% and 93%; Special Growth Fund, 118% and
88%; Quantitative Equity Fund, 74% and 79%; International Securities Fund, 42%
and 43%; Diversified Bond Fund, 139% and 136%; Volatility Constrained Bond Fund,
312% and 257%; Multistrategy Bond Fund, 145% and 142%; Real Estate Securities
Fund, 52% and 23%; and Emerging Markets Fund, 35% and 71%.

The Underlying Funds may effect portfolio transactions with or through Frank
Russell Securities, Inc., an affiliate of FRIMCo, only when the money manager
determines that the Underlying Fund will receive competitive execution, price
and commissions. Frank Russell Securities, Inc. refunds to the Underlying Fund
up to 70% of the commissions paid by that Underlying Fund when it effects such
transactions, after reimbursement for research services provided to FRIMCo. As
to brokerage transactions effected by money managers on behalf of the Underlying
Funds through Frank Russell Securities, Inc. at the request of the money
manager, research services obtained from third party service providers at market
rates are provided to the Underlying Funds by Frank Russell Securities, Inc.
Such research services include performance measurement statistics, fund
analytics systems and market monitoring systems. As to other brokerage
transactions effected by the Underlying Funds through Frank Russell Securities,
research services provided by Frank Russell Company and Russell Data Services
are provided to the money managers. Such services include market performance
indices, investment adviser performance information and market analysis. This
arrangement is used by the Diversified Equity, Special Growth, Quantitative
Equity, International Securities, Emerging Markets and Real Estate Securities
Funds. All Underlying Funds may also effect portfolio transactions through and
pay brokerage commissions to the money managers (or their affiliates).
Generally, securities are purchased for Diversified Equity, Quantitative Equity,
International Securities, Diversified Bond, Emerging Markets and Real Estate
Securities Funds for investment income and/or capital appreciation and not for
short-term trading profits. However, these Underlying Funds may dispose of
securities without regard to the time they have been held when such action, for
defensive or other purposes, appears advisable to their money managers. Special
Growth, Volatility Constrained Bond and Multistrategy Bond Funds trade more
actively to realize gains and/or to increase yields on investments by trading to
take advantage of short-term market variations. This policy is expected to
result in higher portfolio turnover for these three Underlying Funds.

-17-
<PAGE>

Brokerage Allocations. Transactions on US stock exchanges involve the payment of
- ---------------------
negotiated brokerage commissions; on non-US exchanges, commissions are generally
fixed. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, including most debt securities and money market
instruments, but the price includes an undisclosed payment in the form of a
mark-up or mark-down. The cost of securities purchased from underwriters
includes an underwriting commission or concession.

Subject to the arrangements and provisions described below, the selection of a
broker or dealer to execute portfolio transactions is usually made by the money
manager of the Underlying Fund. The Investment Company's Agreements with FRIMCo
and the money managers provide, in substance and subject to specific directions
from officers of the Investment Company or FRIMCo, that in executing portfolio
transactions and selecting brokers or dealers, the principal objective is to
seek the best overall terms available to the Underlying Fund. Securities will
ordinarily be purchased in the primary markets, and the money manager shall
consider all factors it deems relevant in assessing the best overall terms
available for any transaction, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any (for the specific transaction and on a continuing basis).

In addition, the Agreements authorize FRIMCo and money managers, respectively,
in selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, to consider the "brokerage and
research services" (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Underlying Fund, FRIMCo and/or
to the money manager (or their affiliates). FRIMCo and the money managers are
authorized to cause the Underlying Funds to pay a commission to a broker or
dealer who provides such brokerage and research services for executing a
portfolio transaction which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction. FRIMCo or
the money manager, as appropriate, must determine in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided -- viewed in terms of that particular transaction or in terms
of all the accounts over which FRIMCo or the money manager exercises investment
discretion. Any commission, fee or other remuneration paid to an affiliated
broker-dealer is paid in compliance with the Investment Company's procedures
adopted in accordance with Rule 17e-1 of the 1940 Act.

FRIMCo does not expect the Investment Company ordinarily to effect a significant
portion of the Investment Company's total brokerage business for the Underlying
Funds with broker-dealers affiliated with its money managers. However, a money
manager may effect portfolio transactions for the segment of an Underlying
Fund's portfolio assigned to the money manager with a broker-dealer affiliated
with the manager, as well as with brokers affiliated with other money managers.

-18-
<PAGE>

Brokerage Commissions. The Board of Trustees reviews, at least annually, the
- ---------------------
commissions paid by the Underlying Funds to evaluate whether the commissions
paid over representative periods of time were reasonable in relation to
commissions being charged by other brokers and the benefits to the Underlying
Funds. Frank Russell Company maintains an extensive data base showing
commissions paid by institutional investors, which is the primary basis for
making this evaluation. Certain services received by FRIMCo or money managers
attributable to a particular transaction may benefit one or more other accounts
for which investment discretion is exercised by the money manager, or a Fund
other than that for which the particular portfolio transaction was effected. The
fees of the money managers are not reduced by reason of their receipt of such
brokerage and research services.

During the last three years, the brokerage commissions paid by the Underlying
Funds were:

YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Diversified Equity $1,360,214 $1,118,548 $ 807,894
Special Growth 893,203 467,162 382,307
Quantitative Equity 744,245 561,459 284,366
International Securities 1,284,042 1,251,533 1,896,734
Real Estate Securities 915,952 419,508 627,282
Emerging Markets 964,725 1,039,478 635,093
---------- ---------- ----------
Total $6,162,381 $4,857,688 $4,633,676
========== ========== ==========
</TABLE>

The principal reasons for changes in several Underlying Funds' brokerage
commissions for the period were (1) changes in Fund asset size, (2) changes in
market conditions, and (3) changes in money managers of certain Underlying
Funds, which required substantial portfolio restructurings, resulting in
increased securities transactions and brokerage commissions.

Diversified Bond, Volatility Constrained Bond and Multistrategy Bond Funds
normally do not pay a stated brokerage commission on transactions.

During the year ended December 31, 1996, approximately $567,000 of the brokerage
commissions of the Underlying Funds were directed to brokers who provided
research services to FRIMCo. The research services included industry and company
analysis, portfolio strategy reports, economic analysis, and statistical data
pertaining to the capital markets.

Gross brokerage commissions received by affiliated broker/dealers from
affiliated and non-affiliated money managers for the year ended December 31,
1996 from portfolio transactions effected for the Underlying Funds were as
follows:

-19-
<PAGE>

PERCENT OF TOTAL
AFFILIATED BROKER/DEALER COMMISSIONS COMMISSIONS
- ---------------------------------------------------------------

<S> <C> <C>
Autranet, Inc. $ 835 0.01%
Barclays De Zoete Wedd 417 0.01
Donaldson, Lufkin & Jenrette 56,411 0.92
Dresdner Bank AG 1,237 0.02
Frank Russell Securities 998,692 16.21
Jardine-Fleming Securities 6,233 0.10
J.P. Morgan Securities, Inc. 21,927 0.36
Kleinwort Benson North America 9,440 0.15
Ord Minnett, Inc. 3,637 0.06
Robert Fleming, Inc. 3,358 0.05
---------- -----
Total Affiliate Commissions $1,102,187 17.89%
---------- -----
</TABLE>

The percentage of total affiliated transactions (relating to trading activity)
to total transactions during fiscal 1996 for the Underlying Funds was 10.45%.

During the year ended December 31, 1996, the Underlying Funds purchased
securities issued by the following regular brokers or dealers as defined by Rule
10b-1 of the 1940 Act, each of which is one of the Underlying Funds' ten largest
brokers or dealers by dollar amounts of securities executed or commissions
received on behalf of the Underlying Funds. The value of broker-dealer
securities held as of December 31, 1996, was as follows:

TABLE 1

HOLDINGS OF TOP 10 BROKER-DEALERS AT 12/31/96
<TABLE>
<CAPTION>

FUND BEAR DAIWA GOLDMAN MERRILL MORGAN PAINE SALOMON
- ---- STEARNS SECURITIES SACHS & CO. LYNCH STANLEY WEBBER BROTHERS
------- ---------- ----------- ----- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Diversified Equity $ 397,000 $3,985,000 $1,845,000 $1,015,000 $1,381,000
Special Growth 1,791,000 $994,000
Quantitative
Equity $1,408,000 $1,646,000 $2,159,000 $ 186,000 $ 975,000
Diversified Bond $1,144,000 $ 762,000
Volatility
Constrained
Bond $ 750,000 $1,719,000 $1,502,000
Multistrategy
Bond $ 692,000 $ 642,000 $ 276,000 $ 723,000 $3,255,000
</TABLE>
At 12/31/96, the Funds did not have any holdings in the following top 10 broker-
dealers:
- - Frank Russell Securities
- - Investment Technology Group
- - Instinet Corp.

-20-
<PAGE>

Yield and Total Return Quotations. The LifePoints Funds compute their average
- ---------------------------------
annual total return by using a standardized method of calculation required by
the SEC, and report average annual total return for each class of shares which
they offer. Because the Class D and Class E Shares are subject to a shareholder
services fee, the average annual total return performance of these classes may
be different from the average annual total return performance of the Class S
Shares (which are not presently offered for public investment). Furthermore,
since the Class D Shares are subject to Rule 12b-1 fees, the average annual
total return performance of the Class D Shares may be different from the Class E
Shares.

Average annual total return is computed by finding the average annual compounded
rates of return on a hypothetical initial investment of $1,000 over the one,
five and ten year periods (or life of the LifePoints Funds, as appropriate),
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:

P(1+T)/n/ = ERV

Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and

ERV = ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the one, five or ten year
period at the end of the one, five or ten
year period (or fractional portion
thereof).

The calculation assumes that all dividends and distributions of each LifePoints
Fund are reinvested at the price stated in the Prospectus on the dividend dates
during the period, and includes all recurring fees that are charged to all
shareholder accounts. The average annual total returns for the Class D and Class
E Shares will be reported in the applicable Prospectuses.

Yields are computed by using standardized methods of calculation required by the
SEC. Similar to average annual total return calculations, a LifePoints Fund
calculates yields for each class of shares which it offers. Yields for the
LifePoints Funds, which do not invest primarily in money market instruments, are
calculated by dividing the net investment income per share earned during a 30-
day (or one month) period by the maximum offering price per share on the last
day of the period, according to the following formula:

YIELD = 2[(a-b+1)/6/-1]
---------------
cd

Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = average daily number of shares outstanding during the period that
were entitled to receive dividends

-21-

<PAGE>

d = the maximum offering price per share on the last day of the period.

The yields for the LifePoints Funds investing primarily in fixed income
instruments are reported in the Prospectus.

Each LifePoints Fund may, from time to time, advertise non-standard
performances, including average annual total return.

Each LifePoints Fund may compare its performance with various industry standards
of performance, including Lipper Analytical Services, Inc. or other industry
publications, business periodicals, rating services and market indices.

INVESTMENT RESTRICTIONS, POLICIES AND
PRACTICES OF THE LIFEPOINTS FUNDS

Each LifePoints Fund has certain fundamental investment objectives, restrictions
and policies which may be changed only with the approval of a majority of the
shareholders of that LifePoints Fund. Other policies may be changed by a
LifePoints Fund without shareholder approval. The LifePoints Funds' investment
objectives are set forth in the Prospectus.

Investment Restrictions. Each LifePoints Fund is subject to the following
- -----------------------
fundamental investment restrictions. Unless otherwise noted, these restrictions
apply on a Fund-by-Fund basis at the time an investment is being made. No
LifePoints Fund will:

1. Invest in any security if, as a result of such investment, less than 75% of
its total assets would be represented by cash; cash items; securities of the US
government, its agencies, or instrumentalities; securities of other investment
companies (including the Underlying Funds); and other securities limited in
respect of each issuer to an amount not greater in value than 5% of the total
assets of such LifePoints Fund.

2. Invest 25% or more of the value of the LifePoints Fund's total assets in the
securities of companies primarily engaged in any one industry (other than the US
government, its agencies and instrumentalities, and shares of the Underlying
Funds).

3. Acquire more than 5% of the outstanding voting securities, or 10% of all of
the securities, of any one issuer, except with respect to shares of Investment
Company Funds.

4. Invest in companies for the purpose of exercising control or management.

5. Purchase or sell real estate; provided that each LifePoints Fund may invest
in the Real Estate Securities Fund, which may own securities secured by real
estate or interests therein or issued by companies which invest in real estate
or interests therein.

6. Purchase or sell commodities or commodities contracts.

-22-
<PAGE>

7. Borrow amounts in excess of 5% of the LifePoints Fund's total assets taken
at cost or at market value, whichever is lower, and only from banks as a
temporary measure for extraordinary or emergency purposes, except that a
LifePoints Fund may engage in reverse repurchase agreements to meet redemption
requests without immediately selling any portfolio instruments. A LifePoints
Fund will not mortgage, pledge or in any other manner transfer as security for
any indebtedness, any of its assets.

8. Purchase securities on margin or effect short sales (except that a
LifePoints Fund may obtain such short-term credits as may be necessary for the
clearance of purchases or sales of securities).

9. Engage in the business of underwriting securities issued by others or
purchase securities.

10. The Investment Company will not participate on a joint or a joint and
several basis in any trading account in securities except to the extent
permitted by the 1940 Act and any applicable rules and regulations and except as
permitted by any applicable exemptive orders from the 1940 Act. The "bunching"
of orders for the sale or purchase of marketable portfolio securities with two
or more Funds, or with a Fund and such other accounts under the management of
FRIMCo or any money manager for the Funds to save brokerage costs or to average
prices among them shall not be considered a joint securities trading account.

11. Make loans of money or securities to any person or firm; provided, however,
that the making of a loan shall not be construed to include (i) the entry into
"repurchase agreements;" or (ii) the lending of portfolio securities in the
manner generally described in the LifePoints Funds' Prospectus' section
"Investment Policies, Restrictions and Risks of the LifePoints Funds -- Lending
Portfolio Securities."

12. Purchase or sell options.

13. The Investment Company will not purchase the securities of other investment
companies except to the extent permitted by the 1940 Act and any applicable
rules and regulations and except as permitted by any applicable exemptive orders
from the 1940 Act (and as described below).

14. Purchase from or sell portfolio securities to the officers, the Trustees or
other "interested persons" (as defined in the 1940 Act) of the Investment
Company, including the Underlying Funds' money managers and their affiliates,
except as permitted by the 1940 Act, SEC rules or exemptive orders.

15. No LifePoints Fund will issue senior securities, as defined in the 1940 Act,
except that this restriction shall not be deemed to prohibit any Fund from
making any otherwise permissible borrowings, mortgages or pledges, entering into
permissible reverse repurchase agreements, or issuing shares of beneficial
interest in multiple classes.

-23-
<PAGE>

Because of their investment objectives and policies, the LifePoints Funds will
concentrate more than 25% of their assets in the mutual fund industry. In
accordance with the LifePoints Funds' investment policies set forth in the
Prospectus, each of the LifePoints Funds may invest more than 25% of its assets
in the Underlying Funds. However, each of the Underlying Funds in which each
LifePoints Fund will invest (other than the Real Estate Securities Fund) will
not concentrate more than 25% of its total assets in any one industry. The Real
Estate Securities Fund may invest 25% or more of its total assets in the
securities of companies directly or indirectly engaged in the real estate
industry.

Investment Policies and Practices of the LifePoints Funds
- ---------------------------------------------------------

Repurchase Agreements. Each LifePoints Fund may enter into repurchase agreements
- ---------------------
with the seller -- a bank or securities dealer -- who agrees to repurchase the
securities at the Fund's cost plus interest within a specified time (normally
the next day). The securities purchased by a LifePoints Fund have a total value
in excess of the value of the repurchase agreement and are held by the
LifePoints Fund's custodian bank until repurchased. Repurchase agreements assist
a LifePoints Fund in being invested fully while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. The LifePoints
Funds will limit repurchase transactions to those member banks of the Federal
Reserve System and primary dealers in US government securities whose
creditworthiness is continually monitored and found satisfactory by FRIMCo.

Money Market Instruments. Each LifePoints Fund may invest in securities with
- ------------------------
maturities of 397 days or less at the time from the trade date or such other
date upon which a LifePoints Fund's interest in a security is subject to market
action. Each LifePoints Fund will follow procedures reasonably designed to
assure that the prices so determined approximate the current market value of the
Fund's securities. The procedures also address such matters as diversification
and credit quality of the securities the LifePoints Funds purchase, and were
designed to ensure compliance by the Funds with the requirements of Rule 2a-7 of
the 1940 Act.

Illiquid Securities. The expenses of registration of restricted securities that
- -------------------
are illiquid (excluding securities that may be resold by the LifePoints Funds
pursuant to Rule 144A, as explained in the Prospectus) may be negotiated at the
time such securities are purchased by a LifePoints Fund. When registration is
required, a considerable period may elapse between a decision to sell the
securities and the time the sale would be permitted. Thus, the LifePoints Fund
may not be able to obtain as favorable a price as that prevailing at the time of
the decision to sell. A LifePoints Fund also may acquire, through private
placements, securities having contractual resale restrictions, which might lower
the amount realizable upon the sale of such securities.

INVESTMENT POLICIES OF THE UNDERLYING FUNDS

-24-
<PAGE>

The following is a description of the investment objective and policies for each
of the Underlying Funds.

Diversified Equity Fund. The Fund's objective is to provide income and capital
- -----------------------
growth by investing principally in equity securities. The Fund may invest in
common and preferred stocks, securities convertible into common stocks, rights
and warrants.

Special Growth Fund. The Fund's objective is to maximize total return primarily
- -------------------
through capital appreciation and by assuming a higher level of volatility than
is ordinarily expected from the Diversified Equity Fund, by investing in equity
securities. Current income is a secondary consideration in selecting
securities. The Fund may invest in common and preferred stock, convertible
securities, rights and warrants. The Fund's investments may include companies
whose securities have been publicly traded for less than five years and smaller
companies, such as companies not listed in the Russell 1000/(R)/ Index. A
substantial portion of the Fund's portfolio will generally consist of equity
securities of "emerging growth-type" companies which tend to reinvest most of
their earnings, rather than pay significant cash dividends; or companies
characterized as "special situations" where the money manager believes that
cyclical developments in the securities markets, the industry, or the issuer
itself present opportunities for capital growth.

Quantitative Equity Fund. The Fund's objectives are to provide a total return
- ------------------------
greater than the total return of the US stock market as measured by the Russell
1000/(R)/ Index over a market cycle of four to six years, while maintaining
volatility and diversification similar to the Index by investing in equity
securities. The Fund will maintain industry weights and economic sector weights
near those of the Index. Over time, the Fund's average price/earnings ratio,
yield and other fundamental characteristics are expected to be near the averages
for the Index. However, the Fund's money managers may temporarily deviate from
Index characteristics based upon the managers' investment judgment that this
will increase the Fund's total return. The money managers of the Fund generally
make stock selections from the set of stocks comprising the Russell 1000/(R)/
Index.

The Fund's portfolio characteristics and holdings are expected to be similar to
the Russell 1000/(R)/ Index. However, a money manager may purchase securities
that are not included in the Index or sell securities still included in the
Index in order for the Fund to meet its investment objectives.

The Fund will seek to achieve its investment objectives by using various
quantitative management techniques. FRIMCo believes quantitative management over
a market cycle should provide a portfolio with consistent performance,
diversification, market-like volatility and limited market underperformance.
However, there is no guarantee the Fund will have such characteristics at any
one time. A quantitative manager bases its investment decisions primarily on
quantitative investment models. These models are used by the money manager to
determine the investment potential of a stock within a particular portfolio and
to rank securities most favorable to having a total return surpassing the total
return of the Russell

-25-
<PAGE>

1000/(R)/ Index. Once the money manager has ranked the securities, it then
selects the securities most likely to have the characteristics needed to
construct a portfolio that has superior return prospects with risks similar to
the Russell 1000/(R)/ Index.

The Fund will attempt to be fully invested in common stock at all times.
However, the Fund reserves the right to hold up to 20% of Fund assets in liquid
reserve for redemption needs.

International Securities Fund. The Fund's objectives are to provide favorable
- -----------------------------
total return and additional diversification for US investors by investing
primarily in equity and fixed-income securities of non-US companies, and
securities issued by non-US governments. The Fund invests primarily in equity
securities issued by companies domiciled outside of the United States. The Fund
may also invest in fixed-income securities, including instruments issued by non-
US governments and their agencies, and in US companies which derive, or are
expected to derive, a substantial portion of their revenues from operations
outside the United States.

The Fund may invest in equity and debt securities denominated in other than US
dollars and gold-related equity investments, including gold mining stocks and
gold-backed debt instruments. However, as a matter of fundamental policy, the
Fund will not invest more than 20% of its net assets in gold-related
investments.

Emerging Markets Fund. The Fund's objective is to provide maximum total return,
- ---------------------
primarily through capital appreciation and by assuming a higher level of
volatility than is ordinarily expected from developed market international
portfolios, by investing primarily in equity securities. Under normal
circumstances, the Fund will invest at least 65% of its total assets in equity
securities of companies in countries having emerging markets. For purposes of
the Fund's operations, an "emerging market" country will be a country having an
economy and market that are or would be considered by the World Bank or the
United Nations to be emerging or developing. These countries generally include
every country in the world except the United States, Canada, Japan, Australia
and most countries located in Western Europe.

The Fund may not be invested in all such markets at all times. Investing in
some of the listed markets may not be feasible, due to lack of adequate custody
arrangements or current legal requirements. In the future, the Fund's money
managers may determine, based on information then available, to include
additional emerging market countries in which the Fund may invest. The assets
of the Fund ordinarily will be invested in the securities of issuers in at least
three different emerging market countries. The Fund does not currently
anticipate that it will invest more than 25% of its total assets in the
securities of any one emerging market country. A company in an emerging market
means: (i) a company whose securities are traded in the principal securities
market of an emerging market country; (ii) a company that (alone or on a
consolidated basis) derives 50% or more of its total revenue from either goods
produced, sales made or services performed in emerging market countries;

-26-
<PAGE>

or (iii) a company organized under the laws of, and with a principal office in,
an emerging market country.

The Fund may invest in common and preferred stocks of emerging market companies,
including companies involved in real estate development and gold mining. The
Fund may also invest in other types of equity securities and equity derivative
securities, such as convertible securities, rights, units, warrants, American
Depository Receipts (ADRs) and European Depository Receipts (EDRs). The Fund's
equity securities will primarily be denominated in foreign currencies and may be
held outside the United States.

The Fund may invest in fixed-income securities, including instruments issued by
emerging market companies, governments and their agencies, and in US companies
that derive, or are expected to derive, a substantial portion of their revenues
from operations outside the United States. The Fund's fixed-income securities
may be denominated in other than US dollars.

The Fund may invest up to 5% of its net assets in debt securities that are rated
below "investment grade" (i.e., rated lower than BBB by Standard & Poor's
Ratings Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's")) or
in unrated securities judged by the money managers of the Fund to be of
comparable quality. Debt rated BB, B, CCC, CC and C by S&P, and debt rated Ba,
B, Caa, Ca and C by Moody's, is regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. For S&P, BB indicates the lowest
degree of speculation and C the highest. For Moody's, Ba indicates the lowest
degree of speculation and C the highest. These lower rated debt securities may
include obligations that are in default or that face the risk of default with
respect to principal or interest. Such securities are sometimes referred to as
"junk bonds." For additional information on the ratings used by S&P and Moody's
and a description of lower rated debt securities, see "High Risk Bonds" below.

Certain emerging markets are closed in whole or in part to equity investments by
foreigners. The Fund may be able to invest in such markets solely or primarily
through governmentally authorized investment vehicles. To invest in these
markets, the Fund may invest up to 10% of its total assets in the shares of
other investment companies and up to 5% of its total assets in any one
investment company, as long as that investment does not represent more than 3%
of the voting stock of the acquired investment company at the time such shares
are purchased. The risks associated with investment in securities issued by
foreign governments and companies are described under "Investment in Foreign
Securities."

Real Estate Securities Fund. The Fund's objective is to generate a high level
- ---------------------------
of total return through above average current income, while maintaining the
potential for capital appreciation by investing primarily in the equity
securities of companies in the real estate industry. Except for temporary
defensive purposes, the Fund will only invest in real estate related securities,
which include securities of companies which generate at least 50% of their
revenues from the ownership, construction, financing, management or sale of
commercial,

-27-
<PAGE>

industrial or residential real estate. Under normal circumstances, the Fund
will invest at least 65% of its total assets in income-oriented equity
securities of real estate companies, which include shares of real estate
investment trusts, partnership units of master limited partnerships, common and
preferred stock, and convertible debt securities believed to have attractive
equity characteristics. Up to 35% of the Fund's total assets may be invested in
other debt securities of real estate companies.

The Fund will concentrate more than 25% of its total assets in the real estate
and real estate related industries. The Fund will therefore be subject to the
risks associated with the direct ownership of real estate. Additional risks
include declines in the value of real estate, risks related to general and local
economic conditions, over-building and increased competition, increases in
property taxes and operating expenses, changes in neighborhood values, the
appeal of properties to tenants and increases in interest rates. The value of
securities of companies that service the real estate industry may also be
affected by such risks. In addition, equity real estate investment trusts may
be affected by changes in the value of the underlying property owned by the
trust, while mortgage real estate investment trusts may be affected by the
quality of any credit extended. Moreover, the underlying portfolios of equity
and mortgage real estate trusts may not be diversified, and therefore are
subject to the risk of financing a single or a limited number of projects. Such
trusts are also dependent upon management skills and are subject to heavy cash
flow dependency, defaults by borrowers, self-liquidation and the possibility of
failing either to qualify for tax-free pass-through of income under the Internal
Revenue Code or to maintain their exemption from the 1940 Act.

The Fund will attempt to be invested fully at all times. However, the Fund
reserves the right to hold up to 20% of the Fund's assets in liquid reserves for
redemption needs.

Diversified Bond Fund. The Fund's objectives are to provide effective
- ---------------------
diversification against equities and a stable level of cash flow by investing in
fixed-income securities. The Fund's portfolio will consist primarily of
conventional debt instruments, including bonds, debentures, US government and US
government agency securities, preferred and convertible preferred stocks, and
variable amount demand master notes. (These notes represent a borrowing
arrangement under a letter agreement between a commercial paper issuer and an
institutional lender, such as the Fund.) Investment selections will be based on
fundamental economic, market, and other factors leading to valuation by sector,
maturity, quality and such other criteria as are appropriate to meet the stated
objectives. The Fund will ordinarily invest at least 65% of its net assets in
securities rated no less than A or A-2 by S&P or A or Prime-2 by Moody's, or
judged by the money manager to be of at least equal credit quality to those
designations.

Volatility Constrained Bond Fund. The Fund's objectives are the preservation of
- --------------------------------
capital and the generation of current income consistent with the preservation of
capital by investing primarily in fixed-income securities with low-volatility
characteristics. The Fund will invest primarily in fixed-income securities,
emphasizing those which mature in two years or less from the date of acquisition
or which have similar volatility characteristics. To minimize

-28-
<PAGE>

credit risk and fluctuations in net asset value per share, the Fund intends to
maintain an average portfolio maturity of less than five years. The Fund's money
managers will seek to identify and invest in a managed portfolio of high-quality
debt securities denominated in the US dollar and a range of foreign currencies.
Under normal circumstances, the Fund will invest in securities of issuers
domiciled in at least three different countries.

Although the Fund will invest primarily in debt securities denominated in the US
dollar, the money managers will actively manage the Fund's portfolio in
accordance with a multi-market investment strategy, allocating investments among
securities denominated in the US dollar and the currencies of a number of
foreign countries and, where consistent with its policy of investing only in
high-quality securities, within each such country, among different types of debt
securities. The money managers which invest in foreign denominated securities
will maintain a substantially neutral currency exposure relative to the US
dollar, and will establish and adjust cross currency hedges based on their
perception of the most favorable markets and issuers. In this regard, the
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with a money
manager's assessment of the relative yield of such securities and the
relationship of a country's currency to the US dollar. Fundamental economic
strength, credit quality and interest rate trends will be the principal factors
considered by the money managers in determining whether to increase or decrease
the emphasis placed upon a particular type of security or industry sector within
the Fund's investment portfolio. The Fund will not invest more than 10% of its
total assets in debt securities denominated in a single currency other than the
US dollar. At this time, FRIMCo intends to limit total non-US dollar investments
to no more than 25% of total Fund assets.

The Fund will invest in debt securities denominated in currencies of countries
whose governments are considered by it to be stable (or, when the Fund invests
in countries considered unstable or undeveloped, it will only do so when it
believes it is able to hedge substantially the risk of a decline in the currency
in which the Fund's portfolio securities are denominated). In addition to the US
dollar, such currencies include, among others, the Australian Dollar, Austrian
Schilling, Belgian Franc, British Pound Sterling, Canadian Dollar, Danish Krone,
Dutch Guilder, European Currency Unit ("ECU"), French Franc, Irish Punt, Italian
Lira, Japanese Yen, New Zealand Dollar, Norwegian Krone, Spanish Peseta, Swedish
Krona, Swiss Franc and German Mark. An issuer of debt securities purchased by
the Fund may be domiciled in a country other than a country in whose currency
the instrument is denominated.

In selecting particular investments for the Fund, the money managers will seek
to minimize investment risk by limiting their portfolio investments to debt
securities of high-quality issuers. Accordingly, the Fund's portfolio will
consist only of: (a) debt securities issued or guaranteed by the US government,
its agencies or instrumentalities ("US Government Securities"); (b) obligations
issued or guaranteed by a foreign government or any of its political
subdivisions, authorities, agencies, or instrumentalities, or by supranational
entities, all of which are rated AAA or AA by S&P or Aaa or Aa by Moody's or, if
unrated,

-29-
<PAGE>

determined by the money managers to be of equivalent quality; (c) investment
grade corporate debt securities or, if unrated, determined by the money managers
to be of equivalent quality; (d) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, banks
(including foreign branches of US banks or US or foreign branches of foreign
banks) having total assets of more than $500 million and determined by the money
managers to be of high-quality; and (e) commercial paper rated A-1 or A-2 by
S&P, Prime-1 or Prime-2 by Moody's, Fitch-1 or Fitch-2 by Fitch Investors
Service, Inc., Duff 1 or Duff 2 by Duff & Phelps, Inc., TBW-1 or TBW-2 by
Thomson Bank Watch, Inc., or, if not rated, issued by US or foreign companies
having outstanding debt securities rated AAA, AA or A by S&P, or Aaa, Aa or A by
Moody's and determined by the money managers to be of high-quality.

As described above, the Fund may invest in debt securities issued by
supranational organizations such as: the World Bank, which was chartered to
finance development projects in developing member countries; the European
Community, which is an organization consisting of certain European states
engaged in cooperative economic activities; the European Coal and Steel
Community, which is an economic union of various European nations' steel and
coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations in the Asian and Pacific regions.

The Fund may invest in debt securities denominated in the ECU, which is a
"basket" consisting of specific amounts of currency of member states of the
European Community. The specific amounts of currency comprising the ECU may be
adjusted by the Counsel of Ministers of the European Community to reflect
changes in the relative values of the underlying currencies. The money managers
investing in such securities do not believe that such adjustments will adversely
affect holders of ECU-denominated obligations or the marketability of such
securities. European supranationals, in particular, issue ECU-denominated
obligations.

The Fund may enter into interest rate swaps, which involve the exchange by the
Fund with another party of its respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments.
The Fund expects to enter into these transactions primarily to preserve a return
or spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities it anticipates purchasing at a
later date. The Fund intends to use these transactions as a hedge and not as a
speculative investment.

Multistrategy Bond Fund. The Fund's objective is to provide maximum total
- -----------------------
return, primarily through capital appreciation and by assuming a higher level of
volatility than is ordinarily expected from broad fixed-income market
portfolios, by investing in fixed-income securities. The Fund will invest
primarily in fixed-income securities. The Fund's investments will include: US
Government Securities; obligations of foreign governments or their subdivisions,
agencies and instrumentalities; securities of international agencies or

-30-
<PAGE>

supranational agencies; corporate debt securities; loan participations;
corporate commercial paper; indexed commercial paper; variable and floating rate
and zero coupon securities; mortgage and other asset-backed securities;
municipal obligations; variable amount demand master notes (these notes
represent a borrowing arrangement between a commercial paper issuer and an
institutional lender, such as the Fund); bank certificates of deposit, fixed
time deposits and bankers' acceptances; repurchase agreements and reverse
repurchase agreements; and foreign currency exchange related securities.

The Fund may also invest in convertible securities and derivatives including
warrants and interest rate swaps. Interest rate swaps are described under
"Volatility Constrained Bond Fund." The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio to protect against any increase in the price of
securities it anticipates purchasing at a later date. The Fund intends to use
these transactions as a hedge and not as a speculative investment.

The Fund may invest in debt securities issued by supranational organizations.
Supranational organizations are described under "Volatility Constrained Bond
Fund."

Investments in bank certificates of deposit, time deposits and bankers'
acceptances include Eurodollar Certificates of Deposit, which are issued by
foreign branches of US or foreign banks; Eurodollar Time Deposits, which are
issued by foreign branches of US or foreign banks; and Yankee Certificates of
Deposit, which are issued by US branches of foreign banks. These instruments may
be US dollar or foreign currency denominated and are subject to the risks of
non-US issuers described under "Investment in Foreign Securities."

The variable and floating rate securities the Fund may invest in provide for a
periodic adjustment in the interest rate paid on the obligations. The terms of
such obligations must provide that interest rates are adjusted periodically
based upon some appropriate interest rate adjustment index as provided in the
respective obligations. The adjustment intervals may be regular, and range from
daily up to annually, or may be event based, such as a change in the prime rate.
The Fund may also invest in zero coupon US Treasury, foreign government and US
and foreign corporate debt securities, which are bills, notes and bonds that
have been stripped of their unmatured interest coupons and receipts or
certificates representing interests in such stripped debt obligations and
coupons. A zero coupon security pays no interest to its holder prior to
maturity. Accordingly, such securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest.

The Fund's portfolio may include debt securities issued by domestic or foreign
entities, and denominated in US dollars or foreign currencies. It is anticipated
that no more than 25% of the Fund's net assets will be denominated in foreign
currencies. Foreign currency exchange transactions (options on foreign
currencies, foreign currency futures contracts and forward foreign currency
contracts) will only be used by the Fund for the purpose of hedging against

-31-
<PAGE>

foreign currency exchange risk arising from the Fund's investment, or
anticipated investment, in securities denominated in foreign currencies. Foreign
investment may include emerging market debt. The risks associated with
investment in securities issued by foreign governments and companies are
described under "Investment in Foreign Securities." Emerging markets are
described under "Emerging Markets Fund." Emerging market debt that the Fund may
invest in includes bonds, notes and debentures of emerging market governments
and debt and other fixed income securities issued or guaranteed by such
governments' agencies, instrumentalities or central banks, or by banks or other
companies in emerging markets determined by the money managers to be suitable
investments for the Fund. Under current market conditions, it is expected that
emerging market debt will consist predominantly of Brady Bonds and other
sovereign debt. Brady Bonds are products of the "Brady Plan," under which bonds
are issued in exchange for cash and certain of the country's outstanding
commercial bank loans.

Investment Practices. The Underlying Funds use certain investment instruments
- --------------------
and techniques commonly used by institutional investors. The principal practices
are the following:

Forward Commitments. Each Underlying Fund may contract to purchase securities
- -------------------
for a fixed price at a future date beyond customary settlement time (a "forward
commitment" or "when-issued" transaction), so long as such transactions are
consistent with each Fund's ability to manage its investment portfolio and honor
redemption requests. When effecting such transactions, liquid assets of the
Underlying Fund of a dollar amount sufficient to make payment for the portfolio
securities to be purchased will be segregated on the Fund's records at the trade
date and maintained until the transaction is settled. Forward commitments and
when-issued transactions involve a risk of loss if the value of the security to
be purchased declines prior to the settlement date or the other party to the
transaction fails to complete the transaction.

Additionally, under certain circumstances, the International Securities and
Emerging Markets Funds may occasionally engage in "free trade" transactions in
which delivery of securities sold by the Underlying Fund is made prior to the
Fund's receipt of cash payment therefor or the Fund's payment of cash for
portfolio securities occurs prior to the Fund's receipt of those securities.
"Free trade" transactions involve the risk of loss to an Underlying Fund if the
other party to the "free trade" transaction fails to complete the transaction
after the Fund has tendered cash payment or securities, as the case may be.

Lending Portfolio Securities. Each Underlying Fund may lend portfolio
- ----------------------------
securities with a value of up to 33.33% of its total assets. Such loans may be
terminated at any time. An

-32-
<PAGE>

Underlying Fund will receive either cash (and agree to pay a "rebate" interest
rate), US government or US government agency securities as collateral in an
amount equal to at least 100% of the current market value of the current loaned
securities plus accrued interest. The collateral is "marked-to-market" on a
daily basis, and the borrower will furnish additional collateral in the event
that the value of the collateral drops below 100% of the market value of the
loaned securities.

Cash collateral is invested in high-quality short-term instruments, short-term
bank collective investment and money market mutual funds (including funds
advised by State Street Bank and Trust Company, the Funds' custodian, for which
it may receive an asset-based fee) and other investments meeting certain quality
and maturity requirements established by the Underlying Funds. Income generated
from the investment of the cash collateral is first used to pay the rebate
interest cost to the borrower of the securities and the remainder is then
divided between the Underlying Fund and the Fund's custodian. Each Underlying
Fund will retain most rights of beneficial ownership, including dividends,
interest or other distributions on the loaned securities. Voting rights may pass
with the lending. The Underlying Fund will call loans to vote proxies if a
material issue affecting the investment is to be voted upon.

Should the borrower of the securities fail financially, there is a risk of delay
in recovery of the securities or loss of rights in the collateral. Consequently,
loans are made only to borrowers which are deemed to be of good financial
standing. The Investment Company may incur costs or possible losses in excess of
the interest and fees received in connection with securities lending
transactions. Some securities purchased with cash collateral are subject to
market fluctuations while a loan is outstanding. To the extent that the value of
the cash collateral as invested is insufficient to return the full amount of the
collateral plus rebate interest to the borrower upon termination of the loan,
the Underlying Fund must immediately pay the amount of the shortfall to the
borrower.

Illiquid Securities. The Underlying Funds will not purchase or otherwise
- -------------------
acquire any security if, as a result, more than 15% of a Fund's net assets
(taken at current value) would be invested in securities, including repurchase
agreements of more than seven days' duration, that are illiquid by virtue of the
absence of a readily available market or because of legal or contractual
restrictions on resale. In addition, the Underlying Funds will not invest more
than 10% of their respective net assets (taken at current value) in securities
of issuers which may not be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"). These policies do not
include (1) commercial paper issued under Section 4(2) of the 1933 Act, or (2)
restricted securities eligible for resale to qualified institutional purchasers
pursuant to Rule 144A under the 1933 Act that are determined to be liquid by the
money managers in accordance with Board approved guidelines. Such guidelines
take into account trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack of trading
interest in a particular Rule 144A security, an Underlying Fund's holding of
that security may be illiquid. There may be undesirable delays in selling
illiquid securities at prices representing their fair value.

-33-
<PAGE>

Cash Reserves. Each Underlying Fund is authorized to invest its cash reserves
- -------------
(i.e., funds awaiting investment in the specific types of securities to be
acquired by an Underlying Fund) in money market instruments and in debt
securities which are at least comparable in quality to the Underlying Fund's
permitted investments. In lieu of having each of the Underlying Funds make
separate, direct investments in money market instruments, each Underlying Fund
and its money managers may elect to invest the Fund's cash reserves in the
Investment Company's Money Market Fund.

The Money Market Fund seeks to maximize current income to the extent consistent
with the preservation of capital and liquidity, and the maintenance of a stable
$1.00 per share net asset value by investing solely in short-term money market
instruments. The Underlying Funds will use this procedure only so long as doing
so does not adversely affect the portfolio management and operations of the
Money Market Fund and the Investment Company's other Funds. The Money Market
Fund and the Underlying Funds investing in the Money Market Fund treat such
investments as the purchase and redemption of Money Market Fund shares. Any
Underlying Fund investing in the Money Market Fund pursuant to this procedure
participates equally on a pro rata basis in all income, capital gains and net
assets of the Money Market Fund, and will have all rights and obligations of a
shareholder as provided in the Trust's Master Trust Agreement, including voting
rights. However, shares of the Money Market Fund issued to the Underlying Funds
will be voted by the Trustees of the Investment Company in the same proportion
as the shares of the Money Market Fund which are held by shareholders which are
not Underlying Funds. Underlying Funds investing in the Money Market Fund
currently do not pay a management fee to the Money Market Fund.

Liquidity Portfolios. An Underlying Fund at times has to sell portfolio
- --------------------
securities in order to meet redemption requests. The selling of securities may
effect an Underlying Fund's performance since the money manager sells the
securities for other than investment reasons. An Underlying Fund can avoid
selling its portfolio securities by holding adequate levels of cash to meet
anticipated redemption requests. The holding of significant amounts of cash is
contrary, however, to the investment objectives of the Diversified Equity,
Special Growth, Quantitative Equity and International Securities Funds. The more
cash these Underlying Funds hold, the more difficult it is for their returns to
meet or surpass their respective benchmarks. FRIMCo will exercise investment
discretion or select a money manager to exercise investment discretion for
approximately 5-15% of the Funds' assets assigned to a "Liquidity Portfolio."

A Liquidity Portfolio addresses this potential detriment by having FRIMCo or a
money manager selected for this purpose create temporarily an equity exposure
for cash reserves through the use of options and futures contracts until those
cash reserves are invested in securities or used for Underlying Fund
transactions. This will enable those four Underlying Funds to hold cash while
receiving a return on the cash which is similar to holding equity securities.

-34-
<PAGE>

Money Market Instruments. Similar to the LifePoints Funds, and as described
- ------------------------
earlier in this Statement, the Underlying Funds may invest in money market
instruments.

US Government Obligations. The types of US government obligations the Underlying
- -------------------------
Funds may purchase include: (1) a variety of US Treasury obligations which
differ only in their interest rates, maturities and times of issuance: (a) US
Treasury bills at time of issuance have maturities of one year or less, (b) US
Treasury notes at time of issuance have maturities of one to ten years and (c)
US Treasury bonds at time of issuance generally have maturities of greater than
ten years; (2) obligations issued or guaranteed by US government agencies and
instrumentalities and supported by any of the following: (a) the full faith and
credit of the US Treasury (such as Government National Mortgage Association
("GNMA") participation certificates), (b) the right of the issuer to borrow an
amount limited to a specific line of credit from the US Treasury, (c)
discretionary authority of the US government agency or instrumentality or (d)
the credit of the instrumentality (examples of agencies and instrumentalities
are: Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks and
Federal National Mortgage Association). No assurance can be given that the US
government will provide financial support to such US government agencies or
instrumentalities described in (2)(b), (2)(c) and (2)(d) in the future, other
than as set forth above, since it is not obligated to do so by law. The
Underlying Funds may purchase US government obligations on a forward commitment
basis.

Russell 1000 Index. The Russell 1000/(R)/ Index consists of the 1,000 largest US
- ------------------
companies by capitalization (i.e., market price per share times the number of
shares outstanding). The smallest company in the Index at the time of selection
has a capitalization of approximately $1 billion. The Index does not include
cross corporate holdings in a company's capitalization. For example, when IBM
owned approximately 20% of Intel, only 80% of the total shares outstanding of
Intel were used to determine Intel's capitalization. Also not included in the
Index are closed-end investment companies, companies that do not file a Form 10-
K report with the SEC, foreign securities and ADRs.

The Index's composition is changed annually to reflect changes in market
capitalization and share balances outstanding. These changes are expected to
represent less than 1% of the total market capitalization of the Index. Changes
for mergers and acquisitions are made when trading ceases in the acquirer's
shares. The 1,001st largest US company by capitalization is then added to the
Index to replace the acquired stock.

The Russell 1000/(R)/ Index is used as the basis for the Quantitative Equity
Fund's performance because it, in FRIMCo's opinion, represents the universe of
stocks in which most active money managers invest and is representative of the
performance of publicly traded common stocks most institutional investors
purchase.

-35-
<PAGE>

Frank Russell Company chooses the stocks to be included in the Index solely on a
statistical basis and it is not an indication that Frank Russell Company or
FRIMCo believes that the particular security is an attractive investment.

High Risk Bonds. The Underlying Funds, other than the Emerging Markets and
- ---------------
Multistrategy Bond Funds, do not invest their assets in securities rated less
than BBB by S&P or Baa by Moody's, or in unrated securities judged by the money
managers to be of a lesser credit quality than those designations. Securities
rated BBB by S&P or Baa by Moody's are the lowest ratings which are considered
"investment grade" securities, although Moody's considers securities rated Baa,
and S&P considers bonds rated BBB, to have some speculative characteristics. The
Underlying Funds, other than Emerging Markets and Multistrategy Bond Funds, will
dispose of, in a prudent and orderly fashion, securities whose ratings drop
below these minimum ratings. The market value of debt securities generally
varies inversely in relation to interest rates.

The Emerging Markets and Multistrategy Bond Funds will invest in "investment
grade" securities and may invest up to 5% of its total assets (in the case of
the Emerging Markets Fund) and 25% of its total assets (in the case of the
Multistrategy Bond Fund) in debt securities rated less than BBB by S&P or Baa by
Moody's, or in unrated securities judged by the money managers of the Funds to
be of comparable quality. Lower rated debt securities generally offer a higher
yield than that available from higher grade issues. However, lower rated debt
securities involve higher risks, in that they are especially subject to adverse
changes in general economic conditions and in the industries in which the
issuers are engaged, to changes in the financial condition of the issuers and to
price fluctuation in response to changes in interest rates. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to make
payments of principal and interest and increase the possibility of default. In
addition, the market for lower rated debt securities has expanded rapidly in
recent years, and its growth paralleled a long economic expansion. The market
for lower rated debt securities is generally thinner and less active than that
for higher quality securities, which would limit the Underlying Funds' ability
to sell such securities at fair value in response to changes in the economy or
the financial markets. While such debt may have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions. The money managers of the Multistrategy Bond and
Emerging Markets Funds will seek to reduce the risks associated with investing
in such securities by limiting the Funds' holdings in such securities and by the
depth of their own credit analysis.

Securities rated BBB by S&P or Baa by Moody's may involve greater risks than
securities in higher rating categories. Securities receiving S&P's BBB rating
are regarded as having adequate capacity to pay interest and repay principal.
Such securities typically exhibit adequate investor protections but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rating categories.

-36-
<PAGE>

Securities possessing Moody's Baa rating are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.

Interest payments and principal security is judged adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such securities lack outstanding
investment characteristics and in fact may have speculative characteristics as
well. For further description of the various rating categories, see "Ratings of
Debt Instruments."

Risk Factors. The growth of the market for lower rated debt securities has
- ------------
paralleled a long period of economic expansion. Lower rated debt securities may
be more susceptible to real or perceived adverse economic and competitive
industry conditions than investment grade securities. The prices of low rated
debt securities have been found to be less sensitive to interest rate changes
than investment grade securities, but more sensitive to economic downturns,
individual corporate developments, and price fluctuations in response to
changing interest rates. A projection of an economic downturn or of a period of
rising interest rates, for example, could cause a sharper decline in the prices
of low rated debt securities because the advent of a recession could lessen the
ability of a highly leveraged company to make principal and interest payments on
its debt securities. If the issuer of low rated debt securities defaults, a Fund
may incur additional expenses to seek financial recovery.

In addition, the markets in which low rated debt securities are traded are more
limited than those for higher rated securities. The existence of limited markets
for particular securities may diminish an Underlying Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to
changes in the economy or in the financial markets and could adversely affect
and cause fluctuations in the daily net asset value of the Underlying Fund's
shares.

Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated debt securities,
especially in a thinly traded market. Analysis of the creditworthiness of
issuers of low rated securities may be more complex than for issuers of other
investment grade securities, and the ability of an Underlying Fund to achieve
its investment objectives may be more dependent on credit analysis than would be
the case if the Fund was investing only in investment grade securities.

The managers of the Emerging Markets and Multistrategy Bond Funds may use
ratings to assist in investment decisions. Ratings of debt securities represent
a rating agency's opinion regarding their quality and are not a guarantee of
quality. Rating agencies attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Also, rating agencies may fail to make timely changes in credit ratings in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than a rating indicates.

Investment in Foreign Securities. The Underlying Funds may invest in foreign
- --------------------------------
securities. The risks associated with investing in foreign securities are often
heightened for investments in developing or emerging markets. Investments in
emerging or developing markets involve

-37-
<PAGE>

exposure to economic structures that are generally less diverse and mature, and
to political systems which can be expected to have less stability than those of
more developed countries. Moreover, the economies of individual emerging market
countries may differ favorably or unfavorably from the US economy in such
respects as the rate of growth in gross domestic product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. Because the Underlying Funds' foreign securities will generally be
denominated in foreign currencies, the value of such securities to the Funds
will be affected by changes in currency exchange rates and in exchange control
regulations. A change in the value of a foreign currency against the US dollar
will result in a corresponding change in the US dollar value of the Underlying
Funds' foreign securities. In addition, some emerging market countries may have
fixed or managed currencies which are not free-floating against the US dollar.
Further, certain emerging market countries' currencies may not be
internationally traded. Certain of these currencies have experienced a steady
devaluation relative to the US dollar. Many emerging market countries have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had,
and may continue to have, negative effects on the economies and securities
markets of certain emerging market countries.

Depository Receipts. Each Underlying Fund may hold securities of foreign issuers
- -------------------
in the form of American Depository Receipts ("ADRs"), American Depository Shares
("ADSs") and European Depository Receipts ("EDRs"), or other securities
convertible into securities of eligible European or Far Eastern issuers. These
securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs typically are issued
by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depository Receipts ("CDRs"), are issued in Europe typically
by foreign banks and trust companies and evidence ownership of either foreign or
domestic securities. Generally, ADRs and ADSs in registered form are designed
for use in United States securities markets and EDRs in bearer form are designed
for use in European securities markets. For purposes of an Underlying Fund's
investment policies, the Underlying Fund's investments in ADRs, ADSs and EDRs
will be deemed to be investments in the equity securities representing
securities of foreign issuers into which they may be converted.

ADR facilities may be established as either "unsponsored" or "sponsored." While
ADRs issued under these two types of facilities are in some respect similar,
there are distinctions between them relating to the rights and obligations of
ADR holders and the practices of market participants. A depository may
establish an unsponsored facility without participation by (or even necessarily
the acquiescence of) the issuer of the deposited securities, although typically
the depository requests a letter of non-objection from such issuer prior to the
establishment of the facility. Holders of unsponsored ADRs generally bear all
the costs of such facilities. The depository usually charges fees upon the
deposit and withdrawal of the deposited securities, the conversion of dividends
into U.S. dollars, the disposition of non-cash distributions, and the
performance of other services. The depository of an

-38-
<PAGE>

unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through voting rights to ADR holders with respect to the deposited securities.
Sponsored ADR facilities are created in generally the same manner as unsponsored
facilities, except that the issuer of the deposited securities enters into a
deposit agreement with the depository. The deposit agreement sets out the
rights and responsibilities of the issuer, the depository and the ADR holders.
With sponsored facilities, the issuer of the deposited securities generally will
bear some of the costs relating to the facility (such as dividend payment fees
of the depository), although ADR holders continue to bear certain other costs
(such as deposit and withdrawal fees). Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The Underlying Funds may invest in sponsored and unsponsored ADRs.

Options and Futures. The Underlying Funds may purchase and sell (write) both
- -------------------
call and put options on securities, securities indexes, and foreign currencies,
and enter into interest rate, foreign currency and index futures contracts and
purchase and sell options on such futures contracts for hedging purposes. If
other types of options, futures contracts, or options on futures contracts are
traded in the future, the Underlying Funds may also use those instruments,
provided that the Investment Company's Board determines that their use is
consistent with the Underlying Funds' investment objectives, and provided that
their use is consistent with restrictions applicable to options and futures
contracts currently eligible for use by the Underlying Funds (i.e., that written
call or put options will be "covered" or "secured" and that futures and options
on futures contracts will be used only for hedging purposes).

Call and Put Options on Securities. A call option on a specific security gives
- ----------------------------------
the purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security at the exercise price at any time during the option
period. Conversely, a put option on a specific security gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
security at the exercise price at any time during the option period.

An Underlying Fund may purchase a call option on securities to protect against
substantial increases in prices of securities the Fund intends to purchase
pending its ability or desire to purchase such securities in an orderly manner.
An Underlying Fund may purchase a put option on securities to protect holdings
in an underlying or related security against a substantial decline in market
value. Securities are considered related if their price movements generally
correlate to one another.

An Underlying Fund may write a call or a put option only if the option is
covered by the Fund holding a position in the underlying securities or by other
means which would permit immediate satisfaction of the Fund's obligations as the
writer of the option.

-39-
<PAGE>

To close out a position when writing covered options, an Underlying Fund may
make a "closing purchase transaction," which involves purchasing an option on
the same security with the same exercise price and expiration date as the option
which it previously wrote on the security. To close out a position as a
purchaser of an option, an Underlying Fund may make a "closing sale
transaction," which involves liquidating the Fund's position by selling the
option previously purchased. The Underlying Fund will realize a profit or loss
from a closing purchase or sale transaction depending upon the difference
between the amount paid to purchase an option and the amount received from the
sale thereof.

The Underlying Funds intend to treat options in respect of specific securities
that are not traded on a national securities exchange and the securities
underlying covered call options as not readily marketable and therefore subject
to the limitations on the Funds' ability to hold illiquid securities.

The Underlying Funds intend to purchase and write call and put options on
specific securities.

Securities Index Options. An option on a securities index is a contract which
- ------------------------
gives the purchaser of the option, in return for the premium paid, the right to
receive from the writer of the option cash equal to the difference between the
closing price of the index and the exercise price of the option times a
multiplier established by the exchange on which the stock index is traded. It is
similar to an option on a specific security except that settlement is in cash
and gains and losses depend on price movements in the stock market generally (or
in a particular industry or segment of the market) rather than price movements
in the specific security. None of the Underlying Funds, other than the
Diversified Equity, Special Growth, Quantitative Equity, International
Securities and Emerging Markets Funds, currently intends to purchase and write
call and put options on securities indexes.

Options on Foreign Currency. The Underlying Funds may purchase and write call
- ---------------------------
and put options on foreign currencies for the purpose of hedging against changes
in future currency exchange rates. Call options convey the right to buy the
underlying currency at a price which is expected to be lower than the spot price
of the currency at the time the option expires. Put options convey the right to
sell the underlying currency at a price which is anticipated to be higher than
the spot price of the currency at the time the option expires. Currency options
traded on US or other exchanges may be subject to position limits which may
limit the ability of an Underlying Fund to reduce foreign currency risk using
such options. Over-the-counter options differ from traded options in that they
are two-party contracts with price and other terms negotiated between buyer and
seller and generally do not have as much market liquidity as exchange-traded
options. (See also "Call and Put Options on Securities" above.) None of the
Underlying Funds, other than the Multistrategy Bond and Emerging Markets Funds,
currently intends to write or purchase such options.

Options on Securities and Indexes. Each Underlying Fund may purchase and write
- ---------------------------------
both call and put options on securities and securities indexes in standardized
contracts traded on

-40-
<PAGE>

foreign or national securities exchanges, boards of trade, or similar entities,
or quoted on NASDAQ or on a regulated foreign over-the-counter market, and
agreements, sometimes called cash puts, which may accompany the purchase of a
new issue of bonds from a dealer.

An option on a security (or index) is a contract that gives the holder of the
option, in return for a premium, the right to buy from (in the case of a call)
or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets of a particular
financial or securities market, a specified group of financial instruments or
securities, or certain economic indicators.)

An Underlying Fund will write call options and put options only if they are
"covered." In the case of a call option on a security, the option is "covered"
if the Underlying Fund owns the security underlying the call or has an absolute
and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, liquid assets
in such amount are placed in a segregated account by its custodian) upon
conversion or exchange of other securities held by the Underlying Fund. For a
call option on an index, the option is covered if the Underlying Fund maintains
with its custodian liquid assets equal to the contract value. A call option is
also covered if the Underlying Fund holds a call on the same security or index
as the call written where the exercise price of the call held is (1) equal to or
less than the exercise price of the call written, or (2) greater than the
exercise price of the call written, provided the difference is maintained by the
Fund in liquid assets in a segregated account with its custodian. A put option
on a security or an index is "covered" if the Underlying Fund maintains liquid
assets equal to the exercise price in a segregated account with its custodian. A
put option is also covered if the Underlying Fund holds a put on the same
security or index as the put written where the exercise price of the put held is
(1) equal to or greater than the exercise price of the put written, or (2) less
than the exercise price of the put written, provided the difference is
maintained by the Underlying Fund in liquid assets in a segregated account with
its custodian.

If an option written by an Underlying Fund expires, the Fund realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by an Underlying Fund expires unexercised, the Fund realizes a
capital loss (long or short-term depending on whether the Fund's holding period
for the option is greater than one year) equal to the premium paid.

Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
underlying security or

-41-
<PAGE>

index, exercise price and expiration). There can be no assurance, however, that
a closing purchase or sale transaction can be effected when the Underlying Fund
desires.

An Underlying Fund will realize a capital gain from a closing transaction on an
option it has written if the cost of the closing option is less than the premium
received from writing the option, or, if it is more, the Underlying Fund will
realize a capital loss. If the premium received from a closing sale transaction
is more than the premium paid to purchase the option, the Underlying Fund will
realize a capital gain or, if it is less, the Fund will realize a capital loss.
With respect to closing transactions on purchased options, the capital gain or
loss realized will be short or long-term depending on the holding period of the
option closed out. The principal factors affecting the market value of a put or
a call option include supply and demand, interest rates, the current market
price of the underlying security or index in relation to the exercise price of
the option, the volatility of the underlying security or index, and the time
remaining until the expiration date.

The premium paid for a put or call option purchased by an Underlying Fund is an
asset of the Fund. The premium received for an option written by an Underlying
Fund is recorded as a liability. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the exchange on
which it is traded or, if not traded on an exchange or no closing price is
available, at the mean between the last bid and asked prices.

Risks Associated with Options on Securities and Indexes. There are several risks
- -------------------------------------------------------
associated with transactions in options on securities and on indexes. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.

There can be no assurance that a liquid market will exist when an Underlying
Fund seeks to close out an option position. If an Underlying Fund were unable to
close out an option that it had purchased on a security, it would have to
exercise the option in order to realize any profit or the option may expire
worthless. If an Underlying Fund were unable to close out a covered call option
that it had written on a security, it would not be able to sell the underlying
security unless the option expired without exercise. As the writer of a covered
call option, an Underlying Fund forgoes, during the option's life, the
opportunity to profit from increases in the market value of the security
covering the call option above the sum of the premium and the exercise price of
the call.

If trading were suspended in an option purchased by an Underlying Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Underlying Fund might be unable to exercise an option it has
purchased. Except to the extent that a call option on an index written by the
Underlying Fund is covered by an option on the same index purchased by the Fund,
movements in the index may result in a loss to the Fund;

-42-
<PAGE>

however, such losses may be mitigated by changes in the value of the Fund's
securities during the period the option was outstanding.

Foreign Currency Options. An Underlying Fund may buy or sell put and call
- ------------------------
options on foreign currencies either on exchanges or in the over-the-counter
market. A put option on a foreign currency gives the purchaser of the option the
right to sell a foreign currency at the exercise price until the option expires.
Currency options traded on US or other exchanges may be subject to position
limits which may limit the ability of an Underlying Fund to reduce foreign
currency risk using such options. Over-the-counter options differ from traded
options in that they are two-party contracts with price and other terms
negotiated between buyer and seller, and generally do not have as much market
liquidity as exchange-traded options.

Futures Contracts and Options on Futures Contracts. An Underlying Fund may use
- --------------------------------------------------
interest rate, foreign currency or index futures contracts. An interest rate or
foreign currency futures contract is an agreement between two parties (buyer and
seller) to take or make delivery of a specified quantity of financial
instruments (such as GNMA certificates or Treasury bonds) or foreign currency at
a specified price at a future date. A futures contract on an index (such as the
S&P 500) is an agreement between two parties (buyer and seller) to take or make
delivery of an amount of cash equal to the difference between the value of the
index at the close of the last trading day of the contract and the price at
which the index contract was originally written. In the case of futures
contracts traded on US exchanges, the exchange itself or an affiliated clearing
corporation assumes the opposite side of each transaction (i.e., as buyer or
seller). A futures contract may be satisfied or closed out by delivery or
purchase, as the case may be, of the financial instrument or by payment of the
change in the cash value of the index. Frequently, using futures to effect a
particular strategy instead of using the underlying or related security or index
will result in lower transaction costs being incurred. An interest rate,
foreign currency or index futures contract provides for the future sale by one
party and purchase by another party of a specified quantity of a financial
instrument, foreign currency or the cash value of an index at a specified price
and time. Although the value of an index may be a function of the value of
certain specified securities, no physical delivery of these securities is made.
A public market exists in futures contracts covering several indexes as well as
a number of financial instruments and foreign currencies. For example: the S&P
500; the Russell 2000(R); Nikkei 225; CAC-40; FT-SE 100; the NYSE composite; US
Treasury bonds; US Treasury notes; GNMA Certificates; three-month US Treasury
bills; Eurodollar certificates of deposit; the Australian Dollar; the Canadian
Dollar; the British Pound; the German Mark; the Japanese Yen; the French Franc;
the Swiss Franc; the Mexican Peso; and certain multinational currencies, such as
the ECU. It is expected that other futures contracts will be developed and
traded in the future.

An Underlying Fund may also purchase and write call and put options on futures
contracts. Options on futures contracts possess many of the same characteristics
as options on securities and indexes (discussed above). A futures option gives
the holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call

-43-
<PAGE>

option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true.

There can be no assurance that a liquid market will exist at a time when an
Underlying Fund seeks to close out a futures contract or a futures option
position. Most futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single day; once the
daily limit has been reached on a particular contract, no trades may be made
that day at a price beyond that limit. In addition, certain of these instruments
are relatively new and without a significant trading history. As a result, there
is no assurance that an active secondary market will develop or continue to
exist. Lack of a liquid market for any reason may prevent an Underlying Fund
from liquidating an unfavorable position and the Fund would remain obligated to
meet margin requirements until the position is closed.

An Underlying Fund will only enter into futures contracts or options on futures
contracts which are standardized and traded on a US or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. An
Underlying Fund will enter into a futures contract only if the contract is
"covered" or if the Fund at all times maintains with its custodian liquid assets
equal to or greater than the fluctuating value of the contract (less any margin
or deposit). An Underlying Fund will write a call or put option on a futures
contract only if the option is "covered." For a discussion of how to cover a
written call or put option, see "Options on Securities and Indexes" above.

An Underlying Fund may enter into contracts and options on futures contracts for
"bona fide hedging" purposes, as defined under the rules of the Commodity
Futures Trading Commission (the "CFTC"). An Underlying Fund may also enter into
futures contracts and options on futures contracts for non hedging purposes
provided the aggregate initial margin and premiums required to establish these
positions will not exceed 5% of the Fund's net assets.

As long as required by regulatory authorities, each Underlying Fund will limit
its use of futures contracts and options on futures contracts to hedging
transactions. For example, an Underlying Fund might use futures contracts to
hedge against anticipated changes in interest rates that might adversely affect
either the value of the Fund's securities or the price of the securities which
the Fund intends to purchase. Additionally, an Underlying Fund may use futures
contracts to create equity exposure for its cash reserves for liquidity
purposes.

When a purchase or sale of a futures contract is made by an Underlying Fund, the
Fund is required to deposit with its custodian (or broker, if legally permitted)
a specified amount of cash or US government securities ("initial margin"). The
margin required for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the contract. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract which is returned to the Underlying Fund upon termination
of the contract, assuming all contractual obligations have been satisfied. Each
Underlying Fund expects to earn interest income on its initial margin deposits.

A futures

-44-
<PAGE>

contract held by an Underlying Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Underlying Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by an Underlying Fund, but is
instead a settlement between the Fund and the broker of the amount one would owe
the other if the futures contract expired. In computing daily net asset value,
each Underlying Fund will mark-to-market its open futures positions.

An Underlying Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Underlying Fund.

Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Underlying Fund
realizes a capital gain, or if it is more, the Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Underlying Fund realizes a capital gain, or if it is less, the Fund
realizes a capital loss. The transaction costs must also be included in these
calculations.

Limitations on Use of Futures and Options on Futures Contracts. An Underlying
- --------------------------------------------------------------
Fund will not enter into a futures contract or futures option contract if,
immediately thereafter, the aggregate initial margin deposits relating to such
positions plus premiums paid by it for open futures option positions, less the
amount by which any such options are "in-the-money," would exceed 5% of the
Fund's total assets. A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise price. A put
option is "in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.

When purchasing a futures contract, an Underlying Fund will maintain with its
custodian (and mark-to-market on a daily basis) liquid assets that, when added
to the amounts deposited with a futures commission merchant as margin, are equal
to the market value of the futures contract. Alternatively, the Underlying Fund
may "cover" its position by purchasing a put option on the same futures contract
with a strike price as high or higher than the price of the contract held by the
Fund.

When selling a futures contract, an Underlying Fund will maintain with its
custodian (and mark-to-market on a daily basis) liquid assets that, when added
to the amount deposited with a futures commission merchant as margin, are equal
to the market value of the instruments underlying the contract. Alternatively,
the Underlying Fund may "cover" its position by owning the instruments
underlying the contract (or, in the case of an index futures contract, a
portfolio with a volatility substantially similar to that of the index on which
the futures

-45-
<PAGE>

contract is based), or by holding a call option permitting the Underlying Fund
to purchase the same futures contract at a price no higher than the price of the
contract written by the Fund (or at a higher price if the difference is
maintained in liquid assets with the Fund's custodian).

When selling a call option on a futures contract, an Underlying Fund will
maintain with its custodian (and mark-to-market on a daily basis) liquid assets
that, when added to the amounts deposited with a futures commission merchant as
margin, equal the total market value of the futures contract underlying the call
option. Alternatively, the Underlying Fund may "cover" its position by entering
into a long position in the same futures contract at a price no higher than the
strike price of the call option, by owning the instruments underlying the
futures contract, or by holding a separate call option permitting the Fund to
purchase the same futures contract at a price not higher than the strike price
of the call option sold by the Fund.

When selling a put option on a futures contract, an Underlying Fund will
maintain with its custodian (and mark-to-market on a daily basis) liquid assets
that equal the purchase price of the futures contract, less any margin on
deposit. Alternatively, the Underlying Fund may "cover" the position either by
entering into a short position in the same futures contract, or by owning a
separate put option permitting it to sell the same futures contract so long as
the strike price of the purchased put option is the same or higher than the
strike price of the put option sold by the Fund.

In order to comply with applicable regulations of the CFTC pursuant to which the
Underlying Funds avoid being deemed to be a "commodity pool," the Funds are
limited in their futures activities to positions which constitute "bona fide
hedging" positions within the meaning and intent of applicable CFTC rules, and
with respect to positions which do not qualify under that hedging test, to
positions for which the aggregate initial margins and premiums will not exceed
5% of the net assets of a Fund as determined under the CFTC Rules.

The requirements for qualification as a regulated investment company also may
limit the extent to which an Underlying Fund may enter into futures, options on
futures contracts or forward contracts. See "Taxation."

Risks Associated with Futures and Options on Futures Contracts. There are
- --------------------------------------------------------------
several risks associated with the use of futures contracts and options on
futures contracts as hedging techniques. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract. There can be no guarantee that there will be a correlation between
price movements in the hedging vehicle and in the Fund securities being hedged.
In addition, there are significant differences between the securities and
futures markets that could result in an imperfect correlation between the
markets, causing a given hedge not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as variations in
speculative market demand for futures and options on futures contracts on
securities, including technical influences in futures trading and options

-46-
<PAGE>

on futures contracts, and differences between the financial instruments being
hedged and the instruments underlying the standard contracts available for
trading in such respects as interest rate levels, maturities and
creditworthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.

Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.

There can be no assurance that a liquid market will exist at a time when an
Underlying Fund seeks to close out a futures or a futures option position, and
that Fund would remain obligated to meet margin requirements until the position
is closed. In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.

Additional Risks of Options on Securities, Futures Contracts, Options on Futures
- --------------------------------------------------------------------------------
Contracts, and Forward Currency Exchange Contract and Options Thereon. Options
- ---------------------------------------------------------------------
on securities, futures contracts, options on futures contracts, currencies and
options on currencies may be traded on foreign exchanges. Such transactions may
not be regulated as effectively as similar transactions in the United States;
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by (1)
other complex foreign, political, legal and economic factors, (2) lesser
availability than in the United States of data on which to make trading
decisions, (3) delays in an Underlying Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (5) lesser
trading volume.

Hedging Strategies. Stock index futures contracts may be used by the Diversified
- ------------------
Equity, Special Growth, Quantitative Equity, International Securities and
Emerging Markets Funds as an "equitization" vehicle for cash reserves held by
the Funds. For example: equity index futures contracts are purchased to
correspond with the cash reserves in each of the Funds. As

-47-
<PAGE>

a result, an Underlying Fund will realize gains or losses based on the
performance of the equity market corresponding to the relevant indexes for which
futures contracts have been purchased. Thus, each Underlying Fund's cash
reserves always will be fully exposed to equity market performance.

Financial futures contracts may be used by the International Securities,
Diversified Bond, Volatility Constrained Bond, Multistrategy Bond and Emerging
Markets Funds as a hedge during or in anticipation of interest rate changes. For
example: if interest rates were anticipated to rise, financial futures contracts
would be sold (short hedge) which would have an effect similar to selling bonds.
Once interest rates increase, fixed-income securities held in the Fund's
portfolio would decline, but the futures contract value would decrease, partly
offsetting the loss in value of the fixed-income security by enabling the
Underlying Fund to repurchase the futures contract at a lower price to close out
the position.

The Underlying Funds may purchase a put and/or sell a call option on a stock
index futures contract instead of selling a futures contract in anticipation of
market decline. Purchasing a call and/or selling a put option on a stock index
futures contract is used instead of buying a futures contract in anticipation of
a market advance, or to temporarily create an equity exposure for cash balances
until those balances are invested in equities. Options on financial futures are
used in a similar manner in order to hedge portfolio securities against
anticipated changes in interest rates.

Foreign Currency Futures Contracts. The Underlying Funds are also permitted to
- ----------------------------------
enter into foreign currency futures contracts in accordance with their
investment objectives and as limited by the procedures outlined above.

A foreign currency futures contract is a bilateral agreement pursuant to which
one party agrees to make, and the other party agrees to accept delivery of a
specified type of debt security or currency at a specified price. Although such
futures contacts by their terms call for actual delivery or acceptance of debt
securities or currency, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.

The Underlying Funds may sell a foreign currency futures contract to hedge
against possible variations in the exchange rate of the foreign currency in
relation to the US dollar. When a manager anticipates a significant change in a
foreign exchange rate while intending to invest in a foreign security, an
Underlying Fund may purchase a foreign currency futures contract to hedge
against a rise in foreign exchange rates pending completion of the anticipated

-48-
<PAGE>

transaction. Such a purchase would serve as a temporary measure to protect the
Underlying Fund against any rise in the foreign exchange rate which may add
additional costs to acquiring the foreign security position. The Underlying Fund
may also purchase call or put options on foreign currency futures contracts to
obtain a fixed foreign exchange rate. The Underlying Fund may purchase a call
option or write a put option on a foreign exchange futures contract to hedge
against a decline in the foreign exchange rates or the value of its foreign
securities. The Underlying Fund may write a call option on a foreign currency
futures contract as a partial hedge against the effects of declining foreign
exchange rates on the value of foreign securities.

Risk Factors. There are certain investment risks in using futures contracts
- ------------
and/or options as a hedging technique. One risk is the imperfect correlation
between price movement of the futures contracts or options and the price
movement of the portfolio securities, stock index or currency subject of the
hedge. There is no assurance that the price of taxable securities will move in a
similar manner to the price of tax exempt securities. Another risk is that a
liquid secondary market may not exist for a futures contract causing an
Underlying Fund to be unable to close out the futures contract thereby
affecting a Fund's hedging strategy.

In addition, foreign currency options and foreign currency futures involve
additional risks. Such transactions may not be regulated as effectively as
similar transactions in the United States; may not involve a clearing mechanism
and related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
positions could also be adversely affected by (1) other complex foreign,
political, legal and economic factors, (2) lesser availability than in the
United States of data on which to make trading decisions, (3) delays in an
Underlying Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the United States, (4) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the United States, and (5) lesser trading volume.

Forward Foreign Currency Exchange Transactions ("forward currency contracts").
- -----------------------------------------------------------------------------
The International Securities, Diversified Bond, Volatility Constrained Bond,
Multistrategy Bond and Emerging Markets Funds may engage in forward currency
contracts to hedge against uncertainty in the level of future exchange rates.
The Funds will conduct their forward foreign currency exchange transactions
either on a spot (i.e. cash) basis at the rate prevailing in the currency
exchange market, or through entering into forward currency exchange contracts
("forward contract") to purchase or sell currency at a future date. A forward
contract involves an obligation 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
agreed upon by the parties, at a price set at the time of the contract. An
Underlying Fund's dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of foreign currency with respect to specific
receivables or payables of the Funds generally accruing in connection with the
purchase or sale of their portfolio securities. Position hedging is the sale of
foreign currency with respect to portfolio security positions denominated or
quoted in the currency. An Underlying Fund

-49-
<PAGE>

may not position hedge with respect to a particular currency to an extent
greater than the aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in or currency
convertible into that particular currency (or another currency or aggregate of
currencies which act as a proxy for that currency). The Underlying Funds may,
however, enter into a position hedging transaction with respect to a currency
other than that held in the Funds' portfolios, if such a transaction is deemed a
hedge. If an Underlying Fund enters into this type of hedging transaction,
liquid assets will be placed in a segregated account in an amount equal to the
value of the Fund's total assets committed to the consummation of the forward
contract. If the value of the securities placed in the segregated account
declines, additional liquid assets will be placed in the account so that the
value of the account will equal the amount of the Underlying Fund's commitment
with respect to the contract. Hedging transactions may be made from any foreign
currency into US dollars or into other appropriate currencies.

At or before the maturity of a forward foreign currency contract, an Underlying
Fund may either sell a portfolio security and make delivery of the currency, or
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the Underlying Fund
will obtain, on the same maturity date, the same amount of the currency which it
is obligated to deliver. If the Underlying Fund retains the portfolio security
and engages in an offsetting transaction, the Fund, at the time of execution of
the offsetting transaction, will incur a gain or a loss to the extent that
movement has occurred in forward currency contract prices. Should forward prices
decline during the period between the Fund's entering into a forward contract
for the sale of a currency and the date that it enters into an offsetting
contract for the purchase of the currency, the Fund will realize a gain to the
extent that the price of the currency that it has agreed to sell exceeds the
price of the currency that it has agreed to purchase. Should forward prices
increase, the Underlying Fund will suffer a loss to the extent that the price of
the currency it has agreed to purchase exceeds the price of the currency that it
has agreed to sell.

Upon maturity of a forward currency contract, the Underlying Funds may (a) pay
for and receive, or deliver and be paid for, the underlying currency, (b)
negotiate with the dealer to roll over the contract into a new forward currency
contract with a new future settlement date or (c) negotiate with the dealer to
terminate the forward contract by entering into an offset with the currency
trader whereby the parties agree to pay for and receive the difference between
the exchange rate fixed in the contract and the then current exchange rate. An
Underlying Fund also may be able to negotiate such an offset prior to maturity
of the original forward contract. There can be no assurance that new forward
contracts or offsets will always be available to the Underlying Funds.

The cost to an Underlying Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because transactions in currency exchange are
usually conducted on a principal basis, no fees or commissions are involved. The
use of forward foreign currency contracts does not eliminate fluctuations in the
underlying prices of the securities, but it does establish

-50-
<PAGE>

a rate of exchange that can be achieved in the future. In addition, although
forward foreign currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, at the same time, they limit any potential
gain that might result should the value of the currency increase.

If a devaluation is generally anticipated, an Underlying Fund may be able to
contract to sell the currency at a price above the devaluation level that it
anticipates. An Underlying Fund will not enter into a currency transaction if,
as a result, it will fail to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), for a given year.

Forward foreign currency contracts are not regulated by the SEC. They are traded
through financial institutions acting as market-makers. In the forward foreign
currency market, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Moreover, a trader of forward contracts could lose amounts substantially in
excess of its initial investments, due to the collateral requirements associated
with such positions.

Forward foreign currency 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 (1) other
complex foreign, political, legal and economic factors, (2) lesser availability
than in the United States of data on which to make trading decisions, (3) delays
in an Underlying Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the United States, (4) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the United States, (5) lesser trading volume and (6) that a perceived
linkage between various currencies may not persist throughout the duration of
the contracts.

The market for forward currency contracts may be limited with respect to certain
currencies. These factors will restrict an Underlying Fund's ability to hedge
against the risk of devaluation of currencies in which the Fund holds a
substantial quantity of securities and are unrelated to the qualitative rating
that may be assigned to any particular portfolio security. Where available, the
successful use of forward contracts draws upon a money manager's special skills
and experience with respect to such instruments and usually depends on the money
manager's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, a
Fund may not achieve the anticipated benefits of forward contracts or may
realize losses and thus be in a worse position than if such strategies had not
been used. Unlike many exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits with respect to forward
contracts, and adverse market movements could therefore continue to an unlimited
extent over a period of time. In addition, the correlation between movements in
the prices of such instruments and movements in the price of the securities and
currencies hedged or used for cover will not be perfect. In the case of proxy
hedging, there is also a

-51-
<PAGE>

risk that the perceived linkage between various currencies may not be present or
may not be present during the particular time the Underlying Funds are engaged
in that strategy.

An Underlying Fund's ability to dispose of its positions in forward contracts
will depend on the availability of active markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of forward contracts. Forward foreign currency contracts may be closed out
only by the parties entering into an offsetting contract. Therefore, no
assurance can be given that an Underlying Fund will be able to utilize these
instruments effectively for the purposes set forth above.

Zero Coupon Securities. Zero coupon securities are notes, bonds and debentures
- ----------------------
that (1) do not pay current interest and are issued at a substantial discount
from par value, (2) have been stripped of their unmatured interest coupons and
receipts or (3) pay no interest until a stated date one or more years into the
future. These securities also include certificates representing interests in
such stripped coupons and receipts. Zero coupon securities trade at a discount
from their par value and are subject to greater fluctuations of market value in
response to changing interest rates.

Mortgage-Related and Other Asset-Backed Securities. The forms of mortgage-
- --------------------------------------------------
related and other asset-backed securities the Underlying Funds may invest in
include the securities described below:

Mortgage Pass-Through Securities. Mortgage pass-through securities are
- --------------------------------
securities representing interests in "pools" of mortgages in which payments of
both interest and principal on the securities are generally made monthly. The
securities are "pass-through" securities because they provide investors with
monthly payments of principal and interest which in effect are a "pass-through"
of the monthly payments made by the individual borrowers on the underlying
mortgages, net of any fees paid to the issuer or guarantor. The principal
governmental issuer of such securities is the GNMA, which is a wholly-owned US
government corporation within the Department of Housing and Urban Development.
Government-related issuers include the Federal Home Loan Mortgage Corporation
("FHLMC"), a corporate instrumentality of the United States created pursuant to
an Act of Congress, and which is owned entirely by the Federal Home Loan Banks,
and the Federal National Mortgage Association ("FNMA"), a government sponsored
corporation owned entirely by private stockholders. Commercial banks, savings
and loan institutions, private mortgage insurance companies, mortgage bankers
and other secondary market issuers also create pass-through pools of
conventional residential mortgage loans. Such issuers may be the originators of
the underlying mortgage loans as well as the guarantors of the mortgage-related
securities.

Collateralized Mortgage Obligations. Collateralized mortgage obligations
- -----------------------------------
("CMOs") are hybrid instruments with characteristics of both mortgage-backed
bonds and mortgage pass-through securities. Similar to a bond, interest and pre-
paid principal on a CMO are paid, in most cases, monthly. CMOs may be
collateralized by whole mortgage loans but are

-52-
<PAGE>

more typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured into multiple classes
(or "tranches"), with each class bearing a different stated maturity.

Asset-Backed Securities. Asset-backed securities represent undivided fractional
- -----------------------
interests in pools of instruments, such as consumer loans, and are similar in
structure to mortgage-related pass-through securities. Payments of principal and
interest are passed through to holders of the securities and are typically
supported by some form of credit enhancement, such as a letter of credit, surety
bond, limited guarantee by another entity or by priority to certain of the
borrower's other securities. The degree of enhancement varies, generally
applying only until exhausted and covering only a fraction of the security's par
value. If the credit enhancement held by an Underlying Fund has been exhausted,
and if any required payments of principal and interest are not made with respect
to the underlying loans, the Underlying Fund may experience loss or delay in
receiving payment and a decrease in the value of the security.

Risk Factors. Prepayment of principal on mortgage or asset-backed securities may
- ------------
expose an Underlying Fund to a lower rate of return upon reinvestment of
principal. Also, if a security subject to prepayment has been purchased at a
premium, in the event of prepayment the value of the premium would be lost. Like
other fixed-income securities, the value of mortgage-related securities is
affected by fluctuations in interest rates.

Foreign Government Securities. Foreign government securities which the
- -----------------------------
Underlying Funds may invest in generally consist of obligations issued or backed
by the national, state or provincial government or similar political
subdivisions or central banks in foreign countries. Foreign government
securities also include debt obligations of supranational entities, which
include international organizations designated or backed by governmental
entities to promote economic reconstruction or development, international
banking institutions and related government agencies. These securities also
include debt securities of "quasi-government agencies" and debt securities
denominated in multinational currency units of an issuer.

Brady Bonds. The Multistrategy Bond Fund may invest in Brady Bonds, the products
- -----------
of the "Brady Plan," under which bonds are issued in exchange for cash and
certain of a country's outstanding commercial bank loans. The Brady Plan offers
relief to debtor countries that have effected substantial economic reforms.
Specifically, debt reduction and structural reform are the main criteria
countries must satisfy in order to obtain Brady Plan status. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (primarily
US-dollar) and are actively traded on the over-the-counter market. Brady Bonds
have been issued only recently and accordingly they do not have a long payment
history.

TAXES

In order to qualify for treatment as a regulated investment company ("RIC")
under Subchapter M of the Code, each LifePoints Fund must distribute annually to
its shareholders

-53-
<PAGE>

at least 90% of its investment company taxable income (generally, net investment
income plus net short-term capital gain) ("Distribution Requirement") and also
must meet several additional requirements. Among these requirements are the
following: (i) at least 90% of a LifePoints Fund's gross income each taxable
year must be derived from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stock or
securities or foreign currencies (exclusive of losses), or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
("Income Requirement"); (ii) less than 30% of a LifePoints Fund's gross income
each taxable year may be derived from gains (exclusive of losses) from the sale
or other disposition of any stock or securities; any options, futures, or
forward contracts; foreign currencies including any options or futures thereon
(which are not directly related to a LifePoints Fund's business in investing)
held for less than three months (the "Short-Short Limitation"); (iii) at the
close of each quarter of a LifePoints Fund's taxable year, at least 50% of the
value of its total assets must be represented by cash and cash items, US
government securities, securities of other RICs and other securities, with such
other securities limited, in respect of any one issuer, to an amount that does
not exceed 5% of the value of the LifePoints Fund and that does not represent
more than 10% of the outstanding voting securities of such issuer; and (iv) at
the close of each quarter of the LifePoints Fund's taxable year, not more than
25% of the value of its assets may be invested in securities (other than US
government securities or the securities of other RICs, including shares of the
Underlying Funds) of any one issuer.

Notwithstanding the Distribution Requirement described above, which only
requires each LifePoints Fund to distribute at least 90% of its annual
investment company taxable income and does not require any minimum distribution
of net capital gain (the excess of net long-term capital gain over net short-
term capital loss), each LifePoints Fund will be subject to a nondeductible 4%
excise tax to the extent it fails to distribute by the end of any calendar year
at least 98% of its ordinary income for that year and 98% of its capital gain
net income for the one-year period ending on October 31 of that year, plus
prior-year shortfalls. For this and other purposes, dividends declared by a RIC
in October, November or December of any calendar year and payable to
shareholders of record on a date in such a month will be deemed to have been
paid by the RIC and received by shareholders on December 31 of such year if the
dividends are paid by the RIC at any time through the end of the following
January.

Issues Related to Hedging and Option Investments. The use of hedging
- ------------------------------------------------
instruments, such as options and futures contracts, involves specialized and
complex rules that will determine the character for income tax purposes of the
income received in connection therewith by a Fund and thereby affect, among
other things, the amount and proportion of distributions that will be taxable to
shareholders as ordinary income or capital gain. As described above, the
Underlying Funds may buy and sell foreign currencies and options on foreign
currencies, and may enter into forward currency contracts and currency futures
contracts.

-54-
<PAGE>

STATE AND LOCAL TAXES. Depending upon the extent of a LifePoints Fund's
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located or in which it is
otherwise deemed to be conducting business, a LifePoints Fund may be subject to
the tax laws of such states or localities.

RATINGS OF DEBT INSTRUMENTS

Corporate and Municipal Bond Ratings.
- ------------------------------------

Moody's Investors Service, Inc. (Moody's):
-----------------------------------------

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

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

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

Baa -- Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great period 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 other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.

-55-
<PAGE>

Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
and interest.

Ca -- Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification in its corporate bond rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic category; the
modifier 2 indicates a mid-range ranking; and modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.

Standard & Poor's Ratings Group ("S&P"):
---------------------------------------

AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.

AA -- Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.

A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.

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

BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

BB -- Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely

-56-
<PAGE>

interest and principal payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual implied BBB- rating.

B -- Bonds rated B have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.

CCC -- Bonds rated CCC have a currently identifiable vulnerability to default,
and are dependent upon favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.

CC -- The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.

C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating. The C rating has been
used to cover a situation where a bankruptcy petition has been filed but debt
service payments are continued.

C1 -- The rating C1 is reserved for income bonds on which no interest is being
paid.

D -- Bonds rated D are in payment default. The D rating is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
appropriate category.

Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic issues. The ratings measure the
creditworthiness of the obligor but do not take into account currency exchange
and related uncertainties.

State, Municipal Notes and Tax Exempt Demand Notes.
- --------------------------------------------------

Moody's:
-------

Moody's rating for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences

-57-
<PAGE>

between short-term credit risk and long-term risk. Factors affecting the
liquidity of the borrower are uppermost in importance in short-term borrowing,
while various factors of the first importance in bond risk are of lesser
importance in the short run. Symbols used are as follows:

MIG-1--Notes bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing or both.

MIG-2--Notes bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.

S&P:
---

A S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:

-- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).

-- Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).

Note rating symbols are as follows:

SP-1--Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given
a plus (+) designation.

SP-2--Satisfactory capacity to pay principal and interest.

S&P assigns "dual" ratings to all long-term debt issues that have as part of
their provisions a variable rate demand or double feature.

The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used to denote the put option (for example,
"AAA/A-1+") or if the nominal maturity is short, a rating of "SP-1+/AAA" is
assigned.

Commercial Paper Ratings.
- ------------------------

Moody's:
-------

-58-
<PAGE>

Commercial paper rated Prime by Moody's is based upon its evaluation of many
factors, including: (l) management of the issuer; (2) the issuer's industry or
industries and the speculative-type risks which may be inherent in certain
areas; (3) the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issue; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
Relative differences in these factors determine whether the issuer's
commercial paper is rated Prime-l, Prime-2, or Prime-3.

Prime-1 - indicates a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: (1) leading market positions in well established
industries; (2) high rates of return on funds employed; (3) conservative
capitalization structures with moderate reliance on debt and ample asset
protection; (4) broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and (5) well established access to a range
of financial markets and assured sources of alternative liquidity.

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

S&P:
---

Commercial paper rated A by S&P has the following characteristics: liquidity
ratios are adequate to meet cash requirements. Long-term senior debt is rated
A or better. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance
made for unusual circumstances. Typically, the issuer's industry is well
established and the issuer has a strong position within the industry. The
reliability and quality of management are unquestioned. Relative strength or
weakness of the above factors determine whether the issuer's commercial paper
is rated A-l, A-2, or A-3.

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

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

Duff & Phelps, Inc.:
-------------------

-59-
<PAGE>

Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations
with maturities of under one year, including commercial paper, the uninsured
portion of certificates of deposit, unsecured bank loans, master notes,
bankers' acceptances, irrevocable letters of credit, and current maturities of
long-term debt. Asset-backed commercial paper is also rated according to this
scale.

Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.

The distinguishing feature of Duff & Phelps' short-term ratings is the
refinement of the traditional '1' category. The majority of short-term debt
issuers carries the highest rating, yet quality differences exist within that
tier. As a consequence, Duff & Phelps has incorporated gradations of '1+' (one
plus) and '1-' (one minus) to assist investors in recognizing those
differences.

Duff 1+--Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free US Treasury short-term
obligations.

Duff 1--Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.

Duff 1- --High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.

Good Grade

Duff 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

Satisfactory Grade

Duff 3--Satisfactory liquidity and other protection factors qualify issue as
to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.

Non-Investment Grade

-60-
<PAGE>

Duff 4--Speculative investment characteristics. Liquidity is not sufficient to
ensure against disruption in debt service. Operating factors and market access
may be subject to a high degree of variation.

Default

Duff 5--Issuer failed to meet scheduled principal and/or interest payments.

IBCA, Inc.:
----------

In addition to conducting a careful review of an institution's reports and
published figures, IBCA's analysts regularly visit the companies for
discussions with senior management. These meetings are fundamental to the
preparation of individual reports and ratings. To keep abreast of any changes
that may affect assessments, analysts maintain contact throughout the year
with the management of the companies they cover.

IBCA's analysts speak the languages of the countries they cover, which is
essential to maximize the value of their meetings with management and to
properly analyze a company's written materials. They also have a thorough
knowledge of the laws and accounting practices that govern the operations and
reporting of companies within the various countries.

Often, in order to ensure a full understanding of their position, companies
entrust IBCA with confidential data. While this confidential data cannot be
disclosed in reports, it is taken into account when assigning ratings. Before
dispatch to subscribers, a draft of the report is submitted to each company to
permit correction of any factual errors and to enable clarification of issues
raised.

IBCA's Rating Committees meet at regular intervals to review all ratings and
to ensure that individual ratings are assigned consistently for institutions
in all the countries covered. Following the Committee meetings, ratings are
issued directly to subscribers. At the same time, the company is informed of
the ratings as a matter of courtesy, but not for discussion.

A1+--Obligations supported by the highest capacity for timely repayment.

A1--Obligations supported by a very strong capacity for timely repayment.

A2--Obligations supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic or
financial conditions.

-61-
<PAGE>

B1--Obligations supported by an adequate capacity for timely repayment. Such
capacity is more susceptible to adverse changes in business, economic, or
financial conditions than for obligations in higher categories.

B2--Obligations for which the capacity for timely repayment is susceptible to
adverse changes in business, economic or financial conditions.

C1--Obligations for which there is an inadequate capacity to ensure timely
repayment.

D1--Obligations which have a high risk of default or which are currently in
default.

Fitch Investors Service, Inc. ("Fitch"):
---------------------------------------

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes and municipal and
investment notes.

The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.

Fitch short-term ratings are as follows:

F-1+--Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1--Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-
1+.

F-2--Good credit quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned 'F-1+' and 'F-1' ratings.

F-3--Fair credit quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could cause these securities to be rated
below investment grade.

F-5--Weak credit quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.

D--Default. Issues assigned this rating are in actual or imminent payment
default.

Thomson BankWatch ("TBW") Short-Term Ratings:
- --------------------------------------------

-62-
<PAGE>

The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.

These ratings are derived exclusively from a quantitative analysis of publicly
available information. Qualitative judgments have not been incorporated. The
ratings are intended to be applicable to all operating entities of an
organization but there may be in some cases more credit liquidity and/or risk in
one segment of the business than another.

The TBW short-term rating applies only to unsecured instruments that have a
maturity of one year or less, and reflects the likelihood of an untimely payment
of principal or interest.

TBW-1 -- The highest category; indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.

TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1."

TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.

TBW-4 -- The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.

FINANCIAL STATEMENTS

The LifePoints Funds commenced operations on May 23, 1997. Financial statements
of LifePoints Funds, including notes thereto and financial highlights and the
Report of the Independent Accountants will be included in LifePoints Fund's
Annual Report to Shareholders and incorporated herein by reference.

-63-