RUSSELL INSURANCE FUNDS, 485BPOS, 1998-04-27

RUSSELL INSURANCE FUNDS
485BPOS, 1998-04-27

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<PAGE>

Filed Pursuant to Rule 485(b)
Registration No. 33-18030
811-5371

- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. [ ]
-----
Post-Effective Amendment No. 5 [X]
-----

and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 9

Russell Insurance Funds
-----------------------
(Exact Name of Registrant as Specified in Charter
909 A Street, Tacoma, Washington 98402
--------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (253) 627-7001
--------------

Karl J. Ege, Esq.
Russell Insurance Funds
909 A Street
Tacoma, Washington 98402
(Name and Address of Agent for Service)

Approximate date of commencement of proposed sale to the public:
As soon as practical after the effective date of the Registration Statement.

Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
( ) immediately upon filing pursuant to paragraph (b)
( X ) on May 1, 1998 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(i)
( ) on (date) pursuant to paragraph (a)(i)
( ) 75 days after filing pursuant to paragraph (a)(ii)
( ) on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

DECLARATION PURSUANT TO RULE 24f-2

Registrant has declared its intention to register an indefinite number of
shares of beneficial interest, par value of $0.01, of Russell Insurance Funds
pursuant to Rule 24f-2(a)(1) under the Investment Company Act of 1940, as
amended. The Registrant filed its Rule 24f-2 notice for the fiscal year ended
December 31, 1997 or March 20, 1998.

<PAGE>

Russell Insurance Funds
File No. 33-18030
P/E Amt. #5

FORM N-1A

CROSS REFERENCE SHEET

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

Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C>

1. Cover Page Cover Page

2. Synopsis Highlights and Table of Contents

3. Condensed Financial Information Not Applicable

4. General Description of Registrant Investment Objectives and
Policies; Risk Factors;
Fund Instruments and
Other Investment Information;
Investment Limitations

5. Management of the Fund Management of the Funds

6. Capital Stock and Other Securities Description of Capital Stock;
Dividends and Distributions;
Taxes; Miscellaneous

7. Purchase of Securities Being Offered How to Purchase and Redeem
Shares; Pricing of Shares

8. Redemption or Repurchase How to Purchase and Redeem
Shares

9. Pending Legal Proceedings Not Applicable

</TABLE>

-2-

<PAGE>

Part B Heading in Statement
Item No. of Additional Information
- -------- -------------------------
<S> <C>

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History Description of Capital Stock

13. Investment Objectives and Policies Investment Objectives and Policies;
Additional Information on Fund
Instruments; Additional Investment
Limitations

14. Management of the Registrant Management of the Funds

15. Control Persons and Principal Management of the Funds
Holders of Securities

16. Investment Advisory and Other Services Management of the Funds;
Independent Auditors

17. Brokerage Allocation Fund Transactions

18. Capital Stock and Other Securities Description of Capital Stock

19. Purchase, Redemption, and Pricing of Additional Purchase and Redemption
Securities Being Offered Information; Net Asset Value and
Net Income-Money Market Liquidity
Fund

20. Tax Status Additional Information Concerning
Taxes

21. Underwriters Additional Purchase and Redemption
Information

22. Calculation of Performance Data Performance and Yield Information

23. Financial Statements Financial Statements

</TABLE>

Part C
- ------

Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.

-3-
<PAGE>
PROSPECTUS

RUSSELL INSURANCE FUNDS
909 A Street, Tacoma, WA 98402
Telephone (800) 972-0700
In Washington (253) 627-7001

Russell Insurance Funds ("RIF") is a "series mutual fund" with four
different investment portfolios referred to individually as "Funds." This
Prospectus describes and offers shares of each of the four Funds to qualified
insurance company separate accounts offering variable insurance products. Shares
will be sold to the insurance company separate accounts at net asset value.

Each Fund's assets are invested by one or more investment management
organizations researched and recommended by Frank Russell Company ("Russell")
and an affiliate of Russell, Frank Russell Investment Management Company
("FRIMCo"), which also advises, operates and administers RIF.

Each Fund seeks to achieve a specific investment objective by using distinct
investment strategies:

MULTI-STYLE EQUITY FUND--Seeks income and capital growth by investing
principally in equity securities.

AGGRESSIVE EQUITY FUND--Seeks to provide capital appreciation by assuming a
higher level of volatility than is ordinarily expected from the Multi-Style
Equity Fund, by investing in equity securities.

NON-U.S. FUND--Seeks favorable total return and additional diversification
for United States investors by investing primarily in equity and debt securities
of non-United States companies and non-United States governments.

CORE BOND FUND--Seeks to maximize total return through capital appreciation
and income by assuming a level of volatility consistent with the broad
fixed-income market, by investing in fixed-income securities.

This Prospectus sets forth concisely significant information about RIF and
its four Funds. RIF has filed a Statement of Additional Information dated May 1,
1998, with the Securities and Exchange Commission. A copy of the Statement of
Additional Information may be obtained without charge by writing to the
Secretary of RIF at the address shown above. This Prospectus should be read
carefully and retained for future reference.

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 NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
This Prospectus does not constitute an offer to sell securities in any state
or other jurisdiction to any person to whom it is unlawful to make such an offer
in such state or other jurisdiction.

The aggregate net assets of these four Funds on April 1, 1998 were
$78,573,887, and the net assets of each Fund on that date were:

<TABLE>
<S> <C>
Multi-Style Equity Fund $35,951,971
Aggressive Equity Fund $19,614,493
Non US Fund $10,365,504
Core Bond Fund $12,641,919
</TABLE>

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 MAY 1, 1998
<PAGE>
HIGHLIGHTS AND TABLE OF CONTENTS

RUSSELL INSURANCE FUNDS ("RIF") is organized as a Massachusetts business
trust under a Master Trust Agreement dated July 11, 1996. RIF 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. RIF is
a diversified open-end management investment company, commonly known as a
"mutual fund." Russell, which is a consultant to RIF, 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
accordance with specific investment objectives and styles; and (ii) the
development of strategies for investing assets using "multi-style, multi-manager
diversification."

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. SEE PAGE .

THE PURPOSE OF RIF is to provide an investment base for a variety of
insurance products (the "Policies") which will be issued by one or more
insurance companies (each referred to herein as an "Insurance Company"). (See
page 32 for information concerning monitoring of conflicts which may arise from
sales to a number of Insurance Companies). RIF believes that policyowners may
benefit from the "multi-style, multi-manager diversification" techniques and
money manager evaluation services of Russell on an economical and efficient
basis. SEE PAGE .

GENERAL MANAGEMENT OF RIF is provided by Frank Russell Investment Management
Company ("FRIMCo"), a wholly-owned subsidiary of Russell, which also furnishes
offices and staff required to manage and administer RIF on a day-to-day basis.
Russell provides RIF and FRIMCo with comprehensive consulting and money manager
evaluation services. SEE PAGE .

SUB-ADVISERS ("MONEY MANAGERS") for the assets of the Funds are evaluated
and recommended to the Board of RIF by FRIMCo based upon the consultation and
advice of Russell. The Money Managers have complete discretion to purchase and
sell portfolio securities for their segment of a Fund consistent with that
Fund's investment objectives, policies, restrictions as specified in this
prospectus, and the specific strategies developed by Russell and FRIMCo. SEE
PAGE .

EXPENSES OF RIF are borne by RIF. Each Fund pays its own expenses, and its
portion of the general expenses of RIF and a management fee to FRIMCo. FRIMCo,
as agent to the Funds, pays from its fees, the investment advisory fees of the
Money Managers of the Funds. The remainder of the fee is retained by FRIMCo, for
conducting RIF's general operations and for providing investment supervision for
the Funds. Each Fund pays directly for other services provided to shareholders,
and for other operating expenses and for certain performance and Money Manager
evaluation reports furnished by Russell to RIF and FRIMCo. SEE PAGE .

INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES apply to each Fund. Those
designated as "fundamental" may not be changed without the approval of a
majority of a Fund's shareholders. SEE PAGE .

DIVIDENDS AND DISTRIBUTIONS will normally be reinvested in additional shares
by the Insurance Company. Dividends from net investment income are declared
quarterly by the Multi-Style Equity Fund, the Aggressive Equity Fund and the
Core Bond Fund and annually by the Non-U.S. Fund. All Funds will declare
distributions from net realized capital gains, if any, at least annually. SEE
PAGE .

2
<PAGE>
TAXES PAYABLE BY THE FUNDS are expected to be nominal, since each Fund will
seek to reduce taxes by distributing substantially all of its net investment
income and realized capital gains to Insurance Company separate accounts
("Separate Accounts") for the benefit of policyholders. Policyholders should
review the section on "Taxes" in the prospectus of the Policies for a
description of the federal tax effects concerning the Policies, and should
consult a tax adviser concerning state or local taxes. SEE PAGE .

VALUATION OF FUND SHARES occurs each business day on which shares are
offered or orders to redeem shares are tendered. The value of a share of a Fund
is based upon the next computed current market value of the assets of the Fund,
less its liabilities, divided by the number of shares of the Fund. SEE PAGE .

SHARES OF EACH FUND ARE SOLD AND REDEEMED at the net asset value next
computed after receipt of the order. The Funds do not assess a redemption
charge. SEE PAGE .

ADDITIONAL INFORMATION is also included in this Prospectus concerning: RIF's
Custodian; Independent Accountants and Reports; Organization, Capitalization and
Voting; and Money Manager Profiles. SEE PAGES AND .

3
<PAGE>
ANNUAL FUND OPERATING EXPENSES OF THE
MULTI-STYLE EQUITY FUND

The purpose of the following table is to assist the investor in
understanding the various costs and expenses that an investor of the Fund will
bear directly or indirectly. 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.

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fee (After Fee Waiver) (1) .09%
12b-1 Fees None
Other Expenses:
Custodian Fees .38%
Transfer Agent Fees .08%
Other Fees .37%
---
Total Other Expenses (After Fee Waiver) (1) 0.83%
---------
Total Operating Expenses (After Fee Waiver) (1) 0.92%
---------
---------
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period $ 9 $ 29 $ 51 $ 116
--
--
--- --- -----
--- --- -----
</TABLE>

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

(1) The Manager has voluntarily agreed to waive a portion of its 0.78%
management fee, up to the full amount of that fee, equal to the amount by
which the Fund's total operating expenses exceed 0.92% of the Fund's average
daily net assets on an annual basis. The Manager has voluntarily agreed to
reimburse the Fund for all remaining expenses after fee waivers which exceed
0.92% of average daily net assets on an annual basis. The estimated gross
annual custodian fees, transfer agent fees, other fees and Total Operating
Expenses absent the reimbursements would have been .38%, .08%, .37%, and
1.61%, respectively of average daily net assets. The management fee waivers
and reimbursements are intended to be in effect for 1998, but may be revised
or eliminated at any time thereafter without notice to shareholders.

4
<PAGE>
ANNUAL FUND OPERATING EXPENSES OF THE
AGGRESSIVE EQUITY FUND

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fee (After Fee Waiver) (1) .0%
12b-1 Fees None
Other Expenses:
Custodian Fees .69%
Transfer Agent Fees .09%
Other Fees (After Reimbursement) (1) .47%
---
Total Other Expenses (After Fee Waiver and Reimbursement) (1) 1.25%
---------
Total Operating Expenses (After Fee Waivers and Reimbursement) (1) 1.25%
---------
---------
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period $ 13 $ 38 $ 69 $ 158
--- --- --- -----
--- --- --- -----
</TABLE>

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

(1) The Manager has voluntarily agreed to waive a portion of its 0.95%
management fee, up to the full amount of that fee, equal to the amount by
which the Fund's total operating expenses exceed 1.25% of the Fund's average
daily net assets on an annual basis. The Manager has voluntarily agreed to
reimburse the Fund for all remaining expenses after fee waivers which exceed
1.25% of average daily net assets on an annual basis. The estimated gross
annual custodian fees, transfer agent fees, other fees and Total Operating
Expenses absent the reimbursements would have been .69%, .09%, .49%, and
2.22%, respectively of average daily net assets. The management fee waivers
and reimbursements are intended to be in effect for 1998, but may be revised
or eliminated at any time thereafter without notice to shareholders.

5
<PAGE>
ANNUAL FUND OPERATING EXPENSES OF THE
NON-U.S. FUND

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fee (After Fee Waiver) (1) 0.0%
12b-1 Fees None
Other Expenses:
Custodian Fees (After Reimbursement) (1) .88%
Transfer Agent Fees (After Reimbursement) (1) .06%
Other Fees (After Reimbursement) (1) .36%
---
Total Other Expenses (After Fee Waiver and Reimbursement) (1) 1.30%
---------
Total Operating Expenses (After Fee Waiver and Reimbursement) (1) 1.30%
---------
---------
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period $ 13 $ 40 $ 72 $ 164
--- --- --- -----
--- --- --- -----
</TABLE>

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

(1) The Manager has voluntarily agreed to waive a portion of its 0.95%
management fee, up to the full amount of that fee, equal to the amount by
which the Fund's total operating expenses exceed 1.30% of the Fund's average
daily net assets on an annual basis. The Manager has voluntarily agreed to
reimburse the Fund for all remaining expenses after fee waivers which exceed
1.30% of average daily net assets on an annual basis. The gross annual
Management Fees before the waivers and reimbursement would be 0.95% of
average daily net assets. The estimated gross annual custodian fees,
transfer agent fees, other fees and Total Operating Expenses absent the
reimbursements would have been 1.84%, .12%, .74% and 3.65%, respectively of
average daily net assets. The management fee waivers and reimbursements are
intended to be in effect for 1998, but may be revised or eliminated at any
time thereafter without notice to shareholders.

6
<PAGE>
ANNUAL FUND OPERATING EXPENSES OF THE
CORE BOND FUND

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fee (After Fee Waiver) (1) 0.0%
12b-1 Fees None
Other Expenses:
Custodian Fees (After Reimbursement) (1) .42%
Transfer Agent Fees (After Reimbursement) (1) .06%
Other Fees (After Reimbursement) (1) .32%
---
Total Other Expenses (After Fee Waiver and Reimbursement) (1) .80%
---------
Total Operating Expenses (After Fee Waiver and Reimbursement) (1) .80%
---------
---------
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period $ 8 $ 24 $ 44 $ 101
--- --- --- -----
--- --- --- -----
</TABLE>

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

(1) The Manager has voluntarily agreed to waive a portion of its 0.60%
management fee, up to the full amount of that fee, equal to the amount by
which the Fund's total operating expenses exceed 0.80% of the Fund's average
daily net assets on an annual basis. The Manager has voluntarily agreed to
reimburse the Fund for all remaining expenses after fee waivers which exceed
0.80% of average daily net assets on an annual basis. The gross annual
Management Fees before the waivers and reimbursement would be 0.60% of
average daily net assets. The estimated gross annual custodian fees,
transfer agent fees, other fees and Total Operating Expenses absent the
reimbursement would have been .90%, .12%, .68% and 2.30%, respectively of
average daily net assets. The management fee waivers and reimbursements are
intended to be in effect for 1998, but may be revised or eliminated at any
time thereafter without notice to shareholders.

7
<PAGE>

FINANCIAL HIGHLIGHTS OF THE MULTI-STYLE EQUITY FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Investment Company's
independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other performance
information derived from the financial statements. The information in the table
represents the Financial Highlights for the Fund's Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into the Statement of Additional Information and
which appear, along with the report of Coopers & Lybrand L.L.P. in the Fund's
Annual Report to Shareholders. More detailed information concerning the Fund's
performance, including a complete portfolio listing and audited financial
statements, is available in the Fund's Annual Report, which may be obtained
without charge by writing or calling the Investment Company.

MULTI-STYLE EQUITY FUND

<TABLE>
<CAPTION>
1997++
---------
<S> <C>
Net Asset Value, Beginning of Year $ 10.00
---------
Income From Investment Operations:
Net investment income .09
Net realized and unrealized gain (loss) on investments 2.75
---------
Total From Investment Operations 2.84
---------
Less Distributions:
Net investment income (.06)
In excess of net investment income --
Net realized gain on investments --
In excess of net realized gain on investments --
Total Distributions (.06)
---------
Net Asset Value, End of Year $ 12.78
---------
---------
Total Return (%) (a) 28.53
Ratios (%)/Supplemental Data: (b)
Operating expenses, net, to average net assets .92
Operating expenses, gross, to average net assets 1.61
Net investment income to average net assets .76
Portfolio turnover (b) 64.95
Net assets, end of year ($000 omitted) $ 23,639
Per share amount of fees waived ($ omitted) --
Per share amount of fees reimbursed ($ omitted) --
</TABLE>

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

(a) The total return for the period is not annualized.

(b) The ratios for the period January 2, 1997 (commencement of operations) to
December 31, 1997, are annualized.

++ For the period January 2, 1997 (commencement of operations) to December 31,
1997.

* See the notes to financial statements which appear in the Investment
Company's Annual Report to Shareholders and which are incorporated by
reference into the Statement of Additional Information.

8
<PAGE>

FINANCIAL HIGHLIGHTS OF THE AGGRESSIVE EQUITY FUND*

AGGRESSIVE EQUITY FUND

<TABLE>
<CAPTION>
1997++
---------
<S> <C>
Net Asset Value, Beginning of Year $ 10.00
---------
Income From Investment Operations:
Net investment income .04
Net realized and unrealized gain (loss) on investments 3.45
---------
Total From Investment Operations 3.49
---------
Less Distributions:
Net investment income (.04)
---------
Net Asset Value, End of Year $ 13.45
---------
---------
Total Return (%) (a) 35.07
Ratios (%)/Supplemental Data:
Operating expenses, net, to average net assets (b) 1.25
Operating expenses, gross, to average net assets (b) 2.22
Net investment income to average net assets (b) .39
Portfolio turnover (b) 91.56
Net assets, end of year ($000 omitted) $ 15,372
Average commission rate paid per share of security ($ omitted) .0360
</TABLE>

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

(a) The total return for the period is not annualized.

(b) The ratios for the period January 2, 1997 (commencement of operations) to
December 31, 1997, are annualized.

++ For the period January 2, 1997 (commencement of operations) to December 31,
1997.

* See the notes to financial statements which appear in the Investment
Company's Annual Report to Shareholders and which are incorporated by
reference into the Statement of Additional Information.

9
<PAGE>

FINANCIAL HIGHLIGHTS OF THE NON-U.S. FUND*

NON-U.S. FUND

<TABLE>
<CAPTION>
1997++
---------
<S> <C>
Net Asset Value, Beginning of Year $ 10.00
---------
Income From Investment Operations:
Net investment income .09
Net realized and unrealized gain (loss) on investments (.06)
---------
Total From Investment Operations .03
---------
Net Asset Value, End of Year $ 10.03
---------
---------
Total Return (%) (a) .30
Ratios (%)/Supplemental Data:
Operating expenses, net, to average net assets (b) 1.30
Operating expenses, gross, to average net assets (b) 3.60
Net investment income to average net assets (b) .98
Portfolio turnover (b) 68.54
Net assets, end of year ($000 omitted) $ 6,876
Average commission rate paid per share of security ($ omitted) (c) .0026
</TABLE>

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

(a) The total return for the period is not annualized.

(b) The ratios for the period January 2, 1997 (commencement of operations) to
December 31, 1997, are annualized.

(c) In certain foreign markets the relationship between the translated U.S.
dollar price per share and commission paid per share may vary from that of
domestic markets.

++ For the period January 2, 1997 (commencement of operations) to December 31,
1997.

* See the notes to financial statements which appear in the Investment
Company's Annual Report to Shareholders and which are incorporated by
reference into the Statement of Additional Information.

10
<PAGE>

FINANCIAL HIGHLIGHTS OF THE CORE BOND FUND*

CORE BOND FUND

<TABLE>
<CAPTION>
1997++
---------
<S> <C>
Net Asset Value, Beginning of Year $ 10.00
---------
Income From Investment Operations:
Net investment income .64
Net realized and unrealized gain (loss) on investments .30
---------
Total From Investment Operations .94
---------
Less Distributions:
Net investment income (.49)
---------
Net Asset Value, End of Year $ 10.45
---------
---------
Total Return (%) (a) 9.73
Ratios (%)/Supplemental Data:
Operating expenses, net, to average net assets (b) .80
Operating expenses, gross, to average net assets (b) 2.20
Net investment income to average net assets (b) 6.38
Portfolio turnover (b) 53.86
Net assets, end of year ($000 omitted) $ 8,523
</TABLE>

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

(a) The total return for the period is not annualized.

(b) The ratios for the period January 2, 1997 (commencement of operations) to
December 31, 1997, are annualized.

++ For the period January 2, 1997 (commencement of operations) to December 31,
1997.

* See the notes to financial statements which appear in the Investment
Company's Annual Report to Shareholders and which are incorporated by
reference into the Statement of Additional Information.

11
<PAGE>
THE PURPOSE OF RIF

RIF has been organized to provide the investment base for one or more
variable insurance products ("Policies") to be issued by one or more Insurance
Companies. Accordingly, the interest of a policyowner in RIF's shares is subject
to the terms of the Policy described in the accompanying prospectus for the
Policy, which should be reviewed carefully by a person considering the purchase
of a Policy. That prospectus describes the relationship between increases or
decreases in the net asset value of Fund shares and any distributions on such
shares, and the benefits provided under the Policy. The rights of an Insurance
Company as a shareholder of a Fund should be distinguished from the rights of a
policyowner which are described in the Policies. As long as shares of the Funds
are sold only to the Insurance Company, the term "shareholder" or "shareholders"
in this Prospectus shall refer to an Insurance Company owning shares of RIF.

FRANK RUSSELL COMPANY--CONSULTANT TO RIF

Russell, 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. Russell and its
affiliates have offices in Tacoma, New York, Toronto, London, Zurich, Paris,
Sydney, Auckland, Tokyo and Hong Kong, and have approximately 1,350 associates.

Three functions are at the core of Russell'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 specific 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 objectives of
reducing risk and increasing returns.

MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION

FRIMCo and Russell believe investors should seek to hold fully diversified
portfolios that reflect both their own individual investment time horizons and
their ability to accept risk. FRIMCo and Russell believe that for many, this can
be accomplished through strategically purchasing shares in one or more of the
Funds. The Funds which have been structured to provide access to specific asset
classes in a multi-style, multi-manager environment.

Capital market history shows that asset classes with greater risk will
generally outperform lower risk asset classes over time. For instance, corporate
equities over the past 50 years have outperformed corporate debt in absolute
terms. However, what is generally true of performance over extended periods will
not necessarily be true at any given time during a market cycle, and from time
to time, asset classes with greater risk may also underperform lower risk asset
classes on either a risk adjusted or absolute basis.

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Investors should select a mix of asset classes that reflects their overall
ability to withstand market fluctuations over their investment horizons.

Studies have shown that no one investment style within an asset class will
consistently outperform competing styles. For instance, investment styles
favoring securities with growth characteristics may outperform styles favoring
income producing securities, and vice versa. It is largely for this reason that
no single manager has consistently outperformed the market over extended
periods, while performance cycles tend to repeat themselves, they do not do so
predictably.

FRIMCo and Russell do believe, however, that it is possible to select
managers who have shown a consistent ability to achieve superior results within
specific asset classes and investment styles by employing a unique combination
of qualitative and quantitative measurements. FRIMCo and Russell combine these
select managers with other managers within the same asset class who employ
complementary styles. By combining complementary investment styles within an
asset class, investors are better able to reduce their exposure to any one
investment style going out of favor.

By strategically selecting from among a variety of investments by asset
class, each of which has been constructed using these multi-style, multi-manager
principles, investors are able to craft portfolios that meet their specific
investment needs.

GENERAL MANAGEMENT OF RIF

RIF's Board of Trustees is responsible for overseeing generally the
operation of RIF, including reviewing and approving RIF's contracts with FRIMCo,
Russell and the Money Managers. RIF's officers, all of whom are employed by
FRIMCo or its affiliates, are responsible for the day-to-day management and
administration of RIF's operations. The Money Managers are responsible for
individual portfolio securities selection for the assets 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 RIF; (ii) provides RIF with office space, equipment, and personnel
necessary to operate and administer RIF's business, and to supervise the
provision of services by third parties, such as the Money Managers and the
custodian bank; (iii) develops the investment programs, selects the Money
Managers, allocates assets among the Money Managers, and monitors the Money
Managers' investment programs and results; (iv) is authorized to select or hire
Money Managers to select individual portfolio securities held in RIF's
"Liquidity Portfolios" (see, "Investment Policies--Liquidity Portfolios"); and
(v) provides RIF with transfer agent and shareholder recordkeeping services.
FRIMCo bears the expenses it incurs in providing these services (other than
transfer agent and shareholder recordkeeping), as well as the costs of preparing
and distributing explanatory materials concerning the Funds (less any amounts
reimbursed by the Insurance Company for marketing materials).

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.

- Mark D. Amberson, who has been a Portfolio Manager of FRIMCo since January
1998. From 1991 to 1997, Mr. Amberson was a Portfolio Manager in Russell's
Money Market Trading Group.

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Mr. Amberson, jointly with another Portfolio Manager identified herein,
has primary responsibility for management of the Core Bond Fund.

- Randal C. Burge, who has been a Portfolio Manager of FRIMCo since 1995.
From 1990 to 1995, Mr. Burge was a Client Executive for Frank Russell
Australia. Mr. Burge, jointly with another Portfolio Manager identified
herein, has primary responsibility for management of the Core Bond Fund.

- Jean E. Carter, who has been a Portfolio Manager of FRIMCo since 1994.
From 1990 to 1994, Ms. Carter was a Client Executive for Russell's
Investment Group. Ms. Carter, jointly with another Portfolio Manager
identified herein, has primary responsibility for management of the Non-US
Equity Fund.

- Ann Duncan, who has been a Portfolio Manager of FRIMCo since January 1998.
From 1996 to 1997, Ms. Duncan was a Senior Equity Research Analyst with
Russell. From 1992 to 1995, Ms. Duncan was an equity analyst and portfolio
manager with Avatar Associates. Ms. Duncan, jointly with another Portfolio
Manager identified herein, has primary responsibility for management of
the Non-US Equity Fund.

- James M. Imhof, Manager of FRIMCo's Portfolio Trading, who manages the
Trust on a day to day basis, and has been responsible for ongoing analysis
and monitoring of the money managers since 1989.

- Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of Russell's
U.S. Equity Manager Research Department. Mr. Trittin, jointly with another
Portfolio Manager identified herein, has primary responsibility for
management of the Multi-Style and Aggressive Equity 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
Russell. Ms. Williams, jointly with another Portfolio Manager identified
herein, has primary responsibility for management of the Multi-Style and
Aggressive Equity Funds.

Russell provides to each Fund and to FRIMCo asset management consulting
services--including the objective setting and asset allocation technology, and
the Money Manager research and evaluation assistance--which Russell provides to
its other consulting clients. Russell receives no fee from RIF or FRIMCo for
these consulting services. Russell and FRIMCo, as affiliated companies, may
establish certain intercompany cost allocations for budgeting and product
profitability purposes which may reflect Russell services supplied to FRIMCo.

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

RIF has received an exemptive order from the U.S. Securities and Exchange
Commission (the "SEC") which permits RIF, 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
RIF Fund.

For its services, FRIMCo receives a management fee from each Fund. From this
fee, FRIMCo, acting as agent for RIF, is responsible for paying the Money
Managers for their investment selection services. The

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<PAGE>
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 equal to the following percentages of the
average daily net assets of each fund: Multi-Style Equity Fund, .78%; Aggressive
Equity Fund, .95%; Non-U.S. Fund, .95%; and Core Bond Fund, .60% of average
daily net assets. The fee paid by some of the Funds may be higher than the fees
charged to other mutual funds with similar objectives which use only a single
money manager.

Until further notice, FRIMCo intends to voluntarily waive all or a portion
of its management fees, and, if necessary, reimburse Fund total operating
expenses, to the extent necessary for each of the Funds to maintain annual
expenses ratios of not more than .92% for the Multi-Style Equity Fund; 1.25% for
the Aggressive Equity Fund; 1.30% for the Non-U.S. Fund and .80% for the Core
Bond Fund. FRIMCo intends its fee waivers and reimbursements to remain in effect
throughout 1998, but such waiver may be revised or eliminated at any time
therefore, without notice to shareholders.

EXPENSES OF THE FUNDS

The Funds will pay all of their expenses other than those expressly assumed
by FRIMCo. The Funds' principal expenses are expected to include the management
and transfer agent fees payable to FRIMCo; fees for custodial, portfolio
accounting and tax accounting services payable to State Street Bank and Trust
Company; fees for independent auditing and legal services; deferred
organizational expenses; and fees for filing reports and registering shares with
regulatory bodies.

THE MONEY MANAGERS

The assets of each Fund are allocated currently among the Money Managers
listed in the section "Money Manager Profiles" and FRIMCo. THE ALLOCATION OF A
FUND'S ASSETS AMONG MONEY MANAGERS AND FRIMCO MAY BE CHANGED AT ANY TIME BY
FRIMCO. MONEY MANAGERS ARE EMPLOYED FOR MANAGEMENT OF THE ASSETS OF A FUND
PURSUANT TO MANAGEMENT CONTRACTS APPROVED BY THE BOARD OF TRUSTEES OF RIF
(INCLUDING A MAJORITY OF CERTAIN TRUSTEES WHO ARE NOT INTERESTED PERSONS OF RIF
OR FRIMCO), AND A MONEY MANAGER'S SERVICES MAY BE TERMINATED AT ANY TIME BY
FRIMCO, THE BOARD OF TRUSTEES, OR THE SHAREHOLDERS OF AN AFFECTED FUND. A Fund
may, without the approval of its shareholders, provide for the employment of a
new Money Manager pursuant to the provisions of a new management contract. RIF
will notify shareholders of the Fund concerned within 60 days of when a Money
Manager begins providing services or of implementation of a material change in a
Money Manager's contract.

From its management fees, FRIMCo, as agent for RIF, pays all fees to the
Money Managers for their investment selection services. 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. Management fees
payable to the money managers during 1997 were equivalent to the following
annual rates expressed as a percentage of the average daily net assets of each
fund: Multi-Style Equity Fund .24%, Aggressive Equity Fund .53%, Non-U.S. Fund
.37% and Core Bond Fund .19%. FRIMCo will retain, as compensation for the
services described under "General Management of the Funds" and to pay its
expenses, the difference between these fees and the management fee of the
applicable Fund. Fees paid to the Money Managers are not affected by any
voluntary or statutory expense limitations. Some Money Managers may receive
investment research prepared by Russell as additional compensation, or may
receive brokerage commissions for executing portfolio transactions for the Funds
through broker-dealer affiliates.

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Each Money Manager has agreed that once RIF has advanced fees to FRIMCo as
agent to make payment of the Money Manager's fee, that Money Manager will look
only to FRIMCo as agent to make the payment of its fee.

Money Managers are selected for RIF's Funds based primarily upon the
research and recommendations of Russell and FRIMCo, which evaluate qualitatively
and quantitatively each Money 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 recommending
or terminating a Money Manager.

Each Money Manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund within the Fund's investment objectives,
restrictions and policies, and the more specific strategies developed by Russell
and FRIMCo with respect to the particular investment style for which the Money
Manager was engaged. Although the Money Managers' activities are subject to
general oversight by the Board of Trustees and officers of RIF, neither the
Board, the officers, FRIMCo nor Russell evaluate the investment merits of the
Money Managers' portfolio security selections. However, the Funds' cash holdings
may be managed by FRIMCo to achieve economies of scale.

INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES

Each 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 Fund. If there is a change in a fundamental investment
objective, investors should consider whether the Fund remains an appropriate
investment in light of their then current financial position and needs. Other
policies reflect current practices of the Funds, and may be changed by the Funds
without the approval of shareholders. This section of the Prospectus describes
the Funds' principal objectives, restrictions and policies. A more detailed
discussion appears in the Statement of Additional Information ("SAI").

INVESTMENT OBJECTIVES

Each Fund's objective is "fundamental," as are the types of securities in
which it will invest. Ordinarily, each Fund will invest more than 65% of its net
assets in the types of securities identified in its statement of objectives.
However, the 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. (SEE,
"Investment Policies--Cash Reserves.")

MULTI-STYLE 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.

AGGRESSIVE EQUITY FUND'S objective is to seek to provide capital
appreciation by assuming a higher level of volatility than is ordinarily
expected from Multi-Style Equity Fund by investing in equity 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-Registered Trademark- 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

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<PAGE>
companies characterized as "special situations" where the Money Managers believe
that cyclical developments in the securities markets, the industry, or the
issuer itself present opportunities for capital growth.

NON-U.S. FUND'S objective is 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 of 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. Under normal market conditions, at least 65% of the value of the
Fund's total assets will be invested in at least three different countries, not
including the United States.

CORE BOND FUND'S objective is to maximize total return, through capital
appreciation and income by assuming a level of volatility consistent with the
broad fixed-income market, 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 supranational agencies; corporate debt securities;
loan participations; corporate commercial paper; indexed commercial paper;
variable, floating and zero coupon rate 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 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 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 up to 25% of its 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

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<PAGE>
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 and
debt rated Ba, B, Caa, Ca and C is regarded by S&P and Moody's, respectively, 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
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, please refer
to RIF's Statement of Additional Information.

INVESTMENT RESTRICTIONS

The 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 Fund will:

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

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

3. Acquire more than 5% of the outstanding voting securities, or 10% of all of
the securities, of any one issuer.

4. Borrow amounts in excess of 5% of its total assets taken at cost or at
market value, whichever is lower, and then only for temporary purposes.

The Funds also have certain non-fundamental investment restrictions,
including a restriction that no Fund will invest more that 5% of its assets in
securities of issuers which, together with any predecessor have been in
operation for less than three years; or invest more than 5% of its assets in
warrants.

INVESTMENT POLICIES

The Funds use certain investment instruments and techniques commonly used by
institutional investors. The principal policies are the following:

CASH RESERVES. Each Fund is authorized to invest its cash reserves (and
funds awaiting investment in the specific types of securities to be acquired by
a Fund) in money market instruments, including shares of unaffiliated money
market funds, and in debt securities which are at least comparable in quality to
the Fund's permitted investments, including call deposits with the RIF's
custodian.

REPURCHASE AGREEMENTS. Each 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 Fund (102% at time of the agreement) should fall below
the repurchase price, the Fund could incur a loss. Subject to the overall
limitations described in "Investment Policies--Illiquid

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<PAGE>
Securities," no Fund will invest more than 15% of its total assets (taken at
current market value) in repurchase agreements maturing in more than seven days.

LIQUIDITY PORTFOLIOS. FRIMCo will exercise investment discretion or select
a Money Manager to exercise investment discretion for approximately 5%-15% of
each of the Multi-Style Equity, Aggressive Equity, and Non-U.S. Funds' assets
assigned to a "Liquidity Portfolio." Each Fund's Liquidity Portfolio will be
used to create temporarily, through investments in options and futures
contracts, an equity exposure for that Fund's cash balances until those balances
are invested in securities or used for Fund transactions. The purpose of having
this portfolio is to hedge against the effect that changes in general market
conditions might have on the value of securities that are held in the applicable
Fund's portfolios or of securities that the Funds intend to purchase.

FORWARD COMMITMENTS. Each 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 the Fund's ability to manage its investment portfolio and honor
redemption requests. When effecting such transactions, liquid assets of the 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.

REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements to meet redemption requests where the liquidation of portfolio
securities is deemed by a Money Manager to be inconvenient or disadvantageous. A
reverse repurchase agreement is a transaction whereby a 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 Fund retains record
ownership of the security involved including the right to receive interest and
principal payments. At an agreed upon future date, the Fund repurchases the
security by paying an agreed upon purchase price plus interest. Liquid Assets of
the 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 overall limitations described in "Investment
Policies--Illiquid Securities," no Fund will invest more than 15% of its total
assets (taken at current market value) in reverse repurchase agreements maturing
in more than seven days.

LENDING PORTFOLIO SECURITIES. Each 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. The 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, the Funds' custodian, for which it may
receive an asset-based fee) and other investments meeting certain quality and
maturity requirements established by the 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
Fund and the Fund's custodian.

The 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 Fund will call loans to vote proxies if a
material issue affecting the investment is to be voted upon. Should the borrower
of the

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<PAGE>
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. RIF 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 Fund must immediately pay the amount of the
shortfall to the borrower.

ILLIQUID SECURITIES. The Funds, will not purchase or otherwise acquire any
security if, as a result, more than 15% of its 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 Funds will not invest more than 10% in securities of
issuers which may not be sold to the public without registration under the
Securities Act of 1933 (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, the Fund's holding of that security may be
illiquid. There may be undesirable delays in selling illiquid securities at
prices representing their fair value.

INVESTMENT IN FOREIGN SECURITIES. The 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 exchange
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.

The risks associated with investing in foreign securities are often
heightened for investments in developing or emerging markets. 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 Fund's securities
will generally be denominated in foreign currencies, the value of such
securities to the Fund 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 Fund's securities. In addition, some emerging market countries may
have fixed or managed currencies which are not free-floating against the US
dollar. Further,

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<PAGE>
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 markets 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. The 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 and trust company evidencing ownership of the underlying securities.
Generally, ADRs in registered form are designed for use in the U.S. Securities
markets.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS ("FORWARD CURRENCY
CONTRACTS"). The Non-U.S. and Core Bond 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 a Fund enters into a contract. The
Funds may engage in forward contracts that involve transacting in 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 Fund's portfolio securities are or are
expected to be 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 Funds may, however, enter into forward currency
contracts containing either or both deposit requirements and commissions. In
order to assure that the 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.

Upon maturity of a forward currency contract, the Funds may (a) pay for and
receive 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 currency contract by
entering into an offset with the currency trader whereby the Funds pay for and
receive the difference between the exchange rate fixed in the contract and the
then current exchange rate. The Fund also may be able to negotiate such an
offset prior to maturity of the original forward currency contract. There can be
no assurance that new forward currency contracts or offsets will always be
available to the Funds.

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 the Fund's portfolio securities or adversely affect the price of
securities which the Funds intend to purchase at a later date. The amount the
Funds may invest in forward currency contracts is limited to the amount of the
Funds' aggregate investments denominated in foreign currencies.

The market for forward currency contracts may be limited with respect to
certain currencies. These factors will restrict a 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 currency contracts draws upon a Money Manager's
special skills and experience with respect to such instruments and usually

21
<PAGE>
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
currency 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 currency 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 risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time the Funds are engaged in that strategy.

A 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 currency 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 a Fund will be able to utilize these instruments
effectively for the purposes set forth above.

OPTIONS. The 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 Funds, may also
purchase and sell put and call options on foreign currencies.

A Fund may invest up to 5% of its assets, represented by the premium paid,
in call and put options. A 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.

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.

A 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.
A 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.

A 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.

To close out a position when writing covered options, a 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, a Fund may make a "closing sale transaction," which involves liquidating
the Fund's position by selling the option previously purchased. The 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.

22
<PAGE>
The 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 Funds intend to purchase and write call and put options on specific
securities. The Funds will purchase and write options only to the extent
permitted by the policies of state securities authorities in states where the
shares of the Funds are qualified for offer and sale.

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. Only the Multi-Style Equity,
Aggressive Equity, and Non-U.S. Funds, currently intend to purchase and write
call and put options on securities indexes.

The purchase and writing of options involves certain risks. If a put or call
option purchased by a 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 a 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 a 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 the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Fund may be unable to close
out a position.

OPTIONS ON FOREIGN CURRENCY. The 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 a 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. For a
more detailed description of options, including a discussion of the risks
associated with options, see "Call and Put Options on Specific Securities,"
above. None of the Funds currently intends to write or purchase such
exchange-traded options.

23
<PAGE>
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The 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.

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 certificates issued by the Government
National Mortgage Association ("GNMA") 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.

Each 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 a Fund and the hedging vehicle so that the
portfolio return might have been greater had hedging not been attempted.

There can be no assurance that a liquid market will exist at a time when a
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 a Fund from liquidating an unfavorable
position and the Fund would remain obligated to meet margin requirements until
the position is closed.

The 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. A 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 asset equal to or greater
than the fluctuating value of the contract (less any margin or deposit). A 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" above.

A 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. A Fund may also enter into

24
<PAGE>
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.

HIGH RISK BONDS. The Funds, other than the Core Bond Fund, do not invest
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 and above are
considered by those rating agencies to be "investment grade" securities,
although Moody's and S&P consider securities rated Baa to have some speculative
characteristics. The Funds, other than the Core Bond Fund, will dispose of, in a
prudent and orderly fashion, securities whose ratings drop below these minimum
ratings. For additional information, please refer to the Funds' Statement of
Additional Information.

The Core Bond Fund will invest in "investment grade" securities and may
invest up to 25% of its total assets 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 Fund 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 Fund's 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 Core Bond Fund will
seek to reduce the risks associated with investing in such securities by
limiting the Fund's holdings in such securities and by the depth of their own
credit analysis. For additional information, please refer to the Statement of
Additional Information.

U.S. GOVERNMENT OBLIGATIONS. The types of US government obligations the
Funds may at times invest in include: (1) a variety of US Treasury obligations,
which differ only in their interest rates, maturities and times of issuance: (a)
US Treasury bills have a maturity of one year or less; (b) US Treasury notes
have original maturities of one to ten years; and (c) US Treasury bonds have
original maturities of greater than ten years; (2) obligations issued or
guaranteed by US government agencies and instrumentalities, which are supported
by any of the following: (a) the full faith and credit of the US Treasury (such
as 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 Funds
may purchase US government obligations on a forward commitment basis.

25
<PAGE>
PORTFOLIO TRANSACTION POLICIES

Decisions to buy and sell securities are made by the Money Managers for the
assets assigned to them, and by FRIMCo or the Money Manager for the Liquidity
Portfolios. Money Managers make decisions to buy or sell securities
independently from other Managers. Thus, one Manager could be selling a security
when another Manager for the same Fund is purchasing the same security. In
addition, when a Money Manager's services are terminated and another retained,
the new Money Manager may significantly restructure the portfolio within the
investment guidelines and restrictions imposed on the portfolio. These practices
may increase the Funds' portfolio turnover rates, realization of gains or
losses, brokerage commissions and other transaction based costs. The annual
portfolio turnover rates for the Funds are shown in the Financial Highlights
Tables in this Prospectus. A high portfolio turnover rate generally will result
in higher brokerage transaction costs and may result in higher levels of
realized capital gains or losses with respect to a Fund's portfolio securities
(see "Taxes"). RIF's Board of Trustees monitors portfolio activities to minimize
possible adverse consequences.

FRIMCo and the various money managers arrange for the purchase and sale of
the Investment Company's securities and the selection of brokers and dealers
(including affiliates), which in their best judgment provide prompt and reliable
execution at favorable prices and reasonable commission rates. In addition to
price and commission rates, brokers and dealers may be selected based on
research, statistical or other services they are able to provide. This may cause
the Investment Company to pay commissions at rates that exceed rates that other
brokers and dealers may have charged if it views the commissions as reasonable
in relation to the value of the brokerage and/or research services.

The Funds may effect portfolio transactions through Frank Russell
Securities, Inc., an affiliate of FRIMCo, when a money manager determines that
the Fund will receive competitive execution, price, and commissions. Upon
completion of such transactions, Frank Russell Securities, Inc. will refund up
to 70% of the commissions paid by that Fund after reimbursement for research
services provided to FRIMCo. Similarly, the Funds may effect portfolio
transactions through and pay brokerage commissions to the various money manager
affiliated brokers.

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS

The Board of Trustees presently intends that dividends will be declared from
net investment income, for payment on the following schedule:

<TABLE>
<CAPTION>
DECLARED PAYABLE
- ----------- ----------------------------
<S> <C> <C>
Quarterly Mid-February, April, July Multi-Style Equity, Aggressive Equity and Core
and October Bond Funds

Annually Mid-February Non-U.S. Fund
</TABLE>

CAPITAL GAINS DISTRIBUTIONS

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

26
<PAGE>
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 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, RIF's transfer and dividend paying agent, at Operations
Department, P.O. Box 1591, Tacoma, WA 98401.

TAXES

Each Fund intends to qualify and to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As such, a Fund is not subject to Federal income tax on
that part of its investment company taxable income (consisting generally of net
investment income, net gains from certain foreign currency transactions, and net
short-term capital gain, if any) and any net capital gain (the excess of net
long-term capital gain over net short-term capital loss) that it distributes to
its shareholders. It is the intention of each Fund to distribute all such income
and gains.

Fund shares are offered only to separate accounts of Insurance Companies
(which are insurance company separate accounts that fund the Policies). For a
discussion of the taxation of life insurance companies and the separate
accounts, as well as the tax treatment of the Policies and the holders thereof,
see the discussion regarding "Federal Tax Considerations" included in the
prospectus for the Policies.

Each Fund intends to comply with the diversification requirements imposed by
Section 817(h) of the Code and the regulations thereunder. These requirements
are in addition to the diversification requirements imposed on each Fund by
Subchapter M of the Code and the 1940 Act. These requirements place certain
limitations on the assets of each separate account that may be invested in
securities of a single issuer, and, because Section 817(h) and the regulations
thereunder treat a Fund's assets as assets of the related separate account,
these limitations also apply to the Fund's assets that may be invested in
securities of a single issuer. Generally, the regulations provide that, as of
the end of each calendar quarter, or within 30 days thereafter, no more than 55%
of a Fund's total assets may be represented by any one investment, no more than
70% by any two investments, nor more than 80% by any three investments, and no
more than 90% by any four investments. For purposes of Section 817(h), all
securities of the same issuer, all interests in the same real property project,
and all interests in the same commodity are treated as a single investment. A
government security includes any security issued or guaranteed or insured by the
United States or an instrumentality of the United States. In the case of
government security, each government agency or instrumentality shall be treated
as a separate issuer. Failure of a Fund to satisfy the Section 817(h)
requirements could result in adverse tax consequences to the Insurance Company
and holders of Policies, other than as described in the prospectus for the
Policies.

The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting the Funds and their shareholders; see the
Statement of Additional Information and Policy Prospectus for a more detailed
discussion. Prospective investors are urged to consult their tax advisers.

27
<PAGE>
PERFORMANCE AND YIELD INFORMATION

From time to time, the RIF 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. The average annual total returns for the Funds are as
follows:

<TABLE>
<CAPTION>
INCEPTION TO DEC. 31, INCEPTION
1997 DATE
------------------------- -------------
<S> <C> <C>
Multi-Style Equity Fund 28.53% 01/02/97
Aggressive Equity Fund 35.07 01/02/97
Non-U.S. Fund 0.30 01/02/97
Core Bond Fund 9.73 01/02/97
</TABLE>

The Core Bond Fund also may from time to time advertise its yield. 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--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 the Fund's portfolio. The calculation includes all
recurring fees that are charged to all shareholder accounts.

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

FRIMCO'S HISTORICAL PERFORMANCE

Because the RIF Funds commenced operations on January 2, 1997, they do not
yet have a significant performance history. However, FRIMCo has a history of
investment performance managing other investment portfolios with investment
objectives, strategies, policies, and restrictions substantially similar to the
Funds'. Set forth below are historical performance data provided by FRIMCo
pertaining to those investment portfolios. The data is provided to illustrate
past performance in managing similar portfolios. The results presented are not
intended to predict or suggest the return to be experienced by any Funds or the
return an individual investor might achieve by investing in a Fund. A Fund's
investment returns may differ from those of the relevant portfolio because,
among other things, the Fund's fees and expenses may differ from those of the
applicable portfolio.

28
<PAGE>

<TABLE>
<CAPTION>
PERCENTAGE TOTAL RETURNS(1)
PERIODS ENDING DECEMBER 31, 1997
(UNAUDITED)

ANNUALIZED
---------------------------------------------------------------------
10 YEARS
1 YEAR ENDED 5 YEARS ENDED ENDED INCEPTION TO INCEPTION
DEC. 31, 1997 DEC. 31, 1997 DEC. 31, 1997 DEC. 31, 1997 DATE
------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
FRANK RUSSELL INVESTMENT COMPANY

[RIF Multi-Style Equity Fund
comparable]
DIVERSIFIED EQUITY FUND CLASS S 31.32 19.32 16.97 16.48 9/5/85

[RIF Aggressive Equity Fund
comparable]
SPECIAL GROWTH FUND CLASS S 28.77 16.90 15.57 14.78 9/5/85

[RIF Non-US Fund comparable]
INTERNATIONAL SECURITIES FUND CLASS
S .26 10.73 8.16 13.14 9/5/85

FRANK RUSSELL TRUST COMPANY

[RIF Core Bond Fund comparable]
FIXED INCOME I FUND 10.37 8.34 9.81 11.80 10/01/80
</TABLE>

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

(1) Performance is calculated based on the SEC standardized method, except for
Frank Russell Trust Company Fixed Income I Fund, the performance of which is
calculated using a time-weighted method. Frank Russell Trust Company Fixed
Income Fund is not a registered mutual fund, but is a commingled employee
benefit plan trust fund. Periods of 12 months and over are annualized.
Indexes are unmanaged. The performance figures do not reflect Insurance
Company separate account fees and charges. Performance is reported net of
fund investment management fees except for Frank Russell Trust Company Fixed
Income I Fund which is shown gross of management fees. The performance for
that Fund would have been reduced if management fees had been deducted. The
annual management fee over the period(s) shown was 0.78% for Diversified
Equity Fund; 0.95% for Special Growth Fund; and 0.95% for International
Securities Fund. These fees are the same as those of each of the comparable
RIF Funds.

VALUATION OF FUND SHARES

NET ASSET VALUE PER SHARE

The net asset value per share is calculated for each 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 a Fund by dividing the current value
of the Fund's assets, less its liabilities, by the number of shares of the Fund
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).

29
<PAGE>
VALUATION OF PORTFOLIO SECURITIES

With the exceptions noted below, the Funds value portfolio securities at
"fair market value." This generally means that equity securities and
fixed-income securities listed and traded principally on any national securities
exchange are valued on the basis of the last sale price or, lacking any sale, at
the closing bid price, on the primary exchange on which the security is traded.
United States over-the-counter equity and fixed-income securities and options
are valued on the basis of the closing bid price, and futures contracts are
valued on the basis of last sell price.

Because many fixed-income securities do not trade each day, last sale or bid
prices are frequently not available. Fixed-income securities therefore may be
valued using prices provided by a pricing service when such prices are believed
to reflect the fair market value of such securities. International equity
securities traded on a national securities exchange are valued on the basis of
the last sale price. Non-U.S. traded over-the-counter securities are valued on
the basis of the mean of bid prices. In the absence of a last sale or mean bid
price, respectively, such securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the fair
market value of such securities.

Money market instruments maturing within 60 days of the valuation date held
by Funds 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 Fund would
receive if it sold the instrument.

The Funds value securities for which market quotations are not readily
available at "fair value," as determined in good faith pursuant to procedures
established by the Board of Trustees.

PURCHASE OF FUND SHARES

Separate accounts of the Insurance Companies place orders based on, among
other things, the amount of premium payments to be invested pursuant to
Policies. Individuals may not place orders directly with RIF. See the prospectus
of the Separate Account and Policies of the Insurance Company for more
information on the purchase of Fund shares and with respect to the availability
for investment in specific Funds. The Funds do not issue share certificates.

Purchase orders from Separate Accounts based on premiums and transaction
requests received by the Insurance Company on a given business day in accordance
with procedures established by the Insurance Company will be effected at the net
asset value of the applicable Fund determined on such business day if the orders
are received by RIF in proper form and in accordance with applicable
requirements on the next business day before 8:00 am, pacific time, and federal
funds (monies of member banks within the Federal Reserve System which are held
on deposit at a Federal Reserve Bank) in the net amount of such orders are
received by RIF on such next business day in accordance with applicable
requirements by 11:00 am, Pacific time. It is each Insurance Company's
responsibility to properly transmit purchase orders and Federal funds in
accordance with applicable requirements. Policy owners should refer to the
prospectus for their Policy and Separate Account in this regard.

REDEMPTION PROCEDURES

Fund shares may be redeemed at any time by the Separate Accounts of the
Insurance Companies. Individuals may not place redemption orders directly with
the Fund. Redemption requests for Separate Accounts based on premiums and
transaction requests received by the Insurance Company on a given

30
<PAGE>
business day in accordance with procedures established by the Insurance Company
will be effected at the net asset value of the applicable Fund determined on
such business day if the requests are received by RIF in proper form and in
accordance with applicable requirements on the next business day. It is each
Insurance Company's responsibility to properly transmit redemption requests in
accordance with applicable requirements. Policy owners should consult their
Insurance Company in this regard. The value of the shares redeemed may be more
or less than their original cost, depending on the Fund's then-current net asset
value. No charges are imposed by a Fund when shares are redeemed.

RIF ordinarily will make payment for all shares redeemed within seven days
after receipt by RIF or its transfer agent of a redemption request in proper
form, except as provided by rules of the SEC.

Should any conflict between variable annuity Policy owners and variable life
insurance Policy owners arise which would require that a substantial amount of
net assets be withdrawn from a Fund, orderly Fund management could be disrupted
to the potential detriment of affected Policy owners.

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, INDEPENDENT ACCOUNTANTS, AND REPORTS

Russell Fund Distributors, Inc., a wholly owned subsidiary of FRIMCo, is the
principal distributor for RIF shares sold to the Insurance Company. The
distributor receives no compensation from RIF for its services.

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

Coopers & Lybrand L.L.P., Boston, Massachusetts, are the Fund's 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 Funds, or their accounts from
FRIMCo.

YEAR 2000

The services provided to the Trust and the shareholders by FRIMCo, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of their outside service
providers. Many computer software systems in use today cannot distinguish the
year 2000 form the year 1900 because of the way dates are encoded and
calculated. Such event could have a negative impact of handling securities
trades, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that there will be no adverse
impact on the Trust, FRIMCo, the Distributor, the Transfer Agent and the
Custodian have advised the Trust that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000 and
expect that their systems, and those of their outside service providers, will be
adapted in time for that event. The obligation to make such adaptations, if any,
would be the responsibility of the service provider that maintains the system.
Therefore, the Trust does not expect to incur any material expense in that
regard.

31
<PAGE>
ORGANIZATION, CAPITALIZATION AND VOTING

RIF was organized as a Maryland corporation on October 8, 1987, and was
reorganized by changing its domicile and legal status to a Massachusetts
business trust under a Master Trust Agreement dated July 11, 1996. Russell 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 RIF the use of the name "Frank Russell" or its derivations.

RIF issues shares of beneficial interest divisible into an unlimited number
of funds, each of which is a separate trust under Massachusetts law, and the
funds' shares may be offered in multiple classes. (The Funds do not presently
offer interests in multiple classes, although they may do so in the future.)
Each Fund share represents an equal proportionate interest in the assets of that
Fund, has a par value of $.01 per share, and is entitled to such dividends and
distributions earned on the assets belonging to such Fund as may be declared by
the Board of Trustees. Shares of a Fund are fully paid and nonassessable and
have no preemptive or conversion rights. Each Fund share has one vote; there are
no cumulative voting rights. There is no Annual Meeting of shareholders, but
Special Meetings may be held. On any matter which affects only a particular
Fund, only shareholders of that Fund vote unless otherwise required by the 1940
Act or the Master Trust Agreement.

The Trustees of RIF hold office for the life of RIF. A Trustee may resign or
retire, and a Trustee may be removed at any time by, in substance, a vote of
two-thirds of RIF's 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.

In connection with an exemptive order which RIF received from the SEC, it
has committed to a "pass-through" voting procedure which will generally require
an Insurance Company to cast votes at RIF meetings as directed by Policyholders,
and to cast votes for which it has not received voting instructions from
Policyholders in the same proportion as those for which instructions have been
received. Policyholders should review their prospectus for their Policies to
determine their rights and responsibilities, and to ascertain when the Insurance
Company may disregard voting instructions.

Under the terms of a second exemptive order received by RIF from the SEC,
shares of a Fund may be sold to separate accounts of more than one Insurance
Company to fund variable life and variable annuity Policies. RIF's Board of
Trustees will monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. An irreconcilable conflict that is not resolved
might result in the withdrawal of a substantial amount of assets, causing a
negative impact on net asset value.

MONEY MANAGER PROFILES

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

MULTI-STYLE EQUITY FUND

ALLIANCE CAPITAL MANAGEMENT L.P., 601 2nd Ave. South, Suite 5000,
Minneapolis, MN 55402-4322, a limited partnership whose (i) general partner is a
wholly owned subsidiary of The Equitable Companies

32
<PAGE>
Incorporated ("The Equitable") and (ii) majority unit holder is ACM, Inc., a
wholly owned subsidiary of The Equitable. Axa, a French insurance company holds
60.5% of The Equitable.

EQUINOX CAPITAL MANAGEMENT INC., 590 Madison Ave, 41st Floor, New York, NY
10022. Equinox is a registered investment adviser with majority ownership held
by Ron Ulrich.

WESTPEAK INVESTMENT ADVISORS, LP, 1011 Walnut Street, Suite 400, Boulder, CO
80302, is indirectly controlled by Metropolitan Life Insurance Company.

AGGRESSIVE EQUITY FUND

ROTHSCHILD ASSET MANAGEMENT, INC., 1251 Avenue of the Americas, 51st Floor,
New York, NY 10020, is a wholly owned subsidiary of Rothschild North America,
Inc., whose indirect parent is Rothschild Concordia A.G., a Swiss-based holding
company for the Rothschild Group.

WESTPEAK INVESTMENT ADVISORS, LP, see Multi-Style Equity Fund.

NON-U.S. FUND

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.

OECHSLE INTERNATIONAL ADVISORS, One International Place, 23th Floor, Boston,
MA 02110, is a limited partnership which is 100% controlled by its general
partners of its general partner, Oechsle Group, L.P. The general partners are:
S. Dewey Keesler, Stephen P. Langer, Walter Oechsle, L. Sean Roche, Steven H.
Schaefer, Tetsuo Shiozumi, Andrew Paslin and Warren Walker.

THE BOSTON COMPANY ASSET MANAGEMENT, INC., One Boston Place, 14th Floor,
Boston, MA 02108, is 100% owned by Mellon Bank Corporation, a publicly held
corporation.

CORE BOND FUND

PACIFIC INVESTMENT MANAGEMENT COMPANY, 840 Newport Center Drive, Suite 360,
Newport Beach, CA 92660, is a subsidiary partnership of PIMCO Advisors 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 02110, is a
company whose ownership is divided among seventeen directors, with no director
having more than a 25% ownership interest.

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.

33
<PAGE>
RUSSELL INSURANCE FUNDS
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700
In Washington (253) 627-7001

MONEY MANAGERS

MULTI-STYLE EQUITY FUND

Alliance Capital Management, L.P
Equinox Capital Management Inc.
Westpeak Investment Advisors, LP

AGGRESSIVE EQUITY FUND

Rothschild Asset Management, Inc.
Westpeak Investment Advisors, LP

NON-U.S. FUND

J.P. Morgan Investment Management, Inc.
Oechsle International Advisors
The Boston Company Asset Management, Inc.

CORE BOND FUND

Pacific Investment Management Company
Standish, Ayer & Wood, Inc.

MANAGER, TRANSFER AND DIVIDEND PAYING AGENT

Frank Russell Investment Management Company
909 A Street
Tacoma, Washington 98402

CONSULTANT

Frank Russell Company
909 A Street
Tacoma, Washington 98402

DISTRIBUTOR

Russell Fund Distributors, Inc.
909 A Street
Tacoma, Washington 98402

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109

LEGAL COUNSEL

Stradley, Ronon, Stevens & Young, LLP
2600 - One Commerce Square
Philadelphia, Pennsylvania 19103-7098

OFFICE OF SHAREHOLDER INQUIRIES

909 A Street
Tacoma, Washington 98402
(800) 832-6688
In Washington (253) 627-7001
<PAGE>

RUSSELL INSURANCE FUNDS
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700
In Washington (253) 627-7001

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1998

Russell Insurance Funds ("RIF") is a single legal entity organized as a
business trust under the laws of the Commonwealth of Massachusetts. RIF operates
four investment portfolios, each referred to as a "Fund":

As of the date of this Statement of Additional Information, RIF is comprised of
the following investment portfolios, each of which commenced operations on the
date set forth opposite the Fund's name.

Fund Fund Inception Date Prospectus Date
---- ------------------- ---------------
<S> <C> <C>
Multi-Style Equity January 2, 1997 May 1, 1998
Aggressive Equity January 2, 1997 May 1, 1998
Non-U.S. Fund January 2, 1997 May 1, 1998
Core Bond January 2, 1997 May 1, 1998

The Funds had aggregate net assets of $78,573,887 on April 1, 1998.
</TABLE>

The Funds serve as the investment base for a variety of insurance products (the
"Policies") to be issued by one or more insurance companies (each referred to
herein as an "Insurance Company").

This Statement of Additional Information supplements or describes in greater
detail information concerning RIF and the Funds contained in the Prospectus of
the Funds dated May 1, 1998. This Statement is not a Prospectus; the Statement
should be read in conjunction with the Funds' Prospectus. Prospectuses may be
obtained without charge by telephoning or writing RIF at the number or address
shown above. You should retain this Statement of Additional Information for
future reference.

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

This statement incorporates by reference the Investment Company's Annual Reports
to shareholders for the year ended December 31, 1997. Copies of the Funds'
Annual Report accompany this statement.

<PAGE>

TABLE OF CONTENTS

Page
----

STRUCTURE AND GOVERNANCE
Organization and Business History
Shareholder Meetings
Controlling Shareholders
Trustees and Officers

OPERATION OF INVESTMENT COMPANY
Service Providers
Consultant
Manager
Money Managers
Distributor
Custodian
Transfer and Dividend Disbursing Agent
Independent Accountants
Fund Expenses
Valuation of Fund Shares
Portfolio Transaction Policies
Portfolio Turnover Rate
Brokerage Allocations
Brokerage Commissions
Yield and Total Return Quotations

INVESTMENT RESTRICTIONS, POLICIES AND CERTAIN INVESTMENTS
Investment Restrictions
Investment Policies
Certain Investments

TAXES

RATINGS OF DEBT INSTRUMENTS

FINANCIAL STATEMENTS

<PAGE>

STRUCTURE AND GOVERNANCE

ORGANIZATION AND BUSINESS HISTORY. RIF was originally organized as a Maryland
corporation, and on July 11, 1996, was reorganized as a Massachusetts business
trust.

RIF is currently organized and operates under a Master Trust Agreement dated
July 11, 1996 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 RIF as a whole, or
shareholders of a particular Fund, must be approved by the holders of a majority
of the shares of RIF or Fund, respectively.

RIF 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
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.

Under the Master Trust Agreement, RIF's Funds are authorized to issue shares of
beneficial interest in one or more classes. The Funds do not presently offer
shares in multiple classes, although they may do so in the future.

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 Master Trust Agreement also provides that RIF
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.

SHAREHOLDER MEETINGS. RIF 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 RIF, and hold office for life unless they resign or are
removed by, in substance, a vote of two-thirds of RIF's shares outstanding.
Insurance companies that are shareholders of RIF pass through any proxies to be
voted to holders of their insurance policies. Under these circumstances, no one
person, entity or shareholder "controls" RIF.

<PAGE>

The following shareholders owned 5% or more of the voting shares of RIF or of
the Funds at March 31, 1998:

Multi-Style Equity: Security Equity Life Insurance Co., 84 Business Park
Suite 303, Armont, NY 10504, 53.78%, record; General American Life Insurance,
700 Market Street, St. Louis, MO 63101, 33.55%, record; Cova Financial
Services Life Insurance Co. d.b.a. Cova Variable Annuity Account One, One
Tower Lane Suite 3000, Oakbrook Tereace, IL 60181-4644, 12.26%, record.

Aggressive Equity: Security Equity Life Insurance Co., 68.91%, record; General
American Life Insurance, 26.79%, record.

Non U.S.: Security Equity Life Insurance Co., 43.55%, record; General
American Life Insurance, 41.76%, record; Cova Financial Services Life
Insurance Co. d.b.a. Cova Variable Annuity Account One, 14.04%, record.

Core Bond: Security Equity Life Insurance Co., 37.26%, record; General
American Life Insurance, 39.75%, record; Cova Financial Services Life
Insurance Co. d.b.a. Cova Variable Annuity Account One, 22.63%, record.

TRUSTEES AND OFFICERS. The Board of Trustees is responsible for overseeing
generally the operations of RIF. The officers, all of whom are employed by
Frank Russell Investment Management Company ("FRIMCo") or its affiliates, are
responsible for the day-to-day management and administration of RIF's
operations. RIF paid $56,315.80 for the year ended December 31, 1997.
Trustees are paid an annual fee plus travel and other expenses incurred in
attending Board meetings. The Funds' officers and employees, including those
who are Trustees, are paid by Frank Russell Investment Management Company or
its affiliates.

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

An asterisk (*) indicates that the Trustee or officer is an "interested person"
of RIF 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. -- 65 years old -- Trustee and Chairman of the Board.
Trustee and Chairman of the Board, Frank Russell Investment Company; Director,
Chairman of the Board and Chief Executive Officer, Russell Building
Management Company, Inc.; Director and Chairman of the Board, Frank Russell
Company, Frank Russell Securities, Inc.; Frank Russell Trust Company,
Frank Russell Investments (Delaware), Inc.; Director, Frank Russell
Investment Management Company; Director, Chairman of the Board and President,
Russell 20/20 Association.

*Lynn L. Anderson -- 59 years old -- Trustee, President and Chief
Executive Officer. Trustee, President and Chief Executive Officer, Frank
Russell Investment Company; Director, Chief Executive Officer and Chairman of
the Board, Russell Fund Distributors, Inc.; Trustee, Chairman of the Board
and President, 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 of the Board, Frank Russell Investment Company
Public Limited PLC; Director, Frank Russell Company, Frank Russell
Investments (Ireland) Limited, Frank Russell Investments (Cayman) Ltd. and
Frank Russell Investments (UK) Ltd.; November 1995 to June 1993, Director,
Frank Russell Company. Until September 1994, Director and President, The
Laurel Funds, Inc. (investment company).

-2-

<PAGE>

Paul E. Anderson -- 66 years old -- Trustee. 23 Forest Glen Lane, Tacoma,
Washington 98409. Trustee, Frank Russell Investment Company. 1996 to Present,
President, Forest Limited Partnership; 1984 to 1996, President, Vancouver Door
Company, Inc.

Paul Anton, Ph.D. -- 78 years old -- Trustee. PO Box 1337, Gig Harbor,
Washington 98335. Trustee, Frank Russell Investment Company. President, Paul
Anton and Associates (Marketing Consultant on emerging international markets for
small corporations). 1991-1994, Adjunct Professor, International Marketing,
University of Washington, Tacoma, Washington.

William E. Baxter -- 72 years old -- Trustee. 800 North C Street, Tacoma,
Washington 98403. Trustee, Frank Russell Investment Company. Retired.

Lee C. Gingrich -- 67 years old -- Trustee. 1730 North Jackson, Tacoma,
Washington 98406. Trustee, Frank Russell Investment Company. President, Gingrich
Enterprises, Inc. (Business and Property Management).

Eleanor W. Palmer -- 71 years old --Trustee. 2025 Narrows View Circle #232-D,
P.O. Box 1057, Gig Harbor, WA 98335. Trustee, Frank Russell Investment Company
and Director, Frank Russell Trust Company.

*George W. Weber -- 46 years old -- Treasurer and Chief Accounting Officer.
Treasurer and Chief Accounting Officer, Frank Russell Investment Company and
Frank Russell Trust Company; Director, Funds Administration and Operations of
Frank Russell Investment Management Company, Russell Funds Distributors, Inc
and Frank Russell Trust Comany; 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.

*Randall P. Lert -- 44 years old -- Director of Investments. Director of
Investments, Frank Russell Investment Company, 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.
Director-Futures Trading, Frank Russell Investments (Ireland) Limited and
Frank Russell Investments (Cayman) Ltd.; Senior Vice President and Director of
Portfolio Trading, Frank Russell Canada Limited/Limitee. April 1, 1990 to
November 1993, Director of Investments of Frank Russell Investment Management
Company.

*Karl J. Ege -- 56 years old -- Secretary and General Counsel. Secretary and
General Counsel, Frank Russell Investment Company; Director, Secretary and
General Counsel, Russell Fidiciary Services Co., Frank Russell Capital, Inc.;
Secretary, General Counsel and Managing Director - Law and Government Affairs
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 Inc., Russell MLC Management Co., Russell International Services Co.,
Inc. and Russell 20-20 Association; Director and Assistant Secretary of Frank

-3-
<PAGE>

Russell Company Limited (London) and Russell Systems Ltd.; Director, Frank
Russell Investment Company LLC, Frank Russell Investments (Cayman) Ltd.,
Frank Russell Investment Company PLC, Frank Russell Investments (Ireland)
Limited, Frank Russell Company, S.A., Frank Russell Japan Co. Ltd, Frank
Russell Company (NZ) Limited, Russell Investment Nominee Co. PTY Ltd and
Frank Russell Investments (UK) Ltd.; From November 1995 to February 1997,
Director and Secretary, Frank Russell Investments (Delaware), Inc.; July 1992
to June 1994, Director, President and Secretary of Frank Russell Shelf
Corporation.

-4-
<PAGE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
TRUSTEE COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------

Aggregate Pension or Estimated Annual Total Compensation
Compensation Retirement Benefits Upon From RIF and Fund
Trustee from RIF Benefits Accrued Retirement Complex Paid to
as part of RIF Trustees
Expenses
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lynn L. Anderson $0 $0 $0 $0
- --------------------------------------------------------------------------------------------------
Paul E. Anderson $11,263.16* $0 $0 $31,263.16**
- --------------------------------------------------------------------------------------------------
Paul Anton, PhD. $11,263.16* $0 $0 $31,263.16**
- --------------------------------------------------------------------------------------------------
William E. Baxter $11,263.16* $0 $0 $31,263.16**
- --------------------------------------------------------------------------------------------------
Lee C. Gingrich $11,263.16* $0 $0 $31,263.16**
- --------------------------------------------------------------------------------------------------
Eleanor W. Palmer $11,263.16* $0 $0 $31,263.16**
- --------------------------------------------------------------------------------------------------
George F. Russell, Jr. $0 $0 $0 $0*
- --------------------------------------------------------------------------------------------------
</TABLE>

* The Trustees received $3,263.16 for 1996 in addition to the $8,000 for
services in 1997.

** The Trustees received $20,000 for service on the Frank Russell Investment
Company Board.

OPERATION OF INVESTMENT COMPANY

SERVICE PROVIDERS. Most of RIF's necessary day-to-day operations are performed
by separate business organizations under contract to RIF. The principal service
providers are:

Consultant Frank Russell Company

Manager, Transfer and Dividend Frank Russell Investment Management Company
Disbursing Agent

Money Managers Multiple professional discretionary
investment management organizations

Custodian and Portfolio State Street Bank and Trust Company
Accountant

Distributor Russell Fund Distributors, Inc.

-5-
<PAGE>

CONSULTANT. Frank Russell Company, the corporate parent of FRIMCo, was
responsible for organizing and reorganizing RIF and provides ongoing consulting
services, described in the Prospectus, to RIF and FRIMCo. FRIMCo does not pay
Frank Russell Company an annual fee for consulting services. 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), Frank Russell Company
(N.Z.) Limited (New Zealand) and Frank Russell Investments (Delaware), 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
Investment (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 seconded to overseas enterprises. Russell Fiduciary Services
Company, a wholly owned subsidiary of Frank Rusell 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
and custodian. FRIMCo also develops the investment programs for each of the
Funds, selects Money Managers for the Funds (subject to approval by the Board of
Trustees), allocates assets among the Money Managers, monitors the Money
Managers' investment programs and results, and may exercise investment
discretion over assets invested in the Funds' Liquidity Portfolios. (See,
"Investment Policies---Liquidity Portfolios.") FRIMCo also acts as RIF's
transfer agent, dividend disbursing agent. FRIMCo, as agent for RIF, pays the
Money Managers' fees for the Funds, as a fiduciary for the Funds.

Each of the Funds pays an annual management fee 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 Funds. FRIMCo, on behalf of RIF, uses a portion of the
Management Fee to pay the Money Managers' fees for the Funds. In doing so,
FRIMCo acts as a fiduciary for the Funds.

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 Fund.

-6-
<PAGE>

For the period January 2, 1997 (commencement of operations) to December 31,
1997, the management fee paid to FRIMCo, for the Funds listed below, in
accordance with the Investment Company's Management Agreement with that firm,
amounted to $372,191 before waivers and/or reimbursements. Such fee is payable
monthly and is equal to the annual rate, by Fund, shown in the following table,
of the average daily net assets of the applicable Fund.

<TABLE>
<CAPTION>
ANNUAL RATE ANNUAL RATE
----------- -----------
<S> <C> <C> <C>
Multi-Style Equity 0.78% Non-US 0.95%
Aggressive Equity 0.95 Core Bond 0.60
</TABLE>

FRIMCo has voluntarily agreed to waive a portion of its management fee for each
Fund, up to the full amount of its fee, to the extent the Fund's operating
expenses exceed specified limits imposed by FRIMCo on an annual basis.
Additionaly, FRIMCo has voluntarily agreed to reimburse each Fund for all
remaining expenses, after fee waivers, that still exceed their respective
expense caps. In 1997, the Funds also received a Custodian Fee Waiver from
State Street Bank. This waiver was in effect through December 31, 1997.

The expense caps and waivers as of December 31, 1997 were as follows:

EXPENSE CAP MANAGEMENT CUSTODIAN FEES TOTAL EXPENSE
FEES WAIVED WAIVED REDUCTION
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Multi-Style Equity 0.92% $ 61,920 $ 70,798 $ 132,718
Aggressive Equity 1.25 34,172 84,542 118,714
Non-US 1.30 35,823 116,412 152,235
Core Bond 0.80 43,221 64,682 107,903

</TABLE>

FRIMCo also provides, through its Russell Private Investment Division,
investment advisory, consulting and money manager evaluation services to high
net work 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 have no affiliations or relationships with
RIF 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 Funds (see, "Brokerage Allocations" and
"Brokerage Commissions"). The Money Managers may serve as advisers or
discretionary managers for Frank Russell Trust Company, Frank Russell Investment
Company, other consulting clients of Frank Russell Company, and/or for accounts
which have no business relationship with the Frank Russell Company organization.

From its management fees, FRIMCo, as agent for RIF, pays all fees to the Money
Managers for their investment selection services. Quarterly, each Money Manager
is paid the pro rata portion of an annual fee, based on the average for the
quarter of all the assets allocated to the Money Manager. From its management
fees, FRIMCo, as agent for RIF, pays all fees to the money managers for their
investment selection services. Quarterly, each money manager is paid the pro
rata portion of an annual fee, based on the average for the quarter of all the
assets allocated to the money manager. For the period ended December 31, 1997,
management fees paid to the money managers were: Multi-Style $45,969; Aggressive
Equity $65,076; Non-US $23,814; and Core Bond $13,536. Fees paid to the Money
Managers are not affected by any voluntary or statutory expense limitations.
Some Money Managers may receive investment research prepared by

-7-
<PAGE>

Frank Russell Company as additional compensation, or may receive brokerage
commissions for executing portfolio transactions for the Funds through
broker-dealer affiliates.

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

CUSTODIAN AND PORTFOLIO ACCOUNTANT. State Street Bank and Trust Company ("State
Street") serves as the custodian for RIF. State Street also provides fund
accounting, yield calculation and tax accounting services for each of the Funds
for regulatory and financial reporting purposes. For these services, State
Street is paid the following annual fees, which will be billed and payable on a
monthly basis:

CUSTODY:

Domestic Custody - (i) $3,000 per portfolio per fund; (ii) First $10 billion in
average daily net assets - 0.75%, Over $10 billion - 0.65%. Global Custody -
(i) First $500 million in month end net assets - 0.11% - 0.35%, Over $500
million - 0.03% - 0.35% depending on the geographic classification of the
investments in the international funds (ii) a transaction charge ranging from
$25 - $100 depending on the geographic classification of the investments in the
international funds. All Custody - (i) Portfolio transaction charges range from
$6.00 - $25.00 depending on the type of transaction; (ii) Futures and Options
charges range from $8.00 - $25.00; (iii) monthly pricing fees of $375.00 per
portfolio and $6.00 - $11.00 per security; (iv) on-line access charges of $2,500
per fund; and (v.) Reimbursement of out-of-pocket expenses including postage,
transfer fees, stamp duties, taxes, wire fees, telexes and freight. In
addition, interest earned on uninvested cash balances will be used to offset the
Funds' custodian expense.

FUND ACCOUNTING:

Domestic Fund Accounting - (i) $10,000 per portfolio; and (ii) 0.015% of
average daily net assets. International Fund Accounting - (I) $24,000 per
portfolio per year; and (ii) 0.03% of month end net assets. YIELD CALCULATION
SERVICES - $4,200 per fixed income fund. TAX ACCOUNTING SERVICES - $8,500 per
Equity Fund, $11,000 per Fixed Income Fund, and $15,000 per Global Fund.
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 the transfer agent for
RIF. For this service, FRIMCo is paid the following asset-based fee: $0-$25
million - 7 basis points; $26-$50 million - 5 basis points; $51-$100 million -3
basis points; $101-$500 million - 2 basis points; and over $500 million - 1
basis point. The Board of Trustees have approved a new fee arrangement to be
effective May 18, 1998, pursuant to which FRIMCo will be paid a per account fee
for transfer agency and dividend disbursing services provided to the Trust.
From this fee FRIMCo compensates unaffiliated agents who assist in providing
these services. FRIMCo is also reimbursed by RIF for certain out-of-pocket
expenses, including postage, taxes, wires, stationery, and telephone. FRIMCo's
mailing address is: 909 A Street, Tacoma, WA 98402.

INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P. serves as the independent
accountants of RIF. Coopers & Lybrand L.L.P. is responsible for performing
annual audits of the financial statements and financial highlights of the Funds
in accordance with generally accepted auditing standards and tax returns. The
mailing address of Coopers & Lybrand L.L.P. is One Post Office Square, Boston,
MA 02109.

FUND EXPENSES. The Funds will pay all their expenses other than those expressly
assumed by FRIMCo. The principal expense of the Funds is the annual management
fee payable to FRIMCo. The Funds' other expenses include: fees for independent
accountants, legal, transfer agent, registrar, custodian, fund accounting, tax
accounting, dividend disbursement, state taxes; brokerage fees and commissions;
insurance premiums; association membership dues; fees for filing of reports and
registering shares with regulatory bodies; deferred organizational expenses; and
such extraordinary expenses as may arise, such as federal taxes and expenses
incurred in connection

-8-
<PAGE>

with litigation proceedings and claims and the legal obligations of RIF to
indemnify its Trustees, officers, employees, shareholders, distributors and
agents with respect thereto.

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

FRIMCo may, from time to time, voluntarily agree to reimburse Fund expenses in
excess of certain limits on an annualized basis. These limits may be changed or
rescinded at any time to certain of the Funds.

VALUATION OF FUND SHARES. The net asset value per share is calculated for each
Fund on each business day in which shares are offered or orders to redeem are
tendered. A business day is one on which the New York Stock Exchange (the
"Exchange") is open for trading. Currently, the Exchange is open for trading
every weekday except New Year's Day, Martin Luther King's Birthday, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.

The Non-U.S. Fund's portfolio securities actively trade on foreign exchanges,
which may trade on Saturdays and on days that the Fund does 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 Fund shares when
the shareholder is not able to purchase or redeem Fund shares. Further, because
foreign securities markets may close prior to the time the Fund determines net
asset value, events affecting the value of the portfolio securities occurring
between the time prices are determined and the time the Fund calculates 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 TRANSACTION POLICIES. Generally, securities are purchased for the
Funds for investment income and/or capital appreciation and not for short-term
trading profits. However, these 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.

The portfolio turnover rates for certain Funds are likely to be somewhat higher
than the rates for comparable mutual funds with a single money manager.
Decisions to buy and sell securities for each Fund are made by a Money Manager
independently from other Money Managers. Thus, one Money Manager could be
selling a security when another Money Manager for the same Fund is purchasing
the same security, thereby increasing the Fund's portfolio turnover ratios and
brokerage commissions. The Funds' changes of Money Managers may also result in a
significant number of portfolio sales and purchases, as the new Money Manager
restructures the former Money Manager's portfolio.

The Funds do not give significant weight to attempting to realize long-term,
rather than short-term, capital gains when making portfolio management
decisions.

PORTFOLIO TURNOVER RATE. The portfolio turnover rate for each Fund is calculated
by dividing the lesser of purchases or sales of portfolio securities for the
particular year, by the monthly average value of the portfolio securities owned
by the Fund during the year. For purposes of determining the rate, all
short-term securities, including options, futures, forward contracts, and
repurchase agreements, are excluded.

The annualized portfolio turnover rates as of January 2, 1997 (commencement of
operations) to December 31, 1997 were:

-9-
<PAGE>

<TABLE>
<CAPTION>
YEARS ENDED
--------------------
12/31/97
<S> <C>
Multi-Style Equity 64.95
Aggressive Equity 91.56
Non-US 68.54
Core Bond 53.86
</TABLE>

A high portfolio turnover rate generally will result in higher brokerage
transaction costs and may result in higher levels of realized capital gains or
losses with respect to a Fund's portfolio securities (see "Taxes").

BROKERAGE ALLOCATIONS. Transactions on U.S. stock exchanges involve the payment
of negotiated brokerage commissions; on non-U.S. 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
"commission" 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 either made by the Money
Manager or by FRIMCo when directing commissions under Section 28(e) of the
Securities Exchange Act of 1934 for Brokerage and research services. RIF's
Agreements with the Management Company and the Money Managers provide, in
substance and subject to specific directions from officers of the Funds or
Management Company, that in executing portfolio transactions and selecting
brokers or dealers, the principal objective is to seek the best overall terms
available to the Fund. Securities will ordinarily be purchased from 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, those agreements authorize FRIMCo and the Money Manager,
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 Funds, FRIMCo and/or to
the Money Manager (or their affiliates). FRIMCo and the Money Managers are
authorized to cause the 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. RIF, 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 RIF's procedures adopted in accordance
with Rule 17e-1 of 1940 Act. In selecting a broker, including affiliates, for a
transaction, the primary consideration is prompt and effective execution of
orders at the most favorable prices.

Frank Russell Securities, Inc., an affiliate of FRIMCo, refunds up to 70% of the
commissions paid to the Funds effecting such transactions, after reimbursement
for research services provided to FRIMCo. As to brokerage transactions effected
by Money Managers on behalf of the Funds through Frank Russell Securities, Inc.
at the request of the Manager, research services obtained from third party
service providers at

-10-
<PAGE>

market rates are provided to the 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 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
Multi-Style Equity, Aggressive Equity and Non-US Funds.

BROKERAGE COMMISSIONS. The Board of Trustees reviews, at least annually, the
commissions paid by the 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 Funds. Frank Russell Company
maintains an extensive database showing commissions paid by institutional
investors, which is the primary basis for making this evaluation. Certain
services received by FRIMCo or the 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

-11-
<PAGE>

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 year, the brokerage Commissions paid by the Funds were:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,

1997
<S> <C>
Multi-Style Equity* $ 36,614
Aggressive Equity* 39,991
Non-US* 22,186
----------
Total $ 98,791
----------
----------
</TABLE>

*Commenced operations on January 2, 1997

The Core Bond Fund normally does not pay a stated brokerage commission on
transactions.

During the year ended December 31, 1997, none of the brokerage commissions of
the 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/dealer from affiliated
and non-affiliated money managers for the year ended December 31, 1997 from
portfolio transactions effected for the Funds were as follows:

<TABLE>
<CAPTION>
Affiliated Broker/Dealer Commissions Percent of Total Commissions
<S> <C> <C>
Dresdner Bank AG $ 100 .10%
Frank Russell Securities 11,113 11.25%
J.P. Morgan Securities, Inc. 80 .08%
Kleinwort Benson North America 180 .18%
Total Affiliated Commissions 11,473 11.61%
</TABLE>

The percentage of total affiliated transactions (relating to trading activity)
to total transactions during 1997 for the Funds was 12.6%.

During the year ended December 31, 1997, the 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 Funds' ten largest brokers or dealers by dollar
amounts of securities executed or commissions received on behalf of the Funds.
The value of broker-dealer securities held as of December 31, 1997, was as
follows:

-12-
<PAGE>

Bear Jeffries & Morgan
Fund Stearns Company Stanley
- --------------------------------------------------------------
<S> <C> <C> <C>
Multi-Style Equity 378,000
Aggressive Equity 106,000
Core Bond 101,000

</TABLE>

At December 31, 1997, the Funds did not have any holdings in the following top
10 broker-dealers:

- -- Frank Russell Securities -- Instinet Corp. -- Merrill Lynch,
- -- Bernstine & Sanford -- Investment Technology Group Pierce, Fenner
- -- ESI Securities -- Lewco

YIELD AND TOTAL RETURN QUOTATIONS. The Funds compute their average annual total
return by using a standardized method of calculation required by the Securities
and Exchange Commission (the "SEC"). 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
Funds, as appropriate), that would equate the initial amount invested to the
ending redeemable value, according to the following formula:

n
P(1+T) = 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 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 Funds are reported in the
Prospectus.

Yields are computed by using standardized methods of calculation required by the
SEC. Yields for Funds 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:

-13-
<PAGE>

6
YIELD = 2[(a-b+1) -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
d = the maximum offering price per share on the last day of the
period

The yields for the Funds investing primarily in fixed-income instruments are
reported in the Prospectus. Yield may fluctuate daily and does not provide a
basis for determining future yields.

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

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

INVESTMENT RESTRICTIONS, POLICIES AND CERTAIN INVESTMENTS

Each 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 Fund. Other policies may be changed by the Funds without
shareholder approval. The Funds' investment objectives are set forth in the
Prospectus.

INVESTMENT RESTRICTIONS. Each 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 Fund will:

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

2. Invest 25% or more of the value of the Fund's total assets in the
securities of companies primarily engaged in any one industry (other than the
U.S. government, its agencies and instrumentalities), but such concentration may
occur incidentally as a result of changes in the market value of portfolio
securities.

3. Acquire more than 5% of the outstanding voting securities, or 10% of all of
the securities, of any one issuer.

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

5. Purchase or sell real estate; provided that a Fund may invest in securities
secured by real estate or interests therein or issued by companies which invest
in real estate or interests therein.

-14-
<PAGE>

6. Purchase or sell commodities or commodities contracts, or interests in oil,
gas or other mineral exploration or development programs, except stock index and
financial futures contracts.

7. Borrow amounts more than 5% of the 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 Fund may engage in reverse
repurchase agreements to meet redemption requests without immediately selling
any portfolio instruments. The Fund will not mortgage, pledge or in any other
manner transfer as security for any indebtedness, any of its assets. Collateral
arrangements with respect to margin for futures contracts and options written
are not deemed a pledge of assets.

8. Purchase securities on margin or effect short sales (except that a Fund may
obtain such short-term credits as may be necessary for the clearance of
purchases or sales of securities, may trade in futures and related options, and
may make margin payments in connection with transactions in futures contracts
and related options).

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

10. RIF 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 acquisition
for investment of bonds, debentures, notes or other evidences of indebtedness of
any corporation or government which are publicly distributed or of a type
customarily purchased by institutional investors; (ii) the entry into
"repurchase agreements"; or (iii) the lending of portfolio securities in the
manner generally described and in the Prospectus section "Investment Policies --
Lending Portfolio Securities."

12. Purchase or sell options except to the extent permitted by the policies set
forth in the sections "Certain Investments -- Options on Securities and
Indices", "Certain Investments -- Foreign Currency Options", "Certain
Investments -- Futures Contracts and Options on Future Contracts" and "Certain
Investments -- Forward Foreign Currency Exchange Contracts" below.

13. RIF 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.

14. Purchase from or sell portfolio securities to its officers, Trustees or
other "interested persons" (as defined in the 1940 Act) of the Fund, including
the Fund's Money Managers and their affiliates, except as permitted by the 1940
Act, SEC rules or exemptive orders.

15. Invest more than 5% of the current market value of its assets in warrants
nor more than 2% of such value in warrants which are not listed on the New York
or American Stock Exchanges; warrants attached to other securities are not
subject to this limitation.

16. Purchase or retain the securities of an issuer if, to the Fund's knowledge,
one or more of the Trustees or officers of the Fund, or one or more of the
officers or directors of the Money Manager responsible for the

-15-
<PAGE>

investment, individually own beneficially more than l/2 of l% of the securities
of such issuer and together own beneficially more than 5% of such securities.
Compliance with this policy by the Fund's Trustees and officers is monitored by
Fund officers.

INVESTMENT POLICIES.

CASH RESERVES. Each Fund may invest it's cash reserves in one or more
unaffiliated money market funds. Such investments will not exceed 15% of the
investing Fund's net assets.

LIQUIDITY PORTFOLIOS. A Fund at times has to sell portfolio securities in order
to meet redemption requests. The selling of securities may effect a Fund's
performance since the Money Manager sells the securities for other than
investment reasons. A 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 to the investment
objectives of each of the Funds. The more cash the Funds hold, the more
difficult it is for their returns to meet or surpass their respective
benchmarks.

A Liquidity Portfolio addresses this potential detriment by having FRIMCo or a
Money Manager selected for this purpose create an equity exposure for each
equity funds cash reserves through the use of options and futures contracts.
This will enable the Funds to hold cash while receiving a return on the cash
which is similar to holding equity securities.

Liquidity Portfolios will be used for each of the Funds except the Core Bond
Fund.

CERTAIN INVESTMENTS.

REPURCHASE AGREEMENTS. Each 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 one day). The
securities purchased by the Fund have a total value in excess of the value of
the repurchase agreement and are held by the Fund's custodian bank until
repurchased. Repurchase agreements assist a Fund in being invested fully while
retaining "overnight" flexibility in pursuit of investments of a longer-term
nature.

The Fund will limit repurchase transactions to those member banks of the Federal
Reserve System and primary dealers in U.S. government securities whose credit
worthiness is continually monitored and found satisfactory by the Funds' Money
Managers.

REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements to meet redemption requests where the liquidation of portfolio
securities is deemed by the Fund's Money Managers to be inconvenient or
disadvantageous. A reverse repurchase agreement is a transaction whereby a Fund
transfers possession of a portfolio security to a bank or broker-dealer in
return for a percentage of the portfolio securities' market value. The Fund
retains record ownership of the security involved including the right to receive
interest and principal payments. At an agreed upon future date, the Fund
repurchases the security by paying an agreed upon purchase price plus interest.
Liquid assets of the 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.

HIGH RISK BONDS. The Funds, other than the Core Bond Fund, do not invest assets
in securities rated less 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 to be of a lesser credit quality than those
designations. Securities

-16-
<PAGE>

rated BBB by S&P or Baa by Moody's are the lowest ratings which are considered
"investment grade." The Funds, other than the Core Bond Fund, will dispose of
securities which they have purchased which drop below these minimum ratings.

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.

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.

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 owned by the
Fund defaults, the Core Bond 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 the Core Bond 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 Core
Bond 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 credit worthiness of
issuers of low rated securities may be more complex than for issuers of other
investment grade securities, and the ability of the Core Bond 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 Money Managers of the Core Bond Fund 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.

ILLIQUID SECURITIES. The expenses of registration of restricted securities that
are illiquid (excluding securities that may be resold by a Fund pursuant to Rule
144A, as explained in the Prospectus) may be negotiated at the time such
securities are purchased by a 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 Fund may not be able to obtain as

-17-
<PAGE>

favorable a price as that prevailing at the time of the decision to sell. The
Fund also may acquire, through private placements, securities having contractual
resale restrictions, which might lower the amount realizable upon the sale of
such securities.

DELAYED DELIVERY TRANSACTIONS. A Fund may make contracts to purchase securities
for a fixed price at a future date beyond customary settlement time ("forward
commitments" or "when-issued" transactions) consistent with the Fund's ability
to manage its investment portfolio and meet redemption requests. The Fund may
dispose of a commitment or when issued transaction prior to settlement if it is
appropriate to do so and realize short-term profits or losses upon such sale.
When effecting such transactions, cash or liquid high-grade debt obligations of
the Fund in 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 Non-U.S. Fund may occasionally
engage in "free trade" transactions in which delivery of securities sold by the
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 the
Non-U.S. 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.

OPTIONS AND FUTURES. The 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 Funds may also use those instruments, provided that the Funds' Board
determines that their use is consistent with the Funds' investment objectives,
and provided that their use is consistent with restrictions applicable to
options and futures contracts currently eligible for use by the 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).

DEPOSITORY RECEIPTS. Each 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 a Fund's investment
policies, the Fund's investment 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 respects 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.

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<PAGE>

dollars, the disposition of non-cash distributions, and the performance of other
services. The depository of an 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 entered into a deposit agreement 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 Funds may invest in
sponsored and unsponsored ADRs.

OPTIONS ON SECURITIES AND INDEXES. Each Fund, except as noted above, may
purchase and write both call and put options on securities and securities
indexes in standardized contracts traded on 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 or
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.)

A 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 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 Fund. For a call option on an index, the option is
covered if the Fund maintains with its custodian liquid assets equal to the
contract value. A call option is also covered if the 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 multiplied by the number of contracts multiplied
by a multiplier, 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 Fund maintains liquid
assets equal to the exercise price in a segregated account with its custodian. A
put option is also covered if the 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
Fund in liquid assets in a segregated account with its custodian.

If an option written by a Fund expires, the Fund realizes a short-term capital
gain equal to the premium received at the time the option was written. If an
option purchased by a 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.

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<PAGE>

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

A Fund will realize a short-term 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 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 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 a Fund is an asset of the
Fund. The premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is marked-to-market
daily and is valued at the closing bid price.

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 a Fund seeks to
close out an option position. If a 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 a 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, a 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 a Fund, the Fund would not
be able to close out the option. If restrictions on exercise were imposed, the
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 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; 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. A 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, while a call
option gives the purchaser the right to sell the foreign currency at such price.
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of a 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.

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<PAGE>

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Fund may use interest
rate, foreign currency or index futures contracts, as specified for the Fund in
the Prospectus. 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. A futures contract on an index is an
agreement pursuant to which two parties agree 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. Although the value of an index might 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-Registered Trademark-;
Nikkei 225; CAC-40; FT-SE 100; the NYSE composite; U.S. Treasury bonds; U.S.
Treasury notes; GNMA Certificates; three-month U.S. 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 European
Currency Unit ("ECU"). It is expected that other futures contracts will be
developed and traded in the future.

A Fund may 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 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.

As long as required by regulatory authorities, each Fund will limit its use of
futures contracts and options on futures contracts to hedging transactions. For
example, a 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, a Fund may use futures contracts to create equity exposure for its
cash reserves for liquidity purposes.

A Fund will only enter into futures contracts and options on futures contracts
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity, or quoted on an automated quotation system.

When a purchase or sale of a futures contract is made by a Fund, the Fund is
required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. 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 Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. Each Fund
expects to earn interest income on its initial margin deposits. A futures
contract held by a Fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the 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 a 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 Fund will
mark-to-market its open futures positions.

A 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

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<PAGE>

related initial margin requirements), the current market value of the option,
and other futures positions held by the 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 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 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. A 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, a 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 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, a Fund will maintain with its custodian (and
mark-to-market on a daily basis) cash, U.S. government securities, or other
highly liquid debt securities 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 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 contract is based), or by holding a
call option permitting the 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, a 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 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, a 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 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 Commodity Futures Trading
Commission ("CFTC") pursuant to which the Funds avoid being deemed a "commodity
pool," the Funds are limited in their futures

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<PAGE>

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
the Fund as determined under the CFTC Rules.

The requirements for qualification as a regulated investment company also may
limit the extent to which a 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 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 credit
worthiness 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 a 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 CONTRACTS 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 a 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.

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<PAGE>

HEDGING STRATEGIES. Stock index futures contracts may be used by the 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, except the Core Bond Fund. As a result, such a Fund will
realize gains or losses based on the performance of the equity market
corresponding to the relevant indices for which futures contracts have been
purchased. Thus, each such Fund's cash reserves always will be fully exposed to
equity market performance.

Financial futures contracts may be used by the Non-U.S. and Core Bond Funds as a
hedge during or in anticipation of interest rate changes.

The Funds may purchase a put option on a stock index futures contract instead of
selling a futures contract in anticipation of market decline. Purchasing a call
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 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 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 U.S.
dollar. When a Money Manager anticipates a significant change in a foreign
exchange rate while intending to invest in a foreign security, a Fund may
purchase a foreign currency futures contract to hedge against a rise in foreign
exchange rates pending completion of the anticipated transaction. Such a
purchase would serve as a temporary measure to protect the Fund against any rise
in the foreign exchange rate which may add additional costs to acquiring the
foreign security position. The Fund may also purchase call or put options on
foreign currency futures contracts to obtain a fixed foreign exchange rate. The
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 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. Another risk is that a liquid secondary market may not exist for a
futures contract causing a Fund to be unable to close out the futures contract
thereby affecting a Fund's hedging strategy.

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<PAGE>

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 (i) other complex foreign,
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.

FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Funds may engage in forward
foreign currency exchange transactions 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. The Funds may engage in a forward contract that involves transacting
in 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 or are expected to be denominated. A 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 its portfolio securities. Position
hedging is the sale of foreign currency with respect to portfolio security
positions denominated or quoted in the currency. A Fund 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). A Fund may, however, enter into a position hedging
transaction with respect to a currency other than that held in the Fund's
portfolio, if such a transaction is deemed a hedge. If a 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 Fund's
commitment with respect to the contract. Hedging transations may be made from
any foreign currency into U.S. dollars or into other appropriate currencies.

At or before the maturity of a forward foreign currency contract, the 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 Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to deliver.
If the 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 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.

The cost to the 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

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<PAGE>

currency contracts does not eliminate fluctuations in the underlying prices of
the securities, but it does establish 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, a Fund may be able to contract to
sell the currency at a price above the devaluation level that it anticipates. A
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 (a) other
complex foreign political and economic factors, (b) lesser availability than in
the United States of data on which to make trading decisions, (c) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States and the United Kingdom, (d) the
imposition of different exercise and settlement terms and procedures and margin
requirements than in the United States, (e) lesser trading volume and (f) that a
perceived linkage between various currencies may not persist throughout the
duration of the contracts.

INDEXED COMMERCIAL PAPER. Indexed commercial paper is U.S.-dollar denominated
commercial paper the yield of which is linked to certain foreign exchange rate
movements. The yield to the investor on indexed commercial paper is established
at maturity as a function of spot exchange rates between the U.S. dollar and a
designated currency as of or about that time. The yield to the investor will be
within a range stipulated at the time of purchase of the obligation, generally
with a guaranteed minimum rate of return that is below, and a potential maximum
rate of return that is above, market yields on U.S.-dollar denominated
commercial paper, with both the minimum and maximum rates of return on the
investment corresponding to the minimum and maximum values of the spot exchange
rate two business days prior to maturity. While such commercial paper entails
risk of loss of principal, the potential risk for realizing gains as a result of
changes in foreign currency exchange rates enables a Fund to hedge (or
cross-hedge) against a decline in the U.S.-dollar value of investments
denominated in foreign currencies while providing an attractive money market
rate of return.

U.S. GOVERNMENT OBLIGATIONS. The types of U.S. government obligations the Funds
may purchase include: (1) a variety of U.S. Treasury obligations which differ
only in their interest rates, maturities and times of issuance: (a) U.S.
Treasury bills at time of issuance have maturities of one year or less, (b) U.S.
Treasury notes at time of issuance have maturities of one to ten years and (c)
U.S. Treasury bonds at time of issuance generally have maturities of greater
than ten years; (2) obligations issued or guaranteed by U.S. government agencies
and instrumentalities are supported by any of the following: (a) the full faith
and credit of the U.S. Treasury (such as Government National Mortgage
Association participation certificates), (b) the right of the issuer to borrow
an amount limited to a specific line of credit from the U.S. Treasury, (c)
discretionary authority of the U.S. 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

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can be given that the U.S. government will provide financial support to such
U.S. 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 Funds may purchase U.S. government obligations on a forward
commitment basis.

VARIABLE AND FLOATING RATE SECURITIES. A floating rate security is one whose
terms provide for the automatic adjustment its interest rate whenever a
specified interest rate changes. A variable rate security is one whose terms
provide for the automatic establishment of a new interest rate on set dates. The
interest rate on floating rate securities is ordinarily tied to and is a
percentage of the prime rate of a specified bank or some similar objective
standard, such as 90-day U.S. Treasury Bill rate, and may change as often as
twice daily. Generally, changes in interest rates on floating rate securities
will reduce changes in the security's market value from the original purchase
price resulting in the potential for capital appreciation or capital
depreciation being less than for fixed income obligations with a fixed interest
rate.

ZERO COUPON SECURITIES. Zero coupon securities are notes, bonds and debentures
that (i) do not pay current interest and are issued at a substantial discount
from par value, (ii) have been stripped of their unmatured interest coupons and
receipts or (iii) 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 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
Government National Mortgage Association ("GNMA"), which is a wholly-owned
U.S. 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 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 loans 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 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

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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 a Fund has been exhausted, and if any
required payments of principal and interest are not made with respect to
the underlying loans, a 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 a 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.

MUNICIPAL OBLIGATIONS. "Municipal obligations" are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multi-state agencies or authorities, the interest from which is exempt from
federal income tax in the opinion of bond counsel to the issuer. Municipal
obligations include debt obligations issued to obtain funds for various public
purposes and certain industrial development bonds issued by or on behalf of
public authorities. Municipal obligations are classified as general obligation
bonds, revenue bonds and notes.

MUNICIPAL BONDS. Municipal bonds generally have maturities of more than one
year when issued and have two principal classifications -- General
Obligation Bonds and Revenue Bonds.

GENERAL OBLIGATION BONDS - are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and
interest.

REVENUE BONDS - are payable only from the revenues derived from a
particular facility or group of facilities or from the proceeds of
special excise or other specific revenue service.

INDUSTRIAL DEVELOPMENT BONDS - are a type of revenue bond and do not
generally constitute the pledge of credit of the issuer of such bonds.
The payment of the principal and interest on such bonds is dependent
on the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property financed as security for
such payment. Industrial development bonds are issued by or on behalf
of public authorities to raise money to finance public and private
facilities for business, manufacturing, housing, ports, pollution
control, airports, mass transit and other similar type projects.

MUNICIPAL NOTES. Municipal notes generally have maturities of one year or
less when issued and are used to satisfy short-term capital needs.
Municipal notes include:

TAX ANTICIPATION NOTES - are issued to finance working capital needs
of municipalities and are generally issued in anticipation of future
tax revenues.

BOND ANTICIPATION NOTES - are issued in expectation of a municipality
issuing a longer term bond in the future. Usually the long-term bonds
provide the money for the repayment of the notes.

REVENUE ANTICIPATION NOTES - are issued in expectation of receipt of
other types of revenues such as certain federal revenues.

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<PAGE>

CONSTRUCTION LOAN NOTES - are sold to provide construction financing
and may be insured by the Federal Housing Administration. After
completion of the project, FNMA or GNMA frequently provides permanent
financing.

PRE-REFUNDED MUNICIPAL BONDS - are bonds no longer secured by the
credit of the issuing entity, having been escrowed with U.S. Treasury
Securities as a result of a refinancing by the issuer. The bonds are
escrowed for retirement either at original maturity or at an earlier
call date.

TAX FREE COMMERCIAL PAPER - is a promissory obligation issued or
guaranteed by a municipal issuer and frequently accompanied by a
letter of credit of a commercial bank. It is used by agencies of state
and local governments to finance seasonal working capital needs, or as
short-term financing in anticipation of long-term financing.

TAX FREE FLOATING AND VARIABLE RATE DEMAND NOTES - are municipal
obligations backed by an obligation of a commercial bank to the issuer
thereof which allows the issuer to issue securities with a demand
feature, which, when exercised, usually becomes effective within
thirty days. The rate of return on the notes is readjusted
periodically according to some objective standard such as changes in a
commercial bank's prime rate.

TAX FREE PARTICIPATION CERTIFICATES - are tax free floating or
variable rate demand notes which are issued by a bank, insurance
company or other financial institution or affiliated organization that
sells a participation in the note. The Funds' Money Managers will
continually monitor the pricing, quality and liquidity of the floating
and variable rate demand instruments held by the Funds, including the
participation certificates.

A participation certificate gives a Fund an undivided interest in the
municipal obligation in the proportion that the Fund's participation
interest bears to the total principal amount of the municipal
obligation and provides the demand feature described below. Each
participation is backed by: an irrevocable letter of credit or
guaranty of a bank which may be the bank issuing the participation
certificate, a bank issuing a confirming letter of credit to that of
the issuing bank, or a bank serving as agent of the issuing bank with
respect to the possible repurchase of the certificate of
participation; or insurance policy of an insurance company that the
Money Manager has determined meets the prescribed quality standards
for the Fund. The Fund has the right to sell the participation
certificate back to the institution and draw on the letter of credit
or insurance on demand after thirty days' notice for all or any part
of the full principal amount of the Fund's participation interest in
the security plus accrued interest. The Funds' Money Managers intend
to exercise the demand feature only (1) upon a default under the terms
of the bond documents, (2) as needed to provide liquidity to the Fund
in order to make redemptions of Fund shares, or (3) to maintain the
required quality of its investment portfolio.

The institutions issuing the participation certificates will retain a
service and letter of credit fee and a fee for providing the demand
feature, in an amount equal to the excess of the interest paid on the
instruments over the negotiated yield at which the participations were
purchased by the Fund. The total fees generally range from 5% to 15%
of the applicable prime rate or other interest rate index. The Fund
will attempt to have the issuer of the participation certificate bear
the cost of the insurance. The Fund retains the option to purchase
insurance if necessary, in which case the cost of insurance will be a
capitalized expense of the Fund.

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<PAGE>

The Funds will enter into put and stand-by commitments with institutions,
such as banks and broker-dealers, that the Funds' Money Managers continually
believe satisfy the Funds' credit quality requirements. The ability of a Fund
to exercise the put or stand-by commitment may depend on the seller's ability
to purchase the securities at the time the put or stand-by commitment is
exercised or on certain restrictions in the buy back arrangement. Such
restrictions may prohibit a Fund from exercising the put or stand-by
commitment except to maintain portfolio flexibility and liquidity. In the
event the seller would be unable to honor a put or stand-by commitment for
financial reasons, the Funds may, in the opinion of Funds' management, be a
general creditor of the seller. There may be certain restrictions in the buy
back arrangement which may not obligate the seller to repurchase the
securities. (See, "Certain Investments -- Municipal Notes -- Tax-Free
Participation Certificates.")

FOREIGN GOVERNMENT SECURITIES. Foreign government securities which the 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.

TAXES

In order to qualify for treatment as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended ("Code"),
each Fund must distribute annually to its shareholders 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 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) at the close of
each quarter of a Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. 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 Fund and that does not represent more than 10% of the
outstanding voting securities of such issuer; and (iii) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its assets
may be invested in securities (other than U.S. government securities or the
securities of other RICs) of any one issuer.

As noted in the Prospectus, each Fund must, and intends to, comply with the
diversification requirements imposed by Section 817(h) of the Code and the
regulations thereunder. For information concerning the consequences of failure
to meet the requirements of Section 817(h), see the prospectus for the variable
contracts.

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<PAGE>

The Funds will not be subject to the 4% Federal excise tax imposed on RICs that
do not distribute substantially all their income and gains each calendar year
because that tax does not apply to a RIC whose only shareholders are segregated
asset accounts of life insurance companies held in connection with variable
annuity contracts and/or variable life insurance policies.

The foregoing is only a general summary of some of the important Federal income
tax considerations generally affecting the Funds and their shareholders. No
attempt is made to present a complete explanation of the Federal tax treatment
of the Funds' activities, and this discussion and the discussion in the
prospectuses and/or statements of additional information for variable contracts
are not intended as a substitute for careful tax planning. Accordingly,
potential investors are urged to consult their own tax advisers for more
detailed information and for information regarding any state, local, or foreign
taxes applicable to the variable contracts and the holders thereof.

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 amount and character for income tax
purposes of the income received in connection therewith by the 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 and in the Prospectuses, the Funds may buy and sell foreign
currencies and options on foreign currencies, and may enter into forward
currency contracts and currency futures contracts. The Funds anticipate that
these investment activities will not prevent the Funds from qualifying as a
regulated investment company. As a general rule, gains or losses on the
disposition of debt securities denominated in a foreign currency that are
attributable to fluctuations in exchange rates between the date that the debt
securities are acquired and the date of disposition, gains and losses from the
disposition of foreign currencies, and gains and losses attributable to options
on foreign currencies, forward currency contracts and currency futures contracts
will be treated as ordinary income or loss.

Gains or losses attributable to fluctuations in exchange rates which occur
between the time the fund accrues interest or other receivables, or expenses or
other liabilities, denominated in a foreign currency and the time a Fund
actually collects such receivables, or pays such liabilities, are generally
treated as ordinary income or loss. Similarly, gains or losses on disposition of
debt securities denominated in a foreign currency between the date of
acquisition of the security and the date of disposition also are treated as
ordinary gain or loss. These gains, referred to under the Code as "Section 988"
gains or losses, may increase or decrease the amount of a Fund's investment
company taxable income to be distributed to its shareholders, rather than
increasing or decreasing the amount of the Fund's capital gains or losses.

As noted above and in the Prospectus, the Funds may acquire forward currency
contracts, currency futures contracts and options on foreign currencies to
hedge their risk of currency fluctuations with regard to property held or to
be held by the Funds, and before the close of the day on which the Funds
enter into the contract or option, the Funds will, as a general rule,
identify on their records that the contract or option was entered into as
part of a hedging transaction. If the Funds were to invest in a forward
currency contract, currency futures contract or option on a foreign currency
and offsetting positions in such contracts or options, and if the two
offsetting positions were characterized as a straddle (as opposed to a hedge)
for federal income tax purposes, then the Funds might not be able to receive
the benefit of certain realized losses from the liquidation of one of those
positions for an indefinite period of time (i.e., until the gain position and
any successor positions are disposed of). The Funds expect that their
activities with respect to forward foreign currency contracts, currency
futures contracts and options on foreign currencies will not require it, as a
general rule, to have to treat such contracts or options as straddle
positions for federal income tax purposes. Under current law, unless certain
requirements are satisfied, the Funds, will be required to calculate
separately certain gains and losses attributable to certain of their forward
currency contracts,

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<PAGE>

currency futures contracts and options on foreign currencies even if
the Funds acquired the contract or option to hedge their risk of currency
fluctuations with regard to capital assets held or to be held by the Funds.

To the extent that the Fund's forward contracts, currency futures contracts or
options on foreign currencies can be classified as either regulated futures
contracts or foreign currency contracts (as described in section 1256(b) of the
Code) (collectively referred to herein as "section 1256 contracts"), such
investments will be taxed pursuant to a special "mark-to-market" system. Under
the mark-to-market system, the Funds may be treated as realizing a greater or
lesser amount of gains or losses than actually realized. As a general rule
(except for certain currency related activities as described above in which gain
or loss is treated as ordinary income or loss), gain or loss on section 1256
contracts is treated as 60% long-term capital gain or loss and 40% short-term
capital gain or loss. Accordingly, the mark-to-market system generally will
affect the amount of capital gains or losses taxable to the Funds and the amount
of distributions taxable to a shareholder. Moreover, if the Funds invested in
both section 1256 contracts and offsetting positions with respect to such
contracts, then the Funds might not be able to receive the benefit of certain
realized losses for an indeterminate period of time (i.e., until disposition of
the "gain leg" of the straddle and any successor position). The Funds expect
that its activities with respect to section 1256 contracts and offsetting
positions in such contracts (a) will not cause it or its shareholders to be
treated as receiving a materially greater amount of ordinary income, capital
gains, dividends, or distributions than actually realized or received by the
Funds and (b) will permit it to use substantially all of the losses of the Funds
for the fiscal years in which such losses actually occur.

Generally, the hedging transactions and certain other transactions in options,
futures and forward contracts undertaken by a Fund may result in "straddles" for
U.S. federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by a Fund. In addition, losses realized by a Fund on
positions that are part of a straddle may be deferred under the straddle rules,
rather than being taken into account in calculating the taxable income for the
taxable year in which such losses are realized. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences of
transactions in options, futures and forward contracts to a Fund are not
entirely clear. The transactions may increase the amount of short-term capital
gain realized by a Fund which is taxed as ordinary income when distributed to
shareholders.

A Fund may make one or more of the elections available under the Code which are
applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.

Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gains, may be increased or decreased substantially in any
given fiscal year as compared to a fund that did not engage in such hedging
transactions.

Income (excluding certain gains) from transactions in options and futures
contracts derived by the Fund with respect to its business of investing in
securities, will qualify as permissible income under the Income Requirement.

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The Fund anticipates engaging in hedging transactions that are intended to
qualify for this treatment, but at the present time it is not clear whether this
treatment will be available to all of the Fund's hedging transactions. To the
extent this treatment is not available, the Fund may be forced to defer the
closing out of certain options and futures contracts beyond the time when it
otherwise would be advantageous to do so, in order for the Fund to qualify as a
RIC.

If a call option written by the Fund expires, the Fund will realize a short-term
capital gain equal to the amount of the premium it received for writing the
option. If the Fund terminates its obligations under a call option it has
written, or if the Fund writes a put option terminating its rights as the holder
of a put option, the Fund will realize a short-term capital gain or loss,
depending on whether the cost of the closing transaction is less than or exceeds
the premium received when the option was written. If a call option written by
the Fund is exercised, the Fund will be treated as having sold the underlying
security and will realize a long-term or short-term capital gain and loss,
depending on the holding period of the underlying security and on whether the
sum of the option price received upon the exercise plus the premium received
when the option was written exceeds or is less than the basis of the optioned
security.

If an option purchased by a Fund expires, the Fund generally will realize a
capital loss equal to the cost of the option, long-term if the option was held
for more than one year. If the Fund sells the option, it generally will realize
a capital gain or loss, depending on whether the proceeds from the sale are
greater or less than the cost of the option plus the transaction costs. If the
Fund exercises a call option, the cost of the option will be added to the basis
of the security purchased. If the Fund exercises a put option, it will realize a
capital gain or loss (depending on the Fund's basis for the underlying
security), which will be long-term or short-term depending on the holding period
of the underlying security. Any such capital gain will be decreased (or loss
increased) by the premium paid for the option.

FOREIGN INCOME TAXES. Investment income received from sources within foreign
countries may be subject to foreign income taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
would entitle the Fund to a reduced rate on such taxes or exemption from taxes
on such income. It is impossible to determine the effective rate of foreign tax
for a Fund in advance since the amount of the assets to be invested within
various countries is not known.

If a Fund invests in an entity that is classified as a "passive foreign
investment company" ("PFIC") for federal income tax purposes, the application of
certain provisions of the Code applying to PFICs could result in the imposition
of certain federal income taxes on the Fund. Under the Internal Revenue Code,
the Non-U.S. Fund can elect to mark-to-market its PFIC holdings in lieu of
paying taxes on gains or distributions therefrom.

STATE AND LOCAL TAXES. Depending upon the extent of a 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 Fund may be subject to the tax laws of such states or
localities.

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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.

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

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<PAGE>

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 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 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 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.

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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 credit
worthiness 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 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.

-36-
<PAGE>

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:

Commercial paper rated Prime by Moody's is based upon its evaluation of
many factors, including: (1) 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-1,
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-1, 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.

-37-
<PAGE>

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.:

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 carry 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 U.S. 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

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.

-38-
<PAGE>

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 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.

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.

-39-
<PAGE>

FITCH INVESTORS SERVICE, INC.:

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:

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 reflect 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".

-40-
<PAGE>

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 1997 annual financial statements of the Funds, including notes to financial
statements, financial highlights, and the Report of Independent Accountants,
are included in the Investment Company's Annual Reports to Shareholders. Copies
of these Annual Reports accompany this Statement of Additional Information and
are incorporated herein by reference.

-41-
<PAGE>

Russell Insurance Funds
File No. 33-18030
1933 Act Post-Effective Amend. No. 5
1940 Act Amendment No. 9

OTHER INFORMATION

PART C

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements

Financial Statements for the period ended 12/31/97 for each of Multi-Style
Equity, Aggressive Equity, Non-U.S. and Core Bond Funds' Annual Report for
Russell Insurance Funds are incorporated by reference to February 27, 1998
electronic filing via EDGAR ON FORM N-30D.

(b) Exhibits

1 Master Trust Agreement (incorporated by reference to Pre-effective
Amendment No. 4 filed September 20, 1996).

2 Bylaws (incorporated by reference to Pre-effective Amendment No. 4
filed September 20, 1996).

5(a) Management Agreement between Russell Insurance Funds ("RIF") and
Frank Russell Investment Management Company ("FRIMCo") dated
August 5, 1996 (incorporated by reference to Pre-effective
Amendment No. 4 filed September 20, 1996).

5(b) Form of Portfolio Management Agreement among RIF, FRIMCo and Money
Managers (incorporated by reference to Pre-effective Amendment
No. 4 filed September 20, 1996).

5(c) Form of Portfolio Management Agreement between Russell Insurance
Funds and Frank Russell Investment Management Company with
non-compete clause. (incorporated by reference to Post-Effective
No. 4 filed February 24, 1998)

6 Distribution on Agreement between RIF and Russell Fund
Distributors, Inc. dated August 5, 1996 (incorporated by reference
to Pre-effective Amendment No. 4 filed September 20, 1996).

-4-
<PAGE>

8(a) Custody Agreement between RIF and State Street Bank and Trust
Company ("State Street") dated August 5, 1996 (incorporated by
reference to Pre-effective Amendment No. 4 filed September 20,
1996).

9(a) Form of Participation Agreement between RIF and General American
Life Insurance Company ("General American") (incorporated by
reference to Pre-effective Amendment No. 4 filed September 20,
1996).

9(a)(i) Form of Participation Agreement between RIF, Russell Fund
Distributors, Inc and various insurance companies. (incorporated
by reference to Post-Effective No. 4 filed February 24, 1998)

9(b) Transfer and Dividend Disbursing Agency Agreement between RIF and
FRIMCo dated August 5, 1996 (incorporated by reference to
Pre-effective Amendment No. 4 filed September 20, 1996).

9(b)(1) Letter Agreement amending Schedule A to the Transfer and Dividend
Disbursing Agency Agreement with Frank Russell Investment
Management Company

9(c) Form of Tax Accounting Services Agreement between RIF and State
Street (incorporated by reference to Pre-effective Amendment No. 4
filed September 20, 1996).

9(d) Form of Yield Calculation Services Agreement between RIF and State
Street (incorporated by reference to Pre-effective Amendment No. 4
filed September 20, 1996).

9(e) Joint Insurance Agreement between RIF and Frank Russell Investment
Company dated August 5, 1996 (incorporated by reference to
Pre-effective Amendment No. 4 filed September 20, 1996).

10 Opinion and Consent of Counsel

11(a) Consent of Independent Accountants.

11(b) Limited Powers of Attorney of RIF Trustees with respect to
Amendments to the SEC Registration Statement of RIF (incorporated
by reference to Pre-effective Amendment No. 4 filed September 20,
1996).

11(c) Limited Power of Attorney, of RIF Trustee with respect to
Amendment to the SEC Registration of RIF (incorporated by
reference to Post-effective Amendment No. 1 filed February 27,
1997)

13 Form of Seed Money Subscription Agreement between RIF and General
American (incorporated by reference to Pre-effective Amendment
No. 4 filed September 20, 1996).

-5-
<PAGE>

16 Schedules of performance quotation computation.

17 Financial Data Schedules for Russell Insurance Funds

-6-
<PAGE>

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

Registrant is controlled by its Board of Directors.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

Title of Class Number of Record Holders as of March 31, 1998
-------------- ---------------------------------------------
<S> <C>
Multi-Style Equity Fund 6
Aggressive Equity Fund 6
Non-U.S. Fund 6
Core Bond Fund 6

</TABLE>

ITEM 27. INDEMNIFICATION

(Incorporated by reference to Pre-effective Amendment No. 4 filed September 20,
1996).

ITEM 28(a). BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

See, Registrant's prospectus sections "Frank Russell Company -- Consultant to
the Funds," "The Money Managers" and Money Manager Profiles," the Statement of
Additional Information sections "Structure and Governance -- Trustees and
Officers," and "Operation of Investment Company -- Consultant."

ITEM 29. PRINCIPAL UNDERWRITER

a) SSgA Funds
b) Frank Russell Investment Company
c) Russell Fund Distributors, Inc. is the principal underwriter of the
Registrant with respect to sales of Registrant's shares to Insurance Companies.
The directors and officers of Russell Fund Distributors, Inc., their principal
business address in each case is 909 A Street, Tacoma, Washington 98402, and
their respective positions and offices with the Registrant and Russell Fund
Distributors, Inc. are set forth below:

Positions and Offices with Positions and Offices with
Name Registrant Underwriter
- ---- -------------------------- --------------------------

Lynn L. Anderson Trustee, President, Chief Director, Chairman of the
Executive Officer Board and Chief Executive
Officer

-7-
<PAGE>

Eric A. Russell None Director, President

George W. Weber Treasurer, Chief Accounting Director, Fund Administration
Officer and Operations

Karl J. Ege Secretary and General Secretary and General Counsel
Counsel

Randall P. Lert Director of Investments Director, Chief Investment
Officer

Gregory J. Lyons Assistant Secretary and Assistant Secretary
Associate General Counsel

J. David Griswold None Assistant Secretary and
Associate General Counsel

Mary E. Hughs None Assistant Secretary

Sandra J. Burke Assistant Secretary None

Deedra S. Walkey Assistant Secretary None

Amy L. Osler Assistant Secretary None

Carla L. Anderson None Assistant Secretary

Rick J. Chase Assistant Treasurer

Mark E. Swasnon Assistant Treasurer Manager, Funds Administration

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

RIF FRIMCo
- --- ------
Russell Insurance Funds Frank Russell Investment
909 A Street Management Company
Tacoma, Washington 98402 909 A Street
Tacoma, Washington 98402

SS MM
- -- --
State Street Bank & Trust Company Money Managers
1776 Heritage Drive JA4N See, Prospectus Section

-8-

<PAGE>

North Quincy, Massachusetts 02171 "Money Manager Profiles"
for Names and Addresses

ITEM 31 MANAGEMENT SERVICES

None as described in Parts A and B.

ITEM 31a-1

(a) Records forming basis for financial statements - at principal
offices of SS, RIF FRIMCo and MM for each entity

(b) RIF Records:
(1) SS - Journals, etc.
(2) SS - Ledgers, etc.
(3) Inapplicable
(4) RIF - Corporate charter, etc.
(5) MM - Brokerage orders
(6) MM - Other portfolio purchase orders
(7) SS - Contractual commitments
(8) SS and RIF - Trial balances
(9) MM - Reasons for brokerage allocations
(10) MM - Persons authorizing purchases and sales
(11) FRIC and MM - Files of advisory material
(12) ---

(d) FRIMCo - Broker-dealer records, to the extent applicable

(e) Inapplicable

(f) FRIMCo and MM - Investment adviser records

ITEM 32. UNDERTAKINGS

The Registrant undertakes to furnish each person to whom a Prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.

The Registrant undertakes, if requested to do so by the holders of at least 10%
of the Registrant's outstanding shares, to call a meeting of shareholders for
the purpose of voting upon the question of removal of a director or directors
and to assist in communications with other shareholders as required by Section
16(c).

-9-
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, The Registrant, Russell Insurance Funds, certifies that
it meets all of the requirements for effectiveness of this Registration
Statement pursuant to rule 485(b) of the Securities Act of 1933 and has duly
caused this Post Effective Amendment No. 5 to its Registration statement to
be signed on its behalf by the undersigned thereto duly authorized, in the
City of Tacoma, and State of Washington, on the 15th day of April, 1998.

Russell Insurance Fund
--------------------------------
Registrant

By: /s/ Lynn L. Anderson
---------------------------------------
Lynn L. Anderson, Trustee and President

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on April 15, 1998.

Signatures Title
- ---------- -----

/s/ Lynn L. Anderson Trustee and President,
- ---------------------------- in his capacity as
Lynn L. Anderson Chief Executive Officer

/s/ George W. Weber Treasurer, in his capacity
- ---------------------------- as Chief Accounting Officer
George W. Weber

Trustee
- ----------------------------
Paul E. Anderson*

Trustee
- ----------------------------
Paul Anton, PhD*

-10-
<PAGE>

Trustee
- ----------------------------
William E. Baxter*

Trustee
- ----------------------------
Lee C. Gingrich*

Trustee
- ----------------------------
Eleanor W. Palmer*

Trustee
- ----------------------------
George F. Russell, Jr.

By: /s/ Gregory J. Lyons
-------------------------
Gregory J. Lyons

- ----------------------
* Original Powers of Attorney authorizing the President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary, and each of
them singly to sign this Amendment thereto on behalf of the Board of
Trustees of Frank Russell Investment Company are on file with the
Securities and Exchange Commission.

-11-
<PAGE>

EXHIBIT INDEX

Exhibit Description
No. of Exhibit
- ------- -----------

99-9(b)(1) Letter Agreement Amending Schedule A to the Transfer and
Dividend Disbursing Agency Agreement.

99-10 Opinion and Consent of General Counsel

99-11(a) Consent of Independent Accountants

99-16 Schedule of Computations of Performance Calculation

27 Financial Data Schedules for Russell Insurance Funds

-12-

<PAGE>

Russell Insurance Funds

FILE NO. 33-18030
FILE NO. 811-5371
-----------------

EXHIBITS

Listed in Part C, Item 1(b)
To Post-Effective Amendment No. 5
and Amendment No. 9
to
Registration Statement on Form N-1A
Under
Securities Act of 1933
and
Investment Company Act of 1940

<PAGE>
<ARTICLE> 6
<CIK> 0000824036
<NAME> RUSSELL INSURANCE FUNDS
<SERIES>
<NUMBER> 1
<NAME> CORE BOND FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-02-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 9046
<INVESTMENTS-AT-VALUE> 9226
<RECEIVABLES> 106
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9337
<PAYABLE-FOR-SECURITIES> 784
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30
<TOTAL-LIABILITIES> 814
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8181
<SHARES-COMMON-STOCK> 816
<SHARES-COMMON-PRIOR> 683
<ACCUMULATED-NII-CURRENT> 119
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 44
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 179
<NET-ASSETS> 8523
<DIVIDEND-INCOME> 39
<INTEREST-INCOME> 480
<OTHER-INCOME> 0
<EXPENSES-NET> 58
<NET-INVESTMENT-INCOME> 461
<REALIZED-GAINS-CURRENT> 40
<APPREC-INCREASE-CURRENT> 179
<NET-CHANGE-FROM-OPS> 680
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 339
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1210
<NUMBER-OF-SHARES-REDEEMED> 431
<SHARES-REINVESTED> 34
<NET-CHANGE-IN-ASSETS> 8498
<ACCUMULATED-NII-PRIOR> 132
<ACCUMULATED-GAINS-PRIOR> (29)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 43
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 166
<AVERAGE-NET-ASSETS> 7243
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .64
<PER-SHARE-GAIN-APPREC> .30
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.45
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000824036
<NAME> RUSSELL INSURANCE FUNDS
<SERIES>
<NUMBER> 2
<NAME> MULTI-STYLE EQUITY FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-02-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 19752
<INVESTMENTS-AT-VALUE> 23706
<RECEIVABLES> 98
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23809
<PAYABLE-FOR-SECURITIES> 73
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 97
<TOTAL-LIABILITIES> 170
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19065
<SHARES-COMMON-STOCK> 1850
<SHARES-COMMON-PRIOR> 1646
<ACCUMULATED-NII-CURRENT> 41
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 582
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3951
<NET-ASSETS> 23639
<DIVIDEND-INCOME> 313
<INTEREST-INCOME> 11
<OTHER-INCOME> 0
<EXPENSES-NET> 178
<NET-INVESTMENT-INCOME> 146
<REALIZED-GAINS-CURRENT> 582
<APPREC-INCREASE-CURRENT> 3951
<NET-CHANGE-FROM-OPS> 4679
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 105
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3160
<NUMBER-OF-SHARES-REDEEMED> 1322
<SHARES-REINVESTED> 9
<NET-CHANGE-IN-ASSETS> 23614
<ACCUMULATED-NII-PRIOR> 33
<ACCUMULATED-GAINS-PRIOR> (282)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 151
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 311
<AVERAGE-NET-ASSETS> 19433
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 2.75
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.78
<EXPENSE-RATIO> .92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000824036
<NAME> RUSSELL INSURANCE FUNDS
<SERIES>
<NUMBER> 3
<NAME> AGGRESSIVE EQUITY FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-02-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 12874
<INVESTMENTS-AT-VALUE> 15391
<RECEIVABLES> 97
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15493
<PAYABLE-FOR-SECURITIES> 47
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74
<TOTAL-LIABILITIES> 121
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11748
<SHARES-COMMON-STOCK> 1143
<SHARES-COMMON-PRIOR> 1041
<ACCUMULATED-NII-CURRENT> 3
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1099
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2522
<NET-ASSETS> 15372
<DIVIDEND-INCOME> 190
<INTEREST-INCOME> 11
<OTHER-INCOME> 0
<EXPENSES-NET> 153
<NET-INVESTMENT-INCOME> 48
<REALIZED-GAINS-CURRENT> 1098
<APPREC-INCREASE-CURRENT> 2522
<NET-CHANGE-FROM-OPS> 3668
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 45
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2045
<NUMBER-OF-SHARES-REDEEMED> 909
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 15347
<ACCUMULATED-NII-PRIOR> 14
<ACCUMULATED-GAINS-PRIOR> 100
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 116
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 272
<AVERAGE-NET-ASSETS> 12330
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 3.45
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.45
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000824036
<NAME> RUSSELL INSURANCE FUNDS
<SERIES>
<NUMBER> 4
<NAME> NON-U.S. FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-02-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 6661
<INVESTMENTS-AT-VALUE> 6667
<RECEIVABLES> 146
<ASSETS-OTHER> 213
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7026
<PAYABLE-FOR-SECURITIES> 101
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49
<TOTAL-LIABILITIES> 150
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6923
<SHARES-COMMON-STOCK> 686
<SHARES-COMMON-PRIOR> 607
<ACCUMULATED-NII-CURRENT> 84
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (133)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2
<NET-ASSETS> 6876
<DIVIDEND-INCOME> 157
<INTEREST-INCOME> 10
<OTHER-INCOME> (19)
<EXPENSES-NET> 84
<NET-INVESTMENT-INCOME> 64
<REALIZED-GAINS-CURRENT> (112)
<APPREC-INCREASE-CURRENT> 2
<NET-CHANGE-FROM-OPS> (47)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1091
<NUMBER-OF-SHARES-REDEEMED> 407
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6851
<ACCUMULATED-NII-PRIOR> 46
<ACCUMULATED-GAINS-PRIOR> 91
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 61
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 236
<AVERAGE-NET-ASSETS> 6486
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> (.06)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.03
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

Exhibit 99.9(b)(1)

LETTER AGREEMENT
AND
AMENDED SCHEDULE A

November 5, 1996

Frank Russell Investment
Management Company
909 A Street
Tacoma, WA 98402

Dear Sirs:

Pursuant to Section 24 of the Transfer and Dividend Disbursing Agency Agreement
between Russell Insurance Funds and Frank Russell Investment Management Company,
dated August 5, 1996, Russell Insurance Funds advises you that it desires to
amend Schedule A of the Transfer and Dividend Disbursing Agency Agreement to
revise the fees to be charged by you to the Funds in return for your services as
set forth in the attached Transfer Agent Fee Schedule.

Please indicate your acceptance to act as Transfer and Dividend Disbursing Agent
to the amendment of Schedule A by executing the acceptance copy of this letter
agreement and returning to the undersigned.

Sincerely,

RUSSELL INSURANCE FUNDS

By: /s/ Lynn L. Anderson
__________________________
Lynn L. Anderson
President and Chief Executive Officer

Accepted this 5th day of November, 1996

FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY

By: /s/ Eric A. Russell
__________________________
Eric A. Russell
President

<PAGE>

SCHEDULE A AMENDMENT

FEE SCHEDULE
EFFECTIVE NOVEMBER 5, 1996

For all services provided by the Transfer Agent pursuant to the Transfer and
Dividend Disbursing Agency Agreement, each of the Russell Insurance Funds agrees
to pay the Transfer Agent an annual fee equal to the average daily net assets
for each Portfolio of the Fund multiplied by the following percentages:

Asset Level Basis Point Fee
----------- ---------------

$0 - $25 million 7 basis points

$26 - $50 million 5 basis points

$51 - $100 million 3 basis points

$101 - $500 million 2 basis points

over $500 million 1 basis point

The Transfer Agency Fee shall be accrued daily at a rate of 1/365th of the
annual fee and shall be based upon the average daily net assets of each
Portfolio during the calendar month. The Transfer Agency Fee shall be payable
monthly on the fifth business day following month end.

<PAGE>

Exhibit 99-10

Law Offices

STRADLEY, RONON, STEVENS & YOUNG, LLP

2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000

Direct Dial: (215) 564-8074

April 20, 1998

Russell Insurance Funds
909 A Street
Tacoma, WA 98402

Re: LEGAL OPINION-SECURITIES ACT OF 1933
------------------------------------

Ladies and Gentlemen:

We have examined the Master Trust Agreement (the "Agreement") dated
July 11, 1996, of Russell Insurance Funds (the "Trust"), a business trust
organized under the laws of the Commonwealth of Massachusetts, the By-Laws of
the Trust, and the resolutions adopted by the Trust's Board of Trustees
organizing the business of the Trust, all as amended to date, and the various
pertinent proceedings we deem material. We have also examined the
Notification of Registration and the Registration Statements filed under the
Investment Company Act of 1940 (the "Investment Company Act") and the
Securities Act of 1933 (the "Securities Act") by the Trust and its corporate
predecessor, all as amended to date, as well as other items we deem material
to this opinion.

The Trust is authorized by the Agreement to issue an unlimited number of
shares of beneficial interest without a par value, in one or more sub-Trusts,
and in such classes as the Trustees shall authorize. The Trust issues shares
of the sub-Trusts identified in its prospectuses pursuant to the provisions
of the Agreement authorizing the Trustees to designate sub-Trusts and
classes, and authorizing the Trustees to allocate shares of beneficial
interest to each such sub-Trust or class. The Declaration of Trust also
empowers the Trustees to designate any additional series or classes and
allocate shares to such series or classes.

The Trust has filed with the U.S. Securities and Exchange Commission
(the "Commission"), a Registration Statement under the Securities Act, which
Registration Statement is deemed to register an indefinite number of shares
of the Trust pursuant to the provisions of Rule 24f-2 under the Investment
Company Act. You have further advised us that the Trust has filed, and each
year hereafter will timely file, a Notice pursuant to Rule 24f-2 perfecting
the

1
<PAGE>

registration of the shares sold by the Trust during each fiscal year during
which such registration of an indefinite number of shares remains in effect.

You have also informed us that the shares of the Trust have been, and
will continue to be, sold in accordance with the Trust's usual method of
distributing its registered shares, under which prospectuses are made
available for delivery to offerees and purchasers of such shares in
accordance with Section 5(b) of the Securities Act.

Based upon the foregoing information and examination, so long as the
Trust remains a valid and subsisting trust under the laws of the State of
Massachusetts, and the registration of an indefinite number of shares of the
Trust remains effective, the authorized shares of the Trust when issued for
the consideration set by the Board of Trustees pursuant to the Agreement, and
subject to compliance with Rule 24f-2, will be legally outstanding,
fully-paid, and non-assessable shares, and the holders of such shares will
have all the rights provided for with respect to such holding by the
Agreement and the laws of the State of Massachusetts.

We hereby consent to the use of this opinion as an exhibit to the
Registration Statement of the Trust, and any amendments thereto, covering the
registration of the shares of the Trust under the Securities Act and the
applications, registration statements or notice filings, and amendments
thereto, filed in accordance with the securities laws of the several states
in which shares of the Trust are offered, and we further consent to reference
in the registration statement of the Trust to the fact that this opinion
concerning the legality of the issue has been rendered by us.

Very truly yours,

STRADLEY, RONON, STEVENS & YOUNG, LLP

By: /s/ Steven M. Felsenstein
-----------------------------------
Steven M. Felsenstein

<PAGE>

Exhibit 99-11(a)

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees of
Russell Insurance Funds:

We consent to the incorporation by reference in Post-Effective Amendment
No. 5 to the Registration Statement of Russell Insurance Funds on Form N-1A of
our report dated February 17, 1998, on our audit of the Financial Statements and
Financial Highlights of the Fund (comprised of Multi-Style Equity Fund,
Aggressive Equity Fund, Non-U.S. Fund and Core Bond Fund) which report is
included in the Annual Report to the shareholders for the periods from
January 2, 1997 (Commencement of Operations) to December 31, 1997, which is
incorporated by reference in the Registration Statement. We also consent to
the references to our Firm under the captions "Financial Highlights" and
"Additional Information" in the Prospectus, and "Independent Accountants" in
the Statement of Additional Information.

Boston, Massachusetts /s/ COOPERS & LYBRAND L.L.P.
April 24, 1998 Coopers & Lybrand L.L.P.

<PAGE>

EXHIBIT 16
SCHEDULE OF COMPUTATIONS

AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED 12/31/97

The following are the average annual total returns for the Frank Russell
Investment Company Funds, computed by finding the average compounded rates of
return over the periods that would equate the initial amount invested to the
ending redeemable value, according to the following formula:

n
P(1 + T) = ERV

Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at inception.

MULTI-STYLE EQUITY FUND
- -----------------------
.9945
.9945 years $1,000 (1 + 28.53%) = $1,284

AGGRESSIVE EQUITY FUND
- ----------------------
.9945
.9945 years $1,000 (1 + 35.07%) = $1,348

NON-US FUND
- -----------
.9945
.9945 years $1,000 (1 + 0.30%) = $1,003

EQUITY Q FUND
- -------------
.9945
.9945 years $1,000 (1 + 9.73%) = $1,097