RUSSELL INSURANCE FUNDS, 485APOS, 1999-02-09

RUSSELL INSURANCE FUNDS
485APOS, 1999-02-09

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<PAGE>

Filed Pursuant to Rule 485(a)
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. 6 [X]
----

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

Amendment No. 10
-------

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)
( ) on (date) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) on ( date) pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
([x]) on May 1, 1999 pursuant to paragraph (a)(2) 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.
<PAGE>

RUSSELL INSURANCE FUNDS

909 A Street,

Tacoma, WA 98402

Telephone (800) 787-7354

In Washington (253) 627-7001

(ART)

PROSPECTUS DATED MAY 1, 1999

Multi-Style Equity Fund

Aggressive Equity Fund

Non-U.S. Fund

Real Estate Securities Fund

Core Bond Fund

As with all mutual funds, the Securities and Exchange Commission doesn't
guarantee that the information in this Prospectus is accurate or complete, nor
has it approved or disapproved of these securities. It is a criminal offense to
state otherwise.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary......................................................... 3
--Investment Objectives and Principal Investment Strategies............... 3
--Principal Risks......................................................... 8
--Performance............................................................. 10
--Fees and Expenses....................................................... 11
Summary Comparison of the Funds............................................. 13
The Purpose of RIF.......................................................... 13
Frank Russell Company--Consultant to RIF.................................... 13
Multi-Style, Multi-Manager Diversification.................................. 14
Management of the Funds..................................................... 14
The Money Managers.......................................................... 16
Portfolio Turnover.......................................................... 16
Dividends and Distributions................................................. 16
Taxes....................................................................... 17
How Net Asset Value Is Determined........................................... 18
Purchase of Fund Shares..................................................... 18
Redemption of Fund Shares................................................... 19
Financial Highlights........................................................ 20
Money Manager Information................................................... 24
</TABLE>

2
<PAGE>

RISK/RETURN SUMMARY

Investment Objective and Principal Investment Strategies

Multi-Style Equity Fund

Investment Objective -- To provide income and capital growth by investing
principally in equity securities.

Principal Investment Strategies -- The Multi-Style Equity Fund invests
primarily in common stocks of medium and large capitalization companies. These
companies are predominately US-based, although the Fund may invest a limited
portion of its assets in non-US firms from time to time.

The Fund employs a "multi-style, multi-manager" approach whereby portions of
the Fund are allocated to different money managers who employ distinct, but
complementary, investment styles. The Fund expects to use three principal
investment styles:

. Growth Style emphasizes investments in equity securities of companies
with above-average earnings growth prospects. These companies are
generally found in the technology, health care, consumer, and service
sectors.

. Value Style emphasizes investments in equity securities of companies that
appear to be undervalued relative to their corporate worth, based on
earnings, book or asset value, revenues, or cash flow. These companies
are generally found among industrial, financial, and utilities sectors.

Additionally, the Fund is diversified by equity substyle. For example,
within the Growth Style, the Fund expects to employ both an Earnings Momentum
substyle (concentrating on companies with more volatile and accelerating
growth rates) and Consistent Growth substyle (concentrating on companies with
stable earnings growth over an economic cycle).

When determining how to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a money manager's
investment style and substyle and its performance record as well as the
characteristics of the money manager's typical portfolio investments. These
characteristics include capitalization size, growth and profitability
measures, valuation ratios, economic sector weightings, and earnings and price
volatility statistics. The Fund also considers the manner in which money
managers' historical and expected investment returns correlate with one
another.

The Fund intends to be fully invested at all times. Although the Fund, like
any mutual fund, maintains liquidity reserves (i.e., cash awaiting investment
or held to meet redemption requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in stock index futures
contracts. This causes the Fund to perform as though its cash reserves were
actually invested in those markets.

Aggressive Equity Fund

Investment Objective -- 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.

3
<PAGE>

Principal Investment Strategies -- The Aggressive Equity Fund invests
primarily in common stocks of small and medium capitalization companies. These
companies are predominately US-based, although the Fund may invest in non-US
firms from time to time.

The Fund's investments may include companies that have been publicly traded
for less than five years and smaller companies, such as companies not listed
in the Russell 2000(R) Index.

When determining how to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a money manager's
investment style and performance record as well as the characteristics of the
money manager's typical portfolio investments. These characteristics include
capitalization size, growth and profitability measures, valuation ratios,
economic sector weightings, and earnings and price volatility statistics. The
Fund also considers the manner in which money managers' historical and
expected investment returns correlate with one another.

Up to 15% of a Fund's investments may be "illiquid" securities (i.e.,
securities that do not have a readily available market or that are subject to
resale restrictions).

Non-U.S. Fund

Investment Objective -- 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.

Principal Investment Strategies -- The Non-U.S. Fund invests primarily in
equity securities issued by companies domiciled outside the United States and
in depository receipts, which represent ownership of securities of non-US
companies.

4
<PAGE>

The Fund's investments span most of the developed nations of the world
(particularly Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. Because international equity
investment performance has a reasonably low correlation to US equity
performance, this Fund may be appropriate for investors who want to reduce
their investment portfolio's overall volatility by combining an investment in
this Fund with investments in US equities.

The Fund may seek to protect its investments against adverse currency
exchange rate changes by purchasing forward currency contracts. These
contracts enable the Fund to "lock in" the US dollar price of a security that
it plans to buy or sell. The Fund may not accurately predict currency
movements.

. Market-Oriented Style emphasizes investments in companies that appear to
be undervalued relative to their growth prospects. This style may
encompass elements of both the growth and value styles. These companies
may be found in any industry sector. A variation of this style maintains
investments that replicate country and sector weightings of a broad
international market index.

Up to 15% of the Fund's investments may be "illiquid" securities (i.e.,
securities that do not have a readily available market or that are subject to
resale restrictions).

Real Estate Securities Fund

Investment Objective -- To generate a high level of total return through
above average current income, while maintaining the potential for capital
appreciation.

5
<PAGE>

Principal Investment Strategies -- The Fund seeks to achieve its objective
by concentrating its investments in equity securities of issuers whose value
is derived primarily from development, management and market pricing of
underlying real estate properties.

The Fund invests primarily in securities of companies that own and/or manage
properties, known as real estate investment trusts (REITs). REITs may be
composed of anywhere from two to over 1,000 properties. The Fund may also
invest in equity and debt securities of other types of real estate-related
companies. These companies are predominately US-based, although the Fund may
invest a limited portion of its assets in non-US firms from time to time.

The Fund employs a "multi-style, multi-manager" approach whereby portions of
the Fund are allocated to different money managers who employ distinct, but
complementary, investment styles.

When determining how to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a money manager's
investment style and performance record as well as the characteristics of the
money manager's typical portfolio investments. These characteristics include
capitalization size, growth and profitability measures, valuation ratios,
property type and geographic weightings, and earnings and price volatility
statistics. The Fund also considers the manner in which money managers'
historical and expected investment returns correlate with one another.

The Fund intends to be fully invested at all times. Although the Fund, like
any mutual fund, maintains liquidity reserves (i.e., cash awaiting investment
or held to meet redemption requests), the Fund may expose these reserves to
the performance of appropriate equity markets by investing in stock index
futures contracts. This causes the Fund to perform as though its cash reserves
were actually invested in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.

Up to 15% of the Fund's investments may be "illiquid" securities (i.e.,
securities that do not have a readily available market or that are subject to
resale restrictions).

Core Bond Fund

Investment Objective -- 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.

Principal Investment Strategies -- The Core Bond Fund invests primarily in
fixed-income securities. In particular, the Fund holds debt securities issued
or guaranteed by the US government or, to a lesser extent by non-US
governments, or by their respective agencies and instrumentalities. It also
holds mortgage-backed securities, including collateralized mortgage
obligations. The Fund also invests in corporate debt securities and dollar-
denominated obligations issued in the US by non-US banks and corporations
(Yankee Bonds). A majority of the Fund's holdings are US dollar denominated.
From time to time the Fund may invest in municipal debt obligations.

The Fund may invest up to 25% of its assets in debt securities that are
rated below investment grade as determined by one or more nationally
recognized securities rating organizations or in unrated securities judged by
the Fund to be of comparable quality.

6
<PAGE>

The average weighted duration of the Fund's portfolio typically ranges
within 10% of the average weighted duration of the Lehman Brothers Aggregate
Bond Index, but may vary up to 25% from the Index's duration. The Fund has no
restrictions on individual security duration.

The Fund invests in securities of issuers in a variety of sectors of the
fixed income market. The Fund's money managers identify sectors of the fixed
income market that they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over time. To a lesser
extent, the Fund may attempt to anticipate shifts in interest rates and hold
securities that the Fund expects to perform well in relation to market
indexes, as a result of such shifts. Additionally, the Fund typically holds
proportionately fewer U.S. Treasury obligations than are represented in the
Lehman Brothers Aggregate Bond Index.

The Fund employs multiple money managers, each with complementary expertise
in the fixed income markets. When determining how to allocate its assets among
money managers, the Fund considers a variety of factors. These factors include
a money manager's investment style and performance record as well as the
characteristics of the money manager's typical portfolio investments. These
characteristics include portfolio biases, magnitude of sector shifts, and
duration movements. The Fund also considers the manner in which money
managers' historical and expected investment returns correlate with one
another.

The Fund may enter into interest rate futures contracts, options on such
futures contracts, and interest rate swaps (i.e., agreements to exchange the
Fund's rights to receive certain interest payments) as a substitute for
holding physical securities or to facilitate the implementation of its
investment strategy.

7
<PAGE>

Principal Risks

An investment in the Funds, like any investment, has risks. The value of
each Fund fluctuates, and you could lose money. The following table describes
principal types of risks that the Funds are subject to and lists next to each
description those Funds most likely to be affected by the risk. Other Funds
that are not listed may hold portfolio investments that are subject to one or
more of the risks, but will not do so in a way that is expected to principally
affect the performance of the Fund as a whole. Please refer to the Funds'
Statement of Additional Information for a discussion of risks associated with
types of securities held by the Funds and investment practices employed.

<TABLE>
<CAPTION>
Risk Associated Relevant
With: Description Fund
--------------- ----------- --------
<S> <C> <C>
Multi-manager approach The interplay of the various strategies employed by a All Funds
Fund's multiple money managers may result in the Fund's
holding a concentration of certain types of securities.
This concentration may be beneficial or detrimental to
the Fund's performance depending upon the performance of
those securities and the overall economic environment.

Equity securities The value of equity securities will rise and fall in Multi-Style
response to the activities of the company that issued the Equity
stock, general market conditions, and/or economic Aggressive
conditions. Equity
Non-U.S.
Real Estate
Securities

. Value Stocks Investments in value stocks are subject to risks that (i) Multi-Style
their intrinsic values may never be realized by the Equity
market or (ii) such stock may turn out not to have been Aggressive
undervalued. Equity
Non-U.S.

. Growth Stocks Growth company stocks may provide minimal dividends that Multi-Style
can cushion stock prices in a market decline. The value Equity
of growth company stocks may rise and fall dramatically Aggressive
based, in part, on investors' perceptions of the company Equity
rather than on fundamental analysis of the stocks. Non-U.S.

. Market-Oriented Market-oriented investments are generally subject to the Multi-Style
Investments risks that are associated with growth and value stocks. Equity
Aggressive
Equity
Non-U.S.

. Securities of small Investments in smaller companies may involve greater Aggressive
capitalization risks because these companies generally have a limited Equity
companies track record. Smaller companies often have narrower Real Estate
markets and more limited managerial and financial Securities
resources than larger, more established companies. As a
result, their performance can be more volatile which
could increase the volatility of a Fund's portfolio.

Fixed-income securities Prices of fixed income securities rise and fall in Core Bond
response to interest rate changes. Generally, when
interest rates rise, prices of fixed income securities
fall. The longer the duration of the security, the more
sensitive the security is to this risk. There is also a
risk that one or more of the securities will be
downgraded in credit rating or go into default. Lower-
rated bonds generally have higher credit risks.

. Non-investment grade Although lower rated debt securities generally offer a Core Bond
fixed-income higher yield than higher rated debt securities, they
securities involve higher risks. They are especially subject to:
. adverse changes in general economic conditions and in
the industries in which their issuers are engaged,
. changes in the financial condition of their issuers,
and
. price fluctuations in response to changes in interest
rates.

As a result, issuers of lower rated debt securities are
more likely than other issuers to miss principal and
interest payments or to default.
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
Risk Associated Relevant
With: Description Fund
--------------- ----------- --------
<S> <C> <C>
International securities The Funds' returns and net asset value may be Non-U.S.
significantly affected by political or economic Core Bond
conditions and regulatory requirements in a particular
country. Foreign markets, economies and political systems
may be less stable than US markets, and changes in
exchange rates of foreign currencies can affect the value
of a Fund's foreign assets. Foreign laws and accounting
standards typically are not as strict as they are in the
US and there may be less public information available
about foreign companies. A Fund's foreign debt securities
are typically obligations of sovereign governments. These
securities are particularly subject to a risk of default
from political instability.

. Instruments of US and Non-US corporations and banks issuing dollar denominated Core Bond
foreign banks and instruments in the US are not necessarily subject to the
branches, and foreign same regulatory requirements that apply to US
corporations including corporations and banks, such as accounting, auditing and
Yankee Bonds recordkeeping standards, the public availability of
information and, for banks, reserve requirements, loan
limitations, and examinations. This increases the
possibility that a non-US corporation or bank may become
insolvent or otherwise unable to fulfill its obligations
on these instruments.

Derivatives (e.g. If a Fund incorrectly forecasts interest rates in using Core Bond
futures contracts, derivatives, the Fund could lose money. Price movements
options on futures, of a futures contract, option or structured note may not
interest rate swaps, be identical to price movements of portfolio securities
structured notes) or a securities index resulting in the risk that, when a
Fund buys a futures contract or option as a hedge, the
hedge may not be completely effective.

Real estate securities Just as real estate values go up and down, companies Real Estate
involved in the industry, and in which a Fund invests, Securities
also fluctuate. Such a Fund is subject to the risks
associated with direct ownership of real estate.
Additional risks include declines in the value of real
estate, changes in general and local economic conditions,
increases in property taxes and changes in tax laws and
interest rates. The value of securities of companies that
service the real estate industry may also be affected by
such risks.

. REITs REITs may be affected by changes in the value of the Real Estate
underlying properties owned by the REITs and by the Securities
quality of any credit extended. Moreover, the underlying
portfolios of REITs may not be diversified, and therefore
are subject to the risk of financing a single or a
limited number of projects. REITs are also dependent upon
management skills and are subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and
the possibility of failing either to qualify for tax-free
pass through of income under federal tax laws or to
maintain their exemption from certain Federal securities
laws.

Municipal Obligations Municipal obligations are affected by economic, business Core Bond
or political developments. These securities may be
subject to provisions of litigation, bankruptcy and other
laws affecting the rights and remedies of creditors, or
may become subject to future laws extending the time for
payment of principal and/or interest, or limiting the
rights of municipalities to levy taxes.

Exposing Liquidity By exposing its liquidity reserves to the equity market, Multi-Style
Reserves to Equity a Fund's performance tends to correlate more closely to Equity
Markets the performance of the market as a whole. Although this Aggressive
increases a Fund's performance if equity markets rise, it Equity
reduces a Fund's performance if equity markets decline. Non-U.S.
Real Estate
Securities

Year 2000 The Funds' operations depend on the smooth functioning of All Funds
their service providers' computer systems. The Funds and
their shareholders could be adversely affected if those
computer systems do not properly process and calculate
date-related information on or after January 1, 2000.
Many computer software systems in use today cannot
distinguish between the year 2000 and the year 1900.
Although year 2000-related computer problems could have a
negative effect on the Funds and their shareholders, the
Funds' service providers have advised the Funds that they
are working to avoid such problems. Because it is the
obligation of those service providers to ensure the
proper functioning of their computer systems, the Funds
do not expect to incur any material expense in connection
with year 2000 preparations.
</TABLE>

An investment in any of the Funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

9
<PAGE>

Performance

The following bar charts illustrate the risks of investing in the Funds by
showing how the performance of each Fund varies from year to year. No shares
of Real Estate Securities Fund were issued during the period shown.

Past performance is no indication of future results.

[bar chart may include returns for more than one fund, subject to general
requirement that the info presented appear in a clear and understandable
manner]

[All Funds--include life of the Fund]

TO BE FILED BY AMENDMENT

The total return for each Fund as of the most recent quarter ended March 31,
1999 was: Multistrategy Bond Fund-- %, Aggressive Equity Fund-- %, Non-U.S.
Fund-- %, and Core Bond Fund-- %.

During the period shown in the bar charts, each Fund had the following
highest and lowest quarterly return: TO BE FILED BY AMENDMENT

<TABLE>
<CAPTION>
Best Worst
Quarter Quarter
------------------------------------------------------------------------------
<S> <C> <C>
Multi-Style Equity.................................... % ( Q/9 ) % ( Q/9 )
------------------------------------------------------------------------------
Aggressive Equity..................................... % ( Q/9 ) % ( Q/9 )
------------------------------------------------------------------------------
Non-U.S. ............................................. % ( Q/9 ) % ( Q/9 )
------------------------------------------------------------------------------
Core Bond............................................. % ( Q/9 ) % ( Q/9 )
</TABLE>

10
<PAGE>

The following table further illustrates the risks of investing in the Funds
by showing how each Fund's average annual returns for the periods shown
compare with the returns of certain indexes that measure broad market
performance. No shares of Real Estate Securities Fund were issued during the
period shown.

Average annual total returns*

for the periods ended December 31, 1998

<TABLE>
<CAPTION>
Since
1 Year Inception*
------ ----------
<S> <C> <C>
Multi-Style Equity Fund.................................. 28.71% 28.73%
Russell 1000(R) Index.................................. 27.02% 29.91%

Aggressive Equity Fund................................... 1.02% 16.87%
Russell 2500(TM) Index................................. 0.38% 11.73%

Non-U.S. Fund............................................ 12.96% 6.47%
Salomon Smith Barney Broad Market Index (BMI) World ex-
US.................................................... 17.24% 9.68%

Core Bond Fund........................................... 7.38% 8.58%
Lehman Brothers Aggregate Bond Index................... 8.69% 9.17%
</TABLE>
- ---------------------

* For the period January 2, 1997 (commencement of sales) to December 31, 1997
for each of the Funds.

30-Day Yield

for the period ended December 31, 1998

To obtain current 30-day yield information, please call 1-800-787-7354.

Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and
hold shares of the Funds.

Shareholder Transaction Fees

(% of transaction amount)

<TABLE>
<CAPTION>
Maximum Sales
Maximum Sales Charge (Load)
Charge Imposed on Maximum
(Load) Imposed Reinvested Deferred Sales Redemption Exchange
on Purchases Dividends Charge (Load) Fees Fees
-------------- ------------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Multi-Style Equity...... None None None None None
Aggressive Equity....... None None None None None
Non-U.S................. None None None None None
Core Bond............... None None None None None
Real Estate Securities.. None None None None None
</TABLE>

11
<PAGE>

Annual Operating Expenses

(% of net assets)

<TABLE>
<CAPTION>
Total Annual
Management Distribution Fund Operating
Fee* (12b-1) Fees Other Expenses* Expenses
---------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
Multi-Style Equity
Fund................... 0.78% None 0.83% 1.61%
Aggressive Equity Fund.. 0.95% None 1.27% 2.22%
Non-U.S. Fund........... 0.95% None 2.70% 3.65%
Real Estate Securities
Fund................... . % None . % %
Core Bond Fund.......... 0.60% None 1.70% 2.30%
</TABLE>
- ---------------------

* Multi-Style Equity Fund -- Frank Russell Investment Company's (FRIC's)
advisor, Frank Russell Investment Management Company (FRIMCo) 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. FRIMCo 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. This waiver may be revised or eliminated at any
time without notice to shareholders. Taking the fee waivers into account,
the actual gross annual total operating expenses were 0.92% of the average
net assets of the Multi-Style Fund.

Aggressive Equity Fund -- FRIMCo 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. FRIMCo 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. This
waiver may be revised or eliminated at any time without notice to
shareholders. Taking the fee waivers into account, the actual gross annual
total operating expenses were 1.25% of the average net assets of the
Aggressive Equity Fund.

Non-U.S. Fund -- FRIMCo 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. FRIMCo 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. This waiver may
be revised or eliminated at any time without notice to shareholders. Taking
the fee waivers into account, the actual gross annual total operating
expenses were 1.30% of the average net assets of the Non-U.S. Fund.

Real Estate Securities Fund -- FRIMCo has voluntarily agreed to waive a
portion of its % management fee, up to the full amount of that fee, equal
to the amount by which the Fund's total operating expenses exceed % of the
Fund's average daily net assets on an annual basis. FRIMCo has voluntarily
agreed to reimburse the Fund for all remaining expenses after fee waivers
which exceed % of average daily net assets on an annual basis. This waiver
may be revised or eliminated at any time without notice to shareholders.
Operating expenses are based on average net assets expected to be invested
during the year ending December 31, 1999. During the course of this period,
expenses may be more or less than the amount shown. Taking the fee waivers
into account, the gross annual total operating expenses are expected to be
% of the average net assets of the Real Estate Securities Fund.

Core Bond Fund -- FRIMCo 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. FRIMCo 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. This waiver may
be revised or eliminated at any time without notice to shareholders. Taking
the fee waivers into account, the actual gross annual total operating
expenses were 0.80% of the average net assets of the Core Bond Fund.

Example

This example is intended to help you compare the cost of investing in each
Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated, your investment has a 5% return each year and that operating
expenses remain the same. The figures shown would be the same whether you sold
your shares at the end of a period or kept them.

12
<PAGE>

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

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Multi-Style Equity Fund......................
Aggressive Equity Fund.......................
Non-U.S. Fund................................
Real Estate Securities Fund.................. -- --
Core Bond Fund...............................
</TABLE>

SUMMARY COMPARISON OF THE FUNDS

<TABLE>
<CAPTION>
Anticipated Maximum
Equity Debt
Fund Investments Investments Focus
---- ----------- ----------- -----
<S> <C> <C> <C>
Multi-Style Equity
Fund................... 65-100% 35% Income and capital growth
Aggressive Equity Fund.. 65-100% 35% Maximum total return
Non-U.S. Fund........... 65-100% 35% Total return
Real Estate Securities
Fund................... 65-100% 35% Total return
Core Bond Fund.......... 0% 100% Income and capital appreciation
</TABLE>

THE PURPOSE OF RIF

Russell Insurance Funds (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 (each referred to herein as an "Insurance
Company"). Additionally Insurance Companies may invest their own general
account assets in RIF. Each Insurance Company holds the interests of each
Policy owner in a separate account (Separate Account). Accordingly, the
interest of a Policy owner 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 Policy
owner 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

Frank Russell Company (Russell), founded in 1936, has been providing
comprehensive asset management consulting services for over 30 years to
institutional investors, principally large corporate employee benefit plans.
Russell provides the Funds and Frank Russell Investment Management Company
(FRIMCo), the Funds' advisor, with the asset management consulting services
that it provides to its other consulting clients. The Funds do not compensate
Russell for these services.

Three functions form the core of Russell's consulting services:

. Objective Setting: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.

13
<PAGE>

. 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 a way most
likely to achieve the client's objectives and desired returns.

. Money Manager Research: Evaluating and recommending professional
investment advisory and management organizations ("money managers") to
make specific portfolio investments for each asset class, according to
designated investment objectives, styles and strategies.

When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.

MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION

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

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. 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. For this reason, no single
manager has consistently outperformed the market over extended periods.
Although performance cycles tend to repeat themselves, they do not do so
predictably.

The Funds believe, however, that it is possible to select managers who have
shown a consistent ability to achieve superior results within subsets or
styles of specific asset classes and investment styles by employing a unique
combination of qualitative and quantitative measurements. The Funds 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
the risk of 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 design portfolios that meet their
specific investment needs.

MANAGEMENT OF THE FUNDS

The Funds' investment adviser is FRIMCo, 909 A Street, Tacoma, Washington
98402. FRIMCo pioneered the "multi-style multi-manager" investment approach in
mutual funds and manages over $14 billion in more

14
<PAGE>

than 30 mutual fund portfolios. FRIMCo was established in 1982 to serve as the
investment management arm of Frank Russell Company. Russell and its affiliates
have offices around the world--in Tacoma, New York, Toronto, London, Zurich,
Paris, Sydney, Auckland and Tokyo.

Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.
Founded in 1857, Northwestern Mutual is a mutual life insurance corporation
headquartered in Milwaukee, Wisconsin. It leads the US in both individual life
insurance sold annually and individual life insurance in force.

FRIMCo recommends money managers to the Funds, allocates Fund assets among
them, oversees them and evaluates their results. FRIMCo also oversees the
management of the Funds' liquidity reserves. The Funds' money managers select
the individual portfolio securities for the assets assigned to them.

FRIMCo's officers and employees who oversee the money managers are:

. Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
June 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. Mr. Amberson, jointly with another
portfolio manager listed in this section, has primary responsibility for
management of the Core Bond Fund.

. Randal C. Burge, who has been a Portfolio Manager of FRIMCo since June
1995. From 1990 to 1995, Mr. Burge was a Client Executive for Frank
Russell Australia. Mr. Burge, jointly with another portfolio manager
listed in this section, has primary responsibility for management of the
Core Bond Fund.

. Jean E. Carter, who has been a Portfolio Manager of FRIMCo since April
1994. Ms. Carter, jointly with another portfolio manager listed in this
section, has primary responsibility for management of the Non-U.S. 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 listed in this section, has primary
responsibility for management of the Non-U.S. Fund.

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

. James A. Jornlin, who has been a Senior Investment Officer of FRIMCo
since April 1995. From 1991 to March 1995, Mr. Jornlin was employed as a
Senior Research Analyst with Russell. Mr. Jornlin has primary
responsibility for management of the Real Estate Securities Fund.

. C. Nola Kulig, who has been a Portfolio Manager of FRIMCo since January
1996. From 1994 to 1995, Ms. Kulig was a member of the Alpha Strategy
Group. From 1988 to 1994, Ms. Kulig was Senior Research Analyst with
Russell. Ms. Kulig, jointly with another portfolio manager listed in this
section, has primary responsibility for management of the Multi-Style
Equity and Aggressive Equity Funds.

. Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of US Equity
Manager Research Department with Russell. Mr. Trittin, jointly with
another portfolio manager listed in this section, has primary
responsibility for management of the Multi-Style Equity and Aggressive
Equity Funds.

15
<PAGE>

The annual rate of advisory fees, payable to FRIMCo monthly on a pro rata
basis, are the following percentages of each Fund's average daily net assets:
Multi-Style Equity Fund, 0.78%; Aggressive Equity Fund, 0.95%; Non-U.S. Fund,
0.95%; Real Estate Securities Fund, 0.85%; and Core Bond Fund, 0.60%. The fees
of the Funds may be higher than the fees charged by some mutual funds with
similar objectives that use only a single money manager.

THE MONEY MANAGERS

Each Fund allocates its assets among the money managers listed under "Money
Manager Profiles" in this Prospectus. FRIMCo, as the Funds' advisor, may
change the allocation of a Fund's assets among money managers at any time. The
Funds received an exemptive order from the Securities and Exchange Commission

(SEC) that permits a Fund to engage or terminate a money manager at any time,
subject to the approval by the Fund's Board of Trustees (Board), without a
shareholder vote. A Fund notifies its shareholders within 60 days of when a
money manager begins providing services. The Funds select money managers based
primarily upon the research and recommendations of FRIMCo and Russell. FRIMCo
and Russell evaluate quantitatively and qualitatively the 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 any Fund's selection or termination a money manager.

Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund. At the same time, however, each money
manager must operate within the Fund's investment objectives, restrictions and
policies, and the more specific strategies developed by FRIMCo. Although the
money managers' activities are subject to general oversight by the Board and
the Funds' officers, neither the Board, the officers, FRIMCo, nor Russell
evaluate the investment merits of the money managers' individual security
selections.

PORTFOLIO TURNOVER

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.
Each of the Funds' money managers makes decisions to buy or sell securities
independently from other managers. Thus, one money manager for a Fund may be
selling a security when another money manager for the Fund (or for another
Fund) is purchasing the same security. Also, when a Fund replaces a money
manager the new money manager may significantly restructure the investment
portfolio. These practices may increase the Funds' portfolio turnover rates,
realization of gains or losses, brokerage commissions and other transaction
costs. When a Fund realizes capital gains upon selling portfolio securities,
your tax liability increases. The annual portfolio turnover rates for each of
the Funds are shown in the Financial Highlights tables in this Prospectus.

DIVIDENDS AND DISTRIBUTIONS

Income Dividends

Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The amount and frequency of
distributions are not guaranteed--all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income according to the following schedule:

16
<PAGE>

<TABLE>
<CAPTION>
Declared Payable Funds
-------- ------- -----
<S> <C> <C>
Quarterly.. Mid: April, July, October and December Multi-Style Equity,
Aggressive Equity, Core Bond
and Real Estate Securities
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.

Buying a Dividend

If you purchase shares just before a distribution, you will pay the full
price for the shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." Unless your account
is a tax-deferred account, dividends paid to you would be included in your
gross income for tax purposes even though you may not have participated in the
increase of the net asset value of a Fund, regardless of whether you
reinvested the dividends.

Automatic Reinvestment

Your dividends and other distributions are automatically reinvested at the
closing net asset value on the record date, in additional shares of the
appropriate Fund, unless you elect to have the dividends or distributions paid
in cash or invested in another Fund. You may change your election by
delivering written notice no later than ten days prior to the payment date to
the Funds' transfer agent, FRIMCo, at Operations Department, P.O. Box 1591,
Tacoma, WA 98401.

TAXES

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 Internal Revenue Code of 1986, as amended (Code) and the
regulations thereunder. 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,

17
<PAGE>

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. 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. You are urged to consult with your tax adviser.

HOW NET ASSET VALUE IS DETERMINED

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 redemption orders are tendered. For all
Funds, a business day is one on which the New York Stock Exchange (NYSE) is
open for trading. All Funds determine net asset value as of the close of the
NYSE (currently 4:00 p.m. Eastern time).

Valuation of Portfolio Securities

Securities held by the Funds are typically priced using market quotations or
pricing services when the prices are believed to be reliable--that is, when
the prices reflect the fair market value of the securities. The Funds value
securities for which market quotations are not readily available at "fair
value," as determined in good faith and in accordance with procedures
established by the Board. If you hold shares in a Fund, such as the Non-U.S.
Fund, that holds portfolio securities that are listed primarily on foreign
exchanges, the net asset value of the Fund's shares may change on a day when
you will not be able to purchase or redeem Fund shares. This is because the
value of those portfolio securities may change on weekends or other days when
the Fund does not price its shares.

PURCHASE OF FUND SHARES

Insurance Companies place orders for their Separate Accounts based on, among
other things, the amount of premium payments to be invested pursuant to
Policies. Insurance Companies may also place orders for their general
accounts. 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.

Orders to purchase and redeem Fund shares are based on premiums and
transaction requests received by each Insurance Company on a given business
day. Each Insurance Company then submits purchase and redemption orders in
accordance with procedures established by the Insurance Company. All orders
will be effected at the net asset value of the applicable Fund determined on
the business day the order is received if RIF receives the order in proper
form and in accordance with applicable requirements on the next business day
before 8:00 a.m., Pacific time. 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 shall be received by RIF on such next
business day in accordance with applicable requirements by 11:00 a.m., 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.

18
<PAGE>

REDEMPTION OF FUND SHARES

Fund shares may be redeemed at any time by Insurance Companies on behalf of
their Separate Accounts or their general accounts. 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 will be effected at the net asset value of the applicable Fund
determined on such business day if RIF receives the requests in proper form
and in accordance with applicable requirements. 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. The
Funds do not impose charges for share redemption.

RIF ordinarily will make payment for all shares redeemed within seven days
after RIF receives a redemption request in proper form.

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.

19
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand a Fund's
financial performance for the past 5 years (or, if a Fund has not been in
operation for 5 years, since the beginning of operations for that Fund).
Certain information reflects financial results for a single Fund share. The
total returns in the table represent how much your investment in the Fund
would have increased (or decreased) during each period, assuming reinvestment
of all dividends and distributions. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Funds' financial
statements, are included in the annual report, which is available upon
request. No shares of Real Estate Securities Fund were issued during the
period shown.

Multi-Style Equity Fund:

<TABLE>
<CAPTION>
1998 1997+
---- -------
<S> <C> <C>
Net Asset Value, Beginning of Year................................ $ $ 10.00
---- -------
Income from Investment Operations:
Net investment income (loss)..................................... .09
Net realized and unrealized gain (loss) on investments........... 2.75
---- -------
Total Income 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:
Operating expenses, net, to average net assets (b)............... .92
Operating expenses, gross, to average net assets (b)............. 1.61
Net investment income (loss) to average net assets (b)........... .76
Portfolio turnover (b)........................................... 64.95
Net assets, end of year ($000 omitted)........................... $23,639
</TABLE>
- ---------------------

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

(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.

20
<PAGE>

Aggressive Equity Fund:

<TABLE>
<CAPTION>
1998 1997+
---- -------
<S> <C> <C>
Net Asset Value, Beginning of Year................................ $ $ 10.00
---- -------
Income from Investment Operations:
Net investment income (loss)..................................... .04
Net realized and unrealized gain (loss) on investments........... 3.45
---- -------
Total Income From Investment Operations........................ 3.49
---- -------
Less Distributions:
Net investment income............................................ (.04)
In excess of net investment income............................... --
Net realized gain on investments................................. --
In excess of net realized gain on investments.................... --
---- -------
Total Distributions............................................ (.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 (loss) to average net assets (b)........... .39
Portfolio turnover (b)........................................... 91.56
Net assets, end of year ($000 omitted)........................... $15,372
</TABLE>
- ---------------------

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

(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.

21
<PAGE>

Non-U.S. Fund:

<TABLE>
<CAPTION>
1998 1997+
---- ------
<S> <C> <C>
Net Asset Value, Beginning of Year................................. $ $10.00
--- ------
Income from Investment Operations:
Net investment income (loss)...................................... .09
Net realized and unrealized gain (loss) on investments............ (.06)
--- ------
Total Income From Investment Operations......................... .03
--- ------
Less Distributions:
Net investment income.............................................
In excess of net investment income................................ --
Net realized gain on investments.................................. --
In excess of net realized gain on investments..................... --
--- ------
Total Distributions.............................................
--- ------
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 (loss) to average net assets (b)............ .98
Portfolio turnover (b)............................................ 68.54
Net assets, end of year ($000 omitted)............................ $6,876
</TABLE>
- ---------------------

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

(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.

22
<PAGE>

Core Bond Fund:

<TABLE>
<CAPTION>
1998 1997+
---- ------
<S> <C> <C>
Net Asset Value, Beginning of Year................................. $ $10.00
---- ------
Income from Investment Operations:
Net investment income (loss)...................................... .64
Net realized and unrealized gain (loss) on investments............ .30
---- ------
Total Income From Investment Operations......................... .94
---- ------
Less Distributions:
Net investment income............................................. (.49)
In excess of net investment income................................ --
Net realized gain on investments.................................. --
In excess of net realized gain on investments..................... --
---- ------
Total Distributions............................................. (.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 (loss) to average net assets (b)............ 6.38
Portfolio turnover (b)............................................ 53.86
Net assets, end of year ($000 omitted)............................ $8,523
</TABLE>
- ---------------------

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

(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.

23
<PAGE>

MONEY MANAGER INFORMATION

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

Multi-Style Equity Fund

Alliance Capital Management L.P., US Bank Place, 601 2nd Ave. South, Suite
5000, Minneapolis, MN 55402-4322.

Equinox Capital Management Inc., 590 Madison Ave, 41st Floor, New York, NY
10022.

Westpeak Investment Advisors, LP, 1011 Walnut Street, Suite 400, Boulder, CO
80302.

Aggressive Equity Fund

Rothschild Asset Management, Inc., 1251 Avenue of the Americas, 51st Floor,
New York, NY 10020.

Westpeak Investment Advisors, LP, see Multi-Style Equity Fund.

Non-U.S. Fund

J.P. Morgan Investment Management, Inc., 522 Fifth Ave., 6th Floor, New
York, NY 10036.

Oechsle International Advisors, One International Place, 23rd Floor, Boston,
MA 02110.

The Boston Company Asset Management, Inc., One Boston Place, 14th Floor,
Boston, MA 02108-4402.

Real Estate Securities Fund

Cohen & Steers Capital Management, 757 Third Avenue, New York, NY 10017.

AEW Capital Management, L.P., 225 Franklin Street, Boston, MA 02100-2803.

Core Bond Fund

Pacific Investment Management Company, 840 Newport Center Drive, Suite 360,
Newport Beach, CA 92660.

Standish, Ayer & Wood, Inc., One Financial Center, Boston, MA 02110.

In considering investment in the Funds, do not rely on any information
unless it is contained in this Prospectus or in the Funds' Statement of
Additional Information. The Funds have not authorized anyone to add any
information or to make any additional statements about the Funds. The Funds
may not be available in some jurisdictions or to some persons. The fact that
you have received this Prospectus should not, in itself, be treated as an
offer to sell Fund shares to you. Changes in the affairs of the Funds or in
the Funds' money managers may occur after the date on the cover page of this
Prospectus. This Prospectus will be amended or supplemented to reflect any
material changes to the information it contains.

24
<PAGE>

For more information about the Funds, the following documents are available
without charge:

Annual/Semiannual Reports: Additional information about the Funds'
investments is available in the Funds' annual and semiannual reports to
shareholders. In each Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.

Statement of Additional Information (SAI): The SAI provides more detailed
information about the Funds.

The annual report for each Fund and the SAI are incorporated into this
Prospectus by reference. You may obtain free copies of the reports and the SAI,
and may request other information, by contacting your Financial Intermediary or
the Funds at:

Frank Russell Investment Company

909 A Street

Tacoma, WA 98402

Telephone: 1-800-787-7354

You can review and copy information about the Funds (including the SAI) at
the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. You can obtain information on the operation of the Public Reference Room
by calling the Commission at 1-800-SEC-0330. You can obtain copies of this
information upon paying a duplicating fee by writing to the Public Reference
Section of the Commission, Washington, D.C. 20549-6009. Reports and other
information about the Funds are also available on the Commission's Internet
website at http://www.sec.gov.

RUSSELL INSURANCE FUNDS:

Multi-Style Equity Fund

Aggressive Equity Fund

Non-U.S. Fund

Real Estate Securities Fund

Core Bond Fund

Sec File No. 811-5371

25
<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, 1999

Russell Insurance Funds ("RIF") is a single legal entity organized as a business
trust under the laws of the Commonwealth of Massachusetts. RIF operates five
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.

<TABLE>
<CAPTION>
FUND FUND INCEPTION DATE PROSPECTUS DATE
- ----------------------------- ------------------- ---------------
<S> <C> <C>
Multi-Style Equity Fund January 2, 1997 May 1, 1999
Aggressive Equity Fund January 2, 1997 May 1, 1999
Non-U.S. Fund January 2, 1997 May 1, 1999
Real Estate Securities Fund --- May 1, 1999
Core Bond Fund January 2, 1997 May 1, 1999
</TABLE>

The Funds had aggregate net assets of $______________ on April 1, 1999.

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, 1999. 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, 1998. Copies of the Funds'
Annual Report accompany this statement.

1
<PAGE>

CERTAIN TERMS USED IN THIS STATEMENT OF ADDITIONAL INFORMATION ARE
DEFINED IN THE
GLOSSARY, WHICH BEGINS ON PAGE __

TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----

<S> <C>
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 and Portfolio Accountant .................................
Transfer and Dividend Disbursing Agent .............................
Independent Accountants ............................................
Fund Expenses ......................................................
Valuation of Fund Shares ...........................................
Valuation of Portfolio Securities ..................................
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 ................................................................

MONEY MANAGER INFORMATION.............................................

RATINGS OF DEBT INSTRUMENTS ..........................................

FINANCIAL STATEMENTS .................................................
</TABLE>

2
<PAGE>

GLOSSARY.......................................................................

3
<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 ("Board" or the
"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 the 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." Each Fund is a
separate trust under Massachusetts law. 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.

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 and 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.

Frank Russell Company has the right to grant (and withdraw) the nonexclusive use
of the name "Frank Russell" or any variation.

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. On any matter which affects only a particular Fund, only shares
of that Fund are entitled to vote. There are no cumulative voting rights.

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 case 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.

4
<PAGE>

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.

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

1999:
[TO BE ADDED BY AMENDMENT]
MULTI-STYLE EQUITY:

AGGRESSIVE EQUITY:

Non U.S.:

Core Bond:

At ____________________, 1999 the following shareholders could be deemed by the
1940 Act to "control" the indicated Fund because such shareholder owns more than
25% of the voting shares of the indicated Fund:
[TO BE FILED BY AMENDMENT]

The Trustees and officers of RIF as a group own less than 1% of any Fund.

TRUSTEES AND OFFICERS. The Board of Trustees is responsible for overseeing
generally the operations of RIF, including reviewing and approving the Funds'
contracts with Frank Russell Investment Management Company ("FRIMCo"), the
Funds' advisor, Frank Russell Company and the money managers. A Trustee may be
removed at any time by, in substance, a vote of two-thirds of RIF shares. A
vacancy in the Board shall be filled by a vote of a majority of the remaining
Trustees so long as, in substance, two-thirds of the Trustees have been elected
by shareholders. The 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. RIF paid in aggregate $______________ for the year ended
December 31, 1998 to the Trustees who are not officers or employees of FRIMCo or
its affiliates. Trustees are paid an annual fee plus travel and other expenses
incurred in attending Board meetings. RIF's officers and employees are paid by
FRIMCo or its affiliates.

The following list contains 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.

5
<PAGE>

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. -- Born 07/03/32 -- From December 1998 to Present
Trustee Emeritus and Chairman of the Board. Trustee Emeritus 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. From August 1996 to December
1998, Trustee of RIF. From 1984 to December 1998, Trustee of Frank Russell
Investment Company.

*Lynn L. Anderson -- Born 04/22/39 -- Trustee, President and Chief Executive
Officer since 1997. 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 PLC;
Director 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; March 1997 to December 1998, Director,
Frank Russell Company; June 1993 to November 1995, Director, Frank Russell
Company. Until September 1994, Director and President, The Laurel Funds, Inc.
(investment company).

Paul E. Anderson -- Born 10/15/31 -- Trustee since August, 1996. 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. -- Born 12/01/19 -- Trustee since August, 1996. PO Box 212,
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 -- Born 06/08/25 -- Trustee since August, 1996. 800 North C
Street, Tacoma, Washington 98403. Trustee, Frank Russell Investment Company.
Retired.

Lee C. Gingrich -- Born 10/06/30 -- Trustee since August, 1996. 1730 North
Jackson, Tacoma, Washington 98406. Trustee, Frank Russell Investment Company.
President, Gingrich Enterprises, Inc. (Business and Property Management).

Eleanor W. Palmer -- Born 05/05/26 --Trustee since August, 1996. 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.

*Mark E. Swanson -- Born 11/25/63 -- Treasurer and Chief Accounting Officer
since 1998, Treasurer and Chief Accounting Officer, Frank Russell Investment
Company, Interim Director, Finance and Operations, Frank Russell Trust Company;
Senior Vice President and Assistant Fund Treasurer, SSgA Funds (investment
company); Interim Director of Fund Administration and Accounting, Frank Russell
Investment Management Company; Manager, Funds Accounting and Taxes, Russell Fund
Distributors, Inc. April 1996 to August 1998, Assistant Treasurer, Frank Russell
Investment Company; August 1996 to August 1998, Assistant Treasurer, Russell
Insurance Funds, November 1995 to July 1998, Assistant Secretary, the SSgA
Series Funds, February 1997 to July 1998, Manager, Funds Accounting and Taxes,
Frank Russell Investment Management Company.

6
<PAGE>

*Randall P. Lert -- Born 10/03/53 -- Director of Investments since 1996.
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 1995, Director of Investments of Frank Russell Investment Management
Company.

*Karl J. Ege -- Born 10/08/41 -- Secretary and General Counsel since 1996.
Secretary and General Counsel, Frank Russell Investment Company; Director,
Secretary and General Counsel, Russell Fiduciary 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 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;
April 1992 to December, 1998, Director, Frank Russell Company.

TRUSTEE COMPENSATION TABLE*

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

* The Trustees receive $30,000 for service on the Frank Russell Investment
Company Board.

OPERATION OF INVESTMENT COMPANY

7
<PAGE>

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
Disbursing Agent Company

Money Managers Multiple professional discretionary
investment management organizations

Custodian and Portfolio State Street Bank and Trust Company
Accountant

Distributor Russell Fund Distributors, Inc.

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.

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 Russell Company, provides fiduciary
services to pension and welfare benefit plans and other institutional investors.
The mailing address of Frank Russell Company is 909 A Street, Tacoma, WA
98402.

As affiliates, Frank Russell Company and FRIMCo may establish certain
intercompany cost allocations that reflect the consulting services supplied to
FRIMCo. George F. Russell, Jr., Trustee Emeritus and Chairman of RIF, is the
Chairman of the Board of Russell. FRIMCo is a wholly owned subsidiary of
Russell.

Russell is a subsidiary of The Northwestern Mutual Life Insurance Company
("Northwestern Mutual"). Founded in 1857, Northwestern Mutual is a mutual
insurance corporation organized under the laws of Wisconsin. Northwestern
Mutual's products consist of a full range of permanent and term life insurance,
disability income insurance, long-term care insurance, mutual funds and
annuities for personal, estate, retirement, business, and benefits planning.
Northwestern Mutual provides its insurance products and

8
<PAGE>

services through an exclusive network of approximately 7,200 agents associated
with over 100 general agencies nationwide. Northwestern Mutual leads the U.S. in
both individual life insurance sold annually and total individual life insurance
in force.

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),
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 and dividend
disbursing agent. FRIMCo, as agent for RIF, pays the money managers' fees for
the Funds, as a fiduciary for the Funds, out of the management fee paid by the
Funds to FRIMCo. The remainder of the management fee is retained by FRIMCo as
compensation for the services described above and to pay expenses.

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.

The following Funds paid FRIMCo the listed management fees before waivers and/or
reimbursements, for the years ended December 31, 1997 and 1998:

9
<PAGE>

12/31/98 12/31/98 12/31/97
- -------- -------- --------

[To be filed by Amendment]

Multi-Style Equity
Aggressive Equity
Non-U.S.
Core Bond

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.
Additionally, 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:
<TABLE>
<CAPTION>

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>

The expense caps and waivers as of December 31, 1998 were as follows:

<TABLE>
<CAPTION>
EXPENSE CAP MANAGEMENT TOTAL EXPENSE
FEES WAIVED REDUCTION
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Multi-Style Equity 0.92% $ $
Aggressive Equity 1.25
Non-US 1.30
Core Bond 0.80
</TABLE>

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

10
<PAGE>

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"). Money managers may serve as advisers or discretionary
managers for Frank Russell Trust Company, other investment vehicles sponsored or
advised by Frank Russell Company or its affiliates, other consulting clients of
Frank Russell Company, other off-shore vehicles and/or for accounts which have
no business relationship with the Frank Russell Company organization.

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, 1998, management fees paid to the money managers were:

<TABLE>
<CAPTION>
ANNUAL RATE
FUND $ AMOUNT PAID (AS A % OF AVERAGE DAILY NET ASSETS)
- ------------------------ --------------------------------------- ---------------------------------------
<S> <C> <C>
Multi-Style Equity
Aggressive Equity
Non-U.S.
Core Bond
</TABLE>

Each money manager has agreed that it will look only to FRIMCo for the payment
of the money manager's fee, after RIF has paid FRIMCo. 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 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 RIF
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 basic
portfolio recordkeeping required 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

11
<PAGE>

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 a per account fee for transfer agency and
dividend disbursing services provided to RIF. 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. PricewaterhouseCoopers LLP serves as the independent
accountants of RIF. PricewaterhouseCoopers LLP is responsible for performing
annual audits of the financial statements and financial highlights of the Funds
in accordance with generally accepted accounting practices and tax returns. The
mailing address of PricewaterhouseCoopers LLP 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 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 (see the Prospectus for further
detail).

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 ("NYSE") is
open for trading. Currently, the Exchange is open for trading every weekday
except New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

12
<PAGE>

Net asset value per share is computed for each Fund by dividing the current
value of the Fund's assets less liabilities by the number of shares of the Fund
outstanding and rounding to the nearest cent.

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.

VALUATION OF PORTFOLIO SECURITIES. With the exceptions noted below, the Funds
value their portfolio securities at "fair market value." This generally means
that equity securities and fixed-income securities listed and principally traded
on any national securities exchange are valued on the basis of the last sale
price or, if there were no sales, at the closing bid price, on the primary
exchange on which the security is traded. US 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 sale price.

Because many fixed-income securities do not trade each day, last sale or bid
prices often are not available. As a result, these securities may be valued
using prices provided by a pricing service when the prices are believed to be
reliable--that is, when the prices reflect the fair market value of the
securities.

International equity securities traded on a national securities exchange are
valued on the basis of the last sale price. International securities traded
over-the-counter are valued on the basis of the mean of bid prices. If there is
no last sale or mean bid price, the securities may be valued on the basis of
prices provided by a pricing service when the prices are believed to be
reliable.

Money market instruments maturing within 60 days of the valuation date held by
the Funds are valued using the amortized cost method. Under this method, a
portfolio instrument is initially valued at cost, and thereafter a constant
accretion/amortization to maturity of any discount or premium is assumed. The
Funds utilize the amortized cost valuation method in accordance with the Rule.
The money market instruments are valued at "amortized cost" unless the Board
determines that amortized cost does not represent fair value. While amortized
cost provides certainty in valuation, it may result in periods when the value of
an instrument is higher or lower than the price a 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 and in accordance with procedures
established by the Board.

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.

13
<PAGE>

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 portfolio turnover rates for the last two years for each Fund were:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997*
-------------------- ------------------
<S> <C> <C>
Multi-Style Equity 64.95
Aggressive Equity 91.56
Non-US 68.54
Core Bond 53.86
</TABLE>

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

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
payment in the form of a mark-up or mark-down. The cost of securities purchased
from underwriters includes an underwriting commission or concession.

Subject to the arrangements and provisions described below, the selection of a
broker or dealer to execute portfolio transactions is usually made by the money
manager. RIF's agreements with FRIMCo and the money managers provide, in
substance and subject to specific directions from officers of the Funds or
FRIMCo, that in executing portfolio transactions and selecting brokers or
dealers, the principal objective is to seek the best overall terms available to
the 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. 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

14
<PAGE>

the 1940 Act.

FRIMCo arranges for the purchase and sale of RIF's securities and selects
brokers and dealers (including affiliates), which in its best judgment provide
prompt and reliable execution at favorable prices and reasonable commission
rates. FRIMCo may select brokers and dealers which provide it with research
services and may cause RIF to pay such brokers and dealers commissions which
exceed those 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. In selecting a broker, including affiliates, for a
transaction, the primary consideration is prompt and effective execution of
orders at the most favorable prices. Subject to that primary consideration,
dealers may be selected for research, statistical or other services to enable
FRIMCo to supplement its own research and analysis.

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 FRIMCo, research services obtained from third party service
providers at 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, Non-US and Real
Estate Securities 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 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 two years, the brokerage Commissions paid by the Funds were:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997
---- ----
<S> <C> <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.

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

15
<PAGE>

During the year ended December 31, 1998, 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, 1998 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 $ %
Frank Russell Securities
J.P. Morgan Securities, Inc.
Kleinwort Benson North America
Total Affiliated Commissions
</TABLE>

The percentage of total affiliated transactions (relating to trading activity)
to total transactions during the year ended 1998 for the Funds was _____%.

During the year ended December 31, 1998 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, 1998 was as
follows:

<TABLE>
<CAPTION>
BEAR JEFFRIES & MORGAN
FUND STEARNS COMPANY STANLEY
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Multi-Style Equity
Aggressive Equity
Core Bond

At December 31, 1998 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 & Smith
- -- ESI Securities -- Lewco
</TABLE>

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:

P(1+T)/n/ = ERV

Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
N = number of years; and
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one, five or ten year period
at the end of the one, five, or ten year period (or
fractional portion thereof).

16
<PAGE>

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:

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

Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = average daily number of shares outstanding during the period
that were entitled to receive dividends
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's investment objective is "fundamental" which means each investment
objective may not be changed without the approval of a majority of each Fund's
shareholders. Certain investment policies may also be fundamental. Other
policies may be changed by a Fund 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. This restriction does not apply to the Real Estate Securities Fund.
The Real Estate Securities Fund may invest 25% or more of its total assets in
the securities of companies directly or indirectly engaged in the real estate
industry.

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

17
<PAGE>

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.

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 money, except that the Fund may borrow as a temporary measure for
extraordinary or emergency purposes, and not in excess of five percent of its
net assets; provided, that the Fund may borrow to facilitate redemptions (not
for leveraging or investment), provided that borrowings do not exceed an amount
equal to 33 1/3% of the current value of the Fund's assets taken at market
value, less liabilities other than borrowings. If at any time the Fund's
borrowings exceed this limitation due to a decline in net assets, such
borrowings will be reduced to the extent necessary to comply with this
limitation within three days. Reverse repurchase agreements will not be
considered borrowings for purposes of the foregoing restrictions, provided that
the Fund will not purchase investments when borrowed funds (including reverse
repurchase agreements) exceed 5% of its total 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 Funds' Prospectus.

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.

18
<PAGE>

14. Purchase from or sell portfolio securities to its officers, Trustees or
other "interested persons" (as defined in the 1940 Act) of RIF, including the
Funds' 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
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.

FUND INVESTMENT SECURITIES
- --------------------------
The following table illustrates the investments that the Funds may invest in
or are permitted to invest in:

<TABLE>
<CAPTION>
MULTI-STYLE AGGRESSIVE REAL ESTATE CORE
TYPE OF PORTFOLIO EQUITY EQUITY NON-U.S. SECURITIES BOND
SECURITY FUND FUND FUND FUND FUND
--------------------------------------------- ----------- ---------- -------- ----------- ----
<S> <C> <C> <C> <C> <C>
Common stocks................................ X X X X
Common stock equivalents
(warrants)................................ X X X X
Common stock equivalents
(options)................................. X X X X
Common stock equivalents
(convertible debt
securities)............................... X X X X
Common stock equivalents
(depository receipts)..................... X X
Preferred stocks............................. X X X X
Equity derivative securities................. X X X X
Debt securities (below
investment grade or junk
bonds).................................... X
US government securities..................... X X X X X
Municipal obligations........................ X
Foreign securities........................... X X X X X
</TABLE>

OTHER INVESTMENT PRACTICES
- --------------------------

The Funds use investment techniques commonly used by other mutual funds. The
table below summarizes the investment practices of the Funds, each of which may
involve certain special risks. The Glossary located at the back of the SAI
describes each of the investment techniques identified below.

<TABLE>
<CAPTION>
MULTI-STYLE AGGRESSIVE REAL ESTATE CORE
EQUITY EQUITY NON-U.S. SECURITIES BOND
TYPE OF PRACTICE FUND FUND FUND FUND FUND
---------------- ----------- ---------- -------- ----------- ----
<S> <C> <C> <C> <C> <C>
Cash reserves................................... X X X X X
Repurchase agreements(1)........................ X X X
When-issued and forward
commitment securities........................ X X X
Reverse repurchase
agreements................................... X X X
</TABLE>

19
<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Lending portfolio securities,
not to exceed 33/1//3% of
total Fund assets............................ X X X X X
Illiquid securities (limited to
15% of a Fund's net
assets)...................................... X X X X X
Forward currency
contracts(2)................................. X X
Write (sell) call and put
options on securities,
securities indexes and
foreign currencies(3)........................ X X X X X
Purchase options on securities,
securities indexes, and
currencies(3)................................ X X X X X
Interest rate futures contracts,
stock index futures
contracts, foreign currency
contracts and options on
futures(4)................................... X X X X X
Liquidity portfolios............................ X X X X
</TABLE>

(1) Under the 1940 Act, repurchase agreements are considered to be loans by a
Fund and must be fully collateralized by collateral assets. If the seller
defaults on its obligations to repurchase the underlying security, a Fund
may experience delay or difficulty in exercising its rights to realize upon
the security, may incur a loss if the value of the security declines and may
incur disposition costs in liquidating the security.
(2) Non-U.S. and Core Bond Funds each may not invest more than 33% of its assets
in these contracts.
(3) A Fund will only engage in options where the options are traded on a
national securities exchange or in an over-the-counter market. A Fund may
invest up to 5% of its net 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.
(4) A Fund does not enter into any futures contracts or related options if the
sum of initial margin deposits on futures contracts, related options
(including options on securities, securities indexes and currencies) and
premiums paid for any such related options would exceed 5% of its total
assets. A Fund does not purchase futures contracts or related options if, as
a result, more than one-third of its total assets would be so invested.

CASH RESERVES. Each Fund may invest its cash reserves in one or more
- -------------
unaffiliated money market funds and in debt securities of comparable quality to
a Fund's permitted investments. 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 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. A 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

20
<PAGE>

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. A 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 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

21
<PAGE>

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) 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 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.

The guidelines adopted by the Board for the determination of liquidity of
securities take into account trading activity for the 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, a Fund's holding of
that security may be illiquid. There may be undesirable delays in selling
illiquid securities at prices representing their fair value.

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.

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 any
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

22
<PAGE>

used to pay the rebate interest costs 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
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.

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).

23
<PAGE>

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.
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.

An option on a security (or securities 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.) Options on
securities indexes are similar to options on specific securities 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.

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 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 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.

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

24
<PAGE>

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.

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
liability. The value of an option purchased or written is marked-to-market
daily and is valued at the closing price on the exchange on which it is traded
or, if not traded on an exchange or no closing price is available, at the mean
between the last bid and asked prices.

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

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.

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
underlying security above the exercise price, but, as long as its obligation as
a writer continues, has retained a 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.

25
<PAGE>

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 purchase and write put and call options on
- ------------------------
foreign currencies either on exchanges or in the over-the-counter market 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-trade options.

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 (such as GNMA certificates or
Treasury bonds) or foreign currency or the cash value of an index 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. Although the value of an index may be a
function of the value of certain specified securities, no physical delivery of
these securities is made. A public market exists in futures contracts covering
several indexes as well as a number of financial instruments and foreign
currencies. For example: the S&P 500; the Russell 2000(R); Nikkei 225; CAC-40;
FT-SE 100; the NYSE composite; US Treasury bonds; US Treasury notes; GNMA
Certificates; three-month US Treasury bills; Eurodollar certificates of deposit;
the Australian Dollar; the Canadian Dollar; the British Pound; the German Mark;
the Japanese Yen; the French Franc; the Swiss Franc; the Mexican Peso; and
certain multinational currencies, such as the 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 (in the case of
a call) or short position (in the case of a 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. 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

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

26
<PAGE>

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 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

27
<PAGE>

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 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. Most

28
<PAGE>

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.

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.

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. For example: if
interest rates were anticipated to rise, financial futures contracts would be
sold (short hedge) which would have an effect similar to selling bonds. Once
interest rates increase, fixed income securities held in a Fund's portfolio
would decline, but the futures contract value would decrease, partly offsetting
the loss in value of the fixed-income security by enabling the Fund to
repurchase the futures contract at a lower price to close out the position.

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

29
<PAGE>

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.

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

FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS. 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--for example, to exchange a certain amount of US dollars for a certain
amount of Japanese yen--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. 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.
A Fund may, however, enter into forward currency contracts containing either or
both deposit requirements and commissions. In order to assure that a Fund's
forward currency contracts are not used to achieve investment leverage, the Fund
will segregate liquid assets in an amount at all times equal to or exceeding the
Fund's commitments with respect to these contracts. 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 their 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

30
<PAGE>

aggregate of currencies which act as a proxy for that currency). The Funds may,
however, enter into a position hedging transaction with respect to a currency
other than that held in the Funds' portfolios, if such a transaction is deemed a
hedge. If 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 transactions may be made from any foreign currency into US
dollars or into other appropriate currencies.

At or before the maturity of a forward foreign currency contract, 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. There can be no
assurance that new forward currency contracts or offsets will be available to a
Fund.

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 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.

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 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

31
<PAGE>

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 a Fund is engaged in that strategy.

A Fund's ability to dispose of its positions in forward currency 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 currency contracts may be closed
out only by the parties entering into an offsetting contract. Therefore, no
assurance can be given that the Fund will be able to utilize these instruments
effectively for the purposes set forth above.

Forward foreign currency transactions are subject to the additional risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected by (1)
other complex foreign, political, legal and economic factors, (2) lesser
availability than in the United States of data on which to make trading
decisions, (3) delays in 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, (5) lesser trading volume and (6) that a
perceived linkage between various currencies may not persist throughout the
duration of the contracts.

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. 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.

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.

32
<PAGE>

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.

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

33
<PAGE>

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 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

34
<PAGE>

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.

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

35
<PAGE>

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.

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.")

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 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.

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.

36
<PAGE>

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.

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.

From ____________, 199_ to ______________, 199_ the ________________ Fund
incurred net realized capital losses of $__________. As permitted by tax
regulations, the _____________ Fund intends to elect to defer these losses and
treat them as arising in the year ending December 31, 1999. [TO BE FILED BY
AMENDMENT]

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.

37
<PAGE>

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.

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, 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. The Internal Revenue Service, however, has the
authority to issue additional regulations that would permit or require the Funds
either to integrate some or all of their forward currency contracts, currency
futures contracts, options on foreign currencies and hedged investments as a
single transaction or otherwise to treat the contracts or options in the manner
that is consistent with the hedged investments. It is uncertain if or when these
regulations will be issued.

To the extent that a 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, and 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. 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 their
activities with respect to section 1256 contracts and offsetting positions in
such contracts (a) will not cause them or their 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 them 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

38
<PAGE>

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.

Under certain Constructive Sale Transactions rules, a Fund must recognize gain
(but not loss) on any constructive sale of an appreciated financial position in
stock, a partnership interest or certain debt instruments. A Fund will generally
be treated as making a constructive sale when it: (a) enters into a short sale
on the same property, (b) enters into an offsetting notional principal contract,
or (c) enters into a futures or forward contract to deliver the same or
substantially similar property. Other transactions (including certain financial
instruments called collars) will be treated as constructive sales as provided in
Treasury regulations to be published. There are also certain exceptions that
apply for transactions that are closed before the end of the 30th day after the
close of the taxable year.

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.

39
<PAGE>

FOREIGN INCOME TAXES. Foreign governments may impose taxes on the income and
gains from a Fund's investments in foreign stocks and bonds. These taxes will
reduce the amount of the Fund's distributions to you, but, depending on the
amount of the Fund's assets that are invested in foreign securities and foreign
taxes paid, may be passed through to you as a foreign tax credit on your income
tax return.

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.

MONEY MANAGER INFORMATION

Multi-Style Equity Fund

Alliance Capital Management L.P., a limited partnership whose (i) general
partner is a wholly owned subsidiary of The Equitable Companies Incorporated
("The Equitable") and (ii) majority unit holder is ACM, Inc., a wholly owned
subsidiary of The Equitable. Axa, a French insurance company holds 60.5% of
The Equitable.

Equinox Capital Management Inc., Equinox is a registered investment adviser
with majority ownership held by Ron Ulrich.

Westpeak Investment Advisors, LP, is indirectly controlled by Metropolitan
Life Insurance Company.

Aggressive Equity Fund

Rothschild Asset Management, Inc., 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., is a wholly owned subsidiary of J.P.
Morgan & Co., Inc., a publicly held bank holding company.

Oechsle International Advisors, is a Delaware limited liability company that
is controlled by the following members: S. Dewey Keesler, Stephen P. Langer,
Walter Oechsle, L. Sean Roche, Steven H. Schaefer, Warren R. Walker and Andrew
S. Parlin.

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

Real Estate Securities Fund

Cohen & Steers Capital Management, is a corporation whose two principals,
Rober H. Steers and Martin Cohen, control the corporation within the meaning of
the 1940 Act.

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

Core Bond Fund

Pacific Investment Management Company, is a subsidiary partnership of PIMCO
Advisers L.P. ("Partnership"). PIMCO Parnters, C.B. is the sole general partner
of the Partnership. Pacific Financial Asset Management Corporation indirectly
holds a majority interest in PIMCO Partners, C.P., with the remainder held
indirectly by a group comprised of PIMCO Managing Directors.

Standish, Ayer & Wood, Inc., is a company whose ownership is divided among
seventeen directors, with no director having more than a 25% ownership interest.

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.

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<PAGE>

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 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.

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<PAGE>

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.

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).

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<PAGE>

Note rating symbols are as follows:

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

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

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

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

COMMERCIAL PAPER RATINGS.

MOODY'S:
-------

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.

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<PAGE>

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

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

DUFF & PHELPS, INC.:
------------------

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.

Default

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

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<PAGE>

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.

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.

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<PAGE>

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".

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 1998 annual financial statements of the Funds, including notes to financial
statements, financial highlights, and the Report of Independent Accountants, are
included in RIF's Annual Reports to Shareholders. Copies of these Annual
Reports accompany this Statement of Additional Information and are incorporated
herein by reference.

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<PAGE>

GLOSSARY

Board -- The Board of Trustees of RIF.

Cash reserves -- Each Fund is authorized to invest its cash reserves (i.e.,
funds awaiting investment in the specific types of securities to be acquired by
a Fund) in money market instruments and in debt securities of comparable quality
to the Fund's permitted investments.

Code -- Internal Revenue Code of 1986, as amended.

Convertible security -- This is a fixed income security (a bond or preferred
stock) that may be converted at a stated price within a specified period of time
into a certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stock in a corporation's capital
structure but are usually subordinated to similar non-convertible securities.
The price of a convertible security is influenced by the market value of the
underlying common stock.

Covered call option -- A call option is "covered" if the Fund owns the
underlying securities, has the right to acquire the securities without
additional consideration, has collateral assets sufficient to meet its
obligations under the option or owns an offsetting call option.

Covered put option -- A put option is "covered" if the Fund has collateral
assets with a value not less than the exercise price of the option or holds a
put option on the underlying security.

Custodian -- State Street Bank and Trust Company, RIF's custodian and
portfolio accountant.

Depository receipts -- These include American Depository Receipts ("ADRs"),
European Depository Receipts, Global Depository Receipts, and other similar
securities convertible into securities of foreign issuers. ADRs are receipts
typically issued by a United States bank or trust company evidencing ownership
of the underlying securities. Generally, ADRs in registered form are designed
for use in US securities markets.

Derivatives -- These include forward currency exchange contracts, stock
options, currency options, stock and stock index options, futures contracts,
swaps and options on futures contracts on US government and foreign government
securities and currencies.

Distributor -- Russell Fund Distributors, Inc., the organization that sells
the shares of the Funds under a contract with RIF.

Equity derivative securities -- These include, among other instruments,
options on equity securities, warrants and futures contracts on equity
securities.

Forward commitments -- Each Fund may agree 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 the transactions are consistent with
the Fund's ability to manage its portfolio and meet redemption requests. When
effecting these transactions, liquid assets of a Fund of a dollar amount
sufficient to make payment for the portfolio securities to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.

Forward currency contracts -- This is a contract individually negotiated and
privately traded by currency traders and their customers and creates an
obligation to purchase or sell a specific currency for an agreed-upon price at a
future date. The Funds generally do not enter into forward contracts with terms
greater than one year, and they typically enter into forward contracts only
under two circumstances. First, if a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the US dollar price of the security by entering into a forward
contract to buy the amount of a foreign currency needed to settle the
transaction. Second, if the Fund's money managers

47
<PAGE>

believe that the currency of a particular foreign country will substantially
rise or fall against the US dollar, the Fund may enter into a forward contract
to buy or sell the currency approximating the value of some or all of the Fund's
portfolio securities denominated in the currency. A Fund will not enter into a
forward contract if, as a result, it would have more than one-third of its
assets committed to such contracts (unless it owns the currency that it is
obligated to deliver or has caused the Custodian to segregate segregable assets
having a value sufficient to cover its obligations). Although forward contracts
are used primarily to protect a Fund from adverse currency movements, they
involve the risk that currency movements will not be accurately predicted.

RIF -- Russell Insurance Funds, an open-end management investment company
which is registered with the SEC

FRIMCo -- Frank Russell Investment Management Company, RIF's administrator,
manager and transfer and dividend paying agent.

Funds -- The 5 investment series of RIF. Each Fund is considered a separate
registered investment company (or RIC) for federal income tax purposes, and each
Fund has its own investment objective, policies and restrictions.

Futures and options on futures -- An interest rate futures contract is an
agreement to purchase or sell debt securities, usually US government securities,
at a specified date and price. For example, a Fund may sell interest rate
futures contracts (i.e., enter into a futures contract to sell the underlying
debt security) in an attempt to hedge against an anticipated increase in
interest rates and a corresponding decline in debt securities it owns. A Fund
will have collateral assets equal to the purchase price of the portfolio
securities represented by the underlying interest rate futures contracts it has
an obligation to purchase.

Illiquid securities -- The Funds will not purchase or otherwise acquire any
security if, as a result, more than 15% of a Fund's net assets (taken at current
value) would be invested in securities, including repurchase agreements maturing
in more than seven days, that are illiquid because of the absence of a readily
available market or because of legal or contractual resale restrictions. No Fund
will invest more than 10% of its respective net assets (taken at current value)
in securities of issuers that may not be sold to the public without registration
under 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.

Insurance Company -- An insurance company that has a relationship with RIF
pursuant to which RIF Funds are the investment base for one or more variable
insurance products offered by such insurance company.

Investment grade -- Investment grade debt securities are those rated within
the four highest grades by S&P (at least BBB) or Moody's (at least Baa), or
unrated debt securities deemed to be of comparable quality by a money manager
using Board-approved guidelines.

IRS -- Internal Revenue Service

Lending portfolio securities -- Each Fund may lend portfolio securities with a
value of up to 33 1/3% of each Fund's total assets. These loans may be
terminated at any time. A Fund will receive either cash (and agree to pay a
"rebate" interest rate), US government or US government agency obligations as
collateral in an amount equal to at least 102% (for loans of US securities) or
105% (for non-US securities) of the current market value of the loaned
securities. The collateral is daily "marked-to-market," 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. If the borrower
of the securities fails 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.

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<PAGE>

Liquidity portfolio -- FRIMCo will manage or will select a money manager to
exercise investment discretion for approximately 5%-15% of each of the Multi-
Style, Aggressive Equity, Non-U.S. and Real Estate Securities Funds' assets
assigned to a liquidity portfolio. The liquidity portfolio will be used to
temporarily create an equity exposure for cash balances until those balances are
invested in securities or used for Fund transactions.

Moody's -- Moody's Investors Service, Inc., an NRSRO

Municipal obligations -- 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,
including the alternative minimum tax, in the opinion of bond counsel to the
issuer. Municipal obligations include debt obligations issued to obtain funds
for various public purposes as well as certain industrial development bonds
issued by or on behalf of public authorities. Municipal obligations may include
project, tax anticipation, revenue anticipation, bond anticipation, and
construction loan notes; tax-exempt commercial paper; fixed and variable rate
notes; obligations whose interest and principal are guaranteed or insured by the
US government or fully collateralized by US government obligations; industrial
development bonds; and variable rate obligations.

Net asset value (NAV) -- The value of a Fund is determined by deducting the
Fund's liabilities from the total assets of the portfolio. The net asset value
per share is determined by dividing the net asset value of the Fund by the
number of its shares that are outstanding.

NRSRO -- A nationally recognized statistical rating organization, such as S&P
or Moody's

NYSE -- New York Stock Exchange

Options on securities, securities indexes and currencies -- A Fund may
purchase call options on securities that it intends to purchase (or on
currencies in which those securities are denominated) in order to limit the risk
of a substantial increase in the market price of such security (or an adverse
movement in the applicable currency). A Fund may purchase put options on
particular securities (or on currencies in which those securities are
denominated) in order to protect against a decline in the market value of the
underlying security below the exercise price less the premium paid for the
option (or an adverse movement in the applicable currency relative to the US
dollar). Prior to expiration, most options are expected to be sold in a closing
sale transaction. Profit or loss from the sale depends upon whether the amount
received is more or less than the premium paid plus transaction costs. A Fund
may purchase put and call options on stock indexes in order to hedge against
risks of stock market or industry-wide stock price fluctuations.

Policies -- one or more variable insurance products to be issued by one or
more Insurance Companies.

Prime rate -- The interest rate charged by leading US banks on loans to their
most creditworthy customers

REITs -- Real estate investment trusts

Repurchase agreements -- A 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 the time of agreement) should fall below
the repurchase price, the Fund could incur a loss. Subject to the overall
limitations described in "Illiquid Securities" in this Glossary, a Fund will not
invest more than 15% of its net assets (taken at current market value) in
repurchase agreements maturing in more than seven days.

Reverse repurchase agreements -- A Fund may enter into reverse repurchase
agreements to meet redemption requests when a money manager determines that
selling portfolio securities would be

49
<PAGE>

inconvenient or disadvantageous. A reverse repurchase agreement is a transaction
where 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 transferred security, 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, are segregated on the Fund's records while a
reverse repurchase agreement is in effect.

Russell -- Frank Russell Company, consultant to RIF and to the Funds

S&P -- Standard & Poor's Ratings Group, an NRSRO

S&P 500 -- Standard & Poor's 500 Composite Price Index

SAI -- RIF's Statement of Additional Information, dated as noted on the first
page of this Prospectus.

SEC -- US Securities and Exchange Commission

Separate Account -- account of a policyholder of the Insurance Companies.

Shares -- The shares in the Funds described in this prospectus. Each share of
a Fund represents a share of beneficial interest in the Fund.

Transfer Agent -- FRIMCo, in its capacity as RIF's transfer and dividend
paying agent

US -- United States

US government obligations -- These include US Treasury bills, notes, bonds and
other obligations issued or guaranteed by the US government, its agencies or
instrumentalities. US Treasury bills, notes and bonds, and GNMA participation
certificates, are issued or guaranteed by the US government. Other securities
issued by US government agencies or instrumentalities are supported only by the
credit of the agency or instrumentality (for example, those issued by the
Federal Home Loan Bank) whereas others, such as those issued by FNMA, have an
additional line of credit with the US Treasury.

Variable amount demands master notes -- These notes represent borrowing
arrangements between commercial paper issuers and institutional lenders, such as
the Funds.

Variable rate obligation -- Municipal obligations with a demand feature that
typically may be exercised within 30 days. The rate of return on variable rate
obligations is readjusted periodically according to a market rate, such as the
Prime rate. Also called floating rate obligations.

Warrants -- Typically, a warrant is a long-term option that permits the holder
to buy a specified number of shares of the issuer's underlying common stock at a
specified exercise price by a particular expiration date. A warrant not
exercised or disposed of by its expiration date expires worthless.

1940 Act -- The Investment Company Act of 1940, as amended. The 1940 Act
governs the operations of RIF and the Funds.

1933 Act -- The Securities Act of 1933, as amended.

50
<PAGE>

Russell Insurance Funds
File No. 33-18030
1933 Act Post-Effective Amend. No. 6
1940 Act Amendment No. 10

PART C
------

OTHER INFORMATION

Item 23 Exhibits

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

1(a) Amendment No. 1 to the Master Trust Agreement adopted October 5,
1998

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

3 Specimen Certificate of Shares of the Registrant (none)

4(a) Management Agreement between Russell Insurance Funds ("RIF") and
Frank Russell Investment Management Company ("FRIMCo") dated August
5, 1996 (incorporated by reference to Item 24(b)(5)(a) filed under
Pre-effective Amendment No. 4 filed September 20, 1996)

4(a)(1) Management Agreement between RIF and FRIMCo dated January 1, 1999

4(b) Form of Portfolio Management Agreement among RIF, FRIMCo and Money
Managers (incorporated by reference to Item 24(b)(5)(b) filed under
Pre-effective Amendment No. 4 filed September 20, 1996)

4(c) Form of Portfolio Management Agreement between RIF and FRIMCo with
non-compete clause (incorporated by reference to Item 24(b)(5)(c)
filed under Post-Effective Amendment No.4 filed on February 24,
1998)

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

5(a) Distribution Agreement between RIF and Russell Fund Distributors,
Inc. dated January 1, 1999

6 Bonus or Profit Sharing Contracts (none)
<PAGE>

7(a) Custody Agreement between RIF and State Street Bank and Trust
Company ("State Street") dated August 5, 1996 (incorporated by
reference to Item 24(b)(8)(a) filed under Pre-effective Amendment
No. 4 filed September 20, 1996)

8(a) Form of Participation Agreement between RIF and General American
Life Insurance Company ("General American") (incorporated by
reference to Item 24(b)(9)(a) filed under Pre-effective Amendment
No. 4 filed September 20, 1996)

8(a)(1) Form of Participation Agreement between RIF, Russell Fund
Distributors, Inc and various insurance companies. (incorporated by
reference to Item 24(b)(9)(a)(1) filed under Post-Effective
Amendment No.4 filed on February 24, 1998)

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

8(b)(1) Letter Agreement amending Schedule A to the Transfer and Dividend
Agency Agreement with Frank Russell Investment Management Company
(incorporated by reference to Item 24(b)(9)(b)(1) filed under Post-
Effective Amendment No. 5 filed May 1, 1998)

8(c) Form of Tax Accounting Services Agreement between RIF and State
Street (incorporated by reference to Item 24(b)(9)(c) filed under
Pre-effective Amendment No. 4 filed September 20, 1996)

8(d) Form of Yield Calculation Services Agreement between RIF and State
Street (incorporated by reference to Item 24(b)(9)(d) filed under
Pre-effective Amendment No. 4 filed September 20, 1996)

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

9 Opinion and Consent of Counsel (To be filed by Amendment)

10(a) Consent of Independent Auditors (To be filed by Amendment)

10(b) Limited Powers of Attorney of RIF Trustees with respect to
Amendments to the SEC Registration Statement of RIF (incorporated
by reference to Item 24(b)(11)(b) filed under Pre-effective
Amendment No. 4 filed September 20, 1996)

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

11 Financial Statement Omitted from Item 22 (none)
<PAGE>

12 Form of Seed Money Subscription Agreement between RIF and General
American (incorporated by reference to Item 24(b)(13) filed under Pre-
effective Amendment No. 4 filed September 20, 1996)

13 Rule 12b-1 Plan (none)

14 Financial Data Schedules for Russell Insurance Funds (To be filed by
Amendment)

15 Rule 18f-3 Plan (none)

Item 24 Persons Controlled By or Under Common Control with Registrant

Registrant is controlled by its Board of Trustees

Item 25 Indemnification

(Incorporated by reference to Item 27 filed under Pre-effective Amendment No. 4
filed September 20, 1996)

Item 26 Business and Other Connections of Investment Adviser

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

Item 27 Principal Underwriter

(a) SSgA Funds
Frank Russell Investment Company

(b) 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:

<TABLE>
<CAPTION>
Positions and Offices with Positions and Offices with
Name Registrant Underwriter
- ---- ---------- -----------
<S> <C> <C>
George F. Russell, Jr. Chairman of the Board, None
Trustee Emeritus

Lynn L. Anderson Trustee, President, Chief Director, Chairman of the
Executive Officer Board and Chief Executive
Officer
</TABLE>
<PAGE>

<TABLE>
<S> <C> <C>
Mark E. Swanson Treasurer and Chief Accounting None
Officer

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

Randall P. Lert Director of Investments Director

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

Deedra S. Walkey Assistant Secretary None

Amy L. Osler Assistant Secretary None

Rick J. Chase Assistant Treasurer None

Kellie C. Lamb Assistant Treasurer None

Eric A. Russell None Director, President

Linda L. Gutmann None Treasurer and Controller

B. James Rohrbacher None Director of Compliance and
Internal Audit, Chief
Compliance Officer

John James None Assistant Secretary

J. David Griswold None Assistant Secretary and
Associate General Counsel

Mary E. Hughs None Assistant Secretary

Carla L. Anderson None Assistant Secretary
</TABLE>

Item 28 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
---
North Quincy, Massachusetts 02171 "Money Manager Profiles"
for Names and Addresses

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
<PAGE>

(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) ---
(c) Inapplicable
(d) FRIMCo - Broker-dealer records, to the extent applicable
(e) Inapplicable
(f) FRIMCo and MM - Investment adviser records

Item 29 Management Services

None except as described in Parts A and B

Item 30 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).
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Russell Insurance Funds, has duly caused
this Post Effective Amendment No. 6 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 1st day of February 1999.

Russell Insurance Funds
-----------------------
Registrant

By: /s/ Lynn 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 February 1, 1999.

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

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

/s/ Mark E. Swanson Treasurer, in his capacity
- -----------------------------
Mark E. Swanson* as Chief Accounting Officer

Trustee
_____________________________
Paul E. Anderson*

Trustee
_____________________________
Paul Anton, PhD*

Trustee
_____________________________
William E. Baxter*

Trustee
_____________________________
Lee C. Gingrich*

Trustee
_____________________________
Eleanor W. Palmer*

By: /s/ Gregory J. Lyons Assistant Secretary
--------------------------
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 Russell Insurance Funds are on file with the Securities and Exchange
Commission.
<PAGE>

Russell Insurance Funds

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

EXHIBITS
--------

Listed in Part C, Item 23
To Post-Effective Amendment No. 6
and Amendment No. 10
to
Registration Statement on Form N-1A
Under
Securities Act of 1933
and
Investment Company Act of 1940
<PAGE>

EXHIBIT INDEX
-------------

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

1(a) Amendment No. 1 to the Master Trust Agreement adopted October 5, 1998

4(a)(1) Management Agreement between RIF and FRIMCo dated January 1, 1999

5(a) Distribution Agreement between RIF and Russell Fund Distributors,
Inc. dated January 1, 1999

<PAGE>

EXHIBIT 1(A)

RUSSELL INSURANCE FUNDS

AMENDMENT TO MASTER TRUST AGREEMENT

Regarding the designation of Trustees Emeritus
and the duties and responsibilities thereof

AMENDMENT NO. 1 to the Amended Master Trust Agreement dated July 11, 1996
(referred to herein as the "Agreement"), adopted the 5th day of October 1998, by
the Trustees under such Agreement, and effective upon the certification and
filing of this Amendment as provided herein.

WITNESSETH:
- ----------

WHEREAS, Section 3.1 of the Agreement provides for the number, designation,
election and other matters pertaining to the Trustees of the Trust; and

WHEREAS, the Trustees wish to provide a means to permit the Board of
Trustees to obtain access to the advice and experience of a former member
of the Board of Trustees upon the conclusion of the service as Trustee of
such a former Trustee; and

WHEREAS, the Trustees have been advised that to meet certain requirements
applicable to the Trust under Federal securities laws Mr. George F.
Russell, Jr. will not be standing for re-election as a Trustee at the next
meeting of the shareholders of the Trust;

WHEREAS, the Trustees have been advised that Mr. Russell has agreed to make
his experience and judgment available to the Board of Trustees upon such
terms as it may choose;

WHEREAS, Section 7.3 of the Agreement provides authority for the Amendment
of the Agreement by the Trustees;

NOW, THEREFORE, the Trustees hereby amend the Agreement as set forth below
to designate the position of Trustee Emeritus, and to provide for such
further actions as are necessary and appropriate in furtherance thereof.

Amendment of the Master Trust Agreement.

Without affecting the rights and preferences of any presently issued and
outstanding shares of interest in the Trust, the Agreement is hereby amended as
follows:
<PAGE>

1. Effective upon the filing of this Amendment in the minute books of the Trust
by the Secretary of the Trust, and the filing of this Amendment with appropriate
authorities of the Commonwealth of Massachusetts and the State of Washington,
the Master Trust Agreement is amended as set forth below:

(a) Article I is amended to add, immediately following Section 1.2(i), a
new Section 1.2(j) as set forth below:

"Trustee Emeritus" refers to each person elected to that office from
time to time by the Trustees of the Trust, and serving as same.

(b) Article III is amended to add, immediately following Section 3.1(h), a
new Section 3.1(i) as set forth below:

Any natural person qualified to hold the office of Trustee under this
Agreement who is not then a Trustee may be elected by a majority of
the Trustees then in office to serve as Trustee Emeritus for one year,
or such other term as may be specified by the Board (which period
shall not extend beyond such time as the members of such Board next
stand for election as Trustees). A Trustee Emeritus shall be subject
to removal by the Board from time to time with or without cause. A
Trustee Emeritus shall be given notice of each meeting of the Board of
Trustees in the same manner as each regular Trustee then in office,
shall be entitled to attend and participate in discussions at each
meeting of the Board, and shall be provided with such records of the
Trust as are made available to each Trustee. A Trustee Emeritus may
serve as a member of a committee of the Board upon appointment as such
by the Board, and may hold such executive or other office as the Board
may provide. Notwithstanding the foregoing, no Trustee Emeritus may
vote at any meeting of the Board, or of any committee of the Board, or
direct the vote of any Trustee at same. A Trustee Emeritus shall not
be held responsible by virtue of service as a Trustee Emeritus, either
at law or in equity, for any action or failure to act of the Trust, or
of the Board of Trustees or any committee thereof. A Trustee Emeritus
who is not an interested person of the Trust may receive such fees and
reimbursement of expenses as are authorized for payment to each
Trustee who is not an interested person of the Trust.

(c) Article VI is amended to add, immediately following the term "Trustee"
in each place where the term Trustee shall appear, the term "Trustee Emeritus."

2. Effective upon the completion of the service of Mr. George F. Russell, Jr.
as a Trustee of the Trust, he is hereby elected as Trustee Emeritus, to serve as
same until the first meeting of the Board of Trustees to occur following the
next election by shareholders at which Trustees are elected. To provide for
continuity of service and the effective conduct of the business of the Board of
Trustees, Mr. Russell shall continue to be designated as the Chairman of the
Board of Trustees, and shall supervise the conduct of the meetings of the Board.
<PAGE>

The undersigned hereby certify that the Amendment set forth above has been duly
adopted in accordance with the provisions of the Master Trust Agreement, and
shall become effective on the designated effective date and year set forth
hereinabove.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals for
themselves and their assigns, as of the day and year first above written. This
instrument may be executed in one or more counterparts, all of which shall
together constitute a single instrument.

/s/ Lynn L. Anderson /s/ Eleanor W. Palmer
- -------------------------- --------------------------
Lynn L. Anderson Eleanor W. Palmer

/s/ Paul E. Anderson /s/ Lee C. Gingrich
- -------------------------- --------------------------
Paul E. Anderson Lee C. Gingrich

/s/ Paul Anton /s/ George F Russell, Jr.
- -------------------------- --------------------------
Paul Anton George F. Russell, Jr.

/s William E. Baxter
- --------------------------
William E. Baxter

<PAGE>
EXHIBIT 4(A)(1)

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT made this 1st day of January, 1999 between RUSSELL
INSURANCE FUNDS, a Massachusetts business trust hereinafter called the "Trust")
and FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY, a Washington corporation
hereinafter called "FRIMCo."

WHEREAS, the Trust has been organized by and at the expense of a company
affiliated with FRIMCo and operates as an investment company of the "series"
type registered under the Investment Company Act of 1940 ("1940 Act") for the
purpose of investing and reinvesting its assets in portfolios of securities,
each of which has distinct investment objectives and policies (each distinct
portfolio being referred to herein as a "Sub-Trust"), as set forth more fully in
its Master Trust Agreement, its Bylaws and its Registration Statements under the
1940 Act and the Securities Act of 1933, all as heretofore amended and
supplemented; and the Trust desires to avail itself of the services,
information, advice, assistance, and facilities of a manager and to have a
manager perform for its various management, administrative, statistical,
research, money manager selection, investment management, and other services;
and

WHEREAS, FRIMCo is registered as an investment adviser under the Investment
Adviser's Act of 1940 and will engage in the business of rendering investment
advisor, counseling, money manager recommendation, and supervisory services to
investment consulting clients; and FRIMCo and its affiliated corporations have
undertaken the initiative and expense of organizing the Trust in order to have a
means to commingle assets for certain investors to have access to and utilize
the "Multi-Style, Multi-Manager" method of investment and to provide services to
the Trust in consideration of and on the terms and conditions hereinafter set
forth;

NOW, THEREFORE, the trust and FRIMCo agree as follows:

1. Employment of FRIMCo. The Trust hereby employs FRIMCo to manage the
investment and reinvestment of the Trust's assets and to act as a
discretionary Money Manager to certain of the Sub-Trusts in the manner set
forth in Section 2(B) of this Agreement, and to administer its business and
administrative operations, subject to the direction of the Board of
Trustees and the officers of the Trust, for the period, in the manner, and
on the terms hereinafter set forth. FRIMCo hereby accepts such employment
and agrees during such period to render the services and to assume the
obligations herein set forth. FRIMCo shall for all purposes herein be
deemed to be an independent contractor and shall,

<PAGE>

except as expressly provided or authorized (whether herein or otherwise),
have no authority to act for or represent the Trust in any way.

2. Obligations of and Services to be provided by FRIMCo. FRIMCo undertakes to
provide the services hereinafter set forth and to assume the following
obligations:

A. Management and Administrative Services.

(1) FRIMCo shall furnish to the Trust adequate (a) office space,
which may be space within the offices of FRIMCo or in such other
place as may be agreed upon from time to time, (b) office
furnishing, facilities, and equipment as may be reasonably
required for managing and administering the business and
operations of the Trust, including (i) complying with the
business trust, securities, and tax reporting requirements of the
United States and the various states in which the Trust does
business, (ii) conducting correspondence and other communications
with the shareholders of the Trust ("Shareholders"), and (iii)
maintaining or supervising the maintenance of all internal
bookkeeping, accounting, and auditing services and records in
connection with the Trust's investment and business activities.
The Trust agrees that its shareholder recordkeeping services, the
computing of net asset value and the preparation of certain of
its records required by Rule 31 under the 1940 Act are maintained
by the Trust's Transfer Agent, Custodian, and Money Managers, and
that with respect to these records FRIMCo's obligations under
this Section 2(A) are supervisory in nature.

(2) FRIMCo shall employ or provide and compensate the executive,
administrative, secretarial, and clerical personnel necessary to
supervise the provision of the services set forth in sub-
paragraph 2(A)(1), and shall bear the expense of providing such
services except as provided in Section 4 of this Agreement.
FRIMCo shall also compensate all officers and employees of the
Trust who are officers or employees of FRIMCo, or its affiliated
companies.

B. Investment Management Services.

(1) The Trust intends to appoint one or more persons or companies
("Money Manager[s]") for each of the Sub-Trusts or segments
thereof, and each Money Manager shall have full investment

<PAGE>

discretion and shall make all determinations with respect to the
investment of a Sub-Trust's assets assigned to the Money Manager
and the purchase and sale of portfolio securities with those
assets, and such steps as may be necessary to implement its
decision. FRIMCo shall not be responsible or liable for the
investment merits o any decision by a Money Manager to purchase,
hold, or sell a security for a Sub-Trust portfolio.

(2) FRIMCo shall, subject to and in accordance with the investment
objectives and policies of the Trust and each Sub-Trust and any
directions which the Trust's Board of Trustees may issue to
FRIMCo, have: (i) overall supervisory responsibility for the
general management and investment of the Trust's assets and
securities portfolios; and (ii) full investment discretion to
make all determinations with respect to the investment of Sub-
Trust assets not assigned to a Money Manager.

(3) FRIMCo shall develop overall investment programs and strategies
for each Sub-Trust, or segments thereof, shall revise such
programs as necessary, and shall monitor and report periodically
to the Board of Trustees concerning the implementation of the
Programs.

(4) FRIMCo shall research and evaluate Money Managers and shall
advise the Board of Trustees of the Trust of the Money Managers
which FRIMCo believes are best suited to invest the assets of
each Sub-Trust; shall monitor and evaluate the investment
performance of each Money Manager employed by the Trust; shall
determine the portion of each Sub-Trust's assets to be managed by
each Money Manager; shall recommend changes or additions of Money
Managers when appropriate; shall coordinate the investment
activities of the Money Managers; and acting as a fiduciary for
the Trust shall compensate the Money Managers.

(5) FRIMCo shall render to the Trust's Board of Trustees such
periodic reports concerning the Trust's and Sub-Trust's business
and investments as the Board of Trustees shall reasonably
request.

<PAGE>

C. Use of Frank Russell Company Research.

FRIMCo is hereby authorized and expected to utilize the research and
other resources of Frank Russell Company, its corporate parent, or any
predecessor organization, in providing the Investment Management
Services specified in Subsection "B," above. Neither FRIMCo nor the
Trust shall be obligated to pay any fee to Frank Russell Company for
these services.

D. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials.

FRIMCo will make available and provide financial, accounting, and
statistical information required by the Trust for the preparation of
registration statements, reports, and other documents required by
federal and state securities laws, and with such information as the
Trust may reasonably request for use in the preparation of such
documents or of other materials necessary or helpful for the
underwriting and distribution of the Trust's shares.

E. Other Obligations and Services.

FRIMCo shall make available its officers and employees to the Board of
Trustees and officers of the Trust for consultation and discussions
regarding the administration and management of the Trust and its
investment activities.

3. Execution and Allocation of Portfolio Brokerage Commissions. FRIMCo or the
Money Managers, subject to and in accordance with any directions which the
Trust's Board of Trustees may issue from time to time, shall place, in the
name of the Trust, orders for the execution of the Sub-Trust's portfolio
transactions. When placing such orders, the primary objective of FRIMCo
and Money Managers shall be to obtain the best net price and execution for
the Trust, but this requirement shall not be deemed to obligate FRIMCo or a
Money Manager to place any order solely on the basis of obtaining the
lowest commission rate if the other standards set forth in this section
have been satisfied. The Trust recognizes that there are likely to be many
cases in which different brokers are equally able to provide such best
price and execution and that, in selecting among such brokers with respect
to particular trades, it is desirable to choose those brokers who furnish
"brokerage and research services" (as defined in Section 28(e)(3) of the
Securities and Exchange Act of 1934) or statistical quotations and other

<PAGE>

information to the Trust, FRIMCo and/or the Money Managers in accord with
the standards set forth below. Moreover, to the extent that it continues
to be lawful to do so and so long as the Board determines as a matter of
general policy that the Trust will benefit, directly or indirectly, by
doing so, FRIMCo or a Money Manager may place orders with a broker who
charges a commission for that transaction which is in excess of the amount
of commission that another broker would have charged for effecting that
transaction, provided that the excess commission is reasonable in relation
to the value of brokerage and research services provided by that broker.
Accordingly, the Trust and FRIMCo agree that FRIMCo and the Money Managers
shall select brokers for the execution of the Sub-Trust's portfolio
transactions from among:

A. Those brokers and dealers who provide brokerage and research services,
or statistical quotations and other information to the Trust,
specifically including the quotations necessary to determine the
Trust's net assets, in such amount of total brokerage as may
reasonably be required in light of such services;

B. Those brokers and dealers supply brokerage and research services to
FRIMCo and/or its affiliated corporations, or the Money Managers,
which relate directly to portfolio securities, actual or potential, of
the Trust, or which place FRIMCo or Money Managers in a better
position to make decisions in connection with the management of the
Trust's assets and portfolios, whether or not such data may also be
useful to FRIMCo and its affiliates, or the Money Managers and their
affiliates, in managing other portfolios or advising other clients, in
such amount of total brokerage as may reasonably be required; and

C. Frank Russell Securities, Inc., an affiliate of FRIMCo, when FRIMCo or
Money Manager has determined that the Trust will receive competitive
execution, price, and commission. FRIMCo shall render regular reports
to the Trust, not more frequently than quarterly, of how much total
brokerage business has been placed with Frank Russell Securities,
Inc., and the manner in which the allocation has been accomplished.

FRIMCo agrees and each Money Manager will be required to agree, that no
investment decision will be made or influenced by a desire to provide
brokerage for allocation in accordance with the foregoing, and that the
right to make such allocation of brokerage shall not interfere with
FRIMCo's or Money Manager's primary duty to obtain the best net price and
execution for the Trust.

<PAGE>

4. Expenses of the Trust. It is understood that the Trust will pay all its
expenses other than those expressly assumed by FRIMCo herein, which
expressly assumed by FRIMCo herein, which expenses payable by the Trust
shall include:

A. Fees for the services of the Money Manager;

B. Expenses of all audits by independent public accountants;

C. Expenses of transfer agent, registrar, dividend disbursing agent, and
shareholder recordkeeping services;

D. Expenses of custodial services including recordkeeping services
provided by the Custodian;

E. Expenses of obtaining quotations for calculating the value of the
Trust's net assets;

F. Expenses of obtaining Portfolio Activity Reports and Analyses of
International Management reports for each portfolio of each Sub-Trust;

G. Expenses of maintaining each Sub-Trust's tax records;

H. Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors,
stockholders, or employees of FRIMCo;

I. Taxes levied against the Trust;

J. Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Trust;

K. Costs, including the interest expense, of borrowing money;

L. Costs and/or fees incident to meetings of the Trust, the preparation
and mailings of prospectuses and reports of the Trust to its
Shareholders, the filing of reports with regulatory bodies, the
maintenance of the Trust's

<PAGE>

existence, and the registration of shares
with federal and state securities authorities;

M. Legal fees, including the legal fees related to the registration and
continued qualification of the Trust shares for sale;

N. Costs of printing stock certificates representing shares of the Trust;

O. Trustees' fees and expenses to Trustees who are not officers,
employees, or stockholders of FRIMCo or any of its affiliates;

P. The Trust's pro rata portion of the fidelity bond required by Section
17(g) of the 1940 Act, or other insurance premiums;

Q. Association membership dues; and

R. Extraordinary expenses as may arise including expenses incurred in
connection with litigation, proceedings, other claims, and the legal
obligations of the Trust to indemnify its Trustees, officers,
employees, Shareholders, distributors, and agents with respect
thereto.

5. Activities and Affiliates of FRIMCo.

A. The services of FRIMCo and its affiliated corporations to the Trust
hereunder are not to be deemed exclusive, and FRIMCo and any of its
affiliates shall be free to render similar services to others.

(1) FRIMCo and its affiliated corporations shall use the same skill
and care in the management of the Sub-Trust's portfolios as they
use in the administration of other accounts to which they provide
asset management consulting and manager selection services, but
they shall not be obligated to give the Trust more favorable or
preferential treatment vis-a-vis their other clients.

(2) The Trust expressly recognizes that Frank Russell Investment
Company ("FRIC") is a client of FRIMCo and that Frank Russell
Trust Company ("Trust Company"), a corporation affiliated with
FRIMCo, is also a client of a corporation affiliated with FRIMCo

<PAGE>

and each of FRIC and Trust Company receives substantially the
same portfolio structuring and money manager selection services
from the affiliate as does the Trust; that each of FRIC and Trust
Company has, or may have, commingled investment funds with
substantially the same investment objectives, strategies, and
programs as the Trust; that each of FRIC and the Trust was
organized by and at the expense of FRIMCo or of a corporation
affiliated with FRIMCo for the express purpose of offering the
same type of investment management services to the Trust's
Shareholders, at least some of whom could not obtain these
services through FRIC or Trust Company, as FRIC provides to its
Shareholders and as Trust Company provides to its trust
customers; and that over time FRIC, Trust Company and the Trust
may utilize some of the same money managers and have similar
portfolio securities holders.

B. Subject to and in accordance with the Master Trust Agreement (as
defined below) and Bylaws of the Trust and to Section 10(a) of the
1940 Act, it is understood that Trustees, officers, agents, and
Shareholders of the Trust are or may be interested in FRIMCo or its
affiliates as directors, agents, or stockholders of FRIMCo or its
affiliates are or may be interested in the Trust as Trustees,
officers, agents, Shareholders, or otherwise; that FRIMCo or its
affiliates may be interested in the Trust as Shareholders or
otherwise; and that the effect of any such interests shall be governed
by said Master Trust Agreement, Bylaws, and the 1940 Act.

6. Compensation of FRIMCo.

FRIMCo shall receive from each of the following Sub-Trusts an annual
management fee, accrued daily at the rate of 1/365th of the applicable
management fee and payable following the last day of each month. The
annual management fee, including the fee payable to the Money Managers (for
each respective Sub-Trust), shall be computed based on the following annual
percentage of each Sub-Trust's average daily net assets during the month:

Multi-Style Equity 0.78%
Aggressive Equity 0.95
Non-U.S. 0.95
Core Bond 0.60
Money Market Liquidity 0.25

<PAGE>

From this management fee, FRIMCo, acting as a fiduciary of the Trust, shall
compensate the Money Managers.

7. Liabilities of FRIMCo.

A. In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder or on the part
of FRIMCo or its corporate affiliates, FRIMCo and its corporate
affiliates shall not be subject to liability to the Trust or to any
Shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding, or sale of any security.

B. No provision of this Agreement shall be construed to protect any
Trustee or officer of the Trust, or FRIMCo and its corporate
affiliates, from liability in violation of Section 17(h) and (i) of
the 1940 Act.

8. Renewal and Termination.

A. This Agreement shall become effective on and as of January 1, 1999
and shall continue in effect as to each Sub-Trust until April 30,
2000. The Agreement is renewable annually thereafter for successive
one-year periods (a) by a vote of a majority of the Trustees of the
Trust, or (b) as to any Sub-Trust, by a vote of a majority of the
outstanding voting securities of that Sub-Trust, and in either case by
a majority of the Trustees who are not parties to the Agreement or
interested person of any parties to the Agreement (other than as
Trustees of the Trust), cast in person at a meeting called for
purposes of voting on the Agreement; provided, however, that if the
Shareholders of any one or more Sub-Trusts fail to approve the
Agreement as provided herein, FRIMCo may continue to serve in such
capacity in the manner and to the extent permitted by the 1940 Act and
Rules and Regulations thereunder.

B. This Agreement:

(a) May at any time be terminated without the payment of any penalty
either by vote of the Board of Trustees of the Trust or, as to
any Sub-Trust, by vote of a majority of the outstanding voting
securities of the Sub-Trust, on 60 days' written notice to
FRIMCo;

<PAGE>

(b) Shall immediately terminate in the event of its assignment; and

C. As used in this Section 8, the Terms "assignment," "interested person"
and "vote of a majority of the outstanding voting securities" shall
have the meanings set forth for any such terms in the 1940 Act.

D. Any notice under this Agreement shall be given in writing addressed
and delivered, or mailed postpaid, to the other party at any office of
such party.

9. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule, or otherwise, the remainder of
this Agreement shall not be affected thereby.

10. Reservation of Name. The parties hereto acknowledge that Frank Russell
Company has reserved the right to grant the non-exclusive use of the name
"Russell," or any derivative thereof, to any other investment company,
investment advisor, distributor or other business enterprise, and to
withdraw from the Trust the use of the name "Russell." In the event that
Frank Russell Company should elect to withdraw the use of the name
"Russell" from the Trust, the Trust will submit the question of continuing
this Agreement to a vote of its Shareholders.

11. Limitation of Liability. The Master Trust Agreement, dated July 11, 1996,
as amended from time to time, establishing the Trust, which is hereby
referred to and a copy of which is on file with the Secretary of The
Commonwealth of Massachusetts, provides that the name Russell Insurance
Funds means the Trustees from time to time serving (as Trustees but not
personally) under said Master Trust Agreement. It is expressly
acknowledged and agreed that the obligations of the Trust hereunder shall
not be binding upon any of the Shareholders, Trustees, officers, employees,
or agents of the Trust, personally, but shall bind only the trust property
of the Trust, as provided in its Master Trust Agreement. The execution and
delivery of this Agreement have been authorized by the Trustees of the
Trust and signed by the President of the Trust, acting as such, and neither
such authorization by such Trustees nor such execution and delivery by such
officers shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind only the
trust property of the Trust as provided in its Master Trust Agreement.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the day and year first written above.

Attest: RUSSELL INSURANCE FUNDS

By: /s/ Gregory J. Lyons By: /s/ Lynn L. Anderson
------------------------------------- ---------------------------
Gregory J. Lyons, Assistant Secretary Lynn L. Anderson, President

Attest: FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY

By: /s/ Gregory J. Lyons By: /s/ Eric A. Russell
------------------------------------- ---------------------------
Gregory J. Lyons, Assistant Secretary Eric A. Russell, President

FRANK RUSSELL COMPANY agrees to provide consulting services without charge to
the Trust upon the request of the Board of Trustees or officers of the Trust, or
upon the request of Manager pursuant to Section 2(C).

Attest: FRANK RUSSELL COMPANY

By: /s/ J. David Griswold By: /s/ Michael J. A. Phillips
------------------------------------- ---------------------------
J. David Griswold, Michael J. A. Phillips,
Assistant Secretary President

<PAGE>

EXHIBIT 5(A)

DISTRIBUTION AGREEMENT

THIS DISTRIBUTION AGREEMENT is made this 1/st/ day of January, 1999, by and
between Russell Insurance Funds, a Massachusetts business trust ("Investment
Company"), and Russell Fund Distributors, Inc., a Washington corporation
("Distributor").

WHEREAS, the Investment Company is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and offers for sale district series of shares of
common stock, each corresponding to a distinct portfolio ("Fund"), currently
four;

WHEREAS, Russell Fund Distributors, Inc. is registered as a mutual fund broker-
dealer with appropriate regulatory agencies;

WHEREAS, the Investment Company intends to serve as a funding vehicle for
variable annuity contracts and variable life insurance policies to be offered by
the separate accounts of certain life insurance companies;

WHEREAS, the Investment Company wishes to retain Distributor as the Investment
Company's distributor in connection with the offering and sale of the shares of
Funds as now exist and as hereafter may be established ("Shares") and to furnish
certain other services to the Investment Company as specified in this Agreement;
and

WHEREAS, Distributor is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:

1. The Investment Company hereby appoints Distributor to perform those
services described in this Agreement for each Fund of the Investment
Company in existence as of the date hereof ("Initial Funds"). In the event
that the Investment Company establishes one or more series of shares other
than the Initial Funds with respect to which it desires to retain the
Distributor to serve as distributor and principal underwriter hereunder, it
shall so notify the Distributor in writing, indicating the fee, if any, to
be payable with respect to the additional series of
<PAGE>

shares. If the Distributor is willing to render such services, it shall so
notify the Investment Company in writing, whereupon such series of shares
shall become a Fund hereunder. In such event a writing signed by both the
Investment Company and the Distributor shall be annexed hereto as a part
hereof indicating that such additional series of shares has become a Fund
hereunder.

2. The Investment Company authorizes Distributor as agent for the Investment
Company, subject to applicable federal and state law and the Master Trust
Agreement, Bylaws and current Prospectus and Statement of Additional
Information of the Investment Company: (a) to promote and offer each Fund
and the Investment Company; (b) to solicit orders for the purchase of the
Shares of each Fund subject to such terms and conditions as the Investment
Company may specify; and (c) to accept orders for the purchase of the
Shares of each Fund on behalf of the Investment Company. Distributor shall
offer the Shares of each Fund on an agency or "best efforts" basis under
which the Investment Company shall only issue such Shares as are actually
sold.

In connection with such sales and offers of sale, the Investment Company
shall not be responsible in any way for any other information, statements
or representations given or made by Distributor or its representatives or
agents, except such information or representations as are contained in the
Prospectus or in information furnished in writing to Distributor by the
Investment Company.

3. The offering price of the Shares shall be the net asset value per share (as
determined by the Investment Company) of the outstanding Shares of the
Investment Company plus a sales charge (if any) and a shareholder services
charge (if any) as set forth in the Investment Company's current
Prospectus. The Investment Company shall make available to Distributor a
statement of each computation of net asset value and of the details
entering into such computation.

4. As used in this Agreement, the term "Registration Statement" shall mean the
Registration Statement most recently filed by the Investment Company with
the Securities and Exchange Commission and effective under the Securities
Act of 1933, as such Registration Statement is amended by any amendments
thereto at the time in effect, and the terms "Prospectus" and "Statement of
Additional Information" shall mean the form of Prospectus and Statement of
Additional Information filed by the Investment Company as part of the
Registration Statement.

5. The Investment Company agrees, at its own expense, to register the Shares
with the Securities and Exchange Commission, state and other regulatory
bodies, and to prepare and file from time to time such Prospectuses,
amendments, reports and other documents as may be necessary to maintain the
Registration Statement. The Investment Company shall bear all expenses
related to preparing and typesetting such Prospectuses, Statements of
Additional Information and other materials
<PAGE>

required by law and such other expenses, including printing and mailing
expenses, related to the Investment Company's communications with persons
who are shareholders of each Fund of the Investment Company.

6. The Investment Company agrees to indemnify, defend and hold harmless
Distributor, each person who has been, is, or may hereafter be an officer,
director, or employee or agent of Distributor, and any person who controls
Distributor within the meaning of Section 15 of the 1933 Act from and
against any and all claims, demands, liabilities and expenses (including
the cost of investigating or defending such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which Distributor,
its officers or Directors, or any such controlling person may incur under
the 1933 Act or under common law which arises out of or is alleged to arise
out of or is based upon a violation of any of the terms of this Agreement
or otherwise arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement, Prospectuses or
Statement of Additional Information or arising out of or based upon any
alleged omission to state a material fact required to be stated in said
documents or necessary to make the statements in said documents not
misleading, provided that in no event shall anything contained in this
Agreement be construed so as to protect Distributor against any liability
to the Investment Company or its shareholders to which Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.

7. Distributor agrees to indemnify, defend and hold harmless the Investment
Company, each person who has been, is, or may hereafter be an officer,
director, or employee or agent of Distributor, and any person who controls
the Investment Company within the meaning of Section 15 of the 1933 Act
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
the Investment Company, its officers or Trustees, or any such controlling
person may incur under the 1933 Act or under common law which arises out of
or is alleged to arise out of or is based upon a violation of any of the
terms of this Agreement or otherwise arising out of or based upon any
alleged untrue statement of a material fact contained in information
furnished in writing by Distributor to the Investment Company for use in
the Registration Statement, Prospectuses or Statements of Additional
Information or arising out of or based upon any alleged omission to state a
material fact in connection with such information required to be stated in
the Registration Statement, Prospectuses or Statement of Additional
Information, or necessary to make such information not misleading.

8. The Investment Company reserves the right at any time to withdraw all
offerings of the Shares by written notice to the Distributor at its
principal office.
<PAGE>

9. Distributor at its sole discretion may repurchase Shares offered for sale
by the shareholders. Repurchase of Shares by Distributor shall be at the
net asset value next determined after a repurchase order has been received.
On each business day, Distributor shall notify or shall arrange for
notification by telex, facsimile transmission, other electronic
transmission, or in writing the Investment Company's transfer agent of the
orders for repurchase of shares received by Distributor since the last such
report, the amount to be paid for such Shares, and the identity of
shareholders offering Shares for repurchase. Upon such notice, the
Investment Company shall pay Distributor such amounts as are required by
Distributor for the repurchase of such Shares in cash or in the form of a
credit against monies due the Investment Company from Distributor as
proceeds from the sale of Shares. Distributor will receive no commission or
other remuneration for repurchasing Shares. The Investment Company reserves
the right to suspend such repurchases upon written notice to Distributor.
Distributor further agrees to act as agent for the Investment Company to
receive and transmit promptly to the Investment Company's transfer agent
shareholder requests for redemption of Shares or to arrange for such
notification and transmission.

10. Distributor is an independent contractor and shall be agent for the
Investment Company only with respect to the sale and repurchase of the
Shares.

11. The services of Distributor to the Investment Company under this Agreement
are not to be deemed exclusive, and the Distributor shall be free to render
similar services or other services to others so long as its services
hereunder are not impaired thereby.

12. Distributor shall prepare reports for the Board of Trustees of the
Investment Company upon request showing information concerning expenditures
related to this Agreement.

13. As used in this Agreement, the term "net asset value" shall have the
meaning ascribed to it in the Investment Company's Master Trust Agreement;
and the terms "assignment," "interested person," and "majority of the
outstanding voting securities" shall have the meanings given to them by
Section 2(a) of the 1940 Act, subject to such exemptions as may be granted
by the Securities and Exchange Commission by any rule, regulation or order.

14. This Agreement shall become effective (i) with respect to the Initial Funds
as of the date hereof; and (ii) with respect to each additional Fund on the
date which the additional Fund commences offering its shares to the public,
so long as the provisions of Section 1 have been complied with. The
Agreement shall continue in effect for each Fund for two years following
the effective date of this Agreement with respect to the Fund; and
thereafter only so long as its continuance is specifically approved at
least annually by a majority of the Trustees of the Investment Company who
are not parties to the Agreement or interested persons
<PAGE>

of any such party cast in person at a meeting called for the purpose of
voting on such approval, or by vote of a majority of the outstanding voting
securities of the Fund.

15. This Agreement may be terminated at any time:

(a) By the Trustees of the Investment Company or by vote of a majority of
the outstanding voting securities of the Investment Company by sixty
days' notice addressed to the Distributor at its principal place of
business;

(b) By the Distributor by sixty days' written notice addressed to the
Investment Company at its principal place of business; and

16. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination
is sought, and no amendment of this Agreement shall be effective until
approved by vote of a majority of the Board of Trustees, by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of such Fund affected by the amendment.

17. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.

18. This Agreement shall be construed in accordance with the laws of the State
of Washington and any applicable federal law.

19. The Master Trust Agreement dated July 11, 1996, as amended from time to
time, establishing the Investment Company, which is hereby referred to and
a copy of which is on file with the Secretary of The Commonwealth of
Massachusetts, provides that the name Russell Insurance Funds means the
Trustees from time to time serving (as Trustees but not personally) under
said Master Trust Agreement. It is expressly acknowledged and agreed that
the obligations of the Investment Company hereunder shall not be binding
upon any of the Shareholders, Trustees, officers, employees or agents of
the Investment Company, personally, but shall bind only the trust property
of the Investment Company, as provided in its Master Trust Agreement. The
execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on
any of them
<PAGE>

personally, but shall bind only the trust property of the Investment
Company as provided in this Master Trust Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their officers thereunto duly authorized as of the date written above.

Attest: RUSSELL INSURANCE FUNDS

By: /s/ Gregory J. Lyons By: /s/ Lynn L. Anderson
------------------------------------ ---------------------------
Gregory J. Lyons, Assistant Secretary Lynn L. Anderson, President

Attest: RUSSELL FUND DISTRIBUTORS, INC.

By: /s/ Gregory J. Lyons By: /s/ Eric A. Russell
------------------------------------- ---------------------------
Gregory J. Lyons, Assistant Secretary Eric A. Russell, President