RUSSELL INSURANCE FUNDS, 497, 2000-09-29

RUSSELL INSURANCE FUNDS
497, 2000-09-29

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<PAGE>

Aggressive Equity Fund
Multi-Style Equity Fund

RUSSELL INSURANCE FUNDS
Supplement dated September 29, 2000 to
Prospectus dated April 28, 2000

The following restates the section entitled "Money Manager Information" for
the Multi-Style Equity Fund in its entirety in the Russell Insurance Funds
Prospectus:

MONEY MANAGER INFORMATION

Multi-Style Equity Fund

Alliance Capital Management L.P., 1345 Avenue of the Americas, New York, NY
10105.

Barclays Global Investors, 45 Fremont Street, 17/th/ Floor, San Francisco, CA
94105.

Peachtree Asset Management, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308.

Strong Capital Management, Inc., 100 Heritage Reserve, Menomonee Falls, WI
53051.

Turner Investment Partners, Inc., 1235 Westlakes Drive, Suite 350, Berwin, PA
19312.

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

Aggressive Equity Fund

CapitalWorks Invesxtment Partners, LLC, 401 West "A" Street, Suite 1675, San
Diego, CA 92101.

David J. Greene and Company, LLC, 599 Lexington Avenue, New York, NY 10022.

Geewax, Terker & Company, 99 Starr Street, Phoenixville, PA 19460.

Jacobs Levy Equity Management, Inc., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.

Systematic Financial Management, L.P., 6900 College Boulevard, Suite 570,
Overland, Park, KS 66211.

Westpeak Investment Advisors, L.P., 1011 Walnut Street, Suite 400, Boulder, CO
80302.
<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, 2000 as Supplemented through September 29, 2000

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 April 28, 2000
Aggressive Equity Fund January 2, 1997 April 28, 2000
Non-U.S. Fund January 2, 1997 April 28, 2000
Real Estate Securities Fund May 1, 1999 April 28, 2000
Core Bond Fund January 2, 1997 April 28, 2000
</TABLE>

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

This Statement of Additional Information supplements or describes in greater
detail information concerning RIF and the Funds contained in the Prospectus of
the Funds dated April 28, 2000. 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 Funds' Annual Reports to
shareholders for the year ended December 31, 1999. Copies of the Funds' Annual
Report accompany this statement.
<PAGE>

CERTAIN TERMS USED IN THIS STATEMENT OF ADDITIONAL INFORMATION ARE DEFINED IN
THE
GLOSSARY, WHICH BEGINS ON PAGE 50

TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
STRUCTURE AND GOVERNANCE................................... 1
Organization and Business History..................... 1
Shareholder Meetings.................................. 1
Controlling Shareholders.............................. 2
Trustees and Officers................................. 3

OPERATION OF RIF........................................... 7
Service Providers..................................... 7
Consultant............................................ 7
Manager............................................... 8
Money Managers........................................ 9
Distributor........................................... 10
Custodian and Portfolio Accountant.................... 10
Transfer and Dividend Disbursing Agent................ 11
Independent Accountants............................... 11
Codes of Ethics....................................... 11
Fund Expenses......................................... 12
Valuation of Fund Shares.............................. 12
Valuation of Portfolio Securities..................... 12
Portfolio Transaction Policies........................ 13
Portfolio Turnover Rate............................... 13
Brokerage Allocations................................. 13
Brokerage Commissions................................. 14
Yield and Total Return Quotations..................... 16

INVESTMENT RESTRICTIONS, POLICIES AND CERTAIN INVESTMENTS.. 17
Investment Restrictions............................... 17
Investment Policies................................... 19
Certain Investments................................... 20

TAXES...................................................... 38

MONEY MANAGER INFORMATION.................................. 41

RATINGS OF DEBT INSTRUMENTS................................ 43

FINANCIAL STATEMENTS....................................... 49

GLOSSARY................................................... 50
</TABLE>
<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 a registered open-end management investment company of the
diversified type.

RIF is authorized to issue Shares of beneficial interest ("Shares"), 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 an 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 (i) by 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

1
<PAGE>

should review their prospectus for their Policies to determine their rights and
responsibilities, and to ascertain when the Insurance Company may disregard
voting instructions.

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 the
following Funds at March 31, 2000:

Aggressive Equity Fund - Northwestern Mutual Life Insurance Company NML
Account, Attn: Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI
53202-4797, 39.23%, record; Northwestern Mutual Life Insurance Company Account
B, Attn: Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI 53202-
4797, 21.86%, record; Security Equity Life Insurance Co., c/o Conning Asset
Management Co., Attn: Bonnie Harris Mail Code H3-1, 700 Market Street, Saint
Louis, MO 63101-1829, 11.32%, record; Cova Financial Services Life Insurance
Co., D/B/A Cova Variable Annuity Account One, One Tower Lane, Suite 3000,
Oakbrook Terrace, IL 60181-4644, 8.98%, record; Northwestern Mutual Life
Insurance Company Variable Life Account, Attn: Mutual Fund Accounting, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202-4797, 7.93%, record.

Core Bond Fund - Cova Financial Services Life Insurance Co., D/B/A Cova
Variable Annuity Account One, One Tower Lane, Suite 3000, Oakbrook Terrace, IL
60181-4644, 32.06%, record; Northwestern Mutual Life Insurance Company NML
Account, Attn: Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI
53202-4797, 22.23%, record; Northwestern Mutual Life Insurance Company Account
B, Attn: Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI 53202-
4797, 20.01%, record; General American Life Insurance, 700 Market Street, St.
Louis, MO 63101-1887, 10.76%, record; Security Equity Life Insurance Co., c/o
Conning Asset Management Co., Attn: Bonnie Harris Mail Code H3-1, 700 Market
Street, Saint Louis, MO 63101-1829, 5.18%, record.

Multi-Style Equity Fund - Northwestern Mutual Life Insurance Company NML
Account, Attn: Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI
53202-4797, 31.94%, record; Northwestern Mutual Life Insurance Company Account
B, Attn: Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI 53202-
4797, 21.70%, record; Cova Financial Services Life Insurance Co., D/B/A Cova
Variable Annuity Account One, One Tower Lane, Suite 3000, Oakbrook Terrace, IL
60181-4644, 19.01%, record; Security Equity Life Insurance Co., c/o Conning
Asset Management Co., Attn: Bonnie Harris Mail Code H3-1, 700 Market Street,
Saint Louis, MO 63101-1829, 8.66%, record; Northwestern Mutual Life Insurance
Company Variable Life Account, Attn: Mutual Fund Accounting, 720 E. Wisconsin
Avenue, Milwaukee, WI 53202-4797, 6.70%, record; General American Life
Insurance, 700 Market Street, St. Louis, MO 63101-1887, 5.21%, record.

Non-US Fund - Northwestern Mutual Life Insurance Company NML Account, Attn:
Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI 53202-4797,
57.06%, record; Northwestern Mutual Life Insurance Company Account B, Attn:
Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI 53202-4797,
17.36%, record; Cova Financial Services Life Insurance Company, D/B/A Cova
Variable Annuity Account One, One Tower Lane, Suite 3000, Oakbrook Terrace, IL
60181-4644, 11.12%, record; Northwestern Mutual Life Insurance Company
Variable Life Account, Attn: Mutual Fund Accounting, 720 E. Wisconsin Avenue,
Milwaukee, WI 53202-4797, 5.43%, record.

Real Estate Securities Fund - Northwestern Mutual Life Insurance Company NML
Account, Attn: Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI
53202-4797, 79.39%, record; Northwestern Mutual Life Insurance Company Account
B, Attn: Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI 53202-
4797, 14.35%, record.

2
<PAGE>

The following shareholders could be deemed to "control" the following Funds
because such shareholders owned 5% or more of the voting Shares of the indicated
Funds at March 31, 2000:

Aggressive Equity Fund - Northwestern Mutual Life Insurance Company NML
Account, Attn: Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI
53202-4797, 39.23%, record.

Core Bond Fund - Cova Financial Services Life Insurance Co., D/B/A Cova
Variable Annuity Account One, One Tower Lane, Suite 3000, Oakbrook Terrace, IL
60181-4644, 32.06%, record.

Multi-Style Equity Fund - Northwestern Mutual Life Insurance Company NML
Account, Attn: Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI
53202-4797, 31.94%, record.

Non-US Fund - Northwestern Mutual Life Insurance Company NML Account, Attn:
Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI 53202-4797,
57.06%, record.

Real Estate Securities Fund - Northwestern Mutual Life Insurance Company NML
Account, Attn: Mutual Fund Accounting, 720 E. Wisconsin Avenue, Milwaukee, WI
53202-4797, 79.39%, record.

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 $40,000 for the year ended December 31,
1999 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.

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.

3
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Name, Age, Position(s) Held Principal Occupation(s)
Address with Fund During the Past 5 Years
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*George F. Russell, Trustee Emeritus and Also currently: Trustee Emeritus and Chairman Emeritus, Frank
Jr., Born July 3, 1932 Chairman Emeritus Russell Investment Company; Director, Chairman of the Board
since 1998. and Chief Executive Officer, Russell Building Management
909 A Street Company, Inc.; Director and Chairman of the Board, Frank
Tacoma, Washington Russell Company; Director and Chairman of the Board, Frank
98402-1616 Russell Investments (Delaware), Inc.; Chairman
Emeritus/Director Emeritus, Frank Russell Trust Company;
Chairman Emeritus, Frank Russell Securities, Inc.; Director
Emeritus, Frank Russell Investment Management Company;
Director, Chairman of the Board and President, Russell 20/20
Association. From 1984 to December 1998, Trustee and Chairman
of the Board of FRIC. From August 1996 to December 1998,
Trustee and Chairman of the Board of Russell Insurance Funds.
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
*Lynn L. Anderson, Trustee, President Also currently: Trustee, President and Chief Executive
Born April 22, 1939 and Chief Executive Officer, Frank Russell Investment Company; Director, Chief
Officer since 1987. Executive Officer and Chairman of the Board, Russell Fund
909 A Street Distributors, Inc.; Trustee, Chairman of the Board,
Tacoma, Washington President, The SSgA Funds (investment company); Director and
98402-1616 Chairman of the Board, Frank Russell Investment Management
Company; Chairman of the Board, 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.; 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, Trustee since 1984. Also currently: Trustee, Frank Russell Investment Company.
Born October 15, 1931 1996 to present, President, Anderson Management Group LLC
(architectural design and manufacturing). 1984 to 1996,
23 Forest Glen Lane President, Vancouver Door Company, Inc.
Tacoma, Washington
98409
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Paul Anton, Ph.D., Trustee since 1985. Also currently: Trustee, Frank Russell Investment Company.
Born December 1, 1919 President, Paul Anton and Associates (Marketing Consultant on
emerging international markets for small corporations).
PO Box 212 1991-1994, Adjunct Professor, International Marketing,
Gig Harbor, Washington University of Washington, Tacoma, Washington.
98335
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>

4
<PAGE>

800 North C Street
Tacoma, Washington 98403
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Kristianne Blake Trustee since 2000. Also currently: Trustee, Frank Russell Investment Company;
Born January 22, 1954 President, Kristianne Gates Blake, P.S.; Trustee, WM Group of
Funds; Trustee, William H. & Mary M. Gates Charitable
P.O. Box 28338 Remainder Annuity Trust.
Spokane, Washington
99228
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Lee C. Gingrich, Trustee since 1984. Also currently: Trustee, Frank Russell Investment Company and
Born October 6, 1930 President, Gingrich Enterprises, Inc. (Business and Property
Management).
1730 North Jackson
Tacoma, Washington
98406
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Eleanor W. Palmer, Trustee since 1984. Also currently: Trustee, Frank Russell Investment Company and
Born May 5, 1926 Director of Frank Russell Trust Company. Retired.

2025 Narrows View
Circle #232-D, P.O.
Box 1057
Gig Harbor, Washington
98335
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Raymond P. Tennison, Jr. Trustee since 2000. Also currently: Trustee, Frank Russell Investment Company and
Born December 21, 1955 President, Simpson Investment Company and several additional
subsidiary companies, including Simpson Timber Company,
1301 Fifth Avenue Simpson Paper Company and Simpson Tacoma Kraft Company. Prior
Suite 2800 to July 1997, President and Board member, Simpson Paper
Seattle, Washington Company. Trustee, Simpson Employee Retirement Fund.
98101
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
</TABLE>

5
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Name, Age, Position(s) Held Principal Occupation(s)
Address with Fund During the Past 5 Years
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Mark E. Swanson, Treasurer and Chief Also currently: Treasurer and Chief Accounting Officer, Frank
Born November 26, 1963 Accounting Officer Russell Investment Company; Director, Fund Administration
since 1998. Frank Russell Trust Company; Treasurer, Assistant Secretary
909 A Street and Principal Accounting Officer, SSgA Funds (investment
Tacoma, Washington company); Director of Fund Administration, Frank Russell
98402-1616 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, SSgA Funds; February 1997 to July 1998, Manager,
Funds Accounting and Taxes, Frank Russell Investment
Management Company.
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
*Randall P. Lert, Director of Also currently: Director of Investments, Frank Russell
Born October 3, 1953 Investments since Investment Company; Chief Investment Officer, Frank Russell
1991. Trust Company; Director and Chief Investment Officer, Frank
909 A Street Russell Investment Management Company; Director and Chief
Tacoma, Washington Investment Officer, Russell Fund Distributors, Inc.;
98402-1616 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 1990 to November 1995,
Director of Investments of Frank Russell Investment
Management Company.
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
*Karl J. Ege, Secretary and General Also currently: Secretary and General Counsel of Frank
Born October 8, 1941 Counsel since 1994. Russell Investment Company; Director, Secretary and General
Counsel, Russell Real Estate Advisors, Inc. and Frank Russell
909 A Street Capital, Inc.; Secretary, General Counsel and Managing
Tacoma, Washington Director--Law and Government Affairs of Frank Russell
98402-1616 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 Insurance Agency, Inc., Frank Russell Investments
(Delaware), Inc., A Street Investment Associates, Inc.,
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 of Frank Russell Investment Company LLC, Frank
Russell Securities, Inc., Frank Russell Company PTY, Limited,
Frank Russell Institutional Funds plc, Frank Russell
Qualifying Investor Fund, Russell Investment Management Ltd.,
Frank Russell Investment Company PLC, Frank Russell
Investments (Ireland) Limited, Frank Russell Investment
(Japan), Ltd., 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. April 1992 to December, 1998, Director, Frank
Russell Company.
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>

6
<PAGE>

TRUSTEE COMPENSATION TABLE

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Pension or
Aggregate Retirement Benefits Estimated Annual Total Compensation
Trustee Compensation from Accrued as part of Benefits Upon from RIF Paid to
RIF RIF Expenses Retirement Trustees
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lynn L. Anderson $ 0 $0 $0 $ 0
--------------------------------------------------------------------------------------------------------------------
Paul E. Anderson $8,000 $0 $0 $38,000*
--------------------------------------------------------------------------------------------------------------------
Paul Anton, PhD. $8,000 $0 $0 $38,000*
--------------------------------------------------------------------------------------------------------------------
William E. Baxter $8,000 $0 $0 $38,000*
--------------------------------------------------------------------------------------------------------------------
Kristianne Blake $ 0 $0 $0 $ 0
--------------------------------------------------------------------------------------------------------------------
Lee C. Gingrich $8,000 $0 $0 $38,000*
--------------------------------------------------------------------------------------------------------------------
Eleanor W. Palmer $8,000 $0 $0 $38,000*
--------------------------------------------------------------------------------------------------------------------
Raymond P. Tennison, Jr. $ 0 $0 $0 $ 0
--------------------------------------------------------------------------------------------------------------------
</TABLE>

* Received $30,000 each for service on the Frank Russell Investment Company
Board.

OPERATION OF RIF

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.

7
<PAGE>

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 Emeritus of RIF,
is the Chairman of the Board of Russell. FRIMCo is a wholly owned subsidiary of
Frank Russell Company.

Frank Russell Company 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 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.

8
<PAGE>

The following Funds paid FRIMCo the listed management fees before waivers and/or
reimbursements, for the years ended December 31, 1997, 1998 and 1999:

<TABLE>
<CAPTION>
12/31/99 12/31/98 1997
---------- ---------- --------
<S> <C> <C> <C>
Multi-Style Equity $1,357,070 $ 361,287 $150,747
Aggressive Equity 566,708 186,597 116,490
Real Estate Securities 286,897 -- --
Non-U.S. 1,006,593 130,606 61,283
Core Bond 347,592 118,852 43,221
</TABLE>

FRIMCo has contractually 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 contractually 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:

MANAGEMENT CUSTODIAN FEES TOTAL EXPENSE
EXPENSE CAP 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-U.S. 1.30 35,823 116,412 152,235
Core Bond 0.80 43,221 64,682 107,903
<CAPTION>
The expense caps and waivers as of December 31, 1998 were as follows:

MANAGEMENT REIMBURSED TOTAL EXPENSE
EXPENSE CAP FEES WAIVED BY FRIMCo REDUCTION
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Multi-Style Equity 0.92% $132,360 ------ $132,360
Aggressive Equity 1.25 82,680 ------- 82,680
Non-U.S. 1.30 130,606 $ 16,449 147,055
Core Bond 0.80 95,578 ----- 95,578
<CAPTION>
The expense caps and waivers as of December 31, 1999 were as follows:

MANAGEMENT REIMBURSED TOTAL EXPENSE
EXPENSE CAP FEES WAIVED BY FRIMCo REDUCTION
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Multi-Style Equity 0.92% $ 22,022 -- $ 22,022
Aggressive Equity 1.25 51,002 -- 51,002
Real Estate Securities 1.15 -- -- --
Non-U.S. 1.30 214,869 -- 214,869
Core Bond 0.80 31,865 -- 31,865
</TABLE>

FRIMCo is a wholly-owned subsidiary of Frank Russell Company, a subsidiary of
The Northwestern Mutual Life Insurance Company. FRIMCo's mailing address is 909
A Street, Tacoma, WA 98402.

MONEY MANAGERS. The money managers have no affiliations or relationships with
RIF or FRIMCo, other than as discretionary managers for all or a portion of a
Fund's portfolio, except some money managers (and their affiliates) may effect
brokerage transactions for the Funds (see, "Brokerage Allocations" and
"Brokerage Commissions"). 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

9
<PAGE>

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 years ended
December 31, 1997, 1998 and 1999, management fees paid to the money managers
were:

<TABLE>
<CAPTION>
Annual rate
Fund $ Amount Paid (as a % of average daily net assets)
---------------------- -------------------------------------------------- --------------------------------------------

1999 1998 1997 1999 1998 1997
---------------- --------------- --------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Multi-Style Equity $312,678 $95,629 $45,969 0.18% 0.21% 0.24%
Aggressive Equity 244,240 85,546 65,076 0.41 0.44 0.53
Real Estate Securities 89,570 -- -- 0.18 -- --
Non-U.S. 354,658 46,042 23,814 0.34 0.33 0.37
Core Bond 85,719 32,036 13,536 0.15 0.16 0.19
</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 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.

10
<PAGE>

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, which is based upon
the number of shareholder accounts and total assets of the Funds, 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 auditing standards and tax returns. The
mailing address of PricewaterhouseCoopers LLP is 1800 First Interstate Center,
999 Third Avenue, Seattle, WA 98104-4098.

CODES OF ETHICS. RIF, FRIMCo and RFD have each adopted a Code of Ethics as
required under SEC Rule 17j-1. These Codes permit personnel subject to the
Codes to invest in securities, which may include securities in which the Funds
can invest. Personal investments are subject to the regulatory and disclosure
provisions of the respective Codes. In addition, each Money Manager has adopted
a Code of Ethics under Rule 17j-1. The table below indicates whether each Money
Manager's Code of Ethics permits personnel covered by the Code to invest in
securities and, where appropriate, to invest in securities in which a Fund
advised by that Money Manager may invest.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Is personal Are investments in securities owned by the
Money Manager investing allowed? advised Fund allowed?
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
AEW Capital Management, L.P. Yes No
----------------------------------------------------------------------------------------------------------
Alliance Capital Management L.P. Yes Yes, but not in securities with pending or
possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
Barclays Global Fund Advisors Yes Yes, but not in securities with pending or
N.A. possible client buy or sell orders and certain
blackouts apply to securities of Barclays PLC
and securities underwritten by Barclays
affiliates
----------------------------------------------------------------------------------------------------------
The Boston Company Asset Yes Yes, but not in securities with pending or
Management possible client buy or sell orders, also,
certain persons may not purchase securities
issued by financial services organizations
----------------------------------------------------------------------------------------------------------
CapitalWorks Investment Partners Yes Yes, but not in securities with pending or
possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
Cohen & Steers Yes Yes, but not in securities with pending or
possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
Geewax, Terker & Company Yes Yes, but not in securities with pending or
possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
Jacobs Levy Equity Management, Yes Yes, but not in securities with pending or
Inc. possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
J.P. Morgan Investment Yes Cannot purchase securities on a restricted list
Management, Inc. or securities of financial services organizations
----------------------------------------------------------------------------------------------------------
Montgomery Asset Management LLC Yes Yes, but not in securities with pending or
possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
Oechsle International Advisors, Yes Yes, but not in securities with pending or
LLC possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
Pacific Investment Management Yes Yes, but not in securities with pending or
Company possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
Peachtree Asset Management Yes Yes, but not in securities with pending or
possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
Security Capital Global Capital Yes Yes, but not in securities with pending or
Management Group possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
</TABLE>

11
<PAGE>

<TABLE>
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Standish, Ayer & Wood, Inc. Yes Cannot purchase securities on a restricted list
----------------------------------------------------------------------------------------------------------
Strong Capital Management Yes Yes, but not in securities with pending or
possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
Turner Investment Partners Yes Yes, but not in securities with pending or
possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
Westpeak Investment Advisors, Yes Yes, but not in securities with pending or
L.P. possible client buy or sell orders
----------------------------------------------------------------------------------------------------------
</TABLE>

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.

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.

12
<PAGE>

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

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

PORTFOLIO TURNOVER RATE. The portfolio turnover rate for each Fund is calculated
by dividing the lesser of purchases or sales of portfolio securities for the
particular year, by the monthly average value of the portfolio securities owned
by the Fund during the past 13 months. For purposes of determining the rate, all
short-term securities, including options, futures, forward contracts, and
repurchase agreements, are excluded. Significant variations in the portfolio
turnover rates for any Fund generally are primarily attributable to money
manager changes, market volatility, and duration of portfolio investments.

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

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
------------------ ------------------
<S> <C> <C>
Multi-Style Equity 67.67% 78.89%
Aggressive Equity 111.46 79.88
Real Estate Securities 23.98 --
Non-U.S. 83.45 50.36
Core Bond 139.06 75.95
</TABLE>

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

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

13
<PAGE>

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 the 1940 Act.

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

FRIMCo and each Money Manager arrange 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 and each Money Manager 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 and each Money Manager to supplement its own
research and analysis.

The Funds may effect portfolio transactions with or through Frank Russell
Securities, Inc. ("FRS"), an affiliate of FRIMCo, only when the applicable money
manager determines that the Fund will receive competitive execution, price and
commissions. Where brokerage transactions are effected by money managers on
behalf of the Funds through FRS at the request of FRIMCo, research services
obtained from third party service providers at market rates are provided to the
Funds by FRS. Such research services include performance measurement statistics,
fund analytics systems and market monitoring systems. This arrangement may be
used by the Multi-Style Equity, Aggressive Equity, Non-US and Real Estate
Securities Funds. All Funds may also effect portfolio transactions on an agency
basis through, and pay brokerage commissions to, brokerage affiliates of the
money managers.

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

14
<PAGE>

attributable to a particular transaction may benefit one or more other accounts
for which investment discretion is exercised by the money manager, or a Fund
other than that for which the particular portfolio transaction was effected. The
fees of the money managers are not reduced by reason of their receipt of such
brokerage and research services.

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

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998 1997
---------- --------- --------
<S> <C> <C> <C>
Multi-Style Equity* $ 311,283 $ 77,870 $36,614
Aggressive Equity* 167,564 21,613 39,991
Real Estate Securities** 172,975 -- --
Non-U.S.* 579,446 47,795 22,186
-------- -------

Total $1,231,268 $142,278 $98,791
========== ======== =======
</TABLE>

* Commenced operations on January 2, 1997.
** Commenced operations on May 1, 1999.

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.

During the year ended December 31, 1999, 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, 1999 from
portfolio transactions effected for the Funds were as follows:

<TABLE>
<CAPTION>
Affiliated Broker/Dealer Commissions Percent of Total Commissions
------------------------ ----------- ----------------------------
<S> <C> <C>
Frank Russell Securities $178,651 14.51%
J.P. Morgan 12,106 0.98
Salomon Smith Barney 7,079 0.57
Commerz Bank 4,155 0.34
Sanford C. Bernstein 2,933 0.24
Donaldson, Lufkin & Jenrette 2,976 0.24
Autranet 1,955 0.16
Robert Baird 633 0.05
Robinson Humphry 105 0.01
--------
Total Affiliated Commissions $210,683
========
</TABLE>

The percentage of total affiliated transactions (relating to trading activity)
to total transactions during the year ended 1999 for the Funds was 17.0%.

During the year ended December 31, 1999 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, 1999 was as
follows:

15
<PAGE>

<TABLE>
<CAPTION>
Merrill Morgan Bear Paine Goldman Salomon
Fund Lynch Stanley Sterns Webber Sachs Smith Barney
------ ---------- ---------- -------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Multi-Style Equity $400,800 $3,740,050 $523,687 $95,055 $423,844 --
Core Bond 322,287 1,406,146 -- -- 200,650 $587,555
</TABLE>

At December 31, 1999 the Funds did not have any holdings in the following top 10
broker-dealers:

Bridge Trading Company
Frank Russell Securities, Inc.
Instinet Corp.
Warburg Dillon Read

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).

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 for periods other than 1, 5 or 10 years or since
inception.

16
<PAGE>

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.

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 subject to legal or contractual restrictions on disposition.

17
<PAGE>

10. 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. Purchase the securities of other investment companies except to the extent
permitted by the 1940 Act, and any applicable rules and regulations and except
as permitted by any applicable exemptive orders from the 1940 Act.

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

Additionally, as a non-fundamental investment policy, no Fund will issue senior
securities in contravention of Section 18 of the 1940 Act. As noted in Item 7,
above, the Fund may borrow to facilitate redemptions.

18
<PAGE>

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 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
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 X X X X X
assets)..................................................
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) Each of the Non-U.S. and Core Bond Funds 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.

19
<PAGE>

Cash Reserves. Each Fund, and its money managers, may elect to invest the
-------------
Fund's cash reserves in one or more affiliated or unaffilitated money market
funds. Such investment will not exceed 15% of the investing Fund's net assets.

If the Funds invest in affiliated money market funds, they will do so only so
long as it does not adversely affect the portfolio management and operations of
the money market funds. The affiliated money market funds, and the Funds
investing in them, treat such investments as the purchase and redemption of a
money market fund's shares. Any Fund investing in an affiliated money market
fund pursuant to this procedure participates equally on a pro rata basis in all
income, capital gains, and net assets of the money market fund, and will have
all rights and obligations of a shareholder, including voting rights. However,
shares of an affiliated money market fund issued to the Funds will be voted by
RIF's Trustees in the same proportion as the shares of the money market fund
that are held by shareholders that are not Funds. Funds investing in affiliated
money market fund effectively do not pay an advisory or administrative fee to a
money market fund and thus do not pay duplicative advisory or administrative
fees, as FRIMCo waives a portion of its advisory or administrative fees due from
those Funds in an amount that offsets the advisory or administrative fees it
receives from the applicable affiliated money market fund in respect of those
investments.

Liquidity Portfolio. 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. FRIMCo will exercise investment discretion or select a money manager
to exercise investment discretion for approximately 5-15% of the Funds' assets
assigned to a "Liquidity Portfolio."

A Liquidity Portfolio addresses this potential detriment by having FRIMCo, or
a money manager selected for this purpose, create a temporary 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 that of 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 a Fund have a total value in excess of the value of the
repurchase agreement and are held by the Custodian 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
Funds will limit repurchase transactions to those member banks of the Federal
Reserve System and primary dealers in US government securities whose
creditworthiness is continually monitored and found satisfactory by 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 manager to be inconvenient or
disadvantageous. A reverse repurchase agreement is a transaction whereby a Fund
transfers possession of a portfolio security to a bank or broker-dealer in
return for a percentage of the portfolio 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 a 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.

20
<PAGE>

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

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

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. For further description of the various rating categories, see "Ratings of
Debt Instruments."

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

In addition, the markets in which low rated debt securities are traded are
generally thinner, more limited and less active than those for higher rated
securities. The existence of limited markets for particular securities may
diminish a Fund's ability to sell the securities at fair value either to meet
redemption requests

21
<PAGE>

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
Fund's Shares.

Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated securities may be more complex than for
issuers of other investment grade securities, and the ability of a 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 Funds may use ratings to assist in investment
decisions. Ratings of debt securities represent a rating agency's opinion
regarding their quality and are not a guarantee of quality. Rating agencies
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies may
fail to make timely changes in credit ratings in response to subsequent events,
so that an issuer's current financial condition may be better or worse than a
rating indicates.

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 of more
than seven days' duration, that are illiquid by virtue of the absence of a
readily available market or because of legal or contractual restrictions on
resale. In addition, the Funds will not invest more than 10% of their respective
net assets (taken at current value) in securities of issuers which may not be
sold to the public without registration under the Securities Act of 1933, as
amended (the "1933 Act"). These policies do not include (1) commercial paper
issued under Section 4(2) of the 1933 Act, or (2) restricted securities eligible
for resale to qualified institutional purchasers pursuant to Rule 144A under the
1933 Act that are determined to be liquid by the money managers in accordance
with Board approved guidelines. These guidelines adopted by the Board for the
determination of liquidity of securities take into account trading activity for
such securities and the availability of reliable pricing information, among
other factors. If there is a lack of trading interest in a particular Rule 144A
security, 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.

The expenses of registration of restricted securities that are illiquid
(excluding securities that may be resold by the Funds pursuant to Rule 144A, as
explained in the respective Prospectuses) 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, a Fund may not be able to obtain as
favorable a price as that prevailing at the time of the decision to sell. A Fund
also may acquire, through private placements, securities having contractual
resale restrictions, which might lower the amount realizable upon the sale of
such securities.

Forward Commitments. A Fund may contract to purchase securities for a fixed
-------------------
price at a future date beyond customary settlement time (a "forward commitment"
or "when-issued" transaction) so long as such transactions are consistent with
the Fund's ability to manage its investment portfolio and meet redemption
requests. A Fund may dispose of a forward 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, liquid assets 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 a Fund
if the other party to the "free

22
<PAGE>

trade" transaction fails to complete the transaction after a Fund has tendered
cash payment or securities, as the case may be.

Lending Portfolio Securities. Cash collateral received by a Fund when it
----------------------------
lends its portfolio securities is invested in high-quality short-term debt
instruments, short-term bank collective investment and money market mutual funds
(including funds advised by the Custodian, for which it may receive an asset-
based fee), and other investments meeting certain quality and maturity
established by the Funds. Income generated from the investment of the cash
collateral is first used to pay the rebate interest cost to the borrower of the
securities then to pay for lending transaction costs, and then the remainder is
divided between the Fund and the lending agent.

Each 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. A Fund will call loans to vote proxies if a
material issue affecting the investment is to be voted upon.

A Fund 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, a 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 RIF's 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).

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
purchaser of the option, in return for a premium, the right (but not the
obligation) 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 at a specified
exercise price at any time during the option period. The writer of an option on
a security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier
(established by the exchange upon which the stock index is traded) 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

23
<PAGE>

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 the 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 the 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 of the call written, provided the difference is
maintained by the Fund in liquid assets in a segregated account with the
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
the 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 the
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 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 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

24
<PAGE>

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.

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.

Options On Foreign Currency. A Fund may buy and sell 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-traded options.

Futures Contracts And Options On Futures Contracts. A Fund may invest in
--------------------------------------------------
interest rate futures contracts, foreign currency futures contracts, or stock
index futures contracts, and options thereon that are traded on a US or foreign
exchange or board of trade, as specified in the Prospectuses. 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 financial
instruments (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

25
<PAGE>

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.

Each Fund may also purchase and write call and put options on futures
contracts. Options on futures contracts possess many of the same characteristics
as options on securities and indexes (discussed above). A futures option gives
the holder the right, in return for the premium paid, to assume a long position
(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.

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

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

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

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

When a purchase or sale of a futures contract is made by a Fund, the Fund is
required to deposit with the Custodian (or broker, if legally permitted) a
specified amount of cash or US government securities ("initial margin"). The
margin required for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the contract. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract which is returned to the 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

26
<PAGE>

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 the 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 equal to or higher than the price of the contract held by the Fund.

When selling a futures contract, a Fund will maintain with the Custodian (and
mark-to-market on a daily basis) liquid assets that, when added to the amount
deposited with a futures commission merchant as margin, are equal to the market
value of the instruments underlying the contract. Alternatively, the Fund may
"cover" its position by owning the instruments underlying the contract (or, in
the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Custodian).

When selling a call option on a futures contract, a Fund will maintain with
the 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 the
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.

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<PAGE>

In order to comply with applicable regulations of the Commodity Futures
Trading Commission ("CFTC") pursuant to which the Funds avoid being deemed to be
"commodity pools," the Funds are limited in entering into futures contracts and
options on futures contracts to positions which constitute "bona fide hedging"
positions within the meaning and intent of applicable CFTC rules, and with
respect to positions for non-hedging purposes, to positions for which the
aggregate initial margins and premiums will not exceed 5% of the net assets of a
Fund as determined under the CFTC Rules.

The requirements for qualification as a regulated investment company also may
limit the extent to which 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 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 portfolio 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 creditworthiness of issuers. An incorrect
correlation could result in a loss on both the hedged securities in a Fund and
the hedging vehicle so that the portfolio return might have been greater had
hedging not been attempted. 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 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 Contract And Options Thereon.
Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States; may not involve a clearing mechanism and related guarantees, and
are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be
adversely affected by (1) other complex foreign, political, legal and economic
factors, (2) lesser availability than in the United States of data on which to
make trading decisions, (3) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (5) lesser
trading volume.

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<PAGE>

Hedging Strategies. Stock index futures contracts may be used by the Funds,
------------------
other than the Core Bond Fund, as an "equitization" vehicle for cash reserves
held by the Funds. For example: equity index futures contracts are purchased to
correspond with the cash reserves in each of the Funds. As a result, a Fund will
realize gains or losses based on the performance of the equity market
corresponding to the relevant indexes for which futures contracts have been
purchased. Thus, each Fund's cash reserves will always 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 and/or sell a call option on a stock index
futures contract instead of selling a futures contract in anticipation of market
decline. Purchasing a call and/or selling a put option on a stock index futures
contract is used instead of buying a futures contract in anticipation of a
market advance, or to temporarily create an equity exposure for cash balances
until those balances are invested in equities. Options on financial futures are
used in a similar manner in order to hedge portfolio securities against
anticipated changes in interest rates.

When purchasing a futures contract, a Fund will maintain with the 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, a 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.

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

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

The Funds may sell a foreign currency futures contract to hedge against
possible variations in the exchange rate of the foreign currency in relation to
the US dollar. When a 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 Funds may also purchase call or put options on
foreign currency futures contracts to obtain a fixed foreign exchange rate. The
Funds 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 Funds 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 the Fund's hedging strategy.

29
<PAGE>

In addition, foreign currency options and foreign currency futures involve
additional risks. Such transactions may not be regulated as effectively as
similar transactions in the United States; may not involve a clearing mechanism
and related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
positions could also be adversely affected by (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.

Forward Foreign Currency Exchange Transactions ("Forward Currency Contracts").
-----------------------------------------------------------------------------
The Funds may engage in forward currency contracts to hedge against uncertainty
in the level of future exchange rates. The Funds will conduct their forward
foreign currency exchange transactions either on a spot (i.e. cash) basis at the
rate prevailing in the currency exchange market, or through entering into
forward currency exchange contracts ("forward contract") to purchase or sell
currency at a future date. A forward contract involves an obligation to
purchase or sell a specific currency. 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 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, a 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 a 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.

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<PAGE>

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

The cost to a 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 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

31
<PAGE>

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. A 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 investments in ADRs, ADSs and EDRs will be deemed to be
investments in the equity securities representing securities of foreign issuers
into which they may be converted.

ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some 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 US 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 enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
Funds may invest in sponsored and unsponsored ADRs.

Bank Instruments. The Core Bond Fund may invest in bank instruments, which
----------------
include European certificates of deposit ("ECDs"), European time deposits
("ETDs") and Yankee Certificates of deposit ("Yankee CDs"). ECDs, ETDs, and
Yankee CDs are subject to somewhat different risks from the obligations of
domestic banks. ECDs are dollar denominated certificates of deposit issued by
foreign branches of US and foreign banks; ETDs are US dollar denominated time
deposits in a foreign branch of a US bank or a foreign bank; and Yankee CDs are
certificates of deposit issued by a US branch of a foreign bank denominated in
US dollars and held in the United States. Different risks may also exist for
ECDs, ETDs, and Yankee CDs because the banks issuing these instruments, or their
domestic or foreign branches, are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as reserve requirements, loan
limitations, examinations, accounting, auditing and recordkeeping, and the
public availability of information. These factors will be carefully considered
by the money managers when evaluating credit risk in the selection of
investments for the Core Bond Bond Fund.

Indexed Commercial Paper. Indexed commercial paper is US-dollar denominated
------------------------
commercial paper the yield of which is linked to certain foreign exchange rate
movements. The yield to the investor on indexed commercial paper is established
at maturity as a function of spot exchange rates between the US 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 US-dollar denominated

32
<PAGE>

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 US 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 and 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 US government agencies or instrumentalities described
in (2)(b), (2)(c) and (2)(d) in the future, other than as set forth above, since
it is not obligated to do so by law. Accordingly, such US government
obligations may involve risk of loss of principal and interest. The Funds may
invest in fixed-rate and floating or variable rate US government obligations.
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 of 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 US 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 securities' 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 (1) do not pay current interest and are issued at a substantial discount
from par value, (2) have been stripped of their unmatured interest coupons and
receipts or (3) pay no interest until a stated date one or more years into the
future. These securities also include certificates representing interests in
such stripped coupons and receipts. Zero coupon securities trade at a discount
from their par value and are subject to greater fluctuations of market value in
response to changing interest rates.

Mortgage-Related And Other Asset-Backed Securities. The forms of mortgage-
--------------------------------------------------
related and other asset-backed securities the 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 US government corporation within
the Department of Housing and Urban Development. Government-related issuers
include the Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the United States created pursuant to an Act of Congress, and
which is owned entirely by the Federal Home Loan Banks, and the Federal National
Mortgage Association ("FNMA"), a government sponsored corporation owned entirely
by private stockholders. Commercial banks, savings and loan institutions,
private mortgage insurance companies,

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<PAGE>

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 passthrough 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, the 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.

Loan Participations. The Funds may purchase participations in commercial
-------------------
loans. Such indebtedness may be secured or unsecured. Loan participations
typically represent direct participation in a loan to a corporate borrower, and
generally are offered by banks or other financial institutions or lending
syndicates. In purchasing the loan participations, a Fund assumes the credit
risk associated with the corporate buyer and may assume the credit risk
associated with the interposed bank or other financial intermediary. The
participation may not be rated by a nationally recognized rating service.
Further, loan participations may not be readily marketable and may be subject to
restrictions on resale.

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

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

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

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

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

34
<PAGE>

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 long-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 US Treasury securities as
a result of a refinancing by the issuer. The bonds are escrowed for
retirement either at original maturity or at an earlier call date.

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

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

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

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

35
<PAGE>

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 a 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.

Interest Rate Transactions. The Core Bond Fund may enter into interest rate
--------------------------
swaps, on either an asset-based or liability-based basis, depending on whether
it is hedging its assets or its liabilities, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with the Fund receiving or paying, as the case may be, only the net amount
of the two payments. When a fund engages in an interest rate swap, it exchanges
its obligations to pay or rights to receive interest payments for the
obligations or rights to receive interest payments of another party (i.e., an
exchange of floating rate payments for fixed rate payments). The Fund expects
to enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolios or to protect against any
increase in the price of securities it anticipates purchasing at a later date.
Inasmuch as these hedging transactions are entered into for good faith hedging
purposes, the money managers and the Fund believes such obligations do not
constitute senior securities and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions. The net amount of the excess, if
any, of the Fund's obligations over its entitlements with respect to each
interest rate swap will be accrued on a daily basis and an amount of cash or
liquid high-grade debt securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated account by the
Fund's custodian. To the extent that the Fund enters into interest rate swaps
on other than a net basis, the amount maintained in a segregated account will be
the full amount of the Fund's obligations, if any, with respect to such interest
rate swaps, accrued on a daily basis. The Fund will not enter into any interest
rate swaps unless the unsecured senior debt or the claims-paying ability of the
other party thereto is rated in the highest rating category of at least one
nationally recognized rating organization at the time of entering into such
transaction. If there is a default by the other party to such a transaction,
the Fund will have contractual remedies pursuant to the agreement related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid.

The use of interest rate swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If a money manager using this technique is
incorrect in its forecast of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish compared to what
it would have been if this investment technique was not used.

The Fund may only enter into interest rate swaps to hedge its portfolio.
Interest rate swaps do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Fund is contractually obligated to make. If the other party to an interest rate
swap defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. Since interest
rate swaps are individually negotiated, the Fund expects to achieve an
acceptable degree of correlation between its rights to receive interest on its
portfolio securities and its rights and obligations to receive and pay interest
pursuant to interest rate swaps.

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

36
<PAGE>

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.

Other Debt Securities. The Core Bond Fund may invest in debt securities
---------------------
issued by supranational organizations such as:

The World Bank -- An international bank which was chartered to finance
development projects in developing member countries.

The European Community -- An organization which consists of certain
European states engaged in cooperative economic activities.

The European Coal and Steel Community -- An economic union of various
European nations' steel and coal industries.

The Asian Development Bank -- An international development bank established
to lend funds, promote investment and provide technical assistance to member
nations in the Asian and Pacific regions.

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

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

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<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 November 1, 1999 to December 31, 1999, the Non- U.S., Core Bond and Real
Estate Securities Funds incurred net realized capital losses of $353,830,
$189,912 and $481,589, respectively. As permitted by tax regulations, the
Aggressive Equity and Non-U.S. Funds intend to elect to defer these losses and
treat them as arising in the year ending December 31, 2000.

At December 31, 1999, the Core Bond Fund and the Real Estate Securities Fund had
net tax basis capital loss carryforwards of $1,192,480 and $54,901,
respectively, which expire on December 31, 2007.

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

38
<PAGE>

currencies, and gains and losses attributable to options on foreign currencies,
forward currency contracts and currency futures contracts will be treated as
ordinary income or loss.

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

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
positions that are part of a straddle may be deferred under the straddle rules,
rather than being taken into

39
<PAGE>

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 Sales 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.

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.

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<PAGE>

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. is owned (i) 35.3% by Alliance Capital
Management Holding L.P., a publicly traded limited partnership and (ii)
approximately 62.5% by AXA Financial, Inc. ("AXA Financial"). AXA Financial is
controlled by AXA, a publicly traded insurance holding company. AXA Financial's
indirect wholly-owned subsidiary, Alliance Capital Management Corporation, is
the general partner of Alliance Capital Management L.P. and Alliance Capital
Management Holding L.P.

Barclays Global Fund Advisors N.A. is a wholly-owned subsidiary of Barclays
Global Investors, N.A.

Peachtree Asset Management is a division of SSB Citi Fund Management LLC. SSB
Citi Fund Management LLC is 100% owned by Salomon Smith Barney Holdings, Inc.
which is a wholly owned subsidiary of Citigroup Inc.

Strong Capital Management, Inc. is a corporation controlled by Richard S.
Strong.

Turner Investment Partners Inc. is a corporation controlled by Robert E. Turner.

Westpeak Investment Advisors, LP is a wholly-owned subsidiary of Nvest
Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general partner,
Nvest Corporation, is an indirect, wholly-owned subsidiary of Metropolitan Life
Insurance Company ("MetLife"), which also owned, as of January 31, 1999,
approximately 48% of the limited partnership interests in Nvest Companies.
Nvest Companies' advising general partner, Nvest, L.P., is a publicly-traded
company listed on the New York Stock Exchange.

Aggressive Equity Fund

CapitalWorks Investment Partners, LLC is a liability company controlled by its
members who include John D. Wylie, Jack C. Marshall, Mark J. Correnti and
Donovan T. Garcia.

David J. Greene and Company, LLC, is a limited liability company controlled by
Michael C. Greene and Alan I. Greene.

Geewax, Terker & Company is a general partnership with its general partners,
John J. Geewax and Bruce E Terker, each owning 50% of the firm.

Jacobs Levy Equity Management, Inc. is owned by Bruce Jacobs and Kenneth Levy.

Systematic Financial Management, L.P. is owned 57% by Affiliated Managers Group,
Inc., which is a publicly traded corporation. The remaining 43% is employee
owned.

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.

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<PAGE>

Montgomery Asset Management LLC is a Delaware limited liability company with
majority ownership held by Commerzbank AG, a foreign banking organization.

Oechsle International Advisors is a Delaware limited liability company that is
controlled by its member manager, Oechsle Group, LLC, a Delaware limited
liability company. Oechsle Group, LLC is controlled by the following members:
S. Dewey Keesler, Stephen P. Langer, L. Sean Roche and Warren R. Walker.

The Boston Company Asset Management, LLC is a wholly owned, indirect subsidiary
of Mellon Financial Corporation, a publicly held corporation.

Real Estate Securities Fund

AEW Capital Management, L.P. is a wholly-owned affiliate of Nvest Companies,
L.P. ("Nvest"). Nvest is a publicly held limited partnership. Metropolitan
Life Insurance Company owns approximately 48% of Nvest. AEW Capital Management,
Inc., a wholly-owned subsidiary of Nvest Holdings, Inc., is the general partner,
and Nvest is the sole limited partner of AEW Capital Management, L.P.

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

Security Capital Global Capital Management Group Incorporated is an indirect,
wholly-owned subsidiary of Security Capital, a publicly traded corporation.

Core Bond Fund

Pacific Investment Management Company ("PIMCO") is a subsidiary of PIMCO
Advisors L.P. ("PIMCO Advisors"). The general partners of PIMCO Advisors are
PIMCO Partners, G.P. and PIMCO Advisors Holdings L.P. ("PAH"). PIMCO Partners,
G.P. is a general partnership between PIMCO Holding LLC, a Delaware limited
liability company and indirect wholly-owned subsidiary of Pacific Life Insurance
Company, and PIMCO Partners LLC, a California limited liability company
controlled by the current PIMCO Managing Directors and two former Managing
Directors of PIMCO. PIMCO Partners, G.P. is the sole general partner of PAH.
It is expected that on or about May 5, 2000, Allianz of America, Inc., ("A of
A") will acquire (the "Acquisition") majority ownership of PIMCO Advisors and
its subsidiaries, including PIMCO. After the closing of the Acquisition, A of A
will own approximately 70% of the outstanding partnership interests in PIMCO
Advisors. Pacific Life Insurance Company will retain its approximately 30%
interest in an indirect general partner of PIMCO Advisors. In connection with
the Acquisition, A of A will enter into a put/call arrangement for the possible
disposition of Pacific Life Insurance Company's indirect interest in PIMCO
Advisors.

Standish, Ayer & Wood, Inc. is organized as a Sub-chapter S Corporation and is
100% owned by its twenty-five directors, with no director having more than 25%
ownership.

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RATINGS OF DEBT INSTRUMENTS

CORPORATE AND MUNICIPAL BOND RATINGS.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BB -- Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual implied BBB- rating.

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

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

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

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

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.

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<PAGE>

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

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

STATE, MUNICIPAL NOTES AND TAX EXEMPT DEMAND NOTES.

Moody's:
-------

Moody's rating for state, municipal and other short-term obligations will
be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in bond risk are of lesser importance in the short run. Symbols
used are as follows:

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

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

S&P:
---

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

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

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

Note rating symbols are as follows:

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

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.

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<PAGE>

COMMERCIAL PAPER RATINGS.

Moody's:
-------

Commercial paper rated Prime by Moody's is based upon its evaluation of
many factors, including: (1) management of the issuer; (2) the issuer's
industry or industries and the speculative-type risks which may be inherent
in certain areas; (3) the issuer's products in relation to competition and
customer acceptance; (4) liquidity; (5) amount and quality of long-term
debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the
issue; and (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and
preparations to meet such obligations. Relative differences in these
factors determine whether the issuer's commercial paper is rated Prime-1,
Prime-2, or Prime-3.

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

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

S&P:
---

Commercial paper rated A by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements. Long-term senior
debt is rated A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend
with allowance made for unusual circumstances. Typically, the issuer's
industry is well established and the issuer has a strong position within
the industry. The reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determine whether the
issuer's commercial paper is rated A-1, A-2, or A-3.

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

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

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<PAGE>

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.

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.

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<PAGE>

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.

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.

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<PAGE>

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 1999 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.

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 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

50
<PAGE>

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 Securities Act of1933, as amended (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.

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.

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.

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<PAGE>

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

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 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.

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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

Separate Account -- a segregated asset account of an Insurance Company which
hold Shares of RIF.

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

Statement -- RIF's Statement of Additional Information.

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 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.