Risks of Investing in Equity Securities

Market risk refers to how much the value of a security changes (volatility of price) when conditions in the securities markets change or the economic environment changes. Stocks of companies with smaller market capitalizations generally have more market risk and less liquidity than stocks of companies with larger market capitalizations. Securities that trade over-the-counter may be more difficult to sell than securities traded over a national securities exchange, and they can be less liquid as a result. Loss of money is a risk of investing in any of the Funds.

Financial (or credit) risk refers to the earning stability and overall financial soundness of an issuer of an equity security.

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Risks. An investment in the Aggressive Equity Fund is subject to market risk and financial risk (as defined on page 2). The Aggressive Equity Fund has more market risk and financial risk than certain of the other stock funds of the Investment Company, because it generally invests in small capitalization growth and value equity securities that often trade over-the-counter.

•  The investment results for a particular Fund may be better or worse than the results for the stock markets taken as a whole, depending on the type of securities in which the Fund invests.

•  American Depositary Receipts (ADRs), which are U.S. dollar-denominated and represent the deposit with U.S. banks of the securities of foreign issuers, are subject to the risks of changes in currency or exchange rates (which impact the value of the issuer) and the difficulty assessing economic or political trends in foreign countries.

Note: The Investment Company Board has authorized that this Fund may be closed to new investments on or after July 1, 2005, and the Investment Company has decided to restructure the Aggressive Equity Fund, subject to approval of the Fund's shareholders on or prior to May 1, 2006. Proposed restructuring of this Fund was originally contemplated for July 1, 2005. In the event that the Fund is closed to new investments, prior notice will be provided.

Small Cap Value Fund    (available commencing  on or about July 1, 2005)

Objective. The Fund seeks capital appreciation.

Strategy. The Fund invests primarily in value stocks.

•  The Fund invests in value stocks issued by companies the Adviser believes to be undervalued in the marketplace in relation to factors such as the company's assets, earnings or growth potential.

Risks. An investment in the Small Cap Value Fund is subject to market risk and financial risk (as defined on page 2). The Small Cap Value Fund has more market risk and financial risk than certain of the other stock funds of the Investment Company because it generally invests in small capitalization value equity securities that often trade over-the-counter.

•  The investment results for a particular Fund may be better or worse than the results for the stock markets taken as a whole, depending on the type of securities in which the Fund invests.

Small Cap Growth Fund   (available commencing on or about July 1, 2005)

Objective. The Fund seeks capital appreciation.

Strategy. The Fund invests primarily in growth stocks.

•  The Fund invests in growth stocks issued by companies the Adviser believes to possess above-average growth potential.

Risks of Investing in any of the Bond Funds

Market risk for investments in Bond Funds includes changes in the overall level of interest rates. Interest rate increases usually cause a decline in the value of debt securities, with the amount of the decline greater for securities with longer terms to maturity. For this reason, the Bond Fund has more market risk than the Mid-Term Bond Fund, and the Mid-Term Bond Fund has more market risk than the Short-Term Bond Fund. Investment grade debt securities with lower ratings (such as BBB), which the Bond Fund and the Mid-Term Bond Fund purchase, may be subject to a greater market risk than higher rated debt securities. Below investment-grade securities (rated below BBB), which the Bond Fund and to a lesser extent the Mid-Term Bond Fund may hold, are subject to greater market risk than investment grade debt securities. Zero coupon securities, which the Bond Fund and Mid-Term Bond Fund also may purchase, may be subject to a greater market risk than securities that pay interest on a regular basis. Mortgage-backed securities or certificates, which all of the Funds may purchase and in which the Short-Term Bond Fund from time to time invests a significant portion of its assets, are subject to prepayment risk (shortening the term to maturity) when interest rates fall and to extension risk (lengthening the term to maturity) when interest rates rise.

Credit risk for investments in Bond Funds refers to the ability of the issuer of a security to pay principal and interest as it becomes due. Securities rated BBB or lower generally have more credit risk than higher-rated securities.

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Risks.  An investment in the Small Cap Growth Fund is subject to market risk and financial risk (as defined on page 2). The Small Cap Growth Fund has more market risk and financial risk than certain of the other stock funds of the Investment Company because it generally invests in small capitalization growth equity securities that often trade over-the-counter.

•  The investment results for a particular Fund may be better or worse than the results for the stock markets taken as a whole, depending on the type of securities in which the Fund invests.

Mid Cap Value Fund   (available commencing on or about July 1, 2005)

Objective. The Fund seeks capital appreciation and, to a lesser extent, current income.

Strategy. The Fund invests primarily in value stocks.

•  The Fund invests in value stocks issued by companies with mid-sized market capitalizations (see definition on page 1) that the Advisor believes to be undervalued in the marketplace in relation to factors such as the company's assets, earnings or growth potential

Risks.  An investment in the Mid Cap Value Fund is subject to market risk and financial risk (as defined on page 2).

•  The investment results for a particular Fund may be better or worse than the results for the stock markets taken as a whole, depending on the type of securities in which the Fund invests.

Composite Fund

Objective.  The Fund seeks capital appreciation and current income by investing in a diversified portfolio of common stocks, debt securities and money market instruments.

Strategy.  The portion of the Fund's assets invested in each category of securities will vary, based on the Adviser's view of current economic and market conditions.

•  The investment strategy for the equity portion of the Fund is to invest in stocks in the S&P 500 ^® Index, as selected by the Adviser.

•  The current investment strategy for the fixed income portion of the Fund is to invest primarily in investment-grade debt securities issued by U.S. corporations or by the U.S. Government or its agencies, including mortgage-backed securities.

Risks. An investment in the Composite Fund has market risk. By investing in equity securities and debt securities, the Fund tries to reduce the market risk that would exist for an investment in either a stock fund or a bond fund. An investment in the Composite Fund has moderate financial risk, based on the Fund's purchase of equity securities included in the S&P 500 ^® Index and its purchase of investment grade debt securities. Refer to "Risks of Investing in Equity Securities" on page 2 and "Risks of Investing in any of the Bond Funds" on page 3.

•  The investment results for a particular Fund may be better or worse than the results for the stock markets taken as a whole, depending on the type of securities in which the Fund invests.

Bond Fund

Objective. The Fund seeks current income, with preservation of shareholders' capital a secondary objective. The Fund's securities holdings will have an average maturity that varies according to the Adviser's view of current market conditions. The term "Bond" as used in this Prospectus means debt obligations and includes bonds, notes, debentures, zero coupon securities and mortgage-backed securities.

Strategy. The Fund invests primarily in publicly-traded, investment-grade debt securities.

•  At least 80% of the Fund's assets are invested in Bonds.

•  The Fund invests in corporate, U.S. Government securities and U.S. Government agency securities, such as bonds, notes, debentures, zero coupon securities and mortgage-backed securities.

•  The Fund generally will invest a significant portion of its assets invested in a particular type of debt security, such as U.S. Government securities, securities rated BBB or higher and

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mortgage-backed securities and it is possible at any given time that certain corporate bonds in the Fund's portfolio can be below investment grade.

•  The Adviser evaluates each security to be purchased and selects securities based in part on interest income to be generated.

•  The Fund does not currently invest in foreign securities, although it is possible that such investments can be made in the future.

Risks. An investment in the Bond Fund is subject to market risk (including from interest rate changes) and credit risk. Refer to "Risks of Investing in any of the Bond Funds" on page 3. The Bond Fund has more market risk than the other Bond Funds because its securities holdings have a longer average maturity. Lower rated investment-grade debt securities are subject to a greater market risk than higher rated debt securities, with adverse economic conditions or changing circumstances more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. Mortgage-backed securities or certificates are subject to prepayment risk (shortening the term to maturity) when interest rates fall and to extension risk (lengthening the term to maturity) when interest rates rise. In the event that the Fund invests in foreign securities, foreign debt securities are subject to the risks of changes in currency or exchange rates (which impact the financial condition of the issuer), the difficulty of assessing economic or political trends in foreign countries and less liquidity and more price volatility than U.S. securities,

Mortgage-backed securities or certificates are subject to prepayment or extension risk when interest rates change. When interest rates fall, the underlying mortgages may be prepaid at a faster rate than previously assumed in pricing the mortgage-backed security, which would shorten the period to maturity. When interest rates rise, the underlying mortgages may be prepaid at a slower rate than previously assumed, which would lengthen the period to maturity. In periods of economic uncertainty, investors may favor U.S. government debt securities over debt securities of corporate issuers, in which case the value of corporate debt securities would decline in relation to the value of U.S. government debt securities. Zero coupon securities and discount notes do not pay interest, and they may fluctuate more in market value and be more difficult for a Fund to resell during periods of interest rate changes than comparable securities that pay interest in cash at regular intervals. For example, the Fund may lose a portion of the prinicpal amount of a zero coupon security if it sells the security after an increase in interest rates.

Mid-Term Bond Fund

Objective. The Fund seeks current income, with preservation of shareholders' capital a secondary objective. The Fund's securities holdings will have an average maturity of three to seven years.

Strategy. The Fund invests primarily in publicly-traded, investment-grade debt securities.

•  The Fund invests in corporate, U.S. Government securities and U.S. Government agency securities, such as bonds, notes, debentures, zero coupon securities and mortgage-backed securities.

•  The Fund may have a significant portion of its assets invested in a particular type of debt security, such as U.S. Government agency securities, zero coupon securities or securities rated BBB or higher.

•  The Adviser evaluates each security to be purchased and selects securities based in part on interest income to be generated.

Risks. An investment in the Mid-Term Bond Fund is subject to market risk and credit risk. Refer to "Risks of Investing in any of the Bond Funds" on page 3. The risks associated with investment in mortgage-backed securities are described on page 3.

Short-Term Bond Fund

Objective. The Fund seeks current income, with preservation of shareholders' capital a secondary objective. The Fund's securities holdings will have an average maturity of one to three years.

Strategy. The Fund invests primarily in publicly-traded, investment grade debt securities.

•  The Fund invests in corporate, U.S. Government securities, U.S. Government agency securities and money market instruments, such as bonds, notes, mortgage-backed securities and commercial paper.

•  The Fund may have a significant portion of its assets invested in a particular debt security, such as U.S. Government or agency securities, which also may be mortgage-backed securities.

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•  The Adviser evaluates each security to be purchased and selects securities based in part on income to be generated.

Risks. An investment in the Short-Term Bond Fund is subject to market risk and credit risk, although market risk is less than for Funds that have longer average maturities. Refer to "Risks of Investing in any of the Bond Funds"  on page 3. The risks associated with investment in mortgage-backed securities are described on page 3.

Note: The Board of the Investment Company has authorized the merger of this Fund into the Mid-Term Bond Fund on or before May 1, 2006 subject to approval of the Fund's shareholders.

Money Market Fund

Objective. The Fund seeks current income to the extent consistent with maintenance of liquidity, investment quality and stability of capital.

Strategy. The Fund invests in money market instruments that meet certain requirements.

•  The average maturity of the instruments the Fund holds will be short-term – 90 days or less.

•  The Fund will purchase only securities that are rated in one of the two highest rating categories by at least two rating agencies, with most securities rated in the highest category.

•  The Fund will diversify its investments, limiting holdings in the securities of any one issuer (except the U.S. Government or its agencies) to 5% of assets.

The Money Market Fund pays dividends of income earned on an annual basis, rather than declaring dividends daily to maintain a stable net asset value of $1.00.

•  The Fund's net asset value will generally rise during the year as the Fund earns income, before dividends are paid.

•  The Fund's net asset value will decline when the Fund declares dividends and pays income to shareholders at the end of December each year.

Risks. An investment in the Money Market Fund has a small amount of market risk and financial risk, because the Fund holds high quality securities with short terms to maturity. The Fund has a high level of current income volatility, because its securities holdings are short term and it reinvests at current interest rates as its holdings mature. Although the Fund seeks current income and preservation of principal within its guidelines, low market interest rates can result in risk to both of these objectives, particularly after fees and expenses of the Investment Company, its adviser and distributor, and fees of any separate accounts associated with an investment in the Fund are taken into account.

A shareholder's investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation, the U.S. Government or any other government agency.

Aggressive Allocation Fund(1)

Objective. The Fund seeks capital appreciation and, to a lesser extent, current income.

Strategy. The Fund invests primarily in equity Funds of the Investment Company and also in fixed income Funds of the Investment Company.

•  The Fund's target allocation currently is approximately 75% of net assets in equity Funds and approximately 25% of net assets in fixed income Funds.

•  The Fund seeks to maintain approximately 45% of its net assets in the Equity Index Fund, approximately 20% in the Mid-Cap Equity Index Fund and approximately 10% in the Aggressive Equity Fund (after July 1, 2005 the approximately 10% invested in the Aggressive Equity Fund may cease and the Fund will in that event invest sums that would previously have purchased shares of the Aggressive Equity Fund as follows: the Fund will invest approximately 5% in the Small Cap Growth Fund and approximately 5% in the Small Cap Value Fund).

•  The Fund seeks to maintain approximately 25% of its net assets in the Bond Fund.

Risks. An investment in the Aggressive Allocation Fund is subject to market risk and credit risk for both equity securities and fixed income securities, based on the securities held by the Investment Company Funds in which it invests. The Fund is subject primarily to the risks of investing in equity securities, including large, mid- and small

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cap stocks. You should refer to "Definitions and Risks for Investing in Equity Securities" on page 2, "Risks of Investing in any of the Bond Funds" on page 3, and "Risks of Investing in Allocation Funds" on page 6.

Moderate Allocation Fund(1)

Objective. The Fund seeks capital appreciation and current income.

Strategy. The Fund invests in both equity and fixed income Funds of the Investment Company.

•  The Fund's target allocation currently is approximately 50% of net assets in equity Funds and approximately 50% of net assets in fixed income Funds.

•  The Fund seeks to maintain approximately 35% of its net assets in the Equity Index Fund and approximately 15% in the Mid-Cap Equity Index Fund.

•  The Fund seeks to maintain approximately 30% of its net assets in the Bond Fund and approximately 20% in the Mid-Term Bond Fund.

Risks. An investment in the Moderate Allocation Fund is subject to market and credit risk for both fixed income and equity securities, based on the securities held by the Investment Company Funds in which it invests. You should refer to "Definitions and Risks for Investing in Equity Securities" on page 1 regarding the risks of investing in large and mid-cap stocks, to "Risks of Investing in any of the Bond Funds" on page 3, and "Risks of Investing in Allocation Funds" on page 6.

Conservative Allocation Fund(1)

Objective. The Fund seeks current income and, to a lesser extent, capital appreciation.

Strategy. The Fund invests primarily in fixed income Funds of the Investment Company and also invests in equity Funds of the Investment Company.

•  The Fund's target allocation currently is 75% of net assets in fixed income Funds and 25% of net assets in equity Funds.

•  The Fund seeks to maintain approximately 30% of its net assets in the Bond Fund, approximately 15% in the Short-Term Bond Fund, and approximately 30% in the Mid-Term Bond Fund.

•  The Fund seeks to maintain approximately 25% of its net assets in the Equity Index Fund.

(1)  The Aggressive Allocation Fund, Moderate Allocation Fund and Conservative Allocation Fund are sometimes referred to collectively as "Allocation Funds."

Risks. An investment in the Conservative Allocation Fund is subject to market risk and credit risk for both fixed income and equity securities, based on the securities held by the Investment Company Funds in which it invests. The Fund is subject primarily to the risk of investing in fixed income securities, including the risk that interest rate increases may cause a decline in the value of fixed income obligations. You should refer to "Risks of Investing in any of the Bond Funds" on page 3, "Definitions and Risks for Investing in Equity Securities" on page 2 and "Risks of Investing in Allocation Funds"  on page 6.

Risks of Investing in Allocation Funds

Each Allocation Fund invests in equity (stock) Funds and fixed income (bond) Funds, but the Funds target different percentages to these asset classes. The targets reflect three different approaches to asset allocation based on risk tolerance.

Stock prices generally are more volatile than bond prices. Stocks historically have had a larger potential for loss, especially in the short-term, than bonds. The Aggressive Allocation Fund, because it invests primarily in equity Funds, is expected to have more market risk than the other Allocation Funds. The Conservative Allocation Fund, because it invests primarily in bond Funds, is expected to have less market risk but also may have less potential for gain over the long term than the other Allocation Funds.

Stock prices and bond prices will increase or decrease differently, especially over the long run, and the performance of these two asset classes may offset each other during certain periods. Because the Allocation Funds hold two asset

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classes, their performance may be lower than that of equity Funds during periods when stocks outperform bonds and may be lower than that of fixed income Funds during periods when bonds outperform stocks.

Annual Total Returns

The bar charts below show the annual return of each Fund for the past ten years, or for the years the Fund has been in operation if less than ten years. The Mid Cap Value Fund, Small Cap Growth Fund and Small Cap Value Fund are not shown because they are commencing operations on or about July 1, 2005. A chart indicates the risks of investing in a particular Fund by showing changes in the Fund's performance from year-to-year during the period, but a Fund's past performance does not necessarily indicate how it will perform in the future. You also may refer to "Average Annual Total Returns" below.

Below each chart is the Fund's highest total return for any calendar quarter during the period covered by the chart, called the best quarter return, and the Fund's lowest total return for any calendar quarter during the period covered, called the worst quarter return. These returns are an indication of the volatility of a Fund's total returns. The numbers in parentheses are negative, representing a loss of principal.

The total returns shown do not include charges against the assets of the Separate Accounts that purchase Fund shares. If these charges were reflected, returns would be less than those shown.

Equity Index Fund:

Best quarter return: 21.45% during fourth quarter 1998

Worst quarter return: (17.30%) during third quarter 2002

All America Fund:

Best quarter return: 22.13% fourth quarter 1998

Worst quarter return: (17.39%) during third quarter 2001

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Mid-Cap Equity Index Fund:

Best quarter return: 17.85% during fourth quarter 2001

Worst quarter return: (16.83%) during third quarter 2002

The Mid-Cap Equity Index Fund began operations on May 3, 1999.

Aggressive Equity Fund:

Best quarter return: 27.24% during fourth quarter 1999

Worst quarter return: (26.24%) during third quarter 1998

Composite Fund:

Best quarter return: 13.29% during fourth quarter 1999

Worst quarter return: (9.26%) during third quarter 2001

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Bond Fund:

Best quarter return: 6.96% during second quarter 1995

Worst quarter return: (1.82%) during first quarter 1996

Mid-Term Bond Fund:

Best quarter return: 6.06% during second quarter 1995

Worst quarter return: (1.30%) during first quarter 1996

Short-Term Bond Fund:

Best quarter return: 2.61% during third quarter 2001

Worst quarter return: (0.11%) during second quarter 2003

Money Market Fund:

Best quarter return: 1.82% during third quarter 2000

Worst quarter return: 0.19% during third quarter 2003

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Aggressive Allocation Fund:

Best quarter return: 9.81% during fourth quarter 2003

Worst quarter return: (0.62%) during third quarter 2004

The Aggressive Allocation Fund began operations May 20, 2003

Moderate Allocation Fund:

Best quarter return: 6.41% during fourth quarter 2003

Worst quarter return: (0.56%) during second quarter 2004

The Moderate Allocation Fund began operations May 20, 2003

Conservative Allocation Fund:

Best quarter return: 3.34% during fourth quarter 2003

Worst quarter return: (1.27%) during second quarter 2004

The Conservative Allocation Fund began operations May 20, 2003

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Average Annual Total Returns (for periods ended December 31, 2004)

The table below shows the average annual total returns of each Fund (other than the Funds that have not been operating for the requisite period of time, as described in the footnote below) for the past one, five and ten years, if the Fund was operating for those periods, and the return for the period of the Fund's operations.

The table indicates the risks of investing in the Funds by comparing, for the same periods, each Fund's returns to those of a broad-based, unmanaged index, or to Treasury Bills for money market investments. A Fund's past performance does not necessarily indicate how it will perform in the future.

The average annual total returns shown do not include charges against the assets of the Separate Accounts that purchase Fund shares. If these charges were reflected, returns would be less than those shown.

N/A = Not applicable

  *  The Funds commenced operations on the following dates: All America, Composite, Bond and Money Market Funds – January 1, 1985; Equity Index, Mid-Term Bond and Short-Term Bond Funds – February 5, 1993;

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Aggressive Equity Fund – May 2, 1994; and Mid-Cap Equity Index Fund – May 3, 1999; Conservative Allocation Fund, Moderate Allocation Fund and Aggressive Allocation Fund – May 20, 2003. The Mid Cap Value Fund, Small Cap Value Fund and Small Cap Growth Fund are commencing operations on or about July 1, 2005.

  **  Prior to May 2, 1994, the All America Fund was known as the Stock Fund, had a different investment objective and did not have a subadviser.

  (1)  The S&P 500 ^® and S&P 500 ^® Index refer to the Standard & Poor's 500 Composite Stock Price Index, a market value-weighted index of the common stock prices of companies included in the S&P 500 ^® .

  (2)  The S&P MidCap 400 ^® is the Standard & Poor's MidCap 400 Index, a market value-weighted index of 400 stocks issued by U.S. companies with medium market capitalizations.

  (3)  The Russell 2000 ^® is a market capitalization-weighted index of common stock prices of the smallest 2000 companies in the Russell 3000.

  (4)  The Lehman Brothers Aggregate Bond Index is an index of U.S. Government, corporate and mortgage-backed and asset-backed bond prices of investment grade bonds with maturities greater than one year and at least $150 million par amount outstanding.

  (5)  The Salomon Brothers Government/Corporate Bond Index, for 1-3 years and for 3-7 years, is a market capitalization-weighted index of Treasury, Agency, mortgage and corporate bonds in the Salomon Brothers Broad Investment-Grade Bond Index with the same maturities.

    "S&P 500," "S&P MidCap 400" and Russell 2000" are the trademarks of their respective owners.

DETAILS ABOUT HOW OUR FUNDS INVEST AND RELATED RISKS

Below is a discussion of the principal strategies the Funds currently follow to seek to achieve their investment objectives. If a Fund has an investment strategy of investing at least 80% of its assets in a particular class or type of security, the Investment Company will not change that strategy unless it gives at least 60 days' notice to shareholders.

Risks of Investing in Stock Funds

When you invest in a stock fund, and for the equity portion of a composite fund, you should consider that:

•  The fund is subject to market risk - the value of your investment will go up or down, depending on movements in the stock markets. As a result, you may lose money from your investment, or your investment may increase in value.

•  The investment results for a particular Fund may be better or worse than the results for the stock markets taken as a whole, depending on the type of securities in which the Fund invests.

•  The investment results for a particular Fund may be better or worse than the results of other funds that invest in the same types of securities. In other words, stock selection by a Fund's investment adviser(s) will impact the Fund's performance.

•  The prices and investment performance of stocks that are issued by companies with smaller market capitalizations may fluctuate more than the prices and investment performance of stocks that are issued by companies with larger market capitalizations.

•  A Fund may have more difficulty selling a small capitalization stock or any stock that trades "over-the-counter", as compared to larger capitalization stocks or stocks that trade on a national or regional stock exchange.

•  Value stocks and growth stocks usually have different investment results, and either investment style may become out of favor with stock investors at a given time.

Risks of Investing in Bond Funds

When you invest in a bond fund, and for the debt securities portion of a composite fund, you should consider that:

•  The fund has market risk - the value of your investment will go up or down depending on movements in the bond markets. As a result, you may lose money from your investment, or your investment may increase in value.

•  The investment results for a particular Fund may be better or worse than the results for the comparable bond market taken as a whole, depending on the type of debt securities in which the Fund invests and the portion of the Fund invested in debt securities.

•  The investment results for a particular Fund may be better or worse than the results of other funds that invest in the same types of securities. In other words, security selection by a Fund's investment adviser will impact the Fund's performance.

•  Changes in prevailing interest rates usually will impact the value of debt securities. The longer the time period before the security matures (or is expected to be redeemed), the more impact interest rate changes will have on the price of the bond. When interest rates rise, the prices of outstanding debt securities tend to fall. When interest rates fall, the prices of outstanding debt securities tend to rise.

•  Mortgage-backed securities or certificates are subject to prepayment or extension risk when interest rates change. When interest rates fall, the underlying mortgages may be prepaid at a faster rate than previously assumed in pricing the mortgage-backed security, which would shorten the period to maturity of the security. When interest rates rise, the underlying mortgages may be prepaid at a slower rate than previously assumed, which would lengthen the period to maturity of the security.

•  In periods of economic uncertainty, investors may favor U.S. government debt securities over debt securities of corporate issuers, in which case the value of corporate debt securities would decline in relation to the value of U.S. government debt securities.

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•  Zero coupon securities and discount notes do not pay interest, and they may fluctuate more in market value and be more difficult for a Fund to resell during periods of interest rate changes than other securities with comparable maturities that pay interest in cash at regular intervals. In addition, the Fund may lose a portion of the principal amount of a zero coupon security if it sells the security after an increase in interest rates.

•  Unrated securities or securities rated below investment grade may be subject to a greater market risk than higher rated (lower yield) securities. Since lower rated and unrated securities are generally issued by corporations that are not as creditworthy or financially secure as issuers of higher rated securities, there is a greater risk that issuers of lower rated (higher yield) securities will not be able to pay the principal and interest due on such securities, especially during periods of adverse economic conditions.

•  The market for debt securities may be subject to significant volatility, and volatility has generally increased in recent years.

Risks of Investing in Allocation Funds

When you invest in a composite or asset allocation fund, you should consider that:

•  The fund has market risk and credit risk based on the asset classes (stocks, bonds, money market instruments) in which it invests. As a result, you may lose money from your investment, or your investment may increase in value.

•  Different asset classes may have different investment performance, and the positive performance of one class may be offset in whole or in part by the negative performance of another asset class.