Principal Funds Inc – ‘485APOS’ on 9/22/00

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Post-Effective Amendment
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 485APOS     Investors Fund Post Effective Amendment              355±  1.30M 
 2: EX-99.A1.B  Articles of Amendment and Restatement                 28±   137K 
 3: EX-99.A3    Certificate of Correction                             33±   158K 
 4: EX-99.B     Bylaws                                                13±    53K 
 5: EX-99.D1.B  1st Amendment to the Management Agreement              1      9K 
 6: EX-99.D2.B  1st Amendment to the Invista Sub-Advisory Agmt         1      9K 
 7: EX-99.D5    Bt Sub-Advisory Agreement                             11±    43K 
 8: EX-99.E1.B  1st Amendment to the Distribution Agrmeement           1      9K 
 9: EX-99.E1.C  Distribution Agreement                                 8±    39K 
10: EX-99.E2    Selling Agreement                                      4±    21K 
11: EX-99.H1    Transfer Agency Agrmt for Class I Shares               3±    17K 
12: EX-99.H3.B  1st Amendment to the Investment Svc Agmt               1     10K 
13: EX-99.H4    Accounting Services Agreement                          4±    19K 
14: EX-99.H5    Administrative Services Agreement                      4±    20K 
15: EX-99.H6    Service Agreement                                      4±    19K 
16: EX-99.H7    Service Sub-Agreement                                  3±    19K 
17: EX-99.L2    Initial Capital Agreement - Iep                        1     11K 
18: EX-99.L3    Initial Capital Agreement - Icp                        1     11K 
19: EX-99.M1    Advisors Preferred 12B-1 Plan                          4±    23K 
20: EX-99.M2    Advisors Select 12B-1 Plan                             4±    23K 
21: EX-99.O     Rule 18F-3 Plan                                        5±    22K 
22: EX-99.P1    Bt Fund Management (International) Code of Ethics      5±    22K 
31: EX-99.P10   Federated Management Corporation Code of Ethics       17±    62K 
23: EX-99.P2    Invista Code of Ethics                                 6±    25K 
24: EX-99.P3    Principal Capital Income Investors Code of Ethics      7±    28K 
25: EX-99.P4    Principal Capital Real Estate Investors Coe            7±    29K 
26: EX-99.P5    Turner Investment Partners Code of Ethics              2±    14K 
27: EX-99.P6    Morgan Stanley Asset Management Code of Ethics        12±    45K 
28: EX-99.P7    Neuberger Berman Management Inc. Code of Ethics       13±    51K 
29: EX-99.P8    Sanford C. Bernstein & Co., Inc. Code of Ethics       21±    87K 
30: EX-99.P9    American Century Investment Management Coe            13±    47K 

485APOS   —   Investors Fund Post Effective Amendment
Document Table of Contents

485APOS
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                                                       Registration No. 33-59474

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

  POST-EFFECTIVE AMENDMENT NO. 12 TO

 FORM N-1A

REGISTRATION STATEMENT

 under

THE SECURITIES ACT OF 1933

 and

REGISTRATION STATEMENT

 under

THE INVESTMENT COMPANY ACT OF 1940
--------

          PRINCIPAL INVESTORS FUND, INC.
      f/k/a PRINCIPAL SPECIAL MARKETS FUND, INC.
(Exact name of Registrant as specified in Charter)

 The Principal Financial Group
Des Moines, Iowa 50392
(Address of principal executive offices)
--------

 Telephone Number (515) 248-3842
--------

MICHAEL D. ROUGHTON                      Copy to:                               
The Principal Financial Group            JOHN W. BLOUCH                         
Des Moines, Iowa  50392                  Jones & Blouch, L.L.P.                 
                Suite 405 West
                                    1025 Thomas Jefferson Street, N.W.
                            Washington, DC  20007-0805

 (Name and address of agent for service)
----------

It is proposed that this filing will become effective (check appropriate box)   
        immediately upon filing pursuant to paragraph (b)of Rule 485
on (date), pursuant to paragraph (b) of Rule 485    
           60 days after filing  pursuant to paragraph  (a)(1) of Rule 485
on (date), pursuant to paragraph (a)(1) of Rule 485 
    XXX  75 days after filing pursuant to paragraph (a)(2) of Rule 485
on (date) pursuant to paragraph (a)(2) of Rule 485  

If appropriate, check the following box:                                        
              This post-effective  amendment designates a new effective date for
a previously filed post-effective amendment.        
----------

485APOS
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Advisors  Select Class                                                          
Advisors Preferred Class                                                        

PRINCIPAL INVESTORS FUND, INC.

This Prospectus describes a mutual fund organized by
Principal Life Insurance Company. 

 The date of this Prospectus is _______________.

SUBJECT TO COMPLETION.

 PRELIMINARY PROSPECTUS DATED: September 22, 2000.

     The information in this  prospectus is not complete and may be changed.  We
     may not sell these securities  until the registration  statement filed with
     the Securities and Exchange is effective.  This  prospectus is not an offer
     to sell  these  securities  and is not  soliciting  an offer  to buy  these
securities in any state where the offer or sale is not permitted.     

As with all mutual funds, the Securities and Exchange Commission ("SEC") has not
approved or disapproved  the Fund's  securities nor has it determined  that this
Prospectus  is  accurate  or  complete.  It is a criminal  offense to  represent
otherwise.                                                                      

 TABLE OF CONTENTS

Fund Descriptions..............................................................4
Stable Funds                                                            
       High Quality Short-Term Bond Fund.......................................6
       Money Market Fund.......................................................8

Conservative Funds                                                      

       Bond & Mortgage Securities Fund........................................10
       Government Securities Fund.............................................12
       High Quality Intermediate-Term Bond Fund...............................14
       High Quality Long-Term Bond Fund.......................................16

Moderate Funds                                                          

       Balanced Fund..........................................................18
       LargeCap Blend Fund....................................................20
       LargeCap Growth Fund...................................................22
       LargeCap S&P 500 Index Fund............................................24
       LargeCap Value Fund....................................................26
       MidCap S&P 400 Index Fund..............................................28
       MidCap Value Fund......................................................30
       Partners LargeCap Blend Fund...........................................32
       Partners LargeCap Growth Fund I........................................34
       Partners LargeCap Growth Fund II.......................................36
       Partners LargeCap Value Fund...........................................38
       Partners MidCap Value Fund.............................................40
       Real Estate Fund.......................................................42

Aggressive Funds                                                        

       MidCap Blend Fund......................................................44
       MidCap Growth Fund.....................................................46
       Partners MidCap Growth Fund............................................48
       Partners SmallCap Growth Fund I........................................50
       Partners SmallCap Growth Fund II.......................................52
       SmallCap Blend Fund....................................................54
       SmallCap Growth Fund...................................................56
       SmallCap S&P 600 Index Fund............................................58
       SmallCap Value Fund....................................................60
       Technology Fund........................................................62

Dynamic Funds                                                           

       European Fund..........................................................64
       International Emerging Markets Fund....................................66
       International Fund I...................................................68
       International Fund II..................................................70
       International SmallCap Fund............................................72
       Pacific Basin Fund.....................................................74

General Information                                                             

    The Costs of Investing....................................................76
    Certain Investment Strategies and Related Risks...........................77
    Management, Organization and Capital Structure............................82
    Shareholder Information...................................................84
    Fund Account Information..................................................87

FUND DESCRIPTIONS                                                               

Principal  Investors  Fund,  Inc. is  comprised  of many  investment  portfolios
("Funds").   The  Funds  are  divided   into  five  risk   categories:   Stable,
Conservative,   Moderate,   Aggressive,   and  Dynamic.   Principal   Management
Corporation*, the "Manager" of each of the Funds, seeks to provide a broad range
of investment approaches through the Principal Investors Fund.                  

The Manager has selected a Sub-Advisor for each Fund based on the  Sub-Advisor's
experience  with  the  investment  strategy  for  which  it  was  selected.  The
Sub-Advisor for each Fund is shown with the Fund's  description on the following
pages. The Sub-Advisors are:                                                    

Alliance Capital Management L.P. through its                              
Bernstein Investment Research and Management                    
unit ("Bernstein")                                              
American Century Investment Management, Inc.                              
("American Century")                                            
BT Funds Management (International) Limited ("BT")*                       
Federated Management Corporation ("Federated")                            
Invista Capital Management, LLC ("Invista")*                              
Morgan Stanley Asset Management ("Morgan Stanley")                        
Neuberger Berman Management Inc. ("Neuberger Berman")                     
Principal Capital Income Investors, LLC ("PCII")*                         
Principal Capital Real Estate Investors, LLC ("PCREI")*                   
Turner Investment Partners, Inc. ("Turner")                               

Two  classes  of  shares  of each of these  Funds  are  available  through  this
Prospectus. Both classes are currently available only through certain registered
representatives  of dealers selected by Princor Financial  Services  Corporation
("Princor")*,  the  distributor  of the  Funds or  through  fee-based  financial
planners.                                                                       

o    Advisors Select shares are available to an employer's  sponsored retirement
     plan(s)  (the  "plan")  through  the  Principal  Investors  Advantage  (the
     services  contract  (or through  execution  of a service  contract  offered
     through an affiliate  of  Principal  Life)) if the plan invests at least $3
million (but less than $10 million) in the Principal Investors Fund.  

o    Advisors  Preferred  shares  are  available  to  an  employer's   sponsored
     retirement plan(s) (the "plan") through the Principal  Investors  Advantage
     (the services  contract (or through execution of a service contract offered
     through an affiliate  of Principal  Life)) if the plan invests at least $10
million in the Principal Investors Fund.                              

For more information about Principal Investors Advantage,  contact the Principal
Retirement Service Centersm  (www.principal.com) or our Member Service Center at
1-800-____________.                                                             

     *    Principal Management Corporation, Invista, PCII, PCREI, BT and Princor
are members of the Principal Financial Group.               

In the  description  for each Fund,  there is  important  information  about the
Fund's:                                                                         

Primary investment strategy                                                     

This  section  summarizes  how each  Fund  intends  to  achieve  its  investment
objective.  It identifies the Fund's primary investment  strategy (including the
type or types  of  securities  in which  the Fund  invests)  and any  policy  to
concentrate  in  securities  of issuers  in a  particular  industry  or group of
industries.                                                                     

Each  Fund is  designed  to be a portion  of an  investor's  portfolio.  None is
intended to be a complete  investment  program.  Investors  should  consider the
risks of each Fund before making an  investment  and be prepared to maintain the
investment during periods of adverse market conditions.                         

A description  of the main risks is included with the discussion of each Fund. A
full  discussion  of risks  appears  later in the  Prospectus  under the caption
"Certain Investment Strategies and Related Risks."                              

Annual operating expenses                                                       

The annual operating expenses for each Fund are deducted from that Fund's assets
(stated as a percentage of Fund assets).  A Fund's operating  expenses are shown
with  each  Fund.  A  discussion  of the  fees is found  in the  section  of the
Prospectus titled "The Costs of Investing."                                     

The examples are intended to help  investors  compare the cost of investing in a
particular  Fund with the cost of investing in other mutual funds.  The examples
assume an  investment of $10,000 in a Fund for the time periods  indicated.  The
examples  also assume that the  investment  has a 5% total  return each year and
that the Fund's operating  expenses are the same as the expenses shown. Based on
these assumptions, the costs would be as shown.                                 

Day-to-day Fund management                                                      

The investment  professionals who manage the assets of each Fund are listed with
each Fund.  Backed by their  staffs of  experienced  securities  analysts,  they
provide the Funds with professional investment management.                      

Fund performance                                                                

Because  the  Funds  are new and  have not  completed  a full  calendar  year of
operations,  performance  information  for the  Funds  is not  included  in this
Prospectus.  To obtain  performance  information for a Fund after its first full
calendar   quarter  of   operations,   contact   the   _________________________
(www.principal.com)   or  call  1-800-_______.   Remember  that  a  Fund's  past
performance is not necessarily an indication of how the Fund will perform in the
future.                                                                         

Call the  Principal  Investors  Fund  (1-800-________)  to get the current 7-day
yield for the Money Market Fund.                                                

NOTE:    No   salesperson,   dealer  or  other  person  is  authorized  to  give
         information  or make  representations  about a Fund  other  than  those
         contained  in  this  Prospectus.  Information  or  representations  not
         contained in this Prospectus may not be relied upon as having been made
         by  the  Principal   Investors   Fund,  a  Fund,  the  Manager  or  any
Sub-Advisor.                                                  

HIGH QUALITY SHORT-TERM BOND FUND The Fund seeks to provide current income.     

Main Strategies                                                                 

The Fund  invests  primarily  in high  grade,  short-term  fixed-income  or debt
securities with a dollar weighted  average maturity of four years or less. Under
normal  circumstances,  it invests  at least 80% of its assets in:              
o    securities  issued or guaranteed by the U.S.  Government or its agencies or
instrumentalities;                                                    
o    debt  securities  of U.S.  issuers  rated in the  three  highest  grades by
     Standard & Poor's Rating Service or Moody's Investors Service,  Inc. or, if
     unrated,  in the opinion of the Sub-Advisor,  PCII, of comparable  quality;
and                                                                   
o    mortgage-backed  securities  representing an interest in a pool of mortgage
loans.                                                                

The rest of the Fund's assets are invested in  securities in the fourth  highest
rating category or their  equivalent.  Securities in the fourth highest category
are "investment  grade." While they are considered to have adequate  capacity to
pay  interest and repay  principal,  they do have  speculative  characteristics.
Changes in economic and other  conditions  are more likely to affect the ability
of the issuer to make  principal  and  interest  payments  than is the case with
issuers of higher rated securities.                                             

Under unusual market or economic  conditions,  the Fund may invest up to 100% of
its assets in cash and cash equivalents.                                        

Main Risks                                                                      

Mortgage-backed  securities are subject to prepayment  risk. When interest rates
decline,  significant unscheduled prepayments may result. These prepayments must
then be  reinvested at lower rates.  Prepayments  may also shorten the effective
maturities of these securities,  especially during periods of declining interest
rates.  On the other hand,  during periods of rising interest rates, a reduction
in  prepayments  may  increase the  effective  maturities  of these  securities,
subjecting  them to the risk of decline in market  value in  response  to rising
interest rates. This may increase the volatility of the Fund.                   

In addition,  the Fund may invest in  corporate  fixed-income  securities.  When
interest rates fall, the price of such  securities  rise and when interest rates
rise,  the  price  declines.  In  addition,  the  value  of the  corporate  debt
securities  held by the Fund may be affected by factors such as credit rating of
the entity that issued the security and its  maturity.  Lower quality and longer
maturity   securities   will  be  subject  to  greater  credit  risk  and  price
fluctuations than higher quality and shorter maturity securities.               

Under  normal  circumstances,  the  Fund  maintains  a  dollar-weighted  average
maturity of not more than three years.  In determining  the average  maturity of
the Fund's assets, the maturity date of callable or prepayable securities may be
adjusted to reflect  PCII's  judgment  regarding the  likelihood of the security
being called or prepaid.                                                        

The average portfolio  duration of the Fund normally is less than four years and
is based on PCII's  forecast  for interest  rates.  Duration is a measure of the
expected  life  of a  fixed-income  security  that  is  used  to  determine  the
sensitivity  of a security's  price to changes in interest  rates.  The longer a
security's  duration,  the more sensitive it is to changes in interest  rates. A
Fund with a longer average portfolio  duration will be more sensitive to changes
in interest rates than a Fund with a shorter average portfolio duration.        

As with all mutual funds,  as the value of the Fund's assets rise and fall,  the
Fund's share price  changes.  If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.

Investor Profile                                                                

The  Fund  is   generally   a  suitable   investment   for   investors   seeking
diversification by investing in a fixed-income mutual fund.                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $117     $365                              

Advisors Preferred Class   99     309                               

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.40%       0.40%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.15%       0.97%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

 Day-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Daniel  J.  Garrett,  CFA.  Mr.  Garrett  is  a
                    portfolio manager for Principal Capital Income Investors. He
                    joined  Principal in 1985 as a commercial  mortgage  analyst
                    and was named to his current  position in 1998.  Mr. Garrett
                    received his Master's  degree in Business and his Bachelor's
                    degree in Computer  Information  Systems  and  Finance  from
                    Drake  University.  He has  earned  the  right  to  use  the
Chartered Financial Analyst designation.

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Martin J. Schafer.  Mr.  Schafer is a portfolio
                    manager for Principal Capital Income Investors  specializing
                    in the management of mortgage-backed securities utilizing an
                    active, total return approach.  He joined Principal in 1977.
                    He holds a BBA in Accounting and Finance from the University
of Iowa.                                

MONEY MARKET FUND                                                               

The Fund seeks as high a level of  current  income as is  considered  consistent
with preservation of principal and maintenance of liquidity.                    

Main Strategies                                                                 

The Fund invests its assets in a portfolio  of high  quality,  short-term  money
market instruments. The investments are U.S. dollar denominated securities which
the  Sub-Advisor,  PCII,  believes present minimal credit risks. At the time the
Fund  purchases each  security,  it is an "eligible  security" as defined in the
regulations  issued under the  Investment  Company Act of 1940 ("1940 Act"),  as
amended.                                                                        

The Fund maintains a dollar weighted  average  portfolio  maturity of 90 days or
less. It intends to hold its investments until maturity.  However,  the Fund may
sell a security before it matures:                                              
o    to take advantage of market variations;                                    
o    to generate cash to cover sales of Fund shares by its shareholders; or     
o    upon revised credit opinions of the security's issuer.                     

The  sale of a  security  by the  Fund  before  maturity  may not be in the best
interest of the Fund. The Fund does have an ability to borrow money to cover the
sale of Fund  shares.  The sale of  portfolio  securities  is  usually a taxable
event.                                                                          

It is the policy of the Fund to be as fully  invested  as  possible  to maximize
current income. Securities in which the Fund invests include:                   
o    securities issued or guaranteed by the U.S. Government,  including treasury
bills, notes and bonds;                                               
o    securities  issued or  guaranteed by agencies or  instrumentalities  of the
     U.S.  Government.  These are backed  either by the full faith and credit of
     the  U.S.  Government  or  by  the  credit  of  the  particular  agency  or
instrumentality;                                                      
o    bank obligations including:                                                
     o    certificates  of deposit which  generally are negotiable  certificates
against funds deposited in a commercial bank; or            
     o    bankers  acceptances which are time drafts drawn on a commercial bank,
     usually in connection with international commercial transactions.
o    commercial  paper,  which is short-term  promissory notes issued by U.S. or
foreign corporations primarily to finance short-term credit needs;    
o    corporate debt consisting of notes,  bonds or debentures  which at the time
of purchase by the Fund has 397 days or less remaining to maturity;   
o    repurchase   agreements  under  which  securities  are  purchased  with  an
     agreement by the seller to  repurchase  the security at the same price plus
     interest at a specified  rate.  Generally these have a short duration (less
than a week) but may also have a longer duration; and                 
o    taxable municipal  obligations,  which are short-term obligations issued or
  guaranteed by state and municipal issuers which generate taxable income.

Among the  certificates  of deposit  typically held by the Money Market Fund are
Eurodollar and Yankee  obligations,  which are issued in U.S. dollars by foreign
banks and foreign branches of U.S. banks. Eurodollar and Yankee obligations have
risks similar to U.S. money market  instruments,  such as income risk and credit
risk. Other risks of Eurodollar and Yankee obligations include the possibilities
that: a foreign government will not let U.S. dollar-denominated assets leave the
country;  the banks that issue Eurodollar  obligations may not be subject to the
same regulations as U.S. banks; and adverse  political or economic  developments
will affect  investments  in a foreign  country.  Before the Fund's  Sub-Advisor
selects a Eurodollar or Yankee obligation,  however, the foreign issue undergoes
the same credit-quality analysis and tests of financial strength as an issuer of
domestic securities.                                                            

Main Risks                                                                      

As with all  mutual  funds,  the value of the  Fund's  assets  may rise or fall.
Although  the Fund seeks to  preserve  the value of an  investment  at $1.00 per
share,  it is possible to lose money by investing  in the Fund.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.  An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance  Corporation or any other government
agency.                                                                         

Investor Profile                                                                

The Fund is  generally  a suitable  investment  for  investors  seeking  monthly
dividends without incurring much principal risk.                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       
1 Year  3 Years         

Advisors Select Class   $117     $365                                 

Advisors Preferred Class  99     309                                  

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.40%       0.40%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.15%       0.97%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Alice Robertson.  Ms. Roberston is a trader for
                    Principal   Capital   Income   Investors  on  the  corporate
                    fixed-income trading desk. She joined Principal in 1990 as a
                    credit  analyst and moved to her  current  position in 1993.
                    Previously,    Ms.   Robertson   was   an   assistant   vice
                    president/commercial paper analyst with Duff & Phelps Credit
                    Company. Ms. Robertson earned her Master's degree in Finance
                    and Marketing  from  DePaul  University  and her  Bachelor's
         degree in Economics from Northwestern University.

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:   Michael  R.  Johnson.   Mr.  Johnson   directs
                    securities  trading for Principal  Capital Income Investors.
                    He joined Principal in 1982 and took his current position in
                    1994. His responsibilities include managing the fixed-income
                    trading operation for Principal Capital Income Investors and
                    several  short-term  money  market  accounts.  He earned his
                Bachelor's degree in Finance from Iowa State University.

BOND & MORTGAGE SECURITIES FUND                                                 
The Fund seeks to provide current income.                                       

Main Strategies                                                                 

The  Fund  invests  primarily  in  intermediate  maturity  fixed-income  or debt
securities  rated BBB or higher by Standard & Poor's Rating  Service  ("S&P") or
Moody's Investors Service,  Inc. ("Moody's").  Under normal  circumstances,  the
Fund invests at least 75% of its assets in:                                     
o    securities  issued or guaranteed by the U.S.  Government or its agencies or
instrumentalities;                                                    
o    mortgage-backed  securities  representing an interest in a pool of mortgage
loans;                                                                
o    debt securities and taxable municipal bonds rated, at the time of purchase,
     in one of the top four  categories  by S&P or Moody's or, if not rated,  in
the opinion of the Sub-Advisor, PCII, of comparable quality; and      
o    securities issued or guaranteed by the governments of Canada (Provincial or
Federal Government) or the United Kingdom payable in U.S. dollars.    

The rest of the Fund's assets may be invested in:                               
o    preferred and common stock that may be convertible  (may be exchanged for a
     fixed  number  of  shares of  common  stock of the same  issuer)  or may be
non-convertible; or                                                   
o    securities  rated less than the four  highest  grades of S&P or Moody's but
     not  lower  than BB- (S&P) or Ba3  (Moody's)  (i.e.  less  than  investment
grade).                                                               

Under unusual market or economic  conditions,  the Fund may invest up to 100% of
its assets in cash and cash equivalents.                                        

Main Risks                                                                      

The average  portfolio  duration of the Fund normally  varies within a three- to
six-year time frame based on PCII's forecast for interest  rates.  Duration is a
measure  of the  expected  life  of a  fixed-income  security  that  is  used to
determine the  sensitivity of a security's  price to changes in interest  rates.
The  longer a  security's  duration,  the more  sensitive  it is to  changes  in
interest  rates.  A Fund with a longer average  portfolio  duration will be more
sensitive  to  changes  in  interest  rates  than a Fund with a shorter  average
portfolio duration.                                                             

Mortgage-backed  securities are subject to prepayment  risk. When interest rates
decline,  significant unscheduled prepayments may result. These prepayments must
then be  reinvested at lower rates.  Prepayments  may also shorten the effective
maturities of these securities,  especially during periods of declining interest
rates.  On the other hand,  during periods of rising interest rates, a reduction
in  prepayments  may  increase the  effective  maturities  of these  securities,
subjecting  them to the risk of decline in market  value in  response  to rising
interest rates. This may increase the volatility of the Fund.                   

When interest  rates fall,  the price of a debt security rises and when interest
rates rise, the price declines. In addition, the value of securities held by the
Fund may be affected by factors such as credit  rating of the entity that issued
the security and its maturity. Lower quality and longer maturity securities will
be subject to greater credit risk and price fluctuations than higher quality and
shorter maturity securities.                                                    

Fixed-income  securities that are not investment grade are commonly  referred to
as junk bonds or high yield  securities.  These  securities  offer a potentially
higher  yield than  other,  higher  rated  securities,  but they carry a greater
degree  of risk  and are  considered  speculative  by the  major  credit  rating
agencies.                                                                       

As with all mutual funds,  as the value of the Fund's assets rise and fall,  the
Fund's share price  changes.  If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.

Investor Profile                                                                

The  Fund  is   generally   a  suitable   investment   for   investors   seeking
diversification by investing in a fixed-income mutual fund.                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years         

Advisors Select Class    $132     $412                                  

Advisors Preferred Class  114      356                                  

Fund Operating Expenses                                                         

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.55%       0.55%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.30%       1.12%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co- Manager:  Lisa A. Stange,  CFA. As Portfolio Manager for
                    Principal Capital Income Investors,  Ms. Stange manages over
                    $3 billion in fixed-income portfolios invested in public and
                    private   corporate   bonds,   mortgage-backed   securities,
                    commercial    mortgage-backed    securities,    asset-backed
                    securities and commercial real estate mortgages.  Ms. Stange
                    joined  Principal  in 1989 after  earning her  Master's  and
                    Bachelor's  degrees in Finance from the  University of Iowa.
                    She has  earned  the  right to use the  Chartered  Financial
Analyst designation.                    

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  William C. Armstrong,  CFA. Mr. Armstrong leads
                    the   multi-sector/core   portfolio   management  group  for
                    Principal  Capital Income  Investors' stable value division.
                    Mr.  Armstrong has been with Principal since 1992. He earned
                    his  Master's  degree  from the  University  of Iowa and his
                    Bachelor's degree from Kearney State College.  He has earned
                    the   right   to  use  the   Chartered   Financial   Analyst
designation.                            

GOVERNMENT SECURITIES FUND                                                      
The Fund seeks to provide current income.                                       

Main Strategies                                                                 

The Fund seeks to achieve its  investment  objective by  investing  primarily in
securities   that  are  issued  by  the  U.S.   Government,   its   agencies  or
instrumentalities.   The  Fund  may   invest   in   mortgage-backed   securities
representing an interest in a pool of mortgage loans. These securities are rated
AAA by Standard & Poor's Corporation or Aaa by Moody's Investor  Services,  Inc.
or,  if  unrated,  determined  by the  Sub-Advisor,  PCII,  to be of  equivalent
quality.                                                                        

The Fund relies on the professional judgment of PCII to make decisions about the
Fund's portfolio securities.  The basic investment philosophy of PCII is to seek
undervalued  securities that represent good long-term investment  opportunities.
Securities  may be sold  when  PCII  believes  they  no  longer  represent  good
long-term value.                                                                

The Fund may also hold cash and cash  equivalents.  The size of the Fund's  cash
position depends on various factors,  including market  conditions and purchases
and  redemptions of Fund shares.  A large cash position could impact the ability
of the Fund to  achieve  its  objective  but it also  would  reduce  the  Fund's
exposure  in the  event of a  market  downturn  and  provide  liquidity  to make
additional investments or to meet redemptions.                                  

Main Risks                                                                      

Although  some of the  securities  the Fund  purchases  are  backed  by the U.S.
government  and its  agencies,  shares  of the  Fund  are not  guaranteed.  When
interest rates fall, the value of the Fund's shares rises,  and when rates rise,
the value  declines.  Because of the fluctuation in values of the Fund's shares,
if shares are sold when their  value is less than the price paid,  the  investor
will lose money.                                                                

U.S.  Government  securities do not involve the degree of credit risk associated
with  investments in lower quality  fixed-income  securities.  As a result,  the
yields  available from U.S.  Government  securities are generally lower than the
yields   available  from  many  other   fixed-income   securities.   Like  other
fixed-income  securities,  the values of U.S.  Government  securities  change as
interest rates fluctuate.  Fluctuations in the value of the Fund's securities do
not affect  interest  income on  securities  already  held by the Fund,  but are
reflected  in  the  Fund's  price  per  share.  Since  the  magnitude  of  these
fluctuations  generally is greater at times when the Fund's average  maturity is
longer,  under  certain  market  conditions  the Fund may  invest in  short-term
investments  yielding  lower  current  income  rather than  investing  in higher
yielding longer term securities.                                                

Mortgage-backed   securities  are  subject  to  prepayment  risk.   Prepayments,
unscheduled   principal   payments,   may  result  from  voluntary   prepayment,
refinancing  or  foreclosure  of the  underlying  mortgage.  When interest rates
decline,  significant unscheduled prepayments may result. These prepayments must
then be  reinvested at lower rates.  Prepayments  may also shorten the effective
maturities of these securities,  especially during periods of declining interest
rates.  On the other hand,  during periods of rising interest rates, a reduction
in  prepayments  may  increase the  effective  maturities  of these  securities,
subjecting  them to the risk of decline in market  value in  response  to rising
interest rates and potentially increasing the volatility of the fund.           

In addition,  prepayments may cause losses on securities  purchased at a premium
(dollar amount by which the price of the bond exceeds its face value). At times,
mortgage-backed  securities  may have higher than market  interest rates and are
purchased at a premium.  Unscheduled  prepayments  are made at par and cause the
Fund to experience a loss of some or all of the premium.                        

As with all mutual funds,  as the value of the Fund's assets rise and fall,  the
Fund's share price  changes.  If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.

Investor Profile                                                                

The  Fund  is   generally   a  suitable   investment   for   investors   seeking
diversification  by  investing  in  a  fixed-income  mutual  fund.              

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $117     $365                              

Advisors Preferred Class   99     309                               

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.40%       0.40%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.15%       0.97%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Martin J. Schafer.  Mr.  Schafer is a portfolio
                    manager for Principal Capital Income Investors  specializing
                    in the management of mortgage-backed securities utilizing an
                    active, total return approach.  He joined Principal in 1977.
                    He holds a BBA in Accounting and Finance from the University
of Iowa.                                

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:   Kelly  R.  Alexander.   Ms.  Alexander  shares
                    management  responsibility for nine fixed-income  portfolios
                    at Principal Capital Income Investors,  with combined assets
                    of  more  than  $4  billion.  Before  assuming  her  current
                    position, she had similar responsibilities with Invista from
                    1992 to 2000.  She joined  Principal  in 1983 to develop the
                    mortgage-backed    securities   trading   department.    Her
                    experience   includes   hedging,   securitization,   product
                    development  and  portfolio  management  as well as the risk
                   management of a $1.5 billion residential mortgage pipeline.

HIGH  QUALITY  INTERMEDIATE-TERM  BOND FUND                                     
The Fund seeks to provide current income.                                       

Main Strategies                                                                 

The Fund invests primarily in intermediate term fixed-income  securities rated A
or higher by  Standard & Poor's  Rating  Service  ("S&P")  or Moody's  Investors
Service, Inc. ("Moody's"). Under normal circumstances, the Fund invests at least
80% of its assets in:                                                           
o    securities  issued or guaranteed by the U.S.  Government or its agencies or
instrumentalities;                                                    
o    mortgage-backed  securities  representing an interest in a pool of mortgage
loans;                                                                
o    debt securities and taxable municipal bonds rated, at the time of purchase,
     in one of the top three  categories by S&P or Moody's or, if not rated,  in
the opinion of the Sub-Advisor, PCII, of comparable quality; and      
o    securities issued or guaranteed by the governments of Canada (Provincial or
Federal Government) or the United Kingdom payable in U.S. dollars.    

The rest of the Fund's assets may be invested in:                               
o    common stock and preferred stock that may be convertible  (may be exchanged
     for a fixed  number of shares of common stock of the same issuer) or may be
non-convertible; or                                                   
o    securities  rated less than the three highest  grades of S&P or Moody's but
     not lower  than BBB- (S&P) or BAA3  (Moody's)  (i.e.  less than  investment
grade).                                                               

Under unusual market or economic  conditions,  the Fund may invest up to 100% of
its assets in cash and cash equivalents.                                        

Main Risks                                                                      

The average  portfolio  duration of the Fund normally  varies within a three- to
six-year time frame based on PCII's forecast for interest  rates.  Duration is a
measure  of the  expected  life  of a  fixed-income  security  that  is  used to
determine the  sensitivity of a security's  price to changes in interest  rates.
The  longer a  security's  duration,  the more  sensitive  it is to  changes  in
interest  rates.  A Fund with a longer average  portfolio  duration will be more
sensitive  to  changes  in  interest  rates  than a Fund with a shorter  average
portfolio duration.                                                             

Although  some of the  securities  the Fund  purchases  are  backed  by the U.S.
government and its agencies,  shares of the Fund are not guaranteed.  The values
of U.S. Government  securities change as interest rates fluctuate.  Fluctuations
in  the  value  of the  Fund's  securities  do not  affect  interest  income  on
securities  already held by the Fund,  but are reflected in the Fund's price per
share.                                                                          

Mortgage-backed  securities are subject to prepayment  risk. When interest rates
decline,  significant unscheduled prepayments may result. These prepayments must
then be  reinvested at lower rates.  Prepayments  may also shorten the effective
maturities of these securities,  especially during periods of declining interest
rates.  On the other hand,  during periods of rising interest rates, a reduction
in  prepayments  may  increase the  effective  maturities  of these  securities,
subjecting  them to the risk of decline in market  value in  response  to rising
interest. This may increase the volatility of the Fund.                         

When  interest  rates fall,  the price of a bond rises and when  interest  rates
rise, the price declines. In addition,  the value of securities held by the Fund
may be affected by factors  such as credit  rating of the entity that issued the
bond and  effective  maturities of the bond.  Lower quality and longer  maturity
bonds will be subject to greater credit risk and price  fluctuations than higher
quality and shorter maturity bonds.                                             

As with all mutual funds,  as the value of the Fund's assets rise and fall,  the
Fund's share price  changes.  If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.

Investor Profile                                                                

The  Fund  is   generally   a  suitable   investment   for   investors   seeking
diversification by investing in a fixed-income mutual fund.                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $117     $365                              

Advisors Preferred Class   99     309                               

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.40%       0.40%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.15%       0.97%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Kevin W. Croft, CFA. As a portfolio manager for
                    Principal  Capital  Income  Investors,  Mr. Croft has direct
                   responsibility  for $950  million  invested in fixed-income
                    portfolios.  He joined  Principal  in 1988.  He  earned  his
                    Master's and Bachelor's  degrees from Drake  University.  He
                    has earned the right to use the Chartered  Financial Analyst
designation.                            

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Martin J. Schafer.  Mr.  Schafer is a portfolio
                    manager for Principal Capital Income Investors  specializing
                    in the management of mortgage-backed securities utilizing an
                    active, total return approach.  He joined Principal in 1977.
                    He holds a BBA in Accounting and Finance from the University
of Iowa.                                

HIGH QUALITY LONG-TERM BOND FUND                                                
The Fund seeks to provide current income.                                       

Main Strategies                                                                 

The Fund  invests  primarily  in long-term  fixed-income  securities  rated A or
higher by Standard & Poor's Rating Service ("S&P") or Moody's Investors Service,
Inc. ("Moody's").  Under normal circumstances,  the Fund invests at least 75% of
its assets in:                                                                  
o    securities  issued or guaranteed by the U.S.  Government or its agencies or
instrumentalities;                                                    
o    mortgage-backed  securities  representing an interest in a pool of mortgage
loans;                                                                
o    debt securities and taxable municipal bonds rated, at the time of purchase,
     in one of the top three  categories by S&P or Moody's or, if not rated,  in
the opinion of the Sub-Advisor, PCII, of comparable quality; and      
o    securities issued or guaranteed by the governments of Canada (Provincial or
Federal Government) or the United Kingdom payable in U.S. dollars.    

The rest of the Fund's assets may be invested in:                               
o    common stock and preferred stock that may be convertible  (may be exchanged
     for a fixed  number of shares of common stock of the same issuer) or may be
non-convertible; or                                                   
o    securities  rated less than the three highest  grades of S&P or Moody's but
     not lower than BBB- (S&P) or BAA3  (Moody's)  (i.e.,  less than  investment
grade).                                                               

Under unusual market or economic  conditions,  the Fund may invest up to 100% of
its assets in cash and cash equivalents.                                        

Main Risks                                                                      

The average  portfolio  duration of the Fund  normally is greater than six years
and is based on PCII's forecast for interest rates. Duration is a measure of the
expected  life  of a  fixed-income  security  that  is  used  to  determine  the
sensitivity  of a security's  price to changes in interest  rates.  The longer a
security's  duration,  the more sensitive it is to changes in interest  rates. A
Fund with a longer average portfolio  duration will be more sensitive to changes
in interest rates than a Fund with a shorter average portfolio duration.        

Although  some of the  securities  the Fund  purchases  are  backed  by the U.S.
government and its agencies,  shares of the Fund are not guaranteed.  The values
of U.S. Government  securities change as interest rates fluctuate.  Fluctuations
in  the  value  of the  Fund's  securities  do not  affect  interest  income  on
securities  already held by the Fund,  but are reflected in the Fund's price per
share.                                                                          

When  interest  rates fall,  the price of a bond rises and when  interest  rates
rise, the price declines. In addition,  the value of securities held by the Fund
may be affected by factors  such as credit  rating of the entity that issued the
bond and  effective  maturities of the bond.  Lower quality and longer  maturity
bonds will be subject to greater credit risk and price  fluctuations than higher
quality and shorter maturity bonds.                                             

As with all mutual funds,  as the value of the Fund's assets rise and fall,  the
Fund's share price  changes.  If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.

Investor Profile                                                                

The  Fund  is   generally   a  suitable   investment   for   investors   seeking
diversification by investing in a fixed-income mutual fund.                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years       

Advisors Select Class    $117     $365                                

Advisors Preferred Class   99     309                                 

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.40%       0.40%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.15%       0.97%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Kevin W. Croft, CFA. As a portfolio manager for
                    Principal  Capital  Income  Investors,  Mr. Croft has direct
                   responsibility  for $950  million  invested in fixed-income
                    portfolios.  He joined  Principal  in 1988.  He  earned  his
                    Master's and Bachelor's  degrees from Drake  University.  He
                    has earned the right to use the Chartered  Financial Analyst
designation.                            

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Martin J. Schafer.  Mr.  Schafer is a portfolio
                    manager for Principal Capital Income Investors  specializing
                    in the management of mortgage-backed securities utilizing an
                    active, total return approach.  He joined Principal in 1977.
                    He holds a BBA in Accounting and Finance from the University
of Iowa.                                

BALANCED FUND                                                                   
The Fund  seeks to  generate a total  return  consisting  of current  income and
long-term growth of capital.                                                    

Main Strategies                                                                 

The Fund seeks growth of capital and current  income by  investing  primarily in
common  stocks  and  corporate  bonds.  It  may  also  invest  in  other  equity
securities,  government bonds and notes  (obligations of the U.S.  government or
its agencies or  instrumentalities)  and cash.  Though the  percentages  in each
category are not fixed,  common  stocks  generally  represent  40% to 70% of the
Fund's assets. The remainder of the Fund's assets is invested in bonds and cash.

Invista  serves as Sub-Advisor  for the portion of the Fund's  portfolio that is
invested  in  equity  securities.  In making  its  selection  Invista  looks for
companies that have predictable  earnings and which,  based on growth prospects,
it believes are  undervalued  in the  marketplace.  Invista buys stocks with the
objective  of  long-term  capital  appreciation.  From  time  to  time,  Invista
purchases stocks with the expectation of price appreciation over the short-term.
In response to changes in economic conditions, Invista may change the make-up of
the portfolio and emphasize  different  market sectors by buying and selling the
portfolio's stocks. The Fund may invest up to 25% of its assets in securities of
foreign companies.                                                              

PCII  serves as  Sub-Advisor  for the  portion of the Fund's  portfolio  that is
invested in fixed-income  securities.  Fixed-income  securities are purchased to
generate  income and for  capital  appreciation  purposes  when PCII thinks that
declining  interest rates may increase market value.  Deep discount bonds (those
which sell at a substantial  discount from their face amount) are also purchased
to generate capital appreciation.  The Fund may invest in bonds with speculative
characteristics  but does not  intend  to invest  more than 5% of its  assets in
securities rated below BBB by Standard & Poor's Rating Service or Baa by Moody's
Investors Service,  Inc.  Fixed-income  securities that are not investment grade
are  commonly  referred  to as "junk  bonds"  or high  yield  securities.  These
securities offer a higher yield than other,  higher rated  securities,  but they
carry a  greater  degree  of risk and are  considered  speculative  by the major
credit rating agencies.                                                         

Main Risks                                                                      

The value of the stocks owned by the Fund changes on a daily basis. Stock prices
reflect the  activities  of individual  companies as well as general  market and
economic conditions. In the short-term,  stock prices can fluctuate dramatically
in response to these factors.  Foreign stocks carry risks that are not generally
found in  stocks  of U.S.  companies.  These  include  the risk  that a  foreign
security  could  lose value as a result of  political,  financial  and  economic
events in foreign countries.  In addition,  foreign securities may be subject to
securities  regulators with less stringent  accounting and disclosure  standards
than are required of U.S. companies.                                            

Fixed-income  security  values change  daily.  Their prices  reflect  changes in
interest rates, market conditions and announcements of other economic, political
or financial  information.  When interest  rates fall, the price of a bond rises
and when interest rates rise, the price declines.                               

Because  the Fund  invests in both stocks and bonds,  the Fund may  underperform
stock funds when stocks are in favor and underperform  bond funds when bonds are
in favor.  As with all mutual funds,  as the value of the Fund's assets rise and
fall,  the Fund's share price  changes.  If the investor  sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.                                                                     

Investor Profile                                                                

The Fund is generally a suitable investment for investors seeking current income
as well as long-term growth of capital.                                         

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years   

Advisors Select Class    $127     $397                            

Advisors Preferred Class  109      340                            

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.50%       0.50%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.25%       1.07%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  William C. Armstrong,  CFA. Mr. Armstrong leads
                    the   multi-sector/core   portfolio   management  group  for
                    Principal  Capital Income  Investors' stable value division.
                    Mr.  Armstrong has been with Principal since 1992. He earned
                    his  Master's  degree  from the  University  of Iowa and his
                    Bachelor's degree from Kearney State College.  He has earned
                    the   right   to  use  the   Chartered   Financial   Analyst
designation.                            

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Judith A. Vogel,  CFA. Ms. Vogel is a portfolio
                    manager for domestic core and balanced portfolios. Ms. Vogel
                    joined  Principal  in  1982 as a  strategist  and was one of
                    Invista's   founding   members  in  1985.   She  earned  her
                    Bachelor's  degree in Business  Administration  from Central
                    College.  She has  earned  the  right  to use the  Chartered
Financial Analyst designation.          

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager: Mary Sunderland, CFA. Ms. Sunderland manages the
                    large-cap growth portfolios for Invista.  She joined Invista
                    in early 2000  following a 10-year career with Skandia Asset
                    Management  where she directed  their more than $2.5 billion
                    U.S. Equity Large Cap Growth portfolios and U.S.  Technology
                    portfolios.  Ms. Sunderland earned her MBA from the Columbia
                    University  Graduate  School of Business and her  Bachelor's
                    degree  from  Northwestern  University.  She has  earned the
                 right to use the Chartered Financial Analyst designation.

LARGECAP BLEND FUND                                                             
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests primarily in common stocks of large  capitalization  companies.
Under normal market  conditions,  the Fund invests at least 65% of its assets in
companies with a market  capitalization  of greater than $10 billion at the time
of purchase. Market capitalization is defined as total current market value of a
company's outstanding common stock.                                             

In selecting  securities for  investment,  the  Sub-Advisor,  Invista,  looks at
stocks with value and/or growth characteristics and will construct an investment
portfolio  that will have a "blend"  of stocks  with  these  characterisics.  In
managing the assets of the Fund,  Invista  does not have a policy of  preferring
one of these categories to the other. The value  orientation  emphasizes  buying
stocks at less than their  investment  value and avoiding stocks whose price has
been artificially built up. The growth  orientation  emphasizes buying stocks of
companies  whose  potential for growth of capital and earnings is expected to be
above average.                                                                  

Invista uses a bottom-up  approach in its  selection of  individual  securities.
Selection  is based on  fundamental  analysis  of a  company  relative  to other
companies with the focus being on Invista's estimation of forward-looking  rates
of return.  Up to 25% of Fund  assets  may be  invested  in foreign  securities.

Invista then constructs a portfolio that is "benchmark aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its investments to the securities of issuers in the S&P 500 Index. Invista
is prepared to weight  sectors and  industries  differently  from the  benchmark
weightings.                                                                     

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Foreign  securities  carry risks that are not generally  found in stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large capitalization  stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because certain of the securities purchased
by the Fund present greater  opportunities  for growth because of high potential
earnings growth,  they may also involve greater risk than securities that do not
have the same potential. The value of the Fund's equity securities may fluctuate
on a daily basis.  As with all mutual  funds,  as the value of the Fund's assets
rise and fall, the Fund's share price changes. If the investor sells Fund shares
when their value is less than the price the investor paid for them, the investor
will lose money.                                                                

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer investing in larger, established companies.                      

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $122     $381                              

Advisors Preferred Class  104      325                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.45%       0.45%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.20%       1.02%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Mark  T.  Williams,  CFA.  Mr.  Williams  manages  Invista's
                    research    department    conducting    macroeconomic    and
                    quantitative   research   as   applied   to   domestic   and
                    international economic trends and forecasts.  Previously, he
                    served as a portfolio  manager with direct experience in the
                    management  of  core,   value-oriented  and  growth-oriented
                    portfolios. He joined Invista in 1989 with seven years prior
                    experience in the technology industry. Mr. Williams received
                    his MBA from Drake University and holds a Bachelor's  degree
                    in Finance from the  University of the State of New York. He
                    has earned the right to use the Chartered  Financial Analyst
designation.                            

LARGECAP GROWTH FUND                                                            
The Fund seeks long-term growth of capital                                      

Main Strategies                                                                 

The Fund invests primarily in common stocks and other equity securities of large
capitalization  companies with strong  earnings growth  potential.  Under normal
market conditions, the Fund invests at least 65% of its assets in companies with
a market  capitalization  of greater  than $10 billion at the time of  purchase.
Market  capitalization  is defined as total current  market value of a company's
outstanding common stock.                                                       

The  Sub-Advisor,  Invista,  uses  a  bottom-up  approach  in its  selection  of
individual  securities  that it believes  have an above  average  potential  for
earnings  growth.  Selection  is  based on  fundamental  analysis  of a  company
relative to other  companies  with the focus being on  Invista's  assessment  of
current and future sales growth and operating  margins.  Companies meeting these
criteria will typically have  progressed  beyond the  development  stage and are
focused on growing  the  business.  Up to 25% of Fund  assets may be invested in
foreign securities.                                                             

Invista then constructs a portfolio that is "benchmark aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments to the securities of issuers in the S&P 500/BARRA  Growth
Index. Invista is prepared to weight sectors and industries differently from the
benchmark weightings.                                                           

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large  capitalization  growth stocks, may underperform  compared to other market
segments or to the equity markets as a whole.  The  securities  purchased by the
Fund present greater opportunities for growth because of high potential earnings
growth,  but may also involve greater risks than securities that do not have the
same  potential.  The value of the Fund's  securities  may  fluctuate on a daily
basis.  As with all mutual  funds,  as the value of the Fund's  assets  rise and
fall,  the Fund's share price  changes.  If the investor  sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.                                                                     

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $132     $412                              

Advisors Preferred Class  114      356                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.55%       0.55%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.30%       1.12%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Mary Sunderland,  CFA. Ms. Sunderland  manages the large-cap
                    growth  portfolios for Invista.  She joined Invista in early
                    2000   following  a  10-year   career  with  Skandia   Asset
                    Management  where she directed  their more than $2.5 billion
                    U.S. Equity Large Cap Growth portfolios and U.S.  Technology
                    portfolios.  Ms. Sunderland earned her MBA from the Columbia
                    University  Graduate  School of Business and her  Bachelor's
                    degree  from  Northwestern  University.  She has  earned the
                 right to use the Chartered Financial Analyst designation.

LARGECAP S&P 500 INDEX FUND                                                     
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

Under normal market  conditions,  the Fund invests at least 80% of its assets in
common  stocks of  companies  that  compose the  Standard & Poor's*  ("S&P") 500
Index.  The  Sub-Advisor,   Invista,  will  attempt  to  mirror  the  investment
performance  of the index by allocating the Fund's assets in  approximately  the
same  weightings as the S&P 500. The S&P 500 is an unmanaged index of 500 common
stocks  chosen  to  reflect  the  industries  of the U.S.  economy  and is often
considered  a proxy for the stock  market in general.  Each stock is weighted by
its  market   capitalization   which  means   large   companies   have   greater
representation in the index than smaller ones. Over the long-term, Invista seeks
a very close correlation between  performance of the Fund, before expenses,  and
that of the S&P 500. It is unlikely that a perfect  correlation  of 1.00 will be
achieved.                                                                       

The Fund uses an indexing  strategy and is not managed  according to traditional
methods of "active"  investment  management.  Active  management  would  include
buying and  selling  securities  based on  economic,  financial  and  investment
judgement.  Instead,  the Fund uses a passive investment  approach.  Rather than
judging  the merits of a  particular  stock in  selecting  investments,  Invista
focuses on tracking the S&P 500.  Invista may also use stock index  futures as a
substitute for the sale or purchase of securities. It does not attempt to manage
market  volatility,  use  defensive  strategies  or  reduce  the  effect  of any
long-term periods of poor stock performance.                                    

The correlation between Fund and index performance may be affected by the Fund's
expenses, changes in securities markets, changes in the composition of the index
and the timing of  purchases  and sales of Fund  shares.  The Fund may invest in
futures and options,  which could carry  additional  risks such as losses due to
unanticipated  market price  movements and could also reduce the opportunity for
gain.                                                                           

Main Risks                                                                      

Because of the  difficulty  and  expense of  executing  relatively  small  stock
trades, the Fund may not always be invested in the less heavily weighted S&P 500
stocks. At times, the Fund's portfolio may be weighted  differently from the S&P
500,  particularly  if the  Fund has a small  level  of  assets  to  invest.  In
addition, the Fund's ability to match the performance of the S&P 500 is affected
to some  degree by the size and  timing of cash  flows into and out of the Fund.
The Fund is managed to attempt to minimize such effects.                        

Invista  reserves the right to omit or remove any of the S&P 500 stocks from the
Fund if it determines that the stock is not sufficiently  liquid. In addition, a
stock  might be  excluded or removed  from the Fund if  extraordinary  events or
financial conditions lead Invista to believe that it should not be a part of the
Fund's assets.                                                                  

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

In addition,  the Fund is subject to the risk that its principal market segment,
large capitalization  stocks, may underperform compared to other market segments
or to the equity markets as a whole.  Because  different types of stocks tend to
shift in and out of favor  depending  on market  and  economic  conditions,  the
Fund's  performance may sometimes be lower or higher than that of other types of
funds.                                                                          

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate dramatically in response to these factors.           

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital,  willing to accept the potential for volatile fluctuations in
the value of investments and preferring a passive rather than active  management
style.                                                                          

*  Standard & Poor's  Corporation  is not  affiliated  with the LargeCap S&P 500
   Index Fund,  Invista  Capital  Management,  LLC or Principal  Life  Insurance
Company.                                                                  

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class     $92     $287                              

Advisors Preferred Class   74      230                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.15%       0.15%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.90%       0.72%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Robert Baur,  Ph.D.  Dr. Baur joined Invista in
                    1995 after acting as a professor of finance and economics at
                    Drake  University  and Grand View  College.  He received his
                    Bachelor's  degree in Mathematics and his Ph.D. in Economics
                    from Iowa State University.  Dr. Baur also did post-doctoral
                    study  in  finance  and  economics  at  the   University  of
                    Minnesota. He also holds a BS in Mathematics from Iowa State
University.                             

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Rhonda  VanderBeek.  Ms.  Vander  Beek  directs
                    trading  operations for Invista index  accounts.  She joined
                    Principal  in 1983 as a  trading  state  clerk  and moved to
                    Invista in 1992.  Ms. Vander Beek has  extensive  experience
           trading both domestic and international securities.

LARGECAP VALUE FUND                                                             
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests primarily in common stocks and other equity securities of large
capitalization  companies.  Under normal market conditions,  the Fund invests at
least 65% of its assets in  companies  with a market  capitalization  of greater
than $10 billion at the time of purchase.  Market  capitalization  is defined as
total current market value of a company's  outstanding common stock.Up to 25% of
Fund assets may be invested in foreign securities.                              

The Fund invests in stocks that, in the opinion of the Sub-Advisor, Invista, are
undervalued in the marketplace at the time of purchase.  This value  orientation
emphasizes buying stocks at less than their investment value and avoiding stocks
whose price has been artifically built up. Value stocks are often  characterized
by below average  price/earnings  ratios (P/E) and above average dividend yields
relative to their peers.  The Fund's  investments are selected  primarily on the
basis of  fundamental  security  analysis,  focusing on the company's  financial
stability,  sales,  earnings,  dividend  trends,  return on equity and  industry
trends.  The Fund often invests in stocks  considered  temporarily out of favor.
Investors  often  overreact to bad news and do not respond quickly to good news.
This results in undervalued stocks of the type held by the Fund.                

Invista then constructs a portfolio that is "benchmark aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments to the  securities of issuers in the S&P 500/BARRA  Value
Index. Invista is prepared to weight sectors and industries differently from the
benchmark weightings.                                                           

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large  capitalization  value stocks,  may underperform  compared to other market
segments or to the equity markets as a whole. The value of the Fund's securities
may fluctuate on a daily basis.  As with all mutual  funds,  as the value of the
Fund's  assets rise and fall,  the Fund's share price  changes.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.                                             

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer  investing in companies that appear to be considered  undervalued
relative to similar companies.                                                  

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years       

Advisors Select Class    $122     $381                                

Advisors Preferred Class  104      325                                

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.45%       0.45%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.20%       1.02%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Scott D.  Opsal,  CFA.  Mr.  Opsal is the  Chief  Investment
                    Officer  for  Invista  and has  directed  the  international
                    equities  group since 1993.  He sits on the firm's  Board of
                    Directors,  is a member  of the Iowa  Society  of  Financial
                    Analysts and is a Research Director of the Financial Markets
                    Institute at the University of Iowa.  Scott joined Principal
                    in 1983  and was  one of  Invista's  founders  in  1985.  He
                    received a Master's  degree from the University of Minnesota
                    and a Bachelor's degree from Drake University, where he is a
                    visiting instructor in the Finance Department. He has earned
                    the   right   to  use  the   Chartered   Financial   Analyst
designation.                            

MIDCAP S&P 400 INDEX FUND                                                       
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

Under normal market  conditions,  the Fund invests at least 80% of its assets in
common stocks of companies  that compose the Standard & Poor's*  ("S&P")  MidCap
400 Index.  The  Sub-Advisor,  Invista,  will  attempt to mirror the  investment
performance  of the index by allocating the Fund's assets in  approximately  the
same  weightings as the S&P MidCap 400. The S&P MidCap 400 is an unmanaged index
of 400 common stocks of medium sized U.S. (and some  Canadian)  companies.  Each
stock is weighted by its market capitalization which means larger companies have
greater  representation  in the index than  smaller  ones.  Over the  long-term,
Invista seeks a very close correlation  between  performance of the Fund, before
expenses,  and  that  of the S&P  MidCap  400.  It is  unlikely  that a  perfect
correlation of 1.00 will be achieved.                                           

The Fund uses an indexing  strategy and is not managed  according to traditional
methods of "active"  investment  management.  Active  management  would  include
buying and  selling  securities  based on  economic,  financial  and  investment
judgement.  Instead,  the Fund uses a passive investment  approach.  Rather than
judging  the merits of a  particular  stock in  selecting  investments,  Invista
focuses on tracking the S&P MidCap 400. Invista may also use stock index futures
as a substitute for the sale or purchase of  securities.  It does not attempt to
manage market volatility,  use defensive  strategies or reduce the effect of any
long-term periods of poor stock performance.                                    

The correlation between Fund and index performance may be affected by the Fund's
expenses, changes in securities markets, changes in the composition of the index
and the timing of  purchases  and sales of Fund  shares.  The Fund may invest in
futures and options,  which could carry  additional  risks such as losses due to
unanticipated market price movements,  and could also reduce the opportunity for
gain.                                                                           

Main Risks                                                                      

Because of the  difficulty  and  expense of  executing  relatively  small  stock
trades,  the Fund may not always be invested in the less  heavily  weighted  S&P
MidCap 400 stocks.  At times, the Fund's  portfolio may be weighted  differently
from the S&P MidCap 400, particularly if the Fund has a small level of assets to
invest.  In addition,  the Fund's  ability to match the  performance  of the S&P
MidCap 400 is  affected to some degree by the size and timing of cash flows into
and out of the Fund. The Fund attempts to minimize such effects.                

Invista  reserves  the right to omit or remove  any of the S&P MidCap 400 stocks
from the Fund if it determines  that the stock is not  sufficiently  liquid.  In
addition,  a stock might be excluded or removed  from the Fund if  extraordinary
events or financial  conditions  lead Invista to believe that it should not be a
part of the Fund's assets.                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-size  companies  may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

In addition,  the Fund is subject to the risk that its principal market segment,
medium capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole.  Because  different types of stocks tend to
shift in and out of favor  depending  on market  and  economic  conditions,  the
Fund's  performance may sometimes be lower or higher than that of other types of
funds.                                                                          

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate dramatically in response to these factors.           

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital,  willing to accept the potential for volatile fluctuations in
the value of investments and preferring a passive rather than active  management
style.                                                                          

*  Standard & Poor's Corporation is not affiliated with the MidCap S&P 400 Index
Fund, Invista Capital Management LLC or Principal Life Insurance Company. 

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years   

Advisors Select Class     $92     $287                            

Advisors Preferred Class   74      230                            

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.15%       0.15%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.90%       0.72%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Co-Manager:  Robert Baur,  Ph.D.  Dr. Baur joined Invista in
                    1995 after acting as a professor of finance and economics at
                    Drake  University  and Grand View  College.  He received his
                    Bachelor's  degree in Mathematics and his Ph.D. in Economics
                    from Iowa State University.  Dr. Baur also did post-doctoral
                    study  in  finance  and  economics  at  the   University  of
                    Minnesota. He also holds a BS in Mathematics from Iowa State
University.                             

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Co-Manager:  Rhonda  VanderBeek.  Ms.  Vander  Beek  directs
                    trading  operations for Invista index  accounts.  She joined
                    Principal  in 1983 as a  trading  state  clerk  and moved to
                    Invista in 1992.  Ms. Vander Beek has  extensive  experience
           trading both domestic and international securities.

MIDCAP VALUE FUND                                                               
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests primarily in common stocks of medium capitalization  companies.
Under normal market  conditions,  the Fund invests at least 65% of its assets in
companies with a market capitalization between $1 billion and $10 billion at the
time of purchase. Market capitalization is defined as total current market value
of a company's outstanding common stock.Up to 25% of Fund assets may be invested
in foreign securities.                                                          

The Fund invests in stocks that, in the opinion of the Sub-Advisor, Invista, are
undervalued in the marketplace at the time of purchase.  This value  orientation
emphasizes  buying stocks at less than their inherent value and avoiding  stocks
whose price has been artifically built up. Value stocks are often  characterized
by below average  price/earnings ratios (P/E) and above average dividend yields.
The  Fund's  investments  are  selected  primarily  on the basis of  fundamental
security  analysis,  focusing  on  the  company's  financial  stability,  sales,
earnings,  dividend trends, return on equity and industry trends. The Fund often
invests in stocks  considered  temporarily  out of favor.  Investors  often over
react to bad news and do not  respond  quickly  to good  news.  This  results in
undervalued stocks of the type held by this Fund.                               

Invista then constructs a portfolio that is "benchmark aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments to the  securities of issuers in the S&P 400/BARRA  Value
Index. Invista is prepared to weight sectors and industries differently from the
benchmark weightings.                                                           

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-size  companies  may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
medium capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole.  Because  different types of stocks tend to
shift in and out of favor  depending  on market  and  economic  conditions,  the
Fund's  performance may sometimes be lower or higher than that of other types of
funds. The value of the Fund's equity securities may fluctuate on a daily basis.
If the  investor  sells Fund  shares when their value is less than the price the
investor paid for them, the investor will lose money.                           

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth  of  capital  and  willing  to  accept  the  potential   for   short-term
fluctuations in the value of investments.                                       

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years   

Advisors Select Class    $143     $443                            

Advisors Preferred Class  124      387                            

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.65%       0.65%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses...................   0.38        0.26                  

Total Fund Operating Expenses   1.40%       1.22%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Catherine A. Zaharis,  CFA. Ms.  Zaharis  directs  portfolio
                    management  for the  Invista  value team and leads the value
                    research  group.  She joined  Invista in 1985.  Ms.  Zaharis
                    received  her  MBA  from  Drake  University  and  her BBA in
                    Finance  from the  University  of Iowa.  She has  earned the
                 right to use the Chartered Financial Analyst designation.

PARTNERS LARGECAP BLEND FUND                                                    
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund  pursues its  investment  objective  by  investing  primarily in equity
securities of companies  that offer  superior  growth  prospects or of companies
whose stock is undervalued.  Under normal market conditions, the Fund invests at
least 65% of its assets in companies with large market  capitalizations.  Market
capitalization  is  defined  as  total  current  market  value  of  a  company's
outstanding common stock.                                                       

In selecting  securities for investment,  the Sub-Advisor,  Federated,  looks at
stocks with value and/or growth characteristics and will construct an investment
portfolio  that will have a "blend" of stocks  with these  characteristics.  The
value  orientation  emphasizes  buying  stocks  at  less  than  their  intrinsic
investment  value and avoiding stocks whose price has been  unjustifiably  built
up. The growth orientation emphasizes buying stocks of companies whose potential
for growth of capital and  earnings is expected to be above  average.  Federated
attempts to identify good  long-term  values through  disciplined  investing and
careful fundamental research.                                                   

Using its own  quantitative  process,  Federated  rates the  future  performance
potential of companies.  Federated  evaluates each company's earnings quality in
light of its  current  valuation  to narrow  the list of  attractive  companies.
Federated   then  evaluates   product   positioning,   management   quality  and
sustainability  of current growth trends of those companies.  Using this type of
fundamental  analysis,  Federated  selects the most promising  companies for the
Fund's portfolio.                                                               

Companies  with  similar  characteristics  may  be  grouped  together  in  broad
categories  called  sectors.  In determining the amount to invest in a security,
Federated  limits the Fund's exposure to each business sector that comprises the
S&P 500 Index.  The Fund's  allocation  to a sector will not be less than 50% or
more than 200% of the Index's  allocation to that sector. The Fund may invest up
to 25% of its assets in securities of foreign companies.                        

The Fund actively  trades its portfolio  securities in an attempt to achieve its
investment  objective.  Active  trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its  shareholders,  which are taxed at a higher rate than longer-term  gains
(losses).  Actively trading  portfolio  securities  increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.                 

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Companies  with  similar  characteristics  may  be  grouped  together  in  broad
categories called sectors.  Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As Federated  allocates
more of the  Fund's  portfolio  holdings  to a  particular  sector,  the  Fund's
performance  will  be  more  susceptible  to any  economic,  business  or  other
developments that generally affect that sector.                                 

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large capitalization  stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because certain of the securities purchased
by the Fund  present  greater  opportunities  for growth,  they may also involve
greater risks than securities that do not have the same potential.  The value of
the Fund's equity  securities may fluctuate on a daily basis. As with all mutual
funds,  as the value of the Fund's assets rise and fall,  the Fund's share price
changes.  If the  investor  sells Fund  shares when their value is less than the
price the investor paid for them, the investor will lose money.                 

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer investing in larger, established companies.                      

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $153     $474                              

Advisors Preferred Class  134      418                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.75%       0.75%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.50%       1.32%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000 Co-Manager:  James E.  Grefenstette,  CFA. Mr.  Grefenstette
(Fund's inception)  joined  Federated  in 1992 and has been a Portfolio  Manager
                    and a Vice  President  of  Federated  Investment  Management
                    Company since 1996.  From 1994 until 1996, Mr.  Grefenstette
                    was a Portfolio  Manager and an Assistant  Vice President of
                    Federated  Investment  Management Company.  Mr. Grefenstette
                    received his MS in Industrial  Administration  from Carnegie
                    Mellon  University.  He has  earned  the  right  to use  the
Chartered Financial Analyst designation.

Since _______, 2000 Co-Manager:   J.  Thomas  Madden,  CFA.  Mr.  Madden  joined
(Fund's inception)  Federated as a Senior Portfolio Manager in 1977 and has been
                    an  Executive   Vice   President  of  Federated   Investment
                    Management Company since 1994. Mr. Madden served as a Senior
                    Vice President of Federated  Investment  Management  Company
                    from  1989 to  1993.  Mr.  Madden  received  his MBA  with a
                    concentration in Finance from the University of Virginia. He
                    has earned the right to use the Chartered  Financial Analyst
designation.                            

Since _______, 2000 Co-Manager:  Bernard  J.  Picchi,  CFA.  Mr.  Picchi  joined
(Fund's inception)  Federated  in 1999 as a Senior  Vice  President/Director  of
                    U.S.  Equity  Research for Federated  Investment  Management
                    Company.  From  1994 to  1999,  Mr.  Picchi  was a  Managing
                    Director of Lehman  Brothers  where he  initially  served as
                    head of the energy  sector  group.  During  1995 and most of
                    1996,  he served as U.S.  Director of Stock  Research and in
                    September  1996, he was named Growth Stock  Strategist.  Mr.
                    Picchi  holds  a  BS  in  foreign  service  from  Georgetown
                    University.  He has  earned  the right to use the  Chartered
Financial Analyst designation.          

PARTNERS LARGECAP GROWTH FUND I                                                 
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund seeks to maximize long-term capital appreciation by investing primarily
in equity  securities of U.S. and, to a limited extent,  foreign  companies that
exhibit strong or accelerating  earnings  growth.  These companies are generally
characterized  as  "growth"  companies.   The  universe  of  eligible  companies
generally includes those with market capitalizations of $10 billion or more. The
Sub-Advisor,  Morgan Stanley,  emphasizes  individual security selection and may
focus the Fund's holdings within the limits  permissible for a diversified fund.
The Fund may invest up to 25% of its assets in securities of foreign companies. 

Morgan Stanley  follows a flexible  investment  program in looking for companies
with above average  capital  appreciation  potential.  Morgan Stanley focuses on
companies  with  consistent or rising  earnings  growth  records and  compelling
business  strategies.  Morgan Stanley continually and rigorously studies company
developments,  including  business  strategy,  management  focus  and  financial
results to identify  companies with earnings  growth and business  momentum.  In
addition,  Morgan Stanley closely  monitors  analysts'  expectations to identify
issuers that have the potential for positive earnings surprises versus consensus
expectations.  Valuation is of secondary importance and is viewed in the context
of prospects  for  sustainable  earnings  growth and the  potential for positive
earnings surprises in relation to consensus expectations.                       

The Fund has a long-term investment approach.  However, Morgan Stanley considers
selling  securities of issuers that no longer meet its  criteria.  To the extent
that the Fund engages in short-term trading,  it may have increased  transaction
costs.                                                                          

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends and  developments.  In  response,  the price of the  securities
issued  by such  companies  may  decline.  These  factors  contribute  to  price
volatility, which is the principal risk of investing in the Fund.               

Foreign  securities  carry risks that are not generally  found in stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large capitalization  stocks, may underperform compared to other market segments
or to the  equity  markets  as a whole.  The  securities  purchased  by the Fund
present  greater  opportunities  for growth because of high  potential  earnings
growth,  but may also involve greater risks than securities that do not have the
same  potential.  The value of the Fund's  securities  may  fluctuate on a daily
basis.  As with all mutual  funds,  as the value of the Fund's  assets  rise and
fall,  the Fund's share price  changes.  If the investor  sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.                                                                     

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings  growth.                                                               

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $153     $474                              

Advisors Preferred Class  134      418                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.75%       0.75%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.50%       1.32%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000 Co-Manager:  William S.  Auslander,  Portfolio  Manager  and
(Fund's inception)  Principal of Morgan  Stanley & Co.  Incorporated  and Morgan
                    Stanley  Dean  Witter   Investment   Management  Inc.  since
               1998.  From 1995 to 1998 he  served as Equity  Analyst.
                    Prior  thereto,  he was an  Equity  Analyst  at Icahn & Co.,
                    1986-1995. He holds a BA in Economics from the University of
      Wisconsin and an MBA from Columbia University.

Since _______, 2000 Co-Manager:  Philip W. Friedman, Managing Director of Morgan
(Fund's inception)  Stanley & Co.  Incorporated  and Morgan  Stanley Dean Witter
                    Investment  Management  Inc.  since  1997.  Member of Morgan
                    Stanley & Co.  Research  since  1990,  served as Director of
                    North America Research 1995-1997.  Prior thereto,  Assistant
                    to the Controller and Chief Equity Financial Officer, Arthur
                    Andersen & Company.  He holds a BA from  Rutgers  University
           and an MBA from Northwestern - J.L. Kellogg School.

PARTNERS LARGECAP GROWTH FUND II                                                
he Fund seeks long-term growth of capital.                                      

Main Strategies                                                                 

The Fund invests primarily in common stocks of large  capitalization  companies.
Market  capitalization  is defined as total current  market value of a company's
outstanding common stock.                                                       

The  Sub-Advisor,  American  Century,  selects  stocks  for  investment  that it
believes will increases in value over time using a growth investment strategy it
developed. This strategy looks for companies whose earnings and revenues are not
only growing,  but growing at a  successively  faster,  or  accelerating,  pace.
Accelerating growth is shown, for example, by growth that is faster this quarter
than  last or  faster  this  year than the year  before.  The  American  Century
strategy  is based on the  premise  that,  over the long  term,  the  stocks  of
companies  with  accelerating  earnings and revenues have a greater than average
chance to increase in value.                                                    

Using  its  extensive  computer  database,  American  Century  tracks  financial
information  for  thousands  of  companies  to research and select the stocks it
believes will be able to sustain  accelerating  growth. This information is used
to help  American  Century  select or decide to  continue  to hold the stocks of
companies it believes will be able to sustain  accelerating  growth, and to sell
stocks of companies whose growth begins to slow down.                           

Under  normal  market  conditions,  American  Century  intends  to keep the Fund
essentially  fully invested in stocks regardless of the movement of stock prices
generally. When it considers it prudent, American Century may invest Fund assets
in nonleveraged  futures and options.  Nonleveraged  means that the Fund may not
invest in futures and  options  where it would be possible to lose more than the
Fund invested. Futures and options can help the Fund's cash assets remain liquid
while performing more like stocks. In addition,  up to 25% of Fund assets may be
invested in foreign securities.                                                 

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large  capitalization  growth stocks, may underperform  compared to other market
segments or to the equity markets as a whole.  The  securities  purchased by the
Fund present greater opportunities for growth because of high potential earnings
growth,  but may also involve greater risks than securities that do not have the
same  potential.  The value of the Fund's  securities  may  fluctuate on a daily
basis.  As with all mutual  funds,  as the value of the Fund's  assets  rise and
fall,  the Fund's share price  changes.  If the investor  sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.                                                                     

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years   

Advisors Select Class    $178     $551                            

Advisors Preferred Class  160      496                            

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.75%       1.57%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Co-Manager:  Gregory  Woodhams,  CFA. Mr. Woodhams is a Vice
                    President  and  Portfolio   Manager  for  American   Century
                    Investments,  Mr.  Woodhams  has  worked  in  the  financial
                    industry  since  1992 and joined  American  Century in 1997.
                    Previously,  he was Vice  President  and  Director of Equity
                    Research  at  Texas  Commerce  Bank.  Mr.  Woodhams  holds a
                    Bachelor's  Degree in Economics  from Rice  University and a
                    Master's   Degree  in  Economics   from  the  University  of
                    Wisconsin  at  Madison.  He has  earned the right to use the
Chartered Financial Analyst designation.

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Co-Manager:  C. Kim  Goodwin.  Ms.  Goodwin  is Senior  Vice
                    President and Senior Portfolio  Manager for American Century
                    Investments.   Ms.  Goodwin  has  worked  in  the  financial
                    industry  since 1987. She joined  American  Century in 1997.
                    Previously,  Ms.  Goodwin was a Senior Vice  President  with
                    Putnam  Investments (19__ to 1997). Prior to that, she was a
                    Vice  President and  Portfolio  Manager at  Prudential.  Ms.
                    Goodwin was also an  Assistant  Vice  President  with Mellon
                    Bank where she had various investment research and portfolio
                    construction  responsibilities.  Ms.  Goodwin  holds  an  AB
                    degree in politics from Princeton, cum laude. She also holds
                    a  Master's  Degree in  Public  Affairs  from The  Lyndon B.
                    Johnson  School of Public Affairs at the University of Texas
                    and an MBA degree in Business Administration in Finance from
                   The Graduate School of Business at the University at Texas.

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Co-Manager:  Prescott LeGard, CFA. Mr. LeGard is a Portfolio
                    Manager for American Century Investments.  Mr. LeGard joined
                    the company in 1999.  Before joining the company,  he was an
                    Equity  Analyst  for  USAA  Investment  Management  where he
                    analyzed  technology   companies.   He  has  worked  in  the
                    investment industry since 1993. Mr. LeGard holds a BA Degree
                    in Economics from DePaul University. He has earned the right
           to use the Chartered Financial Analyst designation.

PARTNERS LARGECAP VALUE FUND                                                    
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests  primarily in undervalued  equity securities of companies among
the 750  largest  by  market  capitalization  that the  Sub-Advisor,  Bernstein,
believes  offer  above-average  potential for growth in future  earnings.  Under
normal market conditions,  the Fund generally invests at least 65% of its assets
in  companies  with a market  capitalization  of greater than $10 billion at the
time of purchase. Market capitalization is defined as total current market value
of a company's  outstanding  common stock.  The Fund may invest up to 25% of its
assets in securities of foreign companies.                                      

Bernstein  employs  an  investment  strategy,  generally  described  as  "value"
investing, that involves seeking securities that:                               
o    exhibit low financial ratios  (particularly stock price-to-book  value, but
also stock price-to-earnings and stock price-to-cash flow);           
o    can be  acquired  for less than what  Bernstein  believes  is the  issuer's
intrinsic value; or                                                   
o    appear attractive on a dividend discount model.                            

Value oriented investing entails a strong "sell discipline" in that it generally
requires the sale of  securities  that have reached their  intrinsic  value or a
target financial  ratio.  Value oriented  investments may include  securities of
companies in cyclical  industries  during periods when such securities appear to
Bernstein to have strong  potential  for capital  appreciation  or securities of
"special situation" companies. A special situation company is one that Bernstein
believes  has  potential  for  significant  future  earnings  growth but has not
performed  well in the recent past.  These  situations  include  companies  with
management   changes,   corporate  or  asset   restructuring   or  significantly
undervalued  assets. For Bernstein,  identifying special situation companies and
establishing  an issuer's  intrinsic value involves  fundamental  research about
such companies and issuers.                                                     

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large  capitalization  value stocks,  may underperform  compared to other market
segments or to the equity markets as a whole. The value of the Fund's securities
may fluctuate on a daily basis.  As with all mutual  funds,  as the value of the
Fund's  assets rise and fall,  the Fund's share price  changes.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.                                             

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
but prefer  investing  in  companies  that appear to be  considered  undervalued
relative  to  similar  companies.                                               

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years       

Advisors Select Class    $158     $490                                

Advisors Preferred Class  139      434                                

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.80%       0.80%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.55%       1.37%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Co-Manager:  Marilyn G. Fedak.  Ms. Fedak,  Chief Investment
                    Officer of U.S.  Value  Equities  and  Chairman  of the U.S.
                    Equity Investment  Policy Group of the Bernstein  Investment
                    Research and Management unit of Alliance Capital  Management
                    L.P. ("Alliance") since October 2, 2000 and prior to that at
                    Sanford C.  Bernstein & Co.,  Inc.  ("SCB Inc.") since 1993.
                    She  joined  SCB  Inc.  in 1984  and has  managed  portfolio
                    investments  since 1976. She has a BA from Smith College and
an MBA from Harvard Business School.    

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Co-Manager:  Steven Pisarkiewicz.  Mr. Pisarkiewicz has been
                    with  Alliance  since October 2, 2000 and prior to that with
                    SCB Inc.  since 1989 and has been Senior  Portfolio  Manager
                    since 1997.  He holds a BS from the  University  of Missouri
                 and an MBA from the University of California at Berkeley.

PARTNERS MIDCAP VALUE FUND                                                      
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests primarily in common stocks of medium capitalization  companies.
Under normal market  conditions,  the Account  invests at least 65% of its total
assets in  companies  with a market  capitalization  between $1 billion  and $10
billion  at the time of  purchase.  The Fund  may  continue  to hold or add to a
position in a stock after it has grown beyond $10 billion.Market  capitalization
is defined as total  current  market  value of a  company's  outstanding  common
stock.  Companies may range from the well  established and well known to the new
and  unseasoned.  The Fund may invest up to 25% of its assets in  securities  of
foreign companies.                                                              

The stocks are selected using a value oriented  investment approach by Neuberger
Berman,  the Sub-Advisor.  Neuberger  Berman  identifies value stocks in several
ways. Factors it considers in identifying value stocks may include:             
o    strong  fundamentals,  such  as  a  company's  financial,  operational  and
competitive positions;                                                
o    consistent cash flow; and                                                  
o    a sound earnings record through all phases of the market cycle.            

Neuberger Berman may also look for other characteristics in a company, such as a
strong position relative to competitors,  a high level of stocks ownership among
management,  and a recent  sharp  decline in stock price that  appears to be the
result of a short-term  market  overreaction to negative news.  Neuberger Berman
believes that,  over time,  securities  that are  undervalued are more likely to
appreciate  in  price  and are  subject  to  less  risk of  price  decline  than
securities  whose market prices have already  reached their  perceived  economic
value.                                                                          

This approach also involves selling  portfolio  securities when Neuberger Berman
believes they have reached their potential,  when the securities fail to perform
as  expected  or  when  other  opportunities  appear  more  attractive.   It  is
anticipated  that the annual  portfolio  turnover rate may be greater than 100%.
Turnover rates in excess of 100% generally  result in higher  transaction  costs
and a possible increase in short-term capital gains (or losses).                

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends and  developments.  In  response,  the price of the  securities
issued  by such  companies  may  decline.  These  factors  contribute  to  price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-sized  companies may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
medium  capitalization  value stocks, may underperform  compared to other market
segments or to the equity markets as a whole.  Because different types of stocks
tend to shift in and out of favor  depending on market and economic  conditions,
the Fund's performance may sometimes be lower or higher than that of other types
of funds.  The value of the Fund's  equity  securities  may fluctuate on a daily
basis. If the investor sells Fund shares when their value is less than the price
the investor paid for them, the investor will lose money.                       

Investor Profile                                                                

The Fund is  generally a suitable  investment  if  investors  seeking  long-term
growth  and  willing  to  accept   short-term   fluctuations  in  the  value  of
investments.                                                                    

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $178     $551                              

Advisors Preferred Class  160      496                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.75%       1.57%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000 Co-Manager:  Robert  I.  Gendelman,  Managing  Director  and
(Fund's inception)  Portfolio Manager, Neuberger Berman Management,  Inc., since
                    1994. He holds a BA from the  University of Michigan as well
          as a JD and an MBA from the University of Chicago.

REAL ESTATE FUND                                                                
The Fund seeks to generate a total return.                                      

Main Strategies                                                                 

The Fund invests primarily in equity securities of companies principally engaged
in the real estate industry.  For purposes of the Fund's investment  policies, a
real estate  company has at least 50% of its assets,  income or profits  derived
from  products or  services  related to the real  estate  industry.  Real estate
companies  include real estate  investment trusts and companies with substantial
real estate holdings such as paper, lumber,  hotel and entertainment  companies.
Companies whose products and services relate to the real estate industry include
building  supply   manufacturers,   mortgage  lenders  and  mortgage   servicing
companies.                                                                      

Real estate investment trusts ("REITs") are corporations or business trusts that
are  permitted  to eliminate  corporate  level  federal  income taxes by meeting
certain   requirements  of  the  Internal  Revenue  Code  ("Code").   REITs  are
characterized  as:                                                              
o    equity REITs, which primarily own property and generate revenue from rental
income;                                                               
o    mortgage REITs, which invest in real estate mortgages; and                 
o    hybrid REITs, which combine the characteristics of both equity and mortgage
REITs.                                                                
In selecting securities for the Fund, the Sub-Advisor,  PCREI, focuses on equity
REITs.                                                                          

The Fund may invest up to 25% of its assets in securities of foreign real estate
companies.                                                                      

Main Risks                                                                      

Securities of real estate  companies  are subject to securities  market risks as
well as risks  similar  to those  of  direct  ownership  of real  estate.  These
include:                                                                        
o    declines in the value of real estate                                       
o    risks related to general and local economic conditions                     
o    dependency on management skills                                            
o    heavy cash flow dependency                                                 
o    possible lack of available mortgage funds                                  
o    overbuilding                                                               
o    extended vacancies in properties                                           
o    increases in property taxes and operating expenses                         
o    changes in zoning laws                                                     
o    expenses incurred in the cleanup of environmental problems                 
o    casualty or condemnation losses                                            
o    changes in interest rates                                                  

In addition to the risks listed above,  equity REITs are affected by the changes
in the value of the properties  owned by the trust.  Mortgage REITs are affected
by the quality of the credit extended. Both equity and mortgage REITs:          
o    are dependent upon management skills and might not be diversified;         
o    are subject to cash flow dependency and defaults by borrowers; and         
o    could fail to qualify for tax-free pass-through of income under the Code.  

Because of these factors,  the value of the securities  held by the Fund, and in
turn the price per share of the Fund,  changes  on a daily  basis.  The  current
share price reflects the  activities of individual  companies as well as general
market and economic  conditions.  In the short-term,  share prices can fluctuate
dramatically  in  response  to these  factors.  Because  of these  fluctuations,
principal  values and  investment  returns vary.  As with all mutual funds,  the
value of the Fund's assets may rise or fall.  If the investor  sells Fund shares
when their value is less than the price the investor paid for them, the investor
will lose money.                                                                

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

Investor Profile                                                                

The Fund is  generally  a suitable  investment  for  investors  who seek a total
return,  want to invest in companies engaged in the real estate industry and are
willing  to accept  the  potential  for  volatile  fluctuations  in the value of
investments.                                                                    

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years       

Advisors Select Class    $163     $505                                

Advisors Preferred Class  145      449                                

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.85%       0.85%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.60%       1.42%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Kelly D.  Rush,  CFA.  Mr.  Rush  directs  the  Real  Estate
                    Investment Trust (REIT) activity for Principal  Capital Real
                    Estate Investors.  Mr. Rush joined Principal in 1987 and has
                    been dedicated to public real estate investments since 1995.
                    His  experience  includes  the  structuring  of public  real
                    estate  transactions that included commercial mortgage loans
                    and  the  issuance  of  unsecured  bonds.  He  received  his
                    Master's  degree and  Bachelor's  degree in Finance from the
                    University  of  Iowa.  He has  earned  the  right to use the
Chartered Financial Analyst designation.

MIDCAP BLEND FUND                                                               

The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests  primarily  in common  stocks and other  equity  securities  of
medium  capitalization  companies.  Under  normal  market  conditions,  the Fund
invests at least 65% of its  assets in  companies  with a market  capitalization
between  $1  billion   and  $10  billion  at  the  time  of   purchase.   Market
capitalization  is  defined  as  total  current  market  value  of  a  company's
outstanding common stock.                                                       

In selecting  securities for  investment,  the  Sub-Advisor,  Invista,  looks at
stocks with value and/or growth characteristics and will construct an investment
portfolio  that will have a "blend"  of stocks  with  these  characterisics.  In
managing the assets of the Fund,  Invista  does not have a policy of  preferring
one of these categories to the other. The value  orientation  emphasizes  buying
stocks at less than their  inherent  value and  avoiding  stocks whose price has
been artificially built up. The growth  orientation  emphasizes buying stocks of
companies  whose  potential for growth of capital and earnings is expected to be
above average.                                                                  

Invista uses a bottom-up  approach in its  selection of  individual  securities.
Selection  is based on  fundamental  analysis  of a  company  relative  to other
companies with the focus being on Invista's estimation of forward-looking  rates
of return. Up to 25% of Fund assets may be invested in foreign securities.      

Invista  constructs  a portfolio  that is  "benchmark  aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments to the securities of issuers in the S&P MidCap 400 Index.
Invista is  prepared  to weight  sectors  and  industries  differently  from the
benchmark weightings.                                                           

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-size  companies  may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
medium capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole.  Because  different types of stocks tend to
shift in and out of favor  depending  on market  and  economic  conditions,  the
Fund's  performance may sometimes be lower or higher than that of other types of
funds. The value of the Fund's equity securities may fluctuate on a daily basis.
If the  investor  sells Fund  shares when their value is less than the price the
investor paid for them, the investor will lose money.                           

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth  of  capital  and  willing  to  accept  the  potential   for   short-term
fluctuations in the value of investments.                                       

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $143     $443                              

Advisors Preferred Class  124      387                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.65%       0.65%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.40%       1.22%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    K.  William  Nolin,  CFA. Mr. Nolin has managed the domestic
                    mid-cap  products  since 1999.  His expertise is grounded in
                    the telecommunications,  media & entertainment,  lodging and
                    consumer non-durables sectors. Mr. Nolin joined Principal in
                    1993 as an investment credit analyst. He earned his MBA from
                    the Yale School of Management and his  Bachelor's  degree in
                    Finance from the University of Iowa. He has earned the right
           to use the Chartered Financial Analyst designation.

MIDCAP GROWTH FUND                                                              

The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests primarily in common stocks of medium  capitalization  companies
with strong earnings growth potential Under normal market  conditions,  the Fund
invests at least 65% of its  assets in  companies  with a market  capitalization
between  $1  billion   and  $10  billion  at  the  time  of   purchase.   Market
capitalization  is  defined  as  total  current  market  value  of  a  company's
outstanding common stock.                                                       

The  Sub-Advisor,  Invista,  uses  a  bottom-up  approach  in its  selection  of
individual  securities  that it believes  have an above  average  potential  for
earnings  growth.  Selection  is  based on  fundamental  analysis  of a  company
relative to other  companies  with the focus being on  Invista's  assessment  of
current and future sales growth and operating margins.  Up to 25% of Fund assets
may be invested in foreign securities.                                          

Invista then constructs a portfolio that is "benchmark aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments to the securities of issuers in the Russell MidCap Growth
Index. Invista is prepared to weight sectors and industries differently from the
benchmark weightings.                                                           

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-size  companies  may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
medium  capitalization  growth stocks,  may underperform  compared to the equity
markets  as a  whole.  The  securities  purchased  by the Fund  present  greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than  securities that do not have the same potential.  The
value of the Fund's equity  securities  may fluctuate on a daily basis.  As with
all mutual funds,  as the value of the Fund's  assets rise and fall,  the Fund's
share price changes.  If the investor sells Fund shares when their value is less
than the price the investor paid for them, the investor will lose money.        

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $143     $443                              

Advisors Preferred Class  124      387                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.65%       0.65%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.40%       1.22%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    John F.  McClain.  Mr.  McClain is a  portfolio  manager for
                    small company and medium company growth products.  He joined
                    Invista in 1990. Previously,  he was an investment executive
                    with Paine Webber. He earned an MBA from Indiana  University
           and a BBA in Economics from the University of Iowa.

PARTNERS MIDCAP GROWTH FUND                                                     
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Partners  MidCap  Growth Fund invests  primarily in common  stocks and other
equity securities of U.S. companies with strong earnings growth potential. Under
normal  market  conditions,  the Fund  invests  at least  65% of its  assets  in
companies with market capitalizations  between $1 billion and $10 billion at the
time of purchase. Market capitalization is defined as total current market value
of a company's outstanding common stock.                                        

The Fund invests in securities of companies that are diversified across economic
sectors. It attempts to maintain sector concentrations that approximate those of
its current benchmark, the Russell MidCap Growth Index. The Fund is not an index
fund and does not limit its  investment  to the  securities  of  issuers  in the
Russell  MidCap  Growth  Index.  The Fund may  invest up to 25% of its assets in
securities of foreign companies.                                                

The  Sub-Advisor,  Turner,  selects stocks that it believes have strong earnings
growth potential. Turner invests in companies with strong earnings dynamics, and
sells those with deteriorating earnings prospects. Turner believes forecasts for
market timing and sector  rotation are unreliable and introduce an  unacceptable
level of risk.  As a result,  under normal market  conditions  the Fund is fully
invested.                                                                       

Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax.   

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-size  companies  may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
medium  capitalization  growth stocks,  may underperform  compared to the equity
markets  as a  whole.  The  securities  purchased  by the Fund  present  greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than  securities that do not have the same potential.  The
value of the Fund's equity  securities  may fluctuate on a daily basis.  As with
all mutual funds,  as the value of the Fund's  assets rise and fall,  the Fund's
share price changes.  If the investor sells Fund shares when their value is less
than the price the investor paid for them, the investor will lose money.        

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $178     $551                              

Advisors Preferred Class  160      496                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.75%       1.57%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000 Co-Manager:  Robert E. Turner, CFA. Mr. Turner, Chairman and
(Fund's inception)  Chief   Investment   Officer,   founded  Turner   Investment
                    Partners,  Inc.  in  1990.  Prior  to  1990,  he was  Senior
                    Investment Manager with Meridian  Investment Company. He has
                    17 years of investment  experience.  He has earned the right
           to use the Chartered Financial Analyst designation.

Since _______, 2000 Co-Manager:  Christopher K. McHugh. Mr. McHugh joined Turner
(Fund's inception)  Investment  Partners,  Inc.  in  1990.  He  holds  a  BS  in
                    Accounting from Philadelphia College of Textiles and Science
           and an MBA in Finance from St. Joseph's University.

Since _______, 2000 Co-Manager:  William C. McVail.  Mr.  McVail,  Senior Equity
(Fund's inception)  Portfolio Manager,  joined Turner in 1998. Prior thereto, he
                    was  Portfolio  Manager  at PNC Equity  Advisers.  He has 12
years of investment experience.         

PARTNERS SMALLCAP GROWTH FUND I                                                 
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

To  pursue   this  goal,   the  Fund   invests   mainly  in  common   stocks  of
small-capitalization  companies,  which it defines as those with a total  market
value of no more than $1.5  billion at the time the Fund first  invests in them.
The Fund may continue to hold or add to a position in a stock after it has grown
beyond $1.5 billion.  The Fund seeks to reduce risk by  diversifying  among many
companies  and  industries.  In  addition,  the Fund may invest up to 25% of its
assets in securities of foreign companies.                                      

The Sub-Advisor,  Neuberger Berman, takes a growth approach to selecting stocks,
looking for new companies that are in the  developmental  stage as well as older
companies  that  appear  poised to grow  because  of new  products,  markets  or
management. Factors in identifying these firms may include financial strength, a
strong position  relative to competitors and a stock price that is reasonable in
light of its growth rate.                                                       

Neuberger  Berman  follows a  disciplined  selling  strategy and may eliminate a
stock from the  portfolio  when it reaches a target  price,  fails to perform as
expected, or appears substantially less desirable than another stock.           

Through active trading,  the Fund may have a high portfolio turnover rate, which
can mean higher taxable  distributions  and lower  performance  due to increased
brokerage costs.                                                                

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility  (wide,  rapid  fluctuations)  than  investments  in
larger, more mature companies.  Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become  established.   While  small,  unseasoned  companies  may  offer  greater
opportunities for capital growth than larger, more established  companies,  they
also involve greater risks and should be considered speculative.                

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
small  capitalization  growth stocks,  may  underperform  compared to the equity
markets  as a  whole.  The  securities  purchased  by the Fund  present  greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than  securities that do not have the same potential.  The
value of the Fund's equity  securities  may fluctuate on a daily basis.  As with
all mutual funds,  as the values of the Fund's assets rise and fall,  the Fund's
share price  changes.  The Fund's  share price may  fluctuate  more than that of
funds  primarily  invested in stocks of mid-sized  and large  companies  and may
underperform as compared to the securities of larger companies.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.                                             

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings  growth.                                                               

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $188     $562                              

Advisors Preferred Class  170      526                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   1.10%       1.10%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.85%       1.67%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000  Co-Manager:   Michael  F.  Malouf.  Mr.  Malouf  is  a  Vice
(Fund's inception)  President  of  Neuberger  Berman   Management  and  Managing
                    Director of Neuberger  Berman,  LLC. Mr.  Malouf  joined the
                    firm in 1998. From 1991 to 1998, he was a Portfolio  Manager
at another firm.                        

Since ______, 2000  Co-Manager:  Jennifer  K.  Silver.  Ms.  Silver  is  a  Vice
(Fund's inception)  President  of  Neuberger  Berman   Management  and  Managing
                    Director  of  Neuberger  Berman,  LLC.  Ms.  Silver has been
                    Director  of the Growth  Equity  Group since 1997 and was an
                    Analyst and a Portfolio Manager at another firm from 1981 to
1997.                                   

PARTNERS SMALLCAP GROWTH FUND II                                                
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund  pursues its  investment  objective  by  investing  primarily in equity
securities of companies offering superior  prospects for earnings growth.  These
companies are generally characterized as "growth" companies. Under normal market
conditions,  the Fund invests at least 65% of its assets in companies with small
market capitalization.  Market capitalization is defined as total current market
value of a company's  outstanding common stock. The Fund may invest up to 25% of
its assets in securities of foreign companies.                                  

Using its own quantitative process, the Sub-Advisor, Federated, rates the future
performance potential of companies.  Federated evaluates each company's earnings
quality in light of their  current  valuation  to narrow the list of  attractive
companies. Federated then evaluates product positioning,  management quality and
sustainability  of current growth trends of those companies.  Using this type of
fundamental  analysis,  Federated  selects the most promising  companies for the
Fund's portfolio.                                                               

Companies  with  similar  characteristics  may  be  grouped  together  in  broad
categories  called  sectors.  In determining the amount to invest in a security,
Federated  limits the Fund's exposure to each business sector that comprises the
S&P 500 Index. The Fund considers its approach aggressive because its strategies
with respect to security analysis, market capitalization,  and sector allocation
are designed to produce a portfolio of stocks whose long-term  growth  prospects
are significantly above those of the S&P 500 Index.  Accordingly,  the prices of
the  stocks  held by the Fund may,  under  certain  market  conditions,  be more
volatile than the prices of stocks selected using a less aggressive approach.   

The Fund may  attempt  to manage  market  risk by buying and  selling  financial
futures and options. This may include the purchase of index futures contracts as
a substitute for direct  investments in stocks. It may also include the purchase
and sale of options to protect against general declines in small  capitalization
stocks economically.                                                            

The Fund actively  trades its portfolio  securities in an attempt to achieve its
investment  objective.  Active  trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its  shareholders,  which are taxed at a higher rate than longer-term  gains
(losses).  Actively trading  portfolio  securities  increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.                 

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility  (wide,  rapid  fluctuations)  than  investments  in
larger, more mature companies.  Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become  established.   While  small,  unseasoned  companies  may  offer  greater
opportunities for capital growth than larger, more established  companies,  they
also involve greater risks and should be considered speculative.                

Federated may group companies with similar characteristics into broad categories
called  sectors.  Sector  risk is the  possibility  that a  certain  sector  may
underperform other sectors or the market as a whole. As Federated allocates more
of the Fund's portfolio  holdings to a particular sector, the Fund's performance
will be more susceptible to any economic,  business or other  developments  that
generally affect that sector.                                                   

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
small  capitalization  growth stocks,  may  underperform  compared to the equity
markets  as a  whole.  The  securities  purchased  by the Fund  present  greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than  securities that do not have the same potential.  The
value of the Fund's equity  securities  may fluctuate on a daily basis.  As with
all mutual funds,  as the values of the Fund's assets rise and fall,  the Fund's
share price  changes.  The Fund's  share price may  fluctuate  more than that of
funds  primarily  invested in stocks of mid-sized  and large  companies  and may
underperform as compared to the securities of larger companies.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.                                             

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years   

Advisors Select Class    $178     $551                            

Advisors Preferred Class  160      496                            

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.75%       1.57%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000 Co-Manager:  Keith J. Sabol, CFA. Mr. Sabol joined Federated
(Fund's inception)  in  1994.  He has been a  Porfolio  Manager  since  1996 and
                    served  as  an   Assistant   Vice   President  of  Federated
                    Investment Management Company from 1997 to 1998. He has been
                    a Vice President of Federated Investment  Management Company
                    since 1998.  Mr. Sabol was an Investment  Analyst,  and then
                    Equity  Research   Coordinator   for  Federated   Investment
                    Management  Company from 1994 to 1996.  Mr. Sabol earned his
                    MS  in  Industrial   Administration   from  Carnegie  Mellon
                    University.  He has  earned  the right to use the  Chartered
Financial Analyst designation.          

Since _______, 2000 Co-Manager:  Aash M. Shah, CFA. Mr. Shah joined Federated in
(Fund's inception)  1993 and has been a Portfolio  Manager and a Vice  President
                    of Federated  Investment  Management Company since 1997. Mr.
                    Shah was a Portfolio Manager and served as an Assistant Vice
                    President of Federated  Investment  Management  Company from
                    1995 through 1996, and as an Investment Analyst from 1993 to
                    1995.   Mr.  Shah   received   his  Masters  in   Industrial
                    Administration   from  Carnegie  Mellon  University  with  a
                    concentration  in Finance and Accounting.  He has earned the
                 right to use the Chartered Financial Analyst designation.

SMALLCAP BLEND FUND                                                             
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests primarily in common stocks of small  capitalization  companies.
Under normal market  conditions,  the Fund invests at least 65% of its assets in
companies  with a market  capitalization  of $1.5 billion or less at the time of
purchase.  Market  capitalization  is defined as total current market value of a
company's  outstanding common stock. The Fund may invest up to 25% of its assets
in securities of foreign companies.                                             

In selecting  securities for  investment,  the  Sub-Advisor,  Invista,  looks at
stocks with value and/or growth characteristics and will construct an investment
portfolio  that will have a "blend"  of stocks  with  these  characterisics.  In
managing the assets of the Fund,  Invista  does not have a policy of  preferring
one of these categories to the other. The value  orientation  emphasizes  buying
stocks at less than their  investment  value and avoiding stocks whose price has
been artificially built up. The growth  orientation  emphasizes buying stocks of
companies  whose  potential for growth of capital and earnings is expected to be
above  average.  Selection  is  based on  fundamental  analysis  of the  company
relative to other  companies  with the focus being on  Invista's  estimation  of
forward looking rates of return.                                                

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility  (wide,  rapid  fluctuations)  than  investments  in
larger, more mature companies.  Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become  established.   While  small,  unseasoned  companies  may  offer  greater
opportunities for capital growth than larger, more established  companies,  they
also involve greater risks and should be considered speculative.                

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
small capitalization  stocks, may underperform compared to the equity markets as
a whole.  The value of the Fund's  equity  securities  may  fluctuate on a daily
basis.  As with all mutual  funds,  as the values of the Fund's  assets rise and
fall, the Fund's share price changes.  The Fund's share price may fluctuate more
than that of funds primarily invested in stocks of mid-sized and large companies
and may underperform as compared to the securities of larger  companies.  If the
investor  sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.                                    

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the potential for volatile  fluctuations
in the value of investments.                                                    

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $153     $474                              

Advisors Preferred Class  134      418                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.75%       0.75%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses...................   0.38        0.26                  

Total Fund Operating Expenses   1.50%       1.32%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Mark T.  Williams,  CFA. Mr.  Williams  manages
                    Invista's research department  conducting  macroeconomic and
                    quantitative   research   as   applied   to   domestic   and
                    international economic trends and forecasts.  Previously, he
                    served as a portfolio  manager with direct experience in the
                    management  of  core,   value-oriented  and  growth-oriented
                    portfolios. He joined Invista in 1989 with seven years prior
                    experience in the technology industry. Mr. Williams received
                    his MBA from Drake University and holds a Bachelor's  degree
                    in Finance from the  University of the State of New York. He
                    has earned the right to use the Chartered  Financial Analyst
designation.                            

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:   Michael  R.  Johnson.   Mr.  Johnson   directs
                    securities  trading for Principal  Capital Income Investors.
                    He joined Principal in 1982 and took his current position in
                    1994. Mr.  Johnson's  responsibilities  include managing the
                    fixed-income  trading operation for Principal Capital Income
                    Investors and several  short-term money market accounts.  He
                    earned  his  Bachelor's  degree in  Finance  from Iowa State
                    University.  He has  earned  the right to use the  Chartered
Financial Analyst designation.          

SMALLCAP GROWTH FUND                                                            
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests primarily in common stocks of small  capitalization  companies.
Under normal market  conditions,  the Fund invests at least 65% of its assets in
companies  with a market  capitalization  of $1.5 billion or less at the time of
purchase.  Market  capitalization  is defined as total current market value of a
company's outstanding common stock.                                             

The  Sub-Advisor,  Invista,  uses  a  bottom-up  approach  in its  selection  of
individual  securities  that it believes  have an above  average  potential  for
earnings  growth.  Selection  is  based on  fundamental  analysis  of a  company
relative to other  companies  with the focus being on  Invista's  assessment  of
current and future sales growth and operating margins.  Up to 25% of Fund assets
may be invested in foreign securities.                                          

Invista then constructs a portfolio that is "benchmark aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments  to the  securities of issuers in the Russell 2000 Growth
Index. Invista is prepared to weight sectors and industries differently from the
benchmark weightings.                                                           

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility  (wide,  rapid  fluctuations)  than  investments  in
larger, more mature companies.  Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become  established.   While  small,  unseasoned  companies  may  offer  greater
opportunities for capital growth than larger, more established  companies,  they
also involve greater risks and should be considered speculative.                

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
small  capitalization  growth stocks,  may  underperform  compared to the equity
markets  as a  whole.  The  securities  purchased  by the Fund  present  greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than  securities that do not have the same potential.  The
value of the Fund's equity  securities  may fluctuate on a daily basis.  As with
all mutual funds,  as the values of the Fund's assets rise and fall,  the Fund's
share price  changes.  The Fund's  share price may  fluctuate  more than that of
funds  primarily  invested in stocks of mid-sized  and large  companies  and may
underperform as compared to the securities of larger companies.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.                                             

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years   

Advisors Select Class    $153     $474                            

Advisors Preferred Class  134      418                            

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.75%       0.75%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses...................   0.38        0.26                  

Total Fund Operating Expenses   1.50%       1.32%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    John F.  McClain.  Mr.  McClain is a  portfolio  manager for
                    small company and medium company growth products.  He joined
                    Invista in 1990. Previously,  he was an investment executive
                    with Paine Webber. He earned an MBA from Indiana  University
           and a BBA in Economics from the University of Iowa.

SMALLCAP S&P 600 INDEX FUND                                                     
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

Under normal market  conditions,  the Fund invests at least 80% of its assets in
common stocks of companies that compose the Standard & Poor's* ("S&P")  SmallCap
600 Index.  The  Sub-Advisor,  Invista,  will  attempt to mirror the  investment
performance  of the index by allocating the Fund's assets in  approximately  the
same  weightings  as the S&P SmallCap  600. The S&P SmallCap 600 is an unmanaged
index of 600  domestic  stocks  chosen for market size,  liquidity  and industry
group representation.  Each stock is weighted by its market capitalization which
means larger  companies  have greater  representation  in the index than smaller
ones.  Over  the  long-term,  Invista  seeks a very  close  correlation  between
performance of the Fund,  before expenses,  and that of the S&P SmallCap 600. It
is unlikely that a perfect correlation of 1.00 will be achieved.                

The Fund uses an indexing  strategy and is not managed  according to traditional
methods of "active"  investment  management.  Active  management  would  include
buying and  selling  securities  based on  economic,  financial  and  investment
judgement.  Instead,  the Fund uses a passive investment  approach.  Rather than
judging  the merits of a  particular  stock in  selecting  investments,  Invista
focuses on  tracking  the S&P  SmallCap  600.  Invista  may also use stock index
futures as a  substitute  for the sale or  purchase of  securities.  It does not
attempt to manage  market  volatility,  use  defensive  strategies or reduce the
effect of any long-term periods of poor stock performance.                      

The correlation between Fund and index performance may be affected by the Fund's
expenses, changes in securities markets, changes in the composition of the index
and the timing of  purchases  and sales of Fund  shares.  The Fund may invest in
futures and options,  which could carry  additional  risks such as losses due to
unanticipated market price movements,  and could also reduce the opportunity for
gain.                                                                           

Main Risks                                                                      

Because of the  difficulty  and  expense of  executing  relatively  small  stock
trades,  the Fund may not always be invested in the less  heavily  weighted  S&P
SmallCap 600 stocks. At times, the Fund's portfolio may be weighted  differently
from the S&P SmallCap 600,  particularly if the Fund has a small level of assets
to invest.  In addition,  the Fund's ability to match the performance of the S&P
SmallCap  600 is  affected  to some  degree by the size and timing of cash flows
into and out of the Fund. The Fund attempts to minimize such effects.           

Invista  reserves the right to omit or remove any of the S&P SmallCap 600 stocks
from the Fund if it determines  that the stock is not  sufficiently  liquid.  In
addition,  a stock might be excluded or removed  from the Fund if  extraordinary
events or financial  conditions  lead Invista to believe that it should not be a
part of the Fund's assets.                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility (wide, rapid fluctuations),  which is the principal risk of investing
in the Fund.                                                                    

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility than investments in larger,  more mature  companies.
Smaller  companies  may be  developing or marketing new products or services for
which markets are not yet  established and may never become  established.  While
small,  unseasoned companies may offer greater  opportunities for capital growth
than larger,  more  established  companies,  they also involve greater risks and
should be considered speculative.                                               

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate dramatically in response to these factors. The Fund's
share price may fluctuate more than that of funds  primarily  invested in stocks
of  mid-sized  and large  companies  and may  underperform  as  compared  to the
securities  of larger  companies.  If the investor  sells Fund shares when their
value is less than the price the investor paid for them,  the investor will lose
money.                                                                          

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital,  willing to accept the potential for volatile fluctuations in
the value of investments and preferring a passive rather than active  management
style.                                                                          

*  Standard & Poor's  Corporation  is not  affiliated  with the SmallCap S&P 600
   Index Fund,  Invista  Capital  Management,  LLC or Principal  Life  Insurance
Company.                                                                  

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class     $92     $287                              

Advisors Preferred Class   74      230                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.15%       0.15%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses...................   0.38        0.26                  

Total Fund Operating Expenses   0.90%       0.72%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Scott D.  Opsal,  CFA.  Mr.  Opsal is the  Chief  Investment
                    Officer  for  Invista  and has  directed  the  international
                    equities  group since 1993.  He sits on the firm's  Board of
                    Directors,  is a member  of the Iowa  Society  of  Financial
                    Analysts and is a Research Director of the Financial Markets
                    Institute at the University of Iowa.  Scott joined Principal
                    in 1983  and was  one of  Invista's  founders  in  1985.  He
                    received a Master's  degree from the University of Minnesota
                    and a Bachelor's degree from Drake University, where he is a
                    visiting instructor in the Finance Department. He has earned
                    the   right   to  use  the   Chartered   Financial   Analyst
designation.                            

SMALLCAP VALUE FUND                                                             
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests primarily in common stocks of small  capitalization  companies.
Under normal market  conditions,  the Fund invests at least 65% of its assets in
companies  with a market  capitalization  of $1.5 billion or less at the time of
purchase.  Market  capitalization  is defined as total current market value of a
company's  outstanding common stock. The Fund may invest up to 25% of its assets
in securities of foreign companies.  Up to 25% of Fund assets may be invested in
foreign securities.                                                             

The Fund specializes in stocks of small-sized  companies that are undervalued at
the time of purchase.  These  stocks are often  characterized  by  below-average
stock price/earnings ratios and above-average  dividend yields. The Sub-Advisor,
Invista,  selects the Fund's  investments  primarily on the basis of fundamental
security  analysis,  focusing  on  the  company's  financial  stability,  sales,
earnings,  dividend trends, return on equity and industry trends. The Fund often
invests in stocks considered temporarily out of favor. Investors often overreact
to bad news and do not respond quickly to good news. This results in undervalued
stocks of the type held by this Fund.                                           

Invista  constructs  a portfolio  that is  "benchmark  aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments to the  securities of issuers in the S&P 600/BARRA  Value
Index. Invista is prepared to weight sectors and industries differently from the
benchmark weightings    .                                                       

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility  (wide,  rapid  fluctuations)  than  investments  in
larger, more mature companies.  Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become  established.   While  small,  unseasoned  companies  may  offer  greater
opportunities for capital growth than larger, more established  companies,  they
also involve greater risks and should be considered speculative.                

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
small  capitalization  value  stocks,  may  underperform  compared to the equity
markets as a whole. The value of the Fund's equity securities may fluctuate on a
daily basis.  As with all mutual funds,  as the values of the Fund's assets rise
and fall, the Fund's share price  changes.  The Fund's share price may fluctuate
more than that of funds  primarily  invested  in stocks of  mid-sized  and large
companies  and  may  underperform  as  compared  to  the  securities  of  larger
companies.  If the investor  sells Fund shares when their value is less than the
price the investor paid for them, the investor will lose money.                 

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the potential for volatile  fluctuations
in the value of investments.                                                    

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years   

Advisors Select Class     $153     $474                             

Advisors Preferred Class   134      418                             

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.75%       0.75%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses...................   0.38        0.26                  

Total Fund Operating Expenses   1.50%       1.32%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ________, 2000                                                            
(Fund's inception)                                                              
                    Tom Morabito,  CFA. Mr.  Morabito  joined Invista in 2000 as
                    the lead small-cap value portfolio manager. He has more than
                    12 years of analytical and portfolio  management  expertise.
                    Since  1994,   Mr.   Morabito  was  a  manager  for  Invesco
                    Management  & Research.  He received his MBA in Finance from
                    Northeastern   University  and  his  Bachelor's   degree  in
                    Economics  from State  University of New York. He has earned
                    the   right   to  use  the   Chartered   Financial   Analyst
designation.                            

TECHNOLOGY FUND                                                                 
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests  primarily in common stocks and other  securities of technology
and  telecommunications  companies domiciled in any of the nations of the world.
The  Sub-Advisor,   BT  believes  that  as  markets  are  becoming  increasingly
globalized,  companies can no longer be researched on a purely  regional  basis.
Companies are increasingly  influenced by global, not just local trends, and for
this reason BT believes  that  analysis and research  needs to be conducted in a
global context.  BT considers  companies in a broad range of  technology-related
industries,  generally including:  computers;  software and peripheral products;
electronics; communications equipment and services; and information services.   

The  Sub-Advisor,  BT,  selects  securities for the Fund based on its own global
investment research. The research program is focused on three key criteria:     

o    business franchise - considering factors such as the company's relationship
     with its suppliers and customers, the degree of rivalry with competitors as
well as the exposure to regulatory and technological risk;            
o    quality of management - assessing  the company's  management on its ability
     to execute  current  business  plans,  manage the  capital  invested in the
     business as well as the level of transparency  with respect to strategy and
operations; and                                                       
o    business  valuation  -  determining  the private  market or "true  business
value" of the firm.                                                   

BT's qualitative analysis is complemented by disciplined  valuation  techniques.
These include proprietary models as well as conventional market measurements and
industry  specific models of relative value.  This analytical  framework ensures
consistency and  transparency  throughout the research  process.  Portfolios are
constructed  and managed  within  predetermined  guidelines  that are  regularly
monitored by BT.                                                                

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility.                                                                     

In addition,  foreign stocks carry risks that are not generally  found in stocks
of U.S.  companies.  These include the risk that a foreign  security  could lose
value as a result  of  political,  financial  and  economic  events  in  foreign
countries.  Foreign securities may be subject to securities regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The  Fund is also  subject  to the  risk  that  its  principal  market  segment,
technology stocks, may underperform  compared to other market segments or to the
equity markets as a whole. The competitive pressures of advancing technology and
the number of companies  and product  offerings  which  continue to expand could
cause  technology  companies to become  increasingly  sensitive to short product
cycles and aggressive  pricing.  To the extent that the Fund's  investments  are
concentrated in issuers  conducting  business in the same industry,  the Fund is
subject to legislative or regulatory  changes,  adverse market conditions and/or
increased competition affecting that industry.                                  

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  In the  short-term,  stock prices can  fluctuate  dramatically  in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.   

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital in the  technology and  telecommunications  sector and who are
able to assume the increased  risks of higher price  volatility  associated with
such  investments.                                                              

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $178     $551                              

Advisors Preferred Class  160      496                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.75%       1.57%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ________, 2000                                                            
(Fund's inception)                                                              
                    David Mills is Executive  Vice President of BT and serves as
                    its head of U.S. Equities.  He joined BT's retail unit trust
                    team in January 1990 as an Analyst in European equities.  In
                    July 1996, he assumed fund management responsibility for all
                 of the direct European investment vehicles offered by BT.

EUROPEAN FUND                                                                   
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests primarily in equity securities of companies domiciled or in the
opinion of the Sub-Advisor,  BT, having their core business in Europe.  The Fund
may also  invest  in other  securities  of such  companies.  The Fund  offers an
opportunity  to  invest in a region  with a wide  spread  of  industries  and in
companies which, in the opinion of BT, may be undervalued.                      

The Fund  invests  in  securities  listed  on  foreign  or  domestic  securities
exchanges, securities traded in foreign or domestic over-the-counter markets and
depositary receipts.  Under normal market conditions,  the Fund invests at least
65% of its assets in European securities. These include securities of:          
o    companies organized under the laws of European countries;                  
o    companies  for  which  the  principal  securities  trading  market  is in a
European country; and                                                 
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue from either  goods or services  produced or
sales made in European countries.                                     

The  global  equity   investment   philosophy   of  BT  is  to  exploit   market
inefficiencies that arise from differing  interpretations of market information.
As a result, in BT's view, a company's share price does not always represent its
true "business  value." BT actively  invests in those companies that it believes
have  been  mispriced  by  investment   markets.   In  order  to  exploit  these
inefficiencies successfully, BT seeks to enhance investment returns through:    
o    rigorous  proprietary  stock  research  which  enables  their  analysts  to
understand  the:                                                      
o    quality of the company;                                          
o    nature of its management;                                        
o    nature of its industry competition; and                          
o    business valuation - the true "business value" of the company;   
o    maintaining global coverage within the universe of investment choices; and 
o    maintaining a medium-term focus.                                           

As a result,  the Fund's  portfolio  reflects  the  opportunities  presented  by
mispriced  companies that offer the potential for strong,  long-term  investment
returns with an acceptable level of investment risk.                            

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S.  companies.  These  include  the risk that a foreign  security
could lose value as a result of  political,  financial  and  economic  events in
foreign countries.  Foreign  securities may be subject to securities  regulators
with less stringent  accounting  and  disclosure  standards than are required of
U.S. companies.                                                                 

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

The Fund anticipates that its portfolio  turnover will typically range from 200%
to 300%. Turnover rates in excess of 100% generally result in higher transaction
costs and a possible increase in short-term capital gains (or losses).          

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  In the  short-term,  stock prices can  fluctuate  dramatically  in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.   

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital in European markets who are able to assume the increased risks
of higher price volatility and currency fluctuations associated with investments
in international stocks which trade in non-U.S. currencies.                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $178     $551                              

Advisors Preferred Class  160      496                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.75%       1.57%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Crispin Murray, Executive Vice President of BT, joined BT in
                    April  1994 as an  Investment  Analyst.  In  1995,  his role
                    became  pure  European  equities  analysis  covering  banks,
                    telecommunication, telecommunication equipment and media. In
                    April 1998,  he became Head of European  Equities and in May
                    1998 became coordinator for BTFM's Global Banking Group. His
                    global sector  responsibilities  include  telecommunications
                    and  banks.  Prior to  joining  BT,  Mr.  Murray  worked for
                    Equitable  Life  Assurance  Society  in  the  UK as a bond &
                    currency analyst. He received an Honours degree in Economics
            & Human Geography from Reading University in the UK.

INTERNATIONAL EMERGING MARKETS FUND                                             
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund  seeks to  achieve  its  objective  by  investing  in common  stocks of
companies in emerging market countries. For this Fund, the term "emerging market
country" means any country which is considered to be an emerging  country by the
international   financial  community   (including  the  International  Bank  for
Reconstruction   and  Development  (also  known  as  the  World  Bank)  and  the
International  Financial  Corporation).  These countries generally include every
nation in the world except the United  States,  Canada,  Japan,  Australia,  New
Zealand and most nations located in Western  Europe.  Investing in many emerging
market  countries is not feasible or may involve  unacceptable  political  risk.
Invista,  the  Sub-Advisor,  focuses on those emerging market  countries that it
believes have strongly developing  economies and markets which are becoming more
sophisticated.                                                                  

Under  normal  conditions,  at least 65% of the Fund's  assets are  invested  in
emerging market country equity securities. The Fund invests in securities of:   
o    companies  with their  principal  place of business or principal  office in
emerging market countries;                                            
o    companies for which the principal  securities trading market is an emerging
market country; or                                                    
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue from either  goods or services  produced in
emerging market countries or sales made in emerging market countries. 

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S.  companies.  These  include  the risk that a foreign  security
could lose value as a result of  political,  financial  and  economic  events in
foreign countries.  Foreign  securities may be subject to securities  regulators
with less stringent  accounting  and  disclosure  standards than are required of
U.S. companies.                                                                 

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

Investments in emerging market countries involve special risks. Certain emerging
market countries have historically experienced,  and may continue to experience,
certain  economic  problems.  These may include:  high rates of inflation,  high
interest rates,  exchange rate  fluctuations,  large amounts of debt, balance of
payments and trade difficulties, and extreme poverty and unemployment.          

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate  dramatically  in response to these  factors.  If the
investor  sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.                                    

The Fund anticipates that its portfolio  turnover will typically range from 200%
to 300%. Turnover rates in excess of 100% generally result in higher transaction
costs and a possible increase in short-term capital gains (or losses).          

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital in  securities  of emerging  market  countries who are able to
assume the increased risks of higher price volatility and currency  fluctuations
associated  with  investments  in  international  stocks which trade in non-U.S.
currencies.                                                                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $213     $658                              

Advisors Preferred Class  195      603                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   1.35%       1.35%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   2.10%       1.92%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Kurtis D. Spieler,  CFA. Mr. Spieler is a portfolio  manager
                    specializing  in  the  management  of  international  equity
                    portfolios.  He  joined  Principal  in 1987 in the  Treasury
                    operation  as a  securities  analyst and moved to Invista in
                    1991. Mr. Spieler received his MBA from Drake University and
                    his BBA in  Accounting  from Iowa State  University.  He has
                    earned  the  right to use the  Chartered  Financial  Analyst
designation.                            

INTERNATIONAL FUND I                                                            

The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests in a portfolio of equity  securities of companies  domiciled in
any of the nations of the world.  The Fund invests in securities of:            
o    companies  with their  principal  place of  business  or  principal  office
outside the U.S.;                                                     
o    companies for which the principal  securities trading market is outside the
U.S.; and                                                             
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue  from goods or  services  produced or sales
made outside the U.S.                                                 

The Fund has no limitation on the  percentage of assets that are invested in any
one country or  denominated  in any one  currency.  However  under normal market
conditions,  the Fund  intends  to have at least 65% of its assets  invested  in
companies in at least three different  countries.  One of those countries may be
the U.S.  though  currently  the Fund  does  not  intend  to  invest  in  equity
securities of U.S. companies.                                                   

Investments may be made anywhere in the world. Primary consideration is given to
securities of  corporations  of Western  Europe,  North America and  Australasia
(Australia,  Japan  and Far  East  Asia).  Changes  in  investments  are made as
prospects change for particular countries, industries or companies.             

In choosing investments for the Fund, the Sub-Advisor,  Invista, pays particular
attention to the long-term  earnings  prospects of the various  companies  under
consideration.  Invista then weighs those prospects relative to the price of the
security.                                                                       

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S.  companies.  These  include  the risk that a foreign  security
could lose value as a result of  political,  financial  and  economic  events in
foreign countries.  Foreign  securities may be subject to securities  regulators
with less stringent  accounting  and  disclosure  standards than are required of
U.S. companies.                                                                 

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate  dramatically  in response to these  factors.  If the
investor  sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.                                    

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of  capital in  markets  outside  of the U.S.  who are able to assume the
increased risks of higher price volatility and currency fluctuations  associated
with investments in international stocks which trade in non-U.S. currencies.    

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $168     $520                              

Advisors Preferred Class  150      465                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.90%       0.90%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.65%       1.47%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Kurtis D. Spieler,  CFA. Mr. Spieler is a portfolio  manager
                    specializing  in  the  management  of  international  equity
                    portfolios.  He  joined  Principal  in 1987 in the  Treasury
                    operation  as a  securities  analyst and moved to Invista in
                    1991. Mr. Spieler received his MBA from Drake University and
                    his BBA in  Accounting  from Iowa State  University.  He has
                    earned  the  right to use the  Chartered  Financial  Analyst
designation.                            

INTERNATIONAL FUND II                                                           
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests in common stocks and other securities of companies domiciled in
any of the nations of the world. The Fund invests in securities of:             

o    companies  with their  principal  place of  business or  principal  offices
outside the U.S.;                                                     
o    companies for which the principal  securities trading market is outside the
U.S.; or                                                              
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue from either  goods or services  produced or
sales made outside the U.S.                                           

The  Sub-Advisor,  BT,  selects  securities for the Fund based on its own global
investment research. The research program is focused on three key criteria:     

o    business franchise - considering factors such as the company's relationship
     with its suppliers and customers, the degree of rivalry with competitors as
well as the exposure to regulatory and technological risk;            
o    quality of management - assessing  the company's  management on its ability
     to execute  current  business  plans,  manage the  capital  invested in the
     business as well as the level of transparency  with respect to strategy and
operations; and                                                       
o    business  valuation  -  determining  the private  market or "true  business
value" of the firm.                                                   

BT's qualitative analysis is complemented by disciplined  valuation  techniques.
These include proprietary models as well as conventional market measurements and
industry  specific models of relative value.  This analytical  framework ensures
consistency and  transparency  throughout the research  process.  Portfolios are
constructed  and managed  within  predetermined  guidelines  that are  regularly
monitored by BT.                                                                

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility.                                                                     

In addition,  foreign stocks carry risks that are not generally  found in stocks
of U.S.  companies.  These include the risk that a foreign  security  could lose
value as a result  of  political,  financial  and  economic  events  in  foreign
countries.  Foreign securities may be subject to securities regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  In the  short-term,  stock prices can  fluctuate  dramatically  in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.   

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  growth of
capital in  markets  outside  of the U.S.  who are able to assume the  increased
risks of higher price  volatility  and  currency  fluctuations  associated  with
investments in international stocks which trade in non-U.S. currencies.         

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $178     $551                              

Advisors Preferred Class  160      496                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.75%       1.57%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since ________, 2000                                                            
(Fund's inception)                                                              
                    Christopher  Selth,  Executive  Vice  President  of BT,  was
                    appointed its head of International Equities in 1998 and its
                    joint head of Equities  in 1999.  He joined BT in 1987 as an
                    Investment  Analyst in the retail unit trust group. In 1988,
                    he  was  assigned  the   responsibility  to  cover  European
                    equities.   Mr.  Selth  was  given  responsibility  for  the
                    European  component of all retail unit trusts in March 1994.
                    Since   November   1996,   he  has  been   responsible   for
                    institutional and retail European  investments,  supervising
                    all European  activities,  and the European funds management
                    group.  Prior to  joining  BT,  Mr.  Selth  worked  with QBE
                    Insurance  Limited in investment  management as an assistant
                    to the  Group  Treasurer.  He holds a  Bachelor's  degree in
          Economics (Honours) from the University of Sydney.

INTERNATIONAL SMALLCAP FUND                                                     

The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund  invests  primarily in equity  securities  of non-U.S.  companies  with
comparatively  smaller market  capitalizations.  Under normal market conditions,
the Fund invests at least 65% of its assets in  securities  of companies  having
market  capitalizations of $1.5 billion or less at the time of purchase.  Market
capitalization  is  defined  as  total  current  market  value  of  a  company's
outstanding common stock.                                                       

The Fund invests in securities of:                                              
o    companies  with their  principal  place of  business  or  principal  office
outside the U.S.;                                                     
o    companies for which the principal  securities trading market is outside the
U.S.; and                                                             
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue  from goods or  services  produced or sales
made outside the U.S.                                                 

The Sub-Advisor,  Invista,  diversifies the Fund's  investments  geographically.
There is no limitation  on the  percentage of assets that may be invested in one
country  or  denominated  in any one  currency.  However,  under  normal  market
circumstances,  the Fund  intends  to  invest  at  least  65% of its  assets  in
securities of companies of at least three countries.                            

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S.  companies.  These  include  the risk that a foreign  security
could lose value as a result of  political,  financial  and  economic  events in
foreign countries.  Foreign  securities may be subject to securities  regulators
with less stringent  accounting  and  disclosure  standards than are required of
U.S. companies.                                                                 

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate  dramatically  in response to these  factors.  If the
investor  sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.                                    

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of  capital  in smaller  companies  outside  of the U.S.  who are able to
assume the increased risks of higher price volatility and currency  fluctuations
associated  with  investments  in  international  stocks which trade in non-U.S.
currencies.                                                                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $198     $612                              

Advisors Preferred Class  180      557                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   1.20%       1.20%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.95%       1.77%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Darren K. Sleister, CFA. Mr. Sleister is a portfolio manager
                    specializing  in  the  management  of  international  equity
                    portfolios. Mr. Sleister joined Invista in 1993. He received
                    his  MBA in  Investment  and  Corporate  Finances  from  the
                    University   of  Iowa   and   his   Bachelor's   degree   in
                    Communications from Central College. He has earned the right
           to use the Chartered Financial Analyst designation.

PACIFIC BASIN FUND                                                              
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 

The Fund invests primarily in equity securities (or other securities with equity
characteristics)  of issuers  located in the  Pacific  Basin  region,  including
Japan. The Fund invests in securities  listed on foreign or domestic  securities
exchanges, securities traded in foreign or domestic over-the-counter markets and
depositary receipts.  Under normal market conditions,  the Fund invests at least
65% of its assets in such  securities.  The  Fund's  investments  are  generally
diversified  among  securities of issuers of several  Pacific  Basin  countries,
which  include but are not  limited  to:  Australia,  China,  Hong Kong,  India,
Indonesia,  Japan,  Malaysia,  New Zealand,  Singapore,  Sri Lanka, South Korea,
Thailand, Taiwan and Vietnam. These include securities of:                      
o    companies organized under the laws of Pacific Basin countries;             
o    companies for which the principal securities trading market is in a Pacific
Basin country; and                                                    
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue from either  goods or services  produced or
sales made in Pacific Basin countries.                                

Under  normal  market  conditions,  the Fund intends to have at least 65% of its
assets  invested  in  companies  in  Pacific  Basin  countries  and  may  have a
significant  portion of its assets  invested in  securities of issuers in Japan.
Criteria for determining the  distribution of investments  include the prospects
for relative  growth among  foreign  countries,  expected  levels of  inflation,
government   policies   influencing   business   conditions  and  the  range  of
opportunities available to international investors.                             

The global equity  investment  philosophy of BT, the Sub-Advisor,  is to exploit
market  inefficiencies  that  arise  from  differing  interpretations  of market
information.  As a result, in BT's view, a company's share price does not always
represent its true "business value." BT actively invests in those companies that
it believes have been mispriced by investment markets. In order to exploit these
inefficiencies  successfully,  BT seeks to enhance investment returns through:  
o    rigorous  proprietary  stock  research  which  enables  their  analysts  to
understand the:                                                       
o   quality of the company;                                           
o   nature of its management;                                         
o   nature of its industry competition; and                           
  o  business  valuation  - the  true  "business  value"  of the  company;
o    maintaining global coverage within the universe of investment choices; and 
o    maintaining a medium-term focus.                                           

As a result,  the Fund's  portfolio  reflects  the  opportunities  presented  by
mispriced  companies that offer the potential for strong,  long-term  investment
returns with an acceptable level of investment risk.                            

Main Risks                                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S.  companies.  These  include  the risk that a foreign  security
could lose value as a result of  political,  financial  and  economic  events in
foreign countries.  Foreign  securities may be subject to securities  regulators
with less stringent  accounting  and  disclosure  standards than are required of
U.S. companies.                                                                 

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

The Fund anticipates that its portfolio  turnover will typically range from 200%
to 300%. Turnover rates in excess of 100% generally result in higher transaction
costs and a possible increase in short-term capital gains (or losses).          

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate  dramatically  in response to these  factors.  If the
investor  sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.                                    

To the extent  that the assets of the Fund are  concentrated  in  securities  of
issuers in Japan, the value of the shares of the Fund may be more susceptible to
a single economic, political or regulatory occurrence than shares of a Fund less
concentrated in a single country.                                               

Investor Profile                                                                

The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital in Pacific  Basin markets who are able to assume the increased
risks of higher price  volatility  and  currency  fluctuations  associated  with
investments in international stocks which trade in non-U.S. currencies.         

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years     

Advisors Select Class    $178     $551                              

Advisors Preferred Class  160      496                              

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
12b-1 Fees.......................   0.37        0.31                  
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.75%       1.57%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Dean Cashman is Executive Vice President of BT and serves as
                    head of  Japanese  equities.  He joined BT in January  1988,
                    initially  involved in the liquids and fixed interest group,
                    but  moved  to  the  European  equity  group  in  late  1989
                    specializing in the Latin Block countries  including France,
                    Italy and Spain. He started working on Japanese  equities at
                    the end of 1991 and  subsequently  took over  responsibility
                    for the group.  Mr.  Cashman  received a degree in Economics
from the University of Queensland.      

THE COSTS OF INVESTING                                                          

Fees and Expenses of the Funds                                                  

The shares of the Funds are sold  without a  front-end  sales  charge and do not
have a contingent  deferred sales charge.  There is no sales charge on shares of
the Funds purchased with reinvested dividends or other distributions.  The Funds
do not pay any fees other than  those  described  below and do not pay any other
expenses.                                                                       

Ongoing Fees                                                                    

Each Fund pays  ongoing  fees to the Manager and others who provide  services to
the Fund.  They reduce the value of each share.  Because they are ongoing  fees,
they  increase  the cost of  investing  in the  Funds.  These  fees  include:   

o    Management  Fee - Through  the  Management  Agreement  with the  Fund,  the
Manager has agreed to provide investment advisory services            
and corporate administrative services to the Funds.                   
o    Distribution Fee - Each of the Funds has adopted a distribution  plan under
     Rule 12b-1 of the 1940 Act for its Advisors  Select and Advisors  Preferred
     share classes. These ongoing fees pay distribution expenses for the sale of
     Fund shares by Princor and other selling  dealers.  Under the plan, each of
     those  classes of each Fund pays a  distribution  fee based on the  average
     daily net asset  value (NAV) of the Fund.  Over time, these fees may exceed
other types of sales charges.                                         
o    Service Fee - The Manager has entered  into a Services  Agreement  with the
 Fund under which the Manager performs personal services to shareholder.
o    Administrative Service Fee - The Manager has entered into an Administrative
     Services  Agreement with the Fund under which the Manager provides transfer
     agent  services  to the Fund.  In  addition,  the  Manager  has assumed the
     responsibility  for  communications  with and  recordkeeping  services  for
beneficial owners of Fund shares.                                     
o    Portfolio  Accounting  Services - The Manager has entered into an agreement
     with the  Fund  under  which  the  Manager  supplies  portfolio  accounting
services.                                                             

Conversion Features                                                             
Principal Investors Fund will:                                                  
o    convert all  Advisors  Select  shares held by a plan to Advisors  Preferred
     shares if the  aggregate  value of the  shares  exceeds $10  million on the
     annual  determination  date (which shall be the 75th day (or prior business
day) before the plan year-end);                                       
o    convert all  Advisors  Preferred  shares held by a plan to Advisors  Select
     shares if the aggregate  value of the shares is less than $8 million on the
annual determination date;                                            
o    effect  the  conversion  on the  basis of  relative  net  assets of the two
classes without any charge; and                                       
o    make the conversion  effective on the 30th day (or next business day) after
the annual determination date.                                        

CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS                                 

The Statement of Additional  Information (SAI) contains  additional  information
about investment strategies and their related risks.                            

Securities and Investment Practices                                             

Equity  securities   include  common  stocks,   preferred  stocks,   convertible
securities  and warrants.  Common stocks,  the most familiar type,  represent an
equity (ownership) interest in a corporation.  Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes in
a company's financial  condition and in overall market and economic  conditions.
Smaller companies are especially sensitive to these factors.                    

Fixed-income  securities  include bonds and other debt instruments that are used
by  issuers to borrow  money  from  investors.  The  issuer  generally  pays the
investor a fixed,  variable or floating  rate of interest.  The amount  borrowed
must be repaid at maturity. Some debt securities,  such as zero coupon bonds, do
not pay current interest, but are sold at a discount from their face values.    

Fixed-income  securities are sensitive to changes in interest rates. In general,
fixed-income  security  prices  rise  when  interest  rates  fall and fall  when
interest rates rise.  Longer term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.                                             

Fixed-income  security  prices are also  affected  by the credit  quality of the
issuer. Investment grade debt securities are medium and high quality securities.
Some  bonds,  such  as  lower  grade  or  "junk"  bonds,  may  have  speculative
characteristics and may be particularly sensitive to economic conditions and the
financial condition of the issuers.                                             

Repurchase Agreements and Loaned Securities                                     

Each of the Funds may invest a portion of its assets in  repurchase  agreements.
Repurchase  agreements  typically involve the purchase of debt securities from a
financial   institution  such  as  a  bank,  savings  and  loan  association  or
broker-dealer.  A repurchase  agreement provides that the Fund sells back to the
seller and that the seller repurchases the underlying  securities at a specified
price on a specific date. Repurchase agreements may be viewed as loans by a Fund
collateralized by the underlying securities. This arrangement results in a fixed
rate of return  that is not subject to market  fluctuation  while the Fund holds
the security.  In the event of a default or  bankruptcy  by a selling  financial
institution, the affected Fund bears a risk of loss. To minimize such risks, the
Fund enters into  repurchase  agreements only with large,  well-capitalized  and
well-established   financial  institutions.   In  addition,  the  value  of  the
collateral  underlying the repurchase  agreement is always at least equal to the
repurchase price, including accrued interest.                                   

Each  of  the  Funds  may  lend  its  portfolio   securities   to   unaffiliated
broker-dealers and other unaffiliated qualified financial institutions.         

Currency Contracts                                                              

The Funds may each enter  into  forward  currency  contracts,  currency  futures
contracts  and  options,  and  options  on  currencies  for  hedging  and  other
non-speculative  purposes.  A forward  currency  contract  involves a  privately
negotiated  obligation to purchase or sell a specific  currency at a future date
at a price set in the contract.  A Fund will not hedge  currency  exposure to an
extent greater than the aggregate  market value of the securities  held or to be
purchased by the Fund (denominated or generally quoted or currently  convertible
into the currency).                                                             

Hedging  is a  technique  used  in  an  attempt  to  reduce  risk.  If a  Fund's
Sub-Advisor hedges market conditions incorrectly or employs a strategy that does
not correlate well with the Fund's investment,  these techniques could result in
a loss. These techniques may increase the volatility of a Fund and may involve a
small  investment  of cash  relative to the  magnitude of the risk  assumed.  In
addition,  these  techniques  could  result in a loss if the other  party to the
transaction  does not perform as  promised.  There is also a risk of  government
action through exchange  controls that would restrict the ability of the Fund to
deliver or receive currency.                                                    

Forward Commitments                                                             

Each of the Funds may enter into forward commitment agreements. These agreements
call for the Fund to  purchase  or sell a security  on a future  date at a fixed
price.  Each of the Funds may also enter into contracts to sell its  investments
either on demand or at a specific interval.                                     

Warrants                                                                        

Each of the Funds may invest up to 5% of its assets in warrants.  A warrant is a
certificate  granting its owner the right to purchase securities from the issuer
at a specified price, normally higher than the current market price.            

Risks of High Yield Securities                                                  

The Balanced and Bond & Mortgage  Securities Funds may invest in debt securities
rated lower than BBB by S&P or Baa by Moody's or, if not rated, determined to be
of equivalent quality by the Sub-Advisor. Such securities are sometimes referred
to as high yield or "junk bonds" and are considered speculative.                

Investment in high yield bonds  involves  special risks in addition to the risks
associated with investment in highly rated debt securities. High yield bonds may
be regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments.  Moreover, such securities may,
under certain circumstances, be less liquid than higher rated debt securities.  

Analysis of the creditworthiness of issuers of high yield securities may be more
complex  than for issuers of higher  quality debt  securities.  The ability of a
Fund to achieve its investment objective may, to the extent of its investment in
high yield bonds,  be more  dependent on such credit  analysis than would be the
case if the Fund were investing in higher quality bonds.                        

High yield bonds may be more  susceptible to real or perceived  adverse economic
and competitive  industry conditions than higher grade bonds. The prices of high
yield bonds have been found to be less  sensitive to interest  rate changes than
more highly rated investments,  but more sensitive to adverse economic downturns
or  individual  corporate  developments.  If the  issuer  of  high  yield  bonds
defaults, a Fund may incur additional expenses to seek recovery.                

The  secondary  market on which high yield  bonds are traded may be less  liquid
than the market for higher grade bonds.  Less liquidity in the secondary trading
market could adversely  affect the price at which a Fund could sell a high yield
bond and could adversely affect and cause large  fluctuations in the daily price
of the Fund's shares. Adverse publicity and investor perceptions, whether or not
based on  fundamental  analysis,  may decrease  the value and  liquidity of high
yield bonds, especially in a thinly traded market.                              

The use of credit ratings for evaluating high yield bonds also involves  certain
risks. For example, credit ratings evaluate the safety of principal and interest
payments,  not the market value risk of high yield bonds.  Also,  credit  rating
agencies  may fail to  change  credit  ratings  in a timely  manner  to  reflect
subsequent  events.  If a credit rating agency changes the rating of a portfolio
security  held by a Fund,  the Fund may retain the  security if the  Sub-Advisor
thinks it is in the best interest of shareholders.                              

Derivatives                                                                     

To the extent permitted by its investment  objectives and policies,  each of the
Funds may invest in  securities  that are  commonly  referred  to as  derivative
securities.  Generally,  a derivative is a financial  arrangement,  the value of
which is derived  from, or based on, a traditional  security,  asset,  or market
index.   Certain   derivative   securities  are  described  more  accurately  as
index/structured   securities.   Index/structured   securities   are  derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts),  currencies, interest rates, indices or other financial
indicators (reference indices).                                                 

Some derivatives,  such as mortgage-related  and other asset-backed  securities,
are in many  respects  like  any  other  investment,  although  they may be more
volatile or less liquid than more traditional debt securities.                  

There are many  different  types of  derivatives  and many different ways to use
them. Futures and options are commonly used for traditional  hedging purposes to
attempt to protect a Fund from exposure to changing  interest rates,  securities
prices,  or  currency  exchange  rates  and for cash  management  purposes  as a
low-cost method of gaining  exposure to a particular  securities  market without
investing directly in those securities.                                         

No Fund may invest in a derivative  security  unless the reference index or the 
instrument  to which it  relates is an  eligible  investment  for the Fund.  For
example,  a security whose  underlying value is linked to the price of oil would
not be a permissible  investment  because the Funds may not invest in oil leases
or futures.                                                                     

The return on a derivative  security may  increase or decrease,  depending  upon
changes in the  reference  index or  instrument  to which it relates.  The risks
associated with derivative  investments  include:                               
o    the risk that the underlying security, interest rate, market index or other
     financial asset will not move in the direction the Sub-Advisor anticipated;
o    the possibility that there may be no liquid secondary market which may make
it difficult or impossible to close out a position when desired;      
o    the risk that adverse price movements in an instrument can result in a loss
substantially greater than a Fund's initial investment; and           
o    the counterparty may fail to perform its obligations.                      

Foreign Securities                                                              

Each of the following Funds may invest in securities of foreign  companies.  For
the purpose of this  restriction,  foreign companies are:                       
o    companies  with their  principal  place of  business  or  principal  office
outside the U.S.;                                                     
o    companies for which the principal  securities trading market is outside the
U.S.; and                                                             
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue  from goods or  services  produced or sales
made outside the U.S.                                                 

The European Equity,  International I, International II, International  Emerging
Markets,  International  SmallCap,  Pacific Basin and Technology  Funds each may
invest up to 100% of its assets in foreign securities.  Each of the LargeCap S&P
500 Index,  MidCap S&P 400 Index and  SmallCap S&P 600 Index Funds may invest in
foreign  securities  to the extent that its relevant  index is so invested.  The
other  Funds  (except  Government  Securities)  may each invest up to 25% of its
assets in foreign securities.                                                   

Foreign  companies may not be subject to the same uniform  accounting,  auditing
and  financial  reporting  practices  as are  required  of  U.S.  companies.  In
addition,  there  may be less  publicly  available  information  about a foreign
company than about a U.S. company. Securities of many foreign companies are less
liquid  and  more  volatile  than  securities  of  comparable  U.S.   companies.
Commissions on foreign  securities  exchanges may be generally higher than those
on U.S.  exchanges,  although each Fund seeks the most  favorable net results on
its portfolio transactions.                                                     

Foreign  markets also have different  clearance and settlement  procedures  than
those in U.S. markets. In certain markets there have been times when settlements
have been unable to keep pace with the volume of securities transactions, making
it difficult to conduct these transactions. Delays in settlement could result in
temporary  periods  when a portion of Fund assets is not invested and earning no
return.  If a  Fund  is  unable  to  make  intended  security  purchases  due to
settlement problems, the Fund may miss attractive investment  opportunities.  In
addition,  a Fund may incur a loss as a result of a decline  in the value of its
portfolio if it is unable to sell a security.                                   

With  respect  to  certain  foreign  countries,  there  is  the  possibility  of
expropriation  or confiscatory  taxation,  political or social  instability,  or
diplomatic  developments  that  could  affect  a  Fund's  investments  in  those
countries.  In addition,  a Fund may also suffer losses due to  nationalization,
expropriation or differing accounting  practices and treatments.  Investments in
foreign securities are subject to laws of the foreign country that may limit the
amount and types of foreign  investments.  Changes of governments or of economic
or  monetary  policies,  in the U.S.  or  abroad,  changes in  dealings  between
nations,  currency  convertibility  or exchange rates could result in investment
losses for a Fund.  Finally,  even though certain  currencies may be convertible
into U.S. dollars, the conversion rates may be artificial relative to the actual
market values and may be unfavorable to Fund investors.                         

Foreign  securities  are  often  traded  with less  frequency  and  volume,  and
therefore  may have greater  price  volatility,  than is the case with many U.S.
securities. Brokerage commissions,  custodial services, and other costs relating
to investment in foreign countries are generally more expensive than in the U.S.
Though the Funds intend to acquire the securities of foreign issuers where there
are public trading markets,  economic or political turmoil in a country in which
a  Fund  has a  significant  portion  of  its  assets  or  deterioration  of the
relationship  between the U.S. and a foreign  country may negatively  impact the
liquidity  of a Fund's  portfolio.  A Fund may have  difficulty  meeting a large
number  of  redemption  requests.  Furthermore,  there  may be  difficulties  in
obtaining or enforcing judgments against foreign issuers.                       

A Fund may  choose  to  invest in a foreign  company  by  purchasing  depositary
receipts.  Depositary  receipts  are  certificates  of  ownership of shares in a
foreign  based issuer held by a bank or other  financial  institution.  They are
alternatives  to  purchasing  the  underlying  security  but are  subject to the
foreign securities to which they relate.                                        

Investments in companies of developing  countries may be subject to higher risks
than investments in companies in more developed countries.  These risks include:
o    increased social, political and economic instability;                      
o    a smaller  market for these  securities  and low or  nonexistent  volume of
     trading  that  results  in  a  lack  of  liquidity  and  in  greater  price
volatility;                                                           
o    lack of publicly  available  information,  including reports of payments of
dividends or interest on outstanding securities;                      
o    foreign  government  policies  that may restrict  opportunities,  including
     restrictions  on investment in issuers or  industries  deemed  sensitive to
national interests;                                                   
o    relatively new capital market structure or market-oriented economy;        
o    the possibility that recent favorable  economic  developments may be slowed
     or reversed by unanticipated political or social events in these countries;
o    restrictions  that may make it difficult or impossible for the Fund to vote
     proxies,  exercise  shareholder rights,  pursue legal remedies,  and obtain
judgments in foreign courts; and                                      
o    possible  losses  through the holding of securities in domestic and foreign
custodial banks and depositories.                                     

In addition, many developing countries have experienced substantial, and in some
periods,  extremely high rates of inflation for many years.  Inflation and rapid
fluctuations  in  inflation  rates have had and may  continue  to have  negative
effects on the economies and securities markets of those countries.             

Repatriation  of  investment  income,  capital and  proceeds of sales by foreign
investors  may  require  governmental   registration  and/or  approval  in  some
developing  countries.  A Fund  could be  adversely  affected  by delays in or a
refusal  to  grant  any  required  governmental  registration  or  approval  for
repatriation.                                                                   

Further,  the economies of developing  countries generally are heavily dependent
upon  international  trade and,  accordingly,  have been and may  continue to be
adversely affected by trade barriers,  exchange controls, managed adjustments in
relative currency values and other protectionist  measures imposed or negotiated
by the countries with which they trade.                                         

Securities of Smaller Companies                                                 

The Funds may invest in securities of companies with small- or mid-sized  market
capitalizations.  Market capitalization is defined as total current market value
of a company's  outstanding common stock.  Investments in companies with smaller
market  capitalizations  may involve greater risks and price  volatility  (wide,
rapid fluctuations) than investments in larger,  more mature companies.  Smaller
companies  may be less mature than larger  companies.  At this earlier  stage of
development,  the  companies  may have limited  product  lines,  reduced  market
liquidity  for  their  shares,  limited  financial  resources  or less  depth in
management than larger or more established  companies.  Small companies also may
be  less  significant  within  their  industries  and  may  be at a  competitive
disadvantage  relative to their larger competitors.  While smaller companies may
be subject to these  additional  risks,  they may also realize more  substantial
growth than larger or more established companies.                               

Unseasoned Issuers                                                              

The Funds may invest in the securities of unseasoned issuers. Unseasoned issuers
are  companies  with a record of less than  three  years  continuous  operation,
including the operation of predecessors and parents. Unseasoned issuers by their
nature have only a limited operating history that can be used for evaluating the
company's  growth  prospects.  As  a  result,  investment  decisions  for  these
securities may place a greater  emphasis on current or planned product lines and
the reputation  and experience of the company's  management and less emphasis on
fundamental  valuation  factors  than would be the case for more  mature  growth
companies.  In addition, many unseasoned issuers also may be small companies and
involve the risks and price volatility associated with smaller companies.       

Temporary Defensive Measures                                                    

For  temporary  defensive  purposes  in  times  of  unusual  or  adverse  market
conditions, the Funds may invest without limit in cash and cash equivalents. For
this  purpose,  cash  equivalents  include:  bank notes,  bank  certificates  of
deposit,  bankers  acceptances,  repurchase  agreements,  commercial  paper, and
commercial paper master notes which are floating rate debt instruments without a
fixed maturity.  In addition,  a Fund may purchase U.S.  Government  securities,
preferred  stocks  and  debt  securities,  whether  or not  convertible  into or
carrying rights for common stock.                                               

There is no limit on the extent to which the Funds may take temporary  defensive
measures.  In  taking  such  measures,  the  Funds  may  fail to  achieve  their
investment objective.                                                           

Portfolio Turnover                                                              

"Portfolio  Turnover" is the term used in the industry for  measuring the amount
of trading that occurs in a Fund's  portfolio  during the year.  For example,  a
100%  turnover  rate means that on average  every  security in the portfolio has
been replaced once during the year.                                             

Funds with high  turnover  rates (more than 100%) often have higher  transaction
costs (which are paid by the Fund) and may generate short-term capital gains (on
which  taxes may be  imposed  even if no shares of the Fund are sold  during the
year).  No turnover rate can be calculated  for the Money Market Fund because of
the short  maturities of the  securities in which it invests.  No turnover rates
are  calculated for the other Funds as they have been in existence for less than
six months.                                                                     

Please consider all the factors when you compare the turnover rates of different
funds. A fund with  consistently  higher total returns and higher turnover rates
than another fund may actually be achieving better performance precisely because
the managers are active traders.                                                

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE                                  

The Manager                                                                     

Principal Management Corporation serves as the Manager for the Fund. Through the
Management  Agreement  with the Fund,  the  Manager  has  agreed  to handle  the
investment  advisory  services  and  provide  certain  corporate  administrative
services for the Fund. The Fund and the Manager have also entered into a Service
Agreement under which the Manager provides  personal services to shareholders of
each  Fund.  Additionally,  the  Fund  and  the  Manager  have  entered  into an
Administrative  Services Agreement under which the Manager has agreed to provide
transfer agency services and certain shareholder  services for beneficial owners
of Advisors  Select,  Advisors  Preferred,  Select and Preferred Fund classes of
shares.  The Fund and the  Manager  have  entered  into a  Portfolio  Accounting
Services  Agreement  under  which  the  Manager  provides  portfolio  accounting
services.                                                                       

The Manager is an indirect subsidiary of Principal Financial Services,  Inc. and
has managed mutual funds since 1969. As of ________, the mutual funds it manages
had assets of approximately  $_____ billion.  The Manager's address is Principal
Financial Group, Des Moines, Iowa 50392-0200.                                   

The Sub-Advisors                                                                

The  Manager  has  signed  contracts  with  various   Sub-Advisors.   Under  the
Sub-Advisory agreements, the Sub-Advisor agrees to assume the obligations of the
Manager to provide  investment  advisory services for a specific Fund. For these
services, the Sub-Advisor is paid a fee by the Manager.                         

Funds:         Balanced   (equity   securities   portion),    International   I,
               International Emerging Markets,  International SmallCap, LargeCap
               Blend,  LargeCap Growth,  LargeCap S&P 500 Index, LargeCap Value,
               MidCap Blend, MidCap Growth,  MidCap S&P 400 Index, MidCap Value,
               SmallCap  Blend,  SmallCap  Growth,  SmallCap  S&P 600  Index and
SmallCap Value                                    
Sub-Advisor:   Invista  Capital   Management,   LLC  ("Invista"),   an  indirect
               wholly-owned  subsidiary of Principal Life Insurance  Company and
               an  affiliate  of the  Manager,  was founded in 1985.  It manages
               investments  for  institutional  investors,  including  Principal
               Life. Assets under management as of _________ were  approximately
               $______ billion. Invista's address is 1800 Hub Tower, 699 Walnut,
Des Moines, Iowa 50309.                           

Funds:         Balanced  (fixed-income  portion),  Bond &  Mortgage  Securities,
               Government Securities, High Quality Short-Term Bond, High Quality
               Intermediate-Term  Bond,  High Quality  Long-Term  Bond and Money
Market                                            
Sub-Advisor:   Principal  Capital Income  Investors,  LLC ("PCII"),  an indirect
               wholly-owned  subsidiary of Principal Life Insurance  Company and
               an  affiliate  of the  Manager,  was founded in 2000.  It manages
               investments for institutional investors, including Principal Life
               Insurance    Company.    Assets    under    management    as   of
               ------------------   were  approximately  $----  billion.  PCII's
            address is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.

Fund:          Real Estate                                                      
Sub-Advisor:   Principal  Capital  Real  Estate  Investors,  LLC  ("PCREI"),  an
               indirect  wholly-owned  subsidiary  of Principal  Life  Insurance
               Company and an affiliate of the Manager,  was founded in 2000. It
               manages  investments  for  institutional   investors,   including
               Principal Life Insurance  Company.  Assets under management as of
               ------------------were   approximately  $----  billion.   PCREI's
            address is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.

Funds:         European, International II, Pacific Basin and Technology         
Sub-Advisor:   BT Funds Management  (International)  Limited ("BT") is a related
               company of BT Funds  Management  Limited ("BTFM") and a member of
               the Principal  Financial Group. Its address is The Chifley Tower,
               2 Chifley Square,  Sydney NSW 2000  Australia.  As of __________,
               BT, together with BTFM, had approximately  $________billion under
               management   for  more  than   ____________   institutional   and
individual clients.                               

Fund:          Partners LargeCap Growth I                                       
Sub-Advisor:   Morgan  Stanley  Asset  Management   ("Morgan   Stanley"),   with
               principal  offices at 1221 Avenue of the  Americas,  New York, NY
               10020, provides a broad range of portfolio management services to
               customers in the U.S.  and abroad.  As of  _____________,  Morgan
               Stanley,   together  with  its  affiliated   institutional  asset
               management companies,  managed investments totaling approximately
               $_____  billion  as named  fiduciary  or  fiduciary  adviser.  On
               December 1, 1998 Morgan Stanley Asset Management Inc. changed its
               name to Morgan Stanley Dean Witter Investment Management Inc. but
               continues  to do  business  in certain  instances  using the name
Morgan Stanley Asset Management.                  

Fund:          Partners MidCap Growth                                           
Sub-Advisor:   Turner Investment Partners,  Inc. ("Turner") was founded in 1990.
               Its address is 1235 Westlake Drive,  Suite 350, Berwyn, PA 19312.
               As  of  _____________,   Turner  had   discretionary   management
             authority with respect to approximately $___ billion in assets.

Fund:          Partners LargeCap Value                                          

Sub-Advisor:   Alliance  Capital  Management  L.P.   ("Alliance")   through  its
               Bernstein  Investment Research and Management unit ("Bernstein").
               As of June 30, 2000,  Alliance  managed $387.8 billion in assets.
               Bernstein is located at 767 Fifth Avenue,  New York, NY 10153 and
               Alliance is located at 1345 Avenue of the Americas,  New York, NY
10105.                                            

Funds:         Partners MidCap Value and Partners SmallCap Growth I             
Sub-Advisor:   Neuberger  Berman  Management  Inc.  ("Neuberger  Berman")  is an
               affiliate  of  Neuberger  Berman,  LLC.  Neuberger  Berman LLC is
               located at 605 Third Avenue,  2nd Floor, New York, NY 10158-0180.
               Together with Neuberger  Berman,  the firms manage more than $___
               billion in total assets (as of  _______________)  and continue an
asset management history that began in 1939.      

Funds:         Partners LargeCap Blend and Partners SmallCap Growth II          
Sub-Advisor:   Federated  Investment   Management  Company  ("Federated")  is  a
               registered  investment  adviser and a wholly-owned  subsidiary of
               Federated  Investors,  Inc., which was founded in 1955. Federated
               is  located  in the  Federated  Investors  Tower at 1001  Liberty
               Avenue, Pittsburgh, PA 15222-3779. As of June 30, 2000, Federated
managed $125 billion in assets.                   

Fund:          Partners LargeCap Growth II                                      
Sub-Advisor:   American Century Investment Management, Inc. ("American Century")
               was  founded  in 1958.  Its  office is  located  in the  American
               Century Tower at 4500 Main Street,  Kansas City, KS 64111.  As of
               June 30,  2000,  American  Century  managed  over $110 billion in
assets.                                           

Duties of Manager and Sub-Advisors                                              

The Manager or  Sub-Advisor  provides  the Board of Directors of the Fund with a
recommended  investment program.  The program must be consistent with the Fund's
investment  objective and policies.  Within the scope of the approved investment
program,  the Manager or Sub-Advisor  advises the Fund on its investment  policy
and determines which securities are bought and sold, and in what amounts.       

The Manager is paid a fee by the Fund for its services,  which  includes any fee
paid to the Sub-Advisor.                                                        

Principal Investors Fund and the Manager,  under an order received from the SEC,
may  enter  into and  materially  amend  agreements  with  Sub-Advisors  without
obtaining shareholder approval.  For any Fund that is relying on that order, the
Manager  may:                                                                   
o    hire one or more Sub-Advisors;                                             
o    change Sub-Advisors; and                                                   
o    reallocate management fees between itself and Sub-Advisors.                
The Manager will continue to have the ultimate responsibility for the investment
performance of these Funds due to its responsibility to oversee Sub-Advisors and
recommend their hiring,  termination and  replacement.  No Fund will rely on the
order until it receives  approval from its shareholders or, in the case of a new
Fund,  the Fund's sole initial  shareholder  before the Fund is available to the
public,  and the Fund  states in its  prospectus  that it intends to rely on the
order.  The  Manager  will  not  enter  into an  agreement  with  an  affiliated
Sub-Advisor  for a Fund that is relying  on the order  without  that  agreement,
including the  compensation to be paid under it, being similarly  approved.  The
Partners LargeCap Blend Fund, Partners LargeCap Growth Fund I, Partners LargeCap
Growth Fund II,  Partners  LargeCap  Value Fund,  Partners  MidCap  Growth Fund,
Partners MidCap Value,  Partners  SmallCap  Growth Fund I and Partners  SmallCap
Growth Fund II have  received the necessary  shareholder  approval and intend to
rely on the order.                                                              

SHAREHOLDER INFORMATION                                                         

Pricing of Fund Shares                                                          

Each Fund's  shares are bought and sold at the current  NAV.  The share price of
each  class of each  Fund is  calculated  each day the New York  Stock  Exchange
(NYSE) is open.  The NAV is  determined at the close of business of the Exchange
(normally  3:00  p.m.  Central  time).  When an order to buy or sell  shares  is
received,  the NAV used to fill the order is the next price calculated after the
order is received.                                                              

For all Funds except the Money Market Fund,  the NAV is calculated  by:         
o    taking the current market value of the total assets of the Fund            
o    subtracting liabilities of the Fund                                        
o    dividing the remainder proportionately into the classes of the Fund        
o    subtracting the liabilities of each class                                  
o    dividing the remainder by the total number of shares owned in that class.  

The  securities  of the Money  Market  Fund are valued at  amortized  cost.  The
calculation  procedure is  described in the SAI. The Money Market Fund  reserves
the right to determine a share price more than once each day.                   

NOTES:                                                                          

o    If current market values are not readily  available for a security owned by
     a Fund,  its fair value is determined  using a policy adopted by the Fund's
Board of Directors.                                                   

o    A Fund's  securities  may be  traded on  foreign  securities  markets  that
     generally  complete  trading at various  times  during the day prior to the
     close of the NYSE. The values of foreign securities used in computing share
     price are determined at the time the foreign  market closes.  Occasionally,
     events  affecting  the value of foreign  securities  occur when the foreign
     market is closed and the NYSE is open. The NAV of a Fund may change on days
     when  shareholders  are  unable  to  purchase  or  redeem  shares.  If  the
     Sub-Advisor  believes  that the market value is  materially  affected,  the
share price will be calculated using the policy adopted by the Fund.  

o    Certain  securities  issued by companies in emerging  market  countries may
     have  more than one  quoted  valuation  at any point in time.  These may be
     referred to as local price and premium price.  The premium price is often a
     negotiated  price that may not  consistently  represent  a price at which a
     specific  transaction  can be  effected.  The  European,  International  I,
     International II, International  Emerging Markets,  International  SmallCap
     and  Pacific  Basin Funds each has a policy to value such  securities  at a
price at which the Sub-Advisor expects the securities may be sold.    

Purchase of Fund Shares                                                         
Shares may be purchased:                                                        
o    via the internet.                                                          
     o    standard  method of  accepting  data for plans  with  fewer than 1,000
current and terminated (within the last five years) members.
o   available 7 days a week (7 a.m. to 9 p.m. Central Time).          
o    using a modem.                                                             
o   plan contributions transferred electronically.                    
     o    standard  method  of  accepting  data for plans  with more than  1,000
current and terminated (within the last five years) members.
o   available 24 hours a day, 7 days a week.                          

To eliminate the need for safekeeping, the Funds will not issue certificates for
shares.  The Funds may  periodically  close to new purchases of shares or refuse
any order to buy shares if the Manager  determines that doing so would be in the
best interests of the Fund and its shareholders.                                

Redemption of Fund Shares                                                       

Subject to any  restrictions  imposed by a plan,  shares may be sold back to the
Fund any day the NYSE is open. For more information  about how to sell shares of
the Fund, including any charges that a plan may impose, please consult the plan.

The Fund generally sends payment for shares sold the business day after the sell
order  is  received.   Under  unusual   circumstances,   the  Fund  may  suspend
redemptions,  or  postpone  payment for more than seven days,  as  permitted  by
federal securities law.                                                         

Exchange of Fund Shares                                                         

An exchange between Funds is a sale of shares in one Fund and purchase of shares
of another Fund with the redemption proceeds. Subject to any restrictions a plan
imposes,  shares in the Funds may be  exchanged,  without  charge,  for the same
class of any other Principal Investors Fund, provided that:                     
o    the class  shares of such other  Fund are  available  in the plan  member's
state of residence; and                                               
o    shares of such other Fund are available through the plan.                  

The  exchange  privilege is not  intended as a vehicle for  short-term  trading.
Excessive exchange activity may interfere with portfolio  management and have an
adverse  effect  on all  shareholders.  In  order to  limit  excessive  exchange
activity, and under other circumstances where the Board of Directors of the Fund
or the  Manager  believes  it is in the best  interests  of the  Fund,  the Fund
reserves the right to revise or  terminate  the  exchange  privilege,  limit the
amount  or  number of  exchanges,  reject  any  exchange  or close the  account.
Notification of any such action will be given to the extent required by law.    

Dividends and Distributions                                                     

The Funds  (other  than the Money  Market  Fund) pay most of their net  dividend
income once each year.  Payments are made to shareholders of record on the third
business  day prior to the payment  date.  The  payment  date is December 21 (or
previous business day).                                                         

Net realized  capital gains,  if any, are  distributed  annually.  Generally the
distribution is made on the first business day of December. Payments are made to
shareholders  of record three  business days prior to the payable date.  Capital
gains may be taxable at  different  rates,  depending on the length of time that
the Fund holds its assets.                                                      

The Money Market Fund declares  dividends of all its daily net investment income
each  day  its  shares  are  priced.  The  dividends  are  paid  daily  and  are
automatically reinvested back into additional shares of the Money Market Fund.  

Under normal  circumstances,  the Money  Market Fund  intends to hold  portfolio
securities until maturity and value them at amortized cost. Therefore, the Money
Market Fund does not expect any  capital  gains or losses.  Should  there be any
gain, it could result in an increase in  dividends.  A capital loss could result
in a dividend decrease.                                                         

Dividend and capital gain distributions from a Fund are reinvested in additional
shares of the Fund making the distribution.                                     

Generally,  for federal income tax purposes,  Fund  distributions are taxable as
ordinary income,  except that any  distributions of long-term capital gains will
be taxed as such  regardless  of how long Fund shares  have been held.  However,
distributions  by the Fund to  retirement  plans  that  qualify  for  tax-exempt
treatment  under federal income tax laws will not be taxable.  Special tax rules
apply to investments by such plans.                                             

A tax advisor should be consulted to determine the suitability of the Fund as an
investment by such a plan and the tax treatment of  distributions by the Fund. A
tax advisor can also provide  information  on the  potential  impact of possible
foreign,  state and local taxes. A Fund's  investments in foreign securities may
be subject to foreign withholding taxes. In that case, the Fund's yield on those
securities would be decreased.                                                  

A Fund's investments in certain debt obligations may cause the Fund to recognize
taxable  income in excess of the cash generated by such  obligations.  Thus, the
Fund could be  required  at times to  liquidate  other  investments  in order to
satisfy its distribution requirement.                                           

FUND ACCOUNT INFORMATION                                                        

Statements                                                                      

Unless the plan elects to receive  statements  on a semiannual  or annual basis,
statements are sent each calendar quarter. The statements provide the number and
value of shares owned by the plan,  transactions  during the quarter,  dividends
declared or paid and other information.                                         

This     information    may    also    be    accessed    by    contacting    the
_____________________________ (www.principal.com).                              

Minimum Account Balance                                                         

The Principal  Investors Fund reserves the right to set a minimum and redeem all
shares  in the Fund if the  value of a plan's  investments  in the Funds is less
than the minimum.  Principal Investors Fund has set the minimum at $2.5 million.
The redemption  proceeds  would then be mailed to the plan sponsor.  If the Fund
exercises  this right,  the plan sponsor will be notified that the redemption is
going to be made.  The plan will have 30 days to make an  additional  investment
and bring plan assets up to the required minimum. The Fund reserves the right to
change the minimum.                                                             

Reservation of Rights                                                           

The  Principal  Investors  Fund  reserves  the right to amend or  terminate  the
special plans described in this  prospectus.  In addition,  Principal  Investors
Fund  reserves  the  right  to  change  the  share  classes   described  herein.
Shareholders will be notified of any such action to the extent required by law. 

Financial Statements                                                            

Plans will receive annual  financial  statements for the Funds,  examined by the
Funds'  independent  auditors,  Ernst & Young  LLP.  Plans  will also  receive a
semiannual financial statement that is unaudited.                               

APPENDIX A

RELATED PERFORMANCE OF THE SUB-ADVISORS                                         

The Funds  started  operation on December  ______,  2000 and have no  historical
performance  data. The following tables set forth historical  information  about
client accounts  managed by a Sub-Advisor  that have  investment  objectives and
strategies similar to those of the corresponding  Fund the Sub-Advisor  manages.
These client  accounts  consist of  individuals,  institutions  and other mutual
funds.  This composite  data is provided to illustrate  the past  performance of
each  Sub-Advisor  in  managing  similar  accounts  and does not  represent  the
performance of any Fund.                                                        

On the following pages  "composite  performance"  is shown for each  Sub-Advisor
with  regard  to  all  of  those  similarly  managed  accounts.   The  composite
performance is computed based upon essentially the Sub-Advisor's  asset weighted
"average"  performance with regard to such accounts.  The composite  performance
information  shown is based on a composite of all  accounts of each  Sub-Advisor
(and  its  predecessor,   if  any)  having   substantially   similar  investment
objectives,  policies and  strategies to the  corresponding  Fund. The composite
results reflect the deduction of all fees and expenses  actually incurred by the
client accounts.                                                                

Portions of the information below are based on data supplied by the Sub-Advisors
and from statistical services,  reports or other sources believed by the Manager
to be reliable.  However,  such  information has not been verified or audited by
the Manager.                                                                    

Some of the accounts  included in the composites are not mutual funds registered
under the 1940 Act.  Those  accounts are not subject to investment  limitations,
diversification  requirements and other restrictions imposed by the 1940 Act and
the  Internal  Revenue  Code.  If such  requirements  were  applicable  to these
accounts, the performance shown may have been lower.                            

The  performance  data  should  not be  considered  as an  indication  of future
performance of any Fund or any Sub-Advisor.  In addition, the effect of taxes is
not reflected in the  information  below as it will depend on the investor's tax
status.                                                                         

Please  note  that  1999  was an  exceptionally  good  year  for the  stocks  of
technology  companies  and mutual  funds that  invest in them.  It should not be
expected  that those  stocks and funds will  perform as well every  year.  Stock
prices can change unpredictably and, in fact, they may lose value in some years.

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                       

                                                           Average Annual Performance     
                                                             (through June 30, 2000)      

                                                        YTD   1 YR    3 YR    5 YR   10 YR

High Quality Short-Term Bond Fund Advisors Select*                                        
High Quality Short-Term Bond Fund Advisors Preferred*                                     
                                                                                          
PCII High Quality Short-Term Bond Composite            2.91    4.02   4.89                
   Lehman Brothers Mutual Fund 1-5 Gov't/Credit Index  3.03    4.55   5.65    5.81    6.91
   Average Short-Term Bond Category (Morningstar)      2.88    4.32   4.98    5.24    6.44

Money Market Fund Advisors Select*                                                        
Money Market Fund Advisors Preferred*                                                     

                                                        [Enlarge/Download Table]

                                                                               Annual Performance                         
                                                                           (year ended December 31)                       

                                                       1999  1998   1997  1996   1995    1994   1993   1992   1991  1990  

High Quality Short-Term Bond Fund Advisors Select*                                                                        
High Quality Short-Term Bond Fund Advisors Preferred*                                                                     
                                                                                                                          
PCII High Quality Short-Term Bond Composite            1.05   6.79  6.64                                                  
   Lehman Brothers Mutual Fund 1-5 Gov't/Credit Index  2.09   7.63  7.13  4.67   12.88  -0.72    7.10  6.83  13.17    9.71
   Average Short-Term Bond Category (Morningstar)      2.12   6.28  6.51  4.35   11.48  -0.86    6.86  6.15  13.43    7.98

Money Market Fund Advisors Select*                                                                                        
Money Market Fund Advisors Preferred*                                                                                     

* Fund's inception 12/__/00.                                        
** Since inception.                                                   

            STABLE FUNDS

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                           

                                                               Average Annual Performance     
                                                                 (through June 30, 2000)      

                                                            YTD   1 YR    3 YR    5 YR   10 YR

Bond & Mortgage Securities Fund Advisors Select*                                              
Bond & Mortgage Securities Fund Advisors Preferred*                                           
                                                                                              
PCII Multi-Sector Composite                                3.95    4.50   5.80    6.29    8.12
   Lehman Brothers Aggregate Bond Index                    3.99    4.56   6.04    6.25    7.82
   Average Intermediate-Term Bond Category (Morningstar)   2.92    3.25   4.88    5.35    7.35

Government Securities Fund Advisors Select*                                                   
Government Securities Fund Advisors Preferred*                                                
PCII Mortgage-Backed Broad Composite                       3.57    4.66   5.85    6.22        
   Lehman Brothers Mortgage Backed Securities Index        3.67    5.03   5.97    6.56    7.75
   Average Intermediate Government Category (Morningstar)  3.54    3.76   4.99    5.24    6.79

High Quality Intermediate-Term Bond Fund Advisors Select*                                     
High Quality Intermediate-Term Bond Fund                                                      
Advisors Preferred*                                                                           
PCII High Quality Intermediate-Term Bond Composite         3.14    3.94   5.60                
   Lehman Brothers Aggregate Bond Index                    3.99    4.56   6.04    6.25    7.82
   Average Intermediate-Term Bond Category (Morningstar)   2.92    3.25   4.88    5.35    7.35

High Quality Long-Term Bond Fund Advisors Select*                                             
High Quality Long-Term Bond Fund Advisors Preferred*                                          
PCII High Quality Long-Term Bond Composite                 1.55    0.48                       
   Lehman Brothers Long Term Gov't./Corporate Bond Index   6.54    4.61   7.10    6.84    9.22
   Average Long-Term Bond Category (Morningstar)           2.72    2.23   4.49    5.48    7.68

                                                        [Enlarge/Download Table]


                                                                                    Annual Performance                         
                                                                                (year ended December 31)                       

                                                           1999  1998    1997  1996   1995    1994   1993   1992   1991  1990  

Bond & Mortgage Securities Fund Advisors Select*                                                                               
Bond & Mortgage Securities Fund Advisors Preferred*                                                                            
                                                                                                                               
PCII Multi-Sector Composite                               -0.57   7.97  10.16  3.94   18.41  -2.05   10.67  8.25  15.89    9.49
   Lehman Brothers Aggregate Bond Index                   -0.82   8.69   9.65  3.63   18.47  -2.92    9.75  7.40  16.00    8.96
   Average Intermediate-Term Bond Category (Morningstar)  -1.22   7.42   8.76  3.30   17.35  -3.73   10.39  7.20  16.62    6.66

Government Securities Fund Advisors Select*                                                                                    
Government Securities Fund Advisors Preferred*                                                                                 
PCII Mortgage-Backed Broad Composite                       0.22   7.62   9.97  3.90   19.10  -4.41                             
   Lehman Brothers Mortgage Backed Securities Index        1.85   6.97   9.49  5.36   16.80  -1.61    6.84  6.96  15.72   10.72
   Average Intermediate Government Category (Morningstar) -1.44   7.45   8.45  2.80   16.42  -4.02    8.03  6.39  14.67    8.89

High Quality Intermediate-Term Bond Fund Advisors Select*                                                                      
High Quality Intermediate-Term Bond Fund                                                                                       
Advisors Preferred*                                                                                                            
PCII High Quality Intermediate-Term Bond Composite        -0.57   8.28   9.32                                                  
   Lehman Brothers Aggregate Bond Index                   -0.82   8.69   9.65  3.63   13.47  -2.92    9.75  7.40  16.00    8.96
   Average Intermediate-Term Bond Category (Morningstar)  -1.22   7.42   8.76  3.30   17.35  -3.73   10.39  7.20  16.62    6.66

High Quality Long-Term Bond Fund Advisors Select*                                                                              
High Quality Long-Term Bond Fund Advisors Preferred*                                                                           
PCII High Quality Long-Term Bond Composite                -7.41  10.39                                                         
   Lehman Brothers Long Term Gov't./Corporate Bond Index  -7.64  11.76  14.52  0.13   29.93  -7.10   16.17  8.53  19.53    6.42
   Average Long-Term Bond Category (Morningstar)          -2.78   6.51  10.53  3.54   21.33  -6.13   13.34  7.98  17.15    5.74

* Fund's inception 12/__/00.                                        
** Since inception.                                                   

                  CONSERVATIVE FUNDS

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                       

                                                           Average Annual Performance     
                                                             (through June 30, 2000)      

                                                        YTD   1 YR    3 YR    5 YR   10 YR

Balanced Fund Advisors Select*                                                            
Balanced Fund Advisors Preferred*                                                         
                                                                                          
Invista Balanced Composite                             2.21    0.22   8.72   11.51   11.94
PCII Multi-Sector Composite                            3.95    4.50   5.80    6.29    8.12
   S&P 500 Index                                      -0.42    7.25  19.66   23.80   17.80
   Lehman Brothers Aggregate Bond Index                3.99    4.56   6.04    6.25    7.82
   Average Domestic Hybrid Category (Morningstar)      1.55    4.87  10.02   12.87   11.31

LargeCap Blend Fund Advisors Select*                                                      
LargeCap Blend Fund Advisors Preferred*                                                   
Invista Large Cap Composite                           -2.99    0.00  13.11   20.01**      
   S&P 500 Index                                      -0.42    7.25  19.66   23.80   17.80
   Average LargeCap Blend  Category (Morningstar)      0.51    8.93  17.29   20.35   15.60

Partners LargeCap Blend Fund Advisors Select*                                             
Partners LargeCap Blend Fund Advisors Preferred*                                          
Federated Capital Appreciation Composite               2.76   26.15  25.71   25.98   18.51
   S&P 500 Index                                      -0.42    7.25  19.66   23.80   17.80
   Average LargeCap Blend  Category (Morningstar)      0.51    8.93  17.29   20.35   15.60

LargeCap Growth Fund Advisors Select*                                                     
LargeCap Growth Fund Advisors Preferred*                                                  
Invista Large Cap Growth Composite                     3.67                               
   S&P/BARRA 500 Growth Index                          2.63   18.60  27.00   29.24   20.16
   Average LargeCap Growth Category (Morningstar)      3.07   27.19  27.04   24.93   17.85

Partners LargeCap Growth Fund I Advisors Select*                                          
Partners LargeCap Growth Fund I Advisors Preferred*                                       
Morgan Stanley Equity Growth Composite                 6.33   28.60  27.33   29.45   19.89
   S&P 500 Index                                      -0.42    7.25  19.66   23.80   17.80
   Average LargeCap Growth Category (Morningstar)      3.07   27.19  27.04   24.93   17.85

Partners LargeCap Growth Fund II Advisors Select*                                         
Partners LargeCap Growth Fund II Advisors Preferred*                                      
American Century Growth Composite                      6.63   29.62  29.23   24.23   17.53
   Russell 1000 Growth Index                           4.23   25.66  28.08   28.67   20.05
   Average LargeCap Growth Category (Morningstar)      3.07   27.19  27.04   24.93   17.85

LargeCap S&P 500 Index Fund Advisors Select*                                              
LargeCap S&P 500 Index Fund Advisors Preferred*                                           
Invista S&P 500 Index Composite                       -0.63    6.86  19.25   23.36        
   S&P 500 Index                                      -0.42    7.25  19.66   23.80   17.80
   Average LargeCap Blend Category (Morningstar)       0.51    8.93  17.29   20.35   15.60

LargeCap Value Fund Advisors Select*                                                      
LargeCap Value Fund Advisors Preferred*                                                   
Invista Large Cap Value Composite                     -5.58  -17.35   6.69   13.89**      
   S&P/BARRA 500 Value Index                          -4.07   -5.11  11.43   17.71   14.95
   Average LargeCap Value Category (Morningstar)      -1.92   -5.21   8.74   15.16   13.36

Partners LargeCap Value Fund Advisors Select*                                             
Partners LargeCap Value Fund Advisors Preferred*                                          
Sanford C. Bernstein Diversified Value Composite      -4.18   -7.89   9.84   17.28   15.64
   Russell 1000 Value Index                           -4.23   -8.92  10.94   17.78   15.24
   Average LargeCap Value Category (Morningstar)      -1.92   -5.21   8.74   15.16   13.36

MidCap S&P 400 Index Fund Advisors Select*                                                
MidCap S&P 400 Index Fund Advisors Preferred*                                             
Invista S&P 400 Index Composite                        8.56**                             
   S&P MidCap 400 Index                                8.97   16.98  20.34   21.18   18.03
   Average MidCap Blend Category (Morningstar)         3.71   11.87  12.36   16.09   14.12

MidCap Value Fund Advisors Select*                                                        
MidCap Value Fund Advisors Preferred*                                                     
Invista Mid Cap Value Composite                       -7.22  -18.22   1.28   10.32        
   S&P/BARRA 400 Value Index                           3.45    0.17  10.06   15.20**      
   Average MidCap Value Category (Morningstar)         1.31   -2.56   7.23   13.20   12.77

Partners MidCap Value Fund Advisors Select*                                               
Partners MidCap Value Fund Advisors Preferred*                                            
Neuberger Berman MidCap Value Composite                6.63    3.34   5.60   14.61   13.91
   Russell Midcap Value Index                         -0.69   -7.91   6.95   13.71   14.22
   Average MidCap Value Category (Morningstar)         1.31   -2.56   7.23   13.20   12.77

Real Estate Fund Advisors Select*                                                         
Real Estate Fund Advisors Preferred*                                                      
PCREI Real Estate Composite                                                               
   Morgan Stanley REIT Index                          13.31    3.37   0.44    9.50**      

                                                        [Enlarge/Download Table]

                                                                                  Annual Performance                           
                                                                              (year ended December 31)                         

                                                       1999   1998    1997   1996   1995    1994   1993    1992    1991  1990  

Balanced Fund Advisors Select*                                                                                                 
Balanced Fund Advisors Preferred*                                                                                              
                                                                                                                               
Invista Balanced Composite                             2.20   12.17  20.03  10.69   26.88  -1.63   14.25  10.73   27.19    0.72
PCII Multi-Sector Composite                           -0.57    7.97  10.16   3.94   18.41  -2.05   10.67   8.25   15.89    9.49
   S&P 500 Index                                      21.04   28.58  33.36  22.96   37.58   1.32   10.08   7.62   30.47   -3.10
   Lehman Brothers Aggregate Bond Index               -0.82    8.69   9.65   3.63   18.47  -2.92    9.75   7.40   16.00    8.96
   Average Domestic Hybrid Category (Morningstar)      8.24   12.50  18.24  13.07   24.87  -2.56   12.07   8.22   23.87   -0.09

LargeCap Blend Fund Advisors Select*                                                                                           
LargeCap Blend Fund Advisors Preferred*                                                                                        
Invista Large Cap Composite                            9.57   24.70  29.66  24.35                                              
   S&P 500 Index                                      21.04   28.58  33.36  22.96   37.58   1.32   10.08   7.62   30.47   -3.10
   Average LargeCap Blend  Category (Morningstar)     19.72   21.95  27.43  20.37   31.99  -1.08   11.12   7.62   32.13   -3.34

Partners LargeCap Blend Fund Advisors Select*                                                                                  
Partners LargeCap Blend Fund Advisors Preferred*                                                                               
Federated Capital Appreciation Composite              43.39   20.08  30.62  18.39   37.17  -0.30   11.31  11.37   27.43   -4.43
   S&P 500 Index                                      21.04   28.58  33.36  22.96   37.58   1.32   10.08   7.62   30.47   -3.10
   Average LargeCap Blend  Category (Morningstar)     19.72   21.95  27.43  20.37   31.99  -1.08   11.12   7.62   32.13   -3.34

LargeCap Growth Fund Advisors Select*                                                                                          
LargeCap Growth Fund Advisors Preferred*                                                                                       
Invista Large Cap Growth Composite                    19.73   21.75  28.82  12.49   32.14                                      
   S&P/BARRA 500 Growth Index                         28.25   42.15  36.38  23.98   38.13   3.13    1.68   5.07   38.37    0.20
   Average LargeCap Growth Category (Morningstar)     39.72   33.56  25.00  18.95   32.27  -2.32   10.31   5.83   43.69   -2.12

Partners LargeCap Growth Fund I Advisors Select*                                                                               
Partners LargeCap Growth Fund I Advisors Preferred*                                                                            
Morgan Stanley Equity Growth Composite                40.03   20.00  31.79  31.45   45.19   3.17    4.27   5.95   25.57   -2.92
   S&P 500 Index                                      21.04   28.58  33.36  22.96   37.58   1.32   10.08   7.62   30.47   -3.10
   Average LargeCap Growth Category (Morningstar)     39.72   33.56  25.00  18.95   32.27  -2.32   10.31   5.83   43.69   -2.12

Partners LargeCap Growth Fund II Advisors Select*                                                                              
Partners LargeCap Growth Fund II Advisors Preferred*                                                                           
American Century Growth Composite                     34.68   36.77  29.28  14.92   20.35  -1.49    3.76  -4.29   69.02   -3.83
   Russell 1000 Growth Index                          33.16   38.71  30.49  23.12   37.19   2.66    2.90   5.00   41.16   -0.26
   Average LargeCap Growth Category (Morningstar)     39.72   33.56  25.00  18.95   32.27  -2.32   10.31   5.83   43.69   -2.12

LargeCap S&P 500 Index Fund Advisors Select*                                                                                   
LargeCap S&P 500 Index Fund Advisors Preferred*                                                                                
Invista S&P 500 Index Composite                       20.62   28.16  32.89  22.51   37.07   1.05                               
   S&P 500 Index                                      21.04   28.58  33.36  22.96   37.58   1.32   10.08   7.62   30.47   -3.10
   Average LargeCap Blend Category (Morningstar)      19.72   21.95  27.43  20.37   31.99  -1.08   11.12   7.62   32.13   -3.34

LargeCap Value Fund Advisors Select*                                                                                           
LargeCap Value Fund Advisors Preferred*                                                                                        
Invista Large Cap Value Composite                     -7.12   18.04  28.94  22.18                                              
   S&P/BARRA 500 Value Index                          12.72   14.68  29.99  21.99   37.00  -0.63   18.60  10.53   22.56   -6.85
   Average LargeCap Value Category (Morningstar)       6.63   13.10  27.01  20.79   32.28  -0.81   13.25   9.89   28.51   -6.37

Partners LargeCap Value Fund Advisors Select*                                                                                  
Partners LargeCap Value Fund Advisors Preferred*                                                                               
Sanford C. Bernstein Diversified Value Composite       7.80   16.80  30.70  22.90   37.50   1.50   13.80  13.70   33.10   -6.30
   Russell 1000 Value Index                            7.35   15.63  35.18  21.64   38.35  -1.99   18.12  13.81   24.61   -8.08
   Average LargeCap Value Category (Morningstar)       6.63   13.10  27.01  20.79   32.28  -0.81   13.25   9.89   28.51   -6.37

MidCap S&P 400 Index Fund Advisors Select*                                                                                     
MidCap S&P 400 Index Fund Advisors Preferred*                                                                                  
Invista S&P 400 Index Composite                                                                                                
   S&P MidCap 400 Index                               14.72   19.11  32.25  19.20   30.95  -3.58   13.95  11.91   50.10   -5.12
   Average MidCap Blend Category (Morningstar)        18.70    6.77  26.45  20.44   28.71  -1.61   14.50  14.93   36.20   -8.16

MidCap Value Fund Advisors Select*                                                                                             
MidCap Value Fund Advisors Preferred*                                                                                          
Invista Mid Cap Value Composite                       -7.36    3.25  35.49  16.03   41.18   0.98   11.43   7.57   33.54        
   S&P/BARRA 400 Value Index                           2.33    4.67  34.32  19.40   34.04  -0.57   13.43  16.02**              
   Average MidCap Value Category (Morningstar)         7.78    3.92  26.04  20.50   29.27  -1.11   17.11  13.54   29.65   -8.51

Partners MidCap Value Fund Advisors Select*                                                                                    
Partners MidCap Value Fund Advisors Preferred*                                                                                 
Neuberger Berman MidCap Value Composite                8.04  -10.66  32.66  28.08   35.23  -1.89   16.44  17.52   22.36   13.91
   Russell Midcap Value Index                         -0.11    5.09  34.37  20.26   34.93  -2.13   15.62  21.68   37.92  -16.08
   Average MidCap Value Category (Morningstar)         7.78    3.92  26.04  20.50   29.27  -1.11   17.11  13.54   29.65   -8.51

Real Estate Fund Advisors Select*                                                                                              
Real Estate Fund Advisors Preferred*                                                                                           
PCREI Real Estate Composite                                                                                                    
   Morgan Stanley REIT Index                          -4.55  -16.90  18.58  35.89   12.90**                                    

* Fund's inception 12/__/00.                                        
** Since inception.                                                   

              MODERATE FUNDS

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                       

                                                           Average Annual Performance     
                                                             (through June 30, 2000)      

                                                        YTD   1 YR    3 YR    5 YR   10 YR

MidCap Blend Fund Advisors Select*                                                        
MidCap Blend Fund Advisors Preferred*                                                     
                                                                                          
Invista Mid Cap Core Composite                         1.89    6.65   8.73   14.78        
   S&P MidCap 400 Index                                8.97   16.97  20.34   21.18   18.03
   Average MidCap Blend Category (Morningstar)         3.71   11.87  12.36   16.09   14.12

MidCap Growth Fund Advisors Select*                                                       
MidCap Growth Fund Advisors Preferred*                                                    
Invista Mid Cap Growth Composite                       6.24   37.40  26.36                
   Russell Midcap Growth Index                        12.15   48.59  30.39   26.37   19.77
   Average MidCap Growth Category (Morningstar)        9.91   57.24  31.09   24.81   18.14

Partners MidCap Growth Fund Advisors Select*                                              
Partners MidCap Growth Fund Advisors Preferred*                                           
Turner Investment Partners Midcap Growth Composite    12.21   80.85  58.41**              
   Russell Midcap Growth Index                        12.15   48.59  30.39   26.37   19.77
   Average MidCap Growth Category (Morningstar)        9.91   57.24  31.09   24.81   18.14

SmallCap Blend Fund Advisors Select*                                                      
SmallCap Blend Fund Advisors Preferred*                                                   
Invista Small Company Blend Composite                  9.82   14.49   6.47   12.00**      
   Russell 2000 Index                                  3.04   14.32  10.57   14.27   13.57
   Average SmallCap Blend Category (Morningstar)       8.24   17.77  10.08   15.30   13.03

SmallCap Growth Fund Advisors Select*                                                     
SmallCap Growth Fund Advisors Preferred*                                                  
Invista Small Cap Growth Composite                    14.83   51.83  29.47                
   Russell 2000 Growth Index                           1.23   28.39  16.32   15.80   13.26
   Average SmallCap Growth Category (Morningstar)     10.09   55.14  24.42   20.86   17.12

Partners SmallCap Growth Fund I Advisors Select*                                          
Partners SmallCap Growth Fund I Advisors Preferred*                                       
Neuberger Berman SmallCap Growth Composite             5.98   93.80**                     
   Russell 2000 Growth Index                           1.23   28.39  16.32   15.80   13.26
   Average SmallCap Growth Category (Morningstar)     10.09   55.14  24.42   20.86   17.12

Partners SmallCap Growth Fund II Advisors Select*                                         
Partners SmallCap Growth Fund II Advisors Preferred*                                      
Federated Aggressive Growth Composite                  1.64   69.20  39.90   35.59**      
   S&P/BARRA 600 Growth Index                          6.89   14.39  10.11   15.40   13.99
   Average SmallCap Growth Category (Morningstar)     10.09   55.14  24.42   20.86   17.12

SmallCap S&P 600 Index Fund Advisors Select*                                              
SmallCap S&P 600 Index Fund Advisors Preferred*                                           
Invista Small Cap S&P 600 Index Composite              6.38**                             
   S&P SmallCap 600 Index                              6.89   14.39  10.11   15.40   13.99
   Average SmallCap Blend Category (Morningstar)       8.24   17.77  10.08   15.30   13.03

SmallCap Value Fund Advisors Select*                                                      
SmallCap Value Fund Advisors Preferred*                                                   
Invista Small Cap Value Composite                      0.06   -9.39  -0.38   10.80**      
   Russell 2000 Value Index                            5.85   -0.94   3.84   11.71   13.19
   Average SmallCap Value Category (Morningstar)       5.31    3.29   3.55   12.58   11.80

Technology Fund Advisors Select*                                                          
Technology Fund Advisors Preferred*                                                       
   Average Technology Category (Morningstar)           4.35   92.16  54.10   35.69   27.95

                                                        [Enlarge/Download Table]

                                                                                   Annual Performance                          
                                                                               (year ended December 31)                        

                                                        1999  1998    1997    1996   1995    1994   1993    1992   1991  1990  

MidCap Blend Fund Advisors Select*                                                                                             
MidCap Blend Fund Advisors Preferred*                                                                                          
                                                                                                                               
Invista Mid Cap Core Composite                         12.37   4.72  24.95   18.66   33.39   5.46   -0.26   9.01               
   S&P MidCap 400 Index                                14.72  19.11  32.25   19.18   30.92  -3.59   13.93  11.90  50.07   -5.12
   Average MidCap Blend Category (Morningstar)         18.70   6.77  26.45   20.44   28.71  -1.61   14.50  14.93  36.20   -8.16

MidCap Growth Fund Advisors Select*                                                                                            
MidCap Growth Fund Advisors Preferred*                                                                                         
Invista Mid Cap Growth Composite                       69.96   2.48  26.15   13.40                                             
   Russell Midcap Growth Index                         51.29  17.86  22.54   17.48   33.98  -2.16   11.19   8.71  47.03   -5.13
   Average MidCap Growth Category (Morningstar)        63.90  17.51  17.05   16.99   34.79  -1.03   15.64   9.03  50.97   -7.35

Partners MidCap Growth Fund Advisors Select*                                                                                   
Partners MidCap Growth Fund Advisors Preferred*                                                                                
Turner Investment Partners Midcap Growth Composite    126.09  26.33  41.77   18.25**                                           
   Russell Midcap Growth Index                         51.29  17.86  22.54   17.48   33.98  -2.16   11.19   8.71  47.03   -5.13
   Average MidCap Growth Category (Morningstar)        63.90  17.51  17.05   16.99   34.79  -1.03   15.64   9.03  50.97   -7.35

SmallCap Blend Fund Advisors Select*                                                                                           
SmallCap Blend Fund Advisors Preferred*                                                                                        
Invista Small Company Blend Composite                  12.31  -9.59  21.15   18.01   29.44   3.05   21.32  26.90  24.82        
   Russell 2000 Index                                  21.26  -2.55  22.36   16.50   28.45  -1.82   18.88  18.41  46.04  -19.48
   Average SmallCap Blend Category (Morningstar)       18.18  -3.64  26.12   19.66   25.51  -0.97   16.65  14.39  39.57  -12.24

SmallCap Growth Fund Advisors Select*                                                                                          
SmallCap Growth Fund Advisors Preferred*                                                                                       
Invista Small Cap Growth Composite                     66.37  -2.47  34.77   14.19                                             
   Russell 2000 Growth Index                           43.09   1.23  12.95   11.26   31.04  -2.43   13.36   7.77  51.19  -17.41
   Average SmallCap Growth Category (Morningstar)      61.45   4.49  18.19   19.99   35.44  -0.28   16.70  11.99  53.64   -5.96

Partners SmallCap Growth Fund I Advisors Select*                                                                               
Partners SmallCap Growth Fund I Advisors Preferred*                                                                            
Neuberger Berman SmallCap Growth Composite                                                                                     
   Russell 2000 Growth Index                           43.09   1.23  12.95   11.26   31.04  -2.43   13.36   7.77  51.19  -17.14
   Average SmallCap Growth Category (Morningstar)      61.45   4.49  18.19   19.99   35.44  -0.28   16.70  11.99  53.64   -5.96

Partners SmallCap Growth Fund II Advisors Select*                                                                              
Partners SmallCap Growth Fund II Advisors Preferred*                                                                           
Federated Aggressive Growth Composite                 111.60   8.08  30.06**                                                   
   S&P/BARRA 600 Growth Index                          12.41  -1.31  25.58   21.32   29.97  -4.78   18.79  21.05  48.48  -23.69
   Average SmallCap Growth Category (Morningstar)      61.45   4.49  18.19   19.99   35.44  -0.28   16.70  11.99  53.64   -5.96

SmallCap S&P 600 Index Fund Advisors Select*                                                                                   
SmallCap S&P 600 Index Fund Advisors Preferred*                                                                                
Invista Small Cap S&P 600 Index Composite                                                                                      
   S&P SmallCap 600 Index                              12.40  -1.31  25.58   21.32   29.97  -4.77   18.78  21.04  48.49  -23.69
   Average SmallCap Blend Category (Morningstar)       18.18  -3.64  26.12   19.66   25.51  -0.97   16.65  14.39  39.57  -12.24

SmallCap Value Fund Advisors Select*                                                                                           
SmallCap Value Fund Advisors Preferred*                                                                                        
Invista Small Cap Value Composite                      -8.92  -6.03  33.65   26.44                                             
   Russell 2000 Value Index                            -1.49  -6.45  31.78   21.37   25.75  -1.27   23.84  29.14  41.70  -21.77
   Average SmallCap Value Category (Morningstar)        4.49  -6.99  30.04   25.53   25.13  -0.81   16.72  20.29  37.19  -14.34

Technology Fund Advisors Select*                                                                                               
Technology Fund Advisors Preferred*                                                                                            
   Average Technology Category (Morningstar)          136.50  52.41   9.58   20.31   42.89  13.18   24.07  13.03  46.92    0.54

* Fund's inception 12/__/00.                                        
** Since inception.                                                   

                          AGGRESSIVE FUNDS

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                            

                                                                Average Annual Performance     
                                                                  (through June 30, 2000)      

                                                             YTD   1 YR    3 YR    5 YR   10 YR

European Fund Advisors Select*                                                                 
European Fund Advisors Preferred*                                                              
                                                                                               
BT European Composite                                       -6.19  21.43  20.31   24.15        
   MSCI Europe (15) Index-ND                                -3.08  15.10  16.08   18.45  12.86 
   Average Europe Category (Morningstar)                     1.39  28.97  14.94   17.90  10.98 

International Emerging Markets Fund Advisors Select*                                           
International Emerging Markets Fund Advisors Preferred*                                        
Invista International Emerging Markets Equity Composite     -5.68  19.72   2.16   12.90        
   MSCI - Emerging Markets Free-ID                          -8.97   7.66  -7.01   -1.12  19.22 
Average Diversified Emerging Market Category (Morningstar)  -8.85  16.38  -3.71    3.26   5.29 

International Fund I Advisors Select*                                                          
International Fund I Advisors Preferred*                                                       
Invista International Broad Markets Composite                1.44  21.30  11.51   15.93        
   MSCI EAFE (Europe, Australia, Far East) Index-ND         -4.06  17.16  10.18   11.33   7.95 
   Average Foreign Category (Morningstar)                   -3.99  27.08  12.44   13.48   9.31 

International Fund II Advisors Select*                                                         
International Fund II Advisors Preferred*                                                      
   MSCI EAFE (Europe, Australia, Far East) Index-ND         -4.06  17.16  10.18   11.33   7.95 
   Average Foreign Category (Morningstar)                   -3.99  27.08  12.44   13.48   9.31 

International SmallCap Fund Advisors Select*                                                   
International SmallCap Fund Advisors Preferred*                                                
Invista International Small Cap Equity Composite            -1.22  56.26  29.11   27.86        
   MSCI EAFE (Europe, Australia, Far East) Index-ND         -4.06  17.16  10.18   11.33   7.95 
   Average Foreign Category (Morningstar)                   -3.99  27.08  12.44   13.48   9.31 

Pacific Basin Fund Advisors Select*                                                            
Pacific Basin Fund Advisors Preferred*                                                         
BT Pacific Basin Composite                                  -6.94  48.21  13.55                
   MSCI Pacific Index-ND                                    -6.04  21.60   1.79    2.41   2.34 
   Average Diversified Pacific/Asia Category (Morningstar) -14.45  22.18  -0.15    3.42   6.12 

                                                        [Enlarge/Download Table]

                                                                                       Annual Performance                          
                                                                                   (year ended December 31)                        

                                                            1999   1998    1997   1996   1995    1994   1993    1992    1991 1990  

European Fund Advisors Select*                                                                                                     
European Fund Advisors Preferred*                                                                                                  
                                                                                                                                   
BT European Composite                                      33.95   30.86  26.33  41.31    9.36   8.49   43.12                      
   MSCI Europe (15) Index-ND                               15.89   28.53  23.80  21.09   21.62   2.28   29.28  -4.71   13.11  -3.85
   Average Europe Category (Morningstar)                   26.11   21.56  18.42  24.99   16.26   2.52   28.15  -6.82    7.47  -8.03

International Emerging Markets Fund Advisors Select*                                                                               
International Emerging Markets Fund Advisors Preferred*                                                                            
Invista International Emerging Markets Equity Composite    63.25  -17.59  11.38  25.57    7.46                                     
   MSCI - Emerging Markets Free-ID                         58.89  -35.11  31.64  22.21  -12.83   0.64   53.92  13.41  149.65  -7.82
Average Diversified Emerging Market Category (Morningstar) 71.86  -27.03  -3.68  13.35   -3.45  -9.27   73.26   0.26   18.10  -9.89

International Fund I Advisors Select*                                                                                              
International Fund I Advisors Preferred*                                                                                           
Invista International Broad Markets Composite              25.78   10.47  12.43  24.54   14.07  -2.39   44.83                      
   MSCI EAFE (Europe, Australia, Far East) Index-ND        26.96   20.00   1.78   6.05   11.21   7.78   32.56 -12.17   12.13 -23.45
   Average Foreign Category (Morningstar)                  44.49   13.00   5.43  12.39    9.82  -0.40   36.71  -4.54   13.07 -10.90

International Fund II Advisors Select*                                                                                             
International Fund II Advisors Preferred*                                                                                          
   MSCI EAFE (Europe, Australia, Far East) Index-ND        26.96   20.00   1.78   6.05   11.21   7.78   32.56 -12.17   12.13 -23.45
   Average Foreign Category (Morningstar)                  44.49   13.00   5.43  12.39    9.82  -0.40   36.71  -4.54   13.07 -10.90

International SmallCap Fund Advisors Select*                                                                                       
International SmallCap Fund Advisors Preferred*                                                                                    
Invista International Small Cap Equity Composite           86.79   13.24  15.62  40.53    3.61                                     
   MSCI EAFE (Europe, Australia, Far East) Index-ND        26.96   20.00   1.78   6.05   11.21   7.78   32.56 -12.17   12.13 -23.45
   Average Foreign Category (Morningstar)                  44.49   13.00   5.43  12.39    9.82  -0.40   36.71  -4.54   13.07 -10.90

Pacific Basin Fund Advisors Select*                                                                                                
Pacific Basin Fund Advisors Preferred*                                                                                             
BT Pacific Basin Composite                                132.40    7.35 -27.91                                                    
   MSCI Pacific Index-ND                                   57.64    2.44 -25.49  -8.58    2.78  12.83   35.69 -18.40   11.30 -34.42
   Average Diversified Pacific/Asia Category (Morningstar) 92.50   -5.91 -27.90   4.02    2.39  -5.49   59.02  -3.03   15.05 -16.65

* Fund's inception 12/__/00.                                        
** Since inception.                                                   

                     DYNAMIC FUNDS

IMPORTANT NOTES TO THE APPENDIX                                                 

Lehman  Brothers  Aggregate  Bond  Index  represents  securities  that  are U.S.
domestic, taxable, and dollar denominated.  The index covers the U.S. investment
grade fixed rate bond market, with index components for government and corporate
securities, mortgage pass-through securities, and asset-backed securities. These
major sectors are subdivided into more specific  indices that are calculated and
reported on a regular basis.                                                    

Lehman  Brothers  Government/Corporate  Bond Index is composed of all bonds that
are investment grade (rated BAA or higher by Moody's or BBB or higher by S&P, if
unrated  by  Moody's).  Issues  must have at least one year to  maturity.  Total
return comprises price  appreciation/depreciation  and income as a percentage of
the   original   investment.   Indices   are   rebalanced   monthly   by  market
capitalization.                                                                 

Lehman Brothers Long Term  Gov't./Corporate  Bond Index is composed of all bonds
covered by the Lehman Brothers  Government/Corporate  Bond Index with maturities
of 10 years or greater.  Total return comprises price  appreciation/depreciation
and income as a percentage of the original  investment.  Indices are  rebalanced
monthly by market capitalization.                                               

Lehman Brothers Mortgage-Backed  Securities Index is composed of all fixed-rate,
securitized  mortgage  pools  by  GNMA,  FNMA,  and the  FHLMC,  including  GNMA
Graduated Payment Mortgages. The minimum principal amount required for inclusion
is $50  million.  Total return  comprises  price  appreciation/depreciation  and
income as a  percentage  of the  original  investment.  Indices  are  rebalanced
monthly by market capitalization.                                               

Lehman Brothers Mutual Fund 1-5 Government/Credit  Index is composed of treasury
notes,  agencies, and credits rated BBB or better, and with maturities of 1 year
or greater and 5 years or less. It is a rolling mix of issues, as new issues are
added and issues becoming less than 1 year to maturity are deleted.             

Morgan   Stanley   Capital   International   (MSCI)   Europe  (15)  Index  is  a
capitalization-weighted  index.  The index is designed to track the broader MSCI
EMU Benchmark containing stocks in ten EMU member countries.                    

Morgan Stanley Capital International Pacific Index is a regional/composite index
of the MSCI World Index. It is a market  capitalization  weighted index composed
of companies  representative  of the market  structure  of 22  Developed  Market
countries  in North  America,  Europe,  and  Asia/Pacific  Region.  The index is
calculated without dividends,  with net or with gross dividends  reinvested,  in
both US Dollars and Local.  Countries in the Pacific Region include:  Australia,
Hong Kong, Japan, Malaysia, New Zealand, and Singapore.                         

Morgan Stanley REIT Index is a total-return index comprised of the most actively
traded real estate  investment  trusts,  and is designed to be a measure of real
estate equity performance.                                                      

Morgan Stanley Capital International (MSCI) EAFE (Europe,  Australia,  Far East)
Index is a stock index designed to measure the  investment  returns of developed
economies outside of North America.                                             

Russell 1000 Growth Index is an index that  measures  the  performance  of those
Russell 1000 companies with higher  price-to-book  ratios and higher  forecasted
growth values.                                                                  

Russell  1000 Value Index is an index that  measures  the  performance  of those
Russell  1000  companies  with lower price to book  ratios and lower  forecasted
growth values.                                                                  

Russell  2000 Growth  Index  measures  the  performance  of those  Russell  2000
companies with higher price-to-book ratios and higher forecasted growth values. 

Russell 2000 Index measures the  performance of the 2,000 smallest  companies in
the Russell 3000 Index,  which  represents  approximately 8% of the total market
capitalization of the Russell 3000 Index. As of the latest  reconstitution,  the
average market  capitalization was approximately $580 million; the median market
capitalization was approximately $466 million.  The largest company in the index
had an approximate market capitalization of $1.5 billion.                       

Russell  2000  Value  Index  measures  the  performance  of those  Russell  2000
companies with lower price-to-book ratios and lower forecasted growth values.   

Russell  Midcap Growth Index  measures the  performance  of those Russell MidCap
companies with lower  price-to-book  ratios and higher forecasted growth values.
The stocks are also members of the Russell 1000 Value index.                    

Russell  Midcap Value Index is an index that measures the  performance  of those
Russell Midcap companies with lower  price-to-book  ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Value index.     

S&P 500  Index is a market  capitalization-weighted  index  of 500  widely  held
stocks often used as a proxy for the stock  market.  It measures the movement of
the largest issues.  Standard & Poor's chooses the member  companies for the 500
based on market size, liquidity and industry group representation.  Included are
the stocks of industrial, financial, utility and transportation companies.      

S&P/BARRA 400 Value Index is a market  capitalization-weighted  index of all the
stocks  in the  S&P 400  that  have  low  price-to-book  ratios.  The  index  is
rebalanced semi-annually on January 1 and July 1.                               

S&P/BARRA 500 Growth Index is a market  capitalization-weighted index of all the
stocks in the S&P 500 that have high  price-to-book  ratios.  It is  designed so
that approximately 50% of the SPX market capitalization is in the Growth Index. 

S&P/BARRA  500  Value  Index  is a market  capitalization-weighted  index of the
stocks in the S&P 500 Index having the highest book to price  ratios.  The index
consists of approximately half of the S&P 500 on a market capitalization basis. 

S&P/BARRA  600  Growth  Index is a market  capitalization-weighted  index of the
stocks in the S&P SmallCap 600 Index having the lowest book to price ratios. The
index  consists  of  approximately  have of the  S&P  SmallCap  600 on a  market
capitalization basis.                                                           

S&P Midcap 400 Index includes  approximately  10% of the  capitalization of U.S.
equity  securities.  These are comprised of stocks in the middle  capitalization
range.  Any mid-sized  stocks already  included in the S&P 500 are excluded from
this index.                                                                     

S&P SmallCap 600 Index  consists of 600 domestic  stocks chosen for market size,
liquidity  and industry  group  representation.  It is a market  weighted  index
(stock  price x shares  outstanding),  with each  stock  affecting  the index in
proportion to its market value.                                                 

Select Class                                                                    
Preferred Class                                                                 

PRINCIPAL INVESTORS FUND, INC.

This Prospectus describes a mutual fund organized by
Principal Life Insurance Company. 

 The date of this Prospectus is _______________.

      As with all mutual funds, the Securities and Exchange  Commission  ("SEC")
      has  not  approved  or  disapproved  the  Fund's  securities  nor  has  it
      determined that this Prospectus is accurate or complete.  It is a criminal
offense to represent otherwise.                                     

                                                       TABLE OF CONTENTS

             Fund Descriptions...............................................4
Stable Funds                                
                    High Quality Short-Term Bond Fund........................6
                    Money Market Fund........................................8

Conservative Funds                          
                    Bond & Mortgage Securities Fund.........................10
                    Government Securities Fund..............................12
                    High Quality Intermediate-Term Bond Fund................14
                    High Quality Long-Term Bond Fund........................16

Moderate Funds                              
                    Balanced Fund...........................................18
                    LargeCap Blend Fund.....................................20
                    LargeCap Growth Fund....................................22
                    LargeCap S&P 500 Index Fund.............................24
                    LargeCap Value Fund.....................................26
                    MidCap S&P 400 Index Fund...............................28
                    MidCap Value Fund.......................................30
                    Partners LargeCap Blend Fund............................32
                    Partners LargeCap Growth Fund I.........................34
                    Partners LargeCap Growth Fund II........................36
                    Partners LargeCap Value Fund............................38
                    Partners MidCap Value Fund..............................40
                    Real Estate Fund........................................42

Aggressive Funds                            
                    MidCap Blend Fund.......................................44
                    MidCap Growth Fund......................................46
                    Partners MidCap Growth Fund.............................48
                    Partners SmallCap Growth Fund I.........................50
                    Partners SmallCap Growth Fund II........................52
                    SmallCap Blend Fund.....................................54
                    SmallCap Growth Fund....................................56
                    SmallCap S&P 600 Index Fund.............................58
                    SmallCap Value Fund.....................................60
                    Technology Fund.........................................62

Dynamic Funds                               
                    European Fund...........................................64
                    International Emerging Markets Fund.....................66
                    International Fund I....................................68
                    International Fund II...................................70
                    International SmallCap Fund.............................72
                    Pacific Basin Fund......................................74
General Information                                 
                 The Costs of Investing.....................................76
                 Certain Investment Strategies and Related Risks............77
                 Management, Organization and Capital Structure.............82
                 Shareholder Information....................................84
                 Fund Account Information...................................87
             Appendix A.....................................................88

FUND DESCRIPTIONS                                                               

Principal  Investors  Fund,  Inc. is  comprised  of many  investment  portfolios
("Funds").   The  Funds  are  divided   into  five  risk   categories:   Stable,
Conservative,   Moderate,   Aggressive,   and  Dynamic.   Principal   Management
Corporation*, the "Manager" of each of the Funds, seeks to provide a broad range
of investment approaches through the Principal Investors Fund.                  

The Manager has selected a Sub-Advisor for each Fund based on the  Sub-Advisor's
experience  with  the  investment  strategy  for  which  it  was  selected.  The
Sub-Advisor for each Fund is shown with the Fund's  description on the following
pages. The Sub-Advisors are:                                                    

Alliance Capital Management L.P. through its Bernstein                    
Investment Research and Management unit ("Bernstein")           
American Century Investment Management, Inc.                              
("American Century")                                            
BT Funds Management (International) Limited ("BT")*                       
Federated Management Corporation ("Federated")                            
Invista Capital Management, LLC ("Invista")*                              
Morgan Stanley Asset Management ("Morgan Stanley")                        
Neuberger Berman Management Inc. ("Neuberger Berman")                     
Principal Capital Income Investors, LLC ("PCII")*                         
Principal Capital Real Estate Investors, LLC ("PCREI")*                   
Turner Investment Partners, Inc. ("Turner")                               

Two  classes  of  shares  of each of these  Funds  are  available  through  this
Prospectus. Both classes are currently available only through certain registered
representatives of Princor Financial Services Corporation ("Princor")*,  who are
also  employees  of Principal  Life  Insurance  Company* or fee-based  financial
planners.                                                                       
o    Select shares are available to an employer's  sponsored  retirement plan(s)
     (the  "plan")  through  the  Principal  Investors  Advantage  (the  service
     contract (or through  execution of a service  contract  offered  through an
     affiliate  of  Principal  Life  Insurance  Company)) if the plan invests at
     least $3 million  (but less than $10  million) in the  Principal  Investors
Fund.                                                                 
o    Preferred  shares  are  available  to an  employer's  sponsored  retirement
     plan(s) (the "plan") through the Principal  Investors Advantage (or through
     execution of a service  contract  offered through an affiliate of Principal
     Life  Insurance  Company))  if the plan invests at least $10 million in the
Principal Investors Fund.                                             
For more information about Principal Investors Advantage,  contact the Principal
Retirement Service Centersm  (www.principal.com) or our Member Service Center at
1-800__________.                                                                

     * Principal Management  Corporation,  Invista, PCII, PCREI, BT, Princor and
       Principal Life Insurance  Company are members of the Principal  Financial
Group.                                                            

In the  description  for each Fund,  there is  important  information  about the
Fund's:                                                                         

Primary investment strategy                                                     
This  section  summarizes  how each  Fund  intends  to  achieve  its  investment
objective.  It identifies the Fund's primary investment  strategy (including the
type or types  of  securities  in which  the Fund  invests)  and any  policy  to
concentrate  in  securities  of issuers  in a  particular  industry  or group of
industries.                                                                     

Each  Fund is  designed  to be a portion  of an  investor's  portfolio.  None is
intended to be a complete  investment  program.  Investors  should  consider the
risks of each Fund before making an  investment  and be prepared to maintain the
investment during periods of adverse market conditions.                         

A description  of the main risks is included with the discussion of each Fund. A
full  discussion  of risks  appears  later in the  Prospectus  under the caption
"Certain Investment Strategies and Related Risks."                              

Annual operating expenses                                                       
The annual operating expenses for each Fund are deducted from that Fund's assets
(stated as a percentage of Fund assets).  A Fund's operating  expenses are shown
with  each  Fund.  A  discussion  of the  fees is found  in the  section  of the
Prospectus titled "The Costs of Investing."                                     

The examples are intended to help  investors  compare the cost of investing in a
particular  Fund with the cost of investing in other mutual funds.  The examples
assume an  investment of $10,000 in a Fund for the time periods  indicated.  The
examples  also assume that the  investment  has a 5% total  return each year and
that the Fund's operating  expenses are the same as the expenses shown. Based on
these assumptions, the costs would be as shown.                                 

Day-to-day Fund management                                                      
The investment  professionals who manage the assets of each Fund are listed with
each Fund.  Backed by their  staffs of  experienced  securities  analysts,  they
provide the Funds with professional investment management.                      

Fund performance                                                                
Because  the  Funds  are new and  have not  completed  a full  calendar  year of
operations,  performance  information  for the  Funds  is not  included  in this
Prospectus.  To obtain  performance  information for a Fund after its first full
calendar    quarter   of   operations,    contact   the    _____________________
(www.principal.com)   or  call  1-800-_______.   Remember  that  a  Fund's  past
performance is not necessarily an indication of how the Fund will perform in the
future.                                                                         

Call the  Principal  Investors  Fund  (1-800-________)  to get the current 7-day
yield for the Money Market Fund.                                                

NOTE:    No   salesperson,   dealer  or  other  person  is  authorized  to  give
         information  or make  representations  about a Fund  other  than  those
         contained  in  this  Prospectus.  Information  or  representations  not
         contained in this Prospectus may not be relied upon as having been made
         by  the  Principal   Investors   Fund,  a  Fund,  the  Manager  or  any
Sub-Advisor.                                                  

HIGH QUALITY SHORT-TERM BOND FUND The Fund seeks to provide current income.     

Main Strategies                                                                 
The Fund  invests  primarily  in high  grade,  short-term  fixed-income  or debt
securities with a dollar weighted  average maturity of four years or less. Under
normal  circumstances,  it invests  at least 80% of its assets in:              
o    securities  issued or guaranteed by the U.S.  Government or its agencies or
instrumentalities;                                                    
o    debt  securities  of U.S.  issuers  rated in the  three  highest  grades by
     Standard & Poor's Rating Service or Moody's Investors Service,  Inc. or, if
     unrated,  in the opinion of the Sub-Advisor,  PCII, of comparable  quality;
and                                                                   
o    mortgage-backed  securities  representing an interest in a pool of mortgage
loans.                                                                

The rest of the Fund's assets are invested in  securities in the fourth  highest
rating category or their  equivalent.  Securities in the fourth highest category
are "investment  grade." While they are considered to have adequate  capacity to
pay  interest and repay  principal,  they do have  speculative  characteristics.
Changes in economic and other  conditions  are more likely to affect the ability
of the issuer to make  principal  and  interest  payments  than is the case with
issuers of higher rated securities.                                             

Under unusual market or economic  conditions,  the Fund may invest up to 100% of
its assets in cash and cash equivalents.                                        

Main Risks                                                                      
Mortgage-backed  securities are subject to prepayment  risk. When interest rates
decline,  significant unscheduled prepayments may result. These prepayments must
then be  reinvested at lower rates.  Prepayments  may also shorten the effective
maturities of these securities,  especially during periods of declining interest
rates.  On the other hand,  during periods of rising interest rates, a reduction
in  prepayments  may  increase the  effective  maturities  of these  securities,
subjecting  them to the risk of decline in market  value in  response  to rising
interest rates. This may increase the volatility of the Fund.                   

In addition,  the Fund may invest in  corporate  fixed-income  securities.  When
interest rates fall, the price of such  securities  rise and when interest rates
rise,  the  price  declines.  In  addition,  the  value  of the  corporate  debt
securities  held by the Fund may be affected by factors such as credit rating of
the entity that issued the security and its  maturity.  Lower quality and longer
maturity   securities   will  be  subject  to  greater  credit  risk  and  price
fluctuations than higher quality and shorter maturity securities.               

Under  normal  circumstances,  the  Fund  maintains  a  dollar-weighted  average
maturity of not more than three years.  In determining  the average  maturity of
the Fund's assets, the maturity date of callable or prepayable securities may be
adjusted to reflect  PCII's  judgment  regarding the  likelihood of the security
being called or prepaid.                                                        

The average portfolio  duration of the Fund normally is less than four years and
is based on PCII's  forecast  for interest  rates.  Duration is a measure of the
expected  life  of a  fixed-income  security  that  is  used  to  determine  the
sensitivity  of a security's  price to changes in interest  rates.  The longer a
security's  duration,  the more sensitive it is to changes in interest  rates. A
Fund with a longer average portfolio  duration will be more sensitive to changes
in interest rates than a Fund with a shorter average portfolio duration.        

As with all mutual funds,  as the value of the Fund's assets rise and fall,  the
Fund's share price  changes.  If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.

Investor Profile                                                                
The  Fund  is   generally   a  suitable   investment   for   investors   seeking
diversification by investing in a fixed-income mutual fund.                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.40%       0.40%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.78%       0.66%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year      3 Years           

Select Class          $80        $249                                 

Preferred Class        67         211                                 

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              

                    Co-Manager:  Daniel  J.  Garrett,  CFA.  Mr.  Garrett  is  a
                    portfolio manager for Principal Capital Income Investors. He
                    joined  Principal in 1985 as a commercial  mortgage  analyst
                    and was named to his current  position in 1998.  Mr. Garrett
                    received his Master's  degree in Business and his Bachelor's
                    degree in Computer  Information  Systems  and  Finance  from
                    Drake  University.  He has  earned  the  right  to  use  the
Chartered Financial Analyst designation.

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Martin J. Schafer.  Mr.  Schafer is a portfolio
                    manager for Principal Capital Income Investors  specializing
                    in the management of mortgage-backed securities utilizing an
                    active, total return approach.  He joined Principal in 1977.
                    He holds a BBA in Accounting and Finance from the University
of Iowa.                                

MONEY MARKET FUND                                                               
The Fund seeks as high a level of  current  income as is  considered  consistent
with preservation of principal and maintenance of liquidity.                    

Main Strategies                                                                 
The Fund invests its assets in a portfolio  of high  quality,  short-term  money
market instruments. The investments are U.S. dollar denominated securities which
the  Sub-Advisor,  PCII,  believes present minimal credit risks. At the time the
Fund  purchases each  security,  it is an "eligible  security" as defined in the
regulations  issued under the  Investment  Company Act of 1940 ("1940 Act"),  as
amended.                                                                        

The Fund maintains a dollar weighted  average  portfolio  maturity of 90 days or
less. It intends to hold its investments until maturity.  However,  the Fund may
sell a security before it matures:                                              
o    to take advantage of market variations;                                    
o    to generate cash to cover sales of Fund shares by its shareholders; or     
o    upon  revised  credit  opinions  of the  security's  issuer.               
The  sale of a  security  by the  Fund  before  maturity  may not be in the best
interest of the Fund. The Fund does have an ability to borrow money to cover the
sale of Fund  shares.  The sale of  portfolio  securities  is  usually a taxable
event.                                                                          

It is the policy of the Fund to be as fully  invested  as  possible  to maximize
current income. Securities in which the Fund invests include:                   
o    securities issued or guaranteed by the U.S. Government,  including treasury
bills, notes and bonds;                                               
o    securities  issued or  guaranteed by agencies or  instrumentalities  of the
     U.S.  Government.  These are backed  either by the full faith and credit of
     the  U.S.  Government  or  by  the  credit  of  the  particular  agency  or
instrumentality;                                                      
o    bank obligations including:                                                
     o    certificates  of deposit which  generally are negotiable  certificates
against funds deposited in a commercial bank; or            
     o    bankers  acceptances which are time drafts drawn on a commercial bank,
     usually in connection with international commercial transactions.
o    commercial  paper,  which is short-term  promissory notes issued by U.S. or
foreign corporations primarily to finance short-term credit needs;    
o    corporate debt consisting of notes,  bonds or debentures  which at the time
of purchase by the Fund has 397 days or less remaining to maturity;   
o    repurchase   agreements  under  which  securities  are  purchased  with  an
     agreement by the seller to  repurchase  the security at the same price plus
     interest at a specified  rate.  Generally these have a short duration (less
than a week) but may also have a longer duration; and                 
o    taxable municipal  obligations,  which are short-term obligations issued or
  guaranteed by state and municipal issuers which generate taxable income.

Among the  certificates  of deposit  typically held by the Money Market Fund are
Eurodollar and Yankee  obligations,  which are issued in U.S. dollars by foreign
banks and foreign branches of U.S. banks. Eurodollar and Yankee obligations have
risks similar to U.S. money market  instruments,  such as income risk and credit
risk. Other risks of Eurodollar and Yankee obligations include the possibilities
that: a foreign government will not let U.S. dollar-denominated assets leave the
country;  the banks that issue Eurodollar  obligations may not be subject to the
same regulations as U.S. banks; and adverse  political or economic  developments
will affect  investments  in a foreign  country.  Before the Fund's  Sub-Advisor
selects a Eurodollar or Yankee obligation,  however, the foreign issue undergoes
the same credit-quality analysis and tests of financial strength as an issuer of
domestic securities.                                                            

Main Risks                                                                      
As with all  mutual  funds,  the value of the  Fund's  assets  may rise or fall.
Although  the Fund seeks to  preserve  the value of an  investment  at $1.00 per
share,  it is possible to lose money by investing  in the Fund.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.  An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance  Corporation or any other government
agency.                                                                         

Investor Profile                                                                
The Fund is  generally  a suitable  investment  for  investors  seeking  monthly
dividends without incurring much principal risk.                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                  Class        Class

Management Fees..................   0.40%       0.40%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.78%       0.66%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years            

Select Class          $80      $249                                   

Preferred Class        67       211                                   

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Alice Robertson.  Ms. Roberston is a trader for
                    Principal   Capital   Income   Investors  on  the  corporate
                    fixed-income trading desk. She joined Principal in 1990 as a
                    credit  analyst and moved to her  current  position in 1993.
                    Previously,    Ms.   Robertson   was   an   assistant   vice
                    president/commercial paper analyst with Duff & Phelps Credit
                    Company. Ms. Robertson earned her Master's degree in Finance
                    and  Marketing  from DePaul  University  and her  Bachelor's
         degree in Economics from Northwestern University.

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:   Michael  R.  Johnson.   Mr.  Johnson   directs
                    securities  trading for Principal  Capital Income Investors.
                    He joined Principal in 1982 and took his current position in
                    1994. His responsibilities include managing the fixed-income
                    trading operation for Principal Capital Income Investors and
                    several  short-term  money  market  accounts.  He earned his
                Bachelor's degree in Finance from Iowa State University.

BOND & MORTGAGE SECURITIES FUND The Fund seeks to provide current income.       

Main Strategies                                                                 
The  Fund  invests  primarily  in  intermediate  maturity  fixed-income  or debt
securities  rated BBB or higher by Standard & Poor's Rating  Service  ("S&P") or
Moody's Investors Service,  Inc. ("Moody's").  Under normal  circumstances,  the
Fund invests at least 75% of its assets in:                                     
o    securities  issued or guaranteed by the U.S.  Government or its agencies or
instrumentalities;                                                    
o    mortgage-backed  securities  representing an interest in a pool of mortgage
loans;                                                                
o    debt securities and taxable municipal bonds rated, at the time of purchase,
     in one of the top four  categories  by S&P or Moody's or, if not rated,  in
the opinion of the Sub-Advisor, PCII, of comparable quality; and      
o    securities issued or guaranteed by the governments of Canada (Provincial or
Federal Government) or the United Kingdom payable in U.S. dollars.    

The rest of the Fund's assets may be invested in:                               
o    preferred and common stock that may be convertible  (may be exchanged for a
     fixed  number  of  shares of  common  stock of the same  issuer)  or may be
non-convertible; or                                                   
o    securities  rated less than the four  highest  grades of S&P or Moody's but
     not  lower  than BB- (S&P) or Ba3  (Moody's)  (i.e.  less  than  investment
grade).                                                               
Under unusual market or economic  conditions,  the Fund may invest up to 100% of
its assets in cash and cash equivalents.                                        

Main Risks                                                                      
The average  portfolio  duration of the Fund normally  varies within a three- to
six-year time frame based on PCII's forecast for interest  rates.  Duration is a
measure  of the  expected  life  of a  fixed-income  security  that  is  used to
determine the  sensitivity of a security's  price to changes in interest  rates.
The  longer a  security's  duration,  the more  sensitive  it is to  changes  in
interest  rates.  A Fund with a longer average  portfolio  duration will be more
sensitive  to  changes  in  interest  rates  than a Fund with a shorter  average
portfolio duration.                                                             

Mortgage-backed  securities are subject to prepayment  risk. When interest rates
decline,  significant unscheduled prepayments may result. These prepayments must
then be  reinvested at lower rates.  Prepayments  may also shorten the effective
maturities of these securities,  especially during periods of declining interest
rates.  On the other hand,  during periods of rising interest rates, a reduction
in  prepayments  may  increase the  effective  maturities  of these  securities,
subjecting  them to the risk of decline in market  value in  response  to rising
interest rates. This may increase the volatility of the Fund.                   

When interest  rates fall,  the price of a debt security rises and when interest
rates rise, the price declines. In addition, the value of securities held by the
Fund may be affected by factors such as credit  rating of the entity that issued
the security and its maturity. Lower quality and longer maturity securities will
be subject to greater credit risk and price fluctuations than higher quality and
shorter maturity securities.                                                    

Fixed-income  securities that are not investment grade are commonly  referred to
as junk bonds or high yield  securities.  These  securities  offer a potentially
higher  yield than  other,  higher  rated  securities,  but they carry a greater
degree  of risk  and are  considered  speculative  by the  major  credit  rating
agencies.                                                                       

As with all mutual funds,  as the value of the Fund's assets rise and fall,  the
Fund's share price  changes.  If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.

Investor Profile                                                                
The  Fund  is   generally   a  suitable   investment   for   investors   seeking
diversification by investing in a fixed-income mutual fund.                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                  Class        Class
Management Fees..................   0.55%       0.55%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.93%       0.81%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year     3 Years            

Select Class          $95       $296                                  

Preferred Class        83        259                                  

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co- Manager:  Lisa A. Stange,  CFA. As Portfolio Manager for
                    Principal Capital Income Investors,  Ms. Stange manages over
                    $3 billion in fixed-income portfolios invested in public and
                    private   corporate   bonds,   mortgage-backed   securities,
                    commercial    mortgage-backed    securities,    asset-backed
                    securities and commercial real estate mortgages.  Ms. Stange
                    joined  Principal  in 1989 after  earning her  Master's  and
                    Bachelor's  degrees in Finance from the  University of Iowa.
                    She has  earned  the  right to use the  Chartered  Financial
Analyst designation.                    

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  William C. Armstrong,  CFA. Mr. Armstrong leads
                    the   multi-sector/core   portfolio   management  group  for
                    Principal  Capital Income  Investors' stable value division.
                    Mr.  Armstrong has been with Principal since 1992. He earned
                    his  Master's  degree  from the  University  of Iowa and his
                    Bachelor's degree from Kearney State College.  He has earned
                    the   right   to  use  the   Chartered   Financial   Analyst
designation.                            

GOVERNMENT SECURITIES FUND                                                      
The Fund seeks to provide current income.                                       

Main Strategies                                                                 
The Fund seeks to achieve its  investment  objective by  investing  primarily in
securities   that  are  issued  by  the  U.S.   Government,   its   agencies  or
instrumentalities.   The  Fund  may   invest   in   mortgage-backed   securities
representing an interest in a pool of mortgage loans. These securities are rated
AAA by Standard & Poor's Corporation or Aaa by Moody's Investor  Services,  Inc.
or,  if  unrated,  determined  by the  Sub-Advisor,  PCII,  to be of  equivalent
quality.                                                                        

The Fund relies on the professional judgment of PCII to make decisions about the
Fund's portfolio securities.  The basic investment philosophy of PCII is to seek
undervalued  securities that represent good long-term investment  opportunities.
Securities  may be sold  when  PCII  believes  they  no  longer  represent  good
long-term value.                                                                

The Fund may also hold cash and cash  equivalents.  The size of the Fund's  cash
position depends on various factors,  including market  conditions and purchases
and  redemptions of Fund shares.  A large cash position could impact the ability
of the Fund to  achieve  its  objective  but it also  would  reduce  the  Fund's
exposure  in the  event of a  market  downturn  and  provide  liquidity  to make
additional investments or to meet redemptions.                                  

Main Risks                                                                      
Although  some of the  securities  the Fund  purchases  are  backed  by the U.S.
government  and its  agencies,  shares  of the  Fund  are not  guaranteed.  When
interest rates fall, the value of the Fund's shares rises,  and when rates rise,
the value  declines.  Because of the fluctuation in values of the Fund's shares,
if shares are sold when their  value is less than the price paid,  the  investor
will lose money.                                                                

U.S.  Government  securities do not involve the degree of credit risk associated
with  investments in lower quality  fixed-income  securities.  As a result,  the
yields  available from U.S.  Government  securities are generally lower than the
yields   available  from  many  other   fixed-income   securities.   Like  other
fixed-income  securities,  the values of U.S.  Government  securities  change as
interest rates fluctuate.  Fluctuations in the value of the Fund's securities do
not affect  interest  income on  securities  already  held by the Fund,  but are
reflected  in  the  Fund's  price  per  share.  Since  the  magnitude  of  these
fluctuations  generally is greater at times when the Fund's average  maturity is
longer,  under  certain  market  conditions  the Fund may  invest in  short-term
investments  yielding  lower  current  income  rather than  investing  in higher
yielding longer term securities.                                                

Mortgage-backed   securities  are  subject  to  prepayment  risk.   Prepayments,
unscheduled   principal   payments,   may  result  from  voluntary   prepayment,
refinancing  or  foreclosure  of the  underlying  mortgage.  When interest rates
decline,  significant unscheduled prepayments may result. These prepayments must
then be  reinvested at lower rates.  Prepayments  may also shorten the effective
maturities of these securities,  especially during periods of declining interest
rates.  On the other hand,  during periods of rising interest rates, a reduction
in  prepayments  may  increase the  effective  maturities  of these  securities,
subjecting  them to the risk of decline in market  value in  response  to rising
interest rates and potentially increasing the volatility of the fund.           

In addition,  prepayments may cause losses on securities  purchased at a premium
(dollar amount by which the price of the bond exceeds its face value). At times,
mortgage-backed  securities  may have higher than market  interest rates and are
purchased at a premium.  Unscheduled  prepayments  are made at par and cause the
Fund to experience a loss of some or all of the premium.                        

As with all mutual funds,  as the value of the Fund's assets rise and fall,  the
Fund's share price  changes.  If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.

Investor Profile                                                                
The  Fund  is   generally   a  suitable   investment   for   investors   seeking
diversification  by  investing  in  a  fixed-income  mutual  fund.              

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                     Select    Preferred
                   Class       Class

Management Fees..................   0.40%       0.40%                 
Other Expenses...................   0.38        0.26                  

Total Fund Operating Expenses   0.78%       0.66%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year     3 Years      

Select Class             $80       $249                               

Preferred Class           67        211                               

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Martin J. Schafer.  Mr.  Schafer is a portfolio
                    manager for Principal Capital Income Investors  specializing
                    in the management of mortgage-backed securities utilizing an
                    active, total return approach.  He joined Principal in 1977.
                    He holds a BBA in Accounting and Finance from the University
of Iowa.                                

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:   Kelly  R.  Alexander.   Ms.  Alexander  shares
                    management  responsibility for nine fixed-income  portfolios
                    at Principal Capital Income Investors,  with combined assets
                    of  more  than  $4  billion.  Before  assuming  her  current
                    position, she had similar responsibilities with Invista from
                    1992 to 2000.  She joined  Principal  in 1983 to develop the
                    mortgage-backed    securities   trading   department.    Her
                    experience   includes   hedging,   securitization,   product
                    development  and  portfolio  management  as well as the risk
                   management of a $1.5 billion residential mortgage pipeline.

HIGH  QUALITY  INTERMEDIATE-TERM  BOND FUND                                     
The Fund  seeks to  provide  current income.                                    

Main Strategies                                                                 
The Fund invests primarily in intermediate term fixed-income  securities rated A
or higher by  Standard & Poor's  Rating  Service  ("S&P")  or Moody's  Investors
Service, Inc. ("Moody's"). Under normal circumstances, the Fund invests at least
80% of its assets in:                                                           
o    securities  issued or guaranteed by the U.S.  Government or its agencies or
instrumentalities;                                                    
o    mortgage-backed  securities  representing an interest in a pool of mortgage
loans;                                                                
o    debt securities and taxable municipal bonds rated, at the time of purchase,
     in one of the top three  categories by S&P or Moody's or, if not rated,  in
the opinion of the Sub-Advisor, PCII, of comparable quality; and      
o    securities issued or guaranteed by the governments of Canada (Provincial or
Federal Government) or the United Kingdom payable in U.S. dollars.    

The rest of the Fund's assets may be invested in:                               
o    common stock and preferred stock that may be convertible  (may be exchanged
     for a fixed  number of shares of common stock of the same issuer) or may be
non-convertible; or                                                   
o    securities  rated less than the three highest  grades of S&P or Moody's but
     not lower  than BBB- (S&P) or BAA3  (Moody's)  (i.e.  less than  investment
grade).                                                               
Under unusual market or economic  conditions,  the Fund may invest up to 100% of
its assets in cash and cash equivalents.                                        

Main Risks                                                                      
The average  portfolio  duration of the Fund normally  varies within a three- to
six-year time frame based on PCII's forecast for interest  rates.  Duration is a
measure  of the  expected  life  of a  fixed-income  security  that  is  used to
determine the  sensitivity of a security's  price to changes in interest  rates.
The  longer a  security's  duration,  the more  sensitive  it is to  changes  in
interest  rates.  A Fund with a longer average  portfolio  duration will be more
sensitive  to  changes  in  interest  rates  than a Fund with a shorter  average
portfolio duration.                                                             

Although  some of the  securities  the Fund  purchases  are  backed  by the U.S.
government and its agencies,  shares of the Fund are not guaranteed.  The values
of U.S. Government  securities change as interest rates fluctuate.  Fluctuations
in  the  value  of the  Fund's  securities  do not  affect  interest  income  on
securities  already held by the Fund,  but are reflected in the Fund's price per
share.                                                                          

Mortgage-backed  securities are subject to prepayment  risk. When interest rates
decline,  significant unscheduled prepayments may result. These prepayments must
then be  reinvested at lower rates.  Prepayments  may also shorten the effective
maturities of these securities,  especially during periods of declining interest
rates.  On the other hand,  during periods of rising interest rates, a reduction
in  prepayments  may  increase the  effective  maturities  of these  securities,
subjecting  them to the risk of decline in market  value in  response  to rising
interest. This may increase the volatility of the Fund.                         

When  interest  rates fall,  the price of a bond rises and when  interest  rates
rise, the price declines. In addition,  the value of securities held by the Fund
may be affected by factors  such as credit  rating of the entity that issued the
bond and  effective  maturities of the bond.  Lower quality and longer  maturity
bonds will be subject to greater credit risk and price  fluctuations than higher
quality and shorter maturity bonds.                                             

As with all mutual funds,  as the value of the Fund's assets rise and fall,  the
Fund's share price  changes.  If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.

Investor Profile                                                                
The  Fund  is   generally   a  suitable   investment   for   investors   seeking
diversification by investing in a fixed-income mutual fund.                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.40%       0.40%                 
Other Expenses...................   0.38        0.26                  

Total Fund Operating Expenses   0.78%       0.66%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year     3 Years          

Select Class          $80        $249                                 

Preferred Class        67         211                                 

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Kevin W. Croft, CFA. As a portfolio manager for
                    Principal  Capital  Income  Investors,  Mr. Croft has direct
                   responsibility  for $950  million  invested in fixed-income
                    portfolios.  He joined  Principal  in 1988.  He  earned  his
                    Master's and Bachelor's  degrees from Drake  University.  He
                    has earned the right to use the Chartered  Financial Analyst
designation.                            

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Martin J. Schafer.  Mr.  Schafer is a portfolio
                    manager for Principal Capital Income Investors  specializing
                    in the management of mortgage-backed securities utilizing an
                    active, total return approach.  He joined Principal in 1977.
                    He holds a BBA in Accounting and Finance from the University
of Iowa.                                

HIGH QUALITY LONG-TERM BOND FUND                                                
The Fund seeks to provide current income.                                       

Main Strategies                                                                 
The Fund  invests  primarily  in long-term  fixed-income  securities  rated A or
higher by Standard & Poor's Rating Service ("S&P") or Moody's Investors Service,
Inc. ("Moody's").  Under normal circumstances,  the Fund invests at least 75% of
its assets in:                                                                  
o    securities  issued or guaranteed by the U.S.  Government or its agencies or
instrumentalities;                                                    
o    mortgage-backed  securities  representing an interest in a pool of mortgage
loans;                                                                
o    debt securities and taxable municipal bonds rated, at the time of purchase,
     in one of the top three  categories by S&P or Moody's or, if not rated,  in
the opinion of the Sub-Advisor, PCII, of comparable quality; and      
o    securities issued or guaranteed by the governments of Canada (Provincial or
Federal Government) or the United Kingdom payable in U.S. dollars.    

The rest of the Fund's assets may be invested in:                               
o    common stock and preferred stock that may be convertible  (may be exchanged
     for a fixed  number of shares of common stock of the same issuer) or may be
non-convertible; or                                                   
o    securities  rated less than the three highest  grades of S&P or Moody's but
     not lower than BBB- (S&P) or BAA3  (Moody's)  (i.e.,  less than  investment
grade).                                                               
Under unusual market or economic  conditions,  the Fund may invest up to 100% of
its assets in cash and cash equivalents.                                        

Main Risks                                                                      
The average  portfolio  duration of the Fund  normally is greater than six years
and is based on PCII's forecast for interest rates. Duration is a measure of the
expected  life  of a  fixed-income  security  that  is  used  to  determine  the
sensitivity  of a security's  price to changes in interest  rates.  The longer a
security's  duration,  the more sensitive it is to changes in interest  rates. A
Fund with a longer average portfolio  duration will be more sensitive to changes
in interest rates than a Fund with a shorter average portfolio duration.        

Although  some of the  securities  the Fund  purchases  are  backed  by the U.S.
government and its agencies,  shares of the Fund are not guaranteed.  The values
of U.S. Government  securities change as interest rates fluctuate.  Fluctuations
in  the  value  of the  Fund's  securities  do not  affect  interest  income  on
securities  already held by the Fund,  but are reflected in the Fund's price per
share.                                                                          

When  interest  rates fall,  the price of a bond rises and when  interest  rates
rise, the price declines. In addition,  the value of securities held by the Fund
may be affected by factors  such as credit  rating of the entity that issued the
bond and  effective  maturities of the bond.  Lower quality and longer  maturity
bonds will be subject to greater credit risk and price  fluctuations than higher
quality and shorter maturity bonds.                                             

As with all mutual funds,  as the value of the Fund's assets rise and fall,  the
Fund's share price  changes.  If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.

Investor Profile                                                                
The  Fund  is   generally   a  suitable   investment   for   investors   seeking
diversification by investing in a fixed-income mutual fund.                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.40%       0.40%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.78%       0.66%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class          $80     $249                                    

Preferred Class        67      211                                    

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Kevin W. Croft, CFA. As a portfolio manager for
                    Principal  Capital  Income  Investors,  Mr. Croft has direct
                   responsibility  for $950  million  invested in fixed-income
                    portfolios.  He joined  Principal  in 1988.  He  earned  his
                    Master's and Bachelor's  degrees from Drake  University.  He
                    has earned the right to use the Chartered  Financial Analyst
designation.                            

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Martin J. Schafer.  Mr.  Schafer is a portfolio
                    manager for Principal Capital Income Investors  specializing
                    in the management of mortgage-backed securities utilizing an
                    active, total return approach.  He joined Principal in 1977.
                    He holds a BBA in Accounting and Finance from the University
of Iowa.                                

BALANCED FUND                                                                   
The Fund  seeks to  generate a total  return  consisting  of current  income and
long-term growth of capital.                                                    

Main Strategies                                                                 
The Fund seeks growth of capital and current  income by  investing  primarily in
common  stocks  and  corporate  bonds.  It  may  also  invest  in  other  equity
securities,  government bonds and notes  (obligations of the U.S.  government or
its agencies or  instrumentalities)  and cash.  Though the  percentages  in each
category are not fixed,  common  stocks  generally  represent  40% to 70% of the
Fund's assets. The remainder of the Fund's assets is invested in bonds and cash.

Invista  serves as Sub-Advisor  for the portion of the Fund's  portfolio that is
invested  in  equity  securities.  In making  its  selection  Invista  looks for
companies that have predictable  earnings and which,  based on growth prospects,
it believes are  undervalued  in the  marketplace.  Invista buys stocks with the
objective  of  long-term  capital  appreciation.  From  time  to  time,  Invista
purchases stocks with the expectation of price appreciation over the short-term.
In response to changes in economic conditions, Invista may change the make-up of
the portfolio and emphasize  different  market sectors by buying and selling the
portfolio's stocks. The Fund may invest up to 25% of its assets in securities of
foreign companies.                                                              

PCII  serves as  Sub-Advisor  for the  portion of the Fund's  portfolio  that is
invested in fixed-income  securities.  Fixed-income  securities are purchased to
generate  income and for  capital  appreciation  purposes  when PCII thinks that
declining  interest rates may increase market value.  Deep discount bonds (those
which sell at a substantial  discount from their face amount) are also purchased
to generate capital appreciation.  The Fund may invest in bonds with speculative
characteristics  but does not  intend  to invest  more than 5% of its  assets in
securities rated below BBB by Standard & Poor's Rating Service or Baa by Moody's
Investors Service,  Inc.  Fixed-income  securities that are not investment grade
are  commonly  referred  to as "junk  bonds"  or high  yield  securities.  These
securities offer a higher yield than other,  higher rated  securities,  but they
carry a  greater  degree  of risk and are  considered  speculative  by the major
credit rating agencies.                                                         

Main Risks                                                                      
The value of the stocks owned by the Fund changes on a daily basis. Stock prices
reflect the  activities  of individual  companies as well as general  market and
economic conditions. In the short-term,  stock prices can fluctuate dramatically
in response to these factors.  Foreign stocks carry risks that are not generally
found in  stocks  of U.S.  companies.  These  include  the risk  that a  foreign
security  could  lose value as a result of  political,  financial  and  economic
events in foreign countries.  In addition,  foreign securities may be subject to
securities  regulators with less stringent  accounting and disclosure  standards
than are required of U.S. companies.                                            

Fixed-income  security  values change  daily.  Their prices  reflect  changes in
interest rates, market conditions and announcements of other economic, political
or financial  information.  When interest  rates fall, the price of a bond rises
and when interest rates rise, the price declines.                               

Because  the Fund  invests in both stocks and bonds,  the Fund may  underperform
stock funds when stocks are in favor and underperform  bond funds when bonds are
in favor.  As with all mutual funds,  as the value of the Fund's assets rise and
fall,  the Fund's share price  changes.  If the investor  sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.                                                                     

Investor Profile                                                                
The Fund is generally a suitable investment for investors seeking current income
as well as long-term growth of capital.                                         

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.50%       0.50%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.88%       0.76%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class          $90     $281                                    

Preferred Class        78      243                                    

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  William C. Armstrong,  CFA. Mr. Armstrong leads
                    the   multi-sector/core   portfolio   management  group  for
                    Principal  Capital Income  Investors' stable value division.
                    Mr.  Armstrong has been with Principal since 1992. He earned
                    his  Master's  degree  from the  University  of Iowa and his
                    Bachelor's degree from Kearney State College.  He has earned
                    the   right   to  use  the   Chartered   Financial   Analyst
designation.                            

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Judith A. Vogel,  CFA. Ms. Vogel is a portfolio
                    manager for domestic core and balanced portfolios. Ms. Vogel
                    joined  Principal  in  1982 as a  strategist  and was one of
                    Invista's   founding   members  in  1985.   She  earned  her
                    Bachelor's  degree in Business  Administration  from Central
                    College.  She has  earned  the  right  to use the  Chartered
Financial Analyst designation.          

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager: Mary Sunderland, CFA. Ms. Sunderland manages the
                    large-cap growth portfolios for Invista.  She joined Invista
                    in early 2000  following a 10-year career with Skandia Asset
                    Management  where she directed  their more than $2.5 billion
                    U.S. Equity Large Cap Growth portfolios and U.S.  Technology
                    portfolios.  Ms. Sunderland earned her MBA from the Columbia
                    University  Graduate  School of Business and her  Bachelor's
                    degree  from  Northwestern  University.  She has  earned the
                 right to use the Chartered Financial Analyst designation.

LARGECAP BLEND FUND                                                             
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests primarily in common stocks of large  capitalization  companies.
Under normal market  conditions,  the Fund invests at least 65% of its assets in
companies with a market  capitalization  of greater than $10 billion at the time
of purchase. Market capitalization is defined as total current market value of a
company's outstanding common stock.                                             

In selecting  securities for  investment,  the  Sub-Advisor,  Invista,  looks at
stocks with value and/or growth characteristics and will construct an investment
portfolio  that will have a "blend"  of stocks  with  these  characterisics.  In
managing the assets of the Fund,  Invista  does not have a policy of  preferring
one of these categories to the other. The value  orientation  emphasizes  buying
stocks at less than their  investment  value and avoiding stocks whose price has
been artificially built up. The growth  orientation  emphasizes buying stocks of
companies  whose  potential for growth of capital and earnings is expected to be
above average.                                                                  

Invista uses a bottom-up  approach in its  selection of  individual  securities.
Selection  is based on  fundamental  analysis  of a  company  relative  to other
companies with the focus being on Invista's estimation of forward-looking  rates
of return. Up to 25% of Fund assets may be invested in foreign securities.      

Invista then constructs a portfolio that is "benchmark aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its investments to the securities of issuers in the S&P 500 Index. Invista
is prepared to weight  sectors and  industries  differently  from the  benchmark
weightings.                                                                     

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Foreign  securities  carry risks that are not generally  found in stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large capitalization  stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because certain of the securities purchased
by the Fund present greater  opportunities  for growth because of high potential
earnings growth,  they may also involve greater risk than securities that do not
have the same potential. The value of the Fund's equity securities may fluctuate
on a daily basis.  As with all mutual  funds,  as the value of the Fund's assets
rise and fall, the Fund's share price changes. If the investor sells Fund shares
when their value is less than the price the investor paid for them, the investor
will lose money.                                                                

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer investing in larger, established companies.                      

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operting Expenses

                    Select     Preferred
                   Class       Class

Management Fees..................   0.45%       0.45%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.83%       0.71%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years               

Select Class          $85     $265                                    

Preferred Class        73      227                                    

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Mark  T.  Williams,  CFA.  Mr.  Williams  manages  Invista's
                    research    department    conducting    macroeconomic    and
                    quantitative   research   as   applied   to   domestic   and
                    international economic trends and forecasts.  Previously, he
                    served as a portfolio  manager with direct experience in the
                    management  of  core,   value-oriented  and  growth-oriented
                    portfolios. He joined Invista in 1989 with seven years prior
                    experience in the technology industry. Mr. Williams received
                    his MBA from Drake University and holds a Bachelor's  degree
                    in Finance from the  University of the State of New York. He
                    has earned the right to use the Chartered  Financial Analyst
designation.                            

LARGECAP GROWTH FUND                                                            
The Fund seeks long-term growth of capital                                      

Main Strategies                                                                 
The Fund invests primarily in common stocks and other equity securities of large
capitalization  companies with strong  earnings growth  potential.  Under normal
market conditions, the Fund invests at least 65% of its assets in companies with
a market  capitalization  of greater  than $10 billion at the time of  purchase.
Market  capitalization  is defined as total current  market value of a company's
outstanding common stock.                                                       

The  Sub-Advisor,  Invista,  uses  a  bottom-up  approach  in its  selection  of
individual  securities  that it believes  have an above  average  potential  for
earnings  growth.  Selection  is  based on  fundamental  analysis  of a  company
relative to other  companies  with the focus being on  Invista's  assessment  of
current and future sales growth and operating  margins.  Companies meeting these
criteria will typically have  progressed  beyond the  development  stage and are
focused on growing  the  business.  Up to 25% of Fund  assets may be invested in
foreign securities.                                                             

Invista then constructs a portfolio that is "benchmark aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments to the securities of issuers in the S&P 500/BARRA  Growth
Index. Invista is prepared to weight sectors and industries differently from the
benchmark weightings.                                                           

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large  capitalization  growth stocks, may underperform  compared to other market
segments or to the equity markets as a whole.  The  securities  purchased by the
Fund present greater opportunities for growth because of high potential earnings
growth,  but may also involve greater risks than securities that do not have the
same  potential.  The value of the Fund's  securities  may  fluctuate on a daily
basis.  As with all mutual  funds,  as the value of the Fund's  assets  rise and
fall,  the Fund's share price  changes.  If the investor  sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.                                                                     

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.55%       0.55%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.93%       0.81%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class          $95     $296                                    

Preferred Class        83      259                                    

Day-to-day Fund Managment 

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Mary Sunderland,  CFA. Ms. Sunderland  manages the large-cap
                    growth  portfolios for Invista.  She joined Invista in early
                    2000   following  a  10-year   career  with  Skandia   Asset
                    Management  where she directed  their more than $2.5 billion
                    U.S. Equity Large Cap Growth portfolios and U.S.  Technology
                    portfolios.  Ms. Sunderland earned her MBA from the Columbia
                    University  Graduate  School of Business and her  Bachelor's
                    degree  from  Northwestern  University.  She has  earned the
                 right to use the Chartered Financial Analyst designation.

LARGECAP S&P 500 INDEX FUND                                                     
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
Under normal market  conditions,  the Fund invests at least 80% of its assets in
common  stocks of  companies  that  compose the  Standard & Poor's*  ("S&P") 500
Index.  The  Sub-Advisor,   Invista,  will  attempt  to  mirror  the  investment
performance  of the index by allocating the Fund's assets in  approximately  the
same  weightings as the S&P 500. The S&P 500 is an unmanaged index of 500 common
stocks  chosen  to  reflect  the  industries  of the U.S.  economy  and is often
considered  a proxy for the stock  market in general.  Each stock is weighted by
its  market   capitalization   which  means   large   companies   have   greater
representation in the index than smaller ones. Over the long-term, Invista seeks
a very close correlation between  performance of the Fund, before expenses,  and
that of the S&P 500. It is unlikely that a perfect  correlation  of 1.00 will be
achieved.                                                                       

The Fund uses an indexing  strategy and is not managed  according to traditional
methods of "active"  investment  management.  Active  management  would  include
buying and  selling  securities  based on  economic,  financial  and  investment
judgement.  Instead,  the Fund uses a passive investment  approach.  Rather than
judging  the merits of a  particular  stock in  selecting  investments,  Invista
focuses on tracking the S&P 500.  Invista may also use stock index  futures as a
substitute for the sale or purchase of securities. It does not attempt to manage
market  volatility,  use  defensive  strategies  or  reduce  the  effect  of any
long-term periods of poor stock performance.                                    

The correlation between Fund and index performance may be affected by the Fund's
expenses, changes in securities markets, changes in the composition of the index
and the timing of  purchases  and sales of Fund  shares.  The Fund may invest in
futures and options,  which could carry  additional  risks such as losses due to
unanticipated  market price  movements and could also reduce the opportunity for
gain.                                                                           

Main Risks                                                                      
Because of the  difficulty  and  expense of  executing  relatively  small  stock
trades, the Fund may not always be invested in the less heavily weighted S&P 500
stocks. At times, the Fund's portfolio may be weighted  differently from the S&P
500,  particularly  if the  Fund has a small  level  of  assets  to  invest.  In
addition, the Fund's ability to match the performance of the S&P 500 is affected
to some  degree by the size and  timing of cash  flows into and out of the Fund.
The Fund is managed to attempt to minimize such effects.                        

Invista  reserves the right to omit or remove any of the S&P 500 stocks from the
Fund if it determines that the stock is not sufficiently  liquid. In addition, a
stock  might be  excluded or removed  from the Fund if  extraordinary  events or
financial conditions lead Invista to believe that it should not be a part of the
Fund's assets.                                                                  

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

In addition,  the Fund is subject to the risk that its principal market segment,
large capitalization  stocks, may underperform compared to other market segments
or to the equity markets as a whole.  Because  different types of stocks tend to
shift in and out of favor  depending  on market  and  economic  conditions,  the
Fund's  performance may sometimes be lower or higher than that of other types of
funds.                                                                          

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate dramatically in response to these factors.           

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital,  willing to accept the potential for volatile fluctuations in
the value of investments and preferring a passive rather than active  management
style.                                                                          

*  Standard & Poor's  Corporation  is not  affiliated  with the LargeCap S&P 500
   Index Fund,  Invista  Capital  Management,  LLC or Principal  Life  Insurance
Company.                                                                  

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.15%       0.15%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.53%       0.41%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years               

Select Class          $54     $170                                    

Preferred Class        42      132                                    

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Robert Baur,  Ph.D.  Dr. Baur joined Invista in
                    1995 after acting as a professor of finance and economics at
                    Drake  University  and Grand View  College.  He received his
                    Bachelor's  degree in Mathematics and his Ph.D. in Economics
                    from Iowa State University.  Dr. Baur also did post-doctoral
                    study  in  finance  and  economics  at  the   University  of
                    Minnesota. He also holds a BS in Mathematics from Iowa State
University.                             

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Rhonda  VanderBeek.  Ms.  Vander  Beek  directs
                    trading  operations for Invista index  accounts.  She joined
                    Principal  in 1983 as a  trading  state  clerk  and moved to
                    Invista in 1992.  Ms. Vander Beek has  extensive  experience
           trading both domestic and international securities.

LARGECAP VALUE FUND                                                             
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests primarily in common stocks and other equity securities of large
capitalization  companies.  Under normal market conditions,  the Fund invests at
least 65% of its assets in  companies  with a market  capitalization  of greater
than $10 billion at the time of purchase.  Market  capitalization  is defined as
total current market value of a company's outstanding common stock. Up to 25% of
Fund assets may be invested in foreign securities.                              

The Fund invests in stocks that, in the opinion of the Sub-Advisor, Invista, are
undervalued in the marketplace at the time of purchase.  This value  orientation
emphasizes buying stocks at less than their investment value and avoiding stocks
whose price has been artifically built up. Value stocks are often  characterized
by below average  price/earnings  ratios (P/E) and above average dividend yields
relative to their peers.  The Fund's  investments are selected  primarily on the
basis of  fundamental  security  analysis,  focusing on the company's  financial
stability,  sales,  earnings,  dividend  trends,  return on equity and  industry
trends.  The Fund often invests in stocks  considered  temporarily out of favor.
Investors  often  overreact to bad news and do not respond quickly to good news.
This results in undervalued stocks of the type held by the Fund.                

Invista then constructs a portfolio that is "benchmark aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments to the  securities of issuers in the S&P 500/BARRA  Value
Index. Invista is prepared to weight sectors and industries differently from the
benchmark  weightings.                                                          

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large  capitalization  value stocks,  may underperform  compared to other market
segments or to the equity markets as a whole. The value of the Fund's securities
may fluctuate on a daily basis.  As with all mutual  funds,  as the value of the
Fund's  assets rise and fall,  the Fund's share price  changes.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.                                             

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer  investing in companies that appear to be considered  undervalued
relative to similar companies.                                                  

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.45%       0.45%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.83%       0.71%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class          $85     $265                                    

Preferred Class        73      227                                    

Day-to-day Management 

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Scott D.  Opsal,  CFA.  Mr.  Opsal is the  Chief  Investment
                    Officer  for  Invista  and has  directed  the  international
                    equities  group since 1993.  He sits on the firm's  Board of
                    Directors,  is a member  of the Iowa  Society  of  Financial
                    Analysts and is a Research Director of the Financial Markets
                    Institute at the University of Iowa.  Scott joined Principal
                    in 1983  and was  one of  Invista's  founders  in  1985.  He
                    received a Master's  degree from the University of Minnesota
                    and a Bachelor's degree from Drake University, where he is a
                    visiting instructor in the Finance Department. He has earned
                    the   right   to  use  the   Chartered   Financial   Analyst
designation.                            

MIDCAP S&P 400 INDEX FUND                                                       

The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
Under normal market  conditions,  the Fund invests at least 80% of its assets in
common stocks of companies  that compose the Standard & Poor's*  ("S&P")  MidCap
400 Index.  The  Sub-Advisor,  Invista,  will  attempt to mirror the  investment
performance  of the index by allocating the Fund's assets in  approximately  the
same  weightings as the S&P MidCap 400. The S&P MidCap 400 is an unmanaged index
of 400 common stocks of medium sized U.S. (and some  Canadian)  companies.  Each
stock is weighted by its market capitalization which means larger companies have
greater  representation  in the index than  smaller  ones.  Over the  long-term,
Invista seeks a very close correlation  between  performance of the Fund, before
expenses,  and  that  of the S&P  MidCap  400.  It is  unlikely  that a  perfect
correlation of 1.00 will be achieved.                                           

The Fund uses an indexing  strategy and is not managed  according to traditional
methods of "active"  investment  management.  Active  management  would  include
buying and  selling  securities  based on  economic,  financial  and  investment
judgement.  Instead,  the Fund uses a passive investment  approach.  Rather than
judging  the merits of a  particular  stock in  selecting  investments,  Invista
focuses on tracking the S&P MidCap 400. Invista may also use stock index futures
as a substitute for the sale or purchase of  securities.  It does not attempt to
manage market volatility,  use defensive  strategies or reduce the effect of any
long-term periods of poor stock performance.                                    

The correlation between Fund and index performance may be affected by the Fund's
expenses, changes in securities markets, changes in the composition of the index
and the timing of  purchases  and sales of Fund  shares.  The Fund may invest in
futures and options,  which could carry  additional  risks such as losses due to
unanticipated market price movements,  and could also reduce the opportunity for
gain.                                                                           

Main Risks                                                                      
Because of the  difficulty  and  expense of  executing  relatively  small  stock
trades,  the Fund may not always be invested in the less  heavily  weighted  S&P
MidCap 400 stocks.  At times, the Fund's  portfolio may be weighted  differently
from the S&P MidCap 400, particularly if the Fund has a small level of assets to
invest.  In addition,  the Fund's  ability to match the  performance  of the S&P
MidCap 400 is  affected to some degree by the size and timing of cash flows into
and out of the Fund. The Fund attempts to minimize such effects.                

Invista  reserves  the right to omit or remove  any of the S&P MidCap 400 stocks
from the Fund if it determines  that the stock is not  sufficiently  liquid.  In
addition,  a stock might be excluded or removed  from the Fund if  extraordinary
events or financial  conditions  lead Invista to believe that it should not be a
part of the Fund's assets.                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-size  companies  may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

In addition,  the Fund is subject to the risk that its principal market segment,
medium capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole.  Because  different types of stocks tend to
shift in and out of favor  depending  on market  and  economic  conditions,  the
Fund's  performance may sometimes be lower or higher than that of other types of
funds.                                                                          

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate dramatically in response to these factors.           

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital,  willing to accept the potential for volatile fluctuations in
the value of investments and preferring a passive rather than active  management
style.                                                                          

*  Standard & Poor's Corporation is not affiliated with the MidCap S&P 400 Index
Fund, Invista Capital Management LLC or Principal Life Insurance Company. 

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.15%       0.15%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.53%       0.41%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class          $54     $170                                    

Preferred Class        42      132                                    

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Co-Manager:  Robert Baur,  Ph.D.  Dr. Baur joined Invista in
                    1995 after acting as a professor of finance and economics at
                    Drake  University  and Grand View  College.  He received his
                    Bachelor's  degree in Mathematics and his Ph.D. in Economics
                    from Iowa State University.  Dr. Baur also did post-doctoral
                    study  in  finance  and  economics  at  the   University  of
                    Minnesota. He also holds a BS in Mathematics from Iowa State
University.                             

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Co-Manager:  Rhonda  VanderBeek.  Ms.  Vander  Beek  directs
                    trading  operations for Invista index  accounts.  She joined
                    Principal  in 1983 as a  trading  state  clerk  and moved to
                    Invista in 1992.  Ms. Vander Beek has  extensive  experience
           trading both domestic and international securities.

MIDCAP VALUE FUND                                                               
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests primarily in common stocks of medium capitalization  companies.
Under normal market  conditions,  the Fund invests at least 65% of its assets in
companies with a market capitalization between $1 billion and $10 billion at the
time of purchase. Market capitalization is defined as total current market value
of a  company's  outstanding  common  stock.  Up to 25% of  Fund  assets  may be
invested in foreign securities.                                                 

The Fund invests in stocks that, in the opinion of the Sub-Advisor, Invista, are
undervalued in the marketplace at the time of purchase.  This value  orientation
emphasizes  buying stocks at less than their inherent value and avoiding  stocks
whose price has been artifically built up. Value stocks are often  characterized
by below average  price/earnings ratios (P/E) and above average dividend yields.
The  Fund's  investments  are  selected  primarily  on the basis of  fundamental
security  analysis,  focusing  on  the  company's  financial  stability,  sales,
earnings,  dividend trends, return on equity and industry trends. The Fund often
invests in stocks  considered  temporarily  out of favor.  Investors  often over
react to bad news and do not  respond  quickly  to good  news.  This  results in
undervalued stocks of the type held by this Fund.                               

Invista then constructs a portfolio that is "benchmark aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments to the  securities of issuers in the S&P 400/BARRA  Value
Index. Invista is prepared to weight sectors and industries differently from the
benchmark  weightings.                                                          

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-size  companies  may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
medium capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole.  Because  different types of stocks tend to
shift in and out of favor  depending  on market  and  economic  conditions,  the
Fund's  performance may sometimes be lower or higher than that of other types of
funds. The value of the Fund's equity securities may fluctuate on a daily basis.
If the  investor  sells Fund  shares when their value is less than the price the
investor paid for them, the investor will lose money.                           

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth  of  capital  and  willing  to  accept  the  potential   for   short-term
fluctuations in the value of investments.                                       

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.65%       0.65%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.03%       0.91%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Year               

Select Class         $105     $328                                    

Preferred Class        93      290                                    

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Catherine A. Zaharis,  CFA. Ms.  Zaharis  directs  portfolio
                    management  for the  Invista  value team and leads the value
                    research  group.  She joined  Invista in 1985.  Ms.  Zaharis
                    received  her  MBA  from  Drake  University  and  her BBA in
                    Finance  from the  University  of Iowa.  She has  earned the
                 right to use the Chartered Financial Analyst designation.

PARTNERS LARGECAP BLEND FUND                                                    
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund  pursues its  investment  objective  by  investing  primarily in equity
securities of companies  that offer  superior  growth  prospects or of companies
whose stock is undervalued.  Under normal market conditions, the Fund invests at
least 65% of its assets in companies with large market  capitalizations.  Market
capitalization  is  defined  as  total  current  market  value  of  a  company's
outstanding common stock.                                                       

In selecting  securities for investment,  the Sub-Advisor,  Federated,  looks at
stocks with value and/or growth characteristics and will construct an investment
portfolio  that will have a "blend" of stocks  with these  characteristics.  The
value  orientation  emphasizes  buying  stocks  at  less  than  their  intrinsic
investment  value and avoiding stocks whose price has been  unjustifiably  built
up. The growth orientation emphasizes buying stocks of companies whose potential
for growth of capital and  earnings is expected to be above  average.  Federated
attempts to identify good  long-term  values through  disciplined  investing and
careful  fundamental  research.                                                 

Using its own  quantitative  process,  Federated  rates the  future  performance
potential of companies.  Federated  evaluates each company's earnings quality in
light of its  current  valuation  to narrow  the list of  attractive  companies.
Federated   then  evaluates   product   positioning,   management   quality  and
sustainability  of current growth trends of those companies.  Using this type of
fundamental  analysis,  Federated  selects the most promising  companies for the
Fund's portfolio.                                                               

Companies  with  similar  characteristics  may  be  grouped  together  in  broad
categories  called  sectors.  In determining the amount to invest in a security,
Federated  limits the Fund's exposure to each business sector that comprises the
S&P 500 Index.  The Fund's  allocation  to a sector will not be less than 50% or
more than 200% of the Index's  allocation to that sector. The Fund may invest up
to 25% of its assets in securities of foreign companies.                        

The Fund actively  trades its portfolio  securities in an attempt to achieve its
investment  objective.  Active  trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its  shareholders,  which are taxed at a higher rate than longer-term  gains
(losses).  Actively trading  portfolio  securities  increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.                 

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Companies  with  similar  characteristics  may  be  grouped  together  in  broad
categories called sectors.  Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As Federated  allocates
more of the  Fund's  portfolio  holdings  to a  particular  sector,  the  Fund's
performance  will  be  more  susceptible  to any  economic,  business  or  other
developments that generally affect that sector.                                 

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large capitalization  stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because certain of the securities purchased
by the Fund  present  greater  opportunities  for growth,  they may also involve
greater risks than securities that do not have the same potential.  The value of
the Fund's equity  securities may fluctuate on a daily basis. As with all mutual
funds,  as the value of the Fund's assets rise and fall,  the Fund's share price
changes.  If the  investor  sells Fund  shares when their value is less than the
price the investor paid for them, the investor will lose money.                 

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer investing in larger, established companies.                      

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.75%       0.75%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.13%       1.01%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year 3 Years                  

Select Class         $115     $359                                    

Preferred Class       103      322                                    

Day-to-day Fund Management

Since _______, 2000 Co-Manager:  James E.  Grefenstette,  CFA. Mr.  Grefenstette
(Fund's inception)  joined  Federated  in 1992 and has been a Portfolio  Manager
                    and a Vice  President  of  Federated  Investment  Management
                    Company since 1996.  From 1994 until 1996, Mr.  Grefenstette
                    was a Portfolio  Manager and an Assistant  Vice President of
                    Federated  Investment  Management Company.  Mr. Grefenstette
                    received his MS in Industrial  Administration  from Carnegie
                    Mellon  University.  He has  earned  the  right  to use  the
Chartered Financial Analyst designation.

Since _______, 2000 Co-Manager:   J.  Thomas  Madden,  CFA.  Mr.  Madden  joined
(Fund's inception)  Federated as a Senior Portfolio Manager in 1977 and has been
                    an  Executive   Vice   President  of  Federated   Investment
                    Management Company since 1994. Mr. Madden served as a Senior
                    Vice President of Federated  Investment  Management  Company
                    from  1989 to  1993.  Mr.  Madden  received  his MBA  with a
                    concentration in Finance from the University of Virginia. He
                    has earned the right to use the Chartered  Financial Analyst
designation.                            

Since _______, 2000 Co-Manager:  Bernard  J.  Picchi,  CFA.  Mr.  Picchi  joined
(Fund's inception)  Federated  in 1999 as a Senior  Vice  President/Director  of
                    U.S.  Equity  Research for Federated  Investment  Management
                    Company.  From  1994 to  1999,  Mr.  Picchi  was a  Managing
                    Director of Lehman  Brothers  where he  initially  served as
                    head of the energy  sector  group.  During  1995 and most of
                    1996,  he served as U.S.  Director of Stock  Research and in
                    September  1996, he was named Growth Stock  Strategist.  Mr.
                    Picchi  holds  a  BS  in  foreign  service  from  Georgetown
                    University.  He has  earned  the right to use the  Chartered
Financial Analyst designation.          

PARTNERS LARGECAP GROWTH FUND I                                                 
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund seeks to maximize long-term capital appreciation by investing primarily
in equity  securities of U.S. and, to a limited extent,  foreign  companies that
exhibit strong or accelerating  earnings  growth.  These companies are generally
characterized  as  "growth"  companies.   The  universe  of  eligible  companies
generally includes those with market capitalizations of $10 billion or more. The
Sub-Advisor,  Morgan Stanley,  emphasizes  individual security selection and may
focus the Fund's holdings within the limits  permissible for a diversified fund.
The Fund may invest up to 25% of its assets in securities of foreign companies. 

Morgan Stanley  follows a flexible  investment  program in looking for companies
with above average  capital  appreciation  potential.  Morgan Stanley focuses on
companies  with  consistent or rising  earnings  growth  records and  compelling
business  strategies.  Morgan Stanley continually and rigorously studies company
developments,  including  business  strategy,  management  focus  and  financial
results to identify  companies with earnings  growth and business  momentum.  In
addition,  Morgan Stanley closely  monitors  analysts'  expectations to identify
issuers that have the potential for positive earnings surprises versus consensus
expectations.  Valuation is of secondary importance and is viewed in the context
of prospects  for  sustainable  earnings  growth and the  potential for positive
earnings surprises in relation to consensus expectations.                       

The Fund has a long-term investment approach.  However, Morgan Stanley considers
selling  securities of issuers that no longer meet its  criteria.  To the extent
that the Fund engages in short-term trading,  it may have increased  transaction
costs.                                                                          

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends and  developments.  In  response,  the price of the  securities
issued  by such  companies  may  decline.  These  factors  contribute  to  price
volatility, which is the principal risk of investing in the Fund.               

Foreign  securities  carry risks that are not generally  found in stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large capitalization  stocks, may underperform compared to other market segments
or to the  equity  markets  as a whole.  The  securities  purchased  by the Fund
present  greater  opportunities  for growth because of high  potential  earnings
growth,  but may also involve greater risks than securities that do not have the
same  potential.  The value of the Fund's  securities  may  fluctuate on a daily
basis.  As with all mutual  funds,  as the value of the Fund's  assets  rise and
fall,  the Fund's share price  changes.  If the investor  sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.                                                                     

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.75%       0.75%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.13%       1.01%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $115     $359                                    

Preferred Class       103      322                                    

Day-to-day Fund Management

Since _______, 2000 Co-Manager:  William S.  Auslander,  Portfolio  Manager  and
(Fund's inception)  Principal of Morgan  Stanley & Co.  Incorporated  and Morgan
                    Stanley  Dean  Witter   Investment   Management  Inc.  since
                    1998.  From  1995  to 1998  he  served  as  Equity  Analyst.
                    Prior  thereto,  he was an  Equity  Analyst  at Icahn & Co.,
                    1986-1995. He holds a BA in Economics from the University of
      Wisconsin and an MBA from Columbia University.

Since _______, 2000 Co-Manager:  Philip W. Friedman, Managing Director of Morgan
(Fund's inception)  Stanley & Co.  Incorporated  and Morgan  Stanley Dean Witter
                    Investment  Management  Inc.  since  1997.  Member of Morgan
                    Stanley & Co.  Research  since  1990,  served as Director of
                    North America Research 1995-1997.  Prior thereto,  Assistant
                    to the Controller and Chief Equity Financial Officer, Arthur
                    Andersen & Company.  He holds a BA from  Rutgers  University
           and an MBA from Northwestern - J.L. Kellogg School.

PARTNERS LARGECAP GROWTH FUND II                                                
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund  invests  primarily in common  stocks but can  purchase  other types of
securities as well, such as domestic and foreign preferred  stocks,  convertible
securities,  equity  equivalent  securities,  nonleveraged  futures and options,
notes,  bonds and other debt securities.  The Fund generally limits its purchase
of debt securities to investment-grade obligations,  except for convertible debt
securities,  which may be rated below  investment  grade.  Under  normal  market
conditions,  the Fund  invests  at least 65% of its assets in  companies  with a
market  capitalization  of greater  than $10  billion  at the time of  purchase.
Market  capitalization  is defined as total current  market value of a company's
outstanding common stock.                                                       

The Fund invests primarily in stocks of companies that the Sub-Advisor, American
Century,  believes  will  increase in value over time using a growth  investment
strategy it  developed.  This  strategy  looks for  companies  with earnings and
revenues that are not only growing,  but growing at a  successively  faster,  or
accelerating,  pace.  This strategy is based on the premise that,  over the long
term,  the stocks of companies  with  accelerating  earnings and revenues have a
greater-than-average  chance to increase in value. The Fund may invest up to 25%
of its assets in securities of foreign companies.                               

American Century uses a bottom-up approach to select stocks to buy for the Fund.
That means it first looks for strong,  growing  companies  to invest in,  rather
than  simply  buying any  company  in a growing  industry  or sector.  Using its
extensive computer database,  American Century tracks financial  information for
thousands  of  companies  to  identify  trends in the  companies'  earnings  and
revenues.  This information is used to help American Century select or decide to
continue to hold the stocks of  companies  it  believes  will be able to sustain
accelerating growth, and to sell stocks of companies whose growth begins to slow
down.                                                                           

Under  normal  market  conditions,  American  Century  intends  to keep the Fund
essentially  fully invested in stocks regardless of the movement of stock prices
generally.  When American Century believes it is prudent,  the Fund may invest a
portion  of its  assets in  convertible  debt  securities,  foreign  securities,
short-term  securities,  nonleveraged  stock index  futures  contracts and other
similar  securities.  Stock  index  futures  contracts,  a  type  of  derivative
security,  can help the Fund's cash assets remain liquid while  performing  more
like stocks.  The Fund has a policy  governing  stock index  futures and similar
derivative securities to help manage the risk of these types of investments. For
example,  American  Century  cannot  leverage  Fund  assets  by  investing  in a
derivative security.                                                            

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large  capitalization  growth stocks, may underperform  compared to other market
segments or to the equity markets as a whole.  The  securities  purchased by the
Fund present greater opportunities for growth because of high potential earnings
growth,  but may also involve greater risks than securities that do not have the
same  potential.  The value of the Fund's  securities  may  fluctuate on a daily
basis.  As with all mutual  funds,  as the value of the Fund's  assets  rise and
fall,  the Fund's share price  changes.  If the investor  sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.                                                                     

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.38%       1.26%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $140     $437                                    

Preferred Class       128      400                                    

Day-to-day Fund Management

Since ________, 2000                                                            
(Fund's inception)                                                              
                    Co-Manager:  Gregory  Woodhams,  CFA. Mr. Woodhams is a Vice
                    President  and  Portfolio   Manager  for  American   Century
                    Investments,  Mr.  Woodhams  has  worked  in  the  financial
                    industry  since  1992 and joined  American  Century in 1997.
                    Previously,  he was Vice  President  and  Director of Equity
                    Research  at  Texas  Commerce  Bank.  Mr.  Woodhams  holds a
                    Bachelor's  Degree in Economics  from Rice  University and a
                    Master's   Degree  in  Economics   from  the  University  of
                    Wisconsin  at  Madison.  He has  earned the right to use the
Chartered Financial Analystdesignation. 

Since ________, 2000                                                            
(Fund's inception)                                                              
                    Co-Manager:  C. Kim  Goodwin.  Ms.  Goodwin  is Senior  Vice
                    President and Senior Portfolio  Manager for American Century
                    Investments.   Ms.  Goodwin  has  worked  in  the  financial
                    industry  since 1987. She joined  American  Century in 1997.
                    Previously,  Ms.  Goodwin was a Senior Vice  President  with
                    Putnam  Investments (19__ to 1997). Prior to that, she was a
                    Vice  President and  Portfolio  Manager at  Prudential.  Ms.
                    Goodwin was also an  Assistant  Vice  President  with Mellon
                    Bank where she had various investment research and portfolio
                    construction  responsibilities.  Ms.  Goodwin  holds  an  AB
                    degree in politics from Princeton, cum laude. She also holds
                    a  Master's  Degree in  Public  Affairs  from The  Lyndon B.
                    Johnson  School of Public Affairs at the University of Texas
                    and an MBA degree in Business Administration in Finance from
                   The Graduate School of Business at the University at Texas.

Since ________, 2000                                                            
(Fund's inception)                                                              
                    Co-Manager:  Prescott LeGard, CFA. Mr. LeGard is a Portfolio
                    Manager for American Century Investments.  Mr. LeGard joined
                    the company in 1999.  Before joining the company,  he was an
                    Equity  Analyst  for  USAA  Investment  Management  where he
                    analyzed  technology   companies.   He  has  worked  in  the
                    investment industry since 1993. Mr. LeGard holds a BA Degree
                    in Economics from DePaul University. He has earned the right
           to use the Chartered Financial Analyst designation.

PARTNERS LARGECAP VALUE FUND                                                    
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests  primarily in undervalued  equity securities of companies among
the 750  largest  by  market  capitalization  that the  Sub-Advisor,  Bernstein,
believes  offer  above-average  potential for growth in future  earnings.  Under
normal market conditions,  the Fund generally invests at least 65% of its assets
in  companies  with a market  capitalization  of greater than $10 billion at the
time of purchase. Market capitalization is defined as total current market value
of a company's  outstanding  common stock.  The Fund may invest up to 25% of its
assets in securities of foreign companies.                                      

Bernstein  employs  an  investment  strategy,  generally  described  as  "value"
investing, that involves seeking securities that:                               
o    exhibit low financial ratios  (particularly stock price-to-book  value, but
also stock price-to-earnings and stock price-to-cash flow);           
o    can be  acquired  for less than what  Bernstein  believes  is the  issuer's
intrinsic value; or                                                   
o    appear attractive on a dividend discount model.                            

Value oriented investing entails a strong "sell discipline" in that it generally
requires the sale of  securities  that have reached their  intrinsic  value or a
target financial  ratio.  Value oriented  investments may include  securities of
companies in cyclical  industries  during periods when such securities appear to
Bernstein to have strong  potential  for capital  appreciation  or securities of
"special situation" companies. A special situation company is one that Bernstein
believes  has  potential  for  significant  future  earnings  growth but has not
performed  well in the recent past.  These  situations  include  companies  with
management   changes,   corporate  or  asset   restructuring   or  significantly
undervalued  assets. For Bernstein,  identifying special situation companies and
establishing  an issuer's  intrinsic value involves  fundamental  research about
such companies and issuers.                                                     

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large  capitalization  value stocks,  may underperform  compared to other market
segments or to the equity markets as a whole. The value of the Fund's securities
may fluctuate on a daily basis.  As with all mutual  funds,  as the value of the
Fund's  assets rise and fall,  the Fund's share price  changes.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.                                             

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
but prefer  investing  in  companies  that appear to be  considered  undervalued
relative to similar companies.                                                  

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                  Select     Preferred
                   Class       Class

Management Fees..................   0.80%       0.80%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.18%       1.06%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Year               

Select Class         $120     $375                                    

Preferred Class       108      337                                    

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Co-Manager:  Marilyn G. Fedak.  Ms. Fedak,  Chief Investment
                    Officer of U.S.  Value  Equities  and  Chairman  of the U.S.
                    Equity Investment  Policy Group of the Bernstein  Investment
                    Rsearch and Management unit of Alliance  Capital  Management
                    L.P. ("Alliance") since October 2, 2000 and prior to that at
                    Sanford C.  Bernstein & Co.,  Inc.  ("SCB Inc.") since 1993.
                    She  joined  SCB  Inc.  in 1984  and has  managed  portfolio
                    investments  since 1976. She has a BA from Smith College and
an MBA from Harvard Business School.    

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Co-Manager:  Steven Pisarkiewicz.  Mr. Pisarkiewicz has been
                    with  Alliance  since October 2, 2000 and prior to that with
                    SCB Inc.  since 1989 and has been Senior  Portfolio  Manager
                    since 1997.  He holds a BS from the  University  of Missouri
                 and an MBA from the University of California at Berkeley.

PARTNERS MIDCAP VALUE FUND                                                      
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests primarily in common stocks of medium capitalization  companies.
Under normal market  conditions,  the Account  invests at least 65% of its total
assets in  companies  with a market  capitalization  between $1 billion  and $10
billion  at the time of  purchase.  Market  capitalization  is  defined as total
current  market value of a company's  outstanding  common  stock.  Companies may
range from the well  established and well known to the new and  unseasoned.  The
Fund may invest up to 25% of its assets in securities of foreign companies.     

The stocks are selected using a value-oriented  investment approach by Neuberger
Berman,  the Sub-Advisor.  Neuberger  Berman  identifies value stocks in several
ways.  One of the  most  common  identifiers  is a low  price-to-earnings  ratio
(stocks  selling at  multiples of earnings per share that are lower than that of
the market as a whole). Other criteria are high dividend yield, a strong balance
sheet and financial position, a recent company  restructuring with the potential
to realize hidden values,  strong  management and low  price-to-book  value (net
value of the company's  assets).  Neuberger Berman also looks for companies with
consistent  cash flow,  a sound  track  record  through all phases of the market
cycle, a strong  position  relative to  competitors,  a high level of management
stock  ownership  and a recent sharp stock price  decline that appears to result
from a  short-term  market  overreaction  to  negative  news.  Neuberger  Berman
believes that,  over time,  securities  that are  undervalued are more likely to
appreciate  in  price  and are  subject  to  less  risk of  price  decline  than
securities  whose market prices have already  reached their  perceived  economic
value.                                                                          

This approach also involves selling  portfolio  securities when Neuberger Berman
believes they have reached their potential,  when the securities fail to perform
as  expected  or  when  other  opportunities  appear  more  attractive.   It  is
anticipated  that the annual  portfolio  turnover rate may be greater than 100%.
Turnover rates in excess of 100% generally  result in higher  transaction  costs
and a possible increase in short-term capital gains (or losses).                

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends and  developments.  In  response,  the price of the  securities
issued  by such  companies  may  decline.  These  factors  contribute  to  price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-sized  companies may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
medium  capitalization  value stocks, may underperform  compared to other market
segments or to the equity markets as a whole.  Because different types of stocks
tend to shift in and out of favor  depending on market and economic  conditions,
the Fund's performance may sometimes be lower or higher than that of other types
of funds.  The value of the Fund's  equity  securities  may fluctuate on a daily
basis. If the investor sells Fund shares when their value is less than the price
the investor paid for them, the investor will lose money.                       

Investor Profile                                                                
The Fund is  generally a suitable  investment  if  investors  seeking  long-term
growth  and  willing  to  accept   short-term   fluctuations  in  the  value  of
investments.                                                                    

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.38%       1.26%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years        

Select Class            $140     $437                                 

Preferred Class          128      400                                 

Day-to-day Fund Management

Since _______, 2000 Co-Manager:  Robert  I.  Gendelman,  Managing  Director  and
(Fund's inception)  Portfolio Manager, Neuberger Berman Management,  Inc., since
                    1994. He holds a BA from the  University of Michigan as well
          as a JD and an MBA from the University of Chicago.

REAL ESTATE FUND                                                                
The Fund seeks to generate a total return.                                      

Main Strategies                                                                 
The Fund invests primarily in equity securities of companies principally engaged
in the real estate industry.  For purposes of the Fund's investment  policies, a
real estate  company has at least 50% of its assets,  income or profits  derived
from  products or  services  related to the real  estate  industry.  Real estate
companies  include real estate  investment trusts and companies with substantial
real estate holdings such as paper, lumber,  hotel and entertainment  companies.
Companies whose products and services relate to the real estate industry include
building  supply   manufacturers,   mortgage  lenders  and  mortgage   servicing
companies.                                                                      

Real estate investment trusts ("REITs") are corporations or business trusts that
are  permitted  to eliminate  corporate  level  federal  income taxes by meeting
certain   requirements  of  the  Internal  Revenue  Code  ("Code").   REITs  are
characterized  as:                                                              
o    equity REITs, which primarily own property and generate revenue from rental
income;                                                               
o    mortgage REITs, which invest in real estate mortgages; and                 
o    hybrid REITs, which combine the characteristics of both equity and mortgage
REITs.                                                                
In selecting securities for the Fund, the Sub-Advisor,  PCREI, focuses on equity
REITs.                                                                          

The Fund may invest up to 25% of its assets in securities of foreign real estate
companies.                                                                      

Main Risks                                                                      
Securities of real estate  companies  are subject to securities  market risks as
well as risks  similar  to those  of  direct  ownership  of real  estate.  These
include:                                                                        
o    declines in the value of real estate                                       
o    risks related to general and local economic conditions                     
o    dependency on management skills                                            
o    heavy cash flow dependency                                                 
o    possible lack of available mortgage funds                                  
o    overbuilding                                                               
o    extended vacancies in properties                                           
o    increases in property taxes and operating expenses                         
o    changes in zoning laws                                                     
o    expenses incurred in the cleanup of environmental problems                 
o    casualty or condemnation losses                                            
o    changes in interest rates                                                  

In addition to the risks listed above,  equity REITs are affected by the changes
in the value of the properties  owned by the trust.  Mortgage REITs are affected
by the quality of the credit  extended.  Both equity and mortgage  REITs:       
o    are dependent upon management skills and might not be diversified;         
o    are subject to cash flow dependency and defaults by borrowers; and         
o    could fail to qualify for tax-free pass-through of income under the Code.  

Because of these factors,  the value of the securities  held by the Fund, and in
turn the price per share of the Fund,  changes  on a daily  basis.  The  current
share price reflects the  activities of individual  companies as well as general
market and economic  conditions.  In the short-term,  share prices can fluctuate
dramatically  in  response  to these  factors.  Because  of these  fluctuations,
principal  values and  investment  returns vary.  As with all mutual funds,  the
value of the Fund's assets may rise or fall.  If the investor  sells Fund shares
when their value is less than the price the investor paid for them, the investor
will lose money.                                                                

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

Investor Profile                                                                
The Fund is  generally  a suitable  investment  for  investors  who seek a total
return,  want to invest in companies engaged in the real estate industry and are
willing  to accept  the  potential  for  volatile  fluctuations  in the value of
investments.                                                                    

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.85%       0.85%                 
Other Expenses...................   0.38        0.26                  

Total Fund Operating Expenses   1.23%       1.11%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $125     $390                                    

Preferred Class       113      353                                    

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Kelly D.  Rush,  CFA.  Mr.  Rush  directs  the  Real  Estate
                    Investment Trust (REIT) activity for Principal  Capital Real
                    Estate Investors.  Mr. Rush joined Principal in 1987 and has
                    been dedicated to public real estate investments since 1995.
                    His  experience  includes  the  structuring  of public  real
                    estate  transactions that included commercial mortgage loans
                    and  the  issuance  of  unsecured  bonds.  He  received  his
                    Master's  degree and  Bachelor's  degree in Finance from the
                    University  of  Iowa.  He has  earned  the  right to use the
Chartered Financial Analyst designation.

MIDCAP BLEND FUND                                                               
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests  primarily  in common  stocks and other  equity  securities  of
medium  capitalization  companies.  Under  normal  market  conditions,  the Fund
invests at least 65% of its  assets in  companies  with a market  capitalization
between  $1  billion   and  $10  billion  at  the  time  of   purchase.   Market
capitalization  is  defined  as  total  current  market  value  of  a  company's
outstanding common stock.                                                       

In selecting  securities for  investment,  the  Sub-Advisor,  Invista,  looks at
stocks with value and/or growth characteristics and will construct an investment
portfolio  that will have a "blend"  of stocks  with  these  characterisics.  In
managing the assets of the Fund,  Invista  does not have a policy of  preferring
one of these categories to the other. The value  orientation  emphasizes  buying
stocks at less than their  inherent  value and  avoiding  stocks whose price has
been artificially built up. The growth  orientation  emphasizes buying stocks of
companies  whose  potential for growth of capital and earnings is expected to be
above average.                                                                  

Invista uses a bottom-up  approach in its  selection of  individual  securities.
Selection  is based on  fundamental  analysis  of a  company  relative  to other
companies with the focus being on Invista's estimation of forward-looking  rates
of return. Up to 25% of Fund assets may be invested in foreign securities.      

Invista  constructs  a portfolio  that is  "benchmark  aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments  to the  securities  of  issuers  in the S&P  MidCap  400
Index.Invista is prepared to weight sectors and industries  differently from the
benchmark weightings.                                                           

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-size  companies  may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
medium capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole.  Because  different types of stocks tend to
shift in and out of favor  depending  on market  and  economic  conditions,  the
Fund's  performance may sometimes be lower or higher than that of other types of
funds. The value of the Fund's equity securities may fluctuate on a daily basis.
If the  investor  sells Fund  shares when their value is less than the price the
investor paid for them, the investor will lose money.                           

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth  of  capital  and  willing  to  accept  the  potential   for   short-term
fluctuations in the value of investments.                                       

Because  the  inception  date  of  the  Fund  is  __________,  2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.65%       0.65%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.03%       0.91%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $105     $328                                    

Preferred Class        93      290                                    

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    K.  William  Nolin,  CFA. Mr. Nolin has managed the domestic
                    mid-cap  products  since 1999.  His expertise is grounded in
                    the telecommunications,  media & entertainment,  lodging and
                    consumer non-durables sectors. Mr. Nolin joined Principal in
                    1993 as an investment credit analyst. He earned his MBA from
                    the Yale School of Management and his  Bachelor's  degree in
                    Finance from the University of Iowa. He has earned the right
           to use the Chartered Financial Analyst designation.

MIDCAP GROWTH FUND                                                              
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests primarily in common stocks of medium  capitalization  companies
with strong earnings growth potential Under normal market  conditions,  the Fund
invests at least 65% of its  assets in  companies  with a market  capitalization
between  $1  billion   and  $10  billion  at  the  time  of   purchase.   Market
capitalization  is  defined  as  total  current  market  value  of  a  company's
outstanding common stock.                                                       

The  Sub-Advisor,  Invista,  uses  a  bottom-up  approach  in its  selection  of
individual  securities  that it believes  have an above  average  potential  for
earnings  growth.  Selection  is  based on  fundamental  analysis  of a  company
relative to other  companies  with the focus being on  Invista's  assessment  of
current and future sales growth and operating margins.  Up to 25% of Fund assets
may be invested in foreign securities.                                          

Invista then constructs a portfolio that is "benchmark aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments to the securities of issuers in the Russell MidCap Growth
Index.Invista is prepared to weight sectors and industries differently from the 
benchmark  weightings.                                                          

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-size  companies  may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
medium  capitalization  growth stocks,  may underperform  compared to the equity
markets  as a  whole.  The  securities  purchased  by the Fund  present  greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than  securities that do not have the same potential.  The
value of the Fund's equity  securities  may fluctuate on a daily basis.  As with
all mutual funds,  as the value of the Fund's  assets rise and fall,  the Fund's
share price changes.  If the investor sells Fund shares when their value is less
than the price the investor paid for them, the investor will lose money.        

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.65%       0.65%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.03%       0.91%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years               

Select Class         $105     $328                                    

Preferred Class        93      290                                    

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    John F.  McClain.  Mr.  McClain is a  portfolio  manager for
                    small company and medium company growth products.  He joined
                    Invista in 1990. Previously,  he was an investment executive
                    with Paine Webber. He earned an MBA from Indiana  University
           and a BBA in Economics from the University of Iowa.

PARTNERS MIDCAP GROWTH FUND                                                     
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Partners  MidCap  Growth Fund invests  primarily in common  stocks and other
equity securities of U.S. companies with strong earnings growth potential. Under
normal  market  conditions,  the Fund  invests  at least  65% of its  assets  in
companies with market capitalizations  between $1 billion and $10 billion at the
time of purchase. Market capitalization is defined as total current market value
of a company's outstanding common stock.                                        

The Fund invests in securities of companies that are diversified across economic
sectors. It attempts to maintain sector concentrations that approximate those of
its current benchmark, the Russell MidCap Growth Index. The Fund is not an index
fund and does not limit its  investment  to the  securities  of  issuers  in the
Russell  MidCap  Growth  Index.  The Fund may  invest up to 25% of its assets in
securities of foreign companies.                                                

The  Sub-Advisor,  Turner,  selects stocks that it believes have strong earnings
growth potential. Turner invests in companies with strong earnings dynamics, and
sells those with deteriorating earnings prospects. Turner believes forecasts for
market timing and sector  rotation are unreliable and introduce an  unacceptable
level of risk.  As a result,  under normal market  conditions  the Fund is fully
invested.                                                                       

Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax.   

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-size  companies  may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
medium  capitalization  growth stocks,  may underperform  compared to the equity
markets  as a  whole.  The  securities  purchased  by the Fund  present  greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than  securities that do not have the same potential.  The
value of the Fund's equity  securities  may fluctuate on a daily basis.  As with
all mutual funds,  as the value of the Fund's  assets rise and fall,  the Fund's
share price changes.  If the investor sells Fund shares when their value is less
than the price the investor paid for them, the investor will lose money.        

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%        1.00%                
Other Expenses*..................   0.38         0.26                 

Total Fund Operating Expenses   1.38%        1.26%            

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years                

Select Class         $140   $437                                      

Preferred Class       128    400                                      

Day-to-day Fund Management

  Since ________, 2000      Co-Manager: Robert E. Turner, CFA. Mr. Turner,
  (Fund's inception)        Chairman and Chief Investment Officer, founded
                               Turner  Investment  Partners, Inc. in 1990. Prior
                               to 1990,  he was Senior  Investment  Manager with
                               Meridian Investment  Company.  He has 17 years of
                               investment  experience.  He has  earned the right
                    to use the Chartered Financial Analyst
designation.      

 Since _________, 2000     Co-Manager: Christopher K. McHugh. Mr. McHugh
    (Fund's inception)        joined Turner Investment Partners, Inc. in 1990.
                              He holds a BS in  Accounting  from  Philadelphia
                             College of  Textiles  and Science and an MBA in
                   Finance from St. Joseph's University.

Since _________, 2000     Co-Manager:  William C. McVail. Mr. McVail, 
    (Fund's inception)        Senior Equity Portfolio  Manager,  joined Turner
                              in 1998. Prior thereto, he was Portfolio Manager
                        at PNC Equity Advisers. He has 12 years of
    investment experience.

PARTNERS  SMALLCAP GROWTH  FUND I                                               
The Fund seeks  long-term  growth of capital.                                   

Main Strategies                                                                 
To  pursue   this  goal,   the  Fund   invests   mainly  in  common   stocks  of
small-capitalization  companies,  which it defines as those with a total  market
value of no more than $1.5  billion at the time the Fund first  invests in them.
The Fund may continue to hold or add to a position in a stock after it has grown
beyond $1.5 billion.  The Fund seeks to reduce risk by  diversifying  among many
companies  and  industries.  In  addition,  the Fund may invest up to 25% of its
assets in securities of foreign companies.                                      

The Sub-Advisor,  Neuberger Berman, takes a growth approach to selecting stocks,
looking for new companies that are in the  developmental  stage as well as older
companies  that  appear  poised to grow  because  of new  products,  markets  or
management. Factors in identifying these firms may include financial strength, a
strong position  relative to competitors and a stock price that is reasonable in
light of its growth rate.                                                       

Neuberger  Berman  follows a  disciplined  selling  strategy and may eliminate a
stock from the  portfolio  when it reaches a target  price,  fails to perform as
expected, or appears substantially less desirable than another stock.           

Through active trading,  the Fund may have a high portfolio turnover rate, which
can mean higher taxable  distributions  and lower  performance  due to increased
brokerage costs.                                                                

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility  (wide,  rapid  fluctuations)  than  investments  in
larger, more mature companies.  Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become  established.   While  small,  unseasoned  companies  may  offer  greater
opportunities for capital growth than larger, more established  companies,  they
also involve greater risks and should be considered speculative.                

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
small  capitalization  growth stocks,  may  underperform  compared to the equity
markets  as a  whole.  The  securities  purchased  by the Fund  present  greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than  securities that do not have the same potential.  The
value of the Fund's equity  securities  may fluctuate on a daily basis.  As with
all mutual funds,  as the value of the Fund's  assets rise and fall,  the Fund's
share price  changes.  The Fund's  share price may  fluctuate  more than that of
funds  primarily  invested in stocks of mid-sized  and large  companies  and may
underperform as compared to the securities of larger companies.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.                                             

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings  growth.                                                               

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   1.10%       1.10%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.48%       1.36%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $151     $468                                    

Preferred Class       138      431                                    

Day-to-day Fund Management

  Since ________, 2000      Co-Manager: Michael F. Malouf. Mr. Malouf is a
     (Fund's inception)        Vice President of Neuberger Berman Management and
                            Managing  Director of Neuberger  Berman,  LLC.
                               Mr. Malouf joined the firm in 1998.  From 1991 to
                          1998,  he was a Portfolio Manager at another
firm.             

   Since ________, 2000      Co-Manager: Jennifer K. Silver. Ms. Silver is a
     (Fund's inception)        Vice President of Neuberger Berman Management and
                            Managing  Director of Neuberger  Berman,  LLC.
                               Ms. Silver has been Director of the Growth Equity
                          Group since  1997 and was an  Analyst  and a
                            Portfolio Manager at another firm from 1981 to
1997.             

PARTNERS SMALLCAP GROWTH FUND II                                                
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund  pursues its  investment  objective  by  investing  primarily in equity
securities of companies offering superior  prospects for earnings growth.  These
companies are generally characterized as "growth" companies. Under normal market
conditions,  the Fund  invests  at least 65% of its assets in  companies  with a
small market  capitalization.  Market capitalization is defined as total current
market value of a company's  outstanding common stock. The Fund may invest up to
25% of its assets in securities of foreign companies.                           

Using its own quantitative process, the Sub-Advisor, Federated, rates the future
performance potential of companies.  Federated evaluates each company's earnings
quality in light of their  current  valuation  to narrow the list of  attractive
companies. Federated then evaluates product positioning,  management quality and
sustainability  of current growth trends of those companies.  Using this type of
fundamental  analysis,  Federated  selects the most promising  companies for the
Fund's portfolio.                                                               

Companies  with  similar  characteristics  may  be  grouped  together  in  broad
categories  called  sectors.  In determining the amount to invest in a security,
Federated  limits the Fund's exposure to each business sector that comprises the
S&P 500 Index. The Fund considers its approach aggressive because its strategies
with respect to security analysis, market capitalization,  and sector allocation
are designed to produce a portfolio of stocks whose long-term  growth  prospects
are significantly above those of the S&P 500 Index.  Accordingly,  the prices of
the  stocks  held by the Fund may,  under  certain  market  conditions,  be more
volatile than the prices of stocks selected using a less aggressive approach.   

The Fund may  attempt  to manage  market  risk by buying and  selling  financial
futures and options. This may include the purchase of index futures contracts as
a substitute for direct  investments in stocks. It may also include the purchase
and sale of options to protect against general declines in small  capitalization
stocks economically.                                                            

The Fund actively  trades its portfolio  securities in an attempt to achieve its
investment  objective.  Active  trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its  shareholders,  which are taxed at a higher rate than longer-term  gains
(losses).  Actively trading  portfolio  securities  increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.                 

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility  (wide,  rapid  fluctuations)  than  investments  in
larger, more mature companies.  Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become  established.   While  small,  unseasoned  companies  may  offer  greater
opportunities for capital growth than larger, more established  companies,  they
also involve greater risks and should be considered speculative.                

Federated may group companies with similar characteristics into broad categories
called  sectors.  Sector  risk is the  possibility  that a  certain  sector  may
underperform other sectors or the market as a whole. As Federated allocates more
of the Fund's portfolio  holdings to a particular sector, the Fund's performance
will be more susceptible to any economic,  business or other  developments  that
generally affect that sector.                                                   

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
small  capitalization  growth stocks,  may  underperform  compared to the equity
markets  as a  whole.  The  securities  purchased  by the Fund  present  greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than  securities that do not have the same potential.  The
value of the Fund's equity  securities  may fluctuate on a daily basis.  As with
all mutual funds,  as the values of the Fund's assets rise and fall,  the Fund's
share price  changes.  The Fund's  share price may  fluctuate  more than that of
funds  primarily  invested in stocks of mid-sized  and large  companies  and may
underperform  as compared to the securities of larger  companies.  If shares are
sold when their value is less than the price paid, the investor will lose money.

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.38%       1.26%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $140     $437                                    

Preferred Class       128      400                                    

Day-to-day Fund Management

     Since ________, 2000      Co-Manager: Keith J. Sabol, CFA. Mr. Sabol joined
     (Fund's inception)        Federated in 1994. He has been a Porfolio Manager
                        since 1996 and served as an Assistant Vice
                            President of Federated  Investment  Management
                            Company from 1997 to 1998.  He has been a Vice
                            President of Federated  Investment  Management
                             Company since 1998. Mr. Sabol was an Investment
                             Analyst,  and then Equity Research  Coordinator
                           for Federated  Investment Management  Company
                             from 1994 to 1996.  Mr.  Sabol earned his MS in
                               Industrial  Administration  from Carnegie  Mellon
                              University.  He  has  earned  the  right  to use
                              the  Chartered  Financial  Analyst  designation.

    Since ________, 2000      Co-Manager:  Aash M. Shah,  CFA. Mr. Shah joined
(Fund's inception)        Federated  in 1993 and has been a Portfolio 
                        Manager and a Vice  President of Federated
                          Investment  Management  Company  since 1997.
                             Mr. Shah was a Portfolio  Manager and served as
                        an Assistant  Vice  President of Federated
                               Investment  Management  Company from 1995 through
                               1996,  and as an Investment  Analyst from 1993 to
                               1995. Mr. Shah received his Masters in Industrial
                               Administration  from Carnegie  Mellon  University
                               with a  concentration  in Finance and Accounting.
                          He has earned the right to use the Chartered
            Financial Analyst designation.

SMALLCAP BLEND FUND                                                             
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests primarily in common stocks of small  capitalization  companies.
Under normal market  conditions,  the Fund invests at least 65% of its assets in
companies  with a market  capitalization  of $1.5 billion or less at the time of
purchase.  Market  capitalization  is defined as total current market value of a
company's  outstanding common stock. The Fund may invest up to 25% of its assets
in securities of foreign companies.                                             

In selecting  securities for  investment,  the  Sub-Advisor,  Invista,  looks at
stocks with value and/or growth characteristics and will construct an investment
portfolio  that will have a "blend"  of stocks  with these  characteristics.  In
managing the assets of the Fund,  Invista  does not have a policy of  preferring
one of these categories to the other. The value  orientation  emphasizes  buying
stocks at less than their  investment  value and avoiding stocks whose price has
been artificially built up. The growth  orientation  emphasizes buying stocks of
companies  whose  potential for growth of capital and earnings is expected to be
above  average.  Selection  is  based on  fundamental  analysis  of the  company
relative to other  companies  with the focus being on  Invista's  estimation  of
forward looking rates of return.                                                

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility  (wide,  rapid  fluctuations)  than  investments  in
larger, more mature companies.  Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become  established.   While  small,  unseasoned  companies  may  offer  greater
opportunities for capital growth than larger, more established  companies,  they
also involve greater risks and should be considered speculative.                

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
small capitalization  stocks, may underperform compared to the equity markets as
a whole.  The value of the Fund's  equity  securities  may  fluctuate on a daily
basis.  As with all mutual  funds,  as the value of the Fund's  assets  rise and
fall, the Fund's share price changes.  The Fund's share price may fluctuate more
than that of funds primarily invested in stocks of mid-sized and large companies
and may underperform as compared to the securities of larger  companies.  If the
investor  sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.                                    

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the potential for volatile  fluctuations
in the value of investments.                                                    

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.75%       0.75%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.13%       1.01%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $115     $359                                    

Preferred Class       103      322                                    

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:  Mark T.  Williams,  CFA. Mr.  Williams  manages
                    Invista's research department  conducting  macroeconomic and
                    quantitative   research   as   applied   to   domestic   and
                    international economic trends and forecasts.  Previously, he
                    served as a portfolio  manager with direct experience in the
                    management  of  core,   value-oriented  and  growth-oriented
                    portfolios. He joined Invista in 1989 with seven years prior
                    experience in the technology industry. Mr. Williams received
                    his MBA from Drake University and holds a Bachelor's  degree
                    in Finance from the  University of the State of New York. He
                    has earned the right to use the Chartered  Financial Analyst
designation.                            

Since ______, 2000                                                              
(Fund's inception)                                                              
                    Co-Manager:   Michael  R.  Johnson.   Mr.  Johnson   directs
                    securities  trading for Principal  Capital Income Investors.
                    He joined Principal in 1982 and took his current position in
                    1994. Mr.  Johnson's  responsibilities  include managing the
                    fixed-income  trading operation for Principal Capital Income
                    Investors and several  short-term money market accounts.  He
                    earned  his  Bachelor's  degree in  Finance  from Iowa State
                    University.  He has  earned  the right to use the  Chartered
Financial Analyst designation.          

SMALLCAP GROWTH FUND                                                            
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests primarily in common stocks of small  capitalization  companies.
Under normal market  conditions,  the Fund invests at least 65% of its assets in
companies  with a market  capitalization  of $1.5 billion or less at the time of
purchase.  Market  capitalization  is defined as total current market value of a
company's outstanding common stock.                                             

The  Sub-Advisor,  Invista,  uses  a  bottom-up  approach  in its  selection  of
individual  securities  that it believes  have an above  average  potential  for
earnings  growth.  Selection  is  based on  fundamental  analysis  of a  company
relative to other  companies  with the focus being on  Invista's  assessment  of
current and future sales growth and operating margins.  Up to 25% of Fund assets
may be invested in foreign securities.                                          

Invista then constructs a portfolio that is "benchmark aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will in most cases be approximately  the same as the
weightings of the benchmark. However, the Fund is not an index fund and does not
limit its  investments  to the  securities of issuers in the Russell 2000 Growth
Index. Invista is prepared to weight sectors and industries differently from the
benchmark weightings.                                                           

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility  (wide,  rapid  fluctuations)  than  investments  in
larger, more mature companies.  Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become  established.   While  small,  unseasoned  companies  may  offer  greater
opportunities for capital growth than larger, more established  companies,  they
also involve greater risks and should be considered speculative.                

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
small  capitalization  growth stocks,  may  underperform  compared to the equity
markets  as a  whole.  The  securities  purchased  by the Fund  present  greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than  securities that do not have the same potential.  The
value of the Fund's equity  securities  may fluctuate on a daily basis.  As with
all mutual funds,  as the value of the Fund's  assets rise and fall,  the Fund's
share price  changes.  The Fund's  share price may  fluctuate  more than that of
funds  primarily  invested in stocks of mid-sized  and large  companies  and may
underperform as compared to the securities of larger companies.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.                                             

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                  Advisors    Advisors
                    Select     Preferred
                   Class       Class

Management Fees..................   0.75%       0.75%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.13%       1.01%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $115     $359                                    

Preferred Class       103      322                                    

Day-to-day Fund Management

Since ______, 2000                                                              
(Fund's inception)                                                              
                    John F.  McClain.  Mr.  McClain is a  portfolio  manager for
                    small company and medium company growth products.  He joined
                    Invista in 1990. Previously,  he was an investment executive
                    with Paine Webber. He earned an MBA from Indiana  University
           and a BBA in Economics from the University of Iowa.

SMALLCAP S&P 600 INDEX FUND                                                     
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
Under normal market  conditions,  the Fund invests at least 80% of its assets in
common stocks of companies that compose the Standard & Poor's* ("S&P")  SmallCap
600 Index.  The  Sub-Advisor,  Invista,  will  attempt to mirror the  investment
performance  of the index by allocating the Fund's assets in  approximately  the
same  weightings  as the S&P SmallCap  600. The S&P SmallCap 600 is an unmanaged
index of 600  domestic  stocks  chosen for market size,  liquidity  and industry
group representation.  Each stock is weighted by its market capitalization which
means larger  companies  have greater  representation  in the index than smaller
ones.  Over  the  long-term,  Invista  seeks a very  close  correlation  between
performance of the Fund,  before expenses,  and that of the S&P SmallCap 600. It
is unlikely that a perfect correlation of 1.00 will be achieved.                

The Fund uses an indexing  strategy and is not managed  according to traditional
methods of "active"  investment  management.  Active  management  would  include
buying and  selling  securities  based on  economic,  financial  and  investment
judgement.  Instead,  the Fund uses a passive investment  approach.  Rather than
judging  the merits of a  particular  stock in  selecting  investments,  Invista
focuses on  tracking  the S&P  SmallCap  600.  Invista  may also use stock index
futures as a  substitute  for the sale or  purchase of  securities.  It does not
attempt to manage  market  volatility,  use  defensive  strategies or reduce the
effect of any long-term periods of poor stock performance.                      

The correlation between Fund and index performance may be affected by the Fund's
expenses, changes in securities markets, changes in the composition of the index
and the timing of  purchases  and sales of Fund  shares.  The Fund may invest in
futures and options,  which could carry  additional  risks such as losses due to
unanticipated market price movements,  and could also reduce the opportunity for
gain.                                                                           

Main Risks                                                                      
Because of the  difficulty  and  expense of  executing  relatively  small  stock
trades,  the Fund may not always be invested in the less  heavily  weighted  S&P
SmallCap 600 stocks. At times, the Fund's portfolio may be weighted  differently
from the S&P SmallCap 600,  particularly if the Fund has a small level of assets
to invest.  In addition,  the Fund's ability to match the performance of the S&P
SmallCap  600 is  affected  to some  degree by the size and timing of cash flows
into and out of the Fund. The Fund attempts to minimize such effects.           

Invista  reserves the right to omit or remove any of the S&P SmallCap 600 stocks
from the Fund if it determines  that the stock is not  sufficiently  liquid.  In
addition,  a stock might be excluded or removed  from the Fund if  extraordinary
events or financial  conditions  lead Invista to believe that it should not be a
part of the Fund's assets.                                                      

Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility (wide, rapid fluctuations),  which is the principal risk of investing
in the Fund.                                                                    

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility than investments in larger,  more mature  companies.
Smaller  companies  may be  developing or marketing new products or services for
which markets are not yet  established and may never become  established.  While
small,  unseasoned companies may offer greater  opportunities for capital growth
than larger,  more  established  companies,  they also involve greater risks and
should be considered speculative.                                               

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate dramatically in response to these factors. The Fund's
share price may fluctuate more than that of funds  primarily  invested in stocks
of  mid-sized  and large  companies  and may  underperform  as  compared  to the
securities  of larger  companies.  If the investor  sells Fund shares when their
value is less than the price the investor paid for them,  the investor will lose
money.                                                                          

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital,  willing to accept the potential for volatile fluctuations in
the value of investments and preferring a passive rather than active  management
style.                                                                          

*  Standard & Poor's  Corporation  is not  affiliated  with the SmallCap S&P 600
   Index Fund,  Invista  Capital  Management,  LLC or Principal  Life  Insurance
Company.                                                                  

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.15%       0.15%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   0.53%       0.41%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years             

Select Class          $54     $170                                    

Preferred Class        42      132                                    

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Scott D.  Opsal,  CFA.  Mr.  Opsal is the  Chief  Investment
                    Officer  for  Invista  and has  directed  the  international
                    equities  group since 1993.  He sits on the firm's  Board of
                    Directors,  is a member  of the Iowa  Society  of  Financial
                    Analysts and is a Research Director of the Financial Markets
                    Institute at the University of Iowa.  Scott joined Principal
                    in 1983  and was  one of  Invista's  founders  in  1985.  He
                    received a Master's  degree from the University of Minnesota
                    and a Bachelor's degree from Drake University, where he is a
                    visiting instructor in the Finance Department. He has earned
                    the   right   to  use  the   Chartered   Financial   Analyst
designation.                            

SMALLCAP VALUE FUND                                                             
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests primarily in common stocks of small  capitalization  companies.
Under normal market  conditions,  the Fund invests at least 65% of its assets in
companies  with a market  capitalization  of $1.5 billion or less at the time of
purchase.  Market  capitalization  is defined as total current market value of a
company's  outstanding common stock. The Fund may invest up to 25% of its assets
in securities of foreign companies.  Up to 25% of Fund assets may be invested in
foreign securities.                                                             

The Fund specializes in stocks of small-sized  companies that are undervalued at
the time of purchase.  These  stocks are often  characterized  by  below-average
stock price/earnings ratios and above-average  dividend yields. The Sub-Advisor,
Invista,  selects the Fund's  investments  primarily on the basis of fundamental
security  analysis,  focusing  on  the  company's  financial  stability,  sales,
earnings,  dividend trends, return on equity and industry trends. The Fund often
invests in stocks considered temporarily out of favor. Investors often overreact
to bad news and do not respond quickly to good news. This results in undervalued
stocks of the type held by this Fund.                                           

Invista  constructs  a portfolio  that is  "benchmark  aware" in that the sector
(companies with similar  characteristics)  weightings and individual  securities
weightings of the portfolio will be approximately  the same as the weightings of
the  benchmark.  However,  the Fund is not an index  fund and does not limit its
investments  to the  securities  of issuers in the S&P  600/BARRA  Value  Index.
Invista is  prepared  to weight  sectors  and  industries  differently  from the
benchmark  weightings.                                                          

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility  (wide,  rapid  fluctuations)  than  investments  in
larger, more mature companies.  Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become  established.   While  small,  unseasoned  companies  may  offer  greater
opportunities for capital growth than larger, more established  companies,  they
also involve greater risks and should be considered speculative.                

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
small  capitalization  value  stocks,  may  underperform  compared to the equity
markets as a whole. The value of the Fund's equity securities may fluctuate on a
daily basis.  As with all mutual  funds,  as the value of the Fund's assets rise
and fall, the Fund's share price  changes.  The Fund's share price may fluctuate
more than that of funds  primarily  invested  in stocks of  mid-sized  and large
companies  and  may  underperform  as  compared  to  the  securities  of  larger
companies.  If the investor  sells Fund shares when their value is less than the
price the investor paid for them, the investor will lose money.                 

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the potential for volatile  fluctuations
in the value of investments.                                                    

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

 Fund Operating Expenses

                    Select     Preferred
                   Class       Class

Management Fees..................   0.75%       0.75%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.13%       1.01%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $115     $359                                    

Preferred Class       103      322                                    

Day-to-day Fund Management

Since ________, 2000                                                            
(Fund's inception)                                                              
                    Tom Morabito,  CFA. Mr.  Morabito  joined Invista in 2000 as
                    the lead small-cap value portfolio manager. He has more than
                    12 years of analytical and portfolio  management  expertise.
                    Since  1994,   Mr.   Morabito  was  a  manager  for  Invesco
                    Management  & Research.  He received his MBA in Finance from
                    Northeastern   University  and  his  Bachelor's   degree  in
                    Economics  from State  University of New York. He has earned
                    the   right   to  use  the   Chartered   Financial   Analyst
designation.                            

TECHNOLOGY FUND                                                                 

The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests  primarily in common stocks and other  securities of technology
and  telecommunications  companies domiciled in any of the nations of the world.
The  Sub-Advisor,   BT  believes  that  as  markets  are  becoming  increasingly
globalized,  companies can no longer be researched on a purely  regional  basis.
Companies are increasingly  influenced by global, not just local trends, and for
this reason BT believes  that  analysis and research  needs to be conducted in a
global context.  BT considers  companies in a broad range of  technology-related
industries,  generally including:  computers;  software and peripheral products;
electronics; communications equipment and services; and information services.   

The  Sub-Advisor,  BT,  selects  securities for the Fund based on its own global
investment  research.  The research program is focused on three key criteria:   
o    business franchise - considering factors such as the company's relationship
     with its suppliers and customers, the degree of rivalry with competitors as
well as the exposure to regulatory and technological risk;            
o    quality of management - assessing  the company's  management on its ability
     to execute  current  business  plans,  manage the  capital  invested in the
     business as well as the level of transparency  with respect to strategy and
operations; and                                                       
o    business  valuation  -  determining  the private  market or `true  business
value' of the firm.                                                   

BT's qualitative analysis is complemented by disciplined  valuation  techniques.
These include proprietary models as well as conventional market measurements and
industry  specific models of relative value.  This analytical  framework ensures
consistency and  transparency  throughout the research  process.  Portfolios are
constructed  and managed  within  predetermined  guidelines  that are  regularly
monitored by BT.                                                                

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility.                                                                     

In addition,  foreign stocks carry risks that are not generally  found in stocks
of U.S.  companies.  These include the risk that a foreign  security  could lose
value as a result  of  political,  financial  and  economic  events  in  foreign
countries.  Foreign securities may be subject to securities regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The  Fund is also  subject  to the  risk  that  its  principal  market  segment,
technology stocks, may underperform  compared to other market segments or to the
equity markets as a whole. The competitive pressures of advancing technology and
the number of companies  and product  offerings  which  continue to expand could
cause  technology  companies to become  increasingly  sensitive to short product
cycles and aggressive  pricing.  To the extent that the Fund's  investments  are
concentrated in issuers  conducting  business in the same industry,  the Fund is
subject to legislative or regulatory  changes,  adverse market conditions and/or
increased competition affecting that industry.                                  

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  In the  short-term,  stock prices can  fluctuate  dramatically  in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.   

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital in the  technology and  telecommunications  sector and who are
able to assume the increased  risks of higher price  volatility  associated with
such investments.                                                               

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.38%       1.26%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year 3 Years                    

Select Class         $140     $437                                    

Preferred Class       128      400                                    

Day-to-day Fund Management

Since ________, 2000                                                            
(Fund's inception)                                                              
                    David Mills is Executive  Vice President of BT and serves as
                    its head of U.S. Equities.  He joined BT's retail unit trust
                    team in January 1990 as an Analyst in European equities.  In
                    July 1996, he assumed fund management responsibility for all
                 of the direct European investment vehicles offered by BT.

EUROPEAN FUND                                                                   
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests primarily in equity securities of companies domiciled or in the
opinion of the Sub-Advisor,  BT, having their core business in Europe.  The Fund
may also  invest  in other  securities  of such  companies.  The Fund  offers an
opportunity  to  invest in a region  with a wide  spread  of  industries  and in
companies which, in the opinion of BT, may be undervalued.                      

The Fund  invests  in  securities  listed  on  foreign  or  domestic  securities
exchanges, securities traded in foreign or domestic over-the-counter markets and
depositary receipts.  Under normal market conditions,  the Fund invests at least
65% of its assets in European securities. These include securities of:          
o    companies organized under the laws of European countries;                  
o    companies  for  which  the  principal  securities  trading  market  is in a
European country; and                                                 
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue from either  goods or services  produced or
sales made in European countries.                                     

The  global  equity   investment   philosophy   of  BT  is  to  exploit   market
inefficiencies that arise from differing  interpretations of market information.
As a result, in BT's view, a company's share price does not always represent its
true "business  value." BT actively  invests in those companies that it believes
have  been  mispriced  by  investment   markets.   In  order  to  exploit  these
inefficiencies successfully, BT seeks to enhance investment returns through:    
o    rigorous  proprietary  stock  research  which  enables  their  analysts  to
understand  the:                                                      
o    quality of the company;                                          
o    nature of its management;                                        
o    nature of its industry competition; and                          
o    business valuation - the true "business value" of the company;   
o    maintaining global coverage within the universe of investment choices; and 
o    maintaining a medium-term focus.                                           
As a result,  the Fund's  portfolio  reflects  the  opportunities  presented  by
mispriced  companies that offer the potential for strong,  long-term  investment
returns with an acceptable level of investment risk.                            

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S.  companies.  These  include  the risk that a foreign  security
could lose value as a result of  political,  financial  and  economic  events in
foreign countries.  Foreign  securities may be subject to securities  regulators
with less stringent  accounting  and  disclosure  standards than are required of
U.S. companies.                                                                 

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

The Fund anticipates that its portfolio  turnover will typically range from 200%
to 300%. Turnover rates in excess of 100% generally result in higher transaction
costs and a possible increase in short-term capital gains (or losses).          

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  In the  short-term,  stock prices can  fluctuate  dramatically  in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.   

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital in European markets who are able to assume the increased risks
of higher price volatility and currency fluctuations associated with investments
in international stocks which trade in non-U.S. currencies.                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.38%       1.26%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $140     $437                                    

Preferred Class       128      400                                    

Day-to-day Fund Management

Since ________, 2000                                                            
(Fund's inception)                                                              
                    Crispin Murray, Executive Vice President of BT, joined BT in
                    April  1994 as an  Investment  Analyst.  In  1995,  his role
                    became  pure  European  equities  analysis  covering  banks,
                    telecommunication, telecommunication equipment and media. In
                    April 1998,  he became Head of European  Equities and in May
                    1998 became coordinator for BTFM's Global Banking Group. His
                    global sector  responsibilities  include  telecommunications
                    and  banks.  Prior to  joining  BT,  Mr.  Murray  worked for
                    Equitable  Life  Assurance  Society  in  the  UK as a bond &
                    currency analyst. He received an Honours degree in Economics
            & Human Geography from Reading University in the UK.

INTERNATIONAL EMERGING MARKETS FUND                                             
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund  seeks to  achieve  its  objective  by  investing  in common  stocks of
companies in emerging market countries. For this Fund, the term "emerging market
country" means any country which is considered to be an emerging  country by the
international   financial  community   (including  the  International  Bank  for
Reconstruction   and  Development  (also  known  as  the  World  Bank)  and  the
International  Financial  Corporation).  These countries generally include every
nation in the world except the United  States,  Canada,  Japan,  Australia,  New
Zealand and most nations located in Western  Europe.  Investing in many emerging
market  countries is not feasible or may involve  unacceptable  political  risk.
Invista,  the  Sub-Advisor,  focuses on those emerging market  countries that it
believes have strongly developing  economies and markets which are becoming more
sophisticated.                                                                  

Under  normal  conditions,  at least 65% of the Fund's  assets are  invested  in
emerging market country equity securities.  The Fund invests in securities of:  
o    companies  with their  principal  place of business or principal  office in
emerging market countries;                                            
o    companies for which the principal  securities trading market is an emerging
market country; or                                                    
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue from either  goods or services  produced in
emerging market countries or sales made in emerging market countries. 

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S.  companies.  These  include  the risk that a foreign  security
could lose value as a result of  political,  financial  and  economic  events in
foreign countries.  Foreign  securities may be subject to securities  regulators
with less stringent  accounting  and  disclosure  standards than are required of
U.S. companies.                                                                 

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

Investments in emerging market countries involve special risks. Certain emerging
market countries have historically experienced,  and may continue to experience,
certain  economic  problems.  These may include:  high rates of inflation,  high
interest rates,  exchange rate  fluctuations,  large amounts of debt, balance of
payments and trade difficulties, and extreme poverty and unemployment.          

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate  dramatically  in response to these  factors.  If the
investor  sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.                                    

The Fund anticipates that its portfolio  turnover will typically range from 200%
to 300%. Turnover rates in excess of 100% generally result in higher transaction
costs and a possible increase in short-term capital gains (or losses).          

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital in  securities  of emerging  market  countries who are able to
assume the increased risks of higher price volatility and currency  fluctuations
associated  with  investments  in  international  stocks which trade in non-U.S.
currencies.                                                                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   1.35%       1.35%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.73%       1.61%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $176     $545                                    

Preferred Class       164      508                                    

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Kurtis D. Spieler,  CFA. Mr. Spieler is a portfolio  manager
                    specializing  in  the  management  of  international  equity
                    portfolios.  He  joined  Principal  in 1987 in the  Treasury
                    operation  as a  securities  analyst and moved to Invista in
                    1991. Mr. Spieler received his MBA from Drake University and
                    his BBA in  Accounting  from Iowa State  University.  He has
                    earned  the  right to use the  Chartered  Financial  Analyst
designation.                            

INTERNATIONAL FUND I                                                            
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests in a portfolio of equity  securities of companies  domiciled in
any of the nations of the world.  The Fund invests in securities of:            
o    companies  with their  principal  place of  business  or  principal  office
outside the U.S.;                                                     
o    companies for which the principal  securities trading market is outside the
U.S.; and                                                             
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue  from goods or  services  produced or sales
made outside the U.S.                                                 

The Fund has no limitation on the  percentage of assets that are invested in any
one country or  denominated  in any one  currency.  However  under normal market
conditions,  the Fund  intends  to have at least 65% of its assets  invested  in
companies in at least three different  countries.  One of those countries may be
the U.S.  though  currently  the Fund  does  not  intend  to  invest  in  equity
securities of U.S. companies.                                                   

Investments may be made anywhere in the world. Primary consideration is given to
securities of  corporations  of Western  Europe,  North America and  Australasia
(Australia,  Japan  and Far  East  Asia).  Changes  in  investments  are made as
prospects change for particular countries, industries or companies.             

In choosing investments for the Fund, the Sub-Advisor,  Invista, pays particular
attention to the long-term  earnings  prospects of the various  companies  under
consideration.  Invista then weighs those prospects relative to the price of the
security.                                                                       

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S.  companies.  These  include  the risk that a foreign  security
could lose value as a result of  political,  financial  and  economic  events in
foreign countries.  Foreign  securities may be subject to securities  regulators
with less stringent  accounting  and  disclosure  standards than are required of
U.S. companies.                                                                 

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate  dramatically  in response to these  factors.  If the
investor  sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.                                    

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of  capital in  markets  outside  of the U.S.  who are able to assume the
increased risks of higher price volatility and currency fluctuations  associated
with investments in international stocks which trade in non-U.S. currencies.    

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   0.90%       0.90%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.28%       1.16%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $130     $406                                    

Preferred Class       118      368                                    

Day-to-day Fund Managment 

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Kurtis D. Spieler,  CFA. Mr. Spieler is a portfolio  manager
                    specializing  in  the  management  of  international  equity
                    portfolios.  He  joined  Principal  in 1987 in the  Treasury
                    operation  as a  securities  analyst and moved to Invista in
                    1991. Mr. Spieler received his MBA from Drake University and
                    his BBA in  Accounting  from Iowa State  University.  He has
                    earned  the  right to use the  Chartered  Financial  Analyst
designation.                            

INTERNATIONAL II                                                                
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests in common stocks and other securities of companies domiciled in
any of the nations of the world.  The Fund invests in securities of:            
o    companies  with their  principal  place of  business or  principal  offices
outside the U.S.;                                                     
o    companies for which the principal  securities trading market is outside the
U.S.; or                                                              
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue from either  goods or services  produced or
sales made outside the U.S.                                           

The  Sub-Advisor,  BT,  selects  securities for the Fund based on its own global
investment  research.  The research program is focused on three key criteria:   
o    business franchise - considering factors such as the company's relationship
     with its suppliers and customers, the degree of rivalry with competitors as
well as the exposure to regulatory and technological risk;            
o    quality of management - assessing  the company's  management on its ability
     to execute  current  business  plans,  manage the  capital  invested in the
     business as well as the level of transparency  with respect to strategy and
operations; and                                                       
o    business  valuation  -  determining  the private  market or `true  business
value' of the firm.                                                   

BT's qualitative analysis is complemented by disciplined  valuation  techniques.
These include proprietary models as well as conventional market measurements and
industry  specific models of relative value.  This analytical  framework ensures
consistency and  transparency  throughout the research  process.  Portfolios are
constructed  and managed  within  predetermined  guidelines  that are  regularly
monitored by BT.                                                                

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility.                                                                     

In addition,  foreign stocks carry risks that are not generally  found in stocks
of U.S.  companies.  These include the risk that a foreign  security  could lose
value as a result  of  political,  financial  and  economic  events  in  foreign
countries.  Foreign securities may be subject to securities regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  In the  short-term,  stock prices can  fluctuate  dramatically  in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.   

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  growth of
capital in  markets  outside  of the U.S.  who are able to assume the  increased
risks of higher price  volatility  and  currency  fluctuations  associated  with
investments in international stocks which trade in non-U.S. currencies.         

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.38%       1.26%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year   3 Years              

Select Class         $140     $437                                    

Preferred Class       128      400                                    

Day-to-day Fund Management

Since ________, 2000                                                            
(Fund's inception)                                                              
                    Christopher  Selth,  Executive  Vice  President  of BT,  was
                    appointed its head of International Equities in 1998 and its
                    joint head of Equities  in 1999.  He joined BT in 1987 as an
                    Investment  Analyst in the retail unit trust group. In 1988,
                    he  was  assigned  the   responsibility  to  cover  European
                    equities.   Mr.  Selth  was  given  responsibility  for  the
                    European  component of all retail unit trusts in March 1994.
                    Since   November   1996,   he  has  been   responsible   for
                    institutional and retail European  investments,  supervising
                    all European  activities,  and the European funds management
                    group.  Prior to  joining  BT,  Mr.  Selth  worked  with QBE
                    Insurance  Limited in investment  management as an assistant
                    to the  Group  Treasurer.  He holds a  Bachelor's  degree in
          Economics (Honours) from the University of Sydney.

INTERNATIONAL SMALLCAP FUND                                                     
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund  invests  primarily in equity  securities  of non-U.S.  companies  with
comparatively  smaller market  capitalizations.  Under normal market conditions,
the Fund invests at least 65% of its assets in  securities  of companies  having
market  capitalizations of $1.5 billion or less at the time of purchase.  Market
capitalization  is  defined  as  total  current  market  value  of  a  company's
outstanding common stock.                                                       

The Fund invests in securities of:                                              
o    companies  with their  principal  place of  business  or  principal  office
outside the U.S.;                                                     
o    companies for which the principal  securities trading market is outside the
U.S.; and                                                             
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue  from goods or  services  produced or sales
made outside the U.S.                                                 

The Sub-Advisor,  Invista,  diversifies the Fund's  investments  geographically.
There is no limitation  on the  percentage of assets that may be invested in one
country  or  denominated  in any one  currency.  However,  under  normal  market
circumstances,  the Fund  intends  to  invest  at  least  65% of its  assets  in
securities of companies of at least three countries.                            

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S.  companies.  These  include  the risk that a foreign  security
could lose value as a result of  political,  financial  and  economic  events in
foreign countries.  Foreign  securities may be subject to securities  regulators
with less stringent  accounting  and  disclosure  standards than are required of
U.S. companies.                                                                 

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate  dramatically  in response to these  factors.  If the
investor  sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.                                    

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of  capital  in smaller  companies  outside  of the U.S.  who are able to
assume the increased risks of higher price volatility and currency  fluctuations
associated  with  investments  in  international  stocks which trade in non-U.S.
currencies.                                                                     

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   1.20%       1.20%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.58%       1.46%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year  3 Years               

Select Class         $161     $499                                    

Preferred Class       149      462                                    

Day-to-day Fund Management

Since _______, 2000                                                             
(Fund's inception)                                                              
                    Darren K. Sleister, CFA. Mr. Sleister is a portfolio manager
                    specializing  in  the  management  of  international  equity
                    portfolios. Mr. Sleister joined Invista in 1993. He received
                    his  MBA in  Investment  and  Corporate  Finances  from  the
                    University   of  Iowa   and   his   Bachelor's   degree   in
                    Communications from Central College. He has earned the right
           to use the Chartered Financial Analyst designation.

PACIFIC BASIN FUND                                                              
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests primarily in equity securities (or other securities with equity
characteristics)  of issuers  located in the  Pacific  Basin  region,  including
Japan. The Fund invests in securities  listed on foreign or domestic  securities
exchanges, securities traded in foreign or domestic over-the-counter markets and
depositary receipts.  Under normal market conditions,  the Fund invests at least
65% of its assets in such  securities.  The  Fund's  investments  are  generally
diversified  among  securities of issuers of several  Pacific  Basin  countries,
which  include but are not  limited  to:  Australia,  China,  Hong Kong,  India,
Indonesia,  Japan,  Malaysia,  New Zealand,  Singapore,  Sri Lanka, South Korea,
Thailand, Taiwan and Vietnam. These include securities of:                      
o    companies organized under the laws of Pacific Basin countries;             
o    companies for which the principal securities trading market is in a Pacific
Basin country; and                                                    
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue from either  goods or services  produced or
sales made in Pacific Basin countries.                                

Under  normal  market  conditions,  the Fund intends to have at least 65% of its
assets  invested  in  companies  in  Pacific  Basin  countries  and  may  have a
significant  portion of its assets  invested in  securities of issuers in Japan.
Criteria for determining the  distribution of investments  include the prospects
for relative  growth among  foreign  countries,  expected  levels of  inflation,
government   policies   influencing   business   conditions  and  the  range  of
opportunities available to international investors.                             

The global equity  investment  philosophy of BT, the Sub-Advisor,  is to exploit
market  inefficiencies  that  arise  from  differing  interpretations  of market
information.  As a result, in BT's view, a company's share price does not always
represent its true "business value." BT actively invests in those companies that
it believes have been mispriced by investment markets. In order to exploit these
inefficiencies  successfully,  BT seeks to enhance investment returns through:  
o    rigorous  proprietary  stock  research  which  enables  their  analysts  to
understand the:                                                       
o   quality of the company;                                           
o   nature of its management;                                         
o   nature of its industry competition; and                           
  o  business  valuation  - the  true  "business  value"  of the  company;
o    maintaining global coverage within the universe of investment choices; and 
o    maintaining a medium-term focus.                                           
As a result,  the Fund's  portfolio  reflects  the  opportunities  presented  by
mispriced  companies that offer the potential for strong,  long-term  investment
returns with an acceptable level of investment risk.                            

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S.  companies.  These  include  the risk that a foreign  security
could lose value as a result of  political,  financial  and  economic  events in
foreign countries.  Foreign  securities may be subject to securities  regulators
with less stringent  accounting  and  disclosure  standards than are required of
U.S. companies.                                                                 

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

The Fund anticipates that its portfolio  turnover will typically range from 200%
to 300%. Turnover rates in excess of 100% generally result in higher transaction
costs and a possible increase in short-term capital gains (or losses).          

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  The current  share price  reflects the  activities  of  individual
companies as well as general market and economic conditions.  In the short-term,
stock prices can fluctuate  dramatically  in response to these  factors.  If the
investor  sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.                                    

To the extent  that the assets of the Fund are  concentrated  in  securities  of
issuers in Japan, the value of the shares of the Fund may be more susceptible to
a single economic, political or regulatory occurrence than shares of a Fund less
concentrated in a single country.                                               

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital in Pacific  Basin markets who are able to assume the increased
risks of higher price  volatility  and  currency  fluctuations  associated  with
investments in international stocks which trade in non-U.S. currencies.         

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance  data  is not  available.  Annual  Fund  operating  expenses  are as
follows:                                                                        

Fund Operating Expenses 

                    Select     Preferred
                   Class       Class

Management Fees..................   1.00%       1.00%                 
Other Expenses*..................   0.38        0.26                  

Total Fund Operating Expenses   1.38%       1.26%             

* Other Expenses:                                                     
Service Fee                     0.25%       0.17%             
Administrative Service Fee      0.13        0.09              

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating  expenses remain the same. Based on these assumptions your cost
would be:                                                                       

1 Year 3 Years                  

Select Class         $140     $437                                    

Preferred Class       128      400                                    

Day-to-day Fund Management

Since ________, 2000                                                            
(Fund's inception)                                                              
                    Dean Cashman is Executive Vice President of BT and serves as
                    head of  Japanese  equities.  He joined BT in January  1988,
                    initially  involved in the liquids and fixed interest group,
                    but  moved  to  the  European  equity  group  in  late  1989
                    specializing in the Latin Block countries  including France,
                    Italy and Spain. He started working on Japanese  equities at
                    the end of 1991 and  subsequently  took over  responsibility
                    for the group.  Mr.  Cashman  received a degree in Economics
from the University of Queensland.      

THE COSTS OF INVESTING                                                          

Fees and Expenses of the Funds                                                  
The shares of the Funds are sold  without a  front-end  sales  charge and do not
have a contingent  deferred sales charge.  There is no sales charge on shares of
the Funds purchased with reinvested dividends or other distributions.  The Funds
do not pay any fees other than  those  described  below and do not pay any other
expenses.                                                                       

Ongoing Fees                                                                    
Each Fund pays  ongoing  fees to the Manager and others who provide  services to
the Fund.  They reduce the value of each share.  Because they are ongoing  fees,
they  increase  the cost of  investing  in the  Funds.  These  fees  include:  o
Management Fee - Through the Management Agreement with the Fund, the Manager has
agreed to provide investment advisory services                                  
and corporate administrative services to the Funds.                   
o    Service Fee - The Manager has entered  into a Services  Agreement  with the
     Fund under which the Manager  performs  personal  services to  shareholder.
Over time, these fees may exceed other types of sales charges.        
o    Administrative Service Fee - The Manager has entered into an Administrative
     Services  Agreement with the Fund under which the Manager provides transfer
     agent and corporate  administrative  services to the Fund. In addition, the
     Manager  has  assumed  the  responsibility  for  communications   with  and
recordkeeping services for beneficial owners of Fund shares.          
o    Portfolio  Accounting  Services - The Manager has entered into an agreement
     with the  Fund  under  which  the  Manager  supplies  portfolio  accounting
services.                                                             

Conversion Features                                                             
Under the terms of the service contract, the services provider selected for each
plan reserves the right to convert  assets of an  employer's  plan(s) to another
class of the same Fund based on assets in the plan. Share class conversion is: o
based on plan assets as of the  "determination  date" which is 75 days (or prior
business day) before plan  year-end;  o based on the value of plan assets in the
class  (not  number of  shares);  o done  without  charge;  and o  effective  on
_____________________________________.                                          

Select  shares owned by a plan convert to Preferred  shares if the plan's assets
in the Principal  Investors Fund exceed $10 million on the  determination  date.
Preferred  shares owned by a plan convert to Select  shares if the plan's assets
in the Principal  Investors  Fund are less than $8 million on the  determination
date.                                                                           
         For additional information,  contact the  _____________________________
         (www.principal.com) or call the ______________________ (1-800-_______).

CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS                                 

The Statement of Additional  Information (SAI) contains  additional  information
about investment strategies and their related risks.                            

Securities and Investment Practices                                             
Equity  securities   include  common  stocks,   preferred  stocks,   convertible
securities  and warrants.  Common stocks,  the most familiar type,  represent an
equity (ownership) interest in a corporation.  Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes in
a company's financial  condition and in overall market and economic  conditions.
Smaller companies are especially sensitive to these factors.                    

Fixed-income  securities  include bonds and other debt instruments that are used
by  issuers to borrow  money  from  investors.  The  issuer  generally  pays the
investor a fixed,  variable or floating  rate of interest.  The amount  borrowed
must be repaid at maturity. Some debt securities,  such as zero coupon bonds, do
not pay current interest, but are sold at a discount from their face values.    

Fixed-income  securities are sensitive to changes in interest rates. In general,
fixed-income  security  prices  rise  when  interest  rates  fall and fall  when
interest rates rise.  Longer term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.                                             

Fixed-income  security  prices are also  affected  by the credit  quality of the
issuer. Investment grade debt securities are medium and high quality securities.
Some  bonds,  such  as  lower  grade  or  "junk"  bonds,  may  have  speculative
characteristics and may be particularly sensitive to economic conditions and the
financial condition of the issuers.                                             

Repurchase Agreements and Loaned Securities                                     
Each of the Funds may invest a portion of its assets in  repurchase  agreements.
Repurchase  agreements  typically involve the purchase of debt securities from a
financial   institution  such  as  a  bank,  savings  and  loan  association  or
broker-dealer.  A repurchase  agreement provides that the Fund sells back to the
seller and that the seller repurchases the underlying  securities at a specified
price on a specific date. Repurchase agreements may be viewed as loans by a Fund
collateralized by the underlying securities. This arrangement results in a fixed
rate of return  that is not subject to market  fluctuation  while the Fund holds
the security.  In the event of a default or  bankruptcy  by a selling  financial
institution, the affected Fund bears a risk of loss. To minimize such risks, the
Fund enters into  repurchase  agreements only with large,  well-capitalized  and
well-established   financial  institutions.   In  addition,  the  value  of  the
collateral  underlying the repurchase  agreement is always at least equal to the
repurchase price, including accrued interest.                                   

Each  of  the  Funds  may  lend  its  portfolio   securities   to   unaffiliated
broker-dealers and other unaffiliated qualified financial institutions.         

Currency Contracts                                                              
The Funds may each enter  into  forward  currency  contracts,  currency  futures
contracts  and  options,  and  options  on  currencies  for  hedging  and  other
non-speculative  purposes.  A forward  currency  contract  involves a  privately
negotiated  obligation to purchase or sell a specific  currency at a future date
at a price set in the contract.  A Fund will not hedge  currency  exposure to an
extent greater than the aggregate  market value of the securities  held or to be
purchased by the Fund (denominated or generally quoted or currently  convertible
into the currency).                                                             

Hedging  is a  technique  used  in  an  attempt  to  reduce  risk.  If a  Fund's
Sub-Advisor hedges market conditions incorrectly or employs a strategy that does
not correlate well with the Fund's investment,  these techniques could result in
a loss. These techniques may increase the volatility of a Fund and may involve a
small  investment  of cash  relative to the  magnitude of the risk  assumed.  In
addition,  these  techniques  could  result in a loss if the other  party to the
transaction  does not perform as  promised.  There is also a risk of  government
action through exchange  controls that would restrict the ability of the Fund to
deliver or receive currency.                                                    

Forward Commitments                                                             
Each of the Funds may enter into forward commitment agreements. These agreements
call for the Fund to  purchase  or sell a security  on a future  date at a fixed
price.  Each of the Funds may also enter into contracts to sell its  investments
either on demand or at a specific interval.                                     

Warrants                                                                        
Each of the Funds may invest up to 5% of its assets in warrants.  A warrant is a
certificate  granting its owner the right to purchase securities from the issuer
at a specified price, normally higher than the current market price.            

Risks of High Yield Securities                                                  
The Balanced and Bond & Mortgage  Securities Funds may invest in debt securities
rated lower than BBB by S&P or Baa by Moody's or, if not rated, determined to be
of equivalent quality by the Sub-Advisor. Such securities are sometimes referred
to as high yield or "junk bonds" and are considered speculative.                

Investment in high yield bonds  involves  special risks in addition to the risks
associated with investment in highly rated debt securities. High yield bonds may
be regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments.  Moreover, such securities may,
under certain circumstances, be less liquid than higher rated debt securities.  

Analysis of the creditworthiness of issuers of high yield securities may be more
complex  than for issuers of higher  quality debt  securities.  The ability of a
Fund to achieve its investment objective may, to the extent of its investment in
high yield bonds,  be more  dependent on such credit  analysis than would be the
case if the Fund were investing in higher quality bonds.                        

High yield bonds may be more  susceptible to real or perceived  adverse economic
and competitive  industry conditions than higher grade bonds. The prices of high
yield bonds have been found to be less  sensitive to interest  rate changes than
more highly rated investments,  but more sensitive to adverse economic downturns
or  individual  corporate  developments.  If the  issuer  of  high  yield  bonds
defaults, a Fund may incur additional expenses to seek recovery.                

The  secondary  market on which high yield  bonds are traded may be less  liquid
than the market for higher grade bonds.  Less liquidity in the secondary trading
market could adversely  affect the price at which a Fund could sell a high yield
bond and could adversely affect and cause large  fluctuations in the daily price
of the Fund's shares. Adverse publicity and investor perceptions, whether or not
based on  fundamental  analysis,  may decrease  the value and  liquidity of high
yield bonds, especially in a thinly traded market.                              

The use of credit ratings for evaluating high yield bonds also involves  certain
risks. For example, credit ratings evaluate the safety of principal and interest
payments,  not the market value risk of high yield bonds.  Also,  credit  rating
agencies  may fail to  change  credit  ratings  in a timely  manner  to  reflect
subsequent  events.  If a credit rating agency changes the rating of a portfolio
security  held by a Fund,  the Fund may retain the  security if the  Sub-Advisor
thinks it is in the best interest of shareholders.                              

Derivatives                                                                     
To the extent permitted by its investment  objectives and policies,  each of the
Funds may invest in  securities  that are  commonly  referred  to as  derivative
securities.  Generally,  a derivative is a financial  arrangement,  the value of
which is derived  from, or based on, a traditional  security,  asset,  or market
index.   Certain   derivative   securities  are  described  more  accurately  as
index/structured   securities.   Index/structured   securities   are  derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts),  currencies, interest rates, indices or other financial
indicators (reference indices).                                                 

Some derivatives,  such as mortgage-related  and other asset-backed  securities,
are in many  respects  like  any  other  investment,  although  they may be more
volatile or less liquid than more traditional debt securities.                  

There are many  different  types of  derivatives  and many different ways to use
them. Futures and options are commonly used for traditional  hedging purposes to
attempt to protect a Fund from exposure to changing  interest rates,  securities
prices,  or  currency  exchange  rates  and for cash  management  purposes  as a
low-cost method of gaining  exposure to a particular  securities  market without
investing directly in those securities.                                         

 No Fund may invest in a derivative  security  unless the reference index or the
instrument  to which it  relates is an  eligible  investment  for the Fund.  For
example,  a security whose  underlying value is linked to the price of oil would
not be a permissible  investment  because the Funds may not invest in oil leases
or futures.                                                                     

The return on a derivative  security may  increase or decrease,  depending  upon
changes in the  reference  index or  instrument  to which it relates.  The risks
associated with derivative  investments  include:                               
o    the risk that the underlying security, interest rate, market index or other
     financial asset will not move in the direction the Sub-Advisor anticipated;
o    the possibility that there may be no liquid secondary market which may make
it difficult or impossible to close out a position when desired;      
o    the risk that adverse price movements in an instrument can result in a loss
substantially greater than a Fund's initial investment; and           
o    the counterparty may fail to perform its obligations.                      

Foreign Securities                                                              
Each of the following Funds may invest in securities of foreign  companies.  For
the purpose of this  restriction,  foreign companies are:                       
o    companies  with their  principal  place of  business  or  principal  office
outside the U.S.;                                                     
o    companies for which the principal  securities trading market is outside the
U.S.; and                                                             
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue  from goods or  services  produced or sales
made outside the U.S.                                                 

The European Equity,  International I, International II, International  Emerging
Markets,  International  SmallCap,  Pacific Basin and Technology  Funds each may
invest up to 100% of its assets in foreign  securities.  Each  LargeCap  S&P 500
Index,  MidCap  S&P 400 Index and  SmallCap  S&P 600 Index  Funds may  invest in
foreign  securities  to the extent that its relevant  index is so invested.  The
other  Funds  (except  Government  Securities)  may each invest up to 25% of its
assets in foreign securities.                                                   

Foreign  companies may not be subject to the same uniform  accounting,  auditing
and  financial  reporting  practices  as are  required  of  U.S.  companies.  In
addition,  there  may be less  publicly  available  information  about a foreign
company than about a U.S. company. Securities of many foreign companies are less
liquid  and  more  volatile  than  securities  of  comparable  U.S.   companies.
Commissions on foreign  securities  exchanges may be generally higher than those
on U.S.  exchanges,  although each Fund seeks the most  favorable net results on
its portfolio transactions.                                                     

Foreign  markets also have different  clearance and settlement  procedures  than
those in U.S. markets. In certain markets there have been times when settlements
have been unable to keep pace with the volume of securities transactions, making
it difficult to conduct these transactions. Delays in settlement could result in
temporary  periods  when a portion of Fund assets is not invested and earning no
return.  If a  Fund  is  unable  to  make  intended  security  purchases  due to
settlement problems, the Fund may miss attractive investment  opportunities.  In
addition,  a Fund may incur a loss as a result of a decline  in the value of its
portfolio if it is unable to sell a security.                                   

With  respect  to  certain  foreign  countries,  there  is  the  possibility  of
expropriation  or confiscatory  taxation,  political or social  instability,  or
diplomatic  developments  that  could  affect  a  Fund's  investments  in  those
countries.  In addition,  a Fund may also suffer losses due to  nationalization,
expropriation or differing accounting  practices and treatments.  Investments in
foreign securities are subject to laws of the foreign country that may limit the
amount and types of foreign  investments.  Changes of governments or of economic
or  monetary  policies,  in the U.S.  or  abroad,  changes in  dealings  between
nations,  currency  convertibility  or exchange rates could result in investment
losses for a Fund.  Finally,  even though certain  currencies may be convertible
into U.S. dollars, the conversion rates may be artificial relative to the actual
market values and may be unfavorable to Fund investors.                         

Foreign  securities  are  often  traded  with less  frequency  and  volume,  and
therefore  may have greater  price  volatility,  than is the case with many U.S.
securities. Brokerage commissions,  custodial services, and other costs relating
to investment in foreign countries are generally more expensive than in the U.S.
Though the Funds intend to acquire the securities of foreign issuers where there
are public trading markets,  economic or political turmoil in a country in which
a  Fund  has a  significant  portion  of  its  assets  or  deterioration  of the
relationship  between the U.S. and a foreign  country may negatively  impact the
liquidity  of a Fund's  portfolio.  A Fund may have  difficulty  meeting a large
number  of  redemption  requests.  Furthermore,  there  may be  difficulties  in
obtaining or enforcing judgments against foreign issuers.                       

A Fund may  choose  to  invest in a foreign  company  by  purchasing  depositary
receipts.  Depositary  receipts  are  certificates  of  ownership of shares in a
foreign  based issuer held by a bank or other  financial  institution.  They are
alternatives  to  purchasing  the  underlying  security  but are  subject to the
foreign securities to which they relate.                                        

Investments in companies of developing  countries may be subject to higher risks
than investments in companies in more developed countries.  These risks include:
o    increased social, political and economic instability;                      
o    a smaller  market for these  securities  and low or  nonexistent  volume of
     trading  that  results  in  a  lack  of  liquidity  and  in  greater  price
volatility;                                                           
o    lack of publicly  available  information,  including reports of payments of
dividends or interest on outstanding securities;                      
o    foreign  government  policies  that may restrict  opportunities,  including
     restrictions  on investment in issuers or  industries  deemed  sensitive to
national interests;                                                   
o    relatively new capital market structure or market-oriented economy;        
o    the possibility that recent favorable  economic  developments may be slowed
     or reversed by unanticipated political or social events in these countries;
o    restrictions  that may make it difficult or impossible for the Fund to vote
     proxies,  exercise  shareholder rights,  pursue legal remedies,  and obtain
judgments in foreign courts; and                                      
o    possible  losses  through the holding of securities in domestic and foreign
custodial banks and depositories.                                     

In addition, many developing countries have experienced substantial, and in some
periods,  extremely high rates of inflation for many years.  Inflation and rapid
fluctuations  in  inflation  rates have had and may  continue  to have  negative
effects on the economies and securities markets of those countries.             

Repatriation  of  investment  income,  capital and  proceeds of sales by foreign
investors  may  require  governmental   registration  and/or  approval  in  some
developing  countries.  A Fund  could be  adversely  affected  by delays in or a
refusal  to  grant  any  required  governmental  registration  or  approval  for
repatriation.                                                                   

Further,  the economies of developing  countries generally are heavily dependent
upon  international  trade and,  accordingly,  have been and may  continue to be
adversely affected by trade barriers,  exchange controls, managed adjustments in
relative currency values and other protectionist  measures imposed or negotiated
by the countries with which they trade.                                         

Securities of Smaller Companies                                                 
The Funds may invest in securities of companies with small- or mid-sized  market
capitalizations.  Market capitalization is defined as total current market value
of a company's  outstanding common stock.  Investments in companies with smaller
market  capitalizations  may involve greater risks and price  volatility  (wide,
rapid fluctuations) than investments in larger,  more mature companies.  Smaller
companies  may be less mature than larger  companies.  At this earlier  stage of
development,  the  companies  may have limited  product  lines,  reduced  market
liquidity  for  their  shares,  limited  financial  resources  or less  depth in
management than larger or more established  companies.  Small companies also may
be  less  significant  within  their  industries  and  may  be at a  competitive
disadvantage  relative to their larger competitors.  While smaller companies may
be subject to these  additional  risks,  they may also realize more  substantial
growth than larger or more established companies.                               

Unseasoned Issuers                                                              
The Funds may invest in the securities of unseasoned issuers. Unseasoned issuers
are  companies  with a record of less than  three  years  continuous  operation,
including the operation of predecessors and parents. Unseasoned issuers by their
nature have only a limited operating history that can be used for evaluating the
company's  growth  prospects.  As  a  result,  investment  decisions  for  these
securities may place a greater  emphasis on current or planned product lines and
the reputation  and experience of the company's  management and less emphasis on
fundamental  valuation  factors  than would be the case for more  mature  growth
companies.  In addition, many unseasoned issuers also may be small companies and
involve the risks and price volatility associated with smaller companies.       

Temporary Defensive Measures                                                    
For  temporary  defensive  purposes  in  times  of  unusual  or  adverse  market
conditions, the Funds may invest without limit in cash and cash equivalents. For
this  purpose,  cash  equivalents  include:  bank notes,  bank  certificates  of
deposit,  bankers  acceptances,  repurchase  agreements,  commercial  paper, and
commercial paper master notes which are floating rate debt instruments without a
fixed maturity.  In addition,  a Fund may purchase U.S.  Government  securities,
preferred  stocks  and  debt  securities,  whether  or not  convertible  into or
carrying rights for common stock.                                               

There is no limit on the extent to which the Funds may take temporary  defensive
measures.  In  taking  such  measures,  the  Funds  may  fail to  achieve  their
investment objective.                                                           

Portfolio Turnover                                                              
"Portfolio  Turnover" is the term used in the industry for  measuring the amount
of trading that occurs in a Fund's  portfolio  during the year.  For example,  a
100%  turnover  rate means that on average  every  security in the portfolio has
been replaced once during the year.                                             

Funds with high  turnover  rates (more than 100%) often have higher  transaction
costs (which are paid by the Fund) and may generate short-term capital gains (on
which  taxes may be  imposed  even if no shares of the Fund are sold  during the
year).  No turnover rate can be calculated  for the Money Market Fund because of
the short  maturities of the  securities in which it invests.  No turnover rates
are  calculated for the other Funds as they have been in existence for less than
six months.                                                                     

Please consider all the factors when you compare the turnover rates of different
funds. A fund with  consistently  higher total returns and higher turnover rates
than another fund may actually be achieving better performance precisely because
the managers are active traders.                                                

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE                                  
The Manager                                                                     
Principal Management Corporation serves as the Manager for the Fund. Through the
Management  Agreement  with the Fund,  the  Manager  has  agreed  to handle  the
investment  advisory  services  and  provide  certain  corporate  administrative
services for the Fund. The Fund and the Manager have also entered into a Service
Agreement under which the Manager provides  personal services to shareholders of
each  Fund.  Additionally,  the  Fund  and  the  Manager  have  entered  into an
Administrative  Services Agreement under which the Manager has agreed to provide
transfer agency services and certain shareholder  services for beneficial owners
of Advisors  Select,  Advisors  Preferred,  Select and Preferred Fund classes of
shares.                                                                         

The Fund and the  Manager  have  entered  into a  Portfolio  Accounting  Service
Agreement under which the Manager provides portfolio accounting services.       

The Manager is an indirect subsidiary of Principal Financial Services,  Inc. and
has managed mutual funds since 1969. As of ________, the mutual funds it manages
had assets of approximately  $_____ billion.  The Manager's address is Principal
Financial Group, Des Moines, Iowa 50392-0200.                                   

The Sub-Advisors                                                                
The  Manager  has  signed  contracts  with  various   Sub-Advisors.   Under  the
Sub-Advisory agreements, the Sub-Advisor agrees to assume the obligations of the
Manager to provide  investment  advisory services for a specific Fund. For these
services, the Sub-Advisor is paid a fee by the Manager.                         

Funds:            Balanced  (equity   securities   portion),   International  I,
                  International   Emerging  Markets,   International   SmallCap,
                  LargeCap  Blend,  LargeCap  Growth,  LargeCap  S&P 500  Index,
                  LargeCap Value,  MidCap Blend,  MidCap Growth,  MidCap S&P 400
                  Index, MidCap Value, SmallCap Blend, SmallCap Growth, SmallCap
S&P 600 Index and SmallCap Value            

Sub-Advisor:      Invista  Capital  Management,  LLC  ("Invista"),  an  indirect
                  wholly-owned  subsidiary of Principal Life  Insurance  Company
                  and an  affiliate  of the  Manager,  was  founded in 1985.  It
                  manages  investments for  institutional  investors,  including
                  Principal Life.  Assets under  management as of _________ were
                  approximately  $______ billion.  Invista's address is 1800 Hub
Tower, 699 Walnut, Des Moines, Iowa 50309.  

Funds:            Balanced (fixed-income  portion),  Bond & Mortgage Securities,
                  Government  Securities,  High Quality  Short-Term  Bond,  High
                  Quality  Intermediate-Term  Bond, High Quality  Long-Term Bond
and Money Market                            

Sub-Advisor:      Principal Capital Income Investors,  LLC ("PCII"), an indirect
                  wholly-owned  subsidiary of Principal Life  Insurance  Company
                  and an  affiliate  of the  Manager,  was  founded in 2000.  It
                  manages  investments for  institutional  investors,  including
                  Principal Life Insurance  Company.  Assets under management as
                  of ------------------ were approximately $---- billion. PCII's
                  address is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.

Fund:             Real Estate                                                   

Sub-Advisor:      Principal  Capital Real Estate  Investors,  LLC ("PCREI"),  an
                  indirect  wholly-owned  subsidiary of Principal Life Insurance
                  Company and an affiliate of the Manager,  was founded in 2000.
                  It manages investments for institutional investors,  including
                  Principal Life Insurance  Company.  Assets under management as
                  of ------------------were approximately $---- billion. PCREI's
                  address is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.

Funds:            European, International II, Pacific Basin and Technology      

Sub-Advisor:      BT Fund Management (International) Limited ("BT") is a related
                  company of BT Funds  Management  Limited ("BTFM") and a member
                  of the Principal  Financial  Group. Its address is The Chifley
                  Tower,  2 Chifley  Square,  Sydney NSW 2000  Australia.  As of
                  June 30, 2000   BT,  together  with  BTFM,  had  approximately
                  $25.6  billion  under  management for  more than  ____________
institutional and individual clients.       

Fund:            Partners LargeCap Growth I                                     

Sub-Advisor:      Morgan  Stanley  Asset  Management  ("Morgan  Stanley"),  with
                  principal offices at 1221 Avenue of the Americas, New York, NY
                  10020, provides a broad range of portfolio management services
                  to  customers  in the U.S.  and abroad.  As of  _____________,
                  Morgan  Stanley,  together with its  affiliated  institutional
                  asset  management  companies,   managed  investments  totaling
                  approximately  $_____ billion as named  fiduciary or fiduciary
                  adviser.  On December 1, 1998 Morgan Stanley Asset  Management
                  Inc. changed its name to Morgan Stanley Dean Witter Investment
                  Management  Inc.  but  continues  to do  business  in  certain
             instances using the name Morgan Stanley Asset Management.

Fund:             Partners MidCap Growth                                        

Sub-Advisor:      Turner  Investment  Partners,  Inc.  ("Turner") was founded in
                  1990. Its address is 1235 Westlake Drive,  Suite 350,  Berwyn,
                  PA  19312.  As  of  _____________,  Turner  had  discretionary
                  management   authority  with  respect  to  approximately  $___
billion in assets.                          

Fund:             Partners LargeCap Value                                       

Sub-Advisor:      Alliance  Capital  Management  L.P.  ("Alliance")  through its
                  Bernstein    Investment    Research   and   Management    unit
                  ("Bernstein").  As of June 30, 2000,  Alliance  managed $387.8
                  billion in assets.  Bernstein is located at 767 Fifth  Avenue,
                  New York,  NY 10153 and  Alliance is located at 1345 Avenue of
the Americas, New York, NY 10105.           

Funds:            Partners MidCap Value and Partners SmallCap Growth I          

Sub-Advisor:      Neuberger Berman  Management Inc.  ("Neuberger  Berman") is an
                  affiliate of Neuberger  Berman,  LLC.  Neuberger Berman LLC is
                  located  at  605  Third  Avenue,   2nd  Floor,  New  York,  NY
                  10158-0180.  Together with Neuberger Berman,  the firms manage
                  more than $__ billion in total  assets (as of  ______________)
                and continue an asset management history that began in 1939.

Funds:            Partners LargeCap Blend and Partners SmallCap Growth II       

Sub-Advisor:      Federated  Investment  Management  Company  ("Federated") is a
                  registered investment advisor and a wholly-owned subsidiary of
                  Federated   Investors,   Inc.,  which  was  founded  in  1955.
                  Federated is located in the Federated  Investors Tower at 1001
                  Liberty  Avenue,  Pittsburgh,  PA  15222-3779.  As of June 30,
   2000, Federated managed $125 billion in assets.

Fund:             Partners LargeCap Growth II                                   

Sub-Advisor:      American  Century  Investment   Management,   Inc.  ("American
                  Century")  was founded in 1958.  Its office  is located in the
                  American  Century  Tower at 4500 Main Street,  Kansas City, KS
                  64111.  As of June 30,  2000.  American  Century  managed over
$110 billion in assets.                     

Duties of Manager and Sub-Advisors                                              
The Manager or  Sub-Advisor  provides  the Board of Directors of the Fund with a
recommended  investment program.  The program must be consistent with the Fund's
investment  objective and policies.  Within the scope of the approved investment
program,  the Manager or Sub-Advisor  advises the Fund on its investment  policy
and determines which securities are bought and sold, and in what amounts.       

The Manager is paid a fee by the Fund for its services,  which  includes any fee
paid to the Sub-Advisor.                                                        

Principal Investors Fund and the Manager,  under an order received from the SEC,
may  enter  into and  materially  amend  agreements  with  Sub-Advisors  without
obtaining shareholder approval.  For any Fund that is relying on that order, the
Manager  may:                                                                   
o    hire one or more Sub-Advisors;                                             
o    change Sub-Advisors; and                                                   
o    reallocate management fees between itself and Sub-Advisors.                
The Manager will continue to have the ultimate responsibility for the investment
performance of these Funds due to its responsibility to oversee Sub-Advisors and
recommend their hiring,  termination and  replacement.  No Fund will rely on the
order until it receives  approval from its shareholders or, in the case of a new
Fund,  the Fund's sole initial  shareholder  before the Fund is available to the
public,  and the Fund  states in its  prospectus  that it intends to rely on the
order.  The  Manager  will  not  enter  into an  agreement  with  an  affiliated
Sub-Advisor  for a Fund that is relying  on the order  without  that  agreement,
including the  compensation to be paid under it, being similarly  approved.  The
Partners LargeCap Blend Fund, Partners LargeCap Growth Fund I, Partners LargeCap
Growth Fund II,  Partners  LargeCap  Value Fund,  Partners  MidCap  Growth Fund,
Partners  MidCap  Value  Fund,  Partners  SmallCap  Growth  Fund I and  Partners
SmallCap  Growth Fund II have  received the necessary  shareholder  approval and
intend to rely on the order.                                                    

SHAREHOLDER INFORMATION                                                         

Pricing of Fund Shares                                                          
Each Fund's  shares are bought and sold at the current  NAV.  The share price of
each  class of each  Fund is  calculated  each day the New York  Stock  Exchange
(NYSE) is open.  The NAV is  determined at the close of business of the Exchange
(normally  3:00  p.m.  Central  time).  When an order to buy or sell  shares  is
received,  the NAV used to fill the order is the next price calculated after the
order is received.                                                              

For all Funds except the Money Market Fund,  the NAV is calculated  by:         
o    taking the current market value of the total assets of the Fund            
o    subtracting liabilities of the Fund                                        
o    dividing the remainder proportionately into the classes of the Fund        
o    subtracting the liabilities of each class                                  
o    dividing the remainder by the total number of shares owned in that class.  

The  securities  of the Money  Market  Fund are valued at  amortized  cost.  The
calculation  procedure is  described in the SAI. The Money Market Fund  reserves
the right to determine a share price more than once each day.                   

NOTES:                                                                          
o    If current market values are not readily  available for a security owned by
     a Fund,  its fair value is determined  using a policy adopted by the Fund's
Board of Directors.                                                   
o    A Fund's  securities  may be  traded on  foreign  securities  markets  that
     generally  complete  trading at various  times  during the day prior to the
     close of the NYSE. The values of foreign securities used in computing share
     price are determined at the time the foreign  market closes.  Occasionally,
     events  affecting  the value of foreign  securities  occur when the foreign
     market is closed and the NYSE is open. The NAV of a Fund may change on days
     when  shareholders  are  unable  to  purchase  or  redeem  shares.  If  the
     Sub-Advisor  believes  that the market value is  materially  affected,  the
share price will be calculated using the policy adopted by the Fund.  
o    Certain  securities  issued by companies in emerging  market  countries may
     have  more than one  quoted  valuation  at any point in time.  These may be
     referred to as local price and premium price.  The premium price is often a
     negotiated  price that may not  consistently  represent  a price at which a
     specific  transaction  can be  effected.  The  European,  International  I,
     International II, International  Emerging Markets,  International  SmallCap
     and  Pacific  Basin Funds each has a policy to value such  securities  at a
price at which the Sub-Advisor expects the securities may be sold.    

Purchase of Fund Shares                                                         
Shares may be purchased:                                                        
o    via the internet.                                                          
     o    standard  method of  accepting  data for plans  with  fewer than 1,000
current and terminated (within the last five years) members.
o    available 7 days a week (7 a.m. to 9 p.m. Central Time).         
o    using a modem.                                                             
o    plan contributions transferred electronically.                   
     o    standard  method  of  accepting  data for plans  with more than  1,000
current and terminated (within the last five years) members.
o    available 24 hours a day, 7 days a week.                         

To eliminate the need for safekeeping, the Funds will not issue certificates for
shares.  The Funds may  periodically  close to new purchases of shares or refuse
any order to buy shares if the Manager  determines that doing so would be in the
best interests of the Fund and its shareholders.                                

Redemption of Fund Shares                                                       
Subject to any  restrictions  imposed by a plan,  shares may be sold back to the
Fund any day the NYSE is open. For more information  about how to sell shares of
the Fund, including any charges that a plan may impose, please consult the plan.

The Fund generally sends payment for shares sold the business day after the sell
order  is  received.   Under  unusual   circumstances,   the  Fund  may  suspend
redemptions,  or  postpone  payment for more than seven days,  as  permitted  by
federal securities law.                                                         

Exchange of Fund Shares                                                         
An exchange between Funds is a sale of shares in one Fund and purchase of shares
of another Fund with the redemption proceeds. Subject to any restrictions a plan
imposes,  shares in the Funds may be  exchanged,  without  charge,  for the same
class of any other Principal Investors Fund, provided that:                     
o    the class  shares of such other  Fund are  available  in the plan  member's
state of residence; and                                               
o    shares of such other Fund are available through the plan.                  

The  exchange  privilege is not  intended as a vehicle for  short-term  trading.
Excessive exchange activity may interfere with portfolio  management and have an
adverse  effect  on all  shareholders.  In  order to  limit  excessive  exchange
activity, and under other circumstances where the Board of Directors of the Fund
or the  Manager  believes  it is in the best  interests  of the  Fund,  the Fund
reserves the right to revise or  terminate  the  exchange  privilege,  limit the
amount  or  number of  exchanges,  reject  any  exchange  or close the  account.
Notification of any such action will be given to the extent required by law.    

Dividends and Distributions                                                     
The Funds  (other  than the Money  Market  Fund) pay most of their net  dividend
income once each year.  Payments are made to shareholders of record on the third
business  day prior to the payment  date.  The  payment  date is December 21 (or
previous business day).                                                         

Net realized  capital gains,  if any, are  distributed  annually.  Generally the
distribution is made on the first business day of December. Payments are made to
shareholders  of record three  business days prior to the payable date.  Capital
gains may be taxable at  different  rates,  depending on the length of time that
the Fund holds its assets.                                                      

The Money Market Fund declares  dividends of all its daily net investment income
each  day  its  shares  are  priced.  The  dividends  are  paid  daily  and  are
automatically reinvested back into additional shares of the Money Market Fund.  

Under normal  circumstances,  the Money  Market Fund  intends to hold  portfolio
securities until maturity and value them at amortized cost. Therefore, the Money
Market Fund does not expect any  capital  gains or losses.  Should  there be any
gain, it could result in an increase in  dividends.  A capital loss could result
in a dividend decrease.                                                         

Dividend and capital gain distributions from a Fund are reinvested in additional
shares of the Fund making the distribution.                                     

Generally,  for federal income tax purposes,  Fund  distributions are taxable as
ordinary income,  except that any  distributions of long-term capital gains will
be taxed as such  regardless  of how long Fund shares  have been held.  However,
distributions  by the Fund to  retirement  plans  that  qualify  for  tax-exempt
treatment  under federal income tax laws will not be taxable.  Special tax rules
apply to investments by such plans.                                             

A tax advisor should be consulted to determine the suitability of the Fund as an
investment by such a plan and the tax treatment of  distributions by the Fund. A
tax advisor can also provide  information  on the  potential  impact of possible
foreign,  state and local taxes. A Fund's  investments in foreign securities may
be subject to foreign withholding taxes. In that case, the Fund's yield on those
securities would be decreased.                                                  

A Fund's investments in certain debt obligations may cause the Fund to recognize
taxable  income in excess of the cash generated by such  obligations.  Thus, the
Fund could be  required  at times to  liquidate  other  investments  in order to
satisfy its distribution requirement.                                           

FUND ACCOUNT INFORMATION                                                        

Statements                                                                      
Unless the plan elects to receive  statements  on a semiannual  or annual basis,
statements are sent each calendar quarter. The statements provide the number and
value of shares owned by the plan,  transactions  during the quarter,  dividends
declared or paid and other information.                                         

This     information    may    also    be    accessed    by    contacting    the
______________________________ (www.principal.com).                             

Minimum Account Balance                                                         
The Principal  Investors Fund reserves the right to set a minimum and redeem all
shares  in the Fund if the  value of a plan's  investments  in the Funds is less
than the minimum.  Principal Investors Fund has set the minimum at $2.5 million.
The redemption  proceeds  would then be mailed to the plan sponsor.  If the Fund
exercises  this right,  the plan sponsor will be notified that the redemption is
going to be made.  The plan will have 30 days to make an  additional  investment
and bring plan assets up to the required minimum. The Fund reserves the right to
change the minimum                                                              

Reservation of Rights                                                           
The  Principal  Investors  Fund  reserves  the right to amend or  terminate  the
special plans described in this  prospectus.  In addition,  Principal  Investors
Fund  reserves  the  right  to  change  the  share  classes   described  herein.
Shareholders will be notified of any such action to the extent required by law. 

Financial Statements                                                            
Plans will receive annual  financial  statements for the Funds,  examined by the
Funds'  independent  auditors,  Ernst & Young  LLP.  Plans  will also  receive a
semiannual financial statement that is unaudited.                               

APPENDIX A

RELATED PERFORMANCE OF THE SUB-ADVISORS                                         

The Funds  started  operation on December  ______,  2000 and have no  historical
performance  data. The following tables set forth historical  information  about
client accounts  managed by a Sub-Advisor  that have  investment  objectives and
strategies similar to those of the corresponding  Fund the Sub-Advisor  manages.
These client  accounts  consist of  individuals,  institutions  and other mutual
funds.  This composite  data is provided to illustrate  the past  performance of
each  Sub-Advisor  in  managing  similar  accounts  and does not  represent  the
performance of any Fund.                                                        

On the following pages  "composite  performance"  is shown for each  Sub-Advisor
with  regard  to  all  of  those  similarly  managed  accounts.   The  composite
performance is computed based upon essentially the Sub-Advisor's  asset weighted
"average"  performance with regard to such accounts.  The composite  performance
information  shown is based on a composite of all  accounts of each  Sub-Advisor
(and  its  predecessor,   if  any)  having   substantially   similar  investment
objectives,  policies and  strategies to the  corresponding  Fund. The composite
results reflect the deduction of all fees and expenses  actually incurred by the
client accounts.                                                                

Portions of the information below are based on data supplied by the Sub-Advisors
and from statistical services,  reports or other sources believed by the Manager
to be reliable.  However,  such  information has not been verified or audited by
the Manager.                                                                    

Some of the accounts  included in the composites are not mutual funds registered
under the 1940 Act.  Those  accounts are not subject to investment  limitations,
diversification  requirements and other restrictions imposed by the 1940 Act and
the  Internal  Revenue  Code.  If such  requirements  were  applicable  to these
accounts, the performance shown may have been lower.                            

The  performance  data  should  not be  considered  as an  indication  of future
performance of any Fund or any Sub-Advisor.  In addition, the effect of taxes is
not reflected in the  information  below as it will depend on the investor's tax
status.                                                                         

Please  note  that  1999  was an  exceptionally  good  year  for the  stocks  of
technology  companies  and mutual  funds that  invest in them.  It should not be
expected  that those  stocks and funds will  perform as well every  year.  Stock
prices can change unpredictably and, in fact, they may lose value in some years.

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                       

                                                           Average Annual Performance     
                                                             (through June 30, 2000)      

                                                        YTD   1 YR    3 YR    5 YR   10 YR

High Quality Short-Term Bond Fund Select*                                                 
High Quality Short-Term Bond Fund Preferred*                                              
                                                                                          
PCII High Quality Short-Term Bond Composite            2.91    4.02   4.89                
   Lehman Brothers Mutual Fund 1-5 Gov't/Credit Index  3.03    4.55   5.65    5.81    6.91
   Average Short-Term Bond Category (Morningstar)      2.88    4.32   4.98    5.24    6.44

Money Market Fund Select*                                                                 
Money Market Fund Preferred*                                                              

                                                        [Enlarge/Download Table]

                                                                               Annual Performance                         
                                                                           (year ended December 31)                       

                                                       1999  1998   1997  1996   1995    1994   1993   1992   1991  1990  

High Quality Short-Term Bond Fund Select*                                                                                 
High Quality Short-Term Bond Fund Preferred*                                                                              
                                                                                                                          
PCII High Quality Short-Term Bond Composite            1.05   6.79  6.64                                                  
   Lehman Brothers Mutual Fund 1-5 Gov't/Credit Index  2.09   7.63  7.13  4.67   12.88  -0.72    7.10  6.83  13.17    9.71
   Average Short-Term Bond Category (Morningstar)      2.12   6.28  6.51  4.35   11.48  -0.86    6.86  6.15  13.43    7.98

Money Market Fund Select*                                                                                                 
Money Market Fund Preferred*                                                                                              

* Fund's inception 12/__/00.                                        
** Since inception.                                                   

            STABLE FUNDS

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                           

                                                               Average Annual Performance     
                                                                 (through June 30, 2000)      

                                                            YTD   1 YR    3 YR    5 YR   10 YR

Bond & Mortgage Securities Fund Select*                                                       
Bond & Mortgage Securities Fund Preferred*                                                    
                                                                                              
PCII Multi-Sector Composite                                3.95    4.50   5.80    6.29    8.12
   Lehman Brothers Aggregate Bond Index                    3.99    4.56   6.04    6.25    7.82
   Average Intermediate-Term Bond Category (Morningstar)   2.92    3.25   4.88    5.35    7.35

Government Securities Fund Select*                                                            
Government Securities Fund Preferred*                                                         
PCII Mortgage-Backed Broad Composite                       3.57    4.66   5.85    6.22        
   Lehman Brothers Mortgage Backed Securities Index        3.67    5.03   5.97    6.56    7.75
   Average Intermediate Government Category (Morningstar)  3.54    3.76   4.99    5.24    6.79

High Quality Intermediate-Term Bond Fund Select*                                              
High Quality Intermediate-Term Bond Fund Preferred*                                           
PCII High Quality Intermediate-Term Bond Composite         3.14    3.94   5.60                
   Lehman Brothers Aggregate Bond Index                    3.99    4.56   6.04    6.25    7.82
   Average Intermediate-Term Bond Category (Morningstar)   2.92    3.25   4.88    5.35    7.35

High Quality Long-Term Bond Fund Select*                                                      
High Quality Long-Term Bond Fund Preferred*                                                   
PCII High Quality Long-Term Bond Composite                 1.55    0.48                       
   Lehman Brothers Long Term Gov't./Corporate Bond Index   6.54    4.61   7.10    6.84    9.22
   Average Long-Term Bond Category (Morningstar)           2.72    2.23   4.49    5.48    7.68

                                                        [Enlarge/Download Table]


                                                                                    Annual Performance                         
                                                                                (year ended December 31)                       

                                                           1999  1998    1997  1996   1995    1994   1993   1992   1991  1990  

Bond & Mortgage Securities Fund Select*                                                                                        
Bond & Mortgage Securities Fund Preferred*                                                                                     
                                                                                                                               
PCII Multi-Sector Composite                               -0.57   7.97  10.16  3.94   18.41  -2.05   10.67  8.25  15.89    9.49
   Lehman Brothers Aggregate Bond Index                   -0.82   8.69   9.65  3.63   18.47  -2.92    9.75  7.40  16.00    8.96
   Average Intermediate-Term Bond Category (Morningstar)  -1.22   7.42   8.76  3.30   17.35  -3.73   10.39  7.20  16.62    6.66

Government Securities Fund Select*                                                                                             
Government Securities Fund Preferred*                                                                                          
PCII Mortgage-Backed Broad Composite                       0.22   7.62   9.97  3.90   19.10  -4.41                             
   Lehman Brothers Mortgage Backed Securities Index        1.85   6.97   9.49  5.36   16.80  -1.61    6.84  6.96  15.72   10.72
   Average Intermediate Government Category (Morningstar) -1.44   7.45   8.45  2.80   16.42  -4.02    8.03  6.39  14.67    8.89

High Quality Intermediate-Term Bond Fund Select*                                                                               
High Quality Intermediate-Term Bond Fund Preferred*                                                                            
PCII High Quality Intermediate-Term Bond Composite        -0.57   8.28   9.32                                                  
   Lehman Brothers Aggregate Bond Index                   -0.82   8.69   9.65  3.63   13.47  -2.92    9.75  7.40  16.00    8.96
   Average Intermediate-Term Bond Category (Morningstar)  -1.22   7.42   8.76  3.30   17.35  -3.73   10.39  7.20  16.62    6.66

High Quality Long-Term Bond Fund Select*                                                                                       
High Quality Long-Term Bond Fund Preferred*                                                                                    
PCII High Quality Long-Term Bond Composite                -7.41  10.39                                                         
   Lehman Brothers Long Term Gov't./Corporate Bond Index  -7.64  11.76  14.52  0.13   29.93  -7.10   16.17  8.53  19.53    6.42
   Average Long-Term Bond Category (Morningstar)          -2.78   6.51  10.53  3.54   21.33  -6.13   13.34  7.98  17.15    5.74

* Fund's inception 12/__/00.                                        
** Since inception.                                                   

                  CONSERVATIVE FUNDS

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                    

                                                        Average Annual Performance     
                                                          (through June 30, 2000)      

                                                     YTD   1 YR    3 YR    5 YR   10 YR

Balanced Fund Select*                                                                  
Balanced Fund Preferred*                                                               
                                                                                       
Invista Balanced Composite                          2.21    0.22   8.72   11.51   11.94
PCII Multi-Sector Composite                         3.95    4.50   5.80    6.29    8.12
   S&P 500 Index                                   -0.42    7.25  19.66   23.80   17.80
   Lehman Brothers Aggregate Bond Index             3.99    4.56   6.04    6.25    7.82
   Average Domestic Hybrid Category (Morningstar)   1.55    4.87  10.02   12.87   11.31

LargeCap Blend Fund Select*                                                            
LargeCap Blend Fund Preferred*                                                         
Invista Large Cap Composite                        -2.99    0.00  13.11   20.01**      
   S&P 500 Index                                   -0.42    7.25  19.66   23.80   17.80
   Average LargeCap Blend  Category (Morningstar)   0.51    8.93  17.29   20.35   15.60

Partners LargeCap Blend Fund Select*                                                   
Partners LargeCap Blend Fund Preferred*                                                
Federated Capital Appreciation Composite            2.76   26.15  25.71   25.98   18.51
   S&P 500 Index                                   -0.42    7.25  19.66   23.80   17.80
   Average LargeCap Blend  Category (Morningstar)   0.51    8.93  17.29   20.35   15.60

LargeCap Growth Fund Select*                                                           
LargeCap Growth Fund Preferred*                                                        
Invista Large Cap Growth Composite                  3.67                               
   S&P/BARRA 500 Growth Index                       2.63   18.60  27.00   29.24   20.16
   Average LargeCap Growth Category (Morningstar)   3.07   27.19  27.04   24.93   17.85

Partners LargeCap Growth Fund I Select*                                                
Partners LargeCap Growth Fund I Preferred*                                             
Morgan Stanley Equity Growth Composite              6.33   28.60  27.33   29.45   19.89
   S&P 500 Index                                   -0.42    7.25  19.66   23.80   17.80
   Average LargeCap Growth Category (Morningstar)   3.07   27.19  27.04   24.93   17.85

Partners LargeCap Growth Fund II Select*                                               
Partners LargeCap Growth Fund II Preferred*                                            
American Century Growth Composite                   6.63   29.62  29.23   24.23   17.53
   Russell 1000 Growth Index                        4.23   25.66  28.08   28.67   20.05
   Average LargeCap Growth Category (Morningstar)   3.07   27.19  27.04   24.93   17.85

LargeCap S&P 500 Index Fund Select*                                                    
LargeCap S&P 500 Index Fund Preferred*                                                 
Invista S&P 500 Index Composite                    -0.63    6.86  19.25   23.36        
   S&P 500 Index                                   -0.42    7.25  19.66   23.80   17.80
   Average LargeCap Blend Category (Morningstar)    0.51    8.93  17.29   20.35   15.60

LargeCap Value Fund Select*                                                            
LargeCap Value Fund Preferred*                                                         
Invista Large Cap Value Composite                  -5.58  -17.35   6.69   13.89**      
   S&P/BARRA 500 Value Index                       -4.07   -5.11  11.43   17.71   14.95
   Average LargeCap Value Category (Morningstar)   -1.92   -5.21   8.74   15.16   13.36

Partners LargeCap Value Fund Select*                                                   
Partners LargeCap Value Fund Preferred*                                                
Sanford C. Bernstein Diversified Value Composite   -4.18   -7.89   9.84   17.28   15.64
   Russell 1000 Value Index                        -4.23   -8.92  10.94   17.78   15.24
   Average LargeCap Value Category (Morningstar)   -1.92   -5.21   8.74   15.16   13.36

MidCap S&P 400 Index Fund Select*                                                      
MidCap S&P 400 Index Fund Preferred*                                                   
Invista S&P 400 Index Composite                     8.56**                             
   S&P MidCap 400 Index                             8.97   16.98  20.34   21.18   18.03
   Average MidCap Blend Category (Morningstar)      3.71   11.87  12.36   16.09   14.12

MidCap Value Fund Select*                                                              
MidCap Value Fund Preferred*                                                           
Invista Mid Cap Value Composite                    -7.22  -18.22   1.28   10.32        
   S&P/BARRA 400 Value Index                        3.45    0.17  10.06   15.20**      
   Average MidCap Value Category (Morningstar)      1.31   -2.56   7.23   13.20   12.77

Partners MidCap Value Fund Select*                                                     
Partners MidCap Value Fund Preferred*                                                  
Neuberger Berman MidCap Value Composite             6.63    3.34   5.60   14.61   13.91
   Russell Midcap Value Index                      -0.69   -7.91   6.95   13.71   14.22
   Average MidCap Value Category (Morningstar)      1.31   -2.56   7.23   13.20   12.77

Real Estate Fund Select*                                                               
Real Estate Fund Preferred*                                                            
PCREI Real Estate Composite                                                            
   Morgan Stanley REIT Index                       13.31    3.37   0.44    9.50**      

                                                        [Enlarge/Download Table]

                                                                               Annual Performance                           
                                                                           (year ended December 31)                         

                                                    1999   1998    1997   1996   1995    1994   1993    1992    1991  1990  

Balanced Fund Select*                                                                                                       
Balanced Fund Preferred*                                                                                                    
                                                                                                                            
Invista Balanced Composite                          2.20   12.17  20.03  10.69   26.88  -1.63   14.25  10.73   27.19    0.72
PCII Multi-Sector Composite                        -0.57    7.97  10.16   3.94   18.41  -2.05   10.67   8.25   15.89    9.49
   S&P 500 Index                                   21.04   28.58  33.36  22.96   37.58   1.32   10.08   7.62   30.47   -3.10
   Lehman Brothers Aggregate Bond Index            -0.82    8.69   9.65   3.63   18.47  -2.92    9.75   7.40   16.00    8.96
   Average Domestic Hybrid Category (Morningstar)   8.24   12.50  18.24  13.07   24.87  -2.56   12.07   8.22   23.87   -0.09

LargeCap Blend Fund Select*                                                                                                 
LargeCap Blend Fund Preferred*                                                                                              
Invista Large Cap Composite                         9.57   24.70  29.66  24.35                                              
   S&P 500 Index                                   21.04   28.58  33.36  22.96   37.58   1.32   10.08   7.62   30.47   -3.10
   Average LargeCap Blend  Category (Morningstar)  19.72   21.95  27.43  20.37   31.99  -1.08   11.12   7.62   32.13   -3.34

Partners LargeCap Blend Fund Select*                                                                                        
Partners LargeCap Blend Fund Preferred*                                                                                     
Federated Capital Appreciation Composite           43.39   20.08  30.62  18.39   37.17  -0.30   11.31  11.37   27.43   -4.43
   S&P 500 Index                                   21.04   28.58  33.36  22.96   37.58   1.32   10.08   7.62   30.47   -3.10
   Average LargeCap Blend  Category (Morningstar)  19.72   21.95  27.43  20.37   31.99  -1.08   11.12   7.62   32.13   -3.34

LargeCap Growth Fund Select*                                                                                                
LargeCap Growth Fund Preferred*                                                                                             
Invista Large Cap Growth Composite                 19.73   21.75  28.82  12.49   32.14                                      
   S&P/BARRA 500 Growth Index                      28.25   42.15  36.38  23.98   38.13   3.13    1.68   5.07   38.37    0.20
   Average LargeCap Growth Category (Morningstar)  39.72   33.56  25.00  18.95   32.27  -2.32   10.31   5.83   43.69   -2.12

Partners LargeCap Growth Fund I Select*                                                                                     
Partners LargeCap Growth Fund I Preferred*                                                                                  
Morgan Stanley Equity Growth Composite             40.03   20.00  31.79  31.45   45.19   3.17    4.27   5.95   25.57   -2.92
   S&P 500 Index                                   21.04   28.58  33.36  22.96   37.58   1.32   10.08   7.62   30.47   -3.10
   Average LargeCap Growth Category (Morningstar)  39.72   33.56  25.00  18.95   32.27  -2.32   10.31   5.83   43.69   -2.12

Partners LargeCap Growth Fund II Select*                                                                                    
Partners LargeCap Growth Fund II Preferred*                                                                                 
American Century Growth Composite                  34.68   36.77  29.28  14.92   20.35  -1.49    3.76  -4.29   69.02   -3.83
   Russell 1000 Growth Index                       33.16   38.71  30.49  23.12   37.19   2.66    2.90   5.00   41.16   -0.26
   Average LargeCap Growth Category (Morningstar)  39.72   33.56  25.00  18.95   32.27  -2.32   10.31   5.83   43.69   -2.12

LargeCap S&P 500 Index Fund Select*                                                                                         
LargeCap S&P 500 Index Fund Preferred*                                                                                      
Invista S&P 500 Index Composite                    20.62   28.16  32.89  22.51   37.07   1.05                               
   S&P 500 Index                                   21.04   28.58  33.36  22.96   37.58   1.32   10.08   7.62   30.47   -3.10
   Average LargeCap Blend Category (Morningstar)   19.72   21.95  27.43  20.37   31.99  -1.08   11.12   7.62   32.13   -3.34

LargeCap Value Fund Select*                                                                                                 
LargeCap Value Fund Preferred*                                                                                              
Invista Large Cap Value Composite                  -7.12   18.04  28.94  22.18                                              
   S&P/BARRA 500 Value Index                       12.72   14.68  29.99  21.99   37.00  -0.63   18.60  10.53   22.56   -6.85
   Average LargeCap Value Category (Morningstar)    6.63   13.10  27.01  20.79   32.28  -0.81   13.25   9.89   28.51   -6.37

Partners LargeCap Value Fund Select*                                                                                        
Partners LargeCap Value Fund Preferred*                                                                                     
Sanford C. Bernstein Diversified Value Composite    7.80   16.80  30.70  22.90   37.50   1.50   13.80  13.70   33.10   -6.30
   Russell 1000 Value Index                         7.35   15.63  35.18  21.64   38.35  -1.99   18.12  13.81   24.61   -8.08
   Average LargeCap Value Category (Morningstar)    6.63   13.10  27.01  20.79   32.28  -0.81   13.25   9.89   28.51   -6.37

MidCap S&P 400 Index Fund Select*                                                                                           
MidCap S&P 400 Index Fund Preferred*                                                                                        
Invista S&P 400 Index Composite                                                                                             
   S&P MidCap 400 Index                            14.72   19.11  32.25  19.20   30.95  -3.58   13.95  11.91   50.10   -5.12
   Average MidCap Blend Category (Morningstar)     18.70    6.77  26.45  20.44   28.71  -1.61   14.50  14.93   36.20   -8.16

MidCap Value Fund Select*                                                                                                   
MidCap Value Fund Preferred*                                                                                                
Invista Mid Cap Value Composite                    -7.36    3.25  35.49  16.03   41.18   0.98   11.43   7.57   33.54        
   S&P/BARRA 400 Value Index                        2.33    4.67  34.32  19.40   34.04  -0.57   13.43  16.02**              
   Average MidCap Value Category (Morningstar)      7.78    3.92  26.04  20.50   29.27  -1.11   17.11  13.54   29.65   -8.51

Partners MidCap Value Fund Select*                                                                                          
Partners MidCap Value Fund Preferred*                                                                                       
Neuberger Berman MidCap Value Composite             8.04  -10.66  32.66  28.08   35.23  -1.89   16.44  17.52   22.36   13.91
   Russell Midcap Value Index                      -0.11    5.09  34.37  20.26   34.93  -2.13   15.62  21.68   37.92  -16.08
   Average MidCap Value Category (Morningstar)      7.78    3.92  26.04  20.50   29.27  -1.11   17.11  13.54   29.65   -8.51

Real Estate Fund Select*                                                                                                    
Real Estate Fund Preferred*                                                                                                 
PCREI Real Estate Composite                                                                                                 
   Morgan Stanley REIT Index                       -4.55  -16.90  18.58  35.89   12.90**                                    

* Fund's inception 12/__/00.                                        
** Since inception.                                                   

              MODERATE FUNDS

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                     

                                                         Average Annual Performance     
                                                           (through June 30, 2000)      

                                                      YTD   1 YR    3 YR    5 YR   10 YR

MidCap Blend Fund Select*                                                               
MidCap Blend Fund Preferred*                                                            
                                                                                        
Invista Mid Cap Core Composite                       1.89    6.65   8.73   14.78        
   S&P MidCap 400 Index                              8.97   16.97  20.34   21.18   18.03
   Average MidCap Blend Category (Morningstar)       3.71   11.87  12.36   16.09   14.12

MidCap Growth Fund Select*                                                              
MidCap Growth Fund Preferred*                                                           
Invista Mid Cap Growth Composite                     6.24   37.40  26.36                
   Russell Midcap Growth Index                      12.15   48.59  30.39   26.37   19.77
   Average MidCap Growth Category (Morningstar)      9.91   57.24  31.09   24.81   18.14

Partners MidCap Growth Fund Select*                                                     
Partners MidCap Growth Fund Preferred*                                                  
Turner Investment Partners Midcap Growth Composite  12.21   80.85  58.41**              
   Russell Midcap Growth Index                      12.15   48.59  30.39   26.37   19.77
   Average MidCap Growth Category (Morningstar)      9.91   57.24  31.09   24.81   18.14

SmallCap Blend Fund Select*                                                             
SmallCap Blend Fund Preferred*                                                          
Invista Small Company Blend Composite                9.82   14.49   6.47   12.00**      
   Russell 2000 Index                                3.04   14.32  10.57   14.27   13.57
   Average SmallCap Blend Category (Morningstar)     8.24   17.77  10.08   15.30   13.03

SmallCap Growth Fund Select*                                                            
SmallCap Growth Fund Preferred*                                                         
Invista Small Cap Growth Composite                  14.83   51.83  29.47                
   Russell 2000 Growth Index                         1.23   28.39  16.32   15.80   13.26
   Average SmallCap Growth Category (Morningstar)   10.09   55.14  24.42   20.86   17.12

Partners SmallCap Growth Fund I Select*                                                 
Partners SmallCap Growth Fund I Preferred*                                              
Neuberger Berman SmallCap Growth Composite           5.98   93.80**                     
   Russell 2000 Growth Index                         1.23   28.39  16.32   15.80   13.26
   Average SmallCap Growth Category (Morningstar)   10.09   55.14  24.42   20.86   17.12

Partners SmallCap Growth Fund II Select*                                                
Partners SmallCap Growth Fund II Preferred*                                             
Federated Aggressive Growth Composite                1.64   69.20  39.90   35.59**      
   S&P/BARRA 600 Growth Index                        6.89   14.39  10.11   15.40   13.99
   Average SmallCap Growth Category (Morningstar)   10.09   55.14  24.42   20.86   17.12

SmallCap S&P 600 Index Fund Select*                                                     
SmallCap S&P 600 Index Fund Preferred*                                                  
Invista Small Cap S&P 600 Index Composite            6.38**                             
   S&P SmallCap 600 Index                            6.89   14.39  10.11   15.40   13.99
   Average SmallCap Blend Category (Morningstar)     8.24   17.77  10.08   15.30   13.03

SmallCap Value Fund Select*                                                             
SmallCap Value Fund Preferred*                                                          
Invista Small Cap Value Composite                    0.06   -9.39  -0.38   10.80**      
   Russell 2000 Value Index                          5.85   -0.94   3.84   11.71   13.19
   Average SmallCap Value Category (Morningstar)     5.31    3.29   3.55   12.58   11.80

Technology Fund Select*                                                                 
Technology Fund Preferred*                                                              
   Average Technology Category (Morningstar)         4.35   92.16  54.10   35.69   27.95

                                                        [Enlarge/Download Table]

                                                                                 Annual Performance                          
                                                                             (year ended December 31)                        

                                                      1999  1998    1997    1996   1995    1994   1993    1992   1991  1990  

MidCap Blend Fund Select*                                                                                                    
MidCap Blend Fund Preferred*                                                                                                 
                                                                                                                             
Invista Mid Cap Core Composite                       12.37   4.72  24.95   18.66   33.39   5.46   -0.26   9.01               
   S&P MidCap 400 Index                              14.72  19.11  32.25   19.18   30.92  -3.59   13.93  11.90  50.07   -5.12
   Average MidCap Blend Category (Morningstar)       18.70   6.77  26.45   20.44   28.71  -1.61   14.50  14.93  36.20   -8.16

MidCap Growth Fund Select*                                                                                                   
MidCap Growth Fund Preferred*                                                                                                
Invista Mid Cap Growth Composite                     69.96   2.48  26.15   13.40                                             
   Russell Midcap Growth Index                       51.29  17.86  22.54   17.48   33.98  -2.16   11.19   8.71  47.03   -5.13
   Average MidCap Growth Category (Morningstar)      63.90  17.51  17.05   16.99   34.79  -1.03   15.64   9.03  50.97   -7.35

Partners MidCap Growth Fund Select*                                                                                          
Partners MidCap Growth Fund Preferred*                                                                                       
Turner Investment Partners Midcap Growth Composite  126.09  26.33  41.77   18.25**                                           
   Russell Midcap Growth Index                       51.29  17.86  22.54   17.48   33.98  -2.16   11.19   8.71  47.03   -5.13
   Average MidCap Growth Category (Morningstar)      63.90  17.51  17.05   16.99   34.79  -1.03   15.64   9.03  50.97   -7.35

SmallCap Blend Fund Select*                                                                                                  
SmallCap Blend Fund Preferred*                                                                                               
Invista Small Company Blend Composite                12.31  -9.59  21.15   18.01   29.44   3.05   21.32  26.90  24.82        
   Russell 2000 Index                                21.26  -2.55  22.36   16.50   28.45  -1.82   18.88  18.41  46.04  -19.48
   Average SmallCap Blend Category (Morningstar)     18.18  -3.64  26.12   19.66   25.51  -0.97   16.65  14.39  39.57  -12.24

SmallCap Growth Fund Select*                                                                                                 
SmallCap Growth Fund Preferred*                                                                                              
Invista Small Cap Growth Composite                   66.37  -2.47  34.77   14.19                                             
   Russell 2000 Growth Index                         43.09   1.23  12.95   11.26   31.04  -2.43   13.36   7.77  51.19  -17.41
   Average SmallCap Growth Category (Morningstar)    61.45   4.49  18.19   19.99   35.44  -0.28   16.70  11.99  53.64   -5.96

Partners SmallCap Growth Fund I Select*                                                                                      
Partners SmallCap Growth Fund I Preferred*                                                                                   
Neuberger Berman SmallCap Growth Composite                                                                                   
   Russell 2000 Growth Index                         43.09   1.23  12.95   11.26   31.04  -2.43   13.36   7.77  51.19  -17.14
   Average SmallCap Growth Category (Morningstar)    61.45   4.49  18.19   19.99   35.44  -0.28   16.70  11.99  53.64   -5.96

Partners SmallCap Growth Fund II Select*                                                                                     
Partners SmallCap Growth Fund II Preferred*                                                                                  
Federated Aggressive Growth Composite               111.60   8.08  30.06**                                                   
   S&P/BARRA 600 Growth Index                        12.41  -1.31  25.58   21.32   29.97  -4.78   18.79  21.05  48.48  -23.69
   Average SmallCap Growth Category (Morningstar)    61.45   4.49  18.19   19.99   35.44  -0.28   16.70  11.99  53.64   -5.96

SmallCap S&P 600 Index Fund Select*                                                                                          
SmallCap S&P 600 Index Fund Preferred*                                                                                       
Invista Small Cap S&P 600 Index Composite                                                                                    
   S&P SmallCap 600 Index                            12.40  -1.31  25.58   21.32   29.97  -4.77   18.78  21.04  48.49  -23.69
   Average SmallCap Blend Category (Morningstar)     18.18  -3.64  26.12   19.66   25.51  -0.97   16.65  14.39  39.57  -12.24

SmallCap Value Fund Select*                                                                                                  
SmallCap Value Fund Preferred*                                                                                               
Invista Small Cap Value Composite                    -8.92  -6.03  33.65   26.44                                             
   Russell 2000 Value Index                          -1.49  -6.45  31.78   21.37   25.75  -1.27   23.84  29.14  41.70  -21.77
   Average SmallCap Value Category (Morningstar)      4.49  -6.99  30.04   25.53   25.13  -0.81   16.72  20.29  37.19  -14.34

Technology Fund Select*                                                                                                      
Technology Fund Preferred*                                                                                                   
   Average Technology Category (Morningstar)        136.50  52.41   9.58   20.31   42.89  13.18   24.07  13.03  46.92    0.54

* Fund's inception 12/__/00.                                        
** Since inception.                                                   

                          AGGRESSIVE FUNDS

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                            

                                                                Average Annual Performance     
                                                                  (through June 30, 2000)      

                                                             YTD   1 YR    3 YR    5 YR   10 YR

European Fund Select*                                                                          
European Fund Preferred*                                                                       
                                                                                               
BT European Composite                                       -6.19  21.43  20.31   24.15        
   MSCI Europe (15) Index-ND                                -3.08  15.10  16.08   18.45  12.86 
   Average Europe Category (Morningstar)                     1.39  28.97  14.94   17.90  10.98 

International Emerging Markets Fund Select*                                                    
International Emerging Markets Fund Preferred*                                                 
Invista International Emerging Markets Equity Composite     -5.68  19.72   2.16   12.90        
   MSCI - Emerging Markets Free-ID                          -8.97   7.66  -7.01   -1.12  19.22 
Average Diversified Emerging Market Category (Morningstar)  -8.85  16.38  -3.71    3.26   5.29 

International Fund I Select*                                                                   
International Fund I Preferred*                                                                
Invista International Broad Markets Composite                1.44  21.30  11.51   15.93        
   MSCI EAFE (Europe, Australia, Far East) Index-ND         -4.06  17.16  10.18   11.33   7.95 
   Average Foreign Category (Morningstar)                   -3.99  27.08  12.44   13.48   9.31 

International Fund II Select*                                                                  
International Fund II Preferred*                                                               
   MSCI EAFE (Europe, Australia, Far East) Index-ND         -4.06  17.16  10.18   11.33   7.95 
   Average Foreign Category (Morningstar)                   -3.99  27.08  12.44   13.48   9.31 

International SmallCap Fund Select*                                                            
International SmallCap Fund Preferred*                                                         
Invista International Small Cap Equity Composite            -1.22  56.26  29.11   27.86        
   MSCI EAFE (Europe, Australia, Far East) Index-ND         -4.06  17.16  10.18   11.33   7.95 
   Average Foreign Category (Morningstar)                   -3.99  27.08  12.44   13.48   9.31 

Pacific Basin Fund Select*                                                                     
Pacific Basin Fund Preferred*                                                                  
BT Pacific Basin Composite                                  -6.94  48.21  13.55                
   MSCI Pacific Index-ND                                    -6.04  21.60   1.79    2.41   2.34 
   Average Diversified Pacific/Asia Category (Morningstar) -14.45  22.18  -0.15    3.42   6.12 

                                                        [Enlarge/Download Table]

                                                                                       Annual Performance                          
                                                                                   (year ended December 31)                        

                                                            1999   1998    1997   1996   1995    1994   1993    1992    1991 1990  

European Fund Select*                                                                                                              
European Fund Preferred*                                                                                                           
                                                                                                                                   
BT European Composite                                      33.95   30.86  26.33  41.31    9.36   8.49   43.12                      
   MSCI Europe (15) Index-ND                               15.89   28.53  23.80  21.09   21.62   2.28   29.28  -4.71   13.11  -3.85
   Average Europe Category (Morningstar)                   26.11   21.56  18.42  24.99   16.26   2.52   28.15  -6.82    7.47  -8.03

International Emerging Markets Fund Select*                                                                                        
International Emerging Markets Fund Preferred*                                                                                     
Invista International Emerging Markets Equity Composite    63.25  -17.59  11.38  25.57    7.46                                     
   MSCI - Emerging Markets Free-ID                         58.89  -35.11  31.64  22.21  -12.83   0.64   53.92  13.41  149.65  -7.82
Average Diversified Emerging Market Category (Morningstar) 71.86  -27.03  -3.68  13.35   -3.45  -9.27   73.26   0.26   18.10  -9.89

International Fund I Select*                                                                                                       
International Fund I Preferred*                                                                                                    
Invista International Broad Markets Composite              25.78   10.47  12.43  24.54   14.07  -2.39   44.83                      
   MSCI EAFE (Europe, Australia, Far East) Index-ND        26.96   20.00   1.78   6.05   11.21   7.78   32.56 -12.17   12.13 -23.45
   Average Foreign Category (Morningstar)                  44.49   13.00   5.43  12.39    9.82  -0.40   36.71  -4.54   13.07 -10.90

International Fund II Select*                                                                                                      
International Fund II Preferred*                                                                                                   
   MSCI EAFE (Europe, Australia, Far East) Index-ND        26.96   20.00   1.78   6.05   11.21   7.78   32.56 -12.17   12.13 -23.45
   Average Foreign Category (Morningstar)                  44.49   13.00   5.43  12.39    9.82  -0.40   36.71  -4.54   13.07 -10.90

International SmallCap Fund Select*                                                                                                
International SmallCap Fund Preferred*                                                                                             
Invista International Small Cap Equity Composite           86.79   13.24  15.62  40.53    3.61                                     
   MSCI EAFE (Europe, Australia, Far East) Index-ND        26.96   20.00   1.78   6.05   11.21   7.78   32.56 -12.17   12.13 -23.45
   Average Foreign Category (Morningstar)                  44.49   13.00   5.43  12.39    9.82  -0.40   36.71  -4.54   13.07 -10.90

Pacific Basin Fund Select*                                                                                                         
Pacific Basin Fund Preferred*                                                                                                      
BT Pacific Basin Composite                                132.40    7.35 -27.91                                                    
   MSCI Pacific Index-ND                                   57.64    2.44 -25.49  -8.58    2.78  12.83   35.69 -18.40   11.30 -34.42
   Average Diversified Pacific/Asia Category (Morningstar) 92.50   -5.91 -27.90   4.02    2.39  -5.49   59.02  -3.03   15.05 -16.65

* Fund's inception 12/__/00.                                        
** Since inception.                                                   

                     DYNAMIC FUNDS

IMPORTANT NOTES TO THE APPENDIX                                                 

Lehman  Brothers  Aggregate  Bond  Index  represents  securities  that  are U.S.
domestic, taxable, and dollar denominated.  The index covers the U.S. investment
grade fixed rate bond market, with index components for government and corporate
securities, mortgage pass-through securities, and asset-backed securities. These
major sectors are subdivided into more specific  indices that are calculated and
reported on a regular basis.                                                    

Lehman  Brothers  Government/Corporate  Bond Index is composed of all bonds that
are investment grade (rated BAA or higher by Moody's or BBB or higher by S&P, if
unrated  by  Moody's).  Issues  must have at least one year to  maturity.  Total
return comprises price  appreciation/depreciation  and income as a percentage of
the   original   investment.   Indices   are   rebalanced   monthly   by  market
capitalization.                                                                 

Lehman Brothers Long Term  Gov't./Corporate  Bond Index is composed of all bonds
covered by the Lehman Brothers  Government/Corporate  Bond Index with maturities
of 10 years or greater.  Total return comprises price  appreciation/depreciation
and income as a percentage of the original  investment.  Indices are  rebalanced
monthly by market capitalization.                                               

Lehman Brothers Mortgage-Backed  Securities Index is composed of all fixed-rate,
securitized  mortgage  pools  by  GNMA,  FNMA,  and the  FHLMC,  including  GNMA
Graduated Payment Mortgages. The minimum principal amount required for inclusion
is $50  million.  Total return  comprises  price  appreciation/depreciation  and
income as a  percentage  of the  original  investment.  Indices  are  rebalanced
monthly by market capitalization.                                               

Lehman Brothers Mutual Fund 1-5 Government/Credit  Index is composed of treasury
notes,  agencies, and credits rated BBB or better, and with maturities of 1 year
or greater and 5 years or less. It is a rolling mix of issues, as new issues are
added and issues becoming less than 1 year to maturity are deleted.             

Morgan   Stanley   Capital   International   (MSCI)   Europe  (15)  Index  is  a
capitalization-weighted  index.  The index is designed to track the broader MSCI
EMU Benchmark containing stocks in ten EMU member countries.                    

Morgan Stanley Capital International Pacific Index is a regional/composite index
of the MSCI World Index. It is a market  capitalization  weighted index composed
of companies  representative  of the market  structure  of 22  Developed  Market
countries  in North  America,  Europe,  and  Asia/Pacific  Region.  The index is
calculated without dividends,  with net or with gross dividends  reinvested,  in
both US Dollars and Local.  Countries in the Pacific Region include:  Australia,
Hong Kong, Japan, Malaysia, New Zealand, and Singapore.                         

Morgan Stanley REIT Index is a total-return index comprised of the most actively
traded real estate  investment  trusts,  and is designed to be a measure of real
estate equity performance.                                                      

Morgan Stanley Capital International (MSCI) EAFE (Europe,  Australia,  Far East)
Index is a stock index designed to measure the  investment  returns of developed
economies outside of North America.                                             

Russell 1000 Growth Index is an index that  measures  the  performance  of those
Russell 1000 companies with higher  price-to-book  ratios and higher  forecasted
growth values.                                                                  

Russell  1000 Value Index is an index that  measures  the  performance  of those
Russell  1000  companies  with lower price to book  ratios and lower  forecasted
growth values.                                                                  

Russell  2000 Growth  Index  measures  the  performance  of those  Russell  2000
companies with higher price-to-book ratios and higher forecasted growth values. 

Russell 2000 Index measures the  performance of the 2,000 smallest  companies in
the Russell 3000 Index,  which  represents  approximately 8% of the total market
capitalization of the Russell 3000 Index. As of the latest  reconstitution,  the
average market  capitalization was approximately $580 million; the median market
capitalization was approximately $466 million.  The largest company in the index
had an approximate market capitalization of $1.5 billion.                       

Russell  2000  Value  Index  measures  the  performance  of those  Russell  2000
companies with lower price-to-book ratios and lower forecasted growth values.   

Russell  Midcap Growth Index  measures the  performance  of those Russell MidCap
companies with lower  price-to-book  ratios and higher forecasted growth values.
The stocks are also members of the Russell 1000 Value index.                    

Russell  Midcap Value Index is an index that measures the  performance  of those
Russell Midcap companies with lower  price-to-book  ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Value index.     

S&P 500  Index is a market  capitalization-weighted  index  of 500  widely  held
stocks often used as a proxy for the stock  market.  It measures the movement of
the largest issues.  Standard & Poor's chooses the member  companies for the 500
based on market size, liquidity and industry group representation.  Included are
the stocks of industrial, financial, utility and transportation companies.      

S&P/BARRA 400 Value Index is a market  capitalization-weighted  index of all the
stocks  in the  S&P 400  that  have  low  price-to-book  ratios.  The  index  is
rebalanced semi-annually on January 1 and July 1.                               

S&P/BARRA 500 Growth Index is a market  capitalization-weighted index of all the
stocks in the S&P 500 that have high  price-to-book  ratios.  It is  designed so
that approximately 50% of the SPX market capitalization is in the Growth Index. 

S&P/BARRA  500  Value  Index  is a market  capitalization-weighted  index of the
stocks in the S&P 500 Index having the highest book to price  ratios.  The index
consists of approximately half of the S&P 500 on a market capitalization basis. 

S&P/BARRA  600  Growth  Index is a market  capitalization-weighted  index of the
stocks in the S&P SmallCap 600 Index having the lowest book to price ratios. The
index  consists  of  approximately  have of the  S&P  SmallCap  600 on a  market
capitalization basis.                                                           

S&P Midcap 400 Index includes  approximately  10% of the  capitalization of U.S.
equity  securities.  These are comprised of stocks in the middle  capitalization
range.  Any mid-sized  stocks already  included in the S&P 500 are excluded from
this index.                                                                     

S&P SmallCap 600 Index  consists of 600 domestic  stocks chosen for market size,
liquidity  and industry  group  representation.  It is a market  weighted  index
(stock  price x shares  outstanding),  with each  stock  affecting  the index in
proportion to its market value.                                                 

Institutional Class                                                             

PRINCIPAL INVESTORS FUND, INC.

This Prospectus describes a mutual fund organized by
Principal Life Insurance Company. 

 The date of this Prospectus is _______________.

     As with all mutual funds,  the Securities  and Exchange  Commission has not
     approved or disapproved  the Fund's  securities nor has it determined  that
     this  Prospectus  is  accurate  or  complete.  It is a criminal  offense to
represent otherwise.                                                  

485APOS
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 TABLE OF CONTENTS
Fund Descriptions...................................................2     

Moderate Funds                                                    
  Partners LargeCap Blend Fund.................................4
  Partners LargeCap Growth Fund I..............................6
  Partners LargeCap Growth Fund II.............................8
  Partners LargeCap Value Fund................................10
  Partners MidCap Value Fund .................................12

Aggressive Funds                                                  
  Partners SmallCap Growth Fund I.............................14
  Partners SmallCap Growth Fund II............................16
  Technology Fund.............................................18

Dynamic Fund                                                      
  International Fund II.......................................20

General Information                                                       
The Costs of Investing.........................................22 
Certain Investment Strategies and Related Risks................22 
Management, Organization and Capital Structure.................26 
Shareholder Information........................................28 
Fund Account Information ......................................30 

FUND DESCRIPTIONS                                                               

Class I shares of the Principal  Investors Fund are offered via this prospectus.
Principal  Management  Corporation*,  the  "Manager"  of each of the Funds,  has
selected a Sub-Advisor for each Fund based on the Sub-Advisor's  experience with
the investment strategy for which it was selected.                              

                                                        [Enlarge/Download Table]

                                                                                                          
     Fund                                                Sub-Advisor                                      
--------------------                                     -----------                                      
International II                         BT Funds Management (International) Limited ("BT")*              
Partners LargeCap Blend                  Federated Management Corporation ("Federated")                   
Partners LargeCap Growth I               Morgan Stanley Asset Management ("Morgan Stanley")               
Partners LargeCap Growth II              American Century Investment Management, Inc. ("American Century")
Partners LargeCap Value                  Alliance Capital Management L.P. through its Bernstein Investment
                                           Research and Management unit ("Bernstein")                     
Partners MidCap Value                    Neuberger Berman Management Inc. ("Neuberger Berman")            
Partners SmallCap Growth I               Neuberger Berman Management Inc. ("Neuberger Berman")            
Partners SmallCap Growth II              Federated Management Corporation ("Federated")                   
Technology                               BT Funds Management (International) Limited ("BT")*              

*Principal Management  Corporation and BT are members of the Principal Financial                          
Group.                                                                                                    

Only  eligible  purchasers  may  buy  Class  I  shares  of the  Funds.  Eligible
purchasers are limited to separate  accounts of Principal Life Insurance Company
and Principal Life Insurance  Company or any of its  subsidiaries or affiliates.
The Board of Directors  reserves the right to broaden or limit this  designation
of eligible purchaser.                                                          

In the  description  for each Fund,  there is  important  information  about the
Fund's:                                                                         

Primary investment strategy                                                     
This  section  summarizes  how each  Fund  intends  to  achieve  its  investment
objective.  It identifies the Fund's primary investment  strategy (including the
type or types  of  securities  in which  the Fund  invests)  and any  policy  to
concentrate  in  securities  of issuers  in a  particular  industry  or group of
industries.                                                                     

The Funds are each designed to be a portion of an investor's portfolio. None are
intended to be a complete  investment  program.  Investors  should  consider the
risks of each Fund before making an  investment  and be prepared to maintain the
investment during periods of adverse market conditions.                         

Annual operating expenses                                                       
The annual operating expenses for each Fund are deducted from that Fund's assets
(stated as a percentage of Fund assets).  A Fund's operating  expenses are shown
with  each  Fund.  A  discussion  of the  fees is found  in the  section  of the
Prospectus titled "The Costs of Investing."                                     

The examples are intended to help  investors  compare the cost of investing in a
particular  Fund with the cost of investing in other mutual funds.  The examples
assume an  investment of $10,000 in a Fund for the time periods  indicated.  The
examples  also assume that the  investment  has a 5% total  return each year and
that the Fund's operating expenses are the same as the estimated expenses shown.
Although  the actual costs may be higher or lower,  based on these  assumptions,
the costs would be as shown.                                                    

Day-to-day Fund management                                                      
The investment  professionals who manage the assets of each Fund are listed with
each Fund.  Backed by their  staffs of  experienced  securities  analysts,  they
provide the Funds with professional investment management.                      

Fund Performance                                                                
Because  the  Funds  are new and  have not  completed  a full  calendar  year of
operations,  performance  information  for the  Funds  is not  included  in this
Prospectus.  To obtain  performance  information  of a Fund after its first full
calendar  quarter  of  operations,  contact  the  Principal  Retirement  Service
Centersm (www. principal.com) or call 1-800-_____________.                      

NOTE: Investments in these Funds are not deposits of a bank and are not insured 
   or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.                                                  

         No   salesperson,   dealer  or  other  person  is  authorized  to  give
         information  or make  representations  about a Fund  other  than  those
         contained  in this  Prospectus.  Information  or  representations  from
         unauthorized  parties may not be relied upon as having been made by the
   Principal Investors Fund, a Fund, the Manager or any Sub-Advisor.

PARTNERS LARGECAP BLEND FUND                                                    
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund  pursues its  investment  objective  by  investing  primarily in equity
securities of companies that offer superior growth prospects or of companies    
whose stock is undervalued.  Under normal  market  conditions,  the Fund invests
at least 65% of its assets in companies with a large market  capitalizaiton.    
Market capitalization is defined as total current market value of a company's   
outstanding common stock.                                                       

In selecting  securities for investment,  the Sub-Advisor,  Federated,  looks at
stocks with value and/or growth characteristics and will construct an investment
portfolio  that will have a "blend" of stocks  with these  characteristics.  The
value  orientation  emphasizes  buying  stocks  at  less  than  their  intrinsic
investment  value and avoiding stocks whose price has been  unjustifiably  built
up. The growth orientation emphasizes buying stocks of companies whose potential
for growth of capital and  earnings is expected to be above  average.  Federated
attempts to identify good  long-term  values through  disciplined  investing and
careful  fundamental  research.                                                 

Using its own  quantitative  process,  Federated  rates the  future  performance
potential of companies.  Federated  evaluates each company's earnings quality in
light of its  current  valuation  to narrow  the list of  attractive  companies.
Federated   then  evaluates   product   positioning,   management   quality  and
sustainability  of current growth trends of those companies.  Using this type of
fundamental  analysis,  Federated  selects the most promising  companies for the
Fund's portfolio.                                                               

Companies  with  similar  characteristics  may  be  grouped  together  in  broad
categories  called  sectors.  In determining the amount to invest in a security,
Federated  limits the Fund's exposure to each business sector that comprises the
S&P 500 Index.  The Fund's  allocation  to a sector will not be less than 50% or
more than 200% of the Index's  allocation to that sector. The Fund may invest up
to 25% of its assets in securities of foreign companies.                        

The Fund actively  trades its portfolio  securities in an attempt to achieve its
investment  objective.  Active  trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its  shareholders,  which are taxed at a higher rate than longer-term  gains
(losses).  Actively trading  portfolio  securities  increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.                 

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Companies  with  similar  characteristics  may  be  grouped  together  in  broad
categories called sectors.  Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As Federated  allocates
more of the  Fund's  portfolio  holdings  to a  particular  sector,  the  Fund's
performance  will  be  more  susceptible  to any  economic,  business  or  other
developments that generally affect that sector.                                 

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large capitalization  stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because certain of the securities purchased
by the Fund  present  greater  opportunities  for growth,  they may also involve
greater risks than securities that do not have the same potential.  The value of
the Fund's equity  securities may fluctuate on a daily basis. As with all mutual
funds,  as the value of the Fund's assets rise and fall,  the Fund's share price
changes.  If the  investor  sells Fund  shares when their value is less than the
price the investor paid for them, the investor will lose money.                 

Because the inception date of the Fund is _______,  2000, historical performance
data is not available. Estimated annual Fund operating expenses are as follows: 

Examples
The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your cost would be:                 

       1 Year  3 Years
--------------------------------------------------------------------------------
Institutional Class  $77      $240              
        ------------------

Fund Operating Expenses 
       Institutional
       Class

Management Fees..................   0.75%                             

Total Fund Operating Expenses   0.75%                         

Day-to-day Fund Management

Since _______, 2000 Co-Manager: James E. Grefenstette, CFA.                     
(Fund's inception)  Mr.  Grefenstette  joined  Federated  in 1992 and has been a
                    Portfolio   Manager  and  a  Vice   President  of  Federated
                    Investment  Management  Company since 1996.  From 1994 until
                    1996,  Mr.  Grefenstette  was a  Portfolio  Manager  and  an
                    Assistant Vice President of Federated Investment  Management
                    Company.  Mr.  Grefenstette  received  his MS in  Industrial
                    Administration  from  Carnegie  Mellon  University.  He  has
                    earned  the  right to use the  Chartered  Financial  Analyst
designation.                            

Since ______, 2000  Co-Manager:  J. Thomas Madden, CFA.                         
(Fund's inception)  Mr.  Madden  joined  Federated  as  a  Senior               
 Portfolio Manager in 1977 and has been an
                    Executive Vice President of Federated Investment  Management
                    Company  since  1994.  Mr.  Madden  served as a Senior  Vice
                    President of Federated  Investment  Management  Company from
                    1989  to  1993.   Mr.   Madden   received  his  MBA  with  a
                    concentration in Finance from the University of Virginia. He
                    has earned the right to use the Chartered  Financial Analyst
designation.                            

Since ______, 2000  Co-Manager:  Bernard J. Picchi, CFA.                        
(Fund's  inception) Mr. Picchi joined Federated in 1999 as a Senior Vice        
                 President/Director  of U.S. Equity Research for Federated
           Investment  Management Company.  From 1994 to 1999,
     Mr. Picchi was a Managing  Director of Lehman
                    Brothers  where he  initially  served as head of the  energy
                    sector  group.  During  1995 and most of 1996,  he served as
                    U.S.  Director of Stock  Research and in September  1996, he
                    was named Growth Stock Strategist.  Mr. Picchi holds a BS in
                    foreign  service from Georgetown  University.  He has earned
                    the   right   to  use  the   Chartered   Financial   Analyst
designation.                            

PARTNERS LARGECAP GROWTH FUND I                                                 
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund seeks to maximize long-term capital appreciation by investing primarily
in equity  securities of U.S. and, to a limited extent,  foreign  companies that
exhibit strong or accelerating  earnings  growth.  These companies are generally
characterized  as  "growth"  companies.   The  universe  of  eligible  companies
generally includes those with market capitalizations of $10 billion or more. The
Sub-Advisor,  Morgan Stanley,  emphasizes  individual security selection and may
focus the Fund's holdings within the limits  permissible for a diversified fund.
The Fund may invest up to 25% of its assets in securities of foreign companies. 

Morgan Stanley  follows a flexible  investment  program in looking for companies
with above average  capital  appreciation  potential.  Morgan Stanley focuses on
companies  with  consistent or rising  earnings  growth  records and  compelling
business  strategies.  Morgan Stanley continually and rigorously studies company
developments,  including  business  strategy,  management  focus  and  financial
results to identify  companies with earnings  growth and business  momentum.  In
addition,  Morgan Stanley closely  monitors  analysts'  expectations to identify
issuers that have the potential for positive earnings surprises versus consensus
expectations.  Valuation is of secondary importance and is viewed in the context
of prospects  for  sustainable  earnings  growth and the  potential for positive
earnings surprises in relation to consensus expectations.                       

The Fund has a long-term investment approach.  However, Morgan Stanley considers
selling  securities of issuers that no longer meet its  criteria.  To the extent
that the Fund engages in short-term trading,  it may have increased  transaction
costs.                                                                          

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends and  developments.  In  response,  the price of the  securities
issued  by such  companies  may  decline.  These  factors  contribute  to  price
volatility, which is the principal risk of investing in the Fund.               

Foreign  securities  carry risks that are not generally  found in stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large capitalization  stocks, may underperform compared to other market segments
or to the  equity  markets  as a whole.  The  securities  purchased  by the Fund
present  greater  opportunities  for growth because of high  potential  earnings
growth,  but may also involve greater risks than securities that do not have the
same  potential.  The value of the Fund's  securities  may  fluctuate on a daily
basis.  As with all mutual  funds,  as the value of the Fund's  assets  rise and
fall,  the Fund's share price  changes.  If the investor  sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.                                                                     

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because the inception  date of the Fund is  _________,  2000,                   
historical  performance  data is not available.  Estimated annual Fund operating
expenses are as follows:                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower,  based on these  assumptions your cost would be:               

       1 Year    3 Years
--------------------------------------------------------------------------------

Institutional Class     $77      $240                 
      ------------------

     Fund Operating Expenses
       Institutional
       Class

Management Fees..................   0.75%                             

Total Fund Operating Expenses       0.75%                             

Day-to-day Fund Management

Since _______, 2000   Co-Manager:  William S. Auslander,  Portfolio Manager and 
(Fund's inception)    Principal of Morgan  Stanley & Co.  Incorporated  and     
                      Morgan  Stanley  Dean Witter  Investment  Management  Inc.
                      since 1998. From 1995 to 1998 he served as Equity Analyst.
                   Prior thereto, he was an Equity Analyst at Icahn & Co.,
                      1986-1995.  He holds a BA in Economics from the University
              of Wisconsin and an MBA from Columbia  University.

Since _______,  2000  Co-Manager: Philip W.  Friedman,  Managing  Director of   
(Fund's inception)    Morgan  Stanley & Co. Incorporated and Morgan Stanley Dean
                    Witter Investment Management Inc. since 1997.  Member of
                  Morgan  Stanley & Co.  Research since 1990,  served as
                  Director of North  America  Research  1995-1997. Prior
                      thereto,  Assistant  to the  Controller  and Chief  Equity
                     Financial Officer,  Arthur Andersen & Company. He holds a
                      BA from Rutgers  University and an MBA from  Northwestern-
J.L.  Kellogg School.               

PARTNERS LARGECAP GROWTH FUND II                                                
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests primarily in common stocks of large  capitalization  companies.
Market  capitalization  is defined as total current  market value of a company's
outstanding common stock.                                                       

The  Sub-Advisor,  American  Century,  selects  stocks  for  investment  that it
believes will increases in value over time using a growth investment strategy it
developed. This strategy looks for companies whose earnings and revenues are not
only growing,  but growing at a  successively  faster,  or  accelerating,  pace.
Accelerating growth is shown, for example, by growth that is faster this quarter
than  last or  faster  this  year than the year  before.  The  American  Century
strategy  is based on the  premise  that,  over the long  term,  the  stocks  of
companies  with  accelerating  earnings and revenues have a greater than average
chance to increase in value.                                                    

Using  its  extensive  computer  database,  American  Century  tracks  financial
information  for  thousands  of  companies  to research and select the stocks it
believes will be able to sustain  accelerating  growth. This information is used
to help  American  Century  select or decide to  continue  to hold the stocks of
companies it believes will be able to sustain  accelerating  growth, and to sell
stocks of companies whose growth begins to slow down.                           

Under  normal  market  conditions,  American  Century  intends  to keep the Fund
essentially  fully invested in stocks regardless of the movement of stock prices
generally. When it considers it prudent, American Century may invest Fund assets
in nonleveraged  futures and options.  Nonleveraged  means that the Fund may not
invest in futures and  options  where it would be possible to lose more than the
Fund invested. Futures and options can help the Fund's cash assets remain liquid
while performing more like stocks. In addition,  up to 25% of Fund assets may be
invested in foreign securities.                                                 

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large  capitalization  growth stocks, may underperform  compared to other market
segments or to the equity markets as a whole.  The  securities  purchased by the
Fund present greater opportunities for growth because of high potential earnings
growth,  but may also involve greater risks than securities that do not have the
same  potential.  The value of the Fund's  securities  may  fluctuate on a daily
basis.  As with all mutual  funds,  as the value of the Fund's  assets  rise and
fall,  the Fund's share price  changes.  If the investor  sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.                                                                     

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance data is not available.  Estimated annual Fund operating expenses are
as follows:                                                                     

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your cost would be:                 

       1 Year    3 Years

Institutional Class      $102       $318                  

Fund Operating Expenses 

       Institutional
       Class

Management Fees..................   1.00%                             

Total Fund Operating Expenses       1.00%                             

Day-to-day Fund Management

Since _____,  2000  Co-Manager:  Gregory  Woodhams,  CFA. Mr.                   
(Fund's inception)  Woodhams  is a Vice  President  and  Portfolio  Manager  for
                    American Century Investments, Mr. Woodhams has worked in the
                    financial industry since 1992 and joined American Century in
                    1997.  Previously,  he was Vice  President  and  Director of
                    Equity Research at Texas Commerce Bank. Mr. Woodhams holds a
                    Bachelor's  Degree in Economics  from Rice  University and a
                    Master's   Degree  in  Economics   from  the  University  of
                    Wisconsin  at  Madison.  He has  earned the right to use the
Chartered Financial Analyst designation.

Since ____, 2000    Co-Manager:  C. Kim Goodwin. Ms. Goodwin is                 
(Fund's inception)  Senior  Vice  President  and Senior  Portfolio  Manager  for
                    American Century Investments.  Ms. Goodwin has worked in the
                    financial  industry since 1987. She joined American  Century
                    in 1997. Previously, Ms. Goodwin was a Senior Vice President
                    with Putnam  Investments (19__ to 1997).  Prior to that, she
                    was a Vice  President and Portfolio  Manager at  Prudential.
                    Ms. Goodwin was also an Assistant Vice President with Mellon
                    Bank where she had various investment research and portfolio
                    construction  responsibilities.  Ms.  Goodwin  holds  an  AB
                    degree in politics from Princeton, cum laude. She also holds
                    a  Master's  Degree in  Public  Affairs  from The  Lyndon B.
                    Johnson  School of Public Affairs at the University of Texas
                    and an MBA degree in Business Administration in Finance from
                   The Graduate School of Business at the University at Texas.

Since ____,  2000   Co-Manager:  Prescott  LeGard,  CFA.  Mr.                   
(Fund's inception)  LeGard  is  a  Portfolio   Manager  for   American   Century
                    Investments.  Mr. LeGard joined the company in 1999.  Before
                    joining  the  company,  he was an  Equity  Analyst  for USAA
                    Investment   Management   where   he   analyzed   technology
                    companies.  He has worked in the  investment  industry since
                    1993.  Mr. LeGard holds a BA Degree in Economics from DePauw
                    University.  He has  earned  the right to use the  Chartered
Financial Analyst designation.          

PARTNERS LARGECAP VALUE FUND                                                    
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests  primarily in undervalued  equity securities of companies among
the 750  largest  by  market  capitalization  that the  Sub-Advisor,  Bernstein,
believes  offer  above-average  potential for growth in future  earnings.  Under
normal market conditions,  the Fund generally invests at least 65% of its assets
in  companies  with a market  capitalization  of greater than $10 billion at the
time of purchase. Market capitalization is defined as total current market value
of a company's  outstanding  common stock.  The Fund may invest up to 25% of its
assets in securities of foreign companies.                                      

Bernstein  employs  an  investment  strategy,  generally  described  as  "value"
investing, that involves seeking securities that:                               
o    exhibit low financial ratios (particularly stock price-to-book  value, but 
also stock  price-to-earnings and stock price-to-cash                 
flow);                                                                
o    can be  acquired for less than  what  Bernstein  believes  is the  issuer's
intrinsic value; or                                                   
o    appear attractive on a dividend discount model.                            

Value oriented investing entails a strong "sell discipline" in that it generally
requires the sale of  securities  that have reached their  intrinsic  value or a
target financial  ratio.  Value oriented  investments may include  securities of
companies in cyclical  industries  during periods when such securities appear to
Bernstein to have strong  potential  for capital  appreciation  or securities of
"special situation" companies. A special situation company is one that Bernstein
believes  has  potential  for  significant  future  earnings  growth but has not
performed  well in the recent past.  These  situations  include  companies  with
management   changes,   corporate  or  asset   restructuring   or  significantly
undervalued  assets. For Bernstein,  identifying special situation companies and
establishing  an issuer's  intrinsic value involves  fundamental  research about
such companies and issuers.                                                     

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility, which is the principal risk of investing in the Fund.               

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
large  capitalization  value stocks,  may underperform  compared to other market
segments or to the equity markets as a whole. The value of the Fund's securities
may fluctuate on a daily basis.  As with all mutual  funds,  as the value of the
Fund's  assets rise and fall,  the Fund's share price  changes.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.                                             

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
but prefer  investing  in  companies  that appear to be  considered  undervalued
relative to similar companies.                                                  

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance data is not available.  Estimated annual Fund operating expenses are
as follows:                                                                     

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your cost would be:                 

                        1 Year     3 Years
--------------------------------------------------------------------------------
  Institutional Class    $82        $255

Fund Operating Expenses 

     Institutional
       Class

Management Fees..................   0.80%                             

Total Fund Operating Expenses       0.80%                             

Day-to-day Fund Management

Since ________, 2000  Co-Manager: Marilyn G. Fedak.  Ms. Fedak, Chief Investment
(Fund's inception)    Officer of U.S.  Value  Equities and Chairman of the U.S. 
                      Equity Investment Policy Group of the Bernstein Investment
            Research and Management unit of Alliance Capital
                    Management L.P.  ("Alliance")  since October 2, 2000 and
                prior to that at Sanford C.  Bernstein  & Co.,  Inc.
                     ("SCB  Inc.")  since  1993.  She joined SCB Inc.  in 1984
                    and has managed portfolio  investments  since 1976.  She
               has a BA from Smith College and an MBA from Harvard
Business School.                    

Since ________, 2000  Co-Manager: Steven Pisarkiewicz. Mr. Pisarkiewicz has been
(Fund's inception)    with Alliance since October 2, 2000 and prior to that with
                      SCB Inc. since 1989 and  has been Senior Portfolio Manager
                      since 1997.  He holds a BS from the University of Missouri
                     and an MBA from the University of California at Berkeley.

PARTNERS MIDCAP VALUE FUND                                                      
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests primarily in common stocks of medium capitalization  companies.
Under normal market  conditions,  the Account  invests at least 65% of its total
assets in  companies  with a market  capitalization  between $1 billion  and $10
billion  at the time of  purchase.  Market  capitalization  is  defined as total
current  market value of a company's  outstanding  common  stock.  Companies may
range from the well  established and well known to the new and  unseasoned.  The
Fund may invest up to 25% of its assets in securities of foreign companies.     

The stocks are selected using a value oriented  investment approach by Neuberger
Berman,  the Sub-Advisor.  Neuberger  Berman  identifies value stocks in several
ways.  Factors it considers in  identifying  value stocks may include:  o strong
fundamentals,  such  as  a  company's  financial,  operational  and  competitive
positions;  o consistent  cash flow; and o a sound  earnings  record through all
phases of the market cycle.                                                     

Neuberger Berman may also look for other characteristics in a company, such as a
strong position relative to competitors,  a high level of stocks ownership among
management,  and a recent  sharp  decline in stock price that  appears to be the
result of a short-term  market  overreaction to negative news.  Neuberger Berman
believes that,  over time,  securities  that are  undervalued are more likely to
appreciate  in  price  and are  subject  to  less  risk of  price  decline  than
securities  whose market prices have already  reached their  perceived  economic
value.                                                                          

This approach also involves selling  portfolio  securities when Neuberger Berman
believes they have reached their potential,  when the securities fail to perform
as  expected  or  when  other  opportunities  appear  more  attractive.   It  is
anticipated  that the annual  portfolio  turnover rate may be greater than 100%.
Turnover rates in excess of 100% generally  result in higher  transaction  costs
and a possible increase in short-term capital gains (or losses).                

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends and  developments.  In  response,  the price of the  securities
issued  by such  companies  may  decline.  These  factors  contribute  to  price
volatility, which is the principal risk of investing in the Fund.               

The medium  capitalization  companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established  companies.
In  particular,  these  mid-sized  companies may pose greater risk due to narrow
product  lines,  limited  financial  resources,  less depth in  management  or a
limited trading market for their securities.                                    

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
medium  capitalization  value stocks, may underperform  compared to other market
segments or to the equity markets as a whole.  Because different types of stocks
tend to shift in and out of favor  depending on market and economic  conditions,
the Fund's performance may sometimes be lower or higher than that of other types
of funds.  The value of the Fund's  equity  securities  may fluctuate on a daily
basis. If the investor sells Fund shares when their value is less than the price
the investor paid for them, the investor will lose money.                       

Investor Profile                                                                
The Fund is  generally a suitable  investment  if  investors  seeking  long-term
growth  and  willing  to  accept   short-term   fluctuations  in  the  value  of
investments.                                                                    

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance data is not available.  Estimated annual Fund operating expenses are
as follows:                                                                     

Examples
The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower,  based on these  assumptions your cost would be:               

       1 Year    3 Years
--------------------------------------------------------------------------------
Institutional Class  $102       $318              
        ------------------

Fund Operating Expenses 
       Institutional
       Class

Management Fees..................   1.00%                             

Total Fund Operating Expenses   1.00%                         

Day-to-day Fund Management

Since  ______, 2000  Co-Manager: Robert I. Gendelman, Managing Director and     
(Fund's inception)   Portfolio Manager, Neuberger Berman Management,Inc., since 
                     1994. He holds a BA from the University of Michigan as well
            as a JD and an MBA from the University of Chicago.

PARTNERS SMALLCAP GROWTH FUND I                                                 
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
To  pursue   this  goal,   the  Fund   invests   mainly  in  common   stocks  of
small-capitalization  companies,  which it defines as those with a total  market
value of no more than $1.5  billion at the time the Fund first  invests in them.
The Fund may continue to hold or add to a position in a stock after it has grown
beyond $1.5 billion.  The Fund seeks to reduce risk by  diversifying  among many
companies  and  industries.  The  Fund may  invest  up to 25% of its  assets  in
securities of foreign companies.                                                

The Sub-Advisor,  Neuberger Berman, takes a growth approach to selecting stocks,
looking for new companies that are in the  developmental  stage as well as older
companies  that  appear  poised to grow  because  of new  products,  markets  or
management. Factors in identifying these firms may include financial strength, a
strong position  relative to competitors and a stock price that is reasonable in
light of its growth rate.                                                       

Neuberger  Berman  follows a  disciplined  selling  strategy and may eliminate a
stock from the  portfolio  when it reaches a target  price,  fails to perform as
expected, or appears substantially less desirable than another stock.           

Through active trading,  the Fund may have a high portfolio turnover rate, which
can mean higher taxable  distributions  and lower  performance  due to increased
brokerage costs.                                                                

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility  (wide,  rapid  fluctuations)  than  investments  in
larger, more mature companies.  Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become  established.   While  small,  unseasoned  companies  may  offer  greater
opportunities for capital growth than larger, more established  companies,  they
also involve greater risks and should be considered speculative.                

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
small  capitalization  growth stocks,  may  underperform  compared to the equity
markets  as a  whole.  The  securities  purchased  by the Fund  present  greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than  securities that do not have the same potential.  The
value of the Fund's equity  securities  may fluctuate on a daily basis.  As with
all mutual funds,  as the values of the Fund's assets rise and fall,  the Fund's
share price  changes.  The Fund's  share price may  fluctuate  more than that of
funds  primarily  invested in stocks of mid-sized  and large  companies  and may
underperform as compared to the securities of larger companies.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.                                             

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because the inception  date of the Fund is  _________,  2000,                   
historical  performance  data is not available.  Estimated annual Fund operating
expenses are as follows:                                                        

Examples

The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your cost would be:                 

                   1 Year    3 Years
--------------------------------------------------------------------------------

Institutional Class  $112      $350   
                  ------------------

Fund Operating Expenses 
       Institutional
       Class

Management Fees..................   1.10%                             

Total Fund Operating Expenses   1.10%                         

Day-to-day Fund Management

Since ________, 2000 Co-Manager:  Michael F. Malouf.  Mr. Malouf is a Vice      
(Fund's inception)   President of Neuberger  Berman  Management and Managing    
                     Director of Neuberger  Berman,  LLC. Mr. Malouf joined  the
                   firm  in  1998.  From  1991 to  1998,  he was a Portfolio
Manager at another firm.              

Since ________, 2000 Co-Manager:  Jennifer K. Silver.  Ms. Silver is a Vice     
(Fund's inception)   President of Neuberger  Berman  Management and Managing    
                  Director of Neuberger  Berman,  LLC. Ms. Silver has been
                   Director of the Growth Equity Group since 1997 and was an
               Analyst and a Portfolio  Manager at another firm from
1981 to 1997.                         

PARTNERS SMALLCAP GROWTH FUND II                                                
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund  pursues its  investment  objective  by  investing  primarily in equity
securities of companies offering superior  prospects for earnings growth.  These
companies are generally characterized as "growth" companies. Under normal market
conditions,  the Fund  invests  at least 65% of its assets in  companies  with a
small market capitalizaiton. Market capitalization is defined as  total  current
market value of a company's outstanding common stock. The Fund may invest  up to
25% of its  assets  in securities of foreign companies.                         

Using its own quantitative process, the Sub-Advisor, Federated, rates the future
performance potential of companies.  Federated evaluates each company's earnings
quality in light of their  current  valuation  to narrow the list of  attractive
companies. Federated then evaluates product positioning,  management quality and
sustainability  of current growth trends of those companies.  Using this type of
fundamental  analysis,  Federated  selects the most promising  companies for the
Fund's portfolio.                                                               

Companies  with  similar  characteristics  may  be  grouped  together  in  broad
categories  called  sectors.  In determining the amount to invest in a security,
Federated  limits the Fund's exposure to each business sector that comprises the
S&P 500 Index. The Fund considers its approach aggressive because its strategies
with respect to security analysis, market capitalization, and sector  allocation
are designed to produce a portfolio of stocks  whose long-term  growth prospects
are  significantly  above those of the S&P 500 Index. Accordingly, the prices of
the  stocks  held  by the  Fund may, under  certain market  conditions, be  more
volatile than the prices of stocks selected using a less aggressive approach.   

The Fund may  attempt  to manage  market  risk by buying and  selling  financial
futures and options. This may include the purchase of index futures contracts as
a substitute for direct  investments in stocks. It may also include the purchase
and sale of options to protect against general declines in small  capitalization
stocks economically.                                                            

The Fund actively  trades its portfolio  securities in an attempt to achieve its
investment  objective.  Active  trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its  shareholders,  which are taxed at a higher rate than longer-term  gains
(losses).  Actively trading  portfolio  securities  increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.                 

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility,  which
is the principal risk of investing in the Fund.                                 

Investments in companies with smaller market capitalizations may involve greater
risks and price  volatility  (wide,  rapid  fluctuations)  than  investments  in
larger, more mature companies.  Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become  established.   While  small,  unseasoned  companies  may  offer  greater
opportunities for capital growth than larger, more established  companies,  they
also involve greater risks and should be considered speculative.                

Federated may group companies with similar characteristics into broad categories
called  sectors.  Sector  risk is the  possibility  that a  certain  sector  may
underperform other sectors or the market as a whole. As Federated allocates more
of the Fund's portfolio  holdings to a particular sector, the Fund's performance
will be more susceptible to any economic,  business or other  developments  that
generally affect that sector.                                                   

Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

In addition,  the Fund is subject to the risk that its principal market segment,
small  capitalization  growth stocks,  may  underperform  compared to the equity
markets  as a  whole.  The  securities  purchased  by the Fund  present  greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than  securities that do not have the same potential.  The
value of the Fund's equity  securities  may fluctuate on a daily basis.  As with
all mutual funds,  as the values of the Fund's assets rise and fall,  the Fund's
share price  changes.  The Fund's  share price may  fluctuate  more than that of
funds  primarily  invested in stocks of mid-sized  and large  companies  and may
underperform as compared to the securities of larger companies.  If the investor
sells Fund shares when their value is less than the price the investor  paid for
them, the investor will lose money.                                             

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital and willing to accept the risks of investing in common  stocks
that may have greater  risks than stocks of companies  with lower  potential for
earnings growth.                                                                

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance data is not available.  Estimated annual Fund operating expenses are
as follows:                                                                     

Examples
The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower,  based on these  assumptions your cost would be:               
        1 Year     3 Years
--------------------------------------------------------------------------------
Institutional Class   $102       $318               
        ------------------

Fund Operating Expenses 
       Institutional
       Class

Management Fees..................   1.00%                             

Total Fund Operating Expenses   1.00%                         

Day-to-day Fund Management

Since ______,  2000 Co-Manager:  Keith J. Sabol,  CFA. Mr.                      
(Fund's inception)  Sabol joined  Federated  in 1994.  He has  been a  Porfolio 
                    Manager since 1996 and served as an Assistant Vice President
                    of  Federated  Investment  Management  Company  from 1997 to
                    1998. He has been a Vice  President of Federated  Investment
                    Management  Company since 1998.  Mr. Sabol was an Investment
                    Analyst,  and then Equity Research Coordinator for Federated
                    Investment  Management  Company from 1994 to 1996. Mr. Sabol
                    earned his MS in  Industrial  Administration  from  Carnegie
                    Mellon  University.  He has  earned  the  right  to use  the
Chartered Financial Analyst designation.

Since _______, 2000 Co-Manager: Aash M. Shah, CFA. Mr. Shah                     
(Fund's inception)  joined  Federated  in 1993 and has been a Portfolio  Manager
                    and a Vice  President  of  Federated  Investment  Management
                    Company  since 1997.  Mr.  Shah was a Portfolio  Manager and
                    served  as  an   Assistant   Vice   President  of  Federated
                    Investment Management Company from 1995 through 1996, and as
                    an Investment  Analyst from 1993 to 1995.  Mr. Shah received
                    his  Masters  in  Industrial  Administration  from  Carnegie
                    Mellon  University  with  a  concentration  in  Finance  and
                    Accounting.  He has  earned  the right to use the  Chartered
Financial Analyst designation.          

TECHNOLOGY FUND                                                                 
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests  primarily in common stocks and other  securities of technology
and  telecommunications  companies domiciled in any of the nations of the world.
The  Sub-Advisor,   BT  believes  that  as  markets  are  becoming  increasingly
globalized,  companies can no longer be researched on a purely  regional  basis.
Companies are increasingly  influenced by global, not just local trends, and for
this reason BT believes  that  analysis and research  needs to be conducted in a
global context.  BT considers  companies in a broad range of  technology-related
industries,  generally including:  computers;  software and peripheral products;
electronics; communications equipment and services; and information services.   

The  Sub-Advisor,  BT,  selects  securities for the Fund based on its own global
investment  research.  The research program is focused on three key criteria:   
o    business franchise - considering factors such as the company's relationship
     with its suppliers and customers, the degree of rivalry with competitors as
well as the exposure to regulatory and technological risk;            
o    quality of management - assessing  the company's  management on its ability
     to execute  current  business  plans,  manage the  capital  invested in the
     business as well as the level of transparency  with respect to strategy and
operations; and                                                       
o    business  valuation - determining  the private market or `true business    
value' of the firm.                                                   

BT's qualitative analysis is complemented by disciplined  valuation  techniques.
These include proprietary models as well as conventional market measurements and
industry  specific models of relative value.  This analytical  framework ensures
consistency and  transparency  throughout the research  process.  Portfolios are
constructed  and managed  within  predetermined  guidelines  that are  regularly
monitored by BT.                                                                

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility.                                                                     

In addition,  foreign stocks carry risks that are not generally  found in stocks
of U.S.  companies.  These include the risk that a foreign  security  could lose
value as a result  of  political,  financial  and  economic  events  in  foreign
countries.  Foreign securities may be subject to securities regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The  Fund is also  subject  to the  risk  that  its  principal  market  segment,
technology stocks, may underperform  compared to other market segments or to the
equity markets as a whole. The competitive pressures of advancing technology and
the number of companies  and product  offerings  which  continue to expand could
cause  technology  companies to become  increasingly  sensitive to short product
cycles and aggressive  pricing.  To the extent that the Fund's  investments  are
concentrated in issuers  conducting  business in the same industry,  the Fund is
subject to legislative or regulatory  changes,  adverse market conditions and/or
increased competition affecting that industry.                                  

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  In the  short-term,  stock prices can  fluctuate  dramatically  in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.   

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  long-term
growth of capital in the  technology and  telecommunications  sector and who are
able to assume the increased  risks of higher price  volatility  associated with
such investments.                                                               

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance data is not available.  Estimated annual Fund operating expenses are
as follows:                                                                     

Examples
The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your cost would be:                 

       1 Year    3 Years
--------------------------------------------------------------------------------
Institutional Class      $102      $318                   
      ------------------

Fund Operating Expenses 
     Institutional
       Class

Management Fees..................   1.00%                             

Total Fund Operating Expenses   1.00%                         

Day-to-day Fund Management

Since ________, 2000  David Mills is Executive Vice President                   
(Fund's  inception)   of BT and serves as its head of U.S. Equities.  He joined 
                      BT's  retail unit trust team in January 1990 as an Analyst
                     in  European  equities.  In  July 1996,  he  assumed fund
                     management responsibility for all of  the direct European
investment vehicles offered by BT.  
INTERNATIONAL II                                                                
The Fund seeks long-term growth of capital.                                     

Main Strategies                                                                 
The Fund invests in common stocks and other securities of companies domiciled in
any of the nations of the world.  The Fund invests in securities of:            
o    companies with their principal place of business or principal offices      
outside the U.S.;                                                     
o    companies for which the principal securities trading market is outside the 
U.S.; or                                                              
o    companies, regardless of where its securities are traded, that derive 50%  
  or more of their total revenue from either goods or services produced or
sales made outside the U.S.                                           

The  Sub-Advisor,  BT,  selects  securities for the Fund based on its own global
investment  research.  The research program is focused on three key criteria:   
o    business franchise - considering factors such as the company's relationship
     with its suppliers and customers, the degree of rivalry with competitors as
well as the exposure to regulatory and technological risk;            
o    quality of management - assessing  the company's  management on its ability
     to execute  current  business  plans,  manage the  capital  invested in the
     business as well as the level of transparency  with respect to strategy and
operations; and                                                       
o    business valuation - determining the private market or `true business      
value' of the firm.                                                   

BT's qualitative analysis is complemented by disciplined  valuation  techniques.
These include proprietary models as well as conventional market measurements and
industry  specific models of relative value.  This analytical  framework ensures
consistency and  transparency  throughout the research  process.  Portfolios are
constructed  and managed  within  predetermined  guidelines  that are  regularly
monitored by BT.                                                                

Main Risks                                                                      
Because it  purchases  equity  securities,  the Fund is subject to the risk that
stock  prices  will fall over  short or  extended  periods  of time.  Individual
companies may report poor results or be negatively  affected by industry  and/or
economic  trends  and  developments.  The  price of  securities  issued  by such
companies may suffer a decline in response.  These  factors  contribute to price
volatility.                                                                     

In addition,  foreign stocks carry risks that are not generally  found in stocks
of U.S.  companies.  These include the risk that a foreign  security  could lose
value as a result  of  political,  financial  and  economic  events  in  foreign
countries.  Foreign securities may be subject to securities regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods  may  be  longer  for  foreign  securities  and
portfolio liquidity may be affected.                                            

The Fund may invest in  securities  of  companies  with  small to medium  market
capitalizations.  While small  companies  may offer  greater  opportunities  for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow  product lines,  limited  financial  resources,  less
depth  in  management  or  a  limited  trading  market  for  their   securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.                                     

The net  asset  value  of the  Fund's  shares  is  based  on the  values  of the
securities  it holds.  The value of the  stocks  owned by the Fund  changes on a
daily basis.  In the  short-term,  stock prices can  fluctuate  dramatically  in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.   

Investor Profile                                                                
The Fund is generally a suitable  investment  for  investors  seeking  growth of
capital in  markets  outside  of the U.S.  who are able to assume the  increased
risks of higher price  volatility  and  currency  fluctuations  associated  with
investments in international stocks which trade in non-U.S. currencies.         

Because  the  inception  date  of  the  Fund  is  _________,   2000,  historical
performance data is not available.  Estimated annual Fund operating expenses are
as follows:                                                                     

Examples
The  Examples  assume that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Examples also assume that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your cost would be:                 

                 1 Year    3 Years
--------------------------------------------------------------------------------
Institutional Class      $102       $318          
              ------------------

Fund Operating Expenses 
       Institutional
       Class

Management Fees..................    1.00%                            

Total Fund Operating Expenses     1.00%                         

Day-to-day Fund Management

Since ________, 2000  Christopher Selth, Executive  Vice  President of  BT, was 
(Fund's inception)    appointed its head of  International Equities in 1998 and 
                      its joint head of Equities in 1999.  He joined  BT in 1987
                    as an Investment Analyst in the retail unit trust group.
                      In 1988, he  was  assigned  the  responsibility  to  cover
             European   equities.    Mr.   Selth   was   given
                    responsibility  for the European component of all retail
                   unit trusts in March 1994.  Since November 1996, he has
                    been  responsible for  institutional and retail European
                     investments,  supervising all European  activities,   and
                    the  European  funds management group.  Prior to joining
                BT, Mr. Selth worked with QBE  Insurance  Limited in
                      investment management   as  an   assistant   to  the Group
      Treasurer. He holds a Bachelor's degree in
              Economics (Honours) from the University of Sydney.

THE COSTS OF INVESTING                                                          

Fees and Expenses of the Funds                                                  
The shares of the Funds are sold  without a  front-end  sales  charge and do not
have a contingent  deferred sales charge.  There is no sales charge on shares of
the Funds purchased with reinvested dividends or other distributions.  The Funds
do not pay any fees other than  those  described  below and do not pay any other
expenses.                                                                       

Ongoing Fees                                                                    
Each Fund pays  ongoing  fees to the Manager and others who provide  services to
the Fund.  They reduce the value of each share.  Because they are ongoing  fees,
they  increase  the cost of  investing  in the  Funds.  These  fees  include:   
o    Management Fee - Through the Management Agreement with the Fund, the       
Manager has agreed to provide investment advisory services            
and corporate administrative services to the Funds.                   
o    Service Fee - The Manager has entered  into a Services  Agreement  with the
     Fund  under  which the Manager performs  personal services to shareholders.
o    Administrative Service Fee - The Manager has entered into an Administrative
     Services  Agreement with the Fund under which the Manager provides transfer
     agent  services  to the Fund.  In  addition,  the  Manager  has assumed the
     responsibility  for  communications  with and  recordkeeping  services  for
beneficial owners of Fund shares.                                     
o    Portfolio  Accounting  Services - The Manager has entered into an agreement
     with the  Fund  under  which  the  Manager  supplies  portfolio  accounting
services.                                                             

CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS                                 

The Statement of Additional  Information (SAI) contains  additional  information
about investment strategies and their related risks.                            

Securities and Investment Practices                                             
Equity  securities   include  common  stocks,   preferred  stocks,   convertible
securities  and warrants.  Common stocks,  the most familiar type,  represent an
equity (ownership) interest in a corporation.  Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes in
a company's financial  condition and in overall market and economic  conditions.
Smaller companies are especially sensitive to these factors.                    

Fixed-income  securities  include bonds and other debt instruments that are used
by  issuers to borrow  money  from  investors.  The  issuer  generally  pays the
investor a fixed,  variable or floating  rate of interest.  The amount  borrowed
must be repaid at maturity. Some debt securities,  such as zero coupon bonds, do
not pay current interest, but are sold at a discount from their face values.    

Fixed-income  securities are sensitive to changes in interest rates. In general,
fixed-income  security  prices  rise  when  interest  rates  fall and fall  when
interest rates rise.  Longer term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.                                             

Fixed-income  security  prices are also  affected  by the credit  quality of the
issuer. Investment grade debt securities are medium and high quality securities.
Some  bonds,  such  as  lower  grade  or  "junk"  bonds,  may  have  speculative
characteristics and may be particularly sensitive to economic conditions and the
financial condition of the issuers.                                             

Repurchase Agreements and Loaned Securities                                     
Each of the Funds may invest a portion of its assets in  repurchase  agreements.
Repurchase  agreements  typically involve the purchase of debt securities from a
financial   institution  such  as  a  bank,  savings  and  loan  association  or
broker-dealer.  A repurchase  agreement provides that the Fund sells back to the
seller and that the seller repurchases the underlying  securities at a specified
price on a specific date. Repurchase agreements may be viewed as loans by a Fund
collateralized by the underlying securities. This arrangement results in a fixed
rate of return  that is not subject to market  fluctuation  while the Fund holds
the security.  In the event of a default or  bankruptcy  by a selling  financial
institution, the affected Fund bears a risk of loss. To minimize such risks, the
Fund enters into  repurchase  agreements only with large,  well-capitalized  and
well-established   financial  institutions.   In  addition,  the  value  of  the
collateral  underlying the repurchase  agreement is always at least equal to the
repurchase price, including accrued interest.                                   

Each  of  the  Funds  may  lend  its  portfolio   securities   to   unaffiliated
broker-dealers and other unaffiliated qualified financial institutions.         

Currency Contracts                                                              
The Funds may each enter  into  forward  currency  contracts,  currency  futures
contracts  and  options,  and  options  on  currencies  for  hedging  and  other
non-speculative  purposes.  A forward  currency  contract  involves a  privately
negotiated  obligation to purchase or sell a specific  currency at a future date
at a price set in the contract.  A Fund will not hedge  currency  exposure to an
extent greater than the aggregate  market value of the securities  held or to be
purchased by the Fund (denominated or generally quoted or currently  convertible
into the currency).                                                             

Hedging  is a  technique  used in an  attempt  to  reduce  risk.  If the  Fund's
Sub-Advisor hedges market conditions incorrectly or employs a strategy that does
not correlate well with the Fund's investment,  these techniques could result in
a loss. These techniques may increase the volatility of a Fund and may involve a
small  investment  of cash  relative to the  magnitude of the risk  assumed.  In
addition,  these  techniques  could  result in a loss if the other  party to the
transaction  does not perform as  promised.  Additionally,  there is the risk of
government  action through exchange  controls that would restrict the ability of
the Fund to deliver or receive currency.                                        

Forward Commitments                                                             
Each of the Funds may enter into forward commitment agreements. These agreements
call for the Fund to  purchase  or sell a security  on a future  date at a fixed
price. Each of these Funds may also enter into contracts to sell its investments
either on demand or at a specific interval.                                     

Warrants                                                                        
Each of the Funds may invest up to 5% of its assets in warrants.  A warrant is a
certificate  granting its owner the right to purchase securities from the issuer
at a specified price, normally higher than the current market price.            

Derivatives                                                                     
To the extent permitted by its investment  objectives and policies,  each of the
Funds may invest in  securities  that are  commonly  referred  to as  derivative
securities.  Generally,  a derivative is a financial  arrangement,  the value of
which is derived  from, or based on, a traditional  security,  asset,  or market
index.   Certain   derivative   securities  are  described  more  accurately  as
index/structured   securities.   Index/structured   securities   are  derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts),  currencies, interest rates, indices or other financial
indicators (reference indices).                                                 

Some derivatives,  such as mortgage-related  and other asset-backed  securities,
are in many  respects  like  any  other  investment,  although  they may be more
volatile or less liquid than more traditional debt securities.                  

There are many  different  types of  derivatives  and many different ways to use
them. Futures and options are commonly used for traditional  hedging purposes to
attempt to protect a Fund from exposure to changing  interest rates,  securities
prices,  or  currency  exchange  rates  and for cash  management  purposes  as a
low-cost method of gaining  exposure to a particular  securities  market without
investing directly in those securities.                                         

No Fund may invest in a derivative  security  unless the reference index  or the
instrument  to which it  relates is an  eligible  investment  for the Fund.  For
example,  a security whose  underlying value is linked to the price of oil would
not be a permissible  investment  because the Funds may not invest in oil leases
or futures.                                                                     

The return on a derivative  security may  increase or decrease,  depending  upon
changes in the  reference  index or  instrument  to which it relates.  The risks
associated with derivative  investments  include:                               
o    the risk that the underlying security, interest rate, market index or other
     financial asset will not move in the direction the Sub-Advisor anticipated;
o    the possibility that there may be no liquid secondary market which may make
it difficult or impossible to close out a position when desired;      
o    the risk that adverse price movements in an instrument can result in a loss
substantially greater than a Fund's initial investment; and           
o    the counterparty may fail to perform its obligations.                      

Foreign Securities                                                              
Each of the following Funds may invest in securities of foreign  companies.  For
the purpose of this  restriction,  foreign companies are:                       
o    companies with their principal place of business or principal  office      
outside the U.S.;                                                     
o    companies for which the principal securities trading market is outside the 
U.S.;  and                                                            
o    companies,  regardless of where its  securities are traded, that derive 50%
 or more of their total revenue from goods or services produced or sales
made outside the U.S.                                                 

The  International  II and  Technology  Funds  each may invest up to 100% of its
assets in foreign  securities.  The other Funds each may invest up to 25% of its
assets in foreign securities.                                                   

Foreign  companies may not be subject to the same uniform  accounting,  auditing
and  financial  reporting  practices  as are  required  of  U.S.  companies.  In
addition,  there  may be less  publicly  available  information  about a foreign
company than about a U.S. company. Securities of many foreign companies are less
liquid  and  more  volatile  than  securities  of  comparable  U.S.   companies.
Commissions on foreign  securities  exchanges may be generally higher than those
on U.S.  exchanges,  although each Fund seeks the most  favorable net results on
its portfolio transactions.                                                     

Foreign  markets also have different  clearance and settlement  procedures  than
those in U.S. markets. In certain markets there have been times when settlements
have been unable to keep pace with the volume of securities transactions, making
it difficult to conduct these transactions. Delays in settlement could result in
temporary  periods  when a portion of Fund assets is not invested and earning no
return.  If a  Fund  is  unable  to  make  intended  security  purchases  due to
settlement problems, the Fund may miss attractive investment  opportunities.  In
addition,  a Fund may incur a loss as a result of a decline  in the value of its
portfolio if it is unable to sell a security.                                   

With  respect  to  certain  foreign  countries,  there  is  the  possibility  of
expropriation  or confiscatory  taxation,  political or social  instability,  or
diplomatic  developments  that  could  affect  a  Fund's  investments  in  those
countries.  In addition,  a Fund may also suffer losses due to  nationalization,
expropriation or differing accounting  practices and treatments.  Investments in
foreign securities are subject to laws of the foreign country that may limit the
amount and types of foreign  investments.  Changes of governments or of economic
or  monetary  policies,  in the U.S.  or  abroad,  changes in  dealings  between
nations,  currency  convertibility  or exchange rates could result in investment
losses for a Fund.  Finally,  even though certain  currencies may be convertible
into U.S. dollars, the conversion rates may be artificial relative to the actual
market values and may be unfavorable to Fund investors.                         

Foreign  securities  are  often  traded  with less  frequency  and  volume,  and
therefore  may have greater  price  volatility,  than is the case with many U.S.
securities. Brokerage commissions,  custodial services, and other costs relating
to investment in foreign countries are generally more expensive than in the U.S.
Though the Funds intend to acquire the securities of foreign issuers where there
are public trading markets,  economic or political turmoil in a country in which
a  Fund  has a  significant  portion  of  its  assets  or  deterioration  of the
relationship  between the U.S. and a foreign  country may negatively  impact the
liquidity of a Fund's  portfolio.  The Fund may have difficulty  meeting a large
number  of  redemption  requests.  Furthermore,  there  may be  difficulties  in
obtaining or enforcing judgments against foreign issuers.                       

A Fund may  choose  to  invest in a foreign  company  by  purchasing  depositary
receipts.  Depositary  receipts  are  certificates  of  ownership of shares in a
foreign  based issuer held by a bank or other  financial  institution.  They are
alternatives  to  purchasing  the  underlying  security  but are  subject to the
foreign securities to which they relate.                                        

Investments in companies of developing  countries may be subject to higher risks
than investments in companies in more developed countries.  These risks include:
o    increased social,  political and economic instability;                     
o    a smaller market for these securities and low or nonexistent volume of     
trading that results in a lack of liquidity and in greater price      
volatility;                                                           
o    lack of  publicly  available  information, including reports of payments of
dividends or interest on outstanding  securities;                     
o    foreign government policies that may restrict opportunities, including     
 restrictions on investment in issuers or industries deemed sensitive to
national interests;                                                   
o    relatively new capital market structure or market-oriented economy;        
o    the possibility that recent favorable  economic  developments may be slowed
     or reversed by unanticipated political or social events in these countries;
o    restrictions  that may make it difficult or impossible for the Fund to vote
     proxies,  exercise  shareholder rights,  pursue legal remedies,  and obtain
judgments in foreign courts; and                                      
o    possible  losses  through the holding of  securities  in domestic  and     
foreign custodial banks and depositories.                             

In addition, many developing countries have experienced substantial, and in some
periods,  extremely high rates of inflation for many years.  Inflation and rapid
fluctuations  in  inflation  rates have had and may  continue  to have  negative
effects on the economies and securities markets of those countries.             

Repatriation  of  investment  income,  capital and  proceeds of sales by foreign
investors  may  require  governmental   registration  and/or  approval  in  some
developing  countries.  A Fund  could be  adversely  affected  by delays in or a
refusal  to  grant  any  required  governmental  registration  or  approval  for
repatriation.                                                                   

Further,  the economies of developing  countries generally are heavily dependent
upon  international  trade and,  accordingly,  have been and may  continue to be
adversely affected by trade barriers,  exchange controls, managed adjustments in
relative currency values and other protectionist  measures imposed or negotiated
by the countries with which they trade.                                         

Securities of Smaller Companies                                                 
The Funds may invest in securities of companies with small- or mid-sized  market
capitalizations.  Market capitalization is defined as total current market value
of a company's  outstanding common stock.  Investments in companies with smaller
market  capitalizations  may involve greater risks and price  volatility  (wide,
rapid fluctuations) than investments in larger,  more mature companies.  Smaller
companies  may be less mature than larger  companies.  At this earlier  stage of
development,  the  companies  may have limited  product  lines,  reduced  market
liquidity  for  their  shares,  limited  financial  resources  or less  depth in
management than larger or more established  companies.  Small companies also may
be  less  significant  within  their  industries  and  may  be at a  competitive
disadvantage  relative to their larger competitors.  While smaller companies may
be subject to these  additional  risks,  they may also realize more  substantial
growth than larger or more established companies.                               

Unseasoned Issuers                                                              
The Funds may invest in the securities of unseasoned issuers. Unseasoned issuers
are  companies  with a record of less than  three  years  continuous  operation,
including the operation of predecessors and parents. Unseasoned issuers by their
nature have only a limited operating history that can be used for evaluating the
company's  growth  prospects.  As  a  result,  investment  decisions  for  these
securities may place a greater  emphasis on current or planned product lines and
the reputation  and experience of the company's  management and less emphasis on
fundamental  valuation  factors  than would be the case for more  mature  growth
companies.  In addition, many unseasoned issuers also may be small companies and
involve the risks and price volatility associated with smaller companies.       

Temporary Defensive Measures                                                    
For  temporary  defensive  purposes  in  times  of  unusual  or  adverse  market
conditions, the Funds may invest without limit in cash and cash equivalents. For
this  purpose,  cash  equivalents  include:  bank notes,  bank  certificates  of
deposit,  bankers  acceptances,  repurchase  agreements,  commercial  paper, and
commercial paper master notes which are floating rate debt instruments without a
fixed maturity.  In addition,  a Fund may purchase U.S.  Government  securities,
preferred  stocks  and  debt  securities,  whether  or not  convertible  into or
carrying rights for common stock.                                               

There is no limit on the extent to which the Funds may take temporary  defensive
investment  measures.  In taking  such  measures,  the Funds may fail to achieve
their investment objective.                                                     

Portfolio Turnover                                                              
"Portfolio  Turnover" is the term used in the industry for  measuring the amount
of trading that occurs in a Fund's  portfolio  during the year.  For example,  a
100%  turnover  rate means that on average  every  security in the portfolio has
been  replaced once during the year.  Funds with high turnover  rates (more than
100%) often have higher  transaction  costs (which are paid by the Fund) and may
generate  short-term  capital  gains (on which  taxes may be imposed  even if no
shares of the Fund are sold during the year.  No turnover  rates are  calculated
for the Funds as they have been in existence for less than six months.          

Please consider all the factors when you compare the turnover rates of different
funds. A fund with  consistently  higher total returns and higher turnover rates
than another fund may actually be achieving better performance precisely because
the managers are active traders.                                                

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE                                  
The Manager                                                                     
Principal Management Corporation serves as the Manager for the Fund. Through the
Management  Agreement  with the Fund,  the  Manager  has  agreed  to handle  the
investment  advisory  services  and  provide  certain  corporate  administrative
services for the Fund. The Fund and the Manager have also entered into a Service
Agreement under which the Manager provides  personal services to shareholders of
each Fund.  Additionally,  the Fund and the Manager have entered into a Transfer
Agency  Agreement under which the Manager has agreed to provide  transfer agency
services.  The Fund and the Manager  have  entered  into a Portfolio  Accounting
Service  Agreement  under  which  the  Manager  provides  portfolio   accounting
services.                                                                       

The Manager is an indirect subsidiary of Principal Financial Services, Inc. and 
has managed mutual funds since 1969. As of ________, the mutual funds it manages
had assets of approximately $_____ billion. The Manager's address is Principal  
Financial Group, Des Moines, Iowa.                                              

The Sub-Advisors                                                                
The  Manager  has  signed  contracts  with  various   Sub-Advisors.   Under  the
Sub-Advisory Agreements, the Sub-Advisor agrees to assume the obligations of the
Manager to provide  investment  advisory services for a specific Fund. For these
services, the Sub-Advisor is paid a fee by the Manager.                         

Fund:             International II and Technology                               

Sub-Advisor:      BT  Funds  Management  (International)  Limited  ("BT")  is a 
related company of  BT  Funds  Management   
                  Limited  ("BTFM")  and a  member  of the  Principal  Financial
                  Group.  Its address is The Chifley  Tower,  2 Chifley  Square,
                  Sydney 2000 Australia.  As of June 30, 2000, BT, together with
                  BTFM,  had  approximately  $25.6 billion under  management for
                more than ____________ institutional and individual clients.

Fund:             Partners LargeCap Blend and Partners SmallCap Growth II       

Sub-Advisor:      Federated Investment  Management  Company  ("Federated") is a 
                registered investment adviser and a wholly-owned  subsidiary
                of Federated Investors,  Inc.,  which was  founded  in 1955.
                  Federated  is located  in the  Federated  Investors  Tower  at
                 1001  Liberty Avenue,   Pittsburgh,   PA  15222-3779.  As  of
             June 30,  2000, Federated managed $125 billion in assets.

Fund:             Partners LargeCap Growth I                                    

Sub-Advisor:      Morgan  Stanley  Asset  Management  ("Morgan  Stanley"),  with
                  principal offices at 1221 Avenue of the Americas, New York, NY
                  10020, provides a broad range of portfolio management services
                  to  customers  in the U.S.  and abroad.  As of June 30,  2000,
                  Morgan  Stanley,  together with its  affiliated  institutional
                  asset  management  companies,   managed  investments  totaling
                  approximately  $177.2 billion as named  fiduciary or fiduciary
                  adviser.  On December 1, 1998 Morgan Stanley Asset  Management
                  Inc. changed its name to Morgan Stanley Dean Witter Investment
                  Management  Inc.  but  continues  to do  business  in  certain
             instances using the name Morgan Stanley Asset Management.

Fund:             Partners LargeCap Growth II                                   

Sub-Advisor:      American Century Investment Management ("American Century"),  
          Inc. was founded in 1958. Its office is located in the
               American Century Tower at 4500 Main Street, Kansas City, KS
              64111.  As of June 30, 2000, American Century managed over
$110 billion in assets.                     

Fund:             Partners LargeCap Value                                       

Sub-Advisor:      Alliance  Capital  Management  L.P.  ("Alliance")  through its
                  Bernstein    Investment    Research   and   Management    unit
                  ("Bernstein").  As of June 30, 2000,  Alliance  managed $387.8
                  billion in assets.  Bernstein is located at 767 Fifth  Avenue,
                  New York,  NY 10153 and  Alliance is located at 1345 Avenue of
the Americas, New York, NY 10105.           

Fund:             Partners MidCap Value and Partners SmallCap Growth I          

Sub-Advisor:      Neuberger Berman  Management Inc.  ("Neuberger  Berman") is an
                  affiliate of Neuberger  Berman,  LLC.  Neuberger Berman LLC is
                  located  at  605  Third  Avenue,   2nd  Floor,  New  York,  NY
                  10158-0180.  Together with Neuberger Berman,  the firms manage
                  more than $54  billion in total  assets (as of June 30,  2000)
                and continue an asset management history that began in 1939.

Duties of Manager and Sub-Advisors                                              
The Manager or  Sub-Advisor  provides  the Board of Directors of the Fund with a
recommended  investment program.  The program must be consistent with the Fund's
investment  objective and policies.  Within the scope of the approved investment
program,  the Manager or Sub-Advisor  advises the Fund on its investment  policy
and determines which securities are bought and sold, and in what amounts.       

The Manager is paid a fee by the Fund for its services,  which  includes any fee
paid to the Sub-Advisor.                                                        

Each Fund and the Manager,  under an order received from the SEC, may enter into
and materially amend agreements with Sub-Advisors without obtaining  shareholder
approval.  For any Fund that is relying on that order,  the Manager  may:       
o    hire one or more Sub-Advisors;                                             
o    change  Sub-Advisors;  and                                                 
o    reallocate  management                                                     
fees between  itself and  Sub-Advisors.  The Manager  will  continue to have the
ultimate responsibility for the investment performance of these Funds due to its
responsibility to oversee Sub-Advisors and recommend their, hiring,  termination
and replacement.  No Fund will rely on the order until it receives approval from
the Fund's sole initial  shareholder before the Fund is available to the public,
and the Fund states in its prospectus that it intends to rely on the order.  The
Manager will not enter into an agreement with an affiliated  Sub-Advisor without
that agreement,  including the compensation to be paid under it, being similarly
approved.  The Partners  LargeCap  Blend,  Partners  LargeCap Growth I, Partners
LargeCap Growth II, Partners  LargeCap  Value, Partners SmallCap Blend, Partners
SmallCap Growth I and Partners SmallCap Growth II Funds have received the       
necessary shareholder approval and intend to rely on the order.                 

SHAREHOLDER INFORMATION                                                         

Pricing of Fund Shares                                                          
Each Fund's  shares are bought and sold at the current  NAV.  The share price of
each  class of each  Fund is  calculated  each day the New York  Stock  Exchange
(NYSE) is open.  The NAV is  determined at the close of business of the Exchange
(normally  3:00  p.m.  Central  time).  When an order to buy or sell  shares  is
received,  the NAV used to fill the order is the next price calculated after the
order is received.                                                              

The share price for Class I shares is calculated by:                            
o    taking the current market value of the total assets of the Fund            
o    subtracting  liabilities of the Fund                                       
o    dividing the remainder proportionately into the classes of the Fund        
o    subtracting the liabilities of Class I shares from its portion             
o    dividing the remainder by the total number of shares owned in Class I.     

NOTES:                                                                          
o    If current market values are not readily  available for a security owned by
     a Fund,  its fair value is determined  using a policy adopted by the Fund's
Board of Directors.                                                   
o    A Fund's  securities  may be  traded on  foreign  securities  markets  that
     generally  complete  trading at various  times  during the day prior to the
     close of the NYSE. The values of foreign securities used in computing share
     price are determined at the time the foreign  market closes.  Occasionally,
     events  affecting  the value of foreign  securities  occur when the foreign
     market is closed and the NYSE is open. If the Sub-Advisor believes that the
     market value is  materially  affected,  the share price will be  calculated
using the policy adopted by the Fund.                                 
o    Certain  securities  issued by companies in emerging  market  countries may
     have  more than one  quoted  valuation  at any point in time.  These may be
     referred to as local price and premium price.  The premium price is often a
     negotiated  price that may not  consistently  represent  a price at which a
     specific  transaction can be effected.  The International II and Technology
     Funds  each has a policy to value such  securities  at a price at which the
Sub-Advisor expects the securities may be sold.                       

Purchase of Fund Shares                                                         
Shares are purchased from Princor  Financial  Services  Corporation,  the Fund's
principal underwriter.  There are no sales charges on shares of the Funds. There
are no restrictions on amounts to be invested in Class I shares of the Funds.   

Shareholder  accounts for each Fund are maintained under an open account system.
Under this system,  an account is opened and maintained for each investor.  Each
investment  is confirmed by sending the investor a statement of account  showing
the current purchase or sale and the total number of shares owned. The statement
of account is treated by each Fund as  evidence  of  ownership  of Fund  shares.
Share certificates are not issued.                                              

Redemption of Fund Shares                                                       
Each Fund sells its shares upon request. There is no charge for the sale. Shares
are redeemed at the NAV per share next computed after the request is received by
the Fund in proper and complete form.                                           

The Fund generally sends payment for shares sold the business day after the sell
order  is  received.   Under  unusual   circumstances,   the  Fund  may  suspend
redemptions,  or  postpone  payment for more than seven days,  as  permitted  by
federal securities law.                                                         

Exchange of Fund Shares                                                         
Shares in the Funds may be exchanged,  without charge, for the same class of any
other  Principal  Investors  Fund.  The exchange  privilege is not intended as a
vehicle for short-term  trading.  Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all shareholders. In order to
limit excessive exchange activity, and under other circumstances where the Board
of Directors or the Manager believes it is in the best interest of the Fund, the
Fund reserves the right to review or terminate the exchange privilege, limit the
amount  or  number of  exchanges,  reject  any  exchange  or close the  account.
Notification of such action will be given to the extent required by law.        

Dividends and Distributions                                                     
The Funds pay most of their net  dividend  income once each year.  Payments  are
made to  shareholders  of record on the third  business day prior to the payment
date. The payment date is December 24 (or previous business day).               

Net realized  capital gains,  if any, are  distributed  annually.  Generally the
distribution is made on the fourth  business day of December.  Payments are made
to  shareholders  of record on the third business day prior to the payable date.
Capital gains may be taxable at different rates, depending on the length of time
that the Fund holds its assets.                                                 

Dividend and capital gain distributions from a Fund are reinvested in additional
shares of the Fund making the distribution.                                     

Generally,  for federal income tax purposes,  Fund  distributions are taxable as
ordinary income,  except that any  distributions of long-term capital gains will
be taxed as such  regardless  of how long the shares  have been  held.  However,
distributions  by the Fund to  retirement  plans  that  qualify  for  tax-exempt
treatment  under federal income tax laws will not be taxable.  Special tax rules
apply to investments through such plans.                                        

A tax advisor should be consulted to determine the suitability of the Fund as an
investment through such a plan and the tax treatment of distributions (including
distributions of amounts  attributable to an investment in the Fund) from such a
plan.  A tax advisor can also provide  information  on the  potential  impact of
possible  foreign,  state and  local  taxes.  A Fund's  investments  in  foreign
securities may be subject to foreign withholding taxes. In that case, the Fund's
yield on those securities would be decreased.                                   

A Fund's investments in certain debt obligations may cause the Fund to recognize
taxable  income in excess of the cash generated by such  obligations.  Thus, the
Fund could be  required  at times to  liquidate  other  investments  in order to
satisfy its distribution requirement.                                           

FUND ACCOUNT INFORMATION                                                        

Reservation of Rights                                                           
The Funds reserve the right to amend or terminate the special plans described in
this  prospectus.  In addition,  the Funds reserve the right to change the share
class described herein.  Shareholders will be notified of any such action to the
extent required by law.                                                         

Financial Statements                                                            
Shareholders will receive annual financial statements for the Funds, examined by
the  Funds'  independent  auditors,  Ernst & Young LLP.  Shareholders  will also
receive a semiannual financial statement that is unaudited.                     

APPENDIX A

RELATED PERFORMANCE OF THE SUB-ADVISORS                                         

The Funds  started  operation on December  ______,  2000 and have no  historical
performance  data. The following tables set forth historical  information  about
client accounts  managed by a Sub-Advisor  that have  investment  objectives and
strategies similar to those of the corresponding  Fund the Sub-Advisor  manages.
These client  accounts  consist of  individuals,  institutions  and other mutual
funds.  This composite  data is provided to illustrate  the past  performance of
each  Sub-Advisor  in  managing  similar  accounts  and does not  represent  the
performance of any Fund.                                                        

On the following pages  "composite  performance"  is shown for each  Sub-Advisor
with  regard  to  all  of  those  similarly  managed  accounts.   The  composite
performance is computed based upon essentially the Sub-Advisor's  asset weighted
"average"  performance with regard to such accounts.  The composite  performance
information  shown is based on a composite of all  accounts of each  Sub-Advisor
(and  its  predecessor,   if  any)  having   substantially   similar  investment
objectives,  policies and  strategies to the  corresponding  Fund. The composite
results reflect the deduction of all fees and expenses  actually incurred by the
client accounts.                                                                

Portions of the information below are based on data supplied by the Sub-Advisors
and from statistical services,  reports or other sources believed by the Manager
to be reliable.  However,  such  information has not been verified or audited by
the Manager.                                                                    

Some of the accounts  included in the composites are not mutual funds registered
under the 1940 Act.  Those  accounts are not subject to investment  limitations,
diversification  requirements and other restrictions imposed by the 1940 Act and
the  Internal  Revenue  Code.  If such  requirements  were  applicable  to these
accounts, the performance shown may have been lower.                            

The  performance  data  should  not be  considered  as an  indication  of future
performance of any Fund or any Sub-Advisor.  In addition, the effect of taxes is
not reflected in the  information  below as it will depend on the investor's tax
status.                                                                         

Please  note  that  1999  was an  exceptionally  good  year  for the  stocks  of
technology  companies  and mutual  funds that  invest in them.  It should not be
expected  that those  stocks and funds will  perform  as well every  year. Stock
prices can change unpredictably and, in fact, they may lose value in some years.

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                    

                                                        Average Annual Performance     
                                                          (through June 30, 2000)      

                                                     YTD   1 YR    3 YR    5 YR   10 YR

Partners LargeCap Blend Fund Institutional*                                            
                                                                                       
Federated Capital Appreciation Composite            2.76   26.15  25.71   25.98   18.51
   S&P 500 Index                                   -0.42    7.25  19.66   23.80   17.80
   Average LargeCap Blend  Category (Morningstar)   0.51    8.93  17.29   20.35   15.60

Partners LargeCap Growth Fund I Institutional*                                         
Morgan Stanley Equity Growth Composite              6.33   28.60  27.33   29.45   19.89
   S&P 500 Index                                   -0.42    7.25  19.66   23.80   17.80
   Average LargeCap Growth Category (Morningstar)   3.07   27.19  27.04   24.93   17.85

Partners LargeCap Growth Fund II Institutional*                                        
American Century Growth Composite                   6.63   29.62  29.23   24.23   17.53
   Russell 1000 Growth Index                        4.23   25.66  28.08   28.67   20.05
   Average LargeCap Growth Category (Morningstar)   3.07   27.19  27.04   24.93   17.85

Partners LargeCap Value Fund Institutional*                                            
Sanford C. Bernstein Diversified Value Composite   -4.18   -7.89   9.84   17.28   15.64
   Russell 1000 Value Index                        -4.23   -8.92  10.94   17.78   15.24
   Average LargeCap Value Category (Morningstar)   -1.92   -5.21   8.74   15.16   13.36

Partners MidCap Value Fund Institutional*                                              
Neuberger Berman MidCap Value Composite             6.63    3.34   5.60   14.61   13.91
   Russell Midcap Value Index                      -0.69   -7.91   6.95   13.71   14.22
   Average MidCap Value Category (Morningstar)      1.31   -2.56   7.23   13.20   12.77

                                                        [Enlarge/Download Table]

                                                                               Annual Performance                          
                                                                           (year ended December 31)                        

                                                    1999   1998    1997   1996   1995    1994   1993    1992   1991  1990  

Partners LargeCap Blend Fund Institutional*                                                                                
                                                                                                                           
Federated Capital Appreciation Composite           43.39   20.08  30.62  18.39   37.17  -0.30   11.31  11.37  27.43   -4.43
   S&P 500 Index                                   21.04   28.58  33.36  22.96   37.58   1.32   10.08   7.62  30.47   -3.10
   Average LargeCap Blend  Category (Morningstar)  19.72   21.95  27.43  20.37   31.99  -1.08   11.12   7.62  32.13   -3.34

Partners LargeCap Growth Fund I Institutional*                                                                             
Morgan Stanley Equity Growth Composite             40.03   20.00  31.79  31.45   45.19   3.17    4.27   5.95  25.57   -2.92
   S&P 500 Index                                   21.04   28.58  33.36  22.96   37.58   1.32   10.08   7.62  30.47   -3.10
   Average LargeCap Growth Category (Morningstar)  39.72   33.56  25.00  18.95   32.27  -2.32   10.31   5.83  43.69   -2.12

Partners LargeCap Growth Fund II Institutional*                                                                            
American Century Growth Composite                  34.68   36.77  29.28  14.92   20.35  -1.49    3.76  -4.29  69.02   -3.83
   Russell 1000 Growth Index                       33.16   38.71  30.49  23.12   37.19   2.66    2.90   5.00  41.16   -0.26
   Average LargeCap Growth Category (Morningstar)  39.72   33.56  25.00  18.95   32.27  -2.32   10.31   5.83  43.69   -2.12

Partners LargeCap Value Fund Institutional*                                                                                
Sanford C. Bernstein Diversified Value Composite    7.80   16.80  30.70  22.90   37.50   1.50   13.80  13.70  33.10   -6.30
   Russell 1000 Value Index                         7.35   15.63  35.18  21.64   38.35  -1.99   18.12  13.81  24.61   -8.08
   Average LargeCap Value Category (Morningstar)    6.63   13.10  27.01  20.79   32.28  -0.81   13.25   9.89  28.51   -6.37

Partners MidCap Value Fund Institutional*                                                                                  
Neuberger Berman MidCap Value Composite             8.04  -10.66  32.66  28.08   35.23  -1.89   16.44  17.52  22.36   13.91
   Russell Midcap Value Index                      -0.11    5.09  34.37  20.26   34.93  -2.13   15.62  21.68  37.92  -16.08
   Average MidCap Value Category (Morningstar)      7.78    3.92  26.04  20.50   29.27  -1.11   17.11  13.54  29.65   -8.51


* Fund's inception 12/__/00.                                        
** Since inception.                                                   

              MODERATE FUNDS

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                    

                                                        Average Annual Performance     
                                                          (through June 30, 2000)      

                                                     YTD   1 YR    3 YR    5 YR   10 YR

Partners SmallCap Growth Fund I Institutional*                                         
Neuberger Berman SmallCap Growth Composite          5.98   93.80**                     
                                                                                       
   Russell 2000 Growth Index                        1.23   28.39  16.32   15.80   13.26
   Average SmallCap Growth Category (Morningstar)  10.09   55.14  24.42   20.86   17.12

Partners SmallCap Growth Fund II Institutional*                                        
Federated Aggressive Growth Composite               1.64   69.20  39.90   35.59**      
   S&P/BARRA 600 Growth Index                       6.89   14.39  10.11   15.40   13.99
   Average SmallCap Growth Category (Morningstar)  10.09   55.14  24.42   20.86   17.12

Technology Fund Institutional*                                                         
   Average Technology Category (Morningstar)        4.35   92.16  54.10   35.69   27.95

                                                        [Enlarge/Download Table]

                                                                                Annual Performance                          
                                                                            (year ended December 31)                        

                                                     1999  1998    1997    1996   1995    1994   1993    1992   1991  1990  

Partners SmallCap Growth Fund I Institutional*                                                                              
Neuberger Berman SmallCap Growth Composite                                                                                  
                                                                                                                            
   Russell 2000 Growth Index                        43.09   1.23  12.95   11.26   31.04  -2.43   13.36   7.77  51.19  -17.14
   Average SmallCap Growth Category (Morningstar)   61.45   4.49  18.19   19.99   35.44  -0.28   16.70  11.99  53.64   -5.96

Partners SmallCap Growth Fund II Institutional*                                                                             
Federated Aggressive Growth Composite              111.60   8.08  30.06**                                                   
   S&P/BARRA 600 Growth Index                       12.41  -1.31  25.58   21.32   29.97  -4.78   18.79  21.05  48.48  -23.69
   Average SmallCap Growth Category (Morningstar)   61.45   4.49  18.19   19.99   35.44  -0.28   16.70  11.99  53.64   -5.96

Technology Fund Institutional*                                                                                              
   Average Technology Category (Morningstar)       136.50  52.41   9.58   20.31   42.89  13.18   24.07  13.03  46.92    0.54

* Fund's inception 12/__/00.                                        
** Since inception.                                                   

                          AGGRESSIVE FUNDS

                                                        [Enlarge/Download Table]

PERFORMANCE RESULTS                                                                     

                                                         Average Annual Performance     
                                                           (through June 30, 2000)      

                                                      YTD   1 YR    3 YR    5 YR   10 YR

International Fund II Institutional*                                                    
                                                                                        
   MSCI EAFE (Europe, Australia, Far East) Index-ND  -4.06  17.16  10.18   11.33   7.95 
   Average Foreign Category (Morningstar)            -3.99  27.08  12.44   13.48   9.31 

                                                        [Enlarge/Download Table]

                                                                               Annual Performance                         
                                                                           (year ended December 31)                       

                                                      1999  1998   1997   1996   1995    1994   1993    1992  1991  1990  

International Fund II Institutional*                                                                                      
                                                                                                                          
   MSCI EAFE (Europe, Australia, Far East) Index-ND  26.96  20.00  1.78   6.05   11.21   7.78   32.56 -12.17  12.13 -23.45
   Average Foreign Category (Morningstar)            44.49  13.00  5.43  12.39    9.82  -0.40   36.71  -4.54  13.07 -10.90

* Fund's inception 12/__/00.                                        
** Since inception.                                                   

                     DYNAMIC FUNDS

IMPORTANT NOTES TO THE APPENDIX                                                 

Morgan Stanley Capital International (MSCI) EAFE (Europe,  Australia,  Far East)
Index is a stock index designed to measure the  investment  returns of developed
economies outside of North America.                                             

Russell 1000 Growth Index is an index that  measures  the  performance  of those
Russell 1000 companies with higher  price-to-book  ratios and higher  forecasted
growth values.                                                                  

Russell  1000 Value Index is an index that  measures  the  performance  of those
Russell  1000  companies  with lower price to book  ratios and lower  forecasted
growth values.                                                                  

Russell  2000 Growth  Index  measures  the  performance  of those  Russell  2000
companies with higher price-to-book ratios and higher forecasted growth values. 

Russell  Midcap Value Index is an index that measures the  performance  of those
Russell Midcap companies with lower  price-to-book  ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Value index.     

S&P 500  Index is a market  capitalization-weighted  index  of 500  widely  held
stocks often used as a proxy for the stock  market.  It measures the movement of
the largest issues.  Standard & Poor's chooses the member  companies for the 500
based on market size, liquidity and industry group representation.  Included are
the stocks of industrial, financial, utility and transportation companies.      

S&P/BARRA  600  Growth  Index is a market  capitalization-weighted  index of the
stocks in the S&P SmallCap 600 Index having the lowest book to price ratios. The
index  consists  of  approximately  have of the  S&P  SmallCap  600 on a  market
capitalization basis.                                                           

PRINCIPAL INVESTORS FUND, INC.
 (previously Principal Special Markets Fund, Inc.)

 This Prospectus describes a mutual fund organized by Principal Life
Insurance Company.

The date of this Prospectus is April 3, 2000
 as revised through _________, 2000.

      As with all mutual funds,  the Securities and Exchange  Commission has not
      approved or disapproved  the Fund's  securities nor has it determined that
      this  Prospectus  is accurate  or  complete.  It is a criminal  offense to
represent otherwise.                                                

 TABLE OF CONTENTS

     Fund Description........................................................  3

     International Emerging Markets Portfolio................................  4

     International Securities Portfolio......................................  6

     International SmallCap Portfolio........................................  8

     Mortgage-Backed Securities Portfolio.................................... 10

     The Costs of Investing.................................................. 12

     Certain Investment Strategies and Related Risks......................... 12

     Management, Organization and Capital Structure.......................... 15

     Management Discussion of Fund Performance............................... 16

     Pricing of Fund Shares.................................................. 20

     Dividend and Distributions.............................................. 20

     Offering Price of Shares................................................ 22

     To Sell Shares.......................................................... 22

     General Information about a Fund Account................................ 24

FUND DESCRIPTION                                                                

The Principal Investors Fund, Inc.  (previously  Principal Special Markets Fund,
Inc.) (the "Fund") is an open-end  management  investment  company.  Four of its
Portfolios  are described in this  prospectus:  International  Emerging  Markets
Portfolio,  International Securities Portfolio, International SmallCap Portfolio
and Mortgage-Backed Securities Portfolio. As of ___________, 2000, shares of the
Portfolios are no longer available for purchase.                                

In the description for each Portfolio, you will find important information about
the Portfolio's:                                                                

Primary investment strategy                                                     
This section  summarizes  how the  Portfolio  intends to achieve its  investment
objective.  It identifies the Portfolio's  primary investment strategy including
the type or types of securities in which the Portfolio invests.                 

Annual operating expenses                                                       
The annual  operating  expenses for each  Portfolio are deducted from its assets
(stated as a percentage of the  Portfolio's  assets) and are shown as of the end
of the most recent  fiscal  year.  The examples are intended to help you compare
the cost of investing in a  particular  Portfolio  with the cost of investing in
other mutual funds.  The examples  assume you invest  $10,000 in a Portfolio for
the time period  indicated.  The examples also assume that your investment had a
5% return each year and that the Portfolio's  operating expenses are the same as
the most recent fiscal year  expenses.  Although your actual costs may be higher
or lower, based on these assumptions your costs would be as shown.              

Day-to-day Portfolio management                                                 
The investment  professionals who manage the assets of each Portfolio are listed
with each Portfolio.  Backed by their staffs of experienced securities analysts,
they provide the Portfolios with professional investment management.            

Principal  Management  Corporation  serves as the manager  for the Fund.  It has
signed a contract with Invista  Capital  Management  LLC  ("Invista") to provide
investment  advisory  services  for the  International,  International  Emerging
Markets and International SmallCap Portfolios. The Manager has signed a contract
with Principal  Capital  Income  Investors,  LLC ("PCII") to provide  investment
advisory services for the Mortgage-Backed Securities Portfolio.                 

Portfolio Performance                                                           
Included  in each  Portfolio's  description  is a set of tables and a bar chart.
Together, these provide an indication of the risks involved when you invest.    

The bar  chart is  included  to  provide  you with an  indication  of the  risks
involved when you invest. The chart shows changes in the Portfolio's performance
from year to year.  One of the tables  compares the  Portfolio's  average annual
returns with:                                                                   

o    a broad-based  securities  market index (An index measures the market price
     of a specific  group of  securities  in  particular  securities in a market
     sector.  You cannot invest  directly in an index. An index does not have an
     investment  advisor and does not pay any  commissions  or  expenses.  If an
index had expenses, its performance would be lower.); and             
o    an  average  of  mutual  funds  with a  similar  investment  objective  and
     management  style.  The  averages  used are  prepared by Lipper,  Inc.,  an
independent statistical service.                                      

The other table provides the highest and lowest quarterly rate of return for the
Portfolio's shares over the life of the Portfolio.                              

A  Portfolio's  past  performance  is not  necessarily  an indication of how the
Portfolio will perform in the future.                                           

NOTE:Investments  in these  Portfolios  are not  deposits  of a bank and are not
     insured or guaranteed by the Federal Deposit  Insurance  Corporation or any
other government agency.                                              

     No salesperson, dealer or other person is authorized to give information or
     to make  representations  about a  Portfolio  or the Fund  other than those
     contained  in  this  Prospectus.   Information  or   representations   from
     unauthorized  parties  may not be  relied  upon as  having  been  made by a
Portfolio, the Fund, the Manager or any Sub-Advisor.                  

INTERNATIONAL EMERGING MARKETS PORTFOLIO                                        

Main Strategies                                                                 
The  International  Emerging Markets Portfolio seeks to achieve long-term growth
of capital by investing  primarily in equity  securities  of issuers in emerging
market countries.                                                               

For this Portfolio,  the term "emerging  market country" means any country which
is considered to be an emerging country by the international financial community
(including the International Bank for Reconstruction and Development (also known
as the World Bank) and the International Financial Corporation). These countries
generally  include every nation in the world except the United  States,  Canada,
Japan,  Australia,  New  Zealand  and most  nations  located in Western  Europe.
Investing  in many  emerging  market  countries  is not  feasible or may involve
unacceptable political risk. Invista, the Sub-Advisor, focuses on those emerging
market countries that it believes have strongly developing economies and markets
which are becoming more sophisticated.                                          

Under normal conditions,  at least 65% of the Portfolio's assets are invested in
emerging market country equity  securities.  The Portfolio invests in securities
of:                                                                             
o    companies  with their  principal  place of business or principal  office in
emerging market countries;                                            
o    companies for which the principal  securities trading market is an emerging
market country; or                                                    
o    companies,  regardless of where its securities are traded,  that derive 50%
     or more of their total  revenue from either  goods or services  produced in
emerging market countries or sales made in emerging market countries. 

Main Risks                                                                      
Investments in emerging market countries involve special risks. Certain emerging
market countries have historically experienced,  and may continue to experience,
certain  economic  problems.  These may include:  high rates of inflation,  high
interest rates,  exchange rate  fluctuations,  large amounts of debt, balance of
payments  and trade  difficulties,  and  extreme  poverty and  unemployment.  In
addition,  there are risks involved with any  investment in foreign  securities.
These include the risk that a foreign  security  could lose value as a result of
political,  financial  and economic  events in foreign  countries.  In addition,
foreign  securities may be subject to securities  regulators with less stringent
accounting and disclosure standards than are required of U.S. companies.        

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods may be longer for foreign  securities  that may
affect portfolio liquidity.                                                     

Under  unusual  market or  economic  conditions,  the  Portfolio  may  invest in
securities  issued  by  domestic   corporations,   governments  or  governmental
agencies,  instrumentalities  or political  subdivisions.  The securities may be
denominated in U.S. dollars or other currencies.                                

The Portfolio is generally a suitable investment for investors seeking long-term
growth who want to invest a portion of their assets in  securities  of companies
in emerging market countries.  Because the values of the Portfolio's  assets may
rise or fall dramatically, if you sell your shares when their value is less than
the price you paid,  you will lose money.  This  Portfolio is not an appropriate
investment  if you are seeking  either  preservation  of capital or high current
income.  You  must be  able to  assume  the  increased  risks  of  higher  price
volatility   and  currency   fluctuations   associated   with   investments   in
international stocks which trade in non-U.S. currencies.                        

Portfolio Performance Information                                               
The  Portfolio's  past  performance  is not  necessarily an indication of future
performance.  The bar chart and tables  provide some  indication of the risks of
investing in the Portfolio by showing changes in share  performance from year to
year.                                                                           

Annual Total Returns

     1998   -17.21%          The  year-to-date  total return as of September 29,
1999    63.37%          2000 is ______%.                              

                          The portfolio's highest/lowest quarterly results
                           during the time period covered by the chart were:

            Highest    38.53% (12/31/1999)
            Lowest    -19.25% (9/30/1998 )

Average annual total returns for the period ending December 31, 1999

     This table shows how the  Portfolio's  average annual returns  compare with
     those of a broad-based  securities  market index and an index of funds with
similar investment objectives.                                        

Past One Past Five            
Portfolio           Year     Years                                

International Emerging                                                
Markets             63.37%   16.26%*                              

                                               Past One Past Five Past Ten
                                               Year    Years     Years

Morgan Stanley Capital International EMF                              
    (Emerging Markets Free) Index               66.41%   2.00%    11.04%
Lipper Emerging Markets Fund Average           70.77    5.11      7.47

     * Period from  November 26, 1997,  date shares first offered to the public,
through December 31, 1999.                                        

Portfolio Operating Expenses                                    

Management Fees............. 1.15%                                    
Other Expenses*............. 0.00                                     
----        
1.15%       

     *  In addition to brokerage and  extraordinary  expenses,  a Portfolio will
        pay only taxes and  interest  expenses,  which it is  anticipated  to be
minimal or nonexistent under normal circumstances.              

Examples

     The Examples  assume that you invest  $10,000 in the Portfolio for the time
     periods  indicated  and then  redeem all of your shares at the end of those
     periods. The Examples also assume that your investment has a 5% return each
     year and that the Portfolio's  operating expenses remain the same. Although
     your actual costs may be higher or lower,  based on these  assumptions your
cost would be:                                                        

1 Year         3 Years         5 Years       10 Years         
-----------------------------------------------------         
$117            $365            $633          $1,398          

Day-to-day Portfolio Management 

Since November 1997       Manager: Kurtis D. Spieler, CFA. Mr. Spieler
 (Portfolio's inception)   joined Invista Capital Management in 1995. He
                               holds an MBA from Drake University and a BBA from
                               Iowa State University. He has earned the right to
                             use the Chartered Financial Analyst designation

INTERNATIONAL SECURITIES PORTFOLIO                                              

Main Strategies                                                                 
The  International  Securities  Portfolio seeks  long-term  growth of capital by
investing in a portfolio  of  securities  of  companies  domiciled in any of the
nations of the world.                                                           

The  International  Securities  Portfolio  invests in common stocks of companies
established  outside  of  the  U.S.  The  Portfolio  has  no  limitation  on the
percentage of assets that are invested in any one country or  denominated in any
one currency.  However under normal market conditions,  the Portfolio intends to
have at  least  65% of its  assets  invested  in  companies  in at  least  three
different countries. One of those countries may be the U.S. though currently the
Portfolio does not intend to invest in equity securities of U.S. companies.     

Investments may be made anywhere in the world. Primary consideration is given to
securities of  corporations  of Western  Europe,  North America and  Australasia
(Australia,  Japan  and Far  East  Asia).  Changes  in  investments  are made as
prospects change for particular countries, industries or companies.             

In  choosing  investments  for the  Portfolio,  the  Sub-Advisor,  Invista  pays
particular  attention  to  the  long-term  earnings  prospects  of  the  various
companies under  consideration.  Invista then weighs those prospects relative to
the price of the security.                                                      

Main Risks                                                                      
The values of the stocks owned by the Portfolio  change on a daily basis.  Stock
prices reflect the activities of individual  companies as well as general market
and economic  conditions.  In the short term,  stock prices and  currencies  can
fluctuate  dramatically  in response to these  factors.  In addition,  there are
risks involved with any investment in foreign  securities that are not generally
found in  securities  of U.S.  companies.  These include the risk that a foreign
security  could  lose value as a result of  political,  financial  and  economic
events in foreign countries.  In addition,  foreign securities may be subject to
securities  regulators with less stringent  accounting and disclosure  standards
than are required of U.S. companies.                                            

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods may be longer for foreign  securities  that may
affect portfolio liquidity.                                                     

Under  unusual  market or  economic  conditions,  the  Portfolio  may  invest in
securities  issued  by  domestic   corporations,   governments  or  governmental
agencies,  instrumentalities  or political  subdivisions.  The securities may be
denominated in U.S. dollars or other currencies.                                

The  Portfolio  is  generally  a  suitable  investment  for  investors  who seek
long-term growth and who want to invest in non-U.S. companies. This Portfolio is
not an appropriate  investment if you are seeking either preservation of capital
or high current income.  Suitable investors must be able to assume the increased
risks of higher price  volatility  and  currency  fluctuations  associated  with
investments in international stocks which trade in non-U.S.  currencies. As with
all mutual  funds,  the value of the Fund's assets may rise or fall. If you sell
your  shares  when  their  value is less than the price you paid,  you will lose
money.                                                                          

Portfolio Performance Information                                               
The  Portfolio's  past  performance  is not  necessarily an indication of future
performance.  The bar chart and tables  provide some  indication of the risks of
investing in the Portfolio by showing changes in share  performance from year to
year.                                                                           

Annual Total Returns  

     1994   -6.45%           The  year-to-date  total return as of September 29,
1995   12.02%           2000 is ______%.                              
1996   24.12%                                                         
1997   12.55%                                                         
  1998    9.55%           The portfolio's highest/lowest quarterly results
   1999   27.89%           during the time period covered by the chart were:

            Highest    18.06% (12/31/1999)
           Lowest    -17.48% (9/30/1998)

Average annual total returns for the period ending December 31, 1999

     This table shows how the  Portfolio's  average annual returns  compare with
     those of a broad-based  securities  market index and an index of funds with
similar investment objectives.                                        

     Past One Past Five Past Ten
Portfolio           Year     Years    Years             

International Securities  27.89%   17.00%   15.88%*                   

                                             Past One Past Five Past Ten
                                             Year     Years    Years

Morgan Stanley Capital International EAFE                             
(Europe, Australia and Far East) Index       26.96%   12.83%   7.01%
Lipper International Fund Average             40.80    15.37   10.54  

* Period from May 7, 1993, date shares first offered to the public,   
through December 31, 1999.                                        

Portfolio Operating Expenses                                    

Management Fees............. 0.90%                                    
Other Expenses*............. 0.00                                     
----        
0.90%       

     *  In addition to brokerage and  extraordinary  expenses,  a Portfolio will
        pay only taxes and  interest  expenses,  which it is  anticipated  to be
minimal or nonexistent under normal circumstances.              

Examples

     The Examples  assume that you invest  $10,000 in the Portfolio for the time
     periods  indicated  and then  redeem all of your shares at the end of those
     periods. The Examples also assume that your investment has a 5% return each
     year and that the Portfolio's  operating expenses remain the same. Although
     your actual costs may be higher or lower,  based on these  assumptions your
cost    would    be:                                                  

1 Year         3 Years         5 Years       10 Years         
-----------------------------------------------------         
$92           $287            $498         $1,108         

 Day-to-day Portfolio Management

     Since June 1993           Co-Manager:  Scott  D. Opsal, CFA. Mr.  Opsal  is
                               Chief  Investment  Officer  of  Invista   Capital
                               Management  and has  been with  the  organization
                               since 1993.  He holds an MBA from the  University
                               of Minnesota and BS from Drake University. He has
                               earned the right to use the  Chartered  Financial
  Analyst designation.

     Since March 2000          Co-Manager:  Kurtis D. Spieler,  CFA. Mr. Spieler
                               joined  Invista  Capital  Management in  1995. He
                               holds an MBA from Drake University and a BBA from
                               Iowa State University. He has earned the right to
                              use the Chartered Financial Analyst designation.

INTERNATIONAL SMALLCAP PORTFOLIO                                                

Main Strategies                                                                 
The  International  SmallCap  Portfolio  seeks to  achieve  long-term  growth of
capital  by  investing  primarily  in equity  securities  of  non-United  States
companies   with   comparatively   smaller   market   capitalizations.    Market
capitalization  is  defined  as  total  current  market  value  of  a  company's
outstanding common stock. Under normal market conditions,  the Portfolio invests
at  least  65%  of  its  assets  in  securities   of  companies   having  market
capitalizations of $1.5 billion or less at the time of purchase.                

In selecting securities for the Portfolio, Invista, the Sub-Advisor, diversifies
the  investments  geographically.  There is no limitation  of the  percentage of
assets that may be invested in one country or  denominated  in any one currency.
However,  under normal market  circumstances,  the Portfolio  intends to have at
least 65% of its assets  invested in  securities  of companies of at least three
countries.                                                                      

Main Risks                                                                      
Foreign  stocks  carry  risks  that are not  generally  found in  stocks of U.S.
companies.  These include the risk that a foreign security could lose value as a
result of political,  financial  and economic  events in foreign  countries.  In
addition,  foreign securities may be subject to securities  regulators with less
stringent  accounting  and  disclosure  standards  than  are  required  of  U.S.
companies.                                                                      

Investments  in  companies  with small  market  capitalizations  carry their own
risks.  Historically,  small company securities have been more volatile in price
than larger company  securities,  especially over the  short-term.  While small,
unseasoned  companies may offer greater  opportunities  for capital  growth than
larger, more established  companies,  they also involve greater risks and should
be considered speculative.                                                      

Because foreign securities generally are denominated in foreign currencies,  the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency  exchange  rates,  the Fund is authorized to enter into certain foreign
currency exchange transactions.  In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities.  Settlement  periods may be longer for foreign  securities  that may
affect portfolio liquidity.                                                     

This  Portfolio  is not an  appropriate  investment  if you are  seeking  either
preservation of capital or high current  income.  You must be able to assume the
increased risks of higher price volatility and currency fluctuations  associated
with investments in international stocks which trade in non-U.S. currencies.    

The Portfolio is generally a suitable investment for investors seeking long-term
growth  who want to  invest a  portion  of their  assets  in  smaller,  non-U.S.
companies.  Because the values of the Portfolio's  assets may rise or fall, when
shares of the  Portfolio are sold they may be worth more or less than the amount
paid for them.                                                                  

Portfolio Performance Information                                               
The  Portfolio's  past  performance  is not  necessarily an indication of future
performance.  The bar chart and tables  provide some  indication of the risks of
investing in the Portfolio by showing changes in share  performance from year to
year.                                                                           

Annual Total Returns

     1998   11.92%           The  year-to-date  total return as of September 29,
1999   85.93%           2000 is ______%.                              

                          The portfolio's highest/lowest quarterly results
                           during the time period covered by the chart were:

            Highest    36.97% (12/31/1999)
           Lowest    -20.68% (9/30/1998)

Average annual total returns for the period ending December 31, 1999

     This table shows how the  Portfolio's  average annual returns  compare with
     those of a broad-based  securities  market index and an index of funds with
similar investment objectives.                                        

Past One Past Five            
Portfolio           Year     Years                                

International SmallCap  85.93%  42.93%*                                   

                                                 Past One Past Five Past Ten
                                                 Year     Years    Years

Morgan Stanley Capital International EAFE                             
   (Europe, Australia and Far East) Index        26.96%   12.83%     7.01%
 Lipper International Small-Cap Fund Average    75.41    19.91     13.04

     * Period from November 26, 1997, date first offered to the public,  through
December 31, 1999.                                                

Portfolio Operating Exepnses                                    

Management Fees............. 1.00%                                    
Other Expenses*............. 0.00                                     
----        
1.00%       

     *  In addition to brokerage and  extraordinary  expenses,  a Portfolio will
        pay only taxes and  interest  expenses,  which it is  anticipated  to be
minimal or nonexistent under normal circumstances.              

Examples

     The Examples  assume that you invest  $10,000 in the Portfolio for the time
     periods  indicated  and then  redeem all of your shares at the end of those
     periods. The Examples also assume that your investment has a 5% return each
     year and that the Portfolio's  operating expenses remain the same. Although
     your actual costs may be higher or lower,  based on these  assumptions your
cost would be:                                                        

1 Year         3 Years         5 Years       10 Years         
-----------------------------------------------------         
$102            $318            $552        $1,225          

 Day-to-day Portfolio Management

     Since March 2000          Co-Manager:  Dan  J. Sherman,  CFA.  Mr.  Sherman
                               joined Invista Capital Management in 1998.  Prior
                               to joining the firm, he led a  regional  research
                               team for Salomon Smith Barney.  He  holds an  MBA
                               from the  University of Wisconsin. He  has earned
                               the right to use the Chartered Financial  Analyst
designation.      

     Since November 1997       Co-Manager: Darren K. Sleister, CFA. Mr. Sleister
     (Portfolio's inception)   joined Invista Capital Management  as a Portfolio
                               Strategist in 1993.  He  holds  an  MBA  from the
                               University of Iowa, and an  undergraduate  degree
                               from Central College. He has earned  the right to
                              use the Chartered Financial Analyst designation.

MORTGAGE-BACKED SECURITIES PORTFOLIO                                            

Main Strategies                                                                 
The Mortgage-Backed  Securities  Portfolio seeks a high level of current income,
liquidity and safety of principal by purchasing obligations issued or guaranteed
by the United States  Government  or its  agencies,  with emphasis on Government
National Mortgage Association Certificates.  The guarantees by the United States
Government  extends  only to principal  and  interest.  There are certain  risks
unique to GNMA Certificates.                                                    

The Mortgage-Backed  Securities Portfolio invests in U.S. Government securities,
which include  obligations  issued or  guaranteed by the U.S.  Government or its
agencies or instrumentalities.  The Portfolio may invest in securities supported
by:                                                                             
o    full faith and credit of the U.S. Government (e.g. GNMA certificates); or  
o    credit of the instrumentality (e.g.  bonds issued by the  Federal Home Loan
Mortgage Corp.).                                                      
In addition, the Portfolio may invest in money market investments.              

Although some of the securities  the Portfolio  purchases are backed by the U.S.
government  and its  agencies,  shares  of the  Portfolio  are  not  guaranteed.
Generally,  when interest rates fall, the value of the Portfolio's shares rises,
and when rates rise, the value declines. Because of the fluctuation in values of
the Portfolio's  shares, when sold, shares of the Portfolio may be worth more or
less than the amount paid for them.                                             

U.S.  Government  securities do not involve the degree of credit risk associated
with  investments in lower quality  fixed-income  securities.  As a result,  the
yields  available from U.S.  Government  securities are generally lower than the
yields   available  from  many  other   fixed-income   securities.   Like  other
fixed-income  securities,  the values of U.S.  Government  securities  change as
interest  rates  fluctuate.   Fluctuations  in  the  value  of  the  Portfolio's
securities  do not effect  interest  income on  securities  already  held by the
Portfolio,  but are reflected in the Fund's price per share. Since the magnitude
of these fluctuation generally are greater at times when the Portfolio's average
maturity is longer,  under certain market conditions the Portfolio may invest in
short term  investments  yielding  lower current income rather than investing in
higher yielding longer term securities.                                         

GNMA Certificates are mortgage backed  securities  representing an interest in a
pool of mortgage  loans.  Various  lenders make the loans which are then insured
(by the  Federal  Housing  Administration)  or loans  which are  guaranteed  (by
Veterans  Administration  or Farmers Home  Administration).  The lender or other
security  issuer  creates  a pool of  mortgages  which  it  submits  to GNMA for
approval.                                                                       

The Portfolio  invests in modified  pass-through  GNMA  Certificates.  Owners of
Certificates  receive all interest and principal  payments owed on the mortgages
in the pool,  regardless  of whether or not the  mortgagor has made the payment.
Timely  payment of interest and  principal is  guaranteed  by the full faith and
credit of the U.S. Government.                                                  

Main Risks                                                                      
Mortgage  backed  securities  are  subject  to  prepayment  risk.   Prepayments,
unscheduled   principal   payments,   may  result  from  voluntary   prepayment,
refinancing  or  foreclosure  of the  underlying  mortgage.  When interest rates
decline,  significant unscheduled prepayments may result. These prepayments must
then be  reinvested at lower rates.  Prepayments  may also shorten the effective
maturities of these securities,  especially during periods of declining interest
rates. On the other hand, during period of rising interest rates, a reduction in
prepayments  may  increase  the  effective   maturities  of  these   securities,
subjecting  them to the risk of decline in market  value in  response  to rising
interest and potentially increasing the volatility of the fund.                 

In addition,  prepayments may cause losses on securities  purchased at a premium
(dollar amount by which the price of the bond exceeds its face value). At times,
mortgage  backed  securities may have higher than market  interest rates and are
purchased at a premium.  Unscheduled  prepayments  are made at par and cause the
Portfolio to experience a loss of some or all of the premium.                   

The Mortgaged-Backed Securities Portfolio is generally a suitable investment for
investors  who want monthly  dividends to provide  income or to be reinvested in
additional Portfolio shares to produce growth. Such investors prefer to have the
repayment  of  principal  and  interest on most of the  securities  in which the
Portfolio  invests  to be  backed  by  the  U.S.  Government,  its  agencies  or
instrumentalities.                                                              

Portfolio Performance Information                                               
The  Portfolio's  past  performance  is not  necessarily an indication of future
performance.  The bar chart and tables  provide some  indication of the risks of
investing in the Portfolio by showing changes in share  performance from year to
year.                                                                           

Annual Total Returns

1994   -3.60%                The  year-to-date  total return as of September 29,
1995   19.26%                2000 is ______%.                                   
1996    4.20%                                                                   
1997   10.18%                The portfolio's highest/lowest quarterly results   
1998    7.74%                during the time period covered by the chart were:  
1999    0.30%                                                                   
           Highest     6.41% (6/30/1995)
           Lowest     -3.50% (3/30/1994)

Average annual total returns for the period ending December 31, 1999

     This table shows how the  Portfolio's  average annual returns  compare with
     those of a broad-based  securities  market index and an index of funds with
similar investment objectives.                                        

Past One Past Five Past Ten   
Portfolio           Year     Years    Years                       

Mortgage-Backed                                                       
Securities          0.30%    8.15%    6.17%*                      

                                                 Past One  Past Five  Past Ten
                                                 Year      Years     Years

  Lehman Brothers Mortgage Index                 1.86%     7.98%     7.78%
 Lipper U.S. Mortgage Fund Average              0.65      7.00      6.95

     * Period from May 7, 1993, date shares first offered to the public, through
December 31, 1999.                                                

Portfolio Operating Exepnses                                    

Management Fees............. 0.45%                                    
Other Expenses*............. 0.00                                     
----        
0.45%       

     *  In addition to brokerage and  extraordinary  expenses,  a Portfolio will
        pay only taxes and  interest  expenses,  which it is  anticipated  to be
minimal or nonexistent under normal circumstances.              

Examples

     The Examples  assume that you invest  $10,000 in the Portfolio for the time
     periods  indicated  and then  redeem all of your shares at the end of those
     periods. The Examples also assume that your investment has a 5% return each
     year and that the Portfolio's  operating expenses remain the same. Although
     your actual costs may be higher or lower,  based on these  assumptions your
cost would be:                                                        

1 Year         3 Years         5 Years       10 Years         
-----------------------------------------------------         
$46             $144           $252          $567           

Day-to-day Portfolio Management 

Since May 1993            Martin J. Schafer.  Mr. Schafer  joined the 
     (Portfolio's inception)   Principal in  1977 and  has  broad  experience in
                         residential mortgage related securities. He
                            served as Director of Investment Securities at
                          the Principal   prior  to  joining   Invista
                               Capital  Management  in 1992. He  holds a BBA  in
                               Accounting  and  Finance from  the  University of
Iowa.             

THE COSTS OF INVESTING                                                          

The Fund pays ongoing fees to its  Manager,  Underwriter  and others who provide
services to the Fund. They reduce the value of each share you own.              

CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS                                 

The Statement of Additional  Information (SAI) contains  additional  information
about investment strategies and their related risks.                            

Securities and Investment Practices                                             
Equity  securities   include  common  stocks,   preferred  stocks,   convertible
securities  and warrants.  Common stocks,  the most familiar type,  represent an
equity (ownership) interest in a corporation.  Although equity securities have a
history of long term growth in value, their prices fluctuate based on changes in
a company's financial  condition and on overall market and economic  conditions.
Smaller companies are especially sensitive to these factors.                    

Fixed-income  securities  include bonds and other debt instruments that are used
by  issuers to borrow  money  from  investors.  The  issuer  generally  pays the
investor a fixed,  variable or floating  rate of interest.  The amount  borrowed
must be repaid at maturity. Some debt securities,  such as zero coupon bonds, do
not pay current interest, but are sold at a discount from their face values.    

Fixed-income  securities are sensitive to changes in interest rates. In general,
bond prices rise when  interest  rates fall and fall when  interest  rates rise.
Longer term bonds and zero coupon bonds are generally more sensitive to interest
rate changes.                                                                   

Bond prices are also  affected by the credit  quality of the issuer.  Investment
grade debt  securities  are medium and high quality  securities.  Some bonds may
have  speculative  characteristics  and be  particularly  sensitive  to economic
conditions and the financial condition of the issuers.                          

Repurchase Agreements and Loaned Securities                                     
Each of the Fund's  Portfolios  may invest a portion of its assets in repurchase
agreements.  Repurchase  agreements  typically  involve  the  purchase  of  debt
securities  from a  financial  institution  such as a  bank,  savings  and  loan
association or broker-dealer. A repurchase agreement provides that the Portfolio
sells  back to the  seller  and  that  the  seller  repurchases  the  underlying
securities at a specified price on a specific date. Repurchase agreements may be
viewed as loans by a Portfolio collateralized by the underlying securities. This
arrangement  results  in a fixed  rate of return  that is not  subject to market
fluctuation while the Portfolio holds the security. In the event of a default or
bankruptcy by a selling financial  institution,  the affected  Portfolio bears a
risk of loss.  To minimize  such risks,  the  Portfolio  enters into  repurchase
agreements  only with large,  well-capitalized  and  well-established  financial
institutions. In addition, the value of the collateral underlying the repurchase
agreement is always at least equal to the repurchase  price,  including  accrued
interest.                                                                       

Each of the Fund's Portfolios may lend its portfolio  securities to unaffiliated
broker-dealers and other unaffiliated qualified financial institutions.         

Currency Contracts                                                              
The International Emerging Markets,  International  Securities and International
SmallCap  Portfolios may each enter into forward  currency  contracts,  currency
futures  contracts and options,  and options on currencies for hedging and other
non-speculative  purposes.  A forward  currency  contract  involves a  privately
negotiated  obligation to purchase or sell a specific  currency at a future date
at a price set in the contract.  A Portfolio will not hedge currency exposure to
an extent greater than the aggregate  market value of the securities  held or to
be  purchased by the  Portfolio  (denominated  or generally  quoted or currently
convertible into the currency).                                                 

Hedging  is a  technique  used in an attempt to reduce  risk.  If a  Portfolio's
Sub-Advisor hedges market conditions incorrectly or employs a strategy that does
not correlate  well with the  Portfolio's  investment,  these  techniques  could
result in a loss,  regardless  of whether  the  intent was to reduce  risk or to
increase return. These techniques may increase the volatility of a Portfolio and
may involve a small  investment  of cash  relative to the  magnitude of the risk
assumed. In addition, these techniques could result in a loss if the other party
to the transaction does not perform as promised. Additionally, there is the risk
of government  action through exchange  controls that would restrict the ability
of the Portfolio to deliver or receive currency.                                

Warrants                                                                        
Each of the Portfolios  may invest up to 5% of its assets in warrants.  Up to 2%
of a  Portfolio's  assets may be invested  in  warrants  which are not listed on
either  the New  York  or  American  Stock  Exchanges.  For  the  International,
International   Emerging  Markets  and  International  SmallCap  Funds,  the  2%
limitation  also applies to warrants not listed on the Toronto Stock and Chicago
Board Options Exchanges.                                                        

Options                                                                         
Each of the Portfolios  may buy and sell certain types of options.  Each type is
more fully discussed in the SAI.                                                

Foreign Securities                                                              
The International Emerging Markets,  International  Securities and International
SmallCap Portfolios each may invest in foreign securities. Investment in foreign
securities  presents certain risks including:  fluctuations in currency exchange
rates,  revaluation  of  currencies,  the  imposition of foreign  taxes,  future
political   and   economic   developments    including   war,    expropriations,
nationalization, the possible imposition of currency exchange controls and other
foreign  governmental  laws or restrictions.  In addition,  there may be reduced
availability  of public  information  concerning  issuers  compared  to domestic
issuers.  Foreign  issuers  are not  generally  subject to  uniform  accounting,
auditing and financial reporting standards or to other regulatory  practices and
requirements that apply to domestic issuers.  Transactions in foreign securities
may  be  subject  to  higher  costs.  Each  Portfolio's  investment  in  foreign
securities may also result in higher  custodial  costs and the costs  associated
with currency conversions.                                                      

Securities  of many  foreign  issuers may be less  liquid and their  prices more
volatile than those of comparable domestic issuers.  Foreign securities markets,
particularly  those in emerging market  countries,  are known to experience long
delays between the trade and settlement dates of securities  purchased and sold.
Such  delays may result in a lack of  liquidity  and greater  volatility  in the
price of securities on those markets. As a result of these factors, the Board of
Directors of the Fund has adopted Daily Pricing and Valuation Procedures for the
Portfolios. These procedures outline the steps to be followed by the Sub-Advisor
to establish a reliable  market or fair value if a reliable  market value is not
available through normal market quotations. The Executive Committee of the Board
of Directors oversees this process.                                             

Securities of Smaller Companies                                                 
The  Portfolios  may invest in securities of companies  with small- or mid-sized
market capitalizations. Market capitalization is defined as total current market
value of a company's  outstanding  common stock.  Investments  in companies with
smaller market  capitalizations  may involve greater risks and price  volatility
(wide, rapid  fluctuations)  than investments in larger,  more mature companies.
Smaller companies may be less mature than older companies. At this earlier stage
of  development,  the companies may have limited  product lines,  reduced market
liquidity  for  their  shares,  limited  financial  resources  or less  depth in
management than larger or more established  companies.  Small companies also may
be  less  significant  within  their  industries  and  may  be at a  competitive
disadvantage  relative to their larger competitors.  While smaller companies may
be subject to these  additional  risks,  they may also realize more  substantial
growth than larger or more established companies.                               

Unseasoned Issuers                                                              
The Portfolios may invest in the  securities of unseasoned  issuers.  Unseasoned
issuers  are  companies  with a  record  of less  than  three  years  continuous
operation,  including  the  operation of  predecessors  and parents.  Unseasoned
issuers by their nature have only a limited  operating history which can be used
for evaluating the companies growth prospects. As a result, investment decisions
for these  securities may place a greater emphasis on current or planned product
lines and the  reputation  and  experience of the companies  management and less
emphasis on fundamental valuation factors than would be the case for more mature
growth  companies.  In  addition,  many  unseasoned  issuers  also  may be small
companies  and involve the risks and price  volatility  associated  with smaller
companies.                                                                      

Temporary or Defensive Measures                                                 
For  temporary  or  defensive  purposes  in times of unusual  or adverse  market
conditions,   the   Portfolios  may  invest  without  limit  in  cash  and  cash
equivalents.  For this purpose,  cash equivalents include:  bank certificates of
deposit,  bank  acceptances,   repurchase  agreements,   commercial  paper,  and
commercial paper master notes which are floating rate debt instruments without a
fixed  maturity.   In  addition,   a  Portfolio  may  purchase  U.S.  Government
securities,  preferred  stocks and debt  securities,  whether or not convertible
into or carrying rights for common stock.                                       

Portfolio Turnover                                                              
"Portfolio  Turnover" is the term used in the industry for  measuring the amount
of trading that occurs in a fund's  portfolio  during the year.  For example,  a
100%  turnover  rate means that on average  every  security in the portfolio has
been replaced once during the year.                                             

Funds with high  turnover  rates (more than 100%) often have higher  transaction
costs (which are paid by the fund) and may generate short-term capital gains (on
which you pay taxes even if you don't sell any of your shares  during the year).
You can find the turnover rate for each Portfolio in the  Portfolio's  Financial
Highlights table.                                                               

Please consider all the factors when you compare the turnover rates of different
funds. A fund with  consistently  higher total returns and higher turnover rates
than another fund may actually be achieving better performance precisely because
the  managers  are  active  traders.  You  should  also be aware that the "total
return" line in the Financial  Highlights  already includes  portfolio  turnover
costs.                                                                          

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE                                  

The Manager                                                                     
Principal  Management  Corporation (the "Manager") serves as the manager for the
Fund.  In its handling of the business  affairs of each  Portfolio,  the Manager
provides  clerical,  recordkeeping  and  bookkeeping  services,  and  keeps  the
financial and accounting  records  required for the Fund. The Manager has signed
sub-advisory  agreements with Invista for portfolio management functions for the
International,   International   Emerging  Markets  and  International  SmallCap
Portfolios.  It has  entered  into a  Sub-Advisory  agreement  with PCII for the
Mortgage-Backed  Securities Portfolio.  The Manager compensates the Sub-Advisors
for their services as provided in the Sub-Advisory Agreements.                  

The Manager is an indirect subsidiary of Principal Financial Services,  Inc. and
has managed mutual funds since 1969. As of _________, 2000, the Funds it managed
had assets of approximately  $____ billion.  The Manager's  address is Principal
Financial Group, Des Moines, Iowa 50392-0200.                                   

Invista is an indirect  wholly-owned  subsidiary  of  Principal  Life  Insurance
Company and is an affiliate of the Manager.  Invista has managed investments for
institutional investors, including Principal Life, since 1985. As of __________,
2000, it managed assets of  approximately  $____ billion.  Invista's  address is
1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.                             

PCII is an indirect wholly-owned  subsidiary of Principal Life Insurance Company
and  is  an  affiliate  of  the  Manager.   PCII  has  managed  investments  for
institutional investors, including Principal Life, since 1985. As of __________,
2000, it managed assets of approximately  $____ billion.  PCII's address is 1800
Hub Tower, 699 Walnut, Des Moines, Iowa 50309.                                  

The Manager provides the Board of Directors of the Fund a recommended investment
program for each of the  Portfolios.  Each program must be  consistent  with the
Portfolio's investment objective and policies.  Within the scope of the approved
investment  program,  the  Sub-Advisor  advises each Portfolio on its investment
policies  and  determines  which  securities  are bought  and sold,  and in what
amounts.                                                                        

The Manager is paid a fee by each Portfolio for its services, which includes any
fee paid to the Sub-Advisor.  The fee paid by each Portfolio (as a percentage of
the average daily net assets) is determined using the following rate:           

                                                        [Enlarge/Download Table]

                                                Fees Computed On          Fees as a Percent of  
             Portfolio                    Net Asset Value of Portfolio  Average Daily Net Assets

                                                                                                
International Emerging Markets Portfolio       First $250 million               1.15%           
                                               Next $250 million                1.05%           
                                               Over $500 million                0.95%           

International Securities Portfolio             Entire Portfolio                 0.90%           

International SmallCap Portfolio               First $250 million               1.00%           
                                               Next $250 million                0.90%           
                                               Over $500 million                0.80%           

Mortgage-Backed Securities Portfolio           Entire Portfolio                 0.45%           

For the  fiscal  year  ended  December  31,  1999  the  Management  fee for each
Portfolio was:                                                                  

International Emerging Markets Portfolio          1.15%               
International Securities Portfolio                0.90%               
International SmallCap Portfolio                  1.00%               
Mortgage-Backed Securities Portfolio              0.45%               

MANAGEMENT DISCUSSION OF FUND PERFORMANCE                                       

International Emerging Markets Portfolio                                        

Emerging  markets had a strong run in 1999. EMEA (Eastern  Europe,  Middle East,
Africa)  posted the  largest  gain as  technology  stocks  soared and the region
finished  up 79.6%  for the year.  Asia  registered  a gain of 79.6%,  and Latin
America  "lagged" the rest of the  emerging  world at 58.9%.  The  International
Emerging Markets  Portfolio's total return of 65.14% barely  under-performed the
MSCI EMF  Index at  66.41%,  with  similar  regional  returns.  For the year the
Portfolio's market selection was slightly  negative,  but a majority of the lost
ground  was  made  up by  selecting  better  stocks.  The  following  paragraphs
highlight the most significant events from each emerging markets region.        

Despite their big run early in 1999, Asian countries  continued to show evidence
of solid economic  recovery  throughout the year. The Portfolio's  managers were
cautious on entering the Asian region  immediately  after the markets tumbled in
late 1998 and by  choosing  to wait for  evidence of  structural  change  before
reinvesting  ground was lost early in the year.  Since the  initial  rebound had
been  sparked by  companies  that were more  speculative  in  nature,  Portfolio
managers were able to capitalize on the turning economy by purchasing  stocks of
companies  with solid balance  sheets and intriguing  business  prospects.  This
strategy helped power the  Portfolio's  relative  out-performance  in the second
half of the year.  Although by year-end many Asian current account surpluses had
peaked,  management  still feels there is excess capacity in some of the sectors
including  manufacturing  and  property.  Thus  it is  not  expected  Asia  will
experience  the  level of  investment  activity  that  was  typical  before  the
financial  downturn,  even though certain countries are still heavily leveraged.
The Portfolio's managers continue to favor companies in the technology sector as
well as look  for  global  outsourcing  opportunities  that  will  benefit  from
increased IT spending.  Additionally,  the Portfolio  may now invest  locally in
India, a country that is seeing explosive growth in the technology sector.      

Latin  America was the relative  laggard in the  emerging  markets over the past
year, due to devaluation concerns in Brazil and a recession in Argentina. Brazil
continues  to weigh  heavily  on the  region as  concerns  regarding  the fiscal
deficit and social security remain.  Other factors that continue to weigh on the
Latin  American  economy  include the Mexican  elections  and excess  government
spending.  On a positive note, Latin American companies continue to reduce their
cost structure in response to the region's weak economies. With the prospects of
economic  recovery  and cheap  valuations,  the region looks  attractive  from a
bottom up perspective.  Latin American telecom and  Internet-related  businesses
are favored as the best ways to benefit from the region's growth.               

EMEA (Eastern  Europe,  Middle East,  Africa) faired well as Israeli  technology
stocks kept pace with the NASDAQ,  receiving an additional  boost from favorable
governmental elections. The Greek stock market experienced a bubble as investors
were  anticipating  Greece  would  join the EU and the  local  retail  investors
continued  to provide a strong  influx of  capital.  Toward the end of 1999 this
bubble  gradually  deflated,   but  the  country's  economic  outlook  is  still
favorable.  The devastating earthquake in Turkey only marginally shook investors
and was more than offset by  political  change.  It is  anticipated  Turkey will
enter a cycle of lower interest rates and less inflation that will bode well for
equity  investors.  Managers  are  also  looking  to  Egypt  as the  economy  is
positioned well for growth, remaining cheap on a valuation level. It is felt the
best  investment  opportunities  in the EMEA  region  will  come  from  wireless
telecom, technology, and media.                                                 

Comparison of Change in Value of $1.0 Million  Investment  in the  International
Emerging  Markets  Portfolio,  Lipper Emerging Markets Fund Average and MSCI EMF
Index.                                                                          

-------------------------------------                                           
Average Annual Total Returns*                                         
As of December 31, 1999                                             
1 Year 5 Year 10 Year                                             
63.37% 16.26**   --                                               

** - Since Inception Date 11/26/97                                              
-------------------------------------                                           

                                                 MSCI          Lipper Emerging
                                            EMF ID             Markets
Year Ended December 31,             IEP*          INDEX            Fund Avg.    
                             1,000,000      1,000,000          1,000,000
    1997                     1,014,000      1,021,800          1,015,300
    1998                       839,491        740,601            742,895
    1999                     1,371,476      1,232,434          1,268,642

Note: Past performance is not predictive of future performance.                 

International Securities Portfolio                                              

The return for the International  Securities  Portfolio in 1999 was 27.89%. This
performance outpaced the 26.96% return posted by the EAFE (Europe, Australia and
Far East) Index.  The largest positive  contributions  came from the Portfolio's
exposure to emerging markets and the allocation of the European investments. The
Portfolio  would have  outperformed  the benchmark by a larger amount if not for
the strength of the Japanese  market and its currency.  Positive  equity returns
globally  were  driven by  improving  economies,  low  inflation  and the strong
performance  of the  so-called  `New  Era'  stocks  in  the  telecommunications,
technology and media industries.                                                

Emerging markets performed very strongly in 1999 as economic growth troughed and
began to move up early in the year  and  accelerated  as 1999  progressed.  This
specifically  benefited  the  holdings in South Korea and South Africa where the
Portfolio held more cyclical  companies.  An additional benefit came when one of
the Portfolio's  largest holdings,  an oil company in Argentina,  was taken over
early in the year.                                                              

Strong  stock  specific  performance  in  Europe,  especially  in the UK and the
Netherlands, aided relative outperformance. Several of the companies held in the
Portfolio were taken over by competitors in 1999.  These  takeovers  resulted in
the  rapid  realization  of value  for  shareholders.  The  Portfolio's  returns
benefited from this activity.  1999 was also  characterized by sluggish European
markets in the first three  quarters of the year because of worries about rising
interest rates. These worries impacted media,  technology and telecommunications
stocks most  severely.  The  Portfolio  took  advantage of the weakness in stock
prices in these  industries  to increase the  weighting  in these higher  growth
areas of the economy.  This strategy paid off handsomely in the fourth  quarter,
as these  growth  sectors  led the  market  rally.  The  Portfolio's  overweight
positions in media and  technology  and  underweight  positions in insurance and
utilities were the main drivers of the positive relative performance.           

The  Portfolio  increased  its  weighting in the Japanese  market as the economy
began to show signs of  improvement  and  companies  in Japan  began to announce
restructuring  plans to raise  profitability.  The average weighting in Japan in
1999 was still only 8%,  significantly  below the benchmark.  This hurt relative
returns because of the strong market  performance,  but also because the yen was
the strongest major currency in the world last year.                            

The  Portfolio  continues to be  underweight  Japan (50% of the  benchmark)  and
overweight  Europe.  Europe is expected to grow its economy faster than the rest
of the world this year and European  equities still offer good value.  Inflation
is expected to remain  subdued,  but the efforts of central  banks in the US and
Europe to prevent inflation will mean rising short-term  interest rates that may
cause market volatility. There is still good value in some media, technology and
telecommunications  stocks.  Select  financials  and  cyclicals  also offer good
value.                                                                          

Comparison of Change in Value of $1.0 Million  Investment  in the  International
Securities Portfolio, Lipper International Fund Average and MSCI EAFE Index.    

--------------------------------------------                                    
Average Annual Total Returns *                                  
As of December 31, 1999                                     
1 Year   5 Year   10 Year                                     
27.89%   17.00%    15.88%**                                   

**  Since inception date 5/7/93                                                 
--------------------------------------------                                    

                          ISP*       Morgan Stanley           Lipper
                            Total           EAFE             International
Year Ended December 31       Return          Index                Index     
                        1,000,000       1,000,000            1,000,000
     1993               1,298,152       1,058,800            1,225,000
     1994               1,214,388       1,141,175            1,216,303
     1995               1,360,336       1,269,100            1,330,757
     1996               1,688,511       1,345,881            1,487,520
     1997               1,900,456       1,369,838            1,568,441
     1998               2,082,034       1,643,805            1,772,652
     1999               2,662,622       2,086,975            2,495,894

Note: Past performance is not predictive of future performance.                 

International SmallCap Portfolio                                                

The international small cap arena saw impressive returns that were unprecedented
previous to 1999.  The Lipper  International  SmallCap Fund Average total return
was 75.41% for the year. The International  SmallCap Portfolio's return exceeded
the  Lipper  average  by 10.5% on a 1-year  basis.  Earlier  in 1999 Japan was a
significant  outperformer  in the small cap world and the  Portfolio's  holdings
outpaced the index  returning,  on average,  some 60%. The Portfolio went from a
zero  weighting  in Japan to one that more  closely  matched  the  benchmark  at
mid-year,  to lightening up during fourth  quarter as the  Portfolio's  managers
felt much of the Japanese market had simply run out of steam. The fourth quarter
saw investors  taking gains in the Japanese small cap stocks as the economy once
again  came  into   question  as  to  what  could  be  delivered  and  how  much
restructuring was actually occurring. 1999 was a good year for European start-up
companies.  Many were  technology-oriented that soon turned into mid-caps due to
massive price  appreciation in a short time span. A fundamental  change was seen
in the liquidity flows as capital began to pour into the European markets in the
fourth quarter.  The top performing  sectors included media,  telecommunications
and  technology as those  companies  that had exposure in these areas saw strong
price appreciation in the fourth quarter as investors scrambled to gain exposure
to these industries.                                                            

Portfolio  managers  continue  to look for market  leaders  in their  respective
fields with good growth  characteristics,  a solid business  strategy and strong
barriers  to  entry.  1999  was a year of  stellar  performance  for  technology
companies as the internet and  e-commerce  began to  demonstrate  that they will
revolutionize the business world.  Managers  identified some promising companies
that are global  leaders  and should  benefit  from the  explosion  of growth in
e-commerce. The Portfolio has rotated out of many of the stronger performers and
continues  to  look  for  new  opportunities  whose  growth   opportunities  are
undervalued relative to their stock price.                                      

The International  SmallCap  Portfolio  continues to benefit from themes such as
outsourcing  of  electronic  components,  increasing  advertising  expenditures,
market  research  companies and indirect  e-commerce  solutions.  At the current
time, growth companies offer the most attractive  investments from a risk/return
trade-off  compared to the more  traditional  value  stocks.  Portfolio  mangers
continue to look for companies that are at attractive  valuations and also offer
long-term earnings growth potential.                                            

Important Notes:                                                                

Lipper  Emerging  Markets Fund  Average:  This  average  consists of funds which
invest at least 65% of their total assets in emerging market equity  securities,
where  "emerging  market"  is  defined  by a  country's  GNP per capita or other
economic measures. The one-year average currently contains 180 funds.           

Morgan Stanley Capital  International  EMF (Emerging  Markets Free) Index:  This
market capitalization weighted index is composed of companies  representative of
the market  structure of 26 emerging market  countries in Europe,  Latin America
and the Pacific  Basin.  The Index  excludes  closed markets and those shares in
otherwise free markets that are not  purchasable by foreigners.  These countries
include: Argentina, Brazil, Chile, China Free, Columbia, Czech Republic, Greece,
Hungary,  India,  Indonesia Free, Israel, Jordan, Korea, Malaysia (Free), Mexico
(Free),  Pakistan,  Peru,  Philippines (Free), Poland, Russia, South Africa, Sri
Lanka, Taiwan (at 50%), Thailand (Free), Turkey and Venezuela.                  

Lipper  International  Small Cap Funds Average:  This average  consists of funds
which invest at least 65% of their  assets in equity  securities  of  non-United
States  companies with market  capitalizations  less than U.S. $1 billion at the
time of purchase. The one-year average currently contains 70 funds.             

Morgan  Stanley  Capital  International  EAFE  (Europe,  Australia and Far East)
Index:  This market  capitalization  weighted  index is  composed  of  countries
representative  of the market  structure  of 20  developed  market  countries in
Europe, Australasia and the Far East. The countries include: Australia, Austria,
Belgium,  Denmark,  Finland,  France, Germany, Hong Kong, Ireland, Italy, Japan,
Netherlands,   New  Zealand,   Norway,  Portugal,   Singapore,   Spain,  Sweden,
Switzerland and United Kingdom.                                                 

Lipper  International Fund Average:  This average consists of funds which invest
in securities  primarily  traded in markets  outside of the United  States.  The
one-year average currently contains 618 funds.                                  

Comparison of Change in Value of $1.0 Million  Investment  in the  International
SmallCap  Portfolio,  Lipper  International  SmallCap Fund Average and MSCI EAFE
Index.                                                                          

-------------------------------------                                           
Average Annual Total Returns*                                         
As of December 31, 1999                                             
1 Year 5 Year 10 Year                                             
85.93% 42.93**    --                                              

** - Since Inception Date 11/26/97                                              
-------------------------------------                                           

                                                      Lipper
                                         MSCI          International
                                      EAFE ND           SmallCap
Year Ended December 31,          ICP*          INDEX           Fund Avg.        
                      1,000,000      1,000,000         1,000,000
1997                   1,015,900      1,008,700           985,500 
1998                   1,136,995      1,210,440         1,113,812 
1999                   2,114,015      1,536,775         1,953,738 

Note: Past performance is not predictive of future performance.                 

Mortgage-Backed Securities Portfolio                                            

Over the last 15 months  the  Federal  Reserve  has  lowered  interest  rates to
stabilize the global financial turmoil, only to reverse course and start raising
rates as markets stabilized and global growth resumed.  Fund managers view these
Federal  Reserve  actions as the equivalent of a doctor  prescribing  aspirin to
treat the economic patient. These are mild treatments,  needed to keep inflation
low and growth reasonable.                                                      

On an absolute basis, the returns for the Mortgage-Backed  Securities  Portfolio
for the year were poor. Fixed income securities had no momentum, especially with
the Fed raising  interest  rates.  This was especially  true during  December as
investors  poured money into fast moving growth  stocks and out of  fixed-income
securities.                                                                     

The Portfolio  underperformed both the Lipper U.S. Mortgage Fund Average and the
Lehman Brothers Mortgage Index, primarily due to its slightly longer duration.  

Fund managers  continue to believe the  Portfolio  will do well into the future.
Quality,  liquidity,  lack of credit volatility and the participation of certain
federal  agencies  are  cited  as the key  drivers.  Agency  participation  is a
significant  factor.  The Federal  National  Mortgage  Association  ("FNMA") and
Federal  Home Loan  Mortgage  Corporation  ("FHLMC")  are two major  issuers  of
mortgage-backed  securities  "MBS."  As  stock  companies,  they are  driven  by
stockholders and the price of their stock. In order to grow earnings in the face
of  declining  new issue MBS  (typically  they earn their  income by issuing new
MBS), they are arbitraging more of the outstanding MBS. These agencies arbitrage
by issuing debt and buying MBS to earn the "spread" for their stockholders. FNMA
and FHLMC are expected to buy 60% of net MBS issuance in 2000, strengthening the
MBS market.                                                                     

The Portfolio continues to hold more discount MBS securities than the Lehman MBS
index  (this  leads  to a bias of  longer  duration)  as  managers  believe  the
homeowner's  propensity to refinance and the mortgage banker's technology driven
inducement to refinance  loans puts great risk on  securities  priced above par.
This is especially  true in a market when overall  volume is declining as higher
interest rates impact both new and existing home markets.                       

The Portfolio is expected to stay close to its duration benchmarks. Currently it
is a little long but is expected to be duration  neutral soon, and fund managers
patiently wait for the opportunity to strategically lengthen maturities.        

Important Notes:                                                                

Lehman Brothers Mortgage Index: an unmanaged index of 15- and 30-year fixed rate
securities  backed  by  mortgage  pools  of  the  Government  National  Mortgage
Association (GNMA),  Federal Home Loan Mortgage Corporation (FHLMC), and Federal
National Mortgage Association (FNMA).                                           

Lipper U.S.  Mortgage  Fund  Average:  this  average  consists  of mutual  funds
investing  at least  65% of  their  assets  in  mortgages/securities  issued  or
guaranteed  as to  principal  and  interest by the U.S.  Government  and certain
federal agencies. The one-year average currently contains 62 mutual funds.      

Note: Mutual fund data from Lipper Services, Inc.                               

Comparison of Change in Value of $1.0 Million Investment in the Mortgage-Backed 
Securities  Portfolio,  Lipper U.S.  Mortgage  Fund Average and Lehman  Brothers
Mortgage Index.                                                                 

--------------------------------------------                                    
Average Annual Total Returns*                                   
As of December 31, 1999                                     
1 Year 5 Year 10 Year                                     
0.30%  8.15%   6.17%**                                    

**  Since Inception Date 5/7/93                                                 
--------------------------------------------                                    

                                         Lehman Brothers         Lipper U.S.
                               MBS*           Mortgage           Mortgage Fund
Year Ended December 31,        Value            Index                Average    
                          1,000,000        1,000,000             1,000,000
    1993                  1,045,260        1,032,308             1,033,900
    1994                  1,007,869        1,015,688               990,786
    1995                  1,201,901        1,186,323             1,151,591
    1996                  1,252,353        1,249,791             1,196,158
    1997                  1,380,077        1,368,397             1,298,788
    1998                  1,486,863        1,463,637             1,377,754
    1999                  1,491,417        1,490,861             1,386,710

Note: Past performance is not predictive of future performance.                 

PRICING OF FUND SHARES                                                          

Each  Portfolio's  shares are bought and sold at the current  share  price.  The
share price of each Portfolio is calculated each day the New York Stock Exchange
is open.  The share price is determined at the close of business of the Exchange
(normally at 3:00 p.m.  Central Time).  When Princor receives your order to sell
shares,  the share  price  used to fill the order is the next  price  calculated
after the order is placed.                                                      

For all Portfolios the share price is calculated by:                            
o    taking the current market value of the total assets of the Portfolio       
o    subtracting liabilities of the Portfolio                                   
o    dividing the remainder by the total number of shares owned                 

NOTES:                                                                          
o    If current market values are not readily available for a security, its fair
     value  is  determined  using  a  policy  adopted  by the  Fund's  Board  of
Directors.                                                            
o    The  Portfolio's  securities  may be traded on foreign  securities  markets
     which generally  complete  trading at various times during the day prior to
     the close of the New York Stock Exchange.  The values of foreign securities
     used in computing share price are determined at the time the foreign market
     closes.  Occasionally,  events  affecting  the value of foreign  securities
     occur when the foreign  market is closed and the New York Stock Exchange is
     open. If the Manager believes the market value is materially affected,  the
share price will be calculated using the policy adopted by the Fund.  
o    Foreign  securities  markets  may  trade on days  when  the New York  Stock
     Exchange is closed (such as customary  U.S.  holidays) and the  Portfolio's
     share  price is not  calculated.  As a result,  the value of a  Portfolio's
     assets  may be  significantly  affected  by such  trading  on days when you
cannot sell shares of the Portfolio.                                  

DIVIDENDS AND DISTRIBUTIONS                                                     

The  Portfolios  pay most of their net  dividend  income to you every year.  The
payment schedule is:                                                            

                                                        [Enlarge/Download Table]

Portfolios                       Record Date                 Payable Date              
                                                                                       
International Emerging Markets,  three business days before  December 24               
International Securities and     each payable date           (or previous business day)
International SmallCap                                                                 

Mortgage-Backed Securities       three business days before  last business day of each 
                                 each payable date           month                     

Net realized  capital gain for each of the  Portfolios,  if any, are distributed
annually,  on the 24th of December (or the preceding business day if the 24th is
not a business  day) to  shareholders  of record three  business days before the
payable date.  Payments are made to shareholders of record on the third business
day prior to the payable date.  Capital gains may be taxable at different rates,
depending on the length of time that the Portfolio holds its assets.            

You can  authorize  income  dividend  and capital  gain  distributions  to be:  
o    invested in additional shares of the Portfolio you own; or                 
o    paid in cash.                                                              

NOTE:Distributions  from a Portfolio,  whether received in cash or reinvested in
additional shares, may be subject to federal (and state) income tax.  

     You should consult your tax advisor as to the federal,  state and local tax
consequences of Portfolio ownership.                                  

OFFERING PRICE OF SHARES                                                        

Shares  of the  Portfolios  are no  longer  available  for  purchase  except  to
accommodate reinvestment of distribution of dividends and/or capital gains.     

TO SELL SHARES                                                                  

After you place a sell  order in proper  form,  shares  are sold  using the next
share  price  calculated.  There is no charge  for a sale.  Generally,  the sale
proceeds  are sent out on the next  business  day after the sell  order has been
placed.  At your request,  the check will be sent overnight (a $15 overnight fee
will be deducted from your account unless other  arrangements  are made). A sell
order from one owner is binding on all joint owners.                            

Payment for shares tendered for redemption is ordinarily made in cash. The Board
of Directors of the Fund may determine, however, that it would be detrimental to
the  remaining  shareholders  to make  payment of a  redemption  order wholly or
partly in cash. The Fund may, therefore, pay the redemption proceeds in whole or
in part by a distribution "in kind" of securities from the portfolio of the Fund
in lieu of cash. If the Fund pays the redemption proceeds in kind, the redeeming
shareholder  might incur  brokerage or other costs in selling the securities for
cash. The Fund will value  securities  used to pay redemptions in kind using the
same  method the Fund uses to value its  portfolio  securities,  describe  above
under "Pricing of Fund Shares."                                                 

Selling  shares may create a gain or a loss for federal  (and state)  income tax
purposes.  You should maintain accurate records for use in preparing your income
tax returns.                                                                    

Generally, sales proceeds checks are:                                           
o    payable to all owners on the account (as shown in the account registration)
and                                                                   
o    mailed to address on the  account  (if not  changed  within  last month) or
previously authorized bank account.                                   

For  other   payment   arrangements,   please  call   Principal   Mutual   Funds
(1-800-521-1502).                                                               

You  should  also call  Principal  Mutual  Funds  (1-800-521-1502)  for  special
instructions that may apply to sales from accounts:                             
o    when an owner has died; or                                                 
o    owned by corporations, partnerships, agents or fiduciaries.                

Sell shares by mail                                                             
o    Send a letter (signed by the owner of the account) to                      
Principal Mutual Funds                                                
P. O. Box 10423                                                       
Des Moines Iowa 50306-9780                                            

o    Specify the Fund and account number.                                       
o    Specify the Portfolio(s).                                                  
o    Specify the number of shares or the dollar amount to be sold.              
o    A signature guarantee* will be required if the:                            
     o    account  address has been changed  within one month of the sell order;
or                                                          
     o    check is payable to a party other than the account  shareholder(s)  or
Principal Life Insurance Company.                           
          *    If required,  the signature(s) must be guaranteed by a commercial
               bank,  trust company,  credit union,  savings and loan,  national
               securities   exchange  member  or  brokerage  firm.  A  signature
              guaranteed by a notary public or savings bank is not acceptable.

Sell shares by telephone* (1-800-521-1502)                                      
o    Address on  account  must not have been  changed  within the last month and
     telephone  privileges  must apply to the account  from which the shares are
being sold.                                                           
o    If our phone lines are busy, you may need to send in a written sell order. 
o    To sell shares the same day, the order must be received before the close of
     normal trading on the New York Stock Exchange  (generally 3:00 p.m. Central
Time).                                                                
o    If previously  authorized,  checks can be sent to a shareholder's U.S. bank
account.                                                              
     *   The Fund and  transfer  agent  reserve  the right to  refuse  telephone
         orders to sell shares.  The  shareholder is liable for a loss resulting
         from a fraudulent  telephone order that the Fund reasonably believes is
         genuine. The Fund will use reasonable procedures to assure instructions
         are genuine. If the procedures are not followed, the Fund may be liable
         for loss due to unauthorized or fraudulent transactions. The procedures
         include:  recording all  telephone  instructions,  requesting  personal
         identification information (name, phone number, social security number,
         birth date,  etc.) and sending  written  confirmation to the address on
the account.                                                  

Periodic withdrawal plans                                                       

You may set up a periodic withdrawal plan on a monthly, quarterly, semiannual or
annual basis to:                                                                
o    sell a fixed number of shares ($100 initial minimum amount), or            
o    sell enough shares to provide a fixed amount of money ($100 initial minimum
amount).                                                              
You  can  set  up  a  periodic  withdrawal  plan  by  sending  us  your  written
instructions (and share certificate, if any, issued for the account).           

Your periodic  withdrawal plan continues  until:                                
o    you instruct us to stop, or                                                
o    your Fund account balance is zero.                                         

When you set up the withdrawal plan, you select which day you want the sale made
(if none  selected,  the sale  will be made on the  15th of the  month).  If the
selected date is not a trading day, the sale will take place on the next trading
day (if that day falls in the month after your selected  date,  the  transaction
will take place on the trading  day before  your  selected  date.  If  telephone
privileges  apply  to the  account,  you  may  change  the  date  or  amount  by
telephoning us at 1-800-521-1502.                                               

GENERAL INFORMATION ABOUT A FUND ACCOUNT                                        

Statements                                                                      
You will receive  quarterly  statements.  The statements  provide the number and
value of shares you own, transactions during the quarter,  dividends declared or
paid and other information.  The year end statement includes information for all
transactions  that took place during the year.  Please review your  statement as
soon as your  receive  it.  Keep  your  statements  as you may need them for tax
reporting purposes.                                                             

Generally,  each time you sell or exchange shares between  Portfolios,  you will
receive a confirmation in the mail shortly thereafter.                          

Certain  sales are only  included on your  quarterly  statement.  These  include
accounts when the only activity during the quarter is:                          
o    purchase of shares from reinvested dividends and/or capital gains; or      
o    sales under a periodic withdrawal plan.                                    

Signature Guarantees                                                            
Certain transactions require that your signature be guaranteed. If required, the
signature(s)  must be guaranteed by a commercial  bank,  trust  company,  credit
union,  savings and loan, national securities exchange member or brokerage firm.
A signature  guaranteed  by a notary  public or savings bank is not  acceptable.
Signature guarantees are required:                                              

o    if you sell more than $100,000 from any one Portfolio;                     
o    if  a  sales   proceeds   check  is  payable  to  other  than  the  account
    shareholder(s), Principal Life Insurance Company or one of its affiliates;
o    to change ownership of an account;                                         
o    to add telephone transaction services and/or wire privileges to an existing
account;                                                              
o    to change bank account  information  designated under an existing telephone
withdrawal plan;                                                      
o    to have a sales  proceeds check mailed to an address other than the address
     on the  account  or to the  address on the  account if it has been  changed
within the preceding month; and                                       
o    to exchange or transfer among accounts with different ownership.           

Special Plans                                                                   
The Fund reserves the right to amend or terminate the special plans described in
this prospectus.  Such plans include periodic withdrawal for certain purchasers.
You would be notified of any such action to the extent required by law.         

Telephone Orders                                                                
The Fund reserves the right to refuse telephone instructions. You are liable for
a loss  resulting  from a fraudulent  telephone  instruction  that we reasonably
believe is genuine. We will use reasonable procedures to assure instructions are
genuine.  If the procedures  are not followed,  we may be liable for loss due to
unauthorized or fraudulent transactions.  The procedures include:  recording all
telephone instructions,  requesting personal  identification  information (name,
phone number,  social  security  number,  birth date,  etc.) and sending written
confirmation to the shareholder's address of record.                            

Financial Statements                                                            
You will  receive  annual  financial  statements  for the Fund,  examined by the
Fund's  independent  auditors,  Ernst & Young LLP. That report is a part of this
prospectus.  You will also receive a  semiannual  financial  statement  which is
unaudited.  The  following  financial  highlights  are  derived  from  financial
statements which were audited by Ernst & Young LLP.                             

Additional  information  about  the  Fund  is  available  in  the  Statement  of
Additional  Information dated April 3, 2000 as revised through __________,  2000
and which is part of this prospectus.  Information about the Fund's  investments
is also available in the Fund's annual and semi-annual  reports to shareholders.
The Statement of Additional  Information and annual and semi-annual  reports can
be obtained free of charge by writing or telephoning  Princor Financial Services
Corporation, P.O. Box 10423, Des Moines, IA 50306. Telephone 1-800-451-5447.    

Information  about the Fund can be  reviewed  and copied at the  Securities  and
Exchange  Commission's Public Reference Room in Washington,  D.C. Information on
the  operation  of the public  reference  room may be  obtained  by calling  the
Commission at  1-800-SEC-0330.  Reports and other information about the Fund are
available on the  Commission's  internet site at  http://www.sec.gov.  Copies of
this information may be obtained,  upon payment of a duplicating fee, by writing
the Public Reference Section of the Commission, Washington, D.C. 20549-6009.    

The U.S. Government does not insure or guarantee an investment in the Fund.     

Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any financial  institution,  nor are shares of the Fund federally insured by
the Federal  Deposit  Insurance  Corporation,  the Federal Reserve Board, or any
other agency.                                                                   

 Principal Investors Fund, Inc. SEC File 811-07572

PRINCIPAL INVESTORS FUND, INC.
 (previously Principal Special Markets Fund, Inc.)

 Statement of Additional Information

 dated _____________________

This  Statement of  Additional  Information  is not a  prospectus,  but contains
additional  information that should be read in conjunction with the prospectuses
dated  _______________  for the Fund listed above, as supplemented  from time to
time. Additionally,  this Statement of Additional Information  incorporates,  by
reference,  the financial statements included in the shareholder report relating
to  the  Fund  dated   ___________________.   The   prospectuses  and  financial
statements, including the independent accountants' report thereon, are available
without  charge.  Please  call  1-800-______  to  request a copy of any of these
documents.   The   prospectus   may   also  be   viewed   on  our  web  site  at
www.principal.com.                                                              

 TABLE OF CONTENTS

        Fund History.....................................................    2
        Description of the Funds' Investments and Risks..................    2
        Management of the Fund...........................................   13
        Control Persons and Principal Holders of Securities..............   14
        Investment Advisory and Other Services...........................   16
        Multiple Class Structure.........................................   22
        Brokerage Allocation and Other Practices.........................   25
        Purchase, Redemption and Pricing of Shares.......................   28
        Taxation of the Fund.............................................   30
        Underwriter......................................................   30
        Calculation of Performance Data..................................   30
        Performance......................................................   30
        Financial Statements.............................................   32
        Appendix A.......................................................   32

FUND HISTORY                                                                    

The Principal  Investors Fund is a registered,  open-end  management  investment
company,  commonly  called a mutual  fund.  It was  organized  as the  Principal
Special  Markets Fund, Inc. on January 28, 1993 as a Maryland  corporation.  The
Fund changed its name to Principal Investors Fund effective September 14, 2000. 

The Fund consists of multiple  investment  portfolios some of which are referred
to as "Funds".  Each Fund or Portfolio  operates for many purposes as if it were
an  independent  mutual fund.  Each Fund and  Portfolio  has its own  investment
objective, strategy and management team.                                        

The date of organization of each Portfolio is as follows:                       
International Emerging Markets Portfolio        September 17, 1997    
International Securities Portfolio              January 28, 1993      
International SmallCap Portfolio                September 17, 1997    
Mortgage-Backed Securities Portfolio            January 28, 1993      

The date of organization of the Funds is September 14, 2000.                    

The International  Emerging  Markets,  International  Securities,  International
SmallCap and Mortgage-Backed  Securities  Portfolios offer only one share class.
Each Fund offers multiple classes of shares with different expenses.  Because of
these different expenses,  the investment  performance of the classes will vary.
For more information,  including your eligibility to purchase certain classes of
shares, call the Principal Investors Fund at 1-800-_______________.             

DESCRIPTION OF THE FUNDS' INVESTMENTS AND RISKS                                 

Fund Policies                                                                   
The investment  objectives,  principal investment policies and the main risks of
each Fund and  Portfolio  are  described in the  Prospectus.  This  Statement of
Additional  Information  ("SAI") contains  supplemental  information about those
policies  and  risks  and  the  types  of  securities  each   Fund's/Portfolio's
Sub-Advisor  can  select.  Additional  information  is also  provided  about the
strategies that the Fund/Portfolio may use to try to achieve its objective.     

The  composition of each  Fund/Portfolio  and the techniques and strategies that
the  Fund's/Portfolio's  Sub-Advisor  may use in selecting  securities will vary
over  time.  A  Fund/Portfolio  is not  required  to use  all of the  investment
techniques and strategies available to it in seeking its goals.                 

Unless otherwise indicated,  with the exception of the percentage limitations on
borrowing,  the  restrictions  apply at the time  transactions are entered into.
Accordingly,  any later  increase or decrease  beyond the specified  limitation,
resulting from market fluctuations or in a rating by a rating service,  does not
require elimination of any security from the portfolio.                         

Except as described below as "Fundamental Restrictions," the investment policies
described  in this  SAI  and the  prospectuses  are not  fundamental  and may be
changed by the Board of Directors without shareholder approval.  The Fundamental
Restrictions  may not be changed without a vote of a majority of the outstanding
voting securities of the affected Fund/Portfolio.  The Investment Company Act of
1940 ("1940 Act") provides that "a vote of a majority of the outstanding  voting
securities" of a Fund/Portfolio  means the affirmative vote of the lesser of (1)
more  than  50% of the  outstanding  shares,  or (2) 67% or  more of the  shares
present at a meeting if more than 50% of the outstanding  Fund/Portfolio  shares
are  represented at the meeting in person or by proxy.  Each share has one vote,
with  fractional  shares  voting  proportionately.  Shares of all  classes  of a
Fund/Portfolio  will vote  together  as a single  class  except  when  otherwise
required by law or as determined by the Board of Directors.                     

Fund Investment Limitations                                                     
Fundamental Restrictions                                                        
The  following  investment   limitations  of  the  Balanced,   Bond  &  Mortgage
Securities,  European,  Government  Securities,  High Quality  Intermediate-Term
Bond, High Quality Long-Term Bond, High Quality  Short-Term Bond,  International
I, International II,  International  Emerging Markets,  International  SmallCap,
LargeCap Blend, LargeCap Growth,  LargeCap S&P 500 Index, LargeCap Value, MidCap
Blend, MidCap Growth, MidCap S&P 400 Index, MidCap Value, Money Market,  Pacific
Basin,  Partners  LargeCap  Growth I,  Partners  LargeCap  Growth  II,  Partners
LargeCap Blend, Partners LargeCap Value, Partners MidCap Growth, Partners MidCap
Value,  Partners  SmallCap  Growth I, Partners  SmallCap Growth II, Real Estate,
SmallCap Blend,  SmallCap  Growth,  SmallCap  Value,  SmallCap S&P 600 Index and
Technology Funds are the fundamental investment limitations. Each Fund may not: 

(1)  Issue  any  senior  securities  as  defined  in the 1940 Act,  as  amended.
     Purchasing and selling securities and futures contracts and options thereon
     and borrowing money in accordance with restrictions  described below do not
involve the issuance of a senior security.                            

(2)  Invest in physical  commodities or commodity  contracts (other than foreign
     currencies),  but it may purchase  and sell  financial  futures  contracts,
     options  on  such  contracts,  swaps  and  securities  backed  by  physical
commodities.                                                          

(3)  Invest  in real  estate,  although  it may  invest in  securities  that are
     secured by real  estate and  securities  of issuers  that invest or deal in
real estate.                                                          

(4)  Borrow  money,  except that it may (a) borrow from banks (as defined in the
     1940 Act, as amended) or other  financial  institutions  or through reverse
     repurchase  agreements  in  amounts  up to 33  1/3%  of  its  total  assets
     (including the amount borrowed);  (b) to the extent permitted by applicable
     law,  borrow up to an  additional  5% of its  total  assets  for  temporary
     purposes;  (c)  obtain  short-term  credits  as may be  necessary  for  the
     clearance of purchases and sales of portfolio securities;  and (d) purchase
     securities on margin to the extent permitted by applicable law (the deposit
     or  payment  of margin in  connection  with  transactions  in  options  and
     financial  futures  contracts is not  considered  purchase of securities on
margin).                                                              

(5)  Make loans, except that the Fund may (a) purchase and hold debt obligations
     in accordance with its investment  objectives and policies;  (b) enter into
     repurchase  agreements;  and (c)  lend  its  portfolio  securities  without
     limitation against  collateral  (consisting of cash or securities issued or
     guaranteed   by  the  United   States   Government   or  its   agencies  or
     instrumentalities) equal at all times to not less than 100% of the value of
     the  securities  loaned.  This  limit does not apply to  purchases  of debt
securities or commercial paper.                                       

(6)  Invest more than 5% of its total assets in the securities of any one issuer
     (other  than  obligations   issued  or  guaranteed  by  the  United  States
     Government or its agencies or  instrumentalities) or purchase more than 10%
     of the outstanding  voting  securities of any one issuer,  except that this
     limitation  shall apply only with respect to 75% of the total assets of the
Fund.                                                                 

(7)  Act as an underwriter of securities, except to the extent that the Fund may
     be deemed to be an  underwriter  in connection  with the sale of securities
held in its portfolio.                                                

(8)  Concentrate  its  investments in any particular  industry,  except that the
     Fund may  invest  up to 25% of the  value of its  total  assets in a single
     industry,  provided that,  when the Fund has adopted a temporary  defensive
     posture, there shall be no limitation on the purchase of obligations issued
     or  guaranteed  by  the  United  States   Government  or  its  agencies  or
     instrumentalities. This restriction applies to the LargeCap S&P 500, MidCap
     S&P 400 and  SmallCap  S&P 600 Index  Funds  except to the extent  that the
     related Index also is so  concentrated.  This restriction does not apply to
the Real Estate or Technology Funds.                                  

(9)  Sell  securities  short  (except  where the Fund  holds or has the right to
     obtain at no added cost a long position in the securities  sold that equals
or exceeds the securities sold short).                                

Non-Fundamental Restrictions                                                    
The  following  investment  limitations  for  the  Balanced,   Bond  &  Mortgage
Securities,  European,  Government  Securities,  High Quality  Intermediate-Term
Bond, High Quality Long-Term Bond, High Quality  Short-Term Bond,  International
I, International II,  International  Emerging Markets,  International  SmallCap,
LargeCap Blend, LargeCap Growth,  LargeCap S&P 500 Index, LargeCap Value, MidCap
Blend, MidCap Growth, MidCap S&P 400 Index, MidCap Value, Money Market,  Pacific
Basin,  Partners  LargeCap  Growth I,  Partners  LargeCap  Growth  II,  Partners
LargeCap Blend, Partners LargeCap Value, Partners MidCap Growth, Partners MidCap
Value,  Partners  SmallCap Growth Fund I, Partners SmallCap Growth Fund II, Real
Estate,  SmallCap Blend, SmallCap Growth, SmallCap Value, SmallCap S&P 600 Index
and Technology  Funds are not  fundamental  and may be changed,  by the Board of
Directors, without shareholder approval:                                        

(1)  Invest  more  than 15% of its net  assets  in  illiquid  securities  and in
     repurchase agreements maturing in more than seven days except to the extent
permitted by applicable law.                                          

(2)  Pledge,  mortgage or  hypothecate  its assets,  except to secure  permitted
     borrowings. The deposit of underlying securities and other assets in escrow
     and other collateral arrangements in connection with transactions in put or
     call options,  futures  contracts and options on futures  contracts are not
deemed to be pledges or other encumbrances.                           

(3)  Invest in companies for the purpose of exercising control or management.   

(4)  Invest more than 25% of its assets in foreign  securities,  except that the
     European,   International  I,  International  II,  International   Emerging
     Markets,  International  SmallCap,  Pacific Basin and Technology Funds each
     may invest up to 100% of its assets in foreign securities, the LargeCap S&P
     500,  MidCap S&P 400 and  SmallCap  S&P 600 Index  Funds each may invest in
     foreign  securities  to the extent that the relevant  index is so invested,
and Government Securities may not invest in foreign securities.       

(5)  Enter into (a) any futures  contracts and related options for non-bona fide
     hedging purposes within the meaning of Commodity Futures Trading Commission
     (CFTC) regulations if the aggregate initial margin and premiums required to
     establish  such  positions  will exceed 5% of the fair market  value of the
     Fund's net  assets,  after  taking  into  account  unrealized  profits  and
     unrealized  losses on any such  contracts it has entered into;  and (b) any
     futures contracts if the aggregate amount of such Fund's  commitments under
     outstanding  futures  contracts  positions would exceed the market value of
     its total assets.  This restriction does not apply to the Partners LargeCap
Blend and Partners SmallCap Growth II Funds.                          

(6)  Invest more than 5% of its total assets in real estate limited  partnership
     interests or real estate investment trusts. This restriction does not apply
     to the Partners LargeCap Blend, Partners SmallCap Growth II and Real Estate
Funds.                                                                

(7)  Acquire  securities of other investment  companies,  except as permitted by
     the 1940  Act,  or any  rule,  order or  interpretation  thereunder,  or in
     connection  with a merger,  consolidation,  reorganization,  acquisition of
     assets  or an  offer of  exchange.  The Fund  may  purchase  securities  of
     closed-end  investment companies in the open market where no underwriter or
     dealer's commission or profit,  other than a customary broker's commission,
is involved.                                                          

Portfolio Investment Limitations                                                
Fundamental Restrictions                                                        
The following  investment  limitations of the  International  Emerging  Markets,
International Securities,  International SmallCap and Mortgage-Backed Securities
Portfolios are the fundamental investment  limitations.  Each Portfolio will not
(unless specifically excepted):                                                 

(1)  With respect to 75% of its total  assets,  purchase the  securities  of any
     issuer if the purchase  would cause more than 5% of the total assets of the
     Portfolio to be invested in the  securities  of any one issuer  (other than
     securities  issued or  guaranteed  by the United  States  Government or its
     agencies or  instrumentalities)  or cause more than 10% of the  outstanding
voting securities of any one issuer to be held by the Portfolio.      

(2)  Borrow money,  except (a) for temporary or emergency  purposes in an amount
     not to exceed 5% of the value of the  Portfolio's  total assets at the time
     of the  borrowing  and (b) for any  purpose  from banks in an amount not to
     exceed  one-third of the  Portfolio's  total assets  (including  the amount
     borrowed)  less all  liabilities  and  indebtedness  other than  borrowings
deemed to be senior securities.                                       

(3)  Issue any senior  securities  as defined in the 1940 Act.  For  purposes of
     this restriction,  purchasing and selling securities,  currency and futures
     contracts and options and borrowing money in accordance  with  restrictions
described herein do not involve the issuance of a senior security.    

(4)  Act as an underwriter of securities, except to the extent the Portfolio may
     be deemed to be an  underwriter  in connection  with the sale of securities
held in its portfolio.                                                

(5)  Concentrate  its  investments  in any  particular  industry or  industries,
     except that the  Portfolio may invest not more than 25% of the value of its
     total  assets  in a single  industry.  For  purposes  of this  restriction,
     foreign government and supranational  issuers are not considered members of
any industry.                                                         

(6)  Invest  in real  estate,  although  it may  invest in  securities  that are
     secured by real  estate and  securities  of issuers  that invest or deal in
real estate.                                                          

(7)  Invest in commodities or commodity contracts,  but it may purchase and sell
 currency and financial futures contracts and options on such contracts.

(8)  Make  loans,  except  that the  Portfolio  may (i)  purchase  and hold debt
     obligations in accordance with its investment objectives and policies, (ii)
     enter into repurchase  agreements,  and (iii) lend its portfolio securities
     but not in excess of 33% of the value of its total  assets.  The deposit of
     underlying  securities  and other  assets in  escrow  and other  collateral
     arrangements in connection with options,  currency and futures transactions
are not deemed to be the making of loans.                             

Non-Fundamental Restrictions                                                    
Each Portfolio will not (unless specifically excepted):                         

  (1)Invest  more  than  15% of its  total  assets  in  securities  not  readily
     marketable and in repurchase  agreements  maturing in more than seven days.
     The value of any  options  purchased  in the  over-the-counter  market  are
included as part of this 15% limitation.                              

  (2)Sell securities short (except where the Portfolio holds or has the right to
     obtain at no added cost a long position in the securities  sold that equals
     or exceeds the securities sold short) or purchase any securities on margin,
     except it may  obtain  such  short-term  credits as are  necessary  for the
     clearance of  transactions.  The deposit or payment of margin in connection
     with  options,  currency and futures  transactions  is not  considered  the
purchase of securities on margin.                                     

(3)Invest in companies for the purpose of exercising control or management. 

  (4)Purchase puts, calls, straddles, spreads, or any combination thereof, if by
     reason  thereof the value of its  aggregate  investment  in such classes of
     securities will exceed 5% of its total assets.  Options will be used solely
for hedging purposes, not for speculation.                            

  (5)Invest more than 5% of its assets in initial margin and premiums on futures
contracts and options on such contracts.                              

  (6)Acquire  securities of other investment  companies,  except as permitted by
     the 1940  Act,  or any  rule,  order or  interpretation  thereunder,  or in
     connection  with a merger,  consolidation,  reorganization,  acquisition of
     assets  or an  offer of  exchange.  The Fund  may  purchase  securities  of
     closed-end  investment companies in the open market where no underwriter or
     dealer's commission or profit,  other than a customary broker's commission,
is involved.                                                          

  (7)Pledge,  mortgage or  hypothecate  its assets,  except to secure  permitted
     borrowings. The deposit of underlying securities and other assets in escrow
     and other collateral arrangements in connection with options,  currency and
  futures transactions are not deemed to be pledges or other encumbrances.

  (8)Purchase  warrants in excess of 5% of its total assets,  of which 2% may be
     invested  in  warrants  that are not  listed on the New York,  American  or
     Toronto  Stock  Exchanges  or the  Chicago  Board  Options  Exchange.  This
     restriction  does not apply to  warrants  included  in units or attached to
other securities.                                                     

  (9)Invest in interests in oil, gas or other mineral exploration or development
     programs,  although the  Portfolio may invest in securities of issuers that
invest in or sponsor such programs.                                   

(10) Purchase  securities of any issuer having less than three years' continuous
     operation (including operations of any predecessors) if such purchase would
     cause the  value of the  Portfolio's  investments  in all such  issuers  to
     exceed 5% of the value of its total assets (this restriction does not apply
to the Mortgage-Backed Securities Portfolio).                         

(11) Purchase or retain in its portfolio  the  securities of any issuer if those
     officers or directors of the Fund or its Manager owning  beneficially  more
     than  one-half of 1% (0.5%) of the  securities  of the issuer  together own
beneficially more than 5% of such securities.                         

(12) Invest in arbitrage transactions.                                          

(13) Invest in mineral leases.                                                  

(14) Invest in real estate limited partnership interests.                       

(15) Invest more than 25% of the value of its total assets (i) in the securities
     issued by a single  foreign  government;  or (ii) in  securities  issued by
supranational issuers.                                                

The  Manager  will waive its  management  fee on  Portfolio  assets  invested in
securities of other open-end investment companies and will generally invest only
in those open-end  investment  companies that have investment policies requiring
investment in securities comparable to those in which the Portfolio invests.    

Security Selection                                                              
The Sub-Advisor for the Partners MidCap Growth Fund, Turner Investment Partners,
Inc.  ("Turner"),  selects securities it believes to have strong earnings growth
potential.  Turner seeks to purchase securities that are well diversified across
economic  sectors and to maintain  sector  concentrations  that  approximate the
economic sector  weightings  comprising the Russell Midcap Growth Index (or such
other  appropriate  index  selected  by  Turner).  Any  remaining  assets may be
invested in  securities  issued by smaller  capitalization  companies and larger
capitalization companies,  warrants and rights to purchase common stocks, and it
may  invest up to 10% of its total  assets in ADRs.  Turner  will only  purchase
securities  that are  traded on  registered  exchanges  or the  over-the-counter
market in the U.S.                                                              

The  Sub-Advisor  for the  LargeCap  S&P 500  Index,  MidCap  S&P 400  Index and
SmallCap S&P 600 Index  Funds,  Invista  Capital  Management,  LLC  ("Invista"),
allocates Fund assets in  approximately  the same weight as the relevant  index.
Invista may exclude or remove a stock from the Fund if  extraordinary  events or
financial  conditions  lead it to believe  that such stock should not be part of
the Fund's assets. Fund assets may be invested in futures and options.          

The Sub-Advisor for the European, International II, Pacific Basin and Technology
Funds, BT Funds Management  (International)  Limited ("BT"),  uses a disciplined
active  investment  process.  The cornerstone of this process is the belief that
investment  markets are not always efficient and that investment  outperformance
can be achieved with superior research and analysis.  BT's proprietary  research
process  allows  fund  managers  and  analysts to  identify  quality  investment
opportunities before they are widely recognized by the market,  investments that
will potentially add value to portfolios,  creating wealth for clients.  It is a
global   approach,   developed   over  time  to  recognize   the   international
interdependence of markets.                                                     

Morgan Stanley Asset  Management  ("Morgan  Stanley"),  the  Sub-Advisor for the
Partners LargeCap Growth Fund I follows a flexible investment program in looking
for companies with above average capital appreciation potential. The Sub-Advisor
focuses on companies  with  consistent  or rising  earnings  growth  records and
compelling  business  strategies.  The  Sub-Advisor  continually  and rigorously
studies company developments,  including business strategy, management focus and
financial  results,  to identify  companies  with  earnings  growth and business
momentum. In addition,  the Sub-Advisor closely monitors analysts'  expectations
to identify  issuers that have the  potential  for positive  earnings  surprises
versus consensus  expectations.  In its selection of securities for the Partners
LargeCap  Growth Fund I, Morgan Stanley  considers  valuation to be of secondary
importance  and viewed in the  context of  prospects  for  sustainable  earnings
growth.                                                                         

Neuberger Berman Management Inc. ("Neuberger  Berman"),  the Sub-Advisor for the
Partners  MidCap  Value Fund and the  Partners  SmallCap  Growth Fund I, selects
equity  securities  using the same three basic steps but may utilize  these same
steps in reverse order.                                                         

Selection  of equity  securities  for the other  Funds  are made  based  upon an
approach described broadly as  "company-by-company"  fundamental  analysis.  The
steps  involved  in this  analysis  are:                                        
o    continuing  study of basic  economic  factors in an effort to conclude what
     the future  general  economic  climate is likely to be over the next one to
two years;                                                            
o    given some  conviction as to the likely economic  climate,  the Sub-Advisor
     attempts to identify the prospects for the major industrial, commercial and
     financial segments of the economy. By looking at such factors as demand for
     products,   capacity  to  produce,   operating  costs,  pricing  structure,
     marketing  techniques,  adequacy of raw materials and components,  domestic
     and  foreign  competition,  and  research  productivity,   the  Sub-Advisor
     evaluates the  prospects  for each  industry for the near and  intermediate
term; and                                                             
o    determinations   are  made  regarding  earnings  prospects  for  individual
     companies  within each  industry by  considering  the same types of factors
     described above.  These earnings prospects are evaluated in relation to the
current price of the securities of each company.                      

The Investment Strategies and Risks                                             
Restricted Securities                                                           
Generally,  restricted  securities are not readily  marketable  because they are
subject to legal or contractual  restrictions upon resale. They are sold only in
a public offering with an effective  registration  statement or in a transaction
that is exempt from the registration requirements of the Securities Act of 1933.
When registration is required,  a Fund/Portfolio  may be obligated to pay all or
part of the registration  expenses and a considerable  period may elapse between
the  time  of the  decision  to sell  and the  time  the  Fund/Portfolio  may be
permitted  to  sell a  security.  If,  during  such  a  period,  adverse  market
conditions  were to develop,  the  Fund/Portfolio  might obtain a less favorable
price than  existed  when it decided to sell.  Restricted  securities  and other
securities not readily marketable are priced at fair value as determined in good
faith by, or under the direction, of the Board of Directors.                    

Each of the Funds/Portfolios  has adopted an investment  restriction that limits
its  investment  in  illiquid  securities  to 15% of its  assets.  The  Board of
Directors  has  adopted  procedures  to  determine  the  liquidity  of Rule 4(2)
short-term  paper and of  restricted  securities  under  Rule  144A.  Securities
determined to be liquid under these procedures are excluded from this limit.    

Foreign Securities                                                              
Foreign  companies may not be subject to the same uniform  accounting,  auditing
and  financial  reporting  practices  as are  required  of  U.S.  companies.  In
addition,  there  may be less  publicly  available  information  about a foreign
company than about a U.S. company. Securities of many foreign companies are less
liquid  and  more  volatile  than  securities  of  comparable  U.S.   companies.
Commissions on foreign  securities  exchanges may be generally higher than those
on U.S.  exchanges,  although each  Fund/Portfolio  seeks the most favorable net
results on its portfolio transactions.                                          

Foreign  markets also have different  clearance and settlement  procedures  than
those in U.S. markets. In certain markets there have been times when settlements
have been unable to keep pace with the volume of securities transactions, making
it difficult to conduct these transactions. Delays in settlement could result in
temporary periods when a portion of Fund/Portfolio assets is not invested and is
earning no  return.  If a  Fund/Portfolio  is unable to make  intended  security
purchases due to settlement  problems,  the  Fund/Portfolio  may miss attractive
investment  opportunities.  In addition,  a Fund/Portfolio may incur a loss as a
result of a  decline  in the  value of its  portfolio  if it is unable to sell a
security.                                                                       

With  respect  to  certain  foreign  countries,  there  is  the  possibility  of
expropriation  or confiscatory  taxation,  political or social  instability,  or
diplomatic  developments that could affect a  Fund's/Portfolio's  investments in
those countries.  In addition,  a  Fund/Portfolio  may also suffer losses due to
nationalization, expropriation or differing accounting practices and treatments.
Investments  in foreign  securities  are subject to laws of the foreign  country
that  may  limit  the  amount  and  types of  foreign  investments.  Changes  of
governments or of economic or monetary policies, in the U.S. or abroad,  changes
in dealings between  nations,  currency  convertibility  or exchange rates could
result in investment losses for a Fund/Portfolio.  Finally,  even though certain
currencies may be convertible  into U.S.  dollars,  the conversion  rates may be
artificial  relative  to the  actual  market  values and may be  unfavorable  to
investors.                                                                      

Foreign  securities  are  often  traded  with less  frequency  and  volume,  and
therefore  may have greater  price  volatility,  than is the case with many U.S.
securities. Brokerage commissions,  custodial services, and other costs relating
to investment in foreign countries are generally more expensive than in the U.S.
Though the Funds/Portfolios  intend to acquire the securities of foreign issuers
where  there are public  trading  markets,  economic or  political  turmoil in a
country in which a  Fund/Portfolio  has a  significant  portion of its assets or
deterioration  of the  relationship  between the U.S. and a foreign  country may
negatively impact the liquidity of a Fund's/Portfolio's securities holdings. The
Fund/Portfolio  may  have  difficulty  meeting  a  large  number  of  redemption
requests.  Furthermore,  there may be  difficulties  in  obtaining  or enforcing
judgments against foreign issuers.                                              

Investments in companies of developing  countries may be subject to higher risks
than investments in companies in more developed countries.  These risks include:
o    increased social, political and economic instability;                      
o    a smaller  market for these  securities  and low or  nonexistent  volume of
     trading  that  results  in  a  lack  of  liquidity  and  in  greater  price
volatility;                                                           
o    lack of publicly  available  information,  including reports of payments of
dividends or interest on outstanding securities;                      
o    foreign  government  policies  that may restrict  opportunities,  including
     restrictions  on investment in issuers or  industries  deemed  sensitive to
national interests;                                                   
o    relatively new capital market structure or market-oriented economy;        
o    the possibility that recent favorable  economic  developments may be slowed
     or reversed by unanticipated political or social events in these countries;
o    restrictions   that  may  make  it   difficult   or   impossible   for  the
     Fund/Portfolio to vote proxies,  exercise shareholder rights,  pursue legal
remedies, and obtain judgments in foreign courts; and                 

o possible  losses  through the holding of  securities  in domestic  and foreign
custodial banks and depositories.                                               

In addition, many developing countries have experienced substantial, and in some
periods,  extremely high rates of inflation for many years.  Inflation and rapid
fluctuations  in  inflation  rates have had and may  continue  to have  negative
effects on the economies and securities markets of those countries.             

Repatriation  of  investment  income,  capital and  proceeds of sales by foreign
investors  may  require  governmental   registration  and/or  approval  in  some
developing countries. A Fund/Portfolio could be adversely affected by delays in,
or a refusal to grant,  any required  governmental  registration or approval for
repatriation.                                                                   

Further,  the economies of developing  countries generally are heavily dependent
upon  international  trade and,  accordingly,  have been and may  continue to be
adversely affected by trade barriers,  exchange controls, managed adjustments in
relative currency values and other protectionist  measures imposed or negotiated
by the countries with which they trade.                                         

Depositary Receipts                                                             
Depositary  Receipts are  generally  subject to the same sort of risks as direct
investments in a foreign country, such as, currency risk, political and economic
risk,  and market risk,  because  their values  depend on the  performance  of a
foreign  security   denominated  in  its  home  currency.   For  purposes  of  a
Fund's/Portfolio's investment policies,  investments in Depositary Receipts will
be considered to be investments in the underlying securities.                   

The Funds that may invest in foreign securities may invest in:                  
o    American Depositary Receipts ("ADRs") - receipts issued by an American bank
     or trust company evidencing ownership of underlying  securities issued by a
foreign issuer. They are designed for use in U.S. securities markets. 
o    European  Depositary  Receipts  ("EDRs")  and  Global  Depositary  Receipts
     ("GDRs") - receipts typically issued by a foreign financial  institution to
evidence an arrangement similar to that of ADRs.                      

Depositary  Receipts  may be issued by  sponsored or  unsponsored  programs.  In
sponsored  programs,  an issuer  has made  arrangements  to have its  securities
traded in the form of Depositary Receipts. In unsponsored  programs,  the issuer
may not be directly involved in the creation of the program. Although regulatory
requirements  with respect to sponsored and  unsponsored  programs are generally
similar, in some cases it may be easier to obtain financial  information from an
issuer  that  has   participated  in  the  creation  of  a  sponsored   program.
Accordingly,  there  may be less  information  available  regarding  issuers  of
securities  of  underlying   unsponsored  programs,  and  there  may  not  be  a
correlation between the availability of such information and the market value of
the Depositary Receipts.                                                        

Short-term investments                                                          
Each  Fund/Portfolio may hold short-term  investments  consisting of foreign and
domestic:                                                                       
o    short-term  obligations  of  sovereign  governments,   their  agencies  and
instrumentalities, or political subdivisions;                         
o    other  short-term debt securities or if unrated,  of comparable  quality in
the opinion of the Sub-Advisor; o commercial paper;                   
o    bank  obligations,  certificates  of deposit,  time  deposits  and bankers'
acceptances; and                                                      
o    repurchase agreements.                                                     

Securities of Small Companies                                                   
The  Funds/Portfolios may invest in securities of companies with small or medium
market capitalizations. Market capitalization is defined as total current market
value of a company's  outstanding  common stock.  Investment in a company with a
smaller market  capitalization  may involve  greater risks and price  volatility
(wide,  rapid  fluctuations)  than investment in a larger,  more mature company.
Smaller companies may be less mature than older companies. At this earlier stage
of  development,  the companies may have limited  product lines,  reduced market
liquidity  for  their  shares,  limited  financial  resources  or less  depth in
management than larger or more established companies. Smaller companies also may
be less significant  factors within their industries and may be at a competitive
disadvantage relative to their larger competitors.  Small company stocks may, to
a degree,  fluctuate independently of large company stocks. Small company stocks
may decline in price as large company  stocks rise, or rise in price while large
company stocks decline. Investors should, therefore,  expect the net asset value
of a  Fund/Portfolio  that  invests a  substantial  portion of its net assets in
small company  stocks may be more  volatile than the shares of a  Fund/Portfolio
that invests solely in large company stocks.                                    

Unseasoned Issuers                                                              
Each of the Funds/Portfolios may invest in the securities of unseasoned issuers.
Unseasoned  issuers  are  companies  with a  record  of less  than  three  years
continuous  operations,  including the operations of  predecessors  and parents.
Unseasoned  issuers, by their nature, have only a limited operating history that
can be  used  for  evaluating  the  company's  growth  prospects.  As a  result,
investment  decisions  for these  securities  may place a  greater  emphasis  on
current  or planned  product  lines and the  reputation  and  experience  of the
company's  management  and less emphasis on fundamental  valuation  factors than
would be the case for more mature growth companies. In addition, many unseasoned
issuers  may also be small  companies.  Their  securities  may be subject to the
risks and price  volatility  associated  with  securities of smaller  companies.
While smaller  companies may be subject to these additional risks, they may also
realize more substantial growth than larger or more established companies.      

High-Yield/High-Risk Bonds                                                      
The  Balanced  and Bond & Mortgage  Securities  Funds may invest up to 5% of its
assets in bonds that are rated below investment  grade (e.g.,  bonds rated BB or
lower by Standard & Poor's Ratings Services or Ba or lower by Moody's  Investors
Service,  Inc.). Lower rated bonds involve a higher degree of credit risk, which
is the risk that the issuer will not make  interest or principal  payments  when
due.  In the  event of an  unanticipated  default,  a Fund  would  experience  a
reduction  in its income and could  expect a decline in the market  value of the
bonds  so  affected.  The  Balanced,  Bond  &  Mortgage  Securities,  Government
Securities,  High Quality  Intermediate-Term  Bond, High Quality Long-Term Bond,
High Quality  Short-Term  Bond Funds may also invest in unrated bonds of foreign
and domestic issuers. Unrated bonds, while not necessarily of lower quality than
rated bonds,  may not have as broad a market.  Because of the size and perceived
demand of the issue, among other factors,  certain  municipalities may not incur
the  expense  of  obtaining  a  rating.   The   Sub-Advisor   will  analyze  the
creditworthiness  of the issuer,  as well as any financial  institution or other
party  responsible for payments on the bond, in determining  whether to purchase
unrated  bonds.  Unrated  bonds will be  included  in the 35% limit of each Fund
unless the Sub-Advisor  deems such securities to be the equivalent of investment
grade bonds.                                                                    

Mortgage- and Asset-Backed Securities                                           
The yield characteristics of the mortgage- and asset-backed  securities in which
the  Bond  &  Mortgage   Securities,   Government   Securities,   High   Quality
Intermediate-Term   Bond  and  High  Quality   Long-Term   Bond  Funds  and  the
Mortgage-Backed Securities Portfolio may invest differ from those of traditional
debt securities. Among the major differences are that the interest and principal
payments are made more  frequently  on  mortgage-  and  asset-backed  securities
(usually  monthly)  and that  principal  may be prepaid at any time  because the
underlying  mortgage loans or other assets generally may be prepaid at any time.
As a result, if the  Fund/Portfolio  purchases those securities at a premium,  a
prepayment  rate that is faster than expected  will reduce their yield,  while a
prepayment  rate that is slower than expected  will have the opposite  effect of
increasing  yield.  If  the  Fund/Portfolio  purchases  these  securities  at  a
discount,  faster than expected  prepayments  will  increase,  while slower than
expected prepayments will reduce their yield. Amounts available for reinvestment
by the  Fund/Portfolio  are  likely to be greater  during a period of  declining
interest  rates and, as a result,  are likely to be reinvested at lower interest
rates than during a period of rising interest rates.                            

In general,  the prepayment  rate for  mortgage-backed  securities  decreases as
interest  rates rise and  increases  as  interest  rates fall.  However,  rising
interest rates will tend to decrease the value of these securities. In addition,
an increase in interest rates may affect the  volatility of these  securities by
effectively changing a security that was considered a short-term security at the
time of  purchase  into a long-term  security.  Long-term  securities  generally
fluctuate  more widely in  response to changes in interest  rates than short- or
medium-term securities.                                                         

The market for privately issued mortgage- and asset-backed securities is smaller
and less liquid than the market for U.S. government mortgage-backed  securities.
A collateralized  mortgage obligation ("CMO") may be structured in a manner that
provides a wide variety of investment characteristics (yield, effective maturity
and interest rate  sensitivity).  As market  conditions  change,  and especially
during  periods of rapid market  interest rate changes,  the ability of a CMO to
provide the anticipated  investment  characteristics  may be greatly diminished.
Increased market volatility and/or reduced liquidity may result.                

Zero-coupon securities                                                          
Zero-coupon  securities  are  "stripped"  U.S.  Treasury  notes and bonds.  They
usually trade at a substantial discount from their face (par) value. Zero-coupon
securities  are  subject to greater  market  value  fluctuations  in response to
changing interest rates than debt obligations of comparable maturities that make
distributions of interest in cash.                                              

Derivatives                                                                     
The  Funds/Portfolios  may  invest  in  various  instruments  commonly  known as
"derivatives."  Generally a derivative is a financial arrangement,  the value of
which is based on, or "derived"  from, a traditional  security,  asset or market
index.  Some  derivatives,   such  as  mortgage-related  or  other  asset-backed
securities, are in many respects like any other investment. However, they may be
more volatile or less liquid than more traditional debt securities.             

There are many  different  types of  derivatives  and many different ways to use
them.  There is a range of risks associated with those uses.  Futures  contracts
and options are commonly  used for  traditional  hedging  purposes to attempt to
protect an  investor  from  exposure to changes in  interest  rates,  securities
prices or currency  exchange  rates.  They may also be used for cash  management
purposes as a low cost method of gaining  exposure  to a  particular  securities
market without investing directly in those securities. However, some derivatives
are used for leverage which tends to magnify the effect of an instrument's price
changes as market conditions change. Leverage involves the use of a small amount
of  money to  control  a large  amount  of  financial  assets.  It can,  in some
circumstances, lead to significant losses. The Sub-Advisor uses derivatives only
in  circumstances  in which it believes  they offer the most  economic  means of
improving the risk/reward profile level of the Fund/Portfolio.  Derivatives will
not be used to  increase  portfolio  risk above the level that could be achieved
using only traditional  investment  securities or to acquire exposure to changes
in the value of assets or indices that by themselves  would not be purchased for
the  Fund/Portfolio.  The use of  derivatives  for  non-hedging  purposes may be
considered speculative.                                                         

Securities Lending                                                              
The  Funds/Portfolios  may  lend  their  portfolio   securities.   None  of  the
Funds/Portfolios will lend its portfolio securities if as a result the aggregate
of such loans made by the Fund/Portfolio  would exceed the limits established by
the  1940  Act.   Fund/Portfolio   securities   may  be  lent  to   unaffiliated
broker-dealers and other unaffiliated  qualified financial institutions provided
that such loans are  callable at any time on not more than five  business  days'
notice  and that cash or  government  securities  equal to at least  100% of the
market value of the securities  loaned,  determined  daily,  is deposited by the
borrower with the Fund/Portfolio and is maintained each business day. While such
securities are on loan, the borrower pays the Fund/Portfolio any income accruing
thereon.  The  Fund/Portfolio  may invest any cash  collateral  thereby  earning
additional  income,  and may  receive  an  agreed-upon  fee from  the  borrower.
Borrowed securities must be returned when the loan terminates.  Any gain or loss
in the market value of the borrowed  securities  that occurs  during the term of
the loan belongs to the  Fund/Portfolio  and its shareholders.  A Fund/Portfolio
pays reasonable administrative, custodial and other fees in connection with such
loans and may pay a  negotiated  portion of the  interest  earned on the cash or
government securities pledged as collateral to the borrower or placing broker. A
Fund/Portfolio does not normally retain voting rights attendant to securities it
has lent,  but may call a loan of  securities  in  anticipation  of an important
vote.                                                                           

Short Sales                                                                     
Each  Fund/Portfolio may engage in "short sales against the box." This technique
involves  selling either a security owned by the  Fund/Portfolio,  or a security
equivalent in kind and amount to the security sold short that the Fund/Portfolio
has the right to obtain,  for  delivery  at a specified  date in the  future.  A
Fund/Portfolio  may enter into a short  sale  against  the box to hedge  against
anticipated declines in the market price of portfolio  securities.  If the value
of the securities sold short  increases prior to the scheduled  delivery date, a
Fund/Portfolio loses the opportunity to participate in the gain.                

Repurchase and Reverse Repurchase Agreements                                    
In  a  repurchase   agreement,   a  Fund/Portfolio   purchases  a  security  and
simultaneously  commits to resell that  security to the seller at an agreed upon
price on an agreed  upon date  within a number  of days  (usually  not more than
seven) from the date of  purchase.  The resale  price  consists of the  purchase
price plus an amount  that is  unrelated  to the coupon  rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price, which obligation is in effect secured by the value
(at  least  equal  to  the  amount  of  the  agreed   upon   resale   price  and
marked-to-market  daily) of the  underlying  security  or  "collateral."  A risk
associated with repurchase agreements is the failure of the seller to repurchase
the securities as agreed,  which may cause a Fund/Portfolio  to suffer a loss if
the market value of such  securities  declines  before they can be liquidated on
the open market.  In the event of  bankruptcy  or  insolvency  of the seller,  a
Fund/Portfolio   may  encounter  delays  and  incur  costs  in  liquidating  the
underlying security.  Repurchase  agreements that mature in more than seven days
are subject to the 15% limit on illiquid  investments.  While it is not possible
to  eliminate  all  risks  from  these  transactions,  it is the  policy  of the
Funds/Portfolios   to  limit  repurchase   agreements  to  those  parties  whose
creditworthiness has been reviewed and found satisfactory by the Sub-Advisor.   

A Fund/Portfolio may use reverse repurchase agreements to obtain cash to satisfy
unusually heavy redemption requests or for other temporary or emergency purposes
without the necessity of selling  portfolio  securities,  or to earn  additional
income on portfolio  securities,  such as Treasury bills or notes.  In a reverse
repurchase  agreement,  a Fund/Portfolio  sells a portfolio  security to another
party,  such as a bank or  broker-dealer,  in  return  for  cash and  agrees  to
repurchase  the  instrument  at a  particular  price and  time.  While a reverse
repurchase  agreement is outstanding,  a  Fund/Portfolio  will maintain cash and
appropriate  liquid assets in a custodial  account to cover its obligation under
the  agreement.   The  Funds/Portfolios   will  enter  into  reverse  repurchase
agreements  only with parties that the  Sub-Advisor  deems  creditworthy.  Using
reverse  repurchase  agreements to earn additional income involves the risk that
the  interest  earned on the  invested  proceeds is less than the expense of the
reverse  repurchase  agreement  transaction.  This  technique  may  also  have a
leveraging effect on the Fund/Portfolio,  although the Fund's/Portfolio's intent
to segregate assets in the amount of the reverse repurchase  agreement minimizes
this effect.                                                                    

When-Issued Securities and Forward Commitments                                  
Each Fund/Portfolio may purchase  when-issued  securities and enter into forward
commitments.  These  transactions  involve a commitment by a  Fund/Portfolio  to
purchase  or sell  securities  at a future  date.  The  price of the  underlying
securities  (usually  expressed  in  terms  of  yield)  and the  date  when  the
securities will be delivered and paid for (the settlement date) are fixed at the
time the transaction is negotiated. When-issued purchases and forward commitment
transactions are negotiated  directly with the other party, and such commitments
are not traded on exchanges.  A  Fund/Portfolio  will  purchase  securities on a
when-issued  basis or purchase or sell securities on a forward  commitment basis
only with the intention of completing the transaction and actually purchasing or
selling the securities.  If deemed advisable as a matter of investment strategy,
however,  a  Fund/Portfolio  may  dispose of or  negotiate  a  commitment  after
entering  into  it. A  Fund/Portfolio  may  realize  a  capital  gain or loss in
connection   with  these   transactions.   For   purposes   of   determining   a
Fund's/Portfolio's  duration,  the maturity of when-issued or forward commitment
securities  will be calculated  from the commitment  date. A  Fund/Portfolio  is
required to segregate,  until three days prior to the settlement  date, cash and
liquid assets in an amount sufficient to meet the purchase price. Alternatively,
a  Fund/Portfolio  may enter into  offsetting  contracts for the forward sale of
other securities that it owns.  Securities purchased or sold on a when-issued or
forward  commitment basis involve a risk of loss if the value of the security to
be  purchased  declines  prior  to the  settlement  date or if the  value of the
security to be sold increases prior to the settlement date.                     

Temporary Defensive Position                                                    
The Money  Market  Fund  invests  all of its  available  assets in money  market
instruments  maturing in 397 days or less. In addition,  each Fund/Portfolio may
make money market investments (cash equivalents),  without limit,  pending other
investment or  settlement,  for liquidity or in adverse market  conditions.  For
this purpose, money market instruments include:                                 

(1)  U.S.  Government  Securities - Securities  issued or guaranteed by the U.S.
Government, including treasury bills, notes and bonds.                

(2)  U.S.  Government  Agency  Securities - Obligations  issued or guaranteed by
agencies or instrumentalities of the U.S. Government.                 
     o   U.S. agency obligations include, but are  not limited  to, the Bank for
 Co-operatives, Federal Home Loan Banks and Federal Intermediate
Credit Banks.                                                 
     o   U.S.  instrumentality  obligations include, but are not limited to, the
         Export-Import  Bank,  Farmers  Home  Administration,  Federal Home Loan
 Mortgage Corporation and Federal National Mortgage Association.

     Some  obligations  issued or  guaranteed  by U.S.  Government  agencies and
     instrumentalities  are  supported  by the full faith and credit of the U.S.
     Treasury.  Others,  such as those issued by the Federal  National  Mortgage
     Association,   are  supported  by  discretionary   authority  of  the  U.S.
     Government   to   purchase   certain   obligations   of   the   agency   or
     instrumentality.  Still  others,  such as those  issued by the Student Loan
     Marketing  Association,  are supported  only by the credit of the agency or
instrumentality.                                                      

(3)  bank obligations - Certificates of deposit,  bank notes,  time deposits and
     bankers'  acceptances  of U.S.  commercial  banks having total assets of at
     least one billion dollars and overseas  branches of U.S.  commercial  banks
     and foreign banks,  which in the Sub-Advisor's  opinion,  are of comparable
     quality.  However,  each such bank with its branches has total assets of at
     least five billion dollars,  and  certificates,  including time deposits of
     domestic savings and loan associations  having at least one billion dollars
     in assets  that are  insured  by the  Federal  Savings  and Loan  Insurance
     Corporation.  A Fund/Portfolio  may acquire  obligations of U.S. banks that
     are not members of the  Federal  Reserve  System or of the Federal  Deposit
Insurance Corporation.                                                

     Obligations of foreign banks and  obligations of overseas  branches of U.S.
     banks are subject to somewhat different regulations and risks than those of
     U.S.  domestic banks. For example,  an issuing bank may be able to maintain
     that the liability for an investment is solely that of the overseas  branch
     which could expose a Fund/Portfolio to a greater risk of loss. In addition,
     obligations  of foreign banks or of overseas  branches of U.S. banks may be
     affected by governmental action in the country of domicile of the branch or
     parent bank. Examples of adverse foreign  governmental  actions include the
     imposition of currency  controls,  the imposition of  withholding  taxes on
     interest income payable on such obligations,  interest limitations, seizure
     or nationalization of assets, or the declaration of a moratorium.  Deposits
     in foreign banks or foreign  branches of U.S.  banks are not covered by the
     Federal  Deposit  Insurance   Corporation.   A  Fund/Portfolio   only  buys
     short-term  instruments where the risks of adverse  governmental action are
     believed by the Sub-Advisor to be minimal. A Fund/Portfolio considers these
     factors,  along with other  appropriate  factors,  in making an  investment
     decision to acquire such obligations.  It only acquires those which, in the
     opinion of  management,  are of an investment  quality  comparable to other
     debt securities bought by the  Fund/Portfolio.  A Fund/Portfolio may invest
     in  certificates  of deposit of selected banks having less than one billion
     dollars of assets  providing  the  certificates  do not exceed the level of
     insurance  (currently  $100,000)  provided  by  the  applicable  government
agency.                                                               

     A certificate  of deposit is issued  against  funds  deposited in a bank or
     savings and loan  association for a definite period of time, at a specified
     rate of return.  Normally they are negotiable.  However,  a  Fund/Portfolio
     occasionally   may  invest  in   certificates  of  deposit  which  are  not
     negotiable.  Such  certificates  may provide for interest  penalties in the
     event of withdrawal  prior to their  maturity.  A bankers'  acceptance is a
     short-term  credit instrument issued by corporations to finance the import,
     export,  transfer or storage of goods.  They are termed  "accepted"  when a
     bank  guarantees  their  payment at maturity and reflect the  obligation of
     both the bank  and  drawer  to pay the face  amount  of the  instrument  at
maturity.                                                             

(4)  commercial  paper - Short-term  promissory  notes issued by U.S. or foreign
corporations.                                                         

(5)  short-term  corporate debt - Corporate notes, bonds and debentures which at
the time of purchase have 397 days or less remaining to maturity.     

(6)  repurchase  agreements - Instruments  under which  securities are purchased
     from a bank  or  securities  dealer  with an  agreement  by the  seller  to
     repurchase  the  securities  at the same price plus interest at a specified
rate.                                                                 

(7)  taxable municipal obligations - Short-term obligations issued or guaranteed
by state and municipal issuers which generate taxable income.         

The ratings of nationally  recognized  statistical rating organization  (NRSRO),
such as  Moody's  Investor  Services,  Inc.  ("Moody's")  and  Standard & Poor's
("S&P"),  which are described in Appendix A, represent  their opinions as to the
quality of the money market  instruments which they undertake to rate. It should
be emphasized,  however, that ratings are general and are not absolute standards
of quality.  These ratings,  including  ratings of NRSROs other than Moody's and
S&P, are the initial  criteria for selection of portfolio  investments,  but the
Sub-Advisor further evaluates these securities.                                 

Portfolio Turnover                                                              
Portfolio turnover normally differs for each Fund/Portfolio, varies from year to
year (as well as within a year) and is affected by portfolio  sales necessary to
meet cash requirements for redemption of Fund/Portfolio shares. This requirement
may in some  cases  limit the  ability  of a  Fund/Portfolio  to effect  certain
portfolio  transactions.  A portfolio  turnover rate of 100%  indicates that the
equivalent of all of the Fund's/Portfolio's assets have been sold and reinvested
in a year.  High  turnover  may  result  in  correspondingly  greater  brokerage
commission expenses that are paid by the Fund/Portfolio.                        

A  portfolio  turnover  rate can not be  calculated  for the Money  Market  Fund
because of the short maturities of the securities in which it invests.          

Turnover  rates are not calculated for the Funds that have been in existence for
less than a complete fiscal year. Turnover rates for the Portfolios for the most
recent and immediately preceding fiscal years, respectively, are as follows:    
International Emerging Markets Portfolio          107.5% and 36.5%    
International Securities Portfolio                 71.4% and 36.7%    
International SmallCap Portfolio                  236.3% and 88.5%    
Mortgage-Backed Securities Portfolio               17.0% and 13.8%    

Industry Concentrations                                                         
Each  of the  Funds/Portfolios,  except  Real  Estate  and  Technology,  may not
concentrate  (invest  more  than  25%  of its  assets)  its  investments  in any
particular  industry.  The  LargeCap  S&P 500  Index,  MidCap  S&P 400 Index and
SmallCap S&P 600 Index Funds may concentrate  their  investments in a particular
industry only to the extent that the relevant indices are so  concentrated.  The
European,  International  II and Pacific Basin Funds use the industry  groups of
Morgan Stanley Capital International - Global Industry Classification  Standard.
The other Funds and the  Portfolios  use industry  classifications  based on the
"Directory of Companies  Filing Annual  Reports with the Securities and Exchange
Commission ("SEC")."                                                            

MANAGEMENT OF THE FUND                                                          

Board of Directors                                                              
The Board of Directors  oversees the  management  of the Fund and meets at least
quarterly  to review  reports  about  Fund  operations.  Other  than  serving as
Directors,  most of the  Board  members  have no  affiliation  with  the Fund or
service providers. The Board elects the officers of the Fund who are responsible
for administering the Fund's day-to-day operations.                             

Management Information                                                          
The name, age and address of the officers and Board members are shown below. All
Directors and Officers listed here also hold similar  positions with each of the
other mutual funds  sponsored by Principal  Life  Insurance  Company.  Unless an
address is shown,  the individual's  mailing address is the Principal  Financial
Group, Des Moines, Iowa 50392.                                                  

@    James  D.  Davis,  66,  Director.  4940  Center  Court,  Bettendorf,  Iowa.
Attorney. Vice President, Deere and Company, Retired.                 

*&   Ralph C. Eucher, 48, Director and President. Vice President, Principal Life
     Insurance  Company since 1999.  Director and President,  Princor  Financial
     Services Corporation and Principal Management Corporation since 1999. Prior
thereto, Second Vice President, Principal Life Insurance Company.     

@    Pamela A. Ferguson, 57, Director.  4112 River Oaks Drive, Des Moines, Iowa.
     Professor of  Mathematics,  Grinnell  College  since 1998.  Prior  thereto,
President, Grinnell College.                                          

*&   J. Barry Griswell,  51,  Director and Chairman of the Board.  President and
     CEO,  Principal Life Insurance  Company since 2000;  President,  1998-2000;
     Executive Vice President,  1996-1998; prior thereto, Senior Vice President.
     Director and Chairman of the Board,  Principal  Management  Corporation and
Princor Financial Services Corporation.                               

&    Barbara A.  Lukavsky,  60,  Director.  13731 Bay Hill Court,  Clive,  Iowa.
     President and CEO,  Barbican  Enterprises,  Inc. since 1997.  President and
CEO, Lu San ELITE USA, L.C. 1985-1998.                                

*    Craig L. Bassett,  48,  Treasurer.  Second Vice  President  and  Treasurer,
     Principal Life Insurance Company since 1998. Director - Treasury 1996-1998.
Prior thereto, Associate Treasurer.                                   

*    Ronald L. Danilson, 50, Executive Vice President.  Executive Vice President
     and Chief Operating  Officer,  Princor Financial  Services  Corporation and
     Principal Management Corporation since 2000. Prior thereto, Chief Executive
Officer and President, Delaware Charter Guarantee & Trust Company.    

*    Arthur S. Filean,  62,  Senior Vice  President and  Secretary.  Senior Vice
     President,  Princor Financial Services Corporation and Principal Management
     Corporation,  since 2000. Prior thereto, Vice President,  Princor Financial
     Services  Corporation.  Vice President,  Principal Management  Corporation,
1996-2000.                                                            

*    Ernest  H.  Gillum,  45,  Vice  President  and  Assistant  Secretary.  Vice
     President - Product Development, Princor Financial Services Corporation and
     Principal Management  Corporation,  since 2000. Vice President - Compliance
     and  Product  Development,   Princor  Financial  Services  Corporation  and
     Principal Management Corporation,  1998-2000. Prior thereto, Assistant Vice
President, Registered Products, 1995-1998.                            

*    Jane E. Karli, 43, Assistant Treasurer. Assistant Treasurer, Principal Life
     Insurance Company since 1998;  Senior Accounting and Custody  Administrator
1994-1998; Prior thereto, Senior Investment Cost Accountant.          

*    Layne A.  Rasmussen,  42,  Controller.  Controller - Mutual Funds,  Princor
Financial Services Corporation since 1995.                            

*    Michael D. Roughton,  49,  Counsel.  Vice  President and Senior  Securities
     Counsel,  Principal Life Insurance Company,  since 1999. Counsel 1994-1999.
     Counsel,  Invista  Capital  Management,  LLC,  Princor  Financial  Services
Corporation and Principal Management Corporation.                     

*    Jean B. Schustek,  48,  Assistant  Vice President and Assistant  Secretary.
     Assistant Vice President - Registered Products,  Princor Financial Services
     Corporation  since 2000.  Prior  thereto,  Compliance  Officer - Registered
Products.                                                             

*    Kirk L. Tibbetts,  45, Senior Vice President and Chief  Financial  Officer.
     Senior  Vice  President  and Chief  Financial  Officer,  Princor  Financial
     Services  Corporation  and  Principal  Management  Corporation  since 2000.
Partner, KPMG LLP, Des Moines, Iowa 1989-1999.                        

*    Traci L. Weldon, 35, Assistant Counsel.  Counsel,  Principal Life Insurance
     Company since 1999.  Assistant Counsel 1998-1999.  Assistant State Attorney
General, Iowa Attorney General's Office.                              

*    Considered to be "Interested  Persons," as defined in the 1940 Act, because
of current or former affiliation with the Manager or Principal Life.  

@    Member of Audit and Nominating Committee                                   

&    Member of Executive Committee (which is selected by the Board and which may
     exercise  all the powers of the Board,  with certain  exceptions,  when the
     Board is not in  session.  The  Committee  must  report its  actions to the
Board.)                                                               

Compensation of Directors                                                       
The  Directors  also  serve as  Directors  for all of the  investment  companies
sponsored by  Principal  Life  Insurance  Company.  Each  director who is not an
"interested person" as defined in the 1940 Act receives compensation for service
as a member of the Board of all such  companies  based on a schedule  that takes
into account an annual retainer amount,  the number of meetings attended and the
assets of the funds for which the meetings are held. These fees and expenses are
divided among the investment companies based upon their relative net assets.    

                                                        [Enlarge/Download Table]

                                        COMPENSATION TABLE*                               
                                fiscal year ended December 31, 1999                       

                                                                           Compensation   
     Director                       Compensation from the Fund           from Fund Complex

                                                                                          
James D. Davis                                $2,400                         $55,050      
Pamela A. Ferguson                            $2,400                         $50,850      
Richard W. Gilbert                               N/A                         $50,100      
William C. Kimball                               N/A                         $19,500      
Barbara A. Lukavsky                           $2,400                         $50,250      

<FN>                                                                                          
* The  Fund  does  not  provide  retirement  benefits  for  any  of the                   
  directors.                                                                              
</FN>                                                                                          

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES                             

Control Persons, Principal Holders and Management Ownership                     
As of ______________, Principal Life Insurance Company, a life insurance company
organized in 1879 under the laws of Iowa, its  subsidiaries and affiliates owned
of record and beneficially the following percentage of the outstanding shares of
each Portfolio:                                                                 

                     Portfolio                           % of Outstanding Shares

International Emerging Markets Portfolio                      ___._%  
International Securities Portfolio                            ___._%  
International SmallCap Portfolio                              ___._%  
Mortgage-Backed Securities Portfolio                          ___._%  

As of ________,  the Officers and Directors as a group owned less than 1% of the
outstanding shares of any Portfolio.                                            

As of  ____________,  the  following  shareholders  owned  5%  or  more  of  the
outstanding shares of any Portfolio:                                            

                Name                Address              Percentage of Ownership

As of  ______________,  Principal Life Insurance  Company,  its subsidiaries and
affiliates  owned of record and  beneficially  the  following  percentage of the
outstanding shares of each Class of each Fund:                                  

                                                        [Enlarge/Download Table]

                                                         % of Outstanding Shares                         

                                        Advisors        Advisors                    Preferred      Select

                       Fund          Preferred Class  Select Class       Class I      Class         Class

                                                                                                         
Balanced                              ___._%          ___._%                 N/A  ___._%        ___._%   
Bond & Mortgage Securities            ___._%          ___._%                 N/A  ___._%        ___._%   
European                              ___._%          ___._%                 N/A  ___._%        ___._%   
Government Securities                 ___._%          ___._%                 N/A  ___._%        ___._%   
High Quality Intermediate-Term Bond   ___._%          ___._%                 N/A  ___._%        ___._%   
High Quality Long-Term Bond           ___._%          ___._%                 N/A  ___._%        ___._%   
High Quality Short-Term Bond          ___._%          ___._%                 N/A  ___._%        ___._%   
International Emerging Markets        ___._%          ___._%                 N/A  ___._%        ___._%   
International I                       ___._%          ___._%                 N/A  ___._%        ___._%   
International II                      ___._%          ___._%              ___._%  ___._%        ___._%   
International SmallCap                ___._%          ___._%                 N/A  ___._%        ___._%   
LargeCap Blend                        ___._%          ___._%                 N/A  ___._%        ___._%   
LargeCap Growth                       ___._%          ___._%                 N/A  ___._%        ___._%   
LargeCap S&P 500 Index                ___._%          ___._%                 N/A  ___._%        ___._%   
LargeCap Value                        ___._%          ___._%                 N/A  ___._%        ___._%   
MidCap Blend                          ___._%          ___._%                 N/A  ___._%        ___._%   
MidCap Growth                         ___._%          ___._%                 N/A  ___._%        ___._%   
MidCap S&P 400 Index                  ___._%          ___._%                 N/A  ___._%        ___._%   
MidCap Value                          ___._%          ___._%                 N/A  ___._%        ___._%   
Money Market                          ___._%          ___._%                 N/A  ___._%        ___._%   
Pacific Basin                         ___._%          ___._%                 N/A  ___._%        ___._%   
Partners LargeCap Blend               ___._%          ___._%              ___._%  ___._%        ___._%   
Partners LargeCap Growth I            ___._%          ___._%              ___._%  ___._%        ___._%   
Partners LargeCap Growth II           ___._%          ___._%              ___._%  ___._%        ___._%   
Partners LargeCap Value               ___._%          ___._%              ___._%  ___._%        ___._%   
Partners MidCap Growth                ___._%          ___._%                 N/A  ___._%        ___._%   
Partners MidCap Value                 ___._%          ___._%              ___._%  ___._%        ___._%   
Partners SmallCap Growth I            ___._%          ___._%              ___._%  ___._%        ___._%   
Partners SmallCap Growth II           ___._%          ___._%              ___._%  ___._%        ___._%   
Real Estate                           ___._%          ___._%                 N/A  ___._%        ___._%   
SmallCap Blend                        ___._%          ___._%                 N/A  ___._%        ___._%   
SmallCap Growth                       ___._%          ___._%                 N/A  ___._%        ___._%   
SmallCap S&P 600 Index                ___._%          ___._%                 N/A  ___._%        ___._%   
SmallCap Value                        ___._%          ___._%                 N/A  ___._%        ___._%   
Technology                            ___._%          ___._%              ___._%  ___._%       ___._%    

INVESTMENT ADVISORY AND OTHER SERVICES                                          

Investment Advisors                                                             
The Manager of each  Fund/Portfolio  is Principal  Management  Corporation  (the
"Manager"),  a wholly-owned subsidiary of Princor Financial Services Corporation
("Princor") which is a wholly-owned  subsidiary of Principal Financial Services,
Inc.  The Manager is an  affiliate  of Principal  Life  Insurance  Company.  The
address of both the Manager and Princor is the Principal  Financial  Group,  Des
Moines, Iowa 50392-0200. The Manager was organized on January 10, 1969 and since
that time has managed various mutual funds sponsored by Principal Life Insurance
Company.                                                                        

The Manager has  executed  agreements  with  various  Sub-Advisors.  Under those
Sub-Advisory agreements, the Sub-Advisor agrees to assume the obligations of the
Manager to provide investment  advisory services for a specific  Fund/Portfolio.
For these services, each Sub-Advisor is paid a fee by the Manager.              

Portfolios:       International,     International    Emerging    Markets    and
Funds:            International  SmallCap Balanced (equity securities  portion),
                  International I, International Emerging Markets, International
                  SmallCap,  LargeCap Blend,  LargeCap Growth,  LargeCap S&P 500
                  Index, LargeCap Value, MidCap Blend, MidCap Growth, MidCap S&P
                  400 Index, MidCap Value,  SmallCap Blend,  SmallCap Growth and
SmallCap S&P 600                            

Sub-Advisor:      Invista  Capital  Management  LLC  ("Invista"),   an  indirect
                  wholly-owned  subsidiary of Principal Life  Insurance  Company
                  and an  affiliate  of the  Manager,  was  founded  in 1985 and
                  manages  investments for  institutional  investors,  including
                  Principal Life Insurance  Company.  Assets under management at
                  June 30, 2000,  were  approximately  $35.3 billion.  Invista's
                  address is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.

Portfolio:        Mortgage-Backed  Securities Balanced (fixed-income  securities
Funds:            portion),  Bond & Mortgage Securities,  Government Securities,
                  High Quality  Intermediate-Term  Bond, High Quality  Long-Term
       Bond, High Quality Short-Term Bond and Money Market

Sub-Advisor:      Principal Capital Income Investors,  LLC ("PCII"), an indirect
                  wholly-owned  subsidiary of Principal Life  Insurance  Company
                  and an  affiliate  of the  Manager,  was  founded in 2000.  It
                  manages  investments for  institutional  investors,  including
                  Principal Life Insurance  Company.  Assets under management as
                  of ------------------were  approximately $---- billion. PCII's
                  address is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.

Fund:             Real Estate                                                   

Sub-Advisor:      Principal Capital Real Estate Investors ("PCREI"), an indirect
                  wholly-owned  subsidiary of Principal Life  Insurance  Company
                  and an  affiliate  of the  Manager,  was  founded in 2000.  It
                  manages  investments for  institutional  investors,  including
                  Principal Life Insurance  Company.  Assets under management as
                  of ------------------were approximately $---- billion. PCREI's
                  address is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.

Funds:            European, International II, Pacific Basin, and Technology     

Sub-Advisor:      BT Fund Management (International) Limited ("BT") is a related
                  company of BT Funds  Management  Limited ("BTFM") and a member
                  of the Principal  Financial  Group. Its address is The Chifley
                  Tower,  2 Chifley  Square,  Sydney NSW 2000  Australia.  As of
                  June 30, 2000  BT,  together  with  BTFM,  had   approximately
                  $25.6  billion  under  management for  more than  ____________
institutional and individual clients.       

Fund:             Partners MidCap Growth                                        

Sub-Advisor:      Turner  Investment  Partners,  Inc.  ("Turner") was founded in
                  1990. Its address is 1235 Westlake Drive, Suite 350, Berwyn PA
                  19312.  As  of  June  30,  2000,   Turner  had   discretionary
                  management  authority  with  respect  to  approximately  $10.2
billion in assets.                          

Fund:             Partners LargeCap Growth I                                    

Sub-Advisor:      Morgan  Stanley  Asset  Management  ("Morgan  Stanley"),  with
                  principal offices at 1221 Avenue of the Americas, New York, NY
                  10020, provides a broad range of portfolio management services
                  to  customers  in the U.S.  and abroad.  As of June 30,  2000,
                  Morgan  Stanley,  together with its  affiliated  institutional
                  asset  management  companies,   managed  investments  totaling
                  approximately  $177.2 billion as named  fiduciary or fiduciary
                  adviser.  On December 1, 1998 Morgan Stanley Asset  Management
                  Inc. changed its name to Morgan Stanley Dean Witter Investment
                  Management  Inc.  but  continues  to do  business  in  certain
             instances using the name Morgan Stanley Asset Management.

Funds:            Partners MidCap Value and Partners SmallCap Growth I          

Sub-Advisor:      Neuberger Berman  Management Inc.  ("Neuberger  Berman") is an
                  affiliate of Neuberger  Berman,  LLC.  Neuberger Berman LLC is
                  located  at  605  Third  Avenue,   2nd  Floor,  New  York,  NY
                  10158-0180.  Together with Neuberger Berman,  the firms manage
                  more than $54  billion in total  assets (as of June 30,  2000)
                and continue an asset management history that began in 1939.

Funds:            Partners LargeCap Blend and Partners SmallCap Growth II       

Sub-Advisor:      Federated  Investment  Management  Company  ("Federated") is a
                  registered investment advisor and a wholly-owned subsidiary of
                  Federated   Investors,   Inc.,  which  was  founded  in  1955.
                  Federated is located in the Federated  Investors Tower at 1001
                  Liberty  Avenue,  Pittsburgh,  PA  15222-3779.  As of June 30,
   2000, Federated managed $125 billion in assets.

Fund:             Partners LargeCap Growth II                                   

Sub-Advisor       American  Century   Investment   Management  Inc.   ("American
                  Century"),  was founded in 1958.  Its office is located in the
                  American  Century  Tower at 4500 Main Street,  Kansas City, KS
                  64111. As of June 30, 2000, American Century managed over $110
billion in assets.                          

Fund:             Partners LargeCap Value                                       

Sub-Advisor:      Alliance  Capital  Management  L.P.  ("Alliance")  through its
                  Bernstein    Investment    Research   and   Management    unit
                  ("Bernstein").  As of June 30, 2000,  Alliance  managed $387.8
                  billion in assets.  Bernstein is located at 767 Fifth  Avenue,
                  New York,  NY 10153 and  Alliance is located at 1345 Avenue of
the Americas, New York, NY 10105.           

The Manager has executed a Cash  Management  Sub-Advisory  Agreement  with PCII.
Under the  Agreement,  PCII agrees to assume the  obligations  of the Manager to
provide cash  management  investment  advisory  services for all Funds for which
Invista or PCREI serves as Sub-Advisor.                                         

Each of the persons affiliated with the Fund who is also an affiliated person of
the Manager or a Sub-Advisor  is named below,  together  with the  capacities in
which such person is affiliated with the Fund, the Manager and the Sub-Advisor. 

                                                        [Enlarge/Download Table]

                             Office Held                  Office Held With            
       Name                 With the Fund                The Manager/Invista          

                                                                                      
Craig L. Bassett     Treasurer                     Treasurer (Manager)                
Ralph C. Eucher      Director and                  Director and President             
                       President                     (Manager)                        
Arthur S. Filean     Senior Vice President and     Senior Vice President (Manager)    
                       Secretary                                                      
Ernest H. Gillum     Vice President and            Vice President - Product           
                       Assistant Secretary           Development (Manager)            
J. Barry Griswell    Director and Chairman         Director and Chairman of           
                       of the Board                  the Board (Manager)              
Layne Rasmussen      Controller                    Controller - Mutual Funds (Manager)
Michael D. Roughton  Counsel                       Counsel (Manager; Invista)         
Jean B. Schustek     Assistant Vice President and  Assistant Vice President -         
                       Assistant Secretary           Registered Products (Manager)    

Codes of Ethics                                                                 
The Fund,  the  Manager,  each of the  Sub-Advisors  and Princor  (as  principal
underwriter of the Fund) have adopted Codes of Ethics ("Codes") under Rule 17j-1
of the 1940 Act.  These  Codes are  designed to prevent  persons  with access to
information  regarding the portfolio  trading  activity of the  Funds/Portfolios
from  using  that   information   for  their   personal   benefit.   In  certain
circumstances,  personal  securities  trading is  permitted in  accordance  with
procedures  established by the Code. The Boards of Directors of the Manager, the
Fund, Princor and each of the Sub-Advisors  periodically review their respective
Code of Ethics.  The Codes of Ethics are on file with,  and available  from, the
SEC.                                                                            

Management Services for the Portfolios                                          
Management Agreement for the Portfolios                                         
Under the terms of the Management  Agreement,  for providing investment advisory
services  and  specified  other  services  for each  Portfolio,  the  Manager is
entitled  to  receive a fee which is  computed  and  accrued  daily and  payable
monthly.  The  annual  rate of the fee is based on the net  asset  value of each
Portfolio as follows:                                                           

                                                        [Enlarge/Download Table]

                                              Net Asset Value of Portfolio              

                                    First                   Next                Over    
           Portfolio            $250,000,000            $250,000,000        $500,000,000
                                                                                        
International Emerging Markets      1.15%                   1.05%              0.95%    
International SmallCap              1.00                    0.90               0.80     

                                 Overall Fee                                            
International Securities            0.90%                                               
Mortgage-Backed Securities          0.45%                                               

As of December 31, 1999,  the net assets of the  Portfolios  and the rate of the
fee for those Portfolios for investment  management services for the fiscal year
then ended were as follows:                                                     

                                                                [Download Table]

                                                   Management Fee for
                                Net Assets as of    Fiscal Year Ended
            Portfolio           December 31, 1999   December 31, 1999
                                                                     
International Emerging Markets     $129,574,687          1.15%       
International Securities             61,340,966           .90%       
International SmallCap              154,892,162          1.00%       
Mortgage-Backed Securities            5,044,844           .45%       

Except for certain Portfolio  expenses set out below, the Manager is responsible
for  Portfolio  expenses,  administrative  duties  and  services  including  the
following:  expenses  incurred  in  connection  with  the  registration  of  the
Portfolio  shares with the SEC and state securities  commissions;  office space,
facilities and costs of keeping the books of the Fund; compensation of personnel
and officers and any directors who are also  affiliated  with the Manager;  fees
for  auditors  and  legal   counsel;   preparing   and  printing   prospectuses;
administration of shareholder accounts, including issuance,  maintenance of open
account system, dividend disbursement,  reports to shareholders, and redemption.
However,  some  or all of  these  expenses  may be  assumed  by  Principal  Life
Insurance Company and some or all of the administrative  duties and services may
be delegated by the Manager.                                                    

Each Portfolio pays for certain  corporate  expenses  incurred in its operation.
Among such expenses,  the Portfolio pays portfolio brokerage fees and incidental
brokerage  expenses,   taxes,  interest  and  extraordinary  expenses  including
shareholder meeting expenses.                                                   

Sub-Advisory Agreements for the Portfolios                                      
Under a Sub-Advisory Agreement between the Manager and Invista, Invista performs
all the investment advisory responsibilities of the Manager under the Management
Agreement   for  the   International,   International   Emerging   Markets   and
International  SmallCap Portfolios.  The Manager pays Invista a fee based on the
net asset value of the each  Portfolio  at an annual rate that is accrued  daily
and payable monthly.                                                            

                                                                [Download Table]

                                    First         Next          Over    
                Portfolio       $250,000,000  $250,000,000  $500,000,000
                                                                        
International Emerging Markets     1.15%         1.05%         0.95%    
International SmallCap             1.00          0.90          0.80     

                                 Overall Fee                            
International Securities           0.90%                                

Under a Sub-Advisory  Agreement  between the Manager and PCII, PCII performs all
the  investment  advisory  responsibilities  of the Manager under the Management
Agreement for the Mortgage-Backed  Securities Portfolio. The Manager pays PCII a
fee at an annual rate of 0.45% of the net asset value of the Portfolios, accrued
daily and payable monthly.                                                      

Fees paid for investment  management  services during the periods indicated were
as follows:                                                                     

                                                        [Enlarge/Download Table]

                                                                  Management Fees for Fiscal         
                                                            Year Ended December 31, except as noted  
            Portfolio                                        1999            1998            1997    
                                                                                                     
International Emerging Markets                            $1,092,430        $856,612      $   43,775*
International Securities                                     463,180         413,285         311,027 
International SmallCap                                     1,045,204         731,367          37,932*
Mortgage-Backed Securities                                    43,225          64,195          67,721 

<FN>                                                                                                     
* Period beginning November 26, 1997 and ended December 31, 1997                                     
</FN>                                                                                                     

Management Services for the Funds                                               
Management Agreement for the Funds                                              
Under the terms of the Management  Agreement,  for providing investment advisory
services and specified other services,  the Manager is entitled to receive a fee
which is computed and accrued daily and payable monthly.  The annual rate of the
fee is based on the net asset value of each Fund as follows:                    

                                                        [Enlarge/Download Table]

                                          Management Fee                                         Management Fee     
                                        as a Percentage of                                     as a Percentage of   
                 Fund                Daily Average Net Assets               Fund            Daily Average Net Assets
                                                                                                                    
Balanced                                       0.50%           MidCap Value                          0.65%          
Bond & Mortgage Securities                     0.55%           Money Market                          0.40%          
European                                       1.00%           Pacific Basin                         1.00%          
Government Securities                          0.40%           Partners LargeCap Blend               0.75%          
High Quality Intermediate-Term Bond            0.40%           Partners LargeCap Growth I            0.75%          
High Quality Long-Term Bond                    0.40%           Partners LargeCap Growth II           1.10%          
High Quality Short-Term Bond                   0.40%           Partners LargeCap Value               0.85%          
International I                                0.90%           Partners MidCap Growth                1.00%          
International II                               1.00%           Partners MidCap Value                 1.00%          
International Emerging Markets                 1.35%           Partners SmallCap Growth I            1.20%          
International SmallCap                         1.20%           Partners SmallCap Growth II           1.25%          
LargeCap Blend                                 0.45%           Real Estate                           0.85%          
LargeCap Growth                                0.55%           SmallCap Blend                        0.75%          
LargeCap S&P 500 Index                         0.15%           SmallCap Growth                       0.75%          
LargeCap Value                                 0.45%           SmallCap S&P 600 Index                0.15%          
MidCap Blend                                   0.65%           SmallCap Value                        0.75%          
MidCap Growth                                  0.65%           Technology                            1.00%          
MidCap S&P 400 Index                           0.15%                                                                

Under the terms of the  Management  Agreement,  the Manager is  responsible  for
paying the expenses associated with the organization of each Fund, including the
expenses  incurred  in the  initial  registration  of the  Funds  with  the SEC;
compensation  of personnel,  officers and directors who are also affiliated with
the Manager;  and expenses and  compensation  associated with furnishing  office
space,  and  all  necessary  office  facilities  and  equipment,  and  personnel
necessary to perform the general corporate functions of the Fund. The Manager is
also responsible for providing portfolio  accounting services and transfer agent
services,  including  qualifying shares of the Fund for sale in states and other
jurisdictions, for each Fund pursuant to additional agreements with the Fund and
currently provides these services at no charge.                                 

MULTIPLE CLASS STRUCTURE                                                        

The Board of Directors  has adopted a multiple  class plan (the  Multiple  Class
Plan) pursuant to SEC Rule 18f-3.  Under this plan,  each Fund offers up to five
classes of shares: Class I, Select Class, Preferred Class, Advisors Select Class
and  Advisors  Preferred  Class.  Not all  Funds  offer  all five  classes.  The
Portfolios offer only Class D shares which are not available to new investors.  

The Advisors Select,  Advisors  Preferred,  I, Select and Preferred  Classes are
available  without any  front-end  sales  charge or  contingent  deferred  sales
charge. The Advisors Select and Advisors Preferred are subject to an asset based
sales charge (described below).                                                 

Currently,  all of each Fund's  operating  expenses are absorbed by the Manager.
The  Manager  receives  a fee for  providing  investment  advisory  and  certain
corporate  administrative  services under the terms of the Management Agreement.
In addition to the management fee, the Fund's share classes,  other than Class I
shares,  pay the Manager a service fee and an administrative  services fee under
the terms of a Service Agreement and an Administrative Services Agreement.      

Service Agreement                                                               
The  Service  Agreement  provides  for the Manager to provide  certain  personal
services to shareholders (plan sponsors) and beneficial owners (plan members) of
those classes. These personal services include:                                 
o    responding to plan sponsor and plan member inquiries;                      
o    providing  information  regarding plan sponsor and plan member investments;
and                                                                   
o    providing  other  similar  personal  services  or  services  related to the
     maintenance of shareholder accounts as contemplated by National Association
of Securities Dealers (NASD) Rule 2830 (or any successor thereto).    

As compensation  for these services,  the Fund will pay the Manager service fees
equal to 0.17% of the  average  daily  net  assets  attributable  to each of the
Advisors  Preferred  Class and  Preferred  Class shares and 0.25% of the average
daily net assets  attributable  to each of the Advisors  Select Class and Select
Class shares. The service fees are calculated and accrued daily and paid monthly
to the Manager (or at such other intervals as the Fund and Manager may agree).  

Administrative Service Agreement                                                
The  Administrative  Service  Agreement  provides  for the  Manager  to  provide
services  to  beneficial  owners  of  fund  shares.  Such  services  include:   
o    receiving,  aggregating  and processing  purchase,  exchange and redemption
requests from plan shareholders;                                      
o    providing plan shareholders with a service that invests the assets of their
     accounts in shares  pursuant to  pre-authorized  instructions  submitted by
plan members;                                                         
o    processing  dividend payments from the Funds on behalf of plan shareholders
and changing shareholder account designations;                        
o    acting as shareholder of record and nominee for plans;                     
o    maintaining  account  records  for  shareholders  and/or  other  beneficial
owners;                                                               
o    providing notification to plan shareholders of transactions affecting their
accounts;                                                             
o    forwarding  prospectuses,  financial  reports,  tax  information  and other
communications from the Fund to beneficial owners;                    
o    distributing,  receiving, tabulating and transmitting proxy ballots of plan
shareholders; and                                                     
o    other similar administrative services.                                     

As compensation  for these services,  the Fund will pay the Manager service fees
equal to 0.09% of the  average  daily  net  assets  attributable  to each of the
Advisors  Preferred  Class and  Preferred  Class shares and 0.13% of the average
daily net assets  attributable  to each of the Advisors  Select Class and Select
Class shares. The service fees are calculated and accrued daily and paid monthly
to the Manager (or at such other intervals as the Fund and Manager may agree).  

The Manager may, at its discretion  appoint (and may at any time remove),  other
parties,  including companies affiliated with the Manager, as its agent to carry
out the provisions of the Service  Agreement and/or the  Administrative  Service
Agreement. However, the appointment of an agent shall not relieve the Manager of
any of its responsibilities or liabilities under those Agreements. Any fees paid
to  agents  under  these  Agreements  shall  be the sole  responsibility  of the
Manager.                                                                        

In addition to the management  and service fees, the Advisors  Classes of shares
are subject to a Distribution  Plan and Agreement  (described  below)  sometimes
referred  to as a Rule 12b-1  Plan.  Rule 12b-1  permits a fund to pay  expenses
associated with the distribution of its shares in accordance with a plan adopted
by the Board of  Directors  and approved by its  shareholders.  Pursuant to such
rule,  the Board of Directors  and initial  shareholder  of the Funds'  Advisors
Classes have  approved and entered into a  Distribution  Plan and  Agreement for
each Advisors share class.                                                      

In adopting the Plans, the Board of Directors [including a majority of directors
who are not  interested  persons  of the Fund  (as  defined  in the  1940  Act),
hereafter referred to as the independent  directors] determined that there was a
reasonable likelihood that the Plan would benefit the Funds and the shareholders
of the affected classes.  Pursuant to Rule 12b-1, information about revenues and
expenses under the Plans is presented to the Board of Directors each quarter for
its  consideration  in continuing  the Plans.  Continuance  of the Plans must be
approved by the Board of  Directors,  including  a majority  of the  independent
directors,  annually.  The  Plans  may be  amended  by a vote  of the  Board  of
Directors,  including a majority of the independent  directors,  except that the
Plans  may  not  be  amended  to  materially   increase  the  amount  spent  for
distribution  without  majority  approval of the  shareholders  of the  affected
class.  The Plans terminate  automatically in the event of an assignment and may
be terminated upon a vote of a majority of the independent  directors or by vote
of a majority of the outstanding voting securities of the affected class.       

Distribution Plan and Agreement                                                 
As described in the Prospectuses, the Funds' Advisors Classes of shares are made
available to  employer-sponsored  retirement or savings plans purchasing through
financial   intermediaries  such  as  banks  and   broker-dealers.   The  Funds'
Distributor  enters into selling  agreements with various banks,  broker-dealers
and other  financial  intermediaries,  with  respect to the sale of the Advisors
Classes of shares.                                                              

To make the shares available  through such banks,  broker-dealers  and financial
intermediaries,  and to  compensate  them  for  these  services,  the  Board  of
Directors has adopted a Distribution Plan and Agreement for each of the Advisors
share  classes.  The Plans provide that each Fund makes  payments from assets of
each Advisors  Class to Princor  pursuant to the Plan to compensate  Princor and
other selling dealers for providing  certain services to the Fund. Such services
may include:                                                                    
o    formulation and implementation of marketing and promotional activities;    
o    preparation, printing and distribution of sales literature;                
o    preparation, printing and distribution of prospectuses and the Fund reports
to other than existing shareholders;                                  
o    obtaining  such  information  with  respect to  marketing  and  promotional
activities as the Princor deems advisable;                            
o    making  payments to dealers and others engaged in the sale of shares or who
engage in shareholder support services; and                           
o    providing  training,  marketing  and  support  with  respect to the sale of
Shares.                                                               

The Fund pays  Princor a fee  after the end of each  month at an annual  rate of
0.31% of the daily net asset value of the Advisors Preferred shares and 0.37% of
the daily net asset value of the Advisors  Select  shares of each Fund.  Princor
may  remit  on  a  continuous   basis  all  of  these  sums  to  its  registered
representatives  and other  selected  dealers as a trail fee in  recognition  of
their services and assistance.                                                  

Currently,  Princor  makes  quarterly  payments to dealers on accounts for which
such dealer is  designated  dealer of record.  Payments are based on the average
net asset value of the employer  sponsored plans invested in either the Advisors
Preferred or Advisors Select Class of shares as follows:                        
during the first year plan assets are  invested in the Funds - 1.00%  
during all years thereafter - 0.25%                                   

The Agreements provide for continuation in effect from year to year only so long
as such  continuation is  specifically  approved at least annually either by the
Board of Directors or by vote of a majority of the outstanding voting securities
of the  applicable  Fund/Portfolio.  In  either  event,  continuation  shall  be
approved by a vote of the  majority  of the  Directors  who are not  "interested
persons" (as defined in the 1940 Act) of the Manager,  Principal  Life Insurance
Company or its  subsidiaries or affiliates,  or the Fund, and in the case of the
Sub-Advisory Agreement for the:                                                 
o    International,  International  Emerging Markets and International  SmallCap
     Portfolios and Balanced,  International I, International  Emerging Markets,
     International  SmallCap,  LargeCap Blend, LargeCap Growth, LargeCap S&P 500
     Index,  LargeCap Value, MidCap Blend, MidCap Growth,  MidCap S&P 400 Index,
     MidCap Value, SmallCap Blend, SmallCap Growth,  SmallCap Value and SmallCap
S&P 600 Index Funds -- Invista;                                       
o    Mortgage-Backed   Securities  Portfolio  and  Balanced,   Bond  &  Mortgage
     Securities,  Government Securities,  High Quality  Intermediate-Term  Bond,
     High Quality Long-Term Bond, High Quality  Short-Term Bond and Money Market
Funds -- PCII;                                                        
o    Real Estate Fund-- PCREI;                                                  
o    European, International II, Pacific Basin and Technology Funds -- BT;      
o    Partners  LargeCap  Blend  Fund and  Partners  SmallCap  Growth  Fund II --
Federated;                                                            
o    Partners MidCap Growth Fund -- Turner;                                     
o    Partners LargeCap Growth Fund II -- American Century;                      
o    Partners LargeCap Value Fund -- Bernstein;                                 
o    Partners LargeCap Growth Fund I -- Morgan Stanley;                         
o    Partners MidCap Value Fund and Partners SmallCap Growth Fund I -- Neuberger
Berman.                                                               

The  Agreements  may be terminated at any time on 60 days written  notice to the
applicable  Sub-Advisor either by vote of the Board of Directors or by a vote of
the majority of the outstanding securities of the applicable Fund/Portfolio. The
Sub-Advisory  Agreement may also be terminated  by the Manager,  the  respective
Sub-Advisor, or Principal Life Insurance Company, as the case may be, on 60 days
written  notice  to  the  Fund/Portfolio  and/or  applicable  Sub-Advisor.   The
Agreements will terminate automatically in the event of their assignment.       

The agreements for each Portfolio were last approved as follows:                

                                                        [Enlarge/Download Table]

                                         Approved by the Board of Directors              Approved by Shareholders  

                                Investment Service      Management       Sub-Advisory  Management      Sub-Advisory
      Portfolios                     Agreement           Agreement         Agreement    Agreement        Agreement 

                                                                                                                   
International Emerging Markets        9/11/00             9/11/00           9/11/00      11/24/97        11/24/97  
International Securities              9/11/00             9/11/00           9/11/00       5/18/93         5/18/93  
International SmallCap                9/11/00             9/11/00           9/11/00      11/24/97        11/24/97  
Mortgage Based Securities             9/11/00             9/11/00           9/11/00       5/18/93         5/18/93  

The  Agreements  for each  Fund  were  approved  by the  Board of  Directors  on
September 11, 2000 and by its shareholders on ________.                         

Custodian                                                                       
The Bank of New York,  100 Church  Street,  10th  Floor,  New York,  NY 10286 is
custodian of the  portfolio  securities  and cash assets of the  Mortgage-Backed
Securities  Portfolio,   Balanced,   Bond  &  Mortgage  Securities,   Government
Securities,  High Quality  Intermediate-Term  Bond, High Quality Long-Term Bond,
High Quality  Short-Term Bond,  International,  International  Emerging Markets,
International SmallCap, LargeCap Blend, LargeCap Growth, LargeCap S&P 500 Index,
LargeCap Value, MidCap Blend, MidCap Growth, MidCap S&P 400 Index, MidCap Value,
Money Market,  Partners  LargeCap  Blend,  Partners  LargeCap Growth I, Partners
LargeCap Growth II, Partners  LargeCap Value,  Partners MidCap Growth,  Partners
MidCap Value,  Partners  SmallCap  Growth I, Partners  SmallCap  Growth II, Real
Estate,  SmallCap Blend,  SmallCap  Growth,  SmallCap S&P 600 Index and SmallCap
Value Funds. The custodian for the International Emerging Markets, International
SmallCap and International Securities Portfolios and the European, International
II, Pacific Basin and Technology  Funds is Chase Manhattan  Bank,  N.A., 4 Chase
Metro Tech Center, 18th Floor,  Brooklyn, New York 11245. The custodians perform
no managerial or policymaking functions for the fund.                           

BROKERAGE ALLOCATION AND OTHER PRACTICES                                        

Brokerage on Purchases and Sales of Securities                                  
In distributing  brokerage  business  arising out of the placement of orders for
the purchase and sale of securities for any Fund/Portfolio, the objective of the
Fund's/Portfolio's  Sub-Advisor is to obtain the best overall terms. In pursuing
this  objective,  the  Sub-Advisor  considers  all  matters  it deems  relevant,
including the breadth of the market in the security,  the price of the security,
the financial condition and executing capability of the broker or dealer and the
reasonableness of the commission,  if any (for the specific transaction and on a
continuing basis). This may mean in some instances that the Sub-Advisor will pay
a broker  commissions  that are in excess of the amount of  commissions  another
broker  might  have  charged  for  executing  the  same   transaction  when  the
Sub-Advisor  believes that such  commissions  are reasonable in light of (a) the
size and difficulty of the transaction (b) the quality of the execution provided
and (c) the level of  commissions  paid  relative to  commissions  paid by other
institutional  investors.  (Such  factors  are  viewed  both  in  terms  of that
particular transaction and in terms of all transactions that broker executes for
accounts  over  which  the  Sub-Advisor  exercises  investment  discretion.  The
Sub-Advisor may purchase securities in the  over-the-counter  market,  utilizing
the services of principal  market  makers unless better terms can be obtained by
purchases through brokers or dealers,  and may purchase securities listed on the
New York Stock Exchange ("NYSE") from  non-Exchange  members in transactions off
the Exchange.)                                                                  

The Sub-Advisor may give consideration in the allocation of business to services
performed by a broker (e.g.,  the  furnishing of  statistical  data and research
generally consisting of, but not limited to, information of the following types:
analyses  and  reports  concerning  issuers,  industries,  economic  factors and
trends,  portfolio  strategy and  performance of client  accounts).  If any such
allocation is made, the primary criteria used will be to obtain the best overall
terms for such transactions.  The Sub-Advisor may also pay additional commission
amounts for research  services.  Such statistical data and research  information
received  from  brokers or dealers as  described  above may be useful in varying
degrees and the  Sub-Advisor may use it in servicing some or all of the accounts
it manages.  Some statistical data and research  information obtained may not be
useful to the  Sub-Advisor in managing the client  account,  brokerage for which
resulted  in the  Sub-Advisor's  receipt of the  statistical  data and  research
information.  However,  in the Sub-Advisor's  opinion,  the value thereof is not
determinable  and it is not expected  that the  Sub-Advisor's  expenses  will be
significantly  reduced since the receipt of such  statistical  data and research
information is only supplementary to the Sub-Advisor's own research efforts. The
Sub-Advisor allocated portfolio  transactions to certain brokers due to research
services  provided by such  brokers for the  Funds/Portfolios.  These  portfolio
transactions resulted in commissions paid as indicated in the following table:  

                                                                [Download Table]

                                        Commissions paid for the fiscal year       
                                                ended December 31, 1999            

           Portfolios            1999                 1998                    1997 

                                                                                   
International Emerging Markets  $4,210                  N/A                  $1,100
International Securities         9,381               $3,362                  $4,841
International SmallCap           2,690                  N/A                    $317

Subject  to the  rules  promulgated  by the  SEC,  as well as  other  regulatory
requirements,   a  Sub-Advisor   may  also  allocate   orders  on  behalf  of  a
Fund/Portfolio   to   broker-dealers   affiliated  with  the  Sub-Advisor.   The
Sub-Advisor  shall determine the amounts and proportions of orders  allocated to
the  Sub-Advisor or affiliate.  The Boards of Directors  will receive  quarterly
reports on these transactions.                                                  

Purchases and sales of debt securities and money market instruments  usually are
principal  transactions;  portfolio  securities are normally  purchased directly
from the issuer or from an underwriter or marketmaker for the  securities.  Such
transactions are usually conducted on a net basis with the Fund/Portfolio paying
no brokerage  commissions.  Purchases from underwriters  include a commission or
concession paid by the issuer to the underwriter, and the purchases from dealers
serving as marketmakers include the spread between the bid and asked prices.    

For the Funds/Portfolios for which Invista, PCREI or PCII serves as Sub-Advisor,
the following  describes the  allocation  process used.  If, in carrying out the
investment objectives of the Funds/Portfolios, occasions arise when purchases or
sales  of the  same  equity  securities  are to be  made  for two or more of the
Funds/Portfolios at the same time (or, for two or more  Funds/Portfolios and any
other  accounts  managed by the  Sub-Advisor),  the  Sub-Advisor  may submit the
orders to purchase  or,  whenever  possible,  to sell,  to a  broker/dealer  for
execution on an aggregate or "bunched" basis  (including  orders for accounts in
which the  Registrant,  its  affiliates  and/or its  personnel  have  beneficial
interests).  The  Sub-Advisor may create several  aggregate or "bunched"  orders
relating to a single  security at  different  times during the same day. On such
occasions, the Sub-Advisor shall compose, before entering an aggregated order, a
written  Allocation  Statement as to how the order will be  allocated  among the
various  accounts.  Securities  purchased or proceeds of sales  received on each
trading day with  respect to each such  aggregate  or  "bunched"  order shall be
allocated  to the  various  Funds/Portfolios  and other  client  accounts  whose
individual  orders for purchase or sale make up the aggregate or "bunched" order
by filling each Fund's or other client  account's  order in accordance  with the
Allocation  Statement.  If the order is partially  filled, it shall be allocated
pro  rata  based  on  the  Allocation   Statement.   Securities   purchased  for
Funds/Portfolios  and other  client  accounts  participating  in an aggregate or
"bunched"  order  will  be  placed  into  those   Funds/Portfolios   and,  where
applicable,  other client accounts at a price equal to the average of the prices
achieved in the course of filling that aggregate or "bunched" order.            

If purchases or sales of the same debt securities are to be made for two or more
of the  Funds/Portfolios  at the same time, the securities  will be purchased or
sold proportionately in accordance with the amount of such security sought to be
purchased or sold at that time for each Fund/Portfolio.                         

The  Sub-Advisor  expects  aggregation or "bunching" of orders,  on average,  to
slightly  reduce the cost of  execution.  The  Sub-Advisor  will not aggregate a
client's order if, in a particular  instance,  it believes that aggregation will
increase  the  client's  cost  of  execution.  In  some  cases,  aggregation  or
"bunching"  of orders may  increase  the price a client pays or  receives  for a
security  or reduce  the  amount of  securities  purchased  or sold for a client
account.                                                                        

The  Sub-Advisor  may enter  aggregated  orders for shares  issued in an initial
public offering  (IPO). In determining  whether to enter an order for an IPO for
any  client  account,   the  Sub-Advisor   considers  the  account's  investment
restrictions, risk profile, asset composition and cash level. Accordingly, it is
unlikely that every client  account will  participate  in every  available  IPO.
Partially filled orders for IPOs will be allocated to participating  accounts in
accordance  with the procedures  set out above.  Often,  however,  the amount of
shares  designated  by  an  underwriter  for  the   Sub-Advisor's   clients  are
insufficient to provide a meaningful  allocation to each participating  account.
In such cases, the Sub-Advisor will employ an allocation  system it feels treats
all participating accounts fairly and equitably over time.                      

The following  describes the allocation  process utilized by the Sub-Advisor for
the European, International II, Pacific Basin and Technology Funds:             

     Client  monies are  assigned to BT  portfolio  managers  and are  generally
     grouped into product types.  All  portfolios  within each product type will
     have similar investment objectives, although individual portfolios may have
     investment  objectives and restrictions that differ to some extent from the
overall objectives for that product type.                             

     The portfolio  manager will decide,  prior to trading,  which  products and
     therefore,  which  portfolios will take part in the subsequent  allocation.
     All portfolios  within a product managed by a particular  portfolio manager
   will participate in the allocation except in the following circumstances:
     o    where  client  cash flow  means that a  client's  portfolio  has to be
traded separately;                                          
     o    where  there  are  specific  client  restrictions  which  preclude  an
allocation;                                                 
     o    where a nonstandard  benchmark or target  results in a security  being
deemed unsuitable for that portfolio;                       
     o    where, in the case of sales, a particular  portfolio does not hold the
security; and                                               
     o    where the trade is partially filled,  either for normal trading or for
an IPO.                                                     
     In these cases,  if there is no indication on the order form as to priority
     of  allocation  then BT will  allocate  on a pro-rata  basis.  Priority  of
     allocation on the order forms may be set due to  sensitivity to transaction
     costs,  tax  status,  tolerance  for  small  holding,  tolerance  for large
     holdings  or  specific   exposures   (proximity  to  limits)  and  turnover
considerations.                                                       

The following  describes the allocation  process utilized by the Sub-Advisor for
the Partners MidCap Growth Fund:                                                

     Turner has developed an allocation system for limited opportunities:  block
     orders  that  cannot  be  filled  in one day and  IPOs.  Allocation  of all
     partially filled trades will be done pro-rata,  unless the small size would
     cause excessive  ticket charges.  In that case,  allocation will begin with
     the next account on the rotational account listing.  Any directed brokerage
     arrangement  will  result  in the  inability  of Turner  to, in all  cases,
     include  trades  for that  particular  client in block  orders if the block
     transaction  is executed  through a broker other than the one that has been
     directed.  The benefits of that kind of  transaction,  a sharing of reduced
     cost and possibly more attractive  prices,  will not extend to the directed
     client. Allocation exceptions may be made if documented and approved timely
     by the firm's compliance officer.  Turner's  proprietary accounts may trade
     in  the  same  block  with  client  accounts,  if  it is  determined  to be
advantageous to the client to do so.                                  

The following  describes the allocation  process utilized by the Sub-Advisor for
the Partners LargeCap Blend and Partners SmallCap Growth II Funds. Federated has
developed  allocation  procedures for IPOs,  secondary  market  transactions and
transactions for Funds with a common portfolio management.                      

     With respect to IPOs,  Federated combines all purchase orders made for each
     Fund for which it serves as advisor and places a single  purchase  order on
     such terms and at such time as Federated reasonably expects to maximize the
     Funds'participation  in the IPOs.  Prior to entering  the order,  Federated
     will  prepare a record of which Funds will  participate  in the IPO and the
     amount  of  securities  they  have  been   authorized  to  purchase.   Upon
     confirmation  of the amount of  securities  received in the IPO,  Federated
     allocates such securities  among the  participating  Funds in proportion to
     their participation in the order and notifies the portfolio manager of each
     participating  Fund of that preliminary  allocation.  The portfolio manager
     may request the purchase of additional  securities up to a specified price,
     or sell  some or all the  securities  allocated  to the Fund for  which the
     portfolio  manager  serves at or above a  specified  price.  The  portfolio
     manager  may  also  withdraw  from  the  IPO if  the  size  of  the  Fund's
     participation  in  the  order  does  not  justify  the  administrative  and
     transactional  expense  of  accepting  and  selling  the  securities,   but
     withdrawal  will be  permitted  only to the extent  that orders from Fund's
     wishing  to  purchase  the IPO  securities  exceed  request  to  sell  such
securities.                                                           

     With respect to transactions among multiple Funds authorized to purchase or
     sell  the  same  equity  securities  on a  securities  exchange  or in  the
     "over-the-counter"  market,  Federated will combine all purchase orders and
     all sell  orders and will  attempt to sell or  purchase  sufficient  equity
     securities  to fill  all  outstanding  orders.  The  allocation  of  equity
     securities  purchased  or  sold is in  proportion  to  each  Fund's  order.
     Federated will not change the allocation unless all participating portfolio
     managers  or  Federated's  Chief  Investment   Officer  authorizes  another
     allocation   before  the  trade  tickets  are  transmitted  to  the  Fund's
     custodian, and any such reallocation is reviewed by Federated's Director of
     Compliance.  If  Federated  is  attempting  to fill an order  for an equity
     security and a portfolio manager delivers a new order for the same security
     during the trading day,  the new order will be added to the combined  order
     if there has been no material  change in the price of equity  security from
     any trade previously executed that day. If there has been a material change
     (a  change  of 2  percent  or  more)  the new  order  will be  added to the
unexecuted balance of original orders.                                

     With respect to transactions  for Fund's with a common  portfolio  manager,
     the  portfolio  manager must balance the  competing  interests of the Funds
     when  allocating  securities.  Typically,  a portfolio  manager  will place
     orders for equity  securities  on behalf of Funds with the same  investment
     objectives,  strategies  and policies in  proportion to the market value of
     their   portfolios.   However,   among  Funds  with  different   investment
     objectives, strategies or policies, a portfolio manager may give precedence
     to the Funds for which an equity  security is best  suited.  Factors that a
     portfolio manager may consider when placing different proportion orders for
     equity  securities  on behalf  Funds  include  (but are limited  to),  with
     respect to each Fund, current cash availability and anticipated cash flows,
     available alternative investments, current exposure to the issuer, industry
     or sector,  whether the expected effect on strategy or performance would be
     minimal or whether a proportionate  allocation  would result in an economic
order quantity.                                                       

PURCHASE, REDEMPTION AND PRICING OF SHARES                                      

Purchase of Shares                                                              
Shares  of  the  Portfolios  are  no  longer  sold  except  to  accommodate  the
reinvestment of capital gains or dividends paid by a Portfolio.                 

Shares  of the Funds  can be  purchased  only by (i) the  separate  accounts  of
participating  insurance companies for the purpose of funding variable insurance
contracts (Class I shares),  (ii) any Fund  distributed by Princor,  if the Fund
seeks to achieve its  investment  objective by investing  primarily in shares of
Funds distributed by Princor,  and (iii) certain employer  sponsored  retirement
plans  (Advisors  Preferred,  Advisors  Select,  Preferred and Select Classes of
shares).                                                                        

The Select and Preferred  classes of shares are available  only through  certain
registered  representatives  of Princor Financial  Services  Corporation who are
also  employees  of Principal  Life  Insurance  Company or  fee-based  financial
planners.                                                                       
o    Select shares are available to an employer's  sponsored  retirement plan(s)
     (the  "plan")  through  the  Principal  Investors  Advantage  (the  service
     contract (or through  execution of a service  contract  offered  through an
     affiliate  of  Principal  Life  Insurance  Company)) if the plan invests at
     least $3 million  (but less than $10  million) in the  Principal  Investors
Fund.                                                                 
o    Preferred  shares  are  available  to an  employer's  sponsored  retirement
     plan(s) (the "plan") through the Principal  Investors Advantage (or through
     execution of a service  contract  offered through an affiliate of Principal
     Life  Insurance  Company))  if the plan invests at least $10 million in the
Principal Investors Fund.                                             

The Advisors Select and Advisors  Preferred classes of shares are available only
through  registered  representatives of dealers selected by Princor or financial
planners.                                                                       
o    Advisors Select shares are available to an employer's  sponsored retirement
     plan(s)  (the  "plan")  through  the  Principal  Investors  Advantage  (the
     services  contract  (or through  execution  of a service  contract  offered
     through an affiliate  of  Principal  Life)) if the plan invests at least $3
million (but less than $10 million) in the Principal Investors Fund.  
o    Advisors  Preferred  shares  are  available  to  an  employer's   sponsored
     retirement plan(s) (the "plan") through the Principal  Investors  Advantage
     (the services  contract (or through execution of a service contract offered
     through an affiliate  of Principal  Life)) if the plan invests at least $10
million in the Principal Investors Fund.                              

 Participating  insurance  companies and certain other designated  organizations
are  authorized  to  receive  purchase  orders on the  Funds'  behalf  and those
organizations  are  authorized  to  designate  their  agents and  affiliates  as
intermediaries  to receive purchase orders.  Purchase orders are deemed received
by a Fund when authorized organizations,  their agents or affiliates receive the
order.  The  Funds  are  not  responsible  for  the  failure  of any  designated
organization  or its agents or  affiliates to carry out its  obligations  to its
customers.  Shares of the Funds are purchased at the net asset value ("NAV") per
share as determined at the close of the regular trading session of the NYSE next
occurring after a purchase order is received and accepted by an authorized agent
of a Fund.  In order to receive a day's price,  an order must be received by the
close of the regular trading session of the NYSE as described below in "Offering
Price."                                                                         

Sales of Shares                                                                 
Payment for shares tendered for redemption is ordinarily made in cash. The Board
of  Directors  may  determine,  however,  that it  would be  detrimental  to the
remaining shareholders to make payment of a redemption order wholly or partly in
cash. The Fund/Portfolio may, therefore, pay the redemption proceeds in whole or
in part by a distribution  "in kind" of securities  from the  Fund's/Portfolio's
portfolio in lieu of cash. If the Fund/Portfolio pays the redemption proceeds in
kind, the redeeming  shareholder might incur brokerage or other costs in selling
the securities for cash. The  Fund/Portfolio  will value  securities used to pay
redemptions in kind using the same method the  Fund/Portfolio  uses to value its
portfolio securities as described below in "Offering Price."                    

Sales of shares,  like  purchases,  may only be effected  through  the  separate
accounts of  participating  insurance  companies or an employer  sponsored plan.
Certain  designated  organizations  are authorized to receive sell orders on the
Funds' behalf and those  organizations  are authorized to designate their agents
and affiliates as intermediaries to receive redemption orders. Redemption orders
are deemed  received by a Fund when  authorized  organizations,  their agents or
affiliates  receive the order.  The Funds are not responsible for the failure of
any  designated  organization  or its  agents  or  affiliates  to carry  out its
obligations to its customers.                                                   

The  right to  require  the  Funds/Portfolios  to  redeem  their  shares  may be
suspended, or the date of payment may be postponed, whenever: (1) trading on the
NYSE is  restricted,  as determined by the SEC, or the NYSE is closed except for
holidays and weekends, (2) the SEC permits such suspension and so orders; or (3)
an emergency  exists as  determined by the SEC so that disposal of securities or
determination of NAV is not reasonably practicable.                             

Offering Price                                                                  
As stated in the  Prospectuses,  the NAV of each  class of the  Funds/Portfolios
(except  Money  Market  Fund) is  determined  once each day on which the NYSE is
open, at the close of its regular trading session  (normally 4:00 p.m., New York
time,  Monday  through  Friday).  As  stated  in  the  Prospectus,  the  NAV  of
Fund/Portfolio  shares is not determined on days the NYSE is closed  (generally,
New Year's Day, Martin Luther King Day,  Presidents' Day, Good Friday,  Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas).                  

The per share NAV of each class is  determined  by taking  the total  value of a
Fund's/Portfolio's  securities  and other assets less  liabilities  dividing the
remainder  proportionately  into  the  classes  of  the  Fund,  subtracting  the
liabilities of each class,  dividing the remainder by the total number of shares
of that class outstanding. In determining NAV, securities listed on an Exchange,
the NASDAQ  National Market and foreign markets are valued at the closing prices
on such markets,  or if such price is lacking for the trading period immediately
preceding the time of determination, such securities are valued at their current
bid  price.  Municipal  securities  held  by  the  Funds/Portfolios  are  traded
primarily in the  over-the-counter  market.  Valuations of such  securities  are
furnished by one or more pricing services employed by the  Funds/Portfolios  and
are based upon  appraisals  obtained  by a pricing  service,  in  reliance  upon
information  concerning  market  transactions  and  quotations  from  recognized
municipal   securities  dealers.   Other  securities  that  are  traded  on  the
over-the-counter  market  are  valued  at  their  closing  bid  prices.  Foreign
securities and currencies are converted to U.S.  dollars using the exchange rate
in effect  at the close of the NYSE.  Each  Fund/Portfolio  will  determine  the
market value of individual  securities  held by it, by using prices  provided by
one or more  professional  pricing  services  which may provide market prices to
other funds,  or, as needed,  by obtaining  market  quotations from  independent
broker-dealers.  Short-term  securities maturing within 60 days are valued on an
amortized cost basis. Securities for which quotations are not readily available,
and other  assets,  are valued at fair  value  determined  in good  faith  under
procedures established by and under the supervision of the Board of Directors.  

Trading in  securities  on foreign  securities  exchanges  and  over-the-counter
markets is normally completed well before the close of business on each business
day in New York (i.e.,  a day on which the NYSE is open).  In addition,  foreign
securities  trading  generally or in a particular  country or countries  may not
take place on all business days in New York. Furthermore, trading may take place
in various  foreign  markets on days which are not business days in New York and
on which a Fund's/Portfolio's NAV is not calculated. A Fund/Portfolio calculates
its NAV per class per  share,  and  therefore  effects  sales,  redemptions  and
repurchases of its shares, as of the close of the NYSE once on each day on which
the NYSE is open. Such calculation may not take place contemporaneously with the
determination  of the prices of the foreign  portfolio  securities  used in such
calculation.                                                                    

Money Market Fund                                                               

The share price of each class of shares of the Money  Market Fund is  determined
at the same time and on the same days as the  Funds/Portfolios  described above.
The share price for each class of shares of the Fund is computed by dividing the
total value of the Fund's securities and other assets,  less liabilities,  class
proportion, then by the number of class shares outstanding.                     

All  securities  held by the Money Market Fund are valued on an  amortized  cost
basis.  Under this method of valuation,  a security is initially valued at cost;
thereafter,  the Fund  assumes a constant  proportionate  amortization  in value
until  maturity  of  any  discount  or  premium,  regardless  of the  impact  of
fluctuating  interest  rates on the  market  value of the  security.  While this
method  provides  certainty in valuation,  it may result in periods during which
value,  as determined by amortized  cost, is higher or lower than the price that
would be received upon sale of the security.                                    

Use of the  amortized  cost  valuation  method by the Money Market Fund requires
maintenance  of a dollar  weighted  average  maturity  of 90 days or less and to
purchase only obligations that have remaining  maturities of 397 days or less or
have a variable or floating rate of interest. In addition, the Fund invests only
in  obligations  determined by the Board of Directors to be of high quality with
minimal credit risks.                                                           

The Board of Directors has established procedures designed to stabilize,  to the
extent reasonably possible,  the Money Market Fund's price per share as computed
for the purpose of sales and  redemptions at $1.00.  Such  procedures  include a
directive to the Manager to test price the portfolio or specific securities on a
weekly basis using a  mark-to-market  method of valuation to determine  possible
deviations in the NAV from $1.00 per share. If such deviation exceeds 1/2 of 1%,
the Board  promptly  considers  what action,  if any, will be initiated.  In the
event the Board  determines that a deviation exists which may result in material
dilution  or  other  unfair  results  to  shareholders,  the  Board  takes  such
corrective  action as it regards as  appropriate,  including:  sale of portfolio
instruments  prior to maturity;  the  withholding  of dividends;  redemptions of
shares  in  kind;  the  establishment  of an NAV  based  upon  available  market
quotations;  or  splitting,  combining or otherwise  recapitalizing  outstanding
shares.  The Money Market Fund may also reduce the number of shares  outstanding
by  redeeming  proportionately  from  shareholders,  without  the payment of any
monetary compensation, such number of full and fractional shares as is necessary
to maintain the NAV at $1.00 per share.                                         

TAXATION OF THE FUND                                                            

It is a policy of the  Funds/Portfolios  to make  distributions of substantially
all of their  respective  investment  income and any net realized capital gains.
The  Funds/Portfolios  intend to qualify as  regulated  investment  companies by
satisfying  certain  requirements  prescribed  by  Subchapter  M of the Internal
Revenue Code.  If a  Fund/Portfolio  fails to qualify as a regulated  investment
company, it will be liable for taxes,  significantly  reducing its distributions
to shareholders and eliminating  shareholder's ability to treat distributions of
the Fund/Portfolio in the manner they were received by the Fund/Portfolio.      

All  income   dividends   and  capital  gains   distributions,   if  any,  on  a
Fund's/Portfolio's  shares are reinvested  automatically in additional shares of
the same class of the same  Fund/Portfolio  at the NAV  determined  on the first
business day following the record date.                                         

Certain Funds/Portfolios may purchase securities of certain foreign corporations
considered to be passive  foreign  investment  companies by the IRS. In order to
avoid  taxes and  interest  that must be paid by the  Funds/Portfolios  if these
instruments appreciate in value, the Funds/Portfolios may make various elections
permitted  by the tax laws.  However,  these  elections  could  require that the
Funds/Portfolios recognize taxable income, which in turn must be distributed.   

Some  foreign  securities  purchased by the  Funds/Portfolios  may be subject to
foreign taxes that could reduce the yield on such securities. The amount of such
foreign taxes is expected to be  insignificant.  The  Funds/Portfolios  may from
year to year make the  election  permitted  under  Section  853 of the  Internal
Revenue Code to pass through such taxes to shareholders. If such election is not
made,  any  foreign  taxes paid or  accrued  will  represent  an expense to each
affected Fund that will reduce its investment company taxable income.           

UNDERWRITER                                                                     

Shares of each Fund are offered on a  continuous  basis by Princor as  principal
underwriter.  Shares  are  sold  at  NAV.  In  certain  circumstances,   Princor
compensates its registered representatives or a dealer with which it has entered
into a selling agreement for their efforts in distributing shares.              

Princor did not receive underwriting fees from the sale of Portfolio shares.    

CALCULATION OF PERFORMANCE DATA                                                 

For all Funds/Portfolios except the Money Market Fund                           

PERFORMANCE                                                                     

A Fund may quote  performance  in  various  ways.  All  performance  information
supplied by a Fund in  advertising is historical and is not intended to indicate
future  returns.  Each class's  share price and return  fluctuate in response to
market conditions and other factors,  and the value of Fund shares when redeemed
may be more or less than their original cost.                                   

Return  Calculations.  Returns  quoted in  advertising  reflect all aspects of a
class's return,  including the effect of reinvesting  dividends and capital gain
distributions,  and  any  change  in a  class's  NAV  over a  stated  period.  A
cumulative  return  reflects  actual  performance  over a stated period of time.
Average annual  returns are  calculated by determining  the growth or decline in
value of a hypothetical  historical  investment in a class over a stated period,
and then  calculating  the annually  compounded  percentage rate that would have
produced  the same  result if the rate of growth  or  decline  in value had been
constant over the period.                                                       

For example, a cumulative return of 100% over ten years would produce an average
annual  return of 7.18%,  which is the steady  annual  rate of return that would
equal 100% growth on a compounded  basis in ten years.  Average  annual  returns
covering  periods of less than one year are  calculated by determining a class's
return for the  period,  extending  that return for a full year  (assuming  that
return  remains  constant  over the year),  and  quoting the result as an annual
return.  While  average  annual  returns  are a  convenient  means of  comparing
investment alternatives,  investors should realize that a class's performance is
not constant over time,  but changes from year to year,  and that average annual
returns  represent  averaged  figures  as  opposed  to the  actual  year-to-year
performance of a class. In addition to average annual returns, a class may quote
unaveraged or  cumulative  returns  reflecting  the simple change in value of an
investment  over a stated period.  Average annual and cumulative  returns may be
quoted as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments,  or a series of redemptions,  over any time
period.  Returns may be broken down into their  components of income and capital
(including  capital  gains  and  changes  in  share  price)  to  illustrate  the
relationship of these factors and their contributions to return.  Returns may be
quoted on a  before-tax  or  after-tax  basis.  Returns  and  other  performance
information  may  be  quoted  numerically  or  in a  table,  graph,  or  similar
illustration.                                                                   

A    Fund may also include in its advertisements  comparisons of the performance
of the Fund to that of various  market  indices,  such as:            

Lehman  Brothers Aggregate Bond Index                                 
MSCI Euro Index                                                       
Lehman Brothers Longer Term Government/Corporate Bond Index           
Russell 2000 Index Lehman Brothers                                    
Government/Corporate Bond Index                                       
Russell 2000 Growth Index                                             
Lehman Brothers Mortgage-Backed Securities Index                      
Russell 2000 Value Index                                              
Lehman  Brother Short 1-5 Treasury Index                              
Russell MidCap Growth Index                                           
Morgan Stanley Capital International EAFE                             
(Europe,  Australia,  Far East) Index                             
S&P 500 Growth Index                                                  
S&P 400 MidCap Value Index                                            
Morgan Stanley Capital  International EMF Latin America Index         
Standard and Poor's 400 MidCap Stock Index                            
Morgan Stanley Capital International Pacific Index                    
Standard and Poor's 500 Index                                         
Morgan Stanley REIT Index                                             
Standard and Poor's SmallCap 600 Index                                

Money Market Fund                                                               

The Money Market Fund advertises its yield and its effective yield.             

Yield is computed by:                                                           
o    determining   the  net  change   (excluding   shareholder   purchases   and
     redemptions) in the value of a hypothetical  pre-existing  account having a
balance of one share at the beginning of the period                   
o    dividing the difference by the value of the account at the beginning of the
base period to obtain the base period return                          
o    multiplying  the base period  return by (365/7)  with the  resulting  yield
figure carried to at least the nearest hundredth of one percent.      

There  may be a  difference  in the net  investment  income  per  share  used to
calculate  yield  and the net  investment  income  per share  used for  dividend
purposes.  This is because the  calculation  for yield purposes does not include
net  short-term  realized  gains or losses on the Fund's  investment,  which are
included in the calculation for dividend purposes.                              

Effective yield is computed by:                                                 
o    determining   the  net  change   (excluding   shareholder   purchases   and
     redemptions) in the value of a hypothetical  pre-existing  account having a
balance of one share at the beginning of the period                   
o    dividing the difference by the value of the account at the beginning of the
     base period to obtain the base period  return  compounding  the base period
     return by adding 1,  raising  the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result.                                    
The  resulting  effective  yield  figure  is  carried  to at least  the  nearest
hundredth of one percent.                                                       

The yield  quoted at any time for the Money  Market Fund  represents  the amount
that has earned during a specific, recent seven-day period and is a function of:
o    the quality of investments in the Money Market Fund's portfolio            
o    types of investments in the Money Market Fund's portfolio                  
o    length of maturity of investments in the Money Market Fund's portfolio     
o    Money Market Fund's operating expenses.                                    

The length of maturity for the Money Market Fund's portfolio is calculated using
the average dollar  weighted  maturity of all  investments.  This means that the
portfolio  has  an  average  maturity  of  a  stated  number  of  days  for  its
investments.  The  calculation  is  weighted  by  the  relative  value  of  each
investment.                                                                     

The yield for the Money Market Fund will fluctuate daily as the income earned on
its investments fluctuates.  There is no assurance the yield quoted on any given
occasion  will  remain  in effect  for any  period  of time.  It should  also be
emphasized  that  the  Funds  are  open-end  investment  companies.  There is no
guarantee  that the NAV or any stated  rate of return will  remain  constant.  A
shareholder's  investment  in the  Funds/Portfolios  is not  insured.  Investors
comparing  results of the Money Market Fund with  investment  results and yields
from  other  sources  such as banks or  savings  and  loan  associations  should
understand these distinctions.  Historical and comparative yield information may
be presented by the Funds/Portfolios.                                           

FINANCIAL STATEMENTS                                                            

The financial statements for the International  Emerging Markets,  International
Securities, International SmallCap and Mortgage-Backed Securities Portfolios for
the year  ended  December  31,  1999 are part of this  Statement  of  Additional
Information.   The  financial   statements  appear  in  the  Annual  Reports  to
Shareholders.  Reports on those  statements from Ernst & Young LLP,  independent
auditors,  are  included  in the  Annual  Report  and  are  also a part  of this
Statement of Additional Information.  The Annual Reports are furnished,  without
charge,  to  investors  who  request  copies  of  the  Statement  of  Additional
Information.                                                                    

Financial  statements  and  financial  highlights  for the other  Funds  will be
included in the Annual Report when they have completed an annual period.        

APPENDIX A                                                                      

Description of Bond Ratings:                                                    

Moody's Investors Service, Inc. Bond Ratings                                    

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 by an
         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 length 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  both  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  of
         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 or 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.                       

CONDITIONAL RATING:  Bonds for which the security depends upon the completion of
some act or the  fulfillment  of some condition are rated  conditionally.  These
bonds secured by (a) earnings of projects  under  construction,  (b) earnings of
projects  unseasoned  in  operation  experience,  (c)  rentals  which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches.  Parenthetical  rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.                           

RATING REFINEMENTS:  Moody's may apply numerical  modifiers,  1, 2 and 3 in each
generic rating  classification  from Aa through B in its bond rating system. The
modifier 1 indicates  that the  security  ranks in the higher end of its generic
rating category;  the modifier 2 indicates a mid-range ranking; and a modifier 3
indicates that the issue ranks in the lower end of its generic rating category. 

SHORT-TERM  NOTES:  The four ratings of Moody's for short-term  notes are MIG 1,
MIG 2, MIG 3 and MIG 4; MIG 1 denotes "best quality,  enjoying strong protection
from established  cash flows";  MIG 2 denotes "high quality" with "ample margins
of  protection";  MIG 3  notes  are  of  "favorable  quality...but  lacking  the
undeniable  strength  of the  preceding  grades";  MIG 4 notes are of  "adequate
quality,  carrying specific risk for having  protection...and  not distinctly or
predominantly speculative."                                                     

Description of Moody's Commercial Paper Ratings                                 

Moody's Commercial Paper ratings are opinions of the ability to repay punctually
promissory obligations not having an original maturity in excess of nine months.
Moody's  employs the following three  designations,  all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:            

Issuers  rated  Prime-1 (or  related  supporting  institutions)  have a superior
capacity for repayment of short-term promissory obligations.                    

Issuers  rated  Prime-2  (or  related  supporting  institutions)  have a  strong
capacity for repayment of short-term promissory obligations.                    

Issuers rated Prime-3 (or related  supporting  institutions)  have an acceptable
capacity for repayment of short-term promissory obligations.                    

Issuers rated Not Prime do not fall within any of the Prime rating categories.  

Description of Standard & Poor's Corporation's Debt Ratings:                    

A Standard & Poor's debt rating is a current assessment of the  creditworthiness
of an obligor with respect to a specific  obligation.  This  assessment may take
into consideration obligors such as guarantors, insurers, or lessees.           

The debt rating is not a  recommendation  to purchase,  sell or hold a security,
inasmuch  as it does  not  comment  as to  market  price  or  suitability  for a
particular investor.                                                            

The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from other sources  Standard & Poor's  considers  reliable.
Standard & Poor's  does not perform an audit in  connection  with any rating and
may, on occasion,  rely on unaudited financial  information.  The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other circumstances.                                   

The ratings are based, in varying degrees, on the following considerations:     

I.   Likelihood of default -- capacity and  willingness of the obligor as to the
     timely  payment of interest and repayment of principal in  accordance  with
the terms of the obligation;                                          

II.  Nature of and provisions of the obligation;                                

III. Protection  afforded by, and relative  position of, the  obligation  in the
     event of bankruptcy,  reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.                

AAA: Debt rated  "AAA" has the  highest  rating  assigned  by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.     

AA:  Debt  rated  "AA" has a very  strong  capacity  to pay  interest  and repay
   principal and differs from the highest-rated issues only in small degree.

A:   Debt rated "A" has a strong  capacity to pay interest  and repay  principal
     although  they are  somewhat  more  susceptible  to the adverse  effects of
     changes in circumstances and economic  conditions than debt in higher-rated
categories.                                                           

BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay interest
     and repay  principal.  Whereas it  normally  exhibits  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 for debt in higher-rated categories.   

BB, B,  CCC,  CC: Debt rated "BB", "B", "CCC" and "CC" is 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 "CC" 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.

C:   The rating "C" is reserved  for income  bonds on which no interest is being
paid.                                                                 

D:   Debt rated "D" is in default,  and payment of interest and/or  repayment of
principal is in arrears.                                              

Plus (+) or Minus  (-):  The  ratings  from "AA" to "B" may be  modified  by the
addition  of a plus or minus  sign to show  relative  standing  within the major
rating categories.                                                              

Provisional Ratings: The letter "p" indicates that the rating is provisional.  A
provisional  rating  assumes the  successful  completion  of the  project  being
financed by the bonds being rated and  indicates  that  payment of debt  service
requirements  is largely or entirely  dependent  upon the  successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project,  makes no comment on the likelihood of,
or the risk of default upon  failure of, such  completion.  The investor  should
exercise his own judgment with respect to such likelihood and risk.             

NR:      Indicates that no rating has been requested, that there is insufficient
         information  on which to base a rating or that  Standard & Poor's  does
 not rate a particular type of obligation as a matter of policy.

Standard & Poor's, Commercial Paper Ratings                                     

A Standard  & Poor's  Commercial  Paper  Rating is a current  assessment  of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.  Ratings are graded  into four  categories,  ranging  from "A" for the
highest  quality  obligations  to "D" for the lowest.  Ratings are applicable to
both  taxable  and  tax-exempt  commercial  paper.  The four  categories  are as
follows:                                                                        

A:   Issues  assigned  the highest  rating are  regarded as having the  greatest
     capacity for timely  payment.  Issues in this category are delineated  with
the numbers 1, 2 and 3 to indicate the relative degree of safety.     

A-1: This  designation  indicates  that the  degree of safety  regarding  timely
     payment  is  either  overwhelming  or  very  strong.  Issues  that  possess
overwhelming safety characteristics will be given a "+" 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".                                                     

A-3: Issues carrying this  designation  have a satisfactory  capacity for timely
     payment. They are, however, somewhat more vulnerable to the adverse effects
     of  changes  in  circumstances   than  obligations   carrying  the  highest
designations.                                                         

B:   Issues  rated "B" are  regarded  as having only an  adequate  capacity  for
     timely  payment.   However,  such  capacity  may  be  damaged  by  changing
conditions or short-term adversities.                                 

C:   This rating is  assigned to  short-term  debt  obligations  with a doubtful
capacity for payment.                                                 

D:   This rating indicates that the issue is either in default or is expected to
be in default upon maturity.                                          

The  Commercial  Paper  Rating is not a  recommendation  to  purchase  or sell a
security.  The ratings are based on current information  furnished to Standard &
Poor's by the issuer and  obtained by  Standard & Poor's  from other  sources it
considers  reliable.  The ratings may be changed,  suspended,  or withdrawn as a
result of changes in or unavailability of, such information.                    

Standard  & Poor's  rates  notes with a  maturity  of less than  three  years as
follows:                                                                        

SP-1:A very strong,  or strong,  capacity to pay principal and interest.  Issues
     that  possess  overwhelming  safety  characteristics  will  be  given a "+"
designation.                                                          

SP-2:A satisfactory capacity to pay principal and interest.                     

SP-3:A speculative capacity to pay principal and interest.                      

485APOS
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PART C. OTHER INFORMATION 

Item 23.  Exhibits.                                                             
--------  ---------                                                             

(a)  (1)  a.   Articles of Amendment and Restatement (filed 4/12/96)  
b.   Articles of Amendment and Restatement*       
(2)       Articles of Amendment  (filed 9/12/97)            
(3)       Certificate of Correction*                        

(b)            By-laws*                                               

(c)            N/A                                                    

(d)  (1)  a.   Management Agreement (filed 9/12/97)                   
b.   1st Amendment to the Management Agreement*   
c.   Management Agreement**                       
(2)  a.   Invista Sub-Advisory Agreement (filed 9/12/97)    
       b.   1st Amendment to the Invista Sub-Advisory Agreement*
(3)       American Century Sub-Advisory Agreement**         
(4)       Bernstein Sub-Advisory Agreement**                
(5)       BT Sub-Advisory Agreement*                        
(6)       Federated Sub-Advisory Agreement**                
(7)       Neuberger Berman Sub-Advisory Agreement**         
(8)       Morgan Stanley Sub-Advisory Agreement**           
         (9)       Principal Capital Income Investors Sub-Advisory Agreement**
 (10)       Principal Capital Real Estate Investors Sub-Advisory
Agreement**                             
(11)       Turner Sub-Advisory Agreement**                    
(12)       PCII Cash Management Sub-Advisory Agreement**      

(e)  (1)  a.   Distribution Agreement (filed 4/12/96)                 
b.   1st Amendment to the Distribution Agreement* 
c.   Distribution Agreement*                      
(2)       Selling Agreement*                                

(f)            N/A                                                    

(g)  (1)  a.   Domestic Portfolio Custodian Agreement with            
Bank of New York (filed 4/12/96)    
             b.   Domestic Funds Custodian Agreement with Bank of New York**
(2)  a.   Global Portfolio Custodian Agreement with         
Chase Manhattan Bank (filed 4/12/96)
b.   Global Funds Custodian Agreement with        
Chase Manhattan Bank**              

(h)  (1)       Transfer Agency Agreement for Class I shares*          
(2)       Shareholder Services Agreement**                  
(3)  a.   Investment Service Agreement (filed 9/12/97)      
     b.   1st Amendment to the Investment Service Agreement*
(4)       Accounting Services Agreement*                    
(5)       Administrative Services Agreement*                
(6)       Service Agreement*                                
(7)       Service Sub-Agreement*                            

(i)            Legal Opinion (filed 4/12/96)                          

(j)            Consents of Auditors**                                 

(k)            Financial Statements included in this Registration     
Statement:                              
(1)       Part A:                                           
None                
(2)       Part B:                                           
None                
         (3)       Semi-Annual Report to Shareholders filed under Rule N-30D-1
on August ________, 2000**              

(l)  (1)       Initial Capital Agreement-ISP & MBS (filed 4/12/96)    
(2)       Initial Capital Agreement-IEP*                    
(3)       Initial Capital Agreement-ICP*                    
(4-38)    Initial Capital Agreement**                       

(m)            Rule 12b-1 Plan                                        
(1)       Advisors Preferred Plan*                          
(2)       Advisors Select Plan*                             

(n)            Financial Data Schedule                                
(1)       International Emerging Markets Portfolio**        
(2)       International Securities Portfolio**              
(3)       International SmallCap Portfolio**                
(4)       Mortgage-Backed Securities Portfolio**            

(o)            Rule 18f-3 Plan*                                       

(p)            Code of Ethics                                         
(1)       BT Funds Management*                              
(2)       Invista Capital Management*                       
(3)       Principal Capital Income Investors*               
(4)       Principal Capital Real Estate Investors*          
(5)       Turner Investment Partners*                       
(6)       Morgan Stanley Asset Management*                  
(7)       Neuberger Berman Management*                      
(8)       Bernstein Investment Research*                    
(9)       American Century Investment Management*           
(10)       Federated Investment Management*                   

*    Filed herein.                                                              
**   To be filed by amendment.                                                  
***  Incorporated herein by reference.                                          

Item 24.  Persons Controlled by or Under Common Control with Registrant         

          Principal   Financial   Services,   Inc.  (an  Iowa   corporation)  an
          intermediate  holding company organized pursuant to Section 512A.14 of
the Iowa Code.                                              

          Subsidiaries   wholly-owned  by  Principal   Financial  Services, Inc.

          a.   Principal  Life Insurance  Company (an Iowa  corporation) a stock
               life insurance  company  engaged in the business of insurance and
retirement services.                              

          b.   Princor  Financial  Services  Corporation (an Iowa Corporation) a
registered broker-dealer.                         

 c.   PFG DO Brasil LTDA (Brazil) a Brazilian holding company.

          d.   Principal  Financial Group  (Mauritius) Ltd. a Mauritius  holding
company.                                          

          e.   Principal  Pensions Co., Ltd. (Japan) a Japan company who engages
               in the  management,  investment and  administration  of financial
assets and any services incident thereto.         

          f.   Principal Financial Services  (Australia),  Inc. (an Iowa holding
               company)  formed to facilitate the  acquisition of the Australian
business of BT Australia.                         

          g.   Principal Financial Services (NZ), Inc. (an Iowa holding company)
               formed to facilitate the acquisition of the New Zealand  business
of BT Australia.                                  

          h.   Principal Capital Management  (Singapore)  Limited  (a  Singapore
  corporation) a company engaging in funds management.

          i.   Principal  Capital  Management  (Europe) Limited a United Kingdom
               company that engages in European  representation  and distributor
of the Principal Investments Funds.               

          j.   Principal Capital Management (Ireland) Limited an Ireland company
that engages in fund management.                  

          k.   Principal Financial Group Investments  (Australia) Pty Limited an
Australia holding company.                        

      Subsidiary wholly-owned by Princor Financial Services Corporation:

          a.   Principal   Management   Corporation  (an  Iowa   Corporation)  a
registered investment advisor.                    

Subsidiary 42% owned by PFG DO Brasil LTDA                  

          a.   Brasilprev    Previdencia   Privada    S.A.(Brazil)   a   pension
fund company.                                     

         Subsidiary wholly-owned by Principal Financial Group (Mauritius) Ltd.

          a.   IDBI Principal  Asset  Management  Company  (India) a India asset
management  company.                              

        Subsidiary wholly-owned by Principal Financial Services (Australia),
Inc.:                                                       

          a.   Principal  Financial  Group  (Australia)  Holdings  Pty  Ltd.  an
               Australian  holding  company  organized  in  connection  with the
        contemplated acquisition of BT Australia Funds Management.

          Subsidiary  wholly-owned  by  Principal  Financial  Group  (Australia)
Holdings Pty Ltd:                                           

  a.   BT Financial Group Pty Ltd. an Australia holding company.

Subsidiary  wholly-owned by BT Financial Group Pty Ltd:     

   a.   BT  Investments  (Australia)  Limited  a Delaware  holding
company.                                          

  Subsidiary wholly-owned by BT Investments (Australia) Limited:

          a.   BT  Australia   (Holdings)   Ltd  an  Australia   commercial  and
investment banking and asset management company.  

Subsidiary wholly-owned by BT  Australia   (Holdings)   Ltd:

          a.   BT  Australia  Limited  an  Australia  company  engaged  in asset
management and trustee/administrative activites.  

Subsidiaries wholly-owned by BT Financial Group Limited:    

          a.   BT Life Limited an Australia  company  engaged in commercial  and
investment linked life insurance policies.        

          b.   BT Funds  Management  Limited  an  Australia  company  engaged in
institutional and retail money management.        

          c.   BT Funds Management  (International) Limited an Australia company
               who manages  international funds (New Zealand,  Singapore,  Asia,
North America and United Kingdom).                

          d.   BT Securities  Limited an Australia  company that engages in loan
        finance secured against share and managed fund portfolios.

  e.   BT (Queensland) Pty Limited an Australia trustee company.

          f.   BT Portfolio  Services Limited an Australia  company that engages
               in processing and transaction services for financial planners and
financial intermediaries.                         

          g.   BT Australia  Corporate Services Pty Limited an Australia holding
company for internal service companies.           

          h.   Oniston Pty Ltd an Australia company that is a financial services
investment vehicle.                               

i.   QV1 Pty Limited an Australia company.                  

Subsidiaries wholly-owned by BT Portfolio Services Limited: 

          a.   BT Custodial Services Pty Ltd an Australia  custodian nominee for
investment management activities.                 

          b.   National  Registry  Services Pty Ltd. an  Australia  company that
engages in registry services.                     

          c.   National  Registry Services (WA) Pty Limited an Australia company
that engages in registry services.                

          d.   BT  Finance  &  Investments  Pty  Ltd  an  Australia  trustee  of
wholesale cash management trust.                  

      Subsidiaries organized and wholly-owned by BT Australia  Corporate
Services Pty Limited:                                       

          a.   BT Finance Pty Limited an Australia  provider of finance by loans
and leases.                                       

          b.   Chifley Services Pty Limited an Australia company that engages in
staff car leasing management.                     

          c.   BT Nominees Pty Limited an Australia  company that  operates as a
  trustee of staff superannuation fund (pension plan).

         Subsidiary organized and wholly-owned by BT Funds Management Limited:

          a.   BT Tactical  Asset  Management  Pty Limited an Australia  company
that engages in management of futures positions.  

          Subsidiary  organized and  wholly-owned  by BT Custodial  Services Pty
Ltd:                                                        

          a.   BT Hotel  Group Pty Ltd an  Australia  corporation  - an inactive
shelf corporation to be wound up.                 

          b.   BT  Custodians  Ltd an  Australia  manager and trustee of various
unit trusts.                                      

c.   Dellarak Pty Ltd an Australia trustee company.         

          Subsidiary  organized and wholly-owned by Principal Financial Services
(NZ), Inc.                                                  

       a.   BT Financial Group (NZ) Limited a New Zealand holding company.

       Subsidiary  organized and  wholly-owned  by BT Financial Group (NZ)
Limited:                                                    

          a.   BT  Portfolio  Service  (NZ)  Limited a New Zealand  company that
        provides third party administration and registry services.

          b.   BT New Zealand Nominees Limited a New Zealand company who acts as
a custodian for local assets.                     

      c.   BT Funds Management (NZ) Limited a New Zealand funds manager.

         Subsidiary  organized and  wholly-owned  by Principal Financial Group
Investments (Australia) Pty Limited:                        

a.   Principal Hotels Holdings Pty Ltd. a holding company.  

    b.   Principal Hotels Holdings Trust an Australia trust company.

         Subsidiary  organized and  wholly-owned  by Principal Hotels Holdings
Trust:                                                      

a.   Principal Hotels Australia Pty Ltd. a holding company. 

b.   Principal Hotels Australia Trust a trust company.      

          Subsidiary  organized and  wholly-owned  by Principal Hotels Australia
Trust:                                                      

          a.   BT Hotel  Limited an  Australia  corporation,  which is the hotel
operating/managing company of the BT Hotel Group. 

b.   BT Hotel Trust an Australia trust.                     

          Principal Life Insurance  Company  sponsored the  organization  of the
          following mutual funds,  some of which it controls by virtue of owning
voting securities:                                          

               Principal  Balanced Fund, Inc.(a Maryland  Corporation)  0.06% of
               shares  outstanding  owned by Principal  Life  Insurance  Company
            (including subsidiaries and affiliates) on September 13, 2000.

               Principal Blue Chip Fund, Inc.(a Maryland  Corporation)  0.03% of
               shares  outstanding  owned by Principal  Life  Insurance  Company
            (including subsidiaries and affiliates) on September 13, 2000.

               Principal Bond Fund, Inc.(a Maryland Corporation) 0.63% of shares
               outstanding owned by Principal Life Insurance Company  (including
 subsidiaries and affiliates) on September 13, 2000.

               Principal  Capital  Value Fund,  Inc.  (a  Maryland  Corporation)
               27.47% of  outstanding  shares owned by Principal  Life Insurance
               Company  (including   subsidiaries  and  affiliates)on  September
13,2000                                           

               Principal Cash  Management  Fund,  Inc. (a Maryland  Corporation)
               13.63% of  outstanding  shares owned by Principal  Life Insurance
               Company  (including  subsidiaries  and  affiliates)  on September
13,2000                                           

               Principal  European  Equity Fund,  Inc. (a Maryland  Corporation)
              77.96% of  outstanding  shares owned by Principal Life Insurance
               Company  (including  subsidiaries  and  affiliates)  on September
13, 2000.                                         

               Principal  Government  Securities  Income Fund,  Inc. (a Maryland
               Corporation)  0.04% of shares outstanding owned by Principal Life
               Insurance  Company  (including  subsidiaries  and  affiliates) on
September 13, 2000.                               

               Principal  Growth Fund,  Inc. (a Maryland  Corporation)  0.01% of
               outstanding  shares owned by  Principal  Life  Insurance  Company
            (including subsidiaries and affiliates) on September 13, 2000.

              Principal High Yield Fund, Inc. (a Maryland  Corporation)  8.13%
               of shares  outstanding  owned by Principal Life Insurance Company
            (including subsidiaries and affiliates) on September 13, 2000.

               Principal  International  Emerging Markets Fund, Inc. (a Maryland
               Corporation) 29.86% of shares outstanding owned by Principal Life
               Insurance  Company  (including  subsidiaries  and  affiliates) on
September 13, 2000.                               

               Principal  International  Fund,  Inc.  (a  Maryland  Corporation)
               24.18% of shares  outstanding  owned by Principal  Life Insurance
               Company  (including  subsidiaries  and  affiliates)  on September
13, 2000.                                         

               Principal   International   SmallCap   Fund,   Inc.  (a  Maryland
               Corporation) 10.89% of shares outstanding owned by Principal Life
               Insurance  Company  (including  subsidiaries  and  affiliates) on
September 13, 2000.                               

               Principal  Limited Term Bond Fund, Inc. (a Maryland  Corporation)
               16.58% of shares  outstanding  owned by Principal  Life Insurance
               Company (including  subsidiaries and affiliates) on September 13,
2000.                                             

               Principal   LargeCap   Stock   Index   Fund,   Inc.  (a  Maryland
              Corporation)  18.37% of shares  outstanding  owned by  Principal
               Life Insurance Company (including subsidiaries and affiliates) on
September 13, 2000.                               

               Principal  MidCap Fund,  Inc. (a Maryland  Corporation)  0.02% of
               shares  outstanding  owned by Principal  Life  Insurance  Company
           (including subsidiaries and affiliates) on September 13, 2000

               Principal  Pacific  Basin Fund,  Inc.  (a  Maryland  Corporation)
               84.43% of  outstanding  shares owned by Principal  Life Insurance
               Company (including  subsidiaries and affiliates) on September 13,
2000.                                             

               Principal  Partners   Aggressive  Growth  Fund,  Inc.(a  Maryland
              Corporation) 4.75% of shares outstanding owned by Principal Life
               Insurance  Company  (including  subsidiaries  and  affiliates) on
September 13, 2000                                

               Principal   Partners   LargeCap  Growth  Fund,   Inc.(a  Maryland
              Corporation)  28.03% of shares  outstanding  owned by  Principal
               Life Insurance Company (including subsidiaries and affiliates) on
September 13, 2000                                

               Principal   Partners   MidCap   Growth  Fund,   Inc.(a   Maryland
             Corporation) 22.41% of shares  outstanding  owned by  Principal
               Life Insurance Company (including subsidiaries and affiliates) on
September 13, 2000                                

               Principal Real Estate Fund, Inc. (a Maryland  Corporation) 56.26%
               of shares  outstanding  owned by Principal Life Insurance Company
           (including subsidiaries and affiliates) on September 13, 2000

              Principal SmallCap Fund, Inc.(a Maryland  Corporation)  5.50% of
               shares  outstanding  owned by Principal  Life  Insurance  Company
            (including subsidiaries and affiliates) on September 13, 2000.

               Principal  Special  Markets Fund,  Inc. (a Maryland  Corporation)
               83.56%  of  shares  outstanding  of  the  International  Emerging
               Markets  Portfolio,  46.62%  of  the  shares  outstanding  of the
               International Securities Portfolio,  98.66% of shares outstanding
               of the  International  SmallCap  Portfolio and 100% of the shares
               outstanding  of the  Mortgage-Backed  Securities  Portfolio  were
               owned by Principal Life Insurance Company (including subsidiaries
and affiliates) on September 13, 2000             

               Principal  Tax-Exempt  Bond Fund,  Inc. (a Maryland  Corporation)
               0.05% of shares  outstanding  owned by Principal  Life  Insurance
               Company (including  subsidiaries and affiliates) on September 13,
2000.                                             

               Principal Utilities Fund, Inc. (a Maryland  Corporation) 0.08% of
               shares  outstanding  owned by Principal  Life  Insurance  Company
            (including subsidiaries and affiliates) on September 13, 2000.

               Principal Variable Contracts Fund, Inc. (a Maryland  Corporation)
               100% of shares  outstanding  of the following  Accounts  owned by
               Principal  Life  Insurance  Company and its Separate  Accounts on
               September  13,  2000:   Aggressive   Growth,   Asset  Allocation,
               Balanced,  Blue Chip, Bond, Capital Value, Government Securities,
               Growth,  High  Yield,   International,   International   Emerging
               Markets, International SmallCap, LargeCap Growth, LargeCap Growth
               Equity,  LargeCap Stock Index (f/k/a Stock Index 500),  MicroCap,
               MidCap,  MidCap Growth, MidCap Growth Equity, MidCap Value, Money
               Market, Real Estate,  SmallCap,  SmallCap Growth, SmallCap Value,
and Utilities.                                    

          Subsidiaries  organized and  wholly-owned  by Principal Life Insurance
Company:                                                    

          a.   Principal  Holding  Company (an Iowa  Corporation)  a  downstream
   holding company for Principal Life Insurance Company.

          b.   Principal Development  Investors,  LLC (a Delaware Corporation) a
               limited liability company engaged in acquiring and improving real
property through development and redevelopment.   

          c.   Principal  Capital  Management,  LLC (a Delaware  Corporation)  a
               limited liability  company that provides private  mortgage,  real
               estate  &  fixed-income   securities  services  to  institutional
clients.                                          

          d.   Principal Net Lease  Investors,  LLC (a Delaware  Corporation)  a
               limited liability company which operates as a buyer and seller of
net leased investments.                           

       Subsidiaries  organized and  90% owned  by Principal Life Insurance
Company:                                                    

          a.   PT Asuransi Jiwa Principal Indonesia (an Indonesia Corporation) a
               life  insuranced  corporation  which offers group and  individual
products.                                         

   Subsidiaries wholly-owned by Principal Capital Management, LLC:

          a.   Principal Structured Investments,  LLC (a Delaware Corporation) a
               limited  liability  company  that  provides  product  development
               administration,   marketing   and   asset   management   services
               associated with stable value products together with other related
               institutional    financial   services   including    derivatives,
               asset-liability  management,  fixed income investment  management
and ancillary money management products.          

          b.   Principal  Enterprise  Capital,  LLC (a Delaware  Corporation)  a
               company   engaged   in   portfolio   management   on   behalf  of
               institutional   clients   for   structuring,   underwriting   and
               management of entity-level  investments in real estate  operating
companies (REOCs).                                

          c.   Principal Commercial  Acceptance,  LLC (a Delaware Corporation) a
               limited  liability  company that provides  private  market bridge
 financing and other secondary market opportunities.

          d.   Principal Real Estate Investors,  LLC (a Delaware  Corporation) a
registered investment advisor.                    

          e.   Principal  Commercial  Funding,  LLC (a Delaware  Corporation)  a
               limited   liability   company   engaged   in   the   structuring,
               warehousing,    securitization    and    sale    of    commercial
mortgage-backed securities.                       

          f.   Principal  Generation  Plant,  LLC an inactive  Delaware  limited
liability company.                                

          g.   Principal  Income  Investors,  LLC a Delaware  limited  liability
       company which provides investment and financial services.

          h.   Principal  Capital Futures Trading Advisor,  LLC a Delaware funds
management limited liability company.             

Subsidiaries wholly-owned by Principal Holding Company:     

          a.   Principal  Bank (a Federal  Corporation)  a  Federally  chartered
direct delivery savings bank.                     

          b.   Patrician  Associates,  Inc. (a  California  Corporation)  a real
estate development company.                       

          c.   Petula  Associates,  Ltd.  (an Iowa  Corporation)  a real  estate
development company.                              

          d.   Principal Development Associates, Inc. (a California Corporation)
a real estate development company.                

          e.   Principal Spectrum Associates,  Inc. (a California Corporation) a
real estate development company.                  

          f.   Principal  FC,  Ltd.  (an Iowa  Corporation)  a  limited  purpose
investment corporation.                           

          g.   Equity FC,  Ltd.  (an Iowa  Corporation)  engaged  in  investment
               transactions,   including   limited   partnerships   and  limited
liability companies.                              

          h.   HealthRisk  Resource Group,  Inc. (an Iowa Corporation) a general
              business  corporation  that engages in investment  transactions,
            including limited partnerships and limited liability companies

          i.   Invista  Capital  Management,  LLC (an  Delaware  Corporation)  a
               limited  liability  company  which  is  a  registered  investment
adviser.                                          

          j.   Principal Residential Mortgage, Inc. (an Iowa Corporation) a full
               service  mortgage  banking company that makes and services a wide
variety of loan types on a nationwide basis.      

          k.   Principal Asset Markets, Inc. (an Iowa Corporation) a corporation
which is currently inactive.                      

          l.   Principal  Portfolio  Services,  Inc.  (an  Iowa  Corporation)  a
corporation which is currently inactive.          

          m.   The Admar Group, Inc. (a Florida  Corporation) a national managed
               care service  organization  that  develops and manages  preferred
provider organizations.                           

          n.   The Principal  Financial Group,  Inc. (a Delaware  corporation) a
corporation which is currently inactive.          

    o.   Principal Product Network, Inc. (a Delaware corporation) an
insurance broker.                                 

          p.   Principal Health Care, Inc. (an Iowa  Corporation) a managed care
company.                                          

          q.   Dental-Net,  Inc. (an Arizona  Corporation) a managed dental care
   services organization. HMO and dental group practice.

          r.   Principal  Financial  Advisors,  Inc.  (an  Iowa  Corporation)  a
registered investment advisor.                    

          s.   Delaware  Charter  Guarantee  &  Trust  Company,   d/b/a  Trustar
               Retirement  Services (a Delaware  Corporation) a corporation that
               administers  individual  and  group  retirement  plans  for stock
  brokerage firm clients and mutual fund distributors.

          t.   Professional  Pensions,  Inc. d/b/a Northeast Plan Administrators
               (a  Connecticut  Corporation)  a  corporation  engaged  in sales,
               marketing  and   administration  of  group  insurance  plans  and
       third-party administrator for defined contribution plans.

          u.   Principal  Investors  Corporation  (a New Jersey  Corporation)  a
corporation which is currently inactive.          

          v.   Principal  International,  Inc. (an Iowa  Corporation)  a company
engaged in international business development.    

  Subsidiaries  organized and  wholly-owned  by PT Asuransi Jiwa
Principal Indonesia:                                        

  a.   PT Jasa Principal Indonesia an Indonesia pension company.

          b.   PT Principal  Capital  Management  Indonesia  an Indonesia  funds
management company.                               

Subsidiary wholly-owned by Invista Capital Management, LLC: 

          a.   Principal  Capital  Trust.  (a Delaware  Corporation)  a business
               trust and  private  investment  company  offering  non-registered
units, initially, to tax-exempt entities.         

  Subsidiary wholly-owned by Principal Residential Mortgage, Inc.:

          a.   Principal  Wholesale  Mortgage,  Inc.  (an  Iowa  Corporation)  a
brokerage and servicer of residential mortgages.  

       b.   Principal Mortgage Reinsurance Company (a Vermont corporation)
a mortgage reinsurance company.                   

Subsidiaries wholly-owned by The Admar Group, Inc.:         

          a.   Admar  Corporation  (a  California  Corporation)  a managed  care
services organization.                            

Subsidiaries wholly-owned by Dental-Net, Inc.               

          a.   Employers  Dental  Services,  Inc.  (an  Arizona  corporation)  a
prepaid dental plan organization.                 

Subsidiaries wholly-owned by Professional Pensions, Inc.:   

          a.   Benefit Fiduciary Corporation (a Rhode Island corporation) serves
as a corporate trustee for retirement trusts.     

          b.   PPI Employee Benefits  Corporation (a Connecticut  corporation) a
               registered  broker-dealer  limited to the sale of open-end mutual
funds and variable insurance products.            

          c.   Boston  Insurance  Trust,  Inc. (a  Massachusetts  corporation) a
               corporation  which  serves  as a  trustee  and  administrator  of
insurance trusts and arrangements.                

Subsidiaries wholly-owned by Principal International, Inc.: 

          a.   Principal International Espana, S.A. de Seguros de Vida (Spain) a
       life insurance, annuity, and accident and health company.

     b.   Zao Principal International (a Russia Corporation) inactive.

          c.   Principal   International    Argentina,    S.A.   (an   Argentina
               corporation) a holding  company that owns Argentina  corporations
          offering annuities, group and individual insurance policies.

          d.   Principal  Asset  Management  Company  (Asia) Ltd. (Hong Kong) an
asset management company.                         

          e.   Principal  International (Asia) Limited (Hong Kong) a corporation
operating as a regional headquarters for Asia.    

          f.   Principal Trust Company (Asia) Limited (Hong Kong) (an Asia trust
company).                                         

          g.   Principal International de Chile, S.A. (Chile) a holding company.

          h.   Principal  Mexico  Compania de Seguros,  S.A. de C.V.  (Mexico) a
life insurance company.                           

      i.   Principal Pensiones, S.A. de C.V. (Mexico) a pension company.

   j.   Principal Afore, S.A. de C.V. (Mexico), a pension company.

          k.   Principal   Consulting   (India)   Private   Limited   (an  India
corporation) an India consulting company.         

Subsidiaries 88% owned by Principal International, Inc.:    

          a.   Principal  Insurance  Company  (Hong  Kong)  Limited (a Hong Kong
               Corporation) a company that sells insurance and pension products.

          Subsidiary  wholly-owned by Principal  International  Espana,  S.A. de
Seguros de Vida (Spain):                                    

          a.   Princor  International  Espana S.A. de Agencia de Seguros (Spain)
an insurance agency.                              

          Subsidiary  wholly-owned  by Principal  International  (Asia)  Limited
(Hong Kong):                                                

          a.   Principal  Capital  Management (Asia)  Limited (Hong  Kong) Asian
               representative  and  distributor  for  the  Principal  Investment
Funds.                                            

          Subsidiaries  wholly-owned by Principal International Argentina,  S.A.
(Argentina):                                                

          a.   Principal Retiro Compania de Seguros de Retiro, S.A.  (Argentina)
an annuity company.                               

          b.   Principal  Life  Compania de  Seguros,  S.A.  (Argentina)  a life
insurance company.                                

      Subsidiary wholly-owned by Principal International de Chile, S.A.:

          a.   Principal  Compania  de Seguros de Vida Chile S.A.  (Chile)  life
insurance company.                                

       Subsidiary 60% owned by Principal Compania de Seguros de Vida Chile
S.A. (Chile):                                               

          a.   Andueza  &  Principal   Creditos   Hipotecarios  S.A.  (Chile)  a
residential mortgage company.                     

Subsidiary wholly-owned by Principal Afore, S.A. de C.V.:   

          a.   Siefore  Principal,  S.A.  de C.V.  (Mexico) an  investment  fund
company.                                          

Item 25.       Indemnification                                                  

     Under Section 2-418 of the Maryland  General  Corporation Law, with respect
to any  proceedings  against a present  or former  director,  officer,  agent or
employee (a "corporate  representative")  of the Registrant,  the Registrant may
indemnify the corporate representative against judgments,  fines, penalties, and
amounts paid in settlement, and against expenses,  including attorneys' fees, if
such  expenses  were  actually  incurred  by  the  corporate  representative  in
connection with the proceeding, unless it is established that:                  

(i)    The act or omission of the corporate representative was  
       material to the matter giving rise to the proceeding; and

1.    Was committed in bad faith; or              

          2.    Was the result of active and deliberate dishonesty; or

       (ii)    The  corporate   representative  actually  received  an  improper
  personal benefit in money, property, or services; or

      (iii)    In  the  case  of  any   criminal   proceeding,   the   corporate
               representative  had  reasonable  cause to believe that the act or
omission was unlawful.                            

     If a proceeding is brought by or on behalf of the Registrant,  however, the
Registrant may not indemnify a corporate representative who has been adjudged to
be liable to the Registrant.  Under the  Registrant's  Articles of Incorporation
and Bylaws, directors and officers of Registrant are entitled to indemnification
by the  Registrant to the fullest  extent  permitted  under Maryland law and the
Investment  Company Act of 1940.  Reference is made to Article VI,  Section 7 of
the Registrant's  Articles of Incorporation,  Article 12 of Registrant's  Bylaws
and Section 2-418 of the Maryland General Corporation Law.                      

     The  Registrant has agreed to indemnify,  defend and hold the  Distributor,
its officers and directors,  and any person who controls the Distributor  within
the meaning of Section 15 of the Securities Act of 1933,  free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating  or defending such claims,  demands or liabilities and any
counsel  fees  incurred in  connection  therewith)  which the  Distributor,  its
officers,  directors  or  any  such  controlling  person  may  incur  under  the
Securities  Act of 1933,  or under  common law or  otherwise,  arising out of or
based upon any untrue statement of a material fact contained in the Registrant's
registration statement or prospectus or arising out of or based upon any alleged
omission to state a material  fact  required  to be stated in either  thereof or
necessary  to make the  statements  in either  thereof  not  misleading,  except
insofar as such claims,  demands,  liabilities  or expenses  arise out of or are
based  upon any such  untrue  statement  or  omission  made in  conformity  with
information furnished in writing by the Distributor to the Registrant for use in
the Registrant's registration statement or prospectus:  provided,  however, that
this indemnity  agreement,  to the extent that it might require indemnity of any
person who is also an officer or director of the  Registrant or who controls the
Registrant within the meaning of Section 15 of the Securities Act of 1933, shall
not inure to the benefit of such officer,  director or controlling person unless
a court  of  competent  jurisdiction  shall  determine,  or it shall  have  been
determined by controlling precedent that such result would not be against public
policy as expressed in the Securities Act of 1933, and further provided, that in
no event  shall  anything  contained  herein be so  construed  as to protect the
Distributor  against any liability to the Registrant or to its security  holders
to which the  Distributor  would  otherwise  be  subject  by  reason of  willful
misfeasance,  bad faith, or gross negligence,  in the performance of its duties,
or by reason of its reckless  disregard of its obligations under this Agreement.
The  Registrant's  agreement  to  indemnify  the  Distributor,  its officers and
directors and any such controlling person as aforesaid is expressly  conditioned
upon the Registrant  being promptly  notified of any action brought  against the
Distributor,  its officers or directors,  or any such controlling  person,  such
notification to be given by letter or telegram addressed to the Registrant.     

Item 26.  Business or Other Connection of Investment Adviser                    

     A complete  list of the officers and directors of the  investment  adviser,
Principal Management Corporation,  are set out below. This list includes some of
the same people  (designated by an *), who are serving as officers and directors
of the Registrant.  For these people the information as set out in the Statement
of Additional Information (See Part B) under the caption "Directors and Officers
of the Fund" is incorporated by reference.                                      

John E. Aschenbrenner        Principal         Executive Vice President   
Director                     Financial Group   Principal Life Insurance   
                           Company

Craig R. Barnes              Same              President & Chief Executive
Vice President                                 Officer, Invista Capital   
                                  Management LLC

*Craig L. Bassett             Same              See Part B                  
Treasurer                                                                 

*Michael J. Beer              Same              See Part B                  
Executive Vice President                                                  

David J. Drury               Same              Chairman of the Board      
Director                                       Principal Life             
                                     Insurance Company

*Ralph C. Eucher              Same              See Part B                  
President and Director                                                    

*Arthur S. Filean             Same              See Part B                  
Vice President                                                            

Dennis P. Francis            Same              Senior Vice President      
Director                                       Principal Life             
                                     Insurance Company

Paul N. Germain              Same              Vice President -           
Vice President -                               Mutual Fund Operations     
Mutual Fund Operations                         Princor Financial Services 
                               Corporation

*Ernest H. Gillum             Same              See Part B                  
Vice President - Compliance                                               
& Product Development                                                     

Thomas J. Graf               Same              Senior Vice President      
Director                                       Principal Life             
                                     Insurance Company

*J. Barry Griswell            Same              See Part B                  
Chairman of the Board                                                     
and Director                                                              

Joyce N. Hoffman             Same              Vice President and         
Vice President and                             Corporate Secretary        
Corporate Secretary                            Principal Life             
                                     Insurance Company

Ellen Z. Lamale              Same              Senior Vice President &    
 Director                                       Chief Actuary Principal Life
                                     Insurance Company

Julia M. Lawler              Same              Vice President             
Director                                       Principal Life Insurance   
                           Company

Richard L. Prey              Same              Executive Vice President   
Director                                       Principal Life Insurance   
                           Company

Layne A. Rasmussen           Same              Controller                 
Controller -                                   Princor Financial Services 
Mutual Funds                                   Corporation                

Elizabeth R. Ring            Same              Controller- Broker Dealer  
Controller                                     Operations                 
                                              Princor Financial Services
                               Corporation

*Michael D. Roughton          Same              See Part B                  
Counsel                                                                   

 Jean B. Schustek             Same              Product Compliance Officer -
Product Compliance Officer -                   Princor Financial Services 
Registered Products                            Corporation                

     Principal Management  Corporation serves as investment adviser and dividend
disbursing and transfer agent for, Principal Balanced Fund, Inc., Principal Blue
Chip Fund, Inc.,  Principal Bond Fund, Inc., Principal Capital Value Fund, Inc.,
Principal Cash Management Fund, Inc.,  Principal  Government  Securities  Income
Fund,  Inc.,  Principal  Growth Fund,  Inc.,  Principal  High Yield Fund,  Inc.,
Principal  International  Emerging Markets Fund, Inc., Principal European Equity
Fund, Inc., Principal International Fund, Inc., Principal International SmallCap
Fund, Inc.,  Principal  LargeCap Stock Index Fund, Inc.,  Principal Limited Term
Bond Fund,  Inc.,  Principal  Pacific Basin Fund,  Inc.,  Principal MidCap Fund,
Inc.,  Principal  Partners  Aggressive  Growth Fund,  Inc.,  Principal  Partners
LargeCap  Growth Fund,  Inc.,  Principal  Partners  MidCap  Growth  Fund,  Inc.,
Principal  Real Estate Fund,  Inc.,  Principal  SmallCap Fund,  Inc.,  Principal
Special Markets Fund,  Inc.,  Principal  Tax-Exempt Bond Fund,  Inc.,  Principal
Utilities Fund, Inc.,  Principal Variable Contracts Fund, Inc. - funds sponsored
by Principal Life Insurance Company.                                            

Item 27.       Principal Underwriters                                           

     (a) Princor  Financial  Services  Corporation,  principal  underwriter  for
Registrant,  acts as principal  underwriter for,  Principal Balanced Fund, Inc.,
Principal Blue Chip Fund,  Inc.,  Principal Bond Fund, Inc.,  Principal  Capital
Value Fund,  Inc.,  Principal Cash Management  Fund,  Inc.,  Principal  European
Equity Fund, Inc., Principal Government  Securities Income Fund, Inc., Principal
Growth Fund,  Inc.,  Principal High Yield Fund,  Inc.,  Principal  International
Emerging  Markets Fund, Inc.,  Principal  International  Fund,  Inc.,  Principal
International  SmallCap Fund, Inc.,  Principal  LargeCap Stock Index Fund, Inc.,
Principal Limited Term Bond Fund, Inc.,  Principal MidCap Fund, Inc.,  Principal
Pacific  Basin Fund Inc.,  Principal  Partners  Aggressive  Growth  Fund,  Inc.,
Principal Partners LargeCap Growth Fund, Inc.,  Principal Partners MidCap Growth
Fund,  Inc.,  Principal Real Estate Fund, Inc.,  Principal  SmallCap Fund, Inc.,
Principal  Special Markets Fund,  Inc.,  Principal  Tax-Exempt Bond Fund,  Inc.,
Principal Utilities Fund, Inc.,  Principal Variable Contracts Fund, Inc. and for
variable annuity  contracts  participating  in Principal Life Insurance  Company
Separate  Account B, a registered  unit  investment  trust for retirement  plans
adopted by public school systems or certain tax-exempt organizations pursuant to
Section  403(b) of the Internal  Revenue  Code,  Section 457  retirement  plans,
Section 401(a) retirement plans,  certain non- qualified  deferred  compensation
plans and Individual Retirement Annuity Plans adopted pursuant to Section 408 of
the Internal  Revenue Code, and for variable life insurance  contracts issued by
Principal Life Insurance  Company Variable Life Separate  Account,  a registered
unit investment trust.                                                          

(b)      (1)                 (2)                                            
Positions         
and offices       
Name and principal           with principal                                 
business address             underwriter                                    

John E. Aschenbrenner    Director                                     
The Principal                                                         
Financial Group                                                       
Des Moines, IA 50392                                                  

Robert W. Baehr          Marketing Services                           
The Principal            Officer                                      
Financial Group                                                       
Des Moines, IA 50392                                                  

Craig L. Bassett         Treasurer                                    
The Principal                                                         
Financial Group                                                       
Des Moines, IA 50392                                                  

Michael J. Beer          Executive Vice President                     
The Principal                                                         
Financial Group                                                       
Des Moines, IA 50392                                                  

Jerald L. Bogart         Insurance License Officer                    
The Principal                                                         
Financial Group                                                       
Des Moines, IA  50392                                                 

David J. Drury           Director                                     
The Principal                                                         
Financial Group                                                       
Des Moines, IA 50392                                                  

Ralph C. Eucher          Director and                                 
The Principal            President                                    
Financial Group                                                       
Des Moines, IA  50392                                                 

Arthur S. Filean         Vice President                               
The Principal                                                         
Financial Group                                                       
Des Moines, IA 50392                                                  

Dennis P. Francis        Director                                     
The Principal                                                         
Financial Group                                                       
Des Moines, IA  50392                                                 

Paul N. Germain          Vice President -                             
The Principal            Mutual Fund Operations                       
Financial Group                                                       
Des Moines, IA  50392                                                 

Ernest H. Gillum         Vice President -                             
The Principal            Compliance and Product Development           
Financial Group                                                       
Des Moines, IA 50392                                                  

Thomas J. Graf           Director                                     
The Principal                                                         
Financial Group                                                       
Des Moines, IA 50392                                                  

J. Barry Griswell        Director and                                 
The Principal            Chairman of the                              
Financial Group          Board                                        
Des Moines, IA 50392                                                  

Susan R. Haupts          Marketing Officer                            
The Principal                                                         
Financial Group                                                       
Des Moines, IA  50392                                                 

Joyce N. Hoffman         Vice President and                           
The Principal            Corporate Secretary                          
Financial Group                                                       
Des Moines, IA 50392                                                  

Kraig L. Kuhlers         Marketing Officer                            
The Principal                                                         
Financial Group                                                       
Des Moines, IA  50392                                                 

Ellen Z. Lamale          Director                                     
The Principal                                                         
Financial Group                                                       
Des Moines, IA 50392                                                  

Julia M. Lawler          Director                                     
The Principal                                                         
Financial Group                                                       
Des Moines, IA  50392                                                 

John R. Lepley           Senior Vice                                  
The Principal            President - Marketing                        
Financial Group          and Distribution                             
Des Moines, IA 50392                                                  

Kelly A. Paul            Systems and Technology                       
The Principal            Officer                                      
Financial Group                                                       
Des Moines, IA 50392                                                  

Elise M. Pilkington      Assistant Director -                         
The Principal            Retirement Consulting                        
Financial Group                                                       
Des Moines, IA  50392                                                 

Richard L. Prey          Director                                     
The Principal                                                         
Financial Group                                                       
Des Moines, IA 50392                                                  

Layne A. Rasmussen       Controller -                                 
The Principal            Mutual Funds                                 
Financial Group                                                       
Des Moines, IA 50392                                                  

Martin R. Richardson     Operations Officer -                         
The Principal            Broker/Dealer Services                       
Financial Group                                                       
Des Moines, IA 50392                                                  

Elizabeth R. Ring        Controller                                   
The Principal                                                         
Financial Group                                                       
Des Moines, IA 50392                                                  

Michael D. Roughton      Counsel                                      
The Principal                                                         
Financial Group                                                       
Des Moines, IA 50392                                                  

Jean B. Schustek         Product Compliance Officer -                 
The Principal            Registered Products                          
Financial Group                                                       
Des Moines, IA  50392                                                 

Kyle R. Selberg          Vice President-Marketing                     
The Principal                                                         
Financial Group                                                       
Des Moines, IA 50392                                                  

Minoo Spellerberg        Compliance Officer                           
The Principal                                                         
Financial Group                                                       
Des Moines, IA  50392                                                 

(c)    Inapplicable.                              

Item 28.       Location of Accounts and Records                                 

     All accounts, books or other documents of the Registrant are located at the
offices of the  Registrant  and its  Investment  Adviser in the  Principal  Life
Insurance  Company home office  building,  The Principal  Financial  Group,  Des
Moines, Iowa 50392.                                                             

Item 29.       Management Services                                              

Inapplicable.                                     

Item 30.       Undertakings                                                     

Indemnification                                   

     Reference is made to Item 27 above,  which  discusses  circumstances  under
which  directors  and officers of the  Registrant  shall be  indemnified  by the
Registrant  against certain  liabilities and expenses incurred by them by reason
of being a director or officer of the Registrant.                               

     Notwithstanding  the provisions of Registrant's  Articles of  Incorporation
and Bylaws, the Registrant hereby makes the following undertaking:              

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors,  officers and controlling  persons of the
Registrant,  pursuant to the foregoing  provisions or otherwise,  the Registrant
has been advised that in the opinion of the Securities  and Exchange  Commission
such  indemnification  is against  public policy as expressed in the Act and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such liabilities  (other than the payment by the Registrant of expenses incurred
or paid by a director,  officer or controlling person of the Registrant,  in the
successful  defense of any  action,  suit or  proceeding)  is  asserted  by such
director,  officer or controlling  person of the Registrant,  in connection with
the securities being  registered,  the Registrant will, unless in the opinion of
its counsel the matter has been settled by  controlling  precedent,  submit to a
court of appropriate  jurisdiction the question whether such  indemnification by
it is against  public policy as expressed in the Act and will be governed by the
final adjudication of such issue                                                

Shareholder Communications                        

     Registrant  hereby  undertakes  to call a meeting of  shareholders  for the
purpose of voting upon the question of removal of a director or  directors  when
requested in writing to do so by the holders of at least 10% of the Registrant's
outstanding shares of common stock and in connection with such meeting to comply
with the  provisions  of Section  16(c) of the  Investment  Company  Act of 1940
relating to shareholder communications                                          

Delivery of Annual Report to Shareholders         

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

SIGNATURES

Pursuant to the  requirements  of the  Securities Act of 1933 and the Investment
Company  Act of 1940  the  Registrant  has duly  caused  this  Amendment  to the
Registration Statement to be signed on its behalf by the undersigned,  thereunto
duly  authorized in the City of Des Moines and State of Iowa, on the 22nd day of
September, 2000.                                                                

        PRINCIPAL INVESTORS FUND, INC.

          (Registrant)

      By          /s/ R. C. Eucher
                      --------------------------------------
R. C. Eucher  
        President and Director

Attest:                                                                         

/s/ A. S. Filean                                                                
--------------------------------------                                          
A. S. Filean                                                                    
Vice President and Secretary                                                    

Pursuant to the requirement of the Securities Act of 1933, this Amendment to the
Registration  Statement  has been signed below by the  following  persons in the
capacities and on the dates indicated.                                          

   Signature                         Title                          Date

/s/ R. C. Eucher                                                                
_____________________________      President and Director             09/22/2000
R. C. Eucher                       (Principal Executive Officer)      __________

(J. B. Griswell)*                                                         
_____________________________      Director and                       09/22/2000
J. B. Griswell                     Chairman of the Board              __________

/s/ K. L. Tibbetts                                                              
_____________________________      Senior Vice President and          09/22/2000
K. L. Tibbetts                     Chief Financial Officer            __________
              Princcipal Financial and
         Accounting Officer)

(J. D. Davis)*                                                            
_____________________________      Director                           09/22/2000
J. D. Davis                                                           __________

(P. A. Ferguson)*                                                         
_____________________________      Director                           09/22/2000
P. A. Ferguson                                                        __________

(B. A. Lukavsky)*                                                         
_____________________________      Director                           09/22/2000
B. A. Lukavsky                                                        __________

                     *By   /s/R. C. Eucher
                                           _____________________________________
                  R. C. Eucher
                            President and Director

                                    Pursuant to Powers of Attorney
                                  Previously Filed or Included

POWER OF ATTORNEY 

The undersigned hereby constitutes and appoints R. C. Eucher, J. B. Griswell, M.
D. Roughton,  E. H. Gillum and A. S. Filean and each of them (with full power to
each of them to act alone), the undersigned's  true and lawful  attorney-in-fact
and agent, with full power of substitution to each, for and on behalf and in the
name  of the  undersigned,  to  execute  and  file  any  documents  relating  to
registration  under the Securities Act of 1933 and the Investment Company Act of
1940  with  respect  to  open-end  management   investment  companies  currently
organized or to be organized in the future which are sponsored by Principal Life
Insurance  Company,  and any and all amendments  thereto and reports  thereunder
with all exhibits and all  instruments  necessary or  appropriate  in connection
therewith,   each  of  said  attorneys-in-fact  and  agents  and  his  or  their
substitutes  being empowered to act with or without the others or other,  and to
have  full  power  and  authority  to do or  cause to be done in the name and on
behalf of the undersigned  each and every act and thing necessary or appropriate
to be done in order to effectuate the same, as fully to all intents and purposes
as the undersigned might or could do in person;  hereby ratifying and confirming
all that said  attorneys-in-fact  and agents, or any of them, may do or cause to
be done by virtue hereof.                                                       

IN WITNESS WHEREOF, the undersigned has hereunto set his hand                   
this 14th day of September, 2000.                                               

/s/K. L. Tibbetts                                                               

K. L. Tibbetts                                                                  

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘485APOS’ Filing		Date		First		Last			Other Filings
		10/2/00		2		3
Filed on:		9/22/00		2					PRES14A
		9/14/00		3
		9/13/00		4
		9/11/00		3
		6/30/00		2		3			N-30D,  NSAR-A
		4/3/00		3
		12/31/99		3					24F-2NT,  N-30D,  NSAR-B
		12/1/98		2		3
		12/31/97		3					24F-2NT,  N-30D,  NSAR-B
		11/26/97		3
		9/17/97		3
		5/7/93		3
		1/28/93		3
									List all Filings

15 Subsequent Filings that Reference this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 2/27/24  Principal Funds, Inc.             485BPOS     3/01/24   25:60M
12/27/23  Principal Funds, Inc.             485BPOS    12/31/23   33:16M
 2/27/23  Principal Funds, Inc.             485BPOS     3/01/23  103:84M                                    Donn… Fin’l/ArcFiling/FA
12/21/22  Principal Funds, Inc.             485BPOS    12/31/22   33:19M                                    Donn… Fin’l/ArcFiling/FA
12/14/22  Principal Funds, Inc.             485APOS                2:6.7M                                   Donn… Fin’l/ArcFiling/FA
11/17/22  Principal Funds, Inc.             485BPOS    11/18/22   20:9.1M
 9/22/22  Principal Funds, Inc.             485BPOS     9/22/22   16:5.6M                                   Donn… Fin’l/ArcFiling/FA
 9/19/22  Principal Funds, Inc.             485APOS                3:5M
 7/01/22  Principal Funds, Inc.             485APOS               16:14M                                    Donn… Fin’l/ArcFiling/FA
 2/24/22  Principal Funds, Inc.             485BPOS     3/01/22   85:69M                                    Donn… Fin’l/ArcFiling/FA
12/28/21  Principal Funds, Inc.             485BPOS    12/31/21  140:37M                                    Donn… Fin’l/ArcFiling/FA
 2/24/21  Principal Funds, Inc.             485BPOS     3/01/21   26:108M
12/29/20  Principal Funds, Inc.             485APOS¶   12/29/20    3:19M
12/28/20  Principal Funds, Inc.             485BPOS    12/31/20   19:16M
10/30/20  Principal Funds, Inc.             485APOS¶   10/30/20   37:11M