RUSSELL FRANK INVESTMENT CO, 497, 1995-06-29

RUSSELL FRANK INVESTMENT CO
497, 1995-06-29

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<PAGE> 1

PROSPECTUS

SPECIALTY FUNDS

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET, TACOMA, WA 98402
TELEPHONE (800) 972-0700
IN WASHINGTON, (206) 627-7001

Frank Russell Investment Company (the "Investment Company") is a "series mutual
fund" with 22 different investment portfolios. This Prospectus describes and
offers shares of beneficial interest in the four investment portfolios listed
below (each, a "Fund," and collectively, the "Funds").

Frank Russell Investment Management Company (the "Management Company") operates
and administers all of the Funds which comprise the Investment Company, and
manages the portfolio of the U.S. Government Money Market Fund. The Management
Company is a wholly owned subsidiary of Frank Russell Company, which researches
and recommends to the Management Company and to the Investment Company one or
more investment management organizations to manage the portfolio of each of the
other Funds. There is no sales charge for investing in the Funds.

<TABLE>
<S> <C>
Real Estate Securities Fund U.S. Government Money Market Fund
Limited Volatility Tax Free Fund Tax Free Money Market Fund
</TABLE>

SHARES OF THE FUNDS ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR BY ANY OTHER GOVERNMENT AGENCY; ARE NOT OBLIGATIONS OF THE FDIC OR
ANY OTHER GOVERNMENT AGENCY; ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK; ARE
NOT ENDORSED OR GUARANTEED BY ANY BANK; ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED; AND MAY FLUCTUATE IN
VALUE, SO THAT WHEN THEY ARE SOLD, THEY MAY BE WORTH MORE OR LESS THAN WHEN THEY
WERE PURCHASED.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

INVESTMENTS IN MONEY MARKET FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE US
GOVERNMENT. THERE IS NO ASSURANCE THAT THE MONEY MARKET FUNDS WILL MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

THE INVESTMENT COMPANY IS ORGANIZED AND OPERATES AS A "MASSACHUSETTS BUSINESS
TRUST" UNDER A MASTER TRUST AGREEMENT DATED JULY 26, 1984. THE INVESTMENT
COMPANY IS AUTHORIZED TO ISSUE AN UNLIMITED NUMBER OF SHARES EVIDENCING
BENEFICIAL INTERESTS IN DIFFERENT INVESTMENT FUNDS. THE INVESTMENT COMPANY IS A
DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY, COMMONLY KNOWN AS A "MUTUAL
FUND."

THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE INVESTMENT COMPANY
AND THE FUNDS THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING. THE
INVESTMENT COMPANY HAS FILED A STATEMENT OF ADDITIONAL INFORMATION DATED APRIL
1, 1995 WITH THE SECURITIES AND EXCHANGE COMMISSION. THE STATEMENT OF ADDITIONAL
INFORMATION IS INCORPORATED HEREIN BY REFERENCE AND MAY BE OBTAINED WITHOUT
CHARGE BY WRITING TO THE SECRETARY, FRANK RUSSELL INVESTMENT COMPANY, AT THE
ADDRESS SHOWN ABOVE OR BY TELEPHONING (800) 972-0700. THIS PROSPECTUS SHOULD BE
READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.

PROSPECTUS DATED JUNE 30, 1995

PROSPECTUS 1
<PAGE> 2

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

REAL ESTATE SECURITIES FUND--A high level of total return generated through
above-average current income, while maintaining the potential for capital
appreciation by investing primarily in the equity securities of companies in the
real estate industry.

LIMITED VOLATILITY TAX FREE FUND--A high level of federal tax-exempt income
consistent with the preservation of capital by investing primarily in municipal
obligations maturing in seven years or less from the date of acquisition.

U.S. GOVERNMENT MONEY MARKET FUND--Maximum current income to the extent
consistent with the preservation of capital and liquidity, and the maintenance
of a stable $1.00 per share net asset value by investing exclusively in US
government obligations.

TAX FREE MONEY MARKET FUND--Maximum current income exempt from federal income
tax consistent with the preservation of capital and liquidity, and the
maintenance of a stable $1.00 per share net asset value by investing in short-
term municipal obligations.

This Prospectus describes and offers shares of the Funds, each of which is an
"Internal Fee Fund." Other prospectuses describe and offer shares of (1) all
twelve of the Internal Fee Funds of the Investment Company (including the
Funds), and (2) the Investment Company's ten External Fee Funds. The principal
distinction between the External and the Internal Fee Funds is that a
shareholder of an External Fee fund pays a quarterly shareholder investment
services fee directly to the Management Company for shareholder services. The
shareholder fee is computed on the amount the shareholder has invested in an
External Fee fund. Each shareholder of the Internal Fee Funds (including these
Funds) pays no such fees. The Investment Company Funds had aggregate net assets
of $6.3 billion on March 22, 1995. The net assets of the Funds on March 22, 1995
were as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------

<S> <C>
Real Estate Securities Fund $216,613,588 U.S. Government Money Market Fund $124,638,855
Limited Volatility Tax Free Fund $52,396,434 Tax Free Money Market Fund $88,358,949

- --------------------------------------------------------------------------------------------------------
</TABLE>
2 PROSPECTUS
<PAGE> 3

HIGHLIGHTS AND TABLE OF CONTENTS

ANNUAL FUND OPERATING EXPENSES summarizes the fees paid by shareholders and the
effect of these fees on a $1,000 investment over time. PAGE 4.

FINANCIAL HIGHLIGHTS summarizes significant financial information concerning the
Funds for the period stated herein. PAGE 6.

THE PURPOSE OF THE FUNDS is to provide a means for Eligible Investors to use
Frank Russell Company's "multi-style, multi-manager diversification" techniques
and money manager evaluation services on an economical and efficient basis. PAGE
10.

FRANK RUSSELL COMPANY--CONSULTANT TO THE FUNDS has been primarily engaged since
1969 in providing asset management consulting services to large corporate
employee benefit funds. Major components of its consulting services are (i)
quantitative and qualitative research and evaluation aimed at identifying the
most appropriate investment management firms to invest large pools of assets in
accord with specific investment objectives and styles; and (ii) the development
of strategies for investing assets using a "multi-style, multi-manager
diversification." PAGE 10.

MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION is a method for investing large pools
of assets by dividing the assets into segments to be invested using different
investment styles, and selecting money managers for each segment based upon
their expertise in that style of investment. PAGE 10.

ELIGIBLE INVESTORS are principally those institutional investors which invest
for their own account or in a fiduciary capacity with discretionary investment
authority, and which have entered into an Asset Management Services Agreement
with the Management Company; or institutions or individuals who have acquired
shares through such institutions. PAGE 10.

GENERAL MANAGEMENT OF THE FUNDS is provided by the Management Company, which
employs the officers and staff required to manage and administer the Funds on a
day-to-day basis. Frank Russell Company provides to the Funds and the Management
Company comprehensive consulting and money manager evaluation services. PAGE 11.

EXPENSES OF THE FUNDS are borne by the Funds. Each Fund pays a management fee to
the Management Company for conducting the Fund's general operations and for
providing investment supervision for the Fund, and pays to the Management
Company, as agent for the Fund, the investment advisory fee of the money
managers of that Fund. Each shareholder pays the Management Company directly for
other services provided to that shareholder. The Management Company pays its
expenses of providing its services to the Fund, and transmits for the Fund the
fees payable to the money managers. PAGE 12.

THE MONEY MANAGERS are evaluated and recommended by Frank Russell Company. The
money managers have complete discretion to purchase and sell portfolios
securities for their segment of a Fund consistent with the Fund's investment
objectives policies and restrictions, and the specific strategies developed by
Frank Russell Company and the Management Company. PAGE 12.

INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES apply to each Fund. Those
designed "fundamental" may not be changed without the approval of a majority of
the Fund's shareholders. PAGE 13.

PORTFOLIO TRANSACTION POLICIES do not give significant weight to realizing
long-term, rather than short-term, capital gains EXCEPT in the case of the
Limited Volatility Tax Free Fund. PAGE 20.

DIVIDENDS AND DISTRIBUTIONS may be reinvested in additional shares or received
in cash. Dividends from net investment income are declared DAILY, by U.S.
Government Money Market and Tax Free Money Market Funds; MONTHLY, by Limited
Volatility Tax Free Fund; and QUARTERLY, by Real Estate Securities Fund. All
Funds declare at least annually any distributions from net realized capital
gains. PAGE 21.

TAXES OF THE FUNDS themselves should be nominal. Taxable shareholders of the
Funds OTHER THAN the Limited Volatility Tax Free and Tax Free Money Market Funds
will be subject to federal taxes on dividends. Taxable shareholders of the
Limited Volatility Tax Free and Tax Free Money Market Funds should ordinarily
NOT be subject to federal tax on dividends. Taxable shareholders of all Funds
will be subject to federal taxes on capital gains distributions and may also be
subject to state or local taxes. PAGE 21.

CALCULATION OF FUND PERFORMANCE, including yields and total return information,
is in accordance with formulas prescribe by the Securities and Exchange
Commission. PAGE 22.

VALUATION OF FUND SHARES occurs each business day (twice a day for the U.S.
Government Money Market and Tax Free Money Market Funds). The value of a share
is based upon the next computed current market value of the assets, less
liabilities, of each Fund. The U.S. Government Money Market and Tax Free Money
Market Funds utilize amortized cost pricing procedures to attempt to maintain a
stable $1.00 per share net asset value. PAGE 24.

PURCHASE OF FUND SHARES includes no sales charge. The purchase price is the next
computed net asset value. Shares are offered and orders to purchase accepted on
each business day. PAGE 24.

REDEMPTION OF FUND SHARES may be requested on any business day. There is no
redemption charge. The redemption price is the next computed net asset value.
The Funds reserve the right to redeem in kind any portion of a redemption
request of more than $250,000. PAGE 26.

ADDITIONAL INFORMATION is also included in this Prospectus concerning:
Distributor, Custodian, Accountants and Reports; Organization, Capitalization
and Voting; and Money Manager Profiles. PAGE 27.

PROSPECTUS 3
<PAGE> 4

ANNUAL FUND OPERATING EXPENSES

The purpose of the following tables is to assist the investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly. The examples provided in the tables should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.

<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND

<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases.............................................................................. None
Sales Load Imposed on Reinvested Dividends................................................................... None
Deferred Sales Load.......................................................................................... None
Redemption Fees.............................................................................................. None
Exchange Fees................................................................................................ None
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................................................... .85%
12b-1 Fees................................................................................................... None
Other Expenses:
Custodian Fees................................................................................. .06%
Transfer Agent Fees............................................................................ .10
Other Fees..................................................................................... .04
---------
Total Other Expenses..................................................................................... .20%
---------
Total Fund Operating Expenses **............................................................................. 1.05%
=========

EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period..... $ 11 $ 33 $ 58 $ 128
========= ========= ========= =========
</TABLE>

<TABLE>

- ---------------------------------------------------------------------------------------------------------------------------
LIMITED VOLATILITY TAX FREE FUND

<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases.............................................................................. None
Sales Load Imposed on Reinvested Dividends................................................................... None
Deferred Sales Load.......................................................................................... None
Redemption Fees.............................................................................................. None
Exchange Fees................................................................................................ None
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................................................... .50%
12b-1 Fees................................................................................................... None
Other Expenses:
Custodian Fees................................................................................. .10%
Transfer Agent Fees............................................................................ .05
Other Fees..................................................................................... .07
---------
Total Other Expenses..................................................................................... .22%
---------
Total Fund Operating Expenses**.............................................................................. .72%
=========

EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period..... $ 7 $ 23 $ 40 $ 89
========= ========= ========= =========
</TABLE>

** Investors purchasing Fund shares through a financial intermediary, such as
a bank or an investment adviser, may also be required to pay additional
fees for services provided by the intermediary. Such investors should
contact the intermediary for information concerning what additional fees,
if any, will be charged.

4 PROSPECTUS
<PAGE> 5

ANNUAL FUND OPERATING EXPENSES

<TABLE>

- ---------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET FUND

<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases.............................................................................. None
Sales Load Imposed on Reinvested Dividends................................................................... None
Deferred Sales Load.......................................................................................... None
Redemption Fees.............................................................................................. None
Exchange Fees................................................................................................ None
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................................................... .25%
12b-1 Fees................................................................................................... None
Other Expenses:
Custodian Fees................................................................................. .06%
Transfer Agent Fees............................................................................ .20
Other Fees..................................................................................... .05
---------
Total Other Expenses..................................................................................... .31%
---------
Total Fund Operating Expenses Without Waiver of Fees......................................................... .56%
Fees Waived by Manager +................................................................................... (.25)
---------
Total Fund Operating Expenses **............................................................................. .31%
=========

EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period..... $ 3 $ 10 $ 17 $ 39
========= ========= ========= =========
</TABLE>

<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
TAX FREE MONEY MARKET FUND

<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases.............................................................................. None
Sales Load Imposed on Reinvested Dividends................................................................... None
Deferred Sales Load.......................................................................................... None
Redemption Fees.............................................................................................. None
Exchange Fees................................................................................................ None
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................................................... .25%
12b-1 Fees................................................................................................... None
Other Expenses:
Custodian Fees................................................................................. .06%
Transfer Agent Fees............................................................................ .04
Other Fees..................................................................................... .05
---------
Total Other Expenses..................................................................................... .15%
---------
Total Fund Operating Expenses **............................................................................. .40%
=========

EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period..... $ 4 $ 13 $ 22 $ 50
========= ========= ========= =========
</TABLE>

+ Effective April 1, 1995, the Management Company has voluntarily agreed to
waive the full amount of the .25% advisory fee. This Agreement will remain in
effect until further notice.

PROSPECTUS 5
<PAGE> 6

FINANCIAL HIGHLIGHTS*

The following table includes selected data for a share outstanding throughout
each year or period ended December 31, and other performance information derived
from the financial statements which have been audited by Coopers & Lybrand
L.L.P., the independent accountants for the Fund listed.

1994 1993 1992 1991 1990 1989++
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR........................... $ 22.76 $ 21.50 $19.33 $14.99 $19.31 $20.00
------- ------- ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................................... 1.25 1.05 1.08 1.11 1.30 .42
Net realized and unrealized gain (loss) on investments..... .40 2.68 2.16 4.36 (4.30) (.73)
------- ------- ------ ------ ------ ------
Total From Investment Operations........................... 1.65 3.73 3.24 5.47 (3.00) (.31)
------- ------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income...................................... (1.23) (1.04) (1.07) (1.13) (1.32) (.38)
Net realized gain on investments........................... (.45) (1.43) -- -- -- --
In excess of net realized gain on investments.............. (.20) -- -- -- -- --
------- ------- ------ ------ ------ ------
Total Distributions........................................ (1.88) (2.47) (1.07) (1.13) (1.32) (.38)
------- ------- ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR................................. $ 22.53 $ 22.76 $21.50 $19.33 $14.99 $19.31
======== ======== ====== ====== ====== ======
TOTAL RETURN (%) (a)......................................... 7.24 17.42 17.29 37.08 (15.92) (1.57)

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b)(c)...... 1.05 1.11 1.20 1.26 .39 --
Net investment income to average net assets (c)............ 5.65 4.52 5.60 6.50 8.94 6.90
Portfolio turnover (c)..................................... 45.84 58.38 19.72 13.28 12.11 8.74
Net assets, end of year ($000 omitted)..................... 209,208 145,167 75,902 42,771 20,845 7,699

- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ For the period July 28, 1989 (commencement of operations) to December 31,
1989.

(a) Periods less than one year are not annualized.

(b) For the periods ended December 31, 1990 and 1989, the Manager waived all or
a portion of its management fee amounting to $.0491 and $.0394 per share,
respectively, and for the periods ended December 31, 1991, 1990 and 1989,
the Manager reimbursed expenses of the Fund amounting to $.0076, $.1327 and
$.1155 per share, respectively.

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

6 PROSPECTUS
<PAGE> 7

FINANCIAL HIGHLIGHTS*

More detailed information concerning the Fund's performance, a completed
portfolio listing and audited financial statements are available in the Internal
Fee Funds' Annual Report dated December 31, 1994, which may be obtained without
charge by writing or calling the Investment Company.
LIMITED VOLATILITY TAX FREE FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1998 1987 1986 1985++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR..................... $21.45 $21.03 $20.85 $20.49 $20.51 $20.41 $20.46 $21.03 $20.09 $20.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. .86 .94 1.01 1.17 1.25 1.21 1.15 1.06 .99 .32
Net realized and unrealized gain
(loss) on investments............... (.97) .42 .18 .35 (.03) .17 (.10) (.48) .85 .09
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment Operations...... (.11) 1.36 1.19 1.52 1.22 1.38 1.05 .58 1.84 .41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income................. (.86) (.94) (1.01) (1.16) (1.24) (1.28) (1.10) (1.15) (.90) (.32)
In excess of net investment income.... -- (.00) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions................... (.86) (.94) (1.01) (1.16) (1.24) (1.28) (1.10) (1.15) (.90) (.32)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF YEAR........................... $20.48 $21.45 $21.03 $20.85 $20.49 $20.51 $20.41 $20.46 $21.03 $20.09
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(a)..................... (0.54) 6.58 5.85 7.64 6.12 6.95 5.23 2.84 9.32 2.07

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
net assets (b)(c)................... .72 .75 .80 .84 .86 .74 .65 .63 .51 .98
Net investment income to average
net assets (c)...................... 4.14 4.40 4.89 5.68 6.06 5.64 5.50 5.20 5.22 5.09
Portfolio turnover (c)(d)............. 71.71 24.05 18.21 129.12 99.00 89.93 67.24 75.73 91.19 None
Net assets, end of year ($000
omitted)............................ 48,975 51,211 38,399 26,173 23,553 25,657 38,151 52,348 46,942 3,819
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ For the period September 5, 1985 (commencement of operations) to December
31, 1985.

(a) Periods less than one year are not annualized.

(b) The portion of operating expenses reimbursed by the Manager in 1986 and
1985 amounted to $.0550 and $.0700 per share, respectively.

(d) Beginning in 1992, variable rate daily demand securities were excluded from
the turnover calculation.

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

PROSPECTUS 7
<PAGE> 8

FINANCIAL HIGHLIGHTS*

More detailed information concerning the Fund's performance, a completed
portfolio listing and audited financial statements are available in the Internal
Fee Funds' Annual Report dated December 31, 1994, which may be obtained without
charge by writing or calling the Investment Company.
U.S. GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR........... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... .0380 .0284 .0347 .0573 .0773 .0861 .0693 .0601 .0660 .0239
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (.0380) (.0284) (.0347) (.0573) (.0773) (.0861) (.0693) (.0601) (.0660) (.0239)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%)(a)........... 3.87 2.88 3.53 5.90 8.04 8.98 7.15 6.19 6.85 2.40

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets
(b)(c).................... .57 .49 .41 .38 .41 .42 .33 .31 .32 .29
Net investment income to
average daily net assets
(c)....................... 3.91 2.85 3.47 5.74 7.69 8.69 6.94 6.01 6.50 7.50
Net assets, end of year
($000 omitted)............ 112,077 95,410 153,976 182,747 191,623 108,073 131,333 160,921 128,227 72,337
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

++ For the period September 5, 1985 (commencement of operations) to December
31, 1985.

(a) Periods less than one year are not annualized.

(b) The management fee waived by the Manager in 1985 amounted to $.0003 per
share.

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

8 PROSPECTUS
<PAGE> 9

FINANCIAL HIGHLIGHTS*

More detailed information concerning the Fund's performance, a completed
portfolio listing and audited financial statements are available in the Internal
Fee Funds' Annual Report dated December 31, 1994, which may be obtained without
charge by writing or calling the Investment Company.
TAX FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .0279 .0251 .0304 .0473 .0582 .0623 .0508 .0318
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income........................... (.0279) (.0251) (.0304) (.0473) (.0582) (.0623) (.0508) (.0318)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR...................... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%)(a)............................... 2.83 2.55 3.09 4.84 5.99 6.42 5.24 3.18

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
net assets (b)(c)(d).......................... .40 .43 .45 .45 .45 .45 .43 .22
Net investment income to average
daily net assets (d).......................... 2.84 2.52 3.03 4.73 5.82 6.28 5.36 4.83
Net assets, end of year ($000 omitted).......... 100,819 68,154 73,203 61,288 59,892 30,873 39,165 22,380
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

++ For the May 8, 1987 (commencement of operations) to December 31, 1987.

(a) Periods less than one year are not annualized.

(b) For the period ended December 31, 1987, the Manager waived a portion of its
management fee amounting to $.0008 per share.

(c) For the years or period ended December 31, 1991, 1990, 1989, 1988 and 1987
the Manager reimbursed expenses of the Fund amounting to $.0001, $.0007,
$.0016, $.0007 and $.0015 per share, respectively.

(d) The ratios for the period ended December 31, 1987 are annualized.

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

PROSPECTUS 9
<PAGE> 10

THE PURPOSE OF THE FUNDS

The Funds have been organized to provide a means for Eligible Investors to
access and use Frank Russell Company's "multi-style, multi-manager
diversification" method of investment, and to obtain Frank Russell Company's
money manager evaluation services, on a pooled and cost-effective basis.

FRANK RUSSELL COMPANY--CONSULTANT TO THE FUNDS

Frank Russell Company, founded in 1936, has been providing comprehensive asset
management consulting services since 1969 for institutional pools of investment
assets, principally those of large corporate employee benefit plans. Frank
Russell Company and its affiliates have offices in Tacoma, New York, Toronto,
London, Zurich, Paris, Sydney, Auckland, and Tokyo and has approximately 1,000
associates.

Three functions are at the core of Frank Russell Company's consulting service:

OBJECTIVE SETTING: Defining appropriate investment objectives and desired
investment returns based upon the client's unique situation and tolerance for
risk.

ASSET ALLOCATION: Allocating a client's assets among different asset
classes--such as common stocks, fixed-income securities, international
securities, temporary cash investments and real estate--in the manner most
likely to achieve the client's objectives.

MONEY MANAGER RESEARCH: Evaluating and recommending professional investment
advisory and management organizations to make specific portfolio investments for
each asset class in accord with the specified objectives, investment styles and
strategies.

When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique with the objectives of
reducing risk and increasing returns.

MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION

Frank Russell Company believes capital market history shows that no one
particular asset class provides consistent and/or above-average total return
results, either on an absolute or relative basis, over extended periods of time.
FOR EXAMPLE, there are periods of time when equity securities outperform
fixed-income securities, and vice versa. And, there are periods when securities
with particular characteristics--investment styles--outperform other types of
securities. FOR EXAMPLE, there are periods of time when equity securities with
growth characteristics outperform equities with income characteristics, and vice
versa. While these performance cycles tend to repeat themselves, they do so with
no regularity. The blending of asset classes and investment styles on a
complementary basis can obtain more consistent returns over longer time periods
with a reduction of risk (volatility), although a particular asset class or
investment style--or particular Investment Company fund--may not achieve above-
average performance at any given point in the market.

Similarly, Frank Russell Company believes financial markets generally are
efficient, and few money managers have shown the ability to time the major highs
and lows in the securities markets with any high degree of consistency. However,
some money managers have shown a consistent ability to achieve superior results
within selected asset classes and styles and have demonstrated expertise in
particular areas. Thus, by combining a mix of investment styles within each
asset class and then selecting money managers for their ability to invest in a
particular style, the expectation is the achievement of increased returns.

Substantial pools of investment assets are required to achieve the cost
effective and efficient allocation of assets among various asset classes and
investment styles, to use multiple money managers, and to support the research
and evaluation efforts required to select appropriate money managers. By pooling
the assets of institutions and individuals with smaller to medium-sized accounts
in a series of Funds with different objectives and policies, Frank Russell
Company believes that it is able to provide its multi-style, multi-manager
diversification techniques and money manager evaluation services to Eligible
Investors on a basis which is efficient and cost effective for the investor and
Frank Russell Company.

ELIGIBLE INVESTORS

Shares of the Funds are currently offered only to Eligible Investors. These
investors are principally institutional investors which invest for their own
account or in a fiduciary capacity with discretionary investment authority and
which have entered into Asset Management Services Agreements (collectively, the
"Agreements," and each, an "Agreement") with the Management Company. There is no
specified minimum amount which must be invested. Institutions which particularly
may be interested in the Funds include:

- Bank trust departments managing discretionary institutional or personal
trust accounts

- Registered investment advisors

- Endowment funds and charitable foundations

- Broker-Dealers

- Employee welfare plans

- Pension or profit sharing plans

- Insurance companies

10 PROSPECTUS
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The Agreement provides, in general, for the officers and staff of the Management
Company, using the facilities and resources of Frank Russell Company, to consult
with the client to define its investment objectives, desired returns and
tolerance for risk, and to develop a plan for the allocation of assets among
different asset classes. Once these decisions have been made by a client, the
client's assets are then invested in one or more of the Funds. A client may
change the allocation of its assets among the Funds, or withdraw some or all of
its assets from the Funds at any time by redeeming Fund shares.

Shares of the Funds are not generally offered or "retailed" to individual
investors, although the Management Company may enter into Agreements with
individual investors. Bank trust departments, registered investment advisers,
broker-dealers and other eligible investors ("Financial Intermediaries") which
have entered into Agreements with the Management Company may acquire shares of
the Funds for the benefit of individual customers for which they exercise
discretionary investment authority. The Management Company provides
objective-setting and asset-allocation assistance to such Financial
Intermediaries, which in turn provide the objective-setting and asset-allocation
services to their customers. These Financial Intermediaries receive no
compensation from the Management Company or the Funds; they may charge their
customers a fee for providing these and possibly other trust or
investment-related services. A shareholder may pay a fixed dollar fee to the
Management Company for other services or reports provided by the Management
Company to the shareholder.

Either the client or the Management Company may terminate the Agreement upon the
written notice provided for in the Agreement. The Management Company does not
expect to exercise its right to terminate the Agreement unless a client does not
invest sufficient assets in the Fund to compensate the Management Company for
providing services to the client and operating the Fund. Upon termination of an
Agreement by the client or the Management Company, the client may continue to
hold its shares of the Fund, but the Management Company will no longer provide
asset-allocation, objective-setting, or other services.

GENERAL MANAGEMENT OF THE FUNDS

The Investment Company's Board of Trustees is responsible for overseeing
generally the operation of the Funds, including reviewing and approving the
Funds' contracts with the Management Company, Frank Russell Company and the
money managers. The Funds' officers, all of whom are employed by and are
officers of the Management Company or its affiliates, are responsible for the
day-to-day management and administration of the Funds' operations. The money
managers are responsible for individual portfolio securities selection for the
assets assigned to them.

The Management Company: (i) provides or oversees the provision of all general
management and administration, investment advisory and portfolio management, and
distribution services for the Funds; (ii) provides the Funds with office space,
equipment, and personnel necessary to operate and administer the Funds'
business, and to supervise the provision of services by third parties such as
the money managers and Custodian; (iii) develops the investment programs,
selects money managers, allocates assets among money managers, and monitors the
money managers' investment programs and results; (iv) is authorized to select or
hire money managers to select individual portfolio securities held in the Funds'
Liquidity Portfolios (see "Investment Policies--Liquidity Portfolios"); and (v)
provides the Funds with transfer agent and shareholder recordkeeping services.
The Management Company bears the expenses it incurs in providing these services
(other than transfer agent and shareholder recordkeeping) as well as the costs
of preparing and distributing explanatory materials concerning the Funds.

The responsibility of overseeing the money managers rests upon the officers and
employees of the Management Company. These officers and employees, including
their business experience for the past five years, are identified below:

- Randall P. Lert, who has been Director--Investment, Frank Russell Investment
Management Company since 1989.

- Loran M. Kaufman, who has been Director--Fund Development, Frank Russell
Investment Management Company since 1990. From 1986 to 1990, Ms. Kaufman was
employed as a Senior Research Analyst with the Frank Russell Company.

- Jean E. Carter, who has been a Senior Investment Officer of Frank Russell
Investment Management Company since 1994. From 1990 to 1994, Ms. Carter was
a Client Executive in the Investment Group of Frank Russell Company.

- James M. Imhof, Investment Officer, Frank Russell Investment Management
Company, who has managed the day to day management of the Frank Russell
Investment Management Company Funds and ongoing analysis and monitoring of
fund managers since 1989.

PROSPECTUS 11
<PAGE> 12

- Peter F. Apanovitch, who has been the Manager of Short-Term Investment Funds
for Frank Russell Investment Management Company and Frank Russell Trust
Company since 1991. From 1986 to 1989 Mr. Apanovitch was Assistant
Vice-President and Assistant Treasurer of CIGNA Corporation.

- James A. Jornlin, who has been a Senior Investment Officer of Frank Russell
Investment Management Company since April 1995. From 1991 to March 1995, Mr.
Jornlin was employed as a Senior Research Analyst with Frank Russell
Company.

Frank Russell Company provides to the Funds and the Management Company the asset
management consulting services--including the objective-setting and asset-
allocation technology, and the money manager research and evaluation
assistance--which Frank Russell Company provides to its other consulting
clients. Frank Russell Company receives no compensation from the Funds and the
Management Company for its consulting services. Frank Russell Company and the
Management Company as affiliated companies may establish certain intercompany
cost allocations for budgeting and product profitability purposes which may
reflect Frank Russell Company's consulting services supplied to the Management
Company.

George F. Russell, Jr., Chairman of the Board of Trustees of the Investment
Company, is the Chairman of the Board and controlling shareholder of Frank
Russell Company. The Management Company is a wholly owned subsidiary of Frank
Russell Company.

The Management Company receives an annual management fee from each Fund. THE
MANAGEMENT COMPANY, ACTING AS AGENT FOR THE INVESTMENT COMPANY, IS RESPONSIBLE
FOR THE PAYMENT OF ALL FEES TO THE MONEY MANAGERS. The annual management fees,
payable monthly on a pro rata basis, are the following percentages of the
average daily net assets of the Funds: Real Estate Securities Fund, 0.85%;
Limited Volatility Tax Free Fund, 0.50%; U.S. Government Money Market Fund,
0.25%; and Tax Free Money Market Fund, 0.25%. The fee for the Real Estate
Securities Fund may be higher than fees charged to some mutual funds with
similar objectives which use only a single money manager.

The Management Company has voluntarily agreed to reimburse certain Fund expenses
in excess of certain limits. In addition to these "voluntary limits," the
Management Company has agreed to reimburse each Fund the amount, if any, by
which the Fund's expenses exceed state law expense limitations. Currently,
California has an expense limitation of 2.5% of the a Fund's first $30 million
in average net assets, 2.0% of the next $70 million in average net assets, and
1.5% of the remaining average net assets for any fiscal year as determined under
the state's regulations. This arrangement is not part of the Management
Agreement with the Investment Company and may be changed or rescinded at any
time.

Frank Russell Company provides its Portfolio Verification System ("PVS") to the
Real Estate Securities Fund pursuant to a written Service Agreement. The PVS
computerized data base system records detailed transaction data necessary to
prepare various financial and IRS accounting reports. For these services, the
Real Estate Securities Fund pays the following annual fees: base fee, $1,500;
transaction charge, $0.10; and holding charge, $1.80. Annual minimum charges for
the Real Estate Securities Fund are $5,000.

EXPENSES OF THE FUNDS

The Funds will pay all their expenses other than those expressly assumed by the
Management Company. The Funds' expenses for the year ended December 31, 1994, as
a percentage of average net assets, are shown in the Financial Highlights
tables. The Funds' principal expenses are: the management, transfer agency and
recordkeeping fees payable to the Management Company; fees for custodial and
portfolio accounting payable to State Street Bank and Trust Company; bookkeeping
service fees for preparing tax records payable to Frank Russell Company; fees
for independent auditing and legal services; and fees for filing reports and
registering shares with regulatory bodies.

THE MONEY MANAGERS

The assets of each Fund currently are allocated among the money managers listed
in the section "Money Manager Profiles" ("Money Managers"). THE ALLOCATION OF A
FUND'S ASSETS AMONG MONEY MANAGERS MAY BE CHANGED AT ANY TIME BY THE MANAGEMENT
COMPANY. MONEY MANAGERS MAY BE EMPLOYED OR THEIR SERVICES MAY BE TERMINATED AT
ANY TIME BY THE MANAGEMENT COMPANY, SUBJECT TO APPROVAL BY THE BOARD OF TRUSTEES
OF THE FUNDS. The Funds will notify shareholders of the Fund concerned promptly
when a Money Manager begins or stops providing services.

THE MANAGEMENT COMPANY, AS AGENT FOR THE INVESTMENT COMPANY, PAYS THE FEES OF
EACH MONEY MANAGER. Each Money Manager is paid an annual fee expressed as a
percentage of Fund assets under management; there are no performance or
incentive fees. Some Money Managers may receive investment research prepared by
Frank Russell Company as additional compensation, and/or may execute portfolio
transactions for the Funds through broker-dealer affiliates and receive
brokerage commissions for doing so. Each Money Manager agrees that once the

12 PROSPECTUS
<PAGE> 13

Investment Company has advanced fees to the Management Company for payment of
the Money Manager's fee, that Money Manager will look only to the Management
Company for the payment of its fee.

Money Managers are selected for the Funds based primarily upon the research and
recommendations of Frank Russell Company, which evaluates quantitatively and
qualitatively the Money Manager's skills and results in managing assets for
specific asset classes, investment styles and strategies. Short-Term investment
performance, by itself, is not a controlling factor in selecting or terminating
the Money Manager.

The U.S. Government Money Market Fund is managed by Frank Russell Investment
Management Company. The individual responsible for the management of the Fund
and his occupation for the past five years are as follows: Peter F. Apanovitch,
who has been Manager of the Short-Term Investment Funds for Frank Russell
Investment Management Company since 1991. From 1986 to 1989 Mr. Apanovitch was
Assistant Vice President and Assistant Treasurer of CIGNA Corporation.

The Real Estate Securities Fund is managed by Cohen & Steers Capital Management.
The individuals responsible for the management of the Fund and their occupations
for the past five years are as follows: Robert H. Steers has been the Chairman
of Cohen & Steers since the founding of the company in 1986. Martin Cohen has
been president of Cohen & Steers since the founding of the company in 1986.

Each Money Manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund within the Fund's investment objectives,
restrictions and policies, and the more specific strategies developed by Frank
Russell Company and the Management Company. Although the Money Managers'
activities are subject to general oversight by the Board of Trustees and
officers of the Fund, NEITHER THE BOARD, THE OFFICERS, THE MANAGEMENT COMPANY
(EXCEPT WITH RESPECT TO THE U.S. GOVERNMENT MONEY MARKET FUND), NOR FRANK
RUSSELL COMPANY EVALUATE THE INVESTMENT MERITS OF THE MONEY MANAGERS' INDIVIDUAL
SECURITY SELECTIONS.

INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES

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

INVESTMENT OBJECTIVE.

Each Fund's objective is "fundamental," as are the types of securities in which
it will invest. Ordinarily, each Fund will invest more than 80% of its net
assets in the types of securities identified in its statement of objectives.
However, the Funds may hold assets as cash reserves for temporary and defensive
purposes when their Money Managers deem that a more conservative approach is
desirable or when suitable purchase opportunities do not exist. (See "Investment
Policies--Cash Reserves.")

REAL ESTATE SECURITIES FUND

The Real Estate Securities Fund's objectives are to generate a high level of
total return through above average current income, while maintaining the
potential for capital appreciation by investing primarily in the equity
securities of companies in the real estate industry.

Except for temporary defensive purposes, the Fund will only invest in real
estate related securities, which include securities of companies which generate
at least 50% of their revenues from the ownership, construction, financing,
management or sale of commercial, industrial or residential real estate. Under
normal circumstances, the Fund will invest at least 65% of its total assets in
income-oriented equity securities of real estate companies, which include shares
of real estate investment trusts, partnership units of master limited
partnerships, common and preferred stock, and convertible debt securities
believed to have attractive equity characteristics. Up to 35% of the Fund's
total assets may be invested in other debt securities of real estate companies.

The Fund will concentrate more than 25% of its total assets in the real estate
and real estate related industries. The Fund will therefore be subject to the
risks associated with the direct ownership of real estate. Additional risks
include declines in the value of real estate, risks related to general and local
economic conditions, over-building and increased competition, increases in
property taxes and operating expenses, changes in neighborhood values, the
appeal of properties to tenants and increases in interest rates. The value of
securities of companies that service the real estate industry may also be
affected by such risks.

In addition to the risks discussed above, equity real estate investment trusts
may be affected by changes in the value of the underlying property owned by the
trust, while mortgage real estate investment trusts may be affected by

PROSPECTUS 13
<PAGE> 14

the quality of any credit extended. Moreover, the underlying portfolios of
equity and mortgage real estate trusts may not be diversified, and are therefore
subject to the risk of financing a single or a limited number of projects. Such
trusts are also dependent upon management skills and are subject to heavy cash
flow dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the Investment Company Act of 1940,
as amended ("1940 Act").

The Fund will attempt to be invested fully at all times. However, the Fund
reserves the right to hold up to 20% of the Fund assets in liquid reserve for
redemption needs.

LIMITED VOLATILITY TAX FREE FUND

The Limited Volatility Tax Free Fund's objective is to provide a high level of
federal tax-exempt income consistent with the preservation of capital by
investing primarily in municipal obligations maturing in seven years or less
from the date of acquisition. The Fund intends to invest 100% and will always
invest 80% of its assets in municipal obligations.

The Fund will invest principally in municipal obligations which, at the time of
purchase, are rated no less than S&P's A or A-2, Moody's A, Prime-2 or MIG-2,
or, if unrated, judged by the money manager to be of at least equal credit
quality to those designations, or backed by the full faith and credit of the
United States. The Fund may also invest up to 10% of its net assets in
securities subject to legal or contractual restrictions in disposition or for
which no readily available market exists.

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

Municipal obligations may include project, tax anticipation, revenue
anticipation, bond anticipation, and construction loan notes; tax-exempt
commercial paper; fixed and variable rate notes; obligations whose interest and
principal are guaranteed or insured by the US government or fully collateralized
by US government securities; industrial development bonds; and floating or
variable rate obligations. (Floating or variable rate obligations are municipal
obligations with a demand feature, which, when exercised, usually becomes
effective within 30 days. The rate of return on the obligations is readjusted
periodically according to some objective standard such as changes in a
commercial bank's prime rate.)

The Fund may purchase municipal obligations with a "put" or "stand-by
commitment." A "put" or "stand-by commitment" obligates the seller to buy the
underlying municipal obligation at an agreed upon price and time when exercised
by the Fund. In the event the seller does not honor the put or stand-by
commitment for financial reasons, the Fund may be a general creditor of the
seller.

Municipal obligations, like all investments, involve possible risks. Municipal
obligations: might be affected by economic, business or political developments;
may be subject to the provisions of litigation, bankruptcy, and other laws
affecting the rights and remedies of creditors; or may become subject to future
laws extending the time for payment of principal and/or interest, or limiting
the rights of municipalities to levy taxes. For instance, legislative proposals
are introduced, from time to time, to restrict or eliminate the federal income
tax exemption for municipal obligations interest. If such legislation is
adopted, the Board of Trustees will reevaluate the Fund's investment objectives
and may submit possible changes in the structure of the Fund to its
shareholders.

U.S. GOVERNMENT MONEY MARKET FUND

The U.S. Government Money Market Fund's objectives are to provide the maximum
current income that is consistent with the preservation of capital and liquidity
and the maintenance of a stable $1.00 per share net asset value by investing
exclusively in US government obligations.

The types of US government obligations the Funds may at times invest in include:
(1) A variety of US Treasury obligations, which differ only in their interest
rates,

14 PROSPECTUS
<PAGE> 15

maturities and times of issuance: (a) US Treasury bills have a maturity of one
year or less; (b) US Treasury notes have original maturities of one to ten
years; and (c) US Treasury bonds have original maturities of greater than ten
years; (2) obligations issued or guaranteed by US government agencies and
instrumentalities are supported by any of the following: (a) the full faith and
credit of the US Treasury (such as Government National Mortgage Association
participation certificates); (b) the right of the issuer to borrow an amount
limited to a specific line of credit from the US Treasury; (c) discretionary
authority of the US government agency or instrumentality; or (d) the credit of
the instrumentality (examples of agencies and instrumentalities are Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, and Federal National
Mortgage Association). No assurance can be given that the US government will
provide financial support to such US government agencies or instrumentalities
described in (2)(b), (2)(c) and (2)(d) in the future, other than as set forth
above, since it is not obligated to do so by law. The Funds may purchase US
government obligations on a forward commitment basis.

TAX FREE MONEY MARKET FUND

The Tax Free Money Market Fund's objectives are to provide the maximum current
income exempt from federal income tax that is consistent with the preservation
of capital and liquidity, and the maintenance of a $1.00 per share net asset
value by investing in short-term municipal obligations. The Fund intends to
invest 100% and will always invest 80% of its total assets in municipal
obligations.

The Fund will invest in municipal obligations which at the time of purchase have
or are deemed to have remaining maturities of 397 days or less and (i) have
received a rating in one of the two highest rating categories by two nationally
recognized statistical rating agencies ("NRSROs"), including, but not limited
to, S&P and Moody's, (or, if only one NRSRO has rated the obligation, one of the
two highest ratings of that NRSRO); (ii) backed by the full faith and credit of
the United States; or (iii) if unrated, determined by the Fund's Board of
Trustees to be of at least equal credit quality to obligations having the
ratings described in (i) above. (SEE, the Statement of Additional Information
for a description of the rating systems of NRSROs). The Fund may invest up to
10% of its net assets in securities subject to legal or contractual restrictions
on disposition or for which no readily available market exists.

The Fund may purchase from financial institutions (such as banks and insurance
companies) participation interests in floating or variable rate obligations.
Each participation interest is backed by an irrevocable letter of credit or
guarantee of a bank or insurance policy of an insurance company that the money
manager has determined meets the prescribed quality standards for the Fund. The
Fund has the right to sell the participation certificate back to the institution
and draw on the letter of credit or insurance on demand after 30 days' notice,
for all or any part of the full principal amount of the Fund's participation
interest in the security plus accrued interest. The Fund intends to exercise its
right to demand payment only upon a default under the terms of the documents of
the municipal obligations, when needed to provide liquidity to meet redemptions,
or to maintain the required quality of the Fund's investment portfolio. The Fund
will purchase municipal obligations with demand features only when the demand
instrument and the underlying municipal obligations meet the prescribed quality
standards for the Fund. The Fund may purchase municipal obligations with a "put"
or "stand-by commitment." A "put" or "stand-by commitment" obligates the seller
to buy the underlying municipal obligation at an agreed upon price and time when
exercised by the Fund. In the event the seller does not honor the put or
stand-by commitment for financial reasons, the Fund may be a general creditor of
the seller.

PROSPECTUS 15
<PAGE> 16

U.S. GOVERNMENT MONEY MARKET AND TAX FREE MONEY MARKET FUNDS. The U.S.
Government Money Market and Tax Free Money Market Funds (collectively, the
"Money Market Funds") expect to maintain, but do not guarantee, a net asset
value of $1.00 per share for purposes of purchases and redemptions by valuing
their portfolio securities at "amortized cost." The Funds will maintain a
dollar-weighted average maturity of 90 days or less, invest only in securities
with a remaining maturity at the time of purchase, or time of next interest rate
reset of 397 days or less, and follow procedures reasonably designed to assure
that the prices so determined approximate the current market value of the
portfolio securities.

INVESTMENT RESTRICTIONS.

Each Fund has fundamental investment restrictions which cannot be changed
without shareholder approval. The principal restrictions are the following,
which, unless otherwise noted, apply on a fund-by-fund basis at the time an
investment is being made. No Fund will:

1. Invest in any security if, as a result of such investment, less than 75% of
its assets would be represented by cash; cash items; securities of the US
government, its agencies, or instrumentalities; securities of other
investment companies; and other securities limited in respect of each
issuer to an amount not greater in value than 5% of the total assets of the
Fund. A Fund's investment in "cash reserves" (see next section) in shares
of the Investment Company's Money Market Fund are not subject to this
restriction or to restrictions 2 or 3.

2. Invest 25% or more of the value of the Fund's total assets in the
securities of companies primarily engaged in any one industry (other than
the US government, its agencies and instrumentalities). This restriction
does not apply to the Real Estate Securities Fund, which may invest 25% or
more of its total assets in the securities of companies directly or
indirectly engaged in the real estate industry.

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

4. Borrow amounts in excess of 5% of its total assets taken at cost or at
market value, whichever is lower, and then only for temporary purposes;
invest more than 5% of its assets in securities of an issuer which,
together with any predecessor, has been in operation for less than three
years; or invest more than 5% of its assets in warrants.

INVESTMENT POLICIES.

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

CASH RESERVES. The Real Estate Securities and Limited Volatility Tax Free Funds
are authorized to invest their cash reserves (I.E., funds awaiting investment in
the specific types of securities to be acquired by a Fund) in money market
instruments and in debt securities which are at least comparable in quality to
each Fund's permitted investments. In lieu of having each Fund make separate,
direct investments in money market instruments, the Funds and their money
managers may elect to invest the Funds' cash reserves in the Investment
Company's Money Market Fund.

The Investment Company's Money Market Fund, described in a separate Prospectus,
seeks to maximize current income to the extent consistent with the preservation
of capital and liquidity, and the maintenance of a stable $1.00 per share net
asset value by investing solely in short-term money market instruments. The
Management Company currently does not collect a management or advisory fee from
the Money Market Fund, thereby eliminating any duplication of fees. The Funds
will use this procedure only so long as doing so does not adversely affect the
portfolio management and operations of the Money Market Fund and the other
Investment Company Funds.

REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with a
bank or broker-dealer that agrees to repurchase the securities at the Fund's
cost plus interest within a specified time (normally next business day). If the
party agreeing to repurchase should default and if the value of the securities
held by the Fund (102% at the time of agreement) should fall below the
repurchase price, the Fund could incur a loss. Subject to the overall
limitations described in "Investment Policies--Illiquid Securities," the Fund
will not invest more than 15% of its

16 PROSPECTUS
<PAGE> 17

total assets (taken at current market value) in repurchase agreements maturing
in more than seven days. The Money Market Funds will not invest more than 10% of
their total assets (taken at current market value) in repurchase agreements, and
other illiquid securities maturing in more than seven days.

FORWARD COMMITMENTS. Each Fund may contract to purchase securities for a fixed
price at a future date beyond customary settlement time (a "forward commitment"
or "when-issued" transaction), so long as such transactions are consistent with
the Fund's ability to manage its investment portfolio and honor redemption
requests. When effecting such transactions, cash or liquid high-grade debt
obligations of the Fund of a dollar amount sufficient to make payment for the
portfolio securities to be purchased will be segregated on the Fund's records at
the trade date and maintained until the transaction is settled.

REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements to meet redemption requests where the liquidation of portfolio
securities is deemed by a Money Manager to be inconvenient or disadvantageous. A
reverse repurchase agreement is a transaction whereby a Fund transfers
possession of a portfolio security to a bank or broker-dealer in return for a
percentage of the portfolio security's market value. The Fund retains record
ownership of the security involved, including the right to receive interest and
principal payments. At an agreed upon future date, the Fund repurchases the
security by paying an agreed upon purchase price plus interest. Cash or liquid
high-grade debt obligations of the Fund equal in value to the repurchase price
including any accrued interest will be segregated on the Fund's records while a
reverse repurchase agreement is in effect, subject to the limitation described
in "Investment Policies--Illiquid Securities."

LENDING PORTFOLIO SECURITIES. The Real Estate Securities and U.S. Government
Money Market Funds may lend portfolio securities with a value of up to 50% of
its total assets. Such loans may be terminated at any time. A Fund will receive
either cash (and agree to pay a "rebate" interest rate), US government or US
government agency securities as collateral in an amount equal to at least 100%
of the current market value of the loaned securities plus accrued interest. The
collateral is "marked-to-market" on a daily basis, and the borrower will furnish
additional collateral in the event that the value of the collateral drops below
100% of the market value of the loaned securities.

Cash collateral is invested in high-quality short-term instruments, short-term
bank collective investments and money market mutual funds (including funds
advised by State Street Bank, the Funds' Custodian, for which it may receive an
asset-based fee), and other investments meeting certain quality and maturity
requirements established by the Funds. Income generated from the investment of
the cash collateral is first used to pay the rebate interest cost to the
borrower of the securities and the remainder then is divided between each Fund
and the Fund's Custodian.

Each Fund will retain most rights of beneficial ownership, including dividends,
interest or other distributions on the loaned securities. Voting rights may pass
with the lending. The Fund will call loans to vote proxies if the material issue
affecting the investment is to be voted upon.

Should the borrower of the securities fail financially, there is a risk of delay
in recovery of the securities or loss of rights in the collateral. Consequently,
loans are made only to borrowers which are deemed to be of good financial
standing. The Investment Company may incur costs or possible losses in excess of
the interest and fees received in connection with securities lending
transactions. Some securities purchased with cash collateral are subject to
market fluctuations while a loan is outstanding. To the extent that the value of
the cash collateral as invested is insufficient to return the full amount of the
collateral plus rebate interest to the borrower upon termination of the loan,
the Fund must immediately pay the amount of the shortfall to the borrower.

ILLIQUID SECURITIES. The Real Estate Securities and Limited Volatility Tax Free
Funds will not purchase or otherwise acquire any security if, as a result, more
than 15% of its net assets (taken at current value) would be invested in
securities, including repurchase agreements of more than seven days' duration,
that are illiquid by virtue of the absence of a readily available market or
because of legal or contractual restrictions on resale. In the case of the Money
Market Funds, this restriction is 10% of net assets. In addition, the Funds will
not invest more than 10% of their respective net assets (taken at current value)
in securities of issuers which may not be sold to the public without
registration under the Securities Act of 1933 (the "1933 Act"). These policies
do not include (1) commercial paper issued under Section 4(2) of the 1933 Act,
or (2) restricted securities eligible for resale to qualified institutional
purchasers pursuant to Rule 144A under the 1933 Act that are determined to be
liquid by the Money Managers in accordance with Board approved guidelines. Such
guidelines take into account trading activity for such securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, the Funds' holding
of that security may be illiquid. There may be undesirable delays in selling
illiquid securities at prices representing their fair value.

PROSPECTUS 17
<PAGE> 18

INVESTMENT IN FOREIGN SECURITIES. The Funds may invest in foreign securities
traded on US or foreign exchanges or on the over-the-counter market. Investing
in securities issued by foreign governments and corporations involves
considerations and possible risks not typically associated with investing in
obligations issued by the US government and domestic corporations. Less
information may be available about foreign companies than about domestic
companies, and foreign companies generally are not subject to the same uniform
accounting, auditing and financial reporting standards or other regulatory
practices and requirements comparable to those applicable to domestic companies.
The values of foreign investments are affected by changes in currency rates or
exchange control regulations, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are often incurred in connection with
conversions between various currencies. In addition, foreign brokerage
commissions are generally higher than in the United States, and foreign
securities markets may be less liquid, more volatile and less subject to
governmental supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the United States,
including nationalization, expropriation, confiscatory taxation, lack of uniform
accounting and auditing standards and potential difficulties in enforcing
contractual obligations, and could be subject to extended settlement periods or
restrictions affecting the prompt return of capital to the United States.

The risks associated with investing in foreign securities are often heightened
for investments in developing or emerging markets. Investments in emerging or
developing markets involve exposure to economic structures that are generally
less diverse and mature, and to political systems which can be expected to have
less stability than those of more developed countries. Moreover, the economies
of individual emerging market countries may differ favorably or unfavorably from
the US economy in such respects as the rate of growth in gross domestic product,
the rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Because each Fund's foreign securities will
generally be denominated in foreign currencies, the value of such securities to
the Fund will be affected by changes in currency exchange rates and in exchange
control regulations. A change in the value of a foreign currency against the US
dollar will result in a corresponding change in the US dollar value of a Fund's
foreign securities. In addition, some emerging market countries may have fixed
or managed currencies which are not free-floating against the US dollar.
Further, certain emerging market currencies may not be internationally traded.
Certain of these currencies have experienced a steady devaluation relative to
the US dollar. Many emerging markets countries have experienced substantial, and
in some periods extremely high rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have
negative effects on the economies and securities markets of certain emerging
market counties.

OPTIONS. The Funds, other than the Money Market Funds, may purchase and sell
(write) call and put options on securities and securities indexes provided such
options are traded on a national securities exchange or in an over-the-counter
market. The Funds, other than the Money Market Funds, may also purchase and sell
put and call options on foreign currencies.

A Fund may invest up to 5% of its assets, represented by the premium paid, in
call and put options. A Fund may write a call or put option to the extent that
the aggregate value of all securities or other assets used to cover all such
outstanding options does not exceed 25% of the value of its net assets.

CALL AND PUT OPTIONS ON SECURITIES. A call option on a specific security gives
the purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security at the exercise price at any time during the option
period. Conversely, a put option on a specific security gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
security at the exercise price at any time during the option period.

A Fund may purchase a call option on securities to protect against substantial
increases in prices of securities the Fund intends to purchase pending its
ability or desire to purchase such securities in an orderly manner. A Fund may
purchase a put option on securities to protect holdings in an underlying or
related security against a substantial decline in market value. Securities are
considered related if their price movements generally correlate to one another.

A Fund may write a call or a put option only if the option is covered by the
Fund by holding a position in the underlying securities or by other means which
would permit immediate satisfaction of the Fund's obligations as the writer of
the option.

To close out a position when writing covered options, a Fund may make a "closing
purchase transaction," which involves purchasing an option on the same security
with the same exercise price and expiration date as the option which it
previously wrote on the security. To close out a position as a purchaser of an
option, a Fund may make a "closing sale transaction," which involves liquidating
the Fund's position by selling the option previously purchased. The Fund will
realize a profit or loss from a closing

18 PROSPECTUS
<PAGE> 19

purchase or sale transaction depending upon the difference between the amount
paid to purchase an option and the amount received from the sale thereof.

The Funds intend to treat options in respect of specific securities that are not
traded on a national securities exchange and the securities underlying covered
call options as not readily marketable and therefore subject to the limitations
on the Funds' ability to hold illiquid securities.

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

SECURITIES INDEX OPTIONS. An option on a securities index is a contract which
gives the purchaser of the option, in return for the premium paid, the right to
receive from the writer of the option cash equal to the difference between the
closing price of the index and the exercise price of the option times a
multiplier established by the exchange on which the stock index is traded. It is
similar to an option on a specific security except that settlement is in cash
and gains and losses depend on price movements in the stock market generally (or
in a particular industry or segment of the market) rather than price movements
in the specific security. None of the Funds currently intend to purchase and
write call and put options on securities indexes.

OPTIONS ON FOREIGN CURRENCY. The Funds may purchase and write call and put
options on foreign currencies for the purpose of hedging against changes in
future currency exchange rates. Call options convey the right to buy the
underlying currency at a price which is expected to be lower than the spot price
of the currency at the time the option expires. Put options convey the right to
sell the underlying currency at a price which is anticipated to be higher than
the spot price of the currency at the time the option expires. Currency options
traded on US or other exchanges may be subject to position limits which may
limit the ability of a Fund to reduce foreign currency risk using such options.
Over-the-counter options differ from traded options in that they are two-party
contracts with price and other terms negotiated between buyer and seller and
generally do not have as much market liquidity as exchange-traded options. See
also "Call and Put Options on Specific Securities," above. None of the Funds
currently intend to write or purchase such options.

RISK FACTORS. The purchase and writing of options involves certain risks. If a
put or call option purchased by a Fund is not sold when it has remaining value,
and if the market price of the underlying security, in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment (I.E., the premium paid) on the option. Also, where a put or call
option on a particular security is purchased to hedge against price movements in
a related security, the price of the put or call option may move more or less
than the price of the related security.

Where a Fund writes a call option, it has, in return for the premium it
receives, given up the opportunity to profit from a price increase in the
underlying security above the exercise price, but, as long as its obligation as
a writer continues, has retained the risk of loss should the price of the
underlying security decline. Where a Fund writes a put option, it is exposed
during the term of the option to a decline in the price of the underlying
security.

There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Fund may be unable to close
out a position.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Real Estate Securities and
Limited Volatility Tax Free Funds may invest in interest rate futures contracts,
stock index futures contracts and foreign currency futures contracts and options
thereon that are traded on a United States or foreign exchange or board of
trade.

An interest rate or foreign currency futures contract is an agreement between
two parties (buyer and seller) to take or make delivery of a specified quantity
of financial instruments (such as GNMA certificates or Treasury bonds) or
foreign currency at a specified price at a future date. A futures contract on an
index (such as the S&P 500) is an agreement between two parties (buyer and
seller) to take or make delivery of an amount of cash equal to the difference
between the value of the index at the close of the last trading day of the
contract and the price at which the index contract was originally written. In
the case of futures contracts traded on US exchanges, the exchange itself or an
affiliated clearing corporation assumes the opposite side of each transaction
(I.E., as buyer or seller). A futures contract may be satisfied or closed out by
delivery or purchase, as the case may be, of the financial instrument or by
payment of the change in the cash value of the index. Frequently, using futures
to effect a particular strategy instead of using the underlying or related
security or index will result in lower transaction costs being incurred.

Each Fund may also purchase and write call options and put options on futures
contracts. An option on a futures contract gives the holder the right, in return
for the premium paid, to assume a long position (in the case of a call) or a
short position (in the case of a put) in a futures

PROSPECTUS 19
<PAGE> 20

contract at a specified exercise price prior to the expiration of the option.
Upon exercise of a call option, the holder acquires a long position in the
futures contract and the writer is assigned the opposite short position. In the
case of a put option, the opposite is true. An option on a futures contract may
be closed out (before exercise or expiration) by an offsetting purchase or sale
of an option on a futures contract of the same series.

There are several risks associated with the use of futures and options on
futures contracts for hedging purposes. There can be no guarantee that there
will be a correlation between price movements in the hedging vehicle and in the
portfolio securities being hedged. An incorrect correlation could result in a
loss on both the hedged securities in a Fund and the hedging vehicle so that the
portfolio return might have been greater had hedging not been attempted.

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

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

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

HIGH RISK BONDS. The Funds do not invest assets in securities rated less than
BBB by S&P or Baa by Moody's, or in unrated securities judged by the money
manager to be of a lesser credit quality than those designations. Securities
rated BBB by S&P or Baa by Moody's and above are considered by those rating
agencies to be "investment grade" securities, although Moody's and S&P consider
securities rated Baa to have some speculative characteristics. The Funds will
dispose in a prudent and orderly fashion securities whose ratings drop below
these minimum ratings. For additional information, please refer to the Funds'
Statement of Additional Information.

PORTFOLIO TRANSACTION POLICIES

Decisions to buy and sell securities are made by the Money Managers for the
assets assigned to them, and by Management Company or the Money Manager for
Liquidity Portfolios. Only the Limited Volatility Tax Free Fund gives
significant weight to attempting to realize long-term, rather than short-term,
capital gains when making portfolio management decisions. Money Managers make
decisions to buy or sell securities independently from other managers. Thus, one
Money Manager for a Fund could be selling a security when another Money Manager
for the same Fund (or for another series of the Investment Company) is
purchasing the same security.

In addition, when a Money Manager's services are terminated and another
retained, the new manager may significantly restructure the portfolio. These
practices may increase the Funds' portfolio turnover rates, realization of gains
or losses, brokerage commissions and other transactions based costs. The annual
portfolio turnover rates for the Funds (other than the Money Market Funds) are
shown in the Financial Highlights tables.

The Funds may effect portfolio transactions with or through Frank Russell
Securities, Inc., an affiliate of the Management Company, when the manager
determines that the Funds will receive competitive execution, price and
commissions. Frank Russell Securities, Inc. refunds up to 70% of the commission
paid to a Fund when it effects such transactions, after reimbursement for
research services provided to the Management Company. None of the Funds
currently use this arrangement. The Funds may also effect portfolio transactions
through and pay brokerage commissions to Money Managers (or their affiliates).

20 PROSPECTUS
<PAGE> 21

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS.

The Board of Trustees presently intends to declare dividends from net investment
income and (Money Market Funds only) net short-term capital gains, if any, for
payment on the following schedule:

<TABLE>
- -----------------------------------------------------------------------------------------------------------------

<CAPTION>
DECLARED PAYABLE
- ---------- ------------------------------------
<S> <C> <C>
Daily 1st day of the following month U.S. Government Money Market and Tax Free Money
Market Funds

Monthly Early in the following month Limited Volatility Tax Free Fund

Quarterly Mid: April, July, October and Real Estate Securities Fund
December

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

</TABLE>

The Money Market Funds determine net investment income immediately prior to the
determination of the net asset value per share at the close of the New York
Stock Exchange (currently 4:00 p.m. Eastern time) on each business day. Net
investment income will be credited daily to the accounts of shareholders of
record prior to the net asset value calculation and paid monthly.

CAPITAL GAINS DISTRIBUTIONS.

The Board intends to declare distributions from net capital gains through
October 31 (excess of net long-term capital gain over net short-term capital
losses) annually, generally in mid-December. In addition, in order to satisfy
certain distribution requirements, a Fund may declare special year-end dividend
and capital gains distributions during October, November or December to
shareholders of record in such month. Such distributions, if received by
shareholders by January 31, are deemed to have been paid by the Fund and
received by shareholders on December 31 of the prior year. Net capital gains
realized during November and December will be distributed during the month of
February of the following year.

Investors should be aware that by purchasing shares shortly before the record
date of a dividend or capital gains distribution, they will pay the full price
for the shares and then receive some portion of the price back as a taxable
dividend or capital gains distribution.

AUTOMATIC REINVESTMENT.

All dividends and distributions will be automatically reinvested at the net
asset value per share at the close of business on the record date in additional
shares of the Fund paying the dividend or making the distribution, unless a
shareholder elects to have dividends or distributions paid in cash or invested
in another fund. Any election may be changed by delivering written notice no
later than ten days prior to the payment date to Frank Russell Investment
Management Company, the Investment Company's transfer and dividend paying agent,
at Operations Department, P.O. Box 1591, Tacoma, WA 98401.

TAXES

Each Fund is treated as a separate taxable entity for federal income tax
purposes, and shareholders of each Fund will be entitled to the amount of net
investment income and realized capital gains earned by the Fund. The Board
intends to distribute each year substantially all of each Fund's net investment
income and realized capital gains, thereby eliminating virtually all federal
income taxes. The Funds may be subject to nominal, if any, state and local
taxes.

For TAXABLE shareholders: Dividends (except those of Limited Volatility Tax Free
and Tax Free Money Market Funds) and capital gains distributions are taxable
income under federal tax laws, whether paid in cash or reinvested in additional
shares. However, depending upon the state tax rules pertaining to a shareholder,
a portion of the dividends paid by the U.S. Government Money Market Fund
attributable to direct US Treasury and agency obligations may be exempt from
state and local taxes. Long-term capital gains distributions declared by the
Funds' Board are taxed as long-term gains regardless of the length of time a
shareholder has held such shares. Dividends and distributions may otherwise also
be subject to state or local taxes.

For corporate investors, dividends from net investment income paid by the Real
Estate Securities Fund will generally qualify in part for the corporate
dividends received deduction. However, the portion of the dividends so qualified
depends on the aggregate qualifying dividend income received by the Fund from
domestic (US) sources. Certain holding period and debt financing restrictions
may apply to the corporate investor claiming the deduction.

The sale of shares of a Fund is a taxable event and may result in capital gain
or loss. A capital gain or loss may be

PROSPECTUS 21
<PAGE> 22

realized from an ordinary redemption of shares or an exchange of shares between
two mutual funds (or two series or portfolios of a mutual fund). In addition, if
a shareholder of the Limited Volatility Tax Free or Tax Free Money Market Funds
holds their share for six months or less, any capital loss realized upon
redemption is disallowed to the extent of the tax-exempt dividend income
received by the shareholder. Any loss incurred on sale or exchange of a Fund's
shares held for six months or less will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to such shares.

Limited Volatility Tax Free and Tax Free Money Market Funds anticipate that all
dividends paid by the Funds will be exempt from federal income tax. However, the
Funds may invest in taxable investments and any portion of the Funds' dividends
arising from taxable investments will be taxable as ordinary income. The Limited
Volatility Tax Free and Tax Free Money Market Funds do not intend to purchase
any municipal obligations required, in the opinion of bond counsel, to be
treated as a tax preference item by shareholders when determining their
alternative minimum tax liability. Exempt income paid by the Funds is includable
in the tax base for determining the extent to which a shareholder's Social
Security or railroad retirement benefits will be subject to federal income tax.
Shareholders are required to disclose their receipt of tax-exempt interest on
their federal income tax returns. The Internal Revenue Code also provides that
interest on indebtedness incurred, or continued, to purchase or carry Limited
Volatility Tax Free and Tax Free Money Market Fund shares is not deductible; and
that persons who are "substantial users" (or persons related thereto) of
facilities financed by industrial development bonds may not be able to treat
this Fund's dividends as tax free. Such persons should consult their tax
advisers before purchasing shares of the Limited Volatility Tax Free or Tax Free
Money Market Funds.

Shareholders of the appropriate Funds will be notified after each calendar year
of the amounts: of ordinary income dividends and long-term capital gains
distributions, including any amounts which are deemed paid on December 31 of the
prior year; of the dividends which qualify for the 70% dividends-received
deduction available to corporations; of the Limited Volatility Tax Free and Tax
Free Money Market Funds' dividends subject to federal tax (if any) and
attributable to each state; income which is a tax preference item (if any) for
alternative minimum tax purposes; and the percentages of the U.S. Government
Money Market Fund's income attributable to US Government Treasury and agency
securities.

Each Fund is required to withhold 31% of all taxable dividends, distributions,
and redemption proceeds payable to any non-corporate shareholder which does not
provide the Fund with the shareholder's certified taxpayer identification number
or required certifications or which is subject to backup withholding.

Shareholders who are not US persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of US withholding and other taxes to distributions received by them from a Fund
and the application of foreign tax laws to these distributions.

Shareholders should consult their tax advisors with respect to the applicability
of any state and local intangible property or income taxes to their shares of a
Fund and distributions and redemption proceeds received from a Fund.

Additional information on tax matters relating to the Funds and their
shareholders is included in the section entitled "Taxes" in the Statement of
Additional Information.

CALCULATION OF FUND PERFORMANCE

From time to time, the Funds may advertise their performance in terms of average
annual total return, which is computed by finding the average annual compounded
rates of return over a period that would equate the initial amount invested to
the ending redeemable value. The calculation assumes that all dividends and
distributions are reinvested on the reinvestment dates during the relevant time
period, and includes all recurring fees that are charged to all shareholder
accounts. The average annual total returns for each of the Funds are as follows:

<TABLE>
- ------------------------------------------------------------------------------------------------------------

<CAPTION>
5 YEARS ENDED INCEPTION TO
1 YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1994 INCEPTION
DECEMBER 31, 1994 (ANNUALIZED) (ANNUALIZED) DATE
----------------- ----------------- ----------------- --------
<S> <C> <C> <C> <C>
Real Estate Securities 7.24% 11.22% 9.99% 07/28/89
Limited Volatility Tax Free (0.54) 5.08 5.56 09/05/85
U.S. Government Money Market 3.87 4.82 5.97 09/05/85
Tax Free Money Market 2.83 3.85 4.45 05/08/87

- ------------------------------------------------------------------------------------------------------------
</TABLE>

22 PROSPECTUS
<PAGE> 23

The Limited Volatility Tax Free Fund also may from time to time advertise its
yield. Yield, which is based on historical earnings and is not intended to
indicate future performance, is calculated by dividing the net investment income
per share earned during the most recent 30-day (or one month) period by the
maximum offering price per share on the last day of the month. This income is
then annualized. That is, the amount of income generated by the investment
during that 30-day (or one month) period is assumed to be generated each month
over a 12-month period and is shown as a percentage of the investment. For
purposes of the yield calculation, interest income is computed based on the
yield to maturity of each debt obligation and dividend income is computed based
upon the stated dividend rate of each security in the Fund's portfolio. The
calculation includes all recurring fees that are charged to all shareholder
accounts. The 30-day yield for the year ended December 31, 1994 for the Limited
Volatility Tax Free Fund was 4.61%.

The Limited Volatility Tax Free Fund may also utilize tax equivalent yields
computed in the same manner as yield, above, with adjustment for a stated income
tax rate. The 30-day tax equivalent yield for December 31, 1994 based on a tax
rate of 39.6% was 7.63%.

The Money Market Funds also may advertise their yield and effective yields. Both
yield figures are based on historical earnings and are not intended to indicate
future performance. The current yield of the Money Market Funds refers to the
income generated by an investment in the Money Market Funds over a seven-day
period (which period will be stated in the advertisement). This yield is
calculated by determining the net change, exclusive of capital changes, in the
value of a hypothetical preexisting account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting deductions
from shareholder accounts, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base return. This
income is then annualized. That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, the income earned by an investment in
the Fund is assumed to be reinvested. The effective yield will be slightly
higher than the current yield because of the compounding effect of this assumed
reinvestment. The following are the current and effective yields for the Money
Market Funds during 1994 for the seven-day periods ended:

<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
CURRENT EFFECTIVE CURRENT EFFECTIVE CURRENT EFFECTIVE CURRENT EFFECTIVE
------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Money Market 3.05% 3.10% 3.86% 3.93% 4.24% 4.33% 5.36% 5.51%
Tax Free Money Market 2.26% 2.29% 2.63% 2.66% 3.31% 3.36% 4.42% 4.51%

- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Tax Free Money Market Fund may also utilize tax equivalent yields computed
in the same manner as yield above, with adjustment for a stated income tax rate.
The following are the current and effective tax equivalent yields based on a tax
rate of 39.6% during 1994 for the seven-day periods ended:

<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
CURRENT EFFECTIVE CURRENT EFFECTIVE CURRENT EFFECTIVE CURRENT EFFECTIVE
------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax Free Money Market 3.75% 3.79% 4.35 4.40% 5.47% 5.56% 7.31% 7.47%

- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

PROSPECTUS 23
<PAGE> 24

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

VALUATION OF FUND SHARES

NET ASSET VALUE PER SHARE.

The net asset value per share is calculated for each Fund on each business day
on which shares are offered or orders to redeem are tendered. For the Real
Estate Securities and Limited Volatility Tax Free Funds, a business day is one
on which the New York Stock Exchange is open for trading. A business day for the
Money Market Funds includes any day on which the New York Stock Exchange is open
for trading and the Boston Federal Reserve Bank is open. Net asset value per
share is computed for each Fund by dividing the current value of the Fund's
assets, less its liabilities, by the number of shares of the Fund outstanding,
and rounding to the nearest cent. All Funds determine net asset value as of the
close of the regular session of the New York Stock Exchange (currently 4:00 p.m.
Eastern time). The U.S. Government Money Market Fund also determines its net
asset value as of 1:00 p.m. Eastern time, and the Tax Free Money Market Fund as
of 12:00 noon Eastern time.

VALUATION OF PORTFOLIO SECURITIES.

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

Because many fixed-income securities do not trade each day, last sale or bid
prices are frequently not available. Fixed-income securities therefore may be
valued using prices provided by a pricing service when such prices are believed
to reflect the fair market value of such securities.

International equity securities traded on a national securities exchange are
valued on the basis of the last sale price. International securities traded over
the counter are valued on the basis of the mean of bid prices. In the absence of
a last sale or mean bid price, respectively, such securities may be valued on
the basis of prices provided by a pricing service if those prices are believed
to reflect the fair market value of such securities.

The Money Market Funds' portfolio investments are valued on the basis of
amortized cost, a method by which each portfolio instrument is initially valued
at cost, and thereafter a constant accretion/amortization to maturity of any
discount or premium is assumed. Both Funds utilize the amortized cost valuation
method in accordance with Rule 2a-7 of the 1940 Act. Money market instruments
maturing within 60 days of the valuation date held by Funds other than the Money
Market Funds are also valued at "amortized cost" unless the Board determines
that amortized cost does not represent fair value. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Funds would
receive if they sold the instrument.

The municipal investments of Limited Volatility Tax Free Fund are appraised or
priced by an independent pricing source, approved by the Trustees, which
utilizes information with respect to bond transactions, quotations from bond
dealers, market transactions in comparable securities, and various relationships
between securities.

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

PURCHASE OF FUND SHARES

Shares of the Funds are sold on each business day directly to Eligible Investors
at the net asset value next determined after an order is received in proper
form, and the order has been accepted. All purchases must be made in US dollars.
The Funds reserve the right to reject any purchase order.

ORDER PROCEDURES.

Orders by all investors (except for participants in the Three Day Settlement
Program described below) to purchase Frank Russell Investment Company Fund
shares

24 PROSPECTUS
<PAGE> 25

must be received by a Fund's transfer agent, either by telephone, mail, or entry
into the shareholder recordkeeping system on a day when shares of the Fund are
offered and orders in proper form accepted prior to:

<TABLE>
- -----------------------------------------------------------------------------------

<S> <C>
Close of the New York Real Estate Securities and Limited Volatility
Stock Exchange (currently Tax Free Funds
4:00 p.m. Eastern time)

11:45 a.m. Eastern time Tax Free Money Market Fund

12:15 p.m. Eastern time U.S. Government Money Market Fund

- -----------------------------------------------------------------------------------
</TABLE>

Orders for the Money Market Funds' shares placed prior to the above time and in
the proper form can be accepted for pricing and investment, and will begin to
earn income, on that day. Money Market Fund orders received after that time are
not deemed to be in proper form for acceptance on that day, and cannot be
accepted for pricing and investment until after the close of the New York Stock
Exchange (currently 4:00 p.m., Eastern time) on that day. Orders for shares of
any Fund that are not accepted before the respective time for that Fund can not
be invested in the particular Fund nor begin to earn income until the next day
on which shares of that Fund are offered.

PAYMENT PROCEDURES: Payment for the purchase of Fund shares must be received by
a Funds' Custodian or transfer agent, depending on the method of payment, on the
day the order is accepted (except for participants in the Three Day Settlement
Program described below). There are several ways to pay for orders received for
a Fund:

FEDERAL FUNDS WIRE. Payment for orders may be made by wiring federal funds to
the Fund's Custodian, State Street Bank and Trust Company.

AUTOMATED CLEARING HOUSE ("ACH"). Payment for orders may be made through the
ACH to the Fund's Custodian, State Street Bank and Trust Company. However, funds
transferred by ACH may or may not be converted into federal funds the same day
depending on the time the funds are received and the bank wiring the funds. If
the funds are not converted the same day, they will be converted the next
business day. Therefore, the order would be placed the next business day.

CHECK. Payment for orders may be made by check or other negotiable bank draft
payable to "Frank Russell Investment Company" and mailed to the Funds' transfer
agent, P.O. Box 1591, Tacoma, WA 98401-1591. Certified checks are not necessary,
but checks are accepted subject to collection at full face value in US funds and
must be drawn in US dollars on a US bank. Investments in the Money Market Funds
will be effected only when the check or draft is converted to federal funds. The
investment will not begin to earn dividend income until the receipt of federal
funds by the relevant Fund. Investments in the non-Money Market Funds will be
effected upon receipt of the check or draft by Frank Russell Investment
Management Company, the Funds' transfer agent ("Transfer Agent"), when the check
or draft is received prior to the close of the New York Stock Exchange
(currently 4:00 p.m. Eastern time). When the check or draft is received by the
Transfer Agent after the close of the New York Stock Exchange, the order will be
effected on the following business day.

IN-KIND EXCHANGE OF SECURITIES.

The Transfer Agent may, at its discretion, permit investors to purchase shares
through the exchange of securities they hold. Any securities exchanged must meet
the investment objective, policies and limitations of the Fund, must have a
readily ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus any
cash, must be at least $100,000. Shares purchased in exchange for securities
generally may not be redeemed or exchanged until the transfer has settled
usually within 15 days following the purchase by exchange.

The basis of the exchange will depend upon the relative net asset value of the
shares purchased and securities exchanged. Securities accepted by a Fund will be
valued in the same manner as the Fund values its assets. Any interest earned on
the securities following their delivery to the Transfer Agent and prior to the
exchange will be considered in valuing the securities. All interest, dividends,
subscription or other rights attached to the securities become the property of
the Fund, along with the securities.

THREE DAY SETTLEMENT PROGRAM.

The Investment Company will accept orders from financial institutions to
purchase shares of the Funds, (other than the Money Market Funds), for
settlement on the third business day following the receipt of an order to be
paid

PROSPECTUS 25
<PAGE> 26

by a federal wire if the investor has agreed in writing to indemnify the Funds
against any losses as a result of nonreceipt of payment. For further information
on this program, contact the Investment Company.

THIRD PARTY TRANSACTIONS.

Investors purchasing Fund shares through a program of services offered by a
financial intermediary, such as a bank, broker-dealer, investment adviser or
others, may be required to pay additional fees by such intermediary. Investors
should contact such intermediary for information concerning what additional
fees, if any, may be charged.

EXCHANGE PRIVILEGE.

Shareholders may exchange shares of any Fund offered by this Prospectus for
shares of any other fund included in the Investment Company's other Prospectuses
on the basis of current net asset value per share at the time of the exchange.
Shares of a Fund offered by this Prospectus may only be exchanged for shares of
a Fund offered by the Investment Company through another Prospectus under
certain conditions and only in states where the exchange may be legally made.
For additional information, including Prospectuses of other Investment Company
Funds, contact the Investment Company. Exchanges may be made (i) by telephone if
the registrations of the two accounts are identical; or (ii) in writing
addressed to the Investment Company.

An exchange is a redemption of shares and is treated as a sale for income tax
purposes, and a short or long-term capital gain or loss may be realized. The
Fund shares to be acquired will be purchased when the proceeds from the
redemption become available (up to seven days from the receipt of the request).
Each investor is encouraged to consult with his or her tax adviser.

REDEMPTION OF FUND SHARES.

SHAREHOLDERS UNCERTAIN OF REQUIREMENTS FOR REDEMPTION SHOULD TELEPHONE THE FUNDS
AT (800) 972-0700; IN WASHINGTON (206) 627-7001.

Fund shares may be redeemed on any business day at the net asset value next
determined after the receipt of a redemption request in proper form as described
below.

Payment will ordinarily be made in seven days. Generally, redemption proceeds
will be wire-transferred to the shareholder's account or to an alternate account
provided such request is given to the transfer agent in proper form, at a
domestic commercial bank which is a member of the Federal Reserve System.
Although the Funds currently do not charge such a fee, the Funds reserve the
right to charge a fee for the cost of wire-transferred redemptions of less than
$1,000. Payment for redemption requests of investments made by check may be
withheld for up to 15 days after the date of purchase to assure that checks in
payment for orders to purchase shares are collected by the Funds. Upon request,
redemption proceeds will be mailed to the shareholder's address of record or to
an alternate address provided such request is sent to the Transfer Agent in
proper form.

REQUEST PROCEDURES. Request by all investors to redeem Investment Company fund
shares must be received by the Transfer Agent either by telephone, mail, entry
into the shareholder recordkeeping system, or through the Systematic Withdrawal
Payment Program on the days requests to redeem are tendered, prior to:

<TABLE>
- -----------------------------------------------------------------------------------------

<S> <C>
Close of the New York Real Estate Securities and Limited Volatility
Stock Exchange (currently Tax Free Funds
4:00 p.m. Eastern time)

11:45 a.m. Eastern time Tax Free Money Market Fund

12:15 p.m. Eastern time U.S. Government Money Market Fund

- -----------------------------------------------------------------------------------------
</TABLE>

Redemption requests placed in the Money Market Funds prior to the above time
will be tendered that day. Requests received for these Funds after the above
time will be taken until 4:00 p.m. Eastern time, but will not be tendered until
the next business day.

Requests for redemption by telephone or entry into the shareholder recordkeeping
system must follow the procedures set forth in the Account Registration and
Investment Instruction Form, or alternate procedures may be followed provided
such requests are given to the transfer agent in proper form. In the unexpected
event telephone lines are unavailable, shareholders should use the mail
redemption procedures described below.

MAIL. Redemption requests may be made in writing directly to Frank Russell
Investment Management Company, Attention: Frank Russell Investment Company,
Operations Department, P.O. Box 1591, Tacoma, WA 98401. The redemption price
will be the net asset value

26 PROSPECTUS
<PAGE> 27

next determined after receipt by the Management Company of all required
documents in good order. "Good order" means that the request must include the
following:

A. A letter of instruction or a stock assignment designating specifically the
number of shares or dollar amount to be redeemed, signed by all owners of
the shares in the exact names in which they appear on the account, together
with a guarantee of the signature of each owner by a bank, trust company or
member of a recognized stock exchange; and

B. Such other supporting legal documents, if required by applicable law, in the
case of estates, trusts, guardianships, custodianships, corporations and
pension and profit sharing plans.

SYSTEMATIC WITHDRAWAL PAYMENT. The Systematic Withdrawal Payment ("SWP")
program is an automated method for redeeming a predetermined dollar amount from
a Fund shareholder account to meet a standing request. The program can be used
to meet any request for periodic distributions of assets from Fund shareholder
accounts.

SWP OFFERING DATE AND PAYMENT PROCEDURES. SWP distributions occur once a month
and are paid by wire or check, according to the instructions provided on the SWP
form. If a client has more than one Fund from which a SWP is to be received, the
client will receive one wire or check for each SWP Fund. SWP transactions are
recorded on the twenty-fifth day of each month. If the twenty-fifth day falls on
a weekend or holiday, the transaction will be recorded on the preceding business
day. SWP payment dates are the first business day after the trade date. If the
SWP is coming out of one of the Money Market Funds and the trade date falls on a
Friday or the day before a holiday, income will be earned until the payment
date.

DISTRIBUTION FREQUENCY. Payments can be scheduled as monthly, quarterly,
semiannual or annual distributions.

SWP DISTRIBUTION BY WIRE. Federal Funds Wire payments will be sent to
designated bank on the payment date.

SWP DISTRIBUTION BY CHECK. Checks will be sent by US Postal Service first class
mail, from Boston, Massachusetts, to the requested address on the payment date.

A Systematic Withdrawal Payment form must be completed and mailed to Frank
Russell Investment Management Company, Attention: Frank Russell Investment
Company, Operations Department, P.O. Box 1591, Tacoma, WA 98401-1591. The
Systematic Withdrawal Payment form must be received by Frank Russell Investment
Management Company five business days before the initial distribution date.

REDEMPTION IN KIND. A Fund may pay any portion of the redemption amount in
excess of $250,000 by a distribution in kind of securities from the portfolio of
the Fund, in lieu of cash. Investors will incur brokerage charges on the sale of
these portfolio securities. The Funds reserve the right to suspend the right of
redemption or postpone the date of payment if any unlikely emergency conditions
as specified in the 1940 Act or determined by the SEC should develop.

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, ACCOUNTANTS AND REPORTS. Russell Fund Distributors,
Inc., a wholly owned subsidiary of the Management Company, is the principal
Distributor for Investment Company shares. The Distributor receives no
compensation from the Investment Company for its services.

State Street Bank and Trust Company, Boston, Massachusetts, holds all portfolio
securities and cash assets of the Funds and provides portfolio recordkeeping
services. State Street is authorized to deposit securities in securities
depositories or to use the services of subcustodians. State Street has no
responsibility for the supervision and management of the Funds.

Coopers & Lybrand L.L.P., Boston, Massachusetts, are the Funds' independent
accountants. Shareholders will receive unaudited semiannual financial statements
and audited annual financial statements from Coopers & Lybrand L.L.P.
Shareholders may also receive additional reports concerning the Funds, or their
accounts, from the Management Company.

ORGANIZATION, CAPITALIZATION, AND VOTING. The Investment Company was organized
as a Maryland corporation on March 6, 1981, and commenced offering shares on
October 15, 1981. On January 2, 1985, the Investment Company reorganized as a
Massachusetts business trust and now operates under an amended Master Trust
Agreement dated July 26, 1984. Frank Russell Company has the right to grant the
nonexclusive use of the name "Frank Russell" or any derivation thereof to any
other investment company or other business enterprise, and to withdraw from the
Investment Company the use of the name "Frank Russell."

The Investment Company issues a single class of shares divisible into an
unlimited number of Funds, each of which is a separate trust under Massachusetts
law. Each Fund share represents an equal proportionate interest in that Fund,
has a par value of $0.01 per share, and is entitled to such dividends and
distributions earned on the assets belonging to such Fund as may be declared by
the Board of Trustees. Shares of a Fund are fully paid and nonassessable and
have no preemptive or conversion rights.

PROSPECTUS 27
<PAGE> 28

Each Fund share has one vote; there are no cumulative voting rights. There is no
Annual Meeting of shareholders, but Special Meetings may be held. On any matter
which affects only a particular Fund, only shareholders of that Fund vote unless
otherwise required by the 1940 Act or the amended Master Trust Agreement. The
Trustees hold office for the life of the Trust. A Trustee may resign or retire,
and a Trustee may be removed at any time by, in substance, a vote of two-thirds
of Investment Company shares. A vacancy in the Board of Trustees shall be filled
by the vote of a majority of the remaining Trustees so long as, in substance,
two-thirds of the Trustees have been elected by shareholders.

At March 22, 1995, the Second National Bank (Saginaw) may be deemed under the
1940 Act to "control" the Tax Free Money Market Fund, because it owns more than
25% of the Fund's voting shares.

MONEY MANAGER PROFILES

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

REAL ESTATE SECURITIES FUND

COHEN & STEERS CAPITAL MANAGEMENT, 757 Third Avenue, New York, NY 10017, is a
corporation whose two principals, Robert H. Steers and Martin Cohen, control the
corporation within the meaning of the 1940 Act.

LIMITED VOLATILITY TAX FREE FUND

MASSACHUSETTS FINANCIAL SERVICES, 500 Boylston Street, Boston, MA 02116, a
wholly owned subsidiary of Sun Life Assurance Company of Canada (US), a mutual
insurance company.

T. ROWE PRICE ASSOCIATES, INC., 100 E. Pratt Street, Baltimore, MD 21202, whose
stock is publicly traded, a large portion of which is held by active employees.

U.S. GOVERNMENT MONEY MARKET FUND

FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY, 909 A Street, Tacoma, WA 98402, a
registered investment adviser wholly owned by Frank Russell Company.

TAX FREE MONEY MARKET FUND

WEISS, PECK & GREER ADVISERS, INC., One New York Plaza, 30th Floor, New York, NY
10004, a wholly owned subsidiary of Weiss, Peck & Greer, a general partnership
whose controlling partners are Stephen Weiss, Philip Greer, Roger Weiss,
Melville Straus, and Nelson Shaenen, Jr.

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED
UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY STATE TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATIONS THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE FUNDS OR
THE MONEY MANAGERS SINCE THE DATE HEREOF; HOWEVER, IF ANY MATERIAL CHANGE OCCURS
WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL
BE AMENDED OR SUPPLEMENTED ACCORDINGLY.

28 PROSPECTUS
<PAGE> 29

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET
TACOMA, WASHINGTON 98402
TELEPHONE (800) 972-0700
IN WASHINGTON, (206) 627-7001

MONEY MANAGERS

REAL ESTATE SECURITIES FUND
Cohen & Steers Capital Management

LIMITED VOLATILITY TAX FREE FUND
Massachusetts Financial Services
T. Rowe Price Associates, Inc.

U.S. GOVERNMENT MONEY MARKET FUND
Frank Russell Investment Management Company

TAX FREE MONEY MARKET FUND
Weiss, Peck & Greer Advisers, Inc.

MANAGER, TRANSFER AND DIVIDEND PAYING AGENT
Frank Russell Investment Management Co.
909 A Street
Tacoma, Washington 98402

CONSULTANT
Frank Russell Company
909 A Street
Tacoma, Washington 98402

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

INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
2600 -- One Commerce Square
Philadelphia, PA 19103-7098

OFFICE OF SHAREHOLDER INQUIRIES
Office of Shareholders Inquiries
909 A Street
Tacoma, Washington 98402
(800) 972-0700
In Washington, (206) 627-7001

PROSPECTUS