RUSSELL FRANK INVESTMENT CO, 497, 1995-06-01

RUSSELL FRANK INVESTMENT CO
497, 1995-06-01

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<PAGE> 1

PROSPECTUS
EXTERNAL FEE FUNDS

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

Frank Russell Investment Company ("Investment Company") is a "series mutual
fund" with 22 different investment portfolios referred to as "Funds." This
Prospectus describes and offers shares of beneficial interest in the ten Funds
listed below, except for the Money Market Fund which is not currently offered
for direct investment.

Frank Russell Investment Management Company ("Management Company") operates and
administers all of the Funds which comprise Investment Company, and manages the
portfolio of the Money Market Fund. Management Company is a wholly owned
subsidiary of Frank Russell Company, which researches and recommends to
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>
Equity I Fund Emerging Markets Fund
Equity II Fund Fixed Income I Fund
Equity III Fund Fixed Income II Fund
Equity Q Fund Fixed Income III Fund
International Fund 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; 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.

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

THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT INVESTMENT COMPANY AND
THESE TEN FUNDS THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING.
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 1, 1995

PROSPECTUS 1
<PAGE> 2

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

EQUITY I FUND--Income and capital growth by investing principally in equity
securities.

EQUITY II FUND--Maximum total return, primarily through capital appreciation and
by assuming a higher level of volatility than is ordinarily expected from Equity
I Fund, by investing in equity securities.

EQUITY III FUND--A high level of current income, while maintaining the potential
for capital appreciation by investing in income-producing equity securities.

EQUITY Q FUND--Total return greater than the total return of the US stock market
as measured by the Russell 1000(R) Index over a market cycle of four to six
years, while maintaining volatility and diversification similar to the Index by
investing in equity securities.

INTERNATIONAL FUND--Favorable total return and additional diversification for US
investors by investing primarily in equity and fixed-income securities of non-US
companies, and securities issued by non-US governments.

EMERGING MARKETS FUND--Maximum total return, primarily through capital
appreciation and by assuming a higher level of volatility than is ordinary
expected from developed market international portfolios, by investing primarily
in the equity securities.

FIXED INCOME I FUND--Effective diversification against equities and a stable
level of cash flow by investing in fixed-income securities.

FIXED INCOME II FUND--Preservation of capital and generation of current income
consistent with the preservation of capital by investing primarily in
fixed-income securities with low-volatility characteristics.

FIXED INCOME III FUND--Maximum total return, primarily through capital
appreciation and by assuming a higher level of volatility than is ordinarily
expected from broad fixed-income market portfolios, by investing in fixed-income
securities.

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 short-term money market
instruments.

This Prospectus describes and offers shares of ten External Fee Funds, EXCEPT
THE MONEY MARKET FUND, WHICH IS NOT CURRENTLY OFFERED FOR DIRECT INVESTMENT.
Another Prospectus describes and offers shares of twelve Internal 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 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 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 offered by this Prospectus on March 22,
1995, were:

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

<S> <C> <C> <C>
Equity I $571,346,537 Emerging Markets $123,908,516
Equity II 213,371,498 Fixed Income I 468,638,943
Equity III 179,617,452 Fixed Income II 155,010,047
Equity Q 455,138,544 Fixed Income III 173,777,620
International 665,931,555 Money Market 473,416,727

- --------------------------------------------------------------------------------
</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 9.

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
19.

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 "multi-style, multi-manager
diversification." PAGE 19.

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 19.

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 Management Company; or institutions or individuals who have acquired shares
through such institutions. PAGE 19.

GENERAL MANAGEMENT OF THE FUNDS is provided by 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 the Funds and the Management
Company with comprehensive consulting and money manager evaluation services.
PAGE 20.

EXPENSES OF THE FUNDS are borne by the Funds. Each Fund pays a management fee to
Management Company for conducting the Fund's general operations and for
providing investment supervision for the Fund, and pays to Management Company,
as agent for the Fund, the investment advisory fee of the money managers of that
Fund. Each shareholder pays Management Company directly for other services
provided to that shareholder. Management Company pays its expenses of providing
its services to the Fund, and transmits for the Fund the fees payable to the
Money Manager. PAGE 22.

THE MONEY MANAGERS are evaluated and recommended by Frank Russell Company. The
money managers have complete discretion to purchase and sell portfolio
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 Management Company. PAGE 22.

INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES apply to each Fund. Those
designated "fundamental" may not be changed without the approval of a majority
of a Fund's shareholders. PAGE 22.

PORTFOLIO TRANSACTION POLICIES do not give significant weight to realizing
long-term, rather than short-term, capital gains. PAGE 34.

DIVIDENDS AND DISTRIBUTIONS may be reinvested in additional shares or received
in cash. Dividends from net investment income are declared: Daily, by Money
Market Fund; Annually, by International Fund and Emerging Markets Fund; and
Quarterly by all other Funds. All Funds declare distributions from net realized
capital gains, if any, at least annually. PAGE 34.

TAXES OF THE FUNDS themselves should be nominal. Taxable shareholders of the
Funds will be subject to federal tax on dividends and capital gains
distributions and may also be subject to state or local taxes. PAGE 35.

CALCULATION OF FUND PERFORMANCE, including yields and total return information,
is in accordance with formulas prescribed by the Securities and Exchange
Commission. PAGE 36.

VALUATION OF FUND SHARES occurs each business day (twice a day for the Money
Market Fund). The value of a share is based upon the next computed current
market value of the assets, less liabilities, of each Fund. The Money Market
Fund utilizes amortized cost pricing procedures to attempt to maintain a stable
$1.00 per share net asset value. PAGE 37.

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 38.

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 and to redeem shares held by an investor whose
Asset Management Services Agreement with Management Company is terminated. PAGE
39.

ADDITIONAL INFORMATION is also included in this Prospectus concerning:
Distributor, Custodian, Accountants and Reports; Organization, Capitalization
and Voting; and Money Manager Profiles. PAGE 40.

PROSPECTUS 3
<PAGE> 4

ANNUAL FUND OPERATING EXPENSES

The purpose of the following tables are to assist the investor in understanding
the various costs and expenses that an investor in each Fund 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>
- -----------------------------------------------------------------------------------------------------------------------
EQUITY I FUND
<S> <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 Fee1........................................................................................ .60%*
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees............................................................................... .08%
Transfer Agent Fees.......................................................................... .02
Other Fees................................................................................... .02
--------
Total Other Expenses............................................................................... .72%
--------
Total Fund Operating Expenses**........................................................................ .72%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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>

<TABLE>
EQUITY II
<S> <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 Fee1........................................................................................ .75%*
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees............................................................................... .14%
Transfer Agent Fees.......................................................................... .05
Other Fees................................................................................... .04
--------
Total Other Expenses............................................................................... .23%
--------
Total Fund Operating Expenses**........................................................................ .98%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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......................................................... $ 10 $ 31 $ 54 $ 120
======== ======== ======== =========
</TABLE>

1 Prior to April 1, 1995, the Management Fee was paid by each shareholder
directly to the Management Company, and was not deducted from the Fund's
assets. Effective April 1, 1995, the Management Fee will be deducted from Fund
assets on a daily basis and paid to the Management Company. The expense
information has been restated to reflect current fees.

* Each shareholder enters into a written Asset Management Services Agreement
with the Management Company, and agrees to pay an annual shareholder
investment services fee calculated as a specified percentage of the
shareholder's average net assets in the Funds. This annual shareholder
investment services fee may range from .00% to .30% and from .00% to .25%
under the asset management services agreements entered into by shareholders
of the Equity I Fund and the Equity II Fund, respectively. In addition, a
shareholder may pay additional fees, expressed as fixed dollar amounts for
the other services or reports provided by Management Company to the
shareholder. Accordingly, the expense information does not reflect an amount
for fees paid directly by an investor to Management Company.

** 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>
- ----------------------------------------------------------------------------------------------------------------------
EQUITY III FUND
<S> <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 Fee1........................................................................................ .60%*
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees............................................................................... .09%
Transfer Agent Fees.......................................................................... .04
Other Fees................................................................................... .04
--------
Total Other Expenses............................................................................... .17%
--------
Total Fund Operating Expenses**........................................................................ .77%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------- ------- --------
<S> <C> <C> <C> <C>
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...... $ 8 $ 25 $ 43 $ 95
======== ======= ======= ========

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

<TABLE>
EQUITY Q FUND
<S> <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 Fee1........................................................................................ .60%*
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees............................................................................... .07%
Transfer Agent Fees.......................................................................... .02
Other Fees................................................................................... .02
--------
Total Other Expenses............................................................................... .11%
--------
Total Fund Operating Expenses**........................................................................ .71%
========
</TABLE>

1 Prior to April 1, 1995, the Management Fee was paid by each shareholder
directly to the Management Company, and was not deducted from the Fund's
assets. Effective April 1, 1995, the Management Fee will be deducted from
Fund assets on a daily basis and paid to the Management Company. The expense
information has been restated to reflect current fees.

* Each shareholder enters into a written Asset Management Services Agreement
with the Management Company, and agrees to pay an annual shareholder
investment services fee calculated as a specified percentage of the
shareholder's average net assets in the Funds. This annual shareholder
investment services fee may range from .00% to .30% under the asset
management services agreements entered into by shareholders of each of the
Equity III Fund and the Equity Q Fund. In addition, a shareholder may pay
additional fees, expressed as fixed dollar amounts for the other services or
reports provided by Management Company to the shareholder. Accordingly, the
expense information does not reflect an amount for fees paid directly by an
investor to Management Company.

PROSPECTUS 5

<PAGE> 6

ANNUAL FUND OPERATING EXPENSES

<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
INTERNATIONAL FUND
<S> <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 Fee1........................................................................................ .75%*
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees............................................................................... .27%
Transfer Agent Fees.......................................................................... .02
Other Fees................................................................................... .03
-------
Total Other Expenses................................................................................ .32%
--------
Total Fund Operating Expenses**......................................................................... 1.07%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------- ------- --------
<S> <C> <C> <C> <C>
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 $ 34 $ 59 $ 130
======== ======= ======= ========

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

<TABLE>
EMERGING MARKETS FUND
<S> <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 Fee1........................................................................................ 1.20%*
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees............................................................................... .61%
Transfer Agent Fees.......................................................................... .10
Other Fees................................................................................... .10
-------
Total Other Expenses................................................................................ .81%
--------
Total Fund Operating Expenses Before Reimbursement...................................................... 2.01%
Reimbursement From Manager+......................................................................... (.01)
--------
Total Fund Operating Expenses After Reimbursement**..................................................... 2.00%
========
</TABLE>

* Each shareholder enters into a written Asset Management Services Agreement
with the Management Company, and agrees to pay an annual shareholder
investment services fee calculated as a specified percentage of the
shareholder's average net assets in the Funds. This annual shareholder
investment services fee may range from .00% to .40% under the asset management
services agreements entered into by shareholders of the International Fund.
Currently, the Manager does not intend to impose a shareholder investment
services fee with respect to the Emerging Markets Fund. In addition, a
shareholder may pay additional fees, expressed as fixed dollar amounts for the
other services or reports provided by Management Company to the shareholder.
Accordingly, the expense information does not reflect an amount for fees paid
directly by an investor to Management Company.

+ Effective April 1, 1995, the Manager has voluntarily agreed to reimburse all
expenses of the Fund that exceed the annual rate of 2.00% of average net
assets. This agreement will continue until further notice.

6 PROSPECTUS

<PAGE> 7

ANNUAL FUND OPERATING EXPENSES

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

FIXED INCOME I FUND
<S> <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 Fee1........................................................................................ .30%*
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees............................................................................... .06%
Transfer Agent Fees.......................................................................... .02
Other Fees................................................................................... .02
--------
Total Other Expenses............................................................................... .10%
--------
Total Fund Operating Expenses**........................................................................ .40%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------- ------- --------
<S> <C> <C> <C> <C>
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 $ 23 $ 51
========= ======= ======= ========

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

<TABLE>
FIXED INCOME II FUND
<S> <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 Fee1........................................................................................ .50%*
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees............................................................................... .09%
Transfer Agent Fees.......................................................................... .04
Other Fees................................................................................... .06
--------
Total Other Expenses............................................................................... .19%
--------
Total Fund Operating Expenses**........................................................................ .69%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------- ------- --------
<S> <C> <C> <C> <C>
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 $ 22 $ 38 $ 86
======== ======= ======= ========
</TABLE>

1 Prior to April 1, 1995, the Management Fee was paid by each shareholder
directly to the Management Company, and was not deducted from the Fund's
assets. Effective April 1, 1995, the Management Fee will be deducted from
Fund assets on a daily basis and paid to the Management Company. The expense
information has been restated to reflect current fees.

* Each shareholder enters into a written Asset Management Services Agreement
with the Management Company, and agrees to pay an annual shareholder
investment services fee calculated as a specified percentage of the
shareholder's average net assets in the Funds. This annual shareholder
investment services fee may range from .00% to .40% under the asset
management services agreements entered into by shareholders of the Fixed
Income I Fund. Currently, the Manager intends to impose a shareholder
investment services fee with respect to the Fixed Income II Fund which may
range from .00% to .05%. In addition, a shareholder may pay additional fees,
expressed as fixed dollar amounts for the other services or reports provided
by Management Company to the shareholder. Accordingly, the expense
information does not reflect an amount for fees paid directly by an investor
to Management Company.

PROSPECTUS 7
<PAGE> 8

ANNUAL FUND OPERATING EXPENSES

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

FIXED INCOME III FUND
<S> <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 Fee1........................................................................................ .55%*
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees............................................................................... .11%
Transfer Agent Fees.......................................................................... .03
Other Fees................................................................................... .06
--------
Total Other Expenses............................................................................... .20%
--------
Total Fund Operating Expenses Before Reimbursement..................................................... .75%
Reimbursement From Manager +........................................................................... (.00)
--------
Total Fund Operating Expenses After Reimbursement.................................................... .75%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------- ------- --------
<S> <C> <C> <C> <C>
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....... $ 8 $ 24 $ 42 $ 93
======== ======= ======= ========

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

<TABLE>
MONEY MARKET FUND
<S> <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 Fee1+....................................................................................... .00%*
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees............................................................................... .03%
Transfer Agent Fees.......................................................................... .02
Other Fees................................................................................... .00
--------
Total Other Expenses............................................................................... .05%
--------
Total Fund Operating Expenses**........................................................................ .05%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------- ------- --------
<S> <C> <C> <C> <C>
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....... $ 1 $ 2 $ 3 $ 7
======== ======= ======= ========
</TABLE>

* Each shareholder enters into a written Asset Management Services Agreement
with the Management Company, and agrees to pay an annual shareholder
investment services fee calculated as a specified percentage of the
shareholder's average net assets in the Funds. This may range from .00% to
.15% for shareholders of the Fixed Income III Fund. Currently, the Manager
does not intend to impose a shareholder investment services fee with respect
to the Money Market Fund. In addition, a shareholder may pay additional fees,
expressed as fixed dollar amounts for the other services or reports provided
by Management Company to the shareholder. Accordingly, the expense information
does not reflect an amount for fees paid directly by an investor to Management
Company.

+ Effective April 1, 1995, the Manager has voluntarily agreed to waive its .25%
management fee for the Money Market Fund and to reimburse all expenses for
Fixed Income III Fund that exceed the annual rate of .75% of average net
assets. These Agreements will continue until further notice.

8 PROSPECTUS

<PAGE> 9

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 Funds.

More detailed information concerning the Fund's performance, a completed
portfolio listing and audited financial statements are available in the External
Funds' Annual Report dated December 31, 1994, which may be obtained without
charge by writing or calling the Investment Company.

EQUITY I 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........... $ 24.91 $ 25.00 $ 25.17 $ 21.13 $ 25.39 $ 22.20 $ 20.18 $ 28.53 $ 28.19 $ 22.49
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... .62 .60 .61 .75 .91 .88 .81 1.12 .99 1.03
Net realized and unrealized
gain (loss) on
investments............... (.41) 2.18 1.54 5.61 (2.37) 5.79 2.46 1.50 3.25 5.49
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations................ .21 2.78 2.15 6.36 (1.46) 6.67 3.27 2.62 4.24 6.52
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (.62) (.60) (.62) (.75) (.90) (1.01) (.77) (1.26) (1.14) (.82)
Net realized gain on
investments............... (.94) (2.11) (1.70) (1.57) (1.90) (2.47) (.48) (9.71) (2.76) --
In excess of net realized
gain on investments....... (.24) (.16) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions......... (1.80) (2.87) (2.32) (2.32) (2.80) (3.48) (1.25) (10.97) (3.90) (.82)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $ 23.32 $ 24.91 $ 25.00 $ 25.17 $ 21.13 $ 25.39 $ 22.20 $ 20.18 $ 28.53 $ 28.19
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%).............. .79 11.61 9.02 31.22 (5.64) 30.79 16.42 5.97 16.23 29.53
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to
average net assets(a)..... .12 .14 .15 .19 .23 .18 .17 .14 .12 .06
Net investment income to
average net assets........ 2.52 2.36 2.53 3.14 3.66 3.41 3.68 3.11 3.49 4.13
Portfolio turnover.......... 75.02 91.87 71.14 119.55 101.30 61.27 67.59 86.22 70.22 99.13
Net assets, end of year
($000 omitted)............ 547,242 514,356 410,170 330,507 221,543 300,814 243,691 266,371 282,890 704,175
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Expenses do not include any management fees paid to the Manager or money
managers.

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

PROSPECTUS 9
<PAGE> 10

FINANCIAL HIGHLIGHTS*

EQUITY II 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........... $ 26.58 $ 27.71 $ 26.32 $ 19.24 $ 23.32 $ 22.50 $ 19.99 $ 23.54 $ 25.01 $ 19.82
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... .36 .32 .30 .41 .51 .61 .52 .50 .52 .51
Net realized and unrealized
gain (loss) on
investments............... (.86) 3.97 3.13 7.65 (3.91) 4.74 2.51 2.17 1.78 5.05
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations................ (.50) 4.29 3.43 8.06 (3.40) 5.35 3.03 2.67 2.30 5.56
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (.31) (.31) (.30) (.41) (.50) (.71) (.52) (.61) (.53) (.37)
Net realized gain on
investments............... (.21) (4.72) (1.74) (.57) (.18) (3.82) -- (5.61) (3.24) --
In excess of net realized
gain on investments....... (.56) (.39) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions......... (1.08) (5.42) (2.04) (.98) (.68) (4.53) (.52) (6.22) (3.77) (.37)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $ 25.00 $ 26.58 $ 27.71 $ 26.32 $ 19.24 $ 23.32 $ 22.50 $ 19.99 $ 23.54 $ 25.01
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%).............. (2.60) 16.70 13.31 42.40 (14.76) 24.63 15.22 10.32 10.17 28.17
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to
average net assets(a)..... .23 .34 .32 .37 .48 .41 .35 .29 .35 .18
Net investment income to
average net assets........ 1.46 1.14 1.10 1.79 2.40 2.45 2.40 1.94 2.23 2.26
Portfolio turnover.......... 58.04 87.25 43.33 42.16 80.27 77.55 56.38 130.36 113.46 118.39
Net assets, end of year
($000 omitted)............ 202,977 171,421 120,789 101,206 60,668 70,588 63,903 68,968 63,972 58,184
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Expenses do not include any management fees paid to the Manager or money
managers.

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

10 PROSPECTUS
<PAGE> 11

FINANCIAL HIGHLIGHTS*

EQUITY III 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........... $ 27.05 $ 26.75 $ 27.08 $ 23.30 $ 26.49 $ 24.03 $ 20.74 $ 31.27 $ 32.36 $ 26.22
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... .93 .89 .98 1.08 1.33 1.26 1.15 1.21 1.45 1.57
Net realized and unrealized
gain (loss) on
investments............... (.85) 2.99 2.24 5.21 (2.85) 5.35 3.40 (.74) 2.90 5.73
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations................ .08 3.88 3.22 6.29 (1.52) 6.61 4.55 .47 4.35 7.30
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (.91) (.90) (.99) (1.07) (1.30) (1.40) (1.14) (1.61) (1.65) (1.16)
In excess of net investment
income.................... -- (.00) -- -- -- -- -- -- -- --
Net realized gain on
investments............... (1.94) (2.68) (2.56) (1.44) (.37) (2.75) (.12) (9.39) (3.79) --
In excess of net realized
gain on investments....... (.10) -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions......... (2.95) (3.58) (3.55) (2.51) (1.67) (4.15) (1.26) (11.00) (5.44) (1.16)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $ 24.18 $ 27.05 $ 26.75 $ 27.08 $ 23.30 $ 26.49 $ 24.03 $ 20.74 $ 31.27 $ 32.36
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%).............. 1.16 14.95 12.30 27.86 (5.73) 28.07 22.19 (1.48) 14.74 28.44
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to
average net assets (a).... .17 .16 .20 .25 .27 .23 .20 .17 .16 .08
Net investment income to
average net assets........ 3.39 3.09 3.57 4.05 4.91 4.58 4.96 4.11 4.55 5.40
Portfolio turnover.......... 85.92 76.77 84.56 56.99 65.74 83.13 57.28 97.54 70.73 44.59
Net assets, end of year
($000 omitted)............ 177,807 181,630 166,782 138,076 94,087 135,245 106,695 102,716 126,206 153,379
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Expenses do not include any management fees paid to the Manager or money
managers.

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

PROSPECTUS 11

<PAGE> 12

FINANCIAL HIGHLIGHTS*

EQUITY Q 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............................... $ 26.03 $ 25.23 $ 24.90 $ 20.20 $ 22.45 $ 18.85 $ 16.67 $ 20.00
------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........................... .69 .66 .67 .75 .81 .78 .69 .39
Net realized and unrealized gain (loss)
on investments................................ (.41) 2.71 1.73 5.58 (1.89) 4.26 2.15 (3.39)
------- ------- ------- ------- ------- ------- ------- -------
Total From Investment Operations................ .28 3.37 2.40 6.33 (1.08) 5.04 2.84 (3.00)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income........................... (.69) (.66) (.68) (.75) (.79) (.86) (.66) (.28)
Net realized gain on investments................ (.97) (1.85) (1.39) (.88) (.38) (.58) -- (.05)
In excess of net realized gain on investments... (.22) (.06) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions............................. (1.88) (2.57) (2.07) (1.63) (1.17) (1.44) (.66) (.33)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR..................................... $ 24.43 $ 26.03 $ 25.23 $ 24.90 $ 20.20 $ 22.45 $ 18.85 $ 16.67
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(a)............................... .99 13.80 9.97 32.14 (4.81) 27.10 17.16 (15.14)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets
(b)(c)........................................ .11 .15 .18 .23 .31 .33 .33 .24
Net investment income to average net assets
(c)........................................... 2.74 2.50 2.80 3.23 3.70 3.68 3.82 3.56
Portfolio turnover (c).......................... 45.87 54.69 58.35 51.37 66.51 88.03 52.21 46.10
Net assets, end of year ($000 omitted).......... 430,661 382,939 290,357 215,779 133,869 129,680 89,320 66,618
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

++ For the period May 29, 1987 (commencement of operations) to December 31,
1987.
(a) Periods less than one year are not annualized.
(b) Expenses do not include any management fees paid to the Manager or money
managers.
(c) The ratios for the period ended December 31, 1987 are annualized.

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

12 PROSPECTUS

<PAGE> 13

FINANCIAL HIGHLIGHTS*

INTERNATIONAL 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........... $ 37.34 $ 28.92 $ 31.96 $ 29.18 $ 38.52 $ 35.44 $ 35.50 $ 50.23 $ 35.53 $ 23.48
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... .61 .58 .67 .73 1.23 .85 .95 .93 .77 .74
Net realized and unrealized
gain (loss) on investments
(a)....................... .65 9.63 (2.62) 3.16 (7.27) 7.46 5.77 5.49 18.34 11.70
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations................ 1.26 10.21 (1.95) 3.89 (6.04) 8.31 6.72 6.42 19.11 12.44
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (.36) (.57) (.67) (.80) (1.19) (1.02) (1.11) (1.39) (.25) (.39)
In excess of net investment
income.................... -- (.16) -- -- -- -- -- -- -- --
Net realized gain on
investments............... (3.73) (1.06) (.42) (.31) (2.11) (4.21) (5.67) (19.76) (4.16) --
In excess of net realized
gain on investments....... (.23) -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions......... (4.32) (1.79) (1.09) (1.11) (3.30) (5.23) (6.78) (21.15) (4.41) (.39)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $ 34.28 $ 37.34 $ 28.92 $ 31.96 $ 29.18 $ 38.52 $ 35.44 $ 35.50 $ 50.23 $ 35.53
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%).............. 5.38 35.56 (6.11) 13.47 (15.94) 24.06 20.13 14.42 60.05 53.29
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to
average net assets (b).... .32 .39 .45 .48 .50 .44 .45 .43 .46 .43
Net investment income to
average net assets........ 1.63 1.83 2.46 2.61 3.14 2.38 2.52 1.83 1.79 2.71
Portfolio turnover.......... 71.09 62.04 48.99 53.13 78.30 53.49 51.17 96.31 42.71 121.71
Net assets, end of year
($000 omitted)............ 674,180 562,497 349,969 252,828 171,613 186,742 149,064 160,975 169,227 101,818
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Provision for federal income tax for the year ended December 31, 1991
amounted to $.024 per share.
(b) Expenses do not include any management fees paid to the Manager or money
managers.

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

PROSPECTUS 13
<PAGE> 14

FINANCIAL HIGHLIGHTS*

EMERGING MARKETS FUND

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1994 1993++
------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................................................................. $ 13.90 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................................................. .15 .07
Net realized and unrealized gain (loss) on investments............................................ (1.24) 4.09
------- ------
Total From Investment Operations.................................................................. (1.09) 4.16
------- ------
LESS DISTRIBUTIONS:
Net investment income............................................................................. (.10) (.07)
In excess of net investment income................................................................ (.10) (.01)
Net realized gain on investments.................................................................. (.31) (.18)
In excess of net realized gain on investments..................................................... (.05) --
------- ------
Total Distributions............................................................................... (.56) (.26)
------- ------
NET ASSET VALUE, END OF YEAR........................................................................ $ 12.25 $13.90
======== ======
TOTAL RETURN (%)(a)................................................................................. (5.83) 41.83
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b)(c)(d)(e)....................................... .80 .80
Net investment income to average net assets (c)................................................... 1.10 1.33
Portfolio turnover (c)............................................................................ 57.47 89.99
Net assets, end of year ($000 omitted)............................................................ 127,271 65,457

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

++ For the period January 29, 1993 (commencement of operations) to December 31,
1993.
(a) Periods less than one year are not annualized.
(b) For the period January 29, 1993 (commencement of operations) to December 31,
1993 and the year ended December 31, 1994, the Manager reimbursed a portion
of operating expenses amounting to $.0420 and $.0017 per share,
respectively. For the period January 29, 1993 (commencement of operations)
to April 28, 1993, the Custodian waived a portion of its custody fees
amounting to $0007 per share.
(c) The ratios for the period ended December 31, 1993, are annualized.
(d) Expenses do not include any management fees paid to the Manager or money
managers.
(e) Operating expense ratio before any waivers and/or reimbursements amounted to
.82% on an annualized basis for the year ended December 31, 1994.

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

14 PROSPECTUS

<PAGE> 15

FINANCIAL HIGHLIGHTS*

FIXED INCOME I 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........... $ 21.74 $ 21.61 $ 22.29 $ 20.86 $ 20.91 $ 20.50 $ 20.48 $ 24.26 $ 23.82 $ 21.12
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... 1.46 1.50 1.63 1.71 1.77 1.93 1.73 1.71 2.01 2.27
Net realized and unrealized
gain (loss) on
investments............... (2.06) .72 (.07) 1.49 (.05) .71 .01 (1.40) 1.65 2.12
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations................ (.60) 2.22 1.56 3.20 1.72 2.64 1.74 .31 3.66 4.39
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (1.44) (1.50) (1.62) (1.69) (1.77) (1.92) (1.72) (2.08) (2.03) (1.69)
In excess of net investment
income.................... -- (.01) -- -- -- -- -- -- -- --
Net realized gain on
investments............... -- (.58) (.62) (.08) -- (.31) -- (2.01) (1.19) --
In excess of net realized
gain on investments....... (.11) -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions......... (1.55) (2.09) (2.24) (1.77) (1.77) (2.23) (1.72) (4.09) (3.22) (1.69)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $ 19.59 $ 21.74 $ 21.61 $ 22.29 $ 20.86 $ 20.91 $ 20.50 $ 20.48 $ 24.26 $ 23.82
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%).............. (2.97) 10.46 7.26 16.01 8.60 13.35 8.76 1.49 16.94 21.70
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to
average net assets (a).... .10 .09 .10 .10 .11 .12 .13 .11 .13 .10
Net investment income to
average net assets........ 7.06 6.71 7.45 8.08 8.70 8.96 8.28 8.00 8.41 10.25
Portfolio turnover.......... 173.97 173.27 211.26 121.91 114.15 196.18 186.54 211.26 221.11 229.27
Net assets, end of year
($000 omitted)............ 496,038 533,696 530,857 458,201 329,091 297,721 223,216 250,606 220,089 186,834
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Expenses do not include any management fees paid to the Manager or money
managers.

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

PROSPECTUS 15
<PAGE> 16

FINANCIAL HIGHLIGHTS*

FIXED INCOME II 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........... $ 18.99 $ 18.56 $ 19.68 $ 18.94 $ 18.69 $ 18.51 $ 18.63 $ 19.80 $ 20.38 $ 19.29
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... 1.21 .84 1.35 1.52 1.53 1.69 1.61 1.57 1.71 2.05
Net realized and unrealized
gain (loss) on
investments............... (1.07) .44 (.83) .72 .23 .27 (.12) (.60) .04 .59
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations................ .14 1.28 .52 2.24 1.76 1.96 1.49 .97 1.75 2.64
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (1.15) (.71) (1.36) (1.50) (1.51) (1.78) (1.61) (1.91) (1.68) (1.55)
Net realized gain on
investments............... -- -- (.28) -- -- -- -- (.23) (.65) --
Tax return of capital....... -- (.14) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions......... (1.15) (.85) (1.64) (1.50) (1.51) (1.78) (1.61) (2.14) (2.33) (1.55)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $ 17.98 $ 18.99 $ 18.56 $ 19.68 $ 18.94 $ 18.69 $ 18.51 $ 18.63 $ 19.80 $ 20.38
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%).............. .82 6.98 2.74 12.31 9.71 10.99 8.20 5.21 9.34 14.24
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to
average net assets (a).... .19 .16 .19 .13 .15 .17 .13 .12 .14 .09
Net investment income to
average net assets........ 6.52 6.16 7.21 8.06 8.45 8.97 8.56 8.22 8.55 10.36
Portfolio turnover.......... 233.75 229.07 330.58 188.30 184.38 320.16 217.58 197.77 173.51 253.22
Net assets, end of year
($000 omitted)............ 144,030 138,619 182,735 156,685 119,853 83,313 86,052 93,896 91,887 61,259
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Expenses do not include any management fees paid to the Manager or money
managers.

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

16 PROSPECTUS

<PAGE> 17

FINANCIAL HIGHLIGHTS*

FIXED INCOME III FUND

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1994 1993++
-------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................................................................. $ 10.44 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................................................ .66 .49
Net realized and unrealized gain (loss) on investments........................................... (1.07) .52
------- -------
Total From Investment Operations................................................................. (.41) 1.01
------- -------
LESS DISTRIBUTIONS:
Net investment income............................................................................ (.66) (.48)
Net realized gain on investments................................................................. -- (.08)
In excess of net realized gain on investments.................................................... (.00) (.01)
------- -------
Total Distributions.............................................................................. (.66) (.57)
------- -------
NET ASSET VALUE, END OF YEAR....................................................................... $ 9.37 $ 10.44
======== ========
TOTAL RETURN (%)(a)................................................................................ (3.89) 10.22
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b)(c)(d)(e)...................................... .20 .20
Net investment income to average net assets (c).................................................. 7.02 6.30
Portfolio turnover (c)........................................................................... 134.11 181.86
Net assets, end of year ($000 omitted)........................................................... 166,620 124,234

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

++ For the period January 29, 1993 (commencement of operations) to December
31, 1993.
(a) Periods less than one year are not annualized
(b) For the period ended December 31, 1993, the Manager reimbursed a portion of
operating expenses amounting to $.0154 per share and the Custodian agreed to
waive a portion of its custody fees amounting to $.0003 per share.
(c) The ratios for the period ended December 31, 1993 are annualized.
(d) Expenses do not include any management fees paid to the Manager or money
managers.
(e) Operating expense ratio before any waivers and/or reimbursements amounted to
.40% on an annual basis for the period ended December 31, 1993.

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

PROSPECTUS 17
<PAGE> 18

FINANCIAL HIGHLIGHTS*

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....... .0447 .0342 .0403 .0618 .0823 .0922 .0759 .0663 .0685 .0828
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (.0447) (.0342) (.0403) (.0618) (.0823) (.0922) (.0759) (.0663) (.0685) (.0828)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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 (%).............. 4.57 3.48 4.11 6.38 8.55 9.61 7.86 6.84 7.07 8.57
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to
average daily net
assets(a)................. .05 .07 .08 .07 .07 .06 .06 .05 .05 .05
Net investment income to
average daily net
assets.................... 4.49 3.38 4.04 6.13 8.29 9.31 7.59 6.63 6.90 8.28
Net assets, end of year
($000 omitted)............ 502,302 415,998 347,464 316,426 226,339 145,550 116,369 144,344 198,183 141,046
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Expenses do not include any management fees paid to the Manager or money
managers.

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

18 PROSPECTUS

<PAGE> 19

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. The 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 (the "Agreement")
with 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

- Employee welfare plans

- Broker-Dealers

- Pension or profit sharing plans

- Insurance companies

PROSPECTUS 19
<PAGE> 20

The Agreement provides, in general, for the officers and staff of 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 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 Management Company may acquire shares of the
Funds for the benefit of individual customers for which they exercise
discretionary investment authority. 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 Management Company or the Funds; they may charge their
customers a fee for providing these and possibly other trust or
investment-related services.

The Agreement sets forth the shareholders investment services fees to be paid to
Management Company and is ordinarily expressed as a percentage of assets
invested in the Funds. The shareholder investment services fee may include a
fixed-dollar fee for certain specified services. The shareholder investment
services fee is negotiated by the client and Management Company and is at a rate
which reflects the amount of assets expected to be invested in the Funds, the
nature and extent of individualized services to be provided by Management
Company to the client, and other factors. Either the client or Management
Company may terminate the Agreement upon the written notice provided for in the
Agreement. Management Company does not expect to exercise its right to terminate
the Agreement unless a client does not (i) promptly pay fees due to Management
Company; or (ii) invest sufficient assets in the Funds to compensate Management
Company for providing services to the client and operating the Funds. Upon
termination of an Agreement by the client or Management Company, Management
Company will no longer provide asset-allocation, objective-setting, or other
services. The client may continue to hold its shares of the Funds as long as the
client pays fees owed to Management Company.

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 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.

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 a money manager 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. 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 these Money Managers rests upon the officers
and employees of 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.

20 PROSPECTUS
<PAGE> 21

- 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.

- 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 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 fee from the Funds or Management
Company for its consulting services. Frank Russell Company and 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 Management Company.

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

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: Equity I Fund, .60%; Equity II Fund,
.75%; Equity III Fund, .60%; Equity Q Fund, .60%; International Fund, .75%;
Emerging Markets Fund, 1.20%; Fixed Income I Fund, .30%; Fixed Income II Fund,
.50%; Fixed Income III Fund, .55%; Money Market Fund, .25%. Management Company
has currently voluntarily waived the fee with respect to the Money Market Fund.
This waiver will continue until further notice. The fees of some of the funds
may be higher than the fees charged to some mutual funds with similar objectives
which use only a single money manager.

Management Company has voluntarily agreed to reimburse certain Fund expenses in
excess of certain limits. In addition to these "voluntary limits," Management
Company has agreed to reimburse each Fund the amount, if any, by which each
Fund's expenses exceed state law expense limitations. Currently, California has
an expense limitation of 2.5% of the 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
regulation. This arrangement is not part of the Management Agreement with
Investment Company and may be changed or rescinded at any time.

Frank Russell Company provides its Portfolio Verification System ("PVS") to all
the Funds, except the Money Market Fund, pursuant to a written Service
Agreement. The PVS computerized data base system records detailed transaction
data for each of the Funds necessary to prepare various financial and IRS
accounting reports. For these services, the Funds pay the following annual fees:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
TRANSACTION ANALYSIS OF INTERNATIONAL
BASE FEE CHARGE HOLDING CHARGE MANAGEMENT REPORT
-------- ------------ -------------- -------------------------
<S> <C> <C> <C> <C>
Equity Manager Portfolios $ 1,500 $ 0.10 $ 1.80 --
Fixed Income Manager Portfolios 2,500 2.00 12.00 --
Master Holding Portfolios 500 0.10 - 3.00 1.80 - 24.00 --
Multi-Currency Portfolios 14,000 3.00 24.00 $ 2,500
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

PROSPECTUS 21
<PAGE> 22
Annual minimum charges are: Equity I -- $25,000; Equity II -- $15,000; Equity
III -- $12,000; Equity Q -- $23,000; Fixed Income I -- $31,000; Fixed Income
II -- $22,000; Fixed Income III -- $25,000; and $290,000 for all international
portfolios. Any additional domestic equity or fixed income funds will be billed
using the same fee schedule, with an annual minimum fee of $20,000 and $25,000,
respectively.

In order to reduce the impact of fees on the International Fund, Management
Company has volunteered to absorb a portion of these fees in consideration of
certain intercompany transfers between Management Company and FRC (its parent).
Management Company reserves the right to reduce or eliminate this voluntary
absorption of fees upon notification to the Fund's shareholders.

EXPENSES OF THE FUNDS

The Funds will pay all their expenses other than those expressly assumed by
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: transfer agency and recordkeeping
fees payable to the Management Company; fees for custodial and portfolio
accounting services 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 are allocated currently among the money managers listed
in the section "Money Manager Profiles." 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.

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
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 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 Money Market Fund is managed by Frank Russell Investment Management Company.
The individual responsible for the management of the Fund including his
occupation for the past five years is as follows: Peter F. Apanovitch, who has
been Manager of the 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.

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 Management Company. Although the money managers' activities
are subject to general oversight by the Board of Trustees and officers of the
Funds, NEITHER THE BOARD, THE OFFICERS, THE MANAGEMENT COMPANY (EXCEPT WITH
RESPECT TO THE 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
shareholders of that Fund. 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.

INVESTMENT OBJECTIVES.

22 PROSPECTUS
<PAGE> 23

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.")

EQUITY I FUND

The Equity I Fund's objective is to provide income and capital growth by
investing principally in equity securities.

The Fund may invest in common and preferred stocks, securities convertible into
common stocks, rights and warrants.

EQUITY II FUND

The Equity II Fund's objective is to maximize total return primarily through
capital appreciation and by assuming a higher level of volatility than is
ordinarily expected from Equity I Fund, by investing in equity securities.

Current income is a secondary consideration in selecting securities. The Fund
may invest in common and preferred stock, convertible securities, rights and
warrants. The Fund's investments may include companies whose securities are
publicly traded for less than five years and smaller companies, such as
companies not listed in the Russell 1000(R) Index. A substantial portion of the
Fund's portfolio will generally consist of equity securities of "emerging
growth-type" companies which tend to reinvest most of their earnings, rather
than pay significant cash dividends; or companies characterized as "special
situations" where the money manager believes that cyclical developments in the
securities markets, the industry or the issuer itself present opportunities for
capital growth.

EQUITY III FUND

The Equity III Fund's objective is to achieve a high level of current income,
while maintaining the potential for capital appreciation by investing primarily
in income-producing equity securities.

The income objective of the Fund is to exceed the yield on the S&P 500 Index.
The Index yield will change from year to year due to changes in prices and
dividends of stocks in the Index. Income streams will be considered in light of
their current level and the opportunity for future growth. Capital appreciation
may not be comparable to that achieved by Funds such as Equity II Fund whose
major objective is appreciation, although the Management Company believes that a
high and growing stream of income is conducive to higher capital values. The
Fund may also invest in preferred stocks, convertible securities, rights and
warrants.

EQUITY Q FUND

The Equity Q Fund's objective is to provide a total return greater than the
total return of the US stock market as measured by the Russell 1000(R) Index
over a market cycle of four to six years, while maintaining volatility and
diversification similar to the Index by investing in equity securities.

The Fund will maintain industry weights and economic sector weights near those
of the Index. Over time, the Fund's average price/earnings ratio, yield, and
other fundamental characteristics are expected to be near the averages for the
Index. However, money managers may tactically, temporarily deviate from Index
characteristics based upon the managers' investment judgment that this will
increase the Fund's total return. The money managers of the Fund generally make
stock selections from the set of stocks comprising the Russell 1000(R)Index.

The Fund's portfolio characteristics and holdings are expected to be similar to
the Russell 1000(R) Index. However, a money manager may purchase securities that
are not included in the Index or sell securities still included in the Index in
order for the Fund to meet its investment objective.

The Fund will seek to achieve its investment objective by using various
quantitative management techniques. Management Company believes quantitative
management over a market cycle should provide a portfolio with consistent
performance, diversification, market-like volatility, and limited market
underperformance. However, there is no guarantee the Fund will have such
characteristics at any one time.

A quantitative manager bases its investment decisions primarily on quantitative
investment models. These models are used by the money manager to determine the
investment potential of a stock within a particular portfolio and to rank
securities most favorable to having a total return surpassing the total return
of the Russell 1000(R) Index. Once the money manager has ranked the securities,
it then selects the securities most likely to have the characteristics needed to
construct a portfolio that has superior return prospects with risks similar to
the Russell 1000(R) Index.

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

INTERNATIONAL FUND

The International Fund's objectives are to provide favorable total return and
additional diversification for US investors by investing primarily in equity and
fixed-income

PROSPECTUS 23

<PAGE> 24

securities of non-US companies, and securities issued by non-US governments.

The Fund invests primarily in equity securities issued by companies domiciled
outside of the United States. The Fund may also invest in fixed-income
securities, including instruments issued by non-US governments and their
agencies, and in US companies which derive, or are expected to derive, a
substantial portion of their revenues from operations outside the United States.

The Fund may invest in equity and debt securities denominated in other than US
dollars and gold-related equity investments, including gold mining stocks and
gold-backed debt instruments. However, as a matter of fundamental policy the
Fund will not invest more than 20% of its net assets in gold-related
investments.

EMERGING MARKETS FUND

The Emerging Markets Fund's objective is to provide maximum total return,
primarily through capital appreciation and by assuming a higher level of
volatility than is ordinarily expected from developed market international
portfolios, by investing primarily in equity securities.

Under normal circumstances the Fund will invest at least 65% of its total assets
in equity securities of companies in countries having emerging markets. For
purposes of the Fund's operations, "emerging markets" will consist of all
countries determined by the money managers of the Fund to have developing or
emerging economies and markets. These countries generally include every country
in the world except the United States, Canada, Japan, Australia and most
countries located in Western Europe. For purposes of the Fund's policy of
normally investing primarily in equity securities of issuers in emerging
markets, the Fund will consider investment in the following emerging markets:

Argentina, Austria, Bangladesh, Bolivia, Botswana, Brazil, Chile, Colombia,
Costa Rica, Czech Republic, Ecuador, Egypt, Fiji, Ghana, Greece, Hong Kong,
Hungary, India, Indonesia, Israel, Ivory Coast, Jamaica, Jordan, Kenya,
South Korea, Malawi, Malaysia, Mauritius, Mexico, Morocco, Nepal, New
Zealand, Nigeria, Pakistan, Papua New Guinea, People's Republic of China,
Peru, Philippines, Poland, Portugal, Slovak Republic, Singapore, Sri Lanka,
Swaziland, Taiwan, Thailand, Trinidad, Tobago, Tunisia, Turkey, Uruguay,
Venezuela and Zimbabwe.

Although the Fund considers each of the above-listed countries eligible for
investment, the Fund will not be invested in all such markets at all times.
Investing in some of the listed markets may not be feasible, due to lack of
adequate custody arrangements or current legal requirements. In the future, the
money managers of the Fund may determine, based on information then available,
to include additional emerging market countries in which the Fund may invest.
The assets of the Fund ordinarily will be invested in the securities of issuers
in at least three different emerging markets. The Fund does not currently
anticipate that it will invest more than 25% of its total assets in the
securities of any one emerging market country.

A company in an emerging market means: (i) a company whose securities are traded
in the principal securities market of an emerging market country; (ii) a company
that (alone or on a consolidated basis) derives 50% or more of its total revenue
from either goods produced, sales made or services performed in emerging market
countries; or (iii) a company organized under the laws of, and with a principal
office in, an emerging market country.

The Fund may invest in common and preferred stocks of emerging market companies
including companies involved in real estate development and gold mining. The
Fund may also invest in other types of equity securities and equity derivative
securities such as convertible securities, rights, units, warrants, American
Depository Receipts (ADRs), and European Depository Receipts (EDRs). The Fund's
equity securities will primarily be denominated in foreign currencies and may be
held outside the United States.

The Fund may invest in fixed-income securities, including instruments issued by
emerging market companies, governments and their agencies, and in US companies
that derive, or are expected to derive, a substantial portion of their revenues
from operation outside the United States. The Fund's fixed-income securities may
be denominated in other than US dollars.

Certain emerging markets are closed in whole or part to equity investments by
foreigners. The Fund may be able to invest in such markets solely or primarily
through governmentally authorized investment vehicles. To invest in these
markets, the Fund may invest up to 10% of its total assets in the shares of
other investment companies and up to 5% of total assets in any one investment
company, as long as that investment does not represent more than 3% of the
voting stock of the acquired investment company at the time such shares are
purchased. The risks associated with investment in securities issued by foreign
governments and companies are described under "Investment Policies - Investment
in Foreign Securities."

FIXED INCOME I FUND

The Fixed Income I Fund's objectives are to provide effective diversification
against equities and a stable level of cash flow by investing in fixed-income
securities.

24 PROSPECTUS
<PAGE> 25

The Fund's portfolio will consist primarily of conventional debt instruments,
including bonds, debentures, US government and US government agency securities,
preferred and convertible preferred stocks and variable amount demand master
notes. (These notes represent a borrowing arrangement under a letter agreement
between a commercial paper issuer and an institutional lender, such as the
Fund.) Investment selections will be based on fundamental economic, market, and
other factors leading to valuation by sector, maturity, quality, and such other
criteria as are appropriate to meet the stated objectives. The Fund will
ordinarily invest at least 80% of its net assets in securities rated no less
than A or A-2 by Standard & Poor's Ratings Group ("S&P") or A or Prime-2 by
Moody's Investors Service, Inc. ("Moody's"), or judged by the money manager to
be of at least equal credit quality to those designations.

FIXED INCOME II FUND

The Fixed Income II Fund's objectives are the preservation of capital and the
generation of current income consistent with the preservation of capital by
investing in fixed-income securities with low-volatility characteristics.

The Fund will invest primarily in fixed-income securities, emphasizing those
which mature in two years or less from the date of acquisition or which have
similar volatility characteristics. To minimize credit risk and fluctuations in
net asset value per share, the Fund intends to maintain an average portfolio
maturity of less than five years. The Fund's money managers will seek to
identify and invest in a managed portfolio of high-quality debt securities
denominated in the US dollar and a range of foreign currencies. Under normal
circumstances, the Fund will invest in securities of issuers domiciled in at
least three different countries.

Although the Fund will invest primarily in debt securities denominated in the US
dollar, the money managers will actively manage the Fund's portfolio in
accordance with a multi-market investment strategy, allocating investments among
securities denominated in the US dollar and the currencies of a number of
foreign countries and, where consistent with its policy of investing only in
high-quality securities, within each such country, among different types of debt
securities. The money managers which invest in foreign denominated securities
will maintain a substantially neutral currency exposure relative to the US
dollar, and will establish and adjust cross currency hedges based on its
perception of the most favorable markets and issuers. In this regard, the
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with a money
manager's assessment of the relative yield of such securities and the
relationship of a country's currency to the US dollar. Fundamental economic
strength, credit quality and interest rate trends will be the principal factors
considered by the money managers in determining whether to increase or decrease
the emphasis placed upon a particular type of security or industry sector within
the Fund's investment portfolio. The Fund will not invest more than 10% of its
total assets in debt securities denominated in a single currency other than the
US. At this time, Management Company intends to limit total non-US dollar
investments to no more than 25% of total Fund assets.

The Fund will invest in debt securities denominated in currencies of countries
whose governments are considered by it to be stable (or, when the Fund invests
in countries considered unstable or undeveloped, it will only do so when it
believes to be able to hedge substantially the risk of a decline in the currency
in which the Fund's portfolio securities are denominated). In addition to the US
dollar, such currencies include, among others, Australian Dollar, Austrian
Schilling, Belgian Franc, British Pound Sterling, Canadian Dollar, Danish Krone,
Dutch Guilder, European Currency Unit ("ECU"), French Franc, Irish Punt, Italian
Lira, Japanese Yen, New Zealand Dollar, Norwegian Krone, Spanish Peseta, Swedish
Krona, Swiss Franc, and German Mark. An issuer of debt securities purchased by
the Fund may be domiciled in a country other than a country in whose currency
the instrument is denominated.

In selecting particular investments for the Fund, the money managers will seek
to minimize investment risk by limiting their portfolio investments to debt
securities of high quality. Accordingly, the Fund's portfolio will consist only
of: (a) debt securities issued or guaranteed by the US government, its agencies
or instrumentalities ("US Government Securities"); (b) obligations issued or
guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, or instrumentalities, or by supranational entities, all
of which are rated AAA or AA by S&P or Aaa or Aa by Moody's or, if unrated,
determined by the money managers to be of equivalent quality; (c) investment
grade corporate debt securities or, if unrated, determined by the money managers
to be of equivalent quality; (d) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, banks
(including foreign branches of US banks or US or foreign branches of foreign
banks) having total assets of more than $500 million and determined by the money
managers to be of high quality; and (e) commercial paper rated A-1 or A-2 by
S&P, Prime-1 or Prime-2 by Moody's, Fitch-1 or Fitch-2 by Fitch Investors
Service, Inc., Duff 1 or Duff 2 by Duff & Phelps, Inc., TBW-1 or TBW-2 by
Thomson BankWatch, Inc., or, if not rated, issued by US or foreign companies
having

PROSPECTUS 25
<PAGE> 26
outstanding debt securities rated AAA, AA or A by S&P, or Aaa, Aa or A by
Moody's and determined by the money managers to be of high quality.

As described above, the Fund may invest in debt securities issued by
supranational organizations such as: the World Bank, which was chartered to
finance development projects in developing member countries; the European
Community, which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union of
various European nations' steel and coal industries; and the Asian Development
Bank, which is an international development bank established to lend funds,
promote investment and provide technical assistance to member nations in the
Asian and Pacific regions.

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

The Fund may enter into interest rate swaps, which involve the exchange by the
Fund with another party of its respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments.
The Fund expects to enter into these transactions primarily to preserve a return
or spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities it anticipates purchasing at a
later date. The Fund intends to use these transactions as a hedge and not as a
speculative investment.

FIXED INCOME III FUND

The Fixed Income III Fund's objective is to provide maximum total return,
primarily through capital appreciation and by assuming a higher level of
volatility than is ordinarily expected from broad fixed-income market
portfolios, by investing in fixed-income securities.

The Fund will invest primarily in fixed-income securities. The Fund's
investments will include: US government and US government agency securities;
obligations of foreign governments or their subdivisions, agencies and
instrumentalities; securities of international agencies or supranational
agencies; corporate debt securities; loan participations; corporate commercial
paper; indexed commercial paper; variable, floating and zero coupon rate
securities; mortgage and other asset-backed securities; municipal obligations;
variable amount demand master notes (these notes represent a borrowing
arrangement between a commercial paper issuer and an institutional lender, such
as the Fund); bank certificates of deposit, fixed time deposits and bankers
acceptances; repurchase agreements and reverse repurchase agreements; and,
foreign currency exchange related securities.

The Fund may also invest in convertible securities and derivatives, including
warrants and interest rate swaps. Interest rate swaps are described under "Fixed
Income II Fund." The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment.

As described above, the Fund may invest in debt securities issued by
supranational organizations. Supranational organizations are described under
"Fixed Income II Fund."

Investments in bank certificates of deposit, time deposits and banker's
acceptances include Eurodollar Certificates of Deposit ("ECD"), which are issued
by foreign branches of US or foreign banks; Eurodollar Time Deposits ("ETD"),
which are issued by foreign branches of US or foreign banks; and, Yankee
Certificates of Deposit ("Yankee CDs"), which are issued by US branches of
foreign banks. These instruments may be US dollar or foreign currency
denominated and are subject to the risks of non-US issuers described under
"Investment Policies - Investment in Foreign Securities."

The variable and floating rate securities the Fund may invest in provide for a
periodic adjustment in the interest rate paid on the obligations. The terms of
such obligations must provide that interest rates are adjusted periodically
based upon some appropriate interest rate adjustment index as provided in the
respective obligations. The adjustment intervals may be regular, and range from
daily up to annually, or may be event based, such as on a change in the prime
rate. The Fund may also invest in zero coupon US Treasury, foreign government
and US and foreign corporate debt securities, which are bills, notes and bonds
that have been stripped of their unmatured interest coupons and receipts or
certificates representing interests in such stripped debt obligations and
coupons. A zero coupon security pays no interest to its holder prior to
maturity. Accordingly, such securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing

26 PROSPECTUS
<PAGE> 27

interest rates than debt obligations of comparable maturities that make current
distributions of interest.

The Fund's portfolio may include debt securities issued by domestic or foreign
entities, and denominated in US dollars or foreign currencies. It is anticipated
that no more than 25% of the Fund's assets will be denominated in foreign
currencies. Foreign currency exchange transactions (options on foreign
currencies, foreign currency futures contracts and forward foreign currency
exchange contracts) will only be used by the Fund for the purpose of hedging
against foreign currency exchange risk arising from the Fund's investment, or
anticipated investment, in securities denominated in foreign currencies. Foreign
investment may include emerging market debt. The risks associated with
investment in securities issued by foreign governments and companies are
described under "Investment Policies - Investment in Foreign Securities." Those
countries considered emerging markets are described under "Emerging Markets
Fund." Emerging market debt the Fund may invest in includes bonds, notes and
debentures of emerging market governments and debt and other fixed income
securities issued or guaranteed by such governments' agencies, instrumentalities
or central banks, or by banks or other companies in emerging markets determined
by the money managers to be suitable investments for the Fund. Under current
market conditions it is expected that emerging market debt will consist
predominantly of Brady Bonds and other sovereign debt. Brady Bonds are products
of the "Brady Plan," under which bonds are issued in exchange for cash and
certain of a country's outstanding commercial bank loans.

The Fund may invest up to 25% of its assets in debt securities that are rated
below "investment grade" (i.e., rated lower than BBB by S&P or Baa by Moody's)
or in unrated securities judged by the managers of the Fund to be of comparable
quality. Debt rated BB, B, CCC, CC and C and debt rated Ba, B, Caa, Ca and C is
regarded by S&P and Moody's, respectively, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. For S&P, BB indicates the lowest
degree of speculation and C the highest. For Moody's, Ba indicates the lowest
degree of speculation and C the highest. These lower rated debt securities may
include obligations that are in default or that face the risk of default with
respect to principal or interest. Such securities are sometimes referred to as
"junk bonds." For additional information on the ratings used by S&P and Moody's
and a description of lower rated debt securities, please refer to the Funds'
Statement of Additional Information.

MONEY MARKET FUND

The Money Market Fund's objectives are 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 in short-term, high
grade money market instruments. THE MONEY MARKET FUND IS NOT AVAILABLE FOR
DIRECT SHAREHOLDER INVESTMENT UNTIL FURTHER NOTICE.

The instruments in which the Fund invests include (1) securities issued or
guaranteed by the US government or any of its agencies and instrumentalities,
including securities of the US Treasury, the Federal National Mortgage
Association, the Federal Housing Administration, and the Tennessee Valley
Authority; (2) instruments of US and foreign banks and branches, including
certificates of deposit, bankers' acceptances and time deposits, and may include
ECDs, Yankee CDs and ETDs; (3) commercial paper of US and foreign companies; (4)
corporate obligations; (5) Variable Amount Master Demand Notes and (6)
securities listed in (1) which are subject to repurchase agreements provided
that the Fund will not invest in repurchase agreements maturing in more than
seven days if, as a result, thereof, sales repurchase agreements together with
all other illiquid securities, equal more than 10% of the Fund's total assets
taken at the current market value.

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

The Fund expects to maintain, but does not guarantee, a net asset value of $1
per share by valuing its portfolio securities at amortized cost. In order to use
the amortized cost method, the Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less and invest only in US dollar denominated
securities with remaining

PROSPECTUS 27

<PAGE> 28

maturities of 397 days or less that the money manager determines are of high
quality with minimal credit risk in accordance with procedures adopted by the
Board of Trustees. The procedures require that the money manager consider a
number of factors in determining whether a security is of high quality and of
minimal credit risk, including that the security (i) if rated by more than one
nationally recognized statistical rating organization ("NRSRO") is rated in the
highest rating category of any two NRSROs, (ii) if rated by only one NRSRO, is
rated in that NRSRO's highest rating category, and (iii) if unrated is
determined by the money manager to be of comparable quality to a security rated
in the highest rating category of an NRSRO. (See, the Statement of Additional
Information for a description of the NRSROs.) These procedures are reasonably
designed to assure that the prices determined by the amortized cost valuation
will approximate the current market value.

INVESTMENT RESTRICTIONS.

The Funds have 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
such Fund. A Fund's investment in "cash reserves" (see the next section)
in shares of Investment Company's Money Market Fund are not subject to
this restriction or to restriction 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).

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 issuers 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. Each Fund, other than the Money Market Fund, is authorized to
invest its cash reserves (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 the Fund's permitted
investments. In lieu of having each of these Funds make separate, direct
investments in money market instruments, each Fund and its money managers may
elect to invest the Fund's cash reserves in the Money Market Fund. 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
Funds.

RUSSELL 1000(R) INDEX. The Russell 1000(R) Index consists of the 1,000 largest
US companies by capitalization (i.e., market price per share times the number of
shares outstanding). The smallest company in the Index at the time of selection
has a capitalization of approximately $457 million. The Index does not include
cross-corporate holdings in a company's capitalization. For example, when IBM
owned approximately 20% of Intel, only 80% of the total shares outstanding of
Intel were used to determine Intel's capitalization. Also not included in the
Index are closed-end investment companies, companies that do not file a Form
10-K report with the Securities and Exchange Commission, foreign securities, and
American Depository Receipts ("ADRs").

The Index's composition is changed annually to reflect changes in market
capitalization and share balances outstanding. These changes are expected to
represent less than 1% of the total market capitalization of the Index. Changes
for mergers and acquisitions are made when trading ceases in the acquiree's
shares. The 1,001st largest US company by capitalization is then added to the
Index to replace the acquired stock.

The Russell 1000(R) Index is used as the basis for the Equity Q Fund's
performance because it, in Management Company's opinion, represents the universe
of stocks in which most active money managers invest and is representative of
the performance of publicly traded common stocks most institutional investors
purchase.

Frank Russell Company chooses the stocks to be included in the Index solely on a
statistical basis and it is not an indication that Frank Russell Company or
Management Company believes that the particular security is an attractive
investment.

28 PROSPECTUS

<PAGE> 29

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 Polices - Illiquid Securities," no Fund
will invest more than 15% of its total assets (taken at current market value) in
repurchase agreements maturing in more than seven days. Money Market Fund will
not invest more than 10% of its 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. Each Fund may lend portfolio securities with a
value of up to 50% of its total assets. Such loans may be terminated at any
time. The Fund will receive either cash (and agree to pay a "rebate" interest
rate), US government or US government agency securities as collateral in 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 investment and money market mutual funds (including funds
advised by State Street Bank, the Funds' Custodian, for which it may receive an
asset-based fee) and other investments meeting certain quality and maturity
requirements established by the Funds. Income generated from the investment of
the cash collateral is first used to pay the rebate interest cost to the
borrower of the securities and then the remainder is divided between the Fund,
and the Fund's Custodian.

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

Should the borrower of the securities fail financially, there is a risk of delay
in recovery of the securities or loss of rights in the collateral. Consequently,
loans are made only to borrowers which are deemed to be of good financial
standing. 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 Funds, other than Money Market Fund, 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 use of Money Market Fund, this
restriction is 10% of net assets. In addition the Funds will not invest more
than 10% in securities of issuers which may not be sold to the public without
registration under the Securities Act of 1933.

These policies do not include (1) commercial paper issued under Section 4(2) of
the Securities Act of 1933 or (2) restricted securities eligible for resale to
qualified institutional purchasers pursuant to Rule 144A under the Securities
Act of 1933 that are determined to be liquid by the money managers in accordance
with Board approved guidelines. Such

PROSPECTUS 29

<PAGE> 30

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 Fund's holding
of that security may be illiquid. There may be undesirable delays in selling
illiquid securities at prices representing their fair value.

LIQUIDITY PORTFOLIOS. Management Company will exercise investment discretion or
select a money manager to exercise investment discretion, for approximately
5%-15% of Equity I, Equity II, Equity III, Equity Q and International Funds
assets assigned to a "Liquidity Portfolio." The Liquidity Portfolio will be used
to create temporarily an equity exposure for cash balances until those balances
are invested in equities or used for Fund transactions.

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

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 the Fund's 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 the Fund's
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 countries.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS ("forward currency contracts"). The
International, Emerging Markets, Fixed Income I, Fixed Income II and Fixed
Income III Funds may enter into forward currency contracts, which are agreements
to exchange one currency for another--FOR EXAMPLE, to exchange a certain amount
of US Dollars for a certain amount of Japanese Yen--at a future date. The date
(which may be any agreed upon fixed number of days in the future), the amount of
currency to be exchanged and the price at which the exchange will take place
will be negotiated and fixed for the term of the contract at the time that a
Fund enters into a contract. The Funds may engage in forward contracts that
involve transacting in a currency whose changes in value are considered to be
linked (a proxy) to a currency or currencies in which some or all of the Fund's
portfolio securities are or are expected to be denominated. Forward currency
contracts are (a) traded in an interbank market conducted directly between
currency traders (typically, commercial banks or other financial institutions)
and their customers, (b) generally have no deposit requirements and (c) are
consummated without payment of any commissions. The Funds may, however, enter
into forward currency contracts containing either or both deposit requirements
and commissions. In order to assure that the Fund's forward currency contracts
are not used to achieve investment leverage, the

Funds will segregate cash or readily marketable high-quality securities in an
amount at

30 PROSPECTUS
<PAGE> 31

all times equal to or exceeding the Fund's commitment with respect to these
contracts.

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

Forward currency contracts will be used only to hedge against anticipated future
changes in exchange rates which otherwise might either adversely affect the
value of the Fund's portfolio securities or adversely affect the price of
securities which the Funds intend to purchase at a later date. The amount the
Funds may invest in forward currency contracts is limited to the amount of the
Fund's aggregate investments in foreign currencies.

The market for forward currency contracts may be limited with respect to certain
currencies. These factors will restrict a Fund's ability to hedge against the
risk of devaluation of currencies in which the Fund holds a substantial quantity
of securities and are unrelated to the qualitative rating that may be assigned
to any particular portfolio security. Where available, the successful use of
forward contracts draws upon a money manager's special skills and experience
with respect to such instruments and usually depends on the money manager's
ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, a
Fund may not achieve the anticipated benefits of forward contracts or may
realize losses and thus be in a worse position than if such strategies had not
been used. Unlike many exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits with respect to forward
contracts, and adverse market movements could therefore continue to an unlimited
extent over a period of time. In addition, the correlation between movements in
the prices of such instruments and movements in the price of the securities and
currencies hedged or used for cover will not be perfect. In the case of proxy
hedging, there is also a risk that the perceived linkage between various
currencies may not be present or may not be present during the particular time
the funds are engaged in that strategy.

A Fund's ability to dispose of its positions in forward contracts will depend on
the availability of active markets in such instruments. It is impossible to
predict the amount of trading interest that may exist in various types of
forward contracts. Forward foreign currency contracts may be closed out only by
the parties entering into an offsetting contract. Therefore, no assurance can be
given that a Fund will be able to utilize these instruments effectively for the
purposes set forth above.

OPTIONS. The Funds, other than the Money Market Fund, 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 Fund, 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 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.

PROSPECTUS 31

<PAGE> 32

Fund will realize a profit or loss from a closing purchase or sale transaction
depending upon the difference between the amount paid to purchase an option and
the amount received from the sale thereof.

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 other than the Equity I, Equity II,
Equity III, Equity Q, International and Emerging Markets Funds currently intends
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
other than the Fixed Income III Fund currently intends 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 the 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. The Funds, other than the
Money Market Fund, 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

32 PROSPECTUS

<PAGE> 33

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 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, other than Emerging Markets and Fixed Income III, 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 considers securities rated Baa to have some
speculative characteristics. The Funds, other than Emerging Markets and Fixed
Income III, 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.

The Emerging Markets Fund will invest in "investment grade" securities and may
invest up to 5% of its total assets in debt securities rated less than BBB by
S&P or Baa by Moody's, or in unrated securities judged by the money managers of
the Fund to be of comparable quality. The Fixed Income III Fund will invest in
"investment grade" securities and may invest up to 25% of its total assets in
debt securities rated less than BBB by S&P or Baa by Moody's, or in unrated
securities judged by the money managers of the Fund to be of comparable quality.

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

PROSPECTUS 33
<PAGE> 34

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 the
Liquidity Portfolios. THE FUNDS DO NOT GIVE SIGNIFICANT WEIGHT TO ATTEMPTING TO
REALIZE LONG-TERM, RATHER THAN SHORT-TERM, CAPITAL GAINS WHEN MAKING PORTFOLIO
MANAGEMENT DECISIONS. Managers make decisions to buy or sell securities
independently from other managers. Thus, one manager could be selling a security
when another manager for the same Fund is purchasing the same security. In
addition, when a 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 transaction based costs. The annual portfolio
turnover rates for each of the Funds (other than the Money Market) are shown in
the Financial Highlights tables.

The Funds may effect portfolio transactions with or through Frank Russell
Securities, Inc., an affiliate of Management Company, when the manager
determines that the Fund will receive competitive execution, price and
commissions. Frank Russell Securities refunds up to 70% of the commission paid
to the Funds effecting such transactions, after reimbursement for research
services provided to Management Company. This arrangement is used by Equity I,
Equity II, Equity III, Equity Q, International and Emerging Markets Funds. All
Funds may also effect portfolio transactions through and pay brokerage
commissions to money managers (or their affiliates).

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS.

The Board of Trustees presently intends to declare dividends from ordinary
income for payment on the following schedule:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DECLARED PAYABLE
- ---------- ------------------------------
<S> <C> <C>
Daily 1st day of following month Money Market Fund
Quarterly Mid: April, July, October and Equity I, Equity II, Equity III, Equity Q, Fixed
December Income I, Fixed Income II and Fixed Income III
Funds
Annually Mid-December International and Emerging Markets Funds
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

The Money Market Fund determines ordinary income immediately prior to the
determination of the net asset value per share as of the close of the New York
Stock Exchange of the Fund's net asset value (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 a Fund and received
by shareholders on December 31 of the prior year. Net 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.

34 PROSPECTUS

<PAGE> 35

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
ordinary income and realized capital gains earned by their 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 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 Fixed Income I, Fixed Income II, Fixed
Income III and Money Market Funds 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 Equity I,
Equity II, Equity III and Equity Q Funds 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 a 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 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). 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.

The International, Emerging Markets, Fixed Income I, Fixed Income II and Fixed
Income III Funds will receive dividends and interest paid by non-US issuers
which will frequently be subject to withholding taxes by non-US governments.
Management Company expects the International and Emerging Markets Funds to
invest more than 50% of their total assets in non-US securities and to file
specified elections with the Internal Revenue Service which will permit such
shareholders either to deduct (as an itemized deduction in the case of an
individual) such foreign taxes in computing taxable income, or to use these
withheld foreign taxes as credits against US income taxes. The Funds' taxable
shareholders must include their pro rata portion of the taxes withheld in their
gross income for federal income tax purposes.

The Emerging Markets Fund may invest up to 10% of its total assets in the stock
of foreign investment companies that may be treated as "passive foreign
investment companies" ("PFICs") under the Code. Certain other foreign
corporations not operated as investment companies, may nevertheless satisfy the
PFIC definition. A portion of the income and gains that the Emerging Markets
Fund derives may be subject to a non-deductible federal income tax at the Fund
level. In some cases, the Fund may be able to avoid this tax by electing to be
taxed currently on its share of PFIC's income, whether or not such income is
actually distributed by the PFIC. The Fund will endeavor to limit its exposure
to the PFIC tax by investing in PFICs only where the election to be taxed
currently will be made. Because it is not always possible to identify a foreign
issuer as a PFIC in advance of making the investment, the Fund may incur the
PFIC tax in some instances.

The Fixed Income I, Fixed Income II and Fixed Income III Funds may acquire zero
coupon securities issued with original issue discount. As the holder of such a
security, the Fund will have to include in taxable income a portion of the
original issue discount that accrues on the security for the taxable year, even
if the Fund receives no payment on the security during the year. Because the
Fund annually must distribute substantially all of its investment company
taxable income, the Fund may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash the Fund
actually receives. Those distributions will be made from the Fund's cash assets
or from the proceeds of sales of portfolio securities, if necessary. The Fund
may realize capital gains or losses from those sales, which would increase or
decrease the Fund's investment company taxable income or net capital gain.

PROSPECTUS 35

<PAGE> 36

Funds' foreign taxes withheld; and of the percentages of Fixed Income I, Fixed
Income II, Fixed Income III and Money Market Funds' income attributable to US
Government Treasury and agency securities.

A Fund is required to withhold 31% of all taxable dividends, distributions, and
redemption proceeds payable to any noncorporate 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 10 YEARS ENDED INCEPTION TO
1 YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1994 DECEMBER 31, 1994 INCEPTION
DECEMBER 31, 1994 (ANNUALIZED) (ANNUALIZED) (ANNUALIZED) DATE
----------------- ----------------- ----------------- ----------------- --------
<S> <C> <C> <C> <C> <C>
Equity I 0.79% 8.71% 13.94% 13.75% 10/15/81
Equity II (2.60) 9.34 13.33 12.60 12/28/81
Equity III 1.16 9.49 13.59 15.30 11/27/81
Equity Q 0.99 9.71 -- 9.63 05/29/87
International 5.38 5.05 18.26 17.19 01/31/83
Emerging Markets (5.83) -- -- 16.29 01/29/93
Fixed Income I (2.97) 7.69 9.93 11.57 10/15/81
Fixed Income II 0.82 6.42 7.98 9.68 10/30/81
Fixed Income III (3.89) -- -- 3.05 01/29/93
Money Market 4.57 5.39 6.70 7.70 10/15/81
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Fixed Income I, Fixed Income II and Fixed Income III Funds also may from
time to time advertise their yields. The yields are based on historical earnings
and are not intended to indicate future performance. Yield 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 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 a Fund's
portfolio. The calculation includes all recurring fees that are charged to all
shareholder accounts. The 30 day yields for the year ended December 31, 1994 for
Fixed Income I, Fixed Income II and Fixed Income III Funds were, respectively,
7.94%, 7.18% and 8.11%.

The Money Market Fund may advertise its yield and effective yield. Both yield
figures are based on historical earnings and are not intended to indicate future
performance. The yield of the Money Market Fund refers to the income generated
by an investment in the Money Market Fund 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

36 PROSPECTUS
<PAGE> 37

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 Fund 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>
Money Market Fund 3.67% 3.74% 4.38% 4.47% 5.04% 5.17% 5.75% 5.92%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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 all Funds
except the Money Market Fund, a business day is one on which the New York Stock
Exchange is open for trading. A business day for the Money Market Fund 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 a 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 Money Market
Fund also determines its net asset value as of 1:00 p.m. Eastern time.

VALUATION OF PORTFOLIO SECURITIES.

With the exceptions noted below, the Funds value 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 Fund's 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. The Money Market Fund is permitted to utilize
the amortized cost valuation method in accordance with an exemptive order
granted to the Investment Company by the Securities and Exchange Commission
("SEC"), pursuant to which the Board of Trustees of the Investment Company have
agreed to adhere to certain conditions. Money market instruments maturing within
60 days of the valuation date held by Funds other than the Money Market Fund 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 Fund would receive if it
sold the instrument.

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

PROSPECTUS 37
<PAGE> 38

PURCHASE OF FUND SHARES

Shares of the Funds are sold 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.

<TABLE>
- ---------------------------------------------------------------------------------------
<S> <C>
Close of the New York Equity I, Equity II, Equity III, Equity Q,
Stock Exchange (currently International, Emerging Markets, Fixed Income I,
4:00 p.m. Eastern time) Fixed Income II, Fixed Income III
12:45 p.m. Eastern time Money Market*
- ---------------------------------------------------------------------------------------
</TABLE>

* Shares of the Money Market Fund are not available for direct investment until
further notice.

Orders for the Money Market Fund shares placed prior to the above time and in
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
which 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
the 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 the Funds:

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

AUTOMATED CLEARING HOUSE ("ACH"). Payment for orders may be made through the ACH
to the Funds' 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. Investment in the Money Market Fund
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 Money Market Fund. Investments in the non-money market Funds will
be effected upon receipt of the check or draft by the 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 drafts 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.

38 PROSPECTUS
<PAGE> 39

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 Fund(s) (other than the Money Market Fund) for settlement
on the third business day following the receipt of an order to be paid by a
federal wire if the investor has agreed in writing to indemnify the Fund(s)
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 another Fund offered by this Prospectus on the basis of current net
asset values 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 legally be made. For additional information,
including a Prospectus of other Investment Company's Funds, contact the
Investment Company. Exchanges may be made by (i) telephone if the registration
of the two accounts are identical; or (ii) in writing addressed to the
Investment Company.

An exchange is a redemption of the 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 talk with their 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 do not currently 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 Fund. 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 Frank Russell Investment
Company Fund shares must be received by the Funds' 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 Equity I, Equity II, Equity III, Equity Q,
Stock Exchange (currently International, Emerging Markets, Fixed Income I, Fixed Income II,
4:00 p.m. Eastern time) Fixed Income III
12:45 p.m. Eastern time Money Market

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

Redemption requests placed in the Money Market Fund prior to the above time will
be tendered that day. Requests received for that Fund 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

PROSPECTUS 39

<PAGE> 40

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 next determined after receipt by 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 a Money Market Fund 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 the
designated bank on the payment date.

SWP DISTRIBUTION BY CHECK. Checks will be sent by US Postal Service first class
mail, from Boston, 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 the unlikely emergency conditions,
which are specified in the Investment Company Act of 1940, as amended, or
determined by the SEC, should exist.

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, ACCOUNTANTS AND REPORTS.

Russell Fund Distributors, Inc., a wholly owned subsidiary of 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 annual financial statements audited by Coopers & Lybrand L.L.P. Shareholders
may also receive additional reports concerning the Funds, or their accounts,
from Management Company.

ORGANIZATION, CAPITALIZATION, AND VOTING.

40 PROSPECTUS
<PAGE> 41

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."

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 Investment Company 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 the 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 following Shareholders may be deemed by the Investment
Company Act of 1940 to "control" the Funds listed after their name because they
own more than 25% of the voting shares of the indicated Funds: U.S. National
Bank of Oregon-Equity I, Equity Q, Fixed Income I, Fixed Income III,
International, Emerging Markets Funds; Reber/Russell Company -- Money Market
Fund.

MONEY MANAGER PROFILES

The money managers, other than FRIMCo for the Money Market Fund, have no other
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.

EQUITY I FUND

ALLIANCE CAPITAL MANAGEMENT L.P., 601 2nd Ave. South, Suite 5000, Minneapolis,
MN 55402-4322, a limited partnership whose (i) general partner is a wholly owned
subsidiary of The Equitable Companies Incorporated ("The Equitable") and (ii)
majority unit holder is ACM, Inc., a wholly owned subsidiary of The Equitable.
As of July 22, 1994, 49% of The Equitable was owned by Axa, a French insurance
holding company.

SYSTEMATIC FINANCIAL MANAGEMENT, L.P. (through its Cash Flow Investors
Division), 2 Executive Drive, Fort Lee, NJ 07024, is a limited partnership whose
general partner is Affiliated Managers Group, Inc., a Boston based investment
management holding company.

COLUMBUS CIRCLE INVESTORS, Metro Center, One Station Place, 8th Floor, Stamford,
CT 06902, a separate subpartnership of PIMCO Advisors L.P. ("Partnership").
PIMCO Partners, G.P. is the sole general partner of the Partnership. Pacific
Financial Asset Management Corporation indirectly holds a majority interest in
PIMCO Partners, G.P., with the remainder held indirectly by a group comprised of
PIMCO Managing Directors.

EQUINOX CAPITAL MANAGEMENT, INC., 399 Park Ave., 28th Floor, New York, NY 10022.
Equinox is a registered investment advisor with majority ownership held by Ron
Ulrich.

INVESCO CAPITAL MANAGEMENT, INC., 1315 Peachtree Street N.E., Suite 300,
Atlanta, GA 30309, a corporation whose indirect parent is INVESCO PLC, a London-
based financial services holding company.

LINCOLN CAPITAL MANAGEMENT COMPANY, 200 South Wacker Drive, Suite 2100, Chicago,
IL 60606. Lincoln Capital Management, Inc. is a division of Lincoln Capital
Management Company, and is a registered investment advisor with majority
ownership held by John Croghan, Parker Hall, Ken Meyer, Tim Ubben and Ray Zemon.

SUFFOLK CAPITAL MANAGEMENT, INC., 250 West 57th Street, Suite 1116, New York, NY
10107. Suffolk Capital Management, Inc. is a registered investment advisor and a
wholly owned subsidiary of United Asset Management Company, a publicly traded
corporation.

TRINITY INVESTMENT MANAGEMENT CORP., 75 Park Plaza, Boston, MA 02116, is a
corporation with seven shareholders, with Stanford M. Calderwood holding
majority ownership.

WELLINGTON MANAGEMENT COMPANY, 75 State Street, Boston, MA 02109, is a private
Massachusetts general partnership, of which the following persons are managing

PROSPECTUS 41
<PAGE> 42

partners: Robert W. Doran, Duncan W. McFarland, and John B. Neff.

EQUITY II FUND

DELPHI MANAGEMENT, INC., 50 Rowes Wharf, Suite 440, Boston, MA 02110, is 100%
owned by Scott Black.

JACOBS LEVY EQUITY MANAGEMENT, Inc., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068, is 100% owned by Bruce Jacobs and Kenneth Levy.

JUNDT ASSOCIATES, INC., 1550 Utica Ave. South, Suite 950, Minneapolis, MN 55416,
is 100% owned by James Jundt and Gail Knappenberger.

MITCHELL HUTCHINS INSTITUTIONAL INVESTORS, INC., 1285 Ave. of the Americas, New
York, NY 10019, whose indirect parent is Paine Webber Group Inc., a publicly
traded corporation.

SIRACH CAPITAL MANAGEMENT, INC., One Union Square, Suite 3323, 600 University
Street, Seattle, WA 98101, a wholly owned subsidiary of United Asset Management
Company, a publicly traded corporation.

WELLINGTON MANAGEMENT COMPANY, See: Equity I Fund.

EQUITY III FUND

BRANDYWINE ASSET MANAGEMENT, INC., Three Christina Centre, Suite 1200, 201 N.
Walnut Street, Wilmington, DE 19801, is a corporation controlled by its
president, W. Anthony Hitschler and six other principals.

EQUINOX CAPITAL MANAGEMENT, INC., See: Equity I Fund.

TRINITY INVESTMENT MANAGEMENT CORP., See: Equity I Fund.

EQUITY Q FUND

FRANKLIN PORTFOLIO ASSOCIATES TRUST, One Post Office Square, Suite 3660, Boston,
MA 02109, a Massachusetts business trust owned by Mellon Financial Services
Corporation, a holding company of Mellon Bank Corporation.

J.P. MORGAN INVESTMENT MANAGEMENT INC., 522 Fifth Ave., 14th Floor, New York, NY
10036, is a wholly owned subsidiary of J.P. Morgan & Co., Inc., a publicly held
bank holding company.

WELLS FARGO NIKKO INVESTMENT ADVISORS, 45 Fremont Street, San Francisco, CA
94105, is a joint venture, 50% of which is owned by Wells Fargo & Company, a
publicly held bank holding company, and 50% of which is owned by Nikko
Securities Co., Ltd.

INTERNATIONAL FUND

GRANTHAM, MAYO, VAN OTTERLOO & CO., 40 Rowes Wharf, Boston, MA 02110, whose
majority ownership is held by the four senior partners: Jeremy Grantham, Richard
Mayo, Eyk De Mol Van Otterloo, and Kingsley Durant.

J.P. MORGAN INVESTMENT MANAGEMENT INC., See: Equity Q Fund.

MARATHON ASSET MANAGEMENT LIMITED., 115 Shaftesbury Ave., London, England WC2H
8AD, is a corporation 33.3% owned by each of the following: Jeremy Hosking,
William Arah and Neil Ostrer.

OECHSLE INTERNATIONAL ADVISORS, One International Place, 44th Floor, Boston, MA
02110, is a limited partnership which is 100% controlled by its general
partners. The general partners are: S. Dewey Keesler, Stephen P. Langer, Walter
Oechsle, L. Sean Roche, Steven H. Schaefer and Tetsuo Shiozumi.

ROWE PRICE-FLEMING INTERNATIONAL, INC., 100 East Pratt Street, 9th Floor,
Baltimore, MD 21202, and 4th Floor, 25 Copthall Ave., London, England EC2R 7DR,
which is a joint venture of T. Rowe Price Associates, Inc., and The Fleming
Group, each of which owns 50% of the company. Ownership of The Fleming Group
holding is split equally between Copthall Overseas Limited, a subsidiary of
Robert Fleming Holdings, and Jardine Fleming International Holdings Limited, a
subsidiary of Jardine Fleming Holdings. Robert Fleming Holdings is a
London-based UK holding company with the majority of the shares distributed: 51%
to public companies and 38% to the Fleming family. Jardine Fleming is a Hong
Kong-based holding company which is owned 50% by Robert Fleming Holdings and 50%
by Jardine Matheson & Co., the Hong Kong trading company, a wholly owned
subsidiary of Jardine Matheson Holdings Limited. The stock of T. Rowe Price
Associates, Inc., is publicly traded with a substantial percentage of such stock
owned by the company's active management.

EMERGING MARKETS FUND

BARING INTERNATIONAL INVESTMENT, LTD., 155 Bishopsgate, London, England EC2M
3XY, a UK company, manages the North American clients for Baring International
Investment Limited ("BII"). BII is wholly owned by Baring Asset Management
Limited which is a wholly-owned subsidiary ultimately of International Nederland
Groep N.V.

GENESIS ASSET MANAGERS, LTD., Bermuda House, St. Julian's Ave., St. Peter Port,
Guernsey, Channel Islands, is a limited liability company organized under the
laws of the state of Guernsey, the Channel Islands, and has been engaged in the
investment advisory business since 1990.

42 PROSPECTUS
<PAGE> 43

Genesis Asset Managers, Ltd., is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. Genesis Asset Managers Ltd., is
affiliated with and has common investment executives with the Genesis Group of
fund management companies. The Genesis Group, whose holding company is Genesis
Holdings Ltd., is controlled 32.58% by management and 67.42% by 12 outside
shareholders, with the largest single holding being 19.68%.

MONTGOMERY ASSET MANAGEMENT L.P., 600 Montgomery Street, 17th Floor, San
Francisco, CA 94111, is a California limited partnership and a registered
investment advisor. Montgomery Asset Management, Inc. is the general partner of
Montgomery Asset Management, L.P., and Montgomery Securities is the sole limited
partner. Montgomery Asset Management, Inc. and Montgomery Securities may be
deemed control persons of Montgomery Asset Management, L.P.

FIXED INCOME I FUND

LINCOLN CAPITAL MANAGEMENT COMPANY, See: Equity I Fund.

PACIFIC INVESTMENT MANAGEMENT COMPANY, 840 Newport Center Drive, Suite 360,
Newport Beach, CA 92660, is a subsidiary partnership of PIMCO Advisors L.P.
("Partnership"). PIMCO Partners, G.P. is the sole general partner of the
Partnership. Pacific Financial Asset Management Corporation indirectly holds a
majority interest in PIMCO Partners, G.P., with the remainder held indirectly by
a group comprised of PIMCO Managing Directors.

STANDISH, AYER & WOOD, INC., One Financial Center, Boston, MA 02111, whose
ownership is divided among seventeen directors, with no director having more
than a 25% ownership interest.

FIXED INCOME II FUND

BLACKROCK FINANCIAL MANAGEMENT, 345 Park Ave., 31st Floor, New York, NY 10154, a
wholly-owned subsidiary of PNC Bank.

STANDISH, AYER & WOOD, INC., See: Fixed Income I Fund.

FIXED INCOME III FUND

BEA ASSOCIATES, 153 East 53rd Street, New York, NY 10022, is a general
partnership of Credit Suisse Capital Corporation ("CS Capital") and Basic
Appraisals, Inc. ("Basic"). CS Capital is an 80% partner, and is a wholly-owned
subsidiary of Credit Suisse Investment Corporation, which is in turn a
wholly-owned subsidiary of Credit Suisse, a Swiss bank, which is in turn a
subsidiary of CS Holding, a Swiss corporation. No one person or entity possesses
a controlling interest in Basic, the 20% partner. BEA Associates is a registered
investment adviser.

PACIFIC INVESTMENT MANAGEMENT COMPANY, See: Fixed Income I Fund.

STANDISH, AYER & WOOD, INC., See: Fixed Income I Fund.

MONEY MARKET FUND

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

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 IMPLICATION 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.

PROSPECTUS 43
<PAGE> 44

FRANK RUSSELL INVESTMENT COMPANY
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700
In Washington (206) 627-7001

MONEY MANAGERS

EQUITY I FUND
Alliance Capital Management L.P.
Systematic Financial Management, L.P.
Columbus Circle Investors
Equinox Capital Management Inc.
INVESCO Management & Research, Inc.
Lincoln Capital Management Company
Suffolk Capital Management, Inc.
Trinity Investment Management Corporation
Wellington Management Company

EQUITY II FUND
Delphi Management, Inc.
Jacobs Levy Equity Management, Inc.
Jundt Associates, Inc.
Mitchell Hutchins Institutional Investors, Inc.
Sirach Capital Management, Inc.
Wellington Management Company

EQUITY III FUND
Brandywine Asset Management, Inc.
Equinox Capital Management Inc.
Trinity Investment Management Corporation

EQUITY Q FUND
Franklin Portfolio Associates Trust
J.P. Morgan Investment Management Inc.
Wells Fargo Nikko Investment Advisors

INTERNATIONAL FUND
Grantham, Mayo, Van Otterloo & Co.
J.P. Morgan Investment Management Inc.
Marathon Asset Management Limited
Oechsle International Advisors
Rowe Price-Fleming International, Inc.

EMERGING MARKETS FUND
Baring International Investment Limited
Genesis Asset Managers Limited
Montgomery Asset Management, L.P.

FIXED INCOME I FUND
Lincoln Capital Management Company
Pacific Investment Management Company
Standish, Ayer & Wood, Inc.

FIXED INCOME II FUND
BlackRock Financial Management
Standish, Ayer & Wood, Inc.

FIXED INCOME III FUND
BEA Associates
Pacific Investment Management Company
Standish, Ayer & Wood, Inc.

MONEY MARKET FUND
Frank Russell Investment Management Co.

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 Distributor, 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 Shareholder Inquiries
909 A Street
Tacoma, Washington 98402
(800) 972-0700
In Washington (206) 627-7001

44 PROSPECTUS
<PAGE> 45

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

Frank Russell Investment Management Company ("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. Management Company is a
wholly owned subsidiary of Frank Russell Company, which researches and
recommends to Management Company, and to 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>
Diversified Equity Fund Diversified Bond Fund
Special Growth Fund Volatility Constrained Bond Fund
Equity Income Fund Multistrategy Bond Fund
Quantitative Equity Fund Limited Volatility Tax Free Fund
International Securities Fund U.S. Government Money Market Fund
Real Estate Securities Fund Tax Free Money Market Fund
</TABLE>

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.

THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT INVESTMENT COMPANY AND
THESE TWELVE FUNDS THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING.
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 1, 1995

PROSPECTUS

1
<PAGE> 46

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

DIVERSIFIED EQUITY FUND--Income and capital growth by investing principally in
equity securities.

SPECIAL GROWTH FUND--Maximum total return, primarily through capital
appreciation and by assuming a higher level of volatility than is ordinarily
expected from Diversified Equity Fund, by investing in equity securities.

EQUITY INCOME FUND--A high level of current income, while maintaining the
potential for capital appreciation by investing primarily in income-producing
equity securities.

QUANTITATIVE EQUITY FUND--Total return greater than the total return of the US
stock market as measured by the Russell 1000(R) Index over a market cycle of
four to six years, while maintaining volatility and diversification similar to
the Index by investing in equity securities.

INTERNATIONAL SECURITIES FUND--Favorable total return and additional
diversification for US investors by investing primarily in equity and
fixed-income securities of non-US companies, and securities issued by non-US
governments.

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.

DIVERSIFIED BOND FUND--Effective diversification against equities and a stable
level of cash flow by investing in fixed-income securities.

VOLATILITY CONSTRAINED BOND FUND--Preservation of capital and generation of
current income consistent with the preservation of capital by investing
primarily in fixed-income securities with low-volatility characteristics.

MULTISTRATEGY BOND FUND--Maximum total return, primarily through capital
appreciation and by assuming a higher level of volatility than is ordinarily
expected from broad fixed-income market portfolios, by investing in fixed-income
securities.

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 twelve Internal Fee Funds.
Another Prospectus describes and offers shares of 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 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 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 offered by this Prospectus on March 22,
1995, were:

<TABLE>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diversified Equity $458,196,393 Diversified Bond $551,644,745
Special Growth 250,274,547 Volatility Constrained Bond 202,093,921
Equity Income 152,361,432 Multistrategy Bond 180,743,122
Quantitative Equity 407,952,148 Limited Volatility Tax Free 52,396,434
International Securities 574,255,859 U.S. Government Money Market 124,638,855
Real Estate Securities 216,613,588 Tax Free Money Market 88,358,949

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

PROSPECTUS

2
<PAGE> 47

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 of the Funds
for the period stated herein. 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 "multi-style, multi-manager
diversification." PAGE 22.

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 Frank Russell Investment Management Company; or institutions or individuals
who have acquired shares through such institutions. PAGE 22.

EXPENSES OF THE FUNDS are borne by the Funds. Each Fund pays a management fee to
Management Company for conducting the Fund's general operations and for
providing investment supervision for the Fund, and pays to Management Company,
as agent for the Fund, the investment advisory fee of the Money Manager(s) of
that Fund. Each shareholder pays Management Company directly for other services
provided to that shareholder. Management Company pays its expenses of providing
its services to the Fund, and transmits for the Fund the fees payable to the
Money Manager(s). PAGE 25.

INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES apply to each Fund. Those
designated "fundamental" may not be changed without the approval of a majority
of a Fund's shareholders. PAGE 25.

PORTFOLIO TRANSACTION POLICIES do not give significant weight to realizing
long-term, rather than short-term, capital gains except for the Limited
Volatility Tax Free Fund. PAGE 38.

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 Diversified
Bond, Volatility Constrained Bond, Multistrategy Bond and Limited Volatility Tax
Free Funds; QUARTERLY, by Diversified Equity, Special Growth, Equity Income,
Quantitative Equity, and Real Estate Securities Funds; and ANNUALLY, by
International Securities Fund. All Funds declare distributions from net realized
capital gains, if any, at least annually. PAGE 39.

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 39.

CALCULATION OF FUND PERFORMANCE, including yields and total return information,
is in accordance with formulas prescribed by the Securities and Exchange
Commission. PAGE 41.

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 43.

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 43.

ADDITIONAL INFORMATION is also included in this Prospectus concerning:
Distributor, Custodian, Accountants and Reports; Organization, Capitalization
and Voting; and Money Manager Profiles. PAGE 46.

PROSPECTUS

3
<PAGE> 48

ANNUAL FUND OPERATING EXPENSES

<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
DIVERSIFIED EQUITY FUND
<S> <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......................................................................................... .78%
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees.............................................................................. .09%
Transfer Agent Fees......................................................................... .05
Other Fees.................................................................................. .03
--------
Total Other Expenses................................................................................ .17%
--------
Total Fund Operating Expenses**........................................................................ .95%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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................................................... $ 10 $ 30 $ 52 $ 116
======== ======== ======== =========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

SPECIAL GROWTH FUND
<TABLE>
<S> <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......................................................................................... .95%
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees.............................................................................. .13%
Transfer Agent Fees......................................................................... .08
Other Fees.................................................................................. .04
--------
Total Other Expenses.......................................................................... .25%
--------
Total Fund Operating Expenses**........................................................................ 1.20%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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................................................... $ 12 $ 38 $ 66 $ 145
======== ======== ======== =========
</TABLE>

PROSPECTUS

4
<PAGE> 49

ANNUAL FUND OPERATING EXPENSES

<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
EQUITY INCOME FUND
<S> <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......................................................................................... .80%
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees.............................................................................. .11%
Transfer Agent Fees......................................................................... .09
Other Fees.................................................................................. .04
--------
Total Other Expenses................................................................................ .24%
--------
Total Fund Operating Expenses**........................................................................ 1.04%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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 $ 57 $ 127
======== ======== ======== =========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

QUANTITATIVE EQUITY FUND
<TABLE>
<S> <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......................................................................................... .78%
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees.............................................................................. .08%
Transfer Agent Fees......................................................................... .05
Other Fees.................................................................................. .03
--------
Total Other Expenses.......................................................................... .16%
--------
Total Fund Operating Expenses**........................................................................ .94%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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................................................... $ 10 $ 30 $ 52 $ 115
======== ======== ======== =========
</TABLE>

PROSPECTUS

5
<PAGE> 50

ANNUAL FUND OPERATING EXPENSES

<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SECURITIES FUND

<S> <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......................................................................................... .95%
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees.............................................................................. .28%
Transfer Agent Fees......................................................................... .04
Other Fees.................................................................................. .03
------
Total Other Expenses................................................................................ .35%
-------
Total Fund Operating Expenses**........................................................................ 1.30%
=======
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------- ------- --------
<S> <C> <C> <C> <C>
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.................................................... $ 13 $ 41 $ 71 $ 157
======== ======= ======= ========

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

REAL ESTATE SECURITIES FUND

<TABLE>
<S> <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%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------- ------- --------
<S> <C> <C> <C> <C>
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>

PROSPECTUS

6
<PAGE> 51

ANNUAL FUND OPERATING EXPENSES

<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
DIVERSIFIED BOND FUND

<S> <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............................................................................................ .45%
12b-1 Fees................................................................................................ None
Other Expenses:
Custodian Fees.............................................................................. .05%
Transfer Agent Fees......................................................................... .04
Other Fees.................................................................................. .02
------
Total Other Expenses................................................................................ .11%
--------
Total Fund Operating Expenses**........................................................................ .56%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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.................................................. $ 6 $ 18 $ 31 $ 70
======== ======== ======== =========

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

VOLATILITY CONSTRAINED BOND FUND

<TABLE>
<S> <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.............................................................................. .07%
Transfer Agent Fees......................................................................... .06
Other Fees.................................................................................. .04
------
Total Other Expenses.......................................................................... .17%
--------
Total Fund Operating Expenses**........................................................................ .67%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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 $ 22 $ 38 $ 84
======== ======== ======== =========
</TABLE>

PROSPECTUS

7
<PAGE> 52

ANNUAL FUND OPERATING EXPENSES

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

MULTISTRATEGY BOND FUND

<S> <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......................................................................................... .65%
12b-1 Fees............................................................................................. None
Other Expenses:
Custodian Fees............................................................................... .11%
Transfer Agent Fees.......................................................................... .07
Other Fees................................................................................... .07
----
Total Other Expenses................................................................................ .25%
--------
Total Fund Operating Expenses Before Reimbursement..................................................... .90%
Reimbursement From Manager +........................................................................ (.05)
--------
Total Fund Operating Expenses After Reimbursement **................................................... .85%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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................................................... $ 9 $ 27 $ 47 $ 105
======== ======== ======== =========

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

LIMITED VOLATILITY TAX FREE FUND

<TABLE>
<S> <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%
=========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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>

+ Effective April 2, 1993, the Manager has voluntarily agreed to reimburse all
expenses of the Fund that exceed the annual rate of 0.85% of average net
assets. This agreement will continue until further notice.

PROSPECTUS

8
<PAGE> 53

ANNUAL FUND OPERATING EXPENSES

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

U.S. GOVERNMENT MONEY MARKET FUND

<S> <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 ** ...................................................................... .56%
Fees Waived by Manager +............................................................................... (.25)
--------
Total Fund Operating Expenses.......................................................................... .31%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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>

TAX FREE MONEY MARKET FUND

<TABLE>
<S> <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%
========
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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 manager has voluntarily agreed to waive the full
amount of the .25% advisory fee. This Agreement will remain in effect until
further notice.

sec. 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.

PROSPECTUS

9
<PAGE> 54

FINANCIAL HIGHLIGHTS*

More detailed information concerning the Fund's performance, a completed
portfolio listing and audited financial statements are available in the Internal
Funds' Annual Report dated December 31, 1994, which may be obtained without
charge by writing or calling the Investment Company.

DIVERSIFIED EQUITY FUND

LESS DISTRIBUTIONS:
Net investment income....... (.58) (.55) (.61) (.82) (.96) (1.11) (.81) (.97) (.67) (.06)
Net realized gain on
investments............... (1.87) (3.76) (3.05) (2.65) (1.14) (2.75) (.41) (5.43) (.04) --
In excess of net realized
gain on investments....... (.26) -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions......... (2.71) (4.31) (3.66) (3.47) (2.10) (3.86) (1.22) (6.40) (.71) (.06)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $ 33.26 $ 34.88 $ 35.60 $ 36.36 $ 30.66 $ 35.22 $ 30.46 $ 27.22 $ 31.20 $ 27.85
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(a)........... (0.01) 10.53 8.32 31.05 (7.01) 29.06 16.37 6.94 14.63 11.45

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to
average net assets (b).... .95 .96 .98 .98 1.03 1.01 1.00 .97 .98 1.07
Net investment income to
average net assets (b).... 1.73 1.54 1.69 2.28 2.97 2.65 2.92 2.27 2.87 3.16
Portfolio turnover (b)...... 57.53 99.80 77.02 116.53 96.90 61.80 66.02 87.69 80.50 49.09
Net assets, end of year
($000 omitted)............ 414,036 388,420 337,549 325,746 251,254 234,988 202,948 198,902 214,325 112,721
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<C> <S>
++ For the period September 5, 1985 (commencement of operations) to December 31, 1985.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended December 31, 1985 are annualized.
</TABLE>

* 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

10
<PAGE> 55

FINANCIAL HIGHLIGHTS*

SPECIAL GROWTH 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........... $ 35.82 $ 36.63 $ 34.47 $ 24.71 $ 29.35 $ 26.19 $ 23.58 $ 26.68 $ 25.10 $ 22.50
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... .16 .07 .05 .24 .42 .42 .24 .30 .28 .08
Net realized and unrealized
gain (loss) on
investments............... (.71) 5.22 4.22 10.34 (4.57) 5.78 2.99 1.59 1.74 2.54
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations................ (.55) 5.29 4.27 10.58 (4.15) 6.20 3.23 1.89 2.02 2.62
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (.10) (.07) (.06) (.24) (.42) (.48) (.21) (.35) (.25) (.02)
Net realized gain on
investments............... (.85) (6.03) (2.05) (.58) (.07) (2.56) (.41) (4.64) (.19) --
In excess of net realized
gain on investments....... (.85) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions......... (1.80) (6.10) (2.11) (.82) (.49) (3.04) (.62) (4.99) (.44) (.02)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $ 33.47 $ 35.82 $ 36.63 $ 34.47 $ 24.71 $ 29.35 $ 26.19 $ 23.58 $ 26.68 $ 25.10
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(a)........... (3.71) 15.48 12.52 43.11 (14.28) 23.92 13.82 6.54 8.07 11.66
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net
assets (b)(c)............. 1.20 1.31 1.33 1.36 1.50 1.49 1.47 1.37 1.49 1.64
Net investment income to
average net assets (c).... .50 .19 .14 .80 1.57 1.42 .92 1.07 1.20 1.15
Portfolio turnover (c) ..... 55.40 91.97 42.20 42.81 63.87 85.24 51.75 161.46 99.59 111.03
Net assets, end of year
($000 omitted)............ 229,077 188,891 134,913 105,245 62,116 60,146 47,405 45,460 41,523 22,757
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<C> <S>
++ 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 for the periods ended December 31, 1990 and 1986
amounted to $.0093 and $0026 per share, respectively.
(c) The ratios for the period ended December 31, 1985 are annualized.
</TABLE>

* 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

11
<PAGE> 56

FINANCIAL HIGHLIGHTS*

EQUITY INCOME 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........... $ 35.90 $ 35.32 $ 36.54 $ 30.75 $ 34.91 $ 30.85 $ 26.92 $ 34.66 $ 31.98 $ 29.43
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... .90 .83 .99 1.11 1.43 1.34 1.22 1.18 1.36 .41
Net realized and unrealized
gain (loss) on
investments............... (.70) 3.69 3.08 7.15 (3.83) 6.47 3.96 (1.44) 2.89 2.21
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations................ .20 4.52 4.07 8.26 (2.40) 7.81 5.18 (.26) 4.25 2.62
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (.89) (.83) (1.00) (1.10) (1.37) (1.50) (1.25) (1.50) (1.25) (.07)
In excess of net investment
income.................... -- (.00) -- -- -- -- -- -- -- --
Net realized gain on
investments............... (3.00) (3.11) (4.29) (1.37) (.39) (2.25) -- (5.98) (.32) --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions......... (3.89) (3.94) (5.29) (2.47) (1.76) (3.75) (1.25) (7.48) (1.57) (.07)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $ 32.21 $ 35.90 $ 35.32 $ 36.54 $ 30.75 $ 34.91 $ 30.85 $ 26.92 $ 34.66 $ 31.98
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(a)........... .69 13.23 11.51 27.52 (6.90) 25.61 19.42 (2.44) 13.42 8.96
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to
average net assets (b).... 1.04 1.05 1.08 1.11 1.14 1.15 1.13 1.06 1.02 1.06
Net investment income to
average net assets (b).... 2.56 2.23 2.68 3.11 4.12 3.94 4.08 3.30 4.05 4.45
Portfolio turnover (b)...... 89.91 78.72 95.07 61.73 65.97 79.82 58.12 98.67 83.55 36.16
Net assets, end of year
($000 omitted)............ 144,285 149,532 134,365 122,689 99,575 101,589 68,998 61,300 75,032 59,958
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* 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

12
<PAGE> 57

FINANCIAL HIGHLIGHTS*

QUANTITATIVE EQUITY 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............................... $ 26.44 $ 25.82 $ 25.88 $ 21.07 $ 23.57 $ 20.21 $ 18.08 $ 20.00
------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........................... .49 .45 .49 .58 .66 .68 .56 .32
Net realized and unrealized gain
(loss) on investments......................... (.19) 2.69 1.67 5.93 (1.99) 4.53 2.14 (1.86)
------- ------- ------- ------- ------- ------- ------- -------
Total From Investment Operations................ .30 3.14 2.16 6.51 (1.33) 5.21 2.70 (1.54)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income........................... (.49) (.45) (.49) (.58) (.64) (.76) (.57) (.25)
Net realized gain on investments................ (1.41) (2.07) (1.73) (1.12) (.53) (1.09) -- (.13)
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions............................. (1.90) (2.52) (2.22) (1.70) (1.17) (1.85) (.57) (.38)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR..................................... $ 24.84 $ 26.44 $ 25.82 25.88 $ 21.07 $ 23.57 $ 20.21 $ 18.08
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(a)............................... .19 12.56 8.67 31.70 (5.60) 26.08 15.05 (7.74)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (b).... .94 .98 1.02 1.03 1.12 1.14 1.16 .97
Net investment income to average net assets
(b)........................................... 1.95 1.68 1.94 2.39 2.94 3.00 3.00 3.38
Portfolio turnover (b).......................... 45.97 62.48 59.19 58.07 57.49 90.65 59.37 47.78
Net assets, end of year ($000 omitted).......... 380,592 314,647 244,870 201,614 147,730 124,111 89,858 64,182

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

<TABLE>
<C> <S>
++ For the period May 15, 1987 (commencement of operations) to December 31, 1987.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended December 31, 1987 are annualized.
</TABLE>

* 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

13
<PAGE> 58

FINANCIAL HIGHLIGHTS*

INTERNATIONAL SECURITIES 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........... $ 57.95 $ 44.75 $ 49.15 $ 44.60 $ 55.81 $ 50.49 $ 45.26 $ 49.22 $ 34.16 $ 28.07
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... .44 .40 .61 .72 1.05 .67 .86 .55 .19 .11
Net realized and unrealized
gain (loss) on investments
(a)....................... 1.23 14.53 (4.02) 4.60 (9.53) 10.32 8.98 6.84 15.90 5.98
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations................ 1.67 14.93 (3.41) 5.32 (8.48) 10.99 9.84 7.39 16.09 6.09
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (.04) (.38) (.68) (.76) (1.08) (.89) (.95) (.45) (.02) --
In excess of net investment
income.................... (.02) (.23) -- -- -- -- -- -- -- --
Net realized gain on
investments............... (5.60) (1.12) (.31) (.01) (1.65) (4.78) (3.66) (10.90) (1.01) --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions......... (5.66) (1.73) (.99) (.77) (2.73) (5.67) (4.61) (11.35) (1.03) --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $ 53.96 $ 57.95 $ 44.75 $ 49.15 $ 44.60 $ 55.81 $ 50.49 $ 45.26 $ 49.22 $ 34.16
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(b)........... 4.86 33.48 (6.94) 11.99 (15.34) 22.24 22.05 15.89 48.54 21.39
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets (c)(d). 1.30 1.38 1.45 1.49 1.50 1.50 1.50 1.50 1.50 1.69
Net investment income to
average net assets (d).... .70 .82 1.37 1.68 2.28 1.54 1.60 .91 .96 1.17
Portfolio turnover (d) ..... 72.23 60.22 48.93 52.46 68.89 57.16 43.50 113.04 55.53 107.16
Net assets, end of year
($000 omitted)............ 563,333 454,482 262,886 243,065 169,818 123,823 91,006 88,321 100,733 22,917

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

<TABLE>
<C> <S>
++ For the period September 5, 1985 (commencement of operations) to December 31, 1985.
(a) Provision for federal income tax for the year ended December 31, 1991 amounted to $.03 per share.
(b) Periods less than one year are not annualized.
(c) The portion of operating expenses reimbursed by the Manager in 1989 and 1986 amounted to $.0169 and $.0347 per
share, respectively.
(d) The ratios for the period ended December 31, 1985 are annualized.
</TABLE>

* 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

14
<PAGE> 59

FINANCIAL HIGHLIGHTS*

REAL ESTATE SECURITIES FUND

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

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>

<TABLE>
<C> <S>
++ 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, 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.
(c) The ratios for the period ended December 31, 1989 are annualized.
</TABLE>

* 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

15
<PAGE> 60

FINANCIAL HIGHLIGHTS*

DIVERSIFIED BOND 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........... $ 23.73 $ 23.49 $ 24.29 $ 22.81 $ 22.90 $ 22.38 $ 22.38 $ 25.00 $ 23.29 $ 22.16
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... 1.46 1.48 1.62 1.72 1.74 1.87 1.69 1.55 1.73 .57
Net realized and unrealized
gain (loss) on
investments............... (2.22) .83 (.10) 1.61 (.09) .83 (.02) (1.28) 1.76 .96
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations................ (.76) 2.31 1.52 3.33 1.65 2.70 1.67 .27 3.49 1.53
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (1.42) (1.48) (1.63) (1.69) (1.74) (1.92) (1.67) (1.65) (1.76) (.40)
In excess of net investment
income.................... -- (.01) -- -- -- -- -- -- -- --
Net realized gain on
investments............... -- (.58) (.69) (.16) -- (.26) -- (1.24) (.02) --
In excess of net realized
gain on investments....... (.02) -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions......... (1.44) (2.07) (2.32) (1.85) (1.74) (2.18) (1.67) (2.89) (1.78) (.40)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $ 21.53 $ 23.73 $ 23.49 $ 24.29 $ 22.81 $ 22.90 $ 22.38 $ 22.38 $ 25.00 $ 23.29
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(a)........... (3.25) 10.02 6.57 15.29 7.58 12.52 7.67 1.25 15.49 6.99
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets
(b)(c).................... .56 .58 .62 .74 .88 .93 .93 .90 .96 1.04
Net investment income to
average net assets (c).... 6.57 6.13 6.79 7.38 7.89 8.16 7.48 7.05 7.27 8.47
Portfolio turnover (c)...... 153.21 177.74 228.37 130.96 94.88 195.14 197.15 180.54 229.48 44.82
Net assets, end of year
($000 omitted)............ 525,315 477,341 412,394 344,081 294,677 230,156 211,656 197,730 122,333 57,954

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

<TABLE>
<C> <S>
++ For the period September 5, 1985 (commencement of operations) to December 31, 1985.
(a) Periods less than one year are not annualized.
(b) For the year ended December 31, 1992, the Manager waived a portion of its management fee amounting to $.0115 per
share.
(c) The ratios for the period ended December 31, 1985 are annualized.
</TABLE>

* 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

16
<PAGE> 61

FINANCIAL HIGHLIGHTS*

VOLATILITY CONSTRAINED BOND 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........... $ 19.78 $ 19.51 $ 20.33 $ 19.51 $ 19.37 $ 19.14 $ 19.21 $ 20.06 $ 19.93 $ 19.77
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... 1.15 .82 1.34 1.45 1.52 1.66 1.55 1.48 1.53 .54
Net realized and unrealized
gain (loss) on
investments............... (1.16) .45 (.88) .80 .13 .30 (.10) (.67) .13 .02
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations................ (.01) 1.27 .46 2.25 1.65 1.96 1.45 .81 1.66 .56
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income....... (1.13) (.71) (1.28) (1.43) (1.51) (1.73) (1.52) (1.59) (1.53) (.40)
Net realized gain on
investments............... -- -- -- -- -- -- -- (.07) -- --
Tax return of capital....... -- (.29) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions......... (1.13) (1.00) (1.28) (1.43) (1.51) (1.73) (1.52) (1.66) (1.53) (.40)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR................. $ 18.64 $ 19.78 $ 19.51 $ 20.33 $ 19.51 $ 19.37 $ 19.14 $ 19.21 $ 20.06 $ 19.93
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(a)........... (.02) 6.67 2.29 12.00 8.92 10.64 7.77 4.27 8.68 2.86
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to
average net assets (b).... .67 .66 .68 .62 .62 .61 .59 .58 .58 .72
Net investment income to
average net assets (b).... 5.97 5.79 6.74 7.34 7.88 8.41 7.97 7.75 7.88 8.88
Portfolio turnover (b) ..... 182.65 220.77 312.05 159.20 181.66 331.12 238.69 190.36 227.17 18.42
Net assets, end of year
($000 omitted)............ 195,007 225,672 292,909 293,603 240,887 214,745 234,095 251,702 214,860 50,089

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

* 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

17
<PAGE> 62

FINANCIAL HIGHLIGHTS*

MULTISTRATEGY BOND FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1994 1993++
------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................................................................. $ 10.31 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................................................. .58 .46
Net realized and unrealized gain (loss) on investments............................................ (1.03) .40
------- ------
Total From Investment Operations.................................................................. (.45) .86
------- ------
LESS DISTRIBUTIONS:
Net investment income............................................................................. (.57) (.46)
Net realized gain on investments.................................................................. -- (.08)
In excess of net realized gain on investments..................................................... -- (.01)
------- ------
Total Distributions............................................................................... (.57) (.55)
------- ------
NET ASSET VALUE, END OF YEAR........................................................................ $ 9.29 $10.31
======= ======
TOTAL RETURN (%)(a)................................................................................. (4.35) 8.74
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b)(c)(d).......................................... .85 .85
Net investment income to average net assets (c)................................................... 6.26 5.60
Portfolio turnover (c)............................................................................ 136.39 188.95
Net assets, end of year ($000 omitted)............................................................ 173,035 98,374

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

<TABLE>
<C> <S>
++ For the period January 29, 1993 (commencement of operations) to December 31, 1993.
(a) Periods less than one year are not annualized.
(b) For the year ended December 31, 1994, the manager reimbursed a portion of operating expenses amounting to $.0043
per share. For the period January 29, 1993 (commencement of operations) to December 31, 1993, the manager
reimbursed a portion of operating expenses amounting to $0.0286 per share and the Custodian waived a portion of
its custody fee amounting to $.0002 per share.
(c) The ratios for the period ended December 31, 1983 are annualized.
(d) Operating expense ratios before any waivers and/or reimbursements amounted to .90% and 1.20% on an annualized
basis for the year or period ended December 31, 1994 and December 31, 1993, respectively.
</TABLE>

* 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

18
<PAGE> 63

FINANCIAL HIGHLIGHTS*

LIMITED VOLATILITY TAX FREE 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........... $ 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>

<TABLE>
<C> <S>
++ 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.
(c) The ratios for the period ended December 31, 1985 are annualized.
(d) Beginning in 1992, variable rate daily demand securities were excluded from the turnover calculation.
</TABLE>

* 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

19
<PAGE> 64

FINANCIAL HIGHLIGHTS*

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 daily 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>

<TABLE>
<C> <S>
++ 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.
(c) The ratios for the period ended December 31, 1985 are annualized.
</TABLE>

* 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

20
<PAGE> 65

FINANCIAL HIGHLIGHTS*

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
daily 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>

<TABLE>
<C> <S>
++ For the period 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.
</TABLE>

* 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

21
<PAGE> 66

THE PURPOSE OF THE FUNDS

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. The 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.

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.

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

- 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

PROSPECTUS

22
<PAGE> 67

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

GENERAL MANAGEMENT OF THE FUNDS

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. 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 these 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.

- 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.

- Peter F. Apanovitch, who has been the Manager of Short-Term Investment Funds
for Frank Russell Investment Management Company and Frank Russell

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Trust Company since 1991. From 1986 to 1989 Mr. Apanovitch was Assistant
Vice-President and Assistant Treasurer of CIGNA Corporation.

Frank Russell Company provides to the Funds and 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
Management Company for its consulting services. Frank Russell Company and
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 Management
Company.

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: Diversified Equity Fund, 0.78%; Special
Growth Fund, 0.95%; Equity Income Fund, 0.80%; Quantitative Equity Fund, 0.78%;
International Securities Fund, 0.95%; Real Estate Securities Fund, 0.85%;
Diversified Bond Fund, 0.45%; Volatility Constrained Bond Fund, 0.50%;
Multistrategy Bond Fund, 0.65%; Limited Volatility Tax Free Fund, 0.50%; U.S.
Government Money Market Fund, 0.25%; and Tax Free Money Market Fund, 0.25%. The
fees of the Funds, other than the Diversified Bond, Volatility Constrained Bond,
Limited Volatility Tax Free, U.S. Government Money Market and Tax Free Money
Market Funds, are higher than fees charged to some mutual funds with similar
objectives which use only a single money manager.

Management Company has voluntarily agreed to reimburse certain Fund expenses in
excess of certain limits. In addition to these "voluntary limits," Management
Company has agreed to reimburse each Fund the amount, if any, by which each
Fund's expenses exceed state law expense limitations. Currently, California has
an expense limitation of 2.5% of the 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
Investment Company and may be changed or rescinded at any time.

Frank Russell Company provides its Portfolio Verification System ("PVS") to all
the Funds, except the Limited Volatility Tax Free, U.S. Government Money Market
and Tax Free Money Market Funds, pursuant to a written Service Agreement. The
PVS computerized data base system records detailed transaction data for each of
the Funds necessary to prepare various financial and IRS accounting reports. For
these services, the Funds pay the following annual fees:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF INTERNATIONAL
BASE FEE TRANSACTION CHARGE HOLDING CHARGE MANAGEMENT REPORT
---------- ------------------ --------------- --------------------------
<S> <C> <C> <C> <C>
Equity Manager Portfolios $ 1,500 $ 0.10 $ 1.80 --
Fixed Income Manager Portfolios 2,500 2.00 12.00 --
Master Holding Portfolios 500 0.10 - 3.00 1.80 - 24.00 --
Multi-Currency Portfolios 14,000 3.00 24.00 $2,500
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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Annual minimum charges are: Diversified Equity -- $25,000; Special
Growth -- $15,000; Equity Income -- $12,000; Quantitative Equity -- $23,000;
Real Estate Securities -- $5,000; Diversified Bond -- $31,000; Volatility
Constrained Bond -- $22,000; Multistrategy Bond -- $25,000; and $290,000 for all
international portfolios. Any additional domestic equity or fixed income funds
will be billed using the same fee schedule, with an annual minimum fee of
$20,000 and $25,000, respectively.

In order to reduce the impact of fees on the International Securities Fund,
Management Company has volunteered to absorb a portion of these fees in
consideration of certain intercompany transfers between Management Company and
FRC (its parent). Management Company reserves the right to reduce or eliminate
this voluntary absorption of fees upon notification to the Fund's shareholders.

EXPENSES OF THE FUNDS

The Funds will pay all their expenses other than those expressly assumed by
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 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 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
Investment Company has advanced fees to the Management Company for payment of
the Money Manager's fee, the Money Manager will look only to the Management
Company for the payment of its fee.

U.S. Government Money Market Fund is managed by Frank Russell Investment
Management Company. The individual responsible for the management of the Fund,
including 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 and Frank Russell Trust 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 including their
occupation 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 Management Company. Although the money managers' activities
are subject to general oversight by the Board of Trustees and officers of the
Funds, 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

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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 OBJECTIVES.

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.")

DIVERSIFIED EQUITY FUND

The Diversified Equity Fund's objective is to provide income and capital growth
by investing principally in equity securities.

The Fund may invest in common and preferred stocks, securities convertible into
common stocks, rights and warrants.

SPECIAL GROWTH FUND

The Special Growth Fund's objective is to maximize total return primarily
through capital appreciation and by assuming a higher level of volatility than
is ordinarily expected from the Diversified Equity Fund, by investing in equity
securities.

Current income is a secondary consideration in selecting securities. The Fund
may invest in common and preferred stock, convertible securities, rights and
warrants. The Fund's investments may include companies whose securities have
been publicly traded for less than five years and smaller companies, such as
companies not listed in the Russell 1000(R) Index. A substantial portion of the
Fund's portfolio will generally consist of equity securities of "emerging
growth-type" companies which tend to reinvest most of their earnings, rather
than pay significant cash dividends; or companies characterized as "special
situations" where the money manager believes that cyclical developments in the
securities markets, the industry, or the issuer itself present opportunities for
capital growth.

EQUITY INCOME FUND

The Equity Income Fund's objective is to achieve a high level of current income,
while maintaining the potential for capital appreciation, by investing primarily
in income-producing equity securities.

The income objective of the Fund is to exceed the yield on the S&P 500 Index.
The Index yield will change from year to year due to changes in prices and
dividends of stocks in the Index. Income streams will be considered in light of
their current level and the opportunity for future growth. Capital appreciation
may not be comparable to that achieved by Funds such as the Special Growth Fund
whose major objective is appreciation, although the Management Company believes
that a high and growing stream of income is conducive to higher capital values.
The Fund may also invest in preferred stock, convertible securities, rights and
warrants.

QUANTITATIVE EQUITY FUND

The Quantitiative Equity Fund's objectives are to provide a total return greater
than the total return of the US stock market as measured by the Russell 1000(R)
Index over a market cycle of four to six years, while maintaining volatility and
diversification similar to the Index by investing in equity securities.

The Fund will maintain industry weights and economic sector weights near those
of the Index. Over time, the Fund's average price/earnings ratio, yield, and
other fundamental characteristics are expected to be near the averages for the
Index. However, money managers may, temporarily deviate from Index
characteristics based upon the managers' investment judgment that this will
increase the Fund's total return. The money managers of the Fund generally make
stock selections from the set of stocks comprising the Russell 1000(R) Index.

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<PAGE> 71

and to rank securities most favorable to having a total return surpassing the
total return of the Russell 1000(R) Index. Once the money manager has ranked the
securities, it then selects the securities most likely to have the
characteristics needed to construct a portfolio that has superior return
prospects with risks similar to the Russell 1000(R) Index.

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

INTERNATIONAL SECURITIES FUND

The International Securities Fund's objectives are to provide favorable total
return and additional diversification for US investors by investing primarily in
equity and fixed-income securities of non-US companies, and securities issued by
non-US governments.

DIVERSIFIED BOND FUND

The Diversified Bond Fund's objectives are to provide effective diversification
against equities and a stable level of cash flow by investing in fixed-income
securities.

The Fund's portfolio will consist primarily of conventional debt instruments,
including bonds, debentures, US government and US government agency securities,
preferred and convertible preferred stocks, and variable amount demand master
notes. (These notes represent a borrowing arrangement under a letter agreement
between a commercial paper issuer and an institutional lender, such as the
Fund.) Investment selections will be based on fundamental economic, market, and
other factors leading to valuation by sector, maturity, quality, and such other
criteria as are appropriate to meet the stated objectives. The Fund will
ordinarily invest at least 80% of its net assets in securities rated no less
than A or A-2 by Standard & Poor's Ratings Group ("S&P") or A or Prime-2 by
Moody's Investors Service, Inc. ("Moody's"), or judged by the money manager to
be of at least equal credit quality to those designations.

VOLATILITY CONSTRAINED BOND FUND

The Volatility Constrained Bond Fund's objectives are the preservation of
capital and the generation of current income consistent with the preservation of
capital by investing primarily in fixed-income securities with low-volatility
characteristics.

The Fund will invest in debt securities denominated in currencies of countries
whose governments are considered

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by it to be stable (or, when the Fund invests in countries considered unstable
or undeveloped, it will only do so when it believes it is able to hedge
substantially the risk of a decline in the currency in which the Fund's
portfolio securities are denominated). In addition to the US dollar, such
currencies include, among others, the Australian Dollar, Austrian Schilling,
Belgian Franc, British Pound Sterling, Canadian Dollar, Danish Krone, Dutch
Guilder, European Currency Unit ("ECU"), French Franc, Irish Punt, Italian Lira,
Japanese Yen, New Zealand Dollar, Norwegian Krone, Spanish Peseta, Swedish
Krona, Swiss Franc, and German Mark. An issuer of debt securities purchased by
the Fund may be domiciled in a country other than a country in whose currency
the instrument is denominated.

In selecting particular investments for the Fund, the money managers will seek
to minimize investment risk by limiting their portfolio investments to debt
securities of high quality. Accordingly, the Fund's portfolio will consist only
of: (a) debt securities issued or guaranteed by the US government, its agencies
or instrumentalities ("US Government Securities"); (b) obligations issued or
guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, or instrumentalities, or by supranational entities, all
of which are rated AAA or AA by S&P or Aaa or Aa by Moody's or, if unrated,
determined by the money managers to be of equivalent quality; (c) investment
grade corporate debt securities or, if unrated, determined by the money managers
to be of equivalent quality; (d) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, banks
(including foreign branches of US banks or US or foreign branches of foreign
banks) having total assets of more than $500 million and determined by the money
managers to be of high quality; and (e) commercial paper rated A-1 or A-2 by
S&P, Prime-1 or Prime-2 by Moody's, Fitch-1 or Fitch-2 by Fitch Investors
Service, Inc., Duff 1 or Duff 2 by Duff & Phelps, Inc., TBW-1 or TBW-2 by
Thomson Bank Watch, Inc., or, if not rated, issued by US or foreign companies
having outstanding debt securities rated AAA, AA or A by S&P, or Aaa, Aa or A by
Moody's and determined by the money managers to be of high quality.

As described above, the Fund may invest in debt securities issued by
supranational organizations such as: the World Bank, which was chartered to
finance development projects in developing member countries; the European
Community, which is an organization consisting of certain European states
engaged in cooperative economic activities; the European Coal and Steel
Community, which is an economic union of various European nations' steel and
coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations in the Asian and Pacific regions.

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

The Fund may enter into interest rate swaps, which involve the exchange by the
Fund with another party of its respective commitments to pay or receive
interest, E.G., an exchange of floating rate payments for fixed rate payments.
The Fund expects to enter into these transactions primarily to preserve a return
or spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities it anticipates purchasing at a
later date. The Fund intends to use these transactions as a hedge and not as a
speculative investment.

MULTISTRATEGY BOND FUND

The Multistrategy Bond Fund's objective is to provide maximum total return,
primarily through capital appreciation and by assuming a higher level of
volatility than is ordinarily expected from broad fixed-income market
portfolios, by investing in fixed-income securities.

The Fund may also invest in convertible securities and derivatives including
warrants and interest rate swaps. Interest rate swaps are described under
"Volatility

PROSPECTUS

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<PAGE> 73

Constrained Bond Fund." The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment.

As described above, the Fund may invest in debt securities issued by
supranational organizations. Supranational organizations are described under
"Volatility Constrained Bond Fund."

Investments in bank certificates of deposit, time deposits and banker's
acceptances include Eurodollar Certificates of Deposit, which are issued by
foreign branches of US or foreign banks; Eurodollar Time Deposits, which are
issued by foreign branches of US or foreign banks; and, Yankee Certificates of
Deposit, which are issued by US branches of foreign banks. These instruments may
be US dollar or foreign currency denominated and are subject to the risks of
non-US issuers described under "Investment Policies - Investment in Foreign
Securities."

The variable and floating rate securities the Fund may invest in provide for a
periodic adjustment in the interest rate paid on the obligations. The terms of
such obligations must provide that interest rates are adjusted periodically
based upon some appropriate interest rate adjustment index as provided in the
respective obligations. The adjustment intervals may be regular, and range from
daily up to annually, or may be event based, such as a change in the prime rate.
The Fund may also invest in zero coupon US Treasury, foreign government and US
and foreign corporate debt securities, which are bills, notes and bonds that
have been stripped of their unmatured interest coupons and receipts or
certificates representing interests in such stripped debt obligations and
coupons. A zero coupon security pays no interest to its holder prior to
maturity. Accordingly, such securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest.

The Fund's portfolio may include debt securities issued by domestic or foreign
entities, and denominated in US dollars or foreign currencies. It is anticipated
that no more than 25% of the Fund's assets will be denominated in foreign
currencies. Foreign currency exchange transactions (options on foreign
currencies, foreign currency futures contracts and forward foreign currency
contracts) will only be used by the Fund for the purpose of hedging against
foreign currency exchange risk arising from the Fund's investment, or
anticipated investment, in securities denominated in foreign currencies. Foreign
investment may include emerging market debt. The risks associated with
investment in securities issued by foreign governments and companies are
described under "Investment Policies - Investment in Foreign Securities."
Emerging markets consist of countries determined by the money managers of the
Fund to have developing or emerging economies and markets. These countries
generally include every country in the world except the United States, Canada,
Japan, Australia and most countries located in Western Europe. Emerging market
debt the Fund may invest in includes bonds, notes and debentures of emerging
market governments and debt and other fixed income securities issued or
guaranteed by such governments' agencies, instrumentalities or central banks, or
by banks or other companies in emerging markets determined by the money managers
to be suitable investments for the Fund. Under current market conditions it is
expected that emerging market debt will consist predominantly of Brady Bonds and
other sovereign debt. Brady Bonds are products of the "Brady Plan," under which
bonds are issued in exchange for cash and certain of the country's outstanding
commercial bank loans.

The Fund may invest up to 25% of its assets in debt securities that are rated
below "investment grade" (I.E., rated lower than BBB by S&P or Baa by Moody's)
or in unrated securities judged by the managers of the Fund to be of comparable
quality. Debt rated BB, B, CCC, CC and C and debt rated Ba, B, Caa, Ca and C is
regarded by S&P and Moody's, respectively, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. For S&P, BB indicates the lowest
degree of speculation and C the highest. For Moody's, Ba indicates the lowest
degree of speculation and C the highest. These lower rated debt securities may
include obligations that are in default or that face the risk of default with
respect to principal or interest. Such securities are sometimes referred to as
"junk bonds." For additional information on the ratings used by S&P and Moody's
and a description of lower rated debt securities, please refer to the Funds'
Statement of Additional Information.

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.

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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.

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 which service the real estate industry may also be
affected by such risks.
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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 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.

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, 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.

"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 obligation is
readjusted periodically according to some objective standard such as changes in
a commercial bank's prime rate. The maturity of floating rate obligations is
deemed to be the demand period. The maturity of variable rate obligations is
deemed to be the

PROSPECTUS

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<PAGE> 76

longer of the demand period or the period remaining until the next rate
adjustment.)

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.

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 AND TAX FREE MONEY MARKET FUNDS. The U.S.
Government Money Market and Tax Free 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.

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 such Fund. A
Fund's investment in "cash reserves" (SEE the 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. The Real Estate Securities Fund may
invest 25% or more of its total assets in the securities of companies
directly or indirectly engaged in the real estate industry.

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

4. 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 issuers 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. Each Fund, other than the U.S. Government Money Market and Tax
Free Money

Market Funds, is authorized to invest its cash reserves (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

PROSPECTUS

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<PAGE> 77

the Fund's permitted investments. In lieu of having each of these Funds make
separate, direct investments in money market instruments, each Fund and its
money managers may elect to invest the Fund's cash reserves in Investment
Company's Money Market Fund.

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
Funds.

RUSSELL 1000(R) INDEX. The Russell 1000(R) Index consists of the 1,000 largest
US companies by capitalization (I.E., market price per share times the number of
shares outstanding). The smallest company in the Index at the time of selection
has a capitalization of approximately $457 million. The Index does not include
cross-corporate holdings in a company's capitalization. FOR EXAMPLE, when IBM
owned approximately 20% of Intel, only 80% of the total shares outstanding of
Intel were used to determine Intel's capitalization. Also not included in the
Index are closed-end investment companies, companies that do not file a Form
10-K report with the Securities and Exchange Commission, foreign securities, and
American Depository Receipts ("ADRs").

The Russell 1000(R) Index is used as the basis for the Quantitative Equity
Fund's performance because it, in Management Company's opinion, represents the
universe of stocks in which most active money managers invest and is
representative of the performance of publicly traded common stocks most
institutional investors purchase.

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 time of the agreement) should fall below the
repurchase price, the Fund could incur a loss. Subject to the overall
limitations described in "Investment Policies - Illiquid Securities," no Fund
will invest more than 15% of its total assets (taken at current market value) in
repurchase agreements maturing in more than seven days. U.S. Government Money
Market and Tax Free 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.

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 limitations described
in "Investment Policies - Illiquid Securities."

LENDING PORTFOLIO SECURITIES. Each Fund, except the Limited Volatility Tax Free
and Tax Free 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. The
Fund will receive either cash and (agree to pay a

PROSPECTUS

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<PAGE> 78

"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 current loaned securities plus accrued interest. The collateral is
"marked-to-market" on a daily basis, and the borrower will furnish additional
collateral in the event that the value of the collateral drops below 100% of the
market value of the loaned securities.

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

ILLIQUID SECURITIES. The Funds, other than U.S. Government Money Market and Tax
Free Money Market 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
U.S. Government Money Market and Tax Free Money Market Funds this restriction is
10% of net assets. In addition, the Funds will not invest more than 10% in
securities of issuers which may not be sold to the public without registration
under the Securities Act of 1933. These policies do not include (1) commercial
paper issued under Section 4(2) of the Securities Act of 1933 or (2) restricted
securities eligible for resale to qualified institutional purchasers pursuant to
Rule 144A under the Securities Act of 1933 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 Fund's holding of that security
may be illiquid. There may be undesirable delays in selling illiquid securities
at prices representing their fair value.

LIQUIDITY PORTFOLIOS. Management Company will exercise investment discretion or
select a money manager to exercise investment discretion for approximately
5%-15% of the Diversified Equity, Special Growth, Equity Income, Quantitative
Equity and International Securities Funds' assets assigned to a "Liquidity
Portfolio." The Liquidity Portfolio will be used to create temporarily an equity
exposure for cash balances until those balances are invested in equities or used
for Fund transactions.

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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. 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 the Fund's 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 the Fund's
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 countries' 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 countries.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS ("forward currency contracts"). The
International Securities, Diversified Bond, Volatility Constrained Bond and
Multistrategy Bond Funds may enter into forward currency contracts, which are
agreements to exchange one currency for another -- FOR EXAMPLE, to exchange a
certain amount of US dollars for a certain amount of Japanese Yen -- at a future
date. The date (which may be any agreed upon fixed number of days in the
future), the amount of currency to be exchanged and the price at which the
exchange will take place, will be negotiated and fixed for the term of the
contract at the time that a Fund enters into a contract. The Funds may engage in
forward contracts that involve transacting in a currency whose changes in value
are considered to be linked (a proxy) to a currency or currencies in which some
or all of the Fund's portfolio securities are or are expected to be denominated.
Forward currency contracts are (a) traded in an interbank market conducted
directly between currency traders (typically, commercial banks or other
financial institutions) and their customers, (b) generally have no deposit
requirements and (c) are consummated without payment of any commissions. The
Funds may, however, enter into forward currency contracts containing either or
both deposit requirements and commissions. In order to assure that the Fund's
forward currency contracts are not used to achieve investment leverage, the
Funds will segregate cash or readily marketable high-quality securities in an
amount at all times equal to or exceeding the Fund's commitment with respect to
these contracts.

The market for forward currency contracts may be limited with respect to certain
currencies. These factors will restrict a Fund's ability to hedge against the
risk of devaluation of currencies in which the Fund holds a substantial quantity
of securities and are unrelated to the qualitative rating that may be assigned
to any particular portfolio security. Where available, the successful use of
forward contracts draws upon a money manager's special skills and experience
with respect to such instruments and usually depends on the money manager's
ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, a
Fund may not achieve the anticipated benefits of forward contracts or may
realize losses and thus be in a worse position than if such strategies had not
been used. Unlike many exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits with respect to forward
contracts and adverse market movements could therefore continue to an unlimited
extent over a period of time. In addition, the correlation between movements in
the prices of such instruments and movements in the price of the securities and
currencies hedged or used for cover will not be perfect. In the case of proxy
hedging, there is also a risk that the perceived linkage between various
currencies may not be present or may not

PROSPECTUS

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<PAGE> 80

be present during the particular time the Funds are engaged in that strategy.

OPTIONS. The Funds, other than the U.S. Government Money Market and Tax Free
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
U.S. Government Money Market and Tax Free Money Market Funds, may also purchase
and sell put and call options on foreign currencies.

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

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 other than the Diversified Equity,
Special Growth, Equity Income, Quantitative Equity and International Securities
Funds currently intends to purchase and write call and put options on securities
indexes.

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<PAGE> 81

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
other than the Multistrategy Bond Fund currently intends to write or purchase
such options.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds, other than the
U.S. Government Money Market and Tax Free Money Market 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.

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 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.

The 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.

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<PAGE> 82

HIGH RISK BONDS. The Funds, other than Multistrategy Bond Fund, 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, other than Multistrategy Bond Fund, 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.

The Multistrategy Bond Fund will invest in "investment grade" securities and may
invest up to 25% of its total assets in debt securities rated less than BBB by
S&P or Baa by Moody's, or in unrated securities judged by the managers of the
Fund to be of comparable quality.

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 the
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. Managers make
decisions to buy or sell securities independently from other managers. Thus, one
manager could be selling a security when another manager for the same Fund is
purchasing the same security.

In addition, when a 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 transaction based costs. The annual portfolio
turnover rates for each of the Funds (other than the U.S. Government Money
Market and Tax Free 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 Management Company, when the manager
determines that the Fund will receive competitive execution, price and
commissions. Frank Russell Securities refunds up to 70% of the commission paid
to the Funds effecting such transactions, after reimbursement for research
services provided to Management Company. This arrangement is used by Diversified
Equity, Special Growth, Equity Income, Quantitative Equity and International
Securities Funds. All Funds may also effect portfolio transactions through and
pay brokerage commissions to money managers (or their affiliates).

PROSPECTUS

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<PAGE> 83

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS.

The Board of Trustees presently intends to declare dividends from net investment
income and (U.S. Government Money Market and Tax Free 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 following month U.S. Government Money Market and
Tax Free Money Market Funds
Monthly Early in the following month Diversified Bond, Volatility Constrained Bond,
Multistrategy Bond and Limited Volatility Tax Free Funds
Quarterly Mid: April, July, October and Diversified Equity, Special Growth, Equity Income,
December Quantitative Equity, and Real Estate Securities Funds
Annually Mid-December International Securities Fund
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

The U.S. Government Money Market and Tax Free 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 a 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.

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 their 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 Diversified Bond, Volatility Constrained
Bond,

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<PAGE> 84

Multistrategy Bond and U.S. Government Money Market Funds 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
Diversified Equity, Special Growth, Equity Income, Quantitative Equity and Real
Estate Securities Funds 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 a 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 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 hold their shares 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 includible
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.

The International Securities, Diversified Bond, Volatility Constrained Bond and
Multistrategy Bond Funds will receive dividends and interest paid by non-US
issuers which will frequently be subject to withholding taxes by non-US
governments. Management Company expects the International Securities Fund to
invest more than 50% of its total assets in non-US securities and to file
specified elections with the Internal Revenue Service which will permit such
shareholders either to deduct (as an itemized deduction in the case of the
individual) such foreign taxes in computing taxable income, or to use these
withheld foreign taxes as credits against US income taxes. The Fund's taxable
shareholders must include their pro rata portion of the taxes withheld in their
gross income for federal income tax purposes.

The Diversified Bond, Volatility Constrained Bond and Multistrategy Bond Funds
may acquire zero coupon securities issued with original issue discount. As the
holder of such a security, the Fund will have to include in taxable income a
portion of the original issue discount that accrues on the security for the
taxable year, even if the Fund receives no payment on the security during the
year. Because the Fund annually must distribute substantially all of its
investment company taxable income, the Fund may be required in a particular year
to distribute as a dividend an amount that is greater than the total amount of
cash the Fund actually receives. Those distributions will be made from the
Fund's cash assets or from the proceeds of sales of portfolio securities, if
necessary. The Fund may realize capital gains or losses from those sales, which
would increase or decrease the Fund's Investment Company taxable income or net
capital gain.

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 of the International Securities Fund's
foreign taxes withheld; and the percentages of Diversified Bond, Volatility
Constrained Bond, Multistrategy Bond and U.S.

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<PAGE> 85

Government Money Market Funds' income attributable to US Government Treasury and
agency securities.

A 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.

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

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

5 YEARS ENDED INCEPTION TO
1 YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1994
DECEMBER 31, 1994 (ANNUALIZED) (ANNUALIZED) INCEPTION DATE
------------------ ------------------ ------------------ --------------
<S> <C> <C> <C> <C>
Diversified Equity (0.01)% 7.84% 13.07% 09/05/85
Special Growth (3.71) 8.94 12.20 09/05/85
Equity Income 0.69 8.57 11.73 09/05/85
Quantitative Equity 0.19 8.78 9.60 05/15/87
International Securities 4.86 4.31 14.82 09/05/85
Real Estate Securities 7.24 11.22 9.99 07/28/89
Diversified Bond (3.25) 7.06 8.50 09/05/85
Volatility Constrained Bond (0.02) 5.88 6.80 09/05/85
Multistrategy Bond (4.35) -- 2.07 01/29/93
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>

The Diversified Bond, Volatility Constrained Bond, Multistrategy Bond and
Limited Volatility Tax Free Funds also may from time to time advertise their
yields. 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 a Fund's portfolio. The
calculation includes all recurring fees that are charged to all shareholder
accounts. The 30-day yields

PROSPECTUS

41
<PAGE> 86

for the year ended December 31, 1994 for Diversified Bond, Volatility
Constrained Bond, Multistrategy Bond and Limited Volatility Tax Free Funds were,
respectively, 7.42%, 6.62%, 7.36% and 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 U.S. Government Money Market and Tax Free Money Market Funds (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

42
<PAGE> 87

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

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 all Funds
except the U.S. Government Money Market and Tax Free Money Market Funds, a
business day is one on which the New York Stock Exchange is open for trading. A
business day for the U.S. Government Money Market and Tax Free 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 a 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 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 value 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, futures contracts are valued on
the basis of last sell price.

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 when such prices are believed
to reflect the fair market value of such securities.

The U.S. Government Money Market and the Tax Free 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, as amended. Money market instruments maturing within 60 days of
the valuation date held by Funds other than the U.S. Government Money Market and
Tax Free 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.

PROSPECTUS

43
<PAGE> 88

ORDER PROCEDURES.

Orders by all investors (EXCEPT for participants in the Three Day Settlement
Program described below) to purchase Frank Russell Investment Company Funds
shares must be received by the Funds' transfer agent, either by telephone, mail,
or entry into the shareholder recordkeeping system on a day when shares of the
Funds are offered and orders in proper form accepted prior to:

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

<S> <C>
Close of the New York Diversified Equity, Special Growth, Equity Income, Quantitative Equity,
Stock Exchange (currently International Securities, Real Estate Securities, Diversified Bond,
4:00 p.m. Eastern time) Volatility Constrained Bond, Multistrategy Bond, Limited Volatility Tax
Free

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

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

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

Orders for the U.S. Government Money Market and Tax Free Money Market Funds
shares placed prior to the above time and in proper form can be accepted for
pricing and investment, and will begin to earn income, on that day. U.S.
Government Money Market and Tax Free Money Market Funds 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 which 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
the 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 the Funds:

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

AUTOMATED CLEARING HOUSE ("ACH"). Payment for orders may be made through the ACH
to the Funds' 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. Investment in
the U.S. Government Money Market and Tax Free 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 two Money Market Funds. Investments in the non-Money
Market Funds will be effected upon receipt of the check or draft by the
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.

PROSPECTUS

44
<PAGE> 89

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 the 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 Fund(s) (other than the U.S. Government Money Market and
Tax Free Money Market Funds) for settlement on the third business day following
the receipt of an order to be paid by federal wire if the investor has agreed in
writing to indemnify the Fund(s) against any losses as a result of nonreceipt of
payment. For further information on this program, contact the Investment
Company.

THIRD PARTY TRANSACTIONS.

EXCHANGE PRIVILEGE.

Shareholders may exchange shares of any Fund offered by this Prospectus for
shares of a Fund offered by this Prospectus on the basis of current net asset
values 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 legally be made. For additional information, including a
Prospectus of other Investment Company Funds, contact the Investment Company.
Exchanges may be made by (i) telephone if the registrations of the two accounts
are identical; or (ii) in writing addressed to the Investment Company.

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 do not currently 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. Requests by all investors to redeem Frank Russell Investment
Company Fund shares must be received by the Funds' 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 Stock Exchange Diversified Equity, Special Growth, Equity Income, Quantitative
(currently 4:00 p.m. Eastern time) Equity, International Securities, Real Estate Securities, Diversified
Bond, Volatility Constrained Bond, Multistrategy Bond, Limited
Volatility Tax Free
11:45 a.m. Eastern time Tax Free Money Market
12:15 p.m. Eastern time U.S. Government Money Market
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

PROSPECTUS

45
<PAGE> 90

Redemption requests placed in the Money Market Fund prior to the above time
will be tendered that day. Requests received for that Fund 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, shareholder
should use the mail redemption price due 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 next determined after receipt by 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 a Money Market
Fund 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 the
designated bank on the payment date.

SWP DISTRIBUTION BY CHECK. Checks will be sent by US Postal Service first class
mail, from Boston, 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 the unlikely
emergency conditions, which are specified in the Investment Company Act of
1940, as amended, or determined by the SEC, should exist.

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, ACCOUNTANTS, AND REPORTS.

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.

PROSPECTUS

46
<PAGE> 91

Shareholders may also receive additional reports concerning the Funds, or their
accounts, from the Management Company.

ORGANIZATION, CAPITALIZATION, AND VOTING.

Investment Company was organized as a Maryland corporation on March 6, 1981, and
commenced offering shares on October 15, 1981. On January 2, 1985, Investment
Company reorganized by changing its domicile and legal status to 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."

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 $.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 the Funds are fully paid and nonassessable and have no
preemptive or conversion rights. 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
Investment Company 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 the
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 following shareholders may be deemed by the Investment
Company Act of 1940 to "control" the Funds listed after their name because they
own more than 25% of the voting shares of the indicated Funds: Second National
Bank (Saginaw) - Tax Free Money Market Fund.

MONEY MANAGER PROFILES

The money managers have no other 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.

DIVERSIFIED EQUITY FUND

EQUINOX CAPITAL MANAGEMENT, INC., 399 Park Ave., 28th Floor, New York, NY 10022.
Equinox is a registered investment advisor with majority ownership held by Ron
Ulrich.

INVESCO CAPITAL MANAGEMENT, INC., 1315 Peachtree Street N.E., Suite 300,
Atlanta, GA 30309, a corporation whose indirect parent is INVESCO, PLC, a
London-based financial services holding company.

PROSPECTUS

47
<PAGE> 92

TRINITY INVESTMENT MANAGEMENT CORP., 75 Park Plaza, Boston, MA 02116, is a
corporation with seven shareholders, with Stanford M. Calderwood holding
majority ownership.

WELLINGTON MANAGEMENT COMPANY, 75 State Street, Boston, MA 02109, is a private
Massachusetts general partnership, of which the following persons are managing
partners: Robert W. Doran, Duncan W. McFarland, and John B. Neff.

SPECIAL GROWTH FUND

DELPHI MANAGEMENT, INC., One Financial Center, 35th Floor, Boston, MA 02111, is
100% owned by Scott Black.

JACOBS LEVY EQUITY MANAGEMENT, INC., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068, is 100% owned by Bruce Jacobs and Kenneth Levy.

JUNDT ASSOCIATES, INC., 1550 Utica Ave. South, Suite 950, Minneapolis, MN 55416,
is 100% owned by James Jundt and Gail Knappenberger.

MITCHELL HUTCHINS INSTITUTIONAL INVESTORS, INC., 1285 Ave. of the Americas, New
York, NY 10019, whose indirect parent is Paine Webber Group Inc., a publicly
traded corporation.

SIRACH CAPITAL MANAGEMENT, INC., One Union Square, Suite 3323, 600 University
Street, Seattle, WA 98101, a wholly owned subsidiary of United Asset Management
Company, a publicly traded corporation.

WELLINGTON MANAGEMENT COMPANY, SEE: Diversified Equity Fund.

EQUITY INCOME FUND

EQUINOX CAPITAL MANAGEMENT, INC., SEE: Diversified Equity Fund.

TRINITY INVESTMENT MANAGEMENT CORP., SEE: Diversified Equity Fund

QUANTITATIVE EQUITY FUND

J.P. MORGAN INVESTMENT MANAGEMENT INC., 522 Fifth Ave., 14th Floor, New York, NY
10036, is a wholly owned subsidiary of J.P. Morgan and Co., Inc., a publicly
held bank holding company.

WELLS FARGO NIKKO INVESTMENT ADVISORS, 45 Fremont Street, 6th Floor, San
Francisco, CA 94105, is a joint venture, 50% of which is owned by Wells Fargo &
Company, a publicly held bank holding company, and 50% of which is owned by
Nikko Securities Co., Ltd.

INTERNATIONAL SECURITIES FUND

J.P. MORGAN INVESTMENT MANAGEMENT INC., SEE: Quantitative Equity Fund.

MARATHON ASSET MANAGEMENT LIMITED, 115 Shaftesbury Ave., London, England WC2H
8AD, is a corporation 33.3% owned by each of the following: Jeremy Hosking,
William Arah and Neil Ostrer.

DIVERSIFIED BOND FUND

LINCOLN CAPITAL MANAGEMENT COMPANY, SEE: Diversified Equity Fund.

PROSPECTUS

47
<PAGE> 93

STANDISH, AYER & WOOD, INC., One Financial Center, Boston, MA 02111, whose
ownership is divided among seventeen directors, with no director having more
than a 25% ownership interest.

VOLATILITY CONSTRAINED BOND FUND

BLACKROCK FINANCIAL MANAGEMENT, 345 Park Ave., 31st Floor, New York, NY 10154, a
wholly-owned indirect subsidiary of PNC Bank.

STANDISH, AYER & WOOD, INC., SEE: Diversified Bond Fund.

MULTISTRATEGY BOND FUND

BEA ASSOCIATES, 153 East 53rd Street, New York, NY 10022, is a general
partnership of Credit Suisse Capital Corporation ("CS Capital") and Basic
Appraisals, Inc. ("Basic"). CS Capital is an 80% partner, and is a wholly owned
subsidiary of Credit Suisse Investment Corporation, which is in turn a
wholly-owned subsidiary of Credit Suisse, a Swiss bank, which is in turn a
subsidiary of CS Holding, a Swiss corporation. No one person or entity possesses
a controlling interest in Basic, the 20% partner. BEA Associates is a registered
investment adviser.

PACIFIC INVESTMENT MANAGEMENT COMPANY, SEE: Diversified Bond Fund.

STANDISH, AYER & WOOD, INC., SEE: Diversified Bond Fund.

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.

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 Investment Company Act of 1940, as
amended.

U.S. GOVERNMENT MONEY MARKET FUND

FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY, 909 A Street, Tacoma, WA 98402, a
registered investment advisor 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 Schaenen, 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.

PROSPECTUS

49
<PAGE> 94

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

MONEY MANAGERS

DIVERSIFIED EQUITY FUND
Alliance Capital Management L.P.
Systematic Financial Management, L.P.
Columbus Circle Investors
Equinox Capital Management Inc.
INVESCO Capital Management, Inc.
Lincoln Capital Management Company
Suffolk Capital Management, Inc.
Trinity Investment Management Corporation
Wellington Management Company

SPECIAL GROWTH FUND
Delphi Management, Inc.
Jacobs Levy Equity Management, Inc.
Jundt Associates, Inc.
Mitchell Hutchins Institutional Investors, Inc.
Sirach Capital Management, Inc.
Wellington Management Company

EQUITY INCOME FUND
Brandywine Asset Management, Inc.
Equinox Capital Management Inc.
Trinity Investment Management Corporation

QUANTITATIVE EQUITY FUND
Franklin Portfolio Associates Trust
J.P. Morgan Investment Management Inc.
Wells Fargo Nikko Investment Advisors

INTERNATIONAL SECURITIES FUND
Grantham, Mayo, Van Otterloo & Co.
J.P. Morgan Investment Management Inc.
Marathon Asset Management Limited
Oechsle International Advisors
Rowe Price-Fleming International, Inc.

REAL ESTATE SECURITIES FUND
Cohen & Steers Capital Management

DIVERSIFIED BOND FUND
Lincoln Capital Management Company
Pacific Investment Management Company
Standish, Ayer & Wood, Inc.

VOLATILITY CONSTRAINED BOND FUND
BlackRock Financial Management
Standish, Ayer & Wood, Inc.

MULTISTRATEGY BOND FUND
BEA Associates
Pacific Investment Management Company
Standish, Ayer & Wood, Inc.

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

U.S. GOVERNMENT MONEY MARKET
Frank Russell Investment Management Co.

TAX FREE MONEY MARKET
Weiss, Peck & Greet Advisors, 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 Distributor, Inc.
909 A Street
Tacoma, Washington 98402

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109

LEGAL COUNSEL

Stradley, Ronon, Stevens & Young
2600 - One Commerce Square
Philadelphia, Pennsylvania 19103-7098

OFFICE OF SHAREHOLDER INQUIRIES

909 A Street
Tacoma, Washington 98402
(800) 972-0700
In Washington (206) 627-7001

PROSPECTUS
<PAGE> 95

PROSPECTUS
EMERGING MARKETS FUND

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

This Prospectus describes and offers shares of beneficial interest in the
Emerging Markets Fund (hereafter, the "Fund"), a series of the Frank Russell
Investment Company (the "Investment Company"). The Investment Company is a
"series mutual fund" with 22 different investment portfolios referred to as
"Funds."

Frank Russell Investment Management Company (the "Management Company") operates
and administers all of the Funds which comprise the Investment Company. 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 the Fund. There is no sales charge for investing in the Fund.

The Fund seeks to achieve maximum total return, primarily through capital
appreciation and by assuming a higher level of volatility than is ordinarily
expected from developed market international portfolios, by investing primarily
in the equity securities.

SHARES OF THE FUND 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.

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 FUND 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 1, 1995

PROSPECTUS 1
<PAGE> 96

This Prospectus describes and offers shares of the Fund. Two other prospectuses,
respectively, describe and offer shares of (1) the ten External Fee funds of the
Investment Company (including the Fund), and (2) the Investment Company's twelve
Internal 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 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 Fund on
March 22, 1995 were $123,908,516.

2 PROSPECTUS

<PAGE> 97

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
Fund for the period stated herein. PAGE 5.

THE PURPOSE OF THE INVESTMENT COMPANY 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 6.

FRANK RUSSELL COMPANY -- CONSULTANT TO THE FUND 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 6.

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 6.

GENERAL MANAGEMENT OF THE FUND is provided by the Management Company, which
employs the officers and staff required to manage and administer the Fund on a
day-to-day basis. Frank Russell Company provides to the Fund and the Management
Company comprehensive consulting and money manager evaluation services. PAGE 7.

EXPENSES OF THE FUND are borne by the Fund. The 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 Fund's money
managers. 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 9.

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 the 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 9.

INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES apply to the Fund. Those
designated "fundamental" may not be changed without the approval of a majority
of the Fund's shareholders. PAGE 9.

PORTFOLIO TRANSACTION POLICIES do not give significant weight to realizing
long-term, rather than short-term, capital gains. PAGE 16.

DIVIDENDS AND DISTRIBUTIONS may be reinvested in additional shares or received
in cash. Dividends from net investment income are declared annually by the Fund.
The Fund declares annually any distributions from net realized capital gains.
PAGE 16.

TAXES of the Fund itself should be nominal. Taxable shareholders of the Fund
will be subject to federal tax on dividends and capital gains distributions and
may also be subject to state or local taxes or foreign withholding taxes. PAGE
16.

CALCULATION OF FUND PERFORMANCE, including yields and total return information,
is in accordance with formulas prescribe by the Securities and Exchange
Commission. PAGE 17.

VALUATION OF FUND SHARES occurs each business day. The value of a share is based
upon the next computed current market value of the assets, less liabilities, of
the Fund. PAGE 18.

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 18.

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 Fund reserves the right to redeem in kind any portion of a redemption
request of more than $250,000 and to redeem shares held by an investor whose
Asset Management Services Agreement with the Management Company is terminated.
PAGE 19.

ADDITIONAL INFORMATION is also included in this Prospectus concerning:
Distributor, Custodian, Accountants and Reports; Organization, Capitalization
and Voting; and Money Manager Profiles. PAGE 20.

PROSPECTUS 3
<PAGE> 98

ANNUAL FUND OPERATING EXPENSES

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

<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <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 Fee1...................................................................................... 1.20%*
12b-1 Fees........................................................................................... None
Other Expenses:
Custodian Fees............................................................................ .61%
Transfer Agent Fees....................................................................... .10
Other Fees................................................................................ .10
--------
Total Other Expenses................................................................................. .81%
--------
Total Fund Operating Expenses Before Reimbursement................................................... 2.01%
Reimbursement From Manager+.......................................................................... (.01)
--------
Total Fund Operating Expenses After Reimbursement**.................................................. 2.00%
--------
</TABLE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
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.................................................. $ 20 $ 63 $ 108 $ 233
========= ========= ========= =========
</TABLE>

1 Prior to April 1, 1995, the Management Fee was paid by each shareholder
directly to the Management Company, and was not deducted from the Fund's
assets. Effective April 1, 1995, the Management Fee will be deducted from
Fund assets on a daily basis and paid to the Management Company. The expense
information has been restated to reflect current fees.

* Each shareholder enters into a written Asset Management Services Agreement
with the Management Company, and agrees to pay an annual shareholder
investment services fee calculated as a specified percentage of the
shareholder's average net assets in the Fund. Currently, the Manager does not
intend to impose a shareholder investment services fee with respect to the
Fund. In addition, a shareholder may pay additional fees, expressed as fixed
dollar amounts for the other services or reports provided by the Management
Company to the shareholder. Accordingly, the expense information does not
reflect an amount for fees paid directly by an investor to the Management
Company.

4 PROSPECTUS

<PAGE> 99

FINANCIAL HIGHLIGHTS*

More detailed information concerning the Fund's performance, a completed
portfolio listing and audited financial statements are available in the External
Fee Funds' Annual Report dated December 31, 1994, which may be obtained without
charge by writing or calling the Investment Company.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1994 1993++
-------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............................................................ $13.90 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................................................... .15 .07
Net realized and unrealized gain (loss) on investments...................................... (1.24) 4.09
------ ------
Total From Investment Operations............................................................ (1.09) 4.16
------ ------
LESS DISTRIBUTIONS:
Net investment income....................................................................... (.10) (.07)
In excess of net investment income.......................................................... (.10) (.01)
Net realized gain on investments............................................................ (.31) (.18)
In excess of net realized gain on investments............................................... (.05) --
------ ------
Total Distributions......................................................................... (.56) (.26)
------ ------
NET ASSET VALUE, END OF YEAR.................................................................. $12.25 $13.90
====== ======
TOTAL RETURN (%)(a)........................................................................... (5.83) 41.83
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b)(c)(d)(e)................................. .80 .80
Net investment income to average net assets (c)............................................. 1.10 1.33
Portfolio turnover (c)...................................................................... 57.47 89.99
Net assets, end of year ($000 omitted)...................................................... 127,271 65,457

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

++ For the period January 29, 1993 (commencement of operations) to December
31, 1993.
(a) Periods less than one year are not annualized.
(b) For the period January 29, 1993 (commencement of operations) to December 31,
1993 and the year ended December 31, 1994, the Manager reimbursed a portion
of operating expenses amounting to $.0420 and $.0017 per share,
respectively. For the period January 29, 1993 (commencement of operations)
to April 28, 1993, the Custodian waived a portion of its custody fee
amounting to $.0007 per share.
(c) The ratios for the period ended December 31, 1993, are annualized.
(d) Expenses do not include any management fees paid to the Manager or money
managers.
(e) Operating expense ratio before any waivers and/or reimbursements amounted to
.82% on an annualized basis for the year ended December 31, 1994.

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

PROSPECTUS 5
<PAGE> 100

THE PURPOSE OF THE INVESTMENT COMPANY

The Investment Company consists of a group of funds designed 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 FUND

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. The 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.

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.

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 Fund 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 Fund 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

6 PROSPECTUS
<PAGE> 101

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 Fund 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 Fund 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 Fund; they may charge their
customers a fee for providing these and possibly other trust or
investment-related services.

The Agreement sets forth the shareholder investment services fees to be paid to
the Management Company and is ordinarily expressed as a percentage of assets
invested in the Fund. The shareholder investment services fee may include a
fixed-dollar fee for certain specified services. The shareholder investment
services fee is negotiated by the client and the Management Company and is at a
rate which reflects the amount of assets expected to be invested in the Fund,
the nature and extent of individualized services to be provided by the
Management Company to the client, and other factors. 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 (i) promptly pay fees
due to the Management Company; or (ii) 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 Management Company will no longer provide
asset-allocation, objective-setting, or other services to the client. The client
may continue to hold its shares of the Fund as long as the client pays fees owed
to the Management Company.

GENERAL MANAGEMENT OF THE FUND

The Investment Company's Board of Trustees is responsible for overseeing
generally the operation of the Funds, including reviewing and approving the
Fund's contracts with the Management Company, Frank Russell Company and the
money managers. The Fund's 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 Fund's 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 Fund; (ii) provides the Fund with office space,
equipment, and personnel necessary to operate and administer the Fund's
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 Fund's
Liquidity Portfolios (see "Investment Policies -- Liquidity Portfolios"); and
(v) provides the Fund 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
Fund.

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

PROSPECTUS 7
<PAGE> 102

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.

- - 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 Fund 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 Fund 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 the 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 fee,
payable monthly on a pro rata basis, is 1.20% of the average daily net assets of
the Fund. This fee 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 the 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 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
Fund pursuant to a written Service Agreement. The PVS computerized data base
system records detailed transaction data for the Fund necessary to prepare
various financial and IRS accounting reports. For these services, the Fund pays
the following annual fees:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------
TRANSACTION HOLDING ANALYSIS OF INTERNATIONAL
BASE FEE CHARGE CHARGE MANAGEMENT REPORT
- -------- ----------- ------- -------------------------
<S> <C> <C> <C>
$14,000 $3.00 $24.00 $ 2,500
- ------------------------------------------------------------------
</TABLE>

Annual minimum charges for the Investment Company's international portfolios
(including the Fund) are $290,000.

In order to reduce the impact of fees on the Fund, the Management Company has
volunteered to absorb a portion of these fees in consideration of certain
intercompany transfers between the Management Company and FRC (its parent). The
Management Company reserves the right to reduce or eliminate this voluntary
absorption of fees upon notification to the Fund's shareholders.

8 PROSPECTUS
<PAGE> 103

EXPENSES OF THE FUND

The Fund will pay all its expenses other than those expressly assumed by the
Management Company. The Fund's expenses for the year ended December 31, 1994, as
a percentage of average net assets, are shown in the Financial Highlights table.
The Fund's 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 the Fund currently are allocated among the money managers listed
in the section "Money Manager Profiles" ("Money Managers"). THE ALLOCATION OF
THE 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 FUND. The Fund will notify shareholders 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 Fund through broker-dealer affiliates and receive brokerage
commissions for doing so. Each Money Manager agrees that once the 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 Fund 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.

Each Money Manager has complete discretion to purchase and sell portfolio
securities for its segment of the 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
NOR FRANK RUSSELL COMPANY EVALUATE THE INVESTMENT MERITS OF THE MONEY MANAGERS'
INDIVIDUAL SECURITY SELECTIONS.

INVESTMENT OBJECTIVE, RESTRICTIONS AND POLICIES

The Fund has a "fundamental" investment objective, and "fundamental"
restrictions and policies which may be changed only with the approval of a
majority of the shareholders of the Fund. 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 Fund, and may be changed
by the Fund without the approval of shareholders. This section of the Prospectus
describes the Fund's principal objective, restrictions and policies. A more
detailed discussion appears in the Statement of Additional Information.

INVESTMENT OBJECTIVE.

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

The Fund's investment objective is to provide maximum total return, primarily
through capital appreciation and by assuming a higher level of volatility than
is ordinarily expected from developed market international portfolios, by
investing primarily in equity securities.

Under normal circumstances the Fund will invest at least 65% of its total assets
in equity securities of companies in countries having emerging markets. For
purposes of the Fund's operations, "emerging markets" will consist of all
countries determined by the Fund's Money Managers to have developing or emerging
economies and markets. These countries generally include every country in the
world except the United States, Canada, Japan, Australia and most countries
located in Western Europe. For purposes of the Fund's policy of normally
investing

PROSPECTUS 9
<PAGE> 104

primarily in equity securities of issuers in emerging markets, the Fund will
consider investment in the following emerging markets:

Argentina, Austria, Bangladesh, Bolivia, Botswana, Brazil, Chile, Colombia,
Costa Rica, Czech Republic, Ecuador, Egypt, Fiji, Ghana, Greece, Hong Kong,
Hungary, India, Indonesia, Israel, Ivory Coast, Jamaica, Jordan, Kenya, South
Korea, Malawi, Malaysia, Mauritius, Mexico, Morocco, Nepal, New Zealand,
Nigeria, Pakistan, Papua New Guinea, People's Republic of China, Peru,
Philippines, Poland, Portugal, Slovak Republic, Singapore, Sri Lanka, Swaziland,
Taiwan, Thailand, Trinidad, Tobago, Tunisia, Turkey, Uruguay, Venezuela and
Zimbabwe.

Although the Fund considers each of the above-listed countries eligible for
investment, the Fund will not be invested in all such markets at all times.
Investing in some of the listed markets may not be feasible, due to lack of
adequate custody arrangements or current legal requirements. In the future, the
Fund's Money Managers may determine, based on information then available, to
include additional emerging market countries in which the Fund may invest. The
assets of the Fund ordinarily will be invested in the securities of issuers in
at least three different emerging markets. The Fund does not currently
anticipate that it will invest more than 25% of its total assets in the
securities of any one emerging market country.

(i) a company whose securities are traded in the principal securities market of
an emerging market country; (ii) a company that (alone or on a consolidated
basis) derives 50% or more of its total revenue from either goods produced,
sales made or services performed in emerging market countries; or (iii) a
company organized under the laws of, and with a principal office in, an emerging
market country.

The Fund may invest in common and preferred stocks of emerging market companies,
including companies involved in real estate development and gold mining. The
Fund may also invest in other types of equity securities and equity derivative
securities such as convertible securities, rights, units, warrants, American
Depository Receipts (ADRs) and European Depository Receipts (EDRs). The Fund's
equity securities will primarily be denominated in foreign currencies and may be
held outside the United States.

The Fund may invest in fixed-income securities, including instruments issued by
emerging market companies, governments and their agencies, and in U.S. companies
that derive, or are expected to derive, a substantial portion of their revenues
from operation outside the United States. The Fund's fixed-income securities may
be denominated in other than U.S. dollars.

Certain emerging markets are closed in whole or in part to equity investments by
foreigners. The Fund may be able to invest in such markets solely or primarily
through governmentally authorized investment vehicles. To invest in these
markets, the Fund may invest up to 10% of its total assets in the shares of
other investment companies and up to 5% of its total assets in any one
investment company, as long as that investment does not represent more than 3%
of the voting stock of the acquired investment company at the time such shares
are purchased. The risks associated with investment in securities issued by
foreign governments and companies are described under "Investment
Policies -- Investment in Foreign Securities."

INVESTMENT RESTRICTIONS.

The Fund has fundamental investment restrictions which cannot be changed without
shareholder approval. The principal restrictions are the following, which,
unless otherwise noted, apply at the time an investment is being made. The Fund
will not:

1. Invest in any security if, as a result of such investment, less than 75% of
its assets would be represented by cash; cash items; securities of the U.S.
Government, its agencies, or instrumentalities; securities of other
investment companies; and other securities limited in respect of each issuer
to an amount not greater in value than 5% of the total assets of the Fund.
The 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 U.S.
Government, its agencies and instrumentalities).

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.

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INVESTMENT POLICIES.

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

CASH RESERVES. The Fund is authorized to invest its cash reserves (i.e., funds
awaiting investment in the specific types of securities to be acquired by a
Fund) in money market instruments and in debt securities which are at least
comparable in quality to the Fund's permitted investments. In lieu of having the
Fund make separate, direct investments in money market instruments, the Fund and
its money managers may elect to invest the Fund's cash reserves in the
Investment Company's Money Market Fund. The Fund will invest in the Money Market
Fund only so long as doing so does not adversely affect the portfolio management
and operations of the Money Market Fund and the Investment Company's other
funds.

REPURCHASE AGREEMENTS. The 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 total assets (taken at current market value) in repurchase agreements
maturing in more than seven days.

FORWARD COMMITMENTS. The 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. The 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 brokerdealer 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 Fund may lend portfolio securities with a
value of up to 50% of its total assets. Such loans may be terminated at any
time. The Fund will receive either cash (and agree to pay a "rebate" interest
rate), U.S. Government or U.S. 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 Fund's Custodian, for which it may receive an
asset-based fee), and other investments meeting certain quality and maturity
requirements established by the Fund. 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 then the remainder is divided between the Fund
and the Fund's Custodian.

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

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loan, the Fund must immediately pay the amount of the shortfall to the borrower.

ILLIQUID SECURITIES. The Fund 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 use of the Money Market Fund (see "Cash Reserves," above), this
restriction is 10% of net assets. In addition, the Fund will not invest more
than 10% of its 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 Fund's holding of that security may be
illiquid. There may be undesirable delays in selling illiquid securities at
prices representing their fair value.

INVESTMENT IN FOREIGN SECURITIES. The Fund may invest in foreign securities
traded on U.S. 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 U.S. 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 U.S. 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 the 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
U.S. dollar will result in a corresponding change in the U.S. dollar value of
the Fund's foreign securities. In addition, some emerging market countries may
have fixed or managed currencies which are not free-floating against the U.S.
dollar. Further, certain emerging market currencies may not be internationally
traded. Certain of these currencies have experienced a steady devaluation
relative to the U.S. 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.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS ("FORWARD CURRENCY CONTRACTS"). The
Fund may enter into forward currency contracts, which are agreements to exchange
one currency for another -- for example, to exchange a certain amount of U.S.
Dollars for a certain amount of Japanese Yen -- at a future date. The date
(which may be any agreed upon fixed number of days in the future), the amount of
currency to be exchanged and the price at which the exchange will take place
will be negotiated and fixed for the term of the contract at the time that the
Fund enters into the contract. The Fund

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may engage in forward contracts that involve transacting in a currency whose
changes in value are considered to be linked (a proxy) to a currency or
currencies of which some or all of the Fund's portfolio securities are or are
expected to be denominated. Forward currency contracts are (a) traded in an
interbank market conducted directly between currency traders (typically,
commercial banks or other financial institutions) and their customers, (b)
generally have no deposit requirements, and (c) are consummated without payment
of any commissions. The Fund may, however, enter into forward currency contracts
containing either or both deposit requirements and commissions. In order to
assure that the Fund's forward currency contracts are not used to achieve
investment leverage, the Fund will segregate cash or readily marketable
high-quality securities in an amount at all times equal to or exceeding the
Fund's commitment with respect to these contracts.

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

Forward currency contracts will be used only to hedge against anticipated future
changes in exchange rates which otherwise might either adversely affect the
value of the Fund's portfolio securities or adversely affect the price of
securities which the Fund intends to purchase at a later date. The amount the
Fund may invest in forward currency contracts is limited to the amount of the
Fund's aggregate investments in foreign currencies.

The market for forward currency contracts may be limited with respect to certain
currencies. These factors will restrict the Fund's ability to hedge against the
risk of devaluation of currencies in which the Fund holds a substantial quantity
of securities and are unrelated to the qualitative rating that may be assigned
to any particular portfolio security. Where available, the successful use of
forward contracts draws upon a Money Manager's special skills and experience
with respect to such instruments and usually depends on the Money Manager's
ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, the
Fund may not achieve the anticipated benefits of forward contracts or may
realize losses and thus be in a worse position than if such strategies had not
been used. Unlike many exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits with respect to forward
contracts, and adverse market movements could therefore continue to an unlimited
extent over a period of time. In addition, the correlation between movements in
the prices of such instruments and movements in the price of the securities and
currencies hedged or used for cover will not be perfect. In the case of proxy
hedging, there is also a risk that the perceived linkage between various
currencies may not be present or may not be present during the particular time
the funds are engaged in that strategy.

The Fund's ability to dispose of its positions in forward contracts will depend
on the availability of active markets in such instruments. It is impossible to
predict the amount of trading interest that may exist in various types of
forward contracts. Forward foreign currency contracts may be closed out only by
the parties entering into an offsetting contract. Therefore, no assurance can be
given that the Fund will be able to utilize these instruments effectively for
the purposes set forth above.

OPTIONS. The Fund 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 Fund may also purchase
and sell put and call options on foreign currencies.

The Fund may invest up to 5% of its assets, represented by the premium paid, in
call and put options. The 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.

The 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

PROSPECTUS 13

<PAGE> 108

orderly manner. The 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.

The 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, the 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, the Fund may make a "closing sale transaction," which involves
liquidating the Fund's position by selling the option previously purchased. The
Fund will realize a profit or loss from a closing purchase or sale transaction
depending upon the difference between the amount paid to purchase an option and
the amount received from the sale thereof.

The Fund intends 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 Fund's ability to hold illiquid securities.

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

SECURITIES INDEX OPTIONS. The Fund currently intends to purchase and write call
and put options on securities indexes. 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.

OPTIONS ON FOREIGN CURRENCY. The Fund 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 U.S. or other exchanges may be subject to position limits which may
limit the ability of the 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. The Fund
currently does not 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 the 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 the 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 the Fund writes a put option, it is exposed
during the term of the option to a decline in the price of the underlying
security.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund 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

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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 U.S.
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.

The 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 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 the 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 the
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 the Fund from liquidating an
unfavorable position and the Fund would remain obligated to meet margin
requirements until the position is closed.

The Fund will only enter into futures contracts or options on futures contracts
which are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system. The 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). The 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.

The Fund may enter into contracts and options on futures contracts for "bona
fide hedging" purposes, as defined under the rules of the Commodity Futures
Trading Commission. The 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 Fund will invest in "investment grade" securities and may
invest up to 5% of its total assets in debt securities rated less than BBB by
S&P or Baa by Moody's, or in unrated securities judged by the Fund's Money
Managers to be of comparable quality.

PROSPECTUS 15
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characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions. The Fund's Money Managers will seek to reduce
their risks associated with investing in such securities by limiting the Fund's
holding in such securities and by the depth of their own credit analysis. For
additional information, please refer to the Fund's 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. THE FUND DOES NOT GIVE 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 the
Fund could be selling a security when another Money Manager for the 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 Fund's portfolio turnover rates, realization of gains or losses,
brokerage commissions and other transactions based costs. The annual portfolio
turnover rates for the Fund is shown in the Financial Highlights table.

The Fund may effect portfolio transaction with or through Frank Russell
Securities, Inc., an affiliate of the Management Company, when the manager
determines that the Fund will receive competitive execution, price and
commissions. Frank Russell Securities, Inc. refunds up to 70% of the commission
paid to the Fund when it effects such transactions, after reimbursement for
research services provided to the Management Company. The Fund may also effect
portfolio transactions through and pay brokerage commissions to Money Managers
(or their affiliates).

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS.

The Board of Trustees presently intends to declare dividends from ordinary
income for payment annually in mid-December.

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, the 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 gains realized
during November and December will be distributed during the month of February of
the following year.

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, 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

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

For TAXABLE shareholders: Dividends and capital gains distributions are taxable
income under federal tax laws, whether paid in cash or reinvested in additional
shares. Long-term capital gains distributions declared by the Fund's 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.

The sale of shares of the Fund is a taxable event and may result in capital gain
or loss. A capital gain or loss may be realized from an ordinary redemption of
shares or an exchange of shares between two mutual funds (or

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two series or portfolios of a mutual fund). Any loss incurred on sale or
exchange of the 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.

The Fund will receive dividends and interest paid by non-U.S. issuers which will
frequently be subject to withholding taxes by non-U.S. governments. The
Management Company expects the Fund to invest more than 50% of its total assets
in non-U.S. securities and to file specified elections with the Internal Revenue
Service which will permit shareholders either to deduct (as an itemized
deduction in the case of an individual) such foreign taxes in computing taxable
income, or to use these withheld foreign taxes as credits against U.S. income
taxes. The Fund's taxable shareholders must include their pro rata portion of
the taxes withheld in their gross income for federal income tax purposes.

The Fund may invest up to 10% of its total assets in the stock of foreign
investment companies that may be treated as "passive foreign investment
companies" ("PFICs") under the Code. Certain other foreign corporations not
operated as investment companies, may nevertheless satisfy the PFIC definition.
A portion of the income and gains that the Fund derives may be subject to a
non-deductible federal income tax at the Fund level. In some cases, the Fund may
be able to avoid this tax by electing to be taxed currently on its share of
PFIC's income, whether or not such income is actually distributed by the PFIC.
The Fund will endeavor to limit its exposure to the PFIC tax by investing in
PFICs only where the election to be taxed currently will be made. Because it is
not always possible to identify a foreign issuer as a PFIC in advance of making
the investment, the Fund may incur the PFIC tax in some instances.

Shareholders 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; and of the foreign taxes withheld.

The Fund is required to withhold 31% of all taxable dividends, distributions,
and redemption proceeds payable to any noncorporate 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 U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding and other taxes to distributions received by them from the
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
the Fund and distributions and redemption proceeds received from the Fund.

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

CALCULATION OF FUND PERFORMANCE

From time to time, the Fund may advertise its 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 the Fund is as follows:

<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
1 Year Ended December 31, 1994: (5.83%)
Inception to December 31, 1994 (Annualized): 16.29
Inception Date: 01/29/93
- --------------------------------------------------------------------------------
</TABLE>

PROSPECTUS 17

<PAGE> 112

The Fund may also advertise non-standardized performance information which is
for periods in addition to those required to be presented.

VALUATION OF FUND SHARES

NET ASSET VALUE PER SHARE.

The net asset value per share is calculated for the Fund on each business day on
which shares are offered or orders to redeem are tendered. A business day is one
on which the New York Stock Exchange is open for trading. Net asset value per
share is computed for the 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. The Fund determines net asset value as of the
close of the regular session of the New York Stock Exchange (currently 4:00 p.m.
Eastern time).

VALUATION OF PORTFOLIO SECURITIES.

With the exceptions noted below, the Fund 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.

The Fund values 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 Fund are sold 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 U.S. dollars. The Fund reserves
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 must be received by the 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 the close of the
New York Stock Exchange (currently 4:00 p.m. Eastern time). Orders for shares of
the Fund which are not accepted before that time cannot be invested in the Fund
nor begin to earn income until the next day on which shares of the Fund are
offered.

PAYMENT PROCEDURES: Payment for the purchase of Fund shares must be received by
the Fund's 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 the 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 Fund's 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 U.S. funds
and must be drawn in U.S. dollars on a U.S. bank. Investments will be effected
upon receipt of the check or draft by the Transfer Agent when the check or draft
is received prior to the close of the New York

18 PROSPECTUS

<PAGE> 113

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.

THREE DAY SETTLEMENT PROGRAM.

The Investment Company will accept orders from financial institutions to
purchase shares of the Fund for settlement on the third business day following
the receipt of an order to be paid by a federal wire if the investor has agreed
in writing to indemnify the Fund against any losses as a result of nonreceipt of
payment. For further information on this program, contact the Investment
Company.

THIRD PARTY TRANSACTIONS.

EXCHANGE PRIVILEGE.

Shareholders may exchange shares of the 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,
subject to certain conditions and only in states where the exchange may legally
be made. For additional information, including Prospectuses of other Investment
Company funds, contact the Investment Company. Exchanges may be made (i) by
telephone if the registration of the two accounts are identical; or (ii) in
writing addressed to the Investment Company.

An exchange is a redemption of the 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 their 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 Fund currently does not charge such a fee, the Fund reserves 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 Fund. 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 Frank Russell Investment
Company fund shares must be received by the Fund's 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 the close of the New York Stock Exchange (currently 4:00 p.m.
Eastern time).

PROSPECTUS 19
<PAGE> 114

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 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.

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 U.S. 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. The 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 Fund reserves the right to suspend the right of
redemption or postpone the date of payment if any unlikely emergency conditions
(as specified in the Investment Company Act of 1940, as amended 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 Fund 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 Fund.

Coopers & Lybrand L.L.P., Boston, Massachusetts, are the Fund's 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 Fund, or their
accounts, from the Management Company.

ORGANIZATION, CAPITALIZATION, AND VOTING. The Investment Company was organized
as a Maryland

20 PROSPECTUS
<PAGE> 115

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 the Fund are fully paid and nonassessable and
have no preemptive or conversion rights.

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 Investment Company 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, U.S. National Bank of Oregon may be deemed by the Investment
Company Act of 1940 to "control" the Fund because it owns more than 25% of the
voting shares of the Fund.

MONEY MANAGER PROFILES. The Money Managers identified below have no affiliations
with the Fund 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.

GENESIS ASSET MANAGERS, LTD. Bermuda House, St. Julian's Ave., St. Peter Port,
Guernsey, Channel Islands, is a limited liability company organized under the
laws of the state of Guernsey, the Channel Islands, and has been engaged in the
investment advisory business since 1990. Genesis Asset Managers, Ltd., is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended. Genesis Asset Managers Ltd., is affiliated with and has common
investment executives with the Genesis Group of fund management companies. The
Genesis Group, whose holding company is Genesis Holdings Ltd., is controlled
32.58% by management and 67.42% by 12 outside shareholders, with the largest
single holding being 19.68%.

MONTGOMERY ASSET MANAGEMENT L.P., 600 Montgomery Street, 17th Floor, San
Francisco, CA 94111, is a California limited partnership and a registered
investment advisor. Montgomery Asset Management, Inc., is the general partner of
Montgomery Asset Management, L.P. and Montgomery Securities is the sole limited
partner. Montgomery Asset Management, Inc., and Montgomery Securities may be
deemed control persons of Montgomery Asset Management, L.P.

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 HTERE 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.

PROSPECTUS 21

<PAGE> 116

EMERGING MARKETS FUND

FRANK RUSSELL INVESTMENT COMPANY
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700
In Washington, (206) 627-7001

MONEY MANAGERS
Baring International Investment, Ltd.
Genesis Asset Managers, Ltd.
Montgomery Asset Management L.P.

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