RUSSELL FRANK INVESTMENT CO, 485APOS, 1996-05-07

RUSSELL FRANK INVESTMENT CO
485APOS, 1996-05-07

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<PAGE> 1
Filed Pursuant to Rule 485(a)
Registration No. 2-71299
811-3153

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---
Pre-Effective Amendment No.
------ ---
Post-Effective Amendment No. 33 X
------ ---

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---
Amendment No. 33
----

FRANK RUSSELL INVESTMENT COMPANY
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

909 A Street, Tacoma, Washington 98402
- --------------------------------------- ----------
(Address of Principal Executive Office) (ZIP Code)

Registrant's Telephone Number, including area code: 206/627-7001

Gregory J. Lyons, Associate General Counsel
Frank Russell Investment Company
909 A Street, Tacoma, Washington 98402 206/596-2406
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)

Steven M. Felsenstein, Esq.
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, WA 19103 215/564-8074

- --------------------------------------------------------------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.

It is proposed that this filing will become effective (check
appropriate box)
( ) immediately upon filing pursuant to paragraph (b)
( ) on (date) pursuant to paragraph (b)
( x ) 60 days after filing pursuant to paragraph (a)(i)
( ) on (date) pursuant to paragraph (a)(i)
( ) 75 days after filing pursuant to paragraph (a)(ii)
( ) on (date) pursuant to paragraph (a)(ii) of rule 485.

If appropriate, check the following box:

( ) this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.

DECLARATION PURSUANT TO RULE 24f-2

Registrant has declared its intention to register an indefinite number of
shares of beneficial interest, par value of $.01, of Frank Russell Investment
Company pursuant to Rule 24f-2(a)(1) under the Investment Company Act of 1940,
as amended. The Registrant filed its Rule 24f-2 notice for the fiscal year ended
December 31, 1995 on February 28, 1996.
<PAGE> 2
Frank Russell Investment Company
File No. 2-71299
P/E Amd. #33

FORM N-1A
Cross-Reference Sheet Required By
Rule 481(a) under Securities Act of 1933

<TABLE>
<CAPTION>
FORM N-1A
ITEM No. ITEM CAPTION LOCATION
- -------- ------------ --------

Prospectus Caption
[applies for the External Fee Funds (EF)
Information Required and the Internal Fee Funds (IF)
Part A in a Prospectus unless otherwise noted]
- ------ --------------- -----------------------
<S> <C> <C>
1 Cover Page Cover Page

2 Synopsis

(a) Annual Fund Operating Expenses

(b) Highlights and Table of Contents

3 Condensed Financial Information

(a) Financial Highlights

(b) Not Applicable

(i) EF -- Money Market Fund

(ii) IF -- US Government Money Market, and Tax Free Money Market
Funds

(d) Annual reports to be filed.

4 General Description of
Registrant

(a)(i) IF -- Cover page; Additional Information - Organization,
Capitalization and Voting

EF -- Cover page; Additional Information - Organization,
Capitalization and Voting

(ii) Investment Objectives, Restrictions, Policies and Risks

(b) Investment Objectives, Restrictions, Policies and Risks

5 Management of the Funds

(a) General Management of the Funds

(b) Money Manager Profiles; General Management of the Funds
</TABLE>

<PAGE> 3
<TABLE>
<CAPTION>
Prospectus Caption
[applies for the External Fee Funds (EF)
Information Required and the Internal Fee Funds (IF)
Part A in a Prospectus unless otherwise noted]
- ------ --------------- -----------------------
<S> <C> <C>
(c) General Management of the Funds

(d) General Management of the Funds; Additional Information -
Distributor, Custodian, Accountants and Reports

(e) General Management of the Funds

(f) Expenses of the Funds

(g) Portfolio Transaction Policies

5A Management's Discussion of Annual Report to be filed.
Fund Performance

6 Capital Stock and Other
Securities

(a) Eligible Investors; Additional Information - Organization,
Capitalization and Voting

(b) Additional Information - Organization, Capitalization and Voting

(d) Not Applicable

(e) Back Cover

(f) Dividends and Distributions

(g) Taxes

(h) Not Applicable

7 Purchase of Securities Being
Offered

(a) Additional Information - Distributor, Custodian, Accountants and
Reports

(b) Eligible Investors; Valuation of Fund Shares; Purchase of Fund
Shares

(d) Eligible Investors

(e) Not Applicable

(f) Not Applicable

(g) Not Applicable

8 Redemption or Repurchase

(a) Redemption of Fund Shares

(b) Not Applicable

(c) Eligible Investors
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Prospectus Caption
[applies for the External Fee Funds (EF)
Information Required and the Internal Fee Funds (IF)
Part A in a Prospectus unless otherwise noted]
- ------ --------------- -----------------------
<S> <C> <C>
(d) Redemption of Fund Shares

9 Pending Legal Proceedings Not Applicable

<CAPTION>
Information Required in a
Statement of Additional
Part B Information Statement Caption
- ------ ----------- -----------------
<S> <C> <C>
10 Cover Page Cover Page

11 Table of Contents Table of Contents

12 General Information and History Not Applicable

13 Investment Objectives and
Policies

(a) Investment Restrictions, Policies and Certain Investments

(b) Investment Restrictions, Policies and Certain Investments

(d) Operation of Investment Company - Portfolio Turnover Rate

14 Management of the Fund

(a) Structure and Governance - Trustees and Officers

(b) Structure and Governance - Trustees and Officers

15 Control Persons and Principal
Holders of Securities

(a) Structure and Governance - Controlling Shareholders

(b) Structure and Governance - Controlling Shareholders

(c) Structure and Governance - Controlling Shareholders
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Information Required in a
Statement of Additional
Part B Information Statement Caption
- ------ ----------- -----------------
<S> <C> <C>
16 Investment Advisory and Other
Services

(a) Operation of Investment Company - Consultant, Manager; (Prospectus)
- General Management of the Funds; Money Manager Profiles

(b) Operation of Investment Company - Consultant, Manager; (Prospectus)
- General Management of the Funds; The Money Managers

(d) Not Applicable

(e) Not Applicable

(f) Not Applicable

(g) Not Applicable

(h) Operation of Investment Company - Custodian; (Prospectus)
Additional Information - Custodian, Accountants and Reports

(i) Operation of Investment Company - Custodian, Transfer Agent;
(Prospectus) Additional Information - Custodian, Accountants and
Reports

17 Brokerage Allocation and Other
Practices

(a) Operation of Investment Company - Brokerage Allocations, Brokerage
Commissions

(b) Operation of Investment Company - Brokerage Commissions

(d) Operation of Investment Company - Brokerage Commissions

(e) Operation of Investment Company - Brokerage Commissions

18 Capital Stock and Other
Securities
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Information Required in a
Statement of Additional
Part B Information Statement Caption
- ------ ----------- -----------------
<S> <C> <C>
(a) Structure and Governance - Organization and Business History

(b) Not Applicable

19 Purchase, Redemption and Pricing
of Securities Being Offered

(a)-(c) Operation of Investment Company - Valuation of Fund Shares; Annual
Report to Shareholders; Financial Statements; (Prospectus) Eligible
Investors; Valuation of Fund Shares; Redemption of Shares

20 Tax Status Taxes

21 Underwriters

(a) Operation of Investment Company - Distributor

(b) Not Applicable

22 Calculations of Performance Data

(a) Money Market Funds Yield and Total Return Quotations

(b) Other Registrations Yield and Total Return Quotations

23 Financial Statements Annual Report to Shareholders; Financial Statements
</TABLE>
<PAGE> 7
PROSPECTUS

[EXTERNAL FEE FUNDS]
[CLASS S SHARES]

FRANK RUSSELL INVESTMENT COMPANY

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

Frank Russell Investment Company (the "Investment Company") is a "series mutual
fund" with 23 different investment portfolios referred to as the "Funds." This
Prospectus describes and offers shares of beneficial interest in the Class S
Shares of the nine Funds listed below, except for the Money Market Fund, which
is not currently offered for direct investment.

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

Equity I Fund Fixed Income I Fund
Equity II Fund Fixed Income II Fund
Equity III Fund Fixed Income III Fund
Equity Q Fund Money Market Fund
International Fund

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

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

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

Frank Russell Investment Company is organized as a Massachusetts business trust
under an amended 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, which interests may be
offered in one or more classes. 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 Class S Shares of nine of its Funds that a prospective investor ought to
know before investing. The Investment Company has filed a Statement of
Additional Information dated July __, 1996, 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.

This Prospectus relates only to the Class S Shares of the nine Funds. The Funds
listed above currently do not offer shares of beneficial interest in any other
classes.

PROSPECTUS DATED JULY __, 1996

<PAGE> 8
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.

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 Class S Shares of nine External Fee Funds,
except the Money Market Fund, which is not currently offered for direct
investment. Another prospectus describes and offers Class S Shares of eight
Internal Fee Funds, while a third prospectus describes and offers Class S Shares
in four Internal Fee Funds and two External Fee Funds. The principal distinction
between the External and the Internal Fee Funds is that a shareholder of an
External Fee Fund may pay a quarterly shareholder investment services fee
directly to the Management Company. The 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's Funds had
aggregate net assets of $8.9 billion on April 30, 1996. The net assets of these
nine Funds on April 30, 1996, were:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity I $862,140,124 Fixed Income I $675,942,818
Equity II $330,556,572 Fixed Income II $196,502,539
Equity III $231,174,117 Fixed Income III $254,264,611
Equity Q $712,358,569 Money Market $643,877,000
International $883,784,283

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

<PAGE> 9

HIGHLIGHTS AND TABLE OF CONTENTS

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

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

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
___.

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 ___.

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 ___.

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

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

EXPENSES OF THE FUNDS are borne by the Funds. Each Fund pays a management fee to
the Management Company, its expenses and its portion of the general expenses of
the Investment Company. The Management Company, as agent for the Fund, pays from
its fees, the investment advisory fees of the money managers of the Fund. The
remainder of the fee is retained by the Management Company, for conducting the
Fund's general operations and for providing investment supervision for the Fund.
Each Eligible Investor may pay to the Management Company directly a fee for
other services provided to that Eligible Investor. PAGE ___.

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 the Management Company. PAGE ___.

INVESTMENT OBJECTIVES, RESTRICTIONS, POLICIES, AND RISKS apply to each Fund.
Those objectives, restrictions and policies designated "fundamental" may not be
changed without the approval of a majority of the Fund's shareholders. Risks
associated with certain Fund investment policies, such as market volatility
risk, political risk, and credit risk, are discussed in the context of policies
giving rise to such risks. PAGE ___.

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

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

INCOME TAXES PAID BY THE FUNDS 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 ___.

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

VALUATION OF FUND SHARES occurs each business day (twice a day for the Money
Market Fund). The value of a Class S share purchased or redeemed is based upon
the next computed current market value of the assets, less liabilities, of each
Class S Fund. The Money Market Fund
<PAGE> 10
utilizes amortized cost pricing procedures to attempt to maintain a stable $1.00
per share net asset value. Unless otherwise indicated, "shares" in this
Prospectus refers to the Class S Shares of the Funds. PAGE ___.

PURCHASE OF FUND SHARES includes no sales charge. Shares are offered and orders
to purchase are accepted on each business day. PAGE ___.

REDEMPTION OF FUND SHARES may be requested on any business day that shares are
offered. There is no redemption charge. The redemption price is determined by
the net asset value next computed after receipt of the redemption request. The
Funds reserve the right to redeem in kind that portion of a redemption request
which is in excess of $250,000. PAGE ___.

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

<PAGE> 11

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE EQUITY I FUND*

The purpose of the following tables is to assist the investor in understanding
the various costs and expenses that an investor in the Class S Shares of 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>
<S> <C> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee........................................................ .60%
12b-1 Fees............................................................ None
Other Expenses:
Custodian Fees........................................... .07%
Transfer Agent Fees...................................... .03
Other Fees............................................... .02
----
Total Other Expenses............................................... .12
----
Total Class S Shares 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>
- -----------------------------------------------------------------------------

* Each shareholder or the financial intermediary through which the
shareholder purchases Class S Shares of the Investment Company 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. This annual shareholder investment services
fee may range from .00% to .30% under the asset management services
agreements entered into by shareholders of the Class S Shares of the
Equity I 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.
** Investors purchasing Class S Shares of the Fund through a financial
intermediary, such as a bank or an investment adviser, may also be
required to pay additional fees to the intermediary for services
provided by the intermediary. Such investors should contact the
intermediary for information concerning what additional fees, if any,
will be charged.

PROSPECTUS 5
<PAGE> 12

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE EQUITY II FUND*

ANNUAL CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee........................................................ .75%
12b-1 Fees............................................................ None
Other Expenses:
Custodian Fees........................................... .14%
Transfer Agent Fees...................................... .06
Other Fees............................................... .04
-----
Total Other Expenses............................................... .24
----
Total Class S Shares Operating Expenses**.............................. .99%
====
</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 $ 32 $ 55 $121
===== ===== ===== =====
</TABLE>
- -----------------------------------------------------------------------------

* Each shareholder or the financial intermediary through which the
shareholder purchases Class S Shares of the Investment Company 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. This annual shareholder investment services
fee may range from .00% to .25% under the asset management services
agreements entered into by shareholders of the Class S Shares of the
Equity II 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.
** Investors purchasing Class S Shares of the Fund through a financial
intermediary, such as a bank or an investment adviser, may also be
required to pay additional fees to the intermediary for services
provided by the intermediary. Such investors should contact the
intermediary for information concerning what additional fees, if any,
will be charged.

PROSPECTUS 6
<PAGE> 13

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE EQUITY III FUND*

The purpose of the following tables is to assist the investor in
understanding the various costs and expenses that an investor in the Class S
Shares of 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.

ANNUAL CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee........................................................ .60%
12b-1 Fees............................................................ None
Other Expenses:
Custodian Fees........................................... .09%
Transfer Agent Fees...................................... .06
Other Fees............................................... .03
----
Total Other Expenses............................................... .18
----
Total Class S Shares Operating Expenses**.............................. .78%
====
</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 $ 97
===== ===== ===== =====
</TABLE>
- -----------------------------------------------------------------------------

* Each shareholder or the financial intermediary through which the
shareholder purchases Class S Shares of the Investment Company 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. This annual shareholder investment services fee may
range from .00% to .30% under the asset management services agreements
entered into by shareholders of the Class S Shares of the Equity III
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.
** Investors purchasing Class S Shares of the Fund through a financial
intermediary, such as a bank or an investment adviser, may also be
required to pay additional fees to the intermediary for services
provided by the intermediary. Such investors should contact the
intermediary for information concerning what additional fees, if any,
will be charged.

PROSPECTUS 7
<PAGE> 14

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE EQUITY Q FUND*

The purpose of the following tables is to assist the investor in
understanding the various costs and expenses that an investor in the Class S
Shares of 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>
<S> <C> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee........................................................ .60%
12b-1 Fees............................................................ None
Other Expenses:
Custodian Fees........................................... .06%
Transfer Agent Fees...................................... .03
Other Fees............................................... .02
----
Total Other Expenses............................................... .11
----
Total Class S Shares Operating Expenses**.............................. .71%
====
</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 $ 88
===== ===== ===== =====
</TABLE>
- -------------------------------------------------------------------------------

* Each shareholder or the financial intermediary through which the
shareholder purchases Class S Shares of the Investment Company 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. This annual shareholder investment services
fee may range from .00% to .30% under the asset management services
agreements entered into by shareholders of the Class S Shares of 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 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.
** Investors purchasing Class S Shares of the Fund through a financial
intermediary, such as a bank or an investment adviser, may also be
required to pay additional fees to the intermediary for services
provided by the intermediary. Such investors should contact the
intermediary for information concerning what additional fees, if any,
will be charged.

PROSPECTUS 8
<PAGE> 15

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE INTERNATIONAL FUND*

The purpose of the following tables is to assist the investor in
understanding the various costs and expenses that an investor in the Class S
Shares of 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.

ANNUAL CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee........................................................ .75%
12b-1 Fees............................................................ None
Other Expenses:
Custodian Fees........................................... .24%
Transfer Agent Fees...................................... .02
Other Fees............................................... .05
----
Total Other Expenses.............................................. .31
----
Total Class S Shares Operating Expenses**............................. 1.06%
====
</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 $ 58 $129
===== ===== ===== =====
</TABLE>
- -------------------------------------------------------------------------------

* Each shareholder or the financial intermediary through which the
shareholder purchases Class S Shares of the Investment Company 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 Class S Shares of the
International 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.
** Investors purchasing Class S Shares of the Fund through a financial
intermediary, such as a bank or an investment adviser, may also be
required to pay additional fees to the intermediary 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> 16

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE FIXED INCOME I FUND*

ANNUAL CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee........................................................ .30%
12b-1 Fees............................................................ None
Other Expenses:
Custodian Fees........................................... .05%
Transfer Agent Fees...................................... .03
Other Fees............................................... .03
----
Total Other Expenses............................................... .11
----
Total Class S Shares Operating Expenses**.............................. .41%
====
</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 $ 52
===== ===== ===== =====
</TABLE>
- -------------------------------------------------------------------------------

* Each shareholder or the financial intermediary through which the
shareholder purchases Class S Shares of the Investment Company 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 Class S Shares of the
Fixed Income I 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.
** Investors purchasing Class S Shares of the Fund through a financial
intermediary, such as a bank or an investment adviser, may also be
required to pay additional fees to the intermediary for services
provided by the intermediary. Such investors should contact the
intermediary for information concerning what additional fees, if any,
will be charged.

PROSPECTUS 10
<PAGE> 17

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE FIXED INCOME II
FUND*

ANNUAL CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee........................................................ .50%
12b-1 Fees............................................................ None
Other Expenses:
Custodian Fees........................................... .09%
Transfer Agent Fees...................................... .06
Other Fees............................................... .05
---
Total Other Expenses............................................... .20
---
Total Class S Shares Operating Expenses**.............................. .70%
===
</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 $ 39 $ 87
===== ===== ===== =====
</TABLE>
- -------------------------------------------------------------------------------

* Each shareholder or the financial intermediary through which the
shareholder purchases Class S Shares of the Investment Company 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. This annual shareholder investment services
fee may range from .00% to .40% under the asset management services
agreement entered into by shareholders of the Class S Shares of the
Fixed Income II 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.

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

PROSPECTUS 11
<PAGE> 18

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE FIXED INCOME III
FUND*

The purpose of the following table is to assist the investor in
understanding the various costs and expenses that an investor in the Class S
Shares and 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> <C>
CLASS S SHARES SHAREHOLDER TRANSACTION EXPENSES:
Class S Shares Sales Load Imposed on Purchases....................... None
Sales Load Imposed on Reinvested Dividends........................... None
Deferred Sales Load.................................................. None
Redemption Fees...................................................... None
Exchange Fees........................................................ None

ANNUAL CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee(1)..................................................... .55%
12b-1 Fees............................................................ None
Other Expenses:
Custodian Fees........................................... .07%
Transfer Agent Fees...................................... .05
Other Fees............................................... .05
---
Total Other Expenses............................................... .17
---
Total Class S Shares Operating Expenses(1)**........................... .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>
- -------------------------------------------------------------------------------

1 Effective May 1, 1996, the Manager has determined to discontinue its
agreement to reimburse all expenses of the Fund that exceed the annual
rate of 0.75% of average daily net assets. Also effective May 1, 1996,
the Manager has voluntarily agreed to waive a portion of its 0.55%
management fee, up to the full amount of that fee, equal to the amount
by which the Class S Shares total operating expenses exceed 0.75% of the
Class S Shares average net assets on an annual basis. This waiver is
intended to be in effect for the current year, but may be revised or
eliminated at any time without notice to shareholders.

PROSPECTUS 12
<PAGE> 19

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE MONEY MARKET FUND*

The purpose of the following table is to assist the investor in
understanding the various costs and expenses that an investor in the Class S
shares of 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> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee (After Fee Waiver)(1)................................. .00%
12b-1 Fees............................................................ None
Other Expenses:
Custodian Fees........................................... .04%
Transfer Agent Fees...................................... .01
Other Fees............................................... .01
---
Total Other Expenses............................................... .06
---
Total Class S Shares Operating Expenses (After Fee Waiver)(1)**........ .06%
===
</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 $ 8
===== ===== ===== =====
</TABLE>
- -------------------------------------------------------------------------------

(1) The Manager has voluntarily agreed to waive its .25% management fee for
the Money Market Fund. The total operating expenses of the Class S
Shares absent the fee waiver would be .31% of average net assets on an
annual basis. This waiver is intended to be in effect for the current
year, but may be revised or eliminated at any time without notice to
shareholders.

PROSPECTUS 13

<PAGE> 20
FINANCIAL HIGHLIGHTS OF THE EQUITY I FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other performance
information derived from the financial statements. The information in the table
represents the Financial Highlights for the Fund's Class S Shares for the
periods shown. The table appears in the Fund's financial statements and related
notes, which are incorporated by reference in the Statement of Additional
Information and which appear, along with the report of Coopers & Lybrand,
L.L.P. in the Fund's Annual Report to Shareholders. More detailed information
concerning the Fund's performance, including a complete portfolio listing and
audited financial statements, is available in the Fund's Annual Report, which
may be obtained without charge by writing or calling the Investment Company.

EQUITY I FUND

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR.............. $23.32 $24.91 $25.00 $25.17 $21.13 $25.39 $22.20 $20.18 $28.53 $28.19
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income......... .52 .62 .60 .61 .75 .91 .88 .81 1.12 .99
Net realized and unrealized
gain (loss) on investments... 7.71 (.41) 2.18 1.54 5.61 (2.37) 5.79 2.46 1.50 3.25
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

Total From Investment
Operations................... 8.23 .21 2.78 2.15 6.36 (1.46) 6.67 3.27 2.62 4.24
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

LESS DISTRIBUTIONS:
Net investment income......... (.52) (.62) (.60) (.62) (.75) (.90) (1.01) (.77) (1.26) (1.14)

Net realized gain on
investments.................. (3.03) (.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........... (3.55) (1.80) (2.87) (2.32) (2.32) (2.80) (3.48) (1.25) (10.97) (3.90)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

NET ASSET VALUE,
END OF YEAR................... $28.00 $23.32 $24.91 $25.00 $25.17 $21.13 $25.39 $22.20 $20.18 $28.53
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL RETURN (%)(A).............. 35.94 .79 11.61 9.02 31.22 (5.64) 30.79 16.42 5.97 16.23

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a)............... .59 .12 .14 .15 .19 .23 .18 .17 .14 .12
Net investment income to
average net assets (a)....... 1.91 2.52 2.36 2.53 3.14 3.66 3.41 3.68 3.11 3.49
Portfolio turnover............ 92.04 75.02 91.87 71.14 119.55 101.30 61.27 67.59 86.22 70.22
Net assets, end of year
($000 omitted)................ 751,497 547,242 514,356 410,170 330,507 221,543 300,814 243,691 266,371 282,890
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net of
investment management fees but gross of any investment services fees.
Management fees and investment services fees reduce performance; for
example, an investment services fee of 0.2% of average managed assets will
reduce a 10% return to 9.8%.

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

PROSPECTUS 14
<PAGE> 21
FINANCIAL HIGHLIGHTS OF THE EQUITY II FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other performance
information derived from the financial statements. The information in the table
represents the Financial Highlights for the Fund's Class S Shares for the
periods shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

EQUITY II FUND

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR................ $25.00 $26.58 $27.71 $26.32 $19.24 $23.32 $22.50 $19.99 $23.54 $25.01
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............ .27 .36 .32 .30 .41 .51 .61 .52 .50 .52
Net realized and unrealized
gain (loss) on investments..... 6.80 (.86) 3.97 3.13 7.65 (3.91) 4.74 2.51 2.17 1.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

Total From Investment
Operations..................... 7.07 (.50) 4.29 3.43 8.06 (3.40) 5.35 3.03 2.67 2.30
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

LESS DISTRIBUTIONS:
Net investment income............ (.29) (.31) (.31) (.30) (.41) (.50) (.71) (.52) (.61) (.53)
Net realized gain on
investments.................... (2.90) (.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.............. (3.19) (1.08) (5.42) (2.04) (.98) (.68) (4.53) (.52) (6.22) (3.77)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

NET ASSET VALUE,
END OF YEAR...................... $28.88 $25.00 $26.58 $27.71 $26.32 $19.24 $23.32 $22.50 $19.99 $23.54
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL RETURN (%)(A).................. 28.67 (2.60) 16.70 13.31 42.40 (14.76) 24.63 15.22 10.32 10.17

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a)................. .83 .23 .34 .32 .37 .48 .41 .35 .29 .35
Net investment income to
average net assets (a)......... .97 1.46 1.14 1.10 1.79 2.40 2.45 2.40 1.94 2.23
Portfolio turnover............... 89.31 58.04 87.25 43.33 42.16 80.27 77.55 56.38 130.36 113.46
Net assets, end of year
($000 omitted)................... 279,566 202,977 171,421 120,789 101,206 60,668 70,588 63,903 68,968 63,972
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

PROSPECTUS 15
<PAGE> 22
FINANCIAL HIGHLIGHTS OF THE EQUITY III FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other performance
information derived from the financial statements. The information in the table
represents the Financial Highlights for the Fund's Class S Shares for the
periods shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

EQUITY III FUND

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ........... $ 24.18 $ 27.05 $ 26.75 $ 27.08 $ 23.30 $ 26.49 $ 24.03 $ 20.74
-------- -------- -------- -------- -------- ------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... .82 .93 .89 .98 1.08 1.33 1.26 1.15
Net realized and unrealized
gain (loss) on investments 7.73 (.85) 2.99 2.24 5.21 (2.85) 5.35 3.40
-------- -------- -------- -------- -------- ------- -------- --------
Total From Investment
Operations ................ 8.55 .08 3.88 3.22 6.29 (1.52) 6.61 4.55
-------- -------- -------- -------- -------- ------- -------- --------
LESS DISTRIBUTIONS:
Net investment income ....... (.83) (.91) (.90) (.99) (1.07) (1.30) (1.40) (1.14)
In excess of net investment
income .................... -- -- (.00) -- -- -- -- --
Net realized gain on
investments ............... (2.79) (1.94) (2.68) (2.56) (1.44) (.37) (2.75) (.12)
In excess of net realized
gain on investments ....... -- (.10) -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------- --------
Total Distributions ......... (3.62) (2.95) (3.58) (3.55) (2.51) (1.67) (4.15) (1.26)
-------- -------- -------- -------- -------- ------- -------- --------
NET ASSET VALUE,
END OF YEAR ................. $ 29.11 $ 24.18 $ 27.05 $ 26.75 $ 27.08 $ 23.30 $ 26.49 $ 24.03
======== ======== ======== ======== ======== ======= ======== ========
TOTAL RETURN (%)(a) ............. 35.96 1.16 14.95 12.30 27.86 (5.73) 28.07 22.19
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a) ............ .65 .17 .16 .20 .25 .27 .23 .20
Net investment income to
average net assets (a) .... 2.90 3.39 3.09 3.57 4.05 4.91 4.58 4.96
Portfolio turnover .......... 103.40 85.92 76.77 84.56 56.99 65.74 83.13 57.28
Net assets, end of year
($000 omitted) .............. 222,541 177,807 181,630 166,782 138,076 94,087 135,245 106,695
<CAPTION>
- -----------------------------------------------------------
1987 1986
-------------------
<C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ........... $ 31.27 $ 32.36
-------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 1.21 1.45
Net realized and unrealized
gain (loss) on investments (.74) 2.90
-------- --------
Total From Investment
Operations ................ .47 4.35
-------- --------
LESS DISTRIBUTIONS:
Net investment income ....... (1.61) (1.65)
In excess of net investment
income ...................... -- --
Net realized gain on
investments ............... (9.39) (3.79)
In excess of net realized
gain on investments ....... -- --
-------- --------
Total Distributions ......... (11.00) (5.44)
-------- --------
NET ASSET VALUE,
END OF YEAR ................. $ 20.74 $ 31.27
======== ========
TOTAL RETURN (%)(a) ............. (1.48) 14.74
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a) ............ .17 .16
Net investment income to
average net assets (a) .... 4.11 4.55
Portfolio turnover .......... 97.54 70.73
Net assets, end of year
($000 omitted) .............. 102,716 126,206
- ------------------------------------------------------------------------
</TABLE>

(a) For periods prior to April 1, 1995, fund performance, operating
expenses, and net investment income do not include any management fees
paid to the Manager or money managers. For periods thereafter, they are
reported net of investment management fees but gross of any investment
services fees. Management fees and investment services fees reduce
performance; for example, an investment services fee of 0.2% of average
managed assets will reduce a 10% return to 9.8%.

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

PROSPECTUS 16
<PAGE> 23
FINANCIAL HIGHLIGHTS OF THE EQUITY Q FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The 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. The information
in the table represents the Financial Highlights for the Fund's Class S Shares
for the periods shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

<TABLE>
<CAPTION>
EQUITY Q FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987++
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR..................... $ 24.43 $26.03 $25.23 $24.90 $20.20 $22.45 $18.85 $16.67 $20.00
------ ------ ------ ------ ------ ------ ------ ------ ------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. .59 .69 .66 .67 .75 .81 .78 .69 .39
Net realized and unrealized
gain (loss) on investments.......... 8.52 (.41) 2.71 1.73 5.58 (1.89) 4.26 2.15 (3.39)
------ ------ ------ ------ ------ ------ ------ ------ ------

Total From Investment Operations...... 9.11 .28 3.37 2.40 6.33 (1.08) 5.04 2.84 (3.00)
------ ------ ------ ------ ------ ------ ------ ------ ------

LESS DISTRIBUTIONS:
Net investment income................. (.61) (.69) (.66) (.68) (.75) (.79) (.86) (.66) (.28)
Net realized gain on investments...... (2.53) (.97) (1.85) (1.39) (.88) (.38) (.58) -- (.05)
In excess of net realized
gain on investments................. -- (.22) (.06) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------

Total Distributions................... (3.14) (1.88) (2.57) (2.07) (1.63) (1.17) (1.44) (.66) (.33)
------ ------ ------ ------ ------ ------ ------ ------ ------

NET ASSET VALUE,
END OF YEAR........................... $ 30.40 $24.43 $26.03 $25.23 $24.90 $20.20 $22.45 $18.85 $16.67
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(A)(B).................... 37.91 .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)....................... .58 .11 .15 .18 .23 .31 .33 .33 .24
Net investment income to average net
assets (b)(c)....................... 2.07 2.74 2.50 2.80 3.23 3.70 3.68 3.82 3.56
Portfolio turnover(c)................. 74.00 45.87 54.69 58.35 51.37 66.51 88.03 52.21 46.10
Net assets, end of year ($000 omitted) 620,259 430,661 382,939 290,357 215,779 133,869 129,680 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) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. for periods thereafter, they are reported net of
investment management fees but gross of any investment services fees.
Management fees and investment services fees reduce performance; for
example, an investment services fee of 0.2% of average managed assets will
reduce a 10% return to 9.8%.
(c) The ratios for the period ended December 31, 1987 are annualized.

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

PROSPECTUS 17
<PAGE> 24
FINANCIAL HIGHLIGHTS OF THE INTERNATIONAL FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other performance
information derived from the financial statements. The information in the table
represents the Financial Highlights for the Fund's Class S Shares for the
periods shown. The table appears in the Fund's financial statements and related
notes, which are incorporated by reference in the Statement of Additional
Information and which appear, along with the report of Coopers & Lybrand, L.L.P.
in the Fund's Annual Report to Shareholders. More detailed information
concerning the Fund's performance, including a complete portfolio listing and
audited financial statements, is available in the Fund's Annual Report, which
may be obtained without charge by writing or calling the Investment Company.

<TABLE>
<CAPTION>
INTERNATIONAL FUND
- --------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR................ $ 34.28 $ 37.34 $ 28.92 $ 31.96 $ 29.18 $ 38.52 $ 35.44
-------- -------- -------- -------- -------- -------- --------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............ .48 .61 .58 .67 .73 1.23 .85

Net realized and unrealized
gain (loss) on investments(a)... 3.16 .65 9.63 (2.62) 3.16 (7.27) 7.46
-------- -------- -------- -------- -------- -------- --------

Total From Investment
Operations...................... 3.64 1.26 10.21 (1.95) 3.89 (6.04) 8.31
-------- -------- -------- -------- -------- -------- --------

LESS DISTRIBUTIONS:
Net investment income............ (.64) (.36) (.57) (.67) (.80) (1.19) (1.02)

In excess of net investment
income.......................... (.08) -- (.16) -- -- -- --

Net realized gain on
investments..................... (.94) (3.73) (1.06) (.42) (.31) (2.11) (4.21)

In excess of net realized
gain on investments............. -- (.23) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Distributions.............. (1.66) (4.32) (1.79) (1.09) (1.11) (3.30) (5.23)
-------- -------- -------- -------- -------- -------- --------

NET ASSET VALUE,
END OF YEAR...................... $ 36.26 $ 34.28 $ 37.34 $ 28.92 $ 31.96 $ 29.18 $ 38.52
======== ======== ======== ======== ======== ======== ========

TOTAL RETURN (%)(B)................ 10.71 5.38 35.56 (6.11) 13.47 (15.94) 24.06

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets(b).......... .88 .32 .39 .45 .48 .50 .44

Operating expenses, gross, to
average net assets(b)......... .89 .34 .41 .46 .48 .50 .44

Net investment income to
average net assets (b)......... 1.41 1.63 1.83 2.46 2.61 3.14 2.38

Portfolio turnover.............. 36.78 71.09 62.04 48.99 53.13 78.30 53.49

Net assets, end of year
($000 omitted)................. 796,777 674,180 562,497 348,869 252,828 171,613 186,742

Per share amount of fees waived,
($000 omitted) ................ .0041 .0093 .0091 .0030 -- -- --
- --------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
INTERNATIONAL FUND
- ---------------------------------------------------------------------------
1988 1987 1986
-------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR................ $ 35.50 $ 50.23 $ 35.53
-------- -------- --------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............ .95 .93 .77

Net realized and unrealized
gain (loss) on investments(a)... 5.77 5.49 18.34
-------- -------- --------

Total From Investment
Operations...................... 6.72 6.42 19.11
-------- -------- --------

LESS DISTRIBUTIONS:
Net investment income............ (1.11) (1.39) (.25)

In excess of net investment
income.......................... -- -- --

Net realized gain on
investments..................... (5.67) (19.76) (4.16)

In excess of net realized
gain on investments............. -- -- --
--------- -------- --------
Total Distributions.............. (6.78) (21.15) (4.41)
-------- -------- --------

NET ASSET VALUE,
END OF YEAR...................... $ 35.44 $ 35.50 $ 50.23
======== ======== ========

TOTAL RETURN (%)(B)................ 20.13 14.42 60.05

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets(b).......... .45 .43 .46

Operating expenses, gross, to
average net assets (b)......... .45 .43 .46

Net investment income to
average net assets (b)......... 2.52 1.83 1.79

Portfolio turnover.............. 51.17 96.31 42.71

Net assets, end of year
($000 omitted)................. 149,064 160,975 169,227

Per share amount of fees waived
($000 omitted)................. -- -- --
---------------------------------------------------------------------------
</TABLE>

(a) Provision for federal income tax for the year ended December 31, 1991
amounted to $.024 per share.

(b) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net of
investment management fees but gross of any investment services fees.
Management fees and investment services fees reduce performance; for
example, an investment services fee of 0.2% of average managed assets will
reduce a 10% return to 9.8%.

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

PROSPECTUS 18

<PAGE> 25

FINANCIAL HIGHLIGHTS OF THE FIXED INCOME I FUND*
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other performance
information derived from the financial statements. The information in the table
represents the Financial Highlights for the Fund's Class S Shares for the
periods shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

FIXED INCOME I FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ........... $ 19.59 $ 21.74 $ 21.61 $ 22.29 $ 20.86 $ 20.91 $ 20.50 $ 20.48
-------- -------- -------- -------- -------- -------- -------- --------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 1.42 1.46 1.50 1.63 1.71 1.77 1.93 1.73
Net realized and unrealized
gain (loss) on investments. 2.02 (2.06) .72 (.07) 1.49 (.05) .71 .01
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ................ 3.44 (.60) 2.22 1.56 3.20 1.72 2.64 1.74
-------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income ....... (1.44) (1.44) (1.50) (1.62) (1.69) (1.77) (1.92) (1.72)
In excess of net investment
income .................... -- -- (.01) -- -- -- -- --
Net realized gain on
investments ............... -- -- (.58) (.62) (.08) -- (.31) --
In excess of net realized
gain on investments ....... -- (.11) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions ......... (1.44) (1.55) (2.09) (2.24) (1.77) (1.77) (2.23) (1.72)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR ................. $ 21.59 $ 19.59 $ 21.74 $ 21.61 $ 22.29 $ 20.86 $ 20.91 $ 20.50
======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%)(A) ............. 18.03 (2.97) 10.46 7.26 16.01 8.60 13.35 8.76
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a) ............ .35 .10 .09 .10 .10 .11 .12 .13
Net investment income to
average net assets (a) .... 6.82 7.06 6.71 7.45 8.08 8.70 8.96 8.28
Portfolio turnover .......... 138.05 173.97 173.27 211.26 121.91 114.15 196.18 186.54
Net assets, end of year
($000 omitted) .............. 638,317 496,038 533,696 530,857 458,201 329,091 297,721 223,216
<CAPTION>
- --------------------------------------------------------
1987 1986
-------------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ........... $ 24.26 $ 23.82
-------- --------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 1.71 2.01
Net realized and unrealized
gain (loss) on investments (1.40) 1.65
-------- --------
Total From Investment
Operations ................ .31 3.66
-------- --------
LESS DISTRIBUTIONS:
Net investment income ....... (2.08) (2.03)
In excess of net investment
income ...................... -- --
Net realized gain on
investments ............... (2.01) (1.19)
In excess of net realized
gain on investments ....... -- --
-------- --------
Total Distributions ......... (4.09) (3.22)
-------- --------
NET ASSET VALUE,
END OF YEAR ................. $ 20.48 $ 24.26
======== ========
TOTAL RETURN (%)(A) ............. 1.49 16.94
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a) ............ .11 .13
Net investment income to
average net assets (a) .... 8.00 8.41
Portfolio turnover .......... 211.26 221.11
Net assets, end of year
($000 omitted) .............. 250,606 220,089
- --------------------------------------------------------------------------------
</TABLE>
(a) For periods prior to April 1, 1995, fund performance, operating
expenses, and net investment income do not include any management fees
paid to the Manager or money managers. For periods thereafter, they are
reported net of investment management fees but gross of any investment
services fees. Management fees and investment services fees reduce
performance; for example, an investment services fee of 0.2% of average
managed assets will reduce a 10% return to 9.8%.

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

PROSPECTUS 19
<PAGE> 26

FINANCIAL HIGHLIGHTS OF THE FIXED INCOME II FUND*
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment
Company's independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other
performance information derived from the financial statements. The information
in the table represents the Financial Highlights for the Fund's Class S Shares
for the periods shown. The table appears in the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

<TABLE>
<CAPTION>
FIXED INCOME II FUND

- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR................ $17.98 $18.99 $18.56 $19.68 $18.94 $18.69 $18.51 $18.63 $19.80 $20.38
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............ 1.16 1.21 .84 1.35 1.52 1.53 1.69 1.61 1.57 1.71
Net realized and unrealized
gain (loss) on investments.... .59 (1.07) .44 (.83) .72 .23 .27 (.12) (.60) .04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations.................... 1.75 .14 1.28 .52 2.24 1.76 1.96 1.49 .97 1.75
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

LESS DISTRIBUTIONS:
Net investment income............ (1.18) (1.15) (.71) (1.36) (1.50) (1.51) (1.78) (1.61) (1.91) (1.68)
Net realized gain on
investments................... -- -- -- (.28) -- -- -- -- (.23) (.65)
Tax return of capital............ -- -- (.14) -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions................. (1.18) (1.15) (.85) (1.64) (1.50) (1.51) (1.78) (1.61) (2.14) (2.33)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF YEAR...................... $18.55 $17.98 $18.99 $18.56 $19.68 $18.94 $18.69 $18.51 $18.63 $19.80
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL RETURN (%)(A)................. 9.95 .82 6.98 2.74 12.31 9.71 10.99 8.20 5.21 9.34

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a)................ .58 .19 .16 .19 .13 .15 .17 .13 .12 .14

Net investment income to
average net assets (a)........ 6.41 6.52 6.16 7.21 8.06 8.45 8.97 8.56 8.22 8.55

Portfolio turnover............... 269.31 233.75 229.07 330.58 188.30 184.38 320.16 217.58 197.77 173.51

Net assets, end of year
($000 omitted)................... 183,577 144,030 138,619 182,735 156,685 119,853 83,313 86,052 93,896 91,887
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net of
investment management fees but gross of any investment services fees.
Management fees and investment services fees reduce performance; for
example, an investment services fee of 0.2% of average managed assets will
reduce a 10% return to 9.8%.

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

PROSPECTUS 20
<PAGE> 27
FINANCIAL HIGHLIGHTS OF THE FIXED INCOME III FUND*
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other performance
information derived from the financial statements. The information in the table
represents the Financial Highlights for the Fund's Class S Shares for the
periods shown. The table appears in the Fund's financial statements and related
notes, which are incorporated by reference in the Statement of Additional
Information and which appear, along with the report of Coopers & Lybrand, L.L.P.
in the Fund's Annual Report to Shareholders. More detailed information
concerning the Fund's performance, including a complete portfolio listing and
audited financial statements, is available in the Fund's Annual Report, which
may be obtained without charge by writing or calling the Investment Company.

<TABLE>
<CAPTION>
FIXED INCOME III FUND
- ---------------------------------------------------------------------------------------------
1995 1994 1993++
--------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.............................. $ 9.37 $10.44 $10.00
------ ------ ------

INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................ .67 .66 .49
Net realized and unrealized gain (loss) on investments....... .97 (1.07) .52
----- ----- ------
Total From Investment Operations............................. 1.64 (.41) 1.01
----- ----- ------
LESS DISTRIBUTIONS:
Net investment income........................................ (.67) (.66) (.48)
Net realized gain on investments............................. -- -- (.08)
In excess of net realized gain on investments................ -- (.00) (.01)
----- ----- ------
Total Distributions.......................................... (.67) (.66) (.57)
----- ----- ------

NET ASSET VALUE, END OF YEAR.................................... $10.34 $9.37 $10.44
====== ===== ======

TOTAL RETURN (%)(a)(c).......................................... 17.99 (3.89) 10.22

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets(b)(c)......... .61 .20 .20
Operating expenses, gross, to average net assets(b)(c)....... .61 .20 .40
Net investment income to average net assets(b)............... 6.83 7.02 6.30
Portfolio turnover(b)........................................ 141.37 134.11 181.86
Net assets, end of year ($000 omitted)....................... 252,465 166,620 124,234
Per share amount of fees waived ($ omitted).................. -- -- .0003
Per share amount of fees reimbursed($ omitted)............... -- -- .0154
- ---------------------------------------------------------------------------------------------
</TABLE>

++ For the period January 29, 1993 (commencement of operations) to December 31,
1993.

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

(b) The ratios for the period ended December 31, 1993 are annualized.

(c) For periods prior to April 1, 1995, fund performance, operating expenses,
and net investment income do not include any management fees paid to the
Manager or money managers. For periods thereafter, they are reported net of
investment management fees but gross of any investment services fees.
Management fees and investment services fees reduce performance; for
example, an investment services fee of 0.2% of average managed assets will
reduce a 10% return to 9.8%.

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

PROSPECTUS 21
<PAGE> 28
FINANCIAL HIGHLIGHTS OF THE MONEY MARKET FUND*
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other performance
information derived from the financial statements. The information in the table
represents the Financial Highlights for the Fund's Class C Shares for the
periods shown. The table appears in the Fund's financial statements and related
notes, which are incorporated by reference in the Statement of Additional
Information and which appear, along with the report of Coopers & Lybrand, L.L.P.
in the Fund's Annual Report to Shareholders. More detailed information
concerning the Fund's performance, including a complete portfolio listing and
audited financial statements, is available in the Fund's Annual Report, which
may be obtained without charge by writing or calling the Investment Company.

<TABLE>
<CAPTION>
MONEY MARKET FUND
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
-----------------------------------------------------------------------------
<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............ .0601 .0447 .0342 .0403 .0618 .0823 .0922 .0759
------ ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income............... (.0601) (.0447) (.0342) (.0403) (.0618) (.0823) (.0922) (.0759)
------- ------- ------- ------- ------- ------- ------- -------

NET ASSET VALUE,
BEGINNING OF YEAR................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ====== ======= ======= ======= =======

TOTAL RETURN (%)(A)................. 6.19 4.57 3.48 4.11 6.38 8.55 9.61 7.86

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily net assets (a).. .06 .05 .07 .08 .07 .07 .06 .06
Operating expenses, gross, to
average daily net assets (a).. .26 .05 .07 .08 .07 .07 .06 .06
Net investment income to
average net assets (a)........ 6.01 4.49 3.38 4.04 6.13 8.29 9.31 7.59
Net assets, end of year
($000 omitted)................... 533,643 502,302 415,998 347,464 316,426 226,339 145,550 116,369
Per share amount of fees waived
($ omitted)...................... .0020 -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
MONEY MARKET FUND
- ---------------------------------------------------------
1987 1986
-------------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR................ $1.0000 $1.0000
------- -------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............ .0663 .0685
------- -------
LESS DISTRIBUTIONS:
Net investment income............... (.0663) (.0685)
------- -------

NET ASSET VALUE,
BEGINNING OF YEAR................ $1.0000 $1.0000
======= =======

TOTAL RETURN (%)(A)................. 6.84 7.07

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily net assets (a).. .05 .05
Operating expenses, gross, to
average daily net assets (a).. .05 .05
Net investment income to
average net assets (a)........ 6.63 6.90
Net assets, end of year
($000 omitted)................... 144,344 198,183
Per share amount of fees waived
($ omitted)...................... -- --
- ---------------------------------------------------------
</TABLE>

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

PROSPECTUS 22
<PAGE> 29

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 have approximately 1,100 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. Similarly, there are periods when
securities selected for particular characteristics, or using particular
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 a
particular Fund investing in one asset class or using a particular style--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 investor may seek to achieve 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.

-23-
<PAGE> 30

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 or agency capacity and which have entered into Asset
Management Services Agreements (collectively, the "Agreements," and each, an
"Agreement") with the Management Company, and institutions or individuals who
have acquired shares through such institutions. There is no specified minimum
amount which must be invested. Institutions which may have a particular interest
in the Funds include:

- Bank trust departments managing discretionary institutional or personal
trust accounts
- Banks, other than through their trust departments
- Registered investment advisers
- Endowment funds and charitable foundations
- Broker Dealers
- Employee welfare plans
- Pension or profit sharing plans
- Insurance companies

The Agreement provides, in general, for the officers and staff of the Management
Company, using the facilities and resources of Frank Russell Company, to assist
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 generally are not offered or "retailed" to individual
investors, although the Management Company may enter into Agreements with
individual investors. Bank trust departments, registered investment advisors,
broker-dealers and other eligible investors ("Financial Intermediaries") which
have entered into Agreements with the Management Company may acquire shares of
the Funds for the benefit of individual customers for which they exercise
discretionary investment authority. The Management Company provides
objective-setting and asset-allocation assistance to such Financial
Intermediaries, which in turn provide the objective-setting and asset-allocation
services to their customers. These Financial Intermediaries receive no
compensation from the Management Company or the Funds; they may charge their
customers a fee for providing these and possibly other trust or
investment-related services. [A SHAREHOLDER MAY PAY A FIXED DOLLAR FEE TO THE
MANAGEMENT COMPANY FOR OTHER SERVICES OR REPORTS PROVIDED BY THE MANAGEMENT
COMPANY TO THE SHAREHOLDER.]

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 Funds. The shareholder investment services fee may include a
fixed-dollar fee for certain specified services. The shareholder investment
services fee is agreed upon by the client and the 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 the
Management Company to the client with respect to the assets, and other factors.

Either the client or the Management Company may terminate the Agreement upon
written notice as provided 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 Funds to compensate the Management Company for providing services
to the client with respect to assets invested in the Funds. 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.

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 Investment Company'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 Funds' operations. The
money managers are responsible for selection of individual portfolio securities
for the assets assigned to them.

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<PAGE> 31

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, dividend disbursing and shareholder recordkeeping services. The
Management Company bears the expenses it incurs in providing these services
(other than transfer agent, dividend disbursing and shareholder recordkeeping)
as well as the costs of preparing and distributing explanatory materials
concerning the Funds.

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

- - Randall P. Lert, who has been Chief Investment Officer, 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 the 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 money 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.

- - 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.

- - Randal C. Burge, who has been a Senior Investment Officer of Frank Russell
Investment Management Company, since June 1995. Mr. Burge was a Senior
Investment Officer of the Frank Russell Trust Company from 1990 to 1995. Mr.
Burge was a Client Executive for Frank Russell Company Australia.

- - Madelyn Smith, who has been a Senior Investment Strategist for the Frank
Russell Investment Management Company since January 1996. From 1993 to 1995,
Ms. Smith was a member of a research investment strategist for Frank Russell
Company. From 1987 to 1993, Ms. Smith was director of Investment Equity
Manager Research of Frank Russell Company.

- - Dennis J. Trittin, who has been a Senior Portfolio Manager of Frank Russell
Investment Management Company since January 1996. From 1988 to 1996, Mr.
Trittin was director of US Equity Manager Research Department with Frank
Russell Company.

- - C. Nola Williams, who has been a Senior Investment Strategist of Frank
Russell Investment Management Company since January 1996. From 1994 to 1995,
Ms. Williams was a member of the Alpha Strategy Group. From 1988 to 1994,
Ms. Williams was Senior Research Analyst with Frank Russell Company.

Frank Russell Company provides to the Funds and the Management Company the asset
management consulting services--including the objective-setting and
asset-allocation technology, and the money manager research and evaluation
assistance--which Frank Russell Company provides to its other consulting
clients. Frank Russell Company receives no compensation from the Funds or 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 the Trustees of the Investment
Company, is the Chairman of the Board and controlling shareholder of Frank
Russell Company. The Management

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<PAGE> 32

Company is a wholly owned subsidiary of Frank Russell Company.

The Investment Company has received an exemptive order from the U.S. Securities
and Exchange Commission (the "SEC") which permits the Investment Company, with
the approval of its Board of Trustees, to engage and terminate money managers
without a shareholder vote and to disclose, on an aggregate basis, the fees paid
to the money managers of each Investment Company Fund. The Investment Company
received shareholder approval to operate under the order at a special meeting of
the shareholders held on January 22, 1996.

For its services, the Management Company receives a management fee from each
Fund. From this fee, the Management Company, acting as agent for the Investment
Company, is responsible for paying the money managers for their investment
selection services. The remainder is retained by the Management Company as
compensation for the services described above and to pay expenses. The annual
rate of the management fees, payable to the Management Company monthly on a pro
rata basis, are the following percentages of the average daily net assets of
each Fund: Equity I Fund, .60%; Equity II Fund, .75%; Equity III Fund, .60%;
Equity Q Fund, .60%; International Fund, .75%; Fixed Income I Fund, .30%; Fixed
Income II Fund, .50%; Fixed Income III Fund, .55%; and Money Market Fund, .25%.
The Management Company is currently voluntarily waiving its 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 by some mutual funds
with similar objectives which use only a single money manager.

The Management Company has voluntarily agreed to waive all or a portion of its
management fee with respect to certain funds. In addition to these "voluntary
limits," the Management Company has agreed to reimburse each Fund the amount, if
any, by which a Fund's expenses exceed state law expense limitations. Currently,
California has an expense limitation of 2.5% of a Fund's first $30 million in
average net assets, 2.0% of the next $70 million in average net assets, and 1.5%
of the remaining average net assets for any fiscal year as determined under the
state's regulation. 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 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 Internal
Revenue Service accounting reports. For these services, the Funds pay the
following annual fees:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF
TRANSACTION 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>

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 in the aggregate 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.

EXPENSES OF THE FUNDS

The Funds, and when appropriate each class, will pay all their expenses other
than those expressly assumed by the Management Company. The Funds' Class S
Shares' expenses for the year ended December 31, 1995, as a percentage of
average net assets, are shown in the Financial Highlights tables. Principal
expenses are: the management, 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.

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<PAGE> 33

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. THE 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
INVESTMENT COMPANY. The Funds will notify shareholders of the Fund concerned
within 60 days of when a money manager begins or stops providing services.

From its management fees, the Management Company, as agent for the Investment
Company, pays all fees to the money managers for their investment selection
services. Quarterly, each money manager is paid the pro rata portion of an
annual fee, based on the quarterly average of all the assets allocated to the
money manager. For the period, management fees paid to the money managers were
equivalent to the following annual rates expressed as a percentage of the
average daily net assets of each Fund: Equity I Fund, .24%; Equity II Fund,
.41%; Equity III Fund, .20%; Equity Q Fund, .21%; International Fund, .44%;
Fixed Income I Fund, .09%; Fixed Income II Fund, .19%; Fixed Income III Fund,
.22%; and Money Market Fund, .02%. Fees paid to the money managers are not
affected by any voluntary or statutory expense limitations. Some money managers
may receive investment research prepared by Frank Russell Company as additional
compensation, or may receive brokerage commissions for executing portfolio
transactions for the Funds through broker-dealer affiliates.

Each money manager has agreed that once the Investment Company has advanced fees
to the Management Company as agent to make payment of the money manager's fee,
that money manager will look only to the Management Company as agent to make the
payment of its fee.

The money managers are selected for the Funds based primarily upon the research
and recommendations of Frank Russell Company, which evaluates quantitatively and
qualitatively the money manager's skills and results in managing assets for
specific asset classes, investment styles and strategies. Short-term investment
performance, by itself, is not a controlling factor in selecting or terminating
a 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 Short-Term Investment Funds for the Frank Russell Investment
Management Company and Frank Russell Trust Company since 1991.

Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund within the Fund's investment objectives,
restrictions and policies, and the more specific strategies developed by Frank
Russell Company and the Management Company. Although the money managers'
activities are subject to general oversight by the Board of Trustees and
officers of the Investment Company, 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, POLICIES, AND RISKS

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

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 65% 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.")

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<PAGE> 34

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, the 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. The 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.

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<PAGE> 35

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 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.

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.

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 65% 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 their
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 dollar. At this time, the Management Company intends to limit total non-US
dollar investments to no more than 25% of total Fund assets.

The Fund may invest in debt securities denominated in currencies of countries
whose governments are considered by it to be stable (or, when the Fund

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<PAGE> 36

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, 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 BankWatch, 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 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 the 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 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

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<PAGE> 37

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 bankers'
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 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 net 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, and the
countries considered to be emerging markets, 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. The emerging market debt in which the Fund
may invest 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 net 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 money managers of the Fund to be
of comparable quality. Debt rated BB, B, CCC, CC and C by S&P, and debt rated
Ba, B, Caa, Ca and C by Moody's, is regarded 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

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<PAGE> 38

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, such 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 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
the Investment Company's Money Market Fund is not subject to this
restriction or to restrictions 2 or 3.

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<PAGE> 39

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, have been in operation for less than three years; or
invest more than 5% of its assets in warrants. (Currently, no Fund intends
to borrow in excess of 5% of its net assets.)

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 (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 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
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 Investment
Company's 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 SEC, foreign securities and American Depository Receipts.

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 the 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 the
Management Company believes that the particular security is an attractive
investment.

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 the next business day). If
the party agreeing to repurchase should default and if the value of the
securities held by the Fund (102% at the time of agreement) should fall below
the repurchase price, the Fund could incur a loss. Subject to the overall
limitations described in "Investment Polices-Illiquid Securities," no Fund will
invest more than 15% of its net assets (taken at current market value) in
repurchase agreements maturing in more than seven days. The Money Market Fund
will not invest more than 10% of its net assets (taken at current market value)
in repurchase agreements and other illiquid securities maturing in more than
seven days.

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<PAGE> 40

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 limitations 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. A Fund will receive either cash (and agree to pay a "rebate" interest
rate), US government or US government agency securities as collateral in an
amount equal to at least 100% of the current market value of the loaned
securities plus accrued interest. The collateral is "marked-to-market" on a
daily basis, and the borrower will furnish additional collateral in the event
that the value of the collateral drops below 100% of the market value of the
loaned securities.

Cash collateral is invested in high-quality short-term instruments, short-term
bank collective investment and money market mutual funds (including funds
advised by State Street Bank and Trust Company, 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.

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

Liquidity Portfolios. The Management Company will exercise investment discretion
or select a money manager to exercise investment discretion, for approximately
5%-15% of the Equity I, Equity II, Equity III, Equity Q and International Funds'
assets

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<PAGE> 41

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. For purposes of the
International and Fixed Income III Funds' policy of investing in securities of
issuers located in emerging markets, the Funds will consider emerging markets to
be countries with developing 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. 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 Funds' securities will generally be
denominated in foreign currencies, the value of such securities to the Funds
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 Funds'
foreign securities. In addition, some emerging market countries may have fixed
or managed currencies which are not free-floating against the US dollar.
Further, certain emerging market countries' currencies may not be
internationally traded. Certain of these currencies have experienced a steady
devaluation relative to the US dollar. Many emerging market 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, 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 currency contracts that involve
a currency whose changes in value are considered to be linked (a proxy) to a
currency or currencies in which some or all of the Funds' portfolio securities
are 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 Funds'

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<PAGE> 42

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 Funds' commitments with respect to
these contracts.

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

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

A Fund's ability to dispose of its positions in forward currency contracts will
depend on the availability of active markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of forward currency contracts. Forward currency contracts may be closed
out only by the parties entering into an offsetting contract. Therefore, no
assurance can be given that 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 net assets, represented by the premium paid,
in call and put options. A Fund may write a call or put option to the extent
that the aggregate value of all securities or other assets used to cover all
such outstanding options does not exceed 25% of the value of its net assets.

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.

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<PAGE> 43

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.

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.

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 and International 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 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

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<PAGE> 44

on a United States or foreign exchange or board of trade.

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

Each Fund may also purchase and write call options and put options on futures
contracts. An option on a futures contract gives the holder the right, in return
for the premium paid, to assume a long position (in the case of a call) or a
short position (in the case of a put) in a futures 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 the Fixed Income III 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 managers 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, and S&P considers securities
rated BBB, to have some speculative characteristics. The Funds, other than the
Fixed Income III Fund, will dispose of, in a prudent and orderly fashion,
securities whose ratings drop below these minimum ratings. The market value of
debt securities generally varies inversely in relation to interest rates.

The 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

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<PAGE> 45

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 the risks associated with investing in such securities by limiting the
Fund's holdings in such securities and by the depth of their own credit
analysis. For additional information, please refer to the Statement of
Additional Information.

PORTFOLIO TRANSACTION POLICIES

Decisions to buy and sell securities are made by the money managers for the
assets assigned to them, and by the 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 investment decisions. The money managers make decisions to buy or sell
securities independently from other money managers. Thus, one money manager
could be selling a security when another money manager for the same Fund (or for
another series of the Investment Company) is purchasing the same security. In
addition, when a money manager's services are terminated and another retained,
the new money 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
Fund) are shown in the Financial Highlights tables.

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<PAGE> 46

by the Equity I, Equity II, Equity III, Equity Q and International Funds. All
Funds may also effect portfolio transactions through and pay brokerage
commissions to the money managers (or their affiliates).

INCOME DIVIDENDS

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

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

DIVIDENDS AND DISTRIBUTIONS

The Money Market Fund determines net investment income immediately prior to the
determination of the net asset value per share as of 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 capital gains through October 31
(excess of capital gains over 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. Capital gains realized during November and December will be
distributed during the month of February of the following year.

Investors should be aware that by purchasing shares shortly before the record
date of a dividend or capital gains distribution, they will pay the full price
for the shares and then receive some portion of the price back as a taxable
dividend or capital gains distribution. Investors should also be aware that all
shareholders, new and old alike, will share in and be taxed on distributions of
gain realized by a Fund on the sale of securities that have increased in value.

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
(the "Transfer Agent"), at Operations Department, P.O. Box 1591, Tacoma, WA
98401.

TAXES

Each Fund intends to qualify for taxation as a "regulated investment company"
under the Internal Revenue Code (the "Code"). By distributing substantially all
of its net investment income and capital gains to shareholders and meeting
certain other requirements, a Fund will generally not be liable for federal
income or excise taxes.

-40-
<PAGE> 47

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
Investment Company's Board are taxed as long-term gains regardless of the length
of time a shareholder has held such shares. Distributions paid in excess of a
Fund's earnings will be treated as a non-taxable return of capital. Dividends
and distributions may otherwise also be subject to state or local taxes.

For corporate investors, dividends from net investment income paid by the 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 such a Fund from domestic (US) sources. Certain holding period and
debt financing restrictions may apply to corporate investors seeking to claim
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, 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. The Management Company
expects the International 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 its 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 Fund's taxable shareholders must include their pro rata portion of
the taxes withheld on their gross income for federal income tax purposes.

The International 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
International 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 of Funds holding non-U.S. holdings should also be aware that for
federal income tax purposes, foreign exchange losses realized by the Fund are
treated as ordinary losses. This treatment may have the effect of reducing the
Fund's income available for distribution to shareholders.

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 Funds 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 Funds receive no payment on the security during the year. Because the
Funds annually must distribute substantially all of their net investment income,
the Funds may be required in a particular year to distribute as a dividend an
amount that is greater than the total amount of cash the Funds actually receive.
Those distributions will be made from a Fund's cash assets or from the proceeds
of sales of portfolio securities, if necessary. The Funds may realize capital
gains or losses from those sales, which could further increase or decrease the
Funds' dividends and distributions paid to shareholders.

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 income which is a tax preference item
(if any) for alternative minimum tax purposes; of the International Fund's
foreign taxes withheld; and of the percentages of the Fixed Income I, Fixed
Income II, Fixed Income III and Money Market Funds' income attributable to US
government, Treasury and agency securities.

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<PAGE> 48

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.

Shareholders who are not US persons for purposes of federal income taxation
should consult with their financial or tax advisers regarding the applicability
of income, estate or other taxes (including income tax withholding) on their
investment in a Fund or on dividends and distributions received by them from a
Fund and the application of foreign tax laws.

Shareholders should consult their tax advisers 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 these and other 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 Class S shares of each of the
Funds are as follows:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
5 YEARS ENDED 10 YEARS ENDED INCEPTION TO
1 YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1995 DECEMBER 31, 1995 INCEPTION
DECEMBER 31, 1995 (ANNUALIZED) (ANNUALIZED) (ANNUALIZED) DATE
----------------- ------------ ------------ ------------ ----
<S> <C> <C> <C> <C> <C> <C>
Equity I 35.94% 16.94% 14.49% 15.21% 10/15/81
Equity II 28.67 18.73 13.37 13.68 12/28/81
Equity III 35.96 17.81 14.23 16.67 11/27/81
Equity Q 37.91 18.15 -- 12.60 05/29/87
International 10.71 10.99 14.47 16.67 01/31/83
Fixed Income I 18.03 9.49 9.60 12.02 10/15/81
Fixed Income II 9.95 6.47 7.56 9.70 10/30/81
Fixed Income III 17.99 -- -- 7.94 01/29/93
Money Market 6.19 4.93 6.45 7.59 10/15/81
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Fund performance prior to April 1, 1995 is reported gross of investment advisory
fees. For periods thereafter, performance results are reported net of investment
advisory fees, but gross of any investment services fees. Descriptions of these
services can be obtained from the management company upon request.

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 (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 for the year ended December 31,
1995 for shares of the Fixed Income I, Fixed Income II and Fixed Income III
Funds were, respectively, 6.09%, 5.68% and 6.15%.

The Money Market Fund may advertise its yield and effective yield. Both yield
figures are based on

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<PAGE> 49

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 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 shares of the Money Market Fund during 1995 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 6.19% 6.39% 6.14% 6.33% 5.95% 6.13% 5.83% 6.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</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 shares of each class of each
Fund on each business day on which shares are offered or orders to redeem are
tendered. (Unless otherwise indicated, "shares" refers to the Class S Shares of
the Funds.) 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
attributable to the Class S Shares, less liabilities attributable to the Class S
Shares, by the number of Class S 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 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 sale 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 utilizes the amortized
cost valuation method in accordance with Rule 2a-7 of the Investment Company Act
of 1940, as amended (the "1940 Act"). 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

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<PAGE> 50

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.

PURCHASE OF FUND SHARES

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

ORDER PROCEDURES

Orders by all investors (except for participants in the Three Day Settlement
Program described below) to purchase Investment Company Funds shares must be
received by the 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>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Close of the New York Stock Exchange Equity I, Equity II, Equity III, Equity Q, International, Fixed Income I, Fixed
(currently 4:00 p.m. Eastern time) Income II and Fixed Income III Funds
12:45 p.m. Eastern time Money Market Fund*
- --------------------------------------------------------------------------------------------------------------------------
</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 will not
be accepted for pricing and investment until the next business 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 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 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

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<PAGE> 51

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, which is usually within 15
days following the purchase by exchange. A gain or loss for federal income tax
purposes will generally be realized by investors who are subject to federal
taxation upon the exchange. Investors interested in making an in-kind exchange
are encouraged to consult with their tax advisers.

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

THREE DAY SETTLEMENT PROGRAM

The Investment Company will accept orders from financial institutions to
purchase shares of the Funds, other than the Money Market 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 Funds
against any losses as a result of nonreceipt of payment. For further information
on this program, contact the Investment Company.

THIRD PARTY TRANSACTIONS

Investors purchasing Fund shares through a program of services offered by a
Financial Intermediary, such as a bank, broker-dealer, investment adviser or
others, may be required to pay additional fees by such Intermediary. Investors
should contact the Financial 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 value per share at the time of the exchange. Shares of a Fund offered by
this Prospectus may only be exchanged for shares of a Fund offered by the
Investment Company through another prospectus under certain conditions and only
in states where the exchange may legally be made. For additional information,
including a prospectus of other Investment Company Funds, contact a financial
intermediary or 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 talk with the investor's tax adviser.

REDEMPTION OF FUND SHARES

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

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

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

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<PAGE> 52

Request Procedures. Requests by all investors to redeem 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>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Close of the New York Stock Exchange Equity I, Equity II, Equity III, Equity Q, International, Fixed Income I, Fixed
(currently 4:00 p.m. Eastern time) Income II and Fixed Income III Funds
12:45 p.m. Eastern time Money Market Fund
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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 the 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, 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

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<PAGE> 53

distribution in kind of securities from the Fund's portfolio, in lieu of cash.
Investors will incur brokerage charges on the sale of these portfolio
securities. The Funds reserve the right to suspend the right of redemption or
postpone the date of payment if any unlikely emergency conditions, as specified
in the 1940 Act or determined by the SEC, should develop.

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, INDEPENDENT ACCOUNTANTS, AND REPORTS.

State Street Bank and Trust Company ("State Street"), 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 the Management Company.

ORGANIZATION, CAPITALIZATION, AND VOTING.

The Investment Company was organized as a Maryland corporation on March 6, 1981,
and commenced offering shares on October 15, 1981. On January 2, 1985, the
Investment Company reorganized 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."

The Investment Company issues shares of beneficial interest divisible into an
unlimited number of funds, each of which funds is a separate trust under
Massachusetts law, and the funds' shares may be offered in multiple classes.
Shares of each class of a Fund represent proportionate interests in the assets
of that Fund attributable to that class, and have the same voting and other
rights and preferences as the shares of other classes of the Fund. Shares of
each class of a Fund are entitled to such dividends and distributions earned on
the assets belonging to the Fund as may be declared by the Board of Trustees.
Shares of each class of a Fund have a par value of $.01 per share, are fully
paid and nonassessable, and have no preemptive or conversion rights. Each share
of a class of a Fund has one vote; there are no cumulative voting rights. There
are no Annual Meetings of shareholders, but Special Meetings may be held. On any
matter which affects only a particular Fund or class, only shareholders of that
Fund or class, as applicable, will vote, unless otherwise required by the 1940
Act or the amended Master Trust Agreement.

The Funds described in this Prospectus do not currently offer shares of
beneficial interest in any class other than the Class S Shares.

The Trustees hold office for the life of the Investment Company. 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 April 30, 1996 the following shareholders may be deemed by the 1940 Act 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 International and Fixed Income III Funds.

MONEY MANAGER PROFILES

The money managers, other than the Investment Manager for the Money Market Fund,
have no other affiliations with the Funds or with Frank Russell Company. Each
money 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.

-47-
<PAGE> 54

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 March 1, 1995, 60.5% of The Equitable was owned by Axa, a French insurance
holding company.

BZW Barclays Global Fund Advisors, 45 Fremont Street, 17th Floor, San Francisco,
CA 94105, is an indirect wholly-owned subsidiary of Barclays Bank PLC.

Columbus Circle Investors, Metro Center, One Station Place, 8th Floor, Stamford,
CT 06902, 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.

Equinox Capital Management, Inc., 399 Park Ave., 28th Floor, New York, NY 10022.
Equinox is a registered investment adviser with majority ownership held by Ron
Ulrich.

INVESCO Capital Management, Inc., 1315 Peachtree Street N.E., Suite 300,
Atlanta, GA 30309, is 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 adviser 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 420, New York, NY
10107. Suffolk Capital Management, Inc. is a registered investment adviser and a
wholly owned subsidiary of United Asset Management Company, a publicly traded
corporation.

Trinity Investment Management Corporation, 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.

EQUITY II FUND

Delphi Management, Inc., 50 Rowes Wharf, Suite 440, Boston, MA 02110, is 100%
owned by Scott Black.

Fiduciary International, Inc., 2 World Trade Center, New York, NY 10048, an
investment adviser registered with the SEC, is an indirect wholly-owned
subsidiary of Fiduciary Trust Company International, a New York state chartered
bank.

GlobeFlex Capital, L.P., 4365 Executive Drive, Suite 720, San Diego, CA 92121,
is a California limited partnership and a SEC registered investment adviser. Its
general partners are Robert J. Anslow, Jr. and Marina L. Marrelli.

Jacobs Levy Equity Management, Inc., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068, is 100% owned by Bruce Jacobs and Kenneth Levy.

Sirach Capital Management, Inc., One Union Square, Suite 3323, 600 Union 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 Corporation, See: Equity I Fund.

EQUITY Q FUND

-48-
<PAGE> 55

BZW Barclays Global Fund Advisors, See: Equity I 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.

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.

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.

STW Fixed Income Management Ltd., Trinity Hall, 43 Cedar Avenue, Hamilton HM LX,
Bermuda, is a Bermuda exempted company. William H. Williams III is the sole
shareholder.

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.

-49-
<PAGE> 56

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 adviser 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.

-50-
<PAGE> 57

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.
BZW Barclays Global Fund Advisors
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

EQUITY II FUND
Delphi Management, Inc.
Fiduciary International, Inc.
GlobeFlex Capital, L.P.
Jacobs Levy Equity Management, 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
BZW Barclays Global Fund Advisors
Franklin Portfolio Associates Trust
J.P. Morgan Investment Management, Inc.

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.

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.
STW Fixed Income Management Ltd.

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

MONEY MARKET FUND
Frank Russell Investment Management Company

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, LLP
2600 - One Commerce Square
Philadelphia, PA 19103-7098

OFFICE OF SHAREHOLDER INQUIRIES
909 A Street
Tacoma, Washington 98402
(800) 972-0700
In Washington (206) 627-7001
<PAGE> 58
PROSPECTUS

[CLASS S SHARES]

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

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 each of the individual Funds. There is no sales charge for investing in the
Class S Shares of the Funds.

Diversified Equity Fund International Securities Fund
Special Growth Fund Diversified Bond Fund
Equity Income Fund Volatility Constrained Bond Fund
Quantitative Equity Fund Multistrategy Bond Fund

This Prospectus sets forth concisely information about the Investment Company
and the Class S Shares of eight of its Funds that a prospective investor ought
to know before investing. The Investment Company has filed a Statement of
Additional Information dated July __, 1996, 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.

This Prospectus relates only to the Class S Shares of the eight Funds. The Funds
also offer shares of beneficial interest in another class of shares, the Class C
Shares, through a separate prospectus. For more information concerning Class C
Shares of the Funds, contact the person or organization from which you obtained
this prospectus or write to the Secretary, Frank Russell Investment Company,
at the address shown above, or telephone (800) 972-0700.

PROSPECTUS DATED JULY __, 1996

<PAGE> 59
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.

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.

This Prospectus describes and offers Class S Shares of eight Internal Fee Funds.
Another prospectus describes and offers Class S Shares of nine External Fee
Funds, while a third prospectus describes and offers Class S Shares in four
Internal Fee Funds and two External Fee Funds. The principal distinction between
the External and the Internal Fee Funds is that a shareholder of an External Fee
Fund may pay a quarterly shareholder investment services fee directly to the
Management Company. The 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's Funds had aggregate net assets of
$8.9 billion on April 30, 1996.

The net assets of these eight Funds on April 30, 1996, were:

<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diversified Equity $577,931,555 International Securities $690,786,268

Special Growth $350,341,011 Diversified Bond $509,958,358

Equity Income $186,614,025 Volatility Constrained Bond $168,731,410

Quantitative Equity $540,085,935 Multistrategy Bond $240,888,854

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

-2-
<PAGE> 60
HIGHLIGHTS AND TABLE OF CONTENTS

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

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

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

INVESTMENT OBJECTIVES, RESTRICTIONS, POLICIES, AND RISKS apply to each Fund.
Those objectives, restrictions and policies designated "fundamental" may not be
changed without the approval of a majority of the Fund's shareholders. Risks
associated with certain Fund investment policies, such as market volatility
risk, political risk, and credit risk, are disclosed in the context of policies
giving rise to such risks. PAGE ___.

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

DIVIDENDS AND DISTRIBUTIONS may be reinvested in additional shares or received
in cash. Dividends from net investment income are declared Monthly, by the
Diversified Bond, Volatility Constrained Bond and Multistrategy Bond Funds;
Quarterly, by the Diversified Equity, Special Growth, Equity Income and
Quantitative Equity Funds; and Annually, by the International Securities Fund.
All Funds declare distributions from net realized capital gains, if any, at
least annually. PAGE ___.

-3-
<PAGE> 61

INCOME TAXES PAID BY THE FUNDS should be nominal. Taxable shareholders of the
Funds will be subject to federal taxes on dividends and capital gains
distributions and may also be subject to state or local taxes. PAGE ___.

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

VALUATION OF FUND SHARES occurs each business day. The value of a Class S share
purchased or redeemed is based upon the next computed current market value of
the assets, less liabilities, of each Class S Fund. Unless otherwise indicated,
"shares" in this Prospectus refers to the Class S Shares of the Funds. PAGE ___.

PURCHASE OF FUND SHARES includes no sales charge. Shares are offered and orders
to purchase are accepted on each business day. PAGE ___.

THE FUNDS also offer a second class of shares, the Class C Shares, which are
designed to meet different investor needs. PAGE ___.

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

-4-
<PAGE> 62

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE DIVERSIFIED EQUITY
FUND

The purpose of the following tables is to assist the investor in understanding
the various costs and expenses that an investor in the Class S Shares of the
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>
<S> <C> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee.................................................... .78%
12b-1 Fees........................................................ None
Other Expenses:
Custodian Fees....................................... .09%
Transfer Agent Fees.................................. .06
Other Fees........................................... .03
---
Total Other Expenses.......................................... .18
----
Total Class S Operating Expenses** ............................. .96%
====
</TABLE>

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 $53 $118
=== === === ====
</TABLE>
- --------------------------------------------------------------------------------
** Investors purchasing Class S Shares of the Fund through a financial
intermediary, such as a bank or an investment adviser, may also be required
to pay additional fees to the intermediary for services provided by the
intermediary. Such investors should contact the intermediary for
information concerning what additional fees, if any, will be charged.

-5-
<PAGE> 63

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE SPECIAL GROWTH FUND

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

<TABLE>
<S> <C> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee................................................... .95%
12b-1 Fees....................................................... None
Other Expenses:
Custodian Fees...................................... .15%
Transfer Agent Fees................................. .10
Other Fees.......................................... .04
---
Total Other Expenses......................................... .29
----
Total Class S Operating Expenses**.................................. 1.24%
=====
</TABLE>

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 $39 $68 $150
=== === === ====
</TABLE>
- --------------------------------------------------------------------------------
** Investors purchasing Class S Shares of the Fund through a financial
intermediary, such as a bank or an investment adviser, may also be required
to pay additional fees to the intermediary for services provided by the
intermediary. Such investors should contact the intermediary for
information concerning what additional fees, if any, will be charged.

-6-
<PAGE> 64

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE EQUITY INCOME FUND

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

<TABLE>
<S> <C> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee.................................................... .80%
12b-1 Fees........................................................ None
Other Expenses:
Custodian Fees....................................... .15%
Transfer Agent Fees.................................. .13
Other Fees........................................... .05
---
Total Other Expenses.......................................... .33
----
Total Class S Shares Operating Expenses** ........................ 1.13%
====
</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 $36 $62 $137
=== === === ====
</TABLE>
- --------------------------------------------------------------------------------
** Investors purchasing Class S Shares of the Fund through a financial
intermediary, such as a bank or an investment adviser, may also be required
to pay additional fees to the intermediary for services provided by the
intermediary. Such investors should contact the intermediary for
information concerning what additional fees, if any, will be charged.

-7-
<PAGE> 65

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE QUANTITATIVE EQUITY
FUND

- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee......................................................... .78%
12b-1 Fees............................................................. None
Other Expenses:
Custodian Fees............................................ .09%
Transfer Agent Fees....................................... .06
Other Fees................................................ .03
---
Total Other Expenses............................................... .18
----
Total Class S Shares Operating Expenses**.............................. .96%
====
</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 $53 $118
=== === === ====
</TABLE>
- --------------------------------------------------------------------------------
** Investors purchasing Class S Shares of the Fund through a financial
intermediary, such as a bank or an investment adviser, may also be required
to pay additional fees to the intermediary for services provided by the
intermediary. Such investors should contact the intermediary for
information concerning what additional fees, if any, will be charged.

-8-
<PAGE> 66

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE INTERNATIONAL
SECURITIES FUND

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

ANNUAL CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee..................................................... .95%
12b-1 Fees......................................................... None
Other Expenses:
Custodian Fees........................................ .29%
Transfer Agent Fees................................... .06
Other Fees............................................ .03
---
Total Other Expenses........................................... .38
----
Total Class S Shares Operating Expenses**.......................... 1.33%
====
</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... $14 $42 $73 $160
=== === === ====
</TABLE>
- --------------------------------------------------------------------------------
** Investors purchasing Class S Shares of the Fund through a financial
intermediary, such as a bank or an investment adviser, may also be required
to pay additional fees to the intermediary for services provided by the
intermediary. Such investors should contact the intermediary for
information concerning what additional fees, if any, will be charged.

-9-
<PAGE> 67

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE DIVERSIFIED BOND
FUND

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

ANNUAL CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee.................................................... .45%
12b-1 Fees........................................................ None
Other Expenses:
Custodian Fees....................................... .06%
Transfer Agent Fees.................................. .05
Other Fees........................................... .03
---
Total Other Expenses.......................................... .14
----
Total Class S Shares Operating Expenses**......................... .59%
====
</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 $19 $33 $74
== === === ===
</TABLE>
- --------------------------------------------------------------------------------

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

-10-
<PAGE> 68

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE VOLATILITY
CONSTRAINED BOND FUND

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

<TABLE>
<S> <C> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee..................................................... .50%
12b-1 Fees......................................................... None
Other Expenses:
Custodian Fees............................................ .18%
Transfer Agent Fees....................................... .09
Other Fees................................................ .05
---
Total Other Expenses........................................... .32
----
Total Class S Shares Operating Expenses**.......................... .82%
====
</TABLE>

</TABLE>

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

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

-11-
<PAGE> 69

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE MULTISTRATEGY
BOND FUND

The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Class S Shares of 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> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee (After Fee Waiver)(1)................................... .57%
12b-1 Fees............................................................. None
Other Expenses:
Custodian Fees.................................................. .09%
Transfer Agent Fees............................................. .09
Other Fees...................................................... .05
---
Total Other Expenses............................................... .23
----
Total Class S Shares Operating Expenses (After Fee Waiver)(1)+**....... .80%
====
</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 $26 $44 $99
== === === ====
</TABLE>
- ---------------------------------------------------------------------------

(1) The Manager has voluntarily agreed to waive a portion of its 0.65%
management fee, up to the full amount of that fee, equal to the amount
by which the Fund's total operating expenses, other than any 12b-1
fees, Shareholder servicing fees, and certain other class level
expenses exceed 0.80% of the Fund's average net assets on an annual
basis. The gross annual total operating expenses absent the waiver
would be .88% of average daily net assets. This waiver is intended
to be in effect for the current year, but may be revised or
eliminated at any time without notice to shareholders.

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

-12-
<PAGE> 70
FINANCIAL HIGHLIGHTS OF THE DIVERSIFIED EQUITY FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment
Company's independent accountants. The table includes selected data for a
share outstanding throughout each year ended December 31, and other
performance information derived from the financial statements. The information
in the table represents the Financial Highlights for the Fund's Class S Shares
of the periods shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

DIVERSIFIED EQUITY FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ........... $32.26 $ 34.88 $ 35.60 $ 36.36 $ 30.66 $ 35.22 $ 30.46 $ 27.22
------ -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... .60 .58 .56 .60 .81 .99 .94 .89
Net realized and unrealized
gain (loss) on investments . 10.63 (.49) 3.03 2.30 8.36 (3.45) 7.68 3.57
----- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ................. 11.23 .09 3.59 2.90 9.17 (2.46) 8.62 4.46
----- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income ....... (.60) (.58) (.55) (.61) (.82) (.96) (1.11) (.81)
Net realized gain on
investments ................ (4.27) (1.87) (3.76) (3.05) (2.65) (1.14) (2.75) (.41)
In excess of net realized
gain on investments ........ -- (.26) -- -- -- -- -- --
----- -------- -------- -------- -------- -------- -------- --------
Total Distributions ......... (4.87) (2.71) (4.31) (3.66) (3.47) (2.10) (3.86) (1.22)
------ -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR ................. $38.62 $ 32.26 $ 34.88 $ 35.60 $ 36.36 $ 30.66 $ 35.22 $ 30.46
====== ======== ======== ======== ======== ======== ======== ========

TOTAL RETURN (%) .............. 35.17 (0.01) 10.53 8.32 31.05 (7.01) 29.06 16.37

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets ................. .95 .95 .96 .98 .98 1.03 1.01 1.00

Net investment income to
average net assets ......... 1.56 1.73 1.54 1.69 2.28 2.97 2.65 2.92

Portfolio turnover .......... 92.53 57.53 99.80 77.02 116.53 96.90 61.80 66.02

Net assets, end of year
($000 omitted) .............. 530,645 414,036 388,420 337,549 325,746 251,254 234,988 202,948
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------
1987 1986
--------------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ........... $ 31.20 $ 27.85
-------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 1.37 .78
Net realized and unrealized
gain (loss) on investments . 1.05 3.28
-------- --------
Total From Investment
Operations ................. 2.42 4.06
-------- --------
LESS DISTRIBUTIONS:
Net investment income ....... (.97) (.67)
Net realized gain on
investments ................ (5.43) (.04)
In excess of net realized
gain on investments ........ -- --
-------- --------
Total Distributions ......... (6.40) (.71)
-------- --------
NET ASSET VALUE,
END OF YEAR ................. $ 27.22 $ 31.20
======== ========

TOTAL RETURN (%) .............. 6.94 14.63

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets ................. .97 .98

Net investment income to
average net assets ......... 2.27 2.87

Portfolio turnover .......... 87.69 80.50

Net assets, end of year
($000 omitted) .............. 198,902 214,325
- ----------------------------------------------------------
</TABLE>

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

-13-
<PAGE> 71
FINANCIAL HIGHLIGHTS OF THE SPECIAL GROWTH FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other performance
information derived from the financial statements. The information in the table
represents the Financial Highlights for the Fund's Class S Shares of the
periods shown. The table appears in the Fund's financial statements and related
notes, which are incorporated by reference in the Statement of Additional
Information and which appear, along with the report of Coopers & Lybrand,
L.L.P. in the Fund's Annual Report to Shareholders. More detailed information
concerning the Fund's performance, including a complete portfolio listing and
audited financial statements, is available in the Fund's Annual Report, which
may be obtained without charge by writing or calling the Investment Company.

<TABLE>
<CAPTION>
SPECIAL GROWTH FUND
- -------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ..................... $ 33.47 $ 35.82 $ 36.63 $ 34.47 $ 24.71
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ................. .18 .16 .07 .05 .24
Net realized and unrealized
gain (loss) on investments ........... 9.25 (.71) 5.22 4.22 10.34
-------- -------- -------- -------- --------
Total From Investment
Operations ........................... 9.43 (.55) 5.29 4.27 10.58
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income ................. (.21) (.10) (.07) (.06) (.24)
Net realized gain on
investments .......................... (3.52) (.85) (6.03) (2.05) (.58)
In excess of net realized
gain on investments .................. -- (.85) -- -- --
-------- -------- -------- -------- --------
Total Distributions ................... (3.73) (1.80) (6.10) (2.11) (.82)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR ........................... $ 39.17 $ 33.47 $ 35.82 $ 36.63 $ 34.47
======== ======== ======== ======== ========
TOTAL RETURN (%) ........................ 28.52 (3.71) 15.48 12.52 43.11

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net to average
net assets ........................... 1.22 1.20 1.31 1.33 1.36

Operating expenses, gross to average
net assets ........................... 1.22 1.20 1.31 1.33 1.36

Net investment income to
average net assets ................... .49 .50 .19 .14 .80

Portfolio turnover .................... 87.56 55.40 91.97 42.20 42.81

Net assets, end of year
($000 omitted) ....................... 313,678 229,077 188,891 134,913 105,245

Per share amount of fees reimbursed
($ omitted) .......................... -- -- -- -- --
- -------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
SPECIAL GROWTH FUND
- ------------------------------------------------------------------------------------------
1990 1989 1988 1987 1986
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ..................... $ 29.35 $ 26.19 $ 23.58 $ 26.68 $ 25.10
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ................. .42 .42 .24 .30 .28
Net realized and unrealized
gain (loss) on investments ........... (4.57) 5.78 2.99 1.59 1.74
------- ------- ------- ------- -------
Total From Investment
Operations ........................... (4.15) 6.20 3.23 1.89 2.02
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income ................. (.42) (.48) (.21) (.35) (.25)
Net realized gain on
investments .......................... (.07) (2.56) (.41) (4.64) (.19)
In excess of net realized
gain on investments .................. -- -- -- -- --
------- ------- ------- ------- -------
Total Distributions ................... (.49) (3.04) (.62) (4.99) (.44)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR ........................... $ 24.71 $ 29.35 $ 26.19 $ 23.58 $ 26.68
======= ======= ======= ======= =======
TOTAL RETURN (%) ........................ (14.28) 23.92 13.82 6.54 8.07

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net to average
net assets ........................... 1.50 1.49 1.47 1.37 1.49

Operating expenses, gross to average
net assets ........................... 1.53 1.49 1.47 1.37 1.51

Net investment income to
average net assets ................... 1.57 1.42 .92 1.07 1.20

Portfolio turnover .................... 63.87 85.24 51.75 161.46 99.59

Net assets, end of year
($000 omitted) ....................... 62,116 60,146 47,405 45,460 41,523

Per share amount of fees reimbursed
($ omitted) .......................... .0093 -- -- -- .0026
- ------------------------------------------------------------------------------------------
</TABLE>

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

-14-
<PAGE> 72
FINANCIAL HIGHLIGHTS OF THE EQUITY INCOME FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment
Company's independent accountants. The table includes selected data for a
share outstanding throughout each year ended December 31, and other
performance information derived from the financial statements. The information
in the table represents the Financial Highlights for the Fund's Class S Shares
of the periods shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

<TABLE>
<CAPTION>
EQUITY INCOME FUND
- ------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR............... $ 32.21 $ 35.90 $ 35.32 $ 36.54 $ 30.75
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... .94 .90 .83 .99 1.11
Net realized and unrealized
gain (loss) on investments..... 10.08 (.70) 3.69 3.08 7.15
-------- -------- -------- -------- --------
Total From Investment
Operations..................... 11.02 .20 4.52 4.07 8.26
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income........... (.97) (.89) (.83) (1.00) (1.10)
In excess of net investment
income......................... -- -- (.00) -- --
Net realized gain on
investments.................... (3.83) (3.00) (3.11) (4.29) (1.37)
-------- -------- -------- -------- --------
Total Distributions............. (4.80) (3.89) (3.94) (5.29) (2.47)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR..................... $ 38.43 $ 32.21 $ 35.90 $ 35.32 $ 36.54
======== ======== ======== ======== ========
TOTAL RETURN (%).................. 34.76 (.69) 13.23 11.51 27.52

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets..................... 1.06 1.04 1.05 1.08 1.11

Net investment income to
average net assets............. 2.51 2.56 2.23 2.68 3.11

Portfolio turnover.............. 92.40 89.91 78.72 95.07 61.73
Net assets, end of year
($000 omitted).................. 180,116 144,285 149,532 134,365 122,689

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

<TABLE>
<CAPTION>
EQUITY INCOME FUND
- ----------------------------------------------------------------------------------------
1990 1989 1988 1987 1986
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR............... $ 34.91 $ 30.85 $ 26.92 $ 34.66 $ 31.98
------- -------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 1.43 1.34 1.22 1.18 1.36
Net realized and unrealized
gain (loss) on investments..... (3.83) 6.47 3.96 (1.44) 2.89
------- -------- ------- ------- -------
Total From Investment
Operations..................... (2.40) 7.81 5.18 (.26) 4.25
------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income........... (1.37) (1.50) (1.25) (1.50) (1.25)
In excess of net investment
income......................... -- -- -- -- --
Net realized gain on
investments.................... (.39) (2.25) -- (5.98) (.32)
------- -------- ------- ------- -------
Total Distributions............. (1.76) (3.75) (1.25) (7.48) (1.57)
------- -------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR..................... $ 30.75 $ 34.91 $ 30.85 $ 26.92 $ 34.66
======= ======== ======= ======= =======
TOTAL RETURN (%).................. (6.90) 25.61 19.42 (2.44) 13.42

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets..................... 1.14 1.15 1.13 1.06 1.02

Net investment income to
average net assets............. 4.12 3.94 4.08 3.30 4.05

Portfolio turnover.............. 65.97 79.82 58.12 98.67 83.55
Net assets, end of year
($000 omitted).................. 99,575 101,589 68,998 61,300 75,032
- ----------------------------------------------------------------------------------------
</TABLE>

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

-15-
<PAGE> 73
FINANCIAL HIGHLIGHTS OF THE QUANTITATIVE EQUITY FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment
Company's independent accountants. The table includes selected data for a
share outstanding throughout each year ended December 31, and other
performance information derived from the financial statements. The information
in the table represents the Financial Highlights for the Fund's Class S Shares
of the periods shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

<TABLE>
<CAPTION>
QUANTITATIVE EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987++
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR............ $ 24.84 $ 26.44 $ 25.82 $ 25.88 $ 21.07 $ 23.57 $ 20.21 $ 18.08 $ 20.00
-------- -------- -------- -------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........ .50 .49 .45 .49 .58 .66 .68 .56 .32
Net realized and unrealized
gain (loss) on investments.. 8.72 (.19) 2.69 1.67 5.93 (1.99) 4.53 2.14 (1.86)
-------- -------- -------- -------- -------- -------- -------- ------- -------
Total From Investment
Operations.................. 9.22 .30 3.14 2.16 6.51 (1.33) 5.21 2.70 (1.54)
-------- -------- -------- -------- -------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
Net investment income........ (.51) (.49) (.45) (.49) (.58) (.64) (.76) (.57) (.25)
Net realized gain on
investments................. (2.79) (1.41) (2.07) (1.73) (1.12) (.53) (1.09) -- (.13)
-------- -------- -------- -------- -------- -------- -------- ------- -------
Total Distributions.......... (3.30) (1.90) (2.52) (2.22) (1.70) (1.17) (1.85) (.57) (.38)
-------- -------- -------- -------- -------- -------- -------- ------- -------
NET ASSET VALUE,
END OF YEAR.................. $ 30.76 $ 24.84 $ 26.44 $ 25.82 $ 25.88 $ 21.07 $ 23.57 $ 20.21 $ 18.08
======== ======== ======== ======== ======== ======== ======== ======= =======
TOTAL RETURN (%)(a)............ 37.69 .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).............. .93 .94 .98 1.02 1.03 1.12 1.14 1.16 .97

Net investment income to
average net assets (b)...... 1.71 1.95 1.68 1.94 2.39 2.94 3.00 3.00 3.38

Portfolio turnover (b)....... 78.83 45.97 62.48 59.19 58.07 57.49 90.65 59.37 47.78

Net assets, end of year
($000 omitted)............... 488,948 380,592 314,647 244,870 201,614 147,730 124,111 89,858 64,182

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

++ For the period May 15, 1987 (commencement of operations) to December 31,
1987.

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

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

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

-16-
<PAGE> 74
FINANCIAL HIGHLIGHTS OF THE INTERNATIONAL SECURITIES FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment
Company's independent accountants. The table includes selected data for a
share outstanding throughout each year ended December 31, and other
performance information derived from the financial statements. The information
in the table represents the Financial Highlights for the Fund's Class S Shares
of the periods shown. The table appears in the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

<TABLE>
<CAPTION>
INTERNATIONAL SECURITIES FUND
- -------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR..................... $ 53.96 $ 57.95 $ 44.75 $ 49.15 $ 44.60 $ 55.81
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. .56 .44 .40 .61 .72 1.05
Net realized and unrealized
gain (loss) on investments (a)....... 4.89 1.23 14.53 (4.02) 4.60 (9.53)
-------- -------- -------- -------- -------- --------
Total From Investment
Operations........................... 5.45 1.67 14.93 (3.41) 5.32 (8.48)
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income................. (.88) (.04) (.38) (.68) (.76) (1.08)
In excess of net investment
income............................... (.23) (.02) (.23) -- -- --
Net realized gain on
investments.......................... (1.69) (5.60) (1.12) (.31) (.01) (1.65)
-------- -------- -------- --------- -------- -------
Total Distributions................... (2.80) (5.66) (1.73) (.99) (.77) (2.73)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR........................... $ 56.61 $ 53.96 $ 57.95 $ 44.75 $ 49.15 $44.60
======== ======== ======== ======== ======== ========
TOTAL RETURN (%)........................ 10.20 4.86 33.48 (6.94) 11.99 (15.34)

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
assets............................... 1.30 1.30 1.38 1.45 1.49 1.50

Operating expenses, gross, to
average assets....................... 1.31 1.33 1.42 1.47 1.49 1.50

Net investment income to
average net assets................... .97 .70 .82 1.37 1.68 2.28

Portfolio turnover.................... 42.96 72.23 60.22 48.93 52.46 68.89

Net assets, end of year
($000 omitted)....................... 623,389 563,333 454,482 262,886 243,065 169,818

Per share amount of fees reimbursed
($ omitted)........................... .0080 .0178 .0161 .0054 -- --

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

<TABLE>
<CAPTION>
INTERNATIONAL SECURITIES FUND
- -------------------------------------------------------------------------------------
1989 1988 1987 1986
-----------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR..................... $ 50.49 45.26 $ 49.22 $ 34.16
-------- -------- ------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. .67 .86 .55 .19
Net realized and unrealized
gain (loss) on investments (a)....... 10.32 8.98 6.84 15.90
-------- -------- ------- --------
Total From Investment
Operations........................... 10.99 9.84 7.39 16.09
-------- -------- ------- --------
LESS DISTRIBUTIONS:
Net investment income................. (.89) (.95) (.45) (.02)
In excess of net investment
income............................... -- -- -- --
Net realized gain on
investments.......................... (4.78) (3.66) (10.90) (1.01)
-------- -------- ------- --------
Total Distributions................... (5.67) (4.61) (11.35) (1.03)
-------- -------- ------- --------
NET ASSET VALUE,
END OF YEAR........................... $ 55.81 $ 50.49 $ 45.26 $ 49.22
======== ======== ======= ========
TOTAL RETURN (%)........................ 22.24 22.05 15.89 48.54

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
assets............................... 1.50 1.50 1.50 1.50

Operating expenses, gross, to
average assets....................... 1.54 1.50 1.50 1.61

Net investment income to
average net assets................... 1.54 1.60 .91 .96

Portfolio turnover.................... 57.16 43.50 113.04 55.53

Net assets, end of year
($000 omitted)....................... 123,823 91,006 88,321 100,733

Per share amount of fees reimbursed
($ omitted)........................... .0169 -- -- .0347
- -------------------------------------------------------------------------------------
</TABLE>

(a) Provision for federal income tax for the year ended December 31, 1991
amounted to $.03 per share.

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

-17-
<PAGE> 75
FINANCIAL HIGHLIGHTS OF THE DIVERSIFIED BOND FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other performance
information derived from the financial statements. The information in the
table represents the Financial Highlights for the Fund's Class S Shares
of the periods shown. The table appears in the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

DIVERSIFIED BOND FUND
- -----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ................. $ 21.53 $ 23.73 $ 23.49 $ 24.29 $ 22.81 $ 22.90 $ 22.38 $ 22.38
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ............. 1.54 1.46 1.48 1.62 1.72 1.74 1.87 1.69
Net realized and unrealized
gain (loss) on investments ....... 2.18 (2.22) .83 (.10) 1.61 (.09) .83 (.02)
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ....................... 3.72 (.76) 2.31 1.52 3.33 1.65 2.70 1.67
-------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income ............. (1.56) (1.42) (1.48) (1.63) (1.69) (1.74) (1.92) (1.67)
In excess of net investment income -- -- (.01) -- -- -- -- --
Net realized gain on investments .. -- -- (.58) (.69) (.16) -- (.26) --
In excess of net realized
gain on investments .............. -- (.02) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions ............... (1.56) (1.44) (2.07) (2.32) (1.85) (1.74) (2.18) (1.67)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR ....................... $ 23.69 $ 21.53 $ 23.73 $ 23.49 $ 24.29 $ 22.81 $ 22.90 $ 22.38
======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%) .................... 17.76 (3.25) 10.02 6.57 15.29 7.58 12.52 7.67

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
assets ........................... .59 .56 .58 .62 .74 .88 .93 .93

Operating expenses, gross, to
average assets ................... .59 .56 .58 .67 .74 .88 .93 .93

Net investment income to
average net assets ............... 6.69 6.57 6.13 6.79 7.38 7.89 8.16 7.48

Portfolio turnover ................ 135.85 153.21 177.74 228.37 130.96 94.88 195.14 197.15

Net assets, end of year
($000 omitted) ................... 513,808 525,315 477,341 412,394 344,081 294,677 230,156 211,656

Per share amount of fees waived
($ omitted) ...................... -- -- -- .0115 -- -- -- --

- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------
1987 1986
--------------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ................. $ 25.00 $ 23.29
-------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ............. 1.55 1.73
Net realized and unrealized
gain (loss) on investments ....... (1.28) 1.76
-------- --------
Total From Investment
Operations ....................... .27 3.49
-------- --------
LESS DISTRIBUTIONS:
Net investment income ............. (1.65) (1.76)
In excess of net investment income -- --
Net realized gain on investments .. (1.24) (.02)
In excess of net realized
gain on investments .............. -- --
-------- --------
Total Distributions ............... (2.89) (1.78)
-------- --------
NET ASSET VALUE,
END OF YEAR ....................... $ 22.38 $ 25.00
======== ========
TOTAL RETURN (%) .................... 1.25 15.49

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
assets ........................... .90 .96

Operating expenses, gross, to
average assets ................... .90 .96

Net investment income to
average net assets ............... 7.05 7.27

Portfolio turnover ................ 180.54 229.48

Net assets, end of year
($000 omitted) ................... 197,730 122,333

Per share amount of fees waived
($ omitted) ...................... -- --
- --------------------------------------------------------------
</TABLE>

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

-18-
<PAGE> 76
FINANCIAL HIGHLIGHTS OF THE VOLATILITY CONSTRAINED BOND FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other performance
information derived from the financial statements. The information
in the table represents the Financial Highlights for the Fund's Class S Shares
of the periods shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

<TABLE>
<CAPTION>
VOLATILITY CONSTRAINED BOND FUND
- -----------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ........... $ 18.64 $ 19.78 $ 19.51 $ 20.33 $ 19.51 $ 19.37 $ 19.14 $ 19.21
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 1.21 1.15 .82 1.34 1.45 1.52 1.66 1.55
Net realized and unrealized
gain (loss) on investments . .58 (1.16) .45 (.88) .80 .13 .30 (.10)
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ................. 1.79 (.01) 1.27 .46 2.25 1.65 1.96 1.45
-------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income ....... (1.22) (1.13) (.71) (1.28) (1.43) (1.51) (1.73) (1.52)
Net realized gain on
investments ................ -- -- -- -- -- -- -- --
Tax Return of capital ....... -- -- (.29) -- -- -- -- --
-------- ------- -------- -------- -------- -------- -------- -------
Total Distributions ......... (1.22) (1.13) (1.00) (1.28) (1.43) (1.51) (1.73) (1.52)
-------- -------- -------- -------- -------- -------- -------- -------
NET ASSET VALUE,
END OF YEAR ................. $ 19.21 $ 18.64 $ 19.78 $ 19.51 $ 20.33 $ 19.51 $ 19.37 $ 19.14
======== ======= ======== ======== ======== ======== ======== ========
TOTAL RETURN (%) .............. 9.89 (.02) 6.67 2.29 12.00 8.92 10.64 7.77

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets ................. .71 .67 .66 .68 .62 .62 .61 .59

Net investment income to
average net assets ......... 6.33 5.97 5.79 6.74 7.34 7.88 8.41 7.97

Portfolio turnover .......... 256.72 182.65 220.77 312.05 159.20 181.66 331.12 238.69

Net assets, end of year
($000 omitted) ............. 181,881 195,007 225,672 292,909 293,603 240,887 214,745 234,095

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

<CAPTION>
- -------------------------------------------------------
1987 1986
-------------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ........... $ 20.06 $ 19.93
-------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 1.48 1.53
Net realized and unrealized
gain (loss) on investments . (.67) .13
-------- --------
Total From Investment
Operations ................. .81 1.66
-------- --------
LESS DISTRIBUTIONS:
Net investment income ....... (1.59) (1.53)
Net realized gain on
investments ................ (.07) --
Tax Return of capital ....... -- --
-------- --------
Total Distributions ......... (1.66) (1.53)
-------- --------
NET ASSET VALUE,
END OF YEAR ................. $ 19.21 $ 20.06
======== ========
TOTAL RETURN (%) .............. 4.27 8.68

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets ................. .58 .58

Net investment income to
average net assets ......... 7.75 7.88

Portfolio turnover .......... 190.36 227.17

Net assets, end of year
($000 omitted) ............. 251,702 214,860
- -------------------------------------------------------
</TABLE>

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

-19-
<PAGE> 77
FINANCIAL HIGHLIGHTS OF THE MULTISTRATEGY BOND FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The table includes selected data for a share
outstanding throughout each year ended December 31, and other performance
information derived from the financial statements. The information in the table
represents the Financial Highlights for the Fund's Class S Shares of the periods
shown. The table appears in the Fund's financial statements and related notes,
which are incorporated by reference in the Statement of Additional Information
and which appear, along with the report of Coopers & Lybrand, L.L.P. in the
Fund's Annual Report to Shareholders. More detailed information concerning the
Fund's performance, including a complete portfolio listing and audited financial
statements, is available in the Fund's Annual Report, which may be obtained
without charge by writing or calling the Investment Company.

<TABLE>
<CAPTION>
MULTISTRATEGY BOND FUND
- --------------------------------------------------------------------------------------
1995 1994 1993++
-----------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................... $ 9.29 $ 10.31 $ 10.00
-------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... .65 .58 .46
Net realized and unrealized gain (loss) on
investments......................................... .97 (1.03) .40
-------- -------- -------
Total From Investment Operations.................... 1.62 (.45) .86
-------- -------- -------
LESS DISTRIBUTIONS:
Net investment income............................... (.66) (.57) (.46)
Net realized gain on investments.................... -- -- (.08)
In excess of net realized gain on investments....... -- -- (.01)
-------- -------- -------
Total Distributions................................. (.66) (.57) (.55)
-------- -------- -------
NET ASSET VALUE, END OF YEAR.......................... $ 10.25 $ 9.29 $ 10.31
======== ======== =======
TOTAL RETURN (%)(a)................................... 17.92 (4.35) 8.74

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b).. .85 .85 .85
Operating expenses, gross, to average net
assets (b).......................................... .89 .90 1.20
Net investment income to average net assets (b)..... 6.61 6.26 5.60
Portfolio turnover (b).............................. 142.26 136.39 188.95
Net assets, end of year ($000 omitted).............. 218,765 173,035 98,374
Per share amount of fees waived ($ omitted)......... -- -- .0002
Per share amount of fees reimbursed ($ omitted)..... .0042 .0043 .0286
- --------------------------------------------------------------------------------------
</TABLE>

++ For the period January 29, 1993 (commencement of operations) to December
31, 1993.
(a) Periods less than one year are not annualized.

(b) The ratios for the period ended December 31, 1993 are annualized.

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

-20-
<PAGE> 78
THE PURPOSE OF THE FUNDS

FRANK RUSSELL COMPANY--CONSULTANT TO THE FUNDS

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.

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. Similarly, there are periods when
securities selected for particular characteristics, or using particular
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 a
particular Fund investing in one asset class or using a particular style--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 both efficient and cost effective for the investor
and Frank Russell Company.

ELIGIBLE INVESTORS

- - Bank trust departments managing discretionary institutional or personal
trust accounts

- - Banks, other than through their trust departments

- - Registered investment advisers

- - Endowment funds and charitable foundations

- - Broker-Dealers

- - Employee welfare plans

- - Pension or profit sharing plans

-21-
<PAGE> 79
- - Insurance companies

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

Either the client or the Management Company may terminate the Agreement upon
written notice as 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 Funds to compensate the Management Company for providing services
to the client with respect to assets invested in the Funds. 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.

GENERAL MANAGEMENT OF THE FUNDS

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

- - Randall P. Lert, who has been Chief Investment Officer, 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.

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

-22-
<PAGE> 80
Management Company and Frank Russell Trust Company since 1991.

- - 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.

- - Randal C. Burge, who has been a Senior Investment Officer of Frank Russell
Investment Management Company, since June 1995. Mr. Burge was a Senior
Investment Officer of the Frank Russell Trust Company from 1990 to 1995.
Mr. Burge was a Client Executive for Frank Russell Company Australia.

- - Madelyn Smith, who has been a Senior Investment Strategist for the Frank
Russell Investment Management Company since January 1996. From 1993 to
1995, Ms. Smith was a member of a research investment strategist for Frank
Russell Company. From 1987 to 1993, Ms. Smith was director of Investment
Equity Manager Research of Frank Russell Company.

- - C. Nola Williams, who has been a Senior Investment Strategist of Frank
Russell Investment Management Company since January 1996. From 1994 to
1995, Ms. Williams was a member of the Alpha Strategy Group. From 1988 to
1994, Ms. Williams was Senior Research Analyst with Frank Russell 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.

For its services, the Management Company receives a management fee from each
Fund. From this fee, the Management Company, acting as agent for the Investment
Company, is responsible for paying the money managers for their investment
selection services. The remainder is retained by the Management Company as
compensation for the services described above and to pay expenses. The annual
rate of the management fees, payable to the Management Company monthly on a pro
rata basis, are the following percentages of the average daily net assets of
each Fund: 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%; Diversified Bond Fund, 0.45%; Volatility Constrained Bond Fund,
0.50%; and Multistrategy Bond Fund, 0.65%. The fees of the Funds, other than the
Diversified Bond and Volatility Constrained Bond Funds, may be higher than the
fees charged by some mutual funds with similar objectives which use only a
single money manager.

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

Frank Russell Company provides its Portfolio Verification System ("PVS") to all
the 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 Internal Revenue Service accounting reports. For
these services, the Funds pay the following annual fees:

-23-
<PAGE> 81
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Analysis of
Transaction 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>

Annual minimum charges are: Diversified Equity - $25,000; Special Growth -
$15,000; Equity Income - $12,000; Quantitative Equity - $23,000; Diversified
Bond - $31,000; Volatility Constrained Bond - $22,000; Multistrategy Bond -
$25,000; and $290,000 in the aggregate 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.

EXPENSES OF THE FUNDS

The Funds, and when appropriate each class, will pay their own expenses other
than those expressly assumed by the Management Company. The Funds' Class S
Shares' expenses for the year ended December 31, 1995, as a percentage of
average net assets, are shown in the Financial Highlights tables. Principal
expenses are: the management, transfer agency and recordkeeping fees payable to
the Management Company; fees for custodial and portfolio accounting payable to
State Street Bank and Trust Company; bookkeeping service fees for preparing tax
records payable to Frank Russell Company; fees for independent auditing and
legal services; and fees for filing reports and registering shares with
regulatory bodies.

THE MONEY MANAGERS

The assets of each Fund 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. THE 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
INVESTMENT COMPANY. The Funds will notify shareholders of the Fund concerned
within 60 days when a money manager begins or stops providing services.

From its management fees, the Management Company, as agent for the Investment
Company, pays all fees to the money managers for their investment selection
services. Quarterly, each money manager is paid the pro rata portion of an
annual fee, based on the quarterly average of all the assets allocated to the
money manager. For the period, management fees paid to the money managers were
equivalent to the following annual rates expressed as a percentage of the
average daily net assets of each Fund: Diversified Equity Fund, .24%; Special
Growth Fund, .41%; Equity Income Fund, .20%; Quantitative Equity Fund, .21%;
International Securities Fund, .44%; Diversified Bond Fund, .09%; Volatility
Constrained Bond Fund, .19%; and Multistrategy Bond Fund, .22%. Fees paid to the
money managers are not affected by any voluntary or statutory expense
limitations. Some money managers may receive investment research prepared by
Frank Russell Company as additional compensation, or may receive brokerage
commissions for executing portfolio transactions for the Funds through
broker-dealer affiliates.

Each money manager has agreed that once the Investment Company has advanced fees
to the Management Company as agent to make payment of the money manager's fee,
the money manager will look only to the Management Company for the payment of
its fee.

The 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
a money manager.

Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund within the Fund's investment objectives,
restrictions and policies, and the more specific strategies developed by Frank
Russell Company and the Management Company. Although the money managers'
activities are subject to general oversight by the Board of Trustees and
officers of the Investment Company, NEITHER THE BOARD, THE OFFICERS, THE
MANAGEMENT COMPANY, NOR FRANK RUSSELL COMPANY EVALUATE THE INVESTMENT MERITS OF
THE MONEY MANAGERS' INDIVIDUAL SECURITY SELECTIONS.

-24-
<PAGE> 82
INVESTMENT OBJECTIVES, RESTRICTIONS, POLICIES, AND RISKS

INVESTMENT OBJECTIVES.

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 Quantitative 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, the Fund's 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.

The Fund will seek to achieve its investment objectives by using various
quantitative management techniques. The 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

-25-
<PAGE> 83
guarantee the Fund will have such characteristics at any one time.

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 65% 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.

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 their
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 dollar. At this time, the Management Company intends to limit total non-US
dollar investments to no more than 25% of total Funds assets.

-26-
<PAGE> 84
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 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 the 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.

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.

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<PAGE> 85
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 bankers'
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 net 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
that 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.

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.

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<PAGE> 86
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.

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 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
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 Investment Company's Money Market Fund.

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

The Russell 1000(R) Index is used as the basis for the Quantitative Equity
Fund's performance because it, in the 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 the next business day). If
the party agreeing to repurchase should default and if the value of the
securities held by the Fund (102% at 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 net assets (taken at current market value) in
repurchase agreements 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
each 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.

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<PAGE> 87
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 may lend portfolio securities with a
value of up to 50% of its total assets. Such loans may be terminated at any
time. A Fund will receive either cash (and agree to pay a "rebate" interest
rate), US government or US government agency securities as collateral in an
amount equal to at least 100% of the current market value of the 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.

Illiquid Securities. The Funds will not purchase or otherwise acquire any
security if, as a result, more than 15% of a Fund's net assets (taken at current
value) would be invested in securities, including repurchase agreements of more
than seven days' duration, that are illiquid by virtue of the absence of a
readily available market or because of legal or contractual restrictions on
resale. In addition, the Funds will not invest more than 10% of their respective
net assets (taken at current value) in securities of issuers which may not be
sold to the public without registration under the Securities Act of 1933 (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, a Fund's holding of that security may be illiquid. There may be
undesirable delays in selling illiquid securities at prices representing their
fair value.

Liquidity Portfolios. The 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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<PAGE> 88
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 Funds' foreign securities will
generally be denominated in foreign currencies, the value of such securities to
the Funds 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
Funds' foreign securities. In addition, some emerging market countries may have
fixed or managed currencies which are not free-floating against the US dollar.
Further, certain emerging market countries' currencies may not be
internationally traded. Certain of these currencies have experienced a steady
devaluation relative to the US dollar. Many emerging market 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 a currency whose changes in value are considered
to be linked (a proxy) to a currency or currencies in which some or all of the
Funds' portfolio securities are 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 Funds' 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

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<PAGE> 89
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 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 may also
purchase and sell put and call options on foreign currencies.

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.

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 Securities" above.) None of the Funds, other than
the Multistrategy Bond Fund, currently intends to write or purchase such
options.

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<PAGE> 90
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.

Futures Contracts and Options on Futures Contracts. The 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.

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<PAGE> 91
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 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 managers 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, and S&P considers bonds rated
BBB, to have some speculative characteristics. The Funds, other than
Multistrategy Bond Fund, will dispose of, in a prudent and orderly fashion,
securities whose ratings drop below these minimum ratings. The market value of
debt securities generally varies inversely in relation to interest rates.

The 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 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 the risks associated with investing in such securities by limiting the
Fund's holdings in such securities and by the depth of their own credit
analysis. For additional information, please refer to the Statement of
Additional Information.

PORTFOLIO TRANSACTION POLICIES

Decisions to buy and sell securities are made by the money managers for the
assets assigned to them, and by the 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 while making
portfolio investment decisions. The money managers make decisions to buy or sell
securities independently from other money managers. Thus, one money manager
could be selling a security when another money manager for the same Fund (or for
another series of the Investment Company) is purchasing the same security. In
addition, when a money manager's services are terminated and another retained,
the new manager may significantly restructure the portfolio. These practices may
increase the Funds' portfolio turnover rates, realization of gains or losses,
brokerage commissions and other transaction based costs. The annual portfolio
turnover rates for each of the Funds are shown in the Financial Highlights
tables.

The Funds may effect portfolio transactions with or through Frank Russell
Securities, Inc., an affiliate of the Management Company, when the money manager
determines that the Funds will receive competitive execution, price and
commissions. Frank Russell Securities, Inc. refunds to the Fund up to 70% of the
commissions paid by that Fund when it effects such transactions, after
reimbursement for research services provided to the Management Company. This
arrangement is used by the 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 the money
managers (or their affiliates).

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS.

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

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<PAGE> 92
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Declared Payable
- -------- -------

<S> <C> <C>
Monthly Early in the following month Diversified Bond, Volatility Constrained Bond and Multistrategy
Bond Funds
Quarterly Mid: April, July, October and Diversified Equity, Special Growth, Equity Income and
December Quantitative Equity Funds
Annually Mid-December International Securities Fund
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

CAPITAL GAINS DISTRIBUTIONS.

AUTOMATIC REINVESTMENT.

TAXES

For taxable shareholders: Dividends from net investment income and short-term
capital gains will be taxable as ordinary dividends, 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 and Multistrategy Bond 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 Investment
Company's Board are taxed as long-term gains regardless of the length of time a
shareholder has held such shares. Distributions paid in excess of a Fund's
earnings will be treated as a non-taxable return of capital. Dividends and
distributions may otherwise also be subject to state or local taxes.

For corporate investors, dividends from net investment income paid by the
Diversified Equity, Special Growth, Equity Income and Quantitative Equity 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 such a Fund from domestic (US) sources.
Certain holding period and debt financing restrictions may apply to the
corporate investor seeking to claim 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 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. The 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 its
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

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<PAGE> 93
against US income taxes. The Fund's taxable shareholders must include their pro
rata portion of the taxes withheld on their gross income for federal income tax
purposes.

Shareholders of holding non-US holdings should also be aware that for federal
income tax purposes, foreign exchange losses realized by a Fund are treated as
ordinary losses. This treatment may have the effect of reducing a Fund's income
available for distribution to shareholders.

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 Funds 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 Funds receive no payment on the security during the
year. Because the Funds annually must distribute substantially all of their net
investment income, the Funds may be required in a particular year to distribute
as a dividend an amount that is greater than the total amount of cash the Funds
actually receive. Those distributions will be made from a Fund's cash assets or
from the proceeds of sales of portfolio securities, if necessary. The Funds may
realize capital gains or losses from those sales, which could further increase
or decrease the Funds' dividends and distributions paid to shareholders.

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 income which is a tax preference item
(if any) for alternative minimum tax purposes; of the International Securities
Fund's foreign taxes withheld; and of the percentages of the Diversified Bond,
Volatility Constrained Bond and Multistrategy Bond Funds' income attributable to
US government, Treasury and agency securities.

Additional information on these and other 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

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<PAGE> 94

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
5 Years Ended 10 Years Ended Inception to
1 YEAR ENDED December 31, 1995 December 31, 1995 December 31, 1995
DECEMBER 31, 1995 (Annualized) (Annualized) (Annualized) Inception Date
----------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Diversified Equity 35.17% 16.22% 13.76% 15.06% 09/05/85
Special Growth 28.52 18.13 12.34 13.69 09/05/85
Equity Income 34.76 16.91 12.93 13.79 09/05/85
Quantitative Equity 37.69 17.31 - 12.55 05/15/87
International Securities 10.20 9.95 13.33 14.36 09/05/85
Diversified Bond 17.76 9.01 8.90 9.37 09/05/85
Volatility Constrained Bond 9.89 6.06 7.04 7.10 09/05/85
Multistrategy Bond 17.92 - - 7.24 01/29/93
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Diversified Bond, Volatility Constrained Bond and Multistrategy Bond 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 for the
year ended December 31, 1995 for shares of the Diversified Bond, Volatility
Constrained Bond and Multistrategy Bond Funds were, respectively, 5.96%, 5.94%
and 6.23%.

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 shares of each class of each
Fund on each business day on which shares are offered or orders to redeem are
tendered. (Unless otherwise indicated, "shares" refers to the Class S Shares of
the Funds.) For all Funds, a business day is one on which the New York Stock
Exchange is open for trading. Net asset value per share is computed for a
Fund's Class S Shares by dividing the current value of the Fund's assets
attributable to the Class S Shares, less liabilities attributable to the Class
S Shares, by the number of Class S 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).

VALUATION OF PORTFOLIO SECURITIES.

-37-
<PAGE> 95
"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 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

ORDER PROCEDURES.

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

Check. Payment for orders may be made by check or other negotiable bank draft
payable to "Frank Russell Investment Company" and mailed to the Transfer Agent,
P.O. Box 1591, Tacoma, WA 98401-1591. Certified checks are not necessary, but
checks are accepted subject to collection at full face value in US funds and
must be drawn in US dollars on a US bank. Investments in the 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.

-38-
<PAGE> 96
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 particular 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, which is usually within 15 days following the purchase by exchange. A
gain or loss for federal income tax purposes will generally be realized by
investors who are subject to federal taxation upon the exchange. Investors
interested in making an in-kind exchange are encouraged to consult with their
tax advisers.

THREE DAY SETTLEMENT PROGRAM.

The Investment Company will accept orders from financial institutions to
purchase shares of the 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 Funds against any losses as a result of nonreceipt of
payment. For further information on this program, contact the Investment
Company.

THIRD PARTY TRANSACTIONS.

Investors purchasing Fund shares through a program of services offered by a
Financial Intermediary, such as a bank, broker-dealer, investment adviser or
others, may be required to pay additional fees by such Intermediary. Investors
should contact such Financial 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 value per share at the time of the exchange. Shares of a Fund offered by
this Prospectus may only be exchanged for shares of a Fund offered by the
Investment Company through another prospectus under certain conditions and only
in states where the exchange may legally be made. For additional information,
including a prospectus of other Investment Company Funds, contact a Financial
Intermediary or the Investment Company. Exchanges may be made (i) by telephone
if the registrations of the two accounts are identical; or (ii) in writing
addressed to the Investment Company.

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.

-39-
<PAGE> 97
requests to redeem are tendered prior to the close of the New York Stock
Exchange (currently 4:00 p.m. Eastern time).

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.

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, to the requested address on the payment 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 Fund's
portfolio, in lieu of cash. Investors will incur brokerage charges on the sale
of these portfolio securities. The Funds reserve the right to suspend the right
of redemption or postpone the date of payment if any unlikely emergency
conditions, as specified in the 1940 Act or determined by the SEC, should
develop.

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, INDEPENDENT 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 ("State Street"), 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.

ORGANIZATION, CAPITALIZATION, AND VOTING.

-40-
<PAGE> 98
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."

In addition to offering Class S Shares, the Funds also offer beneficial
interests in Class C Shares, which are described in a separate prospectus
relating to that class. Class C Shares are designed to meet different investor
needs and are subject to a Rule 12b-1 distribution fee and to a shareholder
servicing fee, which may affect the performance of the Class C Shares. To obtain
more information concerning Class C Shares, contact the Financial Intermediary
from whom you obtained this prospectus or write to the Secretary, Frank Russell
Investment Company, at the address listed on the cover of this Prospectus, or
call (800) 972-0700.

MONEY MANAGER PROFILES

The money managers have no other affiliations with the Funds or with Frank
Russell Company. Each money 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

BZW Barclays Global Fund Advisors, 45 Fremont Street, 17th Floor, San Francisco,
CA 94105, is an indirect, wholly owned subsidiary of Barclays Bank PLC.

Columbus Circle Investors, Metro Center, One Station Place, 8th Floor, Stamford,
CT 06902, 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.

Equinox Capital Management, Inc., 399 Park Ave., 28th Floor, New York, NY 10022.
Equinox is a registered investment adviser with majority ownership held by Ron
Ulrich.

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

Suffolk Capital Management, Inc., 250 West 57th Street, Suite 420, New York, NY
10107. Suffolk Capital Management, Inc. is a registered investment adviser and a

-41-
<PAGE> 99
wholly owned subsidiary of United Asset Management Company, a publicly traded
corporation.

Trinity Investment Management Corporation, 75 Park Plaza, Boston, MA 02116, is a
corporation with seven shareholders, with Stanford M. Calderwood holding
majority ownership.

SPECIAL GROWTH 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.

Sirach Capital Management, Inc., One Union Square, Suite 3323, 600 Union 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 Corporation, See: Diversified Equity Fund.

QUANTITATIVE EQUITY FUND

BZW Barclays Global Fund Advisors, See: Diversified Equity Fund.

Franklin Portfolio Associates Trust, One Post Office Square, Suite 3660, Boston,
MA 02109, is 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.

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.

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.

-42-
<PAGE> 100
DIVERSIFIED BOND FUND

Lincoln Capital Management Company, See: Diversified Equity Fund.

Pacific Investment Management Company, 840 Newport Center Drive, Suite 360,
Newport Beach, CA 92660, is a subsidiary partnership of PIMCO Advisers 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.

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.

STW Fixed Income Management Ltd., Trinity Hall, 43 Cedar Avenue, Hamilton HM LX,
Bermuda, is a Bermuda exempted company. William H. Williams III is the sole
shareholder.

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.

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.

-43-
<PAGE> 101

-44-
<PAGE> 102
FRANK RUSSELL INVESTMENT COMPANY
909 A STREET
TACOMA, WASHINGTON 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (206) 627-7001

MONEY MANAGERS

DIVERSIFIED EQUITY
Alliance Capital Management L.P.
BZW Barclays Global Fund Advisors
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
Delphi Management, Inc.
Fiduciary International, Inc.
GlobeFlex Capital, L.P.
Jacobs Levy Equity Management, Inc.
Sirach Capital Management, Inc.
Wellington Management Company

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

QUANTITATIVE EQUITY
BZW Barclays Global Fund Advisors
Franklin Portfolio Associates Trust
J.P. Morgan Investment Management, Inc.

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

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

VOLATILITY CONSTRAINED BOND
BlackRock Financial Management
Standish, Ayer & Wood, Inc.
STW Fixed Income Management Ltd.

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

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

CONSULTANT
Frank Russell Company
909 A Street
Tacoma, Washington 98402

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

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

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
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

-45-

<PAGE> 103

PROSPECTUS

[SPECIALTY FUNDS]
[CLASS S SHARES]

FRANK RUSSELL INVESTMENT COMPANY

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

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

Real Estate Securities Fund Limited Volatility Tax Free Fund

Emerging Markets Fund U.S. Government Money Market Fund

Equity T Fund Tax Free Money Market Fund

INVESTMENTS IN MONEY MARKET FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE US
GOVERNMENT. THERE IS NO ASSURANCE THAT THE U.S. GOVERNMENT MONEY MARKET FUND AND
TAX FREE MONEY MARKET FUND (THE "MONEY MARKET FUNDS") WILL MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.

This Prospectus sets forth concisely information about the Investment Company
and the Class S Shares of six of its Funds that a prospective investor ought to
know before investing. The Investment Company has filed a Statement of
Additional Information dated July ___, 1996, 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.

This Prospectus relates only to the Class S Shares of the six Funds. Two of the
Funds--Real Estate Securities Fund and Emerging Markets Fund--also offer shares
of beneficial interest in another class of shares, the Class C Shares, through a
separate prospectus. For more information concerning Class C Shares of the two
Funds, contact the person or organization from which you obtained this
prospectus or write to the Secretary, Frank Russell Investment Company, at the
address shown above, or telephone (800) 972-0700.

PROSPECTUS DATED JULY ___, 1996

<PAGE> 104
Each Fund seeks to achieve a specific investment objective by using distinct
investment strategies:

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

EMERGING MARKETS FUND -- 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.

EQUITY T FUND -- Capital growth on an after-tax basis by investing primarily in
equity 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 Class S Shares of the Funds. The Real
Estate Securities, Limited Volatility Tax Free, U.S. Government Money Market and
Tax Free Money Market Funds are each an "Internal Fee Fund." The Emerging
Markets and Equity T Funds are each an "External Fee Fund." The principal
distinction between the External and the Internal Fee Funds is that a
shareholder of an External Fee Fund may pay a quarterly shareholder investment
services fee directly to the Management Company. The fee is computed on the
amount the shareholder has invested in an External Fee Fund. No shareholder of
the Internal Fee Funds pays such fees and, currently, no shareholder of the
Emerging Markets and Equity T Funds pays any such fees, although such fees may
be required in the future. The Investment Company's Funds had aggregate net
assets of $8.9 billion on April 30, 1996. The net assets of these Funds on April
30, 1996, except the Equity T Fund, which was not offered for public investment
as of that date, were as follows:

<TABLE>

- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate Securities $318,828,870 U.S. Government Money Market $154,132,335

Emerging Markets $224,128,123 Tax Free Money Market $ 82,532,726

Limited Volatility Tax
Free $ 61,122,035
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

-2-
<PAGE> 105
HIGHLIGHTS AND TABLE OF CONTENTS

ANNUAL FUND OPERATING EXPENSES summarizes the fees paid by shareholders and
provides an example showing the effect of these fees on a $1,000 investment over
time. PAGE 5.

FINANCIAL HIGHLIGHTS summarizes significant financial information concerning the
Funds for the period stated herein. Financial Highlights for the Equity T Fund
are not included because the Fund was not offered for public investment during
the period. PAGE __.

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 __.

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

EXPENSES OF THE FUNDS are borne by the Funds. Each Fund pays a management fee to
the Management Company, its expenses and its portion of the general expenses of
the Investment Company. The Management Company, as agent to the Fund, pays from
its fees, the investment advisory fees of the Money Managers of the Fund. The
remainder of the fee is retained by the Management Company, for conducting the
Fund's general operations and for providing investment supervision for the Fund.
Each Eligible Investor may pay to the Management Company directly a fee for
other services provided to that Eligible Investor. PAGE __.

PORTFOLIO TRANSACTION POLICIES do not give significant weight to realizing
long-term, rather than short-term, capital gains, except in the case of the
Limited Volatility Tax Free Fund. In addition, the Equity T Fund, which seeks to
minimize the impact of taxes on its shareholders, attempts to limit short-term
capital gains and to defer the realization of long-term capital gains.
PAGE __.

DIVIDENDS AND DISTRIBUTIONS may be reinvested in additional shares or received
in cash. Dividends from net investment income are declared Daily, by U.S.
Government Money Market and Tax Free Money Market Funds; Monthly, by Limited
Volatility Tax Free Fund; Quarterly, by Real Estate Securities Fund; and
Annually, by Emerging Markets and Equity T Funds. All Funds declare at least
annually any distributions from net realized capital gains. PAGE __.

-3-
<PAGE> 106
INCOME TAXES PAID BY THE FUNDS 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 required to pay federal tax on dividends. Taxable shareholders of all
Funds will be required to pay federal taxes on capital gains distributions and
may also be subject to state or local taxes.
PAGE __.

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

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 Class S
share purchased or redeemed is based upon the next computed current market value
of the assets, less liabilities, of each Class S Fund. The U.S. Government Money
Market and Tax Free Money Market Funds utilize amortized cost pricing procedures
designed to maintain a stable $1.00 per share net asset value. Unless otherwise
indicated, "shares" in this Prospectus refers to the Class S Shares of the
Funds. PAGE __.

PURCHASE OF FUND SHARES includes no sales charge. Shares are offered and orders
to purchase are accepted on each business day. PAGE __.

REDEMPTION OF FUND SHARES may be requested on any business day that shares are
offered. With the exception of the Equity T Fund, there is no redemption charge
assessed by the Funds, and the redemption price is determined by the net asset
value next computed after receipt of the redemption request. The Equity T Fund
charges a redemption fee of 1%, which is retained by the Fund as a reduction of
the amount payable upon redemption. The redemption fee is not imposed upon
redemptions-in kind. A shareholder may choose to redeem any or all of his Equity
T shares in kind. The Funds reserve the right to redeem in kind that portion of
a redemption request which is in excess of $250,000. PAGE ___.

TWO OF THE FUNDS--the Real Estate Securities and Emerging Markets Funds--also
offer a second class of shares, the Class C Shares, which are designed to meet
different investor needs. PAGE ___.

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

-4-
<PAGE> 107

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE REAL ESTATE
SECURITIES FUND

The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Class S Shares of the
Fund will bear directly or indirectly. The Examples 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> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses:
Custodian Fees . . . . . . . . . . . . . . . . . . . . .07%
Transfer Agent Fees . . . . . . . . . . . . . . . . . . .12
Other Fees . . . . . . . . . . . . . . . . . . . . . . .04
---
Total Other Expenses . . . . . . . . . . . . . . . . . . . . . . . .23
----
Total Class S Shares Operating Expenses + . . . . . . . . . . . . . . 1.08%
====
</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 $60 $132
=== === === ====
</TABLE>
- ---------------
+ Investors purchasing Class S Shares of the Fund through a financial
intermediary, such as a bank or an investment adviser, may also be
required to pay additional fees to the intermediary for services
provided by the intermediary. Such investors should contact the
intermediary for information concerning what additional fees, if any,
will be charged.

5
<PAGE> 108

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE EMERGING MARKETS
FUND*

The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Class S Shares of the
Fund will bear directly or indirectly. The Examples 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> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee (After Fee Waiver)(1) . . . . . . . . . . . . . . . . 1.09%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses:
Custodian Fees . . . . . . . . . . . . . . . . . . . . .62%
Transfer Agent Fees . . . . . . . . . . . . . . . . . .16
Other Fees . . . . . . . . . . . . . . . . . . . . . . .08
---
Total Other Expenses . . . . . . . . . . . . . . . . . . . . . . .86
----
Total Class S Shares Operating Expenses (After Fee Waiver)(1) + . . . 1.95%
====
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE:

(1) The Manager has voluntarily agreed to waive a portion of its 1.20%
management fee, up to the full amount of that fee, equal to the amount
by which the Fund's total operating expenses, other than any 12b-1
fees, shareholders servicing fees, and certain other class level
expenses exceed 1.95% of the Fund's average daily net assets on an
annual basis. The gross annual total operating expenses absent the
waiver would be 2.06% of average net assets. This waiver is intended
to be in effect for the current year, but may be revised or eliminated
at any time without notice to shareholders.

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

6
<PAGE> 109

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE EQUITY T FUND*

The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Class S Shares of the
Fund will bear directly or indirectly. The Examples 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> <C>
CLASS S SHARES SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases . . . . . . . . . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends . . . . . . . . . . . None
Deferred Sales Load . . . . . . . . . . . . . . . . . . . . . . . None
Redemption Fees**. . . . . . . . . . . . . . . . . . . . . . . . . 1%
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . None

ANNUAL CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee (After Fee Waiver)(1) . . . . . . . . . . . . . . .65%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses:
Custodian Fees(1) . . . . . . . . . . . . . . . . . .10%
Transfer Agent Fees . . . . . . . . . . . . . . . . .12
Other Fees . . . . . . . . . . . . . . . . . . . . .13
---
Total Other Expenses(2) . . . . . . . . . . . . . . . . . . . .35
----

Total Class S Shares Operating Expenses (After Fee Waivers
and Reimbursement)(1) + . . . . . . . . . . . . . . . . . . . . . 1.00%
====
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE:

1 Year 3 Years
------ -------
<S> <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 . . . . $ 21 $ 43
====== =======

You would pay the following expenses on the same investment, assuming
no redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10 $ 32
====== =======
</TABLE>

- ---------------
* Each shareholder or the financial intermediary through
which the shareholder purchases shares of the Investment Company
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. 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.

** The redemption fee will be waived for amounts redeemed in kind.

(1) The Manager has voluntarily agreed to waive a portion of its 0.75%
management fee, up to the full amount of that fee, equal to the amount
by which the Fund's total operating expenses exceed 1.00% of the
Fund's average daily net assets on an annual basis and to reimburse
the Fund for any additional Fund operating expenses that exceed 1.00%
of the Fund's average daily net assets on an annual basis. The
Custodian has voluntarily agreed to waive a portion of its fees for
the first three months after the Fund becomes operational.
Additionally, the Manager has voluntarily agreed to reimburse the Fund
for all remaining expenses after Manager and Custodian waivers which
exceed 1.00% of average daily net assets on an annual basis. The
gross annual Management Fees before the waivers and reimbursement
would be 0.75% of average daily net assets. The gross annual total
operating expenses absent the waiver and reimbursement would be
1.10% of average daily net assets. The management waiver and
reimbursement are intended to be in effect for the current year, but
may be revised or eliminated at any time thereafter without notice
to shareholders.

(2) The ratio for "other expenses" is based on estimated amounts with
expected annual average net assets of $100 million.

7
<PAGE> 110

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE LIMITED VOLATILITY
TAX FREE FUND

The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Class S Shares of the
Fund will bear directly or indirectly. The Examples 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> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . .50%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses:
Custodian Fees . . . . . . . . . . . . . . . . . . . . .09%
Transfer Agent Fees . . . . . . . . . . . . . . . . . . .06
Other Fees . . . . . . . . . . . . . . . . . . . . . . .09
---
Total Other Expenses . . . . . . . . . . . . . . . . . . . . . . .24
---
Total Class S Shares Operating Expenses + . . . . . . . . . . . . . . .74%
===
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE:

8
<PAGE> 111

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES U.S. GOVERNMENT MONEY
MARKET FUND

The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Class S Shares of Fund
will bear directly or indirectly. The Examples 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> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee (After Fee Waiver)(1) . . . . . . . . . . . . . . . . . .00%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses:
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . .03%
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . .15
Other Fees . . . . . . . . . . . . . . . . . . . . . . . . .08
---
Total Other Expenses . . . . . . . . . . . . . . . . . . . . . . .26
----
Total Class S Shares Operating Expenses (After Fee Waiver)(1) + . . . .26%
====
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE:

(1) The Management Company has voluntarily agreed to waive the full
amount of its .25% management fee. The total operating expenses of
the Fund absent the fee waiver would be .51% of average daily net
assets on an annual basis. This waiver may be revised or eliminated
at any time without notice to Shareholders.

9
<PAGE> 112

ANNUAL FUND OPERATING EXPENSES OF THE CLASS S SHARES OF THE TAX FREE MONEY
MARKET FUND

The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Class S Shares of the
Fund will bear directly or indirectly. The Examples 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> <C>
CLASS S SHARES 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 CLASS S SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses:
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . .05%
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . .07
Other Fees . . . . . . . . . . . . . . . . . . . . . . . . .11
---
Total Other Expenses . . . . . . . . . . . . . . . . . . . . . . . .23
---
Total Class S Shares Operating Expenses + . . . . . . . . . . . . . . .48%
===
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE:

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

10
<PAGE> 113
FINANCIAL HIGHLIGHTS OF THE REAL ESTATE SECURITIES FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The 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. The information
in the table represents the Financial Highlights for the Fund's Class S Shares
for the period shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

REAL ESTATE SECURITIES FUND

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989++
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . . . $22.53 $22.76 $21.50 $19.33 $14.99 $19.31 $20.00
------ ------ ------ ------ ------ ------ ------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . 1.32 1.25 1.05 1.08 1.11 1.30 .42
Net realized and unrealized gain (loss) on investments . . . . 1.03 .40 2.68 2.16 4.36 (4.30) (.73)
------ ------ ------ ------ ------ ------ ------

Total From Investment Operations . . . . . . . . . . . . . . . 2.35 1.65 3.73 3.24 5.47 (3.00) (.31)
------ ------ ------ ------ ------ ------ ------

LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . (1.35) (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) -- -- -- -- --
Tax return of capital . . . . . . . . . . . . . . . . . . . . . (.02) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total Distributions . . . . . . . . . . . . . . . . . . . . . .
(1.37) (1.88) (2.47) (1.07) (1.13) (1.32) (.38)
------ ------ ------ ------ ------ ------ ------

NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . . . $23.51 $22.53 $22.76 $21.50 $19.33 $14.99 $19.31
====== ====== ====== ====== ====== ====== ======

TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . . . . . 10.87 7.24 17.42 17.29 37.08 (15.92) (1.57)

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets(b) . . . . . . . 1.04 1.05 1.11 1.20 1.26 .39 --
Operating expenses, gross, to average net assets(b) . . . . . . 1.04 1.05 1.11 1.20 1.31 1.60 .32
Net investment income to average net assets(b) . . . . . . . . 6.10 5.65 4.52 5.60 6.50 8.94 6.90
Portfolio turnover(b) . . . . . . . . . . . . . . . . . . . . . 23.49 45.84 58.38 19.72 13.28 12.11 8.74
Net assets, end of year ($000 omitted) . . . . . . . . . . . . 290,990 209,208 145,167 75,902 42,771 20,845 7,699
Per share amount of fees waived ($ omitted) . . . . . . . . . . -- -- -- -- -- .0491 .0394
Per share amount of fees reimbursed ($ omitted) . . . . . . . . -- -- -- -- .0076 .1327 .1155
</TABLE>

- ---------------
++ For the period July 28, 1989 (commencement of operations) to December 31,
1989.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended December 31, 1989 are annualized.

* See notes to Financial Statements which appear in the Investment Company's
Annual Report to Shareholders and which are incorporated by reference into
the Statement of Additional Information.

11
<PAGE> 114
FINANCIAL HIGHLIGHTS OF THE EMERGING MARKETS FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The 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. The information
in the table represents the Financial Highlights for the Fund's Class S Shares
for the period shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

EMERGING MARKETS FUND

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1995 1994 1993++
--------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . $12.25 $13.90 $10.00
------ ------ ------

INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . .11 .15 .07
Net realized and unrealized gain (loss) on investments . . . . . . (1.12) (1.24) 4.09
------ ------ ------
Total From Investment Operations . . . . . . . . . . . . . . . . . (1.01) (1.09) 4.16
------ ------ ------

LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . (.03) (.10) (.07)
In excess of net investment income . . . . . . . . . . . . . . . . (.02) (.10) (.01)
Net realized gain on investments . . . . . . . . . . . . . . . . . -- (.31) (.18)
In excess of net realized gain on investments . . . . . . . . . . . (.03) (.05) --
------ ------ ------

Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . (.08) (.56) (.26)
------ ------ ------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . . . . . $11.16 $12.25 $13.90
====== ====== ======

TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . . . . . . (8.21) (5.83) 41.83

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets(b)(c) . . . . . . . 1.75 .80 .80
Operating expenses, gross, to average net assets(b)(c) . . . . . . 1.80 .83 1.60
Net investment income to average net assets(b)(c) . . . . . . . . . .88 1.10 1.33
Portfolio turnover(b) . . . . . . . . . . . . . . . . . . . . . . . 71.16 57.47 89.99
Net assets, end of year ($000 omitted) . . . . . . . . . . . . . . 172,673 127,271 65,457
Per share amount of fees waived ($ omitted) . . . . . . . . . . . . .0022 .0044 .0016
Per share amount of fees reimbursed ($ omitted) . . . . . . . . . . .0032 .0017 .0420
</TABLE>
- ---------------
++ For the period January 29, 1993 (commencement of operations) to December
31, 1993.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended December 31, 1993, are annualized.

(c) For periods prior to April 1, 1995, fund performance, operating
expenses, and net investment income do not include any management fees
paid to the Manager or money managers. For periods thereafter, they are
reported net of investment management fees but gross of any investment
services fees. Management fees and investment services fees reduce
performance; for example, an investment services fee of 0.2% of average
managed assets will reduce a 10% return to 9.8%.

* See notes to Financial Statements which appear in the Investment
Company's Annual Report to Shareholders and which are incorporated by
reference into the Statement of Additional Information.

12
<PAGE> 115
FINANCIAL HIGHLIGHTS OF THE LIMITED VOLATILITY TAX FREE FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The 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. The information
in the table represents the Financial Highlights for the Fund's Class S Shares
for the period shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

LIMITED VOLATILITY TAX FREE FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR . . . . . . . . $20.48 $21.45 $21.03 $20.85 $20.49 $20.51 $20.41 $20.46 $21.03 $20.09
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income . . . . . . .81 .86 .94 1.01 1.17 1.25 1.21 1.15 1.06 .99
Net realized and unrealized
gain (loss) on investments . . .77 (.97) .42 .18 .35 (.03) .17 (.10) (.48) .85
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

Total From Investment
Operations . . . . . . . . . . 1.58 (.11) 1.36 1.19 1.52 1.22 1.38 1.05 .58 1.84
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

LESS DISTRIBUTIONS:
Net investment income . . . . . (.82) (.86) (.94) (1.01) (1.16) (1.24) (1.28) (1.10) (1.15) (.90)

In excess of net investment
income . . . . . . . . . . . . -- -- (.00) -- -- -- -- -- -- --
------ ------ ------ ------- ------ ------ ------ ------ ------ ------

Total Distributions . . . . . . (.82) (.86) (.94) (1.01) (1.16) (1.24) (1.28) (1.10) (1.15) (.90)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

NET ASSET VALUE,
END OF YEAR . . . . . . . . . . . $21.24 $20.48 $21.45 $21.03 $20.85 $20.49 $20.51 $20.41 $20.46 $21.03
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL RETURN (%) . . . . . . . . . 7.81 (0.54) 6.58 5.85 7.64 6.12 6.95 5.23 2.84 9.32

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets . . . . . . .74 .72 .75 .80 .84 .86 .74 .65 .63 .51
Operating expenses, gross, to
average net assets . . . . . . .74 .72 .75 .80 .84 .86 .74 .65 .63 .78
Net investment income to
average net assets . . . . . . 3.91 4.14 4.40 4.89 5.68 6.06 5.64 5.50 5.20 5.22

Portfolio turnover(a) . . . . . 73.91 71.71 24.05 18.21 129.12 99.00 89.93 67.24 75.73 91.19
Net assets, end of year
($000 omitted) . . . . . . . . . 63,838 48,975 51,211 38,399 26,173 23,553 25,657 38,151 52,348 46,942
Per share amount of fees
reimbursed ($ omitted) . . . . . -- -- -- -- -- -- -- -- -- .0550
</TABLE>
- ---------------
(a) Beginning in 1992, variable rate daily demand securities were excluded
from the turnover calculation.

* See notes to Financial Statements which appear in the Investment Company's
Annual Report to Shareholders and which are incorporated by reference into
the Statement of Additional Information.

13
<PAGE> 116
FINANCIAL HIGHLIGHTS OF THE U.S. GOVERNMENT MONEY MARKET FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The 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. The information
in the table represents the Financial Highlights for the Fund's Class C Shares
for the period shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

U.S. GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------------------------------------------------------------------------------------------------
<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 . . . . .0580 .0380 .0284 .0347 .0573 .0773 .0861 .0693 .0601 .0660
------- -------- ------- ------- ------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS:
Net investment income . . . . (.0580) (.0380) (.0284) (.0347) (.0573) (.0773) (.0861) (.0693) (.0601) (.0660)
------- -------- ------- ------- ------- ------- ------- ------- ------- ------
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) . . . . . . . 5.98 3.87 2.88 3.53 5.90 8.04 8.98 7.15 6.19 6.85

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets . . . . . .32 .57 .49 .41 .38 .41 .42 .33 .31 .32
Operating expenses, gross, to
average net assets . . . . . .51 .57 .49 .41 .38 .41 .42 .33 .31 .32
Net investment income to
average daily net assets . . 5.82 3.91 2.85 3.47 5.74 7.69 8.69 6.94 6.01 6.50

Net assets, end of year
($000 omitted) . . . . . . . . 149,941 112,077 95,410 153,976 182,747 191,623 108,073 131,333 160,921 128,227
Per share amount of fees
waived ($ omitted) . . . . . . .0019 -- -- -- -- -- -- -- -- --
</TABLE>
- ----------------

* See notes to Financial Statements which appear in the Investment Company's
Annual Report to Shareholders and which are incorporated by reference into
the Statement of Additional Information.

14
<PAGE> 117
FINANCIAL HIGHLIGHTS OF THE TAX FREE MONEY MARKET FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand, L.L.P., the Investment Company's
independent accountants. The 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. The information
in the table represents the Financial Highlights for the Fund's Class S Shares
for the period shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand, L.L.P. in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Investment Company.

TAX FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987++
--------------------------------------------------------------------------------------
<S> <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
------- ------- ------- ------- ------- ------- ------- ------- -------

INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... .0370 .0279 .0251 .0304 .0473 .0582 .0623 .0508 .0318
------- ------- ------- ------- ------- ------- ------- ------- -------

LESS DISTRIBUTIONS:
Net investment income.................... (.0370) (.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 $1.0000
======= ======= ======= ======= ======= ======= ======= ======= =======

TOTAL RETURN (%)(a)........................ 3.76 2.83 2.55 3.09 4.84 5.99 6.42 5.24 3.18

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
net assets(b)......................... .48 .40 .43 .45 .45 .45 .45 .43 .22

Operating expenses, gross, to average
net assets(b)......................... .48 .40 .43 .45 .46 .52 .61 .50 .45
Net investment income to
average daily net assets(b)........... 3.69 2.84 2.52 3.03 4.73 5.82 6.28 5.36 4.83
Net assets, end of year ($000 omitted).. 78,000 100,819 68,154 73,203 61,288 59,892 30,873 39,165 22,380
Per share amount of fees waived
($ omitted)............................. -- -- -- -- -- -- -- -- .0008
Per share amount of fees reimbursed
($ omitted)............................. -- -- -- -- .0001 .0007 .0016 .0007 .0015
</TABLE>
- ---------------
++ For the period May 8, 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.

* See notes to Financial Statements which appear in the Investment
Company's Annual Report to Shareholders and which are incorporated by
reference into the Statement of Additional Information.

15
<PAGE> 118
THE PURPOSE OF THE FUNDS

FRANK RUSSELL COMPANY--CONSULTANT TO THE FUNDS

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.

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. Similarly, there are periods when
securities selected for particular characteristics or using particular
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 a
particular Fund investing in one asset class or using a particular style--may
not achieve above-average performance at any given point in the market.

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 or agency capacity with investment authority and which
have entered into Asset Management Services Agreements (collectively, the
"Agreements," and each, an "Agreement") with the Management Company, and
institutions or individuals who have acquired shares through such institutions.
There is no specified minimum amount which must be invested. Institutions which
may have a particular interest in the Funds include:

- Bank trust departments managing
discretionary institutional or personal trust
accounts

- Banks, other than through their trust departments

- Registered investment advisors

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<PAGE> 119
- Endowment funds and charitable foundations
- Employee welfare plans
- Broker-Dealers
- Pension or profit sharing plans
- Insurance companies

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

In the case of the Emerging Markets and Equity T Funds, both of which are
External Fee Funds, 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 Funds. The shareholder investment services
fee may include a fixed-dollar fee for certain specified services. The
shareholder investment services fee is agreed upon by the client and the
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 the Management Company to the client with respect to such assets,
and other factors.

GENERAL MANAGEMENT OF THE FUNDS

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

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

- Loran M. Kaufman, who has been Director-
Fund Development, Frank Russell

-17-
<PAGE> 120
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 the Frank Russell Company.

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

- 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.

- Randal C. Burge, who has been a Senior Investment Officer of
Frank Russell Investment Management Company, since June 1995.
Mr. Burge was a Senior Investment Officer of the Frank Russell
Trust Company from 1990 to 1995. Mr. Burge was a Client
Executive for Frank Russell Company Australia.

- Madelyn Smith, who has been a Senior Investment Strategist for
the Frank Russell Investment Management Company since January
1996. From 1993 to 1995, Ms. Smith was a member of a research
investment strategist for Frank Russell Company. From 1987 to
1993, Ms. Smith was director of Investment Equity Manager
Research of Frank Russell Company.

- Dennis J. Trittin, who has been a Senior Portfolio Manager of
Frank Russell Investment Management Company since January 1996.
From 1988 to 1996, Mr. Trittin was director of US Equity Manager
Research Department with Frank Russell Company.

- C. Nola Williams, who has been a Senior Investment Strategist of
Frank Russell Investment Management Company since January 1996.
From 1994 to 1995, Ms. Williams was a member of the Alpha
Strategy Group. From 1988 to 1994, Ms.Williams was Senior
Research Analyst with Frank Russell Company.

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<PAGE> 121
Real Estate Securities Fund, 0.85%; Emerging Markets Fund, 1.20%; Equity T Fund,
0.75%; 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 for the Real Estate
Securities and Emerging Markets Funds may be higher than fees charged by some
mutual funds with similar objectives which use only a single money manager.

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

Frank Russell Company provides its Portfolio Verification System ("PVS") to the
Real Estate Securities and the Emerging Markets Funds pursuant to a written
Service Agreement. The PVS computerized data base system records detailed
transaction data for the Funds necessary to prepare various financial and
Internal Revenue Service accounting reports. For these services, the Real Estate
Securities Fund pays the following annual fees: base fee, $1,500; transaction
charge, $0.10; and holding charge, $1.80. Annual minimum charges for the Real
Estate Securities Fund are $5,000. For these services, the Emerging Markets Fund
pays the following annual fees: base fee, $14,800; transaction charge, $3.00;
and holding charge, $24.00. Annual minimum charges for the Investment Company's
international Funds in the aggregate are $290,000.

EXPENSES OF THE FUNDS

The Funds, and when appropriate each class, will pay all their expenses other
than those expressly assumed by the Management Company. The Funds' Class S
Shares' expenses for the year ended December 31, 1995, as a percentage of
average net assets, are shown in the Financial Highlights tables. The Equity
T Fund was not offered for public investment during the period, and therefore,
Financial Highlights do not exist for the Fund. Principal expenses are: the
management, transfer agency and recordkeeping fees payable to the Management
Company; fees for custodial and portfolio accounting payable to State Street
Bank and Trust Company; bookkeeping service fees for preparing tax records
payable to Frank Russell Company; fees for independent auditing and legal
services; and fees for filing reports and registering shares with regulatory
bodies.

THE MONEY MANAGERS

The assets of each Fund currently are allocated among the money managers listed
in the section "Money Manager Profiles." THE ALLOCATION OF A FUND'S ASSETS AMONG
MONEY MANAGERS MAY BE CHANGED AT ANY TIME BY THE MANAGEMENT COMPANY. THE 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
INVESTMENT COMPANY. The Funds will notify shareholders of the Fund concerned
within 60 days of when a money manager begins or stops providing services.

From its management fees, the Management Company, as agent for the Investment
Company, pays all fees to the money managers for their investment selection
services. Quarterly, each money manager is paid the pro rata portion of an
annual fee, based on the quarterly average of all the assets allocated to the
money manager. For the period, management fees paid to the money managers were
equivalent to the following annual rates expressed as a percentage of the
average daily net assets of each Fund: Real Estate Securities Fund, .32%;
Emerging Markets Fund, .68%; Limited Volatility Tax Free Fund, .25%; U.S.
Government Money Market Fund, .02%; and Tax Free Money Market Fund, .02%. The
Equity T Fund was not offered to Eligible Investors during the period. Fees paid
to the money managers are not affected by any voluntary or statutory expense
limitations. Some money managers may receive investment research prepared by
Frank Russell Company as additional compensation, or may receive brokerage
commissions for executing portfolio transactions for the Funds through
broker-dealer affiliates.

The Real Estate Securities Fund is managed by Cohen & Steers Capital Management.
The individuals responsible for the management of the Fund and their principal
occupations

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<PAGE> 122
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.

The Equity T Fund is managed by J.P. Morgan Investment Management, Inc. The
individual responsible for the management of the Fund is James C. Weiss, who is
a Vice President and Portfolio Manager in the U.S. Structured Equity area. Mr.
Weiss joined J.P. Morgan Investment Management, Inc. in 1992. Prior to that, Mr.
Weiss was a Stock Index Arbitrageur at Oppenheimer & Company.

The U.S. Government Money Market Fund is managed by Frank Russell Investment
Management Company. The individual responsible for the management of the Fund
and his principal occupation for the past five years is as follows: Peter F.
Apanovitch, who has been Manager of Short-Term Investment Funds for Frank
Russell Investment Management Company and Frank Russell Trust Company since
1991.

The Tax Free Money Market Fund is managed by Weiss, Peck & Greer, L.L.C.
("WPG"). The individual responsible for the management of the Fund for the past
10 years is Janet A. Fiorenza. Ms. Fiorenza, Principal and Senior Portfolio
Manager, has been a member of WPG or its predecessor since 1980.

Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund within the Fund's investment objectives,
restrictions and policies, and the more specific strategies developed by Frank
Russell Company and the Management Company. Although the money managers'
activities are subject to general oversight by the Board of Trustees and
officers of the Investment Company, NEITHER THE BOARD, THE OFFICERS, THE
MANAGEMENT COMPANY NOR FRANK RUSSELL COMPANY EVALUATE THE INVESTMENT MERITS OF
THE MONEY MANAGERS' INDIVIDUAL SECURITY SELECTIONS.

INVESTMENT OBJECTIVES, RESTRICTIONS, POLICIES, AND RISKS

INVESTMENT OBJECTIVES.

Each 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,
each Fund will invest more than 65% of its net assets in the types of securities
identified in its statement of objectives. However, the Funds may hold assets as
cash reserves for temporary and defensive purposes when their money managers
deem that a more conservative approach is desirable or when suitable purchase
opportunities do not exist. (See, "Investment Policies-Cash Reserves.")

REAL ESTATE SECURITIES FUND

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

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

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

In addition to the risks discussed above, equity real estate investment trusts
may be affected by changes in the value of the underlying property owned by the
trust, while mortgage real estate investment trusts may be affected by the
quality of any credit extended. Moreover, the underlying portfolios of equity
and mortgage real estate trusts may not be diversified, and therefore are
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 either to qualify for tax-free pass-through of income under the Internal
Revenue Code or to maintain their exemption from the Investment Company Act of
1940, as amended ("1940 Act").

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<PAGE> 123
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's assets in liquid reserves for
redemption needs.

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, an "emerging market" country will be a
country having an economy and market that are or would be considered by the
World Bank or the United Nations to be emerging or developing. These countries
generally include every country in the world except the United States, Canada,
Japan, Australia and most countries located in Western Europe.

The Fund may 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 market countries. 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 operations 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 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."

EQUITY T FUND

The Equity T Fund's objective is to provide capital growth on an after-tax basis
by investing principally in equity securities.

The Fund may invest in common and preferred stocks, rights and warrants, and
securities convertible into common stocks. Generally, the Fund seeks to invest
primarily in domestic equity securities that the Fund's money manager believes
to be undervalued on a long-term basis.

Additionally, to maintain full exposure to the equity markets, the Fund may
purchase S&P 500 Index futures contracts, which may be considered to be
derivative securities, with respect to Fund assets that are held in cash.

The majority of stock mutual funds are managed to maximize pre-tax total return,
without regard to the tax consequences to shareholders of portfolio activity
that may result in taxable distributions. In contrast, the Fund seeks to achieve
its investment objective while minimizing the impact of taxes on shareholders'
returns in connection with the Fund's portfolio investment income and realized
capital gains.

The Fund is designed for taxable investors who seek to minimize the impact of
taxes on their investment returns by participating on a long-term basis in a
broadly-diversified investment portfolio of equity securities. The Fund is not

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<PAGE> 124
recommended for either short-term investors, or for investor assets that are
already tax-deferred (such as IRAs and 401(k) plans).

In pursuing the Fund's objective, the money manager utilizes distinct investment
strategies and tax-efficient management techniques in an effort to minimize the
impact of taxes on the Fund's shareholders:

The money manager will seek to reduce taxable dividend income by purchasing,
whenever practicable, common stocks of companies that are considered to be
high-quality, with attractive long-term investment prospects, but which may be
lower yielding.

The Fund will seek to maximize unrealized capital gains, which, under normal
market circumstances, is expected to result in relatively low annual portfolio
turnover rate. The Fund will attempt to limit short-term capital gains, and to
minimize the realization of long-term capital gains and subsequent distribution
of such gains, to shareholders. While the Fund is free to sell securities in its
portfolio whenever the money manager deems it appropriate, the Fund will
typically buy stocks with the intention of holding them for a period of time in
order to qualify for the more favorable tax treatment (i.e.) on a long-term
capital gain. Most equity securities will be acquired with the expectation of
being held for a period of years.

The Fund will generally seek to avoid realizing short-term capital gains. When
the money manager decides to sell a particular appreciated security, the manager
will select for sale those share lots with holding periods sufficient to qualify
for long-term capital gains treatment and among those, the share lots with the
highest cost basis to minimize capital gains. When prudent, the money manager
will sell securities in order to realize capital losses, which can be used to
offset realized capital gains, thereby reducing capital gains distributions to
Fund shareholders.

The Fund intends to remain as fully invested as possible, in order to enhance
the potential for attractive total returns. While the Fund is permitted to
invest its cash reserves in money market instruments, US government securities
and high-quality debt securities, the money manager will seek to be fully
invested in equity securities.

A redemption fee equal to 1% of the value of the Shares redeemed is retained by
the Fund from all redemptions other than redemptions-in-kind. This fee is
intended to offset the potentially negative impact that redemptions can have on
the Fund's portfolio strategy and to contain costs. The redemption fee will
indirectly help to offset tax costs that investors bear when the Fund is forced
to realize capital gains as a result of shareholder redemptions or investment
activity. By being paid directly to the Fund, the fees tend to be advantageous
to long-term investors and disadvantageous to short-term investors. No
redemption fee will be imposed upon redemptions-in-kind, since such
redemptions do not result in tax costs to other investors in the Fund. A
shareholder of the Fund may elect to redeem any or all of his Fund shares in
kind.

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 net assets in municipal obligations.

The Fund will invest principally in municipal obligations which, at the time of
purchase, are rated no less than A or A-2 by Standard & Poor's Ratings Group
("S&P"); A, Prime-2 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"); 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 15% 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 obligations is readjusted
periodically according to some objective standard such as changes in a
commercial bank's prime rate.)

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

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<PAGE> 125
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 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 objective
and may submit possible changes in the structure of the Fund to its
shareholders.

U.S. GOVERNMENT MONEY MARKET FUND

The U.S. Government Money Market Fund's objective is 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 Fund may purchase include: (1) a
variety of US Treasury obligations, which differ only in their interest rates,
maturities and times of issuance: (a) US Treasury bills 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 and supported by any of the following: (a) the full faith and
credit of the US Treasury (such as Government National Mortgage Association
participation certificates); (b) the right of the issuer to borrow an amount
limited to a specific line of credit from the US Treasury; (c) discretionary
authority of the US government agency or instrumentality; or (d) the credit of
the instrumentality (examples of agencies and instrumentalities are Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks and Federal National Mortgage
Association). No assurance can be given that the US government will provide
financial support to such US government agencies or instrumentalities described
in (2)(b), (2)(c) and (2)(d) in the future, other than as set forth above, since
it is not obligated to do so by law. The Fund may purchase US government
obligations on a forward commitment basis.

TAX FREE MONEY MARKET FUND

The Tax Free Money Market Fund's objective is 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 Investment Company'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 in which the Fund may invest are described under "Limited
Volatility Tax Free Fund." 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."

U.S. Government Money Market and Tax Free Money Market Funds. The U.S.
Government Money Market and Tax Free Money Market Funds (collectively, the
"Money Market

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<PAGE> 126
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
is not subject to this restriction or to restrictions 2 or 3.

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

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

4. Borrow amounts in excess of 5% of its total assets taken at cost or at
market value, whichever is lower, and then only for temporary purposes;
invest more than 5% of its assets in securities of issuers which,
together with any predecessor, have been in operation for less than
three years; or invest more than 5% of its assets in warrants.
(Currently, no Fund intends to borrow in excess of 5% of its net
assets.)

INVESTMENT POLICIES.

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

Cash Reserves. The Real Estate Securities, Emerging Markets, Equity T and
Limited Volatility Tax Free Funds are authorized to invest their cash reserves
(i.e., funds awaiting investment in the specific types of securities to be
acquired by a Fund) in money market instruments and in debt securities which are
at least comparable in quality to each Fund's permitted investments. In lieu of
having each Fund make separate, direct investments in money market instruments,
the Funds and their money managers may elect to invest the Funds' cash reserves
in the Investment Company's Money Market Fund.

The Investment Company's Money Market Fund, described in a separate prospectus,
seeks to maximize current income to the extent consistent with the preservation
of capital and liquidity, and the maintenance of a stable $1.00 per share net
asset value by investing solely in short-term money market instruments. The
Management Company currently does not collect a management or advisory fee from
the Investment Company's 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 Investment
Company's Money Market Fund and the Investment Company's other Funds.

Repurchase Agreements. Each Fund may enter into repurchase agreements with a
bank or broker-dealer that agrees to repurchase the securities at the Fund's
cost plus interest within a specified time (normally the next business day). If
the party agreeing to repurchase should default and if the value of the
securities held by the Fund (102% at the time of agreement) should fall below
the repurchase price, the Fund could incur a loss. Subject to the overall
limitations described in "Investment Policies - Illiquid Securities," a Fund
will not invest more than 15% of its net assets (taken at current market value)
in repurchase agreements maturing in more than seven days. The Money Market
Funds will not invest more than 10% of their respective net assets (taken at
current market value) in repurchase agreements and other illiquid securities
maturing in more than seven days.

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<PAGE> 127
transactions, cash or liquid high-grade debt obligations of the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund's records at the trade date and maintained until
the transaction is settled.

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

Lending Portfolio Securities. The Real Estate Securities, the Emerging Markets,
the Equity T and the U.S. Government Money Market Funds may lend portfolio
securities with a value of up to 50% of each Fund's total assets. Such loans may
be terminated at any time. A Fund will receive either cash (and agree to pay a
"rebate" interest rate), US government or US government agency securities as
collateral in an amount equal to at least 100% of the current market value of
the loaned securities plus accrued interest. The collateral is
"marked-to-market" on a daily basis, and the borrower will furnish additional
collateral in the event that the value of the collateral drops below 100% of the
market value of the loaned securities.

Cash collateral is invested in high-quality short-term instruments, short-term
bank collective investments and money market mutual funds (including funds
advised by State Street Bank and Trust Company, 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.

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

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

Investment in Foreign Securities. The Funds, other than the Money Market 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

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<PAGE> 128
financial reporting standards or other regulatory practices and requirements
comparable to those applicable to domestic companies. The values of foreign
investments are affected by changes in currency rates or exchange control
regulations, application of foreign tax laws, including withholding taxes,
changes in governmental administration or economic or monetary policy (in the
United States or abroad) or changed circumstances in dealings between nations.
Costs are often incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions are generally higher than
in the United States, and foreign securities markets may be less liquid, more
volatile and less subject to governmental supervision than in the United States.
Investments in foreign countries could be affected by other factors not present
in the United States, including nationalization, expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations, and could be subject to
extended settlement periods or restrictions affecting the prompt return of
capital to the United States.

The risks associated with investing in foreign securities are often heightened
for investments in developing or emerging markets.

Investments in emerging or developing markets involve exposure to economic
structures that are generally less diverse and mature,

and to political systems which can be expected to have less stability than those
of more developed countries. Moreover, the economies of individual emerging
market countries may differ favorably or unfavorably from the US economy in such
respects as the rate of growth in gross domestic product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. Because each Fund's foreign securities will generally be denominated
in foreign currencies, the value of such securities to the Fund will be affected
by changes in currency exchange rates and in exchange control regulations. A
change in the value of a foreign currency against the US dollar will result in a
corresponding change in the US dollar value of a Fund's foreign securities. In
addition, some emerging market countries may have fixed or managed currencies
which are not free-floating against the US dollar. Further, certain emerging
market currencies may not be internationally traded. Certain of these currencies
have experienced a steady devaluation relative to the US dollar. Many emerging
market 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
Emerging Markets Fund 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 the Fund enters into the contract. The Emerging
Markets Fund may engage in forward currency contracts that involve 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
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 commitments with respect to these
contracts.

Upon maturity of a forward currency contract, the Emerging Markets Fund may (a)
pay for and receive, or deliver and be paid for, the underlying currency, (b)
negotiate with the dealer to roll over the contract into a new forward currency
contract with a new future settlement date or (c) negotiate with the dealer to
terminate the forward currency contract by entering into an offset with the
currency trader whereby the parties agree to pay for and receive the difference
between the exchange rate fixed in the contract and the then current

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<PAGE> 129
exchange rate. The Fund also may be able to negotiate such an offset prior to
maturity of the original forward currency contract. There can be no assurance
that new forward currency 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 Emerging Markets 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 Emerging Markets Fund's ability to
hedge against the risk of devaluation of currencies in which the Fund holds a
substantial quantity of securities and are unrelated to the qualitative rating
that may be assigned to any particular portfolio security. Where available, the
successful use of forward currency contracts draws upon a money manager's
special skills and experience with respect to such instruments and usually
depends on the money manager's ability to forecast interest rate and currency
exchange rate movements correctly. Should interest or exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated benefits of forward
currency contracts or may realize losses and thus be in a worse position than if
such strategies had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price fluctuation limits
with respect to forward currency contracts, and adverse market movements could
therefore continue to an unlimited extent over a period of time. In addition,
the correlation between movements in the prices of such instruments and
movements in the price of the securities and currencies hedged or used for cover
will not be perfect. In the case of proxy hedging, there is also a risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time the Fund is engaged in that strategy.

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

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

A Fund may 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.

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

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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.

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 Securities," above.)

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

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

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

Futures Contracts and Options on Futures Contracts. The Real Estate
Securities, the Emerging Markets, the Equity T and the Limited Volatility
Tax Free Funds may invest in interest rate futures contracts, stock index
futures contracts and foreign currency futures contracts and options
thereon that are traded on a United States or foreign exchange or board of
trade.

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

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

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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.

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, with the exception of the Emerging Markets 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 managers 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 and BBB,
respectively, to have some speculative characteristics. The Funds, other than
the Emerging Markets Fund, will dispose of, in a prudent and orderly fashion,
securities whose ratings drop below these minimum ratings. The market value of
debt securities generally varies inversely in relation to interests rates.

The Emerging Markets Fund 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.
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 Emerging Markets
Fund's money managers will seek to reduce the 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 Statement of Additional Information.

Credit and Liquidity Enhancements. The Money Market Funds may invest in
securities supported by credit and liquidity enhancements from third parties,
generally letters of credit from foreign or domestic banks. Adverse changes in
the credit quality of these institutions could cause losses to Money Market
Funds that invest in these securities and may affect their share prices.

PORTFOLIO TRANSACTION POLICIES

Decisions to buy and sell securities are made by the money managers for the
assets assigned to them, and by the Management Company as to other assets. 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, and the Equity T Fund seeks to minimize the impact of
taxes on the Fund's shareholders' returns. The money managers make decisions to
buy or sell securities independently from other managers. Thus, one money
manager for a Fund could be selling a security when another money manager for
the same Fund (or for another series of the Investment Company) is purchasing
the same security. In addition, when a money manager's services are terminated
and another retained, the new manager may significantly restructure the
portfolio. These practices may increase the Funds' portfolio turnover

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<PAGE> 132

rates, realization of gains or losses, brokerage commissions and other
transactions based costs. The strategy of minimizing the impact of taxes on
shareholders' investment returns and avoiding the recognition of capital gains
may constrain the ability of the Management Company to change money managers of
the Equity T Fund. The annual portfolio turnover rates for the Funds (other than
the Equity T Fund, which was not offered during the periods, and the Money
Market Funds) are shown in the Financial Highlights tables.

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

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS.

The Board of Trustees presently intends to declare dividends from net investment
income and (for the 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 business day of following month U.S. Government Money Market and Tax Free
Money Market Funds

Monthly Early in the following month Limited Volatility Tax Free Fund

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

Annually Mid-December Emerging Markets and Equity T Funds

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

CAPITAL GAINS DISTRIBUTIONS.

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be aware that all shareholders will share in and be taxed on distributions of
gain realized by a Fund on the sale of securities that have increased in value.

AUTOMATIC REINVESTMENT.

TAXES

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

While the Equity T Fund is managed to minimize the amount of capital gains
realized during a particular year, the realization of capital gains is not
entirely within the Fund's or the money manager's control, and is impacted by
shareholder purchase and redemption activity as well as by the performance of
securities in which the Funds invest. Capital gains distributions by the
Equity T Fund may vary considerably from year to year.

For corporate investors, dividends from net investment income paid by the Real
Estate Securities or Equity T 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 such a
Fund from domestic (US) sources. Certain holding period and debt financing
restrictions may apply to corporate investors seeking to claim 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). Except for shareholders of the Limited Volatility
Tax Free or Tax Free Money 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. Any loss incurred on sale or exchange of a Fund's shares, held for
six months or less, will be treated as long-term capital loss to the extent of
capital gain dividends received with respect to such shares. For shareholders of
the Limited Volatility Tax Free or Tax Free Money Funds, any loss incurred on
sale or exchange of such a Fund's shares, held for six months or less, will be
disallowed to the extent of exempt-interest dividends paid with respect to such
shares, and any loss not so disallowed will be treated as a long-term capital
loss to the extent of capital gain dividends received with respect to such
shares.

The Emerging Markets Fund will receive dividends and interest paid by non-US
issuers which will frequently be subject to withholding taxes by non-US
governments. The Management Company expects the Emerging Markets 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 its 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 Fund's taxable shareholders must
include their pro rata portion of the taxes withheld in their gross income for
federal income tax purposes.

-31-
<PAGE> 134
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 of the Emerging Markets Fund should also be aware that for federal
income tax purposes, foreign exchange losses realized by the Fund are treated as
ordinary losses. This treatment may have the effect of reducing the Fund's
income available for distribution to shareholders.

The 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,
to the extent dividends are derived from taxable income from temporary
investments, short-term capital gains, or income derived from the sale of bonds
purchased with market discount after April 30, 1993, they are treated as
ordinary income, whether paid in cash or reinvested in additional shares. The
Limited Volatility Tax Free and Tax Free Money Market Funds do not intend to
purchase any municipal obligations required, in the opinion of bond counsel, to
be treated as a tax preference item by shareholders when determining their
alternative minimum tax liability. Exempt income paid by the Funds is includable
in the tax base for determining the extent to which a shareholder's Social
Security or railroad retirement benefits will be subject to federal income tax.
Shareholders are required to disclose their receipt of tax-exempt interest on
their federal income tax returns. The 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 the dividends paid by
either Fund as tax free. Such persons should consult their tax advisers before
purchasing shares of the Limited Volatility Tax Free or Tax Free Money Market
Funds.

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

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

Shareholders who are not US persons for purposes of federal income taxation
should consult with their tax advisers regarding the applicability of income,
estate or other taxes (including income tax withholding) on their investment in
a Fund or on dividends and distributions received by them from a Fund and the
application of foreign tax laws.

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

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<PAGE> 135
CALCULATION OF FUND PERFORMANCE

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
5 YEARS ENDED 10 YEARS ENDED INCEPTION TO
1 YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1995 DECEMBER 31, 1995 INCEPTION
DECEMBER 31, 1995 (ANNUALIZED) (ANNUALIZED) (ANNUALIZED) DATE
----------------- ------------ ------------ ------------ ----
<S> <C> <C> <C> <C> <C>
Real Estate Securities 10.87% 17.55% --% 10.13% 07/28/89
Emerging Markets* (8.21) -- -- 7.23 01/29/93
Limited Volatility Tax Free 7.81 5.42 5.74 5.78 09/05/85
U.S. Government Money Market 5.98 4.42 5.92 5.97 09/05/85
Tax Free Money Market 3.76 3.41 -- 4.37 05/08/87

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

* The performance for the Emerging Markets Fund prior to April 1, 1995 is
reported gross of investment advisory fees. For periods thereafter,
performance results are reported net of investment advisory fees, but
gross of any investment services fees. Descriptions of these services
can be obtained from the investment manager upon request.

The Limited Volatility Tax Free Fund also may from time to time advertise its
yield. Yield, which is based on historical earnings and is not intended to
indicate future performance, is calculated by dividing the net investment income
per share earned during the most recent 30-day (or one month) period by the
maximum offering price per share on the last day of the month. This income is
then annualized. That is, the amount of income generated by the investment
during that 30-day (or one month) period is assumed to be generated each month
over a 12-month period and is shown as a percentage of the investment. For
purposes of the yield calculation, interest income is computed based on the
yield to maturity of each debt obligation and dividend income is computed based
upon the stated dividend rate of each security in the Fund's portfolio. The
calculation includes all recurring fees that are charged to all shareholder
accounts. The 30-day yield for the year ended December 31, 1995 for the shares
of Limited Volatility Tax Free Fund was 3.90%.

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 shares of the Fund for the year
ended December 31, 1995, based on a tax rate of 39.6%, was 6.46%.

The Money Market Funds also may advertise their yields and effective yields.
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The 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,

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<PAGE> 136
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 a Money
Market 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 shares of
the Money Market Funds during 1995 for the seven-day (and thirty-day, in the
case of Tax Free Money Market) periods ended:

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<PAGE> 137
<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 5.80% 5.97% 5.98% 6.16% 5.77% 5.93% 5.76% 5.93%

Tax Free Money Market
7 day period 3.97% 4.05% 3.93% 4.01% 3.71% 3.78% 4.10% 4.18%

Tax Free Money Market
30 day period 3.83% 3.90% 3.66% 3.72% 3.57% 3.63% 3.74% 3.80%
- ------------------------------------------------------------------------------------------------------------------------------------
</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 for shares of
the Tax Free Money Market Fund, based on a tax rate of 39.6%, during 1995 for
the seven-day and thirty-day periods ended:

<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
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
7 day period 6.57% 6.71% 6.51% 6.64% 6.15% 6.25% 6.78% 6.92%

Tax Free Money Market
30 day period 6.35% 6.46% 6.06% 6.17% 5.92% 6.02% 6.19% 6.29%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Each Fund may also advertise non-standardized performance information that 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 shares of each class of each
Fund on each business day on which shares are offered or orders to redeem are
tendered. (Unless otherwise indicated, "shares" refers to the Class S Shares of
the Funds.) For the Real Estate Securities, the Emerging Markets, the Equity T
and the Limited Volatility Tax Free Funds, a business day is one on which the
New York Stock Exchange is open for trading. A business day for the Money Market
Funds includes any day on which the New York Stock Exchange is open for trading
and the Boston Federal Reserve Bank is open. Net asset value per share is
computed for a Fund's Class S Shares by dividing the current value of the
Fund's assets attributable to the Class S Shares, less liabilities attributable
to the Class S Shares, by the number of Class S Shares of the Fund outstanding,
and rounding to the nearest cent. All Funds determine net asset value as of the
close of the regular session of the New York Stock Exchange (currently 4:00 p.m.
Eastern time). The U.S. Government Money Market Fund also determines its net
asset value as of 1:00 p.m. Eastern time, and the Tax Free Money Market Fund as
of 12:00 noon Eastern time.

VALUATION OF PORTFOLIO SECURITIES.

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<PAGE> 138
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 the last sale price.

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

The municipal investments of the 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

ORDER PROCEDURES. Orders by all investors (except for participants in the Three
Day Settlement Program described below) to purchase Investment Company Fund
shares must be received by the 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:

-36-
<PAGE> 139
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Close of the New York Stock Exchange Real Estate Securities, Emerging Markets, Equity T and Limited Volatility Tax
(currently 4:00 p.m. Eastern time) Free Funds

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

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

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Orders for the Money Market Funds' shares placed prior to the above time and in
the proper form can be accepted for pricing and investment, and will begin to
earn income, on that day. Money Market Fund orders received after that time will
not be accepted for pricing and investment until the next business day. Orders
for shares of any Fund that are not accepted before the respective time for that
Fund can not be invested in the particular Fund nor begin to earn income until
the next day on which shares of that Fund are offered.

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

Check. Payment for orders may be made by check or other negotiable bank draft
payable to "Frank Russell Investment Company" and mailed to the Transfer Agent,
P.O. Box 1591, Tacoma, WA 98401-1591. Certified checks are not necessary, but
checks are accepted subject to collection at full face value in US funds and
must be drawn in US dollars on a US bank. Investments in the Money Market Funds
will be effected only when the check or draft is converted to federal funds. The
investment will not begin to earn dividend income until the receipt of federal
funds by the relevant Fund. Investments in the non-Money Market Funds will be
effected upon receipt of the check or draft by 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.

A shareholder of the Equity T Fund may elect to receive all or a portion of
redemption proceeds for that Fund in kind. No redemption fee will be imposed
upon such in kind redemptions.

THREE DAY SETTLEMENT PROGRAM.

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

Investors purchasing Fund shares through a program of services offered by a
Financial Intermediary, such as a bank, broker-dealer, investment advisor or
others, may be required to pay additional fees by such Intermediary. Investors
should

-37-
<PAGE> 140
contact the Financial Intermediary for information concerning what additional
fees, if any, may be charged.

EXCHANGE PRIVILEGE.

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

An exchange is a redemption of shares and is treated as a sale for income tax
purposes, and a short or long-term capital gain or loss may be realized. The
Fund shares to be acquired will be purchased when the proceeds from the
redemption become available (up to seven days from the receipt of the request).
Each investor is encouraged to consult with his or her tax adviser. Exchanges
from Equity T Fund will be considered to be redemptions and will be subject to a
redemption fee. (See "Redemption of Fund Shares" in this Prospectus).

REDEMPTION OF FUND SHARES.

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

For each Fund, 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. In the case of the Equity T Fund, a redemption fee,
calculcated as a 1% discount of net asset value of the shares redeemed will be
imposed. The redemption fee is retained by the Equity T Fund. The redemption fee
will not be imposed on redemptions-in-kind, which may be elected at the
discretion of a shareholder. See "Investment Objectives,
Restrictions and Policies-Equity T Fund" in this Prospectus for more
information. As with the other Funds, shares of the Equity T Fund may be
redeemed on any business day after the receipt of a redemption requests in
proper form, described below.

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

-38-
<PAGE> 141
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Close of the New York Stock Exchange Real Estate Securities, Emerging Markets, Equity T and Limited Volatility Tax
(currently 4:00 p.m. Eastern time) Free Funds

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

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

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

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. For all Funds the
redemption price will be the net asset value next determined after receipt by
the Management Company of all required documents in good order. In the case of
the Equity T Fund, a redemption fee of 1% will be deducted from the amount of
your redemption. "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.
In view of its investment objective and management strategies, shareholders of
the Equity T Fund are not able to participate in the SWP program.

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

Distribution Frequency. Payments can be scheduled as monthly, quarterly,
semiannual or annual distributions.

SWP Distribution by Wire. Federal Funds Wire payments will be sent to designated
bank on the payment date.

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

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 Fund's
portfolio, in lieu of cash. An Equity T Fund shareholder may elect to receive
all or a portion of a redemption of that Fund's shares in kind. No redemption
fee will be imposed upon such in kind redemptions. Investors will incur
brokerage charges on the sale of these portfolio securities. The Funds reserve
the right to suspend the right of redemption or postpone the date of payment if
any unlikely emergency conditions, as specified in the 1940 Act or determined by
the SEC, should develop.

-39-
<PAGE> 142

ADDITIONAL INFORMATION
DISTRIBUTOR, CUSTODIAN, INDEPENDENT ACCOUNTANTS, AND REPORTS.

ORGANIZATION, CAPITALIZATION, AND VOTING.

In addition to offering Class S Shares, the Emerging Markets and the Real Estate
Securities Funds also offer beneficial interests in Class C Shares, which are
described in a separate prospectus relating to that class. Class C Shares of the
Emerging Markets and Real Estate Securities Funds are designed to meet different
investor needs and are subject to a Rule 12b-1 distribution fee and to a
shareholder servicing fee, which may effect the performance of the Class C
Shares. To obtain more information concerning Class C Shares, contact the
Financial Intermediary from whom you obtained this prospectus or write to the
Secretary, Frank Russell Investment Company, at the address listed on the cover
of this Prospectus, or call (800) 972-0700.

The Trustees hold office for the life of the Investment Company. 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 April 30, 1996, the following shareholders may be deemed by the 1940 Act 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 identified below have no other affiliations with the Funds or
with Frank Russell Company. Each money manager has been in business for at least
three years and is principally engaged in managing institutional investment
accounts. These managers may also serve as managers or advisers to other
Investment Company Funds, or to other clients of Frank Russell Company,
including its wholly owned subsidiary, Frank Russell Trust Company.

REAL ESTATE SECURITIES FUND

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

-40-
<PAGE> 143
EMERGING MARKETS FUND

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%.

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.

Montgomery Asset Management L.P., 600 Montgomery Street, 17th Floor, San
Francisco, CA 94111, is a California limited partnership and a registered
investment adviser. 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.

EQUITY T FUND

J.P. Morgan Investment Management, Inc. See: Emerging Markets Fund.

LIMITED VOLATILITY TAX FREE FUND

MFS Asset Management, Inc., 500 Boylston Street, Boston, MA 02116, is a wholly
owned, indirect 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, is
publicly traded, and a large portion of its stock is held by active employees.

U.S. GOVERNMENT MONEY MARKET FUND

Frank Russell Investment Management Company, 909 A Street, Tacoma, WA 98402, is
a registered investment adviser wholly owned by Frank Russell Company.

TAX FREE MONEY MARKET FUND

Weiss, Peck & Greer, L.L.C., One New York Plaza, 30th Floor, New York, NY 10004,
is a registered investment adviser which is wholly owned by its principals.

-41-
<PAGE> 144
FRANK RUSSELL INVESTMENT COMPANY
909 A STREET
TACOMA, WASHINGTON 98402
TELEPHONE (800) 972-0700
IN WASHINGTON, (206) 627-7001

MONEY MANAGERS

REAL ESTATE SECURITIES FUND
Cohen & Steers Capital Management

EMERGING MARKETS FUND
Genesis Asset Managers, Ltd.
J.P. Morgan Investment Management, Inc.
Montgomery Asset Management, L.P.

EQUITY T FUND
J.P. Morgan Investment Management, Inc.

LIMITED VOLATILITY TAX FREE FUND
MFS Asset Management, Inc.
T. Rowe Price Associates, Inc.

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

TAX FREE MONEY MARKET FUND
Weiss, Peck & Greer, L.L.C.

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, LLP
2600 - One Commerce Square
Philadelphia, PA 19103-7098

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

-42-
<PAGE> 145

SUBJECT TO COMPLETION Dated May 7, 1996.

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

PROSPECTUS

[CLASS C SHARES]

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

Diversified Equity Fund Emerging Markets Fund

Special Growth Fund Real Estate Securities Fund

Equity Income Fund Diversified Bond Fund

Quantitative Equity Fund Volatility Constrained Bond Fund

International Securities Fund Multistrategy Bond Fund

ALL CLASSES OF SHARES OF THE FUNDS ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (THE "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.

This Prospectus sets forth concisely information about the Investment Company
and the Class C Shares of ten of its Funds that a prospective investor ought to
know before investing. The Investment Company has filed a Statement of
Additional Information dated July __, 1996, 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.

This Prospectus relates only to the Class C Shares of the ten Funds. The Funds
also offer shares of beneficial interest in another class of shares, the Class S
Shares, through separate prospectuses. For more information concerning Class S
Shares of a Fund, contact the person or organization from which you obtained
this Prospectus, or write to the Secretary, Frank Russell Investment Company, at
the address shown above, or telephone (800) 972-0700.

PROSPECTUS DATED JULY __, 1996

<PAGE> 146
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.

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

EMERGING MARKETS FUND--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.

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.

This Prospectus describes and offers Class C Shares of nine Internal Fee Funds
and of the Emerging Markets Fund, which is an External Fee Fund. Three
additional prospectuses describe and offer, respectively, Class S Shares of:
nine External Fee Funds; eight Internal Fee Funds; and four Internal Fee Funds
and two External Fee Funds. The principal distinction between the External and
the Internal Fee Funds is that a shareholder of an External Fee Fund may pay a
quarterly shareholder investment services fee directly to the Management
Company. The 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 $8.9 billion on
April 30, 1996. The net assets of these ten Funds on April 30, 1996, were:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diversified Equity $577,931,555 Emerging Markets $224,128,123

Special Growth $350,341,011 Real Estate Securities $318,828,870

Equity Income $186,614,025 Diversified Bond $509,958,358

Quantitative Equity $540,085,935 Volatility Constrained Bond $168,731,410

International Multistrategy Bond $240,888,854
Securities $690,786,268
- ---------------------------------------------------------------------------------------------
</TABLE>

-2-
<PAGE> 147
HIGHLIGHTS AND TABLE OF CONTENTS

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

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

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

EXPENSES OF THE FUNDS are borne by the Funds. Each Fund pays a management fee to
the Management Company, its expenses and its portion of the general expenses of
the Investment Company. The Management Company, as agent for the Fund, pays from
its fees, the investment advisory fees of the Money Managers of the Fund. The
remainder of the fee is retained by the Management Company, for conducting the
Fund's general operations and for providing investment supervision for the Fund.
Each Eligible Investor may pay to the Management Company directly a fee for
other services provided to that Eligible Investor. PAGE ___.

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

DIVIDENDS AND DISTRIBUTIONS may be reinvested in additional shares or received
in cash. Dividends from net investment income are declared Monthly, by the
Diversified Bond, Volatility Constrained Bond and Multistrategy Bond Funds;
Quarterly, by the Diversified Equity, Special Growth, Equity Income,
Quantitative Equity and Real Estate Securities Funds; and Annually, by

-3-
<PAGE> 148
International Securities and Emerging Markets Funds. All Funds declare
distributions from net realized capital gains, if any, at least annually.
PAGE ___.

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

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

VALUATION OF FUND SHARES occurs each business day. The value of a Class C share
purchased or redeemed is based upon the next computed current market value of
the assets, less liabilities, of each Class C Fund. Unless otherwise indicated,
"shares" in this Prospectus refers to the Class C Shares of the Funds. PAGE ___.

PURCHASE OF FUND SHARES may be accomplished on each business day that shares
are offered. The shares are subject to a Rule 12b-1 distribution fee, and to a
shareholder services fee. PAGE ___.

REDEMPTION OF FUND SHARES may be requested on any business day. There is no
redemption charge. The redemption price is determined by the net asset value
next computed after receipt of the redemption request. The Funds reserve the
right to redeem in kind that portion of a redemption request which is in excess
of $250,000. PAGE ___.

THE FUNDS also offer a second class of shares, the Class S Shares, which are
designed to meet different investor needs. PAGE ___.

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

-4-
<PAGE> 149
ANNUAL FUND OPERATING EXPENSES OF THE CLASS C SHARES OF THE DIVERSIFIED EQUITY
FUND

The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Class C Shares of the
Fund will bear directly or indirectly. The examples 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>
<CAPTION>
<S> <C>
CLASS C SHARES 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 CLASS C SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................................ .78%
12b-1 Fees(1)(2).......................................................................... .40
Other Expenses:
Custodian Fees.............................................................. .09%
Transfer Agent Fees......................................................... .06
Other Fees(2) (including Shareholder Servicing fee of up to 0.25%)(3)....... .35%
----
Total Other Expenses................................................................ .50
------
Total Class C Shares Operating Expenses+.................................................. 1.68%
======
</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................ $17 $53 $91 $199
=== === === ====
</TABLE>

(1) For purposes of this table, "12b-1 Fees" are comprised of an asset-based
sales charge of up to 0.75% of average daily net assets, or such lesser
amount as the Trustees may determine from time to time, of Class C Shares
of the Fund. Currently, the Trustees have limited 12b-1 Fee payments to
0.40% of average daily net assets. The 12b-1 Fee payments may be increased
only when the Trustees believe it is in the best interests of the
shareholders of Class C Shares to do so. Long-term shareholders of the
Class C Shares of the Diversified Equity Fund may pay more in Rule 12b-1
fees than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

(2) Other expenses and 12b-1 fees are based on estimated amounts for the current
year since there were no Class C operations prior to the date of this
Prospectus.

(3) For purposes of this table, "Other Fees" includes a shareholder servicing
fee of up to 0.25% of the average daily net assets of the Fund's Class C
Shares. The Investment Company may make payments to the distributor or any
investment advisers, banks, broker-dealers, financial planners or other
financial institutions ("Servicing Agents") for any activities or expenses
primarily intended to assist, support or service the Servicing Agents'
clients who beneficially own Class C Shares of the Fund.

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

-5-
<PAGE> 150
ANNUAL FUND OPERATING EXPENSES OF THE CLASS C SHARES OF THE SPECIAL GROWTH FUND

<TABLE>
<S> <C>
CLASS C SHARES 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 CLASS C SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................................ .95%
12b-1 Fees(1)............................................................................. .40
Other Expenses:
Custodian Fees.............................................................. .15%
Transfer Agent Fees......................................................... .10
Other Fees(2)(3) (including a shareholder servicing fee of
up to 0.25%) ............................................................... .36%
---
Total Other Expenses................................................................ .61
------
Total Class C Shares Operating Expenses+................................................... 1.96%
======
</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................ $ 20 $ 62 $106 $229
===== ===== ===== =====
</TABLE>

(1) For purposes of this table, "12b-1 Fees" are comprised of an asset-based
sales charge of up to 0.75% of average daily net assets, or such lesser
amount as the Trustees may determine from time to time, of Class C Shares of
the Fund. Currently, the Trustees have limited the Fund's Class C 12b-1
Fee payments to 0.40% of average daily net assets. The 12b-1 Fee payments
may be increased only when the Trustees believe it is in the best interests
of the shareholders of Class C Shares to do so. Long-term shareholders of
the Class C shares of the Special Growth Fund may pay more in Rule 12b-1
fees than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

(2) "Other expenses" and 12b-1 Fees are based on estimated amounts for the
current year since there was no Class C operations prior to the
date of this Prospectus.

-6-
<PAGE> 151
ANNUAL FUND OPERATING EXPENSES OF THE CLASS C SHARES OF THE EQUITY INCOME FUND

ANNUAL CLASS C SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................................ .80%
12b-1 Fees(1)(2).......................................................................... .40
Other Expenses:
Custodian Fees.............................................................. .15%
Transfer Agent Fees......................................................... .12%
Other Fees(2)(3)
(including a shareholder servicing fee of up to 0.25%)..................... .37%
---
Total Other Expenses................................................................ .64
------
Total Class C Shares Operating Expenses+,,,,,,,........................................... 1.84%
======
</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................ $ 19 $ 58 $100 $216
===== ===== ===== =====
</TABLE>

(1) For purposes of this table, "12b-1 Fees" are comprised of an asset-based
sales charge of up to 0.75% of average daily net assets, or such lesser
amount as the Trustees may determine from time to time, of Class C Shares of
the Fund. Currently, the Trustees have limited the Fund's Class C 12b-1 Fee
payments to 0.40% of average daily net assets. The 12b-1 Fee payments may be
increased only when the Trustees believe it is in the best interests of
shareholders of the Class C Shares to do so. Long-term shareholders of the
Class C shares of the Equity Income Fund may pay more in Rule 12b-1 fees
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

(2) "Other expenses" and 12b-1 Fees are based on estimated amounts for the
current year since there was no Class C operations prior to the
date of this prospectus.

-7-
<PAGE> 152
ANNUAL FUND OPERATING EXPENSES OF THE CLASS C SHARES OF THE QUANTITATIVE EQUITY
FUND

ANNUAL CLASS C SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................................ .78%
12b-1 Fees(1)(2).......................................................................... .40
Other Expenses:
Custodian Fees.............................................................. .09%
Transfer Agent Fees......................................................... .06%
Other Fees(2)(3)
(including a shareholder servicing fee of up to 0.25%)...................... .35%
----
Total Other Expenses................................................................ .50
------
Total Class C Shares Operating Expenses+ ................................................. 1.68%
======

</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................ $ 17 $ 53 $ 91 $199
===== ===== ===== =====
</TABLE>

(1) For purposes of this table, "12b-1 Fees" are comprised of an asset-based
sales charge of up to 0.75% of average daily net assets, or such lesser
amount as the Trustees may determine from time to time, of Class C Shares of
the Fund. Currently, the Trustees have limited the Fund's Class C 12b-1
Fee payments to 0.40% of average daily net assets. The 12b-1 Fee payments
may be increased only when the Trustees believe it is in the best interests
of the shareholders of Class C Shares to do so. Long-term shareholders of
the Class C shares of the Quantitative Equity Fund may pay more in Rule
12b-1 fees than the economic equivalent of the maximum front-end sales
charge permitted by the National Association of Securities Dealers, Inc.

(2) "Other expenses" and 12b-1 Fees are based on estimated amounts for the
current year since there were no Class C operations prior to the date of
this prospectus.

(3) For purposes of this table, "Other Fees" includes a servicing fee
of up to 0.25% of the average daily net assets of the Fund's Class C Shares.
The Investment Company may make payments to the distributor or any
investment advisers, banks, broker-dealers, financial planners or other
financial institutions ("Servicing Agents") for any activities or expenses
primarily intended to assist, support or service the Servicing Agents'
clients who beneficially own Class C Shares of the Fund.

-8-
<PAGE> 153
ANNUAL FUND OPERATING EXPENSES OF THE CLASS C SHARES OF THE INTERNATIONAL
SECURITIES FUND

ANNUAL CLASS C SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................................ .95%
12b-1 Fees(1)(2).......................................................................... .40
Other Expenses:
Custodian Fees.............................................................. .29%
Transfer Agent Fees......................................................... .05%
Other Fees(2)(3)
(including a shareholder servicing fee of up to 0.25%)...................... .35%
------
Total Other Expenses................................................................ .69
------
Total Class C Shares Operating Expenses+.................................................. 2.04%
</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................ $ 21 $ 64 $110 $237
===== ===== ===== =====
</TABLE>

(1) For purposes of this table, "12b-1 Fees" are comprised of an asset-based
sales charge of up to 0.75% of average daily net assets, or such lesser
amount as the Trustees may determine from time to time, of Class C Shares of
the Fund. Currently, the Trustees have limited the Fund's Class C 12b-1 Fee
payments to 0.40% of average daily net assets. The 12b-1 Fee payments may be
increased only when the Trustees believe it is in the best interests of the
shareholders of Class C Shares to do so. Long-term shareholders of the
Class C shares of the International Fund may pay more in Rule 12b-1 fees
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

(2) "Other expenses" and 12b-1 Fees are based on estimated amounts for the
current year since there were no Class C operations prior to the date of
this prospectus.

-9-
<PAGE> 154
ANNUAL FUND OPERATING EXPENSES OF THE CLASS C SHARES OF THE EMERGING MARKETS
FUND*

ANNUAL CLASS C SHARES OPERATING EXPENSES:

(AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fee(1)......................................................................... 1.09%
12b-1 Fees(2)(3).......................................................................... .40
Other Expenses:

Custodian Fees.............................................................. .62%

Transfer Agent Fees......................................................... .16

Other Fees(2)(4) (including a shareholder servicing
fee of up to (0.25%)*....................................................... .40
------
Total Other Expenses................................................................ 1.18
------
Total Class C Shares Operating Expenses After Waiver(1)+.................................. 2.67%
======
</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................ $ 27 $ 83 $142 $300
===== ===== ===== =====
</TABLE>

(1) The Manager has voluntarily agreed to waive a portion of its 1.20%
management fee, up to the full amount of that fee, equal to the amount by
which the Fund's total operating expenses other than any 12b-1 fees,
shareholder service fees and other class level expense exceed 1.95% of the
Fund's average net assets on an annual basis. The gross annual total
operating expenses absent waiver would be 2.78% of average net assets. This
waiver is intended to be in effect for the current fiscal year, but
thereafter may be revised or eliminated at any time without notice to
shareholders.

(2) "Other Expenses" and 12b-1 Fees are based on estimated amounts for the
current year since there were no Class C operations prior to the date of
this prospectus.

(3) For purposes of this table, "12b-1 Fees" are comprised of an asset-based
sales charge of up to 0.75% of average daily net assets, or such lesser
amount as the Trustees may determine from time to time, of Class C Shares of
the Fund. Currently, the Trustees have limited the Fund's Class C 12b-1 Fee
payments to 0.40% of average daily net assets. The 12b-1 Fee payments may be
increased only when the Trustees believe it is in the best interests of the
shareholders of Class C Shares to do so. Long-term shareholders of the Class
C shares of the Emerging Markets Fund may pay more in Rule 12b-1 fees than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.

(4) For purposes of this table, "Other Fees" includes a shareholder servicing
fee of up to 0.25% of the average daily net assets of the Fund's Class C
Shares. The Investment Company may make payments to the distributor or any
investment advisers, banks, broker-dealers, financial planners or other
financial institutions ("Servicing Agents") for any activities or expenses
primarily intended to assist, support or service the Servicing Agents'
clients who beneficially own Class C Shares of the Fund.

* Each shareholder or the financial intermediary through which the shareholder
purchases Class C Shares of the Investment Company 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.

-10-
<PAGE> 155
ANNUAL FUND OPERATING EXPENSES OF THE CLASS C SHARES OF THE REAL ESTATE
SECURITIES FUND

ANNUAL CLASS C SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................................ .85%
12b-1 Fees(1)(2).......................................................................... .40
Other Expenses:
Custodian Fees.............................................................. .07%
Transfer Agent Fees......................................................... .12
Other Fees(2)(3) (including a shareholder servicing fee of up to 0.25%)..... .35
---
Total Other Expenses................................................................ .54
------
Total Class C Shares Operating Expenses+.................................................. 1.79%
======
</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................ $18 $56 $97 $211
=== === === ====
</TABLE>

(1) For purposes of this table, "12b-1 Fees" are comprised of an asset-based
sales charge of up to 0.75% of average daily net assets, or such lesser
amount as the Trustees may determine from time to time, of Class C Shares of
the Fund. Currently, the Trustees have limited the Fund's Class C 12b-1 Fee
payments to 0.40% of average daily net assets. The 12b-1 Fee payments may be
increased only when the Trustees believe it is in the best interests of the
shareholders of Class C Shares to do so. Long-term shareholders of the Class
C shares of the Real Estate Securities Fund may pay more in Rule 12b-1 fees
than the economic equivalent of the maximum front-end sales charge permitted
by the National Association of Securities Dealers, Inc.

(2) "Other expenses" and 12b-1 Fees are based on estimated amounts for the
current year since there were no class C operations prior to the date of
this prospectus.

(3) For purposes of this table, "Other Fees" includes a Shareholder servicing
fee of up to 0.25% of the average daily net assets of the Fund's Class C
Shares. The Investment Company may make payments to the distributor or any
investment advisers, banks, broker-dealers, financial planners or other
financial institutions ("Servicing Agents") for any activities or expenses
primarily intended to assist, support or service the Servicing Agents'
clients who beneficially own Class C Shares of the Fund.

-11-
<PAGE> 156
ANNUAL FUND OPERATING EXPENSES OF THE DIVERSIFIED BOND FUND

ANNUAL CLASS C SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................................ .45%
12b-1 Fees(1)(2).......................................................................... .40
Other Expenses:
Custodian Fees.............................................................. .06%
Transfer Agent Fees......................................................... .05
Other Fees(2)(3) (including a Shareholder Servicing Fee of up to 0.25%)..... .35%
----
Total Other Expenses................................................................ .46
------
Total Class C Shares Operating Expenses+................................................. 1.31%
</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................ $13 $42 $72 $158
=== === === ====
</TABLE>

(1) For purposes of this table, "12b-1 Fees" are comprised of an asset-based
sales charge of up to 0.75% of average daily net assets, or such lesser
amount as the Trustees may determine from time to time, of Class C Shares of
the Fund. Currently, the Trustees have limited the Fund's Class C 12b-1 Fee
payments to 0.40% of average daily net assets. The 12b-1 Fee payments may be
increased only when the Trustees believe it is in the best interests of the
shareholders of Class C Shares to do so. Long-term shareholders of the Class
C shares of the Diversified Bond Fund may pay more in Rule 12b-1 fees than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.

(2) "Other expenses" and 12b-1 Fees are based on estimated amounts for the
current year since there were no Class C operations prior to the date of
this prospectus.

-12-
<PAGE> 157
ANNUAL FUND OPERATING EXPENSES OF THE CLASS C SHARES OF THE VOLATILITY
CONSTRAINED BOND FUND

ANNUAL CLASS C SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................................ .50%
12b-1 Fees(1)(2).......................................................................... .40
Other Expenses:
Custodian Fees.............................................................. .18%
Transfer Agent Fees......................................................... .09
Other Fees(2) (including a Shareholder Servicing Fee up to 0.25%)(3)........ .37%
----
Total Other Expenses................................................................ .64
------
Total Class C Shares Operating Expenses+.................................................. 1.54%
======
</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................ $16 $49 $54 $183
===== ===== ===== =====
</TABLE>

(1) For purposes of this table, "12b-1 Fees" are comprised of an asset-based
sales charge of up to 0.75% of average daily net assets, or such lesser
amount as the Trustees may determine from time to time, of Class C Shares of
the Fund. Currently the Trustees have limited the Fund's Class C 12b-1 fee
payments to 0.40% of average daily net assets. The 12b-1 Fee payments may be
increased only when the Trustees believe it is in the best interests of the
shareholders of Class C Shares to do so. Long-term shareholders of the Class
C shares of the Volatility Constrained Bond Fund may pay more in Rule 12b-1
fees than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

(2) "Other expenses" and 12b-1 Fees are based on estimated amounts for the
current year since there were no Class C operations prior to the date of
this prospectus.

-13-
<PAGE> 158
ANNUAL FUND OPERATING EXPENSES OF THE CLASS C SHARES OF THE MULTISTRATEGY BOND
FUND

ANNUAL CLASS C SHARES OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee+(1)........................................................................ .57%
12b-1 Fees(2)(3).......................................................................... .40
Other Expenses:
Custodian Fees.............................................................. .09%
Transfer Agent Fees......................................................... .09
Other Fees(2) (including a Shareholder Servicing Fee up to 0.25%)........... .37
-----
Total Other Expenses................................................................ .55
------
Total Class C Shares Operating Expenses After Reimbursement+.............................. 1.52%
======
</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................ $15 $48 $83 $181
=== === === ====
</TABLE>

(1) The Manager has voluntarily agreed to waive a portion of its 0.65%
management fee, up to the full amount of that fee, equal to the amount by
which the Fund's total operating expenses, other than 12b-1 fees,
Shareholder Servicing Fees and certain other class-level expenses exceed
0.80% of the Fund's average net assets on an annual basis. The gross annual
total operating expenses absent the waiver would be 1.60% of average net
assets. This waiver is intended to be in effect for the current fiscal year,
but thereafter may be revised or eliminated at any time without notice to
shareholders.

(1) For purposes of this table, "12b-1 Fees" are comprised of an asset-based
sales charge of up to 0.75% of average daily net assets, or such lesser
amount as the Trustees may determine from time to time, of Class C Shares of
the Fund. The Trustees have limited the Funds Class C 12b-1 Fee payments to
0.40% of average daily net assets. The 12b-1 Fee payments may be increased
only when the Trustees believe it is in the best interests of the
shareholders of the Class C Shares to do so. Long-term shareholders of the
Class C shares of the Multistrategy Bond Fund may pay more in Rule 12b-1
fees than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

(2) "Other expenses" and 12b-1 Fees are based on estimated amounts for the
current year since there were no Class C operations prior to the date of
this prospectus.

-14-
<PAGE> 159

FINANCIAL HIGHLIGHTS

Class C Shares were not offered or issued prior to the date of this prospectus,
and the financial highlights tables of the Funds do not reflect performance of
Class C Shares prior to that date. The Funds' financial statements and related
notes thereto are incorporated herein by reference to the Statement of
Additional Information and appear, along with the report of Coopers & Lybrand,
L.L.P., in the Funds' Annual Reports to shareholders. The Funds' Annual Reports
may be obtained without charge by writing to or calling the Investment Company
as described on the first page of this prospectus. Financial Highlights' pages
for the Funds described herein are included in the Statement of Additional
Information. Such Financial Highlights do not reflect the 12b-1 Fee and
Shareholder Service Fee imposed with respect to Class C Shares.

<PAGE> 160
THE PURPOSE OF THE FUNDS

FRANK RUSSELL COMPANY--CONSULTANT TO THE FUNDS

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.

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. Similarly, there are periods when
securities selected for particular characteristics, or using particular
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 a
particular Fund investing in one asset class or using a particular style--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 both efficient and cost effective for the investor
and Frank Russell Company.

ELIGIBLE INVESTORS

- - Bank trust departments managing discretionary institutional or personal
trust accounts
- - Banks, other than through their Trust departments
- - Registered investment advisors
- - Endowment funds and charitable foundations
- - Broker-Dealers
- - Employee welfare plans
- - Pension or profit sharing plans

-15-
<PAGE> 161
- - Insurance companies
The Agreement provides, in general, for the officers and staff of the Management
Company, using the facilities and resources of Frank Russell Company, to assist
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 generally are not offered or "retailed" to individual
investors, although the Management Company may enter into Agreements with
individual investors. Bank trust departments, registered investment advisors,
broker-dealers and other eligible investors ("Financial Intermediaries") which
have entered into Agreements with the Management Company may acquire shares of
the Funds for the benefit of individual customers for which they exercise
discretionary investment authority. The Management Company provides
objective-setting and asset-allocation assistance to such Financial
Intermediaries, which in turn provide the objective-setting and asset-allocation
services to their customers. These Financial Intermediaries receive no
compensation from the Management Company or the Funds; they may charge their
customers a fee for providing these and possibly other trust or
investment-related services. A shareholder may pay a fixed dollar fee to the
Management Company for other services or reports provided by the Management
Company to the shareholder.

Either the client or the Management Company may terminate the Agreement upon
written notice as provided for in the Agreement. The Management Company does not
expect to exercise its right to terminate the Agreement unless a client does not
invest sufficient assets in the Funds to compensate the Management Company for
providing services to the client. 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.

GENERAL MANAGEMENT OF THE FUNDS

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

- - Randall P. Lert, who has been Chief Investment Officer, 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.

- - 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.

-16-
<PAGE> 162
- - 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.

- - Randal C. Burge, who has been a Senior Investment Officer of Frank
Russell Investment Management Company, since June 1995. Mr. Burge was a
Senior Investment Officer of the Frank Russell Trust Company from 1990 to
1995. Mr. Burge was a Client Executive for Frank Russell Company Australia.

- - Dennis J. Trittin, who has been a Senior Portfolio Manager of Frank
Russell Investment Management Company since January 1996. From 1988 to
1996, Mr. Trittin was director of US Equity Manager Research Department with
Frank Russell Company.

- - C. Nola Williams, who has been a Senior Investment Strategist of Frank
Russell Investment Management Company since January 1996. From 1994 to
1995, Ms. Williams was a member of the Alpha Strategy Group. From 1988 to
1994, Ms. Williams was Senior Research Analyst with Frank Russell Company.

Frank Russell Company provides to the Funds and the Management Company the asset
management consulting services--including the objective-setting and
asset-allocation technology, and the money manager research and evaluation
assistance which Frank Russell Company provides to its other consulting clients.
Frank Russell Company receives no compensation from the Funds or 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.

For its services, the Management Company receives a management fee from each
Fund. From this fee, the Management Company, acting as agent for the Investment
Company, is responsible for paying the money managers for their investment
selection services. The remainder is retained by the Management Company as
compensation for the services described above and to pay expenses. The annual
rate of the management fees, payable to the Management Company monthly on a pro
rata basis, are the following percentages of the average daily net assets of
each Fund: 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%; Emerging Markets Fund, 1.20%; Real Estate Securities Fund, 0.85%;
Diversified Bond Fund, 0.45%; Volatility Constrained Bond Fund, 0.50%; and
Multistrategy Bond Fund, 0.65%. The fees of the Funds, other than the
Diversified Bond and Volatility Constrained Bond Funds, may be higher than the
fees charged by some mutual funds with similar objectives which use only a
single money manager.

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

-17-
<PAGE> 163

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF
TRANSACTION 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>

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 in the aggregate. 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.

EXPENSES OF THE FUNDS

The Funds, and when appropriate each class, will pay their own expenses other
than those expressly assumed by the Management Company. 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. In addition, Class C shares will pay 12b-1 and shareholder
servicing fees.

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. THE 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
INVESTMENT COMPANY. The Funds will notify shareholders of the Fund concerned
within 60 days when a money manager begins or stops providing services.

From its management fees, the Management Company, as agent for the Investment
Company, pays all fees to the money managers for their investment selection
services. Quarterly, each money manager is paid the pro rata portion of an
annual fee, based on the quarterly average of all the assets allocated to the
money manager. For the period, management fees paid to the money managers were
equivalent to the following annual rates expressed as a percentage of the
average daily net assets of each Fund: Diversified Equity Fund, .24%; Special
Growth Fund, .41%; Equity Income Fund, .20%; Quantitative Equity Fund, .21%;
International Securities Fund, .44%; Emerging Markets Fund, 0.68%; Real Estate
Securities Fund, .32%; Diversified Bond Fund, .09%; Volatility Constrained Bond
Fund, .19%; and Multistrategy Bond Fund, .22%. Fees paid to the money managers
are not affected by any voluntary or statutory expense limitations. Some money
managers may receive investment research prepared by Frank Russell Company as
additional compensation, or may receive brokerage commissions for executing
portfolio transactions for the Funds through broker-dealer affiliates.

The 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
a money manager.

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

Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund within the Fund's investment objectives,
restrictions and policies, and the more specific strategies developed by Frank
Russell Company and the Management Company. Although the money managers'
activities are subject to general oversight by the Board of Trustees and
officers of the Investment Company, NEITHER THE BOARD, THE OFFICERS, THE
MANAGEMENT COMPANY, NOR FRANK RUSSELL COMPANY EVALUATE THE INVESTMENT MERITS OF
THE MONEY MANAGERS' INDIVIDUAL SECURITY SELECTIONS.

-18-
<PAGE> 164
INVESTMENT OBJECTIVES, RESTRICTIONS, POLICIES, AND RISKS

INVESTMENT OBJECTIVES.

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

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 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

-19-
<PAGE> 165
guarantee the Fund will have such characteristics at any one time.

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

EMERGING MARKETS FUND

-20-
<PAGE> 166

companies are described under "Investment Policies--Investment in Foreign
Securities."

REAL ESTATE SECURITIES FUND

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's assets in liquid reserves for
redemption needs.

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 65% 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

-21-
<PAGE> 167
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 their 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 dollar. At this time, the Management Company intends
to limit total non-US dollar investments to no more than 25% of total Funds
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 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.

MULTISTRATEGY BOND FUND

The Fund will invest primarily in fixed-income securities. The Fund's
investments will include: US Government

-22-
<PAGE> 168
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
"Volatility 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."

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 net 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 that 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.

-23-
<PAGE> 169
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, which may invest 25% or
more of its total assets in the securities of companies directly or
indirectly engaged in the real estate industry.

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

INVESTMENT POLICIES.

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

-24-
<PAGE> 170
described in "Investment Policies - Illiquid Securities," no Fund will invest
more than 15% of its net assets (taken at current market value) in repurchase
agreements maturing in more than seven days.

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. A Fund will receive either cash (and agree to pay a "rebate" interest
rate), US government or US government agency securities as collateral in an
amount equal to at least 100% of the current market value of the 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.

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<PAGE> 171
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 often incurred in connection with
conversions between various currencies. In addition, foreign brokerage
commissions are generally higher than in the United States, and foreign
securities markets may be less liquid, more volatile and less subject to
governmental supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the United States,
including nationalization, expropriation, confiscatory taxation, lack of uniform
accounting and auditing standards and potential difficulties in enforcing
contractual obligations and could be subject to extended settlement periods or
restrictions affecting the prompt return of capital to the United States.

The risks associated with investing in foreign securities are often heightened
for investments in developing or emerging markets. Investments in emerging or
developing markets involve exposure to economic structures that are generally
less diverse and mature, and to political systems which can be expected to have
less stability, than those of more developed countries. Moreover, the economies
of individual emerging market countries may differ favorably or unfavorably from
the US economy in such respects as the rate of growth in gross domestic product,
the rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Because the Funds' foreign securities will
generally be denominated in foreign currencies, the value of such securities to
the Funds 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
Funds' foreign securities. In addition, some emerging market countries may have
fixed or managed currencies which are not free-floating against the US dollar.
Further, certain emerging market 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, the Emerging Markets, 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 a currency whose changes in value
are considered to be linked (a proxy) to a currency or currencies in which some
or all of the Funds' portfolio securities are 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 Funds' 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.

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the amount of the Funds' 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 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.

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Income, Quantitative Equity, International Securities, Emerging Markets and Real
Estate Securities 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 Securities" above.) None of the Funds, other than
the Multistrategy Bond Fund, currently intends to write or purchase such
options.

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<PAGE> 174
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.

High Risk Bonds. The Funds, other than the Emerging Markets and Multistrategy
Bond Funds, do not invest assets in securities rated less than BBB by S&P or Baa
by Moody's, or in unrated securities judged by the money managers 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,
and S&P considers bonds rated BBB, to have some speculative characteristics. The
Funds, other than the Emerging Markets and Multistrategy Bond Funds, will
dispose of, in a prudent and orderly fashion, securities whose ratings drop
below these minimum ratings. The market value of debt securities generally
varies inversely in relation to interest rates.

The 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 money managers of
the Fund to be of comparable quality. In addition, the Emerging Markets Fund may
invest up to 5% of its total assets in 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. 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 Funds' 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 Funds will seek to reduce the risks
associated with investing in such securities by limiting the Funds' holdings in
such securities and by the depth of their own credit analysis. For additional
information, please refer to the Statement of Additional Information.

PORTFOLIO TRANSACTION POLICIES

Decisions to buy and sell securities are made by the money managers for the
assets assigned to them, and by the 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 while making
portfolio investment decisions. The money managers make decisions to buy or sell
securities independently from other money managers. Thus, one money manager
could be selling a security when another money manager for the same Fund (or for
another series of the Investment Company) is purchasing the same security. In
addition, when a money manager's services are terminated and another retained,
the new manager may significantly restructure the portfolio. These practices may
increase the Funds' portfolio turnover rates, realization of gains or losses,
brokerage commissions and other transaction based costs. The annual portfolio
turnover rates for each of the Funds are shown in the Financial Highlights
tables.

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DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS.

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

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Declared Payable
- -------- -------
<S> <C> <C>
Monthly Early in the following month Diversified Bond, Volatility Constrained Bond and Multistrategy
Bond Funds
Quarterly Mid: April, July, October and Diversified Equity, Special Growth, Equity Income, Quantitative
December Equity and Real Estate Securities Funds
Annually Mid-December International Securities and Emerging Markets Fund
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

CAPITAL GAINS DISTRIBUTIONS.

AUTOMATIC REINVESTMENT.

TAXES

For corporate investors, dividends from net investment income paid by the
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 such a Fund from
domestic (US) sources. Certain holding period and debt financing restrictions
may apply to the corporate investor seeking to claim 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

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<PAGE> 176
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 Securities, Emerging Markets, 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. The Management Company expects the International
Securities 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 its 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 Fund's taxable shareholders must include their pro rata
portion of the taxes withheld on their gross income for federal income tax
purposes.

Shareholders of the same Funds holding non-US holdings should also be aware that
for federal income tax purposes, foreign exchange losses realized by a Fund are
treated as ordinary losses. This treatment may have the effect of reducing a
Fund's income available for distribution to shareholders.

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 Fund derives may be
subject to a non-deductible federal income tax at the Fund level. In some cases,
the Emerging Markets 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 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 income which is a tax preference item
(if any) for alternative minimum tax purposes; of the International Securities
and Emerging Markets Funds' foreign taxes withheld; and of the percentages of
the Diversified Bond, Volatility Constrained Bond and Multistrategy Bond Funds'
income attributable to US government, Treasury and agency securities.

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<PAGE> 177
Shareholders should consult their tax advisers 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 these and other 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

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<PAGE> 178
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
5 YEARS ENDED 10 YEARS ENDED INCEPTION TO
1 YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1995 DECEMBER 31, 1995
DECEMBER 31, 1995 (ANNUALIZED) (ANNUALIZED) (ANNUALIZED) INCEPTION DATE
----------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Diversified Equity 35.16% 16.22% 13.76% 15.06% 09/05/85
Special Growth 28.51 18.13 12.34 13.69 09/05/85
Equity Income 34.76 16.91 12.93 13.79 09/05/85
Quantitative Equity 37.68 17.31 _ 12.55 05/15/87
International Securities 10.20 9.95 13.33 14.36 09/05/85
Emerging Markets* (8.20) - - 7.23 01/29/93
Real Estate Securities 10.87 17.55 - 10.13 07/28/89
Diversified Bond 17.75 9.01 8.90 9.37 09/05/85
Volatility Constrained Bond 9.88 6.06 7.04 7.10 09/05/85
Multistrategy Bond 17.92 - - 7.24 01/29/93
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The returns shown above represent results of the Funds' Class S Shares for the
periods shown. The Class C Shares were not offered prior to the date of this
Prospectus, and the deduction of their 12b-1 Fee and Shareholder Servicing Fee
are not related in the returns shown above.

* The performance for the Emerging Markets Fund prior to April 1, 1995 is
reported gross of investment advisory fees. For periods thereafter, performance
results are reported net of investment advisory fees, but gross of any
investment services fees. Descriptions of these services can be obtained from
the investment manager upon request.

The Diversified Bond, Volatility Constrained Bond and Multistrategy Bond 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 for the
year ended December 31, 1995 for the Class S Shares of the Diversified Bond,
Volatility Constrained Bond and Multistrategy Bond Funds were, respectively,
5.96%, 5.94% and 6.23%.

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 shares of each class of each
Fund on each business day on which shares are offered or orders to redeem are
tendered. (Unless otherwise indicated, "shares" refers to the Class C Shares of
the Funds.) For all Funds, a business day is one on which the New York Stock
Exchange is open for trading. Net asset value per share is computed for a Fund
by dividing the current value of the Fund's assets attributable to the Class C
Shares, less liabilities attributable to the Class C Shares, by the number of
Class C 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).

VALUATION OF PORTFOLIO SECURITIES.

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<PAGE> 179
those prices are believed to reflect the fair market value of such securities.

Money market instruments maturing within 60 days of the valuation date held by
Funds 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
Funds utilize the amortized cost valuation method in accordance with Rule 2a-7
of the 1940 Act. Such money market instruments are 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 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

DISTRIBUTION AND SHAREHOLDER SERVICE PLANS

Under a distribution plan adopted in accordance with the 1940 Act's Rule 12b-1
(the "Distribution Plan"), the Investment Company may pay to the distributor, or
any investment advisors, banks, broker-dealers or other financial institutions
that have entered into sales support agreements within the distributor ("Selling
Agents"), an amount (the "12b-1 Fee") for the Selling Agents' activities or
expenses primarily intended to result in the sale of the Class C Shares subject
to the Distribution Plan. The 12b-1 Fee payments are calculated daily and paid
quarterly by the Investment Company, at an annual rate of up to .75% of the
average daily net assets of a Fund's Class C Shares. Currently the Board of
Trustees has determined to assess a 12b-1 Fee equal to .40% of average daily net
assets. The 12b-1 Fee may only be increased when the Trustees determine that it
is in the best interests of shareholders of Class C Shares to do so.

The 12b-1 Fees may be used to compensate (a) Selling Agents for sales support
services provided, and related expenses incurred with respect to Class C Shares,
by such Selling Agents, and (b) the distributor for distribution services
provided by it, and related expenses incurred, including payments by the
distributor to compensate Selling Agents for providing support services. Selling
Agents are compensated on a uniform basis under the Distribution Plan. The
Distribution Plan is a compensation-type plan. As such, the Investment Company
makes no payments to the distributor except as described above. Therefore, the
Investment Company does not pay for unreimbursed expenses of the distributor,
including amounts expended by the distributor in excess of amounts received by
it from the Investment Company, interest, carrying or other financing charges in
connection with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amount or more from future
payments made by the Investment Company under the Distribution Plan.

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or
distributor of most securities. In the event that the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the administrative
capacities described above or should Congress relax current restrictions on
depository institutions, the Company's Board of Trustees will consider
appropriate changes in the services.

State securities laws governing the ability of depository institutions to act
as underwriters or distributors of securities may differ from interpretations
given to the Glass-Steagall Act and, therefore, banks and financial
institutions may be required to register as dealers pursuant to state law. In
addition, some state securities laws may require administrators to register as
brokers and dealers.

In addition, the Investment Company has adopted a Shareholder Services Plan (the
"Services Plan") under which it may make payments to the distributor or any
investment advisors, banks, broker-dealers, financial planners or other
financial institutions that have entered into a Shareholder Services Agreement
with the distributor ("Servicing Agents") for any activities or expenses
primarily intended to assist, support or service the Servicing Agents' clients
who beneficially own Class C Shares of the Funds. Payments under the Services
Plan are calculated daily and paid quarterly by the Investment Company, at an
annual rate of up to .25% of the average daily net assets of a Fund's Class C
Shares.

ORDER PROCEDURES.

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

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<PAGE> 180
Check. Payment for orders may be made by check or other negotiable bank draft
payable to "Frank Russell Investment Company" and mailed to the Transfer Agent,
P.O. Box 1591, Tacoma, WA 98401-1591. Certified checks are not necessary, but
checks are accepted subject to collection at full face value in US funds and
must be drawn in US dollars on a US bank. Investments in the 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.

THREE DAY SETTLEMENT PROGRAM.

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

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.

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<PAGE> 181
address of record or to an alternate address provided such request is sent to
the Transfer Agent in proper form.

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.

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, to the requested address on the payment date.

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, INDEPENDENT ACCOUNTANTS, AND REPORTS.

State Street Bank and Trust Company ("State Street"), 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.

ORGANIZATION, CAPITALIZATION, AND VOTING.

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<PAGE> 182
The Investment Company was organized as a Maryland corporation on March 6, 1981,
and commenced offering shares on October 15, 1981. On January 2, 1985, the
Investment Company reorganized 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."

In addition to offering Class C Shares, the Funds also offer Class S Shares,
which are described in separate prospectuses. Class S Shares are designed to
meet different investor needs and are not subject to a 12b-1 Fee nor
to a shareholder servicing fee. To obtain more information concerning Class S
Shares contact the Financial Intermediary from whom you obtained this
prospectus or write to the Secretary, Frank Russell Investment Company, at
the address listed on the cover of this Prospectus, or call (800) 972-0700.

MONEY MANAGER PROFILES. The money managers identified below have no other
affiliations with the Funds or with Frank Russell Company. Each money 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

BZW Barclays Global Fund Advisors, 45 Fremont Street, 17th Floor, San Francisco,
CA 94105, is an indirect, wholly owned subsidiary of Barclays Bank PLC.

Columbus Circle Investors, Metro Center, One Station Place, 8th Floor, Stamford,
CT 06902, a 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.

Equinox Capital Management, Inc., 399 Park Ave., 28th Floor, New York, NY 10022.
Equinox is a registered investment adviser with majority ownership held by Ron
Ulrich.

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

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<PAGE> 183
Trinity Investment Management Corporation, 75 Park Plaza, Boston, MA 02116, is a
corporation with seven shareholders, with Stanford M. Calderwood holding
majority ownership.

SPECIAL GROWTH 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.

Sirach Capital Management, Inc., One Union Square, Suite 3323, 600 Union 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 Corporation, See: Diversified Equity Fund.

QUANTITATIVE EQUITY FUND

BZW Barclays Global Fund Advisors, See: Diversified 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 & Co., Inc., a publicly
held bank holding company.

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.

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<PAGE> 184
EMERGING MARKETS FUND

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%.

J.P. Morgan Investment Management, Inc., See: Quantitative Equity Fund.

Montgomery Asset Management, L.P., 600 Montgomery Street, 17th Floor, San
Francisco, CA 94111, is a California limited partnership and a registered
investment adviser. 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.

REAL ESTATE SECURITIES FUND

DIVERSIFIED BOND FUND

Lincoln Capital Management Company, See: Diversified Equity Fund.

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.

STW Fixed Income Management Ltd., Trinity Hall, 43 Cedar Avenue, Hamilton HM LX,
Bermuda, is a Bermuda exempted company. William H. Williams III is the sole
shareholder.

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.

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<PAGE> 185
FRANK RUSSELL INVESTMENT COMPANY
909 A STREET
TACOMA, WASHINGTON 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (206) 627-7001

MONEY MANAGERS

SPECIAL GROWTH
Delphi Management, Inc.
Fiduciary International, Inc.
GlobeFlex Capital, L.P.
Jacobs Levy Equity Management, Inc.
Sirach Capital Management, Inc.
Wellington Management Company

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

QUANTITATIVE EQUITY
BZW Barclays Global Fund Advisors
Franklin Portfolio Associates Trust
J.P. Morgan Investment Management, Inc.

EMERGING MARKETS
Genesis Asset Managers, Ltd.
J.P. Morgan Investment Management, Inc.
Montgomery Asset Management, L.P.

REAL ESTATE SECURITIES
Cohen & Steers Capital Management