RUSSELL FRANK INVESTMENT CO, 485APOS, 1996-02-15

RUSSELL FRANK INVESTMENT CO
485APOS, 1996-02-15

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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. 31 X
--- ---

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---

Amendment No. 31
---

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)
( ) 60 days after filing pursuant to paragraph (a)(i)
( ) on (date) pursuant to paragraph (a)(i)
( X ) 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 March , 1996.

<PAGE> 2

Frank Russell Investment Company
File No. 2-71299
P/E Amd. #31

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

Information Required
Part A in a Prospectus Prospectus Caption
- ------ -------------------- -------------------------------
<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

(d) Annual reports to be filed.

4 General Description of
Registrant

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

(ii) Investment Objectives, Restrictions and Policies

(b) Investment Objectives, Restrictions and Policies

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>
Information Required
Part A in a Prospectus Prospectus Caption
- ------ -------------------- -------------------------------
<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 Annual Report to be filed.
of 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

<PAGE> 4

<TABLE>
<CAPTION>
Information Required
Part A in a Prospectus Prospectus Caption
- ------ -------------------- -------------------------------
<S> <C> <C>
(d) Redemption of Fund Shares

9 Pending Legal Proceedings Not Applicable
</TABLE>

<TABLE>
<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 Not Applicable
History

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>
[/R]
<PAGE> 7
PROSPECTUS

[EXTERNAL FEE FUNDS]

FRANK RUSSELL INVESTMENT COMPANY

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

Frank Russell Investment Company (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 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
other Funds. There is no sales charge for investing in 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. 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 nine of its Funds that a prospective investor ought to know before
investing. The Investment Company has filed a Statement of Additional
Information dated May 1, 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.

PROSPECTUS DATED MAY 1, 1996

PROSPECTUS 1
<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 shares of nine External Fee Funds, except
the Money Market Fund, which is not currently offered for direct investment.
Another prospectus describes and offers shares of eight Internal Fee Funds,
while a third prospectus describes and offers 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 for shareholder services. The shareholder fee is computed on the amount
the shareholder has invested in an External Fee Fund. Each Shareholder of the
Internal Fee Funds pays no such fees. The Investment Company's Funds had
aggregate net assets of $___ billion on ________, 1996. The net assets of these
nine Funds on ________, 1996, were:

<TABLE>
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity I $_________ Fixed Income I $_________
Equity II _________ Fixed Income II _________
Equity III _________ Fixed Income III _________
Equity Q _________ Money Market _________
International _________

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

PROSPECTUS 2
<PAGE> 9
HIGHLIGHTS AND TABLE OF CONTENTS

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

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 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 ___.

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 AND POLICIES apply to each Fund. Those
designated "fundamental" may not be changed without the approval of a majority
of the Fund's shareholders. 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 share purchased or redeemed is based upon the next
computed current market value of the assets, less liabilities, of each Fund.
The Money Market Fund utilizes amortized cost pricing procedures to attempt to
maintain a stable $1.00 per share net asset value. PAGE ___.

PROSPECTUS 3
<PAGE> 10
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. 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:
Distributor, Custodian, Accountants and Reports; Organization, Capitalization
and Voting; and Money Manager Profiles. PAGE ___.

PROSPECTUS 4
<PAGE> 11
ANNUAL FUND OPERATING EXPENSES 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 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>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases...................................... None
Sales Load Imposed on Reinvested Dividends........................... None
Deferred Sales Load.................................................. None
Redemption Fees...................................................... None
Exchange Fees........................................................ None

ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee........................................................
12b-1 Fees............................................................ None
Other Expenses:
Custodian Fees...........................................
Transfer Agent Fees......................................
Other Fees...............................................
Total Other Expenses...............................................
Total Fund Operating Expenses Section..................................
</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 $ $ $ $
===== ===== ===== =====
</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 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 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.

Section 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.

PROSPECTUS 5
<PAGE> 12
ANNUAL FUND OPERATING EXPENSES OF THE EQUITY II FUND*

* 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 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 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.

PROSPECTUS 6
<PAGE> 13
ANNUAL FUND OPERATING EXPENSES 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 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.

* 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 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 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.

PROSPECTUS 7
<PAGE> 14
ANNUAL FUND OPERATING EXPENSES 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 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>
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

* 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 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 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.

PROSPECTUS 8
<PAGE> 15
ANNUAL FUND OPERATING EXPENSES 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 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.

* 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. This annual shareholder investment services fee
may range from .00% to .40% under the asset management services
agreements entered into by shareholders of the International Fund. 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.

PROSPECTUS 9
<PAGE> 16
ANNUAL FUND OPERATING EXPENSES OF THE FIXED INCOME I FUND*

* 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. This annual shareholder investment services fee
may range from .00% to .40% under the asset management services
agreements entered into by shareholders of the Fixed Income I Fund. 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.

PROSPECTUS 10
<PAGE> 17
ANNUAL FUND OPERATING EXPENSES OF THE FIXED INCOME II FUND*

* 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 Fund. Currently, the Manager intends to impose a
shareholder investment services fee with respect to the Fixed Income II
Fund, which may range from .00% to .05%. In addition, a shareholder
may pay additional fees, expressed as fixed dollar amounts for the
other services or reports provided by 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.

PROSPECTUS 11
<PAGE> 18
ANNUAL FUND OPERATING EXPENSES 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 Fund will
bear directly or indirectly. The example provided in the table should not be
considered a representation of past or future expenses. Actual expenses may be
greater or less than those shown.

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

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases...................................... None
Sales Load Imposed on Reinvested Dividends........................... None
Deferred Sales Load.................................................. None
Redemption Fees...................................................... None
Exchange Fees........................................................ None

ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee(1).....................................................
12b-1 Fees............................................................ None
Other Expenses:
Custodian Fees...........................................
Transfer Agent Fees......................................
Other Fees...............................................
Total Other Expenses...............................................
Total Fund Operating Expenses After Fee Waiver(1)Section..............
</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 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 Fund's total operating expenses exceed 0.75% of the Fund's
average net assets on an annual basis. The gross annual total operating
expenses absent the waiver would be __% of average net assets. This
waiver is intended to be in effect for the current fiscal year, but may
be revised or eliminated at any time without notice to shareholders.

* 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 Fund. This may range from .00% to .15% for shareholders
of the Fixed Income 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.

PROSPECTUS 12
<PAGE> 19
ANNUAL FUND OPERATING EXPENSES OF THE MONEY MARKET FUND*

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

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

* 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 Fund. Currently, the Manager does not intend to impose a
shareholder investment services fee with respect to the Money Market
Fund. In addition, a shareholder may pay additional fees, expressed as
fixed dollar amounts for the other services or reports provided by 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.

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 fiscal year ended December 31, and other performance
information derived from the financial statements. 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.............. $ $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.......... .62 .60 .61 .75 .91 .88 .81 1.12 .99
Net realized and unrealized
gain (loss) on investments.... (.41) 2.18 1.54 5.61 (2.37) 5.79 2.46 1.50 3.25
---- ------ ------ ------ ------ ------ ------ ------ ------ ------

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

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

Net realized gain on
investments................... (.94) (2.11) (1.70) (1.57) (1.90) (2.47) (.48) (9.71) (2.76)

In excess of net realized
gain on investments........... (.24) (.16) -- -- -- -- -- -- --
---- ------ ------ ------ ------ ------ ------ ------ ------ ------

Total Distributions............ (1.80) (2.87) (2.32) (2.32) (2.80) (3.48) (1.25) (10.97) (3.90)
---- ------ ------ ------ ------ ------ ------ ------ ------ ------

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

TOTAL RETURN (%)(A)............... .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)................ .12 .14 .15 .19 .23 .18 .17 .14 .12
Net investment income to
average net assets (a)........ 2.52 2.36 2.53 3.14 3.66 3.41 3.68 3.11 3.49
Portfolio turnover............. 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)................. 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*

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................ $ $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............ .36 .32 .30 .41 .51 .61 .52 .50 .52
Net realized and unrealized
gain (loss) on investments..... (.86) 3.97 3.13 7.65 (3.91) 4.74 2.51 2.17 1.78
---- ------ ------ ------ ------ ------ ------ ------ ------ ------

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

LESS DISTRIBUTIONS:
Net investment income............ (.31) (.31) (.30) (.41) (.50) (.71) (.52) (.61) (.53)
Net realized gain on
investments.................... (.21) (4.72) (1.74) (.57) (.18) (3.82) -- (5.61) (3.24)
In excess of net realized
gain on investments............ (.56) (.39) -- -- -- -- -- -- --
---- ------ ------ ------ ------ ------ ------ ------ ------ ------

Total Distributions.............. (1.08) (5.42) (2.04) (.98) (.68) (4.53) (.52) (6.22) (3.77)
---- ------ ------ ------ ------ ------ ------ ------ ------ ------

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

TOTAL RETURN (%)(A).................. (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)................. .23 .34 .32 .37 .48 .41 .35 .29 .35
Net investment income to
average net assets (a)......... 1.46 1.14 1.10 1.79 2.40 2.45 2.40 1.94 2.23
Portfolio turnover............... 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)................... 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*

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 ........... $ $ 27.05 $ 26.75 $ 27.08 $ 23.30 $ 26.49 $ 24.03 $ 20.74
-- -------- -------- -------- -------- ------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... .93 .89 .98 1.08 1.33 1.26 1.15
Net realized and unrealized
gain (loss) on investments (.85) 2.99 2.24 5.21 (2.85) 5.35 3.40
-- -------- -------- -------- -------- ------- -------- --------
Total From Investment
Operations ................ .08 3.88 3.22 6.29 (1.52) 6.61 4.55
-- -------- -------- -------- -------- ------- -------- --------
LESS DISTRIBUTIONS:
Net investment income ....... (.91) (.90) (.99) (1.07) (1.30) (1.40) (1.14)
In excess of net investment . -- (.00) -- -- -- -- --
income
Net realized gain on
investments ............... (1.94) (2.68) (2.56) (1.44) (.37) (2.75) (.12)
In excess of net realized
gain on investments ....... (.10) -- -- -- -- -- --
-- -------- -------- -------- -------- ------- -------- --------
Total Distributions ......... (2.95) (3.58) (3.55) (2.51) (1.67) (4.15) (1.26)
-- -------- -------- -------- -------- ------- -------- --------
NET ASSET VALUE,
END OF YEAR ................. $ $ 24.18 $ 27.05 $ 26.75 $ 27.08 $ 23.30 $ 26.49 $ 24.03
== ======== ======== ======== ======== ======= ======== ========
TOTAL RETURN (%)(a) ............. 1.16 14.95 12.30 27.86 (5.73) 28.07 22.19
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a) ............ .17 .16 .20 .25 .27 .23 .20
Net investment income to
average net assets (a) .... 3.39 3.09 3.57 4.05 4.91 4.58 4.96
Portfolio turnover .......... 85.92 76.77 84.56 56.99 65.74 83.13 57.28
Net assets, end of year
($000 omitted) .............. 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 fiscal year or period ended December 31, and other
performance information derived from the financial statements. 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....................... $ $26.03 $25.23 $24.90 $20.20 $22.45 $18.85 $16.67 $20.00
---- ------ ------ ------ ------ ------ ------ ------ ------

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

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

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

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

NET ASSET VALUE,
END OF YEAR............................. $ $24.43 $26.03 $25.23 $24.90 $20.20 $22.45 $18.85 $16.67
==== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(A)(B)...................... .99 13.80 9.97 32.14 (4.81) 27.10 17.16 (15.14)

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net
assets (b)(c)......................... .11 .15 .18 .23 .31 .33 .33 .24
Net investment income to average net
assets (b)(c)......................... 2.74 2.50 2.80 3.23 3.70 3.68 3.82 3.56
Portfolio turnover(c)................... 45.87 54.69 58.35 51.37 66.51 88.03 52.21 46.10
Net assets, end of year ($000 omitted).. 430,661 382,939 290,357 215,779 133,869 129,680 89,320 66,618
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

++ For the period May 29, 1987 (commencement of operations) to
December 31, 1987.
(a) Periods less than one year are not annualized.
(b) 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 fiscal year ended December 31, and other
performance information derived from the financial statements. 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................ $ $ 37.34 $ 28.92 $ 31.96 $ 29.18 $ 38.52 $ 35.44
----- -------- -------- -------- -------- -------- --------

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

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

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

LESS DISTRIBUTIONS:
Net investment income............ (.36) (.57) (.67) (.80) (1.19) (1.02)
-----
In excess of net investment
income.......................... -- (.16) -- -- -- --
-----
Net realized gain on
investments..................... (3.73 (1.06) (.42) (.31) (2.11) (4.21)
-----
In excess of net realized
gain on investments............. (.23) -- -- -- -- --
-----
Total Distributions.............. (4.32) (1.79) (1.09) (1.11) (3.30) (5.23)
----- -------- -------- -------- -------- -------- --------

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

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

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

Net investment income to
average net assets (b)......... 1.63 1.83 2.46 2.61 3.14 2.38
-----
Portfolio turnover.............. 71.09 62.04 48.99 53.13 78.30 53.49
-----
Net assets, end of year
($000 omitted)................. 674,180 562,497 349,969 252,828 171,613 186,742
-----
- --------------------------------------------------------------------------------------------------------------------------

<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 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

- ---------------------------------------------------------------------------
</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*

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 ........... $ $ 21.74 $ 21.61 $ 22.29 $ 20.86 $ 20.91 $ 20.50 $ 20.48
-- -------- -------- -------- -------- -------- -------- --------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 1.46 1.50 1.63 1.71 1.77 1.93 1.73
Net realized and unrealized
gain (loss) on investments (2.06) .72 (.07) 1.49 (.05) .71 .01
-- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ................ (.60) 2.22 1.56 3.20 1.72 2.64 1.74
-- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income ....... (1.44) (1.50) (1.62) (1.69) (1.77) (1.92) (1.72)
In excess of net investment . -- (.01) -- -- -- -- --
income
Net realized gain on
investments ............... -- (.58) (.62) (.08) -- (.31) --
In excess of net realized
gain on investments ....... (.11) -- -- -- -- -- --
-- -------- -------- -------- -------- -------- -------- --------
Total Distributions ......... (1.55) (2.09) (2.24) (1.77) (1.77) (2.23) (1.72)
-- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR ................. $ $ 19.59 $ 21.74 $ 21.61 $ 22.29 $ 20.86 $ 20.91 $ 20.50
== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%)(A) ............. (2.97) 10.46 7.26 16.01 8.60 13.35 8.76
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a) ............ .10 .09 .10 .10 .11 .12 .13
Net investment income to
average net assets (a) .... 7.06 6.71 7.45 8.08 8.70 8.96 8.28
Portfolio turnover .......... 173.97 173.27 211.26 121.91 114.15 196.18 186.54
Net assets, end of year
($000 omitted) .............. 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 fiscal year ended December 31, and other
performance information derived from the financial statements. 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................ $ $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............ 1.21 .84 1.35 1.52 1.53 1.69 1.61 1.57 1.71
Net realized and unrealized
gain (loss) on investments.... (1.07) .44 (.83) .72 .23 .27 (.12) (.60) .04
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations.................... .14 1.28 .52 2.24 1.76 1.96 1.49 .97 1.75
------- ------ ------ ------ ------ ------ ------ ------ ------ ------

LESS DISTRIBUTIONS:
Net investment income............ (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................. (1.15) (.85) (1.64) (1.50) (1.51) (1.78) (1.61) (2.14) (2.33)
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF YEAR...................... $ $17.98 $18.99 $18.56 $19.68 $18.94 $18.69 $18.51 $18.63 $19.80
======== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL RETURN (%)(A)................. .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)................ .19 .16 .19 .13 .15 .17 .13 .12 .14

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

Portfolio turnover............... 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)................... 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 fiscal year ended December 31, and other
performance information derived from the financial statements. 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.............................. $ $10.44 $10.00
------ ------ ------

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

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

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

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets(b)(c)......... .20 .20
Operating expenses, gross, to average net assets(b)(c)....... .20 .40
Net investment income to average net assets(b)............... 7.02 6.30
Portfolio turnover(b)........................................ 134.11 181.86
Net assets, end of year ($000 omitted)....................... 166,620 124,234
Per share amount of fees waived ($ 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 fiscal year ended December 31, and other
performance information derived from the financial statements. 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
------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............ .0447 .0342 .0403 .0618 .0823 .0922 .0759
------ ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income............... (.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
======= ======= ======= ====== ======= ======= ======= =======

TOTAL RETURN (%)(A)................. 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).. .05 .07 .08 .07 .07 .06 .06
Operating expenses, gross, to
average daily net assets (a).. .05 -- -- -- -- -- --
Net investment income to
average net assets (a)........ 4.49 3.38 4.04 6.13 8.29 9.31 7.59
Net assets, end of year
($000 omitted)................... 502,302 415,998 347,464 316,426 226,339 145,550 116,369
Per share amount of fees waived
($ omitted)...................... -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------

<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).. -- --
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.

ELIGIBLE INVESTORS

Shares of the Funds are currently offered only to Eligible Investors. These
investors are

PROSPECTUS 23
<PAGE> 30
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
- 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 advisers,
broker-dealers and other eligible investors ("Financial Intermediaries") which
have entered into Agreements with the Management Company may acquire shares of
the Funds for the benefit of individual customers for which they exercise
discretionary investment authority. The Management Company provides
objective-setting and asset-allocation assistance to such Financial
Intermediaries, which in turn provide the objective-setting and
asset-allocation services to their customers. These Financial Intermediaries
receive no compensation from the Management Company or the Funds; they may
charge their customers a fee for providing these and possibly other trust or
investment-related services. [A SHAREHOLDER MAY PAY A FIXED DOLLAR FEE TO THE
MANAGEMENT COMPANY FOR OTHER SERVICES OR REPORTS PROVIDED BY THE MANAGEMENT
COMPANY TO THE SHAREHOLDER.]

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.

PROSPECTUS 24
<PAGE> 31
the Funds with office space, equipment and personnel necessary to operate and
administer the Funds' business, and to supervise the provision of services by
third parties such as the money managers and Custodian; (iii) develops the
investment programs, selects money managers, allocates assets among money
managers and monitors the money managers' investment programs and results; (iv)
is authorized to select or hire a money manager to select individual portfolio
securities held in the Funds' Liquidity Portfolios (see, "Investment
Policies-Liquidity Portfolios"); and (v) provides the Funds with transfer
agent, 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 Director - Investments, 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, from June 1995 to January 1996.
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 became 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

PROSPECTUS 25
<PAGE> 32
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 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 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 for all international
portfolios. Any additional domestic equity or fixed-income funds will be billed
using the same fee schedule, with an annual minimum fee of $20,000 and $25,000,
respectively.

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

PROSPECTUS 26
<PAGE> 33
notification to the International Fund's shareholders.

EXPENSES OF THE FUNDS

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

THE MONEY MANAGERS

The assets of each Fund are allocated currently among the money managers listed
in the section "Money Manager Profiles." THE ALLOCATION OF A FUND'S ASSETS
AMONG MONEY MANAGERS MAY BE CHANGED AT ANY TIME BY THE MANAGEMENT COMPANY. 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 the Short-Term Investment Funds for the Frank Russell
Investment Management Company and the 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.

PROSPECTUS 27
<PAGE> 34
INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES

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

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.")

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.

PROSPECTUS 28
<PAGE> 35
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.

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 S&P or A or Prime-2 by 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
circum-stances, the Fund will invest in securities of issuers domiciled in at
least three different countries.

PROSPECTUS 29
<PAGE> 36
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 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

PROSPECTUS 30
<PAGE> 37
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 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

PROSPECTUS 31
<PAGE> 38
25% of the Fund's assets will be denominated in foreign currencies. Foreign
currency exchange transactions (options on foreign currencies, foreign currency
futures contracts and forward foreign currency exchange contracts) will only be
used by the Fund for the purpose of hedging against foreign currency exchange
risk arising from the Fund's investment, or anticipated investment, in
securities denominated in foreign currencies. Foreign investment may include
emerging market debt. The risks associated with investment in securities issued
by foreign governments and companies, 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 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 and debt rated Ba, B, Caa,
Ca and C is regarded by S&P and Moody's, respectively, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. For S&P, BB indicates
the lowest degree of speculation and C the highest. For Moody's, Ba indicates
the lowest degree of speculation and C the highest. These lower rated debt
securities may include obligations that are in default or that face the risk of
default with respect to principal or interest. Such securities are sometimes
referred to as "junk bonds." For additional information on the ratings used by
S&P and Moody's and a description of lower rated debt securities, please refer
to the Funds' Statement of Additional Information.

MONEY MARKET FUND

The Money Market Fund's objectives are to maximize current income to the extent
consistent with the preservation of capital and liquidity, and the maintenance
of a stable $1.00 per share net asset value, by investing in short-term,
high-grade money market instruments. [THE MONEY MARKET FUND IS NOT AVAILABLE
FOR DIRECT SHAREHOLDER INVESTMENT UNTIL FURTHER NOTICE.]

The instruments in which the Fund invests include (1) securities issued or
guaranteed by the US government or any of its agencies and instrumentalities,
including securities of the US Treasury, the Federal National Mortgage
Association, the Federal Housing Administration, and the Tennessee Valley
Authority; (2) instruments of US and foreign banks and branches, including
certificates of deposit, bankers' acceptances and time deposits, and may
include ECDs, Yankee CDs and ETDs; (3) commercial paper of US and foreign
companies; (4) corporate obligations; (5) variable amount master demand notes
and (6) securities listed in (1) which are subject to repurchase agreements,
provided that the Fund will not invest in repurchase agreements maturing in
more than seven days if, as a result thereof, 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,

PROSPECTUS 32
<PAGE> 39
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.

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.

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.

PROSPECTUS 33
<PAGE> 40
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 total 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 total assets (taken at current market
value) in repurchase agreements and other illiquid securities maturing in more
than seven days.

Forward Commitments. Each Fund may contract to purchase securities for a fixed
price at a future date beyond customary settlement time (a "forward commitment"
or "when-issued" transaction), so long as such transactions are consistent with
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.

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.

PROSPECTUS 34
<PAGE> 41
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 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.

PROSPECTUS 35
<PAGE> 42

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' 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.

PROSPECTUS 36
<PAGE> 43
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 assets, represented by the premium paid, in
call and put options. A Fund may write a call or put option to the extent that
the aggregate value of all securities or other assets used to cover all such
outstanding options does not exceed 25% of the value of its net assets.

Call and Put Options on Securities. A call option on a specific security gives
the purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security at the exercise price at any time during the option
period. Conversely, a put option on a specific security gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
security at the exercise price at any time during the option period.

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

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

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

PROSPECTUS 37
<PAGE> 44
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 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

PROSPECTUS 38
<PAGE> 45
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 Fixed Income III Fund will invest in "investment grade" securities and may
invest up to 25% of its total assets in debt securities rated less than BBB by
S&P or Baa by Moody's, or in unrated securities judged by the money managers of
the Fund to be of comparable quality. Lower rated debt securities generally
offer a higher yield than that available from higher grade issues. However,
lower rated debt securities involve higher risks, in that they are especially
subject to adverse changes in general economic conditions and in the industries
in which the issuers are engaged, to changes in the financial condition of the
issuers and to price fluctuation in response to changes in interest rates.
During periods of economic downturn or rising interest rates, highly leveraged
issuers may experience financial stress which could adversely affect their
ability to make payments of principal and interest and increase the possibility
of default. In addition, the market for lower rated debt securities has
expanded

PROSPECTUS 39
<PAGE> 46
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.

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

PROSPECTUS 40
<PAGE> 47
shareholders on December 31 of the prior year. Net capital gains realized
during November and December will be distributed during the month of February
of the following year.

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

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. The Funds may be subject to nominal, if any, state and
local 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 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 Internal Revenue 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

PROSPECTUS 41
<PAGE> 48
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-US 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.

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 to distributions received by them from
a Fund and the application of foreign tax laws to these distributions.

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 each of the Funds
are as follows:

PROSPECTUS 42
<PAGE> 49
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
5 YEARS ENDED 10 YEARS ENDED INCEPTION TO
1 YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 INCEPTION
DECEMBER 31, 1995 1995 1995 (ANNUALIZED) DATE
----------------- (ANNUALIZED) (ANNUALIZED) ------------ ---------
------------ ------------
<S> <C> <C> <C> <C> <C>
Equity I % % % % 10/15/81
Equity II 12/28/81
Equity III 11/27/81
Equity Q 05/29/87
International 01/31/83
Fixed Income I 10/15/81
Fixed Income II 10/30/81
Fixed Income III 01/29/93
Money Market 10/15/81
- -------------------------------------------------------------------------------------------------------
</TABLE>

The Fixed Income I, Fixed Income II and Fixed Income III Funds also may from
time to time advertise their yields. The yields are based on historical
earnings and are not intended to indicate future performance. Yield is
calculated by dividing the net investment income per share earned during the
most recent 30-day (or one month) period by the maximum offering price per
share on the last day of the month. This income is then annualized. That is,
the amount of income generated by the investment during that 30-day (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 Fixed Income I, Fixed Income II
and Fixed Income III Funds were, respectively, ____%, ____% and ____%.

The Money Market Fund may advertise its yield and effective yield. Both yield
figures are based on historical earnings and are not intended to indicate
future performance. The yield of the Money Market Fund refers to the income
generated by an investment in the Money Market Fund over a seven-day period
(which period will be stated in the advertisement). This yield is calculated by
determining the net change, exclusive of capital changes, in the value of a
hypothetical preexisting account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base return. This income is
then annualized. That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The effective yield will be slightly higher than
the current yield because of the compounding effect of this assumed
reinvestment. The following are the current and effective yields for the Money
Market Fund during 1995 for the seven-day periods ended:

PROSPECTUS 43
<PAGE> 50
<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 % % % % % % % %
- ------------------------------------------------------------------------------------------------------------
</TABLE>

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

VALUATION OF FUND SHARES

NET ASSET VALUE PER SHARE.

The net asset value per share is calculated for each Fund on each business day
on which shares are offered or orders to redeem are tendered. For all Funds
except the Money Market Fund, a business day is one on which the New York Stock
Exchange is open for trading. A business day for the Money Market Fund includes
any day on which the New York Stock Exchange is open for trading and the Boston
Federal Reserve Bank is open. Net asset value per share is computed for a Fund
by dividing the current value of the Fund's assets, less its liabilities, by
the number of shares of the Fund outstanding, and rounding to the nearest cent.
All Funds determine net asset value as of the close of the 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 determines that
amortized cost does not represent fair value. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument.

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

PROSPECTUS 44
<PAGE> 51
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>
<S> <C>
- -----------------------------------------------------------------------------------------------------
Close of the New York Equity I, Equity II, Equity III, Equity Q, International, Fixed
Stock Exchange (currently 4:00 p.m. Income I, Fixed Income II and Fixed Income III Funds
Eastern time)

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

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

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

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

Check. Payment for orders may be made by check or other negotiable bank draft
payable to "Frank Russell Investment Company" and mailed to the 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.

PROSPECTUS 45
<PAGE> 52
Eastern Time). When the check or draft is received by the Transfer Agent after
the close of the New York Stock Exchange, the order will be effected on the
following business day.

IN-KIND EXCHANGE OF SECURITIES.

The Transfer Agent may, at its discretion, permit investors to purchase shares
through the exchange of securities they hold. Any securities exchanged must
meet the investment objective, policies and limitations of the 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.

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

PROSPECTUS 46
<PAGE> 53
request is sent to the Transfer Agent in proper form.

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>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Close of the New York Equity I, Equity II, Equity III, Equity Q, International, Fixed
Stock Exchange (currently Income I, Fixed Income II and Fixed Income III Funds
4:00 p.m. Eastern time)

12:45 p.m. Eastern time Money Market Fund
- ----------------------------------------------------------------------------------------------------
</TABLE>

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

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

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, from Boston, Massachusetts, to the requested address on the payment date.

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

PROSPECTUS 47
<PAGE> 54
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, 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.

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 a single class of shares divisible into an
unlimited number of funds, each of which is a separate trust under
Massachusetts law. Each fund share represents an equal proportionate interest
in that fund, has a par value of $.01 per share, and is entitled to such
dividends and distributions earned on the assets belonging to such fund as may
be declared by the Board of Trustees. Shares of a fund are fully paid and
nonassessable and have no preemptive or conversion rights.

Each Fund share has one vote; there are no cumulative voting rights. There is
no Annual Meeting of shareholders, but Special Meetings may be held. On any
matter which affects only a particular Fund, only shareholders of that Fund
vote, unless otherwise required by the 1940 Act or the amended Master Trust
Agreement. 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 __________, 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: (To be filed by amendment)

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.

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, 65% of The

PROSPECTUS 48
<PAGE> 55
Equitable was owned by Axa, a French insurance holding company.

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

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

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

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

Lincoln Capital Management Company, 200 South Wacker Drive, Suite 2100,
Chicago, IL 60606. Lincoln Capital Management, Inc. is a division of Lincoln
Capital Management Company, and is a registered investment 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

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

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.

PROSPECTUS 49
<PAGE> 56

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.

Standish, Ayer & Wood, Inc., See: Fixed Income I Fund.

MONEY MARKET FUND

PROSPECTUS 50
<PAGE> 57

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.

PROSPECTUS 51
<PAGE> 58
Frank Russell Investment Company
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700
In Washington (206) 627-7001

MONEY MANAGERS

EQUITY I FUND

Alliance Capital Management L.P.
Systematic Financial Management, L.P.
Columbus Circle Investors
Equinox Capital Management, Inc.
INVESCO 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 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 Co.

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

CONSULTANT
Frank Russell Company
909 A Street
Tacoma, Washington 98402

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

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

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

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

<PAGE> 59
PROSPECTUS

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

Frank Russell Investment Management Company (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 other Funds. There is no sales charge for investing
in 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

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 eight of its Funds that a prospective investor ought to know before
investing. The Investment Company has filed a Statement of Additional
Information dated May 1, 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.

PROSPECTUS DATED MAY 1, 1996
<PAGE> 60
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 shares of eight Internal Fee Funds.
Another prospectus describes and offers shares of nine External Fee Funds,
while a third prospectus describes and offers 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 for shareholder services. The shareholder fee is computed on the
amount the shareholder has invested in an External Fee Fund. Each Shareholder
of the Internal Fee Funds pays no such fees. The Investment Company Funds had
aggregate net assets of $____ billion on _________________, 1996. The net
assets of these eight Funds on _____________, 1996, were:

- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Diversified Equity $ ______ International Securities $ ______

Special Growth ______ Diversified Bond ______

Equity Income ______ Volatility Constrained Bond ______

Quantitative Equity ______ Multistrategy Bond ______

</TABLE>

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

-2-
<PAGE> 61
HIGHLIGHTS AND TABLE OF CONTENTS

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

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

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

-3-
<PAGE> 62
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 share
purchased or redeemed is based upon the next computed current market value of
the assets, less liabilities, of each Fund. PAGE ___.

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

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

-4-
<PAGE> 63
ANNUAL FUND OPERATING EXPENSES OF THE DIVERSIFIED EQUITY FUND

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

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases................................... None
Sales Load Imposed on Reinvested Dividends........................ None
Deferred Sales Load............................................... None
Redemption Fees................................................... None
Exchange Fees..................................................... None

ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee....................................................
12b-1 Fees........................................................ None
Other Expenses:
Custodian Fees.......................................
Transfer Agent Fees..................................
Other Fees...........................................
Total Other Expenses..........................................
Total Fund Operating Expenses Section...........................
</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.. $ $ $ $
===== ===== ===== =====
</TABLE>
- --------------------------------------------------------------------------------
Section 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.

-5-
<PAGE> 64
ANNUAL FUND OPERATING EXPENSES OF THE SPECIAL GROWTH FUND

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

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases.................................. None
Sales Load Imposed on Reinvested Dividends....................... None
Deferred Sales Load.............................................. None
Redemption Fees.................................................. None
Exchange Fees.................................................... None

ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee...................................................
12b-1 Fees....................................................... None
Other Expenses:
Custodian Fees......................................
Transfer Agent Fees.................................
Other Fees..........................................
Total Other Expenses.........................................
Total Fund Operating Expenses Section............................
</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... $ $ $ $
===== ===== ===== =====
</TABLE>
- --------------------------------------------------------------------------------
Section 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.

-6-
<PAGE> 65
ANNUAL FUND OPERATING EXPENSES OF THE EQUITY INCOME FUND

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

-7-
<PAGE> 66
ANNUAL FUND OPERATING EXPENSES OF THE QUANTITATIVE EQUITY FUND

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

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases........................................ None
Sales Load Imposed on Reinvested Dividends............................. None
Deferred Sales Load.................................................... None
Redemption Fees........................................................ None
Exchange Fees.......................................................... None

ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee.........................................................
12b-1 Fees............................................................. None
Other Expenses:
Custodian Fees............................................
Transfer Agent Fees.......................................
Other Fees................................................
Total Other Expenses...............................................
Total Fund Operating Expenses Section..................................
</TABLE>

- --------------------------------------------------------------------------------
Section 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.

-8-
<PAGE> 67
ANNUAL FUND OPERATING EXPENSES OF THE INTERNATIONAL SECURITIES FUND

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

ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee.....................................................
12b-1 Fees......................................................... None
Other Expenses:
Custodian Fees........................................
Transfer Agent Fees...................................
Other Fees............................................
Total Other Expenses...........................................
Total Fund Operating Expenses Section..............................
</TABLE>

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

Section 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.

-9-
<PAGE> 68
ANNUAL FUND OPERATING EXPENSES OF THE DIVERSIFIED BOND FUND

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

Section 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.

-10-
<PAGE> 69
ANNUAL FUND OPERATING EXPENSES OF THE VOLATILITY CONSTRAINED BOND FUND

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

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases.................................... None
Sales Load Imposed on Reinvested Dividends......................... None
Deferred Sales Load................................................ None
Redemption Fees.................................................... None
Exchange Fees...................................................... None
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee.....................................................
12b-1 Fees......................................................... None
Other Expenses:
Custodian Fees............................................
Transfer Agent Fees.......................................
Other Fees................................................
Total Other Expenses...........................................
Total Fund Operating Expenses Section..............................
</TABLE>

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

Section 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.

-11-
<PAGE> 70
ANNUAL FUND OPERATING EXPENSES 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 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.

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

ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee.........................................................
12b-1 Fees............................................................. None
Other Expenses:
Custodian Fees..................................................
Transfer Agent Fees.............................................
Other Fees......................................................
Total Other Expenses...............................................
Total Fund Operating Expenses After Fee Waiver Section.................
</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.. $ $ $ $
===== ===== ===== =====
</TABLE>
- ---------------------------------------------------------------------------
+ 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 0.85% of average net assets. Also effective May 1, 1996, 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 exceed 0.85% of the
Fund's average net assets on an annual basis. The gross annual total
operating expenses absent the waiver would be ____% of average net
assets. This waiver is intended to be in effect for the current fiscal
year, but may be revised or eliminated at any time without notice to
shareholders.

Section 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> 71
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 fiscal year ended December 31, and other
performance information derived from the financial statements. 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 ........... $ $ 34.88 $ 35.60 $ 36.36 $ 30.66 $ 35.22 $ 30.46 $ 27.22
-- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... .58 .56 .60 .81 .99 .94 .89
Net realized and unrealized
gain (loss) on investments . (.49) 3.03 2.30 8.36 (3.45) 7.68 3.57
-- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ................. .09 3.59 2.90 9.17 (2.46) 8.62 4.46
-- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income ....... (.58) (.55) (.61) (.82) (.96) (1.11) (.81)
Net realized gain on
investments ................ (1.87) (3.76) (3.05) (2.65) (1.14) (2.75) (.41)
In excess of net realized
gain on investments ........ (.26) -- -- -- -- -- --
-- -------- -------- -------- -------- -------- -------- --------
Total Distributions ......... (2.71) (4.31) (3.66) (3.47) (2.10) (3.86) (1.22)
-- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR ................. $ $ 32.26 $ 34.88 $ 35.60 $ 36.36 $ 30.66 $ 35.22 $ 30.46
== ======== ======== ======== ======== ======== ======== ========

TOTAL RETURN (%) .............. (0.01) 10.53 8.32 31.05 (7.01) 29.06 16.37
--
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets ................. .95 .96 .98 .98 1.03 1.01 1.00
--
Net investment income to
average net assets ......... 1.73 1.54 1.69 2.28 2.97 2.65 2.92
--
Portfolio turnover .......... 57.53 99.80 77.02 116.53 96.90 61.80 66.02
--
Net assets, end of year
($000 omitted) .............. 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> 72
FINANCIAL HIGHLIGHTS OF THE SPECIAL GROWTH FUND*

<TABLE>
<CAPTION>
SPECIAL GROWTH FUND
- ------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ..................... $ $ 35.82 $ 36.63 $ 34.47 $ 24.71
-- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ................. .16 .07 .05 .24
Net realized and unrealized
gain (loss) on investments ........... (.71) 5.22 4.22 10.34
-- -------- -------- -------- --------
Total From Investment
Operations ........................... (.55) 5.29 4.27 10.58
-- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income ................. (.10) (.07) (.06) (.24)
Net realized gain on
investments .......................... (.85) (6.03) (2.05) (.58)
In excess of net realized
gain on investments .................. (.85) -- -- --
-- -------- -------- -------- --------
Total Distributions ................... (1.80) (6.10) (2.11) (.82)
-- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR ........................... $ $ 33.47 $ 35.82 $ 36.63 $ 34.47
== ======== ======== ======== ========
TOTAL RETURN (%) ........................ (3.71) 15.48 12.52 43.11
--
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net to average
net assets ........................... 1.20 1.31 1.33 1.36
--
Operating expenses, gross to average
net assets ........................... 1.20 1.31 1.33 1.36
--
Net investment income to
average net assets ................... .50 .19 .14 .80
--
Portfolio turnover .................... 55.40 91.97 42.20 42.81
--
Net assets, end of year
($000 omitted) ....................... -- 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

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> 73
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 fiscal year ended December 31, and other
performance information derived from the financial statements. 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............... $ $ 35.90 $ 35.32 $ 36.54 $ 30.75
-- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... .90 .83 .99 1.11
Net realized and unrealized
gain (loss) on investments..... (.70) 3.69 3.08 7.15
-- -------- -------- -------- --------
Total From Investment
Operations..................... .20 4.52 4.07 8.26
-- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income........... (.89) (.83) (1.00) (1.10)
In excess of net investment
income......................... -- (.00) -- --
Net realized gain on
investments.................... (3.00) (3.11) (4.29) (1.37)
-------- -------- -------- --------
Total Distributions............. (3.89) (3.94) (5.29) (2.47)
-- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR..................... $ $ 32.21 $ 35.90 $ 35.32 $ 36.54
== ======== ======== ======== ========
TOTAL RETURN (%).................. (.69) 13.23 11.51 27.52
--
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets..................... 1.04 1.05 1.08 1.11
--
Net investment income to
average net assets............. 2.56 2.23 2.68 3.11
---
Portfolio turnover.............. 89.91 78.72 95.07 61.73
Net assets, end of year
($000 omitted).................. 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> 74
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 fiscal year ended December 31, and other
performance information derived from the financial statements. 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............... $ $ 26.44 $ 25.82 $ 25.88 $ 21.07 $ 23.57 $ 20.21 $ 18.08 $ 20.00
-- -------- -------- -------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... .49 .45 .49 .58 .66 .68 .56 .32
Net realized and unrealized
gain (loss) on investments..... (.19) 2.69 1.67 5.93 (1.99) 4.53 2.14 (1.86)
-- -------- -------- -------- -------- -------- -------- ------- -------
Total From Investment
Operations..................... .30 3.14 2.16 6.51 (1.33) 5.21 2.70 (1.54)
-- -------- -------- -------- -------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
Net investment income........... (.49) (.45) (.49) (.58) (.64) (.76) (.57) (.25)
Net realized gain on
investments.................... (1.41) (2.07) (1.73) (1.12) (.53) (1.09) -- (.13)
-- -------- -------- -------- -------- -------- -------- ------- -------
Total Distributions............. (1.90) (2.52) (2.22) (1.70) (1.17) (1.85) (.57) (.38)
-- -------- -------- -------- -------- -------- -------- ------- -------
NET ASSET VALUE,
END OF YEAR..................... $ $ 24.84 $ 26.44 $ 25.82 $ 25.88 $ 21.07 $ 23.57 $ 20.21 $ 18.08
== ======== ======== ======== ======== ======== ======== ======= =======
TOTAL RETURN (%)(a)............... .19 12.56 8.67 31.70 (5.60) 26.08 15.05 (7.74)
--
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (b)................. .94 .98 1.02 1.03 1.12 1.14 1.16 .97
--
Net investment income to
average net assets (b)......... 1.95 1.68 1.94 2.39 2.94 3.00 3.00 3.38
--
Portfolio turnover (b).......... 45.97 62.48 59.19 58.07 57.49 90.65 59.37 47.78
--
Net assets, end of year
($000 omitted).................. 380,592 314,647 244,870 201,614 147,730 124,111 89,858 64,182
--
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

++ 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> 75
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 fiscal year ended December 31, and other
performance information derived from the financial statements. 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..................... $ $ 57.95 $ 44.75 $ 49.15 $ 44.60 $ 55.81
-- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. .44 .40 .61 .72 1.05
Net realized and unrealized
gain (loss) on investments (a)....... 1.23 14.53 (4.02) 4.60 (9.53)
-- -------- -------- -------- -------- --------
Total From Investment
Operations........................... 1.67 14.93 (3.41) 5.32 (8.48)
-- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income................. (.04) (.38) (.68) (.76) (1.08)
In excess of net investment
income............................... (.02) (.23) -- -- --
-- -------- -------- -------- -------- --------
Net realized gain on
investments.......................... (5.60) (1.12) (.31) (.01) (1.65)
Total Distributions................... (5.66) (1.73) (.99) (.77) (2.73)
-- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR........................... $ $ 53.96 $ 57.95 $ 44.75 $ 49.15 $44.60
== ======== ======== ======== ======== ========
TOTAL RETURN (%)........................ 4.86 33.48 (6.94) 11.99 (15.34)
--
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
assets............................... 1.30 1.38 1.45 1.49 1.50
--
Operating expenses, gross, to
average assets....................... 1.30 1.38 1.45 1.49 1.50
--
Net investment income to
average net assets................... .70 .82 1.37 1.68 2.28
--
Portfolio turnover.................... 72.23 60.22 48.93 52.46 68.89
--
Net assets, end of year
($000 omitted)....................... 563,333 454,482 262,886 243,065 169,818
--
Per share amount of fees reimbursed
($ omitted)........................... -- -- -- -- --
--
- -----------------------------------------------------------------------------------------------------
</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....................... 1.50 1.50

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> 76
FINANCIAL HIGHLIGHTS OF THE DIVERSIFIED BOND FUND*

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 ................. $ $ 23.73 $ 23.49 $ 24.29 $ 22.81 $ 22.90 $ 22.38 $ 22.38
-- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ............. 1.46 1.48 1.62 1.72 1.74 1.87 1.69
Net realized and unrealized
gain (loss) on investments ....... (2.22) .83 (.10) 1.61 (.09) .83 (.02)
-- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ....................... (.76) 2.31 1.52 3.33 1.65 2.70 1.67
-- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income ............. (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 ............... (1.44) (2.07) (2.32) (1.85) (1.74) (2.18) (1.67)
-- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR ....................... $ $ 21.53 $ 23.73 $ 23.49 $ 24.29 $ 22.81 $ 22.90 $ 22.38
== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%) .................... (3.25) 10.02 6.57 15.29 7.58 12.52 7.67
--
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
assets ........................... .56 .58 .62 .74 .88 .93 .93
--
Operating expenses, gross, to
average assets ................... .56 .58 .67 .74 .88 .93 .93
--
Net investment income to
average net assets ............... 6.57 6.13 6.79 7.38 7.89 8.16 7.48
--
Portfolio turnover ................ 153.21 177.74 228.37 130.96 94.88 195.14 197.15
--
Net assets, end of year
($000 omitted) ................... 523,315 477,341 412,394 344,081 294,677 230,156 211,656
--
Per share amount of fees waived
($ 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> 77
FINANCIAL HIGHLIGHTS OF THE VOLATILITY CONSTRAINED BOND FUND*

<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 ........... $ $ 19.78 $ 19.51 $ 20.33 $ 19.51 $ 19.37 $ 19.14 $ 19.21
-- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 1.15 .82 1.34 1.45 1.52 1.66 1.55
Net realized and unrealized
gain (loss) on investments . (1.16) .45 (.88) .80 .13 .30 (.10)
-- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations ................. (.01) 1.27 .46 2.25 1.65 1.96 1.45
-- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income ....... (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 ......... (1.13) (1.00) (1.28) (1.43) (1.51) (1.73) (1.52)
-- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR ................. $ $ 18.64 $ 19.78 $ 19.51 $ 20.33 $ 19.51 $ 19.37 $ 19.14
== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%) .............. (.02) 6.67 2.29 12.00 8.92 10.64 7.77
--
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets ................. .67 .66 .68 .62 .62 .61 .59
--
Net investment income to
average net assets ......... 5.97 5.79 6.74 7.34 7.88 8.41 7.97
--
Portfolio turnover .......... 182.65 220.77 312.05 159.20 181.66 331.12 238.69
--
Net assets, end of year
($000 omitted) ............. 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> 78
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 fiscal year ended December 31, and other
performance information derived from the financial statements. 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.................... $ $ 10.31 $ 10.00
--- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... .58 .46
Net realized and unrealized gain (loss) on
investments......................................... (1.03) .40
--- -------- -------
Total From Investment Operations.................... (.45) .86
--- -------- -------
LESS DISTRIBUTIONS:
Net investment income............................... (.57) (.46)
Net realized gain on investments.................... -- (.08)
In excess of net realized gain on investments....... -- (.01)
--- -------- -------
Total Distributions................................. (.57) (.55)
--- -------- -------
NET ASSET VALUE, END OF YEAR.......................... $ $ 9.29 $ 10.31
=== ======== =======
TOTAL RETURN (%)(a)................................... (4.35) 8.74
---
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b).. -- .85 .85
Operating expenses, gross, to average net
assets (b).......................................... -- .90 1.20
Net investment income to average net assets (b)..... -- 6.26 5.60
Portfolio turnover (b).............................. -- 136.39 188.95
Net assets, end of year ($000 omitted).............. -- 173,035 98,374
Per share amount of fees waived ($ omitted)......... -- -- .0002
Per share amount of fees reimbursed ($ omitted)..... -- .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> 79
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

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

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:

-21-
<PAGE> 80
- -. Bank trust departments managing discretionary
institutional or personal trust accounts
- -. Registered investment advisors
- -. Endowment funds and charitable foundations
- -. Broker-Dealers
- -. Employee welfare plans
- -. Pension or profit sharing plans

- -. Insurance companies

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 advisers,
broker-dealers and other eligible investors ("Financial Intermediaries") which
have entered into Agreements with the Management Company may acquire shares of
the Funds for the benefit of individual customers for which they exercise
discretionary investment authority. The Management Company provides
objective-setting and asset-allocation assistance to such Financial
Intermediaries, which in turn provide the objective-setting and
asset-allocation services to their customers. These Financial Intermediaries
receive no compensation from the Management Company or the Funds; they may
charge their customers a fee for providing these and possibly other trust or
investment-related services. A shareholder may pay a fixed dollar fee to the
Management Company for other services or reports provided by the Management
Company to the shareholder.

Either the client or the Management Company may terminate the Agreement upon
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 Director - Investments, 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.

-22-
<PAGE> 81

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

The 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 on January 22, 1996.

-23-
<PAGE> 82
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:

<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>

-24-
<PAGE> 83

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 for all international portfolios. Any additional domestic
equity or fixed-income funds will be billed using the same fee schedule, with
an annual minimum fee of $20,000 and $25,000, respectively.
[IN ORDER TO REDUCE THE IMPACT OF FEES ON THE INTERNATIONAL SECURITIES FUND,
THE MANAGEMENT COMPANY HAS VOLUNTEERED TO ABSORB A PORTION OF THESE FEES IN
CONSIDERATION OF CERTAIN INTERCOMPANY TRANSFERS BETWEEN THE MANAGEMENT COMPANY
AND FRC (ITS PARENT). THE MANAGEMENT COMPANY RESERVES THE RIGHT TO REDUCE OR
ELIMINATE THIS VOLUNTARY ABSORPTION OF FEES UPON NOTIFICATION TO THE
INTERNATIONAL SECURITIES FUND'S SHAREHOLDERS.]

EXPENSES OF THE FUNDS

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

THE MONEY MANAGERS

The assets of each Fund 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.

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INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES

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'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 objectives.

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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 guarantee the Fund will have such
characteristics at any one time.

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

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

INTERNATIONAL 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.

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

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<PAGE> 86
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.

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.

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<PAGE> 87
MULTISTRATEGY BOND FUND

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

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

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

Investments in bank certificates of deposit, time deposits and 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 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

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issued in exchange for cash and certain of the country's outstanding commercial
bank loans.

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

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).

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.

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.

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

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

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.

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.

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<PAGE> 90
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 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.

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,

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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 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.

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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.

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
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.

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.

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<PAGE> 93
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 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.

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.

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

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<PAGE> 94
Multistrategy Bond Fund, will dispose of, in a prudent and orderly fashion,
securities whose ratings drop below these minimum ratings.

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> 95
<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 Diversified Equity, Special
and December Growth, Equity Income and
Quantitative Equity Funds

Annually Mid-December International Securities Fund
- --------------------------------------------------------------------------------
</TABLE>

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 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 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

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<PAGE> 96
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 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 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 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.

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.

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> 97
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
DECEMBER 31, 1995 (ANNUALIZED) (ANNUALIZED) (ANNUALIZED) INCEPTION DATE
-------------------- -------------------- -------------------- -------------------- --------------
<S> <C> <C> <C> <C> <C>
Diversified Equity % % % 09/05/85

Special Growth 09/05/85

Equity Income 09/05/85

Quantitative Equity 05/15/87

International Securities 09/05/85

Diversified Bond 09/05/85

Volatility Constrained Bond 09/05/85

Multistrategy Bond 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 the Diversified Bond, Volatility
Constrained Bond and Multistrategy Bond Funds were, respectively, ____%, ____%
and ____%.

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

VALUATION OF FUND SHARES

NET ASSET VALUE PER SHARE.

The net asset value per share is calculated for each Fund on each business day
on which shares are offered or orders to redeem are tendered. For all Funds, 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, less its liabilities, by the number of shares of the Fund
outstanding, and rounding to the nearest cent. All Funds determine net asset
value as of the close of the New York Stock Exchange (currently 4:00 p.m.
Eastern time).

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<PAGE> 98
VALUATION OF PORTFOLIO 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 Investment Company Act of 1940, as amended (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

ORDER PROCEDURES.

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.

-40-
<PAGE> 99
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.

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 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.

Request Procedures. Requests by all investors to redeem Investment Company
Fund shares must be received by

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<PAGE> 100
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 the close of the New York
Stock Exchange (currently 4:00 p.m. Eastern time).

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

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, ACCOUNTANTS, AND REPORTS.

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<PAGE> 101
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.

Each Fund share has one vote; there are no cumulative voting rights. There is
no Annual Meeting of shareholders, but Special Meetings may be held. On any
matter which affects only a particular Fund, only shareholders of that Fund
vote unless otherwise required by the 1940 Act or the amended Master Trust
Agreement. The Trustees hold office for the life of the 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 ______________, 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:
(To be Filed by Amendment)

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

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, a corporation whose indirect parent is INVESCO, PLC, a
London-based financial services holding company.

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<PAGE> 102
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.

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

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> 103
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.

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.

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<PAGE> 104
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.

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<PAGE> 105
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.
Systematic Financial Management, L.P.
Columbus Circle Investors
Equinox Capital Management, Inc.
INVESCO Capital Management, Inc.
Lincoln Capital Management Company
Suffolk Capital Management, Inc.
Trinity Investment Management Corporation
Wellington Management Company

SPECIAL GROWTH
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 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 Advisers
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 Distributor, Inc.
909 A Street
Tacoma, Washington 998402

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

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<PAGE> 106

SUBJECT TO COMPLETION _______________
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. THIS PROSPECTUS SHALL BE USED ONLY WITH
RESPECT TO THE EQUITY T FUND, SECURITIES OF WHICH 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

[SPECIALTY FUNDS]

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

Frank Russell Investment Company (the "Investment Company") is a "series mutual
fund" with 23 different investment portfolios. This Prospectus describes and
offers shares of beneficial interest in the six investment portfolios listed
below (each, a "Fund," and collectively, the "Funds").

Frank Russell Investment Management Company (the "Management Company") operates
and administers all of the Funds which comprise the Investment Company, and
manages the portfolio of the U.S. Government Money Market Fund. The Management
Company is a wholly owned subsidiary of Frank Russell Company, which researches
and recommends to the Management Company, and to the Investment Company, one or
more investment management organizations to manage the portfolio of each of the
individual Funds. There is no sales charge for investing in 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 MONEY MARKET FUNDS ("MONEY MARKET
FUNDS") 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. 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 six of its Funds that a prospective investor ought to know before
investing. The Investment Company has filed a Statement of Additional
Information dated May 1, 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.

PROSPECTUS DATED MAY 1, 1996

<PAGE> 107
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 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 for shareholder services. The
shareholder 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 $___ billion on
_____________, 1996. The net assets of these Funds on ____________, 1996 were
as follows:

<TABLE>
<S> <C> <C> <C>
Real Estate Securities $ U.S. Government Money Market $

Emerging Markets $ Tax Free Money Market $

Limited Volatility Tax Free $
</TABLE>

The Equity T Fund was not offered for public investment prior to the
date of this Prospectus.

2
<PAGE> 108
HIGHLIGHTS AND TABLE OF CONTENTS

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

FINANCIAL HIGHLIGHTS summarizes significant financial information concerning
the Funds for the period stated herein. The Equity T Fund was not
offered for public investment prior to the date of this Prospectus. 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 __.

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 __.

INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES apply to each Fund. Those
designated "fundamental" may not be changed without the approval of a majority
of the Fund's shareholders. 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> 109
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 share
purchased or redeemed is based upon the next computed current market value of
the assets, less liabilities, of each Fund. The U.S. Government Money Market
and Tax Free Money Market Funds utilize amortized cost pricing procedures
designed to maintain a stable $1.00 per share net asset value. 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. 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, and redemption proceeds with
respect to that Fund will generally be paid no sooner than the fifth day
following 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:
Distributor, Custodian, Accountants and Reports; Organization, Capitalization
and Voting; and Money Manager Profiles. PAGE __.

4
<PAGE> 110
ANNUAL FUND OPERATING EXPENSES 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 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>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases . . . . . . . . . . . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends . . . . . . . . . . . . . . None
Deferred Sales Load . . . . . . . . . . . . . . . . . . . . . . . . . . None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None

ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses:
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . .
Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Other Expenses . . . . . . . . . . . . . . . . . . . . . . .

Total Fund Operating Expenses + . . . . . . . . . . . . . . . . . . .
</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 . . . $ $ $ $
====== ======= ======= ========
</TABLE>
- ---------------
+ Investors purchasing Fund shares through a financial intermediary,
such as a bank or an investment adviser, may also be required to pay
additional fees 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> 111
ANNUAL FUND OPERATING EXPENSES 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 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>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases . . . . . . . . . . . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends . . . . . . . . . . . . . None
Deferred Sales Load . . . . . . . . . . . . . . . . . . . . . . . . . None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None

ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses:
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . .
Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Other Expenses . . . . . . . . . . . . . . . . . . . . . .

Total Fund Operating Expenses After Fee Waiver(1) + . . . . . . . . .
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE:

(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 2.00% of average net assets. Also effective May 1, 1996, 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 exceed 2.00% of the
Fund's average net assets on an annual basis. The gross annual total
operating expenses absent the waiver would be % of average net
assets. This waiver is intended to be in effect for the current fiscal
year, but may be revised or eliminated at any time without notice to
shareholders.

* 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.

+ 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.

6
<PAGE> 112

ANNUAL FUND OPERATING EXPENSES 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 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>
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 FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee(1) . . . . . . . . . . . . . . . . . . . . . . . . .66%

12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses:
Custodian Fees(1) . . . . . . . . . . . . . . . . . .09%
Transfer Agent Fees . . . . . . . . . . . . . . . . .12
Other Fees . . . . . . . . . . . . . . . . . . . . .13
---
Total Other Expenses** . . . . . . . . . . . . . . . . . . . .34
----

Total Fund Operating Expenses After Fee Waivers(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 . . . . $ 10 $ 32
====== =======
</TABLE>

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

(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 net assets on an annual basis. Additionally, the
Custodian has voluntarily agreed to waive a portion of its fees for
the first three months after the Fund becomes operational. The gross
annual Management and Custody Fees before waivers would be 0.75% and
0.10% of average assets, respectively. The gross annual total
operating expenses absent the waivers would be 1.10% of average net
assets. The management waiver is intended to be in effect for the
current fiscal year, but may be revised or eliminated at any time
without notice to shareholders.

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

7
<PAGE> 113
ANNUAL FUND OPERATING EXPENSES 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 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.

ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . .
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses:
Custodian Fees . . . . . . . . . . . . . . . . . . . .
Transfer Agent Fees . . . . . . . . . . . . . . . . . .
Other Fees . . . . . . . . . . . . . . . . . . . . . .
Total Other Expenses . . . . . . . . . . . . . . . . . . . . . .
Total Fund Operating Expenses + . . . . . . . . . . . . . . . . . . .
</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 . . . . $ $ $ $
====== ======= ======= ========
</TABLE>
- ---------------
+ Investors purchasing Fund shares through a financial intermediary,
such as a bank or an investment adviser, may also be required to pay
additional fees 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> 114
ANNUAL FUND OPERATING EXPENSES OF THE 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 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.

ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses:
Custodian Fees . . . . . . . . . . . . . . . . . . . . . .
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . .
Other Fees . . . . . . . . . . . . . . . . . . . . . . . .
Total Other Expenses . . . . . . . . . . . . . . . . . . . . . .
Total Fund Operating Expenses After Fee Waiver(1) + . . . . . . . . .
</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 __% 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> 115
ANNUAL FUND OPERATING EXPENSES 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 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.

ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . .

12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses:
Custodian Fees . . . . . . . . . . . . . . . . . . . . . .
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . .
Other Fees . . . . . . . . . . . . . . . . . . . . . . . .
Total Other Expenses . . . . . . . . . . . . . . . . . . . . . .

Total Fund Operating Expenses + . . . . . . . . . . . . . . . . . .
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE:

10
<PAGE> 116
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 fiscal year or period ended December 31, and
other performance information derived from the financial statements. 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 . . . . . . . . . . . . . . . $ $22.76 $21.50 $19.33 $14.99 $19.31 $20.00
------ ------ ------ ------ ------ ------ ------

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

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

LESS DISTRIBUTIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . _______ (1.23) (1.04) (1.07) (1.13) (1.32) (.38)
Net realized gain on investments . . . . . . . . . . . . . . . _______ (.45) (1.43) -- -- -- --
In excess of net realized gain on investments . . . . . . . . . _______ (.20) -- -- -- -- --
------ ------ ------ ------ ------ ------
Total Distributions . . . . . . . . . . . . . . . . . . . . . .
_______ (1.88) (2.47) (1.07) (1.13) (1.32) (.38)
------ ------ ------ ------ ------ ------

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

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

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

11
<PAGE> 117
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 fiscal year or period ended December 31, and
other performance information derived from the financial statements. 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>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . $ $13.90 $10.00
------ ------ ------

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

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

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

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

RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets(b)(c) . . . . . . . _______ .80 .80
Operating expenses, gross, to average net assets(b)(c) . . . . . . _______ .82 1.59
Net investment income to average net assets(b)(c) . . . . . . . . . _______ 1.10 1.33
Portfolio turnover(b) . . . . . . . . . . . . . . . . . . . . . . . _______ 57.47 89.99
Net assets, end of year ($000 omitted) . . . . . . . . . . . . . . _______ 127,271 65,457
Per share amount of fees waived ($ omitted) . . . . . . . . . . . . _______ .0044 .0016
Per share amount of fees reimbursed ($ omitted) . . . . . . . . . . _______ .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%.

12
<PAGE> 118
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 fiscal year or period ended December 31, and
other performance information derived from the financial statements. 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 . . . . . . . . $ $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 . . . . . . _______ .86 .94 1.01 1.17 1.25 1.21 1.15 1.06 .99
Net realized and unrealized
gain (loss) on investments . . _______ (.97) .42 .18 .35 (.03) .17 (.10) (.48) .85
------ ------ ------ ------ ------ ------ ------ ------ ------

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

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

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

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

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

TOTAL RETURN (%) . . . . . . . . . _______ (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 . . . . . . _______ .72 .75 .80 .84 .86 .74 .65 .63 .51
Operating expenses, gross, to
average net assets . . . . . . _______ .72 .75 .80 .84 .86 .74 .65 .63
Net investment income to
average net assets . . . . . . _______ 4.14 4.40 4.89 5.68 6.06 5.64 5.50 5.20 5.22

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

13
<PAGE> 119
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 fiscal year or period ended December 31, and
other performance information derived from the financial statements. 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
------- ------- ------- ------- ------- ------- ------- ------- ------- -------

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income . . . . _______ .0380 .0284 .0347 .0573 .0773 .0861 .0693 .0601 .0660
-------- ------- ------- ------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS:
Net investment income . . . . _______ (.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
======= ======= ======= ======= ======= ======= ======= ======= ======= =======

TOTAL RETURN (%)(a) . . . . . . . _______ 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 . . . . . _______ .57 .49 .41 .38 .41 .42 .33 .31 .32
Operating expenses, gross, to
average net assets . . . . . _______ .57 .49 .41 .38 .41 .42 .33 .31 .32
Net investment income to
average daily net assets . . _______ 3.91 2.85 3.47 5.74 7.69 8.69 6.94 6.01 6.50

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

14
<PAGE> 120
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 fiscal year or period ended December 31, and other
performance information derived from the financial statements. 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
----- ------- ------- ------- ------- ------- ------- ------- -------

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

LESS DISTRIBUTIONS:
Net investment income...................... (.0279) (.0251) (.0304) (.0473) (.0582) (.0623) (.0508) (.0318)
----- ------- ------- ------- ------- ------- ------- ------- -------

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

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

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

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

15
<PAGE> 121
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.

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.

16
<PAGE> 122
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
- Registered investment advisors
- Endowment funds and charitable foundations
- Employee welfare plans
- Broker-Dealers
- 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 advisers,
broker-dealers and other eligible investors ("Financial Intermediaries") which
have entered into Agreements with the Management Company may acquire shares of
the Funds for the benefit of individual customers for which they exercise
discretionary investment authority. The Management Company provides
objective-setting and asset-allocation assistance to such Financial
Intermediaries, which in turn provide the objective- setting and
asset-allocation services to their customers. These Financial Intermediaries
receive no compensation from the Management Company or the Funds; they may
charge their customers a fee for providing these and possibly other trust or
investment- related services. A shareholder may pay a fixed dollar fee to the
Management Company for other services or reports provided by the Management
Company to the shareholder.

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.

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

17
<PAGE> 123
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 Director - Investments, 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 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 became a member of the
Alpha Strategy Group. From 1988 to 1994, Ms. Williams was

18
<PAGE> 124
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.

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
Shareholders 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 and to pay expenses as described above. 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: 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 Internal Fee Funds (including the Fund) are
$290,000.
[/R]

EXPENSES OF THE FUNDS

The Funds will pay all their expenses other than those expressly assumed by the
Management Company. The Funds' expenses for the year ended December 31, 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 prior
to the date of this Prospectus, and therefore, Financial Highlights do not exist
for the Fund. The Funds' principal expenses are: the management, transfer
agency and recordkeeping fees payable to the Management Company; fees for
custodial and portfolio accounting payable to State Street Bank and Trust
Company; bookkeeping service fees for preparing tax records payable to Frank
Russell Company; fees for independent auditing and legal services; and fees for

19
<PAGE> 125
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.

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 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 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 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.

The Equity T Fund is managed by J.P. Morgan Investment Management, Inc.
The individuals responsible for the management of the Fund and their principal
occupations for the past five years are as follows: [to be filed by amendment,
portfolio manager biographies.]

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 the Short-Term Investment Funds for Frank
Russell Investment Management 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 NOR FRANK RUSSELL COMPANY EVALUATE THE INVESTMENT MERITS OF
THE MONEY MANAGERS' INDIVIDUAL SECURITY SELECTIONS.

INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES

20
<PAGE> 126
Funds without the approval of shareholders. This section of the Prospectus
describes the Funds' principal objectives, restrictions and policies. A more
detailed discussion appears in the Statement of Additional Information.

INVESTMENT OBJECTIVE.

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").

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, "emerging markets" will consist of all
countries determined by the Fund's money managers to have developing or emerging
economies and markets. These countries generally include every country in the
world except the United States, Canada, Japan, Australia and most countries
located in Western Europe.

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

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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 and equities linked
securities.

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
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 for a period of time to
qualify for the more favorable tax treatment a long-term captial 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

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highest cost basis to minimize capital gains. When prudent, the money manager
will sell securities in order to realize capital losses, which losses 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 amount redeemed is retained by the Fund from
all redemptions, this policy is intended to offset the potentially negative
impact that redemptions can have on the Fund's portfolio strategy and to contain
costs. The Fund will indirectly help to offset tax costs that investors bear
when the Fund is forced to realize capital gains as a result of a shareholder
redemption 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. Generally, redemption proceeds will generally be paid no sooner than
the fifth day following a shareholder's redemption of shares of the Equity T
Fund. (See, "Redemption of Fund Shares" in this Prospectus.)

LIMITED VOLATILITY TAX FREE FUND

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

The Fund will invest principally in municipal obligations which, at the time of
purchase, are rated no less than 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 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

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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.

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the obligations is readjusted periodically according to some objective standard
such as changes in a commercial bank's prime rate. The maturity of floating
rate obligations is deemed to be the demand period. The maturity of variable
rate obligations is deemed to be the longer of the demand period or the period
remaining until the next rate adjustment.)

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

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

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

INVESTMENT RESTRICTIONS.

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

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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.

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

Forward Commitments. Each Fund may contract to purchase securities for a fixed
price at a future date beyond customary settlement time (a "forward commitment"
or "when-issued" transaction), so long as such transactions are consistent with
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.

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."

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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 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

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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 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

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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.

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.

29
<PAGE> 135

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.

30
<PAGE> 136
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.

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, 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 will dispose
of, in a prudent and orderly fashion, securities whose ratings drop below these
minimum ratings. For additional information, please refer to the Funds'
Statement of Additional Information.

The Emerging Markets Fund 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

31
<PAGE> 137
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.

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
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 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:

32
<PAGE> 138
<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.

The Board intends to declare distributions from net 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.

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

33
<PAGE> 139
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. 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 Funds. 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. 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.

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 Internal Revenue 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.

(1) 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 Internal Revenue Code also
provides that interest on indebtedness incurred, or continued, to purchase or
carry Limited Volatility Tax Free and Tax Free Money Market Fund shares is not
deductible; and that persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds may not be able
to treat 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)

34
<PAGE> 140
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.

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 each of the Funds, with the
exception of the Equity T Fund (which was not offered for public
investment prior to the date of this Prospectus) are as follows:

5 YEARS ENDED 10 YEARS ENDED INCEPTION TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1 YEAR ENDED 1995 1995 1995 INCEPTION
DECEMBER 31, 1995 (ANNUALIZED) (ANNUALIZED) (ANNUALIZED) DATE
----------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Real Estate Securities 07/28/89

Emerging Markets 01/29/93

Limited Volatility Tax Free 09/05/85

U.S. Government Money Market 09/05/85

Tax Free Money Market 05/08/87
</TABLE>

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

35
<PAGE> 141
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 Limited
Volatility Tax Free Fund was ____%.

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 the year ended December 31, 1995,
based on a tax rate of 39.6%, was _____%.

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, 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
the Money Market Funds 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>
U.S. Government % % % % % % % %
Money Market

Tax Free Money % % % % % % % %
Market
</TABLE>

The Tax Free Money Market Fund may also utilize tax equivalent yields computed
in the same manner as yield above, with adjustment for a stated income tax rate.
The following are the current and effective tax equivalent yields, based on a
tax rate of ____%, during 1995 for the seven-day periods ended:

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 each
Fund on each business day on which shares are offered or orders to redeem are
tendered. For the Real Estate Securities, the Emerging

36
<PAGE> 142
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 each Fund by dividing the current
value of the Fund's assets, less its liabilities, by the number of shares of the
Fund outstanding, and rounding to the nearest cent. All Funds determine net
asset value as of the close of the regular session of the New York Stock
Exchange (currently 4:00 p.m. Eastern time). The U.S. Government Money Market
Fund also determines its net asset value as of 1:00 p.m. Eastern time, and the
Tax Free Money Market Fund as of 12:00 noon Eastern time.

VALUATION OF PORTFOLIO SECURITIES. With the exceptions noted below, the Funds
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 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

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 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:

37
<PAGE> 143
<TABLE>
<S> <C>
Close of the New York Stock Real Estate Securities, Emerging Markets, Equity T and Limited
Exchange (currently 4:00 p.m. Volatility Tax Free Funds
Eastern time)

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

12:15 p.m. Eastern time U.S. Government Money Market Fund
</TABLE>

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

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. 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.

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

38
<PAGE> 144
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 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 except the Equity T 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, the redemption value of an investor's shares will be 99% of
the net asset value of the shares redeemed. The redemption fee is retained by
the Equity T Fund. 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. Redemption proceeds with respect to the Equity T Fund
will generally be paid no sooner than the fifth day after receipt of such
redemption request.

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

Request Procedures. 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:

39
<PAGE> 145
<TABLE>
<S> <C>
Close of the New York Stock Real Estate Securities, Emerging Markets, Equity T and Limited
Exchange (currently 4:00 p.m. Volatility Tax Free Funds
Eastern time)

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

12:15 p.m. Eastern time U.S. Government Money Market Fund
</TABLE>

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

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

Mail. Redemption requests may be made in writing directly to Frank Russell
Investment Management Company, Attention: Frank Russell Investment Company,
Operations Department, P.O. Box 1591, Tacoma, WA 98401. For all Funds except
the Equity T Fund, 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, the
redemption price will be 99% of the net asset value next determined after
receipt by the Management Company of all required documents in good order. "Good
order" means that the request must include the following:

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

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

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

A Systematic Withdrawal Payment form must be completed and mailed to Frank
Russell Investment

40
<PAGE> 146
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.

ADDITIONAL INFORMATION

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

State Street Bank and Trust Company ("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 audited annual financial statements from Coopers & Lybrand L.L.P.
Shareholders may also receive additional reports concerning the Funds, or their
accounts, from the Management Company.

ORGANIZATION, CAPITALIZATION, AND VOTING. The Investment Company was organized
as a Maryland corporation on March 6, 1981, and commenced offering shares on
October 15, 1981. On January 2, 1985, the Investment Company reorganized 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 a single class of shares divisible into an
unlimited number of funds, each of which is a separate trust under Massachusetts
law. Each fund share represents an equal proportionate interest in that fund,
has a par value of $0.01 per share, and is entitled to such dividends and
distributions earned on the assets belonging to such fund as may be declared by
the Board of Trustees. Shares of a fund are fully paid and nonassessable and
have no preemptive or conversion rights.

Each Fund share has one vote; there are no cumulative voting rights. There is
no Annual Meeting of shareholders, but Special Meetings may be held. On any
matter which affects only a particular Fund, only shareholders of that Fund vote
unless otherwise required by the 1940 Act or the amended Master Trust Agreement.
The Trustees hold office for the life of the 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 ____________, 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. Insert 25% holders. (To be filed
by amendment).

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

41
<PAGE> 147
principals, Robert H. Steers and Martin Cohen, control the corporation within
the meaning of the 1940 Act.

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, 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, whose
stock is publicly traded, a large portion of which is held by active employees.

U.S. GOVERNMENT MONEY MARKET FUND

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

TAX FREE MONEY MARKET FUND

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

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

42
<PAGE> 148
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 Advisers, Inc.

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

CONSULTANT
Frank Russell Company
909 A Street
Tacoma, Washington 98402

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

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

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

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

<PAGE> 149
FRANK RUSSELL INVESTMENT COMPANY
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700
In Washington (206) 627-7001

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1996

Frank Russell Investment Company is a single legal entity organized as a
Massachusetts business trust. The Investment Company operates investment
portfolios referred to as "Funds." The Investment Company offers shares of
beneficial interest in the Funds in three separate Prospectuses dated May 1,
1996. The Funds are divided into two groupings:

As of the date of this Statement of Additional Information, Investment Company
is comprised of the following investment portfolios, each of which commenced
operations on the date set forth opposite the portfolio's name:

<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
Equity I Fund External Fee Fund October 15, 1981
- --------------------------------------------------------------------------------
Equity II Fund External Fee Fund December 28, 1981
- --------------------------------------------------------------------------------
Equity III Fund External Fee Fund November 27, 1981
- --------------------------------------------------------------------------------
Equity Q Fund External Fee Fund May 29, 1987
- --------------------------------------------------------------------------------
Equity T Fund External Fee Fund *
- --------------------------------------------------------------------------------
International Fund External Fee Fund January 31, 1983
- --------------------------------------------------------------------------------
Emerging Markets Fund External Fee Fund January 29, 1993
- --------------------------------------------------------------------------------
Fixed Income I Fund External Fee Fund October 15, 1981
- --------------------------------------------------------------------------------
Fixed Income II Fund External Fee Fund October 30, 1981
- --------------------------------------------------------------------------------
Fixed Income III Fund External Fee Fund January 29, 1993
- --------------------------------------------------------------------------------
Money Market Fund External Fee Fund October 15, 1981
- --------------------------------------------------------------------------------
Diversified Equity Fund Internal Fee Fund September 5, 1985
- --------------------------------------------------------------------------------
Special Growth Fund Internal Fee Fund September 5, 1985
- --------------------------------------------------------------------------------
Equity Income Fund Internal Fee Fund September 5, 1985
- --------------------------------------------------------------------------------
Quantitative Equity Fund Internal Fee Fund May 15, 1987
- --------------------------------------------------------------------------------
International Securities Fund Internal Fee Fund September 5, 1985
- --------------------------------------------------------------------------------
Real Estate Securities Fund Internal Fee Fund July 28, 1989
- --------------------------------------------------------------------------------
Diversified Bond Fund Internal Fee Fund September 5, 1985
- --------------------------------------------------------------------------------
Volatility Constrained Bond Fund Internal Fee Fund September 5, 1985
- --------------------------------------------------------------------------------
Multistrategy Bond Fund Internal Fee Fund January 29, 1993
- --------------------------------------------------------------------------------
Limited Volatility Tax Free Fund Internal Fee Fund September 5, 1985
- --------------------------------------------------------------------------------
U.S. Government Money Market Fund Internal Fee Fund September 5, 1985
- --------------------------------------------------------------------------------
Tax Free Money Market Fund Internal Fee Fund May 8, 1987
- --------------------------------------------------------------------------------
</TABLE>

The eleven External Fee Funds, which had aggregate net assets of $
on , 1996. The twelve Internal Fee Funds which had aggregate net
assets of $ on , 1996.

* As of the date of this Statement of Additional Information, this portfolio has
not commenced operations.
<PAGE> 150
The principal distinction between the External Fee Funds and the Internal Fee
Funds is that a shareholder of the External Fee Funds may enter into a separate
agreement with the Management Company to obtain certain services from, and pay a
separate quarterly individual shareholder investment services fee directly to,
the Management Company. The amount of the fee is based upon the assets subject
to the agreement and the services obtained under that agreement. A shareholder
of the Internal Fee Funds does not execute such an agreement to acquire such
services and pays no such fees. In each case, the Management Company may charge
fees to a shareholder for non-investment services provided directly to that
shareholder.

This Statement of Additional Information supplements or describes in greater
detail information concerning the Investment Company and the Funds contained in
the Prospectuses of the Funds dated May 1, 1996. Nine of the eleven External Fee
Funds are described in the External Fee Funds' Prospectus, and eight of the
Internal Fee Funds are described in the Internal Fee Funds' Prospectus. Real
Estate Securities, Emerging Markets, Equity T, Limited Volatility Tax
Free, U.S. Government Money Market and Tax Free Money Market are described in
the Specialty Funds' Prospectus. This Statement is not a Prospectus; the
Statement should be read in conjunction with the Funds' Prospectuses.
Prospectuses may be obtained without charge by telephoning or writing the
Investment Company at the number or address shown above.

This Statement incorporates by reference the Investment Company's Annual Reports
to Shareholders for the year ended December 31, 1995. Copies of the Funds'
Annual Reports accompany this Statement.

-2-
<PAGE> 151

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
STRUCTURE AND GOVERNANCE
Organization and Business History
Shareholder Meetings
Controlling Shareholders
Trustees and Officers
OPERATION OF THE INVESTMENT COMPANY
Service Providers
Consultant
Manager
Money Managers
Distributor
Custodian
Transfer and Dividend Disbursing Agent
Fund Expenses
Valuation of Fund Shares
Portfolio Transaction Policies
Portfolio Turnover Rate
Brokerage Allocations
Brokerage Commissions
Yield and Total Return Quotations

INVESTMENT RESTRICTIONS, POLICIES AND CERTAIN INVESTMENTS
Investment Restrictions
Investment Policies
Certain Investments

TAXES

RATINGS OF DEBT INSTRUMENTS

FINANCIAL STATEMENTS
</TABLE>

-3-
<PAGE> 152
STRUCTURE AND GOVERNANCE

Organization and Business History. The Investment Company commenced business
operations as a Maryland corporation in October, 1981 and on January 2, 1985
reorganized as a Massachusetts business trust.

The Investment Company is currently organized and operates under an amended
Master Trust Agreement dated July 26, 1984 and the provisions of Massachusetts
law governing the operation of a Massachusetts business trust. The Board of
Trustees may amend the Master Trust Agreement from time to time; provided,
however, that any amendment which would materially and adversely affect
shareholders of the Investment Company as a whole, or shareholders of a
particular Fund, must be approved by the holders of a majority of the shares of
the Investment Company or Fund, respectively.

The Investment Company is authorized to issue shares of beneficial interest, and
may divide the shares into two or more series, each of which evidences a pro
rata ownership interest in a different investment portfolio -- a "Fund." The
Trustees may, without seeking shareholder approval, create additional Funds at
any time. The amended Master Trust Agreement provides that a shareholder may be
required to redeem shares in a Fund under circumstances set forth in the Master
Trust Agreement.

Under certain unlikely circumstances, as is the case with any Massachusetts
business trust, a shareholder of a Fund may be held personally liable for the
obligations of the Fund. The Master Trust Agreement provides that shareholders
shall not be subject to any personal liability for the acts or obligations of a
Fund and that every written agreement, obligation or other undertaking of the
Funds shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The amended Master Trust Agreement also provides
that the Investment Company shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of a Fund and satisfy any
judgment thereon. Thus, the risk of any shareholder incurring financial loss
beyond his investment on account of shareholder liability is limited to
circumstances in which a Fund itself would be unable to meet its obligations.

Shareholder Meetings. The Investment Company will not have an annual meeting of
shareholders, but special meetings may be held. Special meetings may be convened
by (i) the Board of Trustees, (ii) upon written request to the Board by
shareholders holding at least 10% of the outstanding shares, or (iii) upon the
Board's failure to honor the shareholders' request described above, by
shareholders holding at least 10% of the outstanding shares by giving notice of
the special meeting to shareholders.

Controlling Shareholders. The Trustees have the authority and responsibility to
manage the business of the Investment Company, and hold office for life unless
they resign or are removed by, in substance, a vote of two-thirds of the
Investment Company shares outstanding. Under these circumstances, no one person,
entity or shareholder "controls" the Investment Company.

-4-
<PAGE> 153
The following shareholders owned 5% or more of the voting shares of the
Investment Company or of the Funds at , 1996:

To be filed by Amendment

Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Funds. The officers, all of whom are employed by
and are officers of Frank Russell Investment Management Company or its
affiliates, are responsible for the day-to-day management and administration of
the Funds' operations.

The Investment Company paid [$ ] for the year ended December 31, 1995 to
the Trustees as a group who are not officers or employees of the Management
Company or its affiliates. Trustees are paid an annual fee plus travel and other
expenses incurred in attending Board meetings. The Investment Company's officers
and employees are paid by Frank Russell Investment Management Company or its
affiliates.

The following lists the Trustees and officers and their positions with the
Investment Company, their ages, their present and principal occupations during
the past five years and the mailing addresses of Trustees who are not affiliated
with the Investment Company. The mailing address for all Trustees and officers
affiliated with the Investment Company is Frank Russell Investment Company, 909
A Street, Tacoma, WA 98402.

An asterisk (*) indicates that the Trustee or officer is an "interested person"
of the Investment Company as defined in the Investment Company Act of l940, as
amended (the "1940 Act"). As used in the table, "Frank Russell Company" includes
its corporate predecessor, Frank Russell Co., Inc.

*George F. Russell, Jr.--63 years old--Trustee and Chairman of the Board.
Director and Chairman of the Board, Frank Russell Company; Director, Chief
Executive Officer and Chairman of the Board, Russell Building Management
Company, Inc., Director and Chairman of the Board, Frank Russell Securities,
Inc. and Frank Russell Trust Company, Director, Frank Russell Investment
Management Company; Director, Chairman of the Board and President of Russell
20-20 Association. March 1988 to April 1992, Director of Russell-Zisler, Inc.;
January 1957 to March 1993, Chief Executive Officer of Frank Russell Company;
March 1982 to November 1995, Chairman of the Board of Frank Russell Investment
Management Company.

*Lynn L. Anderson--57 years old--Trustee, President and Chief Executive Officer.
Director, Chief Executive Officer and Chairman of the Board, Russell Fund
Distributors, Inc. Director and President, Russell Insurance Funds, Inc.;
Trustee and President, The Seven Seas Series Fund (investment company);
Director, Chief Executive Officer and Chairman of the Board, Frank Russell
Investment Management Company; Director, Chief Executive Officer and President,
Frank Russell Trust Company; Director and Chairman, Frank Russell Investment
Company Public Limited Company; Director and Chairman of the Board, Frank
Russell Company (Delaware); March 1989 to June 1993, Director, Frank Russell
Company, Director of Frank Russell Investments (Ireland) Limited. Until
September 1994, Director and President, The Laurel Funds, Inc. (investment
company).

-5-
<PAGE> 154
Paul E. Anderson--64 years old--Trustee. 23 Forest Glen Lane, Tacoma,
Washington 98409. President, Vancouver Door Company, Inc.

Paul Anton, Ph.D.--76 years old--Trustee. 2218 55th Street, N.W., Gig Harbor,
Washington 98335. President, Paul Anton and Associates (Marketing Consultant on
emerging international markets for small corporations). From 1986 to 1991,
Visiting Associate Professor, International Marketing School of Business
Administration and International Trade Institute, Portland State University,
Portland, Oregon; 1991-1994, Adjunct Professor, International Marketing,
University of Washington, Tacoma, Washington.

William E. Baxter--60 years old--Trustee. 800 North C Street, Tacoma,
Washington 98403. Retired.

Lee C. Gingrich--65 years old--Trustee. 1730 North Jackson, Tacoma, Washington
98406. President, Gingrich Enterprises, Inc. (Business and Property Management).

Eleanor W. Palmer--69 years old--Trustee. 2025 Narrows View Circle, P. O. Box
1057, Gig Harbor, Washington 98335. Retired. Until August 1981, Director, Vice
President and Treasurer of Frank Russell Company; since October 1980, Director
of Frank Russell Trust Company.

George W. Weber--44 years old--Fund Treasurer and Chief Accounting Officer.
Director of Finance and Operations, Frank Russell Trust Company; March 1993 to
January 1996, Vice President, Operations, Funds Management, J.P. Morgan;
December 1985 to March 1993, Senior Vice President, Operations, Frank Russell
Investment Company, The Laurel Funds, Inc. and The Seven Seas Series Fund
(investment companies); Director of Operations, Frank Russell Investment
Management Company and Frank Russell Trust Company; Director, Russell Fund
Distributors, Inc.

*Randall P. Lert--42 years old--Director of Investments. Senior Investment
Officer and Director of Investment Services, Frank Russell Trust Company;
Director and Chief Investment Officer, Frank Russell Investment Management
Company; Director, Russell Fund Distributors, Inc. April 1990 to November 1995,
Director of Investments of Frank Russell Investment Management Company.

*Karl J. Ege--54 years old--Secretary and Legal Counsel. Director, Secretary
and General Counsel of Frank Russell Company and Russell Insurance Funds;
Secretary and General Counsel of Frank Russell Investment Management Company,
Frank Russell Trust Company and Russell Fund Distributors, Inc.; Director and
Secretary of Russell Building Management Company; Director of Frank Russell
Company Party Limited and Frank Russell Japan; Director and Assistant Secretary
of Frank Russell Company Limited and Russell Systems Ltd. Director, Frank
Russell Investment Company LLC, Frank Russell Investments (Cayman) Ltd., Frank
Russell Investment Company Public Limited Company and Frank Russell Investments
(Ireland) Limited; Director and Secretary, Frank Russell Company (Delaware) and
Frank Russell International Services, Co., Inc.; Director,

-6-
<PAGE> 155
Secretary and General Counsel, Russell Fiduciary Services Company and Frank
Russell Capital Inc.; Director of Frank Russell Company, S.A., Frank Russell
Company (N.Z.) Limited and Russell Investment Nominee Co. PTY Ltd., Director and
Secretary, Russell 20-20 Association. From July 1992 to June 1994, Director,
President and Secretary of Frank Russell Shelf Corporation. From 1972 to 1991,
Partner, Bogle and Gates (law firm).

*Peter Apanovitch--Manager of Short-Term Investment Funds. Manager of
Short-Term Investment Funds, Frank Russell Investment Management Company and
Frank Russell Trust Company.

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

TRUSTEE COMPENSATION TABLE

- -----------------------------------------------------------------------------------------------------------
Aggregate Pension or Estimated Annual Total
Compensation Retirement Benefits Upon Compensation
Trustee from the Benefits Accrued Retirement From the
Investment as Part of the Investment
Company Investment Company Paid to
Company Trustees
Expenses
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lynn L. Anderson $ 0 $0 $0 $ 0
- -----------------------------------------------------------------------------------------------------------
Paul E. Anderson $20,000 $0 $0 $20,000
- -----------------------------------------------------------------------------------------------------------
Paul Anton, PhD $20,000 $0 $0 $20,000
- -----------------------------------------------------------------------------------------------------------
William E. Baxter $20,000 $0 $0 $20,000
- -----------------------------------------------------------------------------------------------------------
Lee C. Gingrich $20,000 $0 $0 $20,000
- -----------------------------------------------------------------------------------------------------------
Eleanor W. Palmer $20,000 $0 $0 $20,000
- -----------------------------------------------------------------------------------------------------------
George F. Russell $ 0 $0 $0 $ 0
- -----------------------------------------------------------------------------------------------------------
</TABLE>

OPERATION OF THE INVESTMENT COMPANY

Service Providers. Most of the Investment Company's necessary day-to-day
operations are performed by separate business organizations under contract to
the Investment Company. The principal service providers are:

Consultant Frank Russell Company
Manager, Transfer and Dividend Frank Russell Investment Management
Disbursing Agent Company
Money Managers Multiple professional discretionary
investment management organizations
Custodian and Portfolio State Street Bank and Trust Company
Accountant

Consultant. Frank Russell Company, the corporate parent of the Management
Company, was responsible for organizing the Investment Company and provides
ongoing consulting services, described in the Prospectuses, to the Investment
Company and the Management Company. Frank Russell Company provides (i) Portfolio
Verification Services ("PVS"), which are based upon a transactional verification
of securities purchases and sales, cash

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<PAGE> 156
transactions and other investment portfolio operations of each money manager's
portfolio except money managers for the Equity T, Money Market, Limited
Volatility Tax Free, U.S. Government Money Market and Tax Free Money Market
Funds, and (ii) Analysis of International Management Reports ("AIM") by country
on each International, Emerging Markets and International Securities Funds'
money manager's portfolio. The reports are paid for by the Funds and provide
certain of the financial and tax accounting information required by the
Investment Company.

The Management Company does not pay Frank Russell Company an annual fee for
consulting services.

For the years ended December 31, 1995, 1994 and 1993, respectively, the Funds
paid Frank Russell Company for PVS and AIM Reports the following fees:

<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------------------
12/31/95 12/31/94 12/31/93
-------- -------- --------
<S> <C> <C> <C>
Equity I $ $25,182 $25,000
Equity II 21,186 17,859
Equity III 12,000 11,255
Equity Q 23,631 23,000
International 62,137 61,334
Emerging Markets* 47,431 29,062
Fixed Income I 41,500 34,725
Fixed Income II 23,372 20,160
Fixed Income III* 26,752 18,750
Diversified Equity 25,000 25,000
Special Growth 23,613 20,875
Equity Income 12,000 11,593
Quantitative Equity 23,299 23,000
International Securities 62,137 61,333
Real Estate Securities 5,000 5,000
Diversified Bond 39,173 31,274
Volatility Constrained Bond 24,982 20,098
Multistrategy Bond* 27,022 18,750
</TABLE>

- ------------
* The Emerging Markets, Fixed Income III and Multistrategy Bond Funds
commenced operations on January 29, 1993.

Frank Russell Company provides comprehensive consulting and money manager
evaluation services to institutional clients, including the Management Company
and Frank Russell Trust Company, and to high net worth individuals and families
($100 million) through its

-8-
<PAGE> 157
Russell Private Investment Division. Frank Russell Company also provides: (i)
consulting services for international investment to these and other clients
through its International Division and its wholly owned subsidiaries, Frank
Russell Company London (Frank Russell Company Limited), Frank Russell Canada
(Frank Russell Canada Limited/Limitee), Frank Russell Australia (Frank Russell
Company Pty., Limited), Frank Russell Japan, Frank Russell AG (Zurich), Frank
Russell Company S.A. (Paris) and Frank Russell Company (N.Z.) Limited
(Auckland), and (ii) investment account and portfolio evaluation services to
corporate pension plan sponsors and institutional money managers through its
Russell Data Services Division. Frank Russell Securities, Inc., a wholly owned
subsidiary of Frank Russell Company, carries on an institutional brokerage
business as a member of the New York Stock Exchange. Frank Russell Capital Inc.,
a wholly owned subsidiary of Frank Russell Company, carries on an investment
banking business as a registered broker-dealer. Frank Russell Trust Company, a
wholly-owned subsidiary of Frank Russell Company, provides comprehensive trust
and investment management services to corporate pension and profit-sharing
plans. Frank Russell Investments (Cayman) Ltd., a wholly owned subsidiary of
Frank Russell Company, provides investment advice and other services. Frank
Russell Investment (Ireland) Ltd., a wholly owned subsidiary of Frank Russell
Company, provides investment advice and other services. Frank Russell
International Services Co., Inc., a wholly owned subsidiary of Frank Russell
Company, provides services to U.S. personnel secunded to overseas enterprises.
Russell Fiduciary Services Company, a wholly owned subsidiary of Frank Russell
Company, provides fiduciary services to pension and welfare benefit plans and
other institutional investors. The mailing address of Frank Russell Company is
909 A Street, Tacoma, WA 98402.

Manager. Frank Russell Investment Management Company provides or oversees the
provision of all general management and administration, investment advisory and
portfolio management, and distribution services for the Funds. The Management
Company provides the Funds with office space, equipment and the 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.
The Management Company also develops the investment programs for each of the
Funds, selects money managers for the Funds (subject to approval by the Board of
Trustees), allocates assets among money managers, monitors the money managers'
investment programs and results, and may exercise investment discretion over
assets invested in the Funds' Liquidity Portfolios. (See, "Investment Policies
- -- Liquidity Portfolios.") The Management Company also acts as the Investment
Company's transfer agent, dividend disbursing agent and as the money manager for
the Money Market and U.S. Government Money Market Funds. The Management Company,
as agent for the Investment Company, pays the money managers' fees for the
Funds, as a fiduciary for the Funds.

Prior to April 1, 1995, the External Fee Funds paid no management fee to the
Management Company. Each shareholder entered into a written Asset Management
Services Agreement with the Management Company and agreed to pay annual fees,
billed quarterly on a pro rata basis and calculated as a specified percentage of
the average assets which the shareholder had invested at each month end in any
of the Funds. Beginning April 1, 1995, the

-9-
<PAGE> 158
Investment Company's Management Agreement was amended to provide that each
External Fee Fund will pay an annual management fee directly to the Management
Company, billed monthly on a pro rata basis and calculated as a specified
percentage of the average daily net assets of each of the External Fee Funds.
(See the External Fee Funds' Prospectus and the Specialty Funds' Prospectus for
the External Fee Funds' annual percentage rates.) A shareholder of the External
Fee Funds would continue to enter into a written Asset Management Services
Agreement with the Management Company to obtain separately individual
shareholder services, and therefore would pay fees under such agreement based on
a specified percentage of average assets which are subject to the agreement
concerning the Management Company's provision of individual shareholder
investment services with respect to that shareholder.

Each of the Funds pays an annual management fee directly to the Management
Company, billed monthly on a pro rata basis and calculated as a specified
percentage of the average daily net assets of each of the Funds. (See the Funds'
Prospectuses for the Funds' annual percentage rates.)

The following Internal Fee Funds paid the Management Company the listed
management fees for the years ended December 31, 1995, 1994 and 1993:

<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------
12/31/95 12/31/94 12/31/93
-------- -------- --------
<S> <C> <C> <C>
Diversified Equity $ $3,156,276 $2,859,190
Special Growth 2,028,150 1,544,101
Equity Income 1,196,187 1,204,256
Quantitative Equity 2,712,324 2,209,895
International Securities 5,096,797 3,376,561
Real Estate Securities 1,541,758 968,541
Diversified Bond 2,263,561 2,063,142
Volatility Constrained Bond 1,094,128 1,232,493
Multistrategy Bond* 945,756 275,047
Limited Volatility Tax Free 290,090 212,524
U.S. Government Money Market 207,926 256,180
Tax Free Money Market 228,123 157,066
</TABLE>

- ------------
* Multistrategy Bond Fund commenced operations on January 29, 1993.

-10-
<PAGE> 159

For the period from April 1, 1995 through December 31, 1995, the External Fee
Funds paid the Management Company the following management fees: (To be filed by
Amendment)

<TABLE>
<S> <C>
Equity I $
Equity II
Equity III
Equity Q
International
Emerging Markets
Fixed Income I
Fixed Income II
Fixed Income III
Money Market
</TABLE>

Equity T Fund was not offered for public investment during this period.

During 1993, the Management Company reimbursed the Emerging Markets, Fixed
Income III and Multistrategy Bond Funds for all expenses exceeding 0.80%, 0.20%
and 0.85%, respectively, on an annualized basis of average net assets. In 1994,
reimbursements for the Emerging Markets and Multistrategy Bond Funds were
$13,539 and $66,525, respectively. As a result of the reimbursement, management
fees paid by the Multistrategy Bond Fund amounted to $879,231. The amounts
reimbursed for the Emerging Markets, Fixed Income III and Multistrategy Bond
Funds in 1993 were $187,755, $103,620, and $148,504, respectively. As a result
of the reimbursement, management fees paid by the Multistrategy Bond Fund
amounted to $126,543.

During 1995, (To be filed by Amendment)

The Management Company is a wholly owned subsidiary of Frank Russell Company.
The Management Company's mailing address is 909 A Street, Tacoma, WA 98402.

Money Managers. Except with respect to the Money Market and U.S. Government
Money Market Funds, the money managers have no affiliations or relationships
with the Investment Company or the Management Company other than as
discretionary managers for all or a portion of a Fund's portfolio, except some
money managers (and their affiliates) may effect brokerage transactions for the
Funds (see, "Brokerage Allocations" and "Brokerage Commissions"). Money managers
may serve as advisers or discretionary managers for Frank Russell Trust Company,
other consulting clients of Frank Russell Company, other off-shore vehicles
and/or for accounts which have no business relationship with the Frank Russell
Company organization.

-11-
<PAGE> 160
management fees paid to the money managers were Equity I $1,561,256; Equity II
$993,180; Equity III $397,769; Fixed Income I $485,902; Fixed Income II
$307,091; Fixed Income III $454,039; International $3,138,801; Equity Q
$1,066,583; Emerging Markets $984,429; Diversified Equity $1,200,799; Special
Growth $1,104,333; Equity Income $324,482; Diversified Bond $446,815; Volatility
Constrained Bond Fund $374,229; International Securities $2,664,564;
Multistrategy Bond $434,026; Quantitative Equity $923,497; Real Estate
Securities Fund $771,534; Limited Volatility Tax Free $146,074 and Tax Free
Money Market $86,180. The Equity T Fund has yet to begin operation.
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.

Distributor. Russell Fund Distributors, Inc. serves as the distributor of the
Investment Company shares. The distributor receives no compensation from the
Investment Company for its services. The distributor is a wholly owned
subsidiary of the Management Company and its mailing address is 909 A Street,
Tacoma, WA 98402.

Custodian. State Street Bank and Trust Company ("State Street") serves as the
custodian for the Investment Company. State Street also provides the basic
portfolio recordkeeping required by each of the Funds for regulatory and
financial reporting purposes. State Street is paid an annual fee of $16,800 per
portfolio per fund, except for Emerging Markets, which is subject to an annual
fee of $18,000, plus specified transaction costs per portfolio per Fund for
these portfolio recordkeeping services.

Transfer and Dividend Disbursing Agent. The Management Company serves as
Transfer Agent for the Investment Company. For this service, the Management
Company is paid a fee of $20.00 per shareholder transaction. The Management
Company is also reimbursed by the Investment Company for certain out-of-pocket
expenses including postage, taxes, wires, stationery and telephone.

Independent Accountants. Coopers & Lybrand L.L.P. serves as the independent
accountants of the Investment Company. Coopers & Lybrand L.L.P. is responsible
for performing annual audits of the financial statements and financial
highlights in accordance with generally accepted auditing standards, a review of
federal tax returns, and, pursuant to Rule 17f-2 of the 1940 Act, three security
counts. The mailing address of Coopers & Lybrand L.L.P. is One Post Office
Square, Boston, MA 02109.

Fund Expenses. The Funds will pay all their expenses other than those expressly
assumed by the Management Company. The principal expense of the Funds is the
annual management fee payable to the Management Company. The Funds' other
expenses include: fees for independent accountants, legal, transfer agent,
registrar, custodian, dividend disbursement, and portfolio and shareholder
recordkeeping services fees for PVS and AIM Reports, and maintenance of tax
records payable to Frank Russell Company (except for Money Market, Limited
Volatility Tax Free, U.S. Government Money Market, Equity T

-12-
<PAGE> 161
and Tax Free Money Market Funds); state taxes; brokerage fees and
commissions; insurance premiums; association membership dues; fees for filing of
reports and registering shares with regulatory bodies; and such extraordinary
expenses as may arise, such as federal taxes and expenses incurred in connection
with litigation proceedings and claims and the legal obligations of the
Investment Company to indemnify its Trustees, officers, employees, shareholders,
distributors and agents with respect thereto.

Whenever an expense can be attributed to a particular Fund, the expense is
charged to that Fund. Other common expenses are allocated among the Funds based
primarily upon their relative net assets.

As of the date of this Statement of Additional Information, the Management
Company has voluntarily agreed to waive all or a portion of its Management Fee
with respect to certain Funds. These limits may be changed or rescinded at any
time. (See, the Prospectuses of the External Fee Funds, the Internal Fee Funds
and the Specialty Funds, for the expense guarantees.) In addition to these
"voluntary limits," if the expenses of any Fund exceed the expense limitations
established by the State of California, the Management Company will pay the
excess amount. California's expense limitation is 2.5% of a Fund's first $30
million of average net assets, 2.0% of the next $70 million of average net
assets, and 1.5% of the remaining average net assets for any year.

Valuation of Fund Shares. The net asset value per share is calculated for each
Fund on each business day on which shares are offered or orders to redeem are
tendered. A business day is one on which the New York Stock Exchange is open for
trading, and for the Money Market, U.S. Government Money Market, and Tax Free
Money Market Funds, any day on which both the New York Stock Exchange is open
for trading and the Boston Federal Reserve Bank is open for business. Currently,
the New York Stock Exchange is open for trading every weekday except New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Boston Federal Reserve Bank is open for
business Good Friday and every day the New York Stock Exchange is open, except
Martin Luther King Day, Columbus Day and Veterans Day.

The International, Emerging Markets, International Securities, Fixed Income I,
Diversified Bond, Fixed Income III and Multistrategy Bond Funds' portfolio
securities actively trade on foreign exchanges which may trade on Saturdays and
on days that the Funds do not offer or redeem shares. The trading of portfolio
securities on foreign exchanges on such days may significantly increase or
decrease the net asset value of Fund shares when the shareholder is not able to
purchase or redeem Fund shares. Further, because foreign securities markets may
close prior to the time the Funds determine net asset value, events affecting
the value of the portfolio securities occurring between the time prices are
determined and the time the Funds calculate net asset value may not be reflected
in the calculation of net asset value unless the Management Company determines
that a particular event would materially affect the net asset value.

-13-
<PAGE> 162
Portfolio Transaction Policies. Generally, securities are purchased for Equity
I, Equity III, Equity Q, International, Emerging Markets, Fixed Income I,
Diversified Equity, Equity Income, Quantitative Equity, International
Securities, Real Estate Securities and Diversified Bond Funds for investment
income and/or capital appreciation and not for short-term trading profits.
However, these Funds may dispose of securities without regard to the time they
have been held when such action, for defensive or other purposes, appears
advisable to its money managers. Equity II, Fixed Income II, Fixed Income III,
Special Growth, Volatility Constrained Bond, Multistrategy Bond and Limited
Volatility Tax Free Funds trade more actively to realize gains and/or to
increase yields on investments by trading to take advantage of short-term market
variations. This policy is expected to result in higher portfolio turnover for
these Funds. Conversely, Equity T Fund, which seeks to minimize the
impact of taxes on its shareholders, attempts to limit short-term capital gains
and to minimize the realization of long-term capital gains. These policies are
expected to result in a low portfolio turnover rate for the Fund.

The portfolio turnover rates for certain Funds are likely to be somewhat higher
than the rates for comparable mutual funds with a single money manager.
Decisions to buy and sell securities for each Fund are made by a money manager
independently from other money managers. Thus, one money manager could be
selling a security when another money manager for the same Fund is purchasing
the same security thereby increasing the Fund's portfolio turnover ratios and
brokerage commissions. The Funds' changes of money managers may also result in a
significant number of portfolio sales and purchases as the new money manager
restructures the former money manager's portfolio. In view of Equity T
Fund's investment objective and policies, the Fund's ability to change money
managers may be constrained.

The Funds, except the Limited Volatility Tax Free and Equity T Funds,
do not give significant weight to attempting to realize long-term, rather than
short-term, capital gains when making portfolio management decisions.

Portfolio Turnover Rate. The portfolio turnover rate for each Fund is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the particular year, by the monthly average value of the portfolio
securities owned by the Fund during the year. For purposes of determining the
rate, all short-term securities, including options, futures, forward contracts,
and repurchase agreements, are excluded.

The portfolio turnover rates for the last two years for each Fund (other than
the Money Market, U.S. Government Money Market and Tax Free Money Market Funds)
were:

<TABLE>
<CAPTION>
Years Ended
------------------------
12/31/95 12/31/94
-------- --------
<S> <C> <C>
Equity I % 75%
Equity II 58
Equity III 86
Equity Q 46
</TABLE>

-14-
<PAGE> 163
<TABLE>
<CAPTION>
<S> <C>
International 71%
Emerging Markets 57
Fixed Income I 174
Fixed Income II 234
Fixed Income III 134
Diversified Equity 58
Special Growth 55
Equity Income 90
Quantitative Equity 46
International Securities 72
Real Estate Securities 46
Diversified Bond 153
Volatility Constrained Bond 183
Multistrategy Bond 136
Limited Volatility Tax Free 72
</TABLE>

Equity T Fund was not offered for public investment during the
period. The anticipated annual portfolio turnover rate to the Equity T
Fund is expected to be 20%.

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

Brokerage Allocations. Transactions on US stock exchanges involve the payment
of negotiated brokerage commissions; on non-US exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, including most debt
securities and money market instruments, but the price includes an undisclosed
payment in the form of a mark-up or mark-down. The cost of securities purchased
from underwriters includes an underwriting commission or concession.

Subject to the arrangements and provisions described below, the selection of a
broker or dealer to execute portfolio transactions is usually made by the money
manager. The Investment Company's Agreements with the Management Company and the
money managers provide, in substance and subject to specific directions from
officers of the Investment Company or the Management Company, that in executing
portfolio transactions and selecting brokers or dealers, the principal objective
is to seek the best overall terms available to the Fund. Securities will
ordinarily be purchased from the primary markets, and the money manager shall
consider all factors it deems relevant in assessing the best overall terms
available for any transaction, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any (for the specific transaction and on a continuing basis).

In addition, the Agreements authorize the Management Company and money manager,
respectively, in selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, to consider the
"brokerage and research

-15-
<PAGE> 164
services" (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) provided to the Fund, the Management Company and/or to the
money manager (or their affiliates). The Management Company and the money
managers are authorized to cause the Funds to pay a commission to a broker or
dealer who provides such brokerage and research services for executing a
portfolio transaction which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction. The
Management Company or the money manager, as appropriate, must determine in good
faith that such commission was reasonable in relation to the value of the
brokerage and research services provided -- viewed in terms of that particular
transaction or in terms of all the accounts over which the Management Company or
the money manager exercises investment discretion. Any commission, fee or other
remuneration paid to an affiliated broker-dealer is paid in compliance with the
Investment Company's procedures adopted in accordance with Rule 17e-1 of the
1940 Act.

The Management Company does not expect the Investment Company ordinarily to
effect a significant portion of the Investment Company's total brokerage
business with broker-dealers affiliated with its money managers. However, a
money manager may effect portfolio transactions for the segment of a Fund's
portfolio assigned to the money manager with a broker-dealer affiliated with the
manager, as well as with brokers affiliated with other money managers.

The Investment Company effects portfolio transactions with or through Frank
Russell Securities, Inc., only when it has been determined by the applicable
money managers that the Investment Company will receive competitive execution,
price and commission. Frank Russell Securities, Inc. refunds up to 70% of the
commissions paid to the Funds effecting such transactions, after reimbursement
for research services provided to the Management Company. As to brokerage
transactions effected by money managers on behalf of the Funds through Frank
Russell Securities, Inc. at the request of the Manager, research services
obtained from third party service providers at market rates are provided to the
Funds by Frank Russell Securities, Inc. Such research services include
performance measurement statistics, fund analytics systems and market monitoring
systems. As to other brokerage transactions effected by the Funds through Frank
Russell Securities, research services provided by Frank Russell Company and
Russell Data Services are provided to the money managers. Such services include
market performance indices, investment adviser performance information and
market analysis. This arrangement is used by Equity I, Equity II, Equity III,
Equity Q, International, Emerging Markets, Diversified Equity, Special Growth,
Equity Income, Quantitative Equity, International Securities and Real Estate
Securities Funds.

Brokerage Commissions. The Board of Trustees reviews, at least annually, the
commissions paid by the Funds to evaluate whether the commissions paid over
representative periods of time were reasonable in relation to commissions being
charged by other brokers and the benefits to the Funds. Frank Russell Company
maintains an extensive data base showing commissions paid by institutional
investors, which is the primary basis for making this evaluation. Certain
services received by the Management Company or

-16-
<PAGE> 165
money managers attributable to a particular transaction may benefit one or more
other accounts for which investment discretion is exercised by the money
manager, or a Fund other than that for which the particular portfolio
transaction was effected. The fees of the money managers are not reduced by
reason of their receipt of such brokerage and research services.

During the last three years, the brokerage commissions paid by the Funds were:

<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Equity I $1,102,030 $1,197,566
Equity II 327,972 301,635
Equity III 482,877 360,540
Equity Q 351,400 314,482
International 2,130,525 1,394,963
Emerging Markets* 635,093 310,566
Diversified Equity 807,894 943,992
Special Growth 382,307 382,457
Equity Income 388,380 318,701
Quantitative Equity 284,366 294,689
International
Securities 1,896,734 1,096,271
Real Estate Securities 627,282 454,990
========== ========== ==========
Total 9,416,860 $7,370,852
========== ========== ==========
</TABLE>

* Emerging Markets Fund commenced operations on January 29, 1993.

The principal reasons for changes in several Funds' brokerage commissions for
the three years were (1) change in Fund asset size, (2) changes in market
conditions, and (3) in 1995, 1994 and 1993, changes in money managers of certain
Funds which required substantial portfolio restructurings, resulting in
increased securities transactions and brokerage commissions.

Fixed Income I, Fixed Income II, Fixed Income III, Diversified Bond, Volatility
Constrained Bond, Multistrategy Bond, Limited Volatility Tax Free, Money Market,
U.S. Government Money Market and Tax Free Money Market Funds normally do not pay
a stated brokerage commission on transactions.

During the year ended December 31, 1995, approximately [$ ] of the
brokerage commissions of the Funds were directed to brokers who provided
research services to the Management Company. The research services included
industry and company analysis, portfolio strategy reports, economic analysis,
and statistical data pertaining to the capital markets.

-17-
<PAGE> 166
Gross brokerage commissions received by affiliated broker/dealers from
affiliated and non-affiliated money managers for the years ended December 31,
1995, 1994, and 1993 from portfolio transactions effected for the Funds were as
follows: [INSERT TABLE: TO BE FILED BY AMENDMENT]

During the year ended December 31, 1995, the Funds purchased securities issued
by the following regular brokers or dealers as defined by Rule 10b-1 of the 1940
Act, each of which is one of the Funds' ten largest brokers or dealers by dollar
amounts of securities executed or commissions received on behalf of the Funds.
The value of broker-dealer securities held as of December 31, 1995, was as
follows: [TO BE FILED BY AMENDMENT]

Yield and Total Return Quotations. The Funds compute their average annual total
return by using a standardized method of calculation required by the Securities
and Exchange Commission (the "SEC"). Average annual total return is computed by
finding the average annual compounded rates of return on a hypothetical initial
investment of $1,000 over the one, five and ten year periods (or life of the
Funds as appropriate), that would equate the initial amount invested to the
ending redeemable value, according to the following formula:

P(1+T)(n) = ERV

Where: P = a hypothetical initial payment of
$1,000;
T = average annual total return;
N = number of years; and
ERV = ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the one,
five or ten year period at the end of the one, five or ten
year period (or fractional portion thereof).

The calculation assumes that all dividends and distributions of each Fund are
reinvested at the price stated in the Prospectuses on the dividend dates during
the period, and includes all recurring fees that are charged to all shareholder
accounts. The average annual total returns for the External and Internal Fee
Funds are reported in their respective Prospectuses.

Yields are computed by using standardized methods of calculation required by the
SEC. Yields for Funds other than the Money Market Funds are calculated by
dividing the net investment income per share earned during a 30-day (or one
month) period by the maximum offering price per share on the last day of the
period, according to the following formula:

YIELD = 2[((a-b)+1)(6)-1]
cd

Where: a = dividends and interest earned
during the period

b = expenses accrued for the period
(net of reimbursements)

-18-
<PAGE> 167
c = average daily number of shares
outstanding during the period that were entitled to receive
dividends

d = the maximum offering price per
share on the last day of the period

The yields for the Funds investing primarily in fixed income instruments are
reported in the Prospectuses.

Each Fund investing primarily in money market instruments ("Money Market Funds")
computes its current annualized and compound effective annualized yields using
standardized methods required by the SEC. The annualized yield for each Money
Market Fund is computed by (a) determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of a seven
calendar day period; (b) dividing the net change by the value of the account at
the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared on both the original share and such additional
shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising that sum to
a power equal to 365/7 and subtracting 1.

Yield may fluctuate daily and does not provide a basis for determining future
yields. Because each Money Market Fund's yield fluctuates, its yield cannot be
compared with yields on savings accounts or other investment alternatives that
provide an agreed-to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, length of maturities of
portfolio securities, the methods used by each fund to compute the yield
(methods may differ) and whether there are any special account charges which may
reduce effective yield.

Current and effective yields for the Money Market Funds are reported in the
Funds' Prospectuses.

Each Fund may, from time to time, advertise non-standard performances, including
average annual total return.

Each Fund may compare its performance with various industry standards of
performance, including Lipper Analytical Services, Inc. or other industry
publications, business periodicals, rating services and market indices.

Tax-equivalent yields for the Limited Volatility Tax Free and Tax Free Money
Market Funds are calculated by dividing that portion of the yield of the
appropriate Fund as

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<PAGE> 168
computed above which is tax exempt by one minus a stated income tax rate and
adding the product to that quotient, if any, of the yield of the Fund that is
not tax exempt. The tax-equivalent yields for the Limited Volatility Tax Free
and Tax Free Money Market Funds are reported in the Speciality Funds'
Prospectus.

INVESTMENT RESTRICTIONS, POLICIES AND CERTAIN INVESTMENTS

Each Fund has certain fundamental investment objectives, restrictions and
policies which may be changed only with the approval of a majority of the
shareholders of that Fund. Other policies may be changed by a Fund without
shareholder approval. The Funds' investment objectives are set forth in the
Prospectuses.

Investment Restrictions. Each Fund is subject to the following fundamental
investment restrictions. Unless otherwise noted, these restrictions 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. Investments by Funds, other than the Tax Free Money Market and
U.S. Government Money Market Funds, in shares of the Money Market Fund are
not subject to this restriction, or to Investment Restrictions 2, 3, 10 and
14. (See, "Investment Policies -- Cash Reserves.")

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), but such
concentration may occur incidentally as a result of changes in the market
value of portfolio securities. This restriction does not apply to the Real
Estate Securities Fund. The Real Estate Securities Fund may invest 25% or
more of its total assets in the securities of companies directly or
indirectly engaged in the real estate industry. The Money Market Fund may
invest more than 25% of its assets in money market instruments issued by
domestic branches of US banks having net assets in excess of $100,000,000.

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

4. Invest in companies for the purpose of exercising control or management.

5. Purchase or sell real estate; provided that a Fund may invest in securities
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.

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6. Purchase or sell commodities or commodities contracts, or interests in oil,
gas or other mineral exploration or development programs, except stock
index and financial futures contracts.

7. Borrow amounts more than 5% of the Fund's total assets taken at cost or at
market value, whichever is lower, and only from banks as a temporary
measure for extraordinary or emergency purposes, except that a Fund may
engage in reverse repurchase agreements to meet redemption requests without
immediately selling any portfolio instruments. The Fund will not mortgage,
pledge or in any other manner transfer as security for any indebtedness,
any of its assets. Collateral arrangements with respect to margin for
futures contracts are not deemed a pledge of assets.

8. Purchase securities on margin or effect short sales (except that a Fund may
obtain such short-term credits as may be necessary for the clearance of
purchases or sales of securities, may trade in futures and related options,
and may make margin payments in connection with transactions in futures
contracts and related options).

9. Engage in the business of underwriting securities issued by others or
purchase securities, except as permitted by the Limited Volatility Tax Free
and Tax Free Money Market Funds' investment objectives.

10. Invest in securities of an issuer which, together with any predecessor, has
been in operation for less than three years if, as a result, more than 5%
of the Fund's total assets would then be invested in such securities.

11. The Investment Company will not participate on a joint or a joint and
several basis in any trading account in securities except to the extent
permitted by the 1940 Act and any applicable rules and regulations and
except as permitted by any applicable exemptive orders from the 1940 Act.
The "bunching" of orders for the sale or purchase of marketable portfolio
securities with two or more Funds, or with a Fund and such other accounts
under the management of the Management Company or any money manager for the
Funds to save brokerage costs or to average prices among them shall not be
considered a joint securities trading account. The purchase of shares of
the Money Market Fund by any other Fund shall also not be deemed to be a
joint securities trading account.

12. Make loans of money or securities to any person or firm; provided, however,
that the making of a loan shall not be construed to include (i) the
acquisition for investment of bonds, debentures, notes or other evidences
of indebtedness of any corporation or government which are publicly
distributed or of a type customarily purchased by institutional investors;
(ii) the entry into "repurchase agreements;" or (iii) the lending of
portfolio securities in the manner generally described in the Funds'
Prospectuses' section "Investment Policies -- Lending Portfolio
Securities."

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13. Purchase or sell options except to the extent permitted by the policies set
forth in the sections "Certain Investments -- Options on Securities and
Indices," "Certain Investments -- Foreign Currency Options," "Certain
Investments -- Futures Contracts and Options on Future Contracts" and
"Certain Investments -- Forward Foreign Currency Contracts" below. The
Limited Volatility Tax Free and Tax Free Money Market Funds may purchase
municipal obligations from an issuer, broker, dealer, bank or other persons
accompanied by the agreement of such seller to purchase, at the Fund's
option, the municipal obligation prior to maturity thereof.

14. The Investment Company will not purchase the securities of other investment
companies except to the extent permitted by the 1940 Act and any applicable
rules and regulations and except as permitted by any applicable exemptive
orders from the 1940 Act.

15. Purchase from or sell portfolio securities to the officers, Trustees or
other "interested persons" (as defined in the 1940 Act) of the Investment
Company, including the Fund's money managers and their affiliates, except
as permitted by the 1940 Act, SEC rules or exemptive orders.

Additional fundamental policies are: (a) Equity I, Equity II, Equity III, Equity
Q, Equity T, Emerging Markets, Fixed Income III, Diversified Equity,
Special Growth, Equity Income, Quantitative Equity and Multistrategy Bond Funds
will not invest more than 5% of the current market value of their assets in
warrants nor more than 2% of such value in warrants which are not listed on the
New York or American Stock Exchanges; warrants attached to other securities are
not subject to this limitation. (b) Fixed Income I, Fixed Income II, Diversified
Bond and Volatility Constrained Bond Funds may acquire convertible bonds which
will be disposed of by these Funds in as timely a manner as is practical after
conversion. (c) No Fund will purchase or retain the securities of an issuer if,
to the Fund's knowledge, one or more of the Trustees or officers of the
Investment Company, or one or more of the officers or directors of the money
manager responsible for the investment or its directors or officers,
individually own beneficially more than 1/2 of 1% of the securities of such
issuer and together own beneficially more than 5% of such securities. Compliance
with this policy by the Investment Company's Trustees and officers is monitored
by Fund officers.

For purposes of these Investment Restrictions, the Limited Volatility Tax Free
and Tax Free Money Market Funds will consider as a separate issuer each:
governmental subdivision (i.e., state, territory, possession of the United
States or any political subdivision of any of the foregoing, including agencies,
authorities, instrumentalities, or similar entities, or of the District of
Columbia) if its assets and revenues are separate from those of the government
body creating it and the security is backed by its own assets and revenues; the
non-governmental user of an industrial development bond, if the security is
backed only by the assets and revenues of a non-governmental user. The guarantee
of a governmental or some other entity is considered a separate security issued
by the guarantor as well as the other issuer for Investment Restrictions,
industrial development bonds and governmental

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issued securities. The issuer of all other municipal obligations will be
determined by the money manager on the basis of the characteristics of the
obligation, the most significant being the source of the funds for the payment
of principal and interest.

Each Fund has adopted the following additional "non-fundamental" investment
restrictions, which may be changed without shareholder approval, in compliance
with applicable law and regulatory policy. No Fund will:

1) Invest in real estate limited partnerships that are not readily
marketable. This restriction shall not apply to the Real Estate
Securities Fund's investment in partnership units of master
limited partnerships; or

2) Invest in oil, gas and mineral leases.

Investment Policies.

Cash Reserves. Each Fund, except the Money Market, U.S.
Government Money Market and Tax Free Money Market Funds, and their money
managers, may elect to invest the Fund's cash reserves in the Money Market Fund.
The Money Market Fund and the Funds investing in the Money Market Fund treat
such investments as the purchase and redemption of Money Market Fund shares. Any
Fund investing in the Money Market Fund pursuant to this procedure participates
equally on a pro rata basis in all income, capital gains and net assets of the
Money Market Fund, and will have all rights and obligations of a shareholder as
provided in the Trust's Master Trust Agreement, including voting rights.
However, shares of the Money Market Fund issued to other Funds will be voted by
the Trustees of the Investment Company in the same proportion as the shares of
the Money Market Fund which are held by shareholders which are not Funds. Funds
investing in the Money Market Fund currently do not pay a management fee to the
Money Market Fund.

Liquidity Portfolios. A Fund at times has to sell portfolio
securities in order to meet redemption requests. The selling of securities may
effect a Fund's performance since the money manager sells the securities for
other than investment reasons. A Fund can avoid selling its portfolio securities
by holding adequate levels of cash to meet anticipated redemption requests.

The holding of significant amounts of cash is contrary to the
investment objectives of the Equity I, Equity II, Equity III, Equity Q,
Equity T, International, Diversified Equity, Special Growth, Equity Income,
Quantitative Equity and International Securities Funds. The more cash these
Funds hold, the more difficult it is for their returns to meet or surpass their
respective benchmarks.

A Liquidity Portfolio addresses this potential detriment by
having the Management Company or a money manager selected for this purpose
create an equity exposure for cash reserves through the use of options and
futures contracts. This will

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enable the Funds to hold cash while receiving a return on the cash which is
similar to holding equity securities.

Money Market Instruments. The Money Market, U.S. Government
Money Market and Tax Free Money Market Funds expect to maintain, but do not
guarantee, a net asset value of $1.00 per share for purposes of purchases and
redemptions by valuing their Fund shares at "amortized cost." The three Money
Market Funds will maintain a dollar-weighted average maturity of 90 days or
less. Each of the Funds will invest in securities with maturities of 397 days or
less at the time from the trade date or such other date upon which a Fund's
interest in a security is subject to market action. Each Fund will follow
procedures reasonably designed to assure that the prices so determined
approximate the current market value of the Funds' securities. The procedures
also address such matters as diversification and credit quality of the
securities the Funds purchase, and were designed to ensure compliance by the
Funds with the requirements of Rule 2a-7 of the 1940 Act. For additional
information concerning these Funds, refer to the Prospectuses.

Russell 1000 Index. The Russell 1000(R) Index consists of the
1,000 largest US companies by capitalization. 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 (ADRs).

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

Certain Investments.

Repurchase Agreements. Each Fund may enter into repurchase
agreements with the seller -- a bank or securities dealer -- who agrees to
repurchase the securities at the Fund's cost plus interest within a specified
time (normally one day). The securities purchased by the Fund have a total value
in excess of the value of the repurchase agreement and are held by the Fund's
custodian bank until repurchased. Repurchase agreements assist a Fund in being
invested fully while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. The Funds will limit repurchase transactions to those
member banks of the Federal Reserve System and primary dealers in US government
securities whose credit worthiness is continually monitored and found
satisfactory by the Funds' money managers.

Reverse Repurchase Agreements. Each Fund may enter into reverse
repurchase agreements to meet redemption requests where the liquidation of
portfolio

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securities is deemed by the Fund's 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 securities' 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.

High Risk Bonds. The Funds, other than the Emerging Markets,
Fixed Income III and Multistrategy Bond Funds, do not invest assets in
securities rated less than BBB by Standard & Poor's Ratings Group ("S&P") or Baa
by Moody's Investors Service, Inc. ("Moody's"), or in unrated securities judged
by the money manager to be of a lesser credit quality than those designations.
Securities rated BBB by S&P or Baa by Moody's are the lowest ratings which are
considered "investment grade." The Funds, other than Emerging Markets, Fixed
Income III and Multistrategy Bond Funds, will dispose of securities which they
have purchased which drop below these minimum ratings.

Securities rated BBB by S&P or Baa by Moody's may involve
greater risks than securities in higher rating categories. Securities receiving
S&P's BBB rating are regarded as having adequate capacity to pay interest and
repay principal. Such securities typically exhibit adequate investor protections
but adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rating categories.

Securities possessing Moody's Baa rating are considered medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security is judged adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such securities lack outstanding
investment characteristics and in fact may have speculative characteristics as
well.

Risk Factors. The market for lower rated debt securities is
relatively new, its operating history is not extensive, and its growth has
paralleled a long period of economic expansion. Lower rated debt securities may
be more susceptible to real or perceived adverse economic and competitive
industry conditions than investment grade securities. The prices of low rated
debt securities have been found to be less sensitive to interest rate changes
than investment grade securities, but more sensitive to economic downturns,
individual corporate developments, and price fluctuations in response to
changing interest rates. A projection of an economic downturn or of a period of
rising interest rates, for example, could cause a sharper decline in the prices
of low rated debt securities because the advent of a recession could lessen the
ability of a highly leveraged company to make principal and interest payments on
its debt securities. If the issuer of low rated debt securities defaults, a Fund
may incur additional expenses to seek financial recovery.

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<PAGE> 174

In addition, the markets in which low rated debt securities are
traded are more limited than those for higher rated securities. The existence of
limited markets for particular securities may diminish a Fund's ability to sell
the securities at fair value either to meet redemption requests or to respond to
changes in the economy or in the financial markets and could adversely affect
and cause fluctuations in the daily net asset value of the Fund's shares.

Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated securities may be more complex than for
issuers of other investment grade securities, and the ability of a Fund to
achieve its investment objectives may be more dependent on credit analysis than
would be the case if the Fund was investing only in investment grade securities.

The managers of the Funds may use ratings to assist in
investment decisions. Ratings of debt securities represent a rating agency's
opinion regarding their quality and are not a guarantee of quality. Rating
agencies attempt to evaluate the safety of principal and interest payments and
do not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial condition may be better or worse
than a rating indicates.

Illiquid Securities. The expenses of registration of restricted
securities that are illiquid (excluding securities that may be resold by the
Funds pursuant to Rule 144A, as explained in the Prospectuses) may be negotiated
at the time such securities are purchased by a Fund. When registration is
required, a considerable period may elapse between a decision to sell the
securities and the time the sale would be permitted. Thus, the Fund may not be
able to obtain as favorable a price as that prevailing at the time of the
decision to sell. A Fund also may acquire, through private placements,
securities having contractual resale restrictions, which might lower the
amount realizable upon the sale of such securities.

Delayed Delivery Transactions. A Fund may make contracts to
purchase securities for a fixed price at a future date beyond customary
settlement time ("forward commitments" or "when-issued" transactions) consistent
with the Fund's ability to manage its investment portfolio and meet redemption
requests. A Fund may dispose of a commitment or when-issued transaction prior to
settlement if it is appropriate to do so and realize short-term profits or
losses upon such sale. When effecting such transactions, cash or liquid high
grade debt obligations of the Fund in 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.
Forward commitments and when-issued transactions involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date or
the other party to the transaction fails to complete the transaction.

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Additionally, under certain circumstances, the International, International
Securities and Emerging Markets Funds may occasionally engage in "free trade"
transactions in which delivery of securities sold by the Fund is made prior to
the Fund's receipt of cash payment therefor or the Fund's payment of cash for
portfolio securities occurs prior to the Fund's receipt of those securities.
"Free trade" transactions involve the risk of loss to a Fund if the other party
to the "free trade" transaction fails to complete the transaction after a Fund
has tendered cash payment or securities, as the case may be.

Options and Futures. The Funds, other than the Money Market, US
Government Money Market and Tax Free Money Market Funds, may purchase and sell
(write) both call and put options on securities, securities indexes, and foreign
currencies, and enter into interest rate, foreign currency and index futures
contracts and purchase and sell options on such futures contracts for hedging
purposes. If other types of options, futures contracts, or options on futures
contracts are traded in the future, the Funds may also use those instruments,
provided that the Investment Company's Board determines that their use is
consistent with the Funds' investment objectives, and provided that their use is
consistent with restrictions applicable to options and futures contracts
currently eligible for use by the Funds (i.e., that written call or put options
will be "covered" or "secured" and that futures and options on futures contracts
will be used only for hedging purposes).

Options on Securities and Indexes. Each Fund, except as noted
above, may purchase and write both call and put options on securities and
securities indexes in standardized contracts traded on foreign or national
securities exchanges, boards of trade, or similar entities, or quoted on NASDAQ
or on a regulated foreign over-the-counter market, and agreements, sometimes
called cash puts, which may accompany the purchase of a new issue of bonds from
a dealer.

An option on a security (or index) is a contract that gives the
holder of the option, in return for a premium, the right to buy from (in the
case of a call) or sell to (in the case of a put) the writer of the option the
security underlying the option (or the cash value of the index) at a specified
exercise price at any time during the term of the option. The writer of an
option on a security has the obligation upon exercise of the option to deliver
the underlying security upon payment of the exercise price or to pay the
exercise price upon delivery of the underlying security. Upon exercise, the
writer of an option on an index is obligated to pay the difference between the
cash value of the index and the exercise price multiplied by the specified
multiplier for the index option. (An index is designed to reflect specified
facets of a particular financial or securities market, a specified group of
financial instruments or securities, or certain economic indicators.)

A Fund will write call options and put options only if they are
"covered." In the case of a call option on a security, the option is "covered"
if the Fund owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount are placed in a segregated account by its custodian) upon conversion
or exchange of other securities held by the Fund. For a call option on an index,

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the option is covered if the Fund maintains with its custodian cash or cash
equivalents equal to the contract value. A call option is also covered if the
Fund holds a call on the same security or index as the call written where the
exercise price of the call held is (1) equal to or less than the exercise price
of the call written, or (2) greater than the exercise price of the call written,
provided the difference is maintained by the Fund in cash or cash equivalents in
a segregated account with its custodian. A put option on a security or an index
is "covered" if the Fund maintains cash or cash equivalents equal to the
exercise price in a segregated account with its custodian. A put option is also
covered if the Fund holds a put on the same security or index as the put written
where the exercise price of the put held is (1) equal to or greater than the
exercise price of the put written, or (2) less than the exercise price of the
put written, provided the difference is maintained by the Fund in cash or cash
equivalents in a segregated account with its custodian.

If an option written by a Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by a Fund expires unexercised, the Fund realizes a
capital loss (long or short-term depending on whether the Fund's holding period
for the option is greater than one year) equal to the premium paid.

Prior to the earlier of exercise or expiration, an option may be
closed out by an offsetting purchase or sale of an option of the same series
(type, exchange, underlying security or index, exercise price and expiration).
There can be no assurance, however, that a closing purchase or sale transaction
can be effected when the Fund desires.

A Fund will realize a capital gain from a closing transaction on
an option it has written if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the Fund will
realize a capital loss. If the premium received from a closing sale transaction
is more than the premium paid to purchase the option, the Fund will realize a
capital gain or, if it is less, the Fund will realize a capital loss. With
respect to closing transactions on purchased options, the capital gain or loss
realized will be short or long-term depending on the holding period of the
option closed out. The principal factors affecting the market value of a put or
a call option include supply and demand, interest rates, the current market
price of the underlying security or index in relation to the exercise price of
the option, the volatility of the underlying security or index, and the time
remaining until the expiration date.

The premium paid for a put or call option purchased by a Fund is
an asset of the Fund. The premium received for an option written by a Fund is
recorded as a liability. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the exchange on
which it is traded or, if not traded on an exchange or no closing price is
available, at the mean between the last bid and asked prices.

Risks Associated with Options on Securities and Indexes. There
are several risks associated with transactions in options on securities and on
indexes. For example, there are significant differences between the securities
and options markets that could result

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in an imperfect correlation between these markets, causing a given transaction
not to achieve its objectives. A decision as to whether, when and how to use
options involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.

There can be no assurance that a liquid market will exist when a
Fund seeks to close out an option position. If a Fund were unable to close out
an option that it had purchased on a security, it would have to exercise the
option in order to realize any profit or the option may expire worthless. If a
Fund were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security unless the option
expired without exercise. As the writer of a covered call option, a Fund
forgoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call.

If trading were suspended in an option purchased by a Fund, the
Fund would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it has purchased. Except
to the extent that a call option on an index written by the Fund is covered by
an option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.

Foreign Currency Options. A Fund may buy or sell put and call
options on foreign currencies either on exchanges or in the over-the-counter
market. A put option on a foreign currency gives the purchaser of the option the
right to sell a foreign currency at the exercise price until 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.

Futures Contracts and Options on Futures Contracts. A Fund may
use interest rate, foreign currency or index futures contracts, as specified for
the Fund in its Prospectus. An interest rate, foreign currency or index futures
contract provides for the future sale by one party and purchase by another party
of a specified quantity of a financial instrument, foreign currency or the cash
value of an index at a specified price and time. A futures contract on an index
is an agreement pursuant to which two parties agree 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. Although the value of an index may be a
function of the value of certain specified securities, no physical delivery of
these securities is made. A public market exists in futures contracts covering
several indexes as well as a number of financial instruments and foreign
currencies. For example: the S&P 500; the Russell 2000(R); Nikkei 225; CAC-40;
FT-SE 100; the NYSE composite; US Treasury bonds; US Treasury notes;

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GNMA Certificates; three-month US Treasury bills; Eurodollar certificates of
deposit; the Australian Dollar; the Canadian Dollar; the British Pound; the
German Mark; the Japanese Yen; the French Franc; the Swiss Franc; the Mexican
Peso; and certain multinational currencies, such as the European Currency Unit
("ECU"). It is expected that other futures contracts will be developed and
traded in the future.

A Fund may purchase and write call and put options on futures
contracts. Options on futures contracts possess many of the same characteristics
as options on securities and indexes (discussed above). A futures option gives
the holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period 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.

As long as required by regulatory authorities, each Fund will
limit its use of futures contracts and options on futures contracts to hedging
transactions. For example, a Fund might use futures contracts to hedge against
anticipated changes in interest rates that might adversely affect either the
value of the Fund's securities or the price of the securities which the Fund
intends to purchase. Additionally, a Fund may use futures contracts to create
equity exposure for its cash reserves for liquidity purposes.

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

When a purchase or sale of a futures contract is made by a Fund,
the Fund is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or US government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. Each Fund expects to earn interest income on its initial margin
deposits. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by a Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, each Fund
will mark-to-market its open futures positions.

A Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by it. Such margin
deposits will vary depending on the nature of the underlying futures contract
(and the related initial margin

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requirements), the current market value of the option, and other futures
positions held by the Fund.

Although some futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
realizes a capital gain, or if it is more, the Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund realizes a capital gain, or if it is less, the Fund realizes a
capital loss. The transaction costs must also be included in these calculations.

Limitations on Use of Futures and Options on Futures Contracts.
A Fund will not enter into a futures contract or futures option contract if,
immediately thereafter, the aggregate initial margin deposits relating to such
positions plus premiums paid by it for open futures option positions, less the
amount by which any such options are "in-the-money," would exceed 5% of the
Fund's total assets. A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise price. A put
option is "in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.

When purchasing a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) cash, US government
securities or other highly liquid debt securities that, when added to the
amounts deposited with a futures commission merchant as margin, are equal to the
market value of the futures contract. Alternatively, the Fund may "cover" its
position by purchasing a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by the Fund.

When selling a futures contract, a Fund will maintain with its
custodian (and mark-to-market on a daily basis) liquid assets that, when added
to the amount deposited with a futures commission merchant as margin, are equal
to the market value of the instruments underlying the contract. Alternatively,
the Fund may "cover" its position by owning the instruments underlying the
contract (or, in the case of an index futures contract, a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based), or by holding a call option permitting the Fund to purchase
the same futures contract at a price no higher than the price of the contract
written by the Fund (or at a higher price if the difference is maintained in
liquid assets with the Fund's custodian).

When selling a call option on a futures contract, a Fund will
maintain with its custodian (and mark-to-market on a daily basis) cash, US
government securities or other highly liquid debt securities that, when added to
the amounts deposited with a futures commission merchant as margin, equal the
total market value of the futures contract underlying the call option.
Alternatively, the Fund may cover its position by entering into a long position
in the same futures contract at a price no higher than the strike price of the
call option, by owning the instruments underlying the futures contract, or by
holding a separate

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call option permitting the Fund to purchase the same futures contract at a price
not higher than the strike price of the call option sold by the Fund.

When selling a put option on a futures contract, a Fund will
maintain with its custodian (and mark-to-market on a daily basis) cash, US
government securities or other highly liquid debt securities that equal the
purchase price of the futures contract, less any margin on deposit.
Alternatively, the Fund may cover the position either by entering into a short
position in the same futures contract, or by owning a separate put option
permitting it to sell the same futures contract so long as the strike price of
the purchased put option is the same or higher than the strike price of the put
option sold by the Fund.

In order to comply with applicable regulations of the Commodity
Futures Trading Commission ("CFTC") pursuant to which the Funds avoid being
deemed to be a "commodity pool," the Funds are limited in their futures
activities to positions which constitute "bona fide hedging" positions within
the meaning and intent of applicable CFTC rules, and with respect to positions
which do not qualify under that hedging test, to positions for which the
aggregate initial margins and premiums will not exceed 5% of the net assets of a
Fund as determined under the CFTC Rules.

The requirements for qualification as a regulated investment
company also may limit the extent to which a Fund may enter into futures,
options on futures contracts or forward contracts. See "Taxation."

Risks Associated with Futures and Options on Futures Contracts.
There are several risks associated with the use of futures contracts and options
on futures contracts as hedging techniques. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract. There can be no guarantee that there will be a correlation between
price movements in the hedging vehicle and in the Fund securities being hedged.
In addition, there are significant differences between the securities and
futures markets that could result in an imperfect correlation between the
markets, causing a given hedge not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as variations in
speculative market demand for futures and options on futures contracts on
securities, including technical influences in futures trading and options on
futures contracts, and differences between the financial instruments being
hedged and the instruments underlying the standard contracts available for
trading in such respects as interest rate levels, maturities and
creditworthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.

Futures exchanges may limit the amount of fluctuation permitted
in certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that

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day at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses
because the limit may work to prevent the liquidation of unfavorable positions.
For example, futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of positions and subjecting some holders of futures contracts
to substantial losses.

There can be no assurance that a liquid market will exist at a
time when a Fund seeks to close out a futures or a futures option position, and
that Fund would remain obligated to meet margin requirements until the position
is closed. In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.

Additional Risks of Options on Securities, Futures Contracts,
Options on Futures Contracts, and Forward Currency Exchange Contract and Options
Thereon. Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States; may not involve a clearing mechanism and related guarantees, and
are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be
adversely affected by (1) other complex foreign political, legal and economic
factors, (2) lesser availability than in the United States of data on which to
make trading decisions, (3) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (5) lesser
trading volume.

Hedging strategies. Stock index futures contracts may be used by
the Equity I, Equity II, Equity III, Equity Q, International, Emerging Markets,
Diversified Equity, Special Growth, Equity Income, Quantitative Equity, Equity T
and International Securities Funds as on "equitization" vehicle for cash
reserves held by the Funds. For example: equity index futures contracts are
purchased to correspond with the cash reserves in each of the Funds. As a
result, a Fund will realize gains or losses based on the performance of the
equity market corresponding to the relevant indices for which futures contracts
have been purchased. Thus, each Fund's cash reserves always will be fully
exposed to equity market performance.

Financial futures contracts may be used by the International,
Emerging Markets, Fixed Income I, Fixed Income II, Fixed Income III,
International Securities, Diversified Bond, Volatility Constrained Bond,
Multistrategy Bond and Limited Volatility Tax Free Funds as a hedge during or in
anticipation of interest rate changes. For example: if interest rates were
anticipated to rise, financial futures contracts would be sold (short hedge)
which would have an effect similar to selling bonds. Once interest rates
increase, fixed-income securities held in the Fund's portfolio would decline,
but the futures contract

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value would decrease, partly offsetting the loss in value of the fixed-income
security by enabling the Fund to repurchase the futures contract at a lower
price to close out the position.

The Funds may purchase a put and/or sell a call option on a
stock index futures contract instead of selling a futures contract in
anticipation of market decline. Purchasing a call and/or selling a put option on
a stock index futures contract is used instead of buying a futures contract in
anticipation of a market advance, or to temporarily create an equity exposure
for cash balances until those balances are invested in equities. Options on
financial futures are used in a similar manner in order to hedge portfolio
securities against anticipated changes in interest rates.

Foreign Currency Futures Contracts. The Funds are also permitted
to enter into foreign currency futures contracts in accordance with their
investment objectives and as limited by the procedures outlined above.

A foreign currency futures contract is a bilateral agreement
pursuant to which one party agrees to make, and the other party agrees to accept
delivery of a specified type of debt security or currency at a specified price.
Although such futures contacts by their terms call for actual delivery or
acceptance of debt securities or currency, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.

The Funds may sell a foreign currency futures contract to hedge
against possible variations in the exchange rate of the foreign currency in
relation to the US dollar. When a manager anticipates a significant change in a
foreign exchange rate while intending to invest in a foreign security, a Fund
may purchase a foreign currency futures contract to hedge against a rise in
foreign exchange rates pending completion of the anticipated transaction. Such a
purchase would serve as a temporary measure to protect the Fund against any rise
in the foreign exchange rate which may add additional costs to acquiring the
foreign security position. The Fund may also purchase call or put options on
foreign currency futures contracts to obtain a fixed foreign exchange rate. The
Fund may purchase a call option or write a put option on a foreign exchange
futures contract to hedge against a decline in the foreign exchange rates or the
value of its foreign securities. The Fund may write a call option on a foreign
currency futures contract as a partial hedge against the effects of declining
foreign exchange rates on the value of foreign securities.

Risk Factors. There are certain investment risks in using
futures contracts and/or options as a hedging technique. One risk is the
imperfect correlation between price

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movement of the futures contracts or options and the price movement of the
portfolio securities, stock index or currency subject of the hedge. The risk
increases for the Limited Volatility Tax Free Fund since financial futures
contracts that may be engaged in are on taxable securities rather than tax
exempt securities. There is no assurance that the price of taxable securities
move in a similar manner to the price of tax exempt securities. Another risk is
that a liquid secondary market may not exist for a futures contract causing a
Fund to be unable to close out the futures contract thereby affecting a Fund's
hedging strategy.

In addition, foreign currency options and foreign currency
futures involve additional risks. Such transactions may not be regulated as
effectively as similar transactions in the United States; may not involve a
clearing mechanism and related guarantees; and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign securities.
The value of such positions could also be adversely affected by (i) other
complex foreign, political, legal and economic factors, (ii) lesser availability
than in the United States of data on which to make trading decisions, (iii)
delays in the Funds' ability to act upon economic events occurring in foreign
markets during non-business hours in the United States, (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the United States, and (v) lesser trading volume.

Forward Foreign Currency Exchange Transactions. The Funds may
engage in forward foreign currency exchange transactions to hedge against
uncertainty in the level of future exchange rates. The Funds will conduct their
forward foreign currency exchange transactions either on a spot (i.e. cash)
basis at the rate prevailing in the currency exchange market, or through
entering into forward currency exchange contracts ("forward contract") to
purchase or sell currency at a future date. A forward contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. The Funds may engage in a
forward contract that involves transacting in a currency whose changes in value
are considered to be linked (a proxy) to a currency or currencies in which some
or all of the Funds' portfolio securities are or are expected to be denominated.
A Fund's dealings in forward contracts will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of foreign currency with respect to specific receivables or
payables of the Funds generally accruing in connection with the purchase or sale
of its portfolio securities. Position hedging is the sale of foreign currency
with respect to portfolio security positions denominated or quoted in the
currency. The Funds may not position hedge with respect to a particular currency
to an extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in or
currency convertible into that particular currency (or another currency or
aggregate of currencies which act as a proxy for that currency). The Funds may,
however, enter into a position hedging transaction with respect to a currency
other than that held in the Funds' portfolios, if such a transaction is deemed a
hedge. If a Fund enters into this type of hedging transaction, cash or liquid
high grade debt securities will be placed in a segregated account in an amount
equal to the value of the Fund's total assets committed to the

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consummation of the forward contract. If the value of the securities placed in
the segregated account declines, additional cash or securities will be placed in
the account so that the value of the account will equal the amount of the Fund's
commitment with respect to the contract. Hedging transactions may be made from
any foreign currency into US dollars or into other appropriate currencies.

At or before the maturity of a forward foreign currency
contract, a Fund may either sell a portfolio security and make delivery of the
currency, or retain the security and offset its contractual obligation to
deliver the currency by purchasing a second contract pursuant to which the Fund
will obtain, on the same maturity date, the same amount of the currency which it
is obligated to deliver. If the Fund retains the portfolio security and engages
in an offsetting transaction, the Fund, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that movement
has occurred in forward currency contract prices. Should forward prices decline
during the period between the Fund's entering into a forward contract for the
sale of a currency and the date that it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the extent that
the price of the currency that it has agreed to sell exceeds the price of the
currency that it has agreed to purchase. Should forward prices increase, the
Fund will suffer a loss to the extent that the price of the currency it has
agreed to purchase exceeds the price of the currency that it has agreed to sell.

The cost to a Fund of engaging in currency transactions varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because transactions in currency
exchange are usually conducted on a principal basis, no fees or commissions are
involved. The use of forward foreign currency contracts does not eliminate
fluctuations in the underlying prices of the securities, but it does establish a
rate of exchange that can be achieved in the future. In addition, although
forward foreign currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, at the same time, they limit any potential
gain that might result should the value of the currency increase.

If a devaluation is generally anticipated, a Fund may be able to
contract to sell the currency at a price above the devaluation level that it
anticipates. A Fund will not enter into a currency transaction if, as a result,
it will fail to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a given year.

Forward foreign currency contracts are not regulated by the SEC.
They are traded through financial institutions acting as market-makers. In the
forward foreign currency market, there are no daily price fluctuation limits,
and adverse market movements could therefore continue to an unlimited extent
over a period of time. Moreover, a trader of forward contracts could lose
amounts substantially in excess of its initial investments, due to the
collateral requirements associated with such positions.

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Forward foreign currency transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected by (a)
other complex foreign political and economic factors, (b) lesser availability
than in the United States of data on which to make trading decisions, (c) delays
in a Fund's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States and the United Kingdom, (d) the
imposition of different exercise and settlement terms and procedures and margin
requirements than in the United States, (e) lesser trading volume and (f) that a
perceived linkage between various currencies may not persist throughout the
duration of the contracts.

Indexed Commercial Paper. Indexed commercial paper is US-dollar
denominated commercial paper the yield of which is linked to certain foreign
exchange rate movements. The yield to the investor on indexed commercial paper
is established at maturity as a function of spot exchange rates between the US
dollar and a designated currency as of or about that time. The yield to the
investor will be within a range stipulated at the time of purchase of the
obligation, generally with a guaranteed minimum rate of return that is below,
and a potential maximum rate of return that is above, market yields on US-dollar
denominated commercial paper, with both the minimum and maximum rates of return
on the investment corresponding to the minimum and maximum values of the spot
exchange rate two business days prior to maturity. While such commercial paper
entails risk of loss of principal, the potential risk for realizing gains as a
result of changes in foreign currency exchange rates enables a Fund to hedge (or
cross-hedge) against a decline in the US-dollar value of investments denominated
in foreign currencies while providing an attractive money market rate of return.
Currently only the Fixed Income III and Multistrategy Bond Funds intend to
invest in indexed commercial paper, and then only for hedging purposes. The
staff of the SEC is currently considering whether the purchase of this type of
commercial paper would result in the issuance of a "senior security." If
required by the appropriate authorities to assure that investments in indexed
commercial paper are not used to achieve investment leverage, a Fund will
segregate cash or readily marketable high quality securities in an amount at all
times equal or exceeding the Fund's commitment with respect to these contracts.

US Government Obligations. The types of US government
obligations the Funds 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 at time of issuance have maturities of one year
or less, (b) US Treasury notes at time of issuance have maturities of one to ten
years and (c) US Treasury bonds at time of issuance generally have 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,

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Central Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home
Loan Banks and Federal National Mortgage Association). No assurance can be given
that the US government will provide financial support to such US government
agencies or instrumentalities described in (2)(b), (2)(c) and (2)(d) in the
future, other than as set forth above, since it is not obligated to do so by
law. The Funds may purchase US government obligations on a forward commitment
basis.

Variable and Floating Rate Securities. A floating rate security
is one whose terms provide for the automatic adjustment of an interest rate
whenever a specified interest rate changes. A variable rate security is one
whose terms provide for the automatic establishment of a new interest rate on
set dates. The interest rate on floating rate securities is ordinarily tied to
and is a percentage of the prime rate of a specified bank or some similar
objective standard, such as 90-day US Treasury Bill rate, and may change as
often as twice daily. Generally, changes in interest rates on floating rate
securities will reduce changes in the securities' market value from the original
purchase price resulting in the potential for capital appreciation or capital
depreciation being less than for fixed-income obligations with a fixed interest
rate.

The U.S. Government Money Market Fund may purchase variable rate
US government obligations which are instruments issued or guaranteed by the US
government, or an agency or instrumentality thereof, which have a rate of
interest subject to adjustment at regular intervals but no less frequently than
annually. Variable rate US government obligations whose interest rates are
readjusted no less frequently than annually will be deemed to have a maturity
equal to the period remaining until the next readjustment of the interest rate.

Variable Amount Master Demand Notes. The Money Market and U.S.
Government Money Market Funds, consistent with their fundamental investment
objectives, may invest in variable amount master demand notes. Variable amount
master demand notes are unsecured obligations redeemable upon notice that permit
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangements with the issuer of the instrument. A variable amount master
demand note differs from ordinary commercial paper in that (1) it is issued
pursuant to a written agreement between the issuer and the holders, (2) its
amount may, from time to time, be increased (subject to an agreed maximum) or
decreased by the holder of the issue, (3) it is payable on demand, (4) its rate
of interest payable varies with an agreed upon formula and (5) it is not
typically rated by a rating agency.

Zero Coupon Securities. Zero coupon securities are notes, bonds
and debentures that (i) do not pay current interest and are issued at a
substantial discount from par value, (ii) have been stripped of their unmatured
interest coupons and receipts or (iii) pay no interest until a stated date one
or more years into the future. These securities also include certificates
representing interests in such stripped coupons and receipts. Zero coupon
securities trade at a discount from their par value and are subject to greater
fluctuations of market value in response to changing interest rates.

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Mortgage-Related and other Asset-Backed Securities. The forms of
mortgage-related and other asset-backed securities the Funds may invest in
include the securities described below:

Mortgage pass-through securities. Mortgage pass-through
securities are securities representing interests in "pools" of
mortgages in which payments of both interest and principal on
the securities are generally made monthly. The securities are
"pass-through" securities because they provide investors with
monthly payments of principal and interest which in effect are a
"pass-through" of the monthly payments made by the individual
borrowers on the underlying mortgages, net of any fees paid to
the issuer or guarantor. The principal governmental issuer of
such securities is the Government National Mortgage Association
("GNMA"), which is a wholly-owned US government corporation
within the Department of Housing and Urban Development.
Government-related issuers include the Federal Home Loan
Mortgage Corporation ("FHLMC"), a corporate instrumentality of
the United States created pursuant to an Act of Congress, which
is owned entirely by the Federal Home Loan Banks, and the
Federal National Mortgage Association ("FNMA"), a government
sponsored corporation owned entirely by private stockholders.
Commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other
secondary market issuers also create pass-through pools of
conventional residential mortgage loans. Such issuers may be the
originators of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities.

Collateralized Mortgage Obligations. Collateralized mortgage
obligations ("CMOs") are hybrid instruments with characteristics
of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and pre-paid principal
on a CMO are paid, in most cases, monthly. CMOs may be
collateralized by whole mortgage loans but are more typically
collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured into
multiple classes (or "tranches"), with each class bearing a
different stated maturity.

Asset-Backed Securities. Asset-backed securities represent
undivided fractional interests in pools of instruments, such as
consumer loans, and are similar in structure to mortgage-related
pass-through securities. Payments of principal and interest are
passed through to holders of the securities and are typically
supported by some form of credit enhancement, such as a letter
of credit, surety bond, limited guarantee by another entity or
by priority to certain of the borrower's other securities. The
degree of enhancement varies, generally applying only until
exhausted and covering only a fraction of the security's par
value. If the credit enhancement held by a Fund has been

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exhausted, and if any required payments of principal and
interest are not made with respect to the underlying loans, the
Fund may experience loss or delay in receiving payment and a
decrease in the value of the security.

Risk Factors. Prepayment of principal on mortgage or
asset-backed securities may expose a Fund to a lower rate of
return upon reinvestment of principal. Also, if a security
subject to prepayment has been purchased at a premium, in the
event of prepayment the value of the premium would be lost. Like
other fixed-income securities, the value of mortgage-related
securities is affected by fluctuations in interest rates.

Loan Participations. The Fixed Income III and Multistrategy Bond
Funds may purchase participations in commercial loans. Such indebtedness
may be secured or unsecured. Loan participations typically represent direct
participation in a loan to a corporate borrower, and generally are offered
by banks or other financial institutions or lending syndicates. In
purchasing the loan participations, a Fund assumes the credit risk
associated with the corporate buyer and may assume the credit risk
associated with the interposed bank or other financial intermediary. The
participation may not be rated by a nationally recognized rating service.
Further, loan participations may not be readily marketable and may be
subject to restrictions on resale.

Municipal Obligations. "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 in the opinion of
bond counsel to the issuer. Municipal obligations include debt obligations
issued to obtain funds for various public purposes and certain industrial
development bonds issued by or on behalf of public authorities. Municipal
obligations are classified as general obligation bonds, revenue bonds and
notes.

Municipal Bonds. Municipal bonds generally have maturities of
more than one year when issued and have two principal
classifications -- General Obligation Bonds and Revenue Bonds.

General Obligation Bonds - are secured by the issuer's
pledge of its faith, credit and taxing power for the
payment of principal and interest.

Revenue Bonds - are payable only from the revenues
derived from a particular facility or group of
facilities or from the proceeds of special excise or
other specific revenue service.

Industrial Development Bonds - are a type of revenue
bond and do not generally constitute the pledge of
credit of the issuer of such bonds. The payment of the
principal and interest on such bonds is dependent

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on the facility's user to meet its financial
obligations and the pledge, if any, of real and
personal property financed as security for such
payment. Industrial development bonds are issued by or
on behalf of public authorities to raise money to
finance public and private facilities for business,
manufacturing, housing, ports, pollution control,
airports, mass transit and other similar type projects.

Municipal Notes. Municipal notes generally have maturities of
one year or less when issued and are used to satisfy short-term
capital needs. Municipal notes include:

Tax Anticipation Notes - are issued to finance working
capital needs of municipalities and are generally
issued in anticipation of future tax revenues.

Bond Anticipation Notes - are issued in expectation of
a municipality issuing a long term bond in the future.
Usually the long-term bonds provide the money for the
repayment of the notes.

Revenue Anticipation Notes - are issued in expectation
of receipt of other types of revenues such as certain
federal revenues.

Construction Loan Notes - are sold to provide
construction financing and may be insured by the
Federal Housing Administration. After completion of the
project, FNMA or GNMA frequently provides permanent
financing.

Pre-Refunded Municipal Bonds - are bonds no longer
secured by the credit of the issuing entity, having
been escrowed with US Treasury securities as a result
of a refinancing by the issuer. The bonds are escrowed
for retirement either at original maturity or at an
earlier call date.

Tax Free Commercial Paper - is a promissory obligation
issued or guaranteed by a municipal issuer and
frequently accompanied by a letter of credit of a
commercial bank. It is used by agencies of state and
local governments to finance seasonal working capital
needs, or as short-term financing in anticipation of
long-term financing.

Tax Free Floating and Variable Rate Demand Notes - are
municipal obligations backed by an obligation of a
commercial bank to the issuer thereof which allows the
issuer to issue securities with a demand feature,
which, when exercised, usually becomes effective within
thirty days. The rate of return on the notes is
readjusted periodically

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according to some objective standard such as changes in
a commercial bank's prime rate.

Tax Free Participation Certificates - are tax free
floating or variable rate demand notes which are issued
by a bank, insurance company or other financial
institution or affiliated organization that sells a
participation in the note. They are usually purchased
by the Limited Volatility Tax Free and Tax Free Money
Market Funds to maintain liquidity. The Funds' money
managers will continually monitor the pricing, quality
and liquidity of the floating and variable rate demand
instruments held by the Funds, including the
participation certificates.

A participation certificate gives a Fund an undivided
interest in the municipal obligation in the proportion
that the Fund's participation interest bears to the
total principal amount of the municipal obligation and
provides the demand feature described below. Each
participation is backed by: an irrevocable letter of
credit or guaranty of a bank which may be the bank
issuing the participation certificate, a bank issuing a
confirming letter of credit to that of the issuing
bank, or a bank serving as agent of the issuing bank
with respect to the possible repurchase of the
certificate of participation; or insurance policy of an
insurance company that the money manager has determined
meets the prescribed quality standards for the Fund.
The Fund has the right to sell the participation
certificate back to the institution and draw on the
letter of credit or insurance on demand after thirty
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 Funds' money
managers intend to exercise the demand feature only (1)
upon a default under the terms of the bond documents,
(2) as needed to provide liquidity to the Funds in
order to make redemptions of Fund shares, or (3) to
maintain the required quality of its investment
portfolios.

The institutions issuing the participation certificates
will retain a service and letter of credit fee and a
fee for providing the demand feature, in an amount
equal to the excess of the interest paid on the
instruments over the negotiated yield at which the
participations were purchased by a Fund. The total fees
generally range from 5% to 15% of the applicable prime
rate or other interest rate index. The Fund will
attempt to have the issuer of the participation
certificate bear the cost of the insurance. The Fund
retains the option to purchase insurance if necessary,
in which case the cost of insurance will be a
capitalized expense of the Fund.

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Demand Notes. The Limited Volatility Tax Free and Tax Free Money
Market Funds may purchase municipal obligations with the right
to a "put" or "stand-by commitment." A "put" on a municipal
obligation obligates the seller of the put to buy within a
specified time and at an agreed upon price a municipal
obligation the put is issued with. A stand-by commitment is
similar to a put except the seller of the commitment is
obligated to purchase the municipal obligation on the same day
the Fund exercises the commitment and at a price equal to the
amortized cost of the municipal obligation plus accrued
interest. The seller of the put or stand-by commitment may be
the issuer of the municipal obligation, a bank or broker-dealer.

The Funds will enter into put and stand-by commitment with
institutions such as banks and broker-dealers that the Funds'
money managers continually believes satisfy the Funds' credit
quality requirements. The ability of the Funds to exercise the
put or stand-by commitment may depend on the seller's ability to
purchase the securities at the time the put or stand-by
commitment is exercised or on certain restrictions in the buy
back arrangement. Such restrictions may prohibit the Funds from
exercising the put or stand-by commitment except to maintain
portfolio flexibility and liquidity. In the event the seller
would be unable to honor a put or stand-by commitment for
financial reasons, the Funds may, in the opinion of Funds'
management, be a general creditor of the seller. There may be
certain restrictions in the buy back arrangement which may not
obligate the seller to repurchase the securities. (See, "Certain
Investments -- Municipal Notes -- Tax Free Participation
Certificates.")

The Limited Volatility Tax Free and Tax Free Money Market Funds
may purchase from issuers floating or variable rate municipal
obligations some of which are subject to payment of principal by
the issuer on demand by the Fund (usually not more than thirty
days' notice). The Funds may also purchase floating or variable
rate municipal obligations or participations therein from banks,
insurance companies or other financial institutions which are
owned by such institutions or affiliated organizations. Each
participation is usually backed by an irrevocable letter of
credit, or guaranty of a bank or insurance policy of an
insurance company.

Interest Rate Transactions. The Fixed Income II, Fixed Income
III, Volatility Constrained Bond and Multistrategy Bond Funds may enter into
interest rate swaps, on either an asset-based or liability-based basis,
depending on whether they are hedging their assets or their liabilities, and
will usually enter into interest rate swaps on a net basis, i.e., the two
payment streams are netted out, with the Funds receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these hedging
transactions are entered into for good faith hedging purposes, the Money
Managers and the Funds believe such obligations do not constitute senior
securities and, accordingly, will not treat them as being subject to its
borrowing restrictions. The net amount of the excess, if any, of the

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Funds' obligations over their entitlements with respect to each interest rate
swap will be accrued on a daily basis and an amount of cash or liquid high-grade
debt securities having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by the Funds'
custodian. To the extent that the Funds enter into interest rate swaps on other
than a net basis, the amount maintained in a segregated account will be the full
amount of the Funds' obligations, if any, with respect to such interest rate
swaps, accrued on a daily basis. The Funds will not enter into any interest rate
swaps unless the unsecured senior debt or the claims-paying ability of the other
party thereto is rated in the highest rating category of at least one nationally
recognized rating organization at the time of entering into such transaction. If
there is a default by the other party to such a transaction, the Funds will have
contractual remedies pursuant to the agreement related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid.

The use of interest rate swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If a money manager using this
technique is incorrect in its forecast of market values, interest rates and
other applicable factors, the investment performance of a Fund would diminish
compared to what it would have been if this investment technique was not used.

A Fund may only enter into interest rate swaps to hedge its
portfolio. Interest rate swaps do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with respect
to interest rate swaps is limited to the net amount of interest payments that
the Funds are contractually obligated to make. If the other party to an interest
rate swap defaults, the Funds' risk of loss consists of the net amount of
interest payments that the Funds are contractually entitled to receive. Since
interest rate swaps are individually negotiated, the Funds expect to achieve an
acceptable degree of correlation between their rights to receive interest on
their portfolio securities and their rights and obligations to receive and pay
interest pursuant to interest rate swaps.

Foreign Government Securities. Foreign government securities
which the Funds may invest in generally consist of obligations issued or backed
by the national, state or provincial government or similar political
subdivisions or central banks in foreign countries. Foreign government
securities also include debt obligations of supranational entities, which
include international organizations designated or backed by governmental
entities to promote economic reconstruction or development, international
banking institutions and related government agencies. These securities also
include debt securities of "quasi-government agencies" and debt securities
denominated in multinational currency units of an issuer.

Brady Bonds. The Fixed Income III and Multistrategy Bond Funds
may invest in Brady Bonds, the products of the "Brady Plan," under which bonds
are issued in

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exchange for cash and certain of a country's outstanding commercial bank loans.
The Brady Plan offers relief to debtor countries that have effected substantial
economic reforms. Specifically, debt reduction and structural reform are the
main criteria countries must satisfy in order to obtain Brady Plan status. Brady
Bonds may be collateralized or uncollateralized, are issued in various
currencies (primarily US-dollar) and are actively traded on the over-the-counter
market. Brady Bonds have been issued only recently and accordingly they do not
have a long payment history.

TAXES

In order to qualify for treatment as a regulated investment company ("RIC")
under Subchapter M of the Code, each Fund must distribute annually to its
shareholders at least 90% of its investment company taxable income (generally,
net investment income plus net short-term capital gain) ("Distribution
Requirement") and also must meet several additional requirements. Among these
requirements are the following: (i) at least 90% of a Fund's gross income each
taxable year must be derived from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stock or
securities or foreign currencies (exclusive of losses), or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
("Income Requirement"); (ii) less than 30% of a Fund's gross income each taxable
year may be derived from gains (exclusive of losses) from the sale or other
disposition of any stock or securities; any options, futures, or forward
contracts; foreign currencies including any options or futures thereon (which
are not directly related to a Fund's business in investing) held for less than
three months (the "Short-Short Limitation"); (iii) at the close of each quarter
of a Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, US government securities, securities of
other RICs and other securities, with such other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the Fund
and that does not represent more than 10% of the outstanding voting securities
of such issuer; and (iv) at the close of each quarter of the Fund's taxable
year, not more than 25% of the value of its assets may be invested in securities
(other than US government securities or the securities of other RICs) of any one
issuer.

Notwithstanding the Distribution Requirement described above, which only
requires each Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss),
each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year at least 98% of its ordinary
income for that year and 98% of its capital gain net income for the one-year
period ending on October 31 of that year, plus prior-year shortfalls. For this
and other purposes, dividends declared by a RIC in October, November or December
of any calendar year and payable to shareholders of record on a date in such a
month will be deemed to have been paid by the RIC and received by shareholders
on December 31 of such year if the dividends are paid by the RIC at any time
through the end of the following January.

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At December 31, 1995, certain of the Funds had net tax basis capital loss
carryforwards which may be applied against any realized net taxable gains of
each succeeding year until their respective expiration dates, whichever occurs
first. Available capital loss carryforwards and expiration dates are as follows:

[INSERT NEW TABLE BY AMENDMENT]

The Equity T Fund. The fundamental documents
establishing the Equity T Fund provide that the amount payable upon the
redemption of shares of the Fund will be equal to ninety-nine percent of the net
asset value per share. The one percent retained by the Fund will be treated by
the Fund as a contribution to the capital of the Fund.

Issues Related to Hedging and Option Investments. The use of
hedging instruments, such as options and futures contracts, involves specialized
and complex rules that will determine the character for income tax purposes of
the income received in connection therewith by a Fund and thereby affect, among
other things, the amount and proportion of distributions that will be taxable to
shareholders as ordinary income or capital gain.

As described above and in the Funds' Prospectuses, the Funds may
buy and sell foreign currencies and options on foreign currencies, and may enter
into forward currency contracts and currency futures contracts. The Funds
anticipate that these investment activities will not prevent the Funds from
qualifying as a regulated investment company. As a general rule, gains or losses
on the disposition of debt securities denominated in a foreign currency that are
attributable to fluctuations in exchange rates between the date that the debt
securities are acquired and the date of disposition, gains and losses from the
disposition of foreign currencies, and gains and losses attributable to options
on foreign currencies, forward currency contracts and currency futures contracts
will be treated as ordinary income or loss.

Gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues interest or other receivables, or
expenses or other liabilities, denominated in a foreign currency and the time
the Fund actually collects such receivables, or pays such liabilities, are
generally treated as ordinary income or loss. Similarly, gains or losses on
disposition of debt securities denominated in a foreign currency between the
date of acquisition of the security and the date of disposition also are treated
as ordinary gain or loss. These gains, referred to under the Code as "Section
988" gains or losses, may increase or decrease the amount of the Fund's
investment company taxable income to be distributed to its shareholders, rather
than increasing or decreasing the amount of the Fund's capital gains or losses.

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<PAGE> 195
As noted above and in the Prospectuses, the Funds may acquire
forward currency contracts, currency futures contracts and options on foreign
currencies to hedge their risk of currency fluctuations with regard to property
held or to be held by the Funds, and before the close of the day on which the
Funds enter into the contract or options, the Funds will, as a general rule,
identify on their records that the contracts or options were entered into as
part of a hedging transaction. If the Funds were to invest in a forward currency
contract, currency futures contract or option on a foreign currency and
offsetting positions in such contracts or options, and if the two offsetting
positions were characterized as a straddle (as opposed to a hedge) for federal
income tax purposes, then the Funds might not be able to receive the benefit of
certain realized losses from the liquidation of one of those positions for an
indefinite period of time (i.e., until the gain position and any successor
positions are disposed of). The Funds expect that their activities with respect
to forward foreign currency contracts, currency futures contracts and options on
foreign currencies will not require them, as a general rule, to have to treat
such contracts or options as straddle positions for federal income tax purposes.
Under current law, unless certain requirements are satisfied, the Funds will be
required to calculate separately certain gains and losses attributable to
certain of their forward currency contracts, currency futures contracts and
options on foreign currencies, even if the Funds acquired the contracts or
options to hedge their risk of currency fluctuations with regard to capital
assets held or to be held by the Funds. The Internal Revenue Service, however,
has the authority to issue additional regulations that would permit or require
the Funds either to integrate some or all of their forward currency contracts,
currency futures contracts, options on foreign currencies and hedged investments
as a single transaction or otherwise to treat the contracts or options in the
manner that is consistent with the hedged investments. It is uncertain if or
when these regulations will be issued.

To the extent that a Fund's forward contracts, currency futures
contracts or options on foreign currencies can be classified as either regulated
futures contracts or foreign currency contracts (as described in section 1256(b)
of the Code) (collectively referred to herein as "section 1256 contracts"), such
investments will be taxed pursuant to a special "mark-to-market" system. Under
the mark-to-market system, the Funds may be treated as realizing a greater or
lesser amount of gains or losses than actually realized. As a general rule,
except for certain currency related activities ( as described above) in which
gain or loss is treated as ordinary income or loss, gain or loss on section 1256
contracts is treated as 60% long-term capital gain or loss and 40% short-term
capital gain or loss, and accordingly, the mark-to-market system generally will
affect the amount of capital gains or losses taxable to the Funds and the amount
of distributions taxable to a shareholder. Moreover, if the Funds invested in
both section 1256 contracts and offsetting positions with respect to such
contracts, then the Funds might not be able to receive the benefit of certain
realized losses for an indeterminate period of time (i.e., until disposition of
the "gain leg" of the straddle and any successor position). The Funds expect
that their activities with respect to section 1256 contracts and offsetting
positions in such contracts (a) will not cause them or their shareholders to be
treated as receiving a materially greater amount of ordinary income, capital
gains, dividends, or distributions than actually realized or received by the

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Funds and (b) will permit them to use substantially all of the losses of the
Funds for the fiscal years in which such losses actually occur.

Generally, the hedging transactions and certain other
transactions in options, futures and forward contracts undertaken by a portfolio
may result in "straddles" for U.S. federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by a Fund. In
addition, losses realized by a Fund on positions that are part of a straddle may
be deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures and
forward contracts to a Fund are not entirely clear. The transactions may
increase the amount of short-term capital gain realized by a Fund which is taxed
as ordinary income when distributed to shareholders.

A Fund may make one or more of the elections available under the
Code which are applicable to straddles. If a Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions.

Because application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the recognition of
gains or losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gains, may be increased or decreased substantially
in any given fiscal year as compared to a fund that did not engage in such
hedging transactions.

The 30% limit on gains from the disposition of certain options,
futures and forward contracts held less than three months and the qualifying
income and diversification requirements applicable to a Fund's assets may limit
the extent to which a Fund will be able to engage in transactions in options,
futures contracts or forward contracts.

Income (excluding certain gains) from transactions in options
and futures contracts derived by a Fund with respect to its business of
investing in securities, will qualify as permissible income under the Income
Requirement. Furthermore, any increase in value on a position that is part of a
"designated hedge" will be offset by any decrease in value (whether realized or
not) of the offsetting hedging position during the period of the hedge for
purposes of determining whether the Fund satisfies the Short-Short Limitation.
Thus, only the net gain (if any) from the designated hedge will be included in
gross income for purposes of that limitation. The Funds anticipate engaging in
hedging transactions that are intended to qualify for this treatment, but at the
present time it is not clear whether this treatment will be available to all of
a Fund's hedging transactions. To the extent this treatment is not available, a
Fund may be forced to defer the closing out of certain options and futures
contracts beyond the time when it otherwise would be advantageous to do so, in

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order for the Fund to qualify as a RIC. Income derived from currencies, options,
futures and forward contracts on currencies directly related to a Fund's
principal business of investing in stocks or securities is excluded from the
Short-Short Limitation computation.

If a call option written by a Fund expires, the Fund will
realize a capital gain equal to the amount of the premium it received for
writing the option. If a Fund terminates its obligations under a call option it
has written, or if the Fund writes a put option terminating its rights as the
holder of a put option, the Fund will realize a capital gain or loss, depending
on whether the cost of the closing transaction is less than or exceeds the
premium received when the option was written. If a call option written by a Fund
is exercised, the Fund will be treated as having sold the underlying security
and will realize a long-term or short-term capital gain and loss, depending on
the holding period of the underlying security and on whether the sum of the
option price received upon the exercise plus the premium received when the
option was written exceeds or is less than the basis of the optioned security.

If an option purchased by a Fund expires, the Fund generally
will realize a capital loss equal to the cost of the option, long-term if the
option was held for more than one year. If the Fund sells the option, it
generally will realize a capital gain or loss, depending on whether the proceeds
from the sale are greater or less than the cost of the option plus the
transaction costs. If the Fund exercises a call option, the cost of the option
will be added to the basis of the security purchased. If the Fund exercises a
put option, it will realize a capital gain or loss (depending on the Fund's
basis for the underlying security), which will be long-term or short-term,
depending on the holding period of the underlying security. Any such capital
gain will be decreased (or loss increased) by the premium paid for the option.

FOREIGN INCOME TAXES. Investment income received from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which would entitle a Fund to a reduced rate on such taxes or
exemption from taxes on such income. It is impossible to determine the effective
rate of foreign tax for a Fund in advance since the amount of the assets to be
invested within various countries is not known.

If a Fund invests in an entity that is classified as a "passive
foreign investment company" ("PFIC") for federal income tax purposes, the
application of certain provisions of the Code applying to PFICs could result in
the imposition of certain federal income taxes on the Fund. Under U.S. Treasury
regulations for PFICs, the International, Emerging Markets and International
Securities Funds can elect to mark-to-market their PFIC holdings in lieu of
paying taxes on gains or distributions therefrom.

STATE AND LOCAL TAXES. Depending upon the extent of a Fund's
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located or in which it is
otherwise deemed to be conducting business, a Fund may be subject to the tax
laws of such states or localities.

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RATINGS OF DEBT INSTRUMENTS

Corporate and Municipal Bond Ratings.

Moody's Investors Service, Inc. (Moody's):

Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large
or exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.

A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.

Baa -- Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great period of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.

Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time
may be small.

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Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal and interest.

Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.

C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.

Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification in its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic
category; the modifier 2 indicates a mid-range ranking; and modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.

Standard & Poor's Ratings Group ("S&P"):

AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay principal and
interest.

AA -- Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only in small degree.

A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.

BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. While bonds with this rating normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than debt in
higher rated categories.

BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

BB -- Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate

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capacity to meet timely interest and principal payments. The BB rating
category is also used for debt subordinated to senior debt that is
assigned an actual implied BBB- rating.

B -- Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.

CCC -- Bonds rated CCC have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.

CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.

C -- The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating. The C
rating has been used to cover a situation where a bankruptcy petition
has been filed but debt service payments are continued.

C1 -- The rating C1 is reserved for income bonds on which no interest is
being paid.

D -- Bonds rated D are in payment default. The D rating is used when
interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
appropriate category.

Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic issues. The ratings measure
the creditworthiness of the obligor but do not take into account currency
exchange and related uncertainties.

State, Municipal Notes and Tax Exempt Demand Notes.

Moody's:

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Moody's rating for state, municipal and other short-term obligations
will be designated Moody's Investment Grade ("MIG"). This distinction is
in recognition of the differences between short-term credit risk and
long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors
of the first importance in bond risk are of lesser importance in the
short run. Symbols used are as follows:

MIG-1--Notes bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing or both.

MIG-2--Notes bearing this designation are of high quality, with margins
of protection ample although not so large as in the preceding group.

S&P:

A S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in 3 years or less will likely receive
a note rating. Notes maturing beyond 3 years will most likely receive a
long-term debt rating. The following criteria will be used in making
that assessment.

-- Amortization schedule (the larger the final maturity relative to
other maturities, the more likely it will be treated as a note).

-- Source of Payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be treated as a
note).

Note rating symbols are as follows:

SP-1--Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.

SP-2--Satisfactory capacity to pay principal and interest.

S&P assigns "dual" ratings to all long-term debt issues that have as
part of their provisions a variable rate demand or double feature.

The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand
feature. The long-term debt rating symbols are used to denote the put
option (for example, "AAA/A-1+") or if the nominal maturity is short, a
rating of "SP-1+/AAA" is assigned.

Commercial Paper Ratings.

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Moody's:

Commercial paper rated Prime by Moody's is based upon its evaluation of
many factors, including: (1) management of the issuer; (2) the issuer's
industry or industries and the speculative-type risks which may be
inherent in certain areas; (3) the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten
years; (7) financial strength of a parent company and the relationships
which exist with the issue; and (8) recognition by the management of
obligations which may be present or may arise as a result of public
interest questions and preparations to meet such obligations. Relative
differences in these factors determine whether the issuer's commercial
paper is rated Prime-1, Prime-2, or Prime-3.

Prime-1 - indicates a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics: (1) leading market positions
in well established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structures with moderate
reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash
generation; and (5) well established access to a range of financial
markets and assured sources of alternative liquidity.

Prime-2 - indicates a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is
maintained.

S&P:

Commercial paper rated A by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements. Long-term
senior debt is rated A or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has
a strong position within the industry. The reliability and quality of
management are unquestioned. Relative strength or weakness of the above
factors determine whether the issuer's commercial paper is rated A-1,
A-2, or A-3.

A-1--This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation.

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<PAGE> 203
A-2--Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.

Duff and Phelps, Inc.:

Duff & Phelps' short-term ratings are consistent with the rating
criteria utilized by money market participants. The ratings apply to all
obligations with maturities of under one year, including commercial
paper, the uninsured portion of certificates of deposit, unsecured bank
loans, master notes, bankers acceptances, irrevocable letters of credit,
and current maturities of long-term debt. Asset-backed commercial paper
is also rated according to this scale.

Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including
trade credit, bank lines, and the capital markets. An important
consideration is the level of an obligor's reliance on short-term funds
on an ongoing basis.

The distinguishing feature of Duff & Phelps' short-term ratings is the
refinement of the traditional '1' category. The majority of short-term
debt issuers carry the highest rating, yet quality differences exist
within that tier. As a consequence, Duff & Phelps has incorporated
gradations of '1+' (one plus) and '1-' (one minus) to assist investors
in recognizing those differences.

Duff 1+--Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free US
Treasury short-term obligations.

Duff 1--Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.

Duff 1- --High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are
very small.

Good Grade

Duff 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors
are small.

Satisfactory Grade

Duff 3--Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.

-55-
<PAGE> 204
Non-Investment Grade

Duff 4--Speculative investment characteristics. Liquidity is not
sufficient to ensure against disruption in debt service. Operating
factors and market access may be subject to a high degree of variation.

Default

Duff 5--Issuer failed to meet scheduled principal and/or interest
payments.

IBCA, Inc.:

In addition to conducting a careful review of an institution's reports
and published figures, IBCA's analysts regularly visit the companies for
discussions with senior management. These meetings are fundamental to
the preparation of individual reports and ratings. To keep abreast of
any changes that may affect assessments, analysts maintain contact
throughout the year with the management of the companies they cover.

IBCA's analysts speak the languages of the countries they cover, which
is essential to maximize the value of their meetings with management and
to properly analyze a company's written materials. They also have a
thorough knowledge of the laws and accounting practices that govern the
operations and reporting of companies within the various countries.

Often, in order to ensure a full understanding of their position,
companies entrust IBCA with confidential data. While these data cannot
be disclosed in reports, they are taken into account when assigning
ratings. Before dispatch to subscribers, a draft of the report is
submitted to each company to permit correction of any factual errors and
to enable clarification of issues raised.

IBCA's Rating Committees meet at regular intervals to review all ratings
and to ensure that individual ratings are assigned consistently for
institutions in all the countries covered. Following the Committee
meetings, ratings are issued directly to subscribers. At the same time,
the company is informed of the ratings as a matter of courtesy, but not
for discussion.

A1+--Obligations supported by the highest capacity for timely repayment.

A1--Obligations supported by a very strong capacity for timely
repayment.

A2--Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.

-56-
<PAGE> 205
B1--Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher
categories.

B2--Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial
conditions.

C1--Obligations for which there is an inadequate capacity to ensure
timely repayment.

D1--Obligations which have a high risk of default or which are currently
in default.

Fitch Investors Service, Inc.:

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes,
and municipal and investment notes.

The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in
a timely manner.
Fitch short-term ratings are as follows:

F-1+--Exceptionally strong credit quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.

F-1--Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F-1+.

F-2--Good credit quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned 'F-1+' and 'F-1' ratings.

F-3--Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate, however, near-term adverse changes could cause
these securities to be rated below investment grade.

F-5--Weak credit quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.

D--Default. Issues assigned this rating are in actual or imminent
payment default.

Thomson BankWatch (TBW) Short-Term Ratings:

-57-
<PAGE> 206
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned. These ratings are derived exclusively from a quantitative analysis of
publicly available information. Qualitative judgments have not been
incorporated. The ratings are intended to be applicable to all operating
entities of an organization but there may be in some cases more credit liquidity
and/or risk in one segment of the business than another.

The TBW short-term rating applies only to unsecured instruments that have a
maturity of one year or less, and reflects the likelihood of an untimely payment
of principal or interest.

TBW-1 The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.

TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong,
the relative degree of safety is not as high as for issues rated
"TBW-1".

TBW-3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external)
than obligations with higher ratings, capacity to service
principal and interest in a timely fashion is considered
adequate.

TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

FINANCIAL STATEMENTS

The 1995 annual financial statements of the Funds, including notes to the
financial statements and financial highlights and the Report of Independent
Accountants, are included in the Investment Company's Annual Reports to
Shareholders. Copies of these Annual Reports accompany this Statement of
Additional Information and are incorporated herein by reference.

-58-
<PAGE> 207

FRANK RUSSELL INVESTMENT COMPANY
File No. 2-71299 and 811-3153
1933 Act Post-Effective Amend.No.31
1940 Act Amendment No. 31

PART C
OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements for the year ended 12/31/95 for each
"External Fee Fund" (comprised of Equity I, Equity II,
Equity III, Equity Q, Fixed Income I, Fixed Income II, Fixed
Income III, International, Emerging Markets and Money Market
Funds), and for each "Internal Fee Fund" (comprised of
Diversified Equity, Special Growth, Equity Income,
Quantitative Equity, Diversified Bond, Volatility
Constrained Bond, Multistrategy Bond, International
Securities, Limited Volatility Tax Free, Real Estate
Securities, U.S. Government Money Market and Tax Free Money
Market Funds).

Equity T Fund has not commenced operations and was
not offered for public investment prior to the effective date
of this registrant statement.

Part A (to be filed by amendment)
Part B (to be filed by amendment)

(b) Exhibits

1(a) Master Trust Agreement (incorporated by reference
to Post-Effective Amendment No. 6 filed on
November 2, 1984 ["Post-Effective Amendment No.
6"])

1(b) 11/29/84 Amendment to Master Trust Agreement
(incorporated by reference to Post-Effective
Amendment No. 7 filed on March 1, 1985
["Post-Effective Amendment No. 7"])

1(c) 5/29/85 Amendment to Master Trust Agreement
(incorporated by reference to Post-Effective
Amendment No. 9 filed on May 31, 1985
["Post-Effective Amendment No. 9"])
<PAGE> 208
Exhibits

1(d) 1/26/87 Amendment to Master Trust Agreement
(incorporated by reference to Post-Effective
Amendment No. 11 filed on February 27, 1987
["Post-Effective Amendment No. 11"])

1(e) 2/23/89 Amendment to Master Trust Agreement
(incorporated by reference to Post-Effective
Amendment No. 14 filed on February 27, 1989
["Post-Effective Amendment No. 14"])

1(f) 5/11/92 Amendment to Master Trust Agreement
(incorporated by reference to Post-Effective
Amendment No. 22 filed on September 1, 1992
["Post-Effective Amendment No. 22"])

2. Bylaws (incorporated by reference to
Post-Effective Amendment No. 6)

3. Voting Trust Agreement (not applicable)

4. Specimen Securities

4(a) External Fee Fund (incorporated by reference to
Post-Effective Amendment No. 7)

4(b) Internal Fee Fund (incorporated by reference to
the Post-Effective Amendment No. 9)

4(c) Quantitative Equity, Equity Q and Tax Free Money
Market Funds (incorporated by reference to
Post-Effective Amendment No. 11)

4(d) Real Estate Securities Fund (incorporated by
reference to the Post-Effective Amendment No. 15
filed on May 1, 1989 ["Post-Effective Amendment
No. 15"])
<PAGE> 209
Exhibits

5(a) Management Agreement with Frank Russell Investment
Management Company (incorporated by reference to
Post-Effective Amendment No. 11)

5(a)(1) Amendment 1 to Management Agreement with Frank
Russell Investment Management Company reducing the
annualized management fee paid by Diversified Bond
Fund (incorporated by reference to Post-Effective
Amendment No. 18 filed on February 28, 1991
["Post-Effective Amendment No. 18"])

5(a)(2) Amendment 2 to Management Agreement with Frank
Russell Investment Management Company reducing the
annualized management fee paid by Diversified Bond
Fund (incorporated by reference to Post-Effective
Amendment No. 22)

5(a)(3) Letter Agreement (Amendment 3) adding Fixed Income
III, Emerging Markets and Multistrategy Bond Funds
to the Management Agreement (incorporated by
reference to Post-Effective Amendment No. 24 filed
on February 26, 1993 ("Post-Effective Amendment
No. 24")

5(a)(4) Amendment 4 to the Management Agreement with Frank
Russell Investment Management Company to
internalize the fees of the External Fee Funds
(incorporated by reference to Post-Effective
Amendment No. 30)

5(b)(1) Service Agreement with Frank Russell Company and
Frank Russell Investment Management Company
(incorporated by reference to Post-Effective
Amendment No. 11)
<PAGE> 210
Exhibits

5(b)(2) Letter Agreement adding Real Estate Securities
Fund to the Service Agreement (incorporated by
reference to Post-Effective Amendment No. 15)

5(b)(3) Amendment 1 to Service Agreement with Frank
Russell Company and Frank Russell Investment
Management Company changing services and fees
(incorporated by reference to Post-Effective
Amendment No. 22)

5(b)(4) Letter Agreement adding Fixed Income III,
Multistrategy Bond and Emerging Markets Funds to
the Service Agreement (incorporated by reference
to Post-Effective Amendment No. 22)

5(c)(1) Portfolio Management Contract with Money Managers
and Frank Russell Investment Management Company
(incorporated by reference to Post-Effective
Amendment No. 6)

5(c)(2) Amendment to Portfolio Management Contract
designating Money Managers of External Fee Fund as
Money Managers for Internal Fee Fund (incorporated
by reference to Post-Effective Amendment No. 10
filed on February 28, 1986 ["Post-Effective
Amendment No. 10"])

5(c)(3) Amended Portfolio Management Contract with Money
Managers and Frank Russell Investment Management
Company amending Sections 16 and 19 of the of the
contract (incorporated by reference to
Post-Effective Amendment No. 18)
<PAGE> 211
Exhibits

5(c)(4) Form of Amended Portfolio Management Contract with
Money Managers and Frank Russell Investment
Management Company amending Sections 1, 9, 19 and
Exhibit D of the Contract (incorporated by
reference to Post Effective Amendment No. 29).

6(a)(1) Distribution Agreement with Russell Fund
Distributors, Inc. (incorporated by reference to
Post-Effective Amendment No. 13 filed on 3/31/88
["Post-Effective Amendment No. 13"])

6(a)(2) Letter Agreement adding Real Estate Securities
Fund to the Distribution Agreement (incorporated
by reference to Post-Effective Amendment No. 15)

6(a)(3) Letter Agreement adding Fixed Income III,
Multistrategy Bond and Emerging Markets Funds to
the Distribution Agreement (incorporated by
reference to Post-Effective Amendment No. 22)

7. Bonus Plans (none)

8(a) Custodian Agreement with State Street Bank and
Trust Company (incorporated by reference to Post-
Effective Amendment No. 14)

8(b) Letter Agreement adding Real Estate Securities
Fund to the Custodian Agreement (incorporated by
reference to Post-Effective Amendment No. 15)

8(c) Letter Agreement adding Fixed Income III and
Multistrategy Bond Funds to the Custodian
Agreement (incorporated by reference to
Post-Effective Amendment No. 23 filed on November
2, 1992 ["Post-Effective Amendment No. 23"])
<PAGE> 212
Exhibits

8(d) Letter Agreement adding Emerging Markets Fund to
the Custodian Agreement (incorporated by reference
to Post-Effective Amendment No. 23)

8(e) Amendment No. 1 to Custodian Agreement with State
Street Bank and Trust Company amending Section 3.5
of the Agreement. (Incorporated by reference to
Post-Effective Amendment No. 29)

8(f) Form of Amendment to Custodian Agreement with
State Street Bank and Trust Company amending
Sections 2.2 and 2.7 of the Agreement
(incorporated by reference to Post-Effective
Amendment No. 28)

8(g) Amendment to the Custodian Agreement with State
Street Bank and Trust Company amending Sections
2.2 and 2.7 of the Agreement (incorporated by
reference to Post-Effective Amendment No. 29.)

8(h) Amendment to the Fee Schedule of the Custodian
Agreement with State Street Bank and Trust Company
(incorporated by reference to Post-Effective
Amendment No. 29)

9(a)(1) Agency Agreement with Frank Russell Investment
Management Company (incorporated by reference to
Post-Effective Amendment No. 13)

9(a)(2) Letter Agreement adding Real Estate Securities
Fund to the (Transfer) Agency Agreement
(incorporated by reference to Post-Effective
Amendment No. 15)

9(a)(3) Letter Agreement adding Fixed III Income,
Multistrategy Bond and Emerging Markets Funds to
the (Transfer) Agency Agreement (incorporated by
reference to Post-Effective Amendment No. 22)
<PAGE> 213
Exhibits

9(b) General forms of Frank Russell Investment
Management Company's Asset Management Services
Agreements with Bank Trust Departments and with
other clients (incorporated by reference to
Post-Effective Amendment No. 10)

9(c) General form of Frank Russell Investment
Management Company's Asset Management Services
Agreement with External Fee Fund clients and
Internal Fee Fund clients (incorporated by
reference to Post-Effective Amendment No. 9)

9(d) General form of Frank Russell Investment
Management Company's Asset Management Services
Agreement with Private Investment Consulting
clients of Frank Russell Company (incorporated by
reference to Post-Effective Amendment No. 1 filed
on February 22, 1982)

10. Opinion and Consent of Counsel (not applicable)*

11(a) Other Opinions -Consent of Independent
Accountants( To be filed by Amendment)

11(b) Limited Power of Attorney with respect to
Amendments to the SEC Registration Statements of
Frank Russell Investment Company of Frank Russell
Investment Company Trustees

12. Financial Statements omitted from Item 23 (none)

13. Agreement related to Initial Capital provided by
Frank Russell Company (incorporated by reference
to Post-Effective Amendment No. 2 filed on April
1, 1982)

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

* Registrant has registered an indefinite number of shares pursuant to Rule
24f-2 under the Investment Company Act of 1940, and filed an opinion of counsel
with its Rule 24f-2 Notice for the External and Internal Fee Funds on
February ___, 1996.
<PAGE> 214
Exhibits

14. Model Retirement Plans (none)

15. Rule 12b-1 Distribution Financing Plan (none)

16. Schedule of Computation of Performance Calculation
( To be Filed by Amendment)

Item 25. Persons Controlled by or Under Common Control with Registrant

None

Item 26. Number of Holders of Securities

<TABLE>
<CAPTION>
(1) (2)
Title of Class Number of Record Holders as of 1/31/96
-------------- --------------------------------------
<S> <C>
Shares of beneficial interest
Par Value $0.01
Equity I 3,159
Equity II 3,009
Equity III 1,637
Equity Q 2,831
International 3,207
Emerging Markets 6,103
Fixed Income I 2,358
Fixed Income II 1,564
Fixed Income III 2,109
Money Market 232
Diversified Equity 6,283
Special Growth 5,864
Equity Income 3,753
Quantitative Equity 6,051
International Securities 6,478
Diversified Bond 3,876
Volatility Constrained Bond 1,998
Multistrategy Bond 4,371
Limited Volatility Tax Free 600
Real Estate Securities Fund 8,250
U.S. Government Money Market 5,264
Tax Free Money Market 583
</TABLE>

Equity T Fund has not commenced operations and was not
offered for public investment prior to the effective date of this
registration statement.

Item 27. Indemnification

Incorporated by reference to Post-Effective Amendment No. 6.

Item 28. Business and Other Connections of Investment Advisor
<PAGE> 215
See, Registrant's prospectus sections "Frank Russell
Company--Consultant to the Funds," "The Money Managers" and "Money
Manager Profiles," the Statement of Additional Information sections
"Structure and Governance--Trustees and Officers," and "Operation
of Investment Company--Consultant."

Item 29. Principal Underwriters

(a) The Seven Seas Series Fund.

(b) Russell Fund Distributors, Inc. is the principal underwriter
of the Registrant. The directors and officers of Russell
Fund Distributors, Inc., their principal business address,
and positions and offices with the Registrant and Russell
Fund Distributors, Inc. are set forth below:

<TABLE>
<CAPTION>
Name and Positions and Position and
Principal Business Officers with Offices with
Address Registrant Underwriter
------- ---------- -----------
<S> <C> <C>
Lynn L. Anderson Trustee, President, Chief Director, Chairman of the
Executive Officer Board and Chief Executive
Officer

Eric A. Russell None Director and President

George W. Weber Treasurer and Chief None
Accounting Officer

Karl J. Ege Secretary and General Secretary and General Counsel
Counsel

Randall P.Lert Director of Investments Director

Norma Schellberg None Treasurer

J. David Griswold None Assistant Secretary,
Associate General Counsel
and Chief Compliance Officer

Gregory J. Lyons Assistant Secretary Assistant Secretary

Mary E. Hughs None Assistant Secretary

Warren Thompson III None Corporate Tax Counsel

John J. James None Assistant Secretary

Nancy M. Jacoby None Assistant Secretary
</TABLE>

Item 30. Location of Accounts and Records

All accounts and records required to be maintained by section 31(a)
of the 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained
in the following locations:

<TABLE>
<CAPTION>
FRIC FRIMCo
---- ------
<S> <C>
Frank Russell Investment Company Frank Russell Investment
909 A Street Management Company
Tacoma, Washington 98402 909 A Street
Tacoma, Washington 98402
</TABLE>
<PAGE> 216
<TABLE>
<CAPTION>
SS MM
-- --
<S> <C>
State Street Bank & Trust Company Money Managers
1776 Heritage Drive JA4N See, Prospectus Section
North Quincy, Massachusetts 02171 "Money Manager Profiles"
for Names and Addresses
</TABLE>

Rule 31a-1

(a) Records forming basis for financial statements - at
principal offices of SS, FRIC, FRIMCo, and MM for
each entity

(b) FRIC Records:
<TABLE>
<S> <C>
(1) SS - Journals, etc.
(2) SS - Ledgers, etc.
(3) Inapplicable
(4) FRIC - Corporate charter, etc.
(5) MM - Brokerage orders
(6) MM - Other portfolio purchase orders
(7) SS - Contractual commitments
(8) SS and FRIC - Trial balances
(9) MM - Reasons for brokerage allocations
(10) MM - Persons authorizing purchases and sales
(11) FRIC and MM - Files of advisory material
(12) ---
</TABLE>
(c) Inapplicable
(d) FRIMCo - Broker-dealer records, to the extent
applicable
(e) Inapplicable
(f) FRIMCo and MM - Investment adviser records

Item 31. Management Services

None except as described in Parts A and B.

Item 32. Undertakings

(b) The Registrant undertakes to file a post-effective amendment for
the Equity T Fund containing financial statements, which
need not be certified, for that Fund within four to six months
from effective date of this registration statement.

(c) Registrant has elected to include its Management's discussion of
Fund performance required under N-1A, Item 5A in its annual report.
Registrant therefore undertakes to provide annual reports without
charge to any recipient of a Prospectus who requests the
information.
<PAGE> 217
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 31 to its Registration Statement to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Tacoma, and State of
Washington, on the 14th day of February, 1996.

FRANK RUSSELL INVESTMENT COMPANY
Registrant

By: /s/Lynn L Anderson
------------------
Lynn L. Anderson, Trustee and President

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on February 14, 1996.

<TABLE>
<CAPTION>
Signatures Title
- ---------- -----
<S> <C>
/s/ Lynn L. Anderson Trustee and President,
- ------------------------ in his capacity as
Lynn L. Anderson* Chief Executive Officer

/s/ George W. Weber Treasurer, in his capacity
- ------------------------ as Chief Accounting Officer
George W. Weber Trustee

- ------------------------
Paul E. Anderson*
Trustee

- ------------------------
Paul Anton, PhD*
Trustee

- ------------------------
William E. Baxter*
Trustee

- ------------------------
Lee C. Gingrich*
Trustee
</TABLE>

<PAGE> 218
<TABLE>
<S> <C>
- ------------------------
Eleanor W. Palmer*
Trustee

- ------------------------
George F. Russell, Jr.*

By: /s/ Gregory J. Lyons Assistant Secretary
- ----------------------------
Gregory J. Lyons
</TABLE>

- -----------------
* Original Powers of Attorney authorizing the President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary, and each of
them singly to sign this Amendment on behalf of each member of the Board
of Trustees of Frank Russell Investment Company which have been filed with
the Securities and Exchange Commission.
<PAGE> 219
FRANK RUSSELL INVESTMENT COMPANY

FILE NO. 2-71299

FILE NO. 811-3153

EXHIBITS

Listed in Part C, Item 1(b)

To Post-Effective Amendment No. 31

and Amendment No. 31

Registration Statement on Form N-1A

Under

Securities Act of 1933

and

Investment Company Act of 1940
<PAGE> 220

EXHIBIT INDEX

<TABLE>
<CAPTION>
Name of Exhibit Exhibit Number
- --------------- --------------
<S> <C>
Limited Power of Attorney with 11(b)
respect to Amendments to the SEC
Registration Statements of Frank
Russell Investment Company of Frank
Russell Investment Company Trustees
</TABLE>

<PAGE> 221
LIMITED POWER OF ATTORNEY

WITH RESPECT TO
AMENDMENTS TO S.E.C. REGISTRATION STATEMENTS OF
FRANK RUSSELL INVESTMENT COMPANY

Know all men by these presents that the undersigned hereby
constitutes and appoints the President, the Treasurer, any Assistant Treasurer,
the Secretary, or any Assistant Secretary of FRIC, and each of them, his or her
attorneys-in-fact, each with the power of substitution, for him or her in any
and all capacities, to sign any amendments to Securities and Exchange
Commission registration statements of Frank Russell Investment Company, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.

/s/ Lynn L. Anderson
---------------------------
Name: Lynn L. Anderson
Trustee:
Frank Russell Investment Company

January 15, 1996
<PAGE> 222
LIMITED POWER OF ATTORNEY

WITH RESPECT TO
AMENDMENTS TO S.E.C. REGISTRATION STATEMENTS OF
FRANK RUSSELL INVESTMENT COMPANY

/s/ Lee C. Gingrich
-------------------------
Name: Lee C. Gingrich
Trustee:
Frank Russell Investment Company

January 15, 1996
<PAGE> 223
LIMITED POWER OF ATTORNEY

WITH RESPECT TO
AMENDMENTS TO S.E.C. REGISTRATION STATEMENTS OF
FRANK RUSSELL INVESTMENT COMPANY

/s/ William E. Baxter
-----------------------------
Name: William E. Baxter
Trustee:
Frank Russell Investment Company

January 15, 1996
<PAGE> 224
LIMITED POWER OF ATTORNEY

WITH RESPECT TO
AMENDMENTS TO S.E.C. REGISTRATION STATEMENTS OF
FRANK RUSSELL INVESTMENT COMPANY

/s/ Eleanor W. Palmer
------------------------------
Name: Eleanor W. Palmer
Trustee:
Frank Russell Investment Company

January 15, 1996
<PAGE> 225
LIMITED POWER OF ATTORNEY

WITH RESPECT TO
AMENDMENTS TO S.E.C. REGISTRATION STATEMENTS OF
FRANK RUSSELL INVESTMENT COMPANY

/s/ Paul Anton
------------------------
Name: Paul Anton
Trustee:
Frank Russell Investment Company

January 15, 1996
<PAGE> 226
LIMITED POWER OF ATTORNEY

WITH RESPECT TO
AMENDMENTS TO S.E.C. REGISTRATION STATEMENTS OF
FRANK RUSSELL INVESTMENT COMPANY

/s/ Paul E. Anderson
----------------------------
Name:Paul E. Anderson
Trustee:
Frank Russell Investment Company

January 15, 1996
<PAGE> 227
LIMITED POWER OF ATTORNEY

WITH RESPECT TO
AMENDMENTS TO S.E.C. REGISTRATION STATEMENTS OF
FRANK RUSSELL INVESTMENT COMPANY

/s/ George F. Russell, Jr.
---------------------------
Name: George F. Russell, Jr.
Trustee:
Frank Russell Investment Company

January 15, 1996