RUSSELL FRANK INVESTMENT CO, 485BPOS, 1998-04-28

RUSSELL FRANK INVESTMENT CO
485BPOS, 1998-04-28

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<PAGE>

FILED PURSUANT TO RULE 485(b)
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. 39 X
------ -----

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----
Amendment No. 39
------

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: 253/627-7001

Gregory J. Lyons, Associate General Counsel
Frank Russell Investment Company
909 A Street, Tacoma, Washington 98402 253/596-2406
- --------------------------------------------------------------------------------
(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: .

It is proposed that this filing will become effective (check appropriate
box)
( ) immediately upon filing pursuant to paragraph (b)

(X) on May 1, 1998 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(i)

( ) on date pursuant to paragraph (a)(i)
( ) 75 days after filing pursuant to paragraph (a)(ii)
( ) on (date) pursuant to paragraph (a)(ii) of rule 485.

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

DECLARATION PURSUANT TO RULE 24f-2

Registrant has declared its intention to register an indefinite number of
shares of beneficial interest, par value of $.01, of Frank Russell Investment
Company pursuant to Rule 24f-2(a)(1) under the Investment Company Act of 1940,
as amended. The Registrant filed its Rule 24f-2 notice for the fiscal year ended
December 31, 1997 on March 20, 1998.

<PAGE>

Frank Russell Investment Company
File No. 2-71299
P/E Amd. #39

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 Prospectus Caption
Part A in a Prospectus [unless otherwise noted]
- --------- ----------------------- ---------------------------------------------------------
<S> <C> <C>
1 Cover Page Cover Page
2 Synopsis
(a) Summary
(b) Highlights and Table of Contents
3 Condensed Financial
Information
(a) Financial Highlights
(b) Not Applicable
(c) Investment Objectives, Restrictions and Policies
(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
(c) 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
(c) General Management of the Funds
(d) General Management of the Funds; Additional Information -
Distributor, Custodian, Accountants and Reports
(e) General Management of the Funds
(f) Expenses of the Funds
(g) Portfolio Transaction Policies
5A Management's Discussion of Annual Report to be filed.
Fund Performance
6 Capital Stock and Other
Securities
(a) Eligible Investors; Additional Information - Organization,
Capitalization and Voting
(b) Additional Information - Organization, Capitalization and
Voting
(c) Not Applicable
(d) Not Applicable

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Information Required Prospectus Caption
Part A in a Prospectus [unless otherwise noted]
- --------- ----------------------- ---------------------------------------------------------
<S> <C> <C>
(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; How Net Asset Value is Determined;
How to Purchase Shares
(c) Not Applicable
(d) Eligible Investors
(e) Not Applicable
(f) Not Applicable
(g) Not Applicable
8 Redemption or Repurchase
(a) How to Redeem Shares
(b) Not Applicable
(c) Eligible Investors
(d) How to Redeem Shares
9 Pending Legal Proceedings Not Applicable

</TABLE>
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET, TACOMA, WA 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (253) 627-7001

Frank Russell Investment Company (the "Trust") is an open-end, management
investment company with 28 different investment series or portfolios
("Funds"). This Prospectus describes and offers interests in the Class S
Shares of seven Funds:

Real Estate Securities Fund Money Market Fund
Emerging Markets Fund
Equity T Fund US Government Money Market
Fund
Limited Volatility Tax Free Fund Tax Free Money Market Fund

Each Fund has its own investment objective and policies designed to meet
different investment goals. As with all mutual funds, attainment of each
Fund's investment objective cannot be assured.

Frank Russell Investment Management Company ("FRIMCo") operates and
administers the Funds. Class S Shares are sold at their net asset value, with
no sales load, no commissions, no Rule 12b-1 fees and no exchange fees. There
is no specified minimum investment in the Funds, but investors must qualify as
Eligible Investors, as described in this Prospectus.

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 SECURITIES
AND EXCHANGE 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 CAN BE NO ASSURANCE THAT THE MONEY MARKET FUND, US
GOVERNMENT MONEY MARKET FUND AND TAX FREE MONEY MARKET FUND (TOGETHER, THE
"MONEY MARKET FUNDS") WILL MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE
OR OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER IN SUCH STATE OR OTHER JURISDICTION.

This Prospectus sets forth concisely the information about the Funds that
you should know before investing. Please read it before investing and retain
it for future reference. A Statement of Additional Information ("SAI"), dated
May 1, 1998, has been filed with the Securities and Exchange Commission
("SEC"). The SAI is incorporated into this Prospectus by reference and is
available without charge by writing to the address listed above or by
telephoning (800) 972-0700.

This Prospectus relates only to the Class S Shares of the Funds. Two
Funds -- Real Estate Securities Fund and Emerging Markets Fund -- also offer
interests in another class of shares, the Class C Shares, through another
prospectus. For more information concerning Class C Shares, contact the person
or organization from whom you obtained this Prospectus, or write or telephone
the Trust.

The SAI, material incorporated by reference into this Prospectus, and
further information regarding the Trust and the Funds is maintained
electronically with the SEC at its Internet Web site (http://www.sec.gov).

PROSPECTUS DATED MAY 1, 1998
<PAGE>

TABLE OF CONTENTS

CERTAIN TERMS USED IN THIS PROSPECTUS ARE DEFINED IN THE
GLOSSARY, WHICH BEGINS ON PAGE 43 OF THIS PROSPECTUS.

<TABLE>
<S> <C>
Summary..................................................................... 3
Annual Fund Operating Expenses.............................................. 4
Financial Highlights........................................................ 6
The Purpose of the Funds--Multi-Style, Multi-Manager Diversification........ 13
Eligible Investors.......................................................... 14
General Management of the Funds............................................. 15
Expenses of the Funds....................................................... 17
The Money Managers.......................................................... 17
Investment Objectives, Policies and Practices............................... 18
Portfolio Transaction Policies.............................................. 28
Dividends and Distributions................................................. 30
Taxes....................................................................... 31
Performance Information..................................................... 32
How Net Asset Value Is Determined........................................... 34
How to Purchase Shares...................................................... 35
How to Redeem Shares........................................................ 37
Additional Information...................................................... 39
Money Manager Profiles...................................................... 40
Glossary.................................................................... 43
</TABLE>

2
<PAGE>

SUMMARY

The Funds are designed to provide a means for Eligible Investors to use
FRIMCo's and Frank Russell Company's ("Russell") "multi-style, multi-manager
diversification" techniques and money manager evaluation services. Unlike most
investment companies that have a single organization that acts as both
administrator and investment adviser, the Trust divides responsibility for
corporate management and investment advice between FRIMCo and a number of
different money managers. See "The Purpose of the Funds--Multi-Style, Multi-
Manager Diversification."

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.

The Trust's Board of Trustees has approved, subject to the approval of the
Fund's shareholders, changing the Limited Volatility Tax Free Fund's
investment objective, as described in more detail under "Investment
Objectives, Policies and Practices, Limited Volatility Tax Free Fund."

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, high-
grade, money market instruments.

US 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. See "Investment Objectives, Policies and
Practices."

The Trust's Fund had aggregate net assets of approximately $13.6 billion on
April 1 , 1998. The net assets of the Funds described in this Prospectus on
April 1, 1998 were:

<TABLE>
<S> <C> <C> <C>
Real Estate Securities..... $654,494,526 Money Market............... $236,323,157
Emerging Markets........... $396,931,227 US Government Money
Equity T................... $161,655,014 Market..................... $124,910,005
Limited Volatility Tax
Free...................... $103,089,120 Tax Free Money Market....... $167,923,946
</TABLE>

3
<PAGE>

All Class S Shares are sold without a sales charge, commission, or Rule 12b-
1 fee. Except as indicated below, Class S Shares are redeemed at net asset
value. You may also exchange shares of one Fund for shares of another Fund.
See "How to Purchase Shares" and "How to Redeem Shares."

You should be aware of the general risks associated with investments in
mutual funds. One or more Funds may make investments and engage in investment
practices and techniques that involve risks, including entering into
repurchase agreements, lending portfolio securities and entering into hedging
transactions. Also, foreign securities in which Emerging Markets Fund may
invest may be subject to certain risks in addition to those inherent in US
investments. These risks are described in "Risk Considerations" in "Investment
Objectives, Policies and Practices" and in the Glossary.

SHAREHOLDER TRANSACTION EXPENSES

You would pay the following charges when buying or redeeming Class S Shares
of a Fund:

<TABLE>
<CAPTION>
MAXIMUM SALES MAXIMUM SALES
LOAD IMPOSED LOAD IMPOSED ON DEFERRED REDEMPTION EXCHANGE
ON PURCHASES REINVESTED DIVIDENDS SALES LOAD FEES + FEES
- ------------- -------------------- ---------- ---------- --------
<S> <C> <C> <C> <C>
None None None Equity T Fund None
</TABLE>
- ---------------------

+ Equity T Fund only: The Fund charges a redemption fee of 1% of the value of
the shares redeemed, which the Fund retains. Your redemption proceeds are
accordingly reduced. The proceeds of this fee are retained by the Fund to
offset tax consequences to the Fund that result from the redemption of Fund
shares.

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
TOTAL FUND
OTHER EXPENSES OPERATING
(AFTER EXPENSES (AFTER
MANAGEMENT REIMBURSEMENT REIMBURSEMENT,
FEE UNLESS NOTED) UNLESS NOTED)+
---------- -------------- ---------------
<S> <C> <C> <C>
Real Estate Securities Fund.......... 0.85% 0.17% 1.02%
Emerging Markets Fund................ 1.20% 0.44% 1.64%
Equity T Fund*....................... 0.67% 0.33% 1.00%
Limited Volatility Tax Free Fund**... 0.50% 0.21% 0.71%
Money Market Fund*................... 0.10% 0.05% 0.15%
US Government Money Market Fund*..... 0.12% 0.16% 0.28%
Tax Free Money Market Fund*.......... 0.15% 0.13% 0.28%
</TABLE>
- ---------------------

* FRIMCo has voluntarily agreed to waive a portion of its 0.75% management
fee for the Equity T Fund, up to the full amount of that fee, for all fund
expenses that exceed 1.00% of its average daily net assets on an annual
basis. Additionally, FRIMCo has voluntarily agreed to waive 0.15% of its
0.25%, 0.13% of its 0.25%, and 0.10% of its 0.25% managements fees for the
Money Market Fund, US Government Money Market Fund, and the Tax Free Money
Market Fund, respectively. The waiver for each respective fund is intended
to be in effect for the current fiscal year, but may be revised or
eliminated at any time without notice to shareholders. The gross annual
total operating expenses absent the waivers would be .87%, .29%, .56% and
.36%% of average net assets of the Equity T Fund, Money Market Fund, US
Government Money Market Fund and Tax Free Money Market Fund, respectively.

** The Board of Trustees has approved, subject to shareholder approval, which
will be sought at a shareholder meeting expected to be held during 1998,
reducing the management fee to 0.30%.

4
<PAGE>

These tables are intended to assist you in understanding the various expenses
of each Fund. Operating expenses are paid out of a Fund's assets and are
factored into the Fund's assets and share price. Each Fund estimates that it
will have the expenses listed (expressed as a percentage of average net assets)
for the current fiscal year.

EXAMPLE OF EXPENSES FOR THE FUNDS

Assume that each Fund's annual return is 5% and that its operating expenses
are as described above, and that you sell your shares after the number of years
shown. These are projected expenses for each $1,000 that you invest:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Real Estate Securities Fund..................... $10 $31 $56 $128
Emerging Markets Fund........................... $16 $50 $91 $206
Equity T Fund +................................. $21 $42 $68 $142
Limited Volatility Tax Free Fund................ $ 7 $22 $39 $ 89
Money Market Fund............................... $ 2 $ 5 $ 8 $ 19
US Government Money Market Fund................. $ 3 $ 9 $15 $ 35
Tax Free Money Market Fund...................... $ 3 $ 9 $15 $ 35
</TABLE>
- ---------------------
+ You would pay the following expenses on an investment in Equity T Fund,
assuming no redemption: 1 year -- $10, 3 years -- $31, 5 years -- $55 and 10
years -- $126.

5
<PAGE>

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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year or period ended December 31, and other performance
information derived from the financial statements. The information in the
table represents the Financial Highlights for the Fund's Class S Shares for
the periods shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference into 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 Trust.

REAL ESTATE SECURITIES FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR........... $ 29.19 $ 23.51 $ 22.53 $ 22.76 $ 21.50 $19.33 $14.99 $19.31 $20.00
------- ------- ------- ------- ------- ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 1.36 1.39 1.32 1.25 1.05 1.08 1.11 1.30 .42
Net realized and
unrealized gain (loss)
on investments........ 3.93 6.89 1.03 .40 2.68 2.16 4.36 (4.30) (.73)
------- ------- ------- ------- ------- ------ ------ ------ ------
Total From Investment
Operations........... 5.29 8.28 2.35 1.65 3.73 3.24 5.47 (3.00) (.31)
------- ------- ------- ------- ------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income.. (1.41) (1.34) (1.35) (1.23) (1.04) (1.07) (1.13) (1.32) (.38)
Net realized gain on
investments........... (2.21) (1.26) -- (.45) (1.43) -- -- -- --
In excess of net
realized gain on
investments........... -- -- -- (.20) -- -- -- -- --
Tax return of capital.. -- -- (.02) -- -- -- -- -- --
------- ------- ------- ------- ------- ------ ------ ------ ------
Total Distributions... (3.62) (2.60) (1.37) (1.88) (2.47) (1.07) (1.13) (1.32) (.38)
------- ------- ------- ------- ------- ------ ------ ------ ------
NET ASSET VALUE, END OF
YEAR................... $ 30.86 $ 29.19 $ 23.51 $ 22.53 $ 22.76 $21.50 $19.33 $14.99 $19.31
======= ======= ======= ======= ======= ====== ====== ====== ======
TOTAL RETURN (%)(a)..... 18.99 36.81 10.87 7.24 17.42 17.29 37.08 (15.92) (1.57)
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses, to
average net assets
(b)................... 1.02 1.04 1.04 1.05 1.11 1.20 1.31 1.60 .32
Net investment income
to average net
assets (b)............ 4.57 5.64 6.10 5.65 4.52 5.60 6.50 8.94 6.90
Portfolio turnover
(b)................... 49.40 51.75 23.49 45.84 58.38 19.72 13.28 12.11 8.74
Net assets, end of year
($000 omitted)........ 615,483 445,619 290,990 209,208 145,167 75,902 42,771 20,845 7,699
Average commission rate
paid per share of
security ($ omitted).. .0618 .0631 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- ---------------------
* See notes to Financial Statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.
++ 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.

6
<PAGE>

FINANCIAL HIGHLIGHTS OF THE EMERGING MARKETS FUND*

EMERGING MARKETS FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR.............................. $ 12.35 $11.16 $12.25 $13.90 $10.00
------- ------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............. .14 .10 .11 .15 .07
Net realized and unrealized gain
(loss) on investments............ (.56) 1.26 (1.12) (1.24) 4.09
------- ------- ------- ------- ------
Total From Investment Opera-
tions........................... (.42) 1.36 (1.01) (1.09) 4.16
------- ------- ------- ------- ------
LESS DISTRIBUTIONS:
Net investment income............. (.05) (.08) (.03) (.10) (.07)
In excess of net investment in-
come............................. (.09) (.09) (.02) (.10) (.01)
Net realized gain on investments.. -- -- -- (.31) (.18)
In excess of net realized gain on
investments...................... -- -- (.03) (.05) --
------- ------- ------- ------- ------
Total Distributions.............. (.14) (.17) (.08) (.56) (.26)
------- ------- ------- ------- ------
NET ASSET VALUE, END OF YEAR....... $ 11.79 $12.35 $11.16 $12.25 $13.90
======= ======= ======= ======= ======
TOTAL RETURN (%)(a)(c)............. (3.45) 12.26 (8.21) (5.83) 41.83
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to aver-
age net assets (b)(c)............ 1.64 1.71 1.75 .80 .80
Operating expenses, gross, to av-
erage net assets (b)(c).......... 1.64 1.72 1.80 .83 1.60
Net investment income to average
net assets (b)(c)................ .87 .77 .88 1.10 1.33
Portfolio turnover (b)............ 50.60 34.62 71.16 57.47 89.99
Net assets, end of year ($000
omitted)(d)...................... 333,052 271,490 172,673 127,271 65,457
Average commission rate paid per
share of security ($
omitted)(d)...................... .0012 .0007 N/A N/A N/A
</TABLE>
- ---------------------
* See notes to Financial Statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.
++ 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%.

(d) In certain foreign markets the relationship between the translated US
dollar price per share and commission paid per share may vary from that of
domestic markets.

7
<PAGE>

FINANCIAL HIGHLIGHTS OF THE LIMITED VOLATILITY TAX FREE FUND*

LIMITED VOLATILITY TAX FREE FUND

8
<PAGE>

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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

MONEY MARKET FUND

9
<PAGE>

FINANCIAL HIGHLIGHTS OF THE US 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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year or period ended December 31, and other performance
information derived from the financial statements. The information in the
table represents the Financial Highlights for the Fund's Class C Shares for
the periods shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference into 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 Trust.

US GOVERNMENT MONEY MARKET FUND

10
<PAGE>

FINANCIAL HIGHLIGHTS OF THE TAX FREE MONEY MARKET FUND*

TAX FREE MONEY MARKET FUND

11
<PAGE>

FINANCIAL HIGHLIGHTS OF THE EQUITY T FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year or period ended December 31, and other performance
information derived from the financial statements. The information in the
table represents the Financial Highlights for the Fund's Class S Shares for
the periods shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference into 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 Trust.

EQUITY T FUND

<TABLE>
<CAPTION>
1997 1996*
-------- ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR........................... $ 10.61 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................................... .08 .03
Net realized and unrealized gain (loss) on investments..... 3.28 .61
-------- ------
Total Income From Investment Operations.................. 3.36 .64
LESS DISTRIBUTIONS:
Net investment income...................................... (.07) (.03)
-------- ------
NET ASSET VALUE, END OF YEAR................................. $ 13.90 $10.61
======== ======
TOTAL RETURN (%)(a)(c)....................................... 31.73 6.10
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (b)(c)...... 1.00 1.00
Operating expenses, gross, to average net assets (b)(c).... 1.08 2.83
Net investment income to average net assets (b)(c)......... .92 1.62
Portfolio turnover (b)..................................... 39.23 8.86
Net assets, end of year ($000 omitted)..................... 109,735 19,931
Average commission rate paid per share of security ($ omit-
ted)...................................................... .0271 .0301
</TABLE>
- ---------------------
* See notes to Financial Statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.
+ For the period October 7, 1996 (commencement of operations) to December
31, 1996.
(a) Periods less than one year are not annualized.
(b) The ratios for the period October 7, 1996 (commencement of operations) to
December 31, 1996 are annualized.
(c) Fund performance, operating expenses, and net investment income are
reported net of investment management fees paid to the Manager or money
managers, but gross of any investment services fees.

12
<PAGE>

THE PURPOSE OF THE FUNDS--MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION

The Funds offer Eligible Investors the opportunities to use FRIMCo's and
Russell's "multi-style, multi-manager diversification" investment method and
to obtain FRIMCo's and Russell's money manager evaluation services.

Russell acts as consultant to the Funds. Russell was founded in 1936 and has
been providing comprehensive asset management consulting services for almost
30 years to institutional investors, principally large corporate employee
benefit plans. Russell and its affiliates have offices around the world -- in
Tacoma, New York, Toronto, London, Zurich, Paris, Sydney, Auckland and Tokyo.

Three functions form the core of Russell's consulting services:

. Objective Setting: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.

. 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 a way most
likely to achieve the client's objectives and desired returns.

. Money Manager Research: Evaluating and recommending professional
investment advisory and management organizations ("money managers") to
make specific portfolio investments for each asset class, according to
designated investment objectives, styles and strategies.

When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.

FRIMCo and Russell believe investors should seek to hold fully diversified
portfolios that reflect both the investors' individual investment time
horizons and their ability to accept risk. FRIMCo and Russell believe that for
many, this can be accomplished through strategically purchasing shares in one
or more of the Funds, which have been structured to provide access to specific
asset classes in a multi-style, multi-manager environment.

Capital market history shows that asset classes with greater risk will
generally outperform lower risk asset classes over time. For instance,
corporate equities over the past 50 years have outperformed corporate debt in
absolute terms. However, what is generally true of performance over extended
periods will not necessarily be true at any given time during a market cycle,
and from time to time, asset classes with greater risk may also underperform
lower risk asset classes, on either a risk adjusted or absolute basis.
Investors should select a mix of asset classes that reflects their ability to
withstand market fluctuations over their investment horizons.

Studies have shown that no one investment style within an asset class will
consistently outperform competing styles. For instance, investment styles
favoring securities with growth characteristics may outperform styles favoring
income producing securities, and vice versa. It is largely for this reason
that no single manager has consistently outperformed the market over extended
periods. While performance cycles tend to repeat themselves, they do not do so
predictably.

FRIMCo and Russell believe, however, that it is possible to select managers
who have shown a consistent ability to achieve superior results within
specific asset classes and investment styles by employing a unique combination
of qualitative and quantitative measurements. FRIMCo combines these select
managers with other managers within the same asset class who employ
complementary styles. By combining complementary

13
<PAGE>

investment styles within an asset class, investors are better able to reduce
their exposure to an investment style going out of favor.

By strategically selecting from among a variety of investments by asset
class, each of which has been constructed using these multi-style, multi-
manager principles, investors are able to design portfolios that meet their
specific investment needs.

ELIGIBLE INVESTORS

Shares of the Funds are currently offered only to Eligible Investors.
Eligible Investors include:

. Institutional investors and Financial Intermediaries investing for their
own accounts or in a fiduciary or agency capacity, which have entered
into asset management services agreements ("Agreements") with FRIMCo.
"Financial Intermediaries" include bank trust departments, registered
investment advisers, broker-dealers, employee benefit plans, and other
financial service organizations; and

. Institutions or individuals who have acquired shares through
institutional investors and Financial Intermediaries.

There is no specific minimum amount that must be invested in the Funds or in
the Trust.

The Funds generally do not offer their shares directly to individual (i.e.,
retail) investors, although they may choose to do so. Financial Intermediaries
which have entered into Service Agreements with FRIMCo may acquire shares of
the Funds for their customers. Under the Agreements, FRIMCo provides
objective-setting and asset-allocation assistance and services to Financial
Intermediaries, which in turn provide similar services to their customers.
Financial Intermediaries receive no compensation from FRIMCo or Class S Shares
of the Funds. However, Financial Intermediaries may charge their customers a
fee for providing these services and other trust or investment-related
services.

In the case of the Emerging Markets, Equity T and Money Market Funds, the
Agreement provides that a shareholder investment services fee (the "Services
Fee") may be paid to FRIMCo. The Services Fee is usually expressed as a
percentage of the client's assets invested in the Funds. The Services Fee may
include a fixed-dollar fee for certain specific services. The client and
FRIMCo agree to the Services Fee, which is determined by the amount of assets
the client expects to invest in the Funds, the nature and extent of services
that FRIMCo agrees to provide to the client, and other factors.

Either the client or FRIMCo may terminate an Agreement upon written notice.
FRIMCo does not anticipate terminating any Agreement unless a client does not
(i) promptly pay fees due to FRIMCo, or (ii) invest sufficient assets in the
Funds to compensate FRIMCo for its services. If an Agreement is terminated,
FRIMCo will no longer provide asset-allocation, objective-setting or other
services to the client.

14
<PAGE>

GENERAL MANAGEMENT OF THE FUNDS

The Board oversees the Funds' operations, including reviewing and approving
the Funds' contracts with FRIMCo, Russell and the money managers. The Trust's
officers, all of whom are employed by and are officers of FRIMCo 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.

FRIMCo:

. provides or supervises the general management and administration,
investment advisory and portfolio management, and distribution services
for the Funds;

. furnishes the Funds with office space, equipment and personnel to operate
and administer the Funds' business, and supervises services provided by
third parties, such as the money managers and the Custodian;

. develops the investment programs, selects money managers, allocates
assets among money managers and monitors the money managers' investment
programs and results;

. manages, or hires money managers to manage the Funds' Liquidity
Portfolio; and

. provides the Funds with transfer agent, dividend disbursing and
shareholder recordkeeping services.

FRIMCo pays the expenses of providing these services (other than transfer
agent and shareholder recordkeeping), as well as a portion of the costs of
preparing and distributing materials that describe the Funds.

FRIMCo's officers and employees who oversee the money managers are:

. Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
1989.

. Mark D. Amberson, who has been a Portfolio Manager of FRIMCo since
January 1998. From 1991 to 1997, Mr. Amberson was a Portfolio Manager in
Russell's Money Market Trading Group. Mr. Amberson, jointly with another
portfolio manager identified herein, has primary responsibility for
management of the Fixed I, Diversified Bond, Fixed II, Volatility
Constrained Bond, Fixed III, and Multistrategy Bond Funds.

. Randal C. Burge, who has been a Portfolio Manager of FRIMCo since 1995.
From 1990 to 1995, Mr. Burge was a Client Executive for Frank Russell
Australia. Mr. Burge, jointly with another portfolio manager identified
herein, has primary responsibility for management of the Fixed I,
Diversified Bond, Fixed II, Volatility Constrained Bond, Fixed III,
Multistrategy Bond, and Emerging Markets Funds

. Jean E. Carter, who has been a Portfolio Manager of FRIMCo since 1994.
From 1990 to 1994, Ms. Carter was a Client Executive in Russell's
Investment Group. Ms. Carter, jointly with another portfolio manager
identified herein, has primary responsibility for management of the
International, and International Securities Funds.

. Ann Duncan, who has been a Portfolio Manager of FRIMCo since January
1998. From 1996 to 1997, Ms. Duncan was a Senior Equity Research Analyst
with Russell. From 1992 to 1995, Ms. Duncan was an equity analyst and
portfolio manager with Avatar Associates. Ms. Duncan, jointly with
another portfolio manager identified herein, has primary responsibility
for management of the International, and International Securities Funds.

15
<PAGE>

. James M. Imhof, Manager of FRIMCo's Portfolio Trading, manages the Trust
on a day to day basis, and has been responsible for ongoing analysis and
monitoring of the money managers since 1989.

. James A. Jornlin, who has been a Senior Investment Officer of FRIMCo
since April 1995. From 1991 to March 1995, Mr. Jornlin was employed as a
Senior Research Analyst with Russell. Mr. Jornlin, jointly with another
portfolio manager identified herein, has primary responsibility for
management of the Emerging Markets and Real Estate Securities Funds.

. Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin, jointly with another
portfolio manager identified herein, has primary responsibility for
management of the Equity I, Diversified Equity, Equity II, Special
Growth, Equity III, Equity Income, Equity Q, Quantitative Equity, and
Equity T Funds.

. C. Nola Williams, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1994 to 1995, Ms. Williams was a member of the Alpha
Strategy Group. From 1998 to 1994, Ms. Williams was Senior Research
Analyst with Russell. Ms. Williams, jointly with another portfolio
manager identified herein, has primary responsibility for management of
the Equity I, Diversified Equity, Equity II, Special Growth, Equity III,
Equity Income, Equity Q, Quantitative Equity, and Equity T Funds.

Russell provides to the Funds and FRIMCo the asset management consulting
services -- including objective-setting and asset-allocation technology, and
money manager research and evaluation assistance -- that Russell provides to
its other consulting clients. Russell does not receive any compensation from
the Funds for its consulting services.

As affiliates, Russell and FRIMCo may establish certain intercompany cost
allocations that reflect the consulting services supplied to FRIMCo. George F.
Russell, Jr., Chairman of the Trust, is the Chairman of the Board and
controlling shareholder of Russell. FRIMCo is a wholly owned subsidiary of
Russell.

The Trust has received an exemptive order from the SEC which permits the
Trust, with the approval of the Board, to engage and terminate money managers
without a shareholder vote and to disclose the aggregate fees paid to the
money managers of each Fund. On January 22, 1996, the shareholders of the
Trust's Funds voted to approve this arrangement.

Under its Management Agreement with the Trust, FRIMCo receives a management
fee from each Fund for FRIMCo's services. From this fee, FRIMCo, as the
Trust's agent, pays the money managers for their investment selection
services. The remainder of the management fee is retained by FRIMCo as
compensation for the services described above and to pay expenses. The annual
rate of management fees, payable to FRIMCo monthly on a pro rata basis, are
the following percentages of each Fund's average daily net assets: Real Estate
Securities Fund, 0.85%; Emerging Markets Fund, 1.20%; Equity T Fund, 0.75%;
Limited Volatility Tax Free Fund, 0.50%; Money Market Fund, 0.25%; US
Government Money Market Fund, 0.25%; and Tax Free Money Market Fund, 0.25%.

The fees for Real Estate Securities and Emerging Markets Funds may be higher
than the fees charged by some mutual funds with similar objectives that use
only a single money manager.

FRIMCo has voluntarily agreed to waive all or a portion of its management
fees for certain Funds. This arrangement is not part of the Management
Agreement with the Trust and may be changed or discontinued at any time.
FRIMCo currently calculates its management fee based on a Fund's average daily
net assets less any management fee incurred on assets invested in the Trust's
Money Market Fund.

16
<PAGE>

The Board has approved, subject to the approval of the shareholders of the
applicable Funds, which will be sought at a shareholder meeting expected to be
held during 1998, the Funds' payment to FRIMCo of a fee designed to compensate
FRIMCo for its role in managing collateral derived from securities lending and
certain other portfolio transactions. If approved by shareholders, each Fund
will pay a fee to FRIMCo for investment supervision over that Fund's cash,
securities and other investment assets which are not treated as net assets of
that Fund in determining the Fund's net asset value per share. If approved,
the fee will equal 0.07% of such assets on an annualized basis.

EXPENSES OF THE FUNDS

The Funds (and each class, when appropriate) pay all their expenses other
than those expressly assumed by FRIMCo. The Funds' expenses for Class S Shares
for the year ended December 31, 1997, as a percentage of each Fund's average
net assets, are shown in the Financial Highlights tables in this Prospectus.
Principal expenses are:

. the management, transfer agent and recordkeeping fees payable to FRIMCo;

. fees for custody, preparing tax records, and portfolio accounting,
payable to the Custodian;

. fees for independent auditing and legal services; and

. filing and registration fees payable to the SEC.

THE MONEY MANAGERS

Each Fund's assets are allocated among the money managers listed in "Money
Manager Profiles" in this Prospectus. FRIMCo may change the allocation of a
Fund's assets among money managers at any time. FRIMCo may employ or terminate
a money manager at any time, subject to the approval by the Board. A Fund will
notify its shareholders within 60 days of when a money manager begins
providing services. The money managers are selected for the Funds based
primarily upon the research and recommendations of FRIMCo and Russell. FRIMCo
and Russell evaluate 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 for any Fund.

From its management fees, FRIMCo, as the Trust's agent, pays 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 average of
all the assets allocated to the manager for the quarter. For the year ended
December 31, 1997, management fees paid to the money managers were equivalent
to the following annual rates, expressed as a percentage of each Fund's
average daily net assets: Real Estate Securities Fund, 0.31%; Emerging Markets
Fund, 0.72%; Equity T Fund, 0.34%; Limited Volatility Tax Free Fund, 0.25%;
Money Market Fund, 0.00%; US Government Money Market Fund, 0.00%; and Tax Free
Money Market Fund, 0.15%.

Each money manager has agreed that it will look only to FRIMCo for the
payment of the money manager's fee, after the Trust has paid FRIMCo. Fees paid
to the money managers are not affected by any voluntary or legal expense
limitations. Some money managers may receive investment research prepared by
Russell as additional compensation, or may receive brokerage commissions for
executing portfolio transactions for the Funds.

17
<PAGE>

Equity T Fund is managed by J.P. Morgan Investment Management, Inc.
("Morgan"). The individual responsible for the management of the Fund is James
C. Weiss, who is a Vice President and Portfolio Manager in the US Structured
Equity area. Mr. Weiss joined Morgan in 1992; prior to that, he was a stock
index arbitrageur at Oppenheimer & Company.

Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund. At the same time, however, each money
manager must operate within the Fund's investment objectives, restrictions and
policies, and the more specific strategies developed by FRIMCo. Although the
money managers' activities are subject to general oversight by the Board and
the Trust's officers, neither the Board, the officers, FRIMCo (except with
respect to Money Market Fund and US Government Money Market Fund), nor Russell
evaluate the investment merits of the money managers' individual security
selections.

INVESTMENT OBJECTIVES, POLICIES AND PRACTICES

The investment objective and general investment policies of each Fund are
described in "Investment Objectives." Types of portfolio securities that may
be purchased by the Funds are described in "Fund Investment Securities."
Specific investment practices that may be employed by the Funds are identified
in "Other Investment Practices." The risks associated with portfolio
investments by the Funds are described in those sections, as well as in "Risk
Considerations." Certain terms used in these sections are described in the
Glossary in this Prospectus.

SUMMARY COMPARISON OF THE FUNDS

<TABLE>
<CAPTION>
ANTICIPATED MAXIMUM
EQUITY DEBT
FUND EXPOSURE EXPOSURE FOCUS
---- ----------- -------- -------------------------
<S> <C> <C> <C>
Real Estate Securities Fund.... 65-100% 35% Total return
Emerging Markets Fund.......... 65-100% 35% Maximum total return
Equity T Fund.................. 65-100% 35% Capital growth
Limited Volatility Tax Free
Fund.......................... --% 100% Federal tax-exempt income
Money Market Fund.............. --% 100% Maximum current income
US Government Money Market
Fund.......................... --% 100% Maximum current income
Tax Free Money Market Fund..... --% 100% Maximum current income
</TABLE>

INVESTMENT OBJECTIVES

Each Fund's investment objective is "fundamental," which means each
investment objective may not be changed without the approval of a majority of
each Fund's shareholders. Certain investment policies may also be fundamental.
Ordinarily, each Fund will invest more than 65% of its total assets in the
types of securities identified in its investment objective. However, the Funds
may hold assets as cash reserves for temporary and defensive purposes when
their money managers believe a conservative approach is desirable, or when
suitable investments are unavailable.

18
<PAGE>

REAL ESTATE SECURITIES FUND

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. The Fund seeks to achieve its objective 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. These 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.
These may include shares of real estate investment trusts ("REITs"),
partnership units of master limited partnerships, common and preferred stock,
and convertible debt securities believed to have attractive equity
characteristics. The Fund may invest up to 35% of its total assets in other
debt securities of real estate companies. For information on risks, see "Risk
Considerations."

The Fund will attempt to be fully invested at all times. However, the Fund
is permitted to hold up to 20% of Fund assets in liquid investments to meet
redemption requests.

EMERGING MARKETS FUND

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
(these companies are referred to as "Emerging Market Companies"). For purposes
of the Fund's operations, an "emerging market" country will be a country
having an economy and market that the World Bank or the United Nations would
consider to be emerging or developing. These countries generally include every
country in the world except the United States, Canada, Japan, Australia and
most countries located in Western Europe.

The Fund may not invest in all emerging markets at all times. Lack of
adequate custody arrangements or current legal requirements make investing in
some developing markets unfeasible. In the future, the Fund's money managers
may determine, based on information then available, to expand the 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.

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 and American Depository Receipts and European Depository Receipts
("Depository Receipts"). 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.

19
<PAGE>

Certain emerging markets are closed in whole or in part to equity
investments by foreigners. The Fund may be able to invest in those markets
solely or primarily through governmentally authorized investment vehicles. For
information on risks, see "Risk Considerations."

EQUITY T FUND

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

The Fund may invest in common and preferred stocks, rights and warrants, and
convertible securities. Generally, the Fund seeks to invest primarily in
domestic equity securities that the Fund's money manager believes to be
undervalued on a long-term basis. To be fully exposed to the equity markets,
the Fund may purchase S&P 500 Index futures contracts. These contracts may be
considered to be derivative securities.

Most stock mutual funds are managed to maximize pre-tax total return,
without regard to the shareholder tax consequences of portfolio activity that
may result in taxable distributions. In contrast, the Fund seeks to achieve
its investment objective while minimizing shareholder tax consequences 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 assets that
are already tax-deferred (such as assets held in 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 Fund will attempt
to limit short-term capital gains, and to minimize the realization of net
long-term capital gains and subsequent distribution of such gains, to
shareholders. While the Fund may sell portfolio securities whenever the money
manager deems it appropriate, the Fund will typically buy stocks with the
intention of holding the stocks for a period of time to qualify for the more
favorable tax treatment (i.e., a long-term capital gain).

When the money manager decides to sell a particular appreciated security,
the manager will generally select for sale those share lots with the highest
cost basis to minimize capital gains. The money manager will also sell
securities in order to realize capital losses. These losses can be used to
offset realized capital gains (whether long or short-term) and thereby reduce
capital gains distributions to shareholders.

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

The Fund retains a redemption fee equal to 1% of the value of the shares
redeemed from all redemptions (other than redemptions in kind). The redemption
fee is intended to offset the potentially negative impact that redemptions can
have on the Fund's portfolio strategy and to contain costs. The fee will
indirectly help to offset tax costs that investors bear when the Fund is
forced to realize capital gains as a result of shareholder redemptions or
investment activity. By being paid directly to the Fund, the fee tends to be
advantageous to long-term investors and disadvantageous to short-term
investors.

20
<PAGE>

LIMITED VOLATILITY TAX FREE FUND

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 Board has approved, subject to shareholder
approval which will be sought at a shareholder meeting expected to be held
during 1998, changing the Fund's investment objective to provide a high level
of federal tax-exempt current income by investing primarily in a diversified
portfolio of investment grade municipal securities. In conjunction with these
and other changes, the Fund intends to change its name to Tax Free Bond Fund.
The Fund intends to invest 100% and will always invest 80% of its net assets
in municipal obligations, including variable rate obligations.

The Fund may purchase from financial institutions (such as banks and
insurance companies) participation interests in 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 concludes meets the Fund's quality standards. The Fund may 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 on (i) a default under the terms of the municipal obligations,
(ii) when necessary to provide liquidity to meet redemptions, or (iii) to
maintain the required portfolio quality.

The Fund may purchase municipal obligations with a "put" or "standby
commitment." A put or "standby commitment" obligates the seller to buy the
underlying municipal obligation from the Fund at an agreed upon price and
time. If the seller does not honor the put or standby commitment for financial
reasons, the Fund may be a general creditor of the seller.

For information on risks, see "Risk Considerations."

21
<PAGE>

MONEY MARKET FUND

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 instruments in which the Fund invests include (1) US government
obligations; (2) instruments of US and foreign banks and branches ("bank
instruments"); (3) commercial paper of US and foreign companies; (4) corporate
obligations; (5) variable amount master demand notes; and (6) US government
securities 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
current market value. See "Portfolio Securities" and "Risk Considerations."

US GOVERNMENT MONEY MARKET FUND

US 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 Fund may purchase US
government obligations on a forward commitment basis. See "Portfolio
Securities."

TAX FREE MONEY MARKET FUND

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 may invest up to 10% of its net assets in securities
subject to legal or contractual restrictions on disposition or for which no
readily available market exists.

The Fund will purchase municipal obligations with demand features only when
the demand instrument and the underlying municipal obligations meet the Fund's
quality standards. The Fund may purchase municipal obligations with a put or
standby commitment. See "Portfolio Securities" and "Risk Considerations."

FUND INVESTMENT SECURITIES

In pursuing their investment objectives, the Funds described in this
Prospectus may invest principally in the securities described below.

DEBT SECURITIES

The Funds may purchase debt securities that complement their respective
investment objectives. The Funds, except Emerging Markets Fund, do not invest
in debt 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 to be "investment grade" securities, although Moody's and S&P
consider securities rated Baa and BBB, respectively, to have some speculative

22
<PAGE>

characteristics. The Funds, other than Emerging Markets Fund, will sell
securities whose ratings drop below these minimum ratings, in a prudent manner
as determined by the money managers. The market value of debt securities
generally varies inversely with interests rates.

DEPOSITORY RECEIPTS

Emerging Markets Fund may invest in Depository Receipts. These are
securities traded in the United States that are issued typically in connection
with a US or foreign bank or trust company and evidence ownership of
underlying securities issued by a foreign corporation. These securities may
not necessarily be denominated in the same currency as the securities into
which they may be connected.

EQUITY SECURITIES

Real Estate Securities, Emerging Markets and Equity T Funds invest primarily
in equity securities, and Emerging Markets and Equity T Funds may invest in
common stock equivalents. The following constitute common stock equivalents:
rights and warrants, convertible securities and Depository Receipts. Common
stock equivalents may be converted into or provide the holder with the right
to common stock. The Emerging Markets and Equity T Funds may also invest in
other types of equity securities, including preferred stocks and equity
derivative securities.

INVESTMENT COMPANY SECURITIES

Each Fund may invest up to 10% of its total assets in shares of other
investment companies that invest in securities in which a Fund may otherwise
invest. Each Fluctuating Fund may invest its cash reserves in the Money Market
Fund. Because of restrictions on direct investment by US entities in certain
countries, other investment companies may provide the most practical or only
way for Emerging Markets Fund to invest in certain markets. These investments
may involve the payment of substantial premiums above the net asset value of
those investment companies' portfolio securities and are subject to
limitations under the 1940 Act. Emerging Markets Fund also may incur tax
liability to the extent it invests in the stock of a foreign issuer that is a
"passive foreign investment company" ("PFIC"), regardless of whether the PFIC
makes distributions to the Fund. See "Taxes" in this Prospectus and in the
SAI.

US GOVERNMENT OBLIGATIONS

The Funds may invest in fixed-rate and floating or variable rate US
government obligations. Certain of the obligations, including US Treasury
bills, notes and bonds, and GNMA participation certificates, are issued or
guaranteed by the US government. Other securities issued by US government
agencies or instrumentalities are supported only by the credit of the agency
or instrumentality (for example, those issued by the Federal Home Loan Bank)
whereas others, such as those issued by FNMA, have an additional line of
credit with the US Treasury.

Short-term US government securities generally are considered to be among the
safest short-term investments. However the US government does not guarantee
the net asset value of the Funds' shares. With respect to US government
securities supported only by the credit of the issuing agency or
instrumentality or by an additional line of credit with the US Treasury, there
is no guarantee that the US government will provide support to such agencies
or instrumentalities. Accordingly, such US government securities may involve
risk of loss of principal and interest.

23
<PAGE>

The following table illustrates the investments that the Funds primarily
invest in or are permitted to invest in:

<TABLE>
<CAPTION>
US
REAL LIMITED GOVERNMENT TAX FREE
ESTATE EMERGING VOLATILITY MONEY MONEY MONEY
SECURITIES MARKETS EQUITY T TAX FREE MARKET MARKET MARKET
TYPE OF PORTFOLIO SECURITY FUND FUND FUND FUND FUND FUND FUND
- -------------------------- ---------- -------- -------- ---------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stocks........... X X X
Common stock equivalents
(warrants)............. X X X
Common stock equivalents
(options).............. X X X
Common stock equivalents
(convertible debt
securities)............ X X X
Common stock equivalents
(depository receipts).. X
Preferred stocks........ X X X
Equity derivative secu-
rities................. X X X
Debt securities (below
investment grade or
junk bonds)............ X
US government securi-
ties................... X X X X X X X
Municipal obligations... X
Investment company secu-
rities................. X X X X X X X
Foreign securities...... X X X
</TABLE>

24
<PAGE>

OTHER INVESTMENT PRACTICES

The Funds use investment techniques commonly used by other mutual funds. The
table below summarizes the principal investment practices of the Funds, each
of which may involve certain special risks. The Glossary describes each of the
investment techniques identified below. The SAI, under the heading "Investment
Restrictions, Policies and Certain Investments," contains more detailed
information about certain of these practices, including limitations designed
to reduce risks.

<TABLE>
<CAPTION>
US
REAL LIMITED GOVERNMENT TAX FREE
ESTATE EMERGING VOLATILITY MONEY MONEY MONEY
SECURITIES MARKETS EQUITY T TAX FREE MARKET MARKET MARKET
TYPE OF PRACTICE FUND FUND FUND FUND FUND FUND FUND
---------------- ---------- -------- -------- ---------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash reserves........... X X X X
Repurchase
agreements(1).......... X X X X X X X
When-issued and forward
commitment securities.. X X X X X X X
Reverse repurchase
agreements............. X X X X X X X
Lending portfolio
securities, not to
exceed 33 1/3% of total
Fund assets............ X X X X X
Illiquid securities
(limited to 15% of
Fund's net assets)..... X X X X
Illiquid securities
(limited to 10% of
Fund's net assets)..... X X X
Forward currency
contracts(2)........... X
Write (sell) call and
put options on
securities, securities
indexes and foreign
currencies(3).......... X X X
Purchase options on
securities, securities
indexes, and
currencies(3).......... X X X
Interest rate futures
contracts, stock index
futures contracts,
foreign currency
contracts and options
on futures(4).......... X X X X
Credit and liquidity
enhancements........... X X
Liquidity portfolio..... X X X
</TABLE>
- ---------------------

(1) Under the 1940 Act, repurchase agreements are considered to be loans by a
Fund and must be fully collateralized by collateral assets. If the seller
defaults on its obligations to repurchase the underlying security, a Fund
may experience delay or difficulty in exercising its rights to realize
upon the security, may incur a loss if the value of the security declines
and may incur disposition costs in liquidating the security.
(2) Emerging Markets Fund may not invest more than one-third of its assets in
these contracts.
(3) A Fund will only engage in options where the options are traded on a
national securities exchange or in an over-the-counter market. A Fund may
invest up to 5% of its net assets, represented by the premium paid, in
call and put options. A Fund may write a call or put option to the extent
that the aggregate value of all securities or other assets used to cover
all such outstanding options does not exceed 25% of the value of its net
assets.
(4) A Fund does not enter into any futures contracts or related options if the
sum of initial margin deposits on futures contracts, related options
(including options on securities, securities indexes and currencies) and
premiums paid for any such related options would exceed 5% of its total
assets. A Fund does not purchase futures contracts or related options if,
as a result, more than one-third of its total assets would be so invested.

Investment Restrictions. If a Fund changes its investment objective or
policies, you should consider whether the Fund remains right for you. The
Funds are subject to additional investment policies and restrictions described
in the SAI, some of which are fundamental.

Money Market, US Government Money Market and Tax Free Money Market
Funds. Each of the Money Market Funds seeks to maintain a stable net asset
value of $1.00 per share for purposes of purchases and

25
<PAGE>

redemptions by valuing its portfolio securities at "amortized cost" in
compliance with the 1940 Act's Rule 2a-7 (the "Rule"). Each Money Market Fund
maintains a dollar-weighted average portfolio maturity of 90 days or less, and
invests only in securities with a remaining maturity, as determined under the
Rule, of 397 days or less. The Money Market Funds limit their investments to
those securities that their money managers determine present minimal credit
risks, in accordance with Board-adopted procedures.

The Money Market Funds will invest in money market instruments (and in the
case of Tax Free Money Market Fund, in municipal obligations) that have been
rated in one of the two highest rating categories by two NRSROs, such as S&P
and Moody's. A "Tier 1" security is one that has been rated by either S&P or
Moody's in the highest rating category, or, if unrated, is of comparable
quality. A "Tier 2" security is one that has been rated in the second highest
rating category by either S&P or Moody's, or, if unrated, is of comparable
quality. Up to 5% of the total assets of a Money Market Fund may be invested
in a single Tier 1 security (other than US government obligations). In
addition, a Money Market Fund may not invest more than 5% of its total assets
in Tier 2 securities, and may not invest more than 1% of its total assets in
any single Tier 2 security. See the SAI for a description of the NRSROs.

RISK CONSIDERATIONS

Concentration in Real Estate Industry. Real Estate Securities Fund will
concentrate more than 25% of its total assets in the real estate and real
estate related industries. The Fund is subject to the risks associated with
direct ownership of real estate. Additional risks include declines in the
value of real estate, risks related to general and local economic conditions,
overbuilding 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, equity REITs may be affected by changes in the value of the
underlying properties owned by the REITs, while mortgage REITs may be affected
by the quality of any credit extended. Moreover, the underlying portfolios of
equity and mortgage REITs may not be diversified, and therefore are subject to
the risk of financing a single or a limited number of projects. REITs 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 Code
or to maintain their exemption from the 1940 Act.

Municipal Obligations. The Tax Free Funds may invest in municipal
obligations, which involve certain risks. Municipal obligations may be
affected by economic, business or political developments. These securities 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
legislation is adopted, the Board will reevaluate the Tax Free Funds'
investment objectives and may submit possible changes in the structure of the
Funds to their shareholders.

Credit and Liquidity Enhancements. Money Market and Tax Free Money Market
Funds may invest in securities supported by credit and liquidity enhancements
from third parties. These enhancements are generally letters of credit from
foreign or domestic banks. Adverse changes in the banks' credit quality could
cause losses to the Funds and may affect their net asset values.

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

26
<PAGE>

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

The risks associated with investing in foreign securities are 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 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 counties.

The Money Market Fund may invest in bank instruments, which include European
certificates of deposit ("ECDs"), European time deposits ("ETDs") and Yankee
certificates of deposit ("Yankee CDs"). 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. Different risks may also exist for ECDs, ETDs and
Yankee CDs because the banks issuing these instruments, or their domestic or
foreign branches, are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as reserve requirements, loan
limitations, examinations, accounting, auditing and recordkeeping, and the
public availability of information. These factors will be carefully considered
by the money manager when evaluating credit risk in the selection of
investments for the Money Market Fund.

High Risk Bonds. 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

27
<PAGE>

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. While this debt may have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions. Emerging Markets Fund's money managers will
seek to reduce the risks associated with investing in lower-rated debt
securities by limiting the Fund's holding in the securities and by the depth
of the managers' credit analysis. For additional information, refer to the
SAI.

Hedging and Risk Management Practices. In seeking to protect against the
effect of adverse changes in financial markets or against currency exchange
rate or interest rate changes that are adverse to the present or prospective
positions of the Funds, each of the Funds (except the Money Market Funds) may
employ certain risk management practices using certain derivative securities
and techniques (known as "derivatives"). Markets in some countries currently
do not have instruments available for hedging transactions. To the extent that
such instruments do not exist, a money manager may not be able to hedge a
Fund's investment effectively in such countries. Furthermore, a Fund engages
in hedging activities only when its money managers deem it to be appropriate,
and does not necessarily engage in hedging transactions with respect to each
investment.

Hedging transactions involve certain risks. Although a Fund may benefit from
the use of hedging positions, unanticipated changes in interest rates or
securities prices may result in poorer overall performance for a Fund than if
it had not entered into a hedging position. If the correlation between a
hedging position and a portfolio position is not properly protected, the
desired protection may not be obtained and the Fund may be exposed to risk of
financial loss. In addition, a Fund pays commissions and other costs in
connection with such investments.

PORTFOLIO TRANSACTION POLICIES

Money managers make decisions to buy and sell securities for the Fund assets
assigned to them. FRIMCo makes determinations for any other Fund assets. The
other Funds, except Limited Volatility Tax Free Fund and Equity T Fund, do not
seek to realize long-term (rather than short-term) capital gains while making
portfolio investment decisions. Limited Volatility Tax Free Fund seeks to
realize long-term (rather than short-term) capital gains when making portfolio
management decisions. Equity T Fund seeks to minimize the impact of taxes on
its shareholders' returns. These factors will effect the two Funds' portfolio
turnover rates.

Each money manager makes decisions to buy or sell securities independently
from other managers. Thus, one money manager for a Fund may be selling a
security when another money manager for the Fund (or for another Fund) is
purchasing the same security. Also, when a money manager's services are
terminated, the new money manager may significantly restructure an investment
portfolio. These practices may increase the Funds' portfolio turnover rates,
realization of gains or losses, brokerage commissions and other transaction
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 FRIMCo to change money managers of Equity T Fund. The annual

28
<PAGE>

portfolio turnover rates for the Funds (other than the Money Market Funds) are
shown in the Financial Highlights tables in this Prospectus.

FRIMCo and the money managers arrange for the purchase and sale of the
Trust's securities and the selection of brokers and dealers (including
affiliates) ("Brokers") that, in the best judgment of FRIMCo and the money
managers, provide prompt and reliable execution at favorable prices and
reasonable commission rates. In addition to price and commission rates,
Brokers may be selected based on research, statistical or other services that
they provide. The Trust may pay commission rates that exceed rates that other
Brokers may have charged if the Trust concludes the commissions are reasonable
in relation to the value of the brokerage and/or research services.

The Funds may effect portfolio transactions through Frank Russell
Securities, Inc. ("Russell Securities"), an affiliate of FRIMCo, when a money
manager believes a Fund will receive competitive execution, price, and
commissions. When these transactions are completed, Russell Securities will
refund up to 70% of the commissions paid by the Fund after reimbursement for
research services provided to FRIMCo. Also, the Funds may effect portfolio
transactions through and pay brokerage commissions to Brokers that are
affiliates of the money managers.

29
<PAGE>

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS

Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The amount and frequency of
distributions are not guaranteed--all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income and, in the case of the Money Market Funds, net short-term
capital gains (if any), according to the following schedule:

<TABLE>
<CAPTION>
DECLARED PAYABLE FUNDS
-------- ------- -----
<S> <C> <C>
Daily...... 1st business day of following Money Market Funds
month
Monthly.... Early in the following month Limited Volatility Tax Free Fund
Quarterly.. Mid: April, July, October and Real Estate Securities Fund
December
Annually... Mid-December Emerging Markets and Equity T
Funds
</TABLE>

The Money Market Funds determine net investment income immediately prior to
the determination of their net asset values. This occurs at the close of the
New York Stock Exchange ("NYSE") (currently 4:00 p.m. Eastern time) on each
business day. Net investment income is credited daily to the accounts of
shareholders of record prior to the net asset value calculation. The income is
paid monthly.

CAPITAL GAINS DISTRIBUTIONS

The Board annually intends to declare capital gains distributions through
October 31 (excess of capital gains over capital losses), generally in mid-
December. To meet certain legal requirements, a Fund may declare special year-
end dividend and capital gains distributions during October, November or
December to shareholders of record in that month. These latter distributions
are deemed to have been paid by a Fund and received by you on December 31 of
the prior year, provided that you receive them by January 31. Capital gains
realized during November and December will be distributed to you during
February of the following year.

BUYING A DIVIDEND

If you purchase shares just before a distribution, you will pay the full
price for the shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." Unless your account
is a tax-deferred account, dividends paid to you would be included in your
gross income for tax purposes even though you may not have participated in the
increase of the net asset value of a Fund, regardless of whether you
reinvested the dividends.

AUTOMATIC REINVESTMENT

Your dividends and other distributions are automatically reinvested at the
closing net asset value on the record date, in additional shares of the
appropriate Fund, unless you elect to have the dividends or distributions paid
in cash or invested in another Fund. You may change your election by
delivering written notice no later than ten days prior to the payment date to
the Transfer Agent, at Operations Department, P.O. Box 1591, Tacoma, WA 98401.

30
<PAGE>

TAXES

Each Fund has elected and intends to continue to qualify for taxation as a
regulated investment company under Subchapter M of the Code. Each Fund must
distribute substantially all of its net investment income and net capital
gains to shareholders and meet other requirements of the Code relating to the
sources of its income and diversification of assets. Accordingly, a Fund will
generally not be liable for federal income or excise taxes based on net income
except to the extent its earnings are not distributed or are distributed in a
manner that does not satisfy the requirements of the Code. Emerging Markets
Fund may incur tax liability to the extent it invests in PFICs. See "Portfolio
Securities" and the SAI. The Funds may be subject to nominal, if any, state
and local taxes.

For federal income tax purposes, the dividends from net investment income
(except those of the Tax Free Funds) and any excess of net short-term capital
gains over net long-term capital loss that you receive from the Funds are
considered ordinary income. However, depending upon the relevant state tax
rules, a portion of the dividends paid by Money Market and US Government Money
Market Funds attributable to direct US Treasury and agency obligations may be
exempt from state and local taxes. 28% or 20% capital gains distributions
declared by the Board are taxed at the respective capital gains rates
regardless of the length of time you have held the shares. Distributions of
income and capital gains are taxed in the manner described above, whether you
receive them in cash or reinvest them in additional shares of the Funds.
Distributions paid in excess of a Fund's earnings will be treated as a
nontaxable return of capital.

A Fund will notify you of the source of its dividends and distributions at
the time they are paid. After the close of each calendar year, the Funds will
advise their shareholders of the amounts of:

. ordinary income dividends, 28% capital gains dividends, and 20% capital
gains distributions, including any amounts which are deemed paid on
December 31 of the prior year;

. dividends which qualify for the 70% dividends-received deduction
available to corporations;

. any foreign taxes assessed against Emerging Markets Fund;

. the Tax Free Funds' dividends subject to federal tax (if any) and
attributable to each state;

. income which is a tax preference item (if any) for alternative minimum
tax purposes; and

. the percentages of Money Market and US Government Money Market Funds'
income attributable to US government, Treasury and agency securities.

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

If you are a corporate investor, a portion of the dividends from net
investment income paid by Real Estate Securities or Equity T Funds may qualify
in part for the corporate dividends-received deduction. However, the portion
depends on the aggregate qualifying dividend income received by either Fund
from domestic (US) sources. Certain holding period and debt financing
restrictions may apply to corporate investors seeking to claim the deduction.
You should consult your tax adviser.

31
<PAGE>

two series or portfolios of a mutual fund). Except for shareholders of the Tax
Free Funds, any loss incurred on the 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 Tax Free Funds, any loss incurred on the sale or exchange
of the Funds' shares, held for six months or less, will be disallowed to the
extent of exempt-interest dividends (described below) paid with respect to the
shares. Any loss not disallowed will be treated as a long-term capital loss to
the extent of capital gain dividends received with respect to such shares.

The Tax Free Funds intend to continue to qualify to pay "exempt-interest
dividends" to their shareholders by maintaining, as of the close of each
quarter of their taxable years, at least 50% of the value of their total
assets in municipal obligations. If the Funds satisfy this requirement,
distributions from net investment income to shareholders will be exempt from
federal income taxation to the extent net investment income is represented by
interest on municipal obligations. 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, the dividends are treated as ordinary income, whether paid in cash
or reinvested in additional shares.

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.

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

PERFORMANCE INFORMATION

From time to time, the Funds may publish their total return and average
annual total return and, in the case of certain Funds, current yield and tax
equivalent yield, in advertisements and investor communications. Total return
information generally will include a Fund's average annual compounded rate 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. The average
annual total returns for Class S Shares of the Funds are as follows:

<TABLE>
<CAPTION>
5 YEARS 10 YEARS
1 YEAR ENDED ENDED INCEPTION TO
ENDED DEC. 31, DEC. 31, DEC. 31
DEC. 31, 1997 1997 1997 INCEPTION
1997 (ANNUALIZED) (ANNUALIZED) (ANNUALIZED) DATE
-------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Real Estate Securities.. 18.99% 17.84% -- 14.03% 07/28/89
Emerging Markets*....... (3.45) -- -- 5.95 01/29/93
Equity T**.............. 31.73 -- -- 31.31 10/07/96
Limited Volatility Tax
Free................... 4.92 4.33 5.34% 5.48 09/05/85
Money Market*........... 5.79 5.13 6.21 7.40 10/15/81
US Government Money Mar-
ket.................... 5.59 4.74 5.72 5.90 09/05/85
Tax Free Money Market... 3.61 3.22 4.16 4.21 05/08/87
</TABLE>

32
<PAGE>

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

* The performance for Emerging Markets and Money Market Funds prior to April
1, 1995 is reported gross of management fees. For periods after that date,
performance results are reported net of management fees, but gross of any
shareholder investment services fees. Descriptions of these shareholder
investment services fees can be obtained from FRIMCo upon request.
** Equity T commenced operations on October 7, 1996.

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 -- 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 on the
stated dividend rate of each security in the Fund's portfolio. The calculation
includes all recurring fees that are charged. The 30-day yield for the year
ended December 31, 1997 for the Class S shares of Limited Volatility Tax Free
Fund was 3.53%.

Limited Volatility Tax Free Fund may also utilize tax equivalent yields
computed in the same manner as yield, with adjustment for a stated income tax
rate. The 30-day tax equivalent yield for Class S shares of the Fund for the
year ended December 31, 1997, based on a tax rate of 39.6%, was 5.85%.

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 a Money Market Fund refers to the
income generated by an investment in the Money Market Fund over a 7-day period
(the period will be stated in the advertisement). The yield is calculated by
determining the net change, excluding 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 -- 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 Class S shares of the Money Market Funds during 1997
for the seven-day (and 30-day, in the case of Tax Free Money Market Fund)
periods ended:

<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ----------------- -----------------
CURRENT EFFECTIVE CURRENT EFFECTIVE CURRENT EFFECTIVE CURRENT EFFECTIVE
------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market............ 5.58% 5.74% 5.76% 5.93% 5.70% 5.86% 5.73% 5.90%
US Government Money
Market................. 5.48% 5.63% 5.57% 5.73% 5.44% 5.59% 5.50% 5.65%
Tax Free Money Market
7 day period........... 3.32% 3.37% 3.87% 3.94% 3.85% 3.92% 3.89% 3.96%
30 day period........... 3.18% 3.23% 3.70% 3.77% 3.66% 3.73% 3.70% 3.76%
</TABLE>

The Tax Free Money Market Fund may also utilize tax equivalent yields,
computed in the same manner as yield, with adjustment for a stated income tax
rate. The following are the current and effective tax equivalent

33
<PAGE>

yields for Class S shares of Tax Free Money Market Fund, based on a tax rate
of 39.6%, during 1997 for the 7-day and 30-day periods ended:

<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ----------------- -----------------
CURRENT EFFECTIVE CURRENT EFFECTIVE CURRENT EFFECTIVE CURRENT EFFECTIVE
------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax Free Money Market 7
day period............. 5.49% 5.58% 6.41% 6.53% 6.37% 6.49% 6.44% 6.56%
30 day period........... 5.27% 5.35% 6.13% 6.24% 6.07% 6.17% 6.13% 6.23%
</TABLE>

Each Fund may also advertise nonstandardized performance information that is
for periods in addition to those that are legally required by the SEC.

HOW NET ASSET VALUE IS DETERMINED

NET ASSET VALUE PER SHARE

The net asset value per share is calculated for shares of each class of each
Fund on each business day on which shares are offered or redemption orders are
tendered. For Real Estate Securities, Emerging Markets, Equity T and Limited
Volatility Tax Free Funds, a business day is one on which the NYSE is open for
trading. A business day for the Money Market Funds includes any day on which
the NYSE is open for trading and the Boston Federal Reserve Bank is open. Net
asset value per share is computed for a Fund by dividing the current value of
the Fund's assets attributable to the Class S Shares, less liabilities
attributable to the Class S Shares, by the number of Class S Shares of the
Fund outstanding, and rounding to the nearest cent. All Funds determine their
net asset value as of the close of the NYSE (currently 4:00 p.m. Eastern
time). Money Market Fund and US Government Money Market Fund also determine
their net asset values as of 1:00 p.m. Eastern time, and Tax Free Money Market
Fund as of 12:00 noon Eastern time.

VALUATION OF PORTFOLIO SECURITIES

With the exceptions noted below, the Funds value their portfolio securities
at "fair market value." This generally means that equity securities and fixed-
income securities listed and principally traded on any national securities
exchange are valued on the basis of the last sale price or, if there were no
sales, at the closing bid price, on the primary exchange on which the security
is traded. US 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.

Because many fixed-income securities do not trade each day, last sale or bid
prices often are not available. As a result, these securities may be valued
using prices provided by a pricing service when the prices are believed to be
reliable--that is, when the prices reflect the fair market value of the
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. If there
is no last sale or mean bid price, the securities may be valued on the basis
of prices provided by a pricing service when the prices are believed to be
reliable.

The Money Market Funds' portfolio investments are valued using the amortized
cost method. Under this method, a portfolio instrument is initially valued at
cost, and thereafter a constant accretion/amortization to

34
<PAGE>

maturity of any discount or premium is assumed. The Money Market Funds utilize
the amortized cost valuation method in accordance with the Rule. Money market
instruments maturing within 60 days of the valuation date held by the
Fluctuating Funds are also valued at "amortized cost" unless the Board
determines that amortized cost does not represent fair value. While amortized
cost provides certainty in valuation, it may result in periods when the value
of an instrument is higher or lower than the price a Fund would receive if it
sold the instrument.

Municipal obligations are appraised or priced by an independent pricing
source, approved by the Board, which utilizes relevant information, such as
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 and in accordance with
procedures established by the Board.

HOW TO PURCHASE SHARES

Shares of the Funds are sold without a sales load on each business day at
the next determined net asset value after receipt of an order 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 investors (except participants in the Three Day Settlement Program
(the "Settlement Program") described below) to purchase Fund shares must be
received by the Transfer Agent on any day when Fund shares are offered, prior
to the following deadlines:

Close of the NYSE (currently 4:00 Real Estate Securities, Emerging
p.m. Eastern Time) Markets, Equity T and Limited
Volatility Tax Free Funds

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

12:15 p.m. Eastern Time US Government Money Market Fund

12:45 p.m. Eastern Time Money Market Fund

You may transmit your purchase orders to the Transfer Agent by telephone,
mail, or entry into the shareholder recordkeeping system.

Orders for the Money Market Funds' shares placed prior to the deadlines
noted above and in proper form can be accepted for pricing and investment, and
will begin earning income, on that day. Money Market Funds' orders received
after the designated deadlines will not be accepted for pricing and investment
until the next business day. Orders for shares of any Fund that are not
accepted prior to the designated time for the Fund cannot be invested in the
Fund nor begin to earn income until the next business day.

35
<PAGE>

Payment Procedures: The Custodian or Transfer Agent (depending on your
method of payment) must receive payment for the purchase of shares on the day
the order is accepted (except for participants in the Settlement Program). You
may pay for Fund orders in several ways:

Federal Funds Wire. You may wire federal funds to the Custodian.

Automated Clearing House ("ACH"). You may pay for purchases through ACH to
the Custodian. However, funds transferred by ACH 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. In that case, your order would be
placed on the next business day.

Automated Investment Program. You may make scheduled investments (minimum
$50.00) in an established account in a Fund on a monthly, quarterly,
semiannual or annual basis by automatic electronic funds transfer from your
bank account. A separate transfer is required for each Fund in which you
purchase shares. You may terminate an automatic investment program at any
time. Contact your Financial Intermediary for further information on this
program and an enrollment form.

Check. Payment for orders may be made by check or other negotiable bank
draft payable to "Frank Russell Investment Company" and mailed to a Financial
Intermediary or 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 a 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 Fund.
Investments in the Fluctuating 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 NYSE (currently 4:00 p.m. Eastern time). When the
check or draft is received by the Transfer Agent after the close of the NYSE,
the order will be effected on the next business day.

IN-KIND EXCHANGE OF SECURITIES

The Transfer Agent may, at its discretion, permit you to purchase Fund
shares by exchanging securities you currently own for Fund shares. Any
securities exchanged must: meet the investment objective, policies and
limitations of the particular Fund, have a readily ascertainable market value,
be liquid and not be subject to restrictions on resale, and have market value,
plus any cash, equal to at least $100,000.

Shares purchased in exchange for securities generally may not be redeemed or
exchanged until the transfer has settled. This usually occurs within 15 days
following the purchase by exchange. If you are a taxable investor, you will
generally realize a gain or loss for federal income tax purposes on the
exchange. Investors contemplating an in-kind exchange should consult their tax
advisers.

The basis of the exchange will depend upon the relative net asset value of
the Fund 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

36
<PAGE>

has agreed in writing to indemnify the Funds against any losses resulting from
non-receipt of payment. For further information on the Settlement Program,
contact the Trust.

THIRD PARTY TRANSACTIONS

If you are purchasing Fund shares through a program offered by a Financial
Intermediary, you may be required to pay additional fees to the Financial
Intermediary. You should contact your Financial Intermediary for information
concerning additional fees.

EXCHANGE PRIVILEGE

You may exchange shares of any Fund for shares of any other Fund, 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 Trust through another prospectus under certain conditions
and only in states where the exchange may be legally made. For additional
information, including prospectuses for other Funds, contact a Financial
Intermediary or the Trust. Exchanges may be made (i) by telephone if the
registrations of the two accounts are identical; or (ii) in writing addressed
to the Trust.

An exchange is a redemption of shares and is treated as a sale for income
tax purposes. Thus, 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). You should consult your tax adviser. Exchanges from Equity T Fund
will be considered to be redemptions and will be subject to a redemption fee
(see "How to Redeem Shares" in this Prospectus).

HOW TO REDEEM SHARES

If you are uncertain of the redemption requirements, you should telephone
your Financial Intermediary or the Funds at (800) 972-0700; in Washington
(253) 627-7001.

Fund shares may be redeemed on any business day at the next determined net
asset value after receipt of a redemption request in proper form as described
below. In the case of Equity T Fund, a redemption fee, calculated as a 1%
discount of net asset value of the shares redeemed, will be imposed. The
redemption fee is retained by Equity T Fund. See "Investment Objectives,
Policies and Practices -- Equity T Fund" in this Prospectus for more
information. As with the other Funds, shares of Equity T Fund may be redeemed
on any business day after the receipt of a redemption request in proper form.

Payment will ordinarily be made in seven days. Generally, redemption
proceeds will be wire-transferred to your 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 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 made by check may be withheld for up
to 15 days after the date of purchase to assure that the check clears. Upon
request, redemption proceeds will be mailed to your address of record or to an
alternate address you designate, provided your request is sent to the Transfer
Agent in proper form.

37
<PAGE>

Request Procedures. Requests by investors to redeem Fund shares must be
received by the Transfer Agent on a business day, prior to the following
deadlines:

Close of the NYSE (currently 4:00 Real Estate Securities, Emerging
p.m. Eastern Time) Markets, Equity T and Limited
Volatility Tax Free Funds

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

12:15 p.m. Eastern Time US Government Money Market Fund

12:45 p.m. Eastern Time Money Market Fund

You may tender your redemption request to the Transfer Agent by telephone,
mail, or by entry into the shareholder recordkeeping system. You may also
redeem shares through the Systematic Withdrawal Payment Program, which is
described below.

Redemption requests placed for the Money Market Funds prior to the above
times will be tendered that day. While redemption requests for the Money
Market Funds will be taken until 4:00 p.m. Eastern Time, they 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. 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, you should use
the mail redemption procedures described below.

Mail. Redemption requests may be made in writing directly to your Financial
Intermediary or to FRIMCo, Attention: Frank Russell Investment Company,
Operations Department, P.O. Box 1591, Tacoma, WA 98401. For all Funds the
redemption price will be the net asset value after receipt by FRIMCo of all
required documents in good order. In the case of Equity T Fund, a redemption
fee of 1% will be deducted from the amount of your redemption. "Good order"
means that the request must include:

A. A letter of instruction or a stock assignment specifically designating
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. Any 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 Program
provides an automated method for you to redeem a predetermined dollar amount
from your Fund shareholder account, in order to meet a standing request. The
SWP Program can be used to meet any request for periodic distributions of
assets from Fund shareholder accounts. Because of its investment objective and
management strategies, Equity T Fund does not participate in the SWP Program,
and the Fund's shareholder's may not arrange for SWP distributions from the
Fund.

38
<PAGE>

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. You can schedule monthly, quarterly, semiannual or
annual distribution payments.

SWP Distribution by Wire. Federal funds wire payments will be sent to a bank
you designate on the payment date.

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

SWP Distribution by Electronic Fund Transfer. Electronic fund transfer
payments will be sent to a bank you designate on the payment date.

You must complete and mail a SWP form to your Financial Intermediary or to
FRIMCo, Attention: Frank Russell Investment Company, Operations Department,
P.O. Box 1591, Tacoma, WA 98401-1591. The SWP form must be received by FRIMCo
five business days before the initial distribution date.

Redemption in Kind. A Fund may pay any portion of its redemption proceeds in
excess of $250,000 by distributing portfolio securities to a shareholder,
rather than paying the shareholder in cash. This is called redemption in kind.
Shareholders will incur brokerage charges on the sale of these portfolio
securities. The Funds reserve the right to suspend redemptions or to postpone
payment dates if any unlikely emergency conditions develop.

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, INDEPENDENT ACCOUNTANTS, AND REPORTS

Russell Fund Distributors, Inc., a wholly owned subsidiary of FRIMCo, is the
principal distributor for Trust shares. The Distributor receives no
compensation from the Trust for its services with respect to Class S Shares.

State Street Bank and Trust Company ("Custodian"), Boston, Massachusetts,
holds all portfolio securities and cash assets of the Funds, and provides
portfolio recordkeeping services. The Custodian may deposit securities in
securities depositories or use subcustodians. The Custodian has no
responsibility for the supervision and management of the Funds.

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

YEAR 2000

39
<PAGE>

securities trades, payments of interest and dividends, pricing and account
services. Although, at this time, there can be no assurance that there will be
no adverse impact on the Trust, FRIMCo, the Distributor, the Transfer Agent
and the Custodian have advised the Trust that they have been actively working
on necessary changes to their computer systems to prepare for the year 2000
and expect that their systems, and those of their outside service providers,
will be adapted in time for that event. The obligation to make such
adaptations, if any, would be the responsibility of the service provider that
maintains the system. Therefore, the Trust does not expect to incur any
material expense in that regard.

ORGANIZATION, CAPITALIZATION, AND VOTING

The Trust is organized and operates as a Massachusetts business trust.
Russell has the right to grant (and withdraw) the nonexclusive use of the name
"Frank Russell" or any variation.

The Trust issues shares of beneficial interest which can be divided into an
unlimited number of funds. Each Fund is a separate trust under Massachusetts
law. Each Fund's shares may be offered in multiple classes. Shares of each
class of a Fund represent proportionate interests in the assets of that Fund
and have the same voting and other rights and preferences as the shares of
other classes of the Fund. Shares of each class of a Fund are entitled to the
dividends and distributions earned on the assets belonging to the Fund that
the Board declares. Each share of a class of a Fund has one vote in Trustee
elections and other matters submitted for shareholder vote. There are no
cumulative voting rights. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Special meetings may be called
by the Trustees at their discretion, but must be called by the Trustees upon
the written request of shareholders owning at least 10% of the Trust's
outstanding shares. On any matter which affects only a particular Fund or
class, only shares of that Fund or class are entitled to vote.

The Trustees hold office for the life of the Trust. A Trustee may resign or
retire, and a Trustee may be removed by the Trustees or by shareholders at a
special meeting.

In addition to offering Class S Shares, Emerging Markets and Real Estate
Securities Funds offer beneficial interests in Class C Shares, which are
described in a separate prospectus. Class C Shares are designed to meet
different investor needs and are subject to both a Rule 12b-1 distribution fee
and a shareholder servicing fee. These fees may effect the performance of the
Class C Shares. To obtain more information about Class C Shares, contact your
Financial Intermediary, or write or telephone the Trust.

At March 31, 1998, the following shareholders may be deemed by the 1940 Act
to "control" the Funds listed after their names because they own more than 25%
of the voting shares of the indicated Funds: Citizens Bank--Tax Free Money
Market Fund.

MONEY MANAGER PROFILES

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

40
<PAGE>

REAL ESTATE SECURITIES FUND

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

AEW Capital Management, L.P., 225 Franklin Street, Boston, MA 02110-2803, is
a wholly-owned affiliate of New England Investment Companies, L.P. ("NEIC").
NEIC is a publicly-held limited partnership. Metropolitan Life Insurance
Company, a publicly held corporation, owns approximately 53% of NEIC. AEW
Capital Management, Inc., a wholly-owned subsidiary of NEIC, is the general
partner, and NEIC is the sole limited partner, of AEW Capital Management, L.P.

EMERGING MARKETS FUND

Genesis Asset Managers, Ltd., 21 Knights Bridge, London, SW1X 7LY, 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 International Ltd. is controlled 55% by management
and assorted interests, and the balance held by outside shareholders, with the
largest single holding being 15%.

J.P. Morgan Investment Management Inc., 522 Fifth Avenue, 14th Floor, New
York, NY 10036, is a wholly owned subsidiary of J.P. Morgan and Co.
Incorporated, a publicly held bank holding company.

Montgomery Asset Management LLC, 101 California Street, San Francisco, CA
94111, is a Delaware limited liability company with majority ownership held by
Commerzbank AG, a foreign banking organization.

EQUITY T FUND

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

LIMITED VOLATILITY TAX FREE FUND

MFS Institutional Advisors, Inc., 500 Boylston Street, Boston, MA 02116, is
a wholly owned, indirect subsidiary of Sun Life Assurance Company of Canada
(US), a mutual insurance company.

T. Rowe Price Associates, Inc., 100 E. Pratt Street, Baltimore, MD 21202, is
a company whose stock is publicly traded, and a large portion of its stock is
held by active employees.

MONEY MARKET FUND

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

41
<PAGE>

US GOVERNMENT MONEY MARKET FUND

Frank Russell Investment Management Company See: Money Market Fund.

TAX FREE MONEY MARKET FUND

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

NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATION 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>

GLOSSARY

Agreements -- Asset Management Services Agreements, which are between FRIMCo
and institutional investors and Financial Intermediaries

Bank instruments -- Include certificates of deposit, bankers' acceptances
and time deposits, and may include European certificates of deposit ("ECDs"),
European time deposits ("ETDs") and Yankee certificates of deposit ("Yankee
CDs")

Board -- The Board of Trustees of the Trust

Cash reserves -- The Fluctuating Funds may invest their cash reserves (i.e.,
funds awaiting investment) in money market instruments and in debt securities
of comparable quality to each Fund's permitted investments. As an alternative
to a Fund directly investing in money market instruments, the Funds and their
money managers may elect to invest the Funds' cash reserves in the Trust's
Money Market Fund. To prevent duplication of fees, FRIMCo waives its
management fee on that portion of a Fund's assets invested in the Trust's
Money Market Fund.

Code -- Internal Revenue Code of 1986, as amended

Convertible security -- This is a fixed income security (a bond or preferred
stock) that may be converted at a stated price within a specified period of
time into a certain quantity of the common stock of the same or a different
issuer. Convertible securities are senior to common stock in a corporation's
capital structure but are usually subordinated to similar non-convertible
securities. The price of a convertible security is influenced by the market
value of the underlying common stock.

Covered call option -- A call option is "covered" if the Fund owns the
underlying securities, has the right to acquire the securities without
additional consideration, has collateral assets sufficient to meet its
obligations under the option or owns an offsetting call option.

Covered put option -- A put option is "covered" if the Fund has collateral
assets with a value not less than the exercise price of the option or holds a
put option on the underlying security.

Custodian -- State Street Bank and Trust Company, the Trust's custodian and
portfolio accountant

Depository receipts -- These include American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and
other similar securities convertible into securities of foreign issuers. ADRs
are receipts typically issued by a US bank or trust company evidencing
ownership of the underlying securities. Generally, ADRs in registered form are
designed for use in US securities markets.

Derivatives -- These include forward currency exchange contracts, stock
options, currency options, stock and stock index options, futures contracts,
swaps and options on futures contracts on US government and foreign government
securities and currencies.

Distributor -- Russell Fund Distributors, Inc., the organization that sells
the shares of the Funds under a contract with the Trust.

Eligible Investors -- Institutional investors and Financial Intermediaries
that invest in the Funds for their own accounts or in a fiduciary or agency
capacity, and that have entered into an Agreement with FRIMCo, and
institutions or individuals who have acquired Fund shares through institutions
or Financial Intermediaries

43
<PAGE>

Emerging market companies -- 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 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.

Equity derivative securities -- These include, among other instruments,
options on equity securities, warrants and futures contracts on equity
securities.

Financial Intermediary -- Bank trust departments, registered investment
advisers, broker-dealers and other Eligible Investors that have entered into
Service Agreements with FRIMCo

Fluctuating Funds -- Real Estate Securities, Emerging Markets, Equity T and
Limited Volatility Tax Free Funds, each a Portfolio of the Trust. The
Fluctuating Funds have fluctuating net asset values, in contrast to the Money
Market Funds, which seek to maintain a stable net asset value of $1 per share.

FNMA -- Federal National Mortgage Association

Forward Commitments -- Each Fund may agree 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 the transactions are
consistent with the Fund's ability to manage its portfolio and meet redemption
requests. When effecting these transactions, liquid assets of a Fund of a
dollar amount sufficient to make payment for the portfolio securities to be
purchased are segregated on the Fund's records at the trade date and
maintained until the transaction is settled.

Forward currency contracts -- This is a contract individually negotiated and
privately traded by currency traders and their customers and creates an
obligation to purchase or sell a specific currency for an agreed-upon price at
a future date. Emerging Markets Fund generally does not enter into forward
contracts with terms greater than one year, and typically enters into forward
contracts only under two circumstances. First, if the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the US dollar price of the security by
entering into a forward contract to buy the amount of a foreign currency
needed to settle the transaction. Second, if a Fund's money managers believe
that the currency of a particular foreign country will substantially rise or
fall against the US dollar, a Fund may enter into a forward contract to buy or
sell the currency approximating the value of some or all of the Fund's
portfolio securities denominated in the currency. Emerging Markets Fund will
not enter into a forward contract if, as a result, it would have more than
one-third of its assets committed to such contracts (unless it owns the
currency that it is obligated to deliver or has caused the Custodian to
segregate segregable assets having a value sufficient to cover its
obligations). Although forward contracts are used primarily to protect
Emerging Markets Fund from adverse currency movements, they involve the risk
that currency movements will not be accurately predicted.

FRIMCo -- Frank Russell Investment Management Company, the Trust's
administrator, manager and transfer and dividend paying agent

Funds -- The 28 investment series of the Trust. Each Fund is considered a
separate registered investment company (or RIC) for federal income tax
purposes, and each Fund has its own investment objective, policies and
restrictions. Seven Funds are described in and offered by this Prospectus.

44
<PAGE>

interest rate futures contracts (i.e., enter into a futures contract to sell
the underlying debt security) in an attempt to hedge against an anticipated
increase in interest rates and a corresponding decline in debt securities it
owns. A Fund will have collateral assets equal to the purchase price of the
portfolio securities represented by the underlying interest rate futures
contracts it has an obligation to purchase.

GNMA -- Government National Mortgage Association

Illiquid securities -- Real Estate Securities, Emerging Markets, Equity T
and 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 maturing in more than seven days, that are illiquid because of the
absence of a readily available market or because of legal or contractual
resale restrictions. In the case of the Money Market Funds, this restriction
is 10% of each Fund's net assets. No Fund will invest more than 10% of its
respective net assets (taken at current value) in securities of issuers that
may not be sold to the public without registration under 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.

Investment grade -- Investment grade debt securities are those rated within
the four highest grades by S&P (at least BBB) or Moody's (at least Baa), or
unrated debt securities deemed to be of comparable quality by a money manager
using Board-approved guidelines.

IRS -- Internal Revenue Service

Lending portfolio securities -- Real Estate Securities, Emerging Markets,
Equity T, Money Market and US Government Money Market Funds may lend portfolio
securities with a value of up to 33 1/3% of each Fund's total assets. These
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 102% (for loans of US
securities) and 105% (for Non-US securities), of the current market value of
loaned securities. The collateral is daily "marked-to-market," and the
borrower will furnish additional collateral in the event that the value of the
collateral drops below the respective percentages set forth above. If the
borrower of the securities fails 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.

Liquidity portfolio -- FRIMCo will manage or will select a money manager to
exercise investment discretion for approximately 5%-15% of Real Estate
Securities, Emerging Markets and Equity T Funds' assets assigned to a
Liquidity portfolio. The Liquidity portfolio will be used to temporarily
create an equity exposure for cash balances until those balances are invested
in securities or used for Fund transactions.

Money Market Funds -- Money Market, US Government Money Market and Tax-Free
Money Market Funds, each a Portfolio of the Trust. Each Money Market Fund
seeks to maintain a stable net asset value of $1 per share.

Moody's -- Moody's Investors Service, Inc., an NRSRO

45
<PAGE>

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 obligations;
industrial development bonds; and variable rate obligations.

NASD -- National Association of Securities Dealers, Inc.

Net asset value (NAV) -- The value of a mutual fund is determined by
deducting the Fund's liabilities from the total assets of the portfolio. The
net asset value per share is determined by dividing the net asset value of the
Fund by the number of its shares that are outstanding.

NRSRO -- A nationally recognized statistical rating organization, such as
S&P or Moody's

NYSE -- New York Stock Exchange

Options on securities, securities indexes and currencies -- A Fund may
purchase call options on securities that it intends to purchase (or on
currencies in which those securities are denominated) in order to limit the
risk of a substantial increase in the market price of such security (or an
adverse movement in the applicable currency). A Fund may purchase put options
on particular securities (or on currencies in which those securities are
denominated) in order to protect against a decline in the market value of the
underlying security below the exercise price less the premium paid for the
option (or an adverse movement in the applicable currency relative to the US
dollar). Prior to expiration, most options are expected to be sold in a
closing sale transaction. Profit or loss from the sale depends upon whether
the amount received is more or less than the premium paid plus transaction
costs. A Fund may purchase put and call options on stock indexes in order to
hedge against risks of stock market or industry-wide stock price fluctuations.

PFIC -- A passive foreign investment company. Emerging Markets Fund may
purchase interests in an issuer that is considered a PFIC under the Code.

Prime rate -- The interest rate charged by leading US banks on loans to
their most creditworthy customers

REITs -- Real estate investment trusts

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 "Illiquid Securities" in this Glossary, a Fund will
not invest more than 15% (10%, in the case of each Money Market Fund) of its
net assets (taken at current market value) in repurchase agreements maturing
in more than seven days.

46
<PAGE>

The Fund retains record ownership of the transferred security, 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. Liquid assets of the Fund equal in value to the
repurchase price, including any accrued interest, are segregated on the Fund's
records while a reverse repurchase agreement is in effect.

The Rule -- Rule 2a-7 under the 1940 Act, which governs the operations of
the Money Market Funds

Russell -- Frank Russell Company, consultant to the Trust and to the Funds

S&P -- Standard & Poor's Ratings Group, an NRSRO

S&P 500 -- Standard & Poor's 500 Composite Price Index

SAI -- The Trust's Statement of Additional Information, dated as noted on
the first page of this Prospectus

SEC -- US Securities and Exchange Commission

Services Fee -- The quarterly investment services fee that may be assessed
in the future by Emerging Markets, Equity T and Money Market Funds, and which
would be paid to FRIMCo

Shares -- The Class S Shares in the Funds. Each Class S Share of a Fund
represents a share of beneficial interest in the Fund

Tax Free Funds -- Limited Volatility Tax Free and Tax Free Money Market
Funds

Transfer Agent -- FRIMCo, in its capacity as the Trust's transfer and
dividend paying agent

Trust -- Frank Russell Investment Company, an open-end management investment
company which is registered with the SEC

US -- United States

US government securities -- These include US Treasury bills, notes, bonds
and other obligations issued or guaranteed by the US government, its agencies
or instrumentalities.

Variable rate obligations -- Municipal obligations with a demand feature
that typically may be exercised within 30 days. The rate of return on variable
rate obligations is readjusted periodically according to a market rate, such
as the Prime rate. Also called floating rate obligations

Warrants -- Typically, a warrant is a long-term option that permits the
holder to buy a specified number of shares of the issuer's underlying common
stock at a specified exercise price by a particular expiration date. A warrant
not exercised or disposed of by its expiration date expires worthless.

1940 Act -- The Investment Company Act of 1940, as amended. The 1940 Act
governs the operations of the Trust and the Funds.

1933 Act -- The Securities Act of 1933, as amended.

47
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET
TACOMA, WASHINGTON 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (253) 627-7001

MONEY MANAGERS

REAL ESTATE SECURITIES FUND CONSULTANT
Cohen & Steers Capital Management Frank Russell Company
AEW Capital Management, L.P. 909 A Street
Tacoma, Washington 98402
EMERGING MARKETS FUND
Genesis Asset Managers, Ltd. DISTRIBUTOR
J.P. Morgan Investment Management Inc. Russell Fund Distributors, Inc.
Montgomery Asset Management, L.P. 909 A Street
Tacoma, Washington 98402
EQUITY T FUND
J.P. Morgan Investment Management Inc. INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
LIMITED VOLATILITY TAX FREE FUND One Post Office Square
MFS Institutional Advisors, Inc. Boston, MA 02109
T. Rowe Price Associates, Inc.
LEGAL COUNSEL
MONEY MARKET FUND Stradley, Ronon, Stevens & Young, LLP
Frank Russell Investment Management 2600 One Commerce Square
Company Philadelphia, PA 19103-7098

US GOVERNMENT MONEY MARKET FUND OFFICE OF SHAREHOLDER INQUIRIES
Frank Russell Investment Management 909 A Street
Company Tacoma, Washington 98402
(800) 832-6688
TAX FREE MONEY MARKET FUND In Washington, (253) 627-7001
Weiss, Peck & Greer, L.L.C.

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

48
<PAGE>

CLASS C FUNDS

Frank Russell Investment Company
Supplement dated May 1, 1998
To the Prospectus Dated May 1, 1998

Effective May 1, 1998, the following statement is added to the Prospectus:

"CLASS C SHARES OF FRANK RUSSELL INVESTMENT COMPANY FUNDS
ARE NOT CURRENTLY OFFERED OR AVAILABLE FOR INVESTMENT
EXCEPT TO EXISTING CLASS C SHAREHOLDERS."

. As the third sentence of the first paragraph on page (1)
. As the second sentence of the last paragraph on page (2)
. As the second sentence of the SIXTH paragraph on page (4)
. As the second sentence under "ELIGIBLE INVESTORS" on page (24)
. As the first sentence under "HOW TO PURCHASE SHARES" on page (48)

<PAGE>

CLASS C FUNDS

FRANK RUSSELL INVESTMENT COMPANY
SUPPLEMENT DATED MAY 1, 1998
TO THE PROSPECTUS DATED MAY 1, 1998

Effective immediately, the Paragraph entitled "Schneider Capital Management"
under MONEY MANAGER PROFILES-DIVERSIFIED EQUITY FUND is revised in its entirety
to read as follows:

Schneider Capital Management, 460 E. Swedesford Road, Suite 1080, Wayne, PA
19087, is an SEC registered investment adviser owned by Arnold Schneider. In
response to an action brought by partners of Wellington Management Company LLP
("Wellington") on December 13, 1996 to enforce a non-compete provision of its
partnership agreement, a judge of the Middlesex County Superior Court in the
Commonwealth of Massachusetts issued an order on February 17, 1998 enjoining Mr.
Schneider from providing investment advisory services to certain former clients
of Wellington. Though not a party to that litigation, the Trust would have been
affected by that order. On April 7, 1998 the Trust joined a suit brought by its
investment manager and certain other persons in the United States District Court
for the Eastern District of Pennsylvania. On April 13, 1998, that Court issued a
preliminary injunction restraining Wellington from enforcing the non-compete
provision in its partnership agreement against Mr. Schneider.

<PAGE>

PROSPECTUS CLASS C SHARES

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET, TACOMA, WA 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (253) 627-7001

Frank Russell Investment Company (the "Trust") is an open-end management
investment company with 28 different investment series or portfolios
("Funds"). This Prospectus describes and offers interests in the Class C
Shares of ten Funds:

<TABLE>
<S> <C>
Diversified Equity Fund Emerging Markets Fund
Special Growth Fund Real Estate Securities Fund
Equity Income Fund Diversified Bond Fund
Quantitative Equity Fund Volatility Constrained Bond Fund
International Securities Fund Multistrategy Bond Fund
</TABLE>

Each Fund has its own investment objective and policies designed to meet
different investment goals. As with all mutual funds, attainment of each
Fund's investment objective cannot be assured.

Frank Russell Investment Management Company ("FRIMCo") operates and
administers the Funds. Class C Shares are sold at their net asset value, with
no sales load, no commissions and no exchange fees. Class C Shares are,
however, subject to a Rule 12b-1 fee. There is no specified minimum investment
in the Funds, but investors must qualify as Eligible Investors, as described
in this Prospectus.

This Prospectus does not constitute an offer to sell securities in any state
or other jurisdiction to any person to whom it is unlawful to make such an
offer in such state or other jurisdiction.

This Prospectus relates only to the Class C Shares of the Funds. These Funds
also offer interests in another class of shares, the Class S Shares, through
other prospectuses. For more information concerning Class S Shares, contact
the person or organization from whom you obtained this Prospectus, or write or
telephone the Trust.

PROSPECTUS DATED MAY 1, 1998
<PAGE>

TABLE OF CONTENTS

CERTAIN TERMS USED IN THIS PROSPECTUS ARE DEFINED IN THE
GLOSSARY, WHICH BEGINS ON PAGE 48 OF THIS PROSPECTUS.

<TABLE>
<S> <C>
Summary.................................................................... 3
Annual Fund Operating Expenses............................................. 5
Financial Highlights....................................................... 13
The Purpose of the Funds -- Multi-Style, Multi-Manager Diversification..... 14
Eligible Investors......................................................... 15
General Management of the Funds............................................ 17
Expenses of the Funds...................................................... 18
The Money Managers......................................................... 18
Investment Objectives, Policies and Practices.............................. 19
Portfolio Transaction Policies............................................. 31
Dividends and Distributions................................................ 32
Taxes...................................................................... 32
Performance Information.................................................... 34
How Net Asset Value Is Determined.......................................... 35
How to Purchase Shares..................................................... 36
How to Redeem Shares....................................................... 38
Additional Information..................................................... 40
Money Manager Profiles..................................................... 41
Glossary................................................................... 46
</TABLE>

2
<PAGE>

SUMMARY

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.

3
<PAGE>

The Trust's Funds had aggregate net assets of approximately $13.6 billion on
April 1, 1998. The net assets of the Funds described in this Prospectus on
April 1, 1998 were:

<TABLE>
<S> <C>
Diversified Equity...... $3,823,169
Special Growth.......... $4,018,843
Equity Income........... $ 590,638
Quantitative Equity..... $2,980,547
</TABLE>
<TABLE>
<S> <C>
International
Securities............. $1,579,206
Real Estate Securities.. $ 464,534
Diversified Bond........ $3,639,154
</TABLE>

You may buy and sell Class C Shares of the Funds through a authorized
Financial Intermediary. All Class C Shares are sold without a sales charge or
commission. All Class C Shares are subject to Rule 12b-1 fees of up to 0.75% of
average daily net assets. However, the Trustees may periodically limit 12b-1
fees to a lesser amount -- the rate is currently 0.40% of average daily net
assets. Class C Shares are redeemed at net asset value. You may also exchange
shares of one Fund for shares of another Fund. See "How to Purchase Shares" and
"How to Redeem Shares."

Also, foreign securities in which the Funds may invest may be subject to
certain risks in addition to those inherent in US investments. These risks are
described in "Risk Considerations" in "Investment Objectives, Policies and
Practices," and in the Glossary.

SHAREHOLDER TRANSACTION EXPENSES

You would pay the following charges when buying or redeeming Class C Shares
of a Fund:

<TABLE>
<CAPTION>
MAXIMUM SALES MAXIMUM SALES LOAD
LOAD IMPOSED IMPOSED ON DEFERRED REDEMPTION EXCHANGE
ON PURCHASES REINVEST DIVIDENDS SALES LOAD* FEES FEES
- ------------- ------------------ ----------- ---------- --------
<S> <C> <C> <C> <C>
None None None None None
</TABLE>

If you purchase shares of any of the Funds, you will pay a quarterly
shareholder servicing fee. This fee may range from .00% to .25% of your average
net assets in the Fund.

4
<PAGE>

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
TOTAL FUND
OPERATING
MANAGEMENT FEE OTHER EXPENSES EXPENSES (NET
(NET OF RULE 12B-1 SHAREHOLDER (NET OF OF
REIMBURSEMENTS/ DISTRIBUTION SERVICING REIMBURSEMENTS/ REIMBURSEMENTS/
WAIVERS) FEE FEE WAIVERS) WAIVERS)+
--------------- ------------ ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Diversified Equity
Fund................... 0.78% 0.40% 0.25% 0.20% 1.63%
Special Growth Fund..... 0.95% 0.40% 0.25% 0.25% 1.85%
Equity Income Fund...... 0.80% 0.40% 0.25% 0.29% 1.74%
Quantitative Equity
Fund................... 0.78% 0.40% 0.25% 0.16% 1.59%
International Securities
Fund................... 0.95% 0.40% 0.25% 0.36% 1.96%
Emerging Markets Fund... 1.20% 0.40% 0.25% 0.44% 2.29%
Real Estate Securities
Fund................... 0.85% 0.40% 0.25% 0.21% 1.71%
Diversified Bond Fund... 0.45% 0.40% 0.25% 0.19% 1.29%
Volatility Constrained
Bond Fund.............. 0.50% 0.40% 0.25% 0.28% 1.43%
Multistrategy Bond
Fund*.................. 0.61% 0.40% 0.25% 0.19% 1.45%
</TABLE>
- ---------------------

+ Investors purchasing Class C Shares of the fund through a financial
intermediary, such as a bank or an investment adviser, may also be required
to pay additional fees to the intermediary for services provided by the
intermediary. Such investors should contact the intermediary for
information concerning what additional fees, if any, will be charged.
* FRIMCo has voluntarily agreed to waive a portion of its 0.75% management
fee for the Multistrategy Bond Fund, up to the full amount of that fee,
equal to the amount by which the Fund's total operating expenses, other
than 12b-1 fees, Shareholder Servicing Fees and certain other class-level
expenses in excess of 0.80% of the Fund's average net assets on an annual
basis. This waiver is intended to be in effect for the current year, but
may be revised or eliminated at any time without notice to shareholders.
The gross annual total operating expenses absent the waiver would be 1.49%
of average net assets of Multistrategy Bond Fund.

These tables are intended to assist you in understanding the various
expenses of each Fund. Operating expenses are paid out of a Fund's assets and
are factored into the Fund's share price. Each Fund expects that it will have
the expenses listed (expressed as a percentage of average net assets) for the
current fiscal year.

EXAMPLE OF EXPENSES FOR THE FUNDS

Assume that each Fund's annual return is 5% and that its operating expenses
are as described above, and that you sell your shares after the number of
years shown. These are projected expenses for each $1,000 that you invest:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Diversified Equity Fund......................... $16 $50 $ 90 $205
Special Growth Fund............................. $18 $56 $101 $231
Equity Income Fund.............................. $17 $53 $ 96 $219
Quantitative Equity Fund........................ $16 $49 $ 88 $200
International Securities Fund................... $20 $60 $108 $246
Emerging Markets Fund........................... $24 $74 $134 $306
Real Estate Securities Fund..................... $17 $52 $ 94 $215
Diversified Bond Fund........................... $13 $39 $ 71 $162
Volatility Constrained Bond Fund................ $15 $45 $ 82 $186
Multistrategy Bond Fund......................... $15 $47 $ 84 $192
</TABLE>

5
<PAGE>

FINANCIAL HIGHLIGHTS

Class C Shares of the Volatility Constrained Bond, MultiStrategy Bond and
Emerging Markets Funds were not issued prior to December 31, 1997. Those
Funds' financial statements and related notes thereto are incorporated herein
by reference to the Statement of Additional Information and appear, along with
the report of Coopers & Lybrand L.L.P., in those Funds' Annual Reports to
shareholders. Funds' Annual Reports may be obtained without charge by writing
to or calling the Investment Company as described on the first page of this
prospectus. Financial Highlights' pages for those Funds named above described
herein are included in the Statement of Additional Information. Such Financial
Highlights do not reflect the 12b-1 Fee and Shareholder Service Fee imposed
with respect to Class C Shares.

6
<PAGE>

FINANCIAL HIGHLIGHTS OF THE DIVERSIFIED EQUITY FUND CLASS C SHARES*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class C Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

DIVERSIFIED EQUITY FUND CLASS C SHARES

<TABLE>
<CAPTION>
1997 +
------
<S> <C>
NET ASSET VALUE, BEGINNING OF YEAR...................................... $45.55
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................................... .06
Net realized and unrealized gain (loss) on investments................ 7.97
------
Total Income From Investment Operations............................. 8.03
------
LESS DISTRIBUTIONS:
Net investment income................................................. (.06)
In excess of net investment income.................................... (.01)
Net realized gain on investments...................................... (9.83)
In excess of net realized gain on investments......................... (.04)
------
Total Distributions................................................. (9.94)
------
NET ASSET VALUE, END OF YEAR............................................ $43.64
======
TOTAL RETURN (%)(a)..................................................... 15.99
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, to average net assets(b).......................... 1.63
Net investment income (loss) to average net assets(b)................. .10
Portfolio turnover(b)................................................. 114.11
Net assets, end of year ($000 omitted)................................ 2.839
Avg Commission rate paid per share of security ($ omitted)............ .0500
</TABLE>
- ---------------------
* See the notes to financial statements which appear in Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

+ For the period May 27, 1997 (commencement of sales) to December 31, 1997.

(a) Total return represents performance for the period May 27, 1997 to
December 31, 1997.

(b) The ratios for the period December 31, 1997 are annualized.

7
<PAGE>

FINANCIAL HIGHLIGHTS OF THE SPECIAL GROWTH FUND CLASS C SHARES*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class C Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

SPECIAL GROWTH FUND CLASS C SHARES

<TABLE>
<CAPTION>
1997 1996+
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR.................... $40.75 $43.48
------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)................... (.13) (.02)
Net realized and
unrealized gain (loss)on
investments.............. 11.05 1.63
------ ------
Total Income From
Investment Operations.. 10.92 1.61
------ ------
LESS DISTRIBUTIONS:
Net realized gain on
investments.............. (6.25) (4.34)
------ ------
Total Distributions..... (6.25) (4.34)
------ ------
NET ASSET VALUE, END OF
YEAR....................... $45.42 $40.75
====== ======
TOTAL RETURN (%)............ 27.90 4.04(a)
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses, to
average net assets(b).... 1.83 1.89
Net investment income
(loss) to average net
assets(b)................ (.51) (.38)
Portfolio turnover(b)..... 97.19 118.13
Net assets, end of year
($000 omitted)........... 3,153 910
Avg Commission rate paid
per share of security ($
omitted)................. .0402 .0384
</TABLE>
- ---------------------
* See the notes to financial statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.
+ For the period November 4, 1996 (commencement of sales) to December 31,
1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the period December 31, 1996 are annualized.

8
<PAGE>

FINANCIAL HIGHLIGHTS OF THE EQUITY INCOME FUND CLASS C SHARES*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class C Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

EQUITY INCOME FUND CLASS C SHARES

<TABLE>
<CAPTION>
1997 1996+
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR.................... $40.22 $41.86
------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income..... .32 .10
Net realized and
unrealized gain (loss) on
investments.............. 12.20 2.39
------ ------
Total Income From
Investment Operations.. 12.52 2.49
------ ------
LESS DISTRIBUTIONS:
Net investment income..... (.07) (.18)
Net realized gain on
investments.............. (11.24) (3.95)
------ ------
Total Distributions..... (11.31) (4.13)
------ ------
NET ASSET VALUE, END OF
YEAR....................... $41.43 $40.22
====== ======
TOTAL RETURN (%)............ 32.68 6.23(a)
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets(b).... 1.74 1.77
Net investment income to
average net assets(b).... .77 1.50
Portfolio turnover(b)..... 139.33 106.40
Net assets, end of year
($000 omitted)........... 338 122
Avg Commission rate paid
per share of security ($
omitted)................. .0410 .0441
</TABLE>
- ---------------------
* See the notes to financial statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.
+ For the period November 4, 1996 (commencement of sales) to December 31,
1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the period December 31, 1996 are annualized.

9
<PAGE>

FINANCIAL HIGHLIGHTS OF THE QUANTITATIVE EQUITY FUND CLASS C SHARES*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

QUANTITATIVE EQUITY FUND CLASS C SHARES

<TABLE>
<CAPTION>
1997 1996+
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.......................... $33.05 $33.81
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... .14 .05
Net realized and unrealized gain (loss) on investments.... 9.95 1.87
------ ------
Total Income From Investment Operations................. 10.09 1.92
------ ------
LESS DISTRIBUTIONS:
Net investment income..................................... (.07) (.08)
Net realized gain on investments.......................... (6.27) (2.60)
------ ------
Total Distributions..................................... (6.34) (2.68)
------ ------
NET ASSET VALUE, END OF YEAR................................ $36.80 $33.05
====== ======
TOTAL RETURN (%)............................................ 31.70 5.91 (a)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net assets (b).............. 1.59 1.65
Net investment income to average net assets (b)........... .33 .81
Portfolio turnover (b).................................... 87.67 74.33
Net assets, end of year ($000 omitted).................... 2,344 322
Avg Commission rate paid per share of security ($ omit-
ted)..................................................... .0349 .0331
</TABLE>
- ---------------------
* See the notes to financial statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.
+ For the period November 4, 1996 (commencement of sales) to December 31,
1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the period December 31, 1996 are annualized.

10
<PAGE>

FINANCIAL HIGHLIGHTS OF THE INTERNATIONAL SECURITIES FUND CLASS C SHARES*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

INTERNATIONAL SECURITIES FUND CLASS C SHARES

<TABLE>
<CAPTION>
1997 1996+
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.......................... $58.47 $58.56
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... .35 (.03)
Net realized and unrealized gain (loss) on investments.... (.64) 1.68
------ ------
Total Income From Investment Operations................. (.29) 1.65
------ ------
LESS DISTRIBUTIONS:
Net investment income..................................... (.14) (.27)
In excess of net investment income........................ (.15) (.16)
Net realized gain on investments.......................... (2.19) (1.31)
In excess of net realized gains on investments............ (1.06) --
------ ------
Total Distributions..................................... (3.54) (1.74)
------ ------
NET ASSET VALUE, END OF YEAR................................ $54.64 $58.47
====== ======
TOTAL RETURN (%)............................................ (.41) 2.86 (a)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, to average assets(b).................. 1.96 2.00
Net investment income (loss) to average net assets(b)..... .19 (.61)
Portfolio turnover........................................ 73.54 42.43
Net assets, end of year ($000 omitted).................... 1,271 623
Avg Commission rate paid per share of security ($ omit-
ted)..................................................... .0055 .0039
</TABLE>
- ---------------------
* See the notes to financial statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.
+ For the period November 4, 1996 (commencement of sales) to December 31,
1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the period December 31, 1996 are annualized.

11
<PAGE>

FINANCIAL HIGHLIGHTS OF THE REAL ESTATE SECURITIES FUND CLASS C SHARES*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year or period ended December 31, and other performance
information derived from the financial statements. The information in the
table represents the Financial Highlights for the Fund's Class C Shares for
the periods shown. The table appears in the Fund's financial statements and
related notes, which are incorporated by reference into 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 Trust.

REAL ESTATE SECURITIES FUND CLASS C SHARES

<TABLE>
<CAPTION>
1997 1996+
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.......................... $29.18 $26.67
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 1.14 .24
Net realized and unrealized gain (loss) on investments.... 3.95 3.85
------ ------
Total Income From Investment Operations................. 5.09 4.09
------ ------
LESS DISTRIBUTIONS:
Net investment income..................................... (1.04) (.32)
Net realized gain on investments.......................... (2.21) (1.26)
------ ------
Total Distributions..................................... (3.25) (1.58)
------ ------
NET ASSET VALUE, END OF YEAR................................ $31.02 $29.18
====== ======
TOTAL RETURN (%)............................................ 18.20 15.75 (a)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, to average net assets (b)............. 1.71 1.77
Net investment income to average net assets (b)........... 3.94 5.31
Portfolio turnover (b).................................... 49.40 51.75
Net assets, end of year ($000 omitted).................... 388 101
Avg Commission rate paid per share of security ($ omit-
ted)..................................................... .0618 .0631
</TABLE>
- ---------------------
* See notes to Financial Statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.
+ For the period November 4, 1996 (commencement of sales) to December 31,
1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the period December 31, 1996 are annualized.

12
<PAGE>

FINANCIAL HIGHLIGHTS OF THE DIVERSIFIED BOND FUND CLASS C SHARES*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class C Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

DIVERSIFIED BOND FUND CLASS C SHARES

<TABLE>
<CAPTION>
1997 1996+
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR........................... $22.98 $23.16
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................................... 1.22 .25
Net realized and unrealized gain (loss) on investments..... .66 (.09)
------ ------
Total From Investment Operations......................... 1.88 .16
------ ------
LESS DISTRIBUTIONS:
Net investment income...................................... (.72) (.34)
In excess of net realized gain on investments.............. (.08) --
------ ------
Total Distributions...................................... (.80) (.34)
------ ------
NET ASSET VALUE, END OF YEAR................................. $24.06 $22.98
====== ======
TOTAL RETURN (%)............................................. 8.35 .67 (a)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, to average assets(b)................... 1.29 1.31
Net investment income to average net assets(b)............. 5.64 5.75
Portfolio turnover (b)..................................... 172.43 138.98
Net assets, end of year ($000 omitted)..................... 2,469 962
</TABLE>
- ---------------------
* See the notes to financial statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.
+ For the period November 4, 1996 (commencement of sales) to December 31,
1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the period December 31, 1996 are annualized.

13
<PAGE>

THE PURPOSE OF THE FUNDS -- MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION

Russell acts as consultant to the Funds. Russell was founded in 1936 and has
been providing comprehensive asset management consulting services for almost
30 years to institutional investors, principally large corporate employee
benefit plans. Russell and its affiliates have offices around the world--in
Tacoma, New York, Toronto, London, Zurich, Paris, Sydney, Auckland and Tokyo.

Three functions form the core of Russell's consulting services:

. Objective Setting: Defining appropriate investment objectives and
desired investment returns based on a client's unique situation and risk
tolerance.

. 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 a way most
likely to achieve the client's objectives and desired returns.

When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.

FRIMCo and Russell believe investors should seek to hold fully diversified
portfolios that reflect both their own individual investment time horizons and
their ability to accept risk. FRIMCo and Russell believe that for many, this
can be accomplished through strategically purchasing shares in one or more of
the Funds which have been structured to provide access to specific asset
classes in a multi-style, multi-manager environment.

Capital market history shows that asset classes with greater risk will
generally outperform lower risk asset classes over time. For instance,
corporate equities, over the past 50 years, have outperformed corporate debt
in absolute terms. However, what is generally true of performance over
extended periods will not necessarily be true at any given time during a
market cycle, and from time to time asset classes with greater risk may also
underperform lower risk asset classes, on either a risk adjusted or absolute
basis. Investors should select a mix of asset classes that reflects their
overall ability to withstand market fluctuations over their investment
horizons.

14
<PAGE>

investment styles within an asset class, investors are better able to reduce
their exposure to any one investment style going out of favor.

ELIGIBLE INVESTORS

Shares of the Funds are currently offered only to Eligible Investors.
Eligible Investors include:

. Institutions or individuals who have acquired shares through
institutional investors and Financial Intermediaries.

There is no specific minimum amount that must be invested in the Funds or in
the Trust.

The Funds generally do not offer their shares directly to individual (i.e.,
retail) investors, although they may choose to do so. Financial Intermediaries
who have entered into Agreements with FRIMCo may acquire shares of the Funds
for their customers. Under the Agreements, FRIMCo provides objective-setting
and asset-allocation assistance and services to Financial Intermediaries,
which in turn provide similar services to their customers. Financial
Intermediaries may charge their customers a fee for providing these services
and other trust or investment-related services.

With respect to certain Funds, the Agreement provides that a shareholder
investment services fee (the "Services Fee") may be paid to FRIMCo. The
Services Fee is usually expressed as a percentage of the client's assets
invested in the applicable Funds. The Services Fee may include a fixed-dollar
fee for certain specific services. The client and FRIMCo agree to the Services
Fee, which is determined by the amount of assets the client expects to invest
in the Funds, the nature and extent of services that FRIMCo agrees to provide
to the client, and other factors.

Either the client or FRIMCo may terminate an Agreement upon written notice.
FRIMCo does not anticipate terminating any Agreement unless a client does not
(i) promptly pay fees due to FRIMCo, or (ii) invest sufficient assets in the
Trust's Funds to compensate FRIMCo for its services. If an Agreement is
terminated, FRIMCo will no longer provide asset-allocation, objective-setting
or other services to the client.

GENERAL MANAGEMENT OF THE FUNDS

15
<PAGE>

FRIMCo:

. provides or supervises the general management and administration,
investment advisory and portfolio management, and distribution services
for the Funds;

. furnishes the Funds with office space, equipment and personnel to
operate and administer the Funds' business, and supervises services
provided by third parties, such as the money managers and the Custodian;

. develops the investment programs, selects money managers, allocates
assets among money managers and monitors the money managers' investment
programs and results;

. manages, or hires money managers to manage the Funds' Liquidity
Portfolios; and

. provides the Funds with transfer agent, dividend disbursing and
shareholder recordkeeping services.

FRIMCo's officers and employees who oversee the money managers are:

. Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
1989.

. Mark D. Amberson, who has been a Portfolio Manager of FRIMCo, since
January 1998. From 1991 to 1997, Mr. Amberson was a Portfolio Manager in
Russell's Money Market Trading Group. Mr. Amberson jointly with another
portfolio manager identified herein has primary responsibility for
management of the Fixed I, Diversified Bond, Fixed II, Volatility
Constrained Bond, Fixed III, and Multistrategy Bond Funds.

. Randal C. Burge, who has been a Portfolio Manager of FRIMCo since 1995.
From 1990 to 1995, Mr. Burge was a Client Executive for Frank Russell
Australia. Mr. Burge, jointly with another portfolio manager identified
herein, has primary responsibility for management of the Fixed I, Fixed
II, Fixed III, Diversified Bond, Volatility Constrained Bond,
Multistrategy Bond, and Emerging Markets Funds.

. James M. Imhof, Manager of FRIMCo's Portfolio Trading, manages the Trust
on a day to day basis and has been responsible for ongoing analysis and
monitoring of the money managers since 1989.

16
<PAGE>

Equity I, Equity II, Equity III, Equity Q, Equity T, Diversified Equity,
Quantitative Equity, Special Growth, and Equity Income Funds.

. C. Nola Williams, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1994 to 1995, Ms. Williams was a member of the Alpha
Strategy Group. From 1988 to 1994, Ms. Williams was Senior Research
Analyst with Russell. Ms. Williams, jointly with another portfolio
manager identified herein, has primary responsibility for management of
the Equity I, Equity II, Equity III, Equity Q, Equity T, Diversified
Equity, Quantitative Equity, Special Growth, and Equity Income Funds.

Russell provides to the Funds and FRIMCo the asset management consulting
services--including objective-setting and asset-allocation technology, and
money manager research and evaluation assistance--that Russell provides to its
other consulting clients. Russell does not receive any compensation from the
Funds for its consulting services.

Under its Management Agreement with the Trust, FRIMCo receives a management
fee from each Fund for FRIMCo's services. From this fee, FRIMCo, as the
Trust's agent, pays the money managers for their investment selection
services. The remainder of the management fee is retained by FRIMCo as
compensation for the services described above and to pay expenses. The annual
rate of management fees, payable to FRIMCo monthly on a pro rata basis, are
the following percentages of each Fund's average daily net assets: Diversified
Equity Fund, 0.78%; Special Growth Fund, 0.95%; Equity Income Fund, 0.80%;
Quantitative Equity Fund, 0.78%; International Securities Fund, 0.95%;
Emerging Markets Fund, 1.20%; Real Estate Securities Fund, 0.85%; Diversified
Bond Fund, 0.45%; Volatility Constrained Bond Fund, 0.50%; and Multistrategy
Bond Fund, 0.65%. The fees of the Funds, other than the Diversified Bond and
Volatility Constrained Bond Funds, may be higher than the fees charged by some
mutual funds with similar objectives that use only a single money manager.

17
<PAGE>

EXPENSES OF THE FUNDS

The Funds (and each class, when appropriate) pay all their expenses other
than those expressly assumed by FRIMCo. The Funds' expenses for Class C Shares
for the year ended December 31, 1997, as a percentage of each Fund's average
net assets, are shown in the Financial Highlights tables in this Prospectus.
Principal expenses are:

. the management, transfer agent and recordkeeping fees payable to FRIMCo;

. fees for custody, preparing tax records, and portfolio accounting,
payable to the Custodian;

. fees for independent auditing and legal services;

. filing and registration fees payable to the SEC;

. Rule 12b-1 fees; and

. shareholder servicing fees.

THE MONEY MANAGERS

From its management fees, FRIMCo, as the Trust's agent, pays 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 average of
all assets allocated to the manager for the quarter. For the year ended
December 31, 1997, management fees paid to the money managers were equivalent
to the following annual rates, expressed as a percentage of each Fund's
average daily net assets: Diversified Equity Fund, 0.23%; Special Growth Fund,
0.40%; Equity Income Fund, 0.19%; Quantitative Equity Fund, 0.19%;
International Securities Fund, 0.39%; Emerging Markets Fund, 0.68%; Real
Estate Securities Fund, 0.29%; Diversified Bond Fund, 0.08%; Volatility
Constrained Bond Fund, 0.17%; and Multistrategy Bond Fund, 0.21%.

Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund. At the same time, however, each money
manager must operate within the Fund's investment objectives, restrictions and
policies, and the more specific strategies developed by FRIMCo. Although the
money managers' activities are subject to general oversight by the Board and
the Trust's officers, neither the Board, the officers, FRIMCo, nor Russell
evaluate the investment merits of the money managers' individual security
selections.

18
<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND PRACTICES

The investment objective and general investment policies of each Fund are
described in "Investment Objectives." Types of investment securities that may
be purchased by the Funds are described in "Fund Investment Securities."
Specific investment practices that may be employed by the Funds are identified
in "Other Investment Practices." The risks associated with portfolio
investments by the Funds are described in those sections, as well as in "Risk
Considerations." Certain terms used in these sections are described in the
Glossary in this Prospectus.

SUMMARY COMPARISON OF THE FUNDS

<TABLE>
<CAPTION>
ANTICIPATED MAXIMUM
EQUITY DEBT
FUND EXPOSURE EXPOSURE FOCUS
---- ----------- -------- ----------------------------------
<S> <C> <C> <C>
Diversified Equity
Fund................... 65-100% 35% Income and capital growth
Special Growth Fund..... 65-100% 35% Maximum total return
Equity Income Fund...... 65-100% 35% Current income
Quantitative Equity
Fund................... 100% -- Total return
International Securities
Fund................... 65-100% 35% Total return
Emerging Markets Fund... 65-100% 35% Maximum total return
Real Estate Securities
Fund................... 65-100% 35% Total return
Diversified Bond Fund... 35% 65-100% Current Income and Diversification
Volatility Constrained
Bond Fund.............. 35% 65-100% Preservation of capital
Multistrategy Bond
Fund................... -- 100% Maximum total return
</TABLE>

INVESTMENT OBJECTIVES

DIVERSIFIED EQUITY FUND

Diversified Equity Fund's objective is to provide income and capital growth
by investing principally in equity securities. Diversified Equity Fund may
invest in common and preferred stocks, convertible securities, rights and
warrants.

19
<PAGE>

SPECIAL GROWTH FUND

Special Growth Fund's objective is to maximize total return primarily
through capital appreciation and by assuming a higher level of volatility than
Diversified Equity Fund. Special Growth Fund seeks to achieve its objective by
investing in equity securities.

The Fund also seeks to provide current income. 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 (i.e., 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 or
companies characterized as "special situations." "Emerging growth-type"
companies tend to reinvest most of their earnings, rather than pay significant
cash dividends. "Special situation" companies are those which the money
managers believe present opportunities for capital growth because of cyclical
developments in the securities markets, the industry, or the company.

EQUITY INCOME FUND

Equity Income Fund's objective is to achieve a high level of current income,
while maintaining the potential for capital appreciation. Equity Income Fund
seeks to achieve its objective 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 Special
Growth Fund whose major objective is appreciation, although FRIMCo 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

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. Quantitative Equity Fund
seeks to achieve its objectives by investing in equity securities.

The Fund's portfolio will be structured similarly to the Russell Index, as
the Fund will maintain industry weights and economic sector weights near those
of the Index. As a result, the Fund's money managers generally select stocks
from the set of stocks comprising 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 to meet the Fund's investment
objectives. The money managers anticipate that the Fund's average
price/earnings ratio, yield and other fundamental characteristics will be near
the averages of the Russell Index.

20
<PAGE>

particular portfolio security and to rank securities based upon their ability
to outperform 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 construct a portfolio that has superior return prospects with risks similar
to the Russell 1000(R) Index. FRIMCo believes quantitative management over a
market cycle should provide consistent performance, diversification, market-
like volatility and limited market under performance. However, there is no
guarantee that the Fund will have these characteristics at any one time.

The Fund will attempt to be fully invested in common stock at all times.
However, the Fund is permitted to hold up to 20% of Fund assets in liquid
investments to meet redemption requests.

INTERNATIONAL SECURITIES FUND

International Securities Fund's objectives are to provide favorable total
return and additional diversification for US investors. International
Securities Fund attempts to achieve its objectives by investing primarily in
equity and fixed-income securities of foreign companies, and securities issued
by foreign governments. The Fund invests primarily in equity securities of
companies domiciled outside the United States. The Fund may also invest 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 foreign
currencies and gold-related equity investments, including gold mining stocks
and gold-backed debt instruments. However, as a matter of fundamental policy,
the Fund will not invest more than 20% of its net assets in gold-related
investments.

EMERGING MARKETS FUND

Emerging Markets Fund's objective is to seek 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.

21
<PAGE>

and equity derivative securities, such as convertible securities, rights,
units, warrants, and American Depository Receipts and European Depository
Receipts ("Depository Receipts"). The Fund's equity securities will primarily
be denominated in foreign currencies and may be held outside the United
States.

Certain emerging markets are closed in whole or in part to equity
investments by foreigners. The Fund may be able to invest in those markets
solely or primarily through governmental authorized investment vehicles. For
more information on risks, see "Risk Considerations."

REAL ESTATE SECURITIES FUND

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

The Fund will attempt to be fully invested at all times. However, the Fund
is permitted to hold up to 20% of Fund assets in liquid investments to meet
redemption requests.

DIVERSIFIED BOND FUND

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.

It is FRIMCo's philosophy that investors should strategically allocate
investments among a number of asset classes and should see a mix of investment
styles. As with the Trust's other Funds, this Fund seeks to provide
shareholders with a diversification of Money Manager styles. The Fund's
portfolio is different from mutual funds that invest primarily in equity
securities. To this end, the Fund seeks to provide a stable level of cash flow
by investing in fixed income investments that balance a shareholder's
investments in mutual funds that invest in equity 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 commercial paper issuers and institutional
lenders, such as the Fund.) Money managers will select investments based on
fundamental economic and market factors. Money managers will evaluate
potential investments by sector, maturity, quality and other criteria. 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; A or Prime-2 by Moody's; or, if unrated, judged
by the money manager to be of at least equal credit quality to those
designations.

22
<PAGE>

VOLATILITY CONSTRAINED BOND FUND

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 those fixed-income securities 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.

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. Accordingly, the money
managers will allocate the Fund's investments among securities denominated in
the currencies of the United States and selected foreign countries. The Fund
may also invest in high-quality, foreign 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. Money managers of the Fund will consider fundamental economic
strength, credit quality and interest rate trends in determining whether to
increase or decrease the emphasis placed upon a particular type of security or
industry sector. The Fund will not invest more than 10% of its total assets in
debt securities denominated in a single foreign currency, and FRIMCo currently
intends to limit total investments in non-US dollar securities to no more than
25% of the Fund's total assets.

The Fund will generally invest in the foreign debt securities of countries
whose governments it considers to be stable (the Fund may invest in countries
considered unstable or undeveloped, provided that it believes it is able to
hedge substantially the risk of a decline in the currency in which the
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.

The Fund intends to use interest rate swaps as a hedge and not as a
speculative investment. For more information on risks, see "Risk
Considerations."

23
<PAGE>

MULTISTRATEGY BOND FUND

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. Multistrategy Bond Fund seeks to achieve its objective 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; bank instruments; 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. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, and 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. For more information on risks, see "Risk Considerations."

FUND INVESTMENT SECURITIES

Commercial Paper

Volatility Constrained Bond and Multistrategy Bond Funds may invest in
commercial paper. Commercial paper represents a debt obligation of a company
which is unsecured. Volatility Constrained Bond and Multistrategy Bond Funds
will invest in commercial paper which is 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.; or TBW-1 or TBW-2 by Thomson Bank Watch,
Inc. Volatility Constrained Bond and Multistrategy Bond Funds may also invest
in commercial paper which is not rated if it is issued by US or foreign
companies which the money managers conclude are of high-quality and have
outstanding debt securities which are rated AAA, AA or A by S&P; or Aaa, Aa or
A by Moody's.

DEBT SECURITIES

The Funds may purchase debt securities that complement their respective
investment objectives. The Funds, except Emerging Markets and Multistrategy
Bond Funds, do not invest in debt 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 Emerging Markets and Multistrategy Bond
Funds, will sell securities whose ratings drop below these minimum ratings, in
a prudent manner as determined by the money managers. The market value of debt
securities generally varies inversely with interest rates.

24
<PAGE>

DEPOSITORY RECEIPTS

Emerging Markets Fund may invest in Depository Receipts. These are
securities traded in the United States that are typically issued in connection
with a US or foreign bank or trust company and evidence ownership of
underlying securities issued by a foreign corporation. These securities may
not necessarily be denominated in the same currency as the securities into
which they may be converted.

EQUITY SECURITIES

Diversified Equity, Special Growth, Equity Income, Quantitative Equity and
International Securities Funds invest primarily in equity securities.
Diversified Equity, Special Growth, Equity Income and Quantitative Equity
Funds may invest in common stock equivalents. The following constitute common
stock equivalents: rights and warrants and convertible securities. Common
stock equivalents may be converted into or provide the holder with the right
to common stock. Diversified Equity, Special Growth, Equity Income and
Quantitative Equity Funds may also invest in other types of equity securities,
including preferred stocks.

FOREIGN DEBT SECURITIES

Multistrategy Bond, Emerging Markets and International Securities Funds'
portfolios may include debt securities issued by domestic or foreign entities,
and denominated in US dollars or foreign currencies. The Multistrategy Bond
Fund anticipates that no more than 25% of its net assets will be denominated
in foreign currencies. The Funds will only use foreign currency exchange
transactions (options on foreign currencies, foreign currency futures
contracts and forward foreign currency contracts) for the purpose of hedging
against foreign currency exchange risk arising from the Funds' investments, or
anticipated investments, 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 "Risk Considerations--Investment in Foreign Securities."
Emerging markets consist of countries determined by the money managers of the
Funds 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 Funds may
invest in the following types of emerging market debt--bonds; notes and
debentures of emerging market governments; debt and other fixed-income
securities issued or guaranteed by emerging market government agencies,
instrumentalities or central banks; and other fixed-income securities issued
or guaranteed by banks or other companies in emerging markets which the money
managers believe are suitable investments for the Funds. Under current market
conditions, it is expected that emerging market debt will consist
predominantly of Brady Bonds and other sovereign debt. Brady Bonds are
products of the "Brady Plan," under which bonds are issued in exchange for
cash and certain of the country's outstanding commercial bank loans.

INTEREST RATE SWAPS

Volatility Constrained Bond and Multistrategy Bond Funds may enter into
interest rate swaps. When a Fund engages in an interest rate swap, it
exchanges its obligations to pay or rights to receive interest payments for
the obligations or rights to receive interest payments of another party (i.e.,
an exchange of floating rate payments for fixed rate payments). The Funds
expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of their portfolios or to protect
against any increase in the price of securities they anticipate purchasing at
a later date.

25
<PAGE>

INVESTMENT COMPANY SECURITIES

Each Fund may invest up to 10% of its total assets in shares of other
investment companies that invest in securities in which a Fund may otherwise
invest. Each Fund may invest its cash reserves in the Money Market Fund.
Because of restrictions on direct investment by US entities in certain
countries, other investment companies may provide the most practical or only
way for Emerging Markets Fund to invest in certain markets. To access these
markets, the Fund may invest up to 10% of its total assets in the shares of
other investment companies. These investments may involve the payment of
substantial premiums above the net asset value of those investment companies'
portfolio securities and are subject to limitations under the 1940 Act.
Emerging Markets Fund also may incur tax liability to the extent it invests in
the stock of a foreign issuer that is a "passive foreign investment company"
("PFIC"), regardless of whether the PFIC makes distributions to the Fund. See
"Taxes" in this Prospectus and in the SAI.

OTHER DEBT SECURITIES

Volatility Constrained Bond and Multistrategy Bond Funds may invest in debt
securities issued by supranational organizations such as:

The World Bank -- An international bank which was chartered to finance
development projects in developing member countries.

The European Economic Community -- An organization which consists of
certain European states engaged in cooperative economic activities.

The European Coal and Steel Community -- An economic union of various
European nations' steel and coal industries.

The Asian Development Bank -- An international development bank
established to lend funds, promote investment and provide technical
assistance to member nations in the Asian and Pacific regions.

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

US GOVERNMENT OBLIGATIONS

26
<PAGE>

support to such agencies or instrumentalities. Accordingly, such US government
securities may involve risk of loss of principal and interest.

The following table illustrates the investments that the Funds primarily
invest in or are permitted to invest in:

<TABLE>
<CAPTION>
REAL VOLATILITY
DIVERSIFIED SPECIAL EQUITY QUANTITATIVE INTERNATIONAL EMERGING ESTATE DIVERSIFIED CONSTRAINED
EQUITY GROWTH INCOME EQUITY SECURITIES MARKETS SECURITIES BOND BOND
TYPE OF PORTFOLIO SECURITY FUND FUND FUND FUND FUND FUND FUND FUND FUND
- -------------------------- ----------- ------- ------ ------------ ------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common
stocks....... X X X X X X X
Common stock
equivalents
(warrants)... X X X X X X X
Common stock
equivalents
(options).... X X X X X X X
Common stock
equivalents
(convertible
debt
securities).. X X X X X X X
Common stock
equivalents
(depository
receipts).... X X
Preferred
stocks....... X X X X X X
Equity deriva-
tive securi-
ties......... X X X X X X
Debt
securities
(below
investment
grade or junk
bonds)....... X
US government
securities... X X X X X X X X X
Municipal ob-
ligations....
Investment
company secu-
rities....... X X X X X X X X X
Foreign secu-
rities....... X X
<CAPTION>
MULTI-
STRATEGY
BOND
TYPE OF PORTFOLIO SECURITY FUND
- -------------------------- --------
<S> <C>
Common
stocks.......
Common stock
equivalents
(warrants)...
Common stock
equivalents
(options)....
Common stock
equivalents
(convertible
debt
securities)..
Common stock
equivalents
(depository
receipts)....
Preferred
stocks.......
Equity deriva-
tive securi-
ties.........
Debt
securities
(below
investment
grade or junk
bonds)....... X
US government
securities... X
Municipal ob-
ligations.... X
Investment
company secu-
rities....... X
Foreign secu-
rities....... X
</TABLE>

27
<PAGE>

OTHER INVESTMENT PRACTICES

<TABLE>
<CAPTION>
REAL VOLATILITY MULTI-
DIVERSIFIED SPECIAL EQUITY QUANTITATIVE INTERNATIONAL EMERGING ESTATE DIVERSIFIED CONSTRAINED STRATEGY
EQUITY GROWTH INCOME EQUITY SECURITIES MARKETS SECURITIES BOND BOND BOND
TYPE OF PRACTICE FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
---------------- ----------- ------- ------ ------------ ------------- -------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash reserves... X X X X X X X X X X
Repurchase
agreements(1).. X X X X X X X X X X
When-issued and
forward
commitment
securities..... X X X X X X X X X X
Reverse
repurchase
agreements..... X X X X X X X X X X
Lending portfo-
lio securities,
not to exceed
33 1/3% of to-
tal Fund as-
sets........... X X X X X X X X X X
Illiquid securi-
ties (limited
to 15% of a
Fund's net as-
sets).......... X X X X X X X X X X
Forward currency
contracts(2)... X X X X X
Write (sell)
call and put
options on
securities,
securities
indexes and
foreign
currencies(3).. X X X X X X X X X X
Purchase options
on securities,
securities
indexes, and
currencies(3).. X X X X X X X X X X
Interest rate
futures con-
tracts, stock
index futures
contracts, for-
eign currency
contracts and
options on
futures(4)..... X X X X X X X X X X
Liquidity port-
folio.......... X X X X X X X
</TABLE>
- ---------------------

(2) Emerging Markets, International Securities, Diversified Bond, Volatility
Constrained and Multistrategy Bond Funds may not invest more than 33% of
their assets in these contracts.

(4) A Fund does not enter into any futures contracts or related options if
the sum of initial margin deposits on futures contracts, related options
(including options on securities, securities indexes and currencies) and
premiums paid for any such related options would exceed 5% of its total
assets. A Fund does not purchase futures contracts or related options if,
as a result, more than one-third of its total assets would be so
invested.

28
<PAGE>

RISK CONSIDERATIONS

Variable and Floating Rate Securities. The Multistrategy Bond Fund may
invest in variable and floating rate securities. The variable and floating
rate securities 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. The adjustment intervals may be regular (i.e., daily,
monthly, annually, etc.) or event based (i.e., 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 market value
fluctuations in response to changing interest rates than debt obligations of
comparable maturities that make current distributions of interest.

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 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.

29
<PAGE>

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

Volatility Constrained Bond Fund and Multistrategy Bond Fund may invest in
bank instruments, which include European certificates of deposit ("ECDs"),
European time deposits ("ETDs") and Yankee Certificates of deposit ("Yankee
CDs"). 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. Different risks
may also exist for ECDs, ETDs, and Yankee CDs because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily
subject to the same regulatory requirements that apply to domestic banks, such
as reserve requirements, loan limitations, examinations, accounting, auditing
and recordkeeping, and the public availability of information. These factors
will be carefully considered by the money managers when evaluating credit risk
in the selection of investments for the Volatility Constrained Bond Fund and
Multistrategy Bond Fund.

High Risk Bonds. Emerging Markets Fund may invest up to 5%, and
Multistrategy Bond Fund may invest up to 25%, of their total assets in debt
securities rated less than BBB by S&P or Baa by Moody's, or in unrated
securities judged by the Funds' 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. While this
debt may have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposure to adverse
conditions. Emerging Markets and Multistrategy Bond Funds' money managers will
seek to reduce the risks associated with investing in lower-rated debt
securities by limiting the Funds' holdings in the securities and by the depth
of the managers' credit analysis. For additional information, refer to the
SAI.

30
<PAGE>

prospective positions of the Funds, each of the Funds may employ certain risk
management practices using certain derivative securities and techniques (known
as "derivatives"). Markets in some countries currently do not have instruments
available for hedging transactions. To the extent that such instruments do not
exist, a money manager may not be able to hedge a Fund's investment
effectively in such countries. Furthermore, a Fund engages in hedging
activities only when its money managers deem it to be appropriate, and does
not necessarily engage in hedging transactions with respect to each
investment.

PORTFOLIO TRANSACTION POLICIES

Money managers make decisions to buy and sell securities for the Fund assets
assigned to them. FRIMCo makes determinations for any other Fund assets. The
Funds do not give significant weight to attempting to realize long-term rather
than short-term, capital gains while making portfolio investment decisions.

Each money manager makes decisions to buy or sell securities independently
from other managers. Thus, one money manager for a Fund may be selling a
security when another manager for the Fund (or for another Fund) is purchasing
the same security. Also, when a money manager's services are terminated, the
new money manager may significantly restructure an investment portfolio. These
practices may increase the Funds' portfolio turnover rates, realization of
gains or losses, brokerage commissions and other transaction costs. The annual
portfolio turnover rates for each of the Funds are shown in the Financial
Highlights tables in this Prospectus.

FRIMCo and the money managers arrange for the purchase and sale of the
Trust's securities and the selection of brokers and dealers (including
affiliates) ("Brokers") that, in the best judgment of FRIMCo and the money
managers, provide prompt and reliable execution at favorable prices and
reasonable commission rates. In addition to price and commission rates,
Brokers may be selected based on research, statistical or other services that
they provide. The Trust may pay commission rates that exceed rates that other
Brokers may have charged if the Trust concludes that the commissions are
reasonable in relation to the value of the brokerage and/or research services.

31
<PAGE>

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS

Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The amount and frequency of
distributions are not guaranteed--all distributions are at the Board's
discretion. Currently the Board intends to declare dividends from net
investment income and net short-term capital gains (if any) according to the
following schedule:

<TABLE>
<CAPTION>
DECLARED PAYABLE FUNDS
-------- ------- -----
<C> <C> <S>
Monthly Early in the following month Diversified Bond, Volatility
Constrained Bond and
Multistrategy Bond Funds

Quarterly Mid: April, July, October and December Diversified Equity, Special
Growth, Equity Income,
Quantitative Equity and Real
Estate Securities Funds

Annually Mid-December International Securities and
Emerging Markets Funds
</TABLE>

CAPITAL GAINS DISTRIBUTIONS

BUYING A DIVIDEND

AUTOMATIC REINVESTMENT

TAXES

32
<PAGE>

based on net income except to the extent its earnings are not distributed or
are distributed in a manner that does not satisfy the requirements of the
Code. The Emerging Markets Fund may incur tax liability to the extent it
invests in PFICs. See "Portfolio Securities" and the SAI. The Funds may be
subject to nominal, if any, state and local taxes.

For federal income tax purposes, the dividends from net investment income
and any excess of net short-term capital gains over net long-term capital loss
that you receive from the Funds are considered ordinary income. However,
depending upon the relevant state tax rules, a portion of the dividends paid
by 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. 28% and 20% capital gains distributions declared by the
Board are taxed at the respective capital gains rates regardless of the length
of time you have held the shares. Distributions of income and capital gains
are taxed in the manner described above, whether you receive them in cash or
reinvest them in additional shares of the Funds. Distributions paid in excess
of a Fund's earnings will be treated as a nontaxable return of capital.

A Fund will notify you of the source of its dividends and distributions at
the time they are paid. After the close of each calendar year, the Funds will
advise their shareholders of the amounts of:

. ordinary income dividends, 28% capital gain dividends and 20% capital
gain distributions, including any amounts which are deemed paid on
December 31 of the prior year;

. dividends which qualify for the 70% dividends-received deduction
available to corporations;

. any foreign taxes assessed against International Securities Diversified
Bond, Volatility Constrained Bond, Multistrategy Bond and Emerging
Markets Funds;

. income which is a tax preference item (if any) for alternative minimum
tax purposes; and

. the percentages of Diversified Bond, Volatility Constrained Bond and
Multistrategy Bond Funds' income attributable to US government, Treasury
and agency securities.

If you are a corporate investor, a portion of the dividends from net
investment income paid by Diversified Equity, Special Growth, Equity Income,
Quantitative Equity and Real Estate Securities Funds will generally qualify in
part for the corporate dividends-received deduction. However, the portion of
the dividend so qualified depends on the aggregate qualifying dividend income
received by each Fund from domestic (US) sources. Certain holding period and
debt financing restrictions may apply to corporate investors seeking to claim
the deduction. You should consult your tax adviser.

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 the 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 Diversified Bond, Volatility Constrained Bond and Multistrategy Bond
Funds may acquire zero coupon securities which were issued with original issue
discount. When holding these types of securities, the Funds will have to
include a portion of the original issue discount that accrues on the security
for the taxable year in taxable income. This requirement is imposed even if
the Funds receive no payment on the security during the year. Also, because
the Funds must distribute substantially all of their net investment income
annually, the Funds may be required to distribute a dividend that is greater
than the total amount of cash the Funds actually received in a particular
year. Those distributions will be made from a Fund's cash assets or from the
proceeds of sales of

33
<PAGE>

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.

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

PERFORMANCE INFORMATION

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

<TABLE>
<CAPTION>
10 YEARS
5 YEARS ENDED ENDED INCEPTION TO
1 YEAR ENDED DEC. 31, 1997 DEC. 31, 1997 DEC. 31, 1997 INCEPTION
DEC. 31, 1997 (ANNUALIZED) (ANNUALIZED) (ANNUALIZED) DATE
------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Diversified Equity...... 30.75% 19.22% 16.92% 16.44% 10/10/85
Special Growth.......... 27.90% 16.72% 15.48% 14.71% 09/05/85
Equity Income........... 32.68% 19.85% 17.25% 15.53% 09/05/85
Quantitative Equity..... 31.70% 20.25% 17.29% 15.31% 05/15/87
International Securi-
ties................... (0.41%) 10.55% 8.07% 13.07% 09/05/85
Real Estate Securities.. 18.20% 17.65% -- 13.92% 07/28/89
Diversified Bond........ 8.35% 7.01% 8.43% 8.75% 09/05/85
</TABLE>

The Diversified Bond, 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--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. The 30-day yield for
year ended December 31, 1997 for the Class C Shares of the Diversified Bond
was 5.16%.

Each Fund may also advertise non-standardized performance information which
is for periods in addition to those that are legally required by the SEC.

34
<PAGE>

HOW NET ASSET VALUE IS DETERMINED

NET ASSET VALUE PER SHARE

The net asset value per share is calculated for shares of each class of each
Fund on each business day on which shares are offered or redemption orders are
tendered. For all Funds, a business day is one on which the NYSE is open for
trading. Net asset value per share is computed for Class C Shares of a Fund by
dividing the current value of the Fund's assets attributable to the Class C
Shares, less liabilities attributable to the Class C Shares, by the number of
Class C Shares of the Fund outstanding, and rounding to the nearest cent. All
Funds determine their net asset value as of the close of the NYSE (currently
4:00 p.m. Eastern time).

VALUATION OF PORTFOLIO SECURITIES

With the exceptions noted below, the Funds value their portfolio securities
at "fair market value." This generally means that equity securities and fixed-
income securities listed and principally traded on any national securities
exchange are valued on the basis of the last sale price, or if there were no
sales, at the closing bid price, on the primary exchange on which the security
is traded. US 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.

Money market instruments maturing within 60 days of the valuation date held
by the Funds are valued using the amortized cost method. Under this method, a
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 the Rule.
The money market instruments are valued at "amortized cost" unless the Board
determines that amortized cost does not represent fair value. While amortized
cost provides certainty in valuation, it may result in periods when the value
of an instrument is higher or lower than the price a 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 and in accordance with
procedures established by the Board.

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HOW TO PURCHASE SHARES

Shares of the Funds are sold on each business day at the next determined net
asset value after receipt of an order 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.

DISTRIBUTION AND SHAREHOLDER SERVICES PLANS

The Trust has adopted a distribution plan in accordance with the 1940 Act's
Rule 12b-1 (the "Distribution Plan"). Under the Distribution Plan, the Trust
may pay a fee ("12b-1 Fee") to its distributor or any selling agents of the
distributor. The 12b-1 Fee is calculated daily. The Trust pays the 12b-1 Fee
quarterly, at an annual rate of 0.00% to 0.75% of the average daily net assets
of the Funds' Class C Shares. Currently, the Board has determined to assess a
12b-1 Fee equal to 0.40% of average daily net assets. The 12b-1 Fee may only
be increased if the Board concludes that it is in your best interests to do
so.

The 12b-1 Fees may be used to compensate:

. selling agents for sales support services provided and expenses incurred
with respect to Class C Shares; and

. the distributor for distribution services provided and expenses incurred
with respect to Class C Shares (including payments by the distributor to
compensate selling agents for providing support services).

The Trust has also adopted a Shareholder Services Plan (the "Services
Plan"). Under the Services Plan, the Trust may make payments to the
distributor or any investment advisers, banks, broker-dealers, financial
planners or other financial institutions that have entered into a Shareholder
Services Agreement with the distributor ("Servicing Agents"). Payments under
the Services Plan are calculated daily and paid quarterly by the Trust at an
annual rate of 0.00% to 0.25% of the average daily net assets of a Fund's
Class C Shares.

The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or a savings and loan association) from being an underwriter
or distributor of most securities. In the event that the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the administrative
capacities described above or should Congress relax current restrictions on
depository institutions, the Board will consider appropriate changes in the
services.

State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from the Glass-
Steagall Act. Therefore, banks and financial institutions may be required to
register as dealers under state law. In addition, some state securities laws
may require administrators to register as brokers and dealers.

ORDER PROCEDURES

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Federal Funds Wire. You may wire federal funds to the Custodian.

Check. Payment for orders may be made by check or other negotiable bank
draft payable to "Frank Russell Investment Company" and mailed to a Financial
Intermediary or the Transfer Agent, P.O. Box 1591, Tacoma, WA 98401-1591.
Certified checks are not necessary, but checks are accepted subject to
collection at full face value in US funds and must be drawn in US dollars on a
US bank. Investments in the Funds will be effected upon receipt of the check
or draft by the Transfer Agent, when the check or draft is received prior to
the close of the NYSE (currently 4:00 p.m. Eastern time). When the check or
draft is received by the Transfer Agent after the close of the NYSE, the order
will be effected on the next business day.

IN-KIND EXCHANGE OF SECURITIES

The Transfer Agent may, at its discretion, permit you to purchase Fund
shares by exchanging securities you currently own for Fund shares. Any
securities exchanged must: meet the investment objective; policies and
limitations of the particular Fund; have a readily ascertainable market value;
be liquid and not be subject to restrictions on resale; and have market value,
plus any cash, equal to at least $100,000.

THREE DAY SETTLEMENT PROGRAM

The Trust will accept orders from financial institutions to purchase shares
of the Fluctuating Funds for settlement on the third business day following
the receipt of an order to be paid by a federal wire if the investor has
agreed in writing to indemnify the Funds against any losses resulting from
non-receipt of payment. For further information on the Settlement Program,
contact the Trust.

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THIRD PARTY TRANSACTIONS

EXCHANGE PRIVILEGE

You may exchange shares of any Fund for shares of any other Fund, 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 Trust through another prospectus under certain conditions
and only in states where the exchange may legally be made. For additional
information, including prospectuses for other Funds, contact a Financial
Intermediary or the Trust. Exchanges may be made (i) by telephone if the
registrations of the two accounts are identical; or (ii) in writing addressed
to the Trust.

HOW TO REDEEM SHARES

If you are uncertain of the redemption requirements, you should telephone
your Financial Intermediary or the Funds at (800) 972-0700; in Washington
(253) 627-7001.

Fund shares may be redeemed on any business day at the next determined net
asset value after 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 your 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 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 made by check may be withheld for up
to 15 days after the date of purchase to assure that the check clears. Upon
request, redemption proceeds will be mailed to your address of record or to an
alternate address you designate provided the request is sent to the Transfer
Agent in proper form.

Request Procedures. Requests by investors to redeem Fund shares must be
received by the Transfer Agent on a business day, prior to the close of the
NYSE (currently 4:00 p.m. Eastern time).

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<PAGE>

Mail. Redemption requests may be made in writing directly your Financial
Intermediary or to FRIMCo, Attention: Frank Russell Investment Company,
Operations Department, P.O. Box 1591, Tacoma, WA 98401. The redemption price
will be the net asset value after receipt by FRIMCo of all required documents
in good order. "Good order" means that the request must include:

B. Any 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 you provide
on the SWP form. If you have more than one Fund from which a SWP is to be
received, you will receive one wire or check for each SWP Fund. SWP
transactions are recorded on the twenty-fifth day of each month. If the
twenty-fifth day falls on a weekend or holiday, the transaction will be
recorded on the preceding business day. SWP payment dates are the first
business day after the trade date.

Distribution Frequency. You can schedule monthly, quarterly, semiannual or
annual distribution payments.

SWP Distribution by Wire. Federal funds wire payments will be sent to a bank
you designate on the payment date.

SWP Distribution by Check. Checks will be sent on the payment date by US
Postal Service first class mail, to the address you request.

SWP Distribution by Electronic Fund Transfer. Electronic fund transfer
payments will be sent to a bank you designate bank on the payment date.

You must complete and mail a SWP form to your Financial Intermediary or to
FRIMCo, Attention: Frank Russell Investment Company, Operations Department,
P.O. Box 1591, Tacoma, WA 98401-1591. The SWP form must be received by Frank
Russell Investment Management Company five business days before the initial
distribution date.

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ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, INDEPENDENT ACCOUNTANTS, AND REPORTS

Russell Fund Distributors, Inc., a wholly owned subsidiary of FRIMCo, is the
principal distributor for Trust shares.

YEAR 2000

The services provided to the Trust and the shareholders by FRIMCo, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of their outside service
providers. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such event could have a negative impact of handling securities
trades, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that there will be no
adverse impact on the Trust, FRIMCo, the Distributor, the Transfer Agent and
the Custodian have advised the Trust that they have been actively working on
ncessary changes to their computer systems to prepare for the year 2000 and
expect that their systems, and those of their outside service providers, will
be adapted in time for that event. The obligation to make such adaptations, if
any, would be the responsibility of the service provider that maintains the
system. Therefore, the Trust does not expect to incur any material expense in
that regard.

ORGANIZATION, CAPITALIZATION, AND VOTING

The Trust is organized and operates as a Massachusetts business trust.
Russell has the right to grant (and withdraw) the nonexclusive use of the name
"Frank Russell" or any variation.

The Trustees hold office for the life of the Trust. A Trustee may resign or
retire, and a Trustee may be removed by the Trustees or by shareholders at a
special meeting.

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In addition to offering Class C Shares, the Funds also offer beneficial
interests in Class S Shares, which are described in a separate prospectus.
Class S Shares are designed to meet different investor needs and are not
subject to a Rule 12b-1 distribution fee. To obtain more information about
Class S Shares, contact your Financial Intermediary, or write or telephone the
Trust.

At March 31, 1998, the following shareholders may be deemed by the 1940 Act
to "control" the Funds listed after their names because they own more than 25%
of the voting shares of the Funds: Huntington National Bank--Diversified
Equity, Special Growth, Equity Income, Quantitative Equity, International
Securities, Real Estate Securities and Diversified Bond Funds, Class C.

MONEY MANAGER PROFILES

The money managers have no other affiliations with the Funds, FRIMCo 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 Funds
in the Trust, or to other clients of Frank Russell Company, including its
wholly owned subsidiary, Frank Russell Trust Company.

DIVERSIFIED EQUITY FUND

Alliance Capital Management L.P., First Bank Place 601 2nd Ave. South, Suite
5000, Minneapolis, MN 55402-4322, a limited partnership whose (i) general
partner is a wholly owned subsidiary of The Equitable Companies Incorporated
("The Equitable") and (ii) majority unit holder is ACM, Inc., a wholly owned
subsidiary of The Equitable. As of March 1, 1995, 60.5% of The Equitable was
owned by Axa, a French insurance holding company.

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

Equinox Capital Management, Inc., 590 Madison Avenue, 41st 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 500,
Atlanta, GA 30309, is a corporation whose indirect parent is AMVESCO, 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.

Peachtree Asset Management, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308. Peachtree is a unit of the Smith Barney Asset
Management division of Smith Barney Mutual Funds Management Inc., which is a
wholly owned subsidiary of Travelers Group Inc.

Schneider Capital Management, 460 E. Swedesford Road, Suite 1080, Wayne, PA
19807, is a SEC registered investment adviser owned by Arnold Schneider. As of
the date of this supplement, the Investment Company understands that an
injunction is being sought against Arnold Schneider in Massachusetts Middlesex
County Superior Court by partners of Wellington Management Company
("Wellington"). The proceedings were instituted on December 13, 1996. The
Investment Company believes that the injunction request seeks to prevent
Arnold Schneider from engaging in the investment advisory or investment
management business in competition with Wellington.

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<PAGE>

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.

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 an 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, is a wholly owned subsidiary of United Asset
Management Company, a publicly traded corporation.

Wellington Management Company LLP, 75 State Street, Boston, MA 02109, is a
private Massachusetts limited liability partnership, of which the following
persons are managing partners: Robert W. Doran, Duncan M. McFarland and John
R. Ryan.

EQUITY INCOME FUND

Brandywine Asset Management, Inc., Three Christina Centre, Suite 1200, 201
N. Walnut Street, Wilmington, DE 19801, is a wholly owned subsidiary of Legg
Mason, Inc.

Equinox Capital Management N.A., Inc., See: Diversified Equity Fund.

Trinity Investment Management Corporation, See: Diversified Equity Fund.

QUANTITATIVE EQUITY FUND

Barclays Global Fund Advisors, See: Diversified Equity Fund.

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<PAGE>

Franklin Portfolio Associates LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104, is a Massachusetts business trust owned by Mellon
Financial Services Corporation, a holding company of Mellon Bank Corporation.

J.P. Morgan Investment Management, Inc., 522 Fifth Ave., 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, Orion House, 5 Upper St. Martin's Lane,
London, England WC2H 9EA, is a corporation 33.3% owned by each of the
following: Jeremy Hosking, William Arah and Neil Ostrer.

Mastholm Asset Management, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue,
WA 98004, is a Washington limited liability corporation that is controlled by
the following founding members: Thomas M. Garr, Robert L. Gernstetter, Joseph
P. Jordan, Arthur M. Tyson and Theodore J. Tyson.

Oechsle International Advisors, One International Place, 23th 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.

Sanford C. Bernstein & Co., Inc., 767 Fifth Avenue, New York, NY 10153, is a
registered investment adviser. Founded in 1967, Bernstein is controlled by its
Board of Directors, which consists of the following individuals: Andrew S.
Adelson, Zalman C. Bernstein, Kevin R. Rine, Charles C. Cahn, Jr., Marilyn
Goldstein Fedak, Michael L. Goldstein, Roger Hertog, Lewis A. Sanders and
Francis H. Trainer, Jr.

The Boston Company Asset Management, Inc., One Boston Place, 14th Floor,
Boston, MA 02108-4402, is 100% owned by Mellon Bank Corporation, a publicly
held corporation.

EMERGING MARKETS FUND

Genesis Asset Managers, Ltd. 21 Knights Bridge, London,, SW1X 7LY, 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 International Ltd., is controlled 55% by
management and assorted interests, and the balance held by outside
shareholders, with the largest single holding being 15%.

J.P. Morgan Investment Management, Inc., See: Quantitative Equity Fund.

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Montgomery Asset Management, LLC, 101 California Street, San Francisco, CA
94111, is a Delaware limited liability company with majority ownership held by
Commerzbank AG, a foreign banking organization.

REAL ESTATE SECURITIES FUND

AEW Capital Management, L.P., 225 Franking Street, Boston, MA 02110-2803, is
a wholly owned affiliate of New England Investment Companies, L.P. ("NEIC").
NEIC is a publicly-held limited partnership. Metropolitan Life Insurance
Company, a publicly held corporation, owns approximately 53% of NEIC. AEW
Capital Management, Inc., a wholly-owned subsidiary of NEIC, is the general
partner, and NEIC is the sole limited partner, of AEW Capital Management, L.P.

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, is a
company 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, Trinity Hall, 43 Cedar Avenue, Hamilton HM KX,
Bermuda, is a Bermuda exempted company. William H. Williams III is the sole
shareholder.

MULTISTRATEGY BOND FUND

BEA Associates Inc., One CitiCorp. Center, 153 East 53rd Street, 58th Floor,
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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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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GLOSSARY

Agreements -- Asset Management Services Agreements, which are between FRIMCo
and institutional investors and Financial Intermediaries.

Board -- The Board of Trustees of the Trust.

Cash reserves -- The Funds may invest their cash reserves (i.e., funds
awaiting investment in the specific types of securities to be acquired by the
Funds) in money market instruments and in debt securities of comparable
quality to each Fund's permitted investments. As an alternative to a Fund
directly investing in money market instruments, the Funds and their money
managers may elect to invest the Fund's cash reserves in the Trust's Money
Market Fund. To prevent duplication of fees, FRIMCo waives its management fee
on that portion of a Fund's assets invested in the Trust's Money Market Fund.

Code -- Internal Revenue Code of 1986, as amended.

Covered put option -- A put option is "covered" if the Fund has collateral
assets with a value not less than the exercise price of the option or holds a
put option on the underlying security.

Custodian -- State Street Bank and Trust Company, the Trust's custodian and
portfolio accountant.

Depository receipts -- These include American Depository Receipts ("ADRs"),
European Depository Receipts, Global Depository Receipts, and other similar
securities convertible into securities of foreign issuers. ADRs are receipts
typically issued by a United States bank or trust company evidencing ownership
of the underlying securities. Generally, ADRs in registered form are designed
for use in US securities markets.

Distributor -- Russell Fund Distributors, Inc., the organization that sells
the shares of the Fund's under a contract with the Trust.

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Emerging market companies -- 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.

Equity derivative securities -- These include, among other instruments,
options on equity securities, warrants and futures contracts on equity
securities.

Financial Intermediary -- Bank trust departments, registered investment
advisers, broker-dealers and other Eligible Investors that have entered into
Agreements with FRIMCo

Fluctuating Funds -- The Funds offered by this Prospectus

FNMA -- Federal National Mortgage Association

Forward commitments -- Each Fund may agree 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 the transactions are
consistent with the Fund's ability to manage its portfolio and meet redemption
requests. When effecting these transactions, liquid assets of a Fund of a
dollar amount sufficient to make payment for the portfolio securities to be
purchased are segregated on the Fund's records at the trade date and
maintained until the transaction is settled.

Forward currency contracts -- This is a contract individually negotiated and
privately traded by currency traders and their customers and creates an
obligation to purchase or sell a specific currency for an agreed-upon price at
a future date. The Funds generally do not enter into forward contracts with
terms greater than one year, and they typically enter into forward contracts
only under two circumstances. First, if a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the US dollar price of the security by entering into a
forward contract to buy the amount of a foreign currency needed to settle the
transaction. Second, if the Fund's money managers believe that the currency of
a particular foreign country will substantially rise or fall against the US
dollar, the Fund may enter into a forward contract to buy or sell the currency
approximating the value of some or all of the Fund's portfolio securities
denominated in the currency. A Fund will not enter into a forward contract if,
as a result, it would have more than one-third of its assets committed to such
contracts (unless it owns the currency that it is obligated to deliver or has
caused the Custodian to segregate segregable assets having a value sufficient
to cover its obligations). Although forward contracts are used primarily to
protect a Fund from adverse currency movements, they involve the risk that
currency movements will not be accurately predicted.

FRIMCo -- Frank Russell Investment Management Company, the Trust's
administrator, manager and transfer and dividend paying agent.

Funds -- The 28 investment series of the Trust. Each Fund is considered a
separate registered investment company (or RIC) for federal income tax
purposes, and each Fund has its own investment objective, policies and
restrictions. Ten Funds are described in and offered by this Prospectus.

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<PAGE>

Futures and options on futures -- An interest rate futures contract is an
agreement to purchase or sell debt securities, usually US government
securities, at a specified date and price. For example, a Fund may sell
interest rate futures contracts (i.e., enter into a futures contract to sell
the underlying debt security) in an attempt to hedge against an anticipated
increase in interest rates and a corresponding decline in debt securities it
owns. A Fund will have collateral assets equal to the purchase price of the
portfolio securities represented by the underlying interest rate futures
contracts it has an obligation to purchase.

GNMA -- Government National Mortgage Association

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 maturing in more than seven days, that are illiquid because of the
absence of a readily available market or because of legal or contractual
resale restrictions. No Fund will invest more than 10% of its respective net
assets (taken at current value) in securities of issuers that may not be sold
to the public without registration under 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.

IRS -- Internal Revenue Service

Lending portfolio securities -- Each Fund may lend portfolio securities with
a value of up to 33 1/3% of each Fund's total assets. These 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 obligations as
collateral in an amount equal to at least 102% (for loans of US securities) or
105% (for non-US securities) of the current market value of the loaned
securities. The collateral is daily "marked-to-market," 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. If the borrower
of the securities fails 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.

Liquidity portfolio -- FRIMCo will manage or will select a money manager to
exercise investment discretion for approximately 5%-15% of 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 temporarily create an equity exposure for cash
balances until those balances are invested in securities or used for Fund
transactions.

Money Market Funds -- Money Market, US Government Money Market and Tax-Free
Money Market Funds, each a Fund of the Trust. Each Money Market Fund seeks to
maintain a stable net asset value of $1 per share.

Moody's -- Moody's Investors Service, Inc., an NRSRO

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Municipal obligations -- 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 obligations;
industrial development bonds; and variable rate obligations.

NASD -- National Association of Securities Dealers, Inc.

net asset value (NAV) -- The value of a Fund is determined by deducting the
Fund's liabilities from the total assets of the portfolio. The net asset value
per share is determined by dividing the net asset value of the Fund by the
number of its shares that are outstanding.

NRSRO -- A nationally recognized statistical rating organization, such as
S&P or Moody's

NYSE -- New York Stock Exchange

PFIC -- A passive foreign investment company. Emerging Markets Fund may
purchase interests in an issuer that is considered a PFIC under the Code.

Prime rate -- The interest rate charged by leading US banks on loans to
their most creditworthy customers

REITs -- Real estate investment trusts

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 "Illiquid Securities" in this Glossary, a Fund will
not invest more than 15% of its net assets (taken at current market value) in
repurchase agreements maturing in more than seven days.

49
<PAGE>

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 transferred security, 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. Liquid assets
of the Fund equal in value to the repurchase price, including any accrued
interest, are segregated on the Fund's records while a reverse repurchase
agreement is in effect.

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 $1 billion. 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. The
Russell 1000(R) Index is used as the basis for Quantitative Equity Fund's
performance because FRIMCo believes it 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.

Russell -- Frank Russell Company, consultant to the Trust and to the Funds

S&P -- Standard & Poor's Ratings Group, an NRSRO

S&P 500 -- Standard & Poor's 500 Composite Price Index

SAI -- The Trust's Statement of Additional Information, dated as noted on
the first page of this Prospectus.

SEC -- US Securities and Exchange Commission

Servicing Agents -- Entities who provide ongoing personal services to
shareholders of the Funds (i.e., recordkeeping). Servicing Agents perform
these services under contract with the Funds' distributor.

Shares -- The Class C Shares in the Funds. Each Class C Share of a Fund
represents a share of beneficial interest in the Fund

Transfer Agent -- FRIMCo, in its capacity as the Trust's transfer and
dividend paying agent

Trust -- Frank Russell Investment Company, an open-end management investment
company which is registered with the SEC

US -- United States

US government obligations -- These include US Treasury bills, notes, bonds
and other obligations issued or guaranteed by the US government, its agencies
or instrumentalities.

50
<PAGE>

1940 Act -- The Investment Company Act of 1940, as amended. The 1940 Act
governs the operations of the Trust and the Funds.

1933 Act -- The Securities Act of 1933, as amended.

51
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET
TACOMA, WASHINGTON 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (253) 627-7001

MONEY MANAGERS

DIVERSIFIED EQUITY DIVERSIFIED BOND
Alliance Capital Management L.P. Lincoln Capital Management Company
Pacific Investment Management
Barclays Global Fund Advisors Company
Equinox Capital Management, Inc.
INVESCO Capital Management, Inc. Standish, Ayer & Wood, Inc.

Lincoln Capital Management Company
Peachtree Asset Management VOLATILITY CONSTRAINED BOND
Schneider Capital Management BlackRock Financial Management
Suffolk Capital Management Standish, Ayer & Wood, Inc.
Trinity Investment Management Corporation STW Fixed Income Management

SPECIAL GROWTH MULTISTRATEGY BOND
Delphi Management, Inc. BEA Associates, Inc.
Fiduciary International, Inc. Pacific Investment Management
GlobeFlex Capital, L.P. Company
Jacobs Levy Equity Management, Inc. Standish, Ayer & Wood, Inc.

Sirach Capital Management, Inc.
MANAGER, TRANSFER AND
Wellington Management Company LLP DIVIDEND PAYING AGENT

EQUITY INCOME Frank Russell Investment Management
Brandywine Asset Management, Inc. Company
Equinox Capital Management, Inc. 909 A Street
Trinity Investment Management Corporation Tacoma, Washington 98402

QUANTITATIVE EQUITY CONSULTANT
Barclays Global Advisors, N.A. Frank Russell Company
Franklin Portfolio Associates LLC 909 A Street
J.P. Morgan Investment Management, Inc. Tacoma, Washington 98402

INTERNATIONAL SECURITIES DISTRIBUTOR
J.P. Morgan Investment Management, Inc. Russell Fund Distributors, Inc.
Marathon Asset Management Limited 909 A Street
Oechsle International Advisors Tacoma, Washington 98402

Rowe Price-Fleming International, Inc.
Sanford C. Bernstein & Co., Inc. INDEPENDENT ACCOUNTANTS
The Boston Company Asset Management, Inc. Coopers & Lybrand L.L.P.
One Post Office Square

EMERGING MARKETS Boston, Massachusetts 02109

Genesis Asset Managers, Ltd.
J.P. Morgan Investment Management, Inc. LEGAL COUNSEL
Montgomery Asset Management, LLC Stradley, Ronon, Stevens & Young,
LLP

REAL ESTATE SECURITIES 2600-One Commerce Square
Cohen & Steers Capital Management Philadelphia, Pennsylvania 19103-
AEW Capital Management L.P. 7098

OFFICE OF SHAREHOLDER INQUIRIES
909 A Street
Tacoma, Washington 98402
(800) RUSSELL 4
(800) 787-3754
In Washington (253) 627-7001

52
<PAGE>

INSTITUTIONAL FUNDS

FRANK RUSSELL INVESTMENT COMPANY
SUPPLEMENT DATED MAY 1, 1998
TO THE PROSPECTUS DATED MAY 1, 1998

Effective immediately, the Paragraph entitled "Schneider Capital Management"
under MONEY MANAGER PROFILES-EQUITY I FUND is revised in its entirety to read as
follows:

<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET, TACOMA, WA 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (253) 627-7001

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

Each Fund has its own investment objective and policies designed to meet
different investment goals. As with all mutual funds, attainment of each
Fund's investment objective cannot be assured.

Frank Russell Investment Management Company ("FRIMCo") operates and
administers the Funds. Class S Shares are sold at their net asset value, with
no sales load, no commissions, no Rule 12b-1 fees and no exchange fees. There
is a $10 million minimum aggregate investment in the Funds described in this
Prospectus, and investors must qualify as Eligible Investors, as described in
this Prospectus.

This Prospectus does not constitute an offer to sell securities in any state
or other jurisdiction to any person to whom it is unlawful to make such an
offer in such state or other jurisdiction.

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

PROSPECTUS DATED MAY 1, 1998
<PAGE>

TABLE OF CONTENTS

CERTAIN TERMS USED IN THIS PROSPECTUS ARE DEFINED IN THE

GLOSSARY, WHICH BEGINS ON PAGE 43 OF THIS PROSPECTUS.

<TABLE>
<S> <C>
Summary.................................................................... 3
Annual Fund Operating Expenses............................................. 4
Financial Highlights....................................................... 6
The Purpose of the Funds -- Multi-Style, Multi-Manager Diversification..... 14
Eligible Investors......................................................... 15
General Management of the Funds............................................ 16
Expenses of the Funds...................................................... 18
The Money Managers......................................................... 19
Investment Objectives, Policies and Practices.............................. 20
Portfolio Transaction Policies............................................. 30
Dividends and Distributions................................................ 31
Taxes...................................................................... 32
Performance Information.................................................... 33
How Net Asset Value Is Determined.......................................... 34
How to Purchase Shares..................................................... 35
How to Redeem Shares....................................................... 37
Additional Information..................................................... 38
Money Manager Profiles..................................................... 39
Glossary................................................................... 43
</TABLE>

2
<PAGE>

SUMMARY

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.

3
<PAGE>

The Trust's Funds had aggregate net assets of approximately $13.6 billion on
April 1, 1998. The net assets of the Funds described in this Prospectus on
April 1, 1998 were:

<TABLE>
<S> <C>
Equity I................ $1,342,186,760.20
Equity II............... $ 565,197,418.13
Equity III.............. $ 268,588,956.64
Equity Q................ $1,137,119,684.51
</TABLE>
<TABLE>
<S> <C>
International Fund...... $1,108,581,403.76
Fixed Income I.......... $ 871,239,142.81
Fixed Income II......... $ 240,672,356.85
Fixed Income III........ $ 430,057,483.03
</TABLE>

You may buy and sell Class S Shares of the Fund through an authorized
Financial Intermediary. All Class S Shares are sold without a sales charge,
commission, or Rule 12b-1 fee. Except as indicated below, Class S Shares are
redeemed at net asset value. You may also exchange shares of one Fund for
shares of another Fund. See "How to Purchase Shares" and "How to Redeem
Shares."

You should be aware of the general risks associated with investments in
mutual funds. One or more Funds may make investments and engage in investment
practices and techniques that involve risks, including entering into
repurchase agreements, lending portfolio securities and entering into hedging
transactions. Also, foreign securities in which International Fund may invest
may be subject to certain risks in addition to those inherent in US
investments. These risks are described in "Risk Considerations" in "Investment
Objectives, Policies and Practices" and in the Glossary.

SHAREHOLDER TRANSACTION EXPENSES

You would pay the following charges when buying or redeeming Class S Shares
of a Fund:

<TABLE>
<CAPTION>
MAXIMUM SALES MAXIMUM SALES
LOAD IMPOSED LOAD IMPOSED ON DEFERRED REDEMPTION EXCHANGE
ON PURCHASES REINVESTED DIVIDENDS SALES LOAD* FEES FEES
- ------------- -------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
None None None None None
</TABLE>
- ---------------------
* If you purchase shares of any of the Funds, you may pay a quarterly
shareholder investment services fee ("Services Fee") directly to FRIMCo
pursuant to a separate asset management agreement between you and FRIMCo.
The fee is calculated as a percentage of the amount you have invested in the
Funds.

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

<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER OPERATING
FEE EXPENSES EXPENSES+
---------- -------- ----------
<S> <C> <C> <C>
Equity I Fund.................................... 0.60% 0.10% 0.70%
Equity II Fund................................... 0.75% 0.17% 0.92%
Equity III Fund.................................. 0.60% 0.18% 0.78%
Equity Q Fund.................................... 0.60% 0.08% 0.68%
International Fund............................... 0.75% 0.25% 1.00%
Fixed Income I Fund.............................. 0.30% 0.12% 0.42%
Fixed Income II Fund............................. 0.50% 0.16% 0.66%
Fixed Income III Fund............................ 0.55% 0.15% 0.70%
</TABLE>
- ---------------------

These tables are intended to assist you in understanding the various
expenses of each Fund. Operating expenses are paid out of a Fund's assets and
are factored into the Fund's share price. Each Fund estimates that it will
have the expenses listed (expressed as a percentage of average net assets) for
the current fiscal year.

4
<PAGE>

EXAMPLE OF EXPENSES FOR THE FUNDS

Assume that each Fund's annual return is 5% and that its operating expenses
are as described above, and that you sell your shares after the number of
years shown. These are projected expenses for each $1000 that you invest:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity I Fund................................... $ 7 $22 $39 $ 88
Equity II Fund.................................. $ 9 $28 $51 $116
Equity III Fund................................. $ 8 $24 $43 $ 98
Equity Q Fund................................... $ 7 $21 $38 $ 86
International Fund.............................. $10 $30 $55 $125
Fixed Income I Fund............................. $ 4 $13 $23 $ 53
Fixed Income II Fund............................ $ 7 $20 $36 $ 83
Fixed Income III Fund........................... $ 7 $22 $39 $ 89
</TABLE>

5
<PAGE>

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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

EQUITY I FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR........... $ 30.34 $ 28.00 $ 23.32 $ 24.91 $ 25.00 $ 25.17 $ 21.13 $ 25.39 $ 22.20 $ 20.18
--------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. .34 .42 .52 .62 .60 .61 .75 .91 .88 .81
Net realized and
unrealized gain (loss)
on investments........ 8.89 5.96 7.71 (.41) 2.18 1.54 5.61 (2.37) 5.79 2.46
--------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations........... 9.23 6.38 8.23 .21 2.78 2.15 6.36 (1.46) 6.67 3.27
--------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income.. (.34) (.42) (.52) (.62) (.60) (.62) (.75) (.90) (1.01) (.77)
Net realized gain on
investments........... (8.72) (3.62) (3.03) (.94) (2.11) (1.70) (1.57) (1.90) (2.47) (.48)
In excess of net real-
ized gain on invest-
ments................. -- -- -- (.24) (.16) -- -- -- -- --
--------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions... (9.06) (4.04) (3.55) (1.80) (2.87) (2.32) (2.32) (2.80) (3.48) (1.25)
--------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
YEAR................... $ 30.51 $ 30.34 $ 28.00 $ 23.32 $ 24.91 $ 25.00 $ 25.17 $ 21.13 $ 25.39 $ 22.20
========= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(a)..... 32.02 23.58 35.94 .79 11.61 9.02 31.22 (5.64) 30.79 16.42
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net
assets(a)............. .70 .71 .59 .12 .14 .15 .19 .23 .18 .17
Net investment income
to average net
assets(a)............. .96 1.38 1.91 2.52 2.36 2.53 3.14 3.66 3.41 3.68
Portfolio turnover..... 110.75 99.51 92.04 75.02 91.87 71.14 119.55 101.30 61.27 67.59
Net assets, end of year
($000 omitted)........ 1,136,373 961,953 751,497 547,242 514,356 410,170 330,507 221,543 300,814 243,691
Average commission rate
paid per share of
security
($ omitted)........... .0511 .0464 N/A N/A N/A N/A N/A N/A N/A N/A
</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 Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

6
<PAGE>

FINANCIAL HIGHLIGHTS OF THE EQUITY II FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

EQUITY II FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR........... $ 30.05 $ 28.88 $ 25.00 $ 26.58 $ 27.71 $ 26.32 $ 19.24 $23.32 $22.50 $19.99
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. .11 .16 .27 .36 .32 .30 .41 .51 .61 .52
Net realized and
unrealized gain (loss)
on investments........ 8.11 4.96 6.80 (.86) 3.97 3.13 7.65 (3.91) 4.74 2.51
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total From Investment
Operations........... 8.22 5.12 7.07 (.50) 4.29 3.43 8.06 (3.40) 5.35 3.03
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income.. (.11) (.16) (.29) (.31) (.31) (.30) (.41) (.50) (.71) (.52)
Net realized gain on
investments........... (5.20) (3.79) (2.90) (.21) (4.72) (1.74) (.57) (.18) (3.82) --
In excess of net real-
ized gain on invest-
ments................. -- -- -- (.56) (.39) -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total Distributions... (5.31) (3.95) (3.19) (1.08) (5.42) (2.04) (.98) (.68) (4.53) (.52)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
NET ASSET VALUE, END OF
YEAR................... $ 32.96 $ 30.05 $ 28.88 $ 25.00 $ 26.58 $ 27.71 $ 26.32 $19.24 $23.32 $22.50
======= ======= ======= ======= ======= ======= ======= ====== ====== ======
TOTAL RETURN (%)(a)..... 28.66 18.51 28.67 (2.60) 16.70 13.31 42.40 (14.76) 24.63 15.22
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets
(a)................... .92 .95 .83 .23 .34 .32 .37 .48 .41 .35
Net investment income
to average net assets
(a)................... .35 .52 .97 1.46 1.14 1.10 1.79 2.40 2.45 2.40
Portfolio turnover..... 103.00 120.78 89.31 58.04 87.25 43.33 42.16 80.27 77.55 56.38
Net assets, end of year
($000 omitted)........ 482,159 365,955 279,566 202,977 171,421 120,789 101,206 60,668 70,588 63,903
Average commission rate
paid per share of
security ($ omitted).. .0390 .0381 N/A N/A N/A N/A N/A N/A N/A N/A
</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 Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

7
<PAGE>

FINANCIAL HIGHLIGHTS OF THE EQUITY III FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

EQUITY III FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR........... $ 29.68 $ 29.11 $ 24.18 $ 27.05 $ 26.75 $ 27.08 $ 23.30 $26.49 $ 24.03 $ 20.74
------- ------- ------- ------- ------- ------- ------- ------ ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. .60 .70 .82 .93 .89 .98 1.08 1.33 1.26 1.15
Net realized and
unrealized gain (loss)
on investments........ 8.69 5.10 7.73 (.85) 2.99 2.24 5.21 (2.85) 5.35 3.40
------- ------- ------- ------- ------- ------- ------- ------ ------- -------
Total From Investment
Operations........... 9.29 5.80 8.55 .08 3.88 3.22 6.29 (1.52) 6.61 4.55
------- ------- ------- ------- ------- ------- ------- ------ ------- -------
LESS DISTRIBUTIONS:
Net investment income.. (.60) (.71) (.83) (.91) (.90) (.99) (1.07) (1.30) (1.40) (1.14)
In excess of net
investment income..... (.01) -- -- -- -- -- -- -- -- --
Net realized gain on
investments........... (8.56) (4.52) (2.79) (1.94) (2.68) (2.56) (1.44) (.37) (2.75) (.12)
In excess of net real-
ized gain on invest-
ments................. -- -- -- (.10) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------ ------- -------
Total Distributions... (9.17) (5.23) (3.62) (2.95) (3.58) (3.55) (2.51) (1.67) (4.15) (1.26)
------- ------- ------- ------- ------- ------- ------- ------ ------- -------
NET ASSET VALUE, END OF
YEAR................... $ 29.80 $ 29.68 $ 29.11 $ 24.18 $ 27.05 $ 26.75 $ 27.08 $23.30 $ 26.49 $ 24.03
======= ======= ======= ======= ======= ======= ======= ====== ======= =======
TOTAL RETURN (%)(a)..... 33.13 20.90 35.96 1.16 14.95 12.30 27.86 (5.73) 28.07 22.19
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets
(a)................... .78 .79 .65 .17 .16 .20 .25 .27 .23 .20
Net investment income
to average net assets
(a)................... 1.77 2.23 2.90 3.39 3.09 3.57 4.05 4.91 4.58 4.96
Portfolio turnover..... 128.86 100.78 103.40 85.92 76.77 84.56 56.99 65.74 83.13 57.28
Net assets, end of year
($000 omitted)........ 242,112 221,778 222,541 177,807 181,630 166,782 138,076 94,087 135,245 106,695
Average commission rate
paid per share of
security ($ omitted).. .0415 .0447 N/A N/A N/A N/A N/A N/A N/A N/A
</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 Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

8
<PAGE>

FINANCIAL HIGHLIGHTS OF THE EQUITY Q FUND*

EQUITY Q FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR........... $ 32.94 $ 30.40 $ 24.43 $ 26.03 $ 25.23 $ 24.90 $ 20.20 $ 22.45 $ 18.85 $16.67
------- ------- ------- ------- ------- ------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. .44 .58 .59 .69 .66 .67 .75 .81 .78 .69
INCOME
Net realized and
unrealized gain (loss)
on investments........ 10.01 6.33 8.52 (.41) 2.71 1.73 5.58 (1.89) 4.26 2.15
------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Total income from
Investment
Operations........... 10.45 6.91 9.11 .28 3.37 2.40 6.33 (1.08) 5.04 2.84
------- ------- ------- ------- ------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS:
Net investment income.. (.44) (.58) (.61) (.69) (.66) (.68) (.75) (.79) (.86) (.66)
In excess of net
investment income..... -- (.01) -- -- -- -- -- -- -- --
Net realized gain on
investments........... (7.05) (3.78) (2.53) (.97) (1.85) (1.39) (.88) (.38) (.58) --
In excess of net real-
ized gain on invest-
ments................. -- -- -- (.22) (.06) -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Total Distributions... (7.49) (4.37) (3.14) (1.88) (2.57) (2.07) (1.63) (1.17) (1.44) (.66)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------
NET ASSET VALUE, END OF
YEAR................... $ 35.90 $ 32.94 $ 30.40 $ 24.43 $ 26.03 $ 25.23 24.90 $ 20.20 $ 22.45 $18.85
======= ======= ======= ======= ======= ======= ======= ======= ======= ======
TOTAL RETURN (%)(a)(b).. 33.07 23.67 37.91 .99 13.80 9.97 32.14 (4.81) 27.10 17.16
RATIOS (%) SUPPLEMENTAL
DATA:
Operating expenses to
average net assets
(b)(c)................ .68 .71 .58 .11 .15 .18 .23 .31 .33 .33
Net investment income
to average net assets
(b)(c)................ 1.17 1.80 2.07 2.74 2.50 2.80 3.23 3.70 3.68 3.82
Portfolio turnover
(c)................... 94.89 74.59 74.00 45.87 54.69 58.35 51.37 66.51 88.03 52.21
Net assets, end of year
($000 omitted)........ 987,760 818,281 620,259 430,661 382,939 290,357 215,779 133,869 129,680 89,320
Average commission rate
paid per share of
security ($ omitted).. .0350 .0332 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- ---------------------
(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 Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

9
<PAGE>

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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

INTERNATIONAL FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR...... $ 37.39 $ 36.26 $ 34.28 $ 37.34 $ 28.92 $ 31.96 $ 29.18 $ 38.52 $ 35.44 $ 35.50
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. .46 .44 .48 .61 .58 .67 .73 1.23 .85 .95
Net realized and
unrealized gain (loss)
on investments(a)..... (.28) 2.41 3.16 .65 9.63 (2.62) 3.16 (7.27) 7.46 5.77
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Income From
Investment
Operations........... .18 2.85 3.64 1.26 10.21 (1.95) 3.89 (6.04) 8.31 6.72
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income.. (.37) (.35) (.64) (.36) (.57) (.67) (.80) (1.19) (1.02) (1.11)
In excess of net
investment income..... (.18) -- (.08) -- (.16) -- -- -- -- --"
Net realized gain on
investments........... (1.95) (1.37) (.94) (3.73) (1.06) (.42) (.31) (2.11) (4.21) (5.67)
In excess of net
realized gain on
investments........... (.47) -- -- (.23) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions... (2.97) (1.72) (1.66) (4.32) (1.79) (1.09) (1.11) (3.30) (5.23) (6.78)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
YEAR................... $ 34.60 $ 37.39 $ 36.26 $ 34.28 $ 37.34 $ 28.92 $ 31.96 $ 29.18 $ 38.52 $ 35.44
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(b)..... .58 7.98 10.71 5.38 35.56 (6.11) 13.47 (15.94) 24.06 20.13
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses,
net, to average net
assets(b)............. 1.00 1.04 .88 .32 .39 .45 .48 .50 .44 .45
Operating expenses,
gross, to average net
assets(b)............. 1.00 1.05 .89 .34 .41 .46 .48 .50 .44 .45
Net investment income
to average net
assets(b)............. 1.14 1.20 1.41 1.63 1.83 2.46 2.61 3.14 2.38 2.52
Portfolio turnover..... 79.45 42.69 36.78 71.09 62.04 48.99 53.13 78.30 53.49 51.17
Net assets, end of year
($000 omitted)........ 972,735 944,380 796,777 674,180 562,497 348,869 252,828 171,613 186,742 149,064
</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%.
(c) In certain foreign markets the relationship between the translated US
dollar price per share and commission paid per share may vary from that of
domestic markets.
* See the notes to financial statements which appear in Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

10
<PAGE>

FINANCIAL HIGHLIGHTS OF THE FIXED INCOME I FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

FIXED INCOME I FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR........... $ 20.99 $ 21.59 $ 19.59 $ 21.74 $ 21.61 $ 22.29 $ 20.86 $ 20.91 $ 20.50 $ 20.48
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 1.37 1.38 1.42 1.46 1.50 1.63 1.71 1.77 1.93 1.73
Net realized and
unrealized gain (loss)
on investments........ .54 (.62) 2.02 (2.06) .72 (.07) 1.49 (.05) .71 .01
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations........... 1.91 .76 3.44 (.60) 2.22 1.56 3.20 1.72 2.64 1.74
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income.. (1.39) (1.36) (1.44) (1.44) (1.50) (1.62) (1.69) (1.77) (1.92) (1.72)
In excess of net
investment income..... -- -- -- -- (.01) -- -- -- -- --
Net realized gain on
investments........... -- -- -- -- (.58) (.62) (.08) -- (.31) --
In excess of net
realized gain on
investments........... -- -- -- (.11) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions... (1.39) (1.36) (1.44) (1.55) (2.09) (2.24) (1.77) (1.77) (2.23) (1.72)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
YEAR................... $ 21.51 $ 20.99 $ 21.59 $ 19.59 $ 21.74 $ 21.61 $ 22.29 $ 20.86 $ 20.91 $ 20.50
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%)(a)..... 9.42 3.75 18.03 (2.97) 10.46 7.26 16.01 8.60 13.35 8.76
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets
(a)................... .42 .42 .35 .10 .09 .10 .10 .11 .12 .13
Net investment income
to average net assets
(a)................... 6.54 6.57 6.82 7.06 6.71 7.45 8.08 8.70 8.96 8.28
Portfolio turnover..... 165.81 147.31 138.05 173.97 173.27 211.26 121.91 114.15 196.18 186.54
Net assets, end of year
($000 omitted)........ 798,252 662,899 638,317 496,038 533,696 530,857 458,201 329,091 297,721 223,216
</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 Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

11
<PAGE>

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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

FIXED INCOME II FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR........... $ 18.36 $ 18.55 $ 17.98 $ 18.99 $ 18.56 $ 19.68 $ 18.94 $ 18.69 $18.51 $18.63
------- ------- ------- ------- ------- ------- ------- ------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 1.08 1.04 1.16 1.21 .84 1.35 1.52 1.53 1.69 1.61
Net realized and
unrealized gain (loss)
on investments........ -- .19 .59 (1.07) .44 (.83) .72 .23 .27 (.12)
------- ------- ------- ------- ------- ------- ------- ------- ------ ------
Total From Investment
Operations........... 1.08 .85 1.75 .14 1.28 .52 2.24 1.76 1.96 1.49
------- ------- ------- ------- ------- ------- ------- ------- ------ ------
LESS DISTRIBUTIONS:
Net investment income.. (1.09) (1.04) (1.18) (1.15) (.71) (1.36) (1.50) (1.51) (1.78) (1.61)
Net realized gain on
investments........... -- -- -- -- -- (.28) -- -- -- --
Tax return of capital.. -- -- -- -- (.14) -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------ ------
Total Distributions... (1.09) (1.04) (1.18) (1.15) (.85) (1.64) (1.50) (1.51) (1.78) (1.61)
------- ------- ------- ------- ------- ------- ------- ------- ------ ------
NET ASSET VALUE, END OF
YEAR................... $ 18.35 $ 18.36 $ 18.55 $ 17.98 $ 18.99 $ 18.56 $ 19.68 $ 18.94 $18.69 $18.51
======= ======= ======= ======= ======= ======= ======= ======= ====== ======
TOTAL RETURN (%)(a)..... 6.02 4.76 9.95 .82 6.98 2.74 12.31 9.71 10.99 8.20
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets
(a)................... .66 .70 .58 .19 .16 .19 .13 .15 .17 .13
Net investment income
to average net assets
(a)................... 5.70 5.70 6.41 6.52 6.16 7.21 8.06 8.45 8.97 8.56
Portfolio turnover..... 213.14 264.40 269.31 233.75 229.07 330.58 188.30 184.38 320.16 217.58
Net assets, end of year
($000 omitted)........ 229,470 222,983 183,577 144,030 138,619 182,735 156,685 119,853 83,313 86,052
</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 Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

12
<PAGE>

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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

FIXED INCOME III FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993++
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR......................... $ 10.17 $ 10.34 $ 9.37 $ 10.44 $ 10.00
------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERA-
TIONS:
Net investment income........ .63 .64 .67 .66 .49
Net realized and unrealized
gain (loss) on investments.. .32 (.16) .97 (1.07) .52
------- -------- -------- -------- --------
Total From Investment Opera-
tions...................... .95 .48 1.64 (.41) 1.01
------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income........ (.62) (.64) (.67) (.66) (.48)
In excess of net investment
income...................... (.02) (.01) -- -- --
Net realized gain on invest-
ments....................... (.06) -- -- -- (.08)
In excess of net realized
gain on investments......... -- -- -- -- (.01)
------- -------- -------- -------- --------
Total Distributions......... (.70) (.65) (.67) (.66) (.57)
------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR.. $ 10.42 $ 10.17 $ 10.34 $ 9.37 $ 10.44
======= ======== ======== ======== ========
TOTAL RETURN (%)(a)(C)........ 9.64 4.88 17.99 (3.89) 10.22
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets (b)(c)... .70 .73 .61 .20 .20
Operating expenses, gross, to
average net assets (b)(c)... .70 .73 .61 .20 .40
Net investment income to av-
erage net assets (b)........ 6.13 6.32 6.83 7.02 6.30
Portfolio turnover (b)....... 274.84 144.26 141.37 134.11 181.86
Net assets, end of year ($000
omitted).................... 382,433 292,077 252,465 166,620 124,234
</TABLE>
- ---------------------
++ For the period January 29, 1993 (commencement of operations) to December
31, 1993.
(a) Periods less than one year are not annualized.
(b) 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 Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

13
<PAGE>

THE PURPOSE OF THE FUNDS -- MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION

Three functions form the core of Russell's consulting services:

. Objective Setting: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.

When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.

14
<PAGE>

investment styles within an asset class, investors are better able to reduce
their exposure to any one investment style going out of favor.

ELIGIBLE INVESTORS

Shares of the Funds are currently offered only to Eligible Investors.
Eligible Investors include:

. Institutions or individuals who have acquired shares through
institutional investors and Financial Intermediaries.

The initial minimum aggregate investment in any combination of the Funds
described in this Prospectus is $10 million. You may be eligible to purchase
shares of these Funds if you do not meet the required initial minimum
investment. FRIMCo at its discretion may waive the initial minimum investment
for some employee benefit plans and other plans or if the requirements are met
for a combined purchase privilege, cumulative quantity discount or statement
of intention. You should consult your Financial Intermediary for details.

The initial minimum aggregate investment in any combination of the Funds
described in this Prospectus is $10 million.

The Funds do not generally offer their shares directly to individual (i.e.,
retail) investors, although they may choose to do so. Financial Intermediaries
that have entered into Agreements with FRIMCo may acquire shares of the Funds
for their customers. Under the Agreements, FRIMCo provides objective-setting
and asset-allocation assistance and services to Financial Intermediaries,
which in turn provide similar services to their customers. Financial
Intermediaries receive no compensation from FRIMCo or Class S Shares of the
Funds. However, Financial Intermediaries may charge their customers a fee for
providing these services and other trust or investment-related services.

Each Agreement with respect to the Funds provides that a shareholder
investment services fee (the "Services Fee") may be paid to FRIMCo. The
Services Fee is usually expressed as a percentage of the client's assets
invested in the Funds. The Services Fee may include a fixed-dollar fee for
certain specific services. The client and FRIMCo agree to the Services Fee,
which is determined by the amount of assets the client expects to invest in
the Funds, the nature and extent of services that FRIMCo agrees to provide to
the client, and other factors.

Either the client or FRIMCo may terminate an Agreement upon written notice.
FRIMCo does not anticipate terminating any Agreement unless a client does not
(i) promptly pay fees due to FRIMCo, or (ii) invest sufficient assets in the
Trust's Funds to compensate FRIMCo for its services. If an Agreement is
terminated, FRIMCo will no longer provide asset-allocation, objective-setting
or other services to the client.

15
<PAGE>

GENERAL MANAGEMENT OF THE FUNDS

FRIMCo:

. provides or supervises the general management and administration,
investment advisory and portfolio management, and distribution services
for the Funds;

. develops the investment programs, selects money managers, allocates
assets among money managers and monitors the money managers' investment
programs and results;

. manages, or hires money managers to manage, the Liquidity Portfolio; and

. provides the Funds with transfer agent, dividend disbursing and
shareholder recordkeeping services.

FRIMCo's officers and employees who oversee the money managers are:

. Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
1989.

. Mark D. Amberson, who has been a Portfolio Manager of FRIMCo since January
1998. From 1991 to 1997, Mr. Amberson was a Portfolio Manager in Russell's
Money Market Trading Group. Mr. Amberson, jointly with another portfolio
manager identified herein, has primary responsibility for management of
the Fixed I, Diversified Bond, Fixed II, Volatility Constrained Bond,
Fixed III, and Multistrategy Bond Funds.

. Randal C. Burge, who has been a Portfolio Manager of FRIMCo since 1995.
From 1990 to 1995, Mr. Burge was a Client Executive for Frank Russell
Australia. Mr. Burge, jointly with another portfolio manager identified
herein, has primary responsibility for management of the Fixed I, Fixed
II, Fixed III, Diversified Bond, Volatility Constrained Bond,
Multistrategy Bond, and Emerging Markets Funds.

. Ann Duncan, who has been a Portfolio Manager of FRIMCo since January 1998.
From 1996 to 1997, Ms. Duncan was a Senior Equity Research Analyst with
Russell. From 1992 to 1995, Ms. Duncan was an equity analyst and portfolio
manager with Avatar Associates. Ms. Duncan, jointly with another portfolio
manager identified herein, has primary responsibility for management of
the International, and International Securities Funds.

16
<PAGE>

. James M. Imhof, Manager of FRIMCo's Portfolio Trading, manages the Trust
on a day to day basis and has been responsible for ongoing analysis and
monitoring of the money managers since 1989.

. James A. Jornlin, who has been a Senior Investment Officer of FRIMCo since
April 1995. From 1991 to March 1995, Mr. Jornlin was employed as a Senior
Research Analyst with Russell. Mr. Jornlin, jointly with another portfolio
manager identified herein, has primary responsibility for management of
the Emerging Markets and Real Estate Securities Funds.

. Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of US Equity
Manager Research Department. Mr. Trittin, jointly with another portfolio
manager identified herein, has primary responsibility for management of
the Equity I, Equity II, Equity III, Equity Q, Equity T, Diversified
Equity, Quantitative Equity, Special Growth, and Equity Income Funds.

. C. Nola Williams, who has been a Portfolio Manager of FRIMCo since January
1996. From 1994 to 1995, Ms. Williams was a member of the Alpha Strategy
Group. From 1988 to 1994, Ms. Williams was Senior Research Analyst with
Russell. Ms. Williams, jointly with another portfolio manager identified
herein, has primary responsibility for management of the Equity I, Equity
II, Equity III, Equity Q, Equity T, Diversified Equity, Quantitative
Equity, Special Growth, and Equity Income Funds.

17
<PAGE>

EXPENSES OF THE FUNDS

. the management, transfer agent, and recordkeeping fees payable to FRIMCo;

. fees for custody, preparing tax records, and portfolio accounting,
payable to the Custodian;

. fees for independent auditing and legal services; and

. filing and registration fees payable to the SEC.

18
<PAGE>

THE MONEY MANAGERS

From its management fees, FRIMCo, as the Trust's agent, pays 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 average of
all assets allocated to the manager for the quarter. For the year ended
December 31, 1997, management fees paid to the money managers were equivalent
to the following annual rates, expressed as a percentage of each Fund's
average daily net assets: Equity I Fund, 0.23%; Equity II Fund, 0.40%; Equity
III Fund, 0.19%; Equity Q Fund, 0.19%; International Fund, 0.39%; Fixed Income
I Fund, 0.08%; Fixed Income II Fund, 0.17%; and Fixed Income III Fund, 0.21%.

Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund. At the same time, however, each money
manager must operate within the Fund's investment objectives, restrictions and
policies and the more specific strategies developed by FRIMCo. Although the
money managers' activities are subject to general oversight by the Board and
the Trust's officers, neither the Board, the officers, FRIMCo nor Russell
evaluate the investment merits of the money managers' individual security
selections.

19
<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND PRACTICES

SUMMARY COMPARISON OF THE FUNDS

<TABLE>
<CAPTION>
ANTICIPATED MAXIMUM
EQUITY DEBT
FUND EXPOSURE EXPOSURE FOCUS
---- ----------- -------- -----
<S> <C> <C> <C>
Equity I Fund...................... 65-100% 35% Total return
Equity II Fund..................... 65-100% 35% Maximum total return
Equity III Fund.................... 65-100% 35% Current income
Equity Q Fund...................... 100% -- Total return
International Fund................. 65-100% 35% Total return
Fixed Income I..................... 35% 65-100% Diversification
Fixed Income II Fund............... 35% 65-100% Preservation of capital
Fixed Income III Fund.............. -- 100% Maximum total return
</TABLE>

INVESTMENT OBJECTIVES

EQUITY I FUND

Equity I Fund's objective is to provide income and capital growth by
investing principally in equity securities. Equity I Fund may invest in common
and preferred stocks, convertible securities, rights and warrants.

EQUITY II FUND

Equity II Fund's objective is to maximize total return primarily through
capital appreciation and by assuming a higher level of volatility than Equity
I Fund. Equity II Fund seeks to achieve its objective by investing in equity
securities.

20
<PAGE>

been publicly traded for less than five years and smaller companies (i.e.,
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 or companies characterized as "special situations."
"Emerging growth-type" companies tend to reinvest most of their earnings,
rather than pay significant cash dividends. "Special situation" companies are
those which the money managers believe present opportunities for capital
growth because of cyclical developments in the securities markets, the
industry, or the issuer.

EQUITY III FUND

Equity III Fund's objective is to achieve a high level of current income,
while maintaining the potential for capital appreciation. Equity III Fund
seeks to achieve its objective 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 delivered by Funds such as Equity
II Fund whose major objective is appreciation, although FRIMCO 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.

EQUITY Q FUND

Equity Q 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. Equity Q Fund seeks to achieve its
objectives by investing in equity securities.

The Fund's portfolio will be structured similarly to the Russell Index, as
the Fund will maintain industry weights and economic sector weights near those
of the Index. As a result, the Fund's money managers generally select stocks
from the set of stocks comprising 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 to meet the Fund's investment
objectives. The money managers anticipate that the Fund's average
price/earnings ratio, yield and other fundamental characteristics will be near
the averages of the Russell Index.

The money managers of the Fund will seek to achieve the Fund's objectives by
using various quantitative management techniques in selecting investments. A
quantitative manager bases its investment decisions primarily on quantitative
investment models. Money managers use these models to determine the investment
potential of a particular portfolio security and to rank securities based upon
their ability to outperform 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 construct a portfolio that has superior return
prospects with risks similar to the Russell 1000(R) Index. FRIMCo believes
quantitative management over a market cycle should provide consistent
performance, diversification, market-like volatility and limited market under
performance. However, there is no guarantee that the Fund will have these
characteristics at any one time.

The Fund will attempt to be fully invested in common stock at all times.
However, the Fund is permitted to hold up to 20% of Fund assets in liquid
investments to meet redemption requests.

21
<PAGE>

INTERNATIONAL FUND

International Fund's objectives are to provide favorable total return and
additional diversification for US investors. International Fund attempts to
achieve its objectives by investing primarily in equity and fixed-income
securities of foreign companies, and securities issued by foreign governments.
The Fund invests primarily in equity securities of companies domiciled outside
the United States. The Fund may also invest in US companies which derive, or
are expected to derive, a substantial portion of their revenues from
operations outside the United States.

FIXED INCOME I FUND

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 commercial paper issuers and institutional
lenders, such as the Fund.) Money managers will select investments based on
fundamental economic and market factors. Money managers will evaluate
potential investments by sector, maturity, quality and other criteria. 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; A or Prime-2 by Moody's; or, if unrated, judged
by the money managers to be of at least equal credit quality to those
designations.

FIXED INCOME II FUND

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

Although the Fund will invest primarily in debt securities denominated in
the US dollar, the money managers will actively manage the Fund's portfolio in
accordance with a multi-market investment strategy. Accordingly, the money
managers will allocate the Fund's investments among securities denominated in
the currencies of the United States and selected foreign countries. The Fund
may also invest in high-quality, foreign 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

22
<PAGE>

US dollar. Money managers of the Fund will consider fundamental economic
strength, credit quality and interest rate trends in determining whether to
increase or decrease the emphasis placed upon a particular type of security or
industry sector. The Fund will not invest more than 10% of its total assets in
debt securities denominated in a single foreign currency, and FRIMCo currently
intends to limit total investments in non-US dollar securities to no more than
25% of the Fund's total assets.

The Fund intends to use interest rate swaps as a hedge and not as a
speculative investment. For more information on risks, see "Risk
Considerations."

FIXED INCOME III FUND

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. Fixed Income III Fund seeks to achieve its objective 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; bank instruments; repurchase agreements and reverse
repurchase agreements; and foreign currency exchange related securities.

23
<PAGE>

FUND INVESTMENT SECURITIES

Commercial Paper

Fixed Income II and Fixed Income III Funds may invest in commercial paper.
Commercial paper represents a debt obligation of a company which is unsecured.
Fixed Income II and Fixed Income III Funds will invest in commercial paper
which is 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.; or TBW-1 or TBW-2 by Thomson Bank Watch, Inc. Fixed Income II and Fixed
Income III Funds may also invest in commercial paper which is not rated if it
is issued by US or foreign companies which the money managers conclude are of
high-quality and have outstanding debt securities which are rated AAA, AA or A
by S&P; or Aaa, Aa or A by Moody's.

DEBT SECURITIES

The Funds may purchase debt securities that complement their respective
investment objectives. The Funds, except Fixed Income III Fund, do not invest
in debt 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 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 Fixed Income III Fund, will
sell securities whose ratings drop below these minimum ratings, in a prudent
manner as determined by the money managers. The market value of debt
securities generally varies inversely with interest rates.

EQUITY SECURITIES

Equity I, Equity II, Equity III, Equity Q and International Funds invest
primarily in equity securities. Equity I, Equity II, Equity III and Equity Q
Funds may invest in common stock equivalents. The following constitute common
stock equivalents: rights and warrants and convertible securities. Common
stock equivalents may be converted into or provide the holder with the right
to common stock. Equity I, Equity II, Equity III and Equity Q Funds may also
invest in other types of equity securities, including preferred stocks.

INTEREST RATE SWAPS

Fixed Income II and Fixed Income III Funds may enter into interest rate
swaps. When a Fund engages in an interest rate swap, it exchanges its
obligations to pay or rights to receive interest payments for the obligations
or rights to receive interest payments of another party (i.e., an exchange of
floating rate payments for fixed rate payments). The Funds expect to enter
into these transactions primarily to preserve a return or spread on a
particular investment or portion of their portfolios or to protect against any
increase in the price of securities they anticipate purchasing at a later
date.

INVESTMENT COMPANY SECURITIES

24
<PAGE>

incur tax liability to the extent it invests in the stock of a foreign issuer
that is a "passive foreign investment company" ("PFIC"), regardless of whether
the PFIC makes distributions to the Fund. See "Taxes" in this Prospectus and
in the SAI.

OTHER DEBT SECURITIES

Fixed Income II and Fixed Income III Funds may invest in debt securities
issued by supranational organizations such as:

The World Bank -- An international bank which was chartered to finance
development projects in developing member countries.

The European Economic Community -- An organization which consists of
certain European states engaged in cooperative economic activities.

The European Coal and Steel Community -- An economic union of various
European nations' steel and coal industries.

The Asian Development Bank -- An international development bank
established to lend funds, promote investment and provide technical
assistance to member nations in the Asian and Pacific regions.

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

US GOVERNMENT OBLIGATIONS

25
<PAGE>

The following table illustrates the investments that the Funds primarily
invest in or are permitted to invest in:

<TABLE>
<CAPTION>
FIXED FIXED FIXED
TYPE OF PORTFOLIO EQUITY I EQUITY II EQUITY III EQUITY Q INTERNATIONAL INCOME I INCOME II INCOME III
SECURITY FUND FUND FUND FUND FUND FUND FUND FUND
----------------- -------- --------- ---------- -------- ------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stocks........... X X X X X
Common stock equivalents
(warrants)............. X X X X X
Common stock equivalents
(options).............. X X X X X
Common stock equivalents
(convertible debt
securities)............ X X X X
Common stock equivalents
(depository receipts).. X
Preferred stocks........ X X X X X
Equity derivative
securities............. X X X X X
Debt securities (below
investment grade or
junk bonds)............ X
US government
securities............. X X X X X X X X
Municipal obligations... X
Investment company
securities............. X X X X X X X X
Foreign securities...... X X
</TABLE>

26
<PAGE>

OTHER INVESTMENT PRACTICES

<TABLE>
<CAPTION>
FIXED FIXED FIXED
EQUITY I EQUITY II EQUITY III EQUITY Q INTERNATIONAL INCOME I INCOME II INCOME III
TYPE OF PRACTICE FUND FUND FUND FUND FUND FUND FUND FUND
---------------- -------- --------- ---------- -------- ------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash reserves........... X X X X X X X X
Repurchase
agreements(1).......... X X X X X X X X
When-issued and forward
commitment securities.. X X X X X X X X
Reverse repurchase
agreements............. X X X X X X X X
Lending portfolio
securities, not to
exceed 33 1/3% of total
Fund assets............ X X X X X X X X
Illiquid securities
(limited to 15% of
Fund's net assets)..... X X X X X X X X
Forward currency
contracts(2)........... X X X X
Write (sell) call and
put options on
securities, securities
indexes and foreign
currencies(3).......... X X X X X X X X
Purchase options on
securities, securities
indexes, and
currencies(3).......... X X X X X X X X
Interest rate futures
contracts, stock index
futures contracts,
foreign currency
contracts and options
on futures(4).......... X X X X X X X X
Liquidity portfolio..... X X X X X
</TABLE>
- ---------------------

(3) A Fund will only engage in options where the options are traded on a
national securities exchange or in an over-the-counter market. A Fund may
invest up to 5% of its net assets, represented by the premium paid, in
call and put options. A Fund may write a call or put option to the extent
that the aggregate value of all securities or other assets used to cover
all such outstanding options does not exceed 33% of the value of its net
assets. Only the Fixed Income III Fund currently intends to write or
purchase options on foreign currency.
(4) A Fund does not enter into any futures contracts or related options if the
sum of initial margin deposits on futures contracts, related options
(including options on securities, securities indexes and currencies) and
premiums paid for any such related options would exceed 5% of its total
assets. A Fund does not purchase futures contracts or related options if,
as a result, more than one-third of its total assets would be so invested.

27
<PAGE>

RISK CONSIDERATIONS

High Risk Bonds. Fixed Income III Fund 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 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.
While this debt may have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions. Fixed Income III Fund's money managers will seek to reduce the
risks associated with investing in lower-rated debt securities by limiting the
Fund's holding in the securities and by the depth of the managers' credit
analysis. For additional information, refer to the SAI.

Hedging and Risk Management Practices. In seeking to protect against the
effect of adverse changes in financial markets or against currency exchange
rate or interest rate changes that are adverse to the present or prospective
positions of the Funds, each of the Funds may employ certain risk management
practices using certain derivative securities and techniques (known as
"derivatives"). Markets in some countries currently do not have instruments
available for hedging transactions. To the extent that such instruments do not
exist, a money manager may not be able to hedge a Fund's investment
effectively in such countries. Furthermore, a Fund engages in hedging
activities only when its money managers deem it to be appropriate, and does
not necessarily engage in hedging transactions with respect to each
investment.

28
<PAGE>

Foreign Debt Securities. Fixed Income III Fund's portfolio may include debt
securities issued by domestic or foreign entities, and denominated in US
dollars or foreign currencies. The Fund anticipates that no more than 25% of
its net assets will be denominated in foreign currencies. The Fund will only
use foreign currency exchange transactions (options on foreign currencies,
foreign currency futures contracts and forward foreign currency contracts) 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 investing in foreign securities are 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, those 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'
foreign securities will generally be denominated in foreign currencies, the
value of such securities to the Funds will be affected by changes in currency
exchange rates and in exchange control regulations. A change in the value of a
foreign currency against the US dollar will result in a corresponding change
in the US dollar value of the Funds' foreign securities. In addition, some
emerging market countries may have fixed or managed currencies which are not
free-floating against the US dollar. Further, certain emerging market
countries' currencies may not be internationally traded. Certain of these
currencies have experienced a steady devaluation relative to the US dollar.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had, and may continue to have, negative
effects on the economies and securities markets of certain emerging market
countries.

The Fund may invest in the following types of emerging market debt--bonds;
notes and debentures of emerging market governments; and debt and other fixed
income securities issued or guaranteed by emerging market government agencies,
instrumentalities or central banks, or by banks or other companies in emerging
markets which money managers believe are suitable investments for the Fund.
Under current market conditions, it is expected that emerging market debt will
consist predominantly of Brady Bonds and other sovereign debt. Brady Bonds are
products of the "Brady Plan," under which bonds are issued in exchange for
cash and certain of the country's outstanding commercial bank loans.

Fixed Income III Fund may invest in bank instruments, which include European
certificates of deposit ("ECDs"), European time deposits ("ETDs") and Yankee
Certificates of deposit ("Yankee CDs"). 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. Different risks may also exist for ECDs, ETDs, and
Yankee CDs because the banks issuing these instruments, or their domestic or
foreign branches, are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as reserve requirements, loan
limitations, examinations, accounting, auditing and recordkeeping, and the
public availability of information. These factors will be carefully

29
<PAGE>

considered by the money manager when evaluating credit risk in the selection
of investment for the Fixed Income III Fund.

Variable and Floating Rate Securities. Fixed Income III Fund may invest in
variable and floating rate securities. The variable and floating rate
securities 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. The adjustment intervals may be regular, (i.e., daily, monthly,
annually, etc.) event based, (i.e., 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 market value fluctuations in response to
changing interest rates than debt obligations of comparable maturities that
make current distributions of interest.

PORTFOLIO TRANSACTION POLICIES

Money managers make decisions to buy and sell securities for the Fund assets
assigned to them. FRIMCo makes determinations for any other Fund assets. The
Funds do not seek to realize long-term (rather than short-term) capital gains
while making portfolio investment decisions.

Each money manager makes decisions to buy or sell securities independently
from other managers. Thus, one money manager for a Fund may be selling a
security when another money manager for the Fund (or for another Fund) is
purchasing the same security. Also, when a money manager's services are
terminated, the new money manager may significantly restructure an investment
portfolio. These practices may increase the Funds' portfolio turnover rates,
realization of gains or losses, brokerage commissions and other transaction
costs. The annual portfolio turnover rates for the Funds are shown in the
Financial Highlights tables in this Prospectus.

30
<PAGE>

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS

Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The amount and frequency of
distributions are not guaranteed -- all distributions are at the Board's
discretion. Currently the Board intends to declare dividends from net
investment income and net short-term capital gains (if any) according to the
following schedule:

<TABLE>
<CAPTION>
DECLARED PAYABLE FUNDS
-------- ------- -----
<S> <C> <C>
Quarterly.. Mid: April, July, October and Equity I, Equity II, Equity III,
December Equity Q, Fixed Income I, Fixed
Income II and Fixed Income III
Funds
Annually... Mid-December International Fund
</TABLE>

CAPITAL GAINS DISTRIBUTIONS

The Board annually intends to declare capital gains distributions through
October 31 (excess of capital gains over capital losses), generally in mid-
December. To meet certain legal requirements, a Fund may declare special year-
end dividend and capital gains distributions during October, November or
December to shareholders of record in that month. These distributions are
deemed to have been paid by a Fund and received by you on December 31 of the
prior year, provided that you receive them by January 31. Capital gains
realized during November and December will be distributed to you during
February of the following year.

BUYING A DIVIDEND

AUTOMATIC REINVESTMENT

31
<PAGE>

TAXES

Each Fund has elected and intends to continue to qualify for taxation as a
regulated investment company under Subchapter M of the Code. Each Fund must
distribute substantially all of its net investment income and net capital
gains to shareholders and meet other requirements of the Code relating to the
sources of its income and diversification of assets. Accordingly, a Fund will
generally not be liable for federal income or excise taxes based on net income
except to the extent its earnings are not distributed or are distributed in a
manner that does not satisfy the requirements of the Code. International Fund
may incur tax liability to the extent it invests in PFICs. See "Portfolio
Securities" and the SAI. The Funds may be subject to nominal, if any, state
and local taxes.

For federal income tax purposes, the dividends from net investment income
and any excess of net short-term capital gains over net long-term capital loss
that you receive from the Funds are considered ordinary income. However,
depending upon the relevant state tax rules, a portion of the dividends paid
by Fixed Income I, Fixed Income II and Fixed Income III Funds attributable to
direct US Treasury and agency obligations may be exempt from state and local
taxes. 28% and 20% capital gains distributions declared by the Board are taxed
at the respective capital gains rates regardless of the length of time you
have held the shares. Distributions of income and capital gains are taxed in
the manner described above, whether you receive them in cash or reinvest them
in additional shares of the Funds. Distributions paid in excess of a Fund's
earnings will be treated as a nontaxable return of capital.

A Fund will notify you of the source of its dividends and distributions at
the time they are paid. After the close of each calendar year, the Funds will
advise their shareholders of the amounts of:

. ordinary income dividends, 28% capital gains dividend, and 20% capital
gains distributions, including any amounts which are deemed paid on
December 31 of the prior year;

. dividends which qualify for the 70% dividends-received deduction
available to corporations;

. any foreign taxes assessed against International, Fixed Income I, Fixed
Income II and Fixed Income III Funds;

. income which is a tax preference item (if any) for alternative minimum
tax purposes; and

. the percentages of Fixed Income I, Fixed Income II and Fixed Income III
Funds' income attributable to US government, Treasury and agency
securities.

If you are a corporate investor, a portion of the dividends from net
investment income paid by Equity I, Equity II, Equity III and Equity Q Funds
will generally qualify in part for the corporate dividends-received deduction.
However, the portion depends on the aggregate qualifying dividend income
received by each Fund from domestic (US) sources. Certain holding period and
debt financing restrictions may apply to corporate investors seeking to claim
the deduction. You should consult your tax adviser.

32
<PAGE>

FRIMCo expects the International, Fixed Income I, Fixed Income II and Fixed
Income III Funds to invest more than 50% of their total assets in foreign
securities. In connection with those investments, FRIMCo intends to file
specified elections with the IRS. These elections will permit shareholders to
either deduct (as an itemized deduction in the case of an individual) such
foreign taxes in computing taxable income, or to use these withheld foreign
taxes as credits against US income taxes. The Fund's taxable shareholders must
include their pro rata portion of the taxes withheld on their gross income for
federal income tax purposes.

Shareholders of the Funds with foreign holdings should also be aware that
foreign exchange losses realized by a Fund are treated as ordinary losses for
federal income tax purposes. This treatment may reduce Fund income which is
available for distribution to shareholders.

The Fixed Income I, Fixed Income II and Fixed Income III Funds may acquire
zero coupon securities which were issued with original issue discount. When
holding these types of securities, the Funds will have to include a portion of
the original issue discount that accrues on the security for the taxable year
in taxable income. This requirement is imposed even if the Funds receive no
payment on the security during the year. Also, because the Funds must
distribute substantially all of their net investment income annually, the Funds
may be required to distribute a dividend that is greater than the total amount
of cash the Funds actually received in a particular year. 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.

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.

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

PERFORMANCE INFORMATION

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. The
average annual total returns for Class S Shares of the Funds are as follows:

<TABLE>
<CAPTION>
10 YEARS
1 YEAR ENDED 5 YEARS ENDED ENDED INCEPTION TO INCEPTION
DEC. 31, 1997 DEC. 31, 1997 DEC. 31, 1997 DEC. 31, 1997 DATE
------------- ------------- ------------- ------------- ---------
(ANNUALIZED) (ANNUALIZED) (ANNUALIZED)
<S> <C> <C> <C> <C> <C>
Equity I................ 32.02% 20.06% 17.76 % 16.70% 10/15/81
Equity II............... 28.66% 17.40% 15.98% 14.87% 12/28/81
Equity III.............. 33.13% 20.54% 18.35% 17.73% 11/27/81
Equity Q................ 33.07% 21.14% 18.31% 15.40% 05/29/87
International........... 0.58% 11.42% 8.65% 14.92% 01/31/83
Fixed Income I.......... 9.42% 7.51% 9.12% 11.35% 10/15/81
Fixed Income II......... 6.02% 5.66% 7.19% 9.28% 10/30/81
Fixed Income III........ 9.64% --% --% 7.65% 01/29/93
</TABLE>

33
<PAGE>

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 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. The 30-day yields for the year ended
December 1, 1997 for the Class S Shares of the Fixed Income I, Fixed Income II
and Fixed Income III Funds were, respectively, 6.13%, 5.56% and 5.80.

Each Fund may also advertise non-standardized performance information which
is for periods in addition to those that are legally required by the SEC.

HOW NET ASSET VALUE IS DETERMINED

NET ASSET VALUE PER SHARE

The net asset value per share is calculated for shares of each class of each
Fund on each business day on which shares are offered or redemption orders are
tendered. For the Funds, a business day is one on which the NYSE is open for
trading. Net asset value per share is computed for Class S Shares of a Fund by
dividing the current value of the Fund's assets attributable to the Class S
Shares, less liabilities attributable to the Class S Shares, by the number of
Class S Shares of the Fund outstanding, and rounding to the nearest cent. All
Funds determine their net asset value as of the close of the NYSE (currently
4:00 p.m. Eastern time).

VALUATION OF PORTFOLIO SECURITIES

With the exceptions noted below, the Funds value their portfolio securities
at "fair market value." This generally means that equity securities and fixed-
income securities listed and principally traded on any national securities
exchange are valued on the basis of the last sale price, or if there were no
sales, at the closing bid price, on the primary exchange on which the security
is traded. US 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 often are not available. As a result, these securities may be valued
using prices provided by a pricing service when the prices are believed to be
reliable -- that is, when the prices reflect the fair market value of the
securities.

Money market instruments maturing within 60 days of the valuation date held
by Funds are valued on the basis of "amortized cost." Under this method, a
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 the Rule.
These money market instruments are valued at

34
<PAGE>

"amortized cost" unless the Board determines that amortized cost does not
represent fair value. While amortized cost provides certainty in valuation, it
may result in periods when the value of an instrument is higher or lower than
the price a 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 and in accordance with
procedures established by the Board.

HOW TO PURCHASE SHARES

ORDER PROCEDURES

Federal Funds Wire. You may wire federal funds to the Custodian.

Check. Payment for orders may be made by check or other negotiable bank
draft payable to "Frank Russell Investment Company" and mailed to a Financial
Intermediary or the Transfer Agent, P.O. Box 1591, Tacoma, WA 98401-1591.
Certified checks are not necessary, but checks are accepted subject to
collection at full face value in US funds and must be drawn in US dollars on a
US bank. Investments in the Funds will be effected upon receipt of the check
or draft by the Transfer Agent, when the check or draft is received prior to
the close of the NYSE (currently 4:00 p.m. Eastern time). When the check or
draft is received by the Transfer Agent after the close of the NYSE, the order
will be effected on the next business day.

35
<PAGE>

IN-KIND EXCHANGE OF SECURITIES

The Transfer Agent may, at its discretion, permit you to purchase Fund
shares by exchanging securities you currently own for Fund shares. Any
securities exchanged must: meet the investment objective, policies and
limitations of the particular Fund, have a readily ascertainable market value,
be liquid and not be subject to restrictions on resale, and have a market
value, plus any cash, equal to at least $100,000.

THREE DAY SETTLEMENT PROGRAM

THIRD PARTY TRANSACTIONS

If you are purchasing Fund shares through a Financial Intermediary, you may
be required to pay additional fees to the Financial Intermediary. You should
contact your Financial Intermediary for information concerning additional
fees.

EXCHANGE PRIVILEGE

36
<PAGE>

HOW TO REDEEM SHARES

If you are uncertain of the redemption requirements, you should telephone
your Financial Intermediary or the Funds at (800) 972-0700, in Washington,
(253) 627-7001. Fund shares may be redeemed on any business day at the next
determined net asset value after 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 your 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 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 made by check may be withheld for up
to 15 days after the date of purchase to assure that the check clears. Upon
request, redemption proceeds will be mailed to your address of record or to an
alternate address you designate provided the request is sent to the Transfer
Agent in proper form.

Request Procedures. Requests by investors to redeem Fund shares must be
received by the Transfer Agent on a business day, prior to the close of the
NYSE (currently 4:00 p.m. Eastern time).

Mail. Redemption requests may be made in writing directly to Financial
Intermediary or to FRIMCo, Attention: Frank Russell Investment Company,
Operations Department, P.O. Box 1591, Tacoma, WA 98401. The redemption price
will be the net asset value after receipt by FRIMCo of all required documents
in good order. "Good order" means that the request must include:

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

37
<PAGE>

Distribution Frequency. You can schedule monthly, quarterly, semiannual or
annual distribution payments.

SWP Distribution by Wire. Federal funds wire payments will be sent to a bank
you designate on the payment date.

SWP Distribution by Check. Checks will be sent on the payment date by US
Postal Service first class mail, to the address you request.

SWP Distribution by Electronic Fund Transfer. Electronic fund transfer
payments will be sent to a bank you designate on the payment date.

You must complete and mail a SWP form to your Financial Intermediary or to
FRIMCo, Attention: Frank Russell Investment Company, Operations Department,
P.O. Box 1591, Tacoma, WA 98401-1591. The SWP form must be received by FRIMCO
five business days before the initial distribution date.

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, INDEPENDENT ACCOUNTANTS, AND REPORTS

YEAR 2000

The services provided to the Trust and the shareholders by FRIMCo, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of their outside service
providers. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such event could have a negative impact of handling securities
trades, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that there will be no
adverse impact on the Trust, FRIMCo, the Distributor, the Transfer Agent and
the Custodian have advised the Trust that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000 and
expect that their systems, and those of their outside

38
<PAGE>

service providers, will be adapted in time for that event. The obligation to
make such adaptations, if any, would be the responsibility of the service
provider that maintains the system. Therefore, the Trust does not expect to
incur any material expense in that regard.

ORGANIZATION, CAPITALIZATION, AND VOTING

The Trust is organized and operates as a Massachusetts business trust.
Russell has the right to grant (and withdraw) the nonexclusive use of the name
"Frank Russell" or any variation.

The Trustees hold office for the life of the Trust. A Trustee may resign or
retire, and a Trustee may be removed by the Trustees or by shareholders at a
special meeting.

MONEY MANAGER PROFILES

The money managers identified below have no other affiliations with the
Funds, FRIMCo or with Russell. Each money manager has been in business for at
least three years and is principally engaged in managing institutional
investment accounts. These money managers may also serve as managers or
advisers to other Funds in the Trust, or to other clients of Russell,
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, 60.5% of The Equitable was
owned by Axa, a French insurance holding company.

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

Equinox Capital Management, Inc., 590 Madison Avenue, 41st 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 500,
Atlanta, GA 30309, is a corporation whose indirect parent is AMVESCO, PLC, a
London-based financial services holding company.

39
<PAGE>

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

EQUITY II FUND

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

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

Sirach Capital Management, Inc., One Union Square, Suite 3323, 600 Union
Street, Seattle, WA 98101, is a wholly owned subsidiary of United Asset
Management Company, a publicly traded corporation.

EQUITY III FUND

Brandywine Asset Management, Inc., Three Christina Centre, Suite 1200, 201
N. Walnut Street, Wilmington, DE 19801, is a wholly owned subsidiary of Legg
Mason, Inc.

40
<PAGE>

Equinox Capital Management, Inc., See: Equity I Fund.

Trinity Investment Management Corporation, See: Equity I Fund.

EQUITY Q FUND

Barclays Global Fund Advisors, See: Equity I Fund.

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

INTERNATIONAL FUND

J.P. Morgan Investment Management, Inc., See: Equity Q Fund.

Oechsle International Advisors, One International Place, 23rd 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.

The Boston Company Asset Management, Inc., One Boston Place, 14th Floor
Boston, MA 02108-4402, is 100% owned by Mellon Bank Corporation, a publicly
held corporation.

41
<PAGE>

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, is a
company 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, is a wholly-owned indirect 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
KX, Bermuda, is a Bermuda exempted company. William H. Williams III is the
sole shareholder.

FIXED INCOME III FUND

BEA Associates, One Citicorp Center, 153 East 53rd Street, 58th Floor, 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.

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.

42
<PAGE>

GLOSSARY

Agreements -- Asset Management Services Agreements, which are between FRIMCo
and institutional investors and Financial Intermediaries

Board -- The Board of Trustees of the Trust

Cash reserves -- The Funds may invest their cash reserves (i.e., funds
awaiting investment) in money market instruments and in debt securities of
comparable quality to each Fund's permitted investments. As an alternative to
a Fund directly investing in money market instruments, the Funds and their
money managers may elect to invest the Funds' cash reserves in the Trust's
Money Market Fund. To prevent duplication of fees, FRIMCo waives its
management fee on that portion of a Fund's assets invested in the Trust's
Money Market Fund.

Code -- Internal Revenue Code of 1986, as amended

Covered put option -- A put option is "covered" if the Fund has collateral
assets with a value not less than the exercise price of the option or holds a
put option on the underlying security.

Custodian -- State Street Bank and Trust Company, the Trust's custodian and
portfolio accountant

Distributor -- The organization that sells the shares of the Fund under a
contract with the fund.

43
<PAGE>

Equity derivative securities -- These include, among other instruments,
options on equity securities, warrants and futures contracts on equity
securities.

Financial Intermediary -- Bank trust departments, registered investment
advisers, broker-dealers and other Eligible Investors that have entered into
Service Agreements with FRIMCo

FNMA -- Federal National Mortgage Association

Forward currency contracts -- This is a contract individually negotiated and
privately traded by currency traders and their customers and creates an
obligation to purchase or sell a specific currency for an agreed-upon price at
a future date. International, Fixed Income I, Fixed Income II, and Fixed
Income III Funds generally do not enter into forward contracts with terms
greater than one year, and typically enters into forward contracts only under
two circumstances. First, if the Funds enter into a contract for the purchase
or sale of a security denominated in a foreign currency, they may desire to
"lock in" the US dollar price of the security by entering into a forward
contract to buy the amount of a foreign currency needed to settle the
transaction. Second, if a Fund's money managers believe that the currency of a
particular foreign country will substantially rise or fall against the US
dollar, a Fund may enter into a forward contract to buy or sell the currency
approximating the value of some or all of the Fund's portfolio securities
denominated in the currency. International, Fixed Income I, Fixed Income II
and Fixed Income III Funds will not enter into a forward contract if, as a
result, they would have more than one-third of their assets committed to such
contracts (unless they own the currency that they are obligated to deliver or
have caused the Custodian to segregate segregable assets having a value
sufficient to cover their obligations). Although forward contracts are used
primarily to protect International, Fixed Income I, Fixed Income II, and Fixed
Income III Funds from adverse currency movements, they involve the risk that
currency movements will not be accurately predicted.

FRIMCo -- Frank Russell Investment Management Company, the Trust's
administrator, manager and transfer and dividend paying agent

Funds -- The 28 investment series of the Trust. Each Fund is considered a
separate registered investment company (or RIC) for federal income tax
purposes, and each Fund has its own investment objective, policies and
restrictions. Eight Funds are described in and offered by this Prospectus.

44
<PAGE>

GNMA -- Government National Mortgage Association

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 maturing in more than seven days, that are illiquid because of the
absence of a readily available market or because of legal or contractual
resale restrictions. No Fund will invest more than 10% of its respective net
assets (taken at current value) in securities of issuers that may not be sold
to the public without registration under 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.

IRS -- Internal Revenue Service

Lending portfolio securities -- Each Fund may lend portfolio securities with
a value of up to 33 1/3% of each Fund's total assets. These 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 obligations as
collateral in an amount equal to at least 102% (for loans of US securities) or
105% (for non-US securities) of the current market value of the loaned
securities. The collateral is daily "marked-to-market," and the borrower will
furnish additional collateral in the event that the value of the collateral
drops below the respective percentages set forth above. If the borrower of the
securities fails 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.

Liquidity portfolio -- FRIMCo will manage or will select a money manager to
exercise investment discretion for approximately 5%-15% of Equity I, Equity
II, Equity III, Equity Q and International Funds' assets assigned to a
liquidity portfolio. The liquidity portfolio will be used to temporarily
create an equity exposure for cash balances until those balances are invested
in securities or used for Fund transactions.

Moody's -- Moody's Investors Service, Inc., an NRSRO

45
<PAGE>

NASD -- National Association of Securities Dealers, Inc.

net asset value (NAV) -- The value of a mutual fund is determined by
deducting the Fund's liabilities from the total assets of the portfolio. The
net asset value per share is determined by dividing the net asset value of the
Fund by the number of its shares that are outstanding.

NRSRO -- A nationally recognized statistical rating organization, such as
S&P or Moody's

NYSE -- New York Stock Exchange

PFIC -- A passive foreign investment company. International Fund may
purchase interests in an issuer that is considered a PFIC under the Code.

Prime rate -- The interest rate charged by leading US banks on loans to
their most creditworthy customers

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 "Illiquid Securities" in this Glossary, a Fund will
not invest more than 15% of its net assets (taken at current market value) in
repurchase agreements maturing in more than seven days.

Reverse repurchase agreements -- Each Fund may enter into reverse repurchase
agreements to meet redemption requests when a money manager determines that
selling portfolio securities would be inconvenient or disadvantageous. A
reverse repurchase agreement is a transaction where 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 transferred security, 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. Liquid
assets of the Fund equal in value to the repurchase price, including any
accrued interest, are segregated on the Fund's records while a reverse
repurchase agreement is in effect.

the Rule -- Rule 2a-7 under the 1940 Act, which governs the operations of
the Money Market Funds

46
<PAGE>

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. The Russell 1000(R) Index is
used as the basis for Equity Q Fund's performance because FRIMCo believes it
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.

Russell -- Frank Russell Company, consultant to the Trust and to the Funds

S&P -- Standard & Poor's Ratings Group, an NRSRO

S&P 500 -- Standard & Poor's 500 Composite Price Index

SAI -- The Trust's Statement of Additional Information, dated as noted on
the first page of this Prospectus.

SEC -- US Securities and Exchange Commission

Shares -- The Class S Shares in the Funds. Each Class S Share of a Fund
represents a share of beneficial interest in the Fund

Transfer Agent -- FRIMCo, in its capacity as the Trust's transfer and
dividend paying agent

Trust -- Frank Russell Investment Company, an open-end management investment
company which is registered with the SEC

US -- United States

US government securities -- These include US Treasury bills, notes, bonds
and other obligations issued or guaranteed by the US government, its agencies
or instrumentalities.

1940 Act -- The Investment Company Act of 1940, as amended. The 1940 Act
governs the operations of the Trust and the Funds.

1933 Act -- The Securities Act of 1933, as amended.

47
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET
TACOMA, WASHINGTON 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (253 ) 627-7001

MONEY MANAGERS
EQUITY I FUND
Alliance Capital Management L.P.
Barclays Global Fund Advisors
Equinox Capital Management, Inc.
INVESCO Capital Management, Inc.
Lincoln Capital Management Company
Peachtree Asset Management
Schneider Capital Management
Suffolk Capital Management, Inc.
Trinity Investment Management Corporation

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 LLP

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

EQUITY Q FUND

Barclays Global Fund Advisors
Franklin Portfolio Associates LLC
J.P. Morgan Investment Management, Inc.

INTERNATIONAL FUND
J.P. Morgan Investment Management, Inc.
Marathon Asset Management Limited
Mastholm Asset Management, LLC
Oechsle International Advisors
Rowe Price-Fleming International, Inc.
Sanford C. Bernstein & Co., Inc.
The Boston Company Asset Management, 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.

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

CONSULTANT
Frank Russell Company
909 A Street
Tacoma, Washington 98402

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

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

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

OFFICE OF SHAREHOLDER INQUIRIES
909 A Street
Tacoma, Washington 98402
(800) 787-7354
(800) RUSSEL4
In Washington (253) 627-7001

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<PAGE>

CLASS S FUNDS

FRANK RUSSELL INVESTMENT COMPANY
SUPPLEMENT DATED MAY 1, 1998
TO THE PROSPECTUS DATED MAY 1, 1998

Effective immediately, the Paragraph entitled "Schneider Capital Management"
under MONEY MANAGER PROFILES-DIVERSIFIED EQUITY FUND is revised to read as
follows:

<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET, TACOMA, WA 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (253) 627-7001

Frank Russell Investment Company (the "Trust") is an open-end, management
company with 28 different investment series or portfolios ("Funds"). This
Prospectus describes and offers interests in the Class S Shares of eight
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

Each Fund has its own investment objective and policies designed to meet
different investment goals. As with all mutual funds, attainment of each
Fund's investment objective cannot be assured.

This Prospectus does not constitute an offer to sell securities in any state
or other jurisdiction to any person to whom it is unlawful to make such an
offer in such state or other jurisdiction.

This Prospectus relates only to the Class S Shares of the Funds. These Funds
also offer interests in another class of shares, the Class C Shares, through
other prospectuses. For more information concerning Class C Shares, contact
the person or organization from whom you obtained this Prospectus, or write or
telephone the Trust.

PROSPECTUS DATED MAY 1, 1998
<PAGE>

TABLE OF CONTENTS

CERTAIN TERMS USED IN THIS PROSPECTUS ARE DEFINED IN THE

GLOSSARY, WHICH BEGINS ON PAGE 43 OF THIS PROSPECTUS.

<TABLE>
<S> <C>
Summary..................................................................... 3
Annual Fund Operating Expenses.............................................. 4
Financial Highlights........................................................ 6
The Purpose of the Funds--Multi-Style, Multi-Manager Diversification........ 14
Eligible Investors.......................................................... 15
General Management of the Funds............................................. 16
Expenses of the Funds....................................................... 18
The Money Managers.......................................................... 18
Investment Objectives, Policies and Practices............................... 19
Portfolio Transaction Policies.............................................. 30
Dividends and Distributions................................................. 31
Taxes....................................................................... 32
Performance Information..................................................... 33
How Net Asset Value Is Determined........................................... 34
How to Purchase Shares...................................................... 35
How to Redeem Shares........................................................ 36
Additional Information...................................................... 38
Money Manager Profiles...................................................... 39
Glossary.................................................................... 43
</TABLE>

2
<PAGE>

SUMMARY

The Funds are designed to provide a means for Eligible Investors to use
FRIMCo's and the Frank Russell Company's ("Russell") "multi-style, multi-
manager diversification" techniques and money manager evaluation services.
Unlike most investment companies that have a single organization that acts as
both administrator and investment adviser, the Trust divides responsibility
for corporate management and investment advice between FRIMCo and a number of
different money managers. See "The Purpose of the Funds--Multi-Style, Multi-
Manager Diversification."

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

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

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

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

The Trust's Funds had aggregate net assets of approximately $13.6 billion on
April 1, 1998. The net assets of the Funds described in this Prospectus on
April 1, 1998 were:

<TABLE>
<S> <C>
Diversified Equity......... $1,253,343,607
Special Growth............. $ 675,279,992
Equity Income.............. $ 272,115,924
Quantitative Equity........ $1,777,094,136
</TABLE>
<TABLE>
<S> <C>
International Securities..... $978,541,730
Diversified Bond............. $748,047,919
Volatility Constrained Bond.. $183,151,781
Multistrategy Bond........... $483,957,901
</TABLE>

3
<PAGE>

You may buy and sell Class S shares of the Funds through an authorized
Financial Intermediary. All Class S Shares are sold without a sales charge,
commission, or Rule 12b-1 fee. Except as indicated below, Class S Shares are
redeemed at net asset value. You may also exchange shares of one Fund for
shares of another Fund. See "How to Purchase Shares" and "How to Redeem
Shares."

You should be aware of the general risks associated with investments in
mutual funds. One or more Funds may make investments and engage in investment
practices and techniques that involve risks, including entering into
repurchase agreements, lending portfolio securities and entering into hedging
transactions. These risks are described in "Risk Considerations" in
"Investment Objectives, Policies and Practices" and in the Glossary.

SHAREHOLDER TRANSACTIONS EXPENSES

You would pay the following charges when buying or redeeming Class S Shares
of a Fund:

<TABLE>
<CAPTION>
MAXIMUM SALES MAXIMUM SALES
LOAD IMPOSED LOAD IMPOSED ON DEFERRED EXCHANGE
ON PURCHASES REINVESTED DIVIDENDS SALES LOAD FEES
- ------------- -------------------- ---------- --------
<S> <C> <C> <C>
None None None None
</TABLE>

ANNUAL FUND OPERATING EXPENSES

<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT GROSS OPERATING
FEE EXPENSES
(NET OF FEE WAIVERS) OTHER EXPENSES (NET OF FEE WAIVERS)+
-------------------- -------------- ---------------------
<S> <C> <C> <C>
Diversified Equity
Fund................... 0.78% 0.14% 0.92%
Special Growth Fund..... 0.95% 0.20% 1.15%
Equity Income Fund...... 0.80% 0.24% 1.04%
Quantitative Equity
Fund................... 0.78% 0.13% 0.91%
International Securities
Fund................... 0.95% 0.31% 1.26%
Diversified Bond Fund... 0.45% 0.15% 0.60%
Volatility Constrained
Bond Fund.............. 0.50% 0.28% 0.78%
Multistrategy Bond
Fund*.................. 0.61% 0.19% 0.80%
</TABLE>
- ---------------------

+ Investors purchasing Class S Shares of the fund through a financial
intermediary, such as a bank or an investment adviser, may also be required
to pay additional fees to the intermediary for services provided by the
intermediary. Such investors should contract the intermediary for
information concerning what additional fees, if any, will be charged.
* FRIMCo has voluntarily agreed to waive a portion of its 0.75% management fee
for the Multistrategy Bond Fund, up to the full amount of that fee, for all
fund expenses that exceed 0.80% of the average daily net assets on an annual
basis. This waiver is intended to be in effect for the current year, but may
be revised or eliminated at any time without notice to shareholders. The
gross annual total operating expenses absent the waiver would be 0.84% of
the average net assets of the Multistrategy Bond Fund.

These tables are intended to assist you in understanding the various
expenses of each Fund. Operating expenses are paid out of a Fund's assets and
are factored into the Fund's assets and share price. Each Fund estimates that
it will have the expenses listed (expressed as a percentage of average net
assets) for the current fiscal year.

4
<PAGE>

EXAMPLE OF EXPENSES FOR THE FUNDS

Assume that each Fund's annual return is 5% and that its operating expenses
are as described above, and that you sell your shares after the number of
years shown. These are projected expenses for each $1000 that you invest:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Diversified Equity Fund......................... $ 9 $28 $51 $115
Special Growth Fund............................. $12 $35 $64 $145
Equity Income Fund.............................. $10 $32 $58 $131
Quantitative Equity Fund........................ $ 9 $28 $50 $114
International Securities Fund................... $13 $38 $69 $158
Diversified Bond Fund........................... $ 6 $18 $33 $ 76
Volatility Constrained Bond Fund................ $ 8 $24 $43 $ 98
Multistrategy Bond Fund......................... $ 8 $19 $44 $101
</TABLE>

5
<PAGE>

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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

DIVERSIFIED EQUITY FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR..... $ 41.45 $ 38.62 $ 32.26 $ 34.88 $ 35.60 $ 36.36 $ 30.66 $ 35.22 $ 30.46 $ 27.22
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income............... .37 .48 .60 .58 .56 .60 .81 .99 .94 .89
Net realized and
unrealized gain
(loss) on
investments.......... 12.06 8.15 10.63 (.49) 3.03 2.30 8.36 (3.45) 7.68 3.57
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations.......... 12.43 8.63 11.23 .09 3.59 2.90 9.17 (2.46) 8.62 4.46
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment
income............... (.37) (.48) (.60) (.58) (.55) (.61) (.82) (.96) (1.11) (.81)
Net realized gain on
investments.......... (9.83) (5.32) (4.27) (1.87) (3.76) (3.05) (2.65) (1.14) (2.75) (.41)
In excess of net
realized gain on
investments.......... (.04) -- -- (.26) -- -- -- -- -- --
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions.. (10.24) (5.80) (4.87) (2.71) (4.31) (3.66) (3.47) (2.10) (3.86) (1.22)
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
YEAR.................. $ 43.64 $ 41.45 $ 38.62 $ 32.26 $ 34.88 $ 35.60 $ 36.36 $ 30.66 $ 35.22 $ 30.46
========== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%)....... 31.32 23.29 35.17 (0.01) 10.53 8.32 31.05 (7.01) 29.06 16.37
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets... .92 .94 .95 .95 .96 .98 .98 1.03 1.01 1.00
Net investment income
to average net
assets............... .80 1.18 1.56 1.73 1.54 1.69 2.28 2.97 2.65 2.92
Portfolio turnover.... 114.11 99.90 92.53 57.53 99.80 77.02 116.53 96.90 61.80 66.02
Net assets, end of
year ($000 omitted).. 1,042,620 699,691 530,645 414,036 388,420 337,549 325,746 251,254 234,988 202,948
Average commission
rate paid per share
of security is
omitted)............. .0500 .0465 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- -------------------
* See the notes to financial statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

6
<PAGE>

FINANCIAL HIGHLIGHTS OF THE SPECIAL GROWTH FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

SPECIAL GROWTH FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR...... $ 40.79 $ 39.17 $ 33.47 $ 35.82 $ 36.63 $ 34.47 $ 24.71 $ 29.35 $ 26.19 $ 23.58
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. .08 .12 .18 .16 .07 .05 .24 .42 .42 .24
Net realized and
unrealized gain (loss)
on investments........ 11.18 6.87 9.25 (.71) 5.22 4.22 10.34 (4.57) 5.78 2.99
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total From Investment
Operations........... 11.26 6.99 9.43 (.55) 5.29 4.27 10.58 (4.15) 6.20 3.23
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income.. (.08) (.12) (.21) (.10) (.07) (.06) (.24) (.42) (.48) (.21)
Net realized gain on
investments........... (6.25) (5.25) (3.52) (.85) (6.03) (2.05) (.58) (.07) (2.56) (.41)
In excess of net
realized gain on
investments........... -- -- -- (.85) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total Distributions... (6.33) (5.37) (3.73) (1.80) (6.10) (2.11) (.82) (.49) (3.04) (.62)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
NET ASSET VALUE, END OF
YEAR................... $ 45.72 $ 40.79 $ 39.17 $ 33.47 $ 35.82 $ 36.63 $ 34.47 $ 24.71 $ 29.35 $ 26.19
======== ======== ======== ======== ======== ======== ======== ======= ======= =======
TOTAL RETURN (%)........ 28.77 18.65 28.52 (3.71) 15.48 12.52 43.11 (14.28) 23.92 13.82
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses, net
to average net
assets................ 1.15 1.19 1.22 1.20 1.31 1.33 1.36 1.50 1.49 1.47
Net investment income
to average net
assets................ .18 .28 .49 .50 .19 .14 .80 1.57 1.42 .92
Portfolio turnover..... 97.19 118.13 87.56 55.40 91.97 42.20 42.81 63.87 85.24 51.75
Net assets, end of year
($000 omitted)........ 572,635 393,048 313,678 229,077 188,891 134,913 105,245 62,116 60,146 47,405
Average commission rate
paid per share of
security ($ omitted).. .0402 .0384 N/A N/A N/A N/A N/A N/A N/A N/A
Per share amount of
fees reimbursed ($
omitted).............. -- -- -- -- -- -- -- .0093 -- --
</TABLE>
- -------------------
* See the notes to financial statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

7
<PAGE>

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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

EQUITY INCOME FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR...... $ 40.22 $ 38.43 $ 32.21 $ 35.90 $ 35.32 $ 36.54 $ 30.75 $ 34.91 $ 30.85 $ 26.92
-------- -------- -------- -------- -------- -------- -------- ------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. .69 .82 .94 .90 .83 .99 1.11 1.43 1.34 1.22
Net realized and
unrealized gain (loss)
on investments........ 12.11 7.03 10.08 (.70) 3.69 3.08 7.15 (3.83) 6.47 3.96
-------- -------- -------- -------- -------- -------- -------- ------- -------- -------
Total From Investment
Operations........... 12.80 7.85 11.02 .20 4.52 4.07 8.26 (2.40) 7.81 5.18
-------- -------- -------- -------- -------- -------- -------- ------- -------- -------
LESS DISTRIBUTIONS:
Net investment income.. (.69) (.82) (.97) (.89) (.83) (1.00) (1.10) (1.37) (1.50) (1.25)
In excess of net
investment income..... (.01) (.01) -- -- (.00) -- -- -- -- --
Net realized gain on
investments........... (11.24) (5.23) (3.83) (3.00) (3.11) (4.29) (1.37) (.39) (2.25) --
-------- -------- -------- -------- -------- -------- -------- ------- -------- -------
Total Distributions... (11.94) (6.06) (4.80) (3.89) (3.94) (5.29) (2.47) (1.76) (3.75) 1.25)
-------- -------- -------- -------- -------- -------- -------- ------- -------- -------
NET ASSET VALUE, END OF
YEAR................... $ 41.08 $ 40.22 $ 38.43 $ 32.21 $ 35.90 $ 35.32 $ 36.54 $ 30.75 $ 34.91 $ 30.85
======== ======== ======== ======== ======== ======== ======== ======= ======== =======
TOTAL RETURN (%)........ 33.59 21.45 34.76 .69 13.23 11.51 27.52 (6.90) 25.61 19.42
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets.... 1.04 1.07 1.06 1.04 1.05 1.08 1.11 1.14 1.15 1.13
Net investment income
to average net
assets................ 1.51 2.03 2.51 2.56 2.23 2.68 3.11 4.12 3.94 4.08
Portfolio turnover..... 139.33 106.40 92.40 89.91 78.72 95.07 61.73 65.97 79.82 58.12
Net assets, end of year
($000 omitted)........ 226,952 195,132 180,116 144,285 149,532 134,365 122,689 99,575 101,589 68,998
Average commission rate
paid per share of
security ($ omitted).. .0410 .0441 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- -------------------
* See the notes to financial statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

8
<PAGE>

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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

QUANTITATIVE EQUITY FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR........... $ 33.05 $ 30.76 $ 24.84 $ 26.44 $ 25.82 $ 25.88 $ 21.07 $ 23.57 $ 20.21 $ 18.08
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. .38 .51 .50 .49 .45 .49 .58 .66 .68 .56
Net realized and
unrealized gain (loss)
on investments........ 10.00 6.24 8.72 (.19) 2.69 1.67 5.93 (1.99) 4.53 2.14
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total From Investment
Operations........... 10.38 6.75 9.22 .30 3.14 2.16 6.51 (1.33) 5.21 2.70
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Net investment income.. (.38) (.51) (.51) (.49) (.45) (.49) (.58) (.64) (.76) (.57)
Net realized gain on
investments........... (6.27) (3.95) (2.79) (1.41) (2.07) (1.73) (1.12) (.53) (1.09) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total Distributions... (6.65) (4.46) (3.30) (1.90) (2.52) (2.22) (1.70) (1.17) (1.85) (.57)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF
YEAR................... $ 36.78 $ 33.05 $ 30.76 $ 24.84 $ 26.44 $ 25.82 $ 25.88 $ 21.07 $ 23.57 $ 20.21
======== ======== ======== ======== ======== ======== ======== ======== ======== =======
TOTAL RETURN (%)........ 32.70 23.08 37.69 .19 12.56 8.67 31.70 (5.60) 26.08 15.05
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets.... .91 .93 .93 .94 .98 1.02 1.03 1.12 1.14 1.16
Net investment income
to average net
assets................ 1.04 1.59 1.71 1.95 1.68 1.94 2.39 2.94 3.00 3.00
Portfolio turnover..... 87.67 74.33 78.83 45.97 62.48 59.19 58.07 57.49 90.65 59.37
Net assets, end of year
($000 omitted)........ 996,880 663,925 488,948 380,592 314,647 244,870 201,614 147,730 124,111 89,858
Average commission rate
paid per share of
security ($ omitted).. .0349 .0331 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- -------------------
* See the notes to financial statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

9
<PAGE>

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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

INTERNATIONAL SECURITIES FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR...... $ 58.48 $ 56.61 $ 53.96 $ 57.95 $ 44.75 $ 49.15 $ 44.60 $ 55.81 $ 50.49 $ 45.26
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. .56 .53 .56 .44 .40 .61 .72 1.05 .67 .86
Net realized and
unrealized gain (loss)
on investments(a)..... (.46) 3.72 4.89 1.23 14.53 (4.02) 4.60 (9.53) 0.32 8.98
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total From Investment
Operations........... .10 4.25 5.45 1.67 14.93 (3.41) 5.32 (8.48) 0.99 9.84
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Net investment income.. (.37) (.31) (.88) (.04) (.38) (.68) (.76) (1.08) (.89) (.95)
In excess of net
investment income..... (.27) (.17) (.23) (.02) (.23) -- -- -- -- --
Net realized gain on
investments........... (2.19) (1.90) (1.69) (5.60) (1.12) (.31) (.01) (1.65) (4.78) (3.66)
In excess of net
realized gain on
investments........... (1.06) -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total Distributions... (3.89) (2.38) (2.80) (5.66) (1.73) (.99) (.77) (2.73) (5.67) (4.61)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF
YEAR................... $ 54.69 $ 58.48 $ 56.61 $ 53.96 $ 57.95 $ 44.75 $ 49.15 $ 44.60 $ 55.81 $ 50.49
======== ======== ======== ======== ======== ======== ======== ======== ======== =======
TOTAL RETURN (%)........ .26 7.63 10.20 4.86 33.48 (6.94) 11.99 (15.34) 22.24 22.05
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses,
net, to average
assets................ 1.26 1.30 1.30 1.30 1.38 1.45 1.49 1.50 1.50 1.50
Operating expenses,
gross, to average
assets................ 1.26 1.31 1.31 1.33 1.42 1.47 1.49 1.50 1.54 1.50
Net investment income
to average net
assets................ .91 .91 .97 .70 .82 1.37 1.68 2.28 1.54 1.60
Portfolio turnover..... 73.54 42.43 42.96 72.23 60.22 48.93 52.46 68.89 57.16 43.50
Net assets, end of year
($000 omitted)........ 839,767 743,615 623,389 563,333 454,482 262,886 243,065 169,818 123,823 91,006
Average commission rate
paid per share of
security ($ omitted).. .0055 .0039 N/A N/A N/A N/A N/A N/A N/A N/A
</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 Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

10
<PAGE>

FINANCIAL HIGHLIGHTS OF THE DIVERSIFIED BOND FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

DIVERSIFIED BOND FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR...... $ 22.97 $ 23.69 $ 21.53 $ 23.73 $ 23.49 $ 24.29 $ 22.81 $ 22.90 $ 22.38 $ 22.38
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 1.45 1.47 1.54 1.46 1.48 1.62 1.72 1.74 1.87 1.69
Net realized and
unrealized gain (loss)
on investments........ .56 (.71) 2.18 (2.22) .83 (.10) 1.61 (.09) .83 (.02)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations........... 2.01 .76 3.72 (.76) 2.31 1.52 3.33 1.65 2.70 1.67
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income.. (1.45) (1.48) (1.56) (1.42) (1.48) (1.63) (1.69) (1.74) (1.92) (1.67)
In excess of net
investment income..... (.02) -- -- -- (.01) -- -- -- -- --
Net realized gain on
investments........... -- -- -- -- (.58) (.69) (.16) -- (.26) --
In excess of net
realized gain on
investments........... (.08) -- -- (.02) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions... (1.55) (1.48) (1.56) (1.44) (2.07) (2.32) (1.85) (1.74) (2.18) (1.67)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
YEAR................... $ 23.43 $ 22.97 $ 23.69 $ 21.53 $ 23.73 $ 23.49 $ 24.29 $ 22.81 $ 22.90 $ 22.38
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%)........ 9.09 3.43 17.76 (3.25) 10.02 6.57 15.29 7.58 12.52 7.67
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses,
net, to average
assets................ .60 .61 .59 .56 .58 .62 .74 .88 .93 .93
Operating expenses,
gross, to average
assets................ .60 .61 .59 .56 .58 .67 .74 .88 .93 .93
Net investment income
to average net
assets................ 6.35 6.46 6.69 6.57 6.13 6.79 7.38 7.89 8.16 7.48
Portfolio turnover..... 172.43 138.98 135.85 153.21 177.74 228.37 130.96 94.88 195.14 197.15
Net assets, end of year
($000 omitted)........ 687,331 554,804 513,808 525,315 477,341 412,394 344,081 294,677 230,156 211,656
Per share amount of
fees waived ($
omitted).............. -- -- -- -- -- .0115 -- -- -- --
</TABLE>
- -------------------
* See the notes to financial statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

11
<PAGE>

FINANCIAL HIGHLIGHTS OF THE VOLATILITY CONSTRAINED BOND FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

VOLATILITY CONSTRAINED BOND FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR...... $ 19.07 $ 19.21 $ 18.64 $ 19.78 $ 19.51 $ 20.33 $ 19.51 $ 19.37 $ 19.14 $ 19.21
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 1.07 1.09 1.21 1.15 .82 1.34 1.45 1.52 1.66 1.55
Net realized and
unrealized gain (loss)
on investments........ .02 (.22) .58 (1.16) .45 (.88) .80 .13 .30 (.10)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations........... 1.09 .87 1.79 (.01) 1.27 .46 2.25 1.65 1.96 1.45
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income.. (1.10) (1.01) (1.22) (1.13) (.71) (1.28) (1.43) (1.51) (1.73) (1.52)
Net realized gain on
investments........... -- -- -- -- -- -- -- -- --
Tax Return of capital.. -- -- -- -- (.29) -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions... (1.10) (1.01) (1.22) (1.13) (1.00) (1.28) (1.43) (1.51) (1.73) (1.52)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
YEAR................... $ 19.06 $ 19.07 $ 19.21 $ 18.64 $ 19.78 $ 19.51 $ 20.33 $ 19.51 $ 19.37 $ 19.14
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%)........ 5.90 4.66 9.89 (.02) 6.67 2.29 12.00 8.92 10.64 7.77
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets.... .78 .76 .71 .67 .66 .68 .62 .62 .61 .59
Net investment income
to average net
assets................ 5.63 5.69 6.33 5.97 5.79 6.74 7.34 7.88 8.41 7.97
Portfolio turnover..... 197.45 311.51 256.72 182.65 220.77 312.05 159.20 181.66 331.12 238.69
Net assets, end of year
($000 omitted)........ 172,976 163,197 181,881 195,007 225,672 292,909 293,603 240,887 214,745 234,095
</TABLE>
- -------------------
* See the notes to financial statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

12
<PAGE>

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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

MULTISTRATEGY BOND FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993++
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR......................... $ 10.11 $ 10.25 $ 9.29 $ 10.31 $ 10.00
-------- ======== ======== ======== =======
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........ .60 .61 .65 .58 .46
Net realized and unrealized
gain (loss) on investments.. .33 (.12) .97 (1.03) .40
-------- -------- -------- -------- -------
Total From Investment
Operations................. .93 .49 1.62 (.45) .86
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Net investment income........ (.60) (.61) (.66) (.57) (.46)
In excess of net investment
income...................... (.01) (.01) -- -- --
Net realized gain on
investments................. (.17) (.01) -- -- (.08)
In excess of net realized
gain on investments......... -- -- -- -- (.01)
-------- -------- -------- -------- -------
Total Distributions......... (.78) (.63) (.66) (.57) (.55)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF YEAR.. $ 10.26 $ 10.11 $ 10.25 $ 9.29 $ 10.31
======== ======== ======== ======== =======
TOTAL RETURN (%)(A)........... 9.50 4.97 17.92 (4.35) 8.74
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets (b)...... .80 .81 .85 .85 .85
Operating expenses, gross, to
average net assets (b)...... .83 .88 .89 .90 1.20
Net investment income to
average net assets (b)...... 5.93 6.19 6.61 6.26 5.60
Portfolio turnover (b)....... 263.75 145.38 142.26 136.39 188.95
Net assets, end of year ($000
omitted).................... 437,312 305,428 218,765 173,035 98,374
</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 Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

13
<PAGE>

THE PURPOSE OF THE FUNDS -- MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION

Russell acts as consultant to the Funds. Russell was founded in 1936, and
has been providing comprehensive asset management consulting services for
almost 30 years to institutional investors, principally large corporate
employee benefit plans. Russell and its affiliates have offices around the
world -- in Tacoma, New York, Toronto, London, Zurich, Paris, Sydney, Auckland
and Tokyo.

Three functions form the core of Russell's consulting services:

. Objective Setting: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.

When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.

14
<PAGE>

investment styles within an asset class, investors are better able to reduce
their exposure to any one investment style going out of favor.

ELIGIBLE INVESTORS

Shares of the Funds are currently offered only to Eligible Investors.
Eligible Investors include:

. Institutions or individuals who have acquired shares through
institutional investors and Financial Intermediaries.

There is no specific minimum amount that must be invested in the Funds or in
the Trust.

The Funds do not generally offer their shares directly to individual (i.e.,
retail) investors, although they may choose to do so. Financial Intermediaries
which have entered into Agreements with FRIMCo may acquire shares of the Funds
for their customers. Under the Agreements, FRIMCo provides objective-setting
and asset-allocation assistance and services to Financial Intermediaries,
which in turn provide similar services to their customers. Financial
Intermediaries receive no compensation from FRIMCo or Class S Shares of the
Funds. However, Financial Intermediaries may charge their customers a fee for
providing these services and other trust or investment-related services.

Either the client or FRIMCo may terminate an Agreement upon written notice.
FRIMCo does not anticipate terminating an Agreement unless a client does not
(i) promptly pay fees due to FRIMCo, or (ii) invest sufficient assets in the
Trust's Funds to compensate FRIMCo for its services. If an Agreement is
terminated, FRIMCo will no longer provide asset-allocation, objective-setting
or other services to the client.

15
<PAGE>

GENERAL MANAGEMENT OF THE FUNDS

FRIMCo:

. provides or supervises the general management and administration,
investment advisory and portfolio management, and distribution services
for the Funds;

. develops the investment programs, selects money managers, allocates
assets among money managers and monitors the money managers' investment
programs and results;

. manages, or hires money managers to manage, the Funds' Liquidity
Portfolio; and

. provides the Funds with transfer agent, dividend disbursing and
shareholder recordkeeping services.

FRIMCo's officers and employees who oversee the money managers are:

. Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
1989.

. Randal C. Burge, who has been a Portfolio Manager of FRIMCo since 1995.
From 1990 to 1995, Mr. Burge was a Client Executive for Frank Russell
Australia. Mr. Burge, jointly with another portfolio manager identified
herein, has primary responsibility for management of the Fixed I, Fixed
II, Fixed III, Diversified Bond, Volatility Constrained Bond,
Multistrategy Bond, and Emerging Markets Funds.

16
<PAGE>

. James M. Imhof, Manager of FRIMCo's Portfolio Trading, manages the Trust
on a day to day basis and has been responsible for ongoing analysis and
monitoring of the money managers since 1989.

. Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of US Equity
Manager Research Department with Russell. Mr. Trittin, jointly with
another portfolio manager identified herein, has primary responsibility
for management of the Equity I, Equity II, Equity III, Equity Q, Equity
T, Diversified Equity, Quantitative Equity, Special Growth, and Equity
Income Funds.

Russell provides to the Funds and FRIMCo the asset management consulting
services--including objective-setting and asset-allocation technology, and
money manager research and evaluation assistance--that Russell provides to its
other consulting clients. Russell does not receive any compensation from the
Funds for its consulting services.

Under its Management Agreement with the Trust, FRIMCo receives a management
fee from each Fund for FRIMCo's services. From this fee, FRIMCo, as the
Trust's agent, pays the money managers for their investment selection
services. The remainder of the management fee is retained by FRIMCo as
compensation for the services described above and to pay expenses. The annual
rate of management fees, payable to FRIMCo monthly on a pro rata basis, are
the following percentages of each Fund's average daily net assets: 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 that use only a
single money manager.

17
<PAGE>

any time. FRIMCo currently calculates its management fee based on a Fund's
average daily net assets less any management fee incurred on the Fund's assets
invested to the extent the Fund incurs management fees for investing a portion
of its assets in the Trust's Money Market Fund.

EXPENSES OF THE FUNDS

. the management, transfer agent and recordkeeping fees payable to FRIMCo;

. fees for custody, preparing tax records, and portfolio accounting,
payable to the Custodian;

. fees for independent auditing and legal services; and

. filing and registration fees payable to the SEC.

THE MONEY MANAGERS

From its management fees, FRIMCo, as the Trust's agent, pays 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 average of
all assets allocated to the manager for the quarter. For the year ended
December 31, 1997, management fees paid to the money managers were equivalent
to the following annual rates, expressed as a percentage of each Fund's
average daily net assets: Diversified Equity Fund, 0.23%; Special Growth Fund,
0.40%; Equity Income Fund, 0.19%; Quantitative Equity Fund, 0.19%;
International Securities Fund, 0.39%, Diversified Bond Fund, 0.08%; Volatility
Constrained Bond Fund, 0.17%; and Multistrategy Bond Fund, 0.21%.

18
<PAGE>

Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund. At the same time, however, each money
manager must operate within the Fund's investment objectives, restrictions and
policies, and the more specific strategies developed by FRIMCo. Although the
money managers' activities are subject to general oversight by the Board and
the Trust's officers, neither the Board, the officers, FRIMCo, nor Russell
evaluate the investment merits of the money managers' individual security
selections.

INVESTMENT OBJECTIVES, POLICIES AND PRACTICES

SUMMARY COMPARISON OF THE FUNDS

<TABLE>
<CAPTION>
ANTICIPATED MAXIMUM
EQUITY DEBT
FUND EXPOSURE EXPOSURE FOCUS
---- ----------- -------- -----
<S> <C> <C> <C>
Diversified Equity
Fund................... 65-100% 35% Income and capital growth
Special Growth Fund..... 65-100% 35% Maximum total return
Equity Income Fund...... 65-100% 35% Current income
Quantitative Equity
Fund................... 100% -- Total return
International Securities
Fund................... 65-100% 35% Total return
Diversified Bond Fund... 35% 65-100% Current Income and Diversification
Volatility Constrained
Bond Fund.............. 35% 65-100% Preservation of capital
Multistrategy Bond
Fund................... 0% 100% Maximum total return
</TABLE>

INVESTMENT OBJECTIVES

19
<PAGE>

DIVERSIFIED EQUITY FUND

SPECIAL GROWTH FUND

Special Growth Fund's objective is to maximize total return primarily
through capital appreciation and assuming a higher level of volatility than
Diversified Equity Fund. Special Growth Fund seeks to achieve its objective by
investing in equity securities.

EQUITY INCOME FUND

The income objective of the Fund is to exceed the yield on the S&P 500
Index. The Index yield will change from year to year due to changes in prices
and dividends of stocks in the Index. Income streams will be considered in
light of their current level and the opportunity for future growth. Capital
appreciation may not be comparable to that achieved by Funds such as the
Special Growth Fund whose major objective is appreciation, although FRIMCo
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.

20
<PAGE>

QUANTITATIVE EQUITY FUND

The Fund will attempt to be fully invested in common stock at all times.
However, the Fund is permitted to hold up to 20% of Fund assets in liquid
investments to meet redemption requests.

INTERNATIONAL SECURITIES FUND

International Securities Fund's objectives are to provide favorable total
return and additional diversification for US investors. International
Securities Fund attempts to achieve its objectives by investing primarily in
the equity and fixed-income securities of foreign companies, and securities
issued by foreign governments. The Fund invests primarily in equity securities
issued by companies domiciled outside the United States. The Fund may also
invest in US companies which derive, or are expected to derive, a substantial
portion of their revenues from operations outside the United States.

21
<PAGE>

DIVERSIFIED BOND FUND

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 borrowing arrangements
between commercial paper issuers and institutional lenders, such as the Fund.)
Money managers will select investments based on fundamental economic and
market factors. Money managers will evaluate potential investments by sector,
maturity, quality, and other criteria. 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;
A or Prime-2 by Moody's; or, if unrated, judged by the money manager to be of
at least equal credit quality to those designations.

VOLATILITY CONSTRAINED BOND FUND

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. Accordingly, the money
managers will allocate the Fund's investments among securities denominated in
the currencies of the US and selected foreign countries. The Fund may also
invest in high-quality, foreign 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.
Money managers of the Fund will consider fundamental economic strength, credit
quality and interest rate trends in determining whether to increase or
decrease the emphasis placed upon a particular type of security or industry
sector. The Fund will not invest more than 10% of its total assets in debt
securities denominated in a single foreign currency, and FRIMCo currently
intends to limit total investments in non-US dollar securities to no more than
25% of the Fund's total assets.

22
<PAGE>

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.

The Fund intends to use interest rate swaps as a hedge and not as a
speculative investment.

MULTISTRATEGY BOND FUND

The Fund may also invest in convertible securities and derivatives including
warrants and interest rate swaps. 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. For more information on risks see "Risk Considerations."

FUND INVESTMENT SECURITIES

Commercial Paper

23
<PAGE>

may also invest in commercial paper which is not rated if it is issued by US
or foreign companies which the money managers conclude are of high-quality and
have outstanding debt securities which are rated AAA, AA or A by S&P; or Aaa,
Aa or A by Moody's.

DEBT SECURITIES

The Funds may purchase debt securities that complement their respective
investment objectives. The Funds, except Multistrategy Bond Fund, do not
invest in debt 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 Multistrategy Bond Fund, will sell securities whose ratings drop
below these minimum ratings, in a prudent manner as determined by the money
managers. The market value of debt securities generally varies inversely with
interest rates.

EQUITY SECURITIES

FOREIGN DEBT SECURITIES

Multistrategy Bond and International Securities Funds' portfolios may
include debt securities issued by domestic or foreign entities, and
denominated in US dollars or foreign currencies. The Multistrategy Bond Fund
anticipates that no more than 25% of its net assets will be denominated in
foreign currencies. The Funds will only use foreign currency exchange
transactions (options on foreign currencies, foreign currency futures
contracts and forward foreign currency contracts) for the purpose of hedging
against foreign currency exchange risk arising from the Funds' investments, or
anticipated investments, 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 "Risk Considerations -- 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 Funds may
invest in the following types of emerging market debt -- bonds; notes and
debentures of emerging market governments; debt and other fixed income
securities issued or guaranteed by emerging market government agencies,
instrumentalities or central banks; and other fixed-income securities issued
or guaranteed by banks or other companies in emerging markets which the money
managers believe are suitable investments for the Funds. Under current market
conditions, it is expected that emerging market debt will consist
predominantly of Brady Bonds and other sovereign debt. Brady Bonds are
products of the "Brady Plan," under which bonds are issued in exchange for
cash and certain of the country's outstanding commercial bank loans.

24
<PAGE>

INTEREST RATE SWAPS

OTHER DEBT SECURITIES

Multistrategy Bond Fund may invest in debt securities issued by
supranational organizations such as:

The World Bank -- An international bank which was chartered to finance
development projects in developing member countries.

The European Community -- An organization which consists of certain
European states engaged in cooperative economic activities.

The European Coal and Steel Community -- An economic union of various
European nations' steel and coal industries.

The Asian Development Bank -- An international development bank
established to lend funds, promote investment and provide technical
assistance to member nations in the Asian and Pacific regions.

US GOVERNMENT OBLIGATIONS

25
<PAGE>

The following table illustrates the investments that the Funds primarily
invest in or are permitted to invest in:

<TABLE>
<CAPTION>
VOLATILITY
DIVERSIFIED SPECIAL EQUITY QUANTITATIVE INTERNATIONAL DIVERSIFIED CONSTRAINED MULTISTRATEGY
TYPE OF PORTFOLIO EQUITY GROWTH INCOME EQUITY SECURITIES BOND BOND BOND
SECURITY FUND FUND FUND FUND FUND FUND FUND FUND
----------------- ----------- ------- ------ ------------ ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stocks........... X X X X X
Common stock equivalents
(warrants)............. X X X X X
Common stock equivalents
(options).............. X X X X X
Common stock equivalents
(convertible debt secu-
rities)................ X X X X X
Common stock equivalents
(depository receipts).. X
Preferred stocks........ X X X X X
Equity derivative
securities............. X X X X X
Debt securities (below
investment grade or
junk bonds)............ X
US government
securities............. X X X X X X X X
Municipal obligations... X
Foreign securities...... X X
</TABLE>

26
<PAGE>

OTHER INVESTMENT PRACTICES

<TABLE>
<CAPTION>
VOLATILITY
DIVERSIFIED SPECIAL EQUITY QUANTITATIVE INTERNATIONAL DIVERSIFIED CONSTRAINED MULTISTRATEGY
EQUITY GROWTH INCOME EQUITY SECURITIES BOND BOND BOND
TYPE OF PRACTICE FUND FUND FUND FUND FUND FUND FUND FUND
---------------- ----------- ------- ------ ------------ ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash reserves........... X X X X X X X X
Repurchase
agreements(1).......... X X X X X X X X
When-issued and forward
commitment securities.. X X X X X X X X
Reverse repurchase
agreements............. X X X X X X X X
Lending portfolio secu-
rities, not to exceed
33 1/3% of total Fund
assets................. X X X X X X X X
Illiquid securities
(limited to 15% of a
Fund's net assets)..... X X X X X X X X
Forward currency con-
tracts(2).............. X X X X
Write (sell) call and
put options on securi-
ties, securities in-
dexes and foreign cur-
rencies(3)............. X X X X X X X X
Purchase options on se-
curities, securities
indexes, and curren-
cies(3)................ X X X X X X X X
Interest rate futures
contracts, stock index
futures contracts,
foreign currency
contracts and options
on futures(4).......... X X X X X X X X
Liquidity portfolios.... X X X X X
</TABLE>
- ---------------------

27
<PAGE>

(2) International Securities, Diversified Bond, Volatility Constrained and
Multistrategy Bond Funds may not invest more than 33% of its assets in
these contracts.
(3) A Fund will only engage in options where the options are traded on a
national securities exchange or in an over-the-counter market. A Fund may
invest up to 5% of its net assets, represented by the premium paid, in
call and put options. A Fund may write a call or put option to the extent
that the aggregate value of all securities or other assets used to cover
all such outstanding options does not exceed 25% of the value of its net
assets.
(4) A Fund does not enter into any futures contracts or related options if the
sum of initial margin deposits on futures contracts, related options
(including options on securities, securities indexes and currencies) and
premiums paid for any such related options would exceed 5% of its total
assets. A Fund does not purchase futures contracts or related options if,
as a result, more than one-third of its total assets would be so invested.

Investment Restrictions. If a Fund changes its investment objectives or
policies, you should consider whether the Fund remains right for you. The
Funds are subject to additional investment policies and restrictions described
in the SAI, some of which are fundamental.

RISK CONSIDERATIONS

Variable and Floating Rate Securities. The Multistrategy Bond Fund may
invest in variable and floating rate securities. The variable and floating
rate securities 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. The adjustment intervals may be regular (i.e., daily,
monthly, annually, etc.) or event based (i.e., 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 which represent interests in such stripped debt obligations and
coupons. A zero coupon security pays no interest to its holder prior to
maturity. Accordingly, these securities usually trade at a deep discount from
their face or par value and will be subject to greater market value
fluctuations in response to changing interest rates than debt obligations of
comparable maturities that make current distributions of interest.

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.

28
<PAGE>

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

High Risk Bonds. The Multistrategy Bond Fund 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. While the debt may have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions. Multistrategy Bond Fund's money managers will
seek to reduce the risks associated with investing in lower-rated debt
securities by limiting the Fund's holdings in the securities and by the depth
of the managers' credit analysis. For additional information, refer to the
SAI.

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<PAGE>

not have instruments available for hedging transactions. To the extent that
such instruments do not exist, a money manager may not be able to hedge a
Fund's investment effectively in such countries. Furthermore, a Fund engages
in hedging activities only when its money managers deem it to be appropriate,
and does not necessarily engage in hedging transactions with respect to each
investment.

PORTFOLIO TRANSACTION POLICIES

Money managers make decisions to buy and sell securities for the Fund assets
assigned to them. FRIMCo makes determinations for any other Fund assets. The
Funds do not give significant weight to attempting to realize long term rather
than short term capital gains while making portfolio investment decisions.

Each money manager makes decisions to buy or sell securities independently
from other managers. Thus, one money manager for a Fund may be selling a
security when another money manager for the Fund (or for another Fund) is
purchasing the same security. Also, when a money manager's services are
terminated, the new money manager may significantly restructure an investment
portfolio. These practices may increase the Funds' portfolio turnover rates,
realization of gains or losses, brokerage commissions and other transaction
costs. The annual portfolio turnover rates for each of the Funds are shown in
the Financial Highlights tables in this Prospectus.

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<PAGE>

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS

Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The amount and frequency of
distributions are not guaranteed--all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income and net short-term capital gains (if any), according to the
following schedule:

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

CAPITAL GAINS DISTRIBUTIONS

The Board annually intends to declare capital gains distributions of net
capital gains realized during the period from November 1 through October 31
(excess of capital gains over capital losses), generally in mid-December. To
meet certain legal requirements, a Fund may declare special year-end dividend
and capital gains distributions during October, November or December to
shareholders of record in that month. These latter distributions are deemed to
have been paid by a Fund and received by you on December 31 of the prior year,
provided that the Fund pays them by January 31. Capital gains realized during
November and December will be distributed to you during February of the
following year.

BUYING A DIVIDEND

If you purchase shares just before a distribution, you will pay the full
price for the shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." Unless your account
is a tax-deferred account, dividends paid to you would be included in your
gross income for tax purposes even though you many not have participated in
the increase of the net asset value of a Fund, regardless of whether you
reinvested the dividends.

AUTOMATIC REINVESTMENT

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<PAGE>

TAXES

Each Fund has elected and intends to continue to qualify for taxation as a
regulated investment company under Subchapter M of the Code. Each Fund must
distribute substantially all of its net investment income and net capital gains
to shareholders and meet certain other requirements of the Code relating to the
sources of its income and diversification of assets. Accordingly, a Fund will
generally not be liable for federal income or excise taxes based on net income
except to the extent its earnings are not distributed or are distributed in a
manner that does not satisfy the requirements of the Code. The Funds may be
subject to nominal, if any, state and local taxes.

For federal income tax purposes, the dividends from net investment income and
any excess of net short-term capital gains over net long-term capital loss that
you receive from the Funds are considered ordinary income. However, depending
upon the relevant state tax rules, a portion of the dividends paid by
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. 28% and 20% capital gains distributions declared by the
Board are taxed at the respective capital gains rates regardless of the length
of time you have held the shares. Distributions of income and capital gains are
taxed in the manner described above, whether you receive them in cash or
reinvest them in additional shares of the Funds. Distributions paid in excess
of a Fund's earnings will be treated as a non-taxable return of capital.

A Fund will notify you of the source of its dividends and distributions at
the time they are paid. After the close of each calendar year, the Funds will
advise their shareholders of the amounts of:

. ordinary income dividends, 28% capital gain dividends and 20% capital
gain distributions, including any amounts which are deemed paid on
December 31 of the prior year;

. dividends which qualify for the 70% dividends-received deduction
available to corporations;

. any foreign taxes assessed against Diversified Bond, Volatility
Constrained Bond, Multistrategy Bond and/or International Securities
Fund;

. income which is a tax preference item (if any) for alternative minimum
tax purposes; and

. the percentages of Diversified Bond, Volatility Constrained Bond and
Multistrategy Bond Funds' income attributable to US government, Treasury
and agency securities.

If you are a corporate investor, a portion of the dividends from net
investment income paid by 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 each
Fund from domestic (US) sources. Certain holding period and debt financing
restrictions may apply to corporate investors seeking to claim the deduction.
You should consult your tax adviser.

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
portfolios of a mutual fund). Any loss incurred on the sale or exchange of a
Funds' shares, held for six months or less, will be disallowed to the extent of
exempt-interest dividends (described below) paid with respect to shares. Any
loss not disallowed will be treated as a long-term capital loss to the extent
of capital gain dividends received with respect to such shares.

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<PAGE>

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.

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

PERFORMANCE INFORMATION

From time to time, the Funds may publish their total return and average
annual total return, and, in the case of certain Funds, current yield, in
advertisements and investor communications. Total return information generally
will include a Fund's 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. The average annual total returns for Class S
Shares of each of the Funds are as follows:

<TABLE>
<CAPTION>
1 YEAR ENDED 5 YEARS ENDED 10 YEARS ENDED INCEPTION TO INCEPTION
DEC. 31, 1997 DEC. 31, 1997 DEC. 31, 1997 DEC. 31, 1997 DATE
------------- ------------- -------------- ------------- ---------
(ANNUALIZED) (ANNUALIZED) (ANNUALIZED)
<S> <C> <C> <C> <C> <C>
Diversified Equity...... 31.32% 19.32% 16.97% 16.48% 09/05/85
Special Growth.......... 28.77% 16.90% 15.57% 14.78% 09/05/85
Equity Income........... 33.59% 20.04% 17.34% 15.60% 09/05/85
Quantitative Equity..... 32.70% 20.46% 17.39% 15.40% 05/15/87
International Securi-
ties................... .26% 10.73% 8.16% 13.14% 09/05/85
Diversified Bond........ 9.09% 7.18% 8.52% 8.82% 09/05/85
Volatility Constrained
Bond................... 5.90% 5.37% 6.81% 6.81% 09/05/85
Multistrategy Bond...... 9.50% -- -- 7.23% 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 -- 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

33
<PAGE>

portfolio. The calculation includes all recurring fees that are charged. The
30-day yields for the year ended December 31, 1997 for the Class S Shares of
the Diversified Bond, Volatility Constrained Bond and Multistrategy Bond Funds
were, respectively 5.88%, 5.39% and 5.63%.

Each Fund may also advertise non-standardized performance information that
is for periods in addition to those that are legally required by the SEC.

HOW NET ASSET VALUE IS DETERMINED

NET ASSET VALUE PER SHARE

The net asset value per share is calculated for shares of each class of each
Fund on each business day on which shares are offered or redemption orders to
redeem are tendered. For all Funds, a business day is one on which the NYSE is
open for trading. Net asset value per share is computed for Class S Shares of
a Fund by dividing the current value of the Fund's assets attributable to the
Class S Shares, less liabilities attributable to the Class S Shares, by the
number of Class S Shares of the Fund outstanding, and rounding to the nearest
cent. All Funds determine net asset value as of the close of the NYSE
(currently 4:00 p.m. Eastern time).

VALUATION OF PORTFOLIO SECURITIES

With the exceptions noted below, the Funds value their portfolio securities
at "fair market value." This generally means that equity securities and fixed-
income securities listed and principally traded on any national securities
exchange are valued on the basis of the last sale price or, if there were no
sales, at the closing bid price, on the primary exchange on which the security
is traded. US 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.

The Funds value securities for which market quotations are not readily
available at "fair value," as determined in good faith and in accordance with
procedures established by the Board.

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<PAGE>

HOW TO PURCHASE SHARES

Shares of the Funds are sold without a sales load next determined on each
business day at the net asset value after receipt of an order 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 investors (except participants in the Three Day Settlement Program
(the "Settlement Program") described below) to purchase Fund shares must be
received by the Transfer Agent, on any day when Fund shares are offered,
before the close of the NYSE (currently 4:00 p.m. Eastern time).

Payment Procedures: The Custodian or Transfer Agent (depending on your method
of payment) must receive payment for the purchase of shares on the day the
order is accepted (except for participants in the Settlement Program). You may
pay for Fund orders in several ways:

Federal Funds Wire. You may wire federal funds to the Custodian.

Automated Clearing House ("ACH"). You may pay for purchases through ACH to
the Custodian. However, funds transferred by ACH 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 on the next business day. In that case, your order would be
placed on the next business day.

Automatic Investment Program. You may make scheduled investments (minimum
$50.00) in an established account in a Fund on a monthly, quarterly, semi-
annual or annual basis by automatic electronic funds transfer from the your
bank account. A separate transfer is required for each Fund in which you
purchase shares. You may terminate an automatic investment program at any
time. Contact your Financial Intermediary for further information on this
program and an enrollment form.

Check. Payment for orders may be made by check or other negotiable bank
draft payable to "Frank Russell Investment Company" and mailed to a Financial
Intermediary or the Transfer Agent, P.O. Box 1591, Tacoma, WA 98401-1591.
Certified checks are not necessary, but checks are accepted subject to
collection at full face value in US funds and must be drawn in US dollars on a
US bank. Investments in the Funds will be effected upon receipt of the check
or draft by the Transfer Agent when the check or draft is received prior to
the close of the NYSE (currently 4:00 p.m. Eastern time). When the check or
draft is received by the Transfer Agent after the close of the NYSE, the order
will be effected on the next business day.

IN-KIND EXCHANGE OF SECURITIES

The Transfer Agent may, at its discretion, permit you to purchase Fund
shares by exchanging securities you currently own for Fund shares. Any
securities exchanged must: meet the investment objectives, policies and
limitations of the particular Fund; have a readily ascertainable market value;
be liquid and not be subject to restrictions on resale; and have market value
plus any cash, equal to at least $100,000.

35
<PAGE>

you will generally realize a gain or loss for federal income tax purposes on
the exchange. Investors contemplating an in-kind exchange should consult their
tax advisers.

THREE DAY SETTLEMENT PROGRAM

The Trust 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 resulting from nonreceipt of payment.
For further information on the Settlement Program, contact the Trust.

THIRD PARTY TRANSACTIONS

EXCHANGE PRIVILEGE

You may exchange shares of any Fund for shares of any other Fund, 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 Trust through another prospectus under certain conditions
and only in states where the exchange may legally be made. For additional
information, including prospectuses for other Funds, contact a Financial
Intermediary or the Trust. Exchanges may be made (i) by telephone if the
registrations of the two accounts are identical; or (ii) in writing addressed
to the Trust.

An exchange is a redemption of the shares and is treated as a sale for
income tax purposes. Thus, 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). You should consult your tax adviser.

HOW TO REDEEM SHARES

If you are uncertain of the redemption requirements, you should telephone
your Financial Intermediary or the Funds at (800) 972-0700; in Washington
(253) 627-7001.

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

36
<PAGE>

not charge 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 made by check may be withheld for up to 15 days after the date of
purchase to assure that the check clears. Upon request, redemption proceeds
will be mailed to your address of record or to an alternate address you
designate provided the request is sent to the Transfer Agent in proper form.

Request Procedures. Requests by investors to redeem Fund shares must be
received by the Transfer Agent on a business day, prior to the close of the
NYSE (currently 4:00 p.m. Eastern time).

Mail. Redemption requests may be made in writing directly to your Financial
Intermediary or to FRIMCo, Attention: Frank Russell Investment Company,
Operations Department, P.O. Box 1591, Tacoma, WA 98401. The redemption price
will be the net asset value after receipt by FRIMCo of all required documents
in good order. "Good order" means that the request must include:

B. Any 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. You can schedule monthly, quarterly, semiannual or
annual distribution payments.

SWP Distribution by Wire. Federal funds wire payments will be sent to a bank
you designate on the payment date.

37
<PAGE>

SWP Distribution by Check. Checks will be sent on the payment date by US
Postal Service first class mail, to the address you request.

SWP Distribution by Electronic Fund Transfer. Electronic fund transfer
payments will be sent to a bank you designate bank on the payment date.

You must complete and mail a SWP form to your Financial Intermediary or to
FRIMCo, Attention: Frank Russell Investment Company, Operations Department,
P.O. Box 1591, Tacoma, WA 98401-1591. The SWP form must be received by Frank
Russell Investment Management Company five business days before the initial
distribution date.

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, INDEPENDENT ACCOUNTANTS, AND REPORTS

YEAR 2000

The services provided to the Trust and the shareholders by FRIMCo, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of their outside service
providers. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such event could have a negative impact of handling securities
trades, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that there will be no
adverse impact on the Trust, FRIMCo, the Distributor, the Transfer Agent and
the Custodian have advised the Trust that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000 and
expect that their systems, and those of their outside service providers, will
be adapted in time for that event. The obligation to make such adaptations, if
any, would be the responsibility of the service provider that maintains the
system. Therefore, the Trust does not expect to incur any material expense in
that regard.

38
<PAGE>

ORGANIZATION, CAPITALIZATION, AND VOTING

The Trust is organized and operates as a Massachusetts business trust.
Russell has the right to grant (and withdraw) the nonexclusive use of the name
"Frank Russell" or any variation.

The Trustees hold office for the life of the Trust. A Trustee may resign or
retire, and a Trustee may be removed by the Trustees or by shareholders at a
special meeting.

In addition to offering Class S Shares, the Funds also offer beneficial
interests in Class C Shares, which are described in a separate prospectus.
Class C Shares are designed to meet different investor needs and are subject
to both a Rule 12b-1 distribution fee and a shareholder servicing fee. These
fees may affect the performance of the Class C Shares. To obtain more
information about Class C Shares, contact your Financial Intermediary, or
write or telephone the Trust.

At March 31, 1998, no one Shareholder could be deemed by the 1940 Act to
"control" the Funds.

MONEY MANAGER PROFILES

DIVERSIFIED EQUITY FUND

Alliance Capital Management L.P., First Bank Place, 601 2nd Ave. South,
Suite 5000, Minneapolis, MN 55402-4322, is a limited partnership whose (i)
general partner is a wholly owned subsidiary of The Equitable Companies
Incorporated ("The Equitable") and (ii) majority unit holder is ACM, Inc., a
wholly owned subsidiary of The Equitable. As of March 1, 1995, 60.5% of The
Equitable was owned by Axa, a French insurance holding company.

Barclays Global Fund Advisors N.A., 45 Fremont Street, San Francisco, CA
94105, is an indirect, wholly-owned subsidiary of Barclays Bank PLC.

Equinox Capital Management, Inc., 590 Madison Avenue, 41st Floor, New York,
NY 10022. Equinox is a registered investment adviser with majority ownership
held by Ron Ulrich.

39
<PAGE>

INVESCO Capital Management, Inc., 1315 Peachtree Street N.E., Suite 500,
Atlanta, GA 30309, is a corporation whose indirect parent is AMVESCO, PLC, a
London-based financial services holding company.

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, is a wholly owned subsidiary of United Asset
Management Company, a publicly traded corporation.

40
<PAGE>

EQUITY INCOME FUND

Brandywine Asset Management, Inc., Three Christina Centre, Suite 1200, 201
N. Walnut Street, Wilmington, DE19801, is a wholly-owned subsidiary of Legg
Mason, Inc.

Equinox Capital Management, Inc., See: Diversified Equity Fund.

Trinity Investment Management Corporation, See: Diversified Equity Fund.

QUANTITATIVE EQUITY FUND

Barclays Global Fund Advisors, See: Diversified Equity Fund.

J.P. Morgan Investment Management, Inc., 522 Fifth Ave., 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, Orion House, 5 Upper St. Martin S. Lane,
London, England WC2H 9EA, is a corporation 33.3% owned by each of the
following: Jeremy Hosking, William Arah and Neil Ostrer.

41
<PAGE>

individuals: Andrew S. Adelson, Zalman C. Berstein, Kevin R. Rine, Charles C.
Cahn, Jr., Marilyn Goldstein Fedak, Michael L. Goldstein, Roger Hertog, Lewis
A. Sanders and Francis H. Trainer, Jr.

The Boston Company Asset Management, Inc., One Boston Place, 14th Floor,
Boston, MA 02108-4402, is 100% owned by Mellon Bank Corporation, a publicly
held corporation.

DIVERSIFIED BOND FUND

Lincoln Capital Management Company, See: Diversified Equity Fund.

Standish, Ayer & Wood, Inc., One Financial Center, Boston, MA 02111, whose
ownership is divided among seventeen directors, with no director having more
than a 25% ownership interest.

VOLATILITY CONSTRAINED BOND FUND

BlackRock Financial Management, 345 Park Ave., New York, NY 10154, is 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, P.O. Box
2910 Hamilton HM KX, Bermuda, is a Bermuda exempted company. William H.
Williams III is the sole shareholder.

MULTISTRATEGY BOND FUND

BEA Associates Inc., One Citicorp Center, 153 East 53rd Street, 58th Floor,
New York, NY 10022, is a general partnership of Credit Suisse Capital
Corporation ("CS Capital") and Basic Appraisals, Inc. ("Basic"). CS Capital is
an 80% partner, and is a wholly owned subsidiary of Credit Suisse Investment
Corporation, which is in turn a wholly-owned subsidiary of Credit Suisse, a
Swiss bank, which is in turn a subsidiary of CS Holding, a Swiss corporation.
No one person or entity possesses a controlling interest in Basic, the 20%
partner. BEA Associates is a registered investment adviser.

Pacific Investment Management Company, See: Diversified Bond Fund.

Standish, Ayer & Wood, Inc., See: Diversified Bond Fund.

NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
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>

GLOSSARY

Agreements -- Asset Management Services Agreements, which are between FRIMCo
and institutional investors and Financial Intermediaries.

Board -- The Board of Trustees of the Trust.

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 of comparable
quality to the Fund's permitted investments. As an alternative to a Fund
directly investing in money market instruments, the Funds and their money
managers may elect to invest the Fund's cash reserves in the Trust's Money
Market Fund. To prevent duplication of fees, FRIMCo waives its management fee
on that portion of a Fund's assets invested in the Trust's Money Market Fund.

Code -- Internal Revenue Code of 1986, as amended.

Covered put option -- A put option is "covered" if the Fund has collateral
assets with a value not less than the exercise price of the option or holds a
put option on the underlying security.

Custodian -- State Street Bank and Trust Company, the Trust's custodian and
portfolio accountant.

Distributor -- Frank Russell Fund, Distribution, Inc., the organization that
sells the shares of the Funds under a contract with the Trust.

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<PAGE>

Equity derivative securities -- These include, among other instruments,
options on equity securities, warrants and futures contracts on equity
securities.

Financial Intermediary -- Bank trust departments, registered investment
advisers, broker-dealers and other Eligible Investors that have entered into
Agreements with FRIMCo

FNMA -- Federal National Mortgage Association

Forward currency contracts -- This is a contract individually negotiated and
privately traded by currency traders and their customers and creates an
obligation to purchase or sell a specific currency for an agreed-upon price at
a future date. The Funds generally do not enter into forward contracts with
terms greater than one year, and they typically enter into forward contracts
only under two circumstances. First, if a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the US dollar price of the security by entering into a
forward contract to buy the amount of a foreign currency needed to settle the
transaction. Second, if the Fund's money managers believe that the currency of
a particular foreign country will substantially rise or fall against the US
dollar, the Fund may enter into a forward contract to buy or sell the currency
approximating the value of some or all of the Fund's portfolio securities
denominated in the currency. A Fund will not enter into a forward contract if,
as a result, it would have more than one-third of its assets committed to such
contracts (unless it owns the currency that it is obligated to deliver or has
caused the Custodian to segregate segregable assets having a value sufficient
to cover its obligations). Although forward contracts are used primarily to
protect a Fund from adverse currency movements, they involve the risk that
currency movements will not be accurately predicted.

FRIMCo -- Frank Russell Investment Management Company, the Trust's
administrator, manager and transfer and dividend paying agent.

Funds -- The 28 investment series of the Trust. Each Fund is considered a
separate registered investment company (or RIC) for federal income tax
purposes, and each Fund has its own investment objective, policies and
restrictions. Eight Funds are described in and offered by this Prospectus.

44
<PAGE>

GNMA -- Government National Mortgage Association

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 maturing in more than seven days, that are illiquid because of the
absence of a readily available market or because of legal or contractual
resale restrictions. No Fund will invest more than 10% of its respective net
assets (taken at current value) in securities of issuers that may not be sold
to the public without registration under 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.

IRS -- Internal Revenue Service

Moody's -- Moody's Investors Service, Inc., an NRSRO

45
<PAGE>

NASD -- National Association of Securities Dealers, Inc.

Net asset value (NAV) -- The value of a Fund is determined by deducting the
Fund's liabilities from the total assets of the portfolio. The net asset value
per share is determined by dividing the net asset value of the Fund by the
number of its shares that are outstanding.

NRSRO -- A nationally recognized statistical rating organization, such as
S&P or Moody's

NYSE -- New York Stock Exchange

Prime rate -- The interest rate charged by leading US banks on loans to
their most creditworthy customers

REITs -- Real estate investment trusts

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 "Illiquid Securities" in this Glossary, a Fund will
not invest more than 15% of its net assets (taken at current market value) in
repurchase agreements maturing in more than seven days.

46
<PAGE>

price plus interest. Liquid assets of the Fund equal in value to the
repurchase price, including any accrued interest, are segregated on the Fund's
records while a reverse repurchase agreement is in effect.

The Rule -- Rule 2a-7 under the 1940 Act, which governs the operations of
the Money Market Funds

Russell -- Frank Russell Company, consultant to the Trust and to the Funds

S&P -- Standard & Poor's Ratings Group, an NRSRO

S&P 500 -- Standard & Poor's 500 Composite Price Index

SAI -- The Trust's Statement of Additional Information, dated as noted on
the first page of this Prospectus.

SEC -- US Securities and Exchange Commission

Shares -- The Class S Shares in the Funds. Each Class S Share of a Fund
represents a share of beneficial interest in the Fund

Transfer Agent -- FRIMCo, in its capacity as the Trust's transfer and
dividend paying agent

Trust -- Frank Russell Investment Company, an open-end management investment
company which is registered with the SEC

US -- United States

US government obligations -- These include US Treasury bills, notes, bonds
and other obligations issued or guaranteed by the US government, its agencies
or instrumentalities.

1940 Act -- The Investment Company Act of 1940, as amended. The 1940 Act
governs the operations of the Trust and the Funds.

1933 Act -- The Securities Act of 1933, as amended.

47
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY

909 A STREET
TACOMA, WASHINGTON 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (253) 627-7001

MONEY MANAGERS
DIVERSIFIED EQUITY
Alliance Capital Management L.P.

Barclays Global Fund
Investors, N.A.
Peachtree Asset Management
Equinox Capital Management, Inc.
INVESCO Capital Management, Inc.
Lincoln Capital Management Company
Schneider Capital Management
Suffolk Capital Management, Inc.
Trinity Investment Management Corporation

SPECIAL GROWTH
Delphi Management, Inc.
Fiduciary International, Inc.
GlobeFlex Capital, L.P.
Jacobs Levy Equity Management, Inc.
Sirach Capital Management, Inc.
Wellington Management Company LLP

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

QUANTITATIVE EQUITY

Barclays Global Fund Investors, N.A.
Franklin Portfolio Associates LLC
J.P. Morgan Investment Management, Inc.

INTERNATIONAL SECURITIES
J.P. Morgan Investment Management, Inc.
Marathon Asset Management Limited
Mastholm Asset Management, LLC
Oechsle International Advisors
Rowe Price-Fleming International, Inc.
Sanford C. Bernstein & Co., Inc.
The Boston Company Asset Management, 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 Company
909 A Street
Tacoma, Washington 98402

CONSULTANT
Frank Russell Company
909 A Street
Tacoma, Washington 98402

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

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

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP

2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098

OFFICE OF SHAREHOLDER INQUIRIES
909 A Street
Tacoma, Washington 98402
(800) 787-7354
(800) Russel4
In Washington (253) 627-7001

48
<PAGE>

LIFEPOINTS FUNDS-CLASS D & CLASS E

FRANK RUSSELL INVESTMENT COMPANY
SUPPLEMENT DATED MAY 1, 1998
TO THE PROSPECTUS DATED MAY 1, 1998

Effective immediately, the Paragraph entitled "Schneider Capital Management"
under MONEY MANAGER PROFILES-DIVERSIFIED EQUITY FUND is revised in its entirety
to read as follows:

<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET, TACOMA, WA 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (253) 627-7001

Frank Russell Investment Company (the "Investment Company") is a "series
mutual fund" with 28 different investment portfolios referred to as the
"Funds." This Prospectus describes and offers shares of beneficial interest in
the Class D and Class E Shares of the five Funds listed below (the "LifePoints
Funds"). Each of the LifePoints Funds invests in different combinations of
other Funds (the "Underlying Funds") which, in turn, invest in different
combinations of stocks, bonds and cash equivalents. The Investment Company
believes that these combinations offer varying degrees of potential risk and
reward.

<TABLE>
<S> <C>
Equity Balanced Strategy Fund Moderate Strategy Fund
Aggressive Strategy Fund Conservative Strategy Fund
Balanced Strategy Fund
</TABLE>

Frank Russell Investment Management Company ("FRIMCo") operates and
administers all of the Funds which comprise the Investment Company. FRIMCo is
a wholly owned subsidiary of Frank Russell Company ("Russell"), which
researches and recommends to FRIMCo, and to the Investment Company, one or
more investment management organizations to manage the portfolio of each of
the Underlying Funds in which the LifePoints Funds may invest.

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.

This Prospectus does not constitute an offer to sell securities in any state
or other jurisdiction to any person to whom it is unlawful to make such an
offer in such state or other jurisdiction.

The Investment Company is organized as a Massachusetts business trust under
an amended Master Trust Agreement dated July 26, 1984. The Investment Company
is authorized to issue an unlimited number of shares evidencing beneficial
interests in different investment funds, which interests may be offered in one
or more classes. The Investment Company is a diversified, open-end management
investment company, commonly known as a "mutual fund."

This Prospectus sets forth concisely information about the Investment
Company and the Class D and Class E Shares of its five LifePoints Funds that a
prospective investor ought to know before investing. The Investment Company
has filed a Statement of Additional Information dated May 1, 1998, with the
Securities and Exchange Commission (the "SEC") which contains additional
information regarding the LifePoints Funds. The Statement of Additional
Information is incorporated herein by reference. The Statement of Additional
Information, or a paper copy of this Prospectus, if you have received your
Prospectus electronically, may be obtained without charge by writing to the
Secretary, Frank Russell Investment Company, at the address shown above or by
telephoning (800) 972-0700. This Prospectus should be read carefully and
retained for future reference. This Prospectus relates only to the Class D and
Class E Shares of the LifePoints Funds. The LifePoints Funds also have
authorized Class S shares which are not offered at the date of this Prospectus
for public investment.

The Statement of Additional Information, material incorporated by reference
into this Prospectus, and other information regarding the Investment Company
and the Funds is maintained electronically with the SEC at its Internet Web
site (http://www.sec.gov).

PROSPECTUS DATED MAY 1, 1998
<PAGE>

Each LifePoints Fund diversifies its assets by investing, at present, in the
Class S Shares of several Underlying Funds. Allocation decisions reflect
FRIMCo's outlook for the economy, financial markets and the relative
valuations of the Underlying Funds. Each LifePoints Fund seeks to achieve a
specific investment objective by investing in different combinations of the
Underlying Funds. Each LifePoints Fund and its investment objective are set
forth below. An investor can select investments in one or more LifePoints
Funds appropriate to the present investment aims, lifestyle and economic
status of the investor or the investor's clients, and can use reallocation of
assets among LifePoints Funds to reflect changes in these factors which occur
over time.

EQUITY BALANCED STRATEGY FUND seeks to achieve high, long-term capital
appreciation, while recognizing the possibility of high fluctuations in year-
to-year market values.

AGGRESSIVE STRATEGY FUND seeks to achieve high, long-term capital
appreciation with low current income, while recognizing the possibility of
substantial fluctuations in year-to-year market values.

BALANCED STRATEGY FUND seeks to achieve a moderate level of current income
and, over time, above-average capital appreciation with moderate risk.

MODERATE STRATEGY FUND seeks to achieve moderate long-term capital
appreciation with high current income, while recognizing the possibility of
moderate fluctuations in year-to-year market values.

CONSERVATIVE STRATEGY FUND seeks to achieve moderate total rate of return
through low capital appreciation and reinvestment of a high level of current
income.

This Prospectus describes and offers both Class D and Class E Shares of the
five LifePoints Funds. The LifePoints Funds had aggregate net assets of
approximately $174,310,970.55 on April 1, 1998. The net assets of these Funds
on April 1, 1998 were as follows:

<TABLE>
<S> <C>
Equity Balanced Strategy........................................ $48,575,181
Aggressive Strategy............................................. $25,165,326
Balanced Strategy............................................... $94,747,682
Moderate Strategy............................................... $ 5,147,631
Conservative Strategy........................................... $ 675,151
</TABLE>

2
<PAGE>

HIGHLIGHTS AND TABLE OF CONTENTS

ANNUAL FUND OPERATING EXPENSES OF THE CLASS D AND CLASS E SHARES OF THE
LIFEPOINTS FUNDS summarizes the fees paid by shareholders and provides an
example showing the effect of these fees together with the indirect expenses
of the Underlying Funds on a $1,000 investment over time without the manager
waiver in effect. PAGE .

THE PURPOSE OF THE LIFEPOINTS FUNDS is to provide a simple and effective
means for an Eligible Investor to employ a diversified mutual fund investment
allocation program suited to pursuing the long-term investment goals of the
investor or its clients. The LifePoints Funds are especially useful for
participants in tax-deferred retirement plans. The LifePoints Funds take
advantage of FRIMCo's asset allocation technology, as well as the Underlying
Funds' use of FRIMCo's and 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. Each LifePoints Fund
provides an additional layer of "multi-asset" diversification by allocating
its assets among several Underlying Funds, most of which employ multiple money
managers in pursuit of their investment objectives. PAGE .

INVESTMENT OBJECTIVES AND ASSET ALLOCATION FRAMEWORKS OF THE LIFEPOINTS
FUNDS are designed to meet the investment goals of long-term Eligible
Investors. While the LifePoints Funds invest primarily in the Underlying
Funds, each LifePoints Fund pursues a different investment objective by
allocating its assets among a number of Underlying Funds which together pursue
a variety of investment objectives. PAGE .

INVESTMENT POLICIES, RESTRICTIONS AND RISKS OF THE LIFEPOINTS FUNDS should
be considered in deciding whether to invest in a LifePoints Fund.
"Fundamental" investment objectives, policies, and restrictions may not be
changed without the approval of a majority of the shareholders of an affected
LifePoints Fund. While the LifePoints Funds' principal investment will be in
the Class S Shares of Underlying Funds, they may also invest in other types of
securities. Risks associated with certain investment policies of the
Underlying Funds should be considered when investing in the LifePoints Funds.
PAGE .

ELIGIBLE INVESTORS are principally institutional investors and those
financial intermediaries which have entered into an Asset Management Services
Agreement with FRIMCo and institutions or individuals who have acquired shares
through such institutions or financial intermediaries. Institutions and
financial intermediaries selling Class E Shares of the LifePoints Funds may
only offer to sell Class E Shares to certain of their clients. PAGE .

GENERAL MANAGEMENT OF THE UNDERLYING FUNDS AND THE LIFEPOINTS FUNDS is
provided by FRIMCo, which employs the officers and staff required to manage
and administer the Underlying Funds and the LifePoints

3
<PAGE>

Funds on a day-to-day basis. All services necessary for the operation of the
LifePoints Funds (including accounting, custody, auditing, legal and
shareholder servicing) are arranged for by FRIMCo pursuant to the Special
Services Agreement (the "Services Agreement") between FRIMCo and each
LifePoints Fund and each Underlying Fund in which it invests. Frank Russell
Company ("Russell") provides to the Underlying Funds and FRIMCo comprehensive
consulting and money manager evaluation services. PAGE .

OPERATING EXPENSES OF THE LIFEPOINTS FUNDS are allocated among and borne by
the Underlying Funds in which the LifePoints Funds invest or by FRIMCo, in
either case pursuant to the Services Agreement. Except as to a 0.25%
management fee and a 0.25% Shareholder Service Fee applicable to the Class D
and Class E Shares and a 0.25% Rule 12b-1 distribution fee applicable only to
the Class D Shares, the LifePoints Funds are not subject to any operating
expenses, because each LifePoints Fund's operating expense will be paid by the
Underlying Funds to the extent that the Underlying Funds receive an economic
benefit. Any operating expense of a LifePoints Fund in excess of the economic
benefit realized by the Underlying Funds will be paid by FRIMCo. As noted
above, each Lifepoints Fund has agreed to pay FRIMCo a management fee equal to
0.25% of the Fund's average daily net assets for providing investment
supervisory services. Currently, this fee is being voluntarily waived by
FRIMCo. In addition to the management fee, the LifePoints Funds will
indirectly bear their proportionate share of operating expenses that include
the management fees paid by the Underlying Funds in which they invest. While a
shareholder of a LifePoints Fund will also bear a proportionate part of
management fees paid by an Underlying Fund, each of the management fees paid
is based upon the services received by the respective Fund. PAGE .

THE MONEY MANAGERS FOR THE UNDERLYING FUNDS are evaluated and recommended by
FRIMCo and Russell. The money managers have complete discretion to purchase
and sell portfolio securities for their segment of an Underlying Fund
consistent with the Underlying Fund's investment objectives, policies and
restrictions, and the specific strategies developed by Russell and FRIMCo. The
LifePoints Funds do not employ money managers, other than FRIMCo, and
therefore, do not pay management fees. The determination of how the LifePoints
Funds' assets will be allocated among the Underlying Funds is made by FRIMCo
pursuant to each LifePoints Fund's investment objectives and policies. The
LifePoints Funds, as shareholders of the Underlying Funds, benefit from the
multi-style, multi-manager services provided to the Underlying Funds. PAGE .

INVESTMENT OBJECTIVES, POLICIES AND RISKS OF THE UNDERLYING FUNDS should be
considered when deciding whether to invest in a LifePoints Fund. "Fundamental"
investment objectives, policies and restrictions may not be changed without
the approval of a majority of the shareholders of an affected Underlying Fund.
Risks associated with certain investment policies of the Underlying Funds,
such as market volatility risk, political risk, and credit risk, are disclosed
in connection with a description of the policies giving rise to such risks.
PAGE .

DIVIDENDS AND DISTRIBUTIONS may be reinvested in additional shares or
received in cash. Dividends from net investment income are declared quarterly
by each of the LifePoints Funds. All LifePoints Funds declare distributions
from net realized capital gains, if any, at least annually. PAGE .

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

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

4
<PAGE>

VALUATION OF LIFEPOINTS FUND SHARES occurs each business day. Class D and
Class E Shares are purchased or redeemed based upon the next computed net
asset value per share of each LifePoints Fund. Unless otherwise indicated,
"shares" in this Prospectus refers to the Class D and Class E Shares of the
LifePoints Funds. PAGE .

PURCHASE OF LIFEPOINTS FUND SHARES may be accomplished on each business day.
The Class D Shares are presently subject to a management fee of 0.25%, a Rule
12b-1 distribution fee of 0.25% and a Shareholder Service Fee of up to 0.25%.
The Class E Shares are presently subject to a management fee of 0.25%, and a
Shareholder Service Fee of up to 0.25%. PAGE .

REDEMPTION OF LIFEPOINTS FUND SHARES may be requested on any business day.
There is no redemption charge. The redemption price is the next computed net
asset value after receipt of the redemption request. The LifePoints Funds
reserve the right to redeem in kind any portion of a redemption request. PAGE
.

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

The LifePoints Funds are authorized to offer one other class of shares, the
Class S Shares, which is designed to meet different investor needs. Class S
Shares of the LifePoints Funds are not, as of the date of this Prospectus,
being offered for public investment. PAGE .

5
<PAGE>

ANNUAL FUND OPERATING EXPENSES OF THE CLASS D AND CLASS E SHARES OF THE
LIFEPOINTS FUNDS

The purpose of the following table is to assist the investor in
understanding the various costs and expenses that an investor in the Class D
and Class E Shares of the LifePoints Funds will bear directly or indirectly.
Each LifePoints Fund will indirectly bear its pro rata share of the expenses
of the Underlying Funds in which the LifePoints Fund invests. 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.

CLASS D SHARES

<TABLE>
<CAPTION>
EQUITY
BALANCED AGGRESSIVE BALANCED MODERATE CONSERVATIVE
STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
FUND FUND FUND FUND FUND
-------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
CLASS D SHARES SHAREHOLDER
TRANSACTION EXPENSES:
Sales Load Imposed on Pur-
chases.................... None None None None None
Sales Load Imposed on Rein-
vested Dividends.......... None None None None None
Deferred Sales Load........ None None None None None
Redemption Fees............ None None None None None
Exchange Fees.............. None None None None None
ANNUAL CLASS D SHARES OPER-
ATING EXPENSES:#
(as a percentage of average
net assets)
Management Fees After Fee
Waivers##................. 0.00% 0.00% 0.00% 0.00% 0.00%
12b-1 Fees*................ 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (After Fee
Waivers and Reimburse-
ment)**
Custodian Fees (After Re-
imbursement)**........... None None None None None
Transfer Agent Fees (After
Reimbursement)**......... None None None None None
Other Fees (After Reim-
bursement)+ **........... 0.25% 0.25% 0.25% 0.25% 0.25%
Total Other Expenses (Af-
ter Fee Waivers and Reim-
bursement)**............. 0.25% 0.25% 0.25% 0.25% 0.25%
Total Class D Operating
Expenses (After Fee
Waivers and
Reimbursement)** *** ##... 0.50% 0.50% 0.50% 0.50% 0.50%
</TABLE>
- ---------------------

# Annual Class D Shares operating expenses are based on average net assets
expected to be invested during the fiscal year ending December 31, 1998.
During the course of this period, expenses may be more or less than the
amount shown.

## FRIMCo has voluntarily agreed to waive its Management Fee of 0.25% of
average net assets. The gross total operating expenses absent the waiver
would be 1.83%, 1.80%, 1.67%, 1.60%, and 1.55%, respectively, of average
net assets. This waiver is intended to be in effect through December 31,
1998 but may be revised or eliminated at any time without notice to
shareholders.

* Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by rules of the National
Association of Securities Dealers, Inc. See "Distribution and Shareholder
Services Plans."

6
<PAGE>

** The LifePoints Funds' operating expenses will be paid by the Underlying
Funds and/or FRIMCo, as more fully described below. If there were no waiver
of Management Fees or reimbursement of operating expenses by the Underlying
Funds or FRIMCo, the estimated "Total Other Expenses" would be 5.59% for the
Equity Balanced Strategy Fund, 4.91% for the Aggressive Strategy Fund, 0.76%
for the Balanced Strategy Fund, 3.97% for the Moderate Strategy Fund, and
4.15% for the Conservative Strategy Fund, and the "Total Class D Operating
Expenses" would have been 6.09% for the Equity Balanced Strategy Fund, 5.41%
for the Aggressive Strategy Fund, 1.26% for the Balanced Strategy Fund,
4.47% for the Moderate Strategy Fund, and 4.65% for the Conservative
Strategy Fund.

+ Class D Shares of each LifePoints Fund can pay up to 0.25% of average net
assets as a Shareholder Service Fee.
*** Investors purchasing Class D Shares of the LifePoints Funds through a
financial intermediary, such as a bank, broker or an investment adviser,
may also be required to pay additional fees to the financial intermediary
for services provided by the intermediary. Such investors should contact
the intermediary for information concerning what additional fees, if any,
will be charged by the intermediary.

7
<PAGE>

CLASS E SHARES

<TABLE>
<CAPTION>
EQUITY
BALANCED AGGRESSIVE BALANCED MODERATE CONSERVATIVE
STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
FUND FUND FUND FUND FUND
-------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
CLASS E SHARES SHAREHOLDER
TRANSACTION EXPENSES:
Sales Load Imposed on
Purchases................. None None None None None
Sales Load Imposed on
Reinvested Dividends...... None None None None None
Deferred Sales Load........ None None None None None
Redemption Fees............ None None None None None
Exchange Fees.............. None None None None None
ANNUAL CLASS E SHARES
OPERATING EXPENSES:#
(as a percentage of average
net assets)
Management Fees After Fee
Waivers##................. 0.00% 0.00% 0.00% 0.00% 0.00%
12b-1 Fees................. None None None None None
Other Expenses (After Fee
Waivers and
Reimbursement)*:
Custodian Fees (After
Reimbursement)*.......... None None None None None
Transfer Agent Fees (After
Reimbursement)*.......... None None None None None
Other Fees (After
Reimbursement)+ *........ 0.25% 0.25% 0.25% 0.25% 0.25%
Total Other Expenses
(After Fee Waivers and
Reimbursement)*.......... 0.25% 0.25% 0.25% 0.25% 0.25%
Total Class E Operating
Expenses (After Fee
Waivers and
Reimbursement)* ** ##..... 0.25% 0.25% 0.25% 0.25% 0.25%
</TABLE>
- ---------------------

# Annual Class E Shares operating expenses are based on average net assets
expected to be invested during the year ending December 31, 1998. During
the course of this period, expenses may be more or less than the amount
shown.

## FRIMCo has voluntarily agreed to waive its Management Fee of 0.25% of
average net assets. The gross total operating expenses absent the waiver
would be 1.58%, 1.55%, 1.42%, 1.35%, and 1.30%, respectively, of average
net assets. This waiver is intended to be in effect through December 31,
1998 but may be revised or eliminated at any time without notice to
shareholders.

* The LifePoints Funds' operating expenses will be paid by the Underlying
Funds and/or FRIMCo, as more fully described below. If there were no waiver
of Management Fees or reimbursement of operating expenses by the Underlying
Funds or FRIMCo, the estimated "Total Other Expenses" would be 5.59% for
the Equity Balanced Strategy Fund, 4.91% for the Aggressive Strategy Fund,
0.76% for the Balanced Strategy Fund, 3.97% for the Moderate Strategy Fund,
and 4.15% for the Conservative Strategy Fund, and the "Total Class E
Operating Expenses" would have been 5.84% for the Equity Balanced Strategy
Fund, 5.16% for the Aggressive Strategy Fund, 1.01% for the Balanced
Strategy Fund, 4.22% for the Moderate Strategy Fund, and 4.40% for the
Conservative Strategy Fund.

+ Class E Shares of each LifePoints Fund can pay up to 0.25% of average net
assets as a Shareholder Service Fee.

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

8
<PAGE>

Although Class D and Class E Shares of the LifePoints Funds will be subject
to a 0.25% management fee and a 0.25% Shareholder Service Fee and the Class D
Shares will be subject to an additional 0.25% Rule 12b-1 distribution fee,
neither class will bear any operating expenses. The operational expenses will
be paid by the Underlying Funds in which the LifePoints Funds invest to the
extent that an Underlying Fund receives a net reduction in its otherwise
anticipated operating expenses as a result of the LifePoints Funds' investment
in that Underlying Fund's shares. The operating expense savings that are
expected to be realized by the Underlying Funds from the LifePoints Funds
result primarily from the assumed reduction in the number of accounts that
each Underlying Fund has to maintain due to the existence of the LifePoints
Funds (i.e., one account per investor as opposed to one for each Underlying
Fund per investor if the investor duplicated a LifePoints Fund's investment
program by investing directly in the Underlying Funds) and from the assumed
reductions in investor trading activity. Any LifePoints Funds operating
expenses that are in excess of the estimated savings to the Underlying Funds
will be borne by FRIMCo, an arrangement that can be terminated at any time by
FRIMCo in its sole discretion without notice to shareholders but which will
not be terminated prior to April 30, 1999. (See "Expenses of the LifePoints
Funds" for an explanation of the Special Services Agreement under which the
LifePoints Funds' operating expenses are allocated among and borne by the
Underlying Funds in which the LifePoints Funds invest.) However, while the
LifePoints Funds are expected to operate without expense (except as to the
management fee and any Rule 12b-1 and Shareholder Services Fees), shareholders
in a LifePoints Fund will bear indirectly the proportionate expenses of the
Underlying Funds in which the LifePoints Fund invests. The following table
provides the expense ratios for each of the Underlying Funds in which the
LifePoints Funds may invest (based on information as of December 31, 1997).
Where applicable, expense ratios are restated to reflect current fees. As
explained in this Prospectus, each LifePoints Fund intends to invest in some,
but not all, of the Underlying Funds.

<TABLE>
<CAPTION>
TOTAL OPERATING
UNDERLYING FUND EXPENSE RATIOS
--------------- ---------------
<S> <C>
Diversified Equity Fund...................................... .92%
Special Growth Fund.......................................... 1.15%
Quantitative Equity Fund..................................... .91%
International Securities Fund................................ 1.26%
Diversified Bond Fund........................................ .60%
Volatility Constrained Bond Fund............................. .78%
Multistrategy Bond Fund...................................... .80%
Real Estate Securities Fund.................................. 1.02%
Emerging Markets Fund........................................ 1.64%
</TABLE>

The following table illustrates the indirect expense ratio that each
LifePoints Fund would have incurred based on its allocation strategy in the
Underlying Funds for the year ended December 31, 1997 if it had been
operational:

<TABLE>
<CAPTION>
INDIRECT
LIFEPOINTS FUND EXPENSE RATIOS
--------------- --------------
<S> <C>
Equity Balanced Strategy Fund................................. 1.08%
Aggressive Strategy Fund...................................... 1.05%
Balanced Strategy Fund........................................ .92%
Moderate Strategy Fund........................................ .85%
Conservative Strategy Fund.................................... .80%
</TABLE>

9
<PAGE>

EXAMPLE:

You would pay the following expenses on a $1,000 investment in the Class D
and Class E Shares of each of the LifePoints Funds including the indirect
expenses of the Underlying Funds, assuming at any time during the periods
noted below (1) 5% annual return and (2) redemption at the end of each time
period:

<TABLE>
<CAPTION>
CLASS D SHARES: 1 YEAR 3 YEARS
--------------- ------ -------
<S> <C> <C>
Equity Balanced Strategy Fund................................. $16 $50
Aggressive Strategy Fund...................................... $16 $49
Balanced Strategy Fund........................................ $14 $45
Moderate Strategy Fund........................................ $13 $43
Conservative Strategy Fund.................................... $13 $44
<CAPTION>
CLASS E SHARES: 1 YEAR 3 YEARS
--------------- ------ -------
<S> <C> <C>
Equity Balanced Strategy Fund................................. $13 $42
Aggressive Strategy Fund...................................... $13 $41
Balanced Strategy Fund........................................ $12 $37
Moderate Strategy Fund........................................ $11 $35
Conservative Strategy Fund.................................... $11 $33
</TABLE>

10
<PAGE>

FINANCIAL HIGHLIGHTS OF THE EQUITY BALANCED STRATEGY FUND +

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout the period ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class E Shares for the periods shown.
No Class D Shares were issued during the periods shown. The table appears in
the Fund's financial statements and related notes, which are incorporated by
reference into 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>
1997*
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................. $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............................................. .09
Capital gain distributions from Underlying Funds................... 2.73
Net realized and unrealized gain (loss) on investments............. (3.06)
------
Total Income From Investment Operations.......................... (.24)
------
LESS DISTRIBUTIONS:
Net investment income.............................................. (.09)
In excess of net investment income................................. (.24)
Net realized gain on investments................................... (.60)
------
Total Distributions.............................................. (.93)
------
NET ASSET VALUE, END OF PERIOD....................................... $ 8.83
======
TOTAL RETURN(%)(a)................................................... (2.42)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted)........................... 2,985
Ratios of average net assets(%):
Operating expenses, net(b)(c).................................... .25
Operating expenses, gross(c)(d).................................. 3.58
Net investment income(d)......................................... .45
Portfolio turnover rate(%)(b)...................................... 48.30
</TABLE>
- ---------------------

* For the period September 30, 1997 (commencement of operations) to December
31, 1997.

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

(b) The ratios for the period September 30, 1997 (commencement of operations)
to December 31, 1997 are annualized.

(d) The ratio has not been annualized due to the Fund's short period of
operation.

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

11
<PAGE>

FINANCIAL HIGHLIGHTS OF THE AGGRESSIVE STRATEGY 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 the period ended December 31, and other
performance information derived from the financial statements. The information
in the table represents the Financial Highlights for the Fund's Class E Shares
for the periods shown. No Class D Shares were issued during the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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>
1997*
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................. $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............................................. .10
Capital gain distributions from Underlying Funds................... 1.66
Net realized and unrealized gain (loss) on investments............. (1.77)
------
Total Income From Investment Operations.......................... (.01)
------
LESS DISTRIBUTIONS:
Net investment income.............................................. (.10)
In excess of net investment income................................. (.21)
Net realized gain on investments................................... (.54)
------
Total Distributions.............................................. (.85)
------
NET ASSET VALUE, END OF PERIOD....................................... $ 9.14
======
TOTAL RETURN(%)(a)................................................... (.19)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted)........................... 5,307
Ratios of average net assets(%):
Operating expenses, net(b)(c).................................... .25
Operating expenses, gross(c)(d).................................. 2.88
Net investment income(d)......................................... .97
Portfolio turnover rate(%)(b)...................................... 56.88
</TABLE>
- ---------------------

* For the period September 30, 1997 (commencement of operations) to December
31, 1997.

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

(b) The ratios for the period September 30, 1997 (commencement of operations)
to December 31, 1997 are annualized.

(d) The ratio has not been annualized due to the Fund's short period of
operation.

+ 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.

12
<PAGE>

FINANCIAL HIGHLIGHTS OF THE BALANCED STRATEGY FUND +

<TABLE>
<CAPTION>
1997*
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................. $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............................................. .09
Capital gain distributions from Underlying Funds................... .85
Net realized and unrealized gain (loss) on investments............. (.83)
------
Total Income From Investment Operations.......................... .11
------
LESS DISTRIBUTIONS:
Net investment income.............................................. (.09)
In excess of net investment income................................. (.15)
Net realized gain on investments................................... (.41)
------
Total Distributions.............................................. (.65)
------
NET ASSET VALUE, END OF PERIOD....................................... $ 9.46
======
TOTAL RETURN(%)(a)................................................... 1.04
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted)........................... 3,554
Ratios of average net assets(%):
Operating expenses, net(b)(c).................................... .25
Operating expenses, gross(c)(d).................................. 4.03
Net investment income(d)......................................... 1.30
Portfolio turnover rate(%)(b)...................................... 29.58
</TABLE>
- ---------------------

* For the period September 16, 1997 (commencement of operations) to December
31, 1997.

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

(b) The ratios for the period September 16, 1997 (commencement of operations)
to December 31, 1997 are annualized.

(d) The ratio has not been annualized due to the Fund's short period of
operation.

+ 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>

FINANCIAL HIGHLIGHTS OF THE MODERATE STRATEGY FUND +

<TABLE>
<CAPTION>
1997*
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................. $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............................................. .07
Capital gain distributions from Underlying Funds................... .38
Net realized and unrealized gain (loss) on investments............. (.46)
------
Total Income From Investment Operations.......................... (.01)
------
LESS DISTRIBUTIONS:
Net investment income.............................................. (.07)
In excess of net investment income................................. (.07)
Net realized gain on investments................................... (.24)
------
Total Distributions.............................................. (.38)
------
NET ASSET VALUE, END OF PERIOD....................................... $ 9.61
======
TOTAL RETURN(%)(a)................................................... (.06)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted)........................... 385
Ratios of average net assets(%):
Operating expenses, net(b)(c).................................... .25
Operating expenses, gross(c)(d).................................. --
Net investment income(e)......................................... 1.01
Portfolio turnover rate(%)(b)...................................... 9.66
</TABLE>
- ---------------------

* For the period October 2, 1997 (commencement of operations) to December
31, 1997.

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

(b) The ratios for the period October 2, 1997 (commencement of operations) to
December 31, 1997 are annualized.

(d) The ratio is not meaningful due to the Fund's short period of operation.

(e) The ratio has not been annualized due to the Fund's short period of
operation.

+ 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>

FINANCIAL HIGHLIGHTS OF THE CONSERVATIVE STRATEGY FUND +

<TABLE>
<CAPTION>
1997*
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................. $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............................................. .07
Capital gain distributions from Underlying Funds................... .23
Net realized and unrealized gain (loss) on investments............. (.16)
------
Total Income From Investment Operations.......................... .14
------
LESS DISTRIBUTIONS:
Net investment income.............................................. (.07)
In excess of net investment income................................. (.03)
Net realized gain on investments................................... (.16)
------
Total Distributions.............................................. (.26)
------
NET ASSET VALUE, END OF PERIOD....................................... $ 9.88
======
TOTAL RETURN(%)(a)................................................... 1.36
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000 omitted)........................... 23
Ratios of average net assets(%):
Operating expenses, net(b)(c).................................... .25
Operating expenses, gross(c)(d).................................. --
Net investment income(e)......................................... .67
Portfolio turnover rate(%)(b)...................................... 0.00
</TABLE>
- ---------------------

* For the period November 7, 1997 (commencement of operations) to December
31, 1997.

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

(b) The ratios for the period November 7, 1997 (commencement of operations) to
December 31, 1997 are annualized.

(d) The ratio is not meaningful due to the Fund's short period of operation.

(e) The ratio has not been annualized due to the Fund's short period of
operation.

+ 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>

THE PURPOSE OF THE LIFEPOINTS FUNDS

The LifePoints Funds have been organized to provide a simple and effective
means for Eligible Investors to structure a diversified mutual fund investment
allocation program that is suited to the long-term investment goals of the
investor, and that permits an investor to access and use FRIMCo's and
Russell's "multi-style, multi-manager diversification" method of investment.
The LifePoints Funds, by investing in the Class S Shares of the Underlying
Funds, obtain FRIMCo's and Russell's money manager evaluation services, on a
pooled and cost-effective basis.

FRANK RUSSELL COMPANY -- CONSULTANT TO THE FUNDS

Russell, 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. Russell and its
affiliates have offices in Tacoma, New York, Toronto, London, Zurich, Paris,
Sydney, Auckland and Tokyo, and have approximately 1350 associates.

Three functions are at the core of Russell 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" investment method with the goals
of reducing risk and increasing returns.

MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION

FRIMCo and Russell believe investors should seek to hold fully diversified
portfolios that reflect both the investors' individual investment time
horizons and their ability to accept risk. FRIMCo and Russell believe that for
many this can be accomplished through strategically purchasing shares in one
or more of the Funds which have been structured to provide access to specific
asset classes in a multi-style, multi-manager environment.

Studies have shown that no one investment style within an asset class will
consistently outperform competing styles. For instance, investment styles
favoring securities growth characteristics may outperform styles favoring
income producing securities, and vice versa. It is largely for this reason
that no single manager has consistently

16
<PAGE>

outperformed the market over extended periods. While performance cycles tend
to repeat themselves, they do not do so predictably.

The advantages of diversifying among a mixture of investment styles and
money managers are potentially even greater with the LifePoints Funds, where
each LifePoints Fund will typically invest in shares of several Underlying
Funds. The LifePoints Funds have been created in response to increasing demand
by mutual fund investors for a simple and effective means of structuring a
diversified mutual fund investment program suited to their general needs. The
proliferation of mutual funds has left many investors confused and in search
of a simpler means to manage their investments. FRIMCo has long stressed the
value of diversifying investments in a number of mutual funds (e.g., a money
market fund for liquidity and price stability, a growth fund for long-term
appreciation, an income fund for current income and relative safety of
principal, an international fund for greater potential diversification, etc.),
and has offered its advisory expertise in assisting investors to determine
such issues as which mutual funds to select, how much of their assets to
commit to each fund, and when to reallocate their selections.

INVESTMENT OBJECTIVES AND ASSET ALLOCATION FRAMEWORKS
OF THE LIFEPOINTS FUNDS

The investment objectives of the LifePoints Funds are subject to the
investment restrictions and asset allocation policies described in this
Prospectus. The investment objective of each LifePoints Fund is as follows:

. EQUITY BALANCED STRATEGY FUND seeks to achieve high, long-term capital
appreciation, while recognizing the possibility of high fluctuations in
year-to-year market values.

. AGGRESSIVE STRATEGY FUND seeks to achieve high, long-term capital
appreciation with low current income, while recognizing the possibility
of substantial fluctuations in year-to-year market values.

. BALANCED STRATEGY FUND seeks to achieve a moderate level of current
income and, over time, above-average capital appreciation with moderate
risk.

. MODERATE STRATEGY FUND seeks to achieve moderate long-term capital
appreciation with high current income, while recognizing the possibility
of moderate fluctuations in year-to-year market values.

. CONSERVATIVE STRATEGY FUND seeks to achieve moderate total rate of
return through low capital appreciation and reinvestment of a high level
of current income.

17
<PAGE>

The investment objectives of the LifePoints Funds are summarized below in a
chart that illustrates the degree to which each LifePoints Fund seeks to
obtain capital appreciation, income, and stability of principal:

<TABLE>
<CAPTION>
POSSIBILITY
CAPITAL OF
LIFEPOINTS FUND APPRECIATION INCOME FLUCTUATION
--------------- ------------ -------- -----------
<S> <C> <C> <C>
Equity Balanced Strategy Fund.............. High Low High
Aggressive Strategy Fund................... High Low High
Balanced Strategy Fund..................... Moderate Moderate Moderate
Moderate Strategy Fund..................... Moderate High Moderate
Conservative Strategy Fund................. Low High Low
</TABLE>

There is no assurance that a LifePoints Fund will achieve its stated
objective. The investment objective of each LifePoints Fund is fundamental and
cannot be changed without the approval of a majority of shareholders of the
particular LifePoints Fund.

Each of the LifePoints Funds allocates its assets by investing in shares of
a diversified group of Underlying Funds. The allocation of a LifePoints Fund's
assets among Underlying Funds may be changed at anytime by FRIMCo. Each of the
LifePoints Funds generally will adjust its investments within set limits based
on FRIMCo's outlook for the economy, financial markets generally and relative
market valuation of the asset classes represented by each Underlying Fund.
However, the LifePoints Funds may deviate from set limits when, in FRIMCo's
opinion, it is necessary to do so to pursue a LifePoints Fund's investment
objective. However, amounts allocated to each Underlying Fund by each
LifePoints Fund are expected to generally vary only within 10% of the ranges
specified below:

<TABLE>
<CAPTION>
EQUITY
BALANCED AGGRESSIVE BALANCED MODERATE CONSERVATIVE
STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
UNDERLYING FUND FUND FUND FUND FUND FUND
--------------- -------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Diversified Equity
Fund................... 30% 21% 16% 11% 5%
Special Growth Fund..... 10% 11% 5% 2% --
Quantitative Equity
Fund................... 30% 21% 16% 11% 6%
International Securities
Fund................... 20% 19% 14% 9% 5%
Diversified Bond Fund... -- -- 25% 27% 18%
Volatility Constrained
Bond Fund.............. -- -- -- 33% 60%
Multistrategy Bond
Fund................... -- 18% 16% -- --
Real Estate Securities
Fund................... 5% 5% 5% 5% 5%
Emerging Markets Fund... 5% 5% 3% 2% 1%
</TABLE>

18
<PAGE>

[GRAPHIC APPEARS HERE]

30% Diversified Equity
30% Quantitative Equity
20% International Securities
10% Special Growth
5% Real Estate Securities
5% Emerging Markets

Equity Balanced Strategy Fund

[GRAPHIC APPEARS HERE]

33% Volatility Constrained
27% Diversified Bond
11% Diversified Equity
11% Quantitative Equity
9% International Securities
5% Real Estate Securities
2% Special Growth
2% Emerging Markets

Moderate Strategy Fund

[GRAPHIC APPEARS HERE]

21% Diversified Equity
21% Quantitative Equity
19% International Securities
18% Multistrategy Bond
11% Special Growth
5% Real Estate Securities
5% Emerging Markets

Aggressive Strategy Fund

[GRAPHIC APPEARS HERE]

60% Volatility Constrained
18% Diversified Bond
6% Quantitative Equity
5% Diversified Equity
5% International Securities
5% Real Estate Securities
1% Emerging Markets

Conservative Strategy Fund

[GRAPHIC APPEARS HERE]

25% Diversified Bond
16% Multistrategy Bond
16% Diversified Equity
16% Quantitative Equity
14% International Securities
5% Special Growth
5% Real Estate Securities
3% Emerging Markets

Balanced Strategy Fund

<PAGE>

INVESTMENT POLICIES, RESTRICTIONS
AND RISKS OF THE LIFEPOINTS FUNDS

Each LifePoints Fund's investment policies and practices are subject to
further restrictions and risks which are described in the Statement of
Additional Information. The LifePoints Funds will not make a material change
in their investment objectives or their fundamental policies without obtaining
shareholder approval. The LifePoints Funds' allocation ranges, as described in
the previous section, unless otherwise specified, are not fundamental policies
and may be changed without shareholder approval. Shareholders will be notified
of any material change in such investment programs.

Cash Reserves. Each LifePoints Fund is authorized to invest its cash
reserves (i.e., funds awaiting investment in the Underlying Funds) in money
market instruments and in debt securities which are at least comparable in
quality to the permitted investments of the Underlying Funds which may be
acquired by that LifePoints Fund. Each LifePoints Fund may also invest its
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, high-grade, money market
instruments. A LifePoints Fund investing in the Money Market Fund will
indirectly bear its proportionate share of the management fee and other
expenses incurred by the Money Market Fund.

Repurchase Agreements. Each LifePoints 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 the securities
should default and if the value of the securities held by the LifePoints Fund
as collateral (102% of the amount of cash paid by the LifePoints Fund to such
party at time of the agreement) should fall below the repurchase price, the
LifePoints Fund could incur a loss. Subject to the overall limitations
described in "Illiquid Securities" below, no LifePoints Fund will invest more
than 15% of its net assets (taken at current market value) in repurchase
agreements maturing in more than seven days.

Reverse Repurchase Agreements. Each LifePoints Fund may enter into reverse
repurchase agreements to meet redemption requests where the liquidation of
portfolio securities is deemed by FRIMCo to be inconvenient or
disadvantageous. A reverse repurchase agreement is a transaction whereby a
LifePoints 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 LifePoints Fund retains record ownership of the security involved,
including the right to receive interest and principal payments. At an agreed
upon future date, the LifePoints Fund repurchases the security by paying an
agreed upon purchase price plus interest. Liquid assets of the LifePoints 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."

Illiquid Securities. The LifePoints 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 LifePoints Funds will not invest more
than 15% 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"). There may be undesirable delays in
selling illiquid securities at prices representing their fair value. Investing
in illiquid

20
<PAGE>

securities that are considered to be Rule 144A securities could have the
effect of increasing the level of a LifePoints Fund's illiquidity to the
extent that qualified institutional buyers became, for a time, uninterested in
purchasing such securities.

Diversification. Each LifePoints Fund is a "nondiversified" investment
company for purposes of the Investment Company Act of 1940, as amended (the
"1940 Act") because it invests in the securities of a limited number of
issuers (i.e., the Underlying Funds). Each of the Underlying Funds in which
the LifePoints Funds may invest is a diversified investment company. Each
LifePoints Fund intends to qualify as a diversified investment company for
purposes of Subchapter M of the Internal Revenue Code.

INVESTMENT RESTRICTIONS OF THE LIFEPOINTS FUNDS

The LifePoints 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 LifePoints Fund will:

2. Invest 25% or more of the value of the LifePoints Fund's total assets
in the securities of companies primarily engaged in any one industry
(other than the US government, its agencies and instrumentalities, and
shares of the Underlying Funds).

3. Acquire more than 5% of the outstanding voting securities, or 10% of
all of the securities, of any one issuer, as noted below, except with
respect to shares of Funds that are investment portfolios of the
Investment Company.

4. Borrow amounts in excess of 5% of its total assets taken at cost or at
market value, whichever is lower, and then only from banks as a
temporary measure for extraordinary or emergency purposes (reverse
repurchase agreements are not deemed to be borrowings for the purposes
of this limitation).

5. Invest more than 15% of its net assets in illiquid securities, provided
that each LifePoints Fund will not invest more than 5% of its net
assets in restricted securities (other than securities eligible for
resale under Rule 144A of the 1933 Act).

SPECIAL RISKS AND CONSIDERATIONS OF THE LIFEPOINTS FUNDS

Investors should consider the following factors when investing in the
LifePoints Funds:

. The investments of each LifePoints Fund will consist primarily of shares
of the Underlying Funds, so each LifePoints Fund's investment
performance is directly related to the investment performances of the
Underlying Funds in which the LifePoints Fund invests.

. As a matter of policy, the LifePoints Funds will generally allocate
their investments among the Underlying Funds within certain ranges. As a
result, the LifePoints Funds may have less flexibility to invest than a
mutual fund without such constraints.

21
<PAGE>

. In addition to their principal investments, some or all of the
Underlying Funds may: invest varying percentages of their assets in
foreign securities; enter into forward currency transactions; lend their
portfolio securities; enter into stock index, interest rate and currency
futures contracts, and options on such contracts; engage in options
transactions; make short sales; purchase zero coupon bonds and payment-
in-kind bonds; and engage in various other investment practices which
result in market risk, currency risk, and the risks of investing in
foreign securities.

. The officers, the Trustees, and FRIMCo (the investment manager of the
LifePoints Funds) presently serve as officers, Trustees and investment
manager of the Underlying Funds. Therefore, conflicts may arise as those
persons and FRIMCo fulfill their fiduciary responsibilities to the
LifePoints Funds and to the Underlying Funds.

. Some of the LifePoints Funds may invest in the Emerging Markets Fund,
and the Aggressive Strategy Fund may invest in the Multistrategy Bond
Fund. The Emerging Markets Fund may invest up to 5% of its net assets,
and the Multistrategy Bond Fund may invest up to 25% of its net assets,
in lower-rated securities, which are subject to the risks resulting from
high yield investing.

ELIGIBLE INVESTORS

Shares of the LifePoints Funds are currently offered only to Eligible
Investors. These investors are principally institutional investors and
financial intermediaries that have entered into asset management services
agreements ("Agreements," and each, an "Agreement") with FRIMCo or
distribution agreements with the Investment Company's distributor, and
institutions or individuals who acquire shares through such institutions or
financial intermediaries.

Broker-dealers, banks, investment advisers and other financial
intermediaries selling Class E Shares of the LifePoints Funds may only offer
to sell Class E Shares to certain of their clients. Although the initial
minimum aggregate investment in the Class D or Class E Shares of any
combination of the LifePoints Funds is $5 million, that initial required
minimum investment is waived until further notice. FRIMCo, on behalf of each
Fund, reserves the right to change, as to any Fund or any class of that Fund,
the categories of investors eligible to purchase shares of that Fund or class
of that Fund.

Shares of the Funds generally are not offered or "retailed" directly to or
allowed to be exchanged by, individual investors, although FRIMCo may enter
into Agreements with individual investors. Bank trust departments, registered
investment advisors, broker-dealers and other Eligible Investors ("Financial
Intermediaries") which have entered into Agreements with FRIMCo may acquire
shares of the Funds for their customers. FRIMCo 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 may charge their customers a fee for
providing these and possibly other trust or investment-related services.
LifePoints Funds may be made available to investors other than under the terms
of an Agreement, for instance, pursuant to a distribution agreement with the
Investment Company's distributor.

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<PAGE>

GENERAL MANAGEMENT OF THE UNDERLYING FUNDS AND THE
LIFEPOINTS FUNDS

The Investment Company's Board of Trustees (the "Board") is responsible for
overseeing generally the operation of the Funds, including reviewing and
approving the Funds' contracts with FRIMCo, Russell and the money managers.
The Investment Company's officers, all of whom are employed by and are
officers of FRIMCo 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 in
the Underlying Funds assigned to them.

FRIMCo: (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, recommends
money managers to the Board, allocates assets among money managers and
monitors the money managers' investment programs and results; (iv) is
authorized to select and hire portfolio managers to select individual
portfolio securities held in the Underlying Funds' Liquidity Portfolio or as
cash reserves for the Funds; and (v) provides the Funds with transfer agent,
dividend disbursing and shareholder recordkeeping services. FRIMCo bears the
expenses it incurs in providing these services (other than transfer agent,
dividend disbursing and shareholder recordkeeping) as well as a portion of 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 FRIMCo. These officers and employees, including their
business experience for the past five years, are identified below:

. Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
1989.

. James M. Imhof, Manager of FRIMCo's Portfolio Trading, manages the Trust
on a day to day basis, and has been responsible for ongoing analysis and
monitoring of the money managers since 1989.

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<PAGE>

. Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of Russell's
U.S. Equity Manager Research Department. Mr. Trittin, jointly with
another portfolio manager identified herein, has primary responsibility
for management of the Equity I, Diversified Equity, Equity II, Special
Growth, Equity III, Equity Income, Equity Q, Quantitative Equity, and
Equity T Funds.

. C. Nola Williams, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1994 to 1995, Ms. Williams was a member of the Alpha
Strategy Group. From 1988 to 1994, Ms. Williams was Senior Research
Analyst with Russell. Ms. Williams, jointly with another portfolio
manager identified herein, has primary responsibility for management of
the Equity I, Diversified Equity, Equity II, Special Growth, Equity III,
Equity Income, Equity Q, Quantitative Equity, Equity T, and Multi-Style
Funds.

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

George F. Russell, Jr., Chairman of the Board of the Investment Company, is
the chairman of the board and controlling shareholder of Russell. FRIMCo is a
wholly owned subsidiary of Russell.

The Investment Company has received an exemptive order from the SEC which
permits the Investment Company, with the approval of the Board, 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 Underlying Fund.
The Investment Company received shareholder approval to operate under the
order at a special meeting of the shareholders held on January 22, 1996.

For its investment supervisory services, FRIMCo receives a management fee
from each LifePoints Fund at the annual rate of 0.25% of the average daily net
assets of each Fund, payable to FRIMCo monthly on a pro rata basis. Currently,
FRIMCo has voluntarily agreed to waive its fee for each Fund to which it is
entitled. In addition to the management fee payable by the LifePoints Funds,
the LifePoints Funds will indirectly bear a proportionate share of operating
expenses that include the management fees paid by the Underlying Funds in
which they invest. While a shareholder of a LifePoints Fund will also bear a
proportionate part of management fees paid by an Underlying Fund, each of the
management fees paid is based upon the services received by the respective
Fund. As noted above, FRIMCo receives a management fee from each Underlying
Fund. From this fee, FRIMCo, acting as agent for the Investment Company, is
responsible for paying the money managers for their investment selection
services. The remainder is retained by FRIMCo as compensation for the services
described above and to pay expenses. The annual rate of the management fees,
payable to FRIMCo monthly on a pro rata basis, are the following percentages
of the average daily net assets of each Underlying Fund: Diversified Equity
Fund 0.78%, Special Growth Fund 0.95%, Quantitative Equity Fund 0.78%,
International Securities Fund 0.95%, Diversified Bond Fund 0.45%, Volatility
Constrained Bond Fund 0.50%, Multistrategy Bond Fund 0.65%, Real Estate
Securities Fund 0.85%, and Emerging Markets Fund 1.20%. The fees of the
Underlying Funds, other than

24
<PAGE>

the Diversified Bond, Volatility Constrained Bond, and Multistrategy Bond
Funds, may be higher than the fees charged by some mutual funds with similar
objectives which use only a single money manager. FRIMCo has voluntarily
agreed to waive all or a portion of its management fee with respect to certain
Underlying Funds. The Board has approved, subject to the approval of
shareholders of the Underlying Funds, which will be sought at a shareholder
meeting expected to be held during in 1998, the Underlying Funds' payment to
FRIMCo of a fee designed to compensate FRIMCo for its role in managing
collateral derived from securities lending and certain other portfolio
transactions. If approved by shareholders, each Underlying Fund will pay a fee
to FRIMCo for investment supervision over that Underlying Fund's cash,
securities and other investment assets which are not treated as net assets of
that Underlying Fund in determining the Underlying Fund's net asset value per
share. If approved, the fee will equal 0.07% of such assets on an annualized
basis..

OPERATING EXPENSES OF THE LIFEPOINTS FUNDS

Each LifePoints Fund seeks to operate at a low operating expense ratio.
While each LifePoints Fund will incur its pro rata share of the fees and
expenses of an Underlying Fund in which it invests, each Underlying Fund has
agreed to pay a pro rata share of the operating expenses of the LifePoints
Funds that invest in the Underlying Funds, but only to the extent that the
Underlying Funds receive a net reduction in its otherwise anticipated expenses
from maintaining numerous investor accounts and from investor trading
activity. This arrangement is subject to a Special Service Agreement (the
"Service Agreement") between FRIMCo, each LifePoints Fund and the Underlying
Funds in which it invests, as well as to certain voluntary expense
reimbursement undertakings made by FRIMCo, which can be terminated by FRIMCo
in its sole discretion, but which will not be terminated prior to April 30,
1999. Each LifePoints Fund has entered into an Investment Management Agreement
with FRIMCo, as well as a Portfolio Management Agreement which governs the
providing of sub-advisory services.

The Service Agreement is entered into, on a yearly basis, between FRIMCo,
the LifePoints Funds and the Underlying Funds. The Service Agreement provides
that all services necessary for the operation of a LifePoints Fund (including
expenses for Fund accounting, custody, auditing, legal and transfer agent
services (collectively, "Operating Expenses") (but not including services
covered by the management fee and any Rule 12b-1 distribution fee or
Shareholder Service Fees which will be borne directly by the LifePoints Funds)
will be paid by the Underlying Funds in which the LifePoints Fund invests
and/or FRIMCo. In consideration of the benefits derived by the Underlying
Funds from the establishment and operation of the LifePoints Funds, each of
the Underlying Funds will agree to pay a portion of the LifePoints Fund
operating expenses. The operating expenses will be allocated among and borne
by the Underlying Funds in proportion to the average daily value of shares of
the Underlying Funds owned by each LifePoints Fund, but in no event will any
Underlying Fund bear operating expenses in excess of its estimated cost
savings. Such savings are expected to result primarily from the elimination of
numerous separate shareholder accounts which would have been established to
hold the LifePoints Funds' assets if they had been invested directly in the
Underlying Funds and the resulting reduction in shareholder servicing costs
from less investor trading activity. Although such cost savings cannot be
computed precisely at this time, the estimated savings to the Underlying Funds
generated by the operation of the LifePoints Funds, and the consequent
payments by the Underlying Funds, are expected to be sufficient to offset
most, if not all, of the operating expenses incurred by the LifePoints Funds.
Under the Service Agreement, FRIMCo has agreed to pay any operating expenses
of the LifePoints Funds which exceed the estimated savings to each of the
Underlying Funds.

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<PAGE>

THE MONEY MANAGERS FOR THE UNDERLYING FUNDS

The assets of each Underlying Fund are allocated currently among the money
managers listed in the section "Money Manager Profiles." THE ALLOCATION OF AN
UNDERLYING FUND'S ASSETS AMONG MONEY MANAGERS MAY BE CHANGED AT ANY TIME BY
FRIMCO. THE MONEY MANAGERS MAY BE EMPLOYED OR THEIR SERVICES MAY BE TERMINATED
AT ANY TIME BY FRIMCO, SUBJECT TO APPROVAL BY THE BOARD OF THE INVESTMENT
COMPANY.

From its management fees, FRIMCo, as agent for the Investment Company, pays
all fees to the money managers for their services to the Underlying Funds.
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 fiscal year ended December 31, 1997, 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 Underlying Fund:
Diversified Equity Fund 0.23%, Special Growth Fund 0.40%, Quantitative Equity
Fund 0.19%, International Securities Fund 0.39%, Diversified Bond Fund 0.08%,
Volatility Constrained Bond Fund 0.17%, Multistrategy Bond Fund 0.21%, Real
Estate Securities Fund .29%, and Emerging Markets Fund 0.68%.

Fees paid to the money managers are not affected by any voluntary expense
limitations. Some money managers may receive investment research prepared by
Russell as additional compensation, or may receive brokerage commissions for
executing portfolio transactions for the Underlying Funds through broker-
dealer affiliates. Each money manager has agreed that once the Investment
Company has advanced fees to FRIMCo as agent to make payment of the money
manager's fee, the money manager will look only to FRIMCo for the payment of
its fee.

The money managers are selected for the Underlying Funds based primarily
upon the research and recommendations of Russell, 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 an Underlying Fund within the Underlying Fund's
investment objectives, restrictions and policies, and the more specific
strategies developed by Russell and FRIMCo. Although the money managers'
activities are subject to general oversight by the Board and officers of the
Investment Company, NEITHER THE BOARD, THE OFFICERS, FRIMCO, NOR RUSSELL
EVALUATE THE INVESTMENT MERITS OF THE MONEY MANAGERS' INDIVIDUAL SECURITY
SELECTIONS.

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<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND RISKS
OF THE UNDERLYING FUNDS

Each Underlying Fund has certain "fundamental" investment objectives,
restrictions and policies which may be changed only with the approval of a
majority of the Underlying Fund's shareholders. Other policies reflect current
practices of the Underlying Funds, and may be changed by the Underlying Funds
without the approval of shareholders. Certain of the objectives, policies, and
risks are described in this section, and further information about the
Underlying Funds is contained in the Statement of Additional Information as
well as in the prospectuses of the Underlying Funds. Because the LifePoints
Funds invest in the Underlying Funds, investors of the LifePoints Funds will
be affected by the Underlying Funds' investment policies in direct proportion
to the amount of assets each LifePoints Fund allocates to the Underlying Fund
pursuing such policies. To request a copy of a prospectus for an Underlying
Fund, contact the Investment Company at 800/972-0700 (in Washington, 253/627-
7001).

Each Underlying Fund's objective is "fundamental," as are the types of
securities in which it will invest. Ordinarily, each Underlying Fund will
invest more than 65% of its total assets in the types of securities identified
in its statement of objectives. However, the Underlying 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.

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.

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<PAGE>

QUANTITATIVE EQUITY FUND

The Quantitative Equity Fund's objectives are to provide a total return
greater than the total return of the US stock market as measured by the
Russell 1000(R) Index over a market cycle of four to six years, while
maintaining volatility and diversification similar to the Index by investing
in equity securities. The Fund will maintain industry weights and economic
sector weights near those of the Index. Over time, the Fund's average
price/earnings ratio, yield and other fundamental characteristics are expected
to be near the averages for the Index. However, the Fund's money managers may
temporarily deviate from Index characteristics based upon the managers'
investment judgment that this will increase the Fund's total return. The money
managers of the Fund generally make stock selections from the set of stocks
comprising the Russell 1000(R) Index. The Fund will 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. The Fund invests primarily in equity
securities issued by companies domiciled outside of the United States. The
Fund may also invest in fixed-income securities, including instruments issued
by non-US governments and their agencies, and in US companies which derive, or
are expected to derive, a substantial portion of their revenues from
operations outside the United States.

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

EMERGING MARKETS FUND

The Emerging Markets Fund's objective is to provide maximum total return,
primarily through capital appreciation and by assuming a higher level of
volatility than is ordinarily expected from developed market international
portfolios, by investing primarily in equity securities. Under normal
circumstances, the Fund will invest at least 65% of its total assets in equity
securities of companies in countries having emerging markets.

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 up to 5% of its net assets in debt securities that are
rated below "investment grade" (i.e., rated lower than BBB by Standard &
Poor's Rating Group ("S&P") or Baa by Moody's Investors Service, Inc.
("Moody's")) or in unrated securities judged by the money managers of the Fund
to be of comparable quality. 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, see "Investment Policies and
Risks of the Underlying Funds -- High Risk Bonds" and refer to the Statement
of Additional Information.

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<PAGE>

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

DIVERSIFIED BOND FUND

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

The Fund's portfolio will consist primarily of conventional debt
instruments, including bonds, debentures, US government and US government
agency securities, preferred and convertible preferred stocks, and variable
amount demand master notes. (These notes represent a borrowing arrangement
under a letter agreement between a commercial paper issuer and an
institutional lender, such as the Fund.) Investment selections will be based
on fundamental economic, market, and other factors leading to valuation by
sector, maturity, quality and such other criteria as are appropriate to meet
the stated objectives. The Fund will ordinarily invest at least 65% of its net
assets in securities rated no less than A or A-2 by 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.

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.

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<PAGE>

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 issuers.

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 will invest
primarily in fixed-income securities, including: 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 and floating rate and zero coupon
securities; mortgage and other asset-backed securities; municipal obligations;
variable amount demand master notes; 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 invest up to 25% of its net assets in debt securities that are
rated below "investment grade" or in unrated securities judged by the money
managers of the Fund to be of comparable quality. For a description of lower
rated debt securities, see "Investment Policies and Risks of the Underlying
Funds -- High Risk Bonds" and refer to the Statement of Additional
Information.

INVESTMENT POLICIES AND RISKS OF THE UNDERLYING FUNDS

Investment in Foreign Securities. The Underlying 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.

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<PAGE>

Depository Receipts. The Underlying Funds may invest in securities of
foreign issuers in the form of American Depository Receipts ("ADRs") or other
similar securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically
issued by a US bank or trust company evidencing ownership of the underlying
securities. Generally, ADRs in registered form are designed for use in US
securities markets.

Forward Foreign Currency Exchange Contracts ("forward currency
contracts"). The International Securities, Diversified Bond, Volatility
Constrained Bond, Multistrategy Bond and Emerging Markets 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 an
Underlying Fund enters into a contract. The Underlying 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 Underlying Funds may,
however, enter into forward currency contracts containing either or both
deposit requirements and commissions. In order to assure that the Underlying
Funds' forward currency contracts are not used to achieve investment leverage,
the Funds will segregate liquid assets in an amount at all times equal to or
exceeding the Funds' commitment with respect to these contracts.

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 an Underlying Fund's portfolio securities or adversely affect the
price of securities which the Funds intend to purchase at a later date. The
amount the Underlying Funds may invest in forward currency contracts is
limited to the amount of the Funds' aggregate investments in foreign
currencies.

Options. The Underlying 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
Underlying Funds may also purchase and sell put and call options on foreign
currencies.

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

The purchase and writing of options involves certain risks. If a put or call
option purchased by an Underlying 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 an Underlying 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 an Underlying Fund writes a
put option, it is exposed during the term of the option to a decline in the
price of the underlying security.

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<PAGE>

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

Futures Contracts and Options on Futures Contracts. The Underlying Funds may
invest in interest rate futures contracts, stock index futures contracts and
foreign currency futures contracts and options thereon that are traded on a
United States or foreign exchange or board of trade.

Each Underlying 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 an Underlying Fund and the hedging
vehicle so that the portfolio return might have been greater had hedging not
been attempted.

High Risk Bonds. The Emerging Markets Fund may invest up to 5% of its net
assets, and the Multistrategy Bond Fund may invest up to 25% of its net
assets, in lower rated securities or in unrated securities judged by their
money managers to be of comparable quality. While lower rated securities
generally offer a higher yield than that available from higher grade issues,
lower rated debt securities also 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 fluctuations in response to changes in
interest rates. For additional information, refer to the Statement of
Additional Information.

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DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS

The Board presently intends that dividends will be declared from net
investment income and net short-term capital gains, if any, for each
LifePoints Fund on a quarterly basis, with payment being made in: April, July,
October and December.

Dividends paid by a LifePoints Fund with respect to its Class D and Class E
Shares are calculated in the same manner and at the same time. Both Class D
and Class E Shares will share proportionally in any investment income and
expenses of a LifePoints Fund, except that the per share dividends of Class D
Shares will ordinarily be less than the per share dividends of Class E Shares
as a result of the Rule 12b-1 distribution fees charged to Class D Shares.

CAPITAL GAINS DISTRIBUTIONS

The Board intends that distributions will be declared annually, generally in
mid-December, from capital gains through October 31 (excess of capital gains
over capital losses). In addition, in order to satisfy certain distribution
requirements, a LifePoints 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 LifePoints 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.

In addition, the LifePoints Funds receive capital gains distributions from
the Underlying Funds. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, the LifePoints Funds
may generate capital gains through rebalancing the portfolios to meet the
Funds' allocation percentages.

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 LifePoints 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 LifePoints 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 LifePoints 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 LifePoints Fund will
generally not be liable for federal income or excise taxes. The LifePoints
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. 28% and 20% capital gains

33
<PAGE>

distributions declared by the Investment Company's Board are taxed at the
respective capital gains rates regardless of the length of time a shareholder
has held such shares. Distributions paid in excess of a LifePoints 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.

The sale of shares of a LifePoints 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 LifePoints 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.

Shareholders of the LifePoints Funds will be notified after each calendar
year of the amounts of ordinary income dividends, and 28% and 20% capital
gains distributions, including any amounts which are deemed paid on December
31 of the prior year.

A LifePoints 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 LifePoints Fund with the shareholder's certified
taxpayer identification number or required certifications or which is subject
to backup withholding.

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

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

Additional information on these and other tax matters relating to the
LifePoints 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 LifePoints 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.

Performance will be calculated separately for Class D and Class E Shares of
the LifePoints Funds. The Class D Shares have different expenses from the
Class E Shares which may affect performance. The average annual total returns
for Class E shares of each of the Funds are as follows

<TABLE>
<CAPTION>
INCEPTION TO
DECEMBER 31, 1997 INCEPTION DATE
----------------- --------------
<S> <C> <C>
Equity Balanced Strategy Fund............... (2.42)% 09/30/97
Aggressive Strategy Fund.................... (0.19) 09/16/97
Balanced Strategy Fund...................... 1.04 % 09/16/97
Moderate Strategy Fund...................... (0.06) 10/03/97
Conservative Strategy Fund.................. 1.36 11/08/97
</TABLE>

No Class D shares had been issued as of December 31, 1997 and therefore no
performance is reported for Class D shares.

34
<PAGE>

The Moderate and Conservative Strategy 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
LifePoints Fund's portfolio. The calculation includes all recurring fees that
are charged to all shareholder accounts.

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

FRIMCO'S HISTORICAL PERFORMANCE

Since the LifePoints Funds are new portfolios, there is information
regarding only their recent investment performance. However, FRIMCo has a
longer history of investment performance managing model investment portfolios
with investment objectives, strategies, policies, and restrictions
substantially similar to those of the LifePoints Funds. Set forth below are
historical performance data provided by FRIMCo pertaining to those model
investment portfolios. The data is provided to illustrate FRIMCo's past
performance in managing similar portfolios. The results presented are not
intended to predict or suggest the return to be experienced by any LifePoints
Fund or the return an individual investor might achieve by investing in a
LifePoints Fund. A LifePoints Fund's investment returns may differ from those
of the relevant model portfolio because, among other things, the LifePoints
Fund's fees and expenses may differ from those of the applicable portfolio.

PERCENTAGE TOTAL RETURNS/1/

PERIODS ENDING DECEMBER 31, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
ANNUALIZED
-------------------------------------
ONE FIVE TEN INCEPTION INCEPTION
YEAR YEARS YEARS TO DATE DATE
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
FRANK RUSSELL INVESTMENT COMPANY ASSET
ALLOCATION MODEL:
EQUITY BALANCED MODEL
FRIC Equity Balanced Fund comparable.. 22.44 17.14 14.88 15.11 10/01/85
AGGRESSIVE STRATEGY MODEL
FRIC Aggressive Strategy Fund compara-
ble.................................. 18.78 14.89 13.68 14.16 10/01/85
BALANCED STRATEGY MODEL
FRIC Balanced Strategy Fund compara-
ble.................................. 16.13 12.81 12.22 12.85 10/01/85
MODERATE STRATEGY MODEL
FRIC Moderate Strategy Fund compara-
ble.................................. 12.76 10.89 10.72 11.43 10/01/85
CONSERVATIVE STRATEGY MODEL
FRIC Conservative Strategy Fund compa-
rable................................ 9.55 -- -- 8.83 10/01/96
</TABLE>

35
<PAGE>

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

/1/Performance is calculated based on the SEC standardized method. Periods of
12 months and over are annualized. Total returns of model portfolios are
presented gross of fees and expenses, and do not reflect deductions of any
management fees and Rule 12b-1 distribution fees or Shareholder Service
fees, which are deducted from net asset value of the Class D or Class E
Shares of the LifePoints Funds. The performance for a model portfolio would
have been reduced if such fees had been deducted. Model portfolio
performance is based upon the actual mix of Underlying Funds recommended at
each specific point in time, which may differ slightly from the current
mix. Detail of the changes is available upon request. The Underlying Funds
in existence for less than the time periods shown were added to the mix on
the following dates: Quantitative Equity Fund, 07/01/87; Real Estate
Securities Fund, 01/01/90; Multistrategy Bond Fund, 02/01/93; and Emerging
Markets Fund, 04/01/95 (Fund performance for the Emerging Markets Fund is
calculated gross of investment services fees, descriptions of which can be
obtained from FRIMCo. Investment services fees will reduce performance).
Equity Income Fund was removed from the Conservative, Moderate, Balanced,
and Aggressive model portfolios as of January 1, 1996.

VALUATION OF LIFEPOINTS FUND SHARES

NET ASSET VALUE PER SHARE

The net asset value per share is calculated for shares of each class of each
LifePoints 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 the Class D and Class E Shares by dividing the current value of the
LifePoints Fund's assets (i.e., shares of the Underlying Funds plus any other
assets held in the portfolio) attributable to a particular class, less
liabilities attributable to that class, by the number of shares of the class
outstanding, and rounding to the nearest cent. All Funds determine net asset
value as of the close of the New York Stock Exchange (currently 4:00 p.m.
Eastern time). The determination is made by appraising each LifePoints Fund's
underlying investments on each business day (i.e., the Underlying Funds at the
current net asset value per share of such Underlying Fund).

VALUATION OF PORTFOLIO SECURITIES

Money market instruments held by a LifePoints Fund and maturing within 60
days of the valuation date 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 LifePoints Funds utilize the amortized cost valuation method in
accordance with Rule 2a-7 of the 1940 Act. Such money market instruments are
valued at "amortized cost" unless the Board determines that amortized cost
does not represent fair value. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the LifePoints Fund would
receive if it sold the instrument.

PURCHASE OF LIFEPOINTS FUND SHARES

Shares of the LifePoints Funds are sold on each business day 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
LifePoints Funds reserve the right to reject any purchase order.

36
<PAGE>

DISTRIBUTION AND SHAREHOLDER SERVICES PLANS

Under a distribution plan (the "Distribution Plan") for the Class D Shares,
the Investment Company may pay to the distributor, or any banks, broker-
dealers or other financial institutions that have entered into sales support
agreements ("Selling Agents"), an amount (the "12b-1 Fee") for the Selling
Agents' activities or expenses primarily intended to result in the sale of the
Class D Shares of the LifePoints Funds subject to the Distribution Plan. The
12b-1 Fee payments are calculated daily and paid quarterly by the Investment
Company, at an annual rate of up to 0.75% of the average daily net assets of a
LifePoints Fund's Class D Shares. The Board has, at the present time,
determined to limit payments under the Distribution Plan to 0.25% of average
daily net assets. The 12b-1 Fee may only be increased when the Board
determines that it is in the best interests of shareholders of the Class D
Shares of the LifePoints Funds to do so.

The 12b-1 Fees may be used to compensate (a) Selling Agents for sales
support services provided, and related expenses incurred with respect to,
Class D Shares, by such Selling Agents, and (b) the distributor for
distribution services provided by it, and related expenses incurred, including
payments by the distributor to compensate Selling Agents for providing support
services. The Distribution Plan is a compensation-type plan. As such, the
Investment Company makes no payments to the distributor except as described
above. Therefore, the Investment Company does not pay for unreimbursed
expenses of the distributor, including amounts expended by the distributor in
excess of amounts received by it from the Investment Company, interest,
carrying or other financing charges in connection with excess amounts
expended, or the distributor's overhead expenses. However, the distributor may
be able to recover such amount or may earn a profit from future payments made
by the Investment Company under the Distribution Plan.

In addition, the Investment Company has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments to the distributor or
any investment advisors, banks, broker-dealers, financial planners or other
financial institutions ("Servicing Agents") for any activities or expenses
primarily intended to assist, support or service the Servicing Agents' clients
who beneficially own Class D or Class E Shares of the LifePoints Funds.
Payments under the Services Plan are calculated daily and paid quarterly by
the Investment Company, at an annual rate of up to 0.25% of the average daily
net assets of a LifePoints Fund's Class D or Class E Shares.

ORDER PROCEDURES

Orders by all Eligible Investors (except for participants in the Three Day
Settlement Program described below) to purchase LifePoints Funds shares must
be received by an authorized Financial Intermediary or 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 the close of the New York Stock Exchange (currently 4:00
p.m. Eastern time).

Payment Procedures: Payment for the purchase of Fund shares must be received
by the Funds' Transfer Agent or custodian, 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
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 (the
"Custodian").

Automated Clearing House ("ACH"). Payment for orders may be made through the
ACH to the Custodian. However, funds transferred by ACH may or may not be
converted into federal funds the same day

37
<PAGE>

depending on the time the funds are received and on 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 a Financial
Intermediary or the Transfer Agent, P.O. Box 1591, Tacoma, WA 98401-1591.
Certified checks are not necessary, but checks are accepted subject to
collection at full face value in US funds and must be drawn in US dollars on a
US bank. Investments in the Funds will be effected upon receipt of the check
or draft by the Transfer Agent when the check or draft is received prior to
the close of the New York Stock Exchange (currently 4:00 p.m. Eastern time).
When the check or draft is received by the Transfer Agent after the close of
the New York Stock Exchange, the order will be effected on the following
business day.

THREE DAY SETTLEMENT PROGRAM

The Investment Company will accept orders from financial institutions to
purchase Class D or Class E Shares of the LifePoints Funds for settlement on
the third business day following the receipt of an order to be paid by federal
wire if the financial institution has agreed in writing to indemnify the
LifePoints 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 LifePoints Fund shares through a program of services
offered by a Financial Intermediary, such as a bank, broker-dealer, 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 Class D or Class E Shares of any LifePoints Fund
offered by this Prospectus for shares of the same class of another LifePoints
Fund offered by this Prospectus on the basis of current net asset value per
share at the time of the exchange. Shares of a LifePoints Fund offered by this
Prospectus may only be exchanged for shares of a Fund offered by the
Investment Company through another prospectus under certain conditions and
only in states where the exchange may legally be made. For additional
information, including a prospectus of other Investment Company Funds, contact
a Financial Intermediary or the Investment Company. Exchanges may be made (i)
by telephone if the registrations of the two accounts are identical; or
(ii) in writing addressed to the Investment Company.

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 advisor.

38
<PAGE>

REDEMPTION OF LIFEPOINTS FUND SHARES

SHAREHOLDERS UNCERTAIN OF REQUIREMENTS FOR REDEMPTION SHOULD TELEPHONE THE
FINANCIAL INTERMEDIARY FROM WHOM THEY RECEIVED THIS PROSPECTUS OR THE FUNDS AT
(800) 972-0700; IN WASHINGTON (253) 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 recent
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 an authorized Financial Intermediary or 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 the close of the New York
Stock Exchange (currently 4:00 p.m. Eastern time).

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 the Financial
Intermediary from whom this prospectus was obtained or Frank Russell
Investment Management Company, Attention: Frank Russell Investment Company,
Operations Department, P.O. Box 1591, Tacoma, WA 98401. The redemption price
will be the net asset value next determined after receipt by FRIMCo 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 as are 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.

39
<PAGE>

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

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

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

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

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

Redemption in Kind. A Fund may pay any portion of the redemption amount by a
distribution in kind of securities from the Fund's portfolio, in lieu of cash.
The Funds reserve the right to suspend the right of redemption or postpone the
date of payment if any unlikely emergency conditions, as specified in the 1940
Act or determined by the SEC, should develop.

ADDITIONAL INFORMATION

DISTRIBUTOR, CUSTODIAN, INDEPENDENT ACCOUNTANTS, AND REPORTS

Russell Fund Distributors, Inc., a wholly owned subsidiary of FRIMCo, is the
principal distributor for Investment Company shares. The distributor receives
no compensation from the Investment Company for its services.

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

40
<PAGE>

YEAR 2000

The services provided to the Trust and the shareholders by FRIMCo, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of their outside service
providers. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such event could have a negative impact of handling securities
trades, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that there will be no
adverse impact on the Trust, FRIMCo, the Distributor, the Transfer Agent and
the Custodian have advised the Trust that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000 and
expect that their systems, and those of their outside service providers, will
be adapted in time for the event. The obligation to make such adaptations, if
any, would be the responsibility of the service provider that maintains the
system. Therefore, the Trust does not expect to incur any material expense in
that regard.

ORGANIZATION, CAPITALIZATION AND VOTING

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

The Investment Company issues shares of beneficial interest divisible into
an unlimited number of funds, each of which funds is a separate trust under
Massachusetts law, and the funds' shares may be offered in multiple classes.
Shares of each class of a Fund represent proportionate interests in the assets
of that Fund attributable to that class, and have the same voting and other
rights and preferences as the shares of other classes of the Fund. Shares of
each class of a Fund are entitled to such dividends and distributions earned
on the assets belonging to the Fund as may be declared by the Board. Shares of
each class of a Fund have a par value of $0.01 per share, are fully paid and
nonassessable, and have no preemptive or conversion rights. Each share of a
class of a Fund has one vote; there are no cumulative voting rights. There are
no annual meetings of shareholders, but special meetings may be held. On any
matter which affects only a particular Fund or class, only shareholders of
that Fund or class, as applicable, will vote, unless otherwise required by the
1940 Act or the amended Master Trust Agreement.

In addition to offering Class D and Class E Shares, the LifePoints Funds are
authorized to offer beneficial interests in Class S Shares. Class S Shares
are, as of the date of this Prospectus, not offered for public investment.

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 shall be filled by the vote of a majority of the remaining Trustees
so long as, in substance, two-thirds of the Trustees have been elected by
shareholders.

At March 31, 1998, the following shareholders may be deemed by the 1940 Act
to control the LifePoints Funds because it owns more than 25% of the voting
shares of the indicated Funds; H & H Investments Solutions, Inc.--Equity
Balance Strategy, Aggressive Strategy, Balanced Strategy, Moderate Strategy,
and Conservative

41
<PAGE>

Strategy Funds, Class D; Capinco/Sargento--Equity Balanced Strategy Fund,
Class E; Board of Pensions of Church of God, Inc.,--Balanced Strategy Fund,
Class E; Zions First National Bank--Moderate Strategy Fund, Class E; Jasco &
Co.--Conservative Strategy Fund, Class E.

MONEY MANAGER PROFILES

The money managers have no other affiliations with the Underlying Funds,
FRIMCo, or with Russell. 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 Russell, including its wholly
owned subsidiary, Frank Russell Trust Company.

DIVERSIFIED EQUITY FUND

Alliance Capital Management L.P., First Bank Place, 601 2nd Ave. South,
Suite 5000, Minneapolis, MN 55402-4322, is 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. AXA, a French insurance holding
company owns 60.5% of the Equitable.

Barclays Global Investors N.A., 45 Fremont Street, San Francisco, CA 94105,
is an indirect, wholly-owned subsidiary of Barclays Bank PLC.

Equinox Capital Management, Inc., 590 Madison Avenue, 41st 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 500,
Atlanta, GA 30309, is a corporation whose indirect parent is AMVESCO, PLC, a
London-based financial services holding company.

Peachtree Asset Management, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308. Peachtree is a unit of the Smith Barney Asset
Management division of Smith Barney Mutual Funds Management, Inc., which is a
wholly owned subsidiary of Travelers Group Inc.

As of April 1, 1998, the Trust has been advised that a judge of the
Middlesex County Superior Court in the Commonwealth of Massachusetts has
issued an order enjoining Mr. Schneider from providing investment

42
<PAGE>

advisory services to certain clients of a firm in which he had been a partner.
The Trust, though not a party to that litigation, would be affected by that
order. The Board has been advised that the Trust's investment manager and
certain other persons have initiated legal action to stay the effectiveness of
that order. If that effort is not successful, the Board will determine what
other action is required to protect the Trust and to oversee the investment of
the assets managed by Schneider Capital Management.

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.

Fiduciary International, Inc., 2 World Trade Center, New York, NY 10048, an
investment advisor 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 an SEC registered investment
advisor. 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, is a wholly owned subsidiary of United Asset
Management Company, a publicly traded corporation.

Wellington Management Company, LLP, 75 State Street, Boston, MA 02109, is a
private Massachusetts limited liability partnership, of which the following
persons are managing partners: Robert W. Doran, Duncan M. McFarland and John
R. Ryan.

QUANTITATIVE EQUITY FUND

Barclays Global Investors N.A., See: Diversified Equity Fund.

J.P. Morgan Investment Management, Inc., 522 Fifth Ave., New York, NY 10036,
is a wholly owned subsidiary of J.P. Morgan & Co., Inc., a publicly held bank
holding company.

43
<PAGE>

INTERNATIONAL SECURITIES FUND

J.P. Morgan Investment Management, Inc., See: Quantitative Equity Fund.

Marathon Asset Management Limited, Orion House, 5 Upper St. Martin's Lane.,
London, England WC2H 9EA, is a corporation 33.3% owned by each of the
following: Jeremy Hosking, William Arah and Neil Ostrer.

Mastholm Asset Management, L.L.C., 10500 N.E. 8th Street, Suite 660,
Bellevue, WA 98004 is a Washington limited Liability corporation that is
controlled by the following. members: Thomas A. Garr; Robert L. Gernstetter;
Joseph P. Jordon; Arthur M. Tyson and Theodore J. Tyson.

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.

The Boston Company Asset Management, Inc., One Boston Place, 14th Floor,
Boston, MA 02108-4402, is 100% owned by Mellon Bank Corporation, a publicly
held corporation.

EMERGING MARKETS FUND

Genesis Asset Managers, Limited., 21 Knightsbridge, London, SW1X 7LY, 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
advisor 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 International Ltd., is controlled 55% by
management and associated interests and the balance held by outside
shareholders, with the largest single holding being 15%.

J.P. Morgan Investment Management, Inc., See: Quantitative Equity Fund.

44
<PAGE>

Montgomery Asset Management, L.P., 101 California Street, 35th Floor, San
Francisco, CA 94111, is a Delaware limited liability company with majority
ownership held by Commerzbank AG, a foreign banking organization.

REAL ESTATE SECURITIES FUND

AEW Capital Management, L.P., 225 Franklin Street, Boston, MA 02110, is a
wholly-owned affiliate of New England Investment Companies, L.P. ("NEIC").
NEIC is a publicly-held limited partnership. Metropolitan Life Insurance
Company, a publicly-held corporation, owns approximately 53% of NEIC. AEW
Capital Management, Inc., a wholly-owned subsidiary of NEIC, is the general
partner, and NEIC is the sole limited partner, of AEW Capital Management, L.P.

DIVERSIFIED BOND FUND

Lincoln Capital Management Company, See: Diversified Equity Fund.

Standish, Ayer & Wood, Inc., One Financial Center, Boston, MA 02111, whose
ownership is divided among seventeen directors, with no director having more
than a 25% ownership interest.

VOLATILITY CONSTRAINED BOND FUND

BlackRock Financial Management, 345 Park Ave., Floor, New York, NY 10154, is
a wholly-owned indirect subsidiary of PNC Bank.

Standish, Ayer & Wood, Inc., See: Diversified Bond Fund.

STW Fixed Income Management, Trinity Hall, 43 Cedar Avenue, P. O. Box 2910,
Hamilton HM KX, Bermuda, is a Bermuda exempted company. William H. Williams
III is the sole shareholder.

MULTISTRATEGY BOND FUND

BEA Associates Inc., One Citicorp Center 153 East 53rd Street, 58th Floor,
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,

45
<PAGE>

a Swiss corporation. No one person or entity possesses a controlling interest
in Basic, the 20% partner. BEA Associates is a registered investment advisor.

Pacific Investment Management Company, See: Diversified Bond Fund.

Standish, Ayer & Wood, Inc., See: Diversified Bond Fund.

46
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET
TACOMA, WASHINGTON 98402
TELEPHONE (800) 972-0700
IN WASHINGTON (253) 627-7001

MONEY MANAGERS
DIVERSIFIED EQUITY
Alliance Capital Management L.P.
Barclays Global Investors, N.A.
Equinox Capital Management, Inc.
INVESCO Capital Management, Inc.
Lincoln Capital Management Company
Peachtree Asset Management
Schneider Capital Management
Suffolk Capital Management, Inc.
Trinity Investment Management Corporation

SPECIAL GROWTH
Delphi Management, Inc.
Fiduciary International, Inc.
GlobeFlex Capital, L.P.
Jacobs Levy Equity Management, Inc.
Sirach Capital Management, Inc.
Wellington Management Company, LLP

QUANTITATIVE EQUITY
Barclays Global Investors, N.A.
Franklin Portfolio Associates, LLC
J.P. Morgan Investment Management, Inc.

INTERNATIONAL SECURITIES
J.P. Morgan Investment Management, Inc.
Marathon Asset Management Limited
Mastholm Asset Management LLC
Oechsle International Advisors
Rowe Price-Fleming International, Inc.
Sanford C. Bernstein & Co., Inc.
The Boston Company Asset Management, Inc.

REAL ESTATE SECURITIES
AEW Capital Management, L.P.
Cohen & Steers Capital Management

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

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

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

MANAGER, TRANSFER AND DIVIDEND PAYING AGENT
Frank Russell Investment Management Company
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

47
<PAGE>

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) 787-7354

(800) Russel4
In Washington (253) 627-7001

48
<PAGE>

<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
(c) 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
(c) Not applicable
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
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
(c) Not Applicable
(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

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Information Required in a
Statement of Additional
Part B Information Statement Caption
- -------- --------------------------- ------------------------------------------------------------
<S> <C> <C>
(c) Operation of Investment Company - Brokerage Allocations
(d) Operation of Investment Company - Brokerage Commissions
(e) Operation of Investment Company - Brokerage Commissions
18 Capital Stock and Other
Securities
(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
(c) Not Applicable
22 Calculations of Performance
Data
(a) Money Market Funds Yield and Total Return Quotations
(b) Other Registrations Yield and Total Return Quotations
23 Financial Statements Annual Report to Shareholders; Financial Statements

</TABLE>
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700
In Washington (253) 627-7001

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1998

Frank Russell Investment Company (the "Trust") is a single legal entity
organized as a Massachusetts business trust. The Trust operates investment
portfolios referred to as "Funds." The Trust offers shares of beneficial
interest in the Funds in five separate Prospectuses.

As of the date of this Statement of Additional Information ("Statement" or
"SAI"), the Trust is comprised of the following Funds, each of which commenced
operations on the date indicated:
<TABLE>
<CAPTION>
Fund Inception
Fund Date Prospectus Date
---- -------------- ---------------
<S> <C> <C>
Equity I Fund October 15, 1981 May 1, 1998
Equity II Fund December 28, 1981 May 1, 1998
Equity III Fund November 27, 1981 May 1, 1998
Equity Q Fund May 29, 1987 May 1, 1998
Equity T Fund October 7, 1996 May 1, 1998
International Fund January 31, 1983 May 1, 1998
Emerging Markets Fund January 29, 1993 May 1, 1998
</TABLE>
<PAGE>

<TABLE>

<S> <C> <C>
Fixed Income I Fund October 15, 1981 May 1, 1998
Fixed Income II Fund October 30, 1981 May 1, 1998
Fixed Income III Fund January 29, 1993 May 1, 1998
Money Market Fund October 15, 1981 May 1, 1998
Diversified Equity Fund September 5, 1985 May 1, 1998
Special Growth Fund September 5, 1985 May 1, 1998
Equity Income Fund September 5, 1985 May 1, 1998
Quantitative Equity Fund May 15, 1987 May 1, 1998
International Securities Fund September 5, 1985 May 1, 1998
Real Estate Securities Fund July 28, 1989 May 1, 1998
Diversified Bond Fund September 5, 1985 May 1, 1998
Volatility Constrained Bond Fund September 5, 1985 May 1, 1998
Multistrategy Bond Fund January 29, 1993 May 1, 1998
Limited Volatility Tax Free Fund September 5, 1985 May 1, 1998
U.S. Government Money Market Fund September 5, 1985 May 1, 1998
Tax Free Money Market Fund May 8, 1987 May 1, 1998
</TABLE>

The Funds had aggregate net assets of $13.6 billion on April 1, 1998.

A shareholder of the Equity I Fund, Equity II Fund, Equity III Fund, Equity Q
Fund, Equity T Fund,

2
<PAGE>

International Fund, Emerging Markets Fund, Fixed Income I Fund, Fixed Income II
Fund, Fixed Income III Fund, and Money Market Fund may enter into a separate
agreement with Frank Russell Investment Management Company ("FRIMCo") to obtain
certain services from, and pay a separate quarterly individual shareholder
investment services fee directly to, FRIMCo. The amount of the fee is based upon
the assets subject to the applicable agreement and the services obtained under
that agreement. A shareholder of the other Funds does not execute such an
agreement to acquire such services and pays no such fees. In each case, FRIMCo
may charge fees to a shareholder for non-investment services provided directly
to that shareholder.

Each of the Funds presently offers interests in Class S Shares. Ten of the
Funds--the Diversified Equity, Special Growth, Equity Income, Quantitative
Equity, International Securities, Real Estate Securities, Diversified Bond,
Volatility Constrained Bond, Multistrategy Bond, and Emerging Markets Funds
(collectively, the "Multiple Class Funds")--presently offer interests in another
class of shares, the Class C Shares. This Statement relates to both the Class S
Shares and the Class C Shares of the Funds.

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 Trust at the number or address shown above.

Capitalized terms not otherwise defined in this Statement shall have the
meanings assigned to them in the Prospectuses.

This Statement incorporates by reference the Trust's Annual Reports to
Shareholders for the year ended December 31, 1997. Copies of the Funds' Annual
Reports accompany this Statement.

-3
<PAGE>

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..............
Independent Accountants.............................
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.............................

</TABLE>

-4
<PAGE>

<TABLE>

<S> <C>
Investment Policies.................................
Certain Investments.................................

TAXES

RATINGS OF DEBT INSTRUMENTS.................................

FINANCIAL STATEMENTS........................................

FINANCIAL HIGHLIGHTS........................................
</TABLE>

-5
<PAGE>

STRUCTURE AND GOVERNANCE

ORGANIZATION AND BUSINESS HISTORY. The Trust commenced business operations as a
Maryland corporation on October 15, 1981. On January 2, 1985, the Trust
reorganized by changing its domicile and legal status to a Massachusetts
business trust.

The Trust 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
("Board" or the "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 Trust as a whole, or shareholders of a particular
Fund, must be approved by the holders of a majority of the shares of the Trust
or Fund, respectively.

The Trust 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.

The Trust's Funds are authorized to issue shares of beneficial interest in one
or more classes. Shares of each class of a Fund have a par value of $.01 per
share, are fully paid and nonassessable, and have no preemptive or conversion
rights. Each of the Funds presently offers interests in the Class S Shares, and
the Multiple Class Funds offer interests in another class of shares, the Class C
Shares. The Class C Shares and the Class S Shares are designed to meet
different investor needs. The Class C Shares are subject to a Rule 12b-1 fee of
up to 0.75%, presently limited to 0.40%, and a shareholder services fee of up to
0.25%. The Class S Shares are not subject to either a Rule 12b-1 fee or a
shareholder services fee. Unless otherwise indicated, "shares" in this
Statement refers to the Class C Shares and the Class S Shares of the Funds.

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 Trust 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 Trust will not hold annual meetings of shareholders,
but special meetings may be held. Special meetings may be convened by (i) the
Board, (ii) upon written request to the Board by shareholders holding at least
10% of the Trust's 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 Trust, and hold office for life unless they resign or
are removed by, in substance, a vote of two-thirds of the Trust shares
outstanding. Under these circumstances, no one person, entity or shareholder
"controls" the

6
<PAGE>

Trust.

The following shareholders owned 5% or more of the voting shares of the
Trust or of the Funds at March 31, 1998.

Money Market: Lincoln Capital Management, c/o Frank Russell Investment Company,
Attn: Operations Dept., PO Box 1591, Tacoma, WA 98401-1591, 5.77%, record.

Equity I: U.S. National Bank of Oregon, Bancorp Tower Building, 111 S.W. Fifth
Avenue, Suite 1, Portland, OR 97204, 24.73%, record.

Equity II: U.S. National Bank of Oregon, Bancorp Tower Building, 7.80%, record;
National City Bank of Minneapolis, Sixth on the Mall, 651 Nicollet Mall,
Minneapolis, MN 55402, 6.39%, record.

Equity III: U.S. National Bank of Oregon, 20.49%, record; Firstar Trust Company,
P.O. Box 1787, Milwaukee, WI 53201, 11.44%, record.

Equity Q: U.S. National Bank of Oregon, 35.53%, record.

Equity T: Indiana Trust & Investment Company, P.O. Box 5149, Mishawaka, IN
46545, 29.89%, record; Charles Schwab & Co., Inc., 101 Montgomery Street, San
Francisco, CA 94104, 11.79%, record; Miller/Russell and Associates, Inc., 2929
E. Camelback Road, Suite 223, Phoenix, AZ 85016, 7.26%, record.

International: U.S. National Bank of Oregon, 31.21%, record.

Emerging Markets: U.S. National Bank of Oregon, 18.52%, record.

Fixed Income I: U.S. National Bank of Oregon, 16.12%, record; National City Bank
of Minneapolis, 14.20%, record; First Union National Bank, 401 South Tryon
Street, Charlotte, NC 28288-1151, 10.08%, record.

Fixed Income II: First Tennessee Bank, N.A., FBO Knox County, Plaza Tower, 5th
Floor, 800 South Gy Street, Knoxville, TN 37995, 8.91%, record; U.S. National
Bank of Oregon, 7.76%, record.

Fixed Income III: U.S. National Bank of Oregon, 31.57%, record.

Diversified Equity: FMB Trust, One Financial Plaza, 10717 Adams Street,
Holland, MI 49423, 5.84%, record.

Special Growth - Class S: FMB Trust, 10.01%, record.

Special Growth - Class C: FMB Trust, 99.94%, record.

Equity Income - Class S: FMB Trust, 9.97%, record; Citizens Bank (Saginaw), 101
N. Washington, Saginaw, MI 48607-1207, 6.68%, record.

Equity Income - Class C: FMB Trust, 95.92%, record.

Quantitative Equity - Class S: FMB Trust, 8.48%, record.

Quantitative Equity - Class C: FMB Trust, 99.86%, record.

International Securities - Class S: FMB Trust, 5.70%, record.

International Securities - Class C: FMB Trust, 99.90%, record.

Real Estate Securities - Class S: U.S. National Bank of Oregon, 12.97%,
record.

Real Estate Securities - Class C: FMB Trust, 99.56%, record.

Diversified Bond - Class S: Citizens Bank (Saginaw), 14.44%, record; FMB Trust,
10.02%, record; Hawaiian Trust Investment Services, 130 Merchant Street, 10th
Floor Tower, Honolulu, HI 96813, 5.96%, record; Key Trust Company, PO Box 94871,
Cleveland, OH 44101-4871, 5.42%, record.

Diversified Bond - Class C: FMB Trust, 99.96%, record.

Multistrategy Bond: Empire National Bank, 1227 East Front Street, Traverse City,
MI 49684, 5.12%, record.

Limited Volatility Tax Free: Norwest Bank Iowa, N.A., 666 Walnut Street, 3rd
Floor, Des Moines, IA 50309, 5.75%, record; Zions First National Bank, One South
Main Street, Salt Lake City, UT 84111, 5.47%, record.

US Government Money Market: Winona National and Savings Bank, P.O. Box 499,
Winona, MN 55987, 10.45%, record.

Tax Free Money Market: Citizens Bank (Saginaw), 39.01%, record; Miller/Russell
and Associates, Inc., 20.42%, record.

<PAGE>

TRUSTEES AND OFFICERS. The Board of Trustees is responsible for overseeing
generally the operation of the Funds. A Trustee may be removed at any time by,
in substance, a vote of two-thirds of Trust shares. A vacancy in the Board shall
be filled by a vote of a majority of the remaining Trustees so long as, in
substance, two-thirds of the Trustees have been elected by shareholders. The
officers, all of whom are employed by and are officers of FRIMCo or its
affiliates, are responsible for the day-to-day management and administration of
the Funds' operations.

The Trust paid in aggregate $156,315.80 for the year ended December 31, 1997.

8
<PAGE>

December 31, 1997 to the Trustees who are not officers or employees of FRIMCo or
its affiliates. Trustees are paid an annual fee plus travel and other expenses
incurred in attending Board meetings. The Trust's officers and employees are
paid by FRIMCo or its affiliates.

The following lists the Trustees and officers and their positions with the
Trust, their ages, their present and principal occupations during the past five
years and the mailing addresses of Trustees who are not affiliated with the
Trust. The mailing address for all Trustees and officers affiliated with the
Trust 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 Trust as defined in the Investment Company Act of 1940, 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.--65 years old--Trustee and Chairman of the Board.
Trustee, and Chairman of the Board, Russell Insurance Funds; Director, Chairman
of the Board and Chief Executive Officer, Russell Building Management Company,
Inc.; Director and Chairman of the Board, Frank Russell Company, Frank Russell
Securities, Inc.; Frank Russell Trust Company, Frank Russell Investments
(Delaware), Inc.; Director, Frank Russell Investment Management Company;
Director, Chairman of the Board and President, Russell 20/20 Association.

*Lynn L. Anderson--59 years old--Trustee, President and Chief Executive Officer.
Trustee, President and Chief Executive Officer, Russell Insurance Funds;
Director, Chief Executive Officer and Chairman of the Board, Russell Fund
Distributors, Inc.; Trustee, Chairman of the Board and President, The SsgA Funds
(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 of the
Board, Frank Russell Investment Company Public Limited PLC; Director, Frank
Russell Company, Frank Russell Investments (Ireland) Limited, Frank Russell
Investments (Cayman) Ltd. and Frank Russell Investments (UK) Ltd.; November 1995
to June 1993, Director, Frank Russell Company. Until September 1994, Director
and President, The Laurel Funds, Inc. (investment company).

Paul E. Anderson--66 years old--Trustee. 23 Forest Glen Lane, Tacoma, Washington
98409. Trustee, Russell Insurance Funds; 1996 to Present, President, Forest
Limited Partnership. 1984 to 1996, President, Vancouver Door Company, Inc.

Paul Anton, Ph.D.--78 years old--Trustee. PO Box 1337, N.W., Gig Harbor,
Washington 98335. Trustee, Russell Insurance Funds. President, Paul Anton and
Associates (Marketing Consultant on emerging international markets for small
corporations). 1991-1994, Adjunct Professor, International Marketing,
University of Washington, Tacoma, Washington.

9
<PAGE>

William E. Baxter--72 years old--Trustee. 800 North C Street, Tacoma,
Washington 98403. Trustee, Russell Insurance Funds, Retired.

Lee C. Gingrich--67 years old--Trustee. 1730 North Jackson, Tacoma, Washington
98406. Trustee, Russell Insurance Funds. President, Gingrich Enterprises, Inc.
(Business and Property Management).

Eleanor W. Palmer--71 years old--Trustee. 2025 Narrows View Circle #232-D,
P.0. Box 1057, Gig Harbor, Washington 98335. Trustee Frank Russell Insurance
Funds; Director of Frank Russell Trust Company.

*George W. Weber--46 years old--Treasurer and Chief Accounting Officer.
Treasurer and Chief Accounting Officer, Russell Insurance Funds, and Frank
Russell Trust Company; Director, Funds Administration and Operations of Frank
Russell Investment Management Company, Russell Fund Distributors, Inc and Frank
Russell Trust Company; Senior Vice President and Fund Treasurer of the SSgA
Funds (investment company); March 1993 to January 1996, Vice President,
Operations, Funds Management, J.P. Morgan.

*Randall P. Lert--44 years old--Director of Investments. Director of
Investments, Russell Insurance Funds, Senior Investment Officer and Director of
Investment Services, Frank Russell Trust Company; Director and Chief Investment
Officer, Frank Russell Investment Management Company; Director and Chief
Investment Officer, Russell Fund Distributors, Inc. Director-Futures Trading,
Frank Russell Investments (Ireland) Limited and Frank Russell Investments
(Cayman) Ltd., Senior Vice President and Director of Portfolio Trading, Frank
Russell Canada Limited/Limitee. April 1990 to November 1995, Director of
Investments of Frank Russell Investment Management Company.

*Karl J. Ege--56 years old--Secretary and General Counsel. Secretary and General
Counsel of Russell Insurance Funds. Director, Secretary and General Counsel,
Russell Fiduciary Services Co., Frank Russell Capital, Inc.; Secretary, General
Counsel and Managing Director--Law and Government Affairs of Frank Russell
Company; 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 Inc., Russell MLC
Management Co., Russell International Services Co., Inc. and Russell 20-20
Association; Director and Assistant Secretary of Frank Russell Company Limited
(London) and Russell Systems Ltd.; Director, Frank Russell Investment Company
LLC, Frank Russell Investments (Cayman) Ltd., Frank Russell Investment Company
PLC, Frank Russell Investments (Ireland) Limited, Frank Russell Company S.A.,
Frank Russell Japan Co. Ltd., Frank Russell Company (NZ) Limited, Russell
Investment Nominee Co PTY Ltd and Frank Russell Investments (UK) Ltd.; From
November 1995 to February 1997, Director and Secretary, Frank Russell
Investments (Delaware), Inc.; July 1992 to June 1994, Director, President and
Secretary of Frank Russell Shelf Corporation.

*Peter Apanovitch--52 years old--Manager of Short-Term Investment Funds.
Manager of Short-Term Investment Funds, Russell Insurance Funds; Manager of
Short-Term Investment Funds, Frank Russell Investment Management Company and
Frank Russell Trust Company.

10
<PAGE>

TRUSTEE COMPENSATION TABLE*
<TABLE>
<CAPTION>
PENSION OR RETIREMENT
AGGREGATE COMPENSATION BENEFITS ACCRUED AS ESTIMATED ANNUAL TOTAL COMPENSATION FROM
FROM THE INVESTMENT PART OF THE INVESTMENT BENEFITS UPON THE INVESTMENT COMPANY
TRUSTEE COMPANY COMPANY EXPENSES RETIREMENT PAID TO TRUSTEES
- ------- ---------------------- ---------------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Lynn L. Anderson $ 0 $0 $0 $ 0
Paul E. Anderson $20,000 $0 $0 $31,263.16*
Paul Anton, PhD. $20,000 $0 $0 $31,263.16*
William E. Baxter $20,000 $0 $0 $31,263.16*
Lee C. Gingrich $20,000 $0 $0 $31,263.16*
Eleanor W. Palmer $20,000 $0 $0 $31,263.16*
George F. Russell $ 0 $0 $0 $ 0
</TABLE>

* The Trustees received $11,263 for service as trustees on the Board of Trustees
for the Russell Insurance Funds ($4,000 of which is for services during 1996).

OPERATION OF THE TRUST

SERVICE PROVIDERS. Most of the Trust's necessary day-to-day operations are
performed by separate business organizations under contract to the Trust. The
principal service providers are:

<TABLE>

<S> <C>
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
</TABLE>

-11
<PAGE>

Accountant

CONSULTANT. Frank Russell Company, the corporate parent of FRIMCo, was
responsible for organizing the Trust and provides ongoing consulting services,
described in the Prospectuses, to the Trust and FRIMCo.

Frank Russell Company provides comprehensive consulting and money manager
evaluation services to institutional clients, including FRIMCo and Frank Russell
Trust Company, and to high net worth individuals and families ($100 million)
through its 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), Frank Russell
Company (N.Z.) Limited (Auckland), and Frank Russell Investments (Delaware),
Inc., 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. 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 US 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. FRIMCo 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. FRIMCo also develops
the investment programs for each of the Funds, selects money managers for the
Funds (subject to approval by the Board), 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 Portfolio.
(See, "Investment Policies--Liquidity Portfolio.") FRIMCo also acts as the
Trust's transfer agent, dividend disbursing agent and as the money manager for
the Money Market and US Government Money Market Funds. FRIMCo, as agent for
the Trust, pays the money managers' fees for the Funds, as a fiduciary for the
Funds.

Prior to April 1, 1995, the Equity I, Equity II, Equity III, Equity Q, Equity T,
International, Emerging Markets, Fixed Income I, Fixed Income II, Fixed Income
III and Money Market Funds paid no management fee to FRIMCo. Each shareholder
entered into a written Asset Management Services Agreement with FRIMCo 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
Trust's Management Agreement was amended to provide that each of those Funds
will pay an annual management fee directly to FRIMCo, billed monthly on a pro
rata basis and calculated as a specified percentage of the average daily net
assets of each of those Funds. (See the applicable Prospectus for annual
percentage rates.) A shareholder of any of those Funds would continue to enter
into a

12
<PAGE>

separate written agreement with FRIMCo to obtain separate 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
FRIMCo's provision of individual shareholder investment services with respect to
that shareholder.

Each of the Funds pays an annual management fee directly to FRIMCo, 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 applicable Prospectus
for the Funds' annual percentage rates.)

The following Funds paid FRIMCo the listed management fees for the years ended
December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
12/31/97 12/31/96 12/31/95
---------- ---------- ----------
<S> <C> <C> <C>
Diversified Equity $6,906,245 $4,728,098 $3,842,471
Special Growth 4,556,999 3,307,757 2,588,270
Equity Income 1,721,974 1,504,153 1,314,461
Quantitative Equity 6,616,377 4,455,041 3,469,134
International Securities 7,751,289 6,498,479 5,723,534
Real Estate Securities 4,428,351 2,943,292 2,065,552
Diversified Bonds 2,755,500 2,360,391 2,308,823
Volatility Constrained Bonds 812,308 836,818 985,215
Multistrategy Bond 2,225,087 1,673,473 1,217,039
Limited Volatility Tax Free 361,226 312,456 294,007
U.S. Government Money Market 542,075 481,642 338,745
Tax Free Money Market 266,939 234,929 214,949
</TABLE>

For the years ended December 31, 1997 and 1996, the following Funds paid FRIMCo
the following management fees:

-13
<PAGE>

<TABLE>
<CAPTION>
YEARS ENDED
------------------------
12/31/97 12/31/96
---------- ----------
<S> <C> <C>
Equity I $6,457,044 $5,261,926
Equity II 3,226,955 2,448,618
Equity III 1,381,167 1,340,374
Equity Q 6,049,752 4,392,254
Equity T 375,054 21,443
International 7,576,927 6,569,285
Emerging Markets 4,167,163 2,773,817
Fixed Income I 2,149,298 1,977,178
</TABLE>

-14
<PAGE>

<TABLE>
<S> <C> <C>
Fixed Income II 1,184,588 988,312
Fixed Income III 1,835,798 1,483,875
Money Market 1,805,170 1,437,186
</TABLE>

Equity T Fund commenced operations on October 7, 1996.

The Trust's Management Agreement also provides that if any Fund's expenses
(exclusive of interest and taxes) exceed specified limits imposed by the Manager
on an annual basis, such excess will be paid by FRIMCo. The Manager has
voluntarily agreed to waive a portion of its 1.20% management fee for the
Emerging Markets Fund, to the extent total fund level expenses for the Fund
exceed 1.95% of its average daily net assets on an annual basis. There were no
waivers by the Manager for the twelve months ended December 31, 1997.

The Manager has voluntarily agreed to waive a portion of its 0.75% management
fee for the Equity T Fund, up to the full amount of that fee, equal to the
amount by which the Fund's total operating expenses exceed 1.00% of the Fund's
average daily net assets on an annual basis. In addition, the Manager has
voluntarily agreed to reimburse the Fund for any remaining Fund operating
expenses after any Manager waiver which exceed 1.00% of the Fund's average
daily net assets on an annual basis. The amount of such waiver for the twelve
months ended December 31, 1997 was $45,699.

The Manager had voluntarily agreed to waive its 0.25% management fee for the
Money Market Fund through October 14, 1997 and 0.15% of its management fee from
October 15, 1997 through December 31, 1997. The amount of fees waived for the
twelve months ended December 31, 1997 was $1,611,140.

The Manager had voluntarily agreed to waive its 0.25% management fee for the
US Government Money Market Fund through August 31, 1997 and to waive 0.13% of
its management fee from September 1, 1997 through December 31, 1997. The amount
of fees waived for the twelve months ended December 31, 1997 was $463,787.

Effective January 1, 1997, the Manager has voluntarily agreed to waive its
0.10% management fee for the Tax Free Money Market Fund. The amount of such
waiver for the twelve months ended December 31, 1997 was $106,776.

The Trust's Management Agreement also provides that if any Fund's expenses
(exclusive of interest and taxes) exceed specified limits imposed by the Manager
on an annual basis, such excess will be paid by FRIMCo. The Manager has
voluntarily agreed to waive a portion of its 0.65% management fee for the
Multistrategy Bond Fund, to the extent that total fund level expenses for this
Fund exceed 0.80% of its average daily net assets on an annual basis. The total
amount of such waivers for the twelve months ended December 31, 1997 was
$126,393.

15
<PAGE>

The Trust's Management Agreement also provides that if any Fund's expenses
(exclusive of interest and taxes) exceed specified limits imposed by the Manager
on an annual basis, such excess will be paid by FRIMCo. The Manager has
voluntarily agreed to waive a portion of its 0.55% management fee for the Fixed
Income III Fund, to the extent total fund level expenses for the Fund exceed
0.75% of its average daily net assets on an annual basis. There were no waivers
for the Fixed Income III Fund for the period ended December 31, 1997.

FRIMCo also provides, through its Russell Private Investment Division,
investment advisory, consulting and money manager evaluation services to high
net worth individuals and families.

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

MONEY MANAGERS. Except with respect to the Money Market and US Government
Money Market Funds, the money managers have no affiliations or relationships
with the Trust or FRIMCo 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 investment
vehicles sponsored or advised by Frank Russell Company or its affiliates, 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.

From its management fees, FRIMCo, as agent for the Trust, 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 average for
the quarter of all the assets allocated to the money manager. For the period
ended December 31, 1997, management fees paid to the money managers were: Equity
I $2,425,193; Equity II $1,716,048; Equity III $439,093; Fixed Income I
$542,745; Fixed Income II $410,761; Fixed Income III $692,500; International
$3,947,057; Equity Q $1,958,721; Equity T $170,958; Emerging Markets
$2,396,288; Diversified Equity $1,996,005; Special Growth $1,914,056; Equity
Income $410,481; Diversified Bond $462,945; Volatility Constrained Bond
$282,055; International Securities $3,188,600; Multistrategy Bond $751,497;
Quantitative Equity $1,648,992; Real Estate Securities $1,529,207; Limited
Volatility Tax Free $179,885 and Tax Free Money Market $103,973. 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. (the "Distributor") serves as the
distributor of the Trust shares. The Distributor receives no compensation from
the Trust for its services except with respect to distribution fees with respect
to its distribution services in connection with Class C shares. The Distributor
is a wholly owned subsidiary of FRIMCo and its mailing address is 909 A Street,
Tacoma, WA 98402.

16
<PAGE>

annual fee, in accordance with the following: domestic custody - an annual fee,
payable monthly on a pro rata basis, based on the month-end net assets and
geographic classification of the investments in the international funds; fund
accounting -(i) an annual fee of $18,000 - $25,000 per portfolio per fund, (ii)
an annual fee of 0.015% - 0.030%, payable monthly on a pro rata basis, based on
daily average net assets of each Fund; securities transaction charges from $7.50
to $100.00 per transaction; monthly pricing fees of $375.00 per portfolio and
$6.00 to $16.00 per security; multiple class fees of $15,000 per year for each
additional class of shares; and yield calculation fees of $4,200 per fixed
income fund per year. State Street is reimbursed by the Funds for supplying
certain out-of-pocket expenses, including postage, transfer fees, stamp duties,
taxes, wire fees, telexes and freight. In addition, interest earned on invested
cash balances is used to offset the Funds' custodian expense. The mailing
address for State Street is 1776 Heritage Drive, North Quincy, MA 02171.

TRANSFER AND DIVIDEND DISBURSING AGENT. FRIMCo serves as Transfer Agent for the
Trust. For this service, FRIMCo is paid a fee of $20.00 per shareholder
transaction by all Funds except Money Market, U.S. Government Money Market and
Tax Free Money Market Funds. The Money Market, U.S. Government Money Market and
Tax Free Money Market Funds pay $15.00 per shareholder transaction. The Board
has approved a new fee arrangement to be effective May 18, 1998, pursuant to
which FRIMCo will be paid a per account fee for transfer agency and dividend
disbursing services provided to the Trust. From this fee FRIMCo compensates
unaffiliated agents who assist in providing these services. FRIMCO is also
reimbursed by the Trust for certain out-of-pocket expenses, including postage,
taxes, wires, stationery and telephone. FRIMCo's mailing address is 909 A
Street, Tacoma, WA 98402.

ORDER PLACEMENT DESIGNEES. The Trust has authorized certain Financial
Intermediaries to accept on its behalf purchase and redemption orders for Trust
shares. Certain Financial Intermediaries are authorized, subject to approval of
the Trust's distributor, to designate other intermediaries to accept purchase
and redemption orders on the Trust's behalf. The Trust will be deemed to have
received a purchase or redemption order when such a Financial Intermediary or,
if applicable, an authorized designee, accepts the order. The customer orders
will be priced at the Fund's net asset value next computed after they are
accepted by such a Financial Intermediary or an authorized designee, provided
that Financial Intermediary or an authorized designee timely transmits the
customer order to the Trust.

INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P. serves as the independent
accountants of the Trust. Coopers & Lybrand L.L.P. is responsible for
performing annual audits of the financial statements and financial highlights of
the Funds in accordance with generally accepted auditing standards and a review
of federal tax returns. The mailing address of Coopers & Lybrand L.L.P. is One
Post Office Square, Boston, MA 02109.

PLAN PURSUANT TO RULE 18f-3. On February 23, 1995, the Securities and Exchange
Commission (the "SEC") adopted Rule 18f-3 under the 1940 Act, which permits a
registered open-end investment company to issue multiple classes of shares in
accordance with a written plan approved by the investment company's board of
trustees that is filed with the SEC. At a meeting held on April 22, 1996, the
Board adopted a plan pursuant to Rule 18f-3 (the "Rule 18f-3 plan") on behalf of
each Multiple Class Fund. The key features of the Rule 18f-3 plan are as
follows: shares of each class of a Multiple Class Fund represent an equal pro
rata interest in the underlying assets of that Fund, and generally have
identical voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications and terms and conditions, except that:
(a) each class of shares offered in connection with a Rule 12b-1 plan would bear
certain fees under its respective Rule 12b-1 plan and would have exclusive
voting rights on matters pertaining to that plan and any related agreements; (2)
each class of shares may contain a conversion feature; (3) each class of shares
may bear differing amounts of certain class expenses;

17
<PAGE>

(4) different policies may be established with respect to the payment of
distributions on the classes of shares of a Multiple Class Fund to equalize the
net asset values of the classes or, in the absence of such policies, the net
asset value per share of the different classes may differ at certain times; (5)
each class of shares of a Multiple Class Fund might have different exchange
privileges from another class; (6) each class of shares of a Multiple Class Fund
would have a different class designation from another class of that Fund; and
(7) each class of Shares offered in connection with a shareholder servicing plan
would bear certain fees under its respective plan.

DISTRIBUTION PLAN. Under the 1940 Act, the SEC has adopted Rule 12b-1, which
regulates the circumstances under which the Funds may, directly or indirectly,
bear distribution expenses. Rule 12b-1 provides that the Funds may pay for such
expenses only pursuant to a plan adopted in accordance with Rule 12b-1.
Accordingly, the Multiple Class Funds have adopted a distribution plan (the
"Distribution Plan") for the Multiple Class Funds' Class C Shares, which are
described in the respective Funds' Prospectuses. In adopting the Distribution
Plan, a majority of the Trustees, including a majority of the Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Trust and who have
no direct or indirect financial interest in the operation of the Distribution
Plan or in any agreements entered into in connection with the Distribution Plan
(the "Independent Trustees"), have concluded, in conformity with the
requirements of the 1940 Act, that there is a reasonable likelihood that the
Distribution Plan will benefit each respective Multiple Class Fund and its
shareholders. In connection with the Trustees' consideration of whether to adopt
the Distribution Plan, the Distributor, as the Multiple Class Funds' principal
underwriter, represented to the Trustees that the Distributor believes that the
Distribution Plan should result in increased sales and asset retention for the
Multiple Class Funds by enabling the Multiple Class Funds to reach and retain
more investors and Financial Intermediaries (such as brokers, banks, financial
planners, investment advisors and other financial institutions), although it is
impossible to know for certain, in the absence of a Distribution Plan or under
an alternative distribution arrangement, the level of sales and asset retention
that a Multiple Class Fund would have.

The Distribution Plan provides that each Multiple Class Fund may spend annually,
directly or indirectly, up to 0.75% of the average daily net asset value of its
Class C Shares for any activities or expenses primarily intended to result in
the sale of Class C Shares of a Multiple Class Fund. Such payments by the Trust
will be calculated daily and paid periodically and shall not be made less
frequently than quarterly. The Board has presently determined to limit payments
under the Distribution Plan to 0.40% of average daily net assets. Any amendment
to increase materially the costs that a Multiple Class Fund's Shares may bear
for distribution pursuant to the Distribution Plan shall be effective upon a
vote of the holders of the lesser of (a) more than fifty percent (50%) of the
outstanding Shares of a Multiple Class Fund or (b) sixty-seven percent (67%) or
more of the Shares of a Multiple Class Fund present at a shareholders' meeting,
if the holders of more than 50% of the outstanding Shares of such Fund are
present or represented by proxy. The Distribution Plan does not provide for the
Multiple Class Funds to be charged for interest, carrying or any other financing
charges on any distribution expenses carried forward to subsequent years. A
quarterly report of the amounts expended under the Distribution Plan, and the
purposes for which such expenditures were incurred, must be made to the Trustees
for their review. The Distribution Plan may not be amended without approval of
the holders of the Class C Shares. The Distribution Plan and material amendments
to it must be approved annually by all of the Trustees and by the Independent
Trustees. While the Distribution Plan is in effect, the selection and nomination
of the Independent Trustees shall be committed to the discretion of such
Independent Trustees. The Distribution Plan is terminable, as to a Multiple
Class Fund's Shares, without penalty at any time by (a) a vote of a majority of
the Independent Trustees, or (b) a vote of the holders of the lesser of (a) more
than fifty percent (50%) of the outstanding Shares of a Multiple Class Fund or
(b) sixty-seven percent (67%) or more of the Shares of a Multiple Class Fund
present at a shareholders' meeting, if the holders of more than 50% of the
outstanding Shares of such Fund are present or

18
<PAGE>

represented by proxy.

Under the Distribution Plan, the Multiple Class Funds may also enter into
agreements ("Selling Agent Agreements") with Financial Intermediaries and with
the Distributor ("Selling Agents"), to provide shareholder servicing with
respect to Multiple Class Fund shares held by or for the customers of the
Financial Intermediaries. Such arrangements are more fully described in the
Multiple Class Funds' Prospectuses under "Distribution and Shareholder Services
Plans."

Under the Distribution Plan, the following Multiple Class Funds' Class C Shares
accrued expenses in the following amounts, payable to the Distributor, for the
period ended December 31, 1997 (these amounts were for compensation to dealers):

<TABLE>

<S> <C>
Diversified Equity $4,139
Special Growth 7,653
Equity Income 1,093
Quantitative Equity 5,584
International Securities 4,223
Real Estate Securities 863
Diversified Bond 6,525
</TABLE>

SHAREHOLDER SERVICES PLAN. A majority of the Trustees, including a majority of
the Independent Trustees, has also adopted, on behalf of each Multiple Class
Fund a Shareholder Services Plan pertaining to such Funds' Class C shares (the
"Service Plan"), effective April 22, 1996.

19
<PAGE>

-20
<PAGE>

Under the Service Plan, the Trust may compensate the Distributor or any
investment advisers, banks, broker-dealers, financial planners or other
financial institutions that are dealers of record or holders of record or that
have a servicing relationship with the beneficial owners or record holders of
Shares of any of the Trust's Multiple Class Funds offering such Shares
("Servicing Agents"), for any activities or expenses primarily intended to
assist, support or service their clients who beneficially own or are primarily
intended to assist, support or service their clients who beneficially own or are
record holders of Shares of the Trust's Multiple Class Funds. Such payments by
the Trust will be calculated daily and paid quarterly at a rate or rates set
from time to time by the Trustees, provided that no rate set by the Trustees for
Shares of any Multiple Class Fund may exceed, on an annual basis, 0.25% of the
average daily net asset value of that Fund's Shares.

Among other things, the Service Plan provides that (1) the Distributor shall
provide to the Trust's officers and Trustees, and the Trustees shall review at
least quarterly, a written report of the amounts expended by it pursuant to the
Service Plan, or by Servicing Agents pursuant to Service Agreements, and the
purposes for which such expenditures were made; (2) the Service Plan shall
continue in effect for so long as its continuance is specifically approved at
least annually by the Trustees, and any material amendment thereto is approved
by a majority of the Trustees, including a majority of the Independent Trustees,
cast in person at a meeting called for that purpose; (3) while the Service Plan
is in effect, the selection and nomination of the Independent Trustees shall be
committed to the discretion of such Independent Trustees; and (4) the Service
Plan is terminable, as to a Multiple Class Fund's Shares, by a vote of a
majority of the Independent Trustees.

Under the Service Plan, the following Multiple Class Funds' Class C Shares
accrued expenses in the following amounts payable to the Distributor, for the
period ended December 31, 1997:

<TABLE>

<S> <C>
Diversified Equity $2,587
Special Growth 4,783
Equity Income 683
Quantitative Equity 3,490
International Securities 2,640
Real Estate Securities 539
Diversified Bond 4,078
</TABLE>

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

21
<PAGE>

expenses are allocated among the Funds based primarily upon their relative net
assets.

As of the date of this Statement, FRIMCo 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 applicable Prospectuses for the
expense guarantees.)

VALUATION OF FUND SHARES. The net asset value per share is calculated for each
Fund Class 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
("NYSE") 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 NYSE is open
for trading and the Boston Federal Reserve Bank is open for business. Currently,
the NYSE is open for trading every weekday except New Year's Day, Martin Luther
King, Jr. 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 NYSE is open, except 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 their net asset values, events
affecting the value of the portfolio securities occurring between the time
prices are determined and the time the Funds calculate their net asset values
may not be reflected in the calculations of net asset value unless FRIMCo
determines that a particular event would materially affect the net asset value.

PORTFOLIO TRANSACTION POLICIES. Generally, securities are purchased for the
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 their 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, the 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 net long-term capital gains. These policies are
expected to result in a low portfolio turnover rate for the Equity T 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 the 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.

22
<PAGE>

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, US Government Money Market and Tax Free Money Market Funds)
were:

YEARS ENDED
-------------------
12/31/97 12/31/96
-------- --------
<S> <C> <C>
Equity I 111% 100%
Equity II 103% 121
Equity III 129% 101
Equity Q 95 75
Equity T* 39 9
International 79 43
Emerging Markets 51 35
Fixed Income I 166 147
Fixed Income II 213 264
Fixed Income III 275 144
Diversified Equity 114 100
Special Growth 97 118
Equity Income 139 106
Quantitative Equity 88 74
International Securities 74 42
Real Estate Securities 49 52
Diversified Bond 172 139
Volatility Constrained Bond 197 312
Multistrategy Bond 264 145
Limited Volatility Tax Free 41 74
</TABLE>

* Equity T Fund commenced operations on October 7, 1996.

A high portfolio turnover rate generally will result in higher brokerage
transaction costs and may result in higher levels of realized capital gains or
losses with respect to a Fund's portfolio securities (see "Taxes").

23
<PAGE>

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 Trust's Management Agreements with FRIMCo and the money managers
provide, in substance and subject to specific directions from officers of the
Trust or FRIMCo, 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 in 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 Management Agreements authorize FRIMCo and the money managers,
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 services" (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided to the Fund, FRIMCo and/or to
the money manager (or their affiliates). FRIMCo 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 commissions another broker or
dealer would have charged for effecting that transaction. FRIMCo 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 FRIMCo 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 Trust's procedures adopted in
accordance with Rule 17e-1 of the 1940 Act.

FRIMCo arranges for the purchase and sale of Trust's securities and selects
brokers and dealers (including affiliates), which in its best judgment provide
prompt and reliable execution at favorable prices and reasonable commission
rates. FRIMCo may select brokers and dealers which provide it with research
services and may cause the Trust to pay such brokers and dealers commissions
which exceed those other brokers and dealers may have charged, if it views the
commissions as reasonable in relation to the value of the brokerage and/or
research services. In selecting a broker, including affiliates, for a
transaction, the primary consideration is prompt and effective execution of
orders at the most favorable prices. Subject to that primary consideration,
dealers may be selected for research, statistical or other services to enable
FRIMCo to supplement its own research and analysis.

Frank Russell Securities, Inc. ("Securities"), an affiliate of FRIMCo, refunds
up to 70% of the commissions paid to the Funds effecting such transactions,
after reimbursement for research services provided to FRIMCo. As to brokerage
transactions effected by money managers on behalf of the Funds through
Securities, at the request of the FRIMCo, research services obtained from third
party service providers at market rates are provided to the Funds by Securities.
Such research services include performance measurement statistics, fund
analytics systems and market monitoring systems. As to other brokerage
transactions effected by the Funds through 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 the Equity I, Equity II, Equity III, Equity Q, Equity T, International,
Emerging Markets, Diversified Equity, Special Growth, Equity Income,
Quantitative Equity, International Securities and Real Estate Securities Funds.

BROKERAGE COMMISSIONS. The Board reviews, at least annually, the commissions
paid by the

24
<PAGE>

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 FRIMCo or 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,
---------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Equity I $ 2,525,291 $ 1,988,671 $1,492,270
Equity II 743,450 863,209 452,355
Equity III 540,862 616,005 470,068
Equity Q 1,323,995 950,684 663,851
Equity T* 40,539 10,305 --
International 2,679,272 1,770,839 1,467,692
Emerging Markets 1,722,534 964,725 1,039,478
Diversified Equity 2,340,509 1,360,214 1,118,548
Special Growth 828,211 893,203 467,162
Equity Income 515,622 507,754 413,220
Quantitative Equity 1,069,927 744,245 561,459
International Securities 2,193,334 1,284,042 1,251,533
Real Estate Securities 641,659 915,952 419,508
----------- ----------- ----------
Total $17,165,205 $12,869,848 $9,817,144
=========== =========== ==========
</TABLE>

* Equity T commenced operations on October 7, 1996.

The principal reasons for changes in several Funds' brokerage commissions for
the three years were (1) changes in Fund asset size, (2) changes in market
conditions, and (3) 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,
US Government Money Market and Tax Free Money Market Funds normally do not pay
a stated brokerage commission on transactions.

25
<PAGE>

During the year ended December 31, 1997, approximately $414,903 of the
brokerage commissions of the Funds were directed to brokers who provided
research services to FRIMCo. The research services included industry and
company analysis, portfolio strategy reports, economic analysis, and statistical
data pertaining to the capital markets.

Gross brokerage commissions received by affiliated broker/dealers from
affiliated and non-affiliated money managers for the year ended December 31,
1997, from portfolio transactions effected for the Funds, were as follows:

<TABLE>
<CAPTION>
PERCENT OF TOTAL
AFFILIATED BROKER/DEALER COMMISSIONS COMMISSIONS
- -----------------------------------------------------------------------------
<S> <C> <C>
Autranet, Inc. $ 8,785 0.05%

BZW Barclays Global Investor 3,900 0.02
Services

Donaldson, Lufkin & Jenrette 62,341 0.35

Dresdner Bank AG 11,550 0.06

Frank Russell Securities 1,308,583 7.36

Jardine-Fleming Securities 18,465 0.10

J.P. Morgan Securities, Inc. 51,324 0.29

Kleinwort Benson North America 33,114 0.19

Ord Minnett, Inc. 7,112 0.04

Robert Fleming, Inc. 26,614 0.15

Robinson-Humphrey, Inc. 3,600 0.02

Salomon Brothers, Inc. 118,611 0.67

Smith Barney, Inc. 129,297 0.73
---------- -----
Total Affiliated Commissions $1,783,296 10.03%
---------- -----
</TABLE>

The percentage of total affiliated transactions (relating to trading activity)
to total transactions during the year ended December 31, 1997 for the Funds was
15.41%.

During the year ended December 31, 1997, 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,

-26
<PAGE>

1997, was as follows:

-27
<PAGE>

BEAR FIRST GOLDMAN MERRILL MORGAN
FUND STEARNS BOSTON SACHS & CO. LYNCH STANLEY
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity I $668,000 $5,806,000 $8,842,000
- -------------------------------------------------------------------------------------------------------------
Equity II
- -------------------------------------------------------------------------------------------------------------
Equity III $2,418,000
- -------------------------------------------------------------------------------------------------------------
Equity Q $1,962,000 $6,802,000
- -------------------------------------------------------------------------------------------------------------
Fixed Income I $460,000 $3,856,000 $ 377,000
- -------------------------------------------------------------------------------------------------------------
Fixed Income II $2,263,000
- -------------------------------------------------------------------------------------------------------------
Fixed Income III $481,000 $1,058,000 $2,425,000 $1,187,000
- -------------------------------------------------------------------------------------------------------------
Money Market
- -------------------------------------------------------------------------------------------------------------
Equity T
- -------------------------------------------------------------------------------------------------------------
Diversified Equity $568,000 $5,098,000 $8,160,000
- -------------------------------------------------------------------------------------------------------------
Special Growth
- -------------------------------------------------------------------------------------------------------------
Equity Income $2,205,000
- -------------------------------------------------------------------------------------------------------------
Quantitative Equity $1,707,000 $5,915,000
- -------------------------------------------------------------------------------------------------------------
Diversified Bond $2,728,000 $ 134,000
- -------------------------------------------------------------------------------------------------------------
Volatility Constrained Bond $ 946,000
- -------------------------------------------------------------------------------------------------------------
Multistrategy Bond $506,000 $698,000 $1,187,000
- -------------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------
At December 31, 1997, the Funds did not have any holdings in the following top 10 broker-dealers:
- -------------------------------------------------------------------------------------------------------------
- - Frank Russell Securities
- -------------------------------------------------------------------------------------------------------------
- - Investment Technology
- -------------------------------------------------------------------------------------------------------------
- - Instinet Corp.
- -------------------------------------------------------------------------------------------------------------
- - James Capel
- -------------------------------------------------------------------------------------------------------------
- - S.G. Warburg
- -------------------------------------------------------------------------------------------------------------
</TABLE>

YIELD AND TOTAL RETURN QUOTATIONS. The Funds compute their average annual total
return by using a standardized method of calculation required by the SEC and
report average annual total return for each class of shares which they offer.
Because the Class C Shares are subject to a 12b-1 Fee and a shareholder services
fee, the average annual total return performance of the Class C Shares may be
different than the average annual total return performance of the Class S
Shares.

28
<PAGE>

appropriate), that would equate the initial amount invested to the ending
redeemable value, according to the following formula:

P(1+T)n = ERV

<TABLE>

<S> <C> <C> <C>
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).
</TABLE>

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 Class S Shares and the Class
C Shares, except for the Funds listed below, are reported in the respective
Prospectuses.

29
<PAGE>

The returns shown below represent results of the Funds' Class S Shares for the
periods shown. The deduction of their Rule 12b-1 fees and shareholder servicing
fees are not reflected in the returns shown below. Had such fees been reflected
in the returns above, the returns would have been lower.

<TABLE>
<CAPTION>
1 YEAR ENDED 5 YEARS ENDED 10 YEARS ENDED INCEPTION TO INCEPTION
Dec. 31, 1997 DEC. 31, 1997 DEC. 31, 1997 DEC. 31, 1997 DATE
------------- ------------- -------------- ------------- ---------
(ANNUALIZED) (ANNUALIZED) (ANNUALIZED)
<S> <C> <C> <C> <C> <C>
Diversified Equity 31.32 19.32 16.97 16.48 09/05/85
Emerging Markets (3.45) __ __ 5.95 01/29/93
Equity T* 31.73 __ __ 31.31 10/07/96
Volatility Constrained Bond 5.90 5.37 6.81 6.81 09/05/85
Multistrategy Bond 9.50 __ __ 7.23 01/29/93
</TABLE>

* Equity T Fund commenced operations on October 7, 1996.

Yields are computed by using standardized methods of calculation required by the
SEC. Similar to average annual total return calculations, a Fund calculates
yields for each class of shares which it offers. Yields for Funds other than
Funds investing primarily in money market instruments (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

<TABLE>

<S> <C> <C> <C>
Where: a = dividends and interest earned during the period
b = expenses accrued for the
</TABLE>

-30
<PAGE>

<TABLE>

<S> <C> <C> <C>
period (net of reimbursements)
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.
</TABLE>

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

Each Money Market Fund 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 Class S Shares of the Money Market Funds
are reported in the Funds' respective 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 indexes.

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 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 Class S
Shares' Prospectuses.

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

-31
<PAGE>

without shareholder approval. The Funds' investment objectives are set forth in
the respective 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 total 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. (Refer to the description of the
Real Estate Securities Fund and the Money Market Fund in the applicable
Prospectuses for a description of each Fund's policy with respect to
concentration in a particular industry.)

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.

-32
<PAGE>

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 Trust 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 FRIMCo
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'.

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 Trust 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 Trust,
including the Fund's money managers and their affiliates, except as permitted
by the 1940 Act, SEC rules or exemptive orders.

-33
<PAGE>

16. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit any Fund from making any otherwise
permissible borrowings, mortgages or pledges, or entering into permissible
reverse repurchase agreements, and options and futures transactions, or
issuing shares of beneficial interest in multiple classes.

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 the 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 a Fund's knowledge, one or more of the Trustees
or officers of the Trust, or one or more of the officers or directors of the
money manager responsible for the investment, 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 Trustees and officers is monitored by the Trust's 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 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.

THE BOARD OF TRUSTEES HAS APPROVED THE ELIMINATION OF FOLLOWING INVESTMENT
RESTRICTIONS, SUBJECT TO THE APPROVAL OF THE SHAREHOLDERS OF THE AFFECTED
FUNDS, WHICH WILL BE SOUGHT AT A SHAREHOLDER MEETING EXPECTED TO BE HELD IN
1998:

1. No Fund will invest in interests in oil, gas or other mineral exploration
or development programs;

2. No Fund will 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;

3. 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 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; and

4. 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 Trust
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.

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 in the same
proportion as the shares of the Money Market Fund which are held by shareholders
that are not Funds. Funds investing in the Money Market Fund currently do not
pay a management fee to the Money Market Fund and thus do not pay duplicative
management fees, as FRIMCO waives a portion of its management fee due from those
Funds in an amount that offsets the management fee it receives from the Money
Market Fund in respect of those investments.

LIQUIDITY PORTFOLIO. 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

-34
<PAGE>

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 FRIMCo 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 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, US 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 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 respective 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.

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 a Fund have a total value in excess of
the value of the repurchase agreement and are held by the Custodian 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
creditworthiness 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
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.
Liquid assets of a 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.

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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 managers
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 the 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 growth of the market for lower rated debt securities 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.

In addition, the markets in which low rated debt securities are traded are
generally thinner, more limited and less active 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 money 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 respective 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, a

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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.

The guidelines adopted by the Board for the determination of liquidity of
securities take into account trading activity for the 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.

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, liquid assets 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.

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.

LENDING PORTFOLIO SECURITIES. Cash collateral received by a Fund when it
lends its portfolio securities is invested in high-quality short-term debt
instruments, short-term bank collective investment and money market mutual funds
(including funds advised by the Custodian, for which it may receive an asset-
based fee), and other investments meeting certain quality and maturity
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 then to pay for lending transaction costs, and then the remainder is
divided between the Fund and the lending agent.

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. A Fund will call loans to vote proxies if a
material issue affecting the investment is to be voted upon.

The Trust 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.

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 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).

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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.
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.

An option on a security (or securities index) is a contract that gives the
purchaser 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 at a specified exercise price at any time during
the option period. 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 (established by the exchange upon which
the stock index is traded) 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.) Options on securities indexes are similar to options on specific
securities 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.

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 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, liquid assets in such amount are placed in a
segregated account by the Custodian) upon conversion or exchange of other
securities held by the Fund. For a call option on an index, the option is
covered if the Fund maintains with the Custodian liquid assets 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 liquid assets in a segregated account with the
Custodian. A put option on a security or an index is "covered" if the Fund
maintains liquid assets equal to the exercise price in a segregated account with
the 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 liquid assets in a segregated account with the
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.

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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.

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 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.

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.

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
underlying security above the exercise price, but, as long as its obligation as
a writer continues, has retained a risk

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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.

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.

OPTIONS ON FOREIGN CURRENCY. A Fund may purchase and write put and call
options on foreign currencies either on exchanges or in the over-the-counter
market 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-trade options.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Fund may invest in
interest rate futures contracts, foreign currency futures contracts, or stock
index futures contracts, and options thereon that are traded on a US or foreign
exchange or board of trade, as specified in the Prospectuses. 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
instruments (such as GNMA certificates or Treasury bonds) or foreign currency or
the cash value of an index 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. 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; 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.

Each Fund may also 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 (in the case of a call) or short position (in the case of
a 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

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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.

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. A Fund will
enter into a futures contract only if the contract is "covered" or if the Fund
at all times maintains with the Custodian liquid assets 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."

When a purchase or sale of a futures contract is made by a Fund, the Fund is
required to deposit with the 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 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 the Custodian
(and mark-to-market on a daily basis) liquid assets 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

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higher than the price of the contract held by the Fund.

When selling a futures contract, a Fund will maintain with the 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 Custodian).

When selling a call option on a futures contract, a Fund will maintain with
the Custodian (and mark-to-market on a daily basis) liquid assets 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 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 the
Custodian (and mark-to-market on a daily basis) liquid assets 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
"commodity pools," the Funds are limited in entering into futures contracts and
options on futures contracts to positions which constitute "bona fide hedging"
positions within the meaning and intent of applicable CFTC rules, and with
respect to positions for non-hedging purposes, 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 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 portfolio 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. 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
decision as to whether, when and how to hedge involves the exercise of skill

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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 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. 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.

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 an "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 indexes 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 a Fund's portfolio would decline, but the futures contract
value would decrease, partly offsetting the loss in value of the fixed-income
security by enabling the Fund to repurchase

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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.

When purchasing a futures contract, a Fund will maintain with the Custodian
(and mark-to-market on a daily basis) liquid assets 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, a 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.

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 Funds may also purchase call or put options on
foreign currency futures contracts to obtain a fixed foreign exchange rate. The
Funds 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 Funds 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 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 will 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 the 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 (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.

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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--for example, to exchange a certain amount
of US dollars for a certain amount of Japanese yen--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. 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. A Fund may, however, enter into forward
currency contracts containing either or both deposit requirements and
commissions. In order to assure that a Fund's forward currency contracts are
not used to achieve investment leverage, the Fund will segregate liquid assets
in an amount at all times equal to or exceeding the Fund's commitments with
respect to these contracts. 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 their
portfolio securities. Position hedging is the sale of foreign currency with
respect to portfolio security positions denominated or quoted in the currency.
A Fund 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, liquid assets will be
placed in a segregated account in an amount equal to the value of the Fund's
total assets committed to the consummation of the forward contract. If the
value of the securities placed in the segregated account declines, additional
liquid assets 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 a 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. There can be no
assurance that new forward currency contracts or offsets will be available to a
Fund.

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.

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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.

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

Forward foreign currency transactions are subject to the additional 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 (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, (5) lesser trading volume and (6) that a
perceived linkage between various currencies may not persist throughout the
duration of the contracts.

DEPOSITORY RECEIPTS. A Fund may hold securities of foreign issuers in the
form of American Depository Receipts ("ADRs"), American Depository Shares
("ADSs") and European Depository Receipts ("EDRs"), or other securities
convertible into securities of eligible European or Far Eastern issuers. These
securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs typically are issued
by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continential Depository Receipts ("CDRs"), are issued in Europe typically
by foreign banks and trust companies and evidence ownership of either foreign or
domestic securities. Generally, ADRs and ADSs in registered form are designed
for use in United States securities markets and EDRs in bearer form are designed
for use in European securities markets. For purposes of a Fund's

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investment policies, the Fund's investments in ADRs, ADSs and EDRs will be
deemed to be investments in the equity securities representing securities of
foreign issuers into which they may be converted.

ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into US dollars, the disposition of non-cash distributions, and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders with respect to the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
Funds may invest in sponsored and unsponsored ADRs.

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 liquid assets
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, 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

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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 (1) do not pay current interest and are issued at a substantial
discount from par value, (2) have been stripped of their unmatured interest
coupons and receipts or (3) 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.

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, and
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.

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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 passthrough 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
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 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.

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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 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.

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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.

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 commitments with institutions
such as banks and broker-dealers that the Funds' money managers continually
believe 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 Funds
(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 the Funds' borrowing restrictions. The net amount of
the excess, if any, of the 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

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<PAGE>

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, Multistrategy Bond, International
Securities Funds may invest in Brady Bonds, the 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 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.

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

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)

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<PAGE>

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 total assets of the Fund and that does not
represent more than 10% of the outstanding voting securities of such issuer; and
(iii) at the close of each quarter of the Fund's taxable year, not more than 25%
of the value of its total assets may be invested in securities (other than US
government securities or the securities of other RICs) of any one issuer, or of
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar or related trades or businesses.

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 28% and 20% 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.

From November 1, 1997 to December 31, 1997, the Emerging Markets Fund, U.S.
Government Money Market Fund, and Tax Free Money Market Fund incurred net
realized capital losses of $8,399,434, $1,427, and $200, respectively. As
permitted by tax regulations, the Emerging Markets Fund, U.S. Government Money
Market Fund and Tax Free Money Market Fund intend to elect to defer this loss
and treat it as arising in the year ending December 31, 1998.

At December 31, 1997, 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:

FUND 12/31/98 12/31/99 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 TOTALS

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging Markets $0 $0 N/A $0 3,235,981 $0 $0 $3,235,981
Limited Volatility Tax Free $17,292 $383,404 N/A $345,504 $110,634 $15,075 $0 $871,909
Money Market $0 $0 N/A $0 $42,906 $814 $0 $43,720
US Government Money Market $0 $0 N/A $1,309 $4,913 $3,331 $1,570 $11,123
Tax Free Money Market $0 $0 N/A $0 $0 $0 $1,583 $1,583

Fixed Income I Fund N/A N/A $0 $8,058,364 $0 $0 $0 $8,058,364
Fixed Income II Fund N/A N/A $948,478 $3,534,633 $698,949 $1,746,912 $538,227 $7,467,199

Volatility Constrained Bond N/A N/A N/A $5,583,410 $1,871,605 $2,135,100 $201,012 $9,791,127

</TABLE>

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.

EXEMPT INTEREST DIVIDENDS. 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

53
<PAGE>

is includable in the tax base for determining the extent to which a
shareholder's Social Security or railroad retirement benefits will be subject to
federal income tax. Shareholders are required to disclose their receipt of tax-
exempt interest on their federal income tax returns. The Code also provides that
interest on indebtedness incurred, or continued, to purchase or carry Limited
Volatility Tax Free and Tax Free Money Market Funds shares, is not deductible;
and that persons who are "substantial users" (or persons related thereto) of
facilities financed by private activity 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.

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 RIC.
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.

As described 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 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.

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<PAGE>

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. Under pending legislation, the 60%
long-term capital gain portion will qualify as a 20% rate gain and will be
subject to tax to individual investors at a maximum rate of 20% for investors in
the 28% or higher federal income tax brackets, or at a maximum rate of 10% for
investors in the 15% federal income tax bracket. 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 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 Fund may result in
"straddles" for US 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.

New provisions deal with transactions that are generally called
"Constructive Sale Transactions." Under these rules, a Fund must recognize gain
(but not loss) on any constructive sale of an appreciated financial position in
stock, a partnership interest or certain debt instruments. A Fund will generally
be treated as making a constructive sale when it: (a) enters into a short sale
on the same property, (b) enters into an offsetting notional principal contract,
or (c) enters into a futures or forward contract to deliver the same or
substantially similar property. Other transactions (including certain financial
instruments called collars) will be treated as constructive sales as provided in
Treasury regulations to be published. There are also certain exceptions that
apply for transactions that are closed before the end of the 30th day after the
close of the taxable year.

55
<PAGE>

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. Foreign governments may impose taxes on the income
and gains from a Fund's investments in foreign stocks and bonds. These taxes
will reduce the amount of the Fund's distributions to you, but, depending on the
amount of the Fund's assets that are invested in foreign securities and foreign
taxes paid, may be passed through to you as a foreign tax credit on your income
tax return. Emerging Markets Fund will receive dividends and interest paid by
non-U.S. issuers which will frequently be subject to withholding taxes by
non-US governments. FRIMCo 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 Service which will permit its shareholders either to deduct
(as an itemized deduction in the case of an individual who claims a credit for
foreign taxes paid of $300 or less on a single return or $600 or less on a joint
return) 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.

56
<PAGE>

If a Fund invests in an entity that is classified as 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 to the
Fund. Under the Internal Revenue Code, 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.

Emerging Markets Fund may invest up to 10% of its total assets in the
stock of foreign investment companies that may be treated as "passive foreign
investment companies" ("PFICs") under the Code. Certain other foreign
corporations, not operated as investment companies, may nevertheless satisfy the
PFIC definition. A portion of the income and gains that the Fund derives may be
subject to a nondeductible federal income tax at the Fund level, whether or not
the corresponding income is distributed to you. In this case, you would not be
permitted to claim a credit on your own tax return for the tax paid by the Fund.
In some cases, Emerging Markets Fund may be able to avoid this tax by electing
to be taxed currently on its share of the 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. 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.

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.

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. 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.

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

57
<PAGE>

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.

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 I 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.

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<PAGE>

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 capacity to meet timely interest and principal payments.

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:

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.

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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.

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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-I+") or if the nominal maturity is short, a rating of "SP-
I+/AAA" is assigned.

COMMERCIAL PAPER RATINGS.

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,

-61
<PAGE>

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.

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 & 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 'I' category. The majority of short-term debt
issuers carries the highest rating, yet quality differences exist within that
tier. As a consequence, Duff & Phelps has incorporated gradations of 'I +'
(one plus) and 'I (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 2--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.

-62
<PAGE>

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.

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 this confidential data cannot be
disclosed in reports, it is 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.

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

-63
<PAGE>

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"):

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-
I+.

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:

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,

64
<PAGE>

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-l."

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 1997 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 Trust's Annual Reports to Shareholders. Copies
of these Annual Reports accompany this Statement of Additional Information and
are incorporated herein by reference.

-65
<PAGE>

FINANCIAL HIGHLIGHTS OF THE VOLATILITY CONSTRAINED BOND FUND*

The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

VOLATILITY CONSTRAINED BOND FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR...... $ 19.07 $ 19.21 $ 18.64 $ 19.78 $ 19.51 $ 20.33 $ 19.51 $ 19.37 $ 19.14 $ 19.21
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 1.07 1.09 1.21 1.15 .82 1.34 1.45 1.52 1.66 1.55
Net realized and
unrealized gain (loss)
on investments........ .02 (.22) .58 (1.16) .45 (.88) .80 .13 .30 (.10)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations........... 1.09 .87 1.79 (.01) 1.27 .46 2.25 1.65 1.96 1.45
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income.. (1.10) (1.01) (1.22) (1.13) (.71) (1.28) (1.43) (1.51) (1.73) (1.52)
Net realized gain on
investments........... -- -- -- -- -- -- -- -- --
Tax Return of capital.. -- -- -- -- (.29) -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions... (1.10) (1.01) (1.22) (1.13) (1.00) (1.28) (1.43) (1.51) (1.73) (1.52)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
YEAR................... $ 19.06 $ 19.07 $ 19.21 $ 18.64 $ 19.78 $ 19.51 $ 20.33 $ 19.51 $ 19.37 $ 19.14
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%)........ 5.90 4.66 9.89 (.02) 6.67 2.29 12.00 8.92 10.64 7.77
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets.... .78 .76 .71 .67 .66 .68 .62 .62 .61 .59
Net investment income
to average net
assets................ 5.63 5.69 6.33 5.97 5.79 6.74 7.34 7.88 8.41 7.97
Portfolio turnover..... 197.45 311.51 256.72 182.65 220.77 312.05 159.20 181.66 331.12 238.69
Net assets, end of year
($000 omitted)........ 172,976 163,197 181,881 195,007 225,672 292,909 293,603 240,887 214,745 234,095
</TABLE>
- -------------------
* See the notes to financial statements which appear in the Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

12
<PAGE>

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 Trust's independent
accountants. The table includes selected data for a share outstanding
throughout each year ended December 31, and other performance information
derived from the financial statements. The information in the table represents
the Financial Highlights for the Fund's Class S Shares for the periods shown.
The table appears in the Fund's financial statements and related notes, which
are incorporated by reference into 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 Trust.

MULTISTRATEGY BOND FUND

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993++
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR......................... $ 10.11 $ 10.25 $ 9.29 $ 10.31 $ 10.00
-------- ======== ======== ======== =======
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........ .60 .61 .65 .58 .46
Net realized and unrealized
gain (loss) on investments.. .33 (.12) .97 (1.03) .40
-------- -------- -------- -------- -------
Total From Investment
Operations................. .93 .49 1.62 (.45) .86
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Net investment income........ (.60) (.61) (.66) (.57) (.46)
In excess of net investment
income...................... (.01) (.01) -- -- --
Net realized gain on
investments................. (.17) (.01) -- -- (.08)
In excess of net realized
gain on investments......... -- -- -- -- (.01)
-------- -------- -------- -------- -------
Total Distributions......... (.78) (.63) (.66) (.57) (.55)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF YEAR.. $ 10.26 $ 10.11 $ 10.25 $ 9.29 $ 10.31
======== ======== ======== ======== =======
TOTAL RETURN (%)(A)........... 9.50 4.97 17.92 (4.35) 8.74
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets (b)...... .80 .81 .85 .85 .85
Operating expenses, gross, to
average net assets (b)...... .83 .88 .89 .90 1.20
Net investment income to
average net assets (b)...... 5.93 6.19 6.61 6.26 5.60
Portfolio turnover (b)....... 263.75 145.38 142.26 136.39 188.95
Net assets, end of year ($000
omitted).................... 437,312 305,428 218,765 173,035 98,374
</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 Trust's Annual
Report to Shareholders and which are incorporated by reference into the
Statement of Additional Information.

13
<PAGE>

FINANCIAL HIGHLIGHTS OF THE EMERGING MARKETS FUND*

EMERGING MARKETS FUND

(d) In certain foreign markets the relationship between the translated US
dollar price per share and commission paid per share may vary from that of
domestic markets.

7
<PAGE>

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

In Washington (253) 627-7001

LIFEPOINTS FUNDS
STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 1998

Frank Russell Investment Company (the "Trust" or the "Investment Company") is
a single legal entity organized as a Massachusetts business trust. The Trust
operates 28 different investment portfolios referred to as "Funds." The Trust
offers shares of beneficial interest in the Funds in five separate
prospectuses.

This Statement of Additional Information ("Statement" or "SAI") describes both
the Class D and Class E Shares of the five Funds listed below (the "LifePoints
Funds"), each of which invests in different combinations of other Funds (the
"Underlying Funds") which invests in different combinations of stocks, bonds and
cash equivalents. As of the date of the Statement, the Trust offers Class D and
Class E Shares in the following LifePoints Funds:

<TABLE>
<CAPTION>
FUND INCEPTION DATE PROSPECTUS DATE
----------------------------- -------------- ----------------
<S> <C> <C>
Equity Balanced Strategy Fund 09/30/97 May 1, 1998
Aggressive Strategy Fund 09/16/97 May 1, 1998
Balanced Strategy Fund 09/16/97 May 1, 1998
Moderate Strategy Fund 10/03/97 May 1, 1998
Conservative Strategy Fund 11/08/97 May 1, 1998
</TABLE>

The Underlying Funds in which the LifePoints Funds currently
invest commenced operations on the date indicated below opposite the respective
Fund's name:

<TABLE>
<CAPTION>
FUND INCEPTION DATE
-------------------------------- -----------------
<S> <C>
Diversified Equity Fund September 5, 1985
Special Growth Fund September 5, 1985
Quantitative Equity Fund May 15, 1987
International Securities Fund September 5, 1985
Diversified Bond Fund September 5, 1985
Volatility Constrained Bond Fund September 5, 1985
Multistrategy Bond Fund January 29, 1993
Real Estate Securities Fund July 28, 1989
Emerging Markets Fund January 29, 1993
</TABLE>
<PAGE>

The LifePoints Funds had aggregate net assets of approximately $174 million on
April 1, 1998.

Each of the LifePoints Funds presently offers interests in Class D and Class E
Shares. While each of the LifePoints Funds is authorized to offer shares of
beneficial interest in one other class of shares, the Class S Shares, such class
of shares is not presently offered for public investment. This Statement
relates solely to the Class D and Class E Shares of the LifePoints Funds.

This Statement supplements or describes in greater detail information
concerning the Trust, the LifePoints Funds, the Underlying Funds and the Class D
and Class E Shares contained in the Prospectus of the LifePoints Funds dated May
1, 1998. This Statement is not a prospectus; the Statement should be read in
conjunction with the LifePoints Funds' Prospectus. The Prospectus may be
obtained without charge by telephoning or writing your financial intermediary or
to the Trust at the number or address shown above.

Capitalized terms not otherwise defined in this Statement shall have the
meanings assigned to them in the Prospectus.

This Statement incorporates by reference the Investment Company's Annual
Report to Shareholders for the year ended December 31, 1997. Copies of the
Fund's Annual Report accompany this statement.

2
<PAGE>

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.......................
Independent Accountants......................................
Plan Pursuant to Rule 18f-3..................................
Distribution Plan............................................
Shareholder Services Plan....................................
Underlying Fund Expenses.....................................
LifePoints Fund Operating Expenses...........................
Valuation of the LifePoints Fund Shares......................
Pricing of Securities........................................
Portfolio Turnover Rates of the LifePoints Funds.............
Portfolio Transaction Policies of the Underlying Funds.......
Brokerage Allocations........................................
Brokerage Commissions........................................
Yield and Total Return Quotations............................

INVESTMENT RESTRICTIONS, POLICIES AND PRACTICES OF THE
LIFEPOINTS FUNDS
Investment Restrictions......................................
Investment Policies and Practices of the LifePoints Funds....
</TABLE>

3
<PAGE>

<TABLE>

<S> <C>
INVESTMENT POLICIES OF THE UNDERLYING FUNDS....................
INVESTMENT PRATICES............................................
TAXES..........................................................
RATINGS OF DEBT INSTRUMENTS....................................

</TABLE>
4
<PAGE>

STRUCTURE AND GOVERNANCE

ORGANIZATION AND BUSINESS HISTORY. The Trust commenced business operations as
a Maryland corporation in October 1981. On January 2, 1985, the Trust
reorganized by changing its domicile and legal status to a Massachusetts
business trust.

The Trust 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 ("Board")
may amend the Master Trust Agreement from time to time; provided, however, that
any amendment which would materially and adversely affect shareholders of the
Trust as a whole, or shareholders of a particular Fund, must be approved by the
holders of a majority of the shares of the Trust or Fund, respectively.

The Trust's Funds are authorized to issue shares of beneficial interest in one
or more classes. Shares of each class of a Fund have a par value of $0.01 per
share, are fully paid and nonassessable, and have no preemptive or conversion
rights. Each of the five LifePoints Funds described in this Statement offers
shares of beneficial interest in the Class D and Class E Shares. The Class D and
Class E Shares are both subject to a shareholder services fee of up to 0.25%.
In addition, the Class D Shares are subject to a Rule 12b-1 fee of up to 0.75%
(presently limited to 0.25%). While the LifePoints Funds are authorized to
offer shares of beneficial interest in another class of shares--the Class S
Shares--those shares are not currently available for public investment. Unless
otherwise indicated, "shares" in this Statement refers to the Class D and Class
E Shares of the LifePoints Funds.

SHAREHOLDER MEETINGS. The Trust will not hold annual meetings of shareholders,
but special meetings may be held. Special meetings may be convened by (i) the
Board, (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 Trust, and hold office for life unless they resign
or are removed by, in substance, a vote of two-thirds of the Trust shares
outstanding. Under these circumstances, no one person, entity or shareholder
"controls" the Trust.

5
<PAGE>

The following shareholders owned 5% or more of the voting shares of the
Investment Company or of the Funds at March 31, 1998:

Aggressive Strategy Fund Class D: H&H Investment Solutions, Inc., Profit
Sharing & Savings Plan, 127 Main Street, Portland, CT 06480, 99.70%,
record.

Balance Strategy Fund Class D: H&H Investment Solutions, Inc. 99.61%,
record.

Moderate Strategy Fund Class D: H&H Investment Solutions, Inc. 99.72%,
record.

Conservative Strategy Fund Class D: H&H Investment Solutions, Inc. 99.86%,
record.

Equity Balance Strategy Fund Class D: H&H Investment Solutions, Inc.
99.65%, record.

Aggressive Strategy Fund Class E: Charles Schwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, 16.45%, record. Halbert,
Hargrove/Russell, MSX International Inc. 401(k) Plan, 100 Magellan Way,
Covington, KY 41015, 13.24%, record. IFG/Russell, Delaware Charter
Guarantee & Trust Co., PO Box 904, Hatfield, PA 19440, 7.35%, record.

Balanced Strategy Fund Class E: Board of Pensions of the Church of God, PO
Box 2559, Anderson, IN 46018, 55.94%, record. Capinco/Sargento, FIRSTAR
Trust Co., PO Box 1787, Milwaukee, WI 53201, 24.71%, record.

Moderate Strategy Fund Class E: Zions First National Bank, PO Box 30880,
Salt Lake City, UT 84130, 36.30%, record. Charles Schwab & Co., 14.12%,
record. IFG/Russell, Inc., 22.18%, record.

Conservative Strategy Fund Class E: Jansco & Co, PO Box 190, Indiana, PA
15701, 50.85%, record. Zions First National Bank, 17.53%, record.
Professional Pensions, Inc. FBO Professional Pensions, Inc. 401(k), 999
Broad Street, Bridgeport, CT 06604, 13.09%, record. Ballew/Russell, Inc.,
Gresham Petroleum Co., PO Box 690, Indianola, MS 38751, 6.79%, record.
Charles Schwab & Co. Inc., 5.61%,record.

Equity Balanced Fund Class E: Capinco/Sargento, 66.72%, record. Halbert,
Hargrove/Russell, 8.56%, record. Charles Schwab & Co. Inc., 6.51%, record.

For information in this regard, with respect to the Underlying Funds, refer to
the Statement of Additional Information for the Underlying Funds.

TRUSTEES AND OFFICERS. The Board of Trustees is responsible for overseeing
generally the operation of the Funds. A Trustee may be removed at any time by,
in substance, a vote of two-thirds of Trust shares. A vacancy in the Board
shall be filled by a vote of a majority of the remaining Trustees so long as, in
substance, two-thirds of the Trustees have been elected by shareholders. The
officers, all of whom are employed by and are officers of Frank Russell
Investment Management Company ("FRIMCo") or its affiliates, are responsible for
the day-to-day management and administration of the Funds' operations.

The Trust paid $156,315.80 in aggregate for the year ended December 31, 1997
to the Trustees who are not officers or employees of FRIMCo or its affiliates.
Trustees are paid an annual fee plus travel and other expenses incurred in
attending Board meetings. The Trust's officers and employees are paid by FRIMCo
or its affiliates.

An asterisk (*) indicates that the Trustee or officer is an "interested
person" of the Trust as defined in the Investment Company Act of 1940, 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.--65 years old--Trustee and Chairman of the Board.
Trustee and Chairman of the Board, Russell Insurance Funds; Director, Chairman
of the Board and Chief Executive Officer, Russell Building Management Company,
Inc.; Director and Chairman of the Board, Frank Russell Company, Frank Russell
Securities, Inc.; Frank Russell Trust Company, Frank Russell Investments
(Delaware), Inc.; Director, Frank Russell Investment Management Company;
Director, Chairman of the Board and President, Russell 20/20 Association.

6
<PAGE>

*Lynn L. Anderson--59 years old--Trustee, President and Chief Executive
Officer. Trustee, President and Chief Executive Officer, Russell Insurance
Funds; Director, Chief Executive Officer and Chairman of the Board, Russell Fund
Distributors, Inc.; Trustee, Chairman of the Board and President, The SsgA Funds
(investment company); Director, Chief Executive Officer and Chairman of the
Board, Frank Russell Investment Management Company; Director, Chief Executive
Officer and Chairman of the Board, Frank Russell Investment Management Company;
Director, Chief Executive Officer and President, Frank Russell Investment
Company Public Limited PLC; Director, Frank Russell Company, Frank Russell
Investments (Ireland) Limited, Frank Russell Investments (Cayman) Ltd. and Frank
Russell Investments (UK) Ltd.; November 1995 to June 1993, Director, Frank
Russell Company. Until September 1994, Director and President, The Laurel Funds,
Inc. (investment company).

Paul E. Anderson--66 years old--Trustee. 23 Forest Glen Lane, Tacoma,
Washington 98409. Trustee, Russell Insurance Funds, Forest Limited Partnership;
1984 to 1996, President, Vancouver Door Company, Inc.

Paul Anton, Ph.D.--78 years old--Trustee. PO Box 1337, Gig Harbor, Washington
98335. Trustee, Russell Insurance Funds, President, Paul Anton and Associates
(Marketing Consultant on emerging international markets for small corporations).
1991-1994, Adjunct Professor, International Marketing, University of Washington,
Tacoma, Washington.

William E. Baxter--72 years old--Trustee. 800 North C Street, Tacoma,
Washington 98403. Trustee, Russell Insurance Funds, Retired.

Lee C. Gingrich--67 years old--Trustee. 1730 North Jackson, Tacoma, Washington
98406. Trustee, Russell Insurance Funds, President, Gingrich Enterprises, Inc.
(Business and Property Management).

Eleanor W. Palmer--71 years old--Trustee. 2025 Narrows View Circle #232-D,
P.O. Box 1057, Gig Harbor, Washington 98335. Trustee, Russell Insurance Funds;
and Director of Frank Russell Trust Company.

*George W. Weber--46 years old--Treasurer and Chief Accounting Officer.
Treasurer and Chief Accounting Officer, Russell Insurance Funds, and Frank
Russell Trust Company; Director, Funds Administration and Operations of Frank
Russell Investment Management Company, Russell Funds Distributors, Inc and Frank
Russell Trust Company; Senior Vice President and Fund Treasurer of The SSgA
Funds (investment company); March 1993 to January 1996, Vice President,
Operations, Funds Management, J.P. Morgan.

*Randall P. Lert--44 years old--Director of Investments. Director of
Investments, Russell Insurance Funds, Senior Investment Officer and Director of
Investment Services, Frank Russell Trust Company; Director and Chief Investment
Officer, Frank Russell Investment Management Company, Director and Chief
Investment Officer, Russell Fund Distributors, Inc. Director-Futures Trading,
Frank Russell Investments (Ireland) Limited and Frank Russell Investments
(Cayman) Ltd. Senior Vice President and Director of Portfolio Trading, Frank
Russell Canada Limited/Limitee. April 1, 1990 to November 1993, Director of
Investments of Frank Russell Investment Management Company.

*Karl J. Ege--56 years old--Secretary and General Counsel. Secretary and
General Counsel of Russell Insurance Funds. Director, Secretary and General
Counsel, Russell Fiduciary Services Co., Frank Russell Capital, Inc.; Secretary,
General Counsel and Managing Director -- Law and Government Affairs of Frank
Russell Company; 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 Inc.,
Russell MLC Management Co., Russell International Services Co., Inc. and Russell
20-20 Association; Director and Assistant Secretary of Frank Russell Company
Limited (London)and Russell Systems Ltd.; Director, Frank Russell Investment
Company LLC, Frank Russell Investments (Cayman) Ltd., Frank Russell Investment
Company PLC, Frank Russell Investments (Ireland) Limited, Frank Russell Company,
S.A., Frank Russell Japan Co. Ltd., Frank Russell Company (NZ) Limited, Russell
Investment Nominee Co. PTY Ltd and Frank Russell Investments (UK) Ltd.; From
November 1995 to February 1997, Director and Secretary, Frank Russell
Investments (Delaware), Inc.; July 1992 to June 1994, Director, President and
Secretary of Frank Russell Shelf Corporation.

7
<PAGE>

*Peter Apanovitch--52 years old--Manager of Short-Term Investment Funds.
Manager of Short-Term Investment Funds, Russell Insurance Funds, Manager of
Short-Term Investment Funds, Frank Russell Investment Management Company and
Frank Russell Trust Company.

TRUSTEE COMPENSATION TABLE

(FOR FISCAL YEAR ENDED 12/31/97)

TOTAL
AGGREGATE PENSION OR COMPENSATION
COMPENSATION RETIREMENT BENEFITS ESTIMATED FROM THE
FROM THE ACCRUED AS PART OF ANNUAL BENEFITS INVESTMENT
INVESTMENT THE INVESTMENT UPON COMPANY PAID
TRUSTEE COMPANY COMPANY EXPENSES RETIREMENT TO TRUSTEES*
- ------- ----------- -------------------- --------------- ------------
<S> <C> <C> <C> <C>
Lynn L. Anderson $ 0 $0 $0 $ 0
Paul E. Anderson $20,000 $0 $0 $31,263.16
Paul Anton, PhD. $20,000 $0 $0 $31,263.16
William E. Baxter $20,000 $0 $0 $31,263.16
Lee C. Gingrich $20,000 $0 $0 $31,263.16
Eleanor W. Palmer $20,000 $0 $0 $31,263.16
George F. Russell $ 0 $0 $0 $ 0
</TABLE>

* The Trustees received $12,000 for service on the Russell Insurance Funds'
Board of Trustees ($4,000 of which was for service during 1996).

8
<PAGE>

OPERATION OF THE TRUST

SERVICE PROVIDERS. Most of the Trust's necessary day-to-day operations are
performed by separate business organizations under contract to the Trust. The
principal service providers are:

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

Frank Russell Company provides comprehensive consulting and money manager
evaluation services to institutional clients, including FRIMCo and Frank Russell
Trust Company, and to high net worth individuals and families ($100 million)
through its 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 Frank Russell Investments (Delaware),
Inc., 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. 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 whollyowned 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. FRIMCo provides or oversees the provision of all general management
and administration, investment advisory and portfolio management, and
distribution services for the Funds. FRIMCo 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 (in the case of the Underlying Funds) and custodian.
FRIMCo also develops the investment programs for each of the Funds, selects
money managers for the Underlying Funds (subject to approval by the Board),
allocates assets among money managers, monitors the money managers' investment
programs and results, and may exercise investment discretion over assets
invested in the Underlying Funds' Liquidity Portfolios. (See, "Investment
Policies of the Underlying Funds -- Liquidity Portfolios.") FRIMCo also acts as
the Trust's transfer agent and dividend disbursing agent. FRIMCo, as agent for
the

9
<PAGE>

Trust, pays the money managers' fees for the Underlying Funds, as a fiduciary
for the Underlying Funds.

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

The LifePoints Funds commenced operations during calendar year 1997 and
therefore incurred management fees due to FRIMCo for only a portion of the year
1997.

<TABLE>
<CAPTION>
12/31/97
--------
<S> <C>
Equity Balanced Fund $1,140
Aggressive Strategy Fund 1,727
Balanced Strategy Fund 1,187
Moderate Strategy Fund 151
Conservative Strategy Fund 8

</TABLE>

FRIMCo voluntarily agreed to waive its management fee during the fiscal year
ending December 31, 1997.

The Underlying Funds in which the LifePoints Funds currently invest paid
FRIMCo the listed management fees for the periods ended December 31, 1997, 1996,
and 1995:

<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
<S> <C> <C> <C>
12/31/97 12/31/96 12/31/95
---------- ---------- ----------
Diversified Equity $6,898,175 $4,728,098 $3,842,471
Special Growth 4,538,822 3,306,695 2,588,270
Quantitative Equity 6,605,488 4,454,628 3,469,134
International Securities 7,741,258 6,497,074 5,723,534
Diversified Bond 2,748,159 2,359,767 2,308,823
Volatility Constrained Bond 812,308 836,818 985,215
Multistrategy Bond 2,351,480 1,673,473 1,217,039
Real Estate Securities 4,426,518 2,943,165 2,065,552
Emerging Markets* 4,167,163 2,773,817 1,380,549

</TABLE>

*Prior to April 1, 1995, the Emerging Markets Fund paid no management fees to
FRIMCo, as each shareholder of the Fund had entered into a written Asset
Management Services Agreement with FRIMCo. Under such Agreements, the
shareholders had 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 the Fund. Beginning April
1, 1995, the Investment Company's Management Agreement was amended to provide
that the Emerging Markets Fund would pay an annual management fee, billed
monthly on a pro rata basis and calculated as a specified percentage of the
average daily net assets of the Fund. When applicable, a shareholder of the
Emerging Markets Fund or the shareholder's financial intermediary continues to
enter into a separate written agreement with FRIMCo to obtain separate
individual shareholder services, and pays fees under such agreement based on a
specified percentage of average assets which are subject to the agreement
relating to FRIMCo's provision of individual shareholder investment services
with respect to that shareholder.

Effective May 1, 1996, FRIMCo agreed to waive its management fee for the
Emerging Markets and Multistrategy Bond Funds, to the extent Fund level expenses
of these Funds exceed 1.95% and 0.80% of average daily net assets on an annual
basis, respectively. In 1996, waivers and reimbursements for Multistrategy Bond
Fund amounted to $157,752. No waiver nor reimbursement was necessary for the
Emerging Markets Fund. As a result of the waivers and reimbursements, management
fees paid by the Multistrategy Bond Fund amounted to $1,515,721.

In 1997, waivers for Multistrategy Bond Fund amounted to $126,393. No waiver
nor reimbursement was necessary for the Emerging Markets Fund. As a result of
the waivers, management fees paid by the Multistrategy Bond Fund amounted to
$2,225,087.

10
<PAGE>

Through March 31, 1995, FRIMCo reimbursed the Emerging Markets Fund for all
expenses exceeding 0.80% of average daily net assets on an annual basis.
Effective April, 1995 through April 30, 1996, FRIMCo reimbursed the Emerging
Markets Fund for all expenses exceeding 2.00% of average daily net assets on an
annual basis. From May 1, 1996 FRIMCo has agreed to reimburse the Emerging
Markets Fund for all expenses exceeding 1.95% of average daily net assets on an
annual basis. In 1995, reimbursements for the Emerging Markets Fund were
$37,115. As a result of the reimbursements, management fees paid by the Emerging
Markets Fund amounted to $1,343,434. FRIMCo made no reimbursements to the
Emerging Markets Fund in 1996 nor 1997.

While FRIMCo will perform investment management services for the LifePoints
Funds (i.e., determining the percentages of the Underlying Funds which will be
purchased by each LifePoints Fund, and periodically adjusting the percentages
and the Underlying Funds), FRIMCo presently intends to waive its entire 0.25%
management fee through December 31, 1998 but may terminate its waiver at any
time thereafter without notice to shareholders. Each of the LifePoints Funds
will indirectly bear their proportionate share of the management fees paid by
the Underlying Funds in which they invest. While a shareholder of a LifePoints
Fund will also bear a proportionate part of the management fees paid by an
Underlying Fund, each of the management fees paid is based upon the services
received by the respective Fund.

FRIMCo also provides, through its Russell Private Investment Division
Investment, investment advisory, consulting and money manager evaluation
services to high net worth individuals and families.

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

MONEY MANAGERS. The money managers of the Underlying Funds have no
affiliations or relationships with the Trust or FRIMCo 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
Underlying Funds (see, "Brokerage Allocations" and "Brokerage Commissions").
Money managers may serve as advisors or discretionary managers for Frank Russell
Trust Company, other investment vehicles sponsored or advised by Frank Russell
Company or its affiliates, other consulting clients of Frank Russell Company,
other offshore vehicles and/or for accounts which have no business relationship
with the Frank Russell Company organization.

DISTRIBUTOR. Russell Fund Distributors, Inc. (the "Distributor") serves as
the distributor of the Trust shares. The Distributor receives no compensation
from the Trust for its services. The Distributor is a wholly owned subsidiary of
FRIMCo and its mailing address is 909 A Street, Tacoma, WA 98402.

CUSTODIAN. State Street Bank and Trust Company ("State Street") serves as
custodian for the Trust. State Street also provides the basic portfolio
recordkeeping required by each of the Underlying Funds for regulatory and
financial reporting purposes. For these services, State Street is paid an annual
fee, in accordance with the following: domestic custody - an annual fee, payable
monthly on a pro rata basis, based on the following percentages of the month end
net assets of all domestic funds: $0 up to and including $10 billion -0.0075%;
over $10 billion -0.0065%; global custody - an annual fee, payable monthly on a
pro rata basis, based on other month-end net assets and geographic
classification of the investments in the international funds; fund accounting -
(i) an annual fee of $10,000 - $24,000 per portfolio per fund, (ii) an annual
fee of 0.015% - 0.030%, payable monthly on a pro rata basis, based on daily
average net assets of each Fund; securities transaction charges from $6.50 to
$100.00 per transaction; monthly pricing fees of $375.00 per portfolio and $6.00
to $12.00 per security; multiple class fee of $15,000 per year for each
additional class of shares; and yield calculation fees of $4,200 per fixed
income fund per year. State Street is reimbursed by the Funds for supplying
certain out-of-pocket expenses, including postage, transfer fees, stamp duties,
taxes, wire fees, telexes and freight. Additionally, the following fees will be
assessed for the LifePoints Funds: (i) daily priced accounting fee of $1,000 per
month, (ii) monthly priced accounting fee of $500 per month and (iii)
transaction fee of $5 per transaction. In addition, interest earned on
uninvested cash balances is used to offset the custodian expense. The mailing
address for State Street is 1776 Heritage Drive, North Quincy, MA 02171.

11
<PAGE>

TRANSFER AND DIVIDEND DISBURSING AGENT. FRIMCo serves as Transfer Agent for
the Trust. For this service, FRIMCo is paid a fee of $20.00 per shareholder
transaction by each Underlying Fund. The Board has approved a new fee
arrangement to be effective May 18, 1998, pursuant to which FRIMCo will be paid
a per-account fee for transfer agency and dividend disbursing services provided
to the Trust. From this fee FRIMCo compensates unaffiliated agents who assist in
providing these services. FRIMCo is also reimbursed by the Trust for certain
out-of-pocket expenses, including postage, taxes, wires, stationery and
telephone. The LifePoints Funds' investments in the Underlying Funds will not be
charged a fee. FRIMCo's mailing address is 909 A Street, Tacoma, WA 98402.

ORDER PLACEMENT DESIGNEES. The Trust has authorized certain Financial
Intermediaries to accept on its behalf purchase and redemption orders for Trust
shares. Certain Financial Intermediaries are authorized, subject to approval of
the Trust Distributor, to designate other intermediaries to accept purchase and
redemption orders on the Trust behalf. The Trust will be deemed to have received
a purchase or redemption order when such a Financial Intermediary or, if
applicable, an authorized designee, accepts the order. The customer orders will
be priced at the Trust Fund's net asset value next computed after they are
accepted by Financial Intermediary or an authorized designee, provided that the
Financial Intermediary or an authorized designee timely transmits the customer
order to the Investment Company.

INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P. serves as the independent
accountants of the Trust. Coopers & Lybrand L.L.P. is responsible for performing
annual audits of the financial statements and financial highlights of the Funds
in accordance with generally accepted auditing standards and a review of federal
tax returns. The mailing address of Coopers & Lybrand L.L.P. is One Post Office
Square, Boston, MA 02109.

PLAN PURSUANT TO RULE 18F-3. On February 23, 1995, the Securities and Exchange
Commission (the "SEC") adopted Rule 18f-3 under the 1940 Act, which permit a
registered open-end investment company to issue multiple classes of shares in
accordance with a written plan approved by the investment company's board of
trustees that is filed with the SEC. At a meeting held on April 22, 1996, the
Board adopted and, on November 4, 1996 amended, a plan pursuant to Rule 18f-3
(the "Rule 18f-3 plan") on behalf of each Fund that issues multiple classes of
shares (each a "Multiple Class Fund"). The key features of the Rule 18f-3 plan
are as follows: shares of each class of a Multiple Class Fund represent an equal
pro rata interest in the underlying assets of that Fund, and generally have
identical voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications and terms and conditions, except that:
(1) each class of shares offered in connection with a Rule 12b-1 plan would bear
certain fees under its respective Rule 12b-1 plan and would have exclusive
voting rights on matters pertaining to that plan and any related agreements; (2)
each class of shares may contain a conversion feature; (3) each class of shares
may bear differing amounts of certain expenses allowable to such class; (4)
different policies may be established with respect to the payment of
distributions on the classes of shares of a Multiple Class Fund to equalize the
net asset values of the classes or, in the absence of such policies, the net
asset value per share of the different classes may differ at certain times; (5)
a class of shares of a Multiple Class Fund might have different exchange
privileges from another class; (6) each class of shares of a Multiple Class Fund
would have a different class designation from another class of that Fund; and
(7) each class of shares offered in connection with a shareholder servicing plan
would bear certain fees under its respective plan.

DISTRIBUTION PLAN. Under the 1940 Act, the SEC has adopted Rule 12b-1 ("Rule
12b-1"), which regulates the circumstances under which the Funds may, directly
or indirectly, bear distribution expenses. Rule 12b-1 provides that the Funds
may pay for such expenses only pursuant to a plan adopted in accordance with
Rule 12b-1. Accordingly, the LifePoints Funds have adopted a distribution plan
(the "Distribution Plan") for the LifePoints Funds' Class D Shares, which is
described in the Prospectus. In adopting the Distribution Plan, a majority of
the Trustees, including a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust and who have no direct or
indirect financial interest in the operation of the Distribution Plan or in any
agreements entered into in connection with the Distribution Plan (the
"Disinterested Trustees"), have concluded, in conformity with the requirements
of the 1940 Act, that there is a reasonable likelihood that the Distribution
Plan will benefit each respective LifePoints Fund and its shareholders. In
connection with the Trustees' consideration of whether to adopt the Distribution
Plan, the

12
<PAGE>

Distributor represented to the Trustees that the Distributor believes that the
Distribution Plan should result in increased sales and asset retention for the
LifePoints Funds by enabling the LifePoints Funds to reach and retain more
investors and Financial Intermediaries (including brokers, banks, financial
planners, and other financial institutions), although it is impossible to know
for certain, in the absence of the Distribution Plan or under an alternative
distribution agreement, the level of sales and asset retention that a LifePoints
Fund would enjoy.

The Distribution Plan provides that each LifePoints Fund may spend annually,
directly or indirectly, up to 0.75% of the average daily net asset value of its
Class D Shares for any activities or expenses primarily intended to result in
the sale of Class D Shares of a LifePoints Fund. Such payments by the Trust will
be calculated daily and paid periodically and shall not be made less frequently
than quarterly. The Board has presently determined to limit payment under the
Distribution Plan to 0.25% of average daily net assets. Any amendment to
increase materially the amount that may be spent for distribution pursuant to
the Distribution Plan must be approved by a vote of the holders of the lesser of
(a) more than fifty percent (50%) of the outstanding Class D Shares of a
LifePoints Fund or (b) sixty-seven percent (67%) or more of the Class D Shares
of a LifePoints Fund present at a shareholders' meeting, if the holders of more
than 50% of the outstanding shares of such LifePoints Fund are present or
represented by proxy. The Distribution Plan does not provide for the LifePoints
Funds to be charged for interest, carrying or any other financing charges on any
distribution expenses carried forward to subsequent years. A quarterly report of
the amounts expended under the Distribution Plan, and the purposes for which
such expenditures were incurred, must be made to the Trustees for their review.
Continuation of the Distribution Plan must be approved annually by a majority of
the Trustees including a majority of the Disinterested Trustees. While the
Distribution Plan is in effect, the selection and nomination of the Independent
Trustees shall be committed to the discretion of such Independent Trustees. The
Distribution Plan is terminable, as to a LifePoints Fund's Class D Shares,
without penalty, at any time, by (a) a vote of a majority of the Independent
Trustees, or (b) a vote of the holders of the lesser of (i) more than fifty
percent (50%) of the outstanding Class D Shares of a LifePoints Fund or (ii)
sixty-seven (67%) or more of the Class D Shares of a LifePoints Fund present at
a shareholders' meeting, if the holders of more than 50% of the outstanding
shares of such Fund are present or represented by proxy.

Under the Distribution Plan, the LifePoints Funds may, through the
Distributor, also enter into agreements ("Selling Agent Agreements") with
financial intermediaries ("Selling Agents"), to provide the distribution
activities provided by the Selling Agents with respect to the Class D Shares
held by or for the customers of the Selling Agents. Such arrangements are more
fully described in the Prospectus under "Distribution and Shareholder Service
Plans."

SHAREHOLDER SERVICES PLAN. A majority of the Trustees has also adopted, on
behalf of each LifePoints Fund, a Shareholder Services Plan pertaining to the
LifePoints Funds' Class D Shares and Class E Shares (the "Service Plan"),
effective November 5, 1996.

Under the Service Plan, the Trust may compensate the Distributor or any
investment advisors, banks, broker-dealers, financial planners or other
financial institutions that are dealers of record or holders of record or that
have a servicing relationship with the beneficial owners or record holders of
Class D or Class E Shares of any of the LifePoints Funds offering such shares
("Servicing Agents"), for any activities or expenses primarily intended to
assist, support or service their clients who beneficially own or are primarily
intended to assist, support or service their clients who beneficially own or are
record holders of Class D or Class E Shares of the LifePoints Funds. Such
payments by the Trust will be calculated daily and paid quarterly at a rate or
rates set from time to time by the Trustees, provided that no rate set by the
Trustees for Class D or Class E Shares of any LifePoints Fund may exceed, on an
annual basis, 0.25% of the average daily net asset value of that Fund's Class D
or Class E Shares.

13
<PAGE>

Among other things, the Service Plan provides that (1) the Distributor shall
provide to the Trust's officers and Trustees, and the Trustees shall review at
least quarterly, a written report of the amounts expended by the Trust pursuant
to the Service Plan, or by Servicing Agents pursuant to the Service Plan and
the purposes for which such expenditures were made; (2) the Service Plan shall
continue in effect for so long as its continuance is specifically approved at
least annually by the Trustees, including a majority of the Independent
Trustees, cast in person at a meeting called for that purpose; (3) while the
Service Plan is in effect, the selection and nomination of the Independent
Trustees shall be committed to the discretion of such Independent Trustees;
and (4) the Service Plan is terminable, as to a LifePoints Funds' Class D or
Class E Shares, by a vote of a majority of the Trustees.

UNDERLYING FUND EXPENSES. The Underlying Funds will pay all their expenses
other than those expressly assumed by FRIMCo. The principal expense of the
Underlying Funds is the annual management fee payable to FRIMCo. The Underlying
Funds' other expenses include: fees for independent accountants, legal, transfer
agent, registrar, custodian, dividend disbursement, and portfolio and
shareholder recordkeeping services, and maintenance of tax records payable to
Frank Russell Company; 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 Trust to
indemnify its Trustees, officers, employees, shareholders, distributors and
agents with respect thereto.

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

As of the date of this Statement, FRIMCo has voluntarily agreed to waive all
or a portion of its management fee with respect to certain Underlying Funds.
This waiver may be changed or rescinded at any time.

LIFEPOINTS FUND OPERATING EXPENSES. Each LifePoints Fund is expected to have
a low operating expense ratio although, as a shareholder of the Underlying
Funds, each LifePoints Fund indirectly bears its pro rata share of the
management fees charged to, and expenses of operating, the Underlying Funds in
which it invests. It is currently contemplated that all other operating expenses
(shareholder servicing, legal, accounting, etc.) except for the 0.25% management
fee and any Rule 12b-1 Fees and Shareholder Service Fees will be paid for in
accordance with these Special Servicing Agreements (each a "Servicing
Agreement") among each LifePoints Fund, its Underlying Funds and FRIMCo. Under
the Servicing Agreement, FRIMCo arranges for all services pertaining to the
operations of the LifePoints Funds, including transfer agency services but not
including any services covered by the LifePoints Funds' management fee or any
Rule 12b-1 or Shareholder Service Fees. However, it is expected that the
additional assets invested in the Underlying Funds by the LifePoints Funds will
produce economies of operations and other savings for the Underlying Funds which
will exceed the cost of the services required for the operation of the
LifePoints Funds. In this case, the Servicing Agreement provides that the
officers of the Trust, at the direction of the Trustees, may apply such savings
to payment of the aggregate operating expenses of LifePoints Funds which have
invested in that Underlying Fund, so that the Underlying Fund will bear those
operating expenses in proportion to the average daily value of the shares owned
by the LifePoints Fund, provided that no Underlying Fund will bear such
operating expenses in excess of the estimated savings to it. In the event that
the aggregate financial benefits to the Underlying Funds do not exceed the costs
of the LifePoints Funds, the Servicing Agreement provides that either FRIMCo or
the Underlying Funds will bear that portion of costs determined to be greater
than the benefits. Those costs include Fund accounting, custody, auditing,
legal, blue sky and, as well as organizational, transfer agency, prospectus,
shareholder reporting, proxy, general administrative and miscellaneous expenses.

VALUATION OF THE LIFEPOINTS FUND SHARES. The net asset value per share of
Class D and Class E Shares is calculated separately for each LifePoints 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.
Currently, the New York Stock Exchange is open for trading every weekday, except
New

14
<PAGE>

Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

PRICING OF SECURITIES. The Class S Shares of the Underlying Funds held by
each LifePoints Fund are valued at their net asset value. The Emerging Markets,
International Securities, Diversified Bond, and Multistrategy Bond Funds'
portfolio securities actively trade on foreign exchanges which may trade on
Saturdays and on days that the Underlying 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 the Class S Shares of
the Underlying Fund when a shareholder (such as a LifePoints Fund) is not able
to purchase or redeem Underlying Fund shares. Further, because foreign
securities markets may close prior to the time the Underlying Funds determine
net asset value, events affecting the value of the portfolio securities
occurring between the time prices are determined and the time the Underlying
Funds calculate net asset value may not be reflected in the calculation of net
asset value unless FRIMCo determines that a particular event would materially
affect the net asset value.

PORTFOLIO TURNOVER RATES OF THE LIFEPOINTS FUNDS. The portfolio turnover rate
for each LifePoints Fund is calculated by dividing the lesser of purchases or
sales of Underlying Fund shares for the particular year, by the monthly average
value of the Underlying Fund shares owned by the LifePoints Fund during the
year. Each LifePoints Fund's portfolio turnover rate is expected not to exceed
25%. The LifePoints Funds will purchase or sell Underlying Fund shares to: (i)
accommodate purchases and sales of each LifePoints Fund's shares; (ii) change
the percentages of each LifePoints Fund's assets invested in each of the
Underlying Funds in response to market conditions; and (iii) maintain or modify
the allocation of each LifePoints Fund's assets among the Underlying Funds
generally within the percentage limits described in the Prospectus.

PORTFOLIO TRANSACTION POLICIES OF THE UNDERLYING FUNDS. Decisions to buy and
sell securities for the Underlying Funds are made by the money managers for the
assets assigned to them, and by FRIMCo or the money manager for the Underlying
Funds' Liquidity Portfolios. The Underlying Funds do not give significant weight
to attempting to realize long-term, rather than short-term, capital gains while
making portfolio investment decisions. The portfolio turnover rates for certain
Underlying Funds are likely to be somewhat higher than the rates for comparable
mutual funds with a single money manager. 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
Underlying 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 Underlying 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
Underlying Funds for the periods ended December 31, 1997 and 1996, respectively,
were as follows: Diversified Equity Fund, 114.11% and 99.90%; Special Growth
Fund, 97.19% and 118.13%; Quantitative Equity Fund, 87.67% and 74.33%;
International Securities Fund, 73.54% and 42.43%; Diversified Bond Fund, 172.43%
and 138.98%; Volatility Constrained Bond Fund, 197.45% and 311.51%;
Multistrategy Bond Fund, 263.75% and 145.38%; Real Estate Securities Fund,
49.40% and 51.75%; and Emerging Markets Fund, 50.60% and 34.62%.

The Underlying Funds may effect portfolio transactions with or through Frank
Russell Securities, Inc., an affiliate of FRIMCo, only when the applicable money
manager determines that the Underlying Fund will receive competitive execution,
price and commissions. Frank Russell Securities, Inc. refunds to the Underlying
Fund up to 70% of the commissions paid by that Underlying Fund when it effects
such transactions, after reimbursement for research services provided to FRIMCo.
As to brokerage transactions effected by money managers on behalf of the
Underlying Funds through Frank Russell Securities, Inc. at the request of the
money manager, research services obtained from third party service providers at
market rates are provided to the Underlying 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 Underlying Funds through Frank Russell Securities,
Inc. 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

15
<PAGE>

and market analysis. This arrangement is used by the Diversified Equity, Special
Growth, Quantitative Equity, International Securities, Emerging Markets and Real
Estate Securities Funds. All Underlying Funds may also effect portfolio
transactions through and pay brokerage commissions to the money managers (or
their affiliates). Generally, securities are purchased for Diversified Equity,
Quantitative Equity, International Securities, Diversified Bond, Emerging
Markets and Real Estate Securities Funds for investment income and/or capital
appreciation and not for short-term trading profits. However, these Underlying
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 their
money managers. Special Growth, Volatility Constrained Bond and Multistrategy
Bond 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 three
Underlying Funds.

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 of the Underlying Fund. The Trust's Portfolio Management Agreements with
FRIMCo and the money managers provide, in substance and subject to specific
directions from officers of the Trust or FRIMCo, that in executing portfolio
transactions and selecting brokers or dealers, the principal objective is to
seek the best overall terms available to the Underlying Fund. Securities will
ordinarily be purchased in 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 Portfolio Management Agreements authorize FRIMCo and the
money managers, 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 services" (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Underlying
Fund, FRIMCo and/or to the money manager (or their affiliates). FRIMCo and the
money managers are authorized to cause the Underlying 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
commissions another broker or dealer would have charged for effecting that
transaction. FRIMCo 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 FRIMCo 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
Trust's procedures adopted in accordance with Rule 17e-1 of the 1940 Act.

FRIMCo does not expect the Trust ordinarily to effect a significant portion
of the Trust's total brokerage business for the Underlying Funds with broker-
dealers affiliated with its money managers. However, a money manager may effect
portfolio transactions for the segment of an Underlying 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.

BROKERAGE COMMISSIONS. The Board reviews, at least annually, the commissions
paid by the Underlying 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 Underlying Funds. Frank Russell
Company maintains an extensive database showing commissions paid by
institutional investors, which is the primary basis for making this evaluation.
Certain services received by FRIMCo or money managers attributable to a
particular transaction may benefit one or more other accounts

16
<PAGE>

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.

For information regarding brokerage commissions paid by the Underlying
Funds and the Underlying Funds' holdings of securities issued by the top ten
broker dealers used by those Funds, refer to the Statement of Additional
Information for the Underlying Funds.

17
<PAGE>

YIELD AND TOTAL RETURN QUOTATIONS. The LifePoints Funds compute their average
annual total return by using a standardized method of calculation required by
the SEC, and report average annual total return for each class of shares which
they offer. Because the Class D and Class E Shares are subject to a shareholder
services fee, the average annual total return performance of these classes may
be different from the average annual total return performance of the Class S
Shares (which are not presently offered for public investment). Furthermore,
since the Class D Shares are subject to Rule 12b-1 fees, the average annual
total return performance of the Class D Shares may be different from the Class E
Shares.

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 LifePoints 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
<TABLE>

<S> <C> <C>
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).
</TABLE>

The calculation assumes that all dividends and distributions of each
LifePoints Fund are reinvested at the price stated in the Prospectus on the
dividend dates during the period, and includes all recurring fees

18
<PAGE>

that are charged to all shareholder accounts. The average annual total returns
for the Class D and Class E Shares will be reported in the Prospectus.

Yields are computed by using standardized methods of calculation required by
the SEC. Similar to average annual total return calculations, a LifePoints Fund
calculates yields for each class of shares which it offers. Yields for the
LifePoints Funds, which do not invest primarily in money market instruments, are
calculated by dividing the net investment income per share earned during a 30day
(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)
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 LifePoints Funds investing primarily in fixed-income
instruments are reported in the Prospectus.

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

Each LifePoints 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.

INVESTMENT RESTRICTIONS, POLICIES AND
PRACTICES OF THE LIFEPOINTS FUNDS

Each LifePoints 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 LifePoints Fund. Other policies may be
changed by a LifePoints Fund without shareholder approval. The LifePoints Funds'
investment objectives are set forth in the respective Prospectus.

INVESTMENT RESTRICTIONS. Each LifePoints 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
LifePoints Fund will:

2. Invest 25% or more of the value of the LifePoints Fund's total assets in
the securities of companies primarily engaged in any one industry (other than
the US government, its agencies and instrumentalities, and shares of the
Underlying Funds).

3. Acquire more than 5% of the outstanding voting securities, or 10% of all
of the securities, of any one issuer, except with respect to shares of Trust
Funds.

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

19
<PAGE>

5. Purchase or sell real estate; provided that each LifePoints Fund may
invest in the Real Estate Securities Fund, which may own securities secured by
real estate or interests therein or issued by companies which invest in real
estate or interests therein.

6. Purchase or sell commodities or commodities contracts.

7. Borrow amounts in excess of 5% of the LifePoints 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
LifePoints Fund may engage in reverse repurchase agreements to meet redemption
requests without immediately selling any portfolio instruments. A LifePoints
Fund will not mortgage, pledge or in any other manner transfer as security for
any indebtedness, any of its assets.

8. Purchase securities on margin or effect short sales (except that a
LifePoints Fund may obtain such short-term credits as may be necessary for the
clearance of purchases or sales of securities).

9. Engage in the business of underwriting securities issued by others or
purchase securities.

10. 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 FRIMCo 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.

11. 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
entry into "repurchase agreements;" or (ii) the lending of portfolio securities
in the manner generally described in the LifePoints Funds' Prospectus' section
"Investment Policies, Restrictions and Risks of the LifePoints Funds -- Lending
Portfolio Securities."

12. Purchase or sell options.

13. 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 (and as described
below).

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

15. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit any Fund from making any otherwise
permissible borrowings, mortgages or pledges, entering into permissible reverse
repurchase agreements, or issuing shares of beneficial interest in multiple
classes.

Because of their investment objectives and policies, the LifePoints Funds will
concentrate more than 25% of their assets in the mutual fund industry. In
accordance with the LifePoints Funds' investment policies set forth in the
Prospectus, each of the LifePoints Funds may invest more than 25% of its assets
in the Underlying Funds. However, each of the Underlying Funds in which each
LifePoints Fund will invest (other than the Real Estate Securities Fund) will
not concentrate more than 25% of its total assets in any one industry. 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.

INVESTMENT POLICIES AND PRACTICES OF THE LIFEPOINTS FUNDS

REPURCHASE AGREEMENTS. Each LifePoints 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 the next day). The securities purchased by a LifePoints Fund have
a total value in excess of the value of the repurchase agreement and are held by
the LifePoints Fund's custodian

20
<PAGE>

bank until repurchased. Repurchase agreements assist a LifePoints Fund in being
invested fully while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. The LifePoints Funds will limit repurchase transactions
to those member banks of the Federal Reserve System and primary dealers in US
government securities whose creditworthiness is continually monitored and found
satisfactory by FRIMCo.

MONEY MARKET INSTRUMENTS. Each LifePoints Fund may invest in securities with
maturities of 397 days or less at the time from the trade date or such other
date upon which a LifePoints Fund's interest in a security is subject to market
action. Each LifePoints Fund will follow procedures reasonably designed to
assure that the prices so determined approximate the current market value of the
Fund's securities. The procedures also address such matters as diversification
and credit quality of the securities the LifePoints Funds purchase, and were
designed to ensure compliance by the Funds with the requirements of Rule 2a-7 of
the 1940 Act.

ILLIQUID SECURITIES. The expenses of registration of restricted securities
that are illiquid (excluding securities that may be resold by the LifePoints
Funds pursuant to Rule 144A, as explained in the Prospectus) may be negotiated
at the time such securities are purchased by a LifePoints 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
LifePoints Fund may not be able to obtain as favorable a price as that
prevailing at the time of the decision to sell. A LifePoints Fund also may
acquire, through private placements, securities having contractual resale
restrictions, which might lower the amount realizable upon the sale of such
securities.

INVESTMENT POLICIES OF THE UNDERLYING FUNDS

The following is a description of the investment objective and policies for
each of the Underlying Funds.

DIVERSIFIED EQUITY FUND. The 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 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.

QUANTITATIVE EQUITY FUND. The 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.

21
<PAGE>

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.

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

EMERGING MARKETS FUND. The Fund's objective is to provide maximum total
return, primarily through capital appreciation and by assuming a higher level of
volatility than is ordinarily expected from developed market international
portfolios, by investing primarily in equity securities. Under normal
circumstances, the Fund will invest at least 65% of its total assets in equity
securities of companies in countries having emerging markets. For purposes of
the Fund's operations, an "emerging market" country will be a country having an
economy and market that are or would be considered by the World Bank or the
United Nations to be emerging or developing. These countries generally include
every country in the world except the United States, Canada, Japan, Australia
and most countries located in Western Europe.

The Fund may not be invested in all such markets at all times. Investing in
some of the listed markets may not be feasible, due to lack of adequate custody
arrangements or current legal requirements. In the future, the Fund's money
managers may determine, based on information then available, to include
additional emerging market countries in which the Fund may invest. The assets
of the Fund ordinarily will be invested in the securities of issuers in at least
three different emerging market countries. The Fund does not currently
anticipate that it will invest more than 25% of its total assets in the
securities of any one emerging market country. A company in an emerging market
means: (i) a company whose securities are traded in the principal securities
market of an emerging market country; (ii) a company that (alone or on a
consolidated basis) derives 50% or more of its total revenue from either goods
produced, sales made or services performed in emerging market countries; or
(iii) a company organized under the laws of, and with a principal office in, an
emerging market country.

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

22
<PAGE>

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.

The Fund may invest up to 5% of its net assets in debt securities that are
rated below "investment grade" (i.e., rated lower 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 managers of the Fund to be of
comparable quality. Debt rated BB, B, CCC, CC and C by S&P, and debt rated Ba,
B, Caa, Ca and C by Moody's, is regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. For S&P, BB indicates the lowest
degree of speculation and C the highest. For Moody's, Ba indicates the lowest
degree of speculation and C the highest. These lower rated debt securities may
include obligations that are in default or that face the 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, see "High Risk Bonds" below.

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 in Foreign
Securities."

REAL ESTATE SECURITIES FUND. The 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, 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 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.

DIVERSIFIED BOND FUND. The 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

23
<PAGE>

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.

VOLATILITY CONSTRAINED BOND FUND. The 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 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, FRIMCo intends to limit total non-US dollar investments
to no more than 25% of total Fund assets.

The Fund will invest in debt securities denominated in currencies of countries
whose governments are considered by it to be stable (or, when the Fund invests
in countries considered unstable or undeveloped, it will only do so when it
believes 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 issuers. 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

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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.

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

MULTISTRATEGY BOND FUND. The 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 and floating rate
and zero coupon securities; mortgage and other asset-backed securities;
municipal obligations; variable amount demand master notes (these notes
represent a borrowing arrangement between a commercial paper issuer and an
institutional lender, such as the Fund); bank certificates of deposit, fixed
time deposits and bankers' acceptances; repurchase agreements and reverse
repurchase agreements; and foreign currency exchange related securities.

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

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 in Foreign Securities."

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

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

INVESTMENT PRACTICES. The Underlying Funds use certain investment instruments
and techniques commonly used by institutional investors. The principal practices
are the following:

FORWARD COMMITMENTS. Each Underlying 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, liquid assets of the
Underlying 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. 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.

Additionally, under certain circumstances, the International Securities and
Emerging Markets Funds may occasionally engage in "free trade" transactions in
which delivery of securities sold by the Underlying 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 an Underlying Fund if the
other party to the "free trade" transaction fails to complete the transaction
after the Fund has tendered cash payment or securities, as the case may be.

LENDING PORTFOLIO SECURITIES. Each Underlying Fund may lend portfolio
securities with a value of up to 33 1/3% of each Fund's total assets. Such loans
may be terminated at any time. A Fund will receive 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 102% for loans of US securities, and
105%, for non-US securities, of the current market value of loaned securities.
The collateral will be "marked-to-market" on a daily basis, and the

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<PAGE>

borrower will furnish additional collateral in the event that the value of the
collateral drops below the respective percentages set forth above of the market
value of the loaned securities.

Cash collateral is invested in high-quality short-term debt 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 Underlying 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 Underlying Fund and the Fund's custodian. Each Underlying
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 Underlying 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 Trust 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 Underlying Fund must immediately pay the amount of the shortfall to the
borrower.

ILLIQUID SECURITIES. The Underlying 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 Underlying 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, as amended (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, an Underlying Fund's holding of
that security may be illiquid. There may be undesirable delays in selling
illiquid securities at prices representing their fair value.

CASH RESERVES. Each Underlying Fund is authorized to invest its cash reserves
(i.e., funds awaiting investment in the specific types of securities to be
acquired by an Underlying Fund) in money market instruments and in debt
securities which are at least comparable in quality to the Underlying Fund's
permitted investments. In lieu of having each of the Underlying Funds make
separate, direct investments in money market instruments, each Underlying Fund
and its money managers may elect to invest the Fund's cash reserves in the
Trust's Money Market Fund.

The Money Market Fund 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 Underlying 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 Trust's other Funds. The Money
Market Fund and the Underlying Funds investing in the Money Market Fund treat
such investments as the purchase and redemption of Money Market Fund shares. Any
Underlying 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 the Underlying Funds
will be voted by the Trustees of the Trust in the same proportion as the shares
of the Money Market Fund which are held by shareholders which are not

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<PAGE>

Underlying Funds. Underlying Funds investing in the Money Market Fund currently
do not pay a management fee to the Money Market Fund.

LIQUIDITY PORTFOLIO. An Underlying Fund at times has to sell portfolio
securities in order to meet redemption requests. The selling of securities may
effect an Underlying Fund's performance since the money manager sells the
securities for other than investment reasons. An Underlying 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, however, to the investment objectives of the Diversified Equity,
Special Growth, Quantitative Equity and International Securities Funds. The more
cash these Underlying Funds hold, the more difficult it is for their returns to
meet or surpass their respective benchmarks. FRIMCo will exercise investment
discretion or select a money manager to exercise investment discretion for
approximately 5-15% of the Funds' assets assigned to a "Liquidity Portfolio."

A Liquidity Portfolio addresses this potential detriment by having FRIMCo or a
money manager selected for this purpose create temporarily an equity exposure
for cash reserves through the use of options and futures contracts until those
cash reserves are invested in securities or used for Underlying Fund
transactions. This will enable those four Underlying Funds to hold cash while
receiving a return on the cash which is similar to holding equity securities.

MONEY MARKET INSTRUMENTS. Similar to the LifePoints Funds, and as described
earlier in this Statement, the Underlying Funds may invest in money market
instruments.

US GOVERNMENT OBLIGATIONS. The types of US government obligations the
Underlying 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
("GNMA") 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
Underlying Funds may purchase US government obligations on a forward commitment
basis.

RUSSELL 1000 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 $1 billion. 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 10K
report with the SEC, foreign securities and ADRs.

The Russell 1000/(R)/ Index is used as the basis for the Quantitative Equity
Fund's performance because it, in FRIMCo'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.

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<PAGE>

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
FRIMCo believes that the particular security is an attractive investment.

HIGH RISK BONDS. The Underlying Funds, other than the Emerging Markets and
Multistrategy Bond Funds, do not invest their 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 are the lowest ratings which are considered
"investment grade" securities, although Moody's considers securities rated Baa,
and S&P considers bonds rated BBB, to have some speculative characteristics. The
Underlying Funds, other than Emerging Markets and Multistrategy Bond Funds, will
dispose of, in a prudent and orderly fashion, securities whose ratings drop
below these minimum ratings. The market value of debt securities generally
varies inversely in relation to interest rates.

The Emerging Markets and Multistrategy Bond Funds will invest in "investment
grade" securities and may invest up to 5% of its total assets (in the case of
the Emerging Markets Fund) and 25% of its total assets (in the case of the
Multistrategy Bond Fund) 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 Funds 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 Underlying Funds' ability
to sell such securities at fair value in response to changes in the economy or
the financial markets. While such debt may have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions. The money managers of the Multistrategy Bond and
Emerging Markets Funds will seek to reduce the risks associated with investing
in such securities by limiting the Funds' holdings in such securities and by the
depth of their own credit analysis.

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. For further description of the various rating categories, see "Ratings of
Debt Instruments."

RISK FACTORS. The growth of the market for lower rated debt securities 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>

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 an Underlying 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
Underlying 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 an Underlying
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 Emerging Markets and Multistrategy Bond 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.

INVESTMENT IN FOREIGN SECURITIES. The Underlying Funds may invest in foreign
securities. 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
Underlying 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 Underlying 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.

DEPOSITORY RECEIPTS. Each Underlying Fund may hold securities of foreign
issuers in the form of American Depository Receipts ("ADRs"), American
Depository Shares ("ADSs") and European Depository Receipts ("EDRs"), or other
securities convertible into securities of eligible European or Far Eastern
issuers. These securities may not necessarily be denominated in the same
currency as the securities for which they may be exchanged. ADRs and ADSs
typically are issued by an American bank or trust company and evidence ownership
of underlying securities issued by a foreign corporation. EDRs, which are
sometimes referred to as Continental Depository Receipts ("CDRs"), are issued in
Europe typically by foreign banks and trust companies and evidence ownership of
either foreign or domestic securities. Generally, ADRs and ADSs in registered
form are designed for use in United States securities markets and EDRs in bearer
form are designed for use in European securities markets. For purposes of an
Underlying Fund's investment policies, the Underlying Fund's investments in
ADRs, ADSs and EDRs will be deemed to be investments in the equity securities
representing securities of foreign issuers into which they may be converted.

ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respect
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish

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<PAGE>

an unsponsored facility without participation by (or even necessarily the
acquiescence of) the issuer of the deposited securities, although typically the
depository requests a letter of non-objection from such issuer prior to the
establishment of the facility. Holders of unsponsored ADRs generally bear all
the costs of such facilities. The depository usually charges fees upon the
deposit and withdrawal of the deposited securities, the conversion of dividends
into U.S. dollars, the disposition of non-cash distributions, and the
performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders with respect to the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
Underlying Funds may invest in sponsored and unsponsored ADRs.

OPTIONS AND FUTURES. The Underlying 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 Underlying Funds may also use those instruments,
provided that the Trust's Board determines that their use is consistent with the
Underlying Funds' investment objectives, and provided that their use is
consistent with restrictions applicable to options and futures contracts
currently eligible for use by the Underlying 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).

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.

An Underlying 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.
An Underlying 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.

An Underlying 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, an Underlying 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, an Underlying Fund may make a "closing sale
transaction," which involves liquidating the Fund's position by selling the
option previously purchased. The Underlying 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 Underlying 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 Underlying Funds intend to purchase and write call and put options on
specific securities.

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<PAGE>

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

OPTIONS ON FOREIGN CURRENCY. The Underlying 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 an Underlying 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
Underlying Funds, other than the Multistrategy Bond and Emerging Markets Funds,
currently intends to write or purchase such options.

OPTIONS ON SECURITIES AND INDEXES. Each Underlying Fund 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. The Underlying 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
Underlying Funds' ability to hold illiquid securities. The Underlying Funds
intend to purchase and write call and put options on specific securities.

An option on a security (or securities index) is a contract that gives the
purchaser 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 at a specified exercise price at any time during
the option period. 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 (established by the exchange upon which
the stock index is traded) 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.) Options on securities indexes are similar to options on specific
securities 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.

An Underlying Fund may purchase a call option on securities to protect against
substantial increases in prices of securities the Underlying Fund intends to
purchase pending its ability or desire to purchase such securities in an orderly
manner. An Underlying 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.

An Underlying 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 Underlying Fund owns the security underlying the call or has an absolute
and immediate right to acquire that security without additional cash
consideration

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(or, if additional cash consideration is required, liquid assets in such amount
are placed in a segregated account by the Custodian) upon conversion or exchange
of other securities held by the Underlying Fund. For a call option on an index,
the option is covered if the Underlying Fund maintains with the Custodian liquid
assets equal to the contract value. A call option is also covered if the
Underlying 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 liquid
assets in a segregated account with the Custodian. A put option on a security or
an index is "covered" if the Underlying Fund maintains liquid assets equal to
the exercise price in a segregated account with the Custodian. A put option is
also covered if the Underlying 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
Underlying Fund in liquid assets in a segregated account with the
Custodian.

If an option written by an Underlying 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 an Underlying 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.

An Underlying 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 Underlying 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 Underlying
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 an Underlying Fund is
an asset of the Fund. The premium received for an option written by an
Underlying 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.

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<PAGE>

There can be no assurance that a liquid market will exist when an Underlying
Fund seeks to close out an option position. If an Underlying 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 an Underlying 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, an Underlying 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 an Underlying Fund, the
Fund would not be able to close out the option. If restrictions on exercise were
imposed, the Underlying 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
Underlying 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. An Underlying 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 an Underlying 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. An Underlying Fund may use
interest rate, foreign currency or index futures contracts. 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. 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. In the case of futures contracts traded on U.S. exchanges, the
exchange itself or an affiliated clearing corporation assumes the opposite side
of each transaction (i.e., as buyer or seller). A futures contract may be
satisfied or closed out by delivery or purchase, as the case may be, of the
financial instrument or by payment of the change in the cash value of the index.
Frequently, using futures to effect a particular strategy instead of using the
underlying or related security or index will result in lower transaction costs
being incurred. 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; GNMA Certificates; three-month US Treasury
bills; Eurodollar certificates of

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<PAGE>

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 ECU. It is expected that
other futures contracts will be developed and traded in the future.

An Underlying Fund may also 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
(in the case of a call) or short position (in the case of a 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. An option on a futures contract
may be closed out before exercise or expiration by an offsetting purchase or
sale on option on a futures contract of the same series.

There can be no assurance that a liquid market will exist at a time when an
Underlying 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 an Underlying Fund
from liquidating an unfavorable position and the Fund would remain obligated to
meet margin requirements until the position is closed.

An Underlying 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. An Underlying Fund will enter into a futures contract only if the
contract is "covered" or if the Fund at all times maintains with its custodian
liquid assets equal to or greater than the fluctuating value of the contract
(less any margin or deposit). An Underlying 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 on Securities and Indexes"
above.

An Underlying Fund may enter into contracts and options on futures contracts
for "bona fide hedging" purposes, as defined under the rules of the Commodity
Futures Trading Commission (the "CFTC"). An Underlying 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.

As long as required by regulatory authorities, each Underlying Fund will limit
its use of futures contracts and options on futures contracts to hedging
transactions. For example, an Underlying 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, an Underlying Fund may use futures
contracts to create equity exposure for its cash reserves for liquidity
purposes.

When a purchase or sale of a futures contract is made by an Underlying 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 Underlying Fund
upon termination of the contract, assuming all contractual obligations have been
satisfied. Each Underlying Fund expects to earn interest income on its initial
margin deposits.

A futures contract held by an Underlying Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Underlying
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 an Underlying Fund,
but is instead a settlement between the Fund and the broker of the amount one
would owe the other if the futures contract

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<PAGE>

expired. In computing daily net asset value, each Underlying Fund will mark-to-
market its open futures positions.

An Underlying 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 requirements), the current market value of the
option, and other futures positions held by the Underlying 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 Underlying 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 Underlying 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. An Underlying
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, an Underlying Fund will maintain with the
Custodian (and mark-to-market on a daily basis) liquid assets 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 Underlying 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, an Underlying Fund will maintain with the
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 Underlying 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
Underlying 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 Custodian).

When selling a call option on a futures contract, an Underlying Fund will
maintain with the Custodian (and mark-to-market on a daily basis) liquid assets
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 Underlying 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 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, an Underlying Fund will
maintain with the Custodian (and mark-to-market on a daily basis) liquid assets
that equal the purchase price of the futures contract, less any margin on
deposit. Alternatively, the Underlying 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.

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<PAGE>

In order to comply with applicable regulations of the CFTC pursuant to which
the Underlying Funds avoid being deemed to be a "commodity pools," the Funds are
limited in entering into future contracts and options on future contracts 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 for non-hedging purposes, 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 an Underlying 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 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 portfolio 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. 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 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 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 an
Underlying 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 an Underlying 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.

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<PAGE>

HEDGING STRATEGIES. Stock index futures contracts may be used by the
Diversified Equity, Special Growth, Quantitative Equity, International
Securities and Emerging Markets Funds as an "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, an Underlying Fund will realize gains or losses based on the performance
of the equity market corresponding to the relevant indexes for which futures
contracts have been purchased. Thus, each Underlying Fund's cash reserves always
will be fully exposed to equity market performance.

Financial futures contracts may be used by the International Securities,
Diversified Bond, Volatility Constrained Bond, Multistrategy Bond and Emerging
Markets 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 value would decrease, partly
offsetting the loss in value of the fixed-income security by enabling the
Underlying Fund to repurchase the futures contract at a lower price to close out
the position.

The Underlying 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.

When purchasing a futures contract, an Underlying Fund will maintain with the
Custodian (and mark-to-market on a daily basis) liquid assets 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, an Underlying 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.

FOREIGN CURRENCY FUTURES CONTRACTS. The Underlying 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.

The Underlying 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, an
Underlying 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
Underlying Fund against any rise in the foreign exchange rate which may add
additional costs to acquiring the foreign security position. The Underlying Fund
may also purchase call or put options on foreign currency futures contracts to
obtain a fixed foreign exchange rate. The Underlying 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 Underlying 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.

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<PAGE>

securities. Another risk is that a liquid secondary market may not exist for a
futures contract causing an Underlying 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 (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 an
Underlying 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.

FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS ("FORWARD CURRENCY CONTRACTS").
The International Securities, Diversified Bond, Volatility Constrained Bond,
Multistrategy Bond and Emerging Markets Funds may engage in forward currency
contracts 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 For
example, to exchange a certain amount of U.S. dollars for a certain amount of
Japanese Yen - 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. 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. A Fund
may, however, enter into forward currency contracts containing either or both
deposit requirements and commissions. In order to assure that a Fund's forward
currency contracts are not used to achieve investment leverage, the Fund will
segregate liquid assets in an amount at all times equal to or exceeding the
Fund's commitments with respect to these contracts. An Underlying 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 their portfolio securities. Position hedging is the sale of foreign currency
with respect to portfolio security positions denominated or quoted in the
currency. An Underlying Fund 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 Underlying
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 an Underlying Fund enters into this type of hedging
transaction, liquid assets will be placed in a segregated account in an amount
equal to the value of the Fund's total assets committed to the consummation of
the forward contract. If the value of the securities placed in the segregated
account declines, additional liquid assets will be placed in the account so that
the value of the account will equal the amount of the Underlying 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, an
Underlying 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
Underlying Fund will obtain, on the same maturity date, the same amount of the
currency which it is obligated to deliver. If the Underlying 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

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<PAGE>

forward prices increase, the Underlying 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. There can be no assurance that new
forward currency or offsets will be available to a Fund.

Upon maturity of a forward currency contract, the Underlying 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. An
Underlying 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 Underlying Funds.

The cost to an Underlying 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, an Underlying Fund may be able to
contract to sell the currency at a price above the devaluation level that it
anticipates. An Underlying 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.

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<PAGE>

Forward foreign currency transactions are subject to the additional 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 (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 an Underlying 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, (5) lesser trading
volume and (6) that a perceived linkage between various currencies may not
persist throughout the duration of the contracts.

The market for forward currency contracts may be limited with respect to
certain currencies. These factors will restrict an Underlying 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 Underlying Funds are engaged in that strategy.

An Underlying 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 an Underlying Fund will be able to utilize these
instruments effectively for the purposes set forth above.

ZERO COUPON SECURITIES. Zero coupon securities are notes, bonds and debentures
that (1) do not pay current interest and are issued at a substantial discount
from par value, (2) have been stripped of their unmatured interest coupons and
receipts or (3) 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.

MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. The forms of mortgage
related and other asset-backed securities the Underlying 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 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, and 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.

41
<PAGE>

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
prepaid 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 an Underlying Fund has
been exhausted, and if any required payments of principal and interest are not
made with respect to the underlying loans, the Underlying 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 an Underlying 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.

FOREIGN GOVERNMENT SECURITIES. Foreign government securities which the
Underlying 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 Multistrategy Bond Fund may invest in Brady Bonds, the
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 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 LifePoints 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 LifePoints
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) at the close of each quarter of a
LifePoints 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

42
<PAGE>

respect of any one issuer, to an amount that does not exceed 5% of the value of
the LifePoints Fund and that does not represent more than 10% of the outstanding
voting securities of such issuer; and (iii) at the close of each quarter of the
LifePoints 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, including shares of the Underlying Funds) of any one issuer.

Notwithstanding the Distribution Requirement described above, which only
requires each LifePoints 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 28% and 20% capital gain over net short-
term capital loss), each LifePoints 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.

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, the
Underlying Funds may buy and sell foreign currencies and options on foreign
currencies, and may enter into forward currency contracts and currency futures
contracts.

STATE AND LOCAL TAXES. Depending upon the extent of a LifePoints 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 LifePoints Fund may be subject to
the tax laws of such states or localities.

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.

RATINGS OF DEBT INSTRUMENTS

CORPORATE AND MUNICIPAL BOND RATINGS.

MOODY'S INVESTORS SERVICE, INC. (MOODY'S):

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.

43
<PAGE>

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.

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.

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.

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 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.

44
<PAGE>

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.

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:

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).

45
<PAGE>

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.

MOODY'S:

Commercial paper rated Prime by Moody's is based upon its evaluation of many
factors, including: (l) 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-l, Prime-2, or Prime-3.

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:

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.

46
<PAGE>

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 & PHELPS, INC.:

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 carries 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.

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.:

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<PAGE>

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.

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"):

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
F1+.

48
<PAGE>

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

THOMSON BANKWATCH ("TBW") SHORT-TERM RATINGS:

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.

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 1997 annual financial statements of the LifePoints Funds, including notes
to the financial statements and financial highlights and the Report of
Independent Accountants, are included in the LifePoints Funds Annual Report to
Shareholders. A copy of the Annual Report accompanies this Statement of
Additional Information and is incorporated herein by reference.

49
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
--------------------------------
File No. 2-71299 and 811-3153
1933 Act Post-Effective Amend. No. 39
1940 Act Amendment No. 39

PART C

OTHER INFORMATION
-----------------

Item 24. Financial Statements and Exhibits
---------------------------------

(a) Audited Financial Statements for the year ended 12/31/97 for the
Equity I, Equity II, Equity III, Equity Q, Equity T, Fixed Income
I, Fixed Income II, Fixed Income III, International, Emerging
Markets, Money Market, Diversified Equity, Special Growth, Equity
Income, Quantitative Equity, Diversified Bond, Volatility
Constrained Bond, Multistrategy Bond, International Securities,
Limited Volatility Tax Free, Real Estate Securities, US
Government Money Market and Tax Free Money Market Funds,
Aggressive Strategy, Balanced Strategy, Moderate Strategy,
Conservative Strategy and Equity Balanced Strategy Funds. Annual
Report for the Frank Russell Investment Company Funds are
incorporated by reference to March 3, 1998 electronic filing via
EDGAR on Form N-30D.

(b) Exhibits
--------

1(a) Master Trust Agreement (incorporated by reference to
Post-Effective Amendment No. 32)

1(b) 11/29/84 Amendment to Master Trust Agreement
(incorporated by reference to Post-Effective Amendment
No. 32)

1(c) 5/29/85 Amendment to Master Trust Agreement
(incorporated by reference to Post-Effective Amendment
No. 32)

1(d) 1/26/87 Amendment to Master Trust Agreement
(incorporated by reference to Post-Effective Amendment
No. 32)

1(e) 2/23/89 Amendment to Master Trust Agreement
(incorporated by reference to Post-Effective Amendment
No. 32)

1(f) 5/11/92 Amendment to Master Trust Agreement
(incorporated by reference to Post-Effective Amendment
No. 32)
<PAGE>

1(g) 3/22/96 Amendment to Master Trust Agreement
(incorporated by reference to Post-Effective Amendment
No. 32)

1(h) 4/22/96 Amendment to Master Trust Agreement
(incorporated by reference to Post-Effective Amendment
No. 33)

<PAGE>

Exhibits
--------

1(i) 11/4/96 Amendment to Master Trust
Agreement (incorporated by reference to Post-Effective
Amendment No. 36)

2. Bylaws (incorporated by reference to the Post-Effective
Amendment No. 38)
<PAGE>

3. Voting Trust Agreement (not applicable)

4. Specimen Securities

4(a) Equity I Fund, Equity II Fund, Equity III Fund, Fixed
Income I Fund, Fixed Income II Fund, International Fund
and Money Market Fund

4(b) Diversified Equity Fund, Special Growth Fund, Equity
Income Fund, Diversified Bond Fund, Volatility
Constrained Bond Fund, International Securities Fund,
Limited Volatility Tax Free Fund and U.S. Government
Money Market Fund

4(c) Quantitative Equity, Equity Q and Tax Free Money Market
Funds

4(d) Real Estate Securities Fund

5(a) Amended and Restated Management Agreement with Frank
Russell Investment Management Company (incorporated by
reference to Post-Effective Amendment No. 32)

5(a)(1) Letter Agreement adding Equity T Fund to the Management
Agreement (incorporated by reference to Post-Effective
Amendment No. 32)

5(a)(2) Letter Agreement adding Aggressive Strategy, Balanced
Strategy, Moderate Strategy, Conservative Strategy and
Equity Balanced Strategy Funds to the Management
Agreement (incorporated by reference to Post-Effective
Amendment No. 36)

<PAGE>

Exhibits
--------

5(a)(3) Letter Agreement amending the Amended and Restated
Management Agreement amending Section 6A of the
Management Agreement (incorporated by reference to
Post-Effective Amendment No. 38)

5(b)(1) Service Agreement with Frank Russell Company and Frank
Russell Investment Management Company (incorporated by
reference to Post-Effective Amendment No. 38)

5(b)(2) Letter Agreement adding Real Estate Securities Fund to
the Service Agreement (incorporated by reference to
Post-Effective Amendment No. 38)

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. 38)

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. 38)

5(b)(5) Amendment No. 2 to the Service Agreement with Frank
Russell Company and Frank Russell Investment Management
Company amending Section 4 of the Agreement
(incorporated by reference to Post-Effective Amendment
No. 32)

5(b)(6) Letter Agreement adding Equity T Fund to the Service
Agreement (incorporated by reference to Post-Effective
Amendment No. 32)

5(b)(7) Letter Agreement with State Street Bank and Trust
Company for development of a Tax Accounting System
(incorporated by reference to Post-Effective Amendment
No. 32)

5(b)(8) Letter Agreement adding Aggressive Strategy, Balanced
Strategy, Moderate Strategy, Conservative Strategy and
Equity Balanced Strategy Funds to the Yield Calculation
Services Agreement(incorporated by reference to Post-
Effective Amendment No. 36)

5(c)(1) Portfolio Management Contract, as amended, with Money
Managers and Frank Russell Investment
<PAGE>

Management Company (incorporated by reference to Post-
Effective Amendment No. 32)
<PAGE>

Exhibits
--------

6(a)(1) Distribution Agreement with Russell Fund Distributors,
Inc. (incorporated by reference to Post-Effective
Amendment No. 38)

6(a)(2) Letter Agreement adding Real Estate Securities Fund to
the Distribution Agreement (incorporated by reference
to Post-Effective Amendment No. 38)

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. 38)

6(a)(4) Letter Agreement adding Equity T Fund to the
Distribution Agreement (incorporated by reference to
Post-Effective Amendment No. 32)

6(a)(5) Letter Agreement adding Aggressive Strategy, Balanced
Strategy, Moderate Strategy, Conservative Strategy and
Equity Balanced Strategy Funds to the Distribution
Agreement(incorporated by reference to Post-Effective
Amendment No. 36)

7. Bonus Plans (none)

8(a) Custodian Agreement with State Street Bank and Trust
Company (incorporated by reference to Post-Effective
Amendment No. 38)

8(b) Letter Agreement adding Real Estate Securities Fund to
the Custodian Agreement (incorporated by reference to
Post-Effective Amendment No. 38)

8(c) Letter Agreement adding Fixed Income III and
Multistrategy Bond Funds to the Custodian Agreement
(incorporated by reference to Post-Effective Amendment
No. 38)

8(d) Letter Agreement adding Emerging Markets Fund to the
Custodian Agreement (incorporated by reference to Post-
Effective Amendment No. 38)
<PAGE>

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. 38)

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. 38)

8(g) Amendment to the Custodian Agreement with State Street
Bank and and 2.7 of the Agreement (incorporated by
reference to Post-Effective Amendment No. 38)

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. 38)
<PAGE>

Exhibits
--------

8(i) Amendment to the Custodian Agreement with State Street
Bank and Trust Company for addition of Omnibus accounts
(incorporated by reference to Post-Effective Amendment
No. 32)

8(j) Amendment to the Custodian Agreement with State Street
Bank and Trust Company amending Section 7 of the Fee
Schedule for all Funds except the Emerging Markets Fund
(incorporated by reference to Post-Effective Amendment
No. 32)

8(k) Amendment to the Custodian Agreement with State Street
Bank and Trust Company amending Section 7 of the Fee
Schedule for the Emerging Markets Fund (incorporated by
reference to Post-Effective Amendment No. 32)

8(l) Amendment to the Custodian Agreement with State Street
Bank and Trust Company adding Equity T Fund
(incorporated by reference to Post-Effective Amendment
No. 32)
<PAGE>

8(m) Amendment to the Custodian Agreement with State Street
Bank and Trust Company adding Aggressive Strategy,
Balanced Strategy, Moderate Strategy, Conservative
Strategy and Equity Balanced Strategy Funds.
(incorporated by reference to Post-Effective Amendment
No. 36)

9(a)(1) Agency Agreement with Frank Russell Investment
Management Company (incorporated by reference to
Post-Effective Amendment No. 38)

9(a)(2) Letter Agreement adding Real Estate Securities Fund to
the (Transfer) Agency Agreement (incorporated by
reference to Post-Effective Amendment No. 38)

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. 38)
<PAGE>

Exhibits
--------

9(a)(4) Letter Agreement amending Schedule A of the Transfer
and Dividend Disbursing Agency Agreement with Frank
Russell Investment Management Company (incorporated by
reference to Post-Effective Amendment No. 32)

9(a)(5) Letter Agreement adding Equity T Fund to the Transfer
and Dividend Agency Agreement (incorporated by
reference to Post-Effective Amendment No. 32)

9(a)(6) Letter Agreement adding Aggressive Strategy, Balanced
Strategy, Moderate Strategy, Conservative Strategy and
Equity Balanced Strategy Funds to the Transfer and
Dividend Disbursing Agency Agreement. (incorporated by
reference to Post-Effective Amendment No. 36)

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. 38)

9(c) General forms of Frank Russell Investment Management
Company's Asset Management Services Agreement with its
clients (incorporated by reference to Post-Effective
Amendment No. 38)

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. 38)

9(e) Shareholder Servicing Plan including forms of related
agreements (incorporated by reference to Post-Effective
Amendment No. 36)

9(f) General Form of Frank Russell Investment Management
Company Asset Management Services Agreement with non-
compete clause customers (incorporated by reference to
Post-Effective Amendment No. 38)
<PAGE>

Exhibits
--------

10. Opinion and Consent of Counsel

11(a) Other Opinions -Consent of Independent Accountants

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 (incorporated by reference to Post-Effective
Amendment No. 38)

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. 38)

14. Model Retirement Plans (none)

15. Rule 12b-1 Distribution Financing Plan including forms
of related agreements(incorporated by reference to
Post-Effective Amendment No. 36)

16. Schedule of Computation of Performance Calculation

17. Financial Data Schedules for Frank Russell Investment
Funds

<PAGE>

18. Multiple Class Plan Pursuant to Rule 18f-3(incorporated
by reference to Post-Effective Amendment No. 33)

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 March 31, 1998
-------------- ---------------------------------------------
<S> <C>
Shares of beneficial interest
Par Value $0.01
Equity I 6,309
Equity II 6,060
Equity III 1,342
Equity Q 5,627
Equity T 876
International 6,359
Emerging Markets 18,179
Fixed Income I 3,914
Fixed Income II 2,948
Fixed Income III 3,795
Money Market 3,618
Diversified Equity 15,183
Special Growth 14,979
Equity Income 5,209
Quantitative Equity 15,099
International Securities 14,846
Diversified Bond 6,179
Volatility Constrained Bond 2,310
Multistrategy Bond 8,876
Limited Volatility Tax Free 888
Real Estate Securities Fund 19,542
U.S. Government Money Market 3,915
Tax Free Money Market 1,007

</TABLE>
<PAGE>

<TABLE>
<S> <C>
Aggressive Strategy 178
Balanced Strategy 171
Moderate Strategy 56
Conservative Strategy 100
Equity Balanced Strategy 17

</TABLE>

Item 27. Indemnification
---------------

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

Item 28. Business and Other Connections of Investment Advisor
----------------------------------------------------

See, Registrant's prospectus sections "The Purpose of the Fund--
Multi-Style, Multi-Manager Diversification," "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."
<PAGE>

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>
George F. Russell, Jr. Chairman of the Board None
Lynn L. Anderson Trustee, President, Chief Director, Chairman of the Board
Executive Officer and Chief Executive Officer
Eric A. Russell None Director and President
George W. Weber Treasurer and Chief Director, Fund Administration and
Accounting Officer Operations
Karl J. Ege Secretary and General Counsel Secretary and General Counsel
Randall P. Lert Director of Investments Director
Linda L. Gutmann None Treasurer
J. David Griswold None Assistant Secretary and Associate
General Counsel and Chief
Compliance Officer
Gregory J. Lyons Assistant Secretary and Assistant Secretary
Associate General Counsel
Mary E. Hughs None Assistant Secretary
Carla L. Anderson None Assistant Secretary
Warren Thompson III None Corporate Tax Counsel
Sandra J. Burke Assistant Secretary None
Deedra S. Walkey Assistant Secretary None
Amy Osler Assistant Secretary None
John James None Assistant Secretary
Rick J. Chase Assistant Treasurer None
Mark E. Swanson Assistant Treasurer None

</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>
<S> <C>
FRIC FRIMCo
- ---- ------
Frank Russell Investment Company Frank Russell Investment
909 A Street Management Company
Tacoma, Washington 98402 909 A Street
Tacoma, Washington 98402

SS MM
- -- --

</TABLE>
<PAGE>

<TABLE>
<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>
<PAGE>

Rule 31a-1
- ----------
<TABLE>
<S> <C>
(a) Records forming basis for financial statements - at principal
offices of SS, FRIC, FRIMCo, and MM for each entity

(b) FRIC Records:

(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) ---

(d) FRIMCo - Broker-dealer records, to the extent applicable

(e) Inapplicable

(f) FRIMCo and MM - Investment adviser records
</TABLE>

Item 31. Management Services
-------------------

None except as described in Parts A and B.

Item 32. Undertakings
------------

(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>

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. 39 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 15th day of April, 1998.

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 April 15, 1998.

<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
- -------------------------
Eleanor W. Palmer*

</TABLE>
<PAGE>

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>

EXHIBIT INDEX

NAME OF EXHIBIT EXHIBIT NUMBER
- --------------- --------------
<S> <C>
Equity I Fund, Equity II Fund, Equity III Fund, Fixed Income I Fund, 99-4(a)
Fixed Income II Fund International Fund And Money Market Fund

Diversified Equity Fund, Special Growth Fund, Equity Income Fund, 99-4(b)
Diversified Bond Fund, Volatility Constrained Bond Fund,
International Securities Fund, Limited Volatility Tax Free Fund
and U S Government Money Market Fund.

Quantitative Equity, Equity Q and Tax Free Money Market Funds 99-4(c)

Real Estate Securities Fund 99-4(d)

Opinion and Consent of General Counsel 99-10

Consent of Independent Accountants 99-11(a)

Schedule of Computations of Performance Calculation 99-16

Financial Data Schedule for Equity I Fund 27.1

Financial Data Schedule for Equity II Fund 27.2

Financial Data Schedule for Equity III Fund 27.3

Financial Data Schedule for Equity Q Fund 27.4

Financial Data Schedule for Equity T Fund 27.5

Financial Data Schedule for International Fund 27.6

Financial Data Schedule for Fixed I Fund 27.7

Financial Data Schedule for Fixed II Fund 27.8

Financial Data Schedule for Fixed III Fund 27.9

</TABLE>
<PAGE>

<TABLE>
<S> <C>
Financial Data Schedule for Multistrategy Bond Fund 27.10

Financial Data Schedule for Volatility Constrained Bond Fund 27.11

Financial Data Schedule for Emerging Markets Fund 27.12

Financial Data Schedule for Limited Volatility Tax Free Fund 27.13

Financial Data Schedule for Tax Free Money Market Fund 27.14

Financial Data Schedule for U S Government Money Market Fund 27.15

Financial Data Schedule for Money Market Fund 27.16

Financial Data Schedule for Special Growth Fund Class S 27.17

Financial Data Schedule for Special Growth Fund Class C 27.18

Financial Data Schedule for Diversified Equity Fund Class S 27.19

Financial Data Schedule for Diversified Equity Fund Class C 27.20

Financial Data Schedule for Equity Income Fund Class S 27.21

Financial Data Schedule for Equity Income Fund Class C 27.22

Financial Data Schedule for Quantitative Equity Fund Class S 27.23

Financial Data Schedule for Quantitative Equity Fund Class C 27.24

Financial Data Schedule for Real Estate Securities Fund Class S 27.25

Financial Data Schedule for Real Estate Securities Fund Class C 27.26

Financial Data Schedule for Diversified Bond Fund Class S 27.27

Financial Data Schedule for Diversified Bond Fund Class C 27.28

Financial Data Schedule for International Securities Fund Class S 27.29

Financial Data Schedule for International Securities Fund Class C 27.30

Financial Data Schedule for Aggressive Strategy Fund 27.31
</TABLE>
<PAGE>

<TABLE>
<S> <C>
Financial Data Schedule for Balance Strategy Fund 27.32

Financial Data Schedule for Moderate Strategy Fund 27.33

Financial Data Schedule for Conservative Strategy Fund 27.34

Financial Data Schedule for Equity Balanced Strategy Fund 27.35
</TABLE>
<PAGE>

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. 39

and Amendment No. 39
to
Registration Statement on Form N-1A
Under
Securities Act of 1933
and
Investment Company Act of 1940

<PAGE>

EXHIBIT 99.4(a)

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No.____________ of EQUITY I Fund Cusip ____________
--------
(See reverse for certain
definitions)

This Certifies That

is the registered owner of Fully Paid and Non-Assessable Shares ($.01 par value)
of FRANK RUSSELL INVESTMENT COMPANY, a Massachusetts business trust (the
"Trust") as a Series of Shares established and designated under the Master Trust
Agreement of the Trust dated July 26, 1984, as amended from time to time (the
"Trust Agreement"). The Terms of the Trust Agreement, a copy of which is on
file with the Secretary of the Commonwealth of Massachusetts, are hereby
incorporated by reference as fully as if set forth herein in their entirety. As
provided in the Trust Agreement, the beneficial interest in the Trust has been
divided into Shares of such Series as may be established and designated from
time to time, and the Shares evidenced hereby represent the beneficial interest
in an undivided proportionate part of the assets belonging to the above
designated Series subject to the liabilities belonging to such Series. Such
Series and other Series have the relative right and preferences set forth in the
Trust Agreement, and the Trust will furnish to the holder of this certificate
upon written request and without charge a statement of such relative rights and
preferences. THE SHARES EVIDENCED HEREBY ARE SUBJECT TO REDEMPTION BY THE TRUST
pursuant to the procedures that may be determined by the Trustees in accordance
with the Trust Agreement. This certificate is issued by the Trustees of FRANK
RUSSELL INVESTMENT COMPANY not individually but as Trustees under the Trust
Agreement, and represents Shares of the above designated Series and does not
bind any of the Trustees, Shareholders, Officers, Employees or Agents of the
Trust personally but only the assets and property of the Trust. Subject to the
provisions of the Trust Agreement, the Shares represented by this certificate
are transferable upon the books of the Trust by the registered holder hereof in
person or by his duly authorized attorney upon surrender of this certificate.

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common UNIF FIGT MIN ACT ________Custodian________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of
survivorship and not as tenants under Uniform Gifts to Minors Act
in common ______________________
(State)

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

__________________________________________________________________ Shares of the
Common Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint _____________________________ Attorney to transfer the
said stock on the books of the within named Corporation with full power of
substitution in the premises.

Dated: __________________________

X__________________________________
X__________________________________

Notice: The signature to this assignment must correspond with the name(s) as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE>

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of EQUITY II Fund Cusip ____________
---------
(See reverse for certain
definitions)
This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No.____________ of EQUITY III Fund Cusip ____________
----------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of FIXED INCOME I Fund Cusip ____________
--------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of FIXED INCOME II Fund Cusip ____________
---------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of INTERNATIONAL Fund Cusip ____________
-------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of MONEY MARKET Fund Cusip ____________
------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

Notice: The signature to this assignment must correspond with the name(s) as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.

<PAGE>

EXHIBIT 99.4(b)

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of DIVERSIFIED EQUITY Fund Cusip ____________
------------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common UNIF FIGT MIN ACT ________Custodian________
TEN ENT - as tenants by the entireties Cust) (Minor)
JT TEN - as joint tenants with right of
survivorship and not as tenants under Uniform Gifts to Minors Act
in common ______________________
(State)

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of SPECIAL GROWTH Fund Cusip ____________
---------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No.____________ of EQUITY INCOME Fund Cusip ____________
--------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of DIVERSIFIED BOND Fund Cusip ____________
-----------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No.______ of VOLATILITY CONSTRAINED BOND Fund Cusip ________
---------------------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of INTERNATIONAL SECURITIES Fund Cusip ____________
------------------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of LIMITED VOLATILITY TAX FREE Fund Cusip __________
---------------------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._______ of U.S. GOVERNMENT MONEY MARKET Fund Cusip ________
----------------------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

Notice: The signature to this assignment must correspond with the name(s) as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.

<PAGE>

EXHIBIT 99.4(c)

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No__________ of QUANTITATIVE EQUITY Fund Cusip _______________
--------------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of EQUITY Q Fund Cusip ____________
--------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of TAX FREE MONEY MARKET Fund Cusip ____________
---------------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

Notice: The signature to this assignment must correspond with the name(s) as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.

<PAGE>

EXHIBIT 99.4(d)

No. Shares

Frank Russell Investment Company

As a Massachusetts Business Trust

Shares of Beneficial Interest

Account No._________ of REAL ESTATE SECURITIES Fund Cusip ____________
----------------------
(See reverse for certain
definitions)

This Certifies That

WITNESS the facsimile signature of the President of the Trust and the signature
of its duly authorized agent. Date __________, 19__

Treasurer President

Shares
Countersigned: State
Street Bank & Trust
Com.Transfer Agent
By:
Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list.

For value received, ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|_____________________________|

________________________________________________________________________________
(Please print or typewrite name and address, including zip code of assignee)

________________________________________________________________________________

Dated: __________________________

X__________________________________
X__________________________________

Notice: The signature to this assignment must correspond with the name(s) as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.

<PAGE>

EXHIBIT 99.10

Law Offices

STRADLEY, RONON, STEVENS & YOUNG, LLP

2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000

Direct Dial: (215) 564-8074

April 20, 1998

Frank Russell Investment Company
909 A Street
Tacoma, WA 98402

RE: LEGAL OPINION-SECURITIES ACT OF 1933

Ladies and Gentlemen:

We have examined the Amended Master Trust Agreement (the "Agreement") dated
July 26, 1984, of Frank Russell Investment Company (the "Trust"), a business
trust organized under the laws of the Commonwealth of Massachusetts, the
By-Laws of the Trust, and the resolutions adopted by the Trust's Board of
Trustees organizing the business of the Trust, all as amended to date, and the
various pertinent proceedings we deem material. We have also examined the
Notification of Registration and the Registration Statements filed under the
Investment Company Act of 1940 (the "Investment Company Act") and the Securities
Act of 1933 (the "Securities Act") by the Trust and its predecessor, all as
amended to date, as well as other items we deem material to this opinion.

The Trust is authorized by the agreement to issue an unlimited number of
shares of beneficial interest without a par value, in one or more sub-Trusts,
and in such classes as the Trustees shall authorize. The Trust issues shares of
the sub-Trusts identified in its prospectuses pursuant to the provisions of the
Agreement authorizing the Trustees to designate such sub-Trusts and classes, and
authorizing the Trustees to allocate shares of beneficial interest to each such
sub-Trust or class. The Declaration of Trust also empowers the Trustees to
designate any additional series or classes and allocate shares to such series or
classes.

The Trust has filed with the U.S. Securities and Exchange Commission (the
"Commission"), a Registration Statement under the Securities Act, which
Registration Statement is deemed to register an indefinite number of shares of
the Trust pursuant to the provisions of Rule 24f-2 under the Investment Company
Act. You have further advised us that the Trust has filed, and each year
hereafter will timely file, a Notice pursuant to Rule 24f-2 perfecting the

1
<PAGE>

registration of the shares sold by the Trust during each fiscal year during
which such registration of an indefinite number of shares remains in effect.

You have also informed us that the shares of the Trust have been, and will
continue to be, sold in accordance with the Trust's usual method of distributing
its registered shares, under which prospectuses are made available for delivery
to offerees and purchasers of such shares in accordance with Section 5(b) of the
Securities Act.

Based upon the foregoing information and examination, so long as the Trust
remains a valid and subsisting trust under the laws of the State of
Massachusetts, and the registration of an indefinite number of shares of the
Trust remains effective, the authorized shares of the Trust when issued for the
consideration set by the Board of Trustees pursuant to the Agreement, and
subject to compliance with Rule 24f-2, will be legally outstanding, fully-paid,
and non-assessable shares, and the holders of such shares will have all the
rights provided for with respect to such holding by the Agreement and the laws
of the State of Massachusetts.

We hereby consent to the use of this opinion as an exhibit to the
Registration Statement of the Trust, and any amendments thereto, covering the
registration of the shares of the Trust under the Securities Act and the
applications, registration statements or notice filings, and amendments thereto,
filed in accordance with the securities laws of the several states in which
shares of the Trust are offered, and we further consent to reference in the
registration statement of the Trust to the fact that this opinion concerning the
legality of the issue has been rendered by us.

Very truly yours,

STRADLEY, RONON, STEVENS & YOUNG, LLP

By: /s/ Steven M. Felsenstein
---------------------------------
Steven M. Felsenstein

<PAGE>

EXHIBIT 99.11(a)

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees of
Frank Russell Investment Company:

We consent to the incorporation by reference in Post-Effective Amendment
No. 39 to the Registration Statement of Frank Russell Investment Company on
Form N-1A of our reports dated February 17, 1998, on our audits of the financial
statements and financial highlights of the Fund (comprised of Equity I Fund,
Equity II Fund, Equity III Fund, Equity Q Fund, International Fund, Emerging
Markets Fund, Fixed Income I Fund, Fixed Income II Fund, Fixed Income III Fund,
Money Market Fund, Diversified Equity Fund, Special Growth Fund, Equity Income
Fund, Quantitative Equity Fund, International Securities Fund, Real Estate
Securities Fund, Diversified Bond Fund, Volatility Constrained Bond Fund,
Multistrategy Bond Fund, Limited Volatility Tax Free Fund, U.S. Government Money
Market Fund, Tax Free Money Market Fund, Equity T Fund, LifePoints Equity
Balanced Strategy Fund, LifePoints Aggressive Strategy Fund, LifePoints Balanced
Strategy Fund, LifePoints Moderate Strategy Fund, LifePoints Conservative
Strategy Fund) which reports are included in the Annual Reports to the
shareholders for the year ended December 31, 1997, which are incorporated by
reference in the Registration Statement. We also consent to the references to
our Firm under the captions "Financial Highlights" and "Additional Information"
in the Prospectuses, and "Independent Accountants" in the Statement of
Additional Information.

/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.

Boston, Massachusetts

April 24, 1998

<PAGE>

EXHIBIT 99.16
SCHEDULE OF COMPUTATIONS

The following illustrates the current yield calculation for the seven day base
periods for the Money Market Funds of Frank Russell Investment Company.

<TABLE>
<CAPTION>
MONEY MARKET FUND
- -----------------
<S> <C>
12/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period.................................................. $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period**...................................................... 1.001099093
Net change in account value......................................................................... .001099093
Annualized Current Net Yield
[.001099093 x (365/7)]......................................................................... 5.73%
Annualized Effective Net Yield
[(.001099093 + 1) /(365/7)/]-1................................................................. 5.90%

09/30/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period.................................................. $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period**...................................................... 1.001093252
Net change in account value......................................................................... .001093252
Annualized Current Net Yield
[.001093252 x (365/7)]......................................................................... 5.70%
Annualized Effective Net Yield
[(.001093252 + 1) /(365/7)/]-1................................................................. 5.86%

06/30/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period.................................................. $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period**...................................................... 1.001105050
Net change in account value......................................................................... .001105050
Annualized Current Net Yield
[.001105050 x (365/7)]......................................................................... 5.76%
Annualized Effective Net Yield
[(.001105050 + 1) /(365/7)/]-1................................................................. 5.93%

03/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period.................................................. $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period**...................................................... 1.001070303
Net change in account value......................................................................... .001070303
Annualized Current Net Yield
[.001070303 x (365/7)]......................................................................... 5.58%
Annualized Effective Net Yield
[(.001070303 + 1) /(365/7)/]-1................................................................. 5.74%
</TABLE>
<PAGE>

<TABLE>
<S> <C>
U.S. GOVERNMENT MONEY MARKET FUND
- ---------------------------------
12/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period.......................................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period**.............................................. 1.001054055
Net change in account value................................................................. .001054055
Annualized Current Net Yield
[.001054055 x (365/7)]................................................................. 5.50%
Annualized Effective Net Yield
[(.001054055 + 1) /(365/7)/]-1......................................................... 5.65%

09/30/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period.......................................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period**.............................................. 1.001043666
Net change in account value................................................................. .001043666
Annualized Current Net Yield
[.001043666 x (365/7)]................................................................. 5.44%
Annualized Effective Net Yield
[(.001043666 + 1) /(365/7)/]-1......................................................... 5.59%

06/30/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period.......................................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period**.............................................. 1.001069042
Net change in account value................................................................. .001069042
Annualized Current Net Yield
[.001069042 x (365/7)]................................................................. 5.57%
Annualized Effective Net Yield
[(.001069042 + 1) /(365/7)/]-1......................................................... 5.73%

03/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period.......................................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period**.............................................. 1.001050808
Net change in account value................................................................. .001050808
Annualized Current Net Yield
[.001050808 x (365/7)]................................................................. 5.48%
Annualized Effective Net Yield
[(.001050808 + 1) /(365/7)/]-1......................................................... 5.63%
</TABLE>
<PAGE>

<TABLE>
<S> <C>
TAX FREE MONEY MARKET FUND
- --------------------------
12/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period........................................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period**............................................... 1.000745931
Net change in account value.................................................................. .000745931
Annualized Current Net 7 Day Yield
[.000745931 x (365/7)].................................................................. 3.89%
Annualized Current 7 Day Tax Equivalent Yield
3.89%/ (1-39.6%)........................................................................ 6.44%
Annualized Effective Net 7 Day Yield
[(.000745931 + 1) /(365/7)/]-1.......................................................... 3.96%
Annualized Effective 7 Day Tax Equivalent Yield
3.96%/ (1-39.6%)........................................................................ 6.56%
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period........................................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the thirty-day base period**.............................................. 1.003038334
Net change in account value.................................................................. .003038334
Annualized Current Net 30 Day Yield
[.003038334 x (365/30)]................................................................. 3.70%
Annualized Current 30 Day Tax Equivalent Yield
3.70%/ (1-39.6%)........................................................................ 6.13%
Annualized Effective Net 30 Day Yield
[(.003038334 + 1) /(365/30)/]-1......................................................... 3.76%
Annualized Effective 30 Day Tax Equivalent Yield
3.76%/ (1-39.6%)........................................................................ 6.23%

09/30/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period........................................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period**............................................... 1.000738168
Net change in account value.................................................................. .000738168
Annualized Current Net 7 Day Yield
[.000738168 x (365/7)].................................................................. 3.85%
Annualized Current 7 Day Tax Equivalent Yield
3.85%/ (1-39.6%)........................................................................ 6.37%
Annualized Effective Net 7 Day Yield
[(.000738168 + 1) /(365/7)/]-1.......................................................... 3.92%
Annualized Effective 7 Day Tax Equivalent Yield
3.92%/ (1-39.6%)........................................................................ 6.49%
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period........................................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the thirty-day base period**.............................................. 1.003011423
Net change in account value.................................................................. .003011423
Annualized Current Net 30 Day Yield
[.003011423 x (365/30)]................................................................. 3.66%
Annualized Current 30 Day Tax Equivalent Yield
</TABLE>
<PAGE>

<TABLE>
<S> <C>
3.66%/ (1-39.6%)........................................................................ 6.06%
Annualized Effective Net 30 Day Yield
[(.003011423 + 1) /(365/30)/]-1......................................................... 3.73%
Annualized Effective 30 Day Tax Equivalent Yield
3.73%/ (1-39.6%)........................................................................ 6.17%

06/30/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period........................................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period**............................................... 1.000742056
Net change in account value.................................................................. .000742056
Annualized Current Net 7 Day Yield
[.000742056 x (365/7)].................................................................. 3.87%
Annualized Current 7 Day Tax Equivalent Yield
3.87%/ (1-39.6%)........................................................................ 6.41%
Annualized Effective Net 7 Day Yield
[(.000742056 + 1) /(365/7)/]-1.......................................................... 3.94%
Annualized Effective 7 Day Tax Equivalent Yield
3.94%/ (1-39.6%)........................................................................ 6.53%
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period........................................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the thirty-day base period**.............................................. 1.003044287
Net change in account value.................................................................. .003044287
Annualized Current Net 30 Day Yield
[.003044287 x (365/30)]................................................................. 3.70%
Annualized Current 30 Day Tax Equivalent Yield
3.70%/ (1-39.6%)........................................................................ 6.13%
Annualized Effective Net 30 Day Yield
[(.003044287 + 1) /(365/30)/]-1......................................................... 3.77%
Annualized Effective 30 Day Tax Equivalent Yield
3.77%/ (1-39.6%)........................................................................ 6.24%

03/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period........................................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period**............................................... 1.000636123
Net change in account value.................................................................. .000636123
Annualized Current Net 7 Day Yield
[.000636123 x (365/7)].................................................................. 3.32%
Annualized Current 7 Day Tax Equivalent Yield
3.32%/ (1-39.6%)........................................................................ 5.49%
Annualized Effective Net 7 Day Yield
[(.000636123 + 1) /(365/7)/]-1.......................................................... 3.37%
Annualized Effective 7 Day Tax Equivalent Yield
3.37%/ (1-39.6%)......................................................................... 5.58%
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period........................................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the thirty-day base period**.............................................. 1.002617385
Net change in account value.................................................................. .002617385
Annualized Current Net 30 Day Yield
</TABLE>
<PAGE>

<TABLE>
<S> <C>
[.002617385 x (365/30)]................................................................. 3.18%
Annualized Current 30 Day Tax Equivalent Yield
3.18%/ (1-39.6%)........................................................................ 5.27%
Annualized Effective Net 30 Day Yield
[(.002617385 + 1) /(365/30)/]-1......................................................... 3.23%
Annualized Effective 30 Day Tax Equivalent Yield
3.23%/ (1-39.6%)........................................................................ 5.35%
</TABLE>

_______________________________

** This value includes the value of additional shares purchased with
dividends from the original share, and the dividends declared on both the
original share and any such additional shares.
<PAGE>

SCHEDULE OF CURRENT YIELD COMPUTATION
FOR THE PERIOD ENDED 12/31/97
(NON-MONEY MARKET FUNDS)

The following is the yield calculation based on a 30-day period computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:

a_b
YIELD = 2[(______ +1)/6/_1]
cd

Where: a = dividends and interest earned during the 30 day
period.

b = expenses accrued for the 30 day period (net of
reimbursements).

c = the average daily number of shares outstanding that
were entitled to receive dividends.

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

FIXED INCOME I
- --------------

4,257,497.54 - 276,397.22
YIELD = 2[(__________________________________+1)/6/ _1] = 6.13%
36,708,262.73 x 21.51

FIXED INCOME II
- ---------------

1,175,506.08 - 132,331.47
YIELD = 2[(__________________________________+1)/6/ _1] = 5.56%
12,413,609.941 x 18.35

FIXED INCOME III
- ----------------

1,993,292.70 - 222,542.63
YIELD = 2[(__________________________________+1)/6/ _1] = 5.80%
35,575,191.313 x 10.42

DIVERSIFIED BOND CLASS S
- ------------------------

3,620,955.02 - 325,150.89
YIELD = 2[(__________________________________+1)/6/_1] = 5.86%
29,147,247.591 x 23.43

DIVERSIFIED BOND CLASS C
- ------------------------

13,049.97 - 2,586.80
YIELD = 2[(__________________________________+1)/6/_1] = 5.16%
102,232.260 x 24.06
<PAGE>

VOLATILITY CONSTRAINED BOND
- ---------------------------

888,182.28 - 120,832.56
YIELD = 2[(__________________________________+1)/6/_1] = 5.39%
9,064,380.844 x 19.06

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

283,001.13 - 46,084.80
YIELD = 2[(__________________________________+1)/6/_1] = 3.53%
3,828,002.146 x 21.19

Tax Equivalent Yield = Yield/(1-Tax Rate)
Tax Equivalent Yield = 3.53%/(1-39.6%) = 5.85%

MULTISTRATEGY BOND
- ------------------

2,284,484.65 - 299,533.22
YIELD = 2[(__________________________________+1)/6/_1] = 5.63%
41,713,715.533 x 10.26
<PAGE>

AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED 12/31/97

The following are the average annual total returns for the Frank Russell
Investment Company Funds, computed by finding the average compounded rates of
return over the periods 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
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5
or 10 year periods at the end of the 1, 5 or 10 year
periods (or fractional portion thereof).

<TABLE>

<S> <C> <C>
EQUITY I FUND
- -------------

16.21 years $1,000 (1 + 16.70%)/16.21/ = $12,224
10 years $1,000 (1 + 17.76%)/10/ = $ 5,128
5 years $1,000 (1 + 20.06%)/5/ = $ 2,495
1 year $1,000 (1 + 32.02%)/1/ = $ 1,320
____________________________________________

EQUITY II FUND
- --------------
16.01 years $1,000 (1 + 14.87%)/16.01/ = $9,203
10 years $1,000 (1 + 15.98%)/10/ = $4,404
5 years $1,000 (1 + 17.40%)/5/ = $2,230
1 year $1,000 (1 + 28.66%)/1/ = $1,287
____________________________________________

EQUITY III FUND
- ---------------
16.09 years $1,000 (1 + 17.73%)/16.09/ = $13,822
10 years $1,000 (1 + 18.35%)/10/ = $ 5,391
5 years $1,000 (1 + 20.54%)/5/ = $ 2,545
1 year $1,000 (1 + 33.13%)/1/ = $ 1,331
____________________________________________

EQUITY Q FUND
- -------------
10.59 years $1,000 (1 + 15.40%)/10.59/ = $4,558
10 years $1,000 (1 + 18.31%)/10/ = $5,373
5 years $1,000 (1 + 21.14%)/5/ = $2,609
1 year $1,000 (1 + 33.07%)/1/ = $1,331
____________________________________________

INTERNATIONAL FUND
- ------------------
14.92 years $1,000 (1 + 14.92%)/14.92/ = $7,963
10 years $1,000 (1 + 8.65%)/10/ = $2,292
5 years $1,000 (1 + 11.42%)/5/ = $1,717
1 year $1,000 (1 + 0.58%)/1/ = $1,006
</TABLE>
<PAGE>

<TABLE>
<S> <C> <C>
EMERGING MARKETS FUND
- ---------------------
4.92 years $1,000 (1 + 5.95%)/4.92/ = $1,329
1 year $1,000 (1 + (3.45)%)/1/ = $ 966
____________________________________________

FIXED INCOME I FUND
- -------------------
16.21 years $1,000 (1 + 11.35%)/16.21/ = $5,713
10 years $1,000 (1 + 9.12%)/10/ = $2,394
5 years $1,000 (1 + 7.51%)/5/ = $1,436
1 year $1,000 (1 + 9.42%)/1/ = $1,094
____________________________________________

FIXED INCOME II FUND
- --------------------
16.17 years $1,000 (1 + 9.28%)/16.17/ = $4,200
10 years $1,000 (1 + 7.19%)/10/ = $2,002
5 years $1,000 (1 + 5.66%)/5/ = $1,317
1 year $1,000 (1 + 6.02%)/1/ = $1,060
____________________________________________

FIXED INCOME III FUND
- ---------------------
4.92 years $1,000 (1 + 7.65%/)4.92/ = $1,437
1 year $ 1,000 (1 + 9.64%/)1/ = $1,096
____________________________________________

DIVERSIFIED EQUITY FUND
- -----------------------
CLASS S
- -------
12.32 years $1,000 (1 + 16.48%)/12.32/ = $6,550
10 years $1,000 (1 + 16.97%)/10/ = $4,795
5 years $1,000 (1 + 19.32%)/5/ = $2,419
1 year $1,000 (1 + 31.32%)/1/ = $1,313
____________________________________________

SPECIAL GROWTH FUND
- -------------------
CLASS S
- -------
12.32 years $1,000 (1 + 14.78%)/12.32/ = $5,465
10 years $1,000 (1 + 15.57%)/10/ = $4,251
5 years $1,000 (1 + 16.90%)/5/ = $2,183
1 year $1,000 (1 + 28.77%)/1/ = $1,288
____________________________________________

EQUITY INCOME FUND
- ------------------
CLASS S
- -------
12.32 years $1,000 (1 + 15.60%)/12.32/ = $5,965
10 years $1,000 (1 + 17.34%)/10/ = $4,948
5 years $1,000 (1 + 20.04%)/5/ = $2,492
1 year $1,000 (1 + 33.59%)/1/ = $1,336
____________________________________________

QUANTITATIVE EQUITY FUND
- ------------------------
CLASS S
- -------
10.63 years $1,000 (1 + 15.40%)/10.63/ = $4,584
10 years $1,000 (1 + 17.39%)/10/ = $4,969
</TABLE>
<PAGE>

<S> <C> <C>
5 years $1,000 (1 + 20.46%)/5/ = $2,536
1 year $1,000 (1 + 32.70%)/1/ = $1,327
____________________________________________

INTERNATIONAL SECURITIES FUND
- -----------------------------
CLASS S
- -------
12.32 years $1,000 (1 + 13.14%)/12.32/ = $4,577
10 years $1,000 (1 + 8.16%)/10/ = $2,191
5 years $1,000 (1 + 10.73%)/5/ = $1,665
1 year $1,000 (1 + 0.26%)/1/ = $1,003
____________________________________________

REAL ESTATE SECURITIES FUND
- ---------------------------
CLASS S
- -------
8.42 years $1,000 (1 + 14.03%)/8.42/ = $3,021
5 years $1,000 (1 + 17.84%)/5/ = $2,272
1 year $1,000 (1 + 18.99%)/1/ = $1,190
____________________________________________

DIVERSIFIED BOND FUND
- ----------------------------
CLASS S
- -------
12.32 years $1,000 (1 + 8.82%)/12.32/ = $2,833
10 years $1,000 (1 + 8.52%)/10/ = $2,265
5 years $1,000 (1 + 7.18%)/5/ = $1,414
1 year $1,000 (1 + 9.09%)/1/ = $1,091
____________________________________________

VOLATILITY CONSTRAINED BOND FUND
- --------------------------------
12.32 years $1,000 (1 + 6.81%)/12.32/ = $2,252
10 years $1,000 (1 + 6.81%)/10/ = $1,932
5 years $1,000 (1 + 5.37%)/5/ = $1,299
1 year $1,000 (1 + 5.90%)/1/ = $1,059
____________________________________________

MULTISTRATEGY BOND FUND
- -----------------------
4.92 years $1,000 (1 + 7.23%)/4.92/ = $1,410
1 year $1,000 (1 + 9.50%)/1/ = $1,095
____________________________________________

LIMITED VOLATILITY TAX FREE FUND
- --------------------------------
12.32 years $1,000 (1 + 5.48%)/12.32/ = $1,930
10 years $1,000 (1 + 5.34%)/10/ = $1,682
5 years $1,000 (1 + 4.33%)/5/ = $1,236
1 year $1,000 (1 + 4.92%)/1/ = $1,049
____________________________________________

DIVERSIFIED EQUITY FUND
- -----------------------
CLASS C
- -------
12.32 years $1,000 (1 + 16.44%)/12.32/ = $6,522
10 years $1,000 (1 + 16.92%)/10/ = $4,774
5 years $1,000 (1 + 19.22%)/5/ = $2,408
1 year $1,000 (1 + 30.75%)/1/ = $1,308
</TABLE>
<PAGE>

<TABLE>
<S> <C> <C>
SPECIAL GROWTH FUND
- -------------------
CLASS C
- -------
12.32 years $1,000 (1 + 14.71%)12.32 = $5,424
10 years $1,000 (1 + 15.48%)10 = $4,218
5 years $1,000 (1 + 16.72%)5 = $2,166
1 year $1,000 (1 + 27.90%)1 = $1,279

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

EQUITY INCOME FUND
- ------------------
CLASS C
- -------
12.32 years $1,000 (1 + 15.53%)12.32 = $5,921
10 years $1,000 (1 + 17.25%)10 = $4,911
5 years $1,000 (1 + 19.85%)5 = $2,473
1 year $1,000 (1 + 32.68%)1 = $1,327

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

QUANTITATIVE EQUITY FUND
- ------------------------
CLASS C
- -------
10.63 years $1,000 (1 + 15.31%)10.63 = $4,546
10 years $1,000 (1 + 17.29%)10 = $4,927
5 years $1,000 (1 + 20.25%)5 = $2,514
1 year $1,000 (1 + 31.70%)1 = $1,317

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

INTERNATIONAL SECURITIES FUND
- -----------------------------
CLASS C
- -------
12.32 years $1,000 (1 + 13.07%)12.32 = $4,542
10 years $1,000 (1 + 8.07%)10 = $2,173
5 years $1,000 (1 + 10.55%)5 = $1,651
1 year $1,000 (1 + (0.41)%)1 = $ 996

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

DIVERSIFIED BOND FUND
- ---------------------
CLASS C
- -------
12.32 years $1,000 (1 + 8.75%)12.32 = $2,811
10 years $1,000 (1 + 8.43%)10 = $2,246
5 years $1,000 (1 + 7.01%)5 = $1,403
1 year $1,000 (1 + 8.35%)1 = $1,084

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

REAL ESTATE SECURITIES FUND
- ---------------------------
CLASS C
- -------
8.42 years $1,000 (1 + 13.92%)8.42 = $2,996
5 years $1,000 (1 + 17.65%)5 = $2,254
1 year $1,000 (1 + 18.20%)1 = $1,182

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

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 1
<NAME> EQUITY I FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<INVESTMENTS-AT-VALUE> 1,138,801
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<TOTAL-ASSETS> 1,152,611
<PAYABLE-FOR-SECURITIES> 2,766
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,472
<TOTAL-LIABILITIES> 16,238
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 917,578
<SHARES-COMMON-STOCK> 37,245
<SHARES-COMMON-PRIOR> 30,936
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,329
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 211,466
<NET-ASSETS> 1,136,373
<DIVIDEND-INCOME> 17,680
<INTEREST-INCOME> 230
<OTHER-INCOME> 0
<EXPENSES-NET> 7,531
<NET-INVESTMENT-INCOME> 10,379
<REALIZED-GAINS-CURRENT> 250,266
<APPREC-INCREASE-CURRENT> 31,174
<NET-CHANGE-FROM-OPS> 291,819
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,405
<DISTRIBUTIONS-OF-GAINS> 260,727
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,572
<NUMBER-OF-SHARES-REDEEMED> 12,433
<SHARES-REINVESTED> 8,403
<NET-CHANGE-IN-ASSETS> 174,420
<ACCUMULATED-NII-PRIOR> 2,730
<ACCUMULATED-GAINS-PRIOR> 102,619
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,457
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,531
<AVERAGE-NET-ASSETS> 1,077,307
<PER-SHARE-NAV-BEGIN> 30.34
<PER-SHARE-NII> .34
<PER-SHARE-GAIN-APPREC> 8.89
<PER-SHARE-DIVIDEND> .34
<PER-SHARE-DISTRIBUTIONS> 8.72
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 30.51
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 2
<NAME> EQUITY II FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 383,077
<INVESTMENTS-AT-VALUE> 483,555
<RECEIVABLES> 3,418
<ASSETS-OTHER> 127
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 487,100
<PAYABLE-FOR-SECURITIES> 2,331
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,610
<TOTAL-LIABILITIES> 4,941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 378,973
<SHARES-COMMON-STOCK> 14,627
<SHARES-COMMON-PRIOR> 13,186
<ACCUMULATED-NII-CURRENT> 230
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,274
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 100,682
<NET-ASSETS> 482,159
<DIVIDEND-INCOME> 5,375
<INTEREST-INCOME> 107
<OTHER-INCOME> 0
<EXPENSES-NET> 3,962
<NET-INVESTMENT-INCOME> 1,520
<REALIZED-GAINS-CURRENT> 61,756
<APPREC-INCREASE-CURRENT> 48,513
<NET-CHANGE-FROM-OPS> 111,789
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,485
<DISTRIBUTIONS-OF-GAINS> 65,718
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,308
<NUMBER-OF-SHARES-REDEEMED> 3,822
<SHARES-REINVESTED> 1,960
<NET-CHANGE-IN-ASSETS> 116,204
<ACCUMULATED-NII-PRIOR> 506
<ACCUMULATED-GAINS-PRIOR> 10,730
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,227
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,962
<AVERAGE-NET-ASSETS> 430,911
<PER-SHARE-NAV-BEGIN> 30.05
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 8.11
<PER-SHARE-DIVIDEND> .11
<PER-SHARE-DISTRIBUTIONS> 5.20
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 32.96
<EXPENSE-RATIO> .92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 3
<NAME> EQUITY III FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 200,326
<INVESTMENTS-AT-VALUE> 241,018
<RECEIVABLES> 2,578
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 243,596
<PAYABLE-FOR-SECURITIES> 812
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 672
<TOTAL-LIABILITIES> 1,484
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 199,956
<SHARES-COMMON-STOCK> 8,124
<SHARES-COMMON-PRIOR> 6,810
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,408
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,748
<NET-ASSETS> 242,112
<DIVIDEND-INCOME> 5,824
<INTEREST-INCOME> 54
<OTHER-INCOME> 0
<EXPENSES-NET> 1,789
<NET-INVESTMENT-INCOME> 4,089
<REALIZED-GAINS-CURRENT> 52,299
<APPREC-INCREASE-CURRENT> 8,826
<NET-CHANGE-FROM-OPS> 65,214
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,132
<DISTRIBUTIONS-OF-GAINS> 58,222
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,592
<NUMBER-OF-SHARES-REDEEMED> 2,900
<SHARES-REINVESTED> 1,960
<NET-CHANGE-IN-ASSETS> 20,334
<ACCUMULATED-NII-PRIOR> 1,017
<ACCUMULATED-GAINS-PRIOR> 23,896
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,381
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,789
<AVERAGE-NET-ASSETS> 230,489
<PER-SHARE-NAV-BEGIN> 29.68
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> 8.69
<PER-SHARE-DIVIDEND> .61
<PER-SHARE-DISTRIBUTIONS> 8.56
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 29.80
<EXPENSE-RATIO> .78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 16
<NAME> EQUITY Q FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 853,147
<INVESTMENTS-AT-VALUE> 1,110,229
<RECEIVABLES> 12,581
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,122,810
<PAYABLE-FOR-SECURITIES> 2,461
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 132,589
<TOTAL-LIABILITIES> 135,050
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 712,127
<SHARES-COMMON-STOCK> 27,518
<SHARES-COMMON-PRIOR> 27,160
<ACCUMULATED-NII-CURRENT> 49
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18,106
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 257,478
<NET-ASSETS> 987,760
<DIVIDEND-INCOME> 18,620
<INTEREST-INCOME> 73
<OTHER-INCOME> 0
<EXPENSES-NET> 6,847
<NET-INVESTMENT-INCOME> 11,846
<REALIZED-GAINS-CURRENT> 180,923
<APPREC-INCREASE-CURRENT> 93,779
<NET-CHANGE-FROM-OPS> 286,548
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,797
<DISTRIBUTIONS-OF-GAINS> 185,330
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,963
<NUMBER-OF-SHARES-REDEEMED> 11,469
<SHARES-REINVESTED> 5,186
<NET-CHANGE-IN-ASSETS> 169,479
<ACCUMULATED-NII-PRIOR> 3,076
<ACCUMULATED-GAINS-PRIOR> 78,226
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,050
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,847
<AVERAGE-NET-ASSETS> 1,008,653
<PER-SHARE-NAV-BEGIN> 32.94
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> 10.01
<PER-SHARE-DIVIDEND> .44
<PER-SHARE-DISTRIBUTIONS> 7.05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 35.90
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 23
<NAME> EQUITY T
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 99,782
<INVESTMENTS-AT-VALUE> 114,043
<RECEIVABLES> 604
<ASSETS-OTHER> 18
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 114,665
<PAYABLE-FOR-SECURITIES> 4,818
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 112
<TOTAL-LIABILITIES> 4,930
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,384
<SHARES-COMMON-STOCK> 7,897
<SHARES-COMMON-PRIOR> 4,414
<ACCUMULATED-NII-CURRENT> 20
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 39
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,292
<NET-ASSETS> 109,735
<DIVIDEND-INCOME> 1,070
<INTEREST-INCOME> 7
<OTHER-INCOME> 0
<EXPENSES-NET> 561
<NET-INVESTMENT-INCOME> 516
<REALIZED-GAINS-CURRENT> 65
<APPREC-INCREASE-CURRENT> 13,594
<NET-CHANGE-FROM-OPS> 14,175
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 496
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,152
<NUMBER-OF-SHARES-REDEEMED> 166
<SHARES-REINVESTED> 32
<NET-CHANGE-IN-ASSETS> 89,804
<ACCUMULATED-NII-PRIOR> 182
<ACCUMULATED-GAINS-PRIOR> 243
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 421
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 607
<AVERAGE-NET-ASSETS> 56,096
<PER-SHARE-NAV-BEGIN> 10.61
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> 3.28
<PER-SHARE-DIVIDEND> .07
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.90
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 6
<NAME> INTERNATIONAL FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 887,565
<INVESTMENTS-AT-VALUE> 940,372
<RECEIVABLES> 30,490
<ASSETS-OTHER> 127,266
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,098,128
<PAYABLE-FOR-SECURITIES> 5,540
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 119,853
<TOTAL-LIABILITIES> 125,393
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 938,045
<SHARES-COMMON-STOCK> 28,110
<SHARES-COMMON-PRIOR> 26,446
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 6,243
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 10,659
<ACCUM-APPREC-OR-DEPREC> 51,592
<NET-ASSETS> 972,735
<DIVIDEND-INCOME> 23,294
<INTEREST-INCOME> 717
<OTHER-INCOME> (2,354)
<EXPENSES-NET> 10,158
<NET-INVESTMENT-INCOME> 11,499
<REALIZED-GAINS-CURRENT> 41,977
<APPREC-INCREASE-CURRENT> (46,787)
<NET-CHANGE-FROM-OPS> 6,689
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,184
<DISTRIBUTIONS-OF-GAINS> 62,779
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,420
<NUMBER-OF-SHARES-REDEEMED> 9,561
<SHARES-REINVESTED> 1,996
<NET-CHANGE-IN-ASSETS> 28,355
<ACCUMULATED-NII-PRIOR> 4,462
<ACCUMULATED-GAINS-PRIOR> 33,298
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,158
<AVERAGE-NET-ASSETS> 1,011,681
<PER-SHARE-NAV-BEGIN> 37.39
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> (.28)
<PER-SHARE-DIVIDEND> .55
<PER-SHARE-DISTRIBUTIONS> 2.42
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 34.60
<EXPENSE-RATIO> 1.00
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 4
<NAME> FIXED I FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 5
<NAME> FIXED II FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 20
<NAME> FIXED INCOME III FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 22
<NAME> MULTISTRATEGY BOND FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 12
<NAME> VOLATILITY CONSTRAINED BOND FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 21
<NAME> EMERGING MARKETS FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 14
<NAME> LIMITED VOLATILITY TAX FREE FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 18
<NAME> TAX FREE MONEY MARKET FUND
</SERIES>
<MULTIPLIER> 1,000

<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 15
<NAME> U.S. GOVERNMENT MONEY MARKET FUND
</SERIES>
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<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
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<PAGE>

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</TABLE>

<PAGE>

<ARTICLE> 6
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</TABLE>

<PAGE>

<ARTICLE> 6
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<NAME> FRANK RUSSELLL INVESTMENT COMPANY
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<NAME> DIVERSIFIED EQUITY FUND - CLASS S
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 30
<NAME> DIVERSIFIED EQUITY FUND - CLASS C
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<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 10
<NAME> EQUITY INCOME FUND - CLASS S
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<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 28
<NAME> EQUITY INCOME FUND - CLASS C
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<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
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<NAME> QUANTITATIVE EQUITY FUND - CLASS S
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
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<NAME> QUANTITATIVE EQUITY FUND - CLASS C
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</TABLE>

<PAGE>

<ARTICLE> 6
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<NAME> FRANK RUSSELL INVESTMENT COMPANY
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<PAGE>

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<NAME> FRANK RUSSELL INVESTMENT COMPANY
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</TABLE>

<PAGE>

<ARTICLE> 6
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<NAME> FRANK RUSSELL INVESTMENT COMPANY
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</TABLE>

<PAGE>

<ARTICLE> 6
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<NAME> FRANK RUSSELL INVESTMENT COMPANY
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<NAME> DIVERSIFIED BOND FUND - CLASS C
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
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<NUMBER> 13
<NAME> INTERNATIONAL SECURITIES FUND - CLASS S
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
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<NAME> INTERNATIONAL SECURITIES FUND - CLASS C
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 32
<NAME> AGGRESSIVE STRATEGY FUND
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<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
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<NAME> BALANCED STRATEGY FUND
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<S> <C>
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</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0000351601
<NAME> FRANK RUSSELL INVESTMENT COMPANY
<SERIES>
<NUMBER> 34
<NAME> MODERATE STRATEGY FUND
</SERIES>
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<S> <C>
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