<PAGE>
LIFEPOINTS FUNDS
RUSSELL INSTITUTIONAL FUNDS
RUSSELL SPECIALTY FUNDS
CLASS S AND CLASS E OF RUSSELL FUNDS
FRANK RUSSELL INVESTMENT COMPANY
SUPPLEMENT DATED NOVEMBER 20, 1998 TO
PROSPECTUSES DATED MAY 1, 1998
The following information supplements all Prospectuses of the Frank Russell
Investment Company (the "Company") dated May 1, 1998, although not all
information pertains to every Fund.
NEW ADVISORY AGREEMENT AND CHANGE OF CONTROL -- ALL FUNDS -- The following
information supplements the section of the prospectus entitled "GENERAL
MANAGEMENT OF THE FUNDS."
On November 19, 1998, shareholders of each of the Funds approved a new
investment advisory agreement (the "Advisory Agreement") with Frank Russell
Investment Management Company ("FRIMCo"). The Advisory Agreement restructures
the manner in which services are provided to the Funds and provides for
compensation to FRIMCo for managing certain additional assets. The previous
management agreement with FRIMCo dated April 1, 1995 called for FRIMCo to
provide both investment advisory and administrative services to each of the
Funds. The Advisory Agreement will encompass only investment advisory
services; administrative services will be provided under a separate
administration agreement.
Under the Advisory Agreement, the fee paid to FRIMCo is changed in three
respects:
(i) The fee paid by each Fund under the Advisory Agreement is reduced by
the amount of the fee payable by that Fund pursuant to its administration
agreement;
(ii) In consideration for FRIMCo assuming the responsibility for
managing additional assets of each of the Funds that are not treated as
net assets, FRIMCo will be paid a fee of not more than 0.07 of 1% per
annum of such assets; and
(iii) The stated advisory fee paid by the Limited Volatility Tax Free
Fund under the previous management agreement has been reduced from 0.50%
to 0.30% (including a 0.05% reduction resulting from the shift of
administrative fees).
<PAGE>
In other respects the terms of the Advisory Agreement, including the
advisory fees payable by the Funds, are substantially identical to those of
the previous management agreement. The new Advisory Agreement is expected to
be implemented on or after December 1, 1998.
In addition to approving the proposed Advisory Agreement at the meeting, the
shareholders of all of the Funds also approved a new advisory agreement to
become effective upon the termination of the Advisory Agreement due to change
of control of FRIMCo's parent, the Frank Russell Company ("FRC"). FRC has
approved an Agreement and Plan of Merger (the "Plan") with The Northwestern
Mutual Life Insurance Company ("Northwestern"), pursuant to which Northwestern
will acquire FRC, the sole shareholder of FRIMCo, effective January 1, 1999.
Under the Investment Company Act of 1940, the Advisory Agreement terminates
automatically upon the acquisition of FRC by Northwestern. Under the Plan, FRC
will retain its identity and operating independence, and will continue to
operate globally as a separate company.
In anticipation of the acquisition and the resulting termination, the Board
and the shareholders of the Investment Company approved the execution of
another Advisory Agreement between the Company and FRIMCo. This will permit
FRIMCo to continue to provide advisory services to the Funds. Except as to the
date, the terms of the second advisory agreement are identical to the Advisory
Agreement.
CHANGES TO INVESTMENT RESTRICTIONS -- ALL FUNDS
REVISIONS. 1. On November 19, 1998, shareholders of all Funds approved a
change to the fundamental investment restriction which limits the amount which
the Funds may borrow. The revised restriction allows a higher borrowing level
for the purpose of meeting shareholder redemption requests. Previously, each
Fund's restriction limited all borrowings to not more than 5%, and permitted
borrowing only for temporary or emergency purposes. Each Fund's restriction
has been revised to permit additional borrowings, up to 33 1/3% of the current
value of the Fund's assets taken at market value, less liabilities other than
borrowings, to pay redemptions by shareholders.
2. The National Securities Markets Improvement Act of 1996 ("NSMIA")
includes provisions preempting state laws regulating operations of registered
investment companies. As a result, certain investment policies and
restrictions adopted by the Funds in the past no longer apply to the Funds,
and have been repealed. The fundamental restrictions which were eliminated at
the meeting on November 19, 1998, governed: investment in interests in oil,
gas or other mineral exploration or development programs (except with respect
to the Limited Volatility Tax Free Fund, for which the restriction
2
<PAGE>
still applies); investment in securities of unseasoned issuers if, as a
result, more than 5% of the Fund's total assets would then be invested in such
securities; purchase by a Fund of the securities of an issuer in which
directors and officers may have more than a five percent interest; and limits
on the purchase of warrants by the Funds.
REVISED FUNDAMENTAL INVESTMENT OBJECTIVE AND CHANGE OF NAME -- LIMITED
VOLATILITY TAX FREE FUND
REVISED FUNDAMENTAL INVESTMENT OBJECTIVE. On November 19, 1998, the
shareholders of the Limited Volatility Tax Free Fund (the "Tax Free Fund")
revised the investment objective of the Tax Free Fund to increase the range of
maturities of securities which the Tax Free Fund may acquire. The revised
investment objective requires the Fund to seek to provide a high level of
federal tax-exempt current income by investing primarily in a diversified
portfolio of investment grade municipal securities. In addition, in keeping
with the restatement of the investment objective, the Fund will be changing
its name to the "Tax Exempt Bond Fund." The implementation of the new
investment objective and the change of name are each expected to be effective
as of January 4, 1999.
REORGANIZATION OF THE VOLATILITY CONSTRAINED BOND FUND ("BOND FUND") AND THE
FIXED INCOME II FUND; RESTRICTION ON FURTHER INVESTMENTS IN THE BOND FUND
On November 23, 1998, the shareholders of the Bond Fund are expected to
approve an Agreement and Plan of Reorganization (the "Plan"), under which the
Bond Fund will merge into the Fixed Income II Fund on or after February 1,
1999. Under the Plan, the assets of the Bond Fund will be acquired by the
Fixed Income II Fund (which is expected to change its name to Short-Term Bond
Fund on January 4, 1999), and Bond Fund shareholders will receive Class S
shares of the Fixed Income II Fund. The Bond Fund will then dissolve.
Effective November 23, 1998, purchases of shares of the Bond Fund will no
longer be accepted from investors who are not current shareholders. Current
shareholders of the Bond Fund may continue to make additional investments
until January 4, 1999. After that date, shares of the Bond Fund will no longer
be available. Upon the completion of the reorganization, all shares owned by a
shareholder will be held in a single account in the Fixed Income II Fund.
3
<PAGE>
CHANGES IN MONEY MANAGERS
EFFECTIVE AUGUST 20, 1998, EQUITY II AND SPECIAL GROWTH FUNDS ARE BEING
MANAGED BY THE FOLLOWING MONEY MANAGERS:
Equity II Fund and Special Growth Fund Money Managers
Delphi Management, Inc., 30 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. Marelli.
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, Suit 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.
Westpeak Investment Advisors, L.P., 1011 Walnut Street, Suite 400,
Boulder, CO 80302, is indirectly controlled by Metropolitan Life Insurance
Company.
EFFECTIVE AUGUST 20, 1998, THE LIMITED VOLATILITY TAX FREE FUND IS BEING
MANAGED BY THE FOLLOWING MONEY MANAGERS:
Limited Volatility Fund Money Managers
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.
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.
4
<PAGE>
EFFECTIVE OCTOBER 8, 1998, EQUITY III, EQUITY INCOME, INTERNATIONAL,
INTERNATIONAL SECURITIES AND TAX FREE MONEY MARKET FUNDS ARE BEING MANAGED BY
THE FOLLOWING MONEY MANAGERS:
Equity III Fund and Equity Income Fund Money Managers
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.
Trinity Investment Management Corporation, 75 Park Plaza, Boston, MA
02116, is a corporation with seven shareholders, with Stanford M.
Calderwood holding majority ownership.
Westpeak Investment Advisors, L.P., 1011 Walnut Street, Suite 400,
Boulder, CO 80302, is indirectly controlled by Metropolitan Life Insurance
Company.
International Fund and International Securities Fund Money Managers
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.
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.
Oeschle International Advisors, LLC, One International Place, 23rd Floor,
Boston, MA 02110, is a Delaware limited liability company that is
controlled by the following members: S. Dewey Keesler, Stephen P. Langer,
Walter Oeschle, L. Sean Roche, Steven H. Schaefer, Warren R. Walker and
Andrew S. Parlin.
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
5
<PAGE>
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.
Tax Free Fund Money Manager
Weiss Peck & Greer L.L.C., One New York Plaza, New York, NY 10004, is a
registered investment advisor which is a wholly-owned subsidiary of Robeco
Groep N.V.
EFFECTIVE NOVEMBER 20, 1998, EQUITY I AND DIVERSIFIED EQUITY FUNDS ARE BEING
MANAGED BY THE FOLLOWING MONEY MANAGERS:
Equity I Fund and Diversified Equity Fund Money Managers
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.
6
<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.
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.
Morgan Stanley Asset Management, Inc., 1221 Avenue of the Americas, New
York, NY 10020, is a wholly-owned subsidiary of Morgan Stanley Dean Witter
& Co., a publicly held corporation.
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.
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.
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.
7
<PAGE>
PURCHASING AND REDEEMING SHARES -- ALL FUNDS
Effective August 20, 1998, Frank Russell Investment Company made the
following changes:
PURCHASING SHARES. The second paragraph of the section captioned "How to
Purchase Shares -- Paying for Shares," is revised to read in its entirety as
follows:
"Cash, third party checks and checks drawn on credit card accounts
generally will not be accepted. However exceptions may be made by prior
special arrangement with certain Financial Intermediaries."
REDEEMING SHARES. The first paragraph of the section captioned "How to
Redeem Shares," is revised to read in its entirety as follows:
"Shares of the Funds may be redeemed on any business day the Funds are
open at the next net asset value per share calculated after receipt of an
order in proper form (defined in the "Written Instructions" section).
Payment will ordinarily be made within seven days after receipt of your
request in proper form. Shares recently purchased by check may not be
available for liquidation for 15 days following the purchase to assure
payment has been collected."
8