RUSSELL FRANK INVESTMENT CO, 485APOS, 1999-02-18

RUSSELL FRANK INVESTMENT CO
485APOS, 1999-02-18

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
---------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-----
Pre-Effective Amendment No.

Post-Effective Amendment No. 42 X
----- -----

and

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

Amendment No. 42
-----

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, PA 19103 215/564-8074

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

Approximate date of commencement of proposed sale to the public: As soon as
practical after the effective date of the Registration Statement.

It is proposed that this filing will become effective (check appropriate box)
( ) immediately upon filing pursuant to paragraph (b)
( ) on (date) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
(X) on May 1, 1999 pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) on (date) pursuant to paragraph (a)(2) 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.
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A Street
Tacoma, WA 98402
Telephone (800) 787-7354
In Washington (253) 627-7001

[LOGO OF RUSSELL]

Russell Funds Prospectus
May 1, 1999

Class C, E and S Shares:

Diversified Equity Fund
Equity Income Fund
Quantitative Equity Fund
International Securities Fund
Diversified Bond Fund
Multistrategy Bond Fund

As with all mutual funds, the Securities and Exchange Commission doesn't
guarantee that the information in this Prospectus is accurate or complete, nor
has it approved or disapproved of these securities. It is a criminal offense to
state otherwise.

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TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary - Investment Objectives and Principal Investment Strategies...........
- Principal Risks.....................................................
- Performance.........................................................
- Fees and Expenses...................................................
Summary Comparison of the Funds...........................................................
The Purpose of the Funds--Multi-Style, Multi-Manager Diversification......................
Management of the Funds...................................................................
The Money Managers........................................................................
Portfolio Turnover........................................................................
Dividends and Distributions...............................................................
Taxes.....................................................................................
How Net Asset Value Is Determined.........................................................
Distribution and Shareholder Servicing Arrangements.......................................
How to Purchase Shares....................................................................
Exchange Privilege........................................................................
How to Redeem Shares......................................................................
Payment of Redemption Proceeds............................................................
Written Instructions......................................................................
Account Policies..........................................................................
Financial Highlights......................................................................
Money Manager Information.................................................................
</TABLE>

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RISK/RETURN SUMMARY

Investment Objective and Principal Investment Strategies
--------------------------------------------------------

DIVERSIFIED EQUITY FUND
- -----------------------

Investment To provide income and capital growth by investing principally
Objective in equity securities.

Principal The Diversified Equity Fund invests primarily in common stocks
Investment of medium and large capitalization companies. These companies
Strategies are predominately US-based, although the Fund may invest a
limited portion of its assets in non-US firms from time to time.

The Fund employs a "multi-style, multi-manager" approach whereby
portions of the Fund are allocated to different money managers
who employ distinct, but complementary, investment styles. The
Fund expects to use three principal investment styles:
. Growth Style emphasizes investments in equity securities of
companies with above-average earnings growth prospects.
These companies are generally found in the technology,
health care, consumer, and service sectors.
. Value Style emphasizes investments in equity securities of
companies that appear to be undervalued relative to their
corporate worth, based on earnings, book or asset value,
revenues, or cash flow. These companies are generally found
among industrial, financial, and utilities sectors.
. Market-Oriented Style emphasizes investments in companies
that appear to be undervalued relative to their growth
prospects. This style may encompass elements of both the
growth and value styles. These companies may be found in any
industry sector.

Additionally, the Fund is diversified by equity substyle. For
example, within the Growth Style, the Fund expects to employ both
an Earnings Momentum substyle (concentrating on companies with
more volatile and accelerating growth rates) and Consistent
Growth substyle (concentrating on companies with stable earnings
growth over an economic cycle).

When determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors include a
money manager's investment style and substyle and its

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performance record as well as the characteristics of the money
manager's typical portfolio investments. These characteristics
include capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings, and earnings and
price volatility statistics. The Fund also considers the manner
in which money managers' historical and expected investment
returns correlate with one another.

The Fund intends to be fully invested at all times. Although the
Fund, like any mutual fund, maintains liquidity reserves (i.e.,
cash awaiting investment or held to meet redemption requests),
the Fund exposes these reserves to the performance of appropriate
equity markets by investing in stock index futures contracts.
This causes the Fund to perform as though its cash reserves were
actually invested in those markets. Additionally the Fund invests
its liquidity reserves in one or more Frank Russell Investment
Company (FRIC) money market Funds.

The Fund may lend up to one-third of its portfolio securities to
earn additional income. These loans may be terminated at any
time. The Fund will receive either cash or US government debt
obligations as collateral.

EQUITY INCOME FUND
- ------------------

Investment To achieve a high level of current income, while maintaining
Objective the potential for capital appreciation.

Principal The Equity Income Fund invests primarily in common stocks of
Investment medium and large capitalization companies. These companies are
Strategies predominately US-based, although the Fund may invest in non-US
firms from time to time.

Because the Fund's investment objective is primarily to provide a
high level of current income, the Fund generally pursues a value
style of securities selection. This style emphasizes investments
in equity securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings, book or
asset value, revenues, or cash flow.

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securities with above-average yield relative to the market.
Generally, these securities are issued by companies in the
financial and utilities industries and, to a lesser extent,
other industries.
. Low Price/Earnings Ratio Substyle--emphasizes investments
in equity securities of companies that are considered
undervalued relative to their corporate worth, based on
earnings, book or asset value, revenues, or cash flow.
These companies are generally found among industrial,
financial, and utilities sectors. From time to time, this
substyle may also include investments in companies with
above-average earnings growth prospects, if they appear to
be undervalued in relation to their securities' historical
price levels.

When determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors include a
money manager's investment substyle and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
capitalization size, growth and profitability measures, valuation
ratios, economic sector weightings, and earnings and price
volatility statistics. The Fund also considers the manner in
which money managers' historical and expected investment returns
correlate with one another.

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QUANTITATIVE EQUITY FUND
- ------------------------

Investment To provide a total return greater than the total return of the
Objective 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.

Principal The Quantitative Equity Fund invests primarily in common stocks
Investment of medium and large capitalization companies. These companies
Strategies are predominately US-based, although the Fund may invest in
non-US firms from time to time.

The Fund generally pursues a market-oriented style of security
selection based on quantitative investment models. This style
emphasizes investments in companies that appear to be undervalued
relative to their growth prospects.

The Fund employs a multi-manager approach whereby portions of the
Fund are allocated to different money managers who employ
distinct, but complementary, investment styles. When determining
how to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a money
manager's investment style and performance record as well as the
characteristics of the money manager's typical portfolio
investments. These characteristics include capitalization size,
growth and profitability measures, valuation ratios, economic
sector weightings, and earnings and price volatility statistics.
The Fund also considers the manner in which money managers'
historical and expected investment returns correlate with one
another.

Each of the Fund's money managers use quantitative models to rank
securities based upon their expected ability to outperform the
total return of the Russell 1000 Index. Once the money manager
has ranked the securities, it then selects the securities most
likely to outperform and constructs a portfolio that has risks
similar to the Russell 1000 Index.

The Russell 1000 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 Fund's money managers typically use a variety of
quantitative models, ranking securities within each model and
on

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a composite basis using proprietary weighting formulas. Examples
of those quantitative models are dividend discount models,
price/cash flow models, price/earnings models, earnings surprise
and earnings estimate revisions models, and price momentum
models.

Although the Fund, like any mutual fund, maintains liquidity
reserves (i.e., cash awaiting investment or held to meet
redemption requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in stock
index futures contracts. This causes the Fund to perform as
though its cash reserves were actually invested in those markets.
Additionally the Fund invests its liquidity reserves in one or
more FRIC money market Funds.

INTERNATIONAL SECURITIES FUND
- -----------------------------

Investment To provide favorable total return and additional diversification
Objective for US investors.

Principal The International Securities Fund invests primarily in equity
Investment securities issued by companies domiciled outside the United
Strategies States and in depository receipts, which represent ownership of
securities of non-US companies.

The Fund's investments span most of the developed nations of the
world (particularly Europe and the Far East) to maintain a high
degree of diversification among countries and currencies. Because
international equity investment performance has a reasonably low
correlation to US equity performance, this Fund may be
appropriate for investors who want to reduce their investment
portfolio's overall volatility by combining an investment in this
Fund with investments in US equities.

The Fund may seek to protect its investments against adverse
currency exchange rate changes by purchasing forward currency
contracts. These contracts enable the Fund to "lock in" the US
dollar price of a security that it plans to buy or sell. The Fund
may not accurately predict currency movements.

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. Growth Style emphasizes investments in equity securities of
companies with above-average earnings growth prospects.
These companies are generally found in the technology,
health care, consumer, and service sectors.
. Value Style emphasizes investments in equity securities of
companies that appear to be undervalued relative to their
corporate worth, based on earnings, book or asset value,
revenues, or cash flow. These companies are generally found
among industrial, financial, and utilities sectors.
. Market-Oriented Style emphasizes investments in companies
that appear to be undervalued relative to their growth
prospects. This style may encompass elements of both the
growth and value styles. These companies may be found in
any industry sector. A variation of this style maintains
investments that replicate country and sector weightings of
a broad international market index.

When determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors include a
money manager's investment style and performance record as well
as the characteristics of the money manager's typical portfolio
investments. These characteristics include capitalization size,
growth and profitability measures, valuation ratios, economic
sector weightings, and earnings and price volatility statistics.
The Fund also considers the manner in which money managers'
historical and expected investment returns correlate with one
another.

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Up to 15% of the Fund's investments may be "illiquid" securities
(i.e., securities that do not have a readily available market or
that are subject to resale restrictions). Additionally, the Fund
may lend up to one-third of its portfolio securities to earn
additional income. These loans may be terminated at any time. The
Fund will receive either cash or US government debt obligations
as collateral.

DIVERSIFIED BOND FUND
- ---------------------

Investment To provide effective diversification against equities and a
Objective stable level of cash flow by investing in fixed-income
securities.

Principal The Diversified Bond Fund invests primarily in fixed-income
Investment securities. In particular, the Fund holds debt securities
Strategies issued or guaranteed by the US government or, to a lesser
extent by non-US governments, or by their respective agencies and
instrumentalities. It also holds mortgage-backed securities,
including collateralized mortgage obligations. The Fund also
invests in corporate debt securities and dollar-denominated
obligations issued in the US by non-US banks and corporations
(Yankee Bonds). A majority of the Fund's holdings are US dollar
denominated. From time to time the Fund may invest in municipal
debt obligations.

The average weighted duration of the Fund's portfolio typically
ranges within 10% of the average weighted duration of the Lehman
Brothers Aggregate Bond Index, but may vary up to 25% from the
Index's duration. The Fund has no restrictions on individual
security duration.

The Fund invests in securities of issuers in a variety of sectors
of the fixed-income market. The Fund's money managers identify
sectors of the fixed-income market that they believe are
undervalued and concentrate the Fund's investments in those
sectors. These sectors will differ over time. To a lesser extent,
the Fund may attempt to anticipate shifts in interest rates and
hold securities that the Fund expects to perform well in relation
to market indexes, as a result of such shifts. Additionally, the
Fund typically holds proportionately fewer US Treasury
obligations than are represented in the Lehman Brothers Aggregate
Bond Index.

The Fund employs multiple money managers, each with complementary
expertise in the fixed-income markets. When determining how to
allocate its assets among money managers,

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the Fund considers a variety of factors. These factors include a
money manager's investment style and performance record as well
as the characteristics of the money manager's typical portfolio
investments. These characteristics include portfolio biases,
magnitude of sector shifts, and duration movements. The Fund also
considers the manner in which money managers' historical and
expected investment returns correlate with one another.

The Fund may enter into interest rate futures contracts, options
on such futures contracts, and interest rate swaps (i.e.,
agreements to exchange the Fund's rights to receive certain
interest payments) as a substitute for holding physical
securities or to facilitate the implementation of its investment
strategy.

MULTISTRATEGY BOND FUND
- -----------------------

Investment To provide maximum total return, primarily through capital
Objective appreciation and by assuming a higher level of volatility than
is ordinarily expected from broad fixed-income market portfolios.

Principal The Multistrategy Bond Fund invests primarily in fixed-income
Investment securities. In particular, the Fund holds debt securities
Strategies issued or guaranteed by the US government or, to a lesser
extent by non-US governments, or by their respective agencies and
instrumentalities. It also holds mortgage-backed securities,
including collateralized mortgage obligations. The Fund also
invests in corporate debt securities and dollar-denominated
obligations issued in the US by non-US banks and corporations
(Yankee Bonds). A majority of the Fund's holdings are US dollar
denominated. From time to time the Fund may invest in municipal
debt obligations.

The Fund may invest up to 25% of its assets in debt securities
that are rated below investment grade as determined by one or
more nationally recognized securities rating organizations or in
unrated securities judged by the Fund to be of comparable
quality.

The average weighted duration of the Fund's portfolio typically
ranges within 10% of the average weighted duration of the

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Lehman Brothers Aggregate Bond Index, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on individual
security duration.

The Fund employs multiple money managers, each with complementary
expertise in the fixed-income markets. When determining how to
allocate its assets among money managers, the Fund considers a
variety of factors. These factors include a money manager's
investment style and performance record as well as the
characteristics of the money manager's typical portfolio
investments. These characteristics include portfolio biases,
magnitude of sector shifts, and duration movements. The Fund also
considers the manner in which money managers' historical and
expected investment returns correlate with one another.

Principal Risks
---------------

An investment in Frank Russell Investment Company (FRIC) funds (Funds), like any
investment, has risks. The value of each Fund fluctuates, and you could lose
money. The following table describes principal types of risks that the Funds
are subject to and lists next to each description those Funds most likely to be
affected by the risk. Other Funds that are not listed may hold portfolio
investments that are subject to one or more of the

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risks, but will not do so in a way that is expected to principally affect the
performance of the Fund as a whole. Please refer to the Funds' Statement of
Additional Information for a discussion of risks associated with types of
securities held by the Funds and investment practices employed.

Risk Associated Relevant
With: Description Fund
- ----- ----------- ----
<S> <C> <C>
Multi-manager approach The interplay of the various strategies employed by a All Funds
Fund's multiple money managers may result in the
Fund's holding a concentration of certain types of
securities. This concentration may be beneficial or
detrimental to the Fund's performance depending upon
the performance of those securities and the overall
economic environment.

Equity securities The value of equity securities will rise and fall in Diversified Equity
response to the activities of the company that issued Equity Income
the stock, general market conditions, and/or economic Quantitative Equity
conditions. International Securities

. Value Stocks Investments in value stocks are subject to risks that Diversified Equity
(i) their intrinsic values may never be realized by Equity Income
the market or (ii) such stock may turn out not to have International Securities
been undervalued.

. Growth Stocks Growth company stocks may provide minimal dividends Diversified Equity
that can cushion stock prices in a market decline. International Securities
The value of growth company stocks may rise and fall
dramatically based, in part, on investors' perceptions
of the company rather than on fundamental analysis of
the stocks.

. Market-Oriented Market-oriented investments are generally subject to Diversified Equity
Investments the risks associated with growth and value stocks. Quantitative Equity
International Securities

. Securities of small Investments in smaller companies may involve greater International Securities
capitilization risks because these companies generally have a limited
companies track record. Smaller companies often have narrower
markets and more limited managerial and financial
resources than larger, more established companies. As
a result, their performance can be more volatile which
could increase the volatility of a Fund's portfolio.

Fixed-income Prices of fixed-income securities rise and fall in Diversified Bond
securities response to interest rate changes. Generally, when Multistrategy Bond
interest rates rise, prices of fixed-income securities
fall. The longer the duration of the security, the
more sensitive the security is to this risk. There is
also a risk that one or more of the securities will be
downgraded in credit rating or go into default.
Lower-rated bonds generally have higher credit risks.

. Non-investment Although lower rated debt securities generally offer a Multistrategy Bond
grade fixed- higher yield than higher rated debt securities, they
</TABLE>

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<TABLE>
<S> <C> <C>
income involve higher risks. They are especially subject to:
securities . adverse changes in general economic conditions and
in the industries in which their issuers are engaged,
. changes in the financial condition of their
issuers, and
. price fluctuations in response to changes in
interest rates.
As a result, issuers of lower rated debt securities
are more likely than other issuers to miss principal
and interest payments or to default.

International A Fund's return and net asset value may be International Securities
securities significantly affected by political or economic Multistrategy Bond
conditions and regulatory requirements in a particular
country. Foreign markets, economies and political
systems may be less stable than US markets, and
changes in exchange rates of foreign currencies can
affect the value of a Fund's foreign assets. Foreign
laws and accounting standards typically are not as
strict as they are in the US and there may be less
public information available about foreign companies.
A Fund's foreign debt securities are typically
obligations of sovereign governments. These
securities are particularly subject to a risk of
default from political instability.

. Instruments of US Non-US corporations and banks issuing dollar Diversified Bond
and foreign banks denominated instruments in the US are not necessarily Multistrategy Bond
and branches and subject to the same regulatory requirements that apply
foreign to US corporations and banks, such as accounting,
corporations, auditing and recordkeeping standards, the public
including Yankee availability of information and, for banks, reserve
Bonds requirements, loan limitations, and examinations.
This increases the possibility that a non-US
corporation or bank may become insolvent or otherwise
unable to fulfill its obligations on these instruments.

Derivatives (e.g. If a Fund incorrectly forecasts interest rates in Diversified Bond
futures contracts, using derivatives, the Fund could lose money. Price Multistrategy Bond
options on futures, movements of a futures contract, option or structured
interest rate swaps, note may not be identical to price movements of
structured notes) portfolio securities or a securities index resulting
in the risk that, when a Fund buys a futures contract
or option as a hedge, the hedge may not be completely
effective.

Municipal Municipal obligations are affected by economic, Diversified Bond
Obligations business or political developments. These securities Multistrategy Bond
may be subject to 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.

Exposing Liquidity By exposing its liquidity reserves to the equity market, Diversified Equity
</TABLE>

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<TABLE>
<S> <C> <C>
Reserves to Equity a Fund's performance tends to correlate more Equity Income
Markets closely to the performance of the market as a whole. Quantitative Equity
Although this increases a Fund's performance if equity International Securities
markets rise, it reduces a Fund's performance if
equity markets decline.

Securities Lending If a borrower of a Fund's securities fails All Funds
financially, the Fund's recovery of the loaned
securities may be delayed or the Fund may lose its
rights to the collateral.

Year 2000 The Funds' operations depend on the smooth functioning All Funds
of their service providers' computer systems. The
Funds and their shareholders could be adversely
affected if those computer systems do not properly
process and calculate date-related information on or
after January 1, 2000. Many computer software systems
in use today cannot distinguish between the year 2000
and the year 1900. Although year 2000-related
computer problems could have a negative effect on the
Funds and their shareholders, the Funds' service
providers have advised the Funds that they are working
to avoid such problems. Because it is the obligation
of those service providers to ensure the proper
functioning of their computer systems, the Funds do
not expect to incur any material expense in connection
with year 2000 preparations.
</TABLE>

An investment in any of the Funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

Performance
-----------

The following bar charts illustrate the risks of investing in the Funds by
showing how the performance of each Fund's Class S shares varies from year to
year over a 10 year period (or, if a Fund has not been in operation for 10
years, since the beginning of operations of such Fund). The return for the
other classes of shares offered by this Prospectus will differ from the Class S
returns shown in the bar chart, depending upon the fees and expenses of that
class. The chart does not reflect any account maintenance fee or any fee that
you may be required to pay upon redemption of the Fund's shares. Any such
charge will reduce your return.

Past performance is no indication of future results.

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-------------------------------------------------------------------------
[bar chart may include returns for more than one fund, subject to general
requirement that the info presented appear in a clear and understandable
manner]
[Multistrategy - include life of the Fund]

To be filed by Amendment.
-------------------------------------------------------------------------

During the period shown in the bar charts, each Fund had the following highest
and lowest quarterly return:

To be filed by Amendment.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Best Worst
Quarter Quarter
-------------------------------------------------------------------------
<S> <C> <C>
Diversified Equity ___% (__Q/9_) ___% (__Q/9_)
-------------------------------------------------------------------------
Equity Income ___% (__Q/9_) ___% (__Q/9_)
-------------------------------------------------------------------------
Quantitative Equity ___% (__Q/9_) ___% (__Q/9_)
-------------------------------------------------------------------------
International Securities ___% (__Q/9_) ___% (__Q/9_)
-------------------------------------------------------------------------
Diversified Bond ___% (__Q/9_) ___% (__Q/9_)
-------------------------------------------------------------------------
Multistrategy Bond ___% (__Q/9_) ___% (__Q/9_)
-------------------------------------------------------------------------
</TABLE>

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Average annual total returns*
for the periods ended December 31, 1998

<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Years 10 Years (if earlier)**
------ ------- -------- --------------
<S> <C> <C> <C> <C>
Diversified Equity Fund
Class E** 24.63% 22.11% 17.73% 17.04%
Class S 25.18 22.32 17.83 17.11
Russell 1000 Index 27.02 23.37 19.03 18.15
Equity Income Fund
Class E** 12.41 19.68 16.54 15.29
Class S 12.99 19.99 16.70 15.41
Russell 1000 Value Index 15.63 20.86 17.39 17.06
Quantitative Equity Fund
Class E** 24.34 22.66 18.20 16.06
Class S 24.82 22.97 18.35 16.18
Russell 1000 Index 27.02 23.37 19.03 18.15
International Securities Fund
Class E** 12.53 6.84 7.20 13.03
Class S 12.90 7.08 7.32 13.12
MSCI EAFE Index 20.33 9.51 5.86 14.31
Diversified Bond Fund
Class E** 7.63 6.54 8.43 8.67
Class S 8.09 6.80 8.56 8.77
Lehman Brothers Aggregate Bond Index 8.69 7.27 9.26 9.51
Multistrategy Bond Fund
Class E** 6.59 6.68 -- 7.12
Class S** 6.79 6.72 -- 7.16
Lehman Brothers Aggregate Bond Index 8.69 7.27 -- 9.51
</TABLE>

* No Class C Shares of any Fund were issued during the periods shown. Had the
Rule 12b-1 distribution fees and shareholder servicing fees for Class C
Shares been reflected in the returns for Class S Shares shown above, returns
would have been lower. The returns shown above for the Class E Shares reflect
the deduction of Rule 12b-1 fees from the commencement of Class E operations
until May 18, 1998. Effective May 18, 1998, these Funds do not charge a 0.40%
distribution fee which reduced performance results prior to that date. The
results shown have not been increased to reflect the effect of the
elimination of this fee.
** Class E Shares of Diversified Equity Fund - for the period May 27, 1997
(commencement of sales) to December 31, 1997.
Class E Shares of Equity Income, Quantitative Equity, International
Securities and Diversified Bond Funds - for the period November 4, 1996
(commencement of sales) to December 31, 1996.
Class E Shares of Multistrategy Bond Fund - for the period __________, 1998
(commencement of sales) to December 31, 1998. Class S Shares of Multistrategy
Bond Fund - For the period January 29, 1993 (commencement of sales) to
December 31, 1993.

30-Day Yields*
for the period ended December 31, 1998
Diversified Bond - Class S ____%
Diversified Bond - Class E ____%
Multistrategy Bond - Class S ____%

* No Class C Shares of either Fund, and no Class E Shares of Multistrategy Bond
Fund, were issued during the period shown.

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<PAGE>

To obtain current 30-day yield information, please call 1-800-787-7354.

Fees and Expenses
-----------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.

Shareholder Fees (% of transaction amount)

<TABLE>
<CAPTION>
Maximum
Maximum Sales Account
Maximum Sales Charge (Load) Maintenance
Charge Imposed on Maximum Fees (for
(Load) Imposed Reinvested Deferred Sales Redemption Exchange accounts under
on Purchases Dividends Charge (Load) Fees Fees $10,000)*
------------ --------- ------------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Each Fund (Class C) None None None None None $12.50/yr
Each Fund (Class E) None None None None None 12.50/yr
Each Fund (Class S) None None None None None 12.50/yr
</TABLE>

* The fee will be deducted from dividends payable to each applicable account or
by liquidating shares in the account, or both. The fee will be waived for:
(i) accounts established before July 1, 1998; (ii) accounts held by retirement
plans representing multiple participants; (iii) accounts held by trustees,
officers, employees, and certain third-party contractors of FRIC and its
affiliates and their spouses and children; and (iv) classes of accounts for
which maintenance costs are absorbed by a third-party. Investors considering
an investment of less than $10,000 in any Fund described in this Prospectus
may wish to consider investing in FRIC's LifePoints Funds, shareholder
accounts of which are not subject to an account maintenance fee. For more
information see FRIC's LifePoints Funds Prospectus.

Annual Operating Expenses (% of net assets)

<TABLE>
<CAPTION>
Other Expenses
(including
Administrative
Fees and Total Annual
Advisory Distribution Shareholder Fund Operating
Fee+ (12b-1) Fees** Servicing Fees)# Expenses**#+
---- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
Class C Shares

Diversified Equity Fund...................... .73% .75% .47% 1.95%
Equity Income Fund........................... .75% .75% .56% 2.06%
Quantitative Equity Fund..................... .73% .75% .46% 1.94%
International Securities Fund................ .90% .75% .65% 2.30%
Diversified Bond Fund........................ .40% .75% .44% 1.59%
Multistrategy Bond Fund*..................... .60% .75% .52% 1.87%

Class E Shares

Diversified Equity Fund...................... .73% .00% .47% 1.20%
Equity Income Fund........................... .75% .00% .56% 1.31%
Quantitative Equity Fund..................... .73% .00% .46% 1.19%
</TABLE>

17
<PAGE>

<TABLE>

<S> <C> <C> <C> <C>
International Securities Fund................ .90% .00% .65% 1.55%
Diversified Bond Fund........................ .40% .00% .44% 0.84%
Multistrategy Bond Fund*..................... .60% .00% .52% 1.12%
</TABLE>

Class S Shares

<TABLE>

<S> <C> <C> <C> <C>
Diversified Equity Fund...................... .73% .00% .22% 0.95%
Equity Income Fund........................... .75% .00% .31% 1.06%
Quantitative Equity Fund..................... .73% .00% .21% 0.94%
International Securities Fund................ .90% .00% .40% 1.30%
Diversified Bond Fund........................ .40% .00% .19% 0.59%
Multistrategy Bond Fund*..................... .60% .00% .27% 0.87%
</TABLE>

* FRIC's advisor, Frank Russell Investment Management Company (FRIMCo) has
voluntarily agreed to waive a portion of its combined 0.65% advisory and
administrative fees for the Multistrategy Bond Fund, up to the full amount of
those combined fees, for all fund expenses that exceed 0.80% of the average
daily net assets on an annual basis. This waiver may be revised or eliminated
at any time without notice to shareholders. Taking the fee waiver into
account, the actual gross annual total operating expenses for Class C , Class
E and Class S Shares were 1.80% , 1.05% , and 0.80%, respectively, of the
average net assets of the Multistrategy Bond Fund.

** Pursuant to the rules of the National Association of Securities Dealers, Inc.
(NASD), the aggregate initial sales charges, deferred sales charges and
asset-based sales charges on shares of the Funds may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation is
imposed on the Class C Shares of the Funds rather than on a per shareholder
basis. Therefore, long-term shareholders of the Class C Shares may pay more
than the economic equivalent of the maximum front-end sales charges permitted
by the NASD.

# Annual Class C Shares operating expenses are based on average net assets
expected to be invested during the year ending December 31, 1999. During the
course of this period, expenses may be more or less than the amount shown.
"Other Expenses" for Class C and Class E Shares include a shareholder
servicing fee of 0.25% of average daily net assets of the Funds' Class C
Shares and Class E Shares, respectively. Prior to December 1, 1998, FRIMCo
provided advisory and administrative services to the Funds pursuant to a
single Management Agreement for which each Fund paid a single fee. Thereafter
FRIMCo's advisory and administrative services are provided under a separate
advisory agreement and administrative agreement which provide for the fees
reflected in the table above.

+ If you purchase any class of Shares of the Fund through a Financial
Intermediary, such as a bank or an investment adviser, you may also pay
additional fees to the intermediary for services provided by the
intermediary. You should contact your intermediary for information concerning
what additional fees, if any, will be charged. Each Fund may also pay, in
addition to the fee set forth above, a fee which compensates FRIMCo for
managing collateral which the Funds have received in securities lending and
certain other portfolio transactions which are not treated as net assets of
that Fund ("additional assets") in determining the Fund's net asset value per
share. The additional fee payable to FRIMCo will equal an amount of up to
0.07% of each Fund's additional assets on an annualized basis.

Example
This example is intended to help you compare the cost of investing in each Fund
with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated, your investment has a 5% return each year and that operating expenses
remain the same. The figures shown would be the same whether you sold your
shares at the end of a period or kept them.

Although your actual costs may be higher or lower, under these assumptions your
costs would be:

Class C: 1 Year 3 Years 5 Years 10 Years
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
</TABLE>

18
<PAGE>

<TABLE>

<S> <C> <C> <C> <C>
Diversified Equity Fund........................ $195 $615 $1,077 $2,452
Equity Income Fund............................. 206 649 1,138 2,591
Quantitative Equity Fund....................... 194 612 1,072 2,440
International Securities Fund.................. 230 725 1,271 2,893
Diversified Bond Fund.......................... 159 501 879 2,000
Multistrategy Bond Fund........................ 187 590 1,033 2,352
</TABLE>

Class E: 1 Year 3 Years 5 Years 10 Years
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Diversified Equity Fund........................ $120 $378 $663 $1,509
Equity Income Fund............................. 131 413 724 1,648
Quantitative Equity Fund....................... 119 375 658 1,497
International Securities Fund.................. 155 489 856 1,950
Diversified Bond Fund.......................... 84 265 464 1,057
Multistrategy Bond Fund........................ 112 353 619 1,409
</TABLE>

Class S: 1 Year 3 Years 5 Years 10 Years
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Diversified Equity Fund........................ $ 95 $299 $525 $1,195
Equity Income Fund............................. 106 334 586 1,333
Quantitative Equity Fund....................... 94 296 519 1,182
International Securities Fund.................. 130 410 718 1,635
Diversified Bond Fund.......................... 59 186 326 742
Multistrategy Bond Fund........................ 87 274 481 1,094
</TABLE>

SUMMARY COMPARISON OF THE FUNDS

<TABLE>
<CAPTION>
Anticipated Maximum
Equity Debt
Fund Investments Investments Focus
---- ------------ ----------- ---------------------------------
<S> <C> <C> <C>
Diversified Equity Fund........ 65-100% 35% Income and capital growth
Equity Income Fund............. 65-100% 35% Current income
Quantitative Equity Fund....... 100% 0% Total return
International Securities Fund.. 65-100% 35% Total return
Diversified Bond Fund.......... 35% 100% Current income and diversification
Multistrategy Bond Fund........ 0% 100% Income and capital appreciation
</TABLE>

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

The Funds are offered through certain bank trust departments, registered
investment advisers, broker-dealers or other financial services organizations
that have been selected by the Funds' adviser or distributor (Financial
Intermediaries). The Funds are designed to provide a means for investors to use
Frank Russell Investment Management Company's (FRIMCo) and Frank Russell
Company's (Russell) "multi-style, multi-manager diversification" investment
method and to obtain FRIMCo's and Russell's money manager evaluation services.
Unlike most investment companies that have a single organization that acts as
both administrator and investment adviser, the Funds

19
<PAGE>

divide responsibility for corporate management and investment advice between
FRIMCo and a number of different money managers.

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.

The Funds believe investors should seek to hold fully diversified portfolios
that reflect both their own individual investment time horizons and their
ability to accept risk. The Funds 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 employing
a multi-style, multi-manager approach.

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.

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. For this reason, no single manager
has consistently outperformed the market over extended periods. Although
performance cycles tend to repeat themselves, they do not do so predictably.

The Funds believe, however, that it is possible to select managers who have
shown a consistent ability to achieve superior results within subsets or styles
of specific asset

20
<PAGE>

classes and investment styles by employing a unique combination of qualitative
and quantitative measurements. The Funds combine these select managers with
other managers within the same asset class who employ complementary styles. By
combining complementary investment styles within an asset class, investors are
better able to reduce their exposure to the risk of any one 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.

MANAGEMENT OF THE FUNDS

The Funds' investment adviser is FRIMCo, 909 A Street, Tacoma, Washington
98402. FRIMCo pioneered the "multi-style, multi-manager" investment method in
mutual funds and manages over $14 billion in more than 30 mutual fund
portfolios. FRIMCo was established in 1982 to serve as the investment
management arm of Russell.

Russell, which acts as consultant to the Funds, was founded in 1936 and has
been providing comprehensive asset management consulting services for over 30
years to institutional investors, principally large corporate employee benefit
plans. Russell provides the Funds and FRIMCo with the asset management
consulting services that it provides to its other consulting clients. The Funds
do not compensate Russell for these services. Russell and its affiliates have
offices around the world -- in Tacoma, New York, Toronto, London, Zurich, Paris,
Sydney, Auckland and Tokyo.

Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.
Founded in 1857, Northwestern Mutual is a mutual life insurance corporation
headquartered in Milwaukee, Wisconsin. It leads the US in both individual life
insurance sold annually and individual life insurance in force.

FRIMCo recommends money managers to the Funds, allocates Fund assets among
them, oversees them, and evaluates their results. FRIMCo also oversees the
management of the Funds' liquidity reserves. The Funds' money managers select
the individual portfolio securities for the assets assigned to them.

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

. Randall P. Lert, who has been Chief Investment Officer of FRIMCo since June
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 listed in this section, has primary responsibility for management
of the Fixed Income I, Diversified Bond, Short Term Bond, Fixed Income III,
Tax Exempt Bond and Multistrategy Bond Funds.

21
<PAGE>

. Randal C. Burge, who has been a Portfolio Manager of FRIMCo since June
1995. From 1990 to 1995, Mr. Burge was a Client Executive for Frank Russell
Australia. Mr. Burge, jointly with another portfolio manager listed in this
section, has primary responsibility for management of the Fixed Income I,
Fixed Income III, Diversified Bond, Short Term Bond, Tax Exempt Bond,
Multistrategy Bond, and Emerging Markets Funds.

. Jean E. Carter, who has been a Portfolio Manager of FRIMCo since April 1994.
Ms. Carter, jointly with another portfolio manager listed in this section,
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 listed in this section, has primary responsibility for management of
the International, and International Securities Funds.

. James M. Imhof, Manager of FRIMCo's Portfolio Trading, manages the Funds'
liquidity portfolios 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 listed in this section, has primary responsibility for management of
the Emerging Markets and Real Estate Securities Funds.

. C. Nola Kulig, who has been a Portfolio Manager of FRIMCo since January
1996. From 1994 to 1995, Ms. Kulig was a member of the Alpha Strategy Group.
From 1988 to 1994, Ms. Kulig was Senior Research Analyst with Russell. Ms.
Kulig, jointly with another portfolio manager listed in this section, 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.

. 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 listed in this section, 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.

22
<PAGE>

The aggregate annual rate of advisory and administrative 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%; Equity Income Fund,
0.80%; Quantitative Equity Fund, 0.78%; International Securities Fund, 0.95%;
Diversified Bond Fund, 0.45%; and Multistrategy Bond Fund, 0.65%. The fees of
the Funds, other than the Diversified Bond Fund, may be higher than the fees
charged by some mutual funds with similar objectives that use only a single
money manager. Of these aggregate amounts 0.05% is attributable to
administrative services. Prior to December 1, 1998, FRIMCo provided advisory
and administrative services to the Funds pursuant to a single Management
Agreement for which each Fund paid a single fee. Thereafter, FRIMCo's advisory
and administrative services are provided under a separate advisory agreement and
an administrative agreement. Each Fund may also pay, in addition to the
aggregate fees set forth above, a fee which compensates FRIMCo for managing
collateral which the Funds have received in securities lending and certain other
portfolio transactions which are not treated as net assets of that Fund
("additional assets") in determining the Fund's net asset value per share. The
additional fee payable to FRIMCo will equal an amount of up to 0.07% of each
Fund's additional assets on an annualized basis.

THE MONEY MANAGERS

Each Fund allocates its assets among the money managers listed under "Money
Manager Profiles" in this Prospectus. FRIMCo, as the Funds' advisor, may change
the allocation of a Fund's assets among money managers at any time. The Funds
received an exemptive order from the Securities and Exchange Commission (SEC)
that permits a Fund to engage or terminate a money manager at any time, subject
to the approval by the Fund's Board of Trustees (Board), without a shareholder
vote. A Fund notifies its shareholders within 60 days of when a money manager
begins providing services. The Funds select money managers 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 any
Fund's selection or termination of a money manager.

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
Funds' officers, neither the Board, the officers, FRIMCo, nor Russell evaluate
the investment merits of the money managers' individual security selections.

PORTFOLIO TURNOVER

23
<PAGE>

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 Fund replaces a money manager the new money manager may
significantly restructure the investment portfolio. These practices may increase
the Funds' portfolio turnover rates, realization of gains or losses, brokerage
commissions and other transaction costs. When a Fund realizes capital gains upon
selling portfolio securities, your tax liability increases. The annual portfolio
turnover rates for each of the Funds are shown in the Financial Highlights
tables in this Prospectus.

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:

Declared Payable Funds
-------- ------- -----
<S> <C> <C>
Monthly....................... Early in the following month Diversified Bond and
Multistrategy Bond Funds
Quarterly..................... Mid: April, July, October and Diversified Equity, Equity
December Income and Quantitative
Equity Funds
Annually...................... Mid-December International Securities 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 a 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.

24
<PAGE>

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 Funds'
Transfer Agent, at Operations Department, P.O. Box 1591, Tacoma, WA 98401.

TAXES

In general, distributions from a Fund are taxable to you as either ordinary
income or capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any capital gains
distributed by a Fund are taxable to you as long-term capital gains no matter
how long you have owned your shares. Every January, you will receive a
statement that shows the tax status of distributions you received for the
previous year. Distributions declared in December but paid in January are
taxable as if they were paid in December. Distributions taxed as capital gains
may be taxable at different rates depending on how long a Fund holds its assets.

When you sell or exchange your shares of a Fund, you may have a capital gain
or loss. The tax rate on any gain from the sale or exchange of your shares
depends on how long you have held your shares.

Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-US investors may be
subject to US withholding and estate tax. You should consult your tax
professional about federal, state, local or foreign tax consequences in holding
shares of a Fund.

Any foreign taxes paid by a Fund on its investments may be passed through to
its shareholders as foreign tax credits.

If you are a corporate investor, a portion of the dividends from net
investment income paid by Diversified Equity Fund, Equity Income Fund and
Quantitative Equity Fund 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

25
<PAGE>

period and debt financing restrictions may apply to corporate investors seeking
to claim the deduction. You should consult your tax professional with respect to
the applicability of these rules.

By law, a Fund must withhold 31% of your distributions and proceeds if you do
not provide your correct taxpayer identification number, or certify that such
number is correct, or if the IRS instructs the Fund to do so.

The tax discussion set forth above is included for general information only.
Prospective investors should consult their own tax advisers concerning the
federal, state, local or foreign tax consequences of an investment in a Fund.

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

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 New York Stock
Exchange (NYSE) is open for trading. All Funds determine net asset value as of
the close of the NYSE (currently 4:00 p.m. Eastern time).

Valuation of Portfolio Securities

Securities held by the Funds are typically priced using market quotations or
pricing services when the prices are believed to be reliable--that is, when the
prices reflect the fair market value of the 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. If you hold shares in a Fund, such as the
International Securities Fund, that holds portfolio securities that are listed
primarily on foreign exchanges, the net asset value of the Fund's shares may
change on a day when you will not be able to purchase or redeem Fund shares.
This is because the value of those portfolio securities may change on weekends
or other days when the Fund does not price its shares.

DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS

The Funds offer multiple classes of shares: Class C shares, Class E shares
and Class S Shares.

Class C Shares participate in the Funds' Rule 12b-1 distribution plan and
in the Funds' shareholder servicing plan. Under distribution plan, the
Funds' Class C

26
<PAGE>

shares pay distribution fees of 0.75% annually for the sale and
distribution of Class C shares. Under the shareholder servicing plan, the
Funds' Class C shares pay shareholder servicing fees of 0.25% annually for
services provided to Class C shareholders. Because both of these fees are
paid out of the Funds' Class C share assets on an ongoing basis, over time
these fees will increase the cost of an Class C share investment in the
Funds, and the distribution fee may cost an investor more than paying other
types of sales charges.

Class E Shares participate in the Funds' shareholder servicing plan. Under
the shareholder servicing plan, the Funds' Class E shares pay daily fees
equal to 0.25% on an annualized basis for services provided to Class E
shareholders. The shareholder servicing fees are paid out of the Funds'
Class E share assets on an ongoing basis, and over time will increase the
cost of your investment in the Funds.

Class S Shares participate in neither the Funds' distribution plan nor the
Funds' shareholder services plan.

HOW TO PURCHASE SHARES

Funds are generally available only through a select network of qualified
Financial Intermediaries. If you are not currently working with one of these
Financial Intermediaries, please call Russell Investor Services at (800)
RUSSEL4, (800-787-7354) for assistance in contacting an investment professional
near you.

There is currently no required minimum investment in the Funds described in
this Prospectus. The Funds were designed for investors making an aggregate
investment of at least $100,000 in any combination of Funds described in this
Prospectus and in FRIC's Specialty Funds Prospectus in an allocated investment
portfolio, with a balance of at least $10,000 in any individual Fund account.

Financial Intermediaries may charge their customers a fee for providing
investment-related services. Financial Intermediaries generally receive no
compensation from the Funds or the Funds' service providers with respect to
Class S Shares of the Funds. Financial Intermediaries may receive shareholder
servicing compensation from the Funds' Distributor with respect to Class C and
Class E shares of the Funds and distribution compensation with respect to Class
C shares of the Funds.

Paying for Shares

You may purchase shares of the Funds through a Financial Intermediary on any
business day the Funds are open. Purchase orders are processed at the next net
asset value per share calculated after the Funds' receive your order in proper
form (defined in the "Written Instructions" section), and accept the order.

27
<PAGE>

All purchases must be made in US dollars. Checks and other negotiable bank
drafts must be drawn on US banks and made payable to "Frank Russell Investment
Company." The Funds reserve the right to reject any purchase order for any
reason including, but not limited to, receiving a check which does not clear the
bank or a payment which does not arrive in proper form by settlement date. An
overdraft charge may also be applied. 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.

Offering Dates and Times

Orders must be received by the Funds prior to the close of the NYSE (currently
4:00 p.m. Eastern time). Purchases can be made on any day when Fund shares are
offered. Because Financial Intermedaries' processing time may vary, please ask
your Financial Intermediary representative when your account will be credited.

Order and Payment Procedures

Generally, you must place purchase orders for Fund shares through a Financial
Intermediary. You may pay for your purchase by mail or electronic funds
transfer. Initial purchases require a completed and signed Application for each
new account regardless of the investment method. Specific payment arrangements
should be made with your Financial Intermediary.

By Mail

For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the Funds' Transfer Agent. Certified checks are not
necessary, but checks are accepted subject to collection at full face value in
US funds. Third party checks will not be accepted. Checks should be made
payable to "Frank Russell Investment Company."

By Federal Funds Wire

You can pay for orders by wiring federal funds to the Funds' Custodian, State
Street Bank and Trust Company. All wires must include your account registration
and account number for identification. Inability to properly identify a wire
transfer may prevent or delay timely settlement of your purchase.

By Automated Clearing House ("ACH")

You can make initial or subsequent investments through ACH to the Funds'
Custodian, State Street Bank and Trust Company. 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

28
<PAGE>

converted on the day received by the Funds' Custodian. In that case, the order
would be placed on the next business day.

Automated Investment Program

You can make regular investments (minimum $50) in Funds in an established
account on a monthly, quarterly, semiannual or annual basis by automatic
electronic funds transfer from a bank account. You must make a separate
transfer for each Fund in which you purchase shares. You may change the amount
or stop the automatic purchase at any time. Contact your Financial Intermediary
for further information on this program and an enrollment form.

Three Day Settlement Program

The Funds will accept orders through Financial Intermediaries to purchase
shares of the Funds for settlement on the third business day following the
receipt of the order. These orders are paid for by a federal funds wire if the
Financial Intermediary has enrolled in the program and agreed in writing to
indemnify the Funds against any losses resulting from non-receipt of payment.

EXCHANGE PRIVILEGE

By Mail or Telephone

Through your Financial Intermediary, you may exchange shares of any Fund you
own for shares of any other Fund on the basis of the 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 FRIC 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 your Financial Intermediary.

Exchanges may be made by mail or by telephone if the registration of the two
accounts is identical. Contact your Financial Intermediary for assistance in
exchanging shares and, because Financial Intermediaries' processing time may
vary, to find out when your account will be credited or debited. To request an
exchange in writing, please follow the procedures in the "Written Instructions"
section before mailing to your Financial Intermediary.

An exchange involves the redemption of shares, which is treated as a sale for
income tax purposes. Thus, capital gain or loss may be realized. Please
consult your tax adviser for more information. 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).

In-Kind Exchange of Securities

29
<PAGE>

FRIMCo, in its capacity as the Funds' investment advisor, may, at its
discretion, permit you to acquire Fund shares in exchange for securities you
currently own. Any securities exchanged must: meet the investment objective,
policies and limitations of the applicable 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.

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. If you are contemplating an in-kind exchange you should consult your
tax adviser.

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 way the Fund values its assets. Any interest earned
on the securities following their delivery to the Funds and prior to the
exchange will be considered in valuing the securities. All interest, dividends,
subscription or other rights attached to the securities becomes the property of
the Fund, along with the securities. Please contact your Financial Intermediary
for further information.

HOW TO REDEEM SHARES

Shares of the Funds may be redeemed through your Financial Intermediary on any
business day the Funds are open at the next net asset value per share calculated
after the Funds' Transfer Agent receives 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 redemption for 15 days following the purchase to
assure payment has been collected.

Redemption Dates and Times

Redemption requests must be placed through a Financial Intermediary and
received by the Funds prior to the close of the NYSE (currently 4:00 p.m.
Eastern time). Because Financial Intermediaries' processing times may vary,
please ask your Financial Intermediary representative when your account will be
debited. Requests can be made by mail or telephone on any day when Fund shares
are offered, or through the Systematic Withdrawal Program.

By Mail or Telephone

You may redeem your shares by calling or writing to your Financial
Intermediary. Written requests to sell shares are in proper form when the
instructions are signed by all registered owners, with a signature guarantee if
necessary.

Systematic Withdrawal Program

30
<PAGE>

The Funds offer a systematic withdrawal program which allows you to redeem
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. If you would like to establish a
systematic withdrawal program, please complete the proper section of the account
application and indicate how you would like to receive your payments. You will
generally receive your payment by the end of the month in which a payment is
scheduled. When you redeem your shares under a systematic withdrawal program,
it is a taxable transaction.

You may choose to have the payments mailed to you or directed to your bank
account by ACH transfer. You may discontinue the systematic withdrawal program,
or change the amount and timing of withdrawal payments by contacting your
Financial Intermediary.

Accounts in Street Name

Many brokers, employee benefit plans and bank trusts combine their client's
Fund holdings in a single omnibus account with the Funds held in the brokers',
plans', or bank trusts' own name or "street name." Therefore, if you hold Fund
shares through a brokerage account, employee benefit plan or bank trust fund,
the Funds may have records only of the omnibus account. In this case, your
broker, employee benefit plan or bank is responsible for keeping track of your
account information. This means that you may not be able to request
transactions in your Fund shares directly through the Funds, but can do so only
through your broker, plan administrator or bank. Ask your Financial
Intermediary for information on whether your Fund shares are held in an omnibus
account.

PAYMENT OF REDEMPTION PROCEEDS

By Check

When you redeem your shares, a check for the redemption proceeds will be sent
to the shareholder(s) of record at the address of record within seven days after
the Funds receive a redemption request in proper form.

By Wire

If you have established the electronic redemption option, your redemption
proceeds can be wired to your predesignated bank account on the next bank
business day after the Funds receive your redemption request. The Funds may
charge a fee to cover the cost of sending a wire transfer for redemptions less
than $1,000, and your bank may charge an additional fee to receive the wire.
Wire transfers can be sent to US commercial banks that are members of the
Federal Reserve System.

WRITTEN INSTRUCTIONS

31
<PAGE>

Proper Form: Written instructions must be in proper form. They must include:

A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)
The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered account owners
For exchanges, the name of the Fund you are exchanging into
Your daytime telephone number

Signature Requirements Based on Account Type

- ----------------------------------------------------------------------------------------------------
Account Type Requirements for Written Requests
- ----------------------------------------------------------------------------------------------------
<S> <C>
Individual, Joint Tenants, Written instructions must be signed by each shareholder,
Tenants in Common exactly as the names appear in the account registration.
- ----------------------------------------------------------------------------------------------------
UGMA or UTMA (custodial Written instructions must be signed by the custodian in his/her
accounts for minors) capacity as it appears in the account registration.
- ----------------------------------------------------------------------------------------------------
Corporation, Association Written instructions must be signed by authorized person(s),
stating his/her capacity as indicated by the corporate
resolution to act on the account.
A copy of the corporate resolution, certified within the past
90 days, authorizing the signer to act.
- ----------------------------------------------------------------------------------------------------
Estate, Trust, Pension, Profit Written instructions must be signed by all trustees.
Sharing Plan If the name of the trustee(s) does not appear in the account
registration, please provide a copy of the trust document
certified within the last 60 days.
- ----------------------------------------------------------------------------------------------------
Joint tenancy shareholders Written instructions must by signed by the surviving tenant(s).
whose co-tenants are A certified copy of the death certificate must accompany the
deceased request.
- ----------------------------------------------------------------------------------------------------
</TABLE>

Signature Guarantee

The Funds reserve the right to require a signature guarantee under certain
circumstances. A signature guarantee verifies the authenticity of your
signature. You should be able to obtain a signature guarantee from a bank,
broker, credit union, savings association, clearing agency, or securities
exchange or association, but not a notary public. Call your financial
institution to see if it has the ability to guarantee a signature.

32
<PAGE>

ACCOUNT POLICIES

Third Party Transactions

If you purchase Fund shares as part of a program of services offered by a
Financial Intermediary, you may be required to pay additional fees. You should
contact your Financial Intermediary for information concerning what additional
fees, if any, may be charged.

Redemption In-Kind

A Fund may pay for any portion of the redemption amount in excess of $250,000
by a distribution in-kind of securities from the Fund's portfolio, instead of in
cash. If you receive an in-kind distribution of portfolio securities, and
choose to sell them, you will incur brokerage charges.

33
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand a Fund's
financial performance for the past 5 years (or, if a Fund or Class has not been
in operation for 5 years, since the beginning of operations for that Fund or
Class). Certain information reflects financial results for a single Fund share.
The total returns in the table represent how much your investment in the Fund
would have increased (or decreased) during each period, assuming reinvestment of
all dividends and distributions. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Funds' financial
statements, are included in the annual report, which is available upon request.
The information in the tables represents the Financial Highlights for the Funds'
Class E and Class S Shares, respectively, for the periods shown. No Class C
Shares were issued during the periods shown.

Diversified Equity Fund: Class E Shares

<TABLE>
<CAPTION>
1998 1997+
--------- --------
<S> <C> <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
</TABLE>

+ 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.

34
<PAGE>

Diversified Equity Fund: Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year.............................. $ $ 41.45 $ 38.62 $ 32.26 $ 34.88
---------- ---------- --------- --------- ---------
Income From Investment
Operations:
Net investment income.......................... . .37 .48 .60 .58
Net realized and unrealized
gain (loss) on investments.................... 12.06 8.15 10.63 (.49)
---------- ---------- --------- --------- ---------
Total From Investment
Operations.................................. 12.43 8.63 11.23 .09
---------- ---------- --------- --------- ---------
Less Distributions:
Net investment income.......................... (.37) (.48) (.60) (.58)
Net realized gain on
investments................................... (9.83) (5.32) (4.27) (1.87)
In excess of net realized
gain on investments........................... (.04) -- -- (.26)
---------- --------- --------- ---------
Total Distributions.......................... (10.24) (5.80) (4.87) (2.71)
---------- --------- --------- ---------
Net Asset Value, End of Year.................... $ $ 43.64 $ 41.45 $ 38.62 $ 32.26
========== ========== ========= ========= =========
Total Return (%)................................ 31.32 23.29 35.17 (0.01)
Ratios (%)/Supplemental Data:
Operating expenses to average net assets....... .92 .94 .95 .95
Net investment income to
average net assets............................ .80 1.18 1.56 1.73
Portfolio turnover............................. 114.11 99.90 92.53 57.53
Net assets, end of year
($000 omitted)................................ 1,042,620 699,691 530,645 414,036
</TABLE>

35
<PAGE>

Equity Income Fund: Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996+
--------- ---------- ----------
<S> <C> <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
</TABLE>

+ 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.

36
<PAGE>

Equity Income Fund: Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year...................................... $ $ 40.22 $ 38.43 $ 32.21 $ 35.90
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income..................... .69 .82 .94 .90
Net realized and unrealized gain
(loss) on investments.................... 12.11 7.03 10.08 (.70)
-------- -------- -------- -------- --------
Total From Investment
Operations............................. 12.80 7.85 11.02 .20
-------- -------- -------- -------- --------
Less Distributions:
Net investment income..................... (.69) (.82) (.97) (.89)
In excess of net investment income........ (.01) (.01) -- --
Net realized gain on investments.......... (11.24) (5.23) (3.83) (3.00)
-------- -------- -------- --------
Total Distributions..................... (11.94) (6.06) (4.80) (3.89)
-------- -------- -------- --------
Net Asset Value, End of Year............... $ 41.08 $ 40.22 $ 38.43 $ 32.21
======== ======== ======== ========
Total Return (%)........................... 33.59 21.45 34.76 .69
Ratios (%)/Supplemental
Data:
Operating expenses to average
net assets............................... 1.04 1.07 1.06 1.04
Net investment income to
average net assets....................... 1.51 2.03 2.51 2.56
Portfolio turnover........................ 139.33 106.40 92.40 89.91
Net assets, end of year
($000 omitted)........................... 226,952 195,132 180,116 144,285
</TABLE>

37
<PAGE>

Quantitative Equity Fund: Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996+
---- ---- -----
<S> <C> <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
</TABLE>

38
<PAGE>

Quantitative Equity Fund: Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................................ $ $ 33.05 $ 30.76 $ 24.84 $ 26.44
-------- -------- -------- -------- --------
Income from Investment Oper-
ations:
Net investment income....................... .38 .51 .50 .49
Net realized and unrealized
gain (loss) on investments................. 10.00 6.24 8.72 (.19)
-------- -------- -------- -------- --------
Total From Investment
Operations................................ 10.38 6.75 9.22 .30
-------- -------- -------- -------- --------
Less Distributions:
Net investment income....................... (.38) (.51) (.51) (.49)
Net realized gain on
investments................................ (6.27) (3.95) (2.79) (1.41)
-------- -------- -------- -------- --------
Total Distributions....................... (6.65) (4.46) (3.30) (1.90)
-------- -------- -------- -------- --------
Net Asset Value, End of
Year........................................ $ $ 36.78 $ 33.05 $ 30.76 $ 24.84
======== ======== ======== ======== ========
Total Return (%)............................. 32.70 23.08 37.69 .19
Ratios (%)/Supplemental Data:
Operating expenses to
average net assets......................... .91 .93 .93 .94
Net investment income to
average net assets......................... 1.04 1.59 1.71 1.95
Portfolio turnover.......................... 87.67 74.33 78.83 45.97
Net assets, end of year
($000 omitted)............................. 996,880 663,925 488,948 380,592
</TABLE>

39
<PAGE>

International Securities Fund: Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996+
---- ---- -----
<S> <C> <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 (b).................................... 73.54 42.43
Net assets, end of year ($000 omitted).................... 1,271 623
</TABLE>

+ For the period November 4, 1996 (commencement of sale) 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.
(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.

40
<PAGE>

International Securities Fund: Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year....................................... $ $ 58.48 $ 56.61 $ 53.96 $ 57.95
------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income...................... .56 .53 .56 .44
Net realized and unrealized
gain (loss) on
investments(a)............................ (.46) 3.72 4.89 1.23
-------- -------- -------- --------
Total From Investment
Operations.............................. .10 4.25 5.45 1.67
-------- -------- -------- --------
Less Distributions:
Net investment income...................... (.37) (.31) (.88) (.04)
In excess of net investment
income.................................... (.27) (.17) (.23) (.02)
Net realized gain on
investments............................... (2.19) (1.90) (1.69) (5.60)
In excess of net realized gain
on investments............................ (1.06) -- -- --
-------- -------- -------- --------
Total Distributions...................... (3.89) (2.38) (2.80) (5.66)
-------- -------- -------- --------
Net Asset Value, End of
Year....................................... $ 54.69 $ 58.48 $ 56.61 $ 53.96
======== ======== ======== ========
Total Return (%)............................ .26 7.63 10.20 4.86
Ratios (%)/Supplemental Data:
Operating expenses, net, to
average assets............................ 1.26 1.30 1.30 1.30
Operating expenses, gross, to
average assets............................ 1.26 1.31 1.31 1.33
Net investment income to
average net assets........................ .91 .91 .97 .70
Portfolio turnover......................... 73.54 42.43 42.96 72.23
Net assets, end of year
($000 omitted)............................ 839,767 743,615 623,389 563,333
</TABLE>

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

41
<PAGE>

Diversified Bond Fund: Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996+
---- ---- -----
<S> <C> <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>

42
<PAGE>

Diversified Bond Fund: Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.................................. $ $ 22.97 $ 23.69 $ 21.53 $ 23.73
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income................. 1.45 1.47 1.54 1.46
Net realized and unrealized gain
(loss) on investments................ .56 (.71) 2.18 (2.22)
-------- -------- -------- -------- --------
Total From Investment
Operation.......................... 2.01 .76 3.72 (.76)
-------- -------- -------- -------- --------
Less Distributions:
Net investment income................. (1.45) (1.48) (1.56) (1.42)
In excess of net investment
income............................... (.02) -- -- --
Net realized gain on
investments.......................... -- -- -- --
In excess of net realized gain on
investments.......................... (.08) -- -- (.02)
-------- -------- -------- --------
Total Distributions................. (1.55) (1.48) (1.56) (1.44)
-------- -------- -------- --------
Net Asset Value, End of Year........... $ $ 23.43 $ 22.97 $ 23.69 $ 21.53
======== ======== ======== ======== ========
Total Return (%)....................... 9.09 3.43 17.76 (3.25)
Ratios (%)/Supplemental Data:
Operating expenses, net, to
average assets....................... .60 .61 .59 .56
Operating expenses, gross, to
average assets....................... .60 .61 .59 .56
Net investment income to
average net assets................... 6.35 6.46 6.69 6.57
Portfolio turnover.................... 172.43 138.98 135.85 153.21
Net assets, end of year
($000 omitted)....................... 687,331 554,804 513,808 525,315
Per share amount of fees waived
($ omitted).......................... -- -- -- --
</TABLE>

43
<PAGE>

Multistrategy Bond Fund: Class E Shares

<TABLE>
<CAPTION>
1998+
---------
<S> <C>
Net Asset Value, Beginning of Year....................... $
---------
Income From Investment Operations:
Net investment income...................................
Net realized and unrealized gain (loss) on investments..
---------
Total From Investment Operations.....................
---------
Less Distributions:
Net investment income...................................
In excess of net realized gain on investments...........

Total Distributions..................................

Net Asset Value, End of Year.............................

Total Return (%).........................................
Ratios (%)/Supplemental Data:
Operating expenses, to average assets (b)................
Net investment income to average net assets (b)..........
Portfolio turnover (b)...................................
Net assets, end of year ($000 omitted)...................
</TABLE>

+ For the period _____________, 1998 (commencement of sales) to December 31,
1998.
(a) Total return represents performance for the period _______________ to
December 31, 1998.
(b) The ratios for the period December 31, 1998 are annualized.

44
<PAGE>

Multistrategy Bond Fund: Class S

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year......................... $ $ 10.11 $ 10.25 $ 9.29 $ 10.31
------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income..................................... .60 .61 .65 .58
Net realized and unrealized gain (loss) on investments.... .33 (.12) .97 (1.03)
------- -------- -------- -------- --------
Total From Investment Operations........................ .93 .49 1.62 (.45)
------- -------- -------- -------- --------
Less Distributions:
Net investment income..................................... (.60) (.61) (.66) (.57)
In excess of net investment income........................ (.01) (.01) -- --
Net realized gain on investments.......................... (.17) (.01) -- --
In excess of net realized gain on investments............. -- -- -- -- --
------- -------- -------- -------- --------
Total Distributions..................................... (.78) (.63) (.66) (.57)
-------- -------- -------- --------
Net Asset Value, End of Year............................... $ $ 10.26 $ 10.11 $ 10.25 $ 9.29
======= ======== ======== ======== ========
Total Return (%)........................................... 9.50 4.97 17.92 (4.35)
Ratios (%)/Supplemental Data:
Operating expenses, net, to average net assets............ .80 .81 .85 .85
Operating expenses, gross, to average net assets.......... .83 .88 .89 .90
Net investment income to average net assets............... 5.93 6.19 6.61 6.26
Portfolio turnover........................................ 263.75 145.38 142.26 136.39
Net assets, end of year ($000 omitted).................... 437,312 305,428 218,765 173,035
</TABLE>

45
<PAGE>

MONEY MANAGER INFORMATION

The money managers have no affiliations with the Funds or the Funds' service
providers other than their management of Fund assets. 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 FRIC, 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., US Bank Place, 601 2nd Ave. South, Suite
5000, Minneapolis, MN 55402-4322.

Barclays Global Fund Advisors N.A., 45 Fremont Street, San Francisco, CA
94105.

Equinox Capital Management, Inc., 590 Madison Avenue, 41st Floor, New York, NY
10022.

INVESCO Capital Management, Inc., 1315 Peachtree Street N.E., Suite 500,
Atlanta, GA 30309.

Lincoln Capital Management Company, 200 South Wacker Drive, Suite 2100,
Chicago, IL 60606.

Morgan Stanley Dean Witter Investment Management, Inc., 1221 Avenue of the
Americas, New York, NY 10020.

Peachtree Asset Management, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308.

Sanford C. Bernstein & Co., Inc., 767 Fifth Avenue, 21st Floor, New York, NY
10153.

Suffolk Capital Management, Inc., 1633 Broadway, 40th Floor, New York, NY
10019.

Trinity Investment Management Corporation, 75 Park Plaza, Boston, MA 02116.

EQUITY INCOME FUND

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

Trinity Investment Management Corporation, See: Diversified Equity Fund.

46
<PAGE>

Westpeak Investment Advisors, L.P., 1011 Walnut Street, Suite 400, Boulder, CO
80302.

QUANTITATIVE EQUITY FUND

Barclays Global Fund Advisors, See: Diversified Equity Fund.

Franklin Portfolio Associates LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.

J.P. Morgan Investment Management, Inc., 522 Fifth Ave., 6th Floor, New York,
NY 10036.

INTERNATIONAL SECURITIES FUND

Delaware International Advisers Limited, 80 Cheapside, 3rd Floor, London
EC2V6EE England.

Fidelity Management Trust Company, 82 Devonshire Street, Boston, MA 02109

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

Mastholm Asset Management, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue, WA
98004.

Montgomery Asset Management LLC, 101 California Street, San Francisco, CA
94111.

Oeschle International Advisors, LLC, One International Place, 23rd Floor,
Boston, MA 02110.

Sanford C. Bernstein & Co., Inc., See: Diversified Equity Fund.

The Boston Company Asset Management, Inc., One Boston Place, 14th Floor,
Boston, MA 02108-4402.

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.

Standish, Ayer & Wood, Inc., One Financial Center, Boston, MA 02111.

MULTISTRATEGY BOND FUND

47
<PAGE>

Credit Suisse Asset Management, One Citicorp Center, 153 East 53rd Street,
58th Floor, New York, NY 10022.

Pacific Investment Management Company, See: Diversified Bond Fund.

Standish, Ayer & Wood, Inc., See: Diversified Bond Fund.

In considering investment in the Funds, do not rely on any information unless
it is contained in this Prospectus or in the Funds' Statement of Additional
Information. The Funds have not authorized anyone to add any information or to
make any additional statements about the Funds. The Funds may not be available
in some jurisdictions or to some persons. The fact that you have received this
Prospectus should not, in itself, be treated as an offer to sell Fund shares to
you. Changes in the affairs of the Funds or in the Funds' money managers may
occur after the date on the cover page of this Prospectus. This Prospectus will
be amended or supplemented to reflect any material changes to the information it
contains.

48
<PAGE>

<TABLE>

<S> <C>
For more information about the Funds, the following FRANK RUSSELL
documents are available without charge: INVESTMENT COMPANY
Class C, E and S Shares:
Annual/Semiannual Reports: Additional
information about the Funds' investments is available Diversified Equity Fund
in the Funds' annual and semiannual reports to Equity Income Fund
shareholders. In each Fund's annual report, you will Quantitative Equity Fund
find a discussion of the market conditions and International Securities Fund
investment strategies that significantly affected the Diversified Bond Fund
Fund's performance during its last fiscal year. Multistrategy Bond Fund

Statement of Additional Information (SAI): The SAI
provides more detailed information about the Funds.

The annual report for each Fund and the SAI are
incorporated into this Prospectus by reference. You
may obtain free copies of the reports and the SAI,
and may request other information, by contacting
your Financial Intermediary or the Funds at:
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
Telephone: 1-800-787-7354
Internet: http://www.russell.com

You can review and copy information about the Funds
(including the SAI) at the Securities and Exchange
Commission's Public Reference Room in Washington,
D.C. You can obtain information on the operation of
the Public Reference Room by calling the Commission
at 1-800-SEC-0330. You can obtain copies of this
information upon paying a duplicating fee by writing
to the Public Reference Section of the Commission,
Washington, D.C. 20549-6009. Reports and other
information about the Funds are also available on
the Commission's Internet website at
http://www.sec.gov.
SEC File No. 811-3153

</TABLE>

49
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A Street,
Tacoma, WA 98402
Telephone (800) 787-7354
In Washington (253) 627-7001

[LOGO OF FRANK RUSSELL]

Specialty Funds Prospectus
May 1, 1999

Class C, E and S Shares:

Real Estate Securities Fund
Emerging Markets Fund
Special Growth Fund
Tax Exempt Bond Fund
Short Term Bond Fund

Class S Shares:

Equity T Fund
Money Market Fund
US Government Money Market Fund
Tax Free Money Market Fund

1
<PAGE>

TABLE OF CONTENTS

2
<PAGE>

RISK/RETURN SUMMARY

Investment Objective and Principal Investment Strategies
--------------------------------------------------------

The Real Estate Securities, Emerging Markets, Special Growth, Equity T, Tax
Exempt Bond and Short Term Bond Funds (Fluctuating Funds) noted below use a
multi-style, multi-manager approach to investing. The Funds strategically
select money managers in a manner designed to combine their different styles and
approaches in a complementary fashion. In this way, each Fund attempts to avoid
the risk of any one approach or style of security selection going out of favor
in a market cycle. The Money Market, US Government Money Market and Tax Free
Money Market Funds (Money Market Funds) use a single manager.

REAL ESTATE SECURITIES FUND
- ---------------------------

Investment To generate a high level of total return through above average
Objective current income, while maintaining the potential for capital
appreciation.

Principal The Fund seeks to achieve its objective by concentrating its
Investment investments in equity securities of issuers whose value is
Strategies derived primarily from development, management and market
pricing of underlying real estate properties.

The Fund invests primarily in securities of companies that own
and/or manage properties, known as real estate investment
trusts (REITs). REITs may be composed of anywhere from two to
over 1,000 properties. The Fund may also invest in equity and
debt securities of other types of real estate-related
companies. These companies are predominately US-based,
although the Fund may invest a limited portion of its assets in
non-US firms from time to time.

The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different money
managers who employ distinct, but complementary, investment
styles.

When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the money
manager's typical portfolio investments. These characteristics
include capitalization size, growth and profitability measures,
valuation ratios, property type and geographic weightings, and
earnings

3
<PAGE>

and price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.

The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund may expose these reserves to the
performance of appropriate equity markets by investing in stock
index futures contracts. This causes the Fund to perform as
though its cash reserves were actually invested in those
markets. Additionally, the Fund invests its liquidity reserves
in one or more Frank Russell Investment Company (FRIC) money
market Funds.

Up to 15% of the Fund's investments may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale restrictions).
Additionally, the Fund may lend up to one-third of its
portfolio securities to earn additional income. These loans may
be terminated at any time. The Fund will receive either cash of
US government debt obligations as collateral.

EMERGING MARKETS FUND
- ---------------------

Investment To provide maximum total return, primarily through capital
Objective appreciation and by assuming a higher level of volatility than
is ordinarily expected from developed market international
portfolios, by investing primarily in equity securities.

Principal The Emerging Markets Fund will primarily invest in equity
Investment securities of companies that are located in countries with
Strategies emerging markets or that derive a majority of their revenues
from operations in such countries. These companies are referred
to as "Emerging Market Companies." For purposes of the Fund's
operations, an "emerging market" country is a country having an
economy and market that the World Bank or the United Nations
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 seeks to maintain a broadly diversified exposure to
emerging market countries and ordinarily will invest in the
securities of issuers in at least three different emerging
market countries.

4
<PAGE>

The Fund invests in common stocks of Emerging Market Companies
and in depository receipts, which represent ownership of
securities of non-US companies. The Fund may also invest in
rights, warrants and convertible fixed-income securities. The
Fund's securities are denominated primarily in foreign
currencies and may be held outside the United States.

Some emerging markets countries do not permit foreigners to
participate directly in their securities markets or otherwise
present difficulties for efficient foreign investment.
Therefore, when it believes it is appropriate to do so, the
Fund may invest in pooled investment vehicles which, in turn,
invest in shares of Emerging Market Companies.

The Fund employs a multi-manager approach whereby portions of
the Fund are allocated to different money managers who employ
distinct, but complementary, investment styles. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors include
a money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments (e.g., capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings, and earnings and price volatility statistics). The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with one
another.

The Fund may enter into repurchase agreements. Under those
agreements a bank or broker dealer sells securities to the
Fund, and agrees to repurchase the securities at the Fund's
cost plus interest, ordinarily on the next business day.

The Fund may agree to purchase securities for a fixed price at
a future date beyond customary settlement time. This kind of
agreement is known as a "forward commitment" or as a "when-
issued" transaction.

Up to 15% of the Fund's investments may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale restrictions).
Additionally, the Fund may lend up to one-third of its
portfolio securities to earn additional income. These loans may
be terminated at any time. A Fund will receive either cash or
US government debt obligations as collateral.

5
<PAGE>

Because international equity investment performance has a
reasonably low correlation to US equity performance, this Fund
may be appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.

SPECIAL GROWTH FUND
- -------------------

Investment To maximize total return primarily through capital appreciation
Objective and assuming a higher level of volatility than Diversified
Equity Fund.

Principal The Special Growth Fund invests primarily in common stocks of
Investment small and medium capitalization companies. These companies are
Strategies predominately US-based, although the Fund may invest in non-US
firms from time to time.

The Fund's investments may include companies that have been
publicly traded for less than five years and smaller companies,
such as companies not listed in the Russell 2000 Index.

[] Growth Style emphasizes investments in equity securities of
companies with above-average earnings growth prospects.
These companies are generally found in the technology,
health care, consumer, and service sectors.

[] Value Style emphasizes investments in equity securities of
companies that appear to be undervalued relative to their
corporate worth, based on earnings, book or asset value,
revenues, or cash flow. These companies are generally found
among industrial, financial, and utilities sectors.

[] Market-Oriented Style emphasizes investments in companies
that appear to be undervalued relative to their growth
prospects. This style may encompass elements of both the
growth and value styles. These companies may be found in
any industry sector.

When determining how to allocate its assets among money

6
<PAGE>

managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the money
manager's typical portfolio investments. These characteristics
include capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings, and earnings and
price volatility statistics. The Fund also considers the manner
in which money managers' historical and expected investment
returns correlate with one another.

The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the performance
of appropriate equity markets by investing in stock index
futures contracts. This causes the Fund to perform as though
its cash reserves were actually invested in those markets.
Additionally the Fund invests its liquidity reserves in one or
more FRIC money market Funds.

Up to 15% of a Fund's investments may be "illiquid" securities
(i.e., securities that do not have a readily available market
or that are subject to resale restrictions). Additionally, the
Fund may lend up to one-third of its portfolio securities to
earn additional income. These loans may be terminated at any
time. The Fund will receive either cash or US government debt
obligations as collateral.

EQUITY T FUND
- -------------

Investment To provide capital growth on an after-tax basis by investing
Objective principally in equity securities.

Principal The Equity T Fund invests primarily in equity securities of US
Investment companies, although the Fund may invest a limited portion in
Strategies non-US firms from time to time.

The Fund generally pursues a market-oriented style of security
selection based on quantitative investment models. This style
emphasizes investments in companies that, on a long-term basis,
appear to be undervalued relative to their growth prospects,
and may include both growth and value securities.

The Fund seeks to realize capital growth while minimizing
shareholder tax consequences arising from the Fund's portfolio

7
<PAGE>

management activities. In its attention to tax consequences of
its investment decisions, the Fund differs from most equity
mutual funds, which are managed to maximize pre-tax total
return without regard whether their portfolio management
activities result in taxable distributions to shareholders.

The Fund is designed for long-term investors who seek to
minimize the impact of taxes on their investment returns. The
Fund is not designed for short-term investors or for tax-
deferred investment vehicles such as IRAs and 401(k) plans.

The Fund intends to minimize its taxable distributions to
shareholders in two ways:

. First, the Fund strives to realize capital gains without
generating investment income under US tax laws. To do so,
the Fund typically buys stocks with the intention of holding
them long enough to qualify for capital gain tax treatment.

. Second, the Fund attempts to minimize its realization of
capital gains and to offset any such realization with
capital losses. To do so, when the Fund sells shares of an
appreciated portfolio security, it seeks to minimize the
resulting capital gains by first selling the shares for
which the Fund paid the highest price. Further the Fund
attempts to offset those capital gains with matching capital
losses by simultaneously selling shares of depreciated
portfolio securities.

If large shareholder redemptions occur unexpectedly, the Fund
could be required to sell portfolio securities resulting in its
realization of net capital gains. This could temporarily reduce
the Fund's tax efficiency. Also, as the Fund matures, it may
hold individual securities that have appreciated so
significantly that it would be difficult for the Fund to sell
them without realizing net capital gains.

The Fund selects and holds portfolio securities based on its
assessment of their potential for long term total returns. The
Fund uses a dividend discount model to gauge securities'
anticipated returns relative to their industry peers. This
model forecasts the expected future dividends of individual
securities, and calculates the expected return at the current
share price. The Fund identifies securities that exhibit
superior return prospects. From among those securities, using a
quantitative after-tax model, the Fund chooses stocks from a
variety of economic

8
<PAGE>

sectors and industries, generally in the proportions that those
sectors and industries are represented in the S&P 500 Index.

The Fund may be forced to realize capital gains or income,
which indirectly affects all of its shareholders, when a
shareholder redeems Fund shares. To offset the potentially
negative effects that redemptions can have on the Fund's
strategy of tax efficiency and to contain costs, the Fund
charges redeeming shareholders a fee equal to one percent of
the value of their redemption. The fee is paid directly to the
Fund and therefore tends to be advantageous to long-term
investors and disadvantageous to short-term investors. The
redemption fee does not apply to redemptions in kind.

The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the performance
of appropriate equity markets by investing in stock index
futures contracts. This causes the Fund to perform as though
its cash reserves were actually invested in those markets.
Additionally the Fund invests its liquidity reserves in one or
more FRIC money market Funds.

Additionally, the Fund may lend up to one-third of its
portfolio securities to earn additional income. These loans may
be terminated at any time. The Fund will receive either cash or
US government debt obligations as collateral.

TAX EXEMPT BOND FUND
- --------------------

Investment To provide a high level of federal tax-exempt current income by
Objective investing primarily in a diversified portfolio of investment
grade municipal securities.

Principal The Tax Exempt Bond Fund concentrates its investments in
Investment investment-grade municipal debt obligations providing
Strategies tax-exempt interest income. Specifically, these 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 to obtain funds to support
special government needs or special projects.

The average weighted duration of the Fund's portfolio typically
ranges within ten percent of the average weighted duration of
the

9
<PAGE>

Lehman Brothers 1-10 Year Municipal Bond Index, but may vary up
to 25% from the Index's duration. The Fund has no restrictions
on individual security duration.

The Fund employs multiple money managers, each with
complementary expertise in the municipal bond market. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors include
a money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include portfolio
biases, magnitude of sector shifts, and duration movements. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with one
another.

The Fund may lend up to one-third of its portfolio securities
to earn additional income. These loans may be terminated at any
time. The Fund will receive either cash or US government debt
obligations as collateral.

SHORT TERM BOND FUND
- --------------------

Investment The preservation of capital and the generation of current
Objective income consistent with preservation of capital by investing
primarily in fixed-income securities with low-volatility
characteristics.

Principal The Short Term Bond Fund invests primarily in fixed-income
Investment securities. In particular, the Fund holds debt securities
Strategies issued or guaranteed by the US government or, to a lesser
extent by non-US governments, or by their respective agencies
and instrumentalities. It also holds mortgage-backed
securities, including collateralized mortgage obligations. The
Fund also invests in corporate debt securities and dollar-
denominated obligations issued in the US by non-US banks and
corporations (Yankee Bonds). A majority of the Fund's holdings
are US dollar denominated. From time to time the Fund may
invest in municipal debt obligations.

The Fund may invest up to 10% of its assets in debt securities
that are rated below investment grade as determined by one or
more nationally recognized securities rating organizations or
in unrated securities judged by the Fund to be of comparable
quality.

The average weighted duration of the Fund's portfolio typically

10
<PAGE>

ranges within 15% of the average weighted duration of the
Merrill Lynch 1-2.99 Years Treasury Index, but may vary up to
50% from the Index's duration. The Fund has no restrictions on
individual security duration.

The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money managers
identify sectors of the fixed-income market that they believe
are undervalued and concentrate the Fund's investments in those
sectors. These sectors will differ over time. To a lesser
extent, the Fund may attempt to anticipate shifts in interest
rates and hold securities that the Fund expects to perform well
in relation to market indexes, as a result of such shifts.
Additionally, the Fund typically holds proportionately fewer US
Treasury obligations than are represented in the Merrill Lynch
1-2.99 Years Treasury Index.

The Fund employs multiple money managers, each with
complementary expertise in the fixed-income markets. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors include
a money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include portfolio
biases, magnitude of sector shifts, and duration movements. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with one
another.

The Fund may enter into interest rate futures contracts,
options on such futures contracts, and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding physical
securities or to facilitate the implementation of its
investment strategy.

The Fund may lend up to one-third of its portfolio securities
to earn additional income. These loans may be terminated at any
time. The Fund will receive either cash or US government debt
obligations as collateral.

MONEY MARKET FUND
- -----------------

Investment To maximize current income to the extent consistent with the
Objective 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.

11
<PAGE>

Principal The Money Market Fund invests in a portfolio of high quality
Investment money market securities maturing within 397 days or less. The
Strategies Fund principally invests in securities issued or guaranteed by
the US government or by US and foreign banks, as well as asset-
backed securities and short-term debt of US and foreign
corporations. The Fund invests in securities that are supported
by credit enhancements primarily from US and foreign banks. Up
to 10% of the Fund's investments may be "illiquid" securities
(i.e., securities that do not have a readily available market
or that are subject to resale restrictions). The Fund's
investments may include adjustable rate securities whose rates
are tied to appropriate money market indices and reset
frequently. The dollar-weighted average maturity of the Fund's
portfolio is 90 days or less.

The Money Market Fund seeks to achieve its objective by active
security selection, consistent with its daily assessment of
market and credit risks. This approach begins with a broad
review of the economic and political environment. Interest rate
forecasts and Federal Reserve policy are analyzed to develop an
expectation for interest rate trends. Within this framework,
the Fund identifies individual securities for investment.

US GOVERNMENT MONEY MARKET FUND
- -------------------------------

Investment To provide the maximum current income that is consistent with
Objective 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.

Principal The US Government Money Market Fund invests in a portfolio of
Investment high quality money market securities issued or guaranteed by
Strategies the US government or any of its agencies and
instrumentalities, maturing within 397 days or less. These
include, among others, the US Treasury, Federal National
Mortgages Association, Federal Home Loan Mortgage Association
and the Federal Home Loan Banks. The Fund enters into
repurchase agreements collateralized by US government and
agency obligations. The Fund's investments may include
adjustable rate securities whose rates are tied to appropriate
money market indices and reset frequently. The dollar-weighted
average maturity of the Fund's portfolio is 90 days or less.

The Fund seeks to achieve its objective by active security

12
<PAGE>

selection, consistent with its daily assessment of market
risks. This approach begins with a broad review of the
economic and political environment. Interest rate forecasts
and Federal Reserve policy are analyzed to develop an
expectation for interest rate trends. Within this framework,
the Fund identifies individual securities for investment.

TAX FREE MONEY MARKET FUND
- --------------------------

Investment To provide the maximum current income exempt from federal
Objective 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.

Principal The Tax Free Money Market Fund invests in a portfolio of high
Investment quality short-term debt securities maturing in 397 days or
Strategies less. The dollar-weighted average maturity of the Fund's
portfolio will be 90 days or less.

The Fund invests almost exclusively in investment-grade
municipal debt obligations providing tax-exempt interest
income. Specifically, these 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 to obtain funds to support special
government needs or special projects.

Some of the securities in which the Fund invests are supported
by credit and liquidity enhancements from third parties. These
enhancements are generally letters of credit from foreign or
domestic banks.

Principal Risks
---------------

An investment in the Funds, like any investment, has risks. The value of each
Fund fluctuates, and you could lose money. The following table describes
principal types of risks that the Funds are subject to and lists next to each
description those Funds most likely to be affected by the risk. Other Funds
that are not listed may hold portfolio investments that are subject to one or
more of the risks, but will not do so in a way that is expected to principally
affect the performance of the Fund as a whole. Please refer to the Funds'
Statement of Additional Information for a discussion of risks associated with
types of securities held by the Funds and investment practices employed.

13
<PAGE>

Risk Associated Relevant
With: Description Fund
- ---- ----------- ----
<S> <C> <C>
Multi-manager approach The interplay of the various strategies employed by a Real Estate Securities
Fund's multiple money managers may result in the Emerging Markets
Fund's holding a concentration of certain types of Special Growth
securities. This concentration may be beneficial or Tax Exempt Bond
detrimental to the Fund's performance depending upon Short Term Bond
the performance of those securities and the overall
economic environment.

Equity securities The value of equity securities will rise and fall in Real Estate Securities
response to the activities of the company that issued Emerging Markets
the stock, general market conditions, and/or economic Special Growth
conditions. Equity T

. Value Stocks Investments in value stocks are subject to risks that Emerging Markets
(i) their intrinsic values may never be realized by Special Growth
the market or (ii) such stock may turn out not to have Equity T
been undervalued.

. Growth Stocks Growth company stocks may provide minimal dividends Emerging Markets
that can cushion stock prices in a market decline. Special Growth
The value of growth company stocks may rise and fall Equity T
dramatically based, in part, on investors' perceptions
of the company rather than on fundamental analysis of
the stocks.

. Market-Oriented Market-oriented investments are generally subject to Emerging Markets
Investments the risks associated with growth and value stocks. Special Growth
Equity T

. Securities of small Investments in smaller companies may involve greater Real Estate Securities
capitalization risks because these companies generally have a limited Special Growth
companies track record. Smaller companies often have narrower Emerging Markets
markets and more limited managerial and financial
resources than larger, more established companies. As
a result, their performance can be more volatile which
could increase the volatility of a Fund's portfolio.

Fixed-income securities Prices of fixed-income securities rise and fall in Tax Exempt Bond
response to interest rate changes. Generally, when Short Term Bond
interest rates rise, prices of fixed-income securities Money Market
fall. The longer the duration of the security, the US Government
more sensitive the security is to this risk. There is Money Market
also a risk that one or more of the securities will be Tax Free Money
downgraded in credit rating or go into default. Market
Lower-rated bonds generally have higher credit risks.

. Non-investment Although lower rated debt securities generally offer a Short Term Bond
grade fixed- higher yield than higher rated debt securities, they
income involve higher risks. They are especially subject to:
securities . adverse changes in general economic conditions and
in the industries in which their issuers are engaged,
. changes in the financial condition of their
issuers, and

</TABLE>

14
<PAGE>

<TABLE>
<S> <C> <C>
. price fluctuations in response to changes in
interest rates.
As a result, issuers of lower rated debt securities
are more likely than other issuers to miss principal
and interest payments or to default.

International A Fund's return and net asset value may be Emerging Markets
securities significantly affected by political or economic Short Term Bond
conditions and regulatory requirements in a particular
country. Foreign markets, economies and political
systems may be less stable than US markets, and
changes in exchange rates of foreign currencies can
affect the value of a Fund's foreign assets. Foreign
laws and accounting standards typically are not as
strict as they are in the US and there may be less
public information available about foreign companies.
A Fund's foreign debt securities are typically
obligations of sovereign governments. These
securities are particularly subject to a risk of
default from political instability.

. Emerging market Investments in emerging or developing markets involve Emerging Markets
Countries exposure to economic structures that are generally
less diverse and mature, and to political systems
which have less stability than those of more developed
countries. Emerging market securities are subject to
currency transfer restrictions and may experience
delays and disruptions in securities settlement
procedures.

. Instruments of US Non-US corporations and banks issuing dollar Short Term Bond
and foreign banks and denominated instruments in the US are not necessarily Money Market
branches and foreign subject to the same regulatory requirements that apply
corporations, to US corporations and banks, such as accounting,
including Yankee auditing and recordkeeping standards, the public
Bonds availability of information and, for banks, reserve
requirements, loan limitations, and examinations.
This increases the possibility that a non-US
corporation or bank may become insolvent or otherwise
unable to fulfill its obligations on these instruments.

Derivatives (e.g. If a Fund incorrectly forecasts interest rates in Emerging Markets
futures contracts, using derivatives, the Fund could lose money. Price Short Term Bond
options on futures, movements of a futures contract, option or structured
interest rate swaps, note may not be identical to price movements of
structured notes) portfolio securities or a securities index resulting
in the risk that, when a Fund buys a futures contract
or option as a hedge, the hedge may not be completely
effective.

Real estate securities Just as real estate values go up and down, companies Real Estate Securities
involved in the industry, and in which a Fund invests,
also fluctuate. Such a Fund is subject to the risks
associated with direct ownership of real estate.
Additional risks include declines in the value of real
estate, changes in general and local economic
conditions, increases in property taxes and changes in
</TABLE>

15
<PAGE>

<TABLE>
<S> <C> <C>
tax laws and interest rates. The value of securities
of companies that service the real estate industry may
also be affected by such risks.

. REITs REITs may be affected by changes in the value of the Real Estate Securities
underlying properties owned by the REITs and by the
quality of any credit extended. Moreover, the
underlying portfolios of 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
federal tax laws or to maintain their exemption from
certain Federal securities laws.

Municipal Municipal obligations are affected by economic, Short Term Bond
Obligations business or political developments. These securities Tax Exempt Bond
may be subject to provisions of litigation, bankruptcy Tax Free Money
and other laws affecting the rights and remedies of Market
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.

Credit and Liquidity Adverse changes in a guarantor's credit quality if Money Market
Enhancements contemporaneous with adverse changes in the guaranteed Tax Free Money
security could cause losses to a Fund and may affect Market
its net asset value.

Repurchase Under a repurchase agreement, a bank or broker sells US Government
Agreements securities to a Fund and agrees to repurchase them at Money Market
the Fund's cost plus interest. If the value of the
securities declines, and the bank or broker defaults
on its repurchase obligation, the Fund could incur a
loss.

Exposing Liquidity By exposing its liquidity reserves to the equity Real Estate Securities
Reserves to Equity market, a Fund's performance tends to correlate more Emerging Markets
Markets closely to the performance of the market as a whole. Special Growth
Although this increases a Fund's performance if equity Equity T
markets rise, it reduces a Fund's performance if
equity markets decline.

Securities Lending If a borrower of a Fund's securities fails Real Estate Securities
financially, the Fund's recovery of the loaned Emerging Markets
securities may be delayed or the Fund may lose its Special Growth
rights to the collateral. Equity T
Tax Exempt Bond
Short Term Bond

16
<PAGE>

<TABLE>
<S> <C>
on or after January 1, 2000. Many computer software
systems in use today cannot distinguish between the
year 2000 and the year 1900. Although year 2000-related
computer problems could have a negative effect on the
Funds and their shareholders, the Funds' service
providers have advised the Funds that they are working
to avoid such problems. Because it is the obligation
of those service providers to ensure the proper
functioning of their computer systems, the Funds do
not expect to incur any material expense in connection
with year 2000 preparations.
</TABLE>

An investment in money market funds is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
Money Market Fund, US Government Money Market Fund or Tax Free Money Market Fund
seek to preserve the value of your investment at $1.00 per share, it is possible
to lose money by investing in each of these Funds.

An investment in any of the Funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

Performance
-----------

Past performance is no indication of future results.

[Real Estate Securities, Emerging Markets, Equity T Funds - include life
of the Fund] To be Filed Amendment.
-------------------------------------------------------------------------

During the period shown in the bar charts, each Fund had the following highest
and lowest quarterly return: To be Filed by Amendment.

17
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Best Worst
Quarter Quarter
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate Securities ___% (__Q/9_) ___% (__Q/9_)
- ---------------------------------------------------------------------------------------
Emerging Markets ___% (__Q/9_) ___% (__Q/9_)
- ---------------------------------------------------------------------------------------
Equity T ___% (__Q/9)) ___% (__Q/9_)
- ---------------------------------------------------------------------------------------
Special Growth ___% (__Q/9_) ___% (__Q/9_)
- ---------------------------------------------------------------------------------------
Tax Exempt Bond ___% (__Q/9_) ___% (__Q/9_)
- ---------------------------------------------------------------------------------------
Short Term Bond ___% (__Q/9_) ___% (__Q/9_)
- ---------------------------------------------------------------------------------------
Money Market ___% (__Q/9_) ___% (__Q/9_)
- ---------------------------------------------------------------------------------------
US Government Money Market ___% (__Q/9_) ___% (__Q/9_)
- ---------------------------------------------------------------------------------------
Tax Free Money Market ___% (__Q/9_) ___% (__Q/9_)
- ---------------------------------------------------------------------------------------
</TABLE>

18
<PAGE>

Average annual total returns*
for the periods ended December 31, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Years 10 Years (if earlier)**
------ ------- -------- ----------
<S> <C> <C> <C> <C>
Real Estate Securities Fund
Class E** (16.25)% 9.96% -- 10.27%
Class S** (15.94) 10.22 -- 10.40
NAREIT Equity REIT Index (17.51) 9.80 -- 9.90
Emerging Markets Fund***
Class E** (27.61) (7.47) -- (0.65)
Class S** (27.57) (7.46) -- (0.64)
IFC Investable Composite Index (22.02) (10.14) -- 0.95
Extended Barings Emerging Markets Index (18.76) (6.30) -- 4.17
Equity T Fund
Class S** 32.08 -- -- 31.66
S&P 500 Composite Stock Price Index 28.76 24.15 19.22 18.32
Special Growth Fund
Class E** 0.04 13.42 14.00 13.54
Class S 0.42 13.68 14.13 13.63
Russell 2500 Index 0.38 14.13 14.61 13.83
Tax Exempt Bond Fund#
Class S 4.82 3.98 5.30 5.43
Salomon Smith Barney 3-Month
Treasury Bill Index
Short Term Bond Fund***
Class S 6.09 5.49 6.98 9.10
Merrill Lynch 1-2.99 Years Treasury Index 7.00 5.99 7.37 9.15
Money Market Fund***
Class S 5.69 5.57 5.99 7.30
US Government Money Market Fund
Class S 5.34 5.23 5.54 5.86
Tax Free Money Market Fund
Class S 3.36 3.38 3.97 4.14
</TABLE>

* No Class C Shares of the Real Estate Securities, Emerging Markets, Special
Growth, Tax Exempt Bond or Short Term Bond Funds were issued during the
periods shown. No Class E Shares of the Tax Exempt Bond and Short Term Bond
Funds were issued during the periods shown. Had the Rule 12b-1 distribution
fees and shareholder servicing fees for Class C Shares and the shareholder
servicing fees for Class E Shares been reflected in the returns for Class S
Shares shown above, returns would have been lower. The returns shown above
for Class E Shares of Real Estate Securities and Special Growth Funds
reflect the deduction of Rule 12b-1 fees from the commencement of Class E
operations until May 18, 1998. Effective May 18, 1998, these Funds do not
charge a 0.40% distribution fee which reduced performance results prior to
that date. The results shown have not been increased to reflect the effect
of the elimination of this fee.

** Commencement of sales:
Class E Shares of Real Estate Securities Fund - November 4, 1996
Class S Shares of Real Estate Securities Fund - July 28, 1989
Class S Shares of Emerging Markets Fund - January 29, 1993
Class E Shares of Emerging Markets Fund - ___________, 1998
Class S Shares of Equity T Fund - October 7, 1996
Class E Shares of Special Growth Fund - November 4, 1996

*** The performance for Emerging Markets, Short Term Bond and Money Market
Funds prior to April 1, 1995 are reported gross of management fees. For
periods after that date, performance results are reported net of management
fees, but gross of any

19
<PAGE>

shareholder investment service fees. Descriptions of these shareholder
investment services fees can be obtained from FRIMCo upon request.

# The performance of Tax Exempt Bond Fund prior to January 1, 1999 reflects a
higher management fee than is currently borne by the Fund.

30-Day Yields*
for the period ended December 31, 1998

Tax Exempt Bond - Class S* ____%
Short Term Bond - Class S* ____%
Money Market Fund - Class S ____%
US Government Market Fund - Class S ____%
Tax Free Money Market Fund - Class S ____%

* No Class C or E Shares of either Fund were issued during the period shown.

7-Day Yields
for the period ended _____________, 19__

Current Effective
------- ---------
Money Market Fund - Class S ____% ____%
US Government Market Fund - Class S ____% ____%
Tax Free Money Market Fund - Class S ____% ____%

Tax Equivalent Yield
for the period ended December 31, 1998

Tax Exempt Bond - Class S* ____%
Tax Free Money Market Fund ____% Current
Tax Free Money Market Fund ____% Effective

* No Class C or E Shares of the Fund were issued during the period shown.

To obtain current yield information, please call 1-800-787-7354.

Fees and Expenses
-----------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.

Shareholder Fees (% of transaction amount)
<TABLE>
<CAPTION>
Maximum
Maximum Sales Account
Maximum Sales Charge (Load) Maintenance
Charge Imposed on Maximum Fees (for
(Load) Imposed Reinvested Deferred Sales Redemption Exchange accounts under
on Purchases Dividends Charge (Load) Fees Fees $5,000)*
------------ --------- ------------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Each Fund++ (Class C) None None None None None $12.50/yr
Each Fund++ (Class E) None None None None None 12.50/yr
Each Fund (Class S) None None None Equity T+ None 12.50/yr
</TABLE>

* Applicable to Real Estate Securities, Emerging Markets, Special Growth, Tax
Exempt Bond and Short Term Bond Funds only. The fee will be deducted from
dividends payable to each applicable account or by liquidating shares in the
account, or both. The fee will be waived for: (i) accounts established before
July 1, 1998; (ii) accounts held by retirement plans representing multiple
participants; (iii) accounts held by trustees, officers, employees, and
certain third-party contractors of FRIC and its affiliates and their spouses
and children; and (iv) classes of accounts for which maintenance costs are
absorbed by a third-party. Investors

20
<PAGE>

considering an investment of less than $5,000 in any Fund described in this
Prospectus may wish to consider investing in FRIC's LifePoints Funds,
shareholder accounts of which are not subject to an account maintenance fee.
For more information see FRIC's LifePoints Funds Prospectus.

+ Equity T Fund only - when shares of the Equity T Fund are redeemed, a
redemption fee, calculated at 1% of net asset value of the shares redeemed,
will be imposed. 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.

++ Class C and E Shares for Real Estate Securities, Emerging Markets, Special
Growth, Tax Exempt Bond and Short Term Bond Funds only.

Annual Operating Expenses (% of net assets)
<TABLE>
<CAPTION>
Other Expenses
(including
Administrative
Fees and
Distribution Shareholder Total Annual
Advisory (12b-1) Servicing Fund Operating
Fee* Fees** Fees)# Expenses**#+
-------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Class C Shares

Real Estate Securities Fund.................. 0.80% 0.75% 0.55% 2.10%
Emerging Markets Fund........................ 1.15% 0.75% 0.91% 2.81%
Special Growth Fund.......................... 0.90% 0.75% 0.55% 2.20%
Short Term Bond Fund......................... 0.45% 0.75% 0.47% 1.67%
Tax Exempt Bond Fund......................... 0.30% 0.75% 0.51% 1.56%

Class E Shares

Real Estate Securities Fund.................. 0.80% 0.00% 0.55% 1.35%
Emerging Markets Fund........................ 1.15% 0.00% 0.91% 2.06%
Special Growth Fund.......................... 0.90% 0.00% 0.55% 1.45%
Short Term Bond Fund......................... 0.45% 0.00% 0.47% 0.92%
Tax Exempt Bond Fund......................... 0.30% 0.00% 0.51% 0.81%

Class S Shares

Real Estate Securities Fund.................. 0.80% 0.00% 0.30% 1.10%
Emerging Markets Fund........................ 1.15% 0.00% 0.66% 1.81%
Special Growth Fund.......................... 0.90% 0.00% 0.30% 1.20%
Equity T Fund................................ 0.70% 0.00% 0.24% 0.94%
Short Term Bond Fund......................... 0.45% 0.00% 0.22% 0.67%
Tax Exempt Bond Fund......................... 0.30% 0.00% 0.26% 0.56%
Money Market Fund* 0.20% 0.00% 0.11% 0.31%
US Government Money Market Fund* 0.20% 0.00% 0.30% 0.50%
Tax Free Money Market Fund* 0.20% 0.00% 0.18% 0.38%
</TABLE>

FRIMCo has voluntarily agreed to waive a portion of its 0.25% management fee
for the US Government Money Market Fund, up to the full amount of that fee
for all expenses that exceed 0.30% of the average daily net assets on an
annual basis. Additionally, FRIMCo has voluntarily agreed to waive 0.15% of
its 0.25% and 0.10% of its 0.25% management fee for the Money Market Fund
and Tax Free Money Market Fund, respectively. The waiver for each respective
Fund may be revised or eliminated at any time without notice to
shareholders. Taking the fee waiver into account, the actual gross annual
total operating expenses were 0.16%, 0.30% and 0.28% of the average net
assets of the Money Market Fund, US Government Money Market Fund and Tax
Free Money Market Fund, respectively.

21
<PAGE>

** Pursuant to the rules of the National Association of Securities Dealers,
Inc. (NASD), the aggregate initial sales charges, deferred sales charges and
asset-based sales charges on shares of the Funds may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation is
imposed on the Class C Shares of the Funds rather than on a per shareholder
basis. Therefore, long-term shareholders of the Class C Shares may pay more
than the economic equivalent of the maximum front-end sales charges
permitted by the NASD.

# Annual Class C Shares operating expenses are based on average net assets
expected to be invested during the year ending December 31, 1999. During the
course of this period, expenses may be more or less than the amount shown.
"Other Expenses" for Class E and Class C Shares include a shareholder
servicing fee of 0.25% of average daily net assets of the Funds' Class C
Shares and Class E Shares, respectively. Prior to December 1, 1998, FRIMCo
provided advisory and administrative services to the Funds pursuant to a
single Management Agreement for which each Fund paid a single fee.
Thereafter FRIMCo's advisory and administrative services are provided under
a separate advisory agreement and administrative agreement which provide for
the fees reflected in the table above.

+ If you purchase any class of Shares of the Fund through a Financial
Intermediary, such as a bank or an investment adviser, you may also pay
additional fees to the intermediary for services provided by the
intermediary. You should contact your intermediary for information
concerning what additional fees, if any, will be charged. Each Fund may also
pay, in addition to the fee set forth above, a fee which compensates FRIMCo
for managing collateral which the Funds have received in securities lending
and certain other portfolio transactions which are not treated as net assets
of that Fund ("additional assets") in determining the Fund's net asset value
per share. The additional fee payable to FRIMCo will equal an amount of up
to 0.07% of each Fund's additional assets on an annualized basis.

Example

This example is intended to help you compare the cost of investing in each Fund
with the cost of investing in other mutual funds.

Although your actual costs may be higher or lower, under these assumptions your
costs would be:

Class C: 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Real Estate Securities Fund.................... $210 $662 $1,160 $2,641
Emerging Markets Fund.......................... 281 886 1,553 3,534
Special Growth Fund............................ 220 694 1,216 2,767
Short Term Bond Fund........................... 167 526 923 2,101
Tax Exempt Fund................................ 156 492 862 1,962
<CAPTION>
Class E: 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
Real Estate Securities Fund.................... $135 $426 $ 746 $1,698
Emerging Markets Fund.......................... 206 649 1,138 2,591
Special Growth Fund............................ 145 457 801 1,824
Short Term Bond Fund........................... 92 290 508 1,157
Tax Exempt Fund................................ 81 255 448 1,019
<CAPTION>
Class S: 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
Real Estate Securities Fund.................... $110 $347 $ 608 $1,384
Emerging Markets Fund.......................... 181 571 1,000 2,277
Special Growth Fund............................ 120 378 663 1,509
Short Term Bond Fund........................... 67 211 370 843
</TABLE>

22
<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
Tax Exempt Fund................................... 56 177 309 704
Equity T Fund..................................... 94 296 519 1,182
Money Market Fund................................. 31 98 171 390
US Government Money Market Fund................... 50 158 276 629
Tax Free Money Market Fund........................ 38 120 210 478
</TABLE>

SUMMARY COMPARISON OF THE FUNDS
<TABLE>
<CAPTION>
Anticipated Maximum
Equity Debt
Fund Investments Investments 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
Special Growth Fund................. 65-100% 35% Maximum total return
Tax Exempt Bond Fund................ 0% 100% Maximum current income
Short Term Bond Fund................ 0-35% 100% Preservation of capital
Money Market Fund................... 0% 100% Maximum current income
US Government Money Market Fund..... 0% 100% Maximum current income
Tax Free Money Market Fund.......... 0% 100% Maximum current income
</TABLE>

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.

23
<PAGE>

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.

The Funds believe, however, that it is possible to select managers who have
shown a consistent ability to achieve superior results within subsets or styles
of specific asset classes and investment styles by employing a unique
combination of qualitative and quantitative measurements. The Funds combine
these select managers with other managers within the same asset class who employ
complementary styles. By combining complementary investment styles within an
asset class, investors are better able to reduce their exposure to the risk of
any one investment style going out of favor.

MANAGEMENT OF THE FUNDS

24
<PAGE>

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

. Randall P. Lert, who has been Chief Investment Officer of FRIMCo since June
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 listed in this section, has primary responsibility for management of
the Fixed Income I, Diversified Bond, Short Term Bond, Fixed Income III, Tax
Exempt Bond and Multistrategy Bond Funds.

. Jean E. Carter, who has been a Portfolio Manager of FRIMCo since April
1994. Ms. Carter, jointly with another portfolio manager listed in this
section, has primary responsibility for management of the International, and
International Securities Funds.

25
<PAGE>

. C. Nola Kulig, who has been a Portfolio Manager of FRIMCo since January
1996. From 1994 to 1995, Ms. Kulig was a member of the Alpha Strategy
Group. From 1988 to 1994, Ms. Kulig was Senior Research Analyst with
Russell. Ms. Kulig, jointly with another portfolio manager listed in this
section, 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.

The aggregate annual rate of advisory and administrative 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%, Special Growth Fund, 0.95%, Short Term Bond Fund, 0.50%, Tax Exempt
Bond Fund, 0.35%, Equity T Fund, 0.75%, Money Market Fund, 0.30%, US Government
Money Market Fund, 0.30% and Tax Free Money Market Fund, 0.30%. The fees for
Real Estate Securities, Emerging Markets and Special Growth Funds may be higher
than the fees charged by some mutual funds with similar objectives that use only
a single money manager. Of these aggregate amounts 0.05% is attributable to
administrative services. Prior to December 1, 1998, FRIMCo provided advisory
and administrative services to the Funds pursuant to a single Management
Agreement for which each Fund paid a single fee. Thereafter, FRIMCo's advisory
and administrative services are provided under a

26
<PAGE>

separate advisory agreement and an administrative agreement. Each Fund may also
pay, in addition to the aggregate fees set forth above, a fee which compensates
FRIMCo for managing collateral which the Funds have received in securities
lending and certain other portfolio transactions which are not treated as net
assets of that Fund ("additional assets") in determining the Fund's net asset
value per share. The additional fee payable to FRIMCo will equal an amount of up
to 0.07% of each Fund's additional assets on an annualized basis.

THE MONEY MANAGERS

J.P. Morgan Investment Management, Inc. ("Morgan") manages the Equity T Fund.
Robin Chance is the individual responsible for the management of the Fund. [need
to add background info]

PORTFOLIO TURNOVER

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.
Each of the Funds' money managers 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 Fund replaces a money manager the
new money manager may significantly restructure the investment portfolio. These
practices may increase the Funds' portfolio turnover rates, realization of gains
or losses, brokerage commissions and other transaction costs. When a Fund
realizes capital gains upon selling portfolio securities,

27
<PAGE>

your tax liability increases. The annual portfolio turnover rates for each of
the Funds (other than the Money Market Funds) are shown in the Financial
Highlights tables in this Prospectus.

DIVIDENDS AND DISTRIBUTIONS

Income Dividends

Declared Payable Funds
-------- ------- -----
<S> <C> <C>
Daily..................... 1st business day of following month U.S. Government Money Market Fund
Tax Free Money Market Fund
Daily..................... 2nd to last business day of the month Money Market Fund
Monthly................... Early in the following month Tax Exempt Bond Fund
Quarterly................. Mid: April, July, October and Real Estate Securities, Special
December Growth and Short Term Bond Funds
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

Buying a Dividend

28
<PAGE>

have participated in the increase of the net asset value of a Fund, regardless
of whether you reinvested the dividends.

Automatic Reinvestment

TAXES

When you sell or exchange your shares of a Fund, you may have a capital gain
or loss. The tax rate on any gain from the sale or exchange of your shares
depends on how long you have held your shares.

Any foreign taxes paid by a Fund on its investments may be passed through to
its shareholders as foreign tax credits.

If you are a corporate investor, a portion of the dividends from net
investment income paid by Real Estate Securities, Special Growth or Equity T
Funds will generally qualify, in part, for the corporate dividends-received
deduction. However, the portion of the dividends so qualified depends on the
aggregate qualifying dividend income received by 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
professional with respect to the applicability of these rules.

Although 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

29
<PAGE>

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.

The Tax Exempt Bond and Tax Free Money Market 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.

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.

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, Special Growth, Tax
Exempt Bond, Short Term Bond and Equity T Funds, a business day is one on which
the New York Stock Exchange (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. All Funds determine net asset value as
of the close of the NYSE (currently 4:00 p.m. Eastern time).

Valuation of Portfolio Securities

30
<PAGE>

foreign exchanges, the net asset value of the Fund's shares may change on a day
when you will not be able to purchase or redeem Fund shares. This is because
the value of those portfolio securities may change on weekends or other days
when the Fund does not price its shares.

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 maturity of any
discount or premium is assumed. 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.

DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS

The Real Estate Securities, Emerging Markets, Special Growth, Tax Exempt Bond
and Short Term Bond Funds offer multiple classes of shares: Class C shares,
Class E shares and Class S Shares. The Equity T, Money Market, US Government
Money Market and Tax Free Money Market Funds offer Class S Shares only.

Class C Shares participate in the Funds' Rule 12b-1 distribution plan and
in the Funds' shareholder servicing plan. Under distribution plan, the
Funds' Class C shares pay distribution fees of 0.75% annually for the sale
and distribution of Class C shares. Under the shareholder servicing plan,
the Funds' Class C shares pay shareholder servicing fees of 0.25% annually
for services provided to Class C shareholders. Because both of these fees
are paid out of the Funds' Class C share assets on an ongoing basis, over
time these fees will increase the cost of an Class C share investment in
the Funds, and the distribution fee may cost an investor more than paying
other types of sales charges.

Class S Shares participate in neither the Funds' distribution plan nor the
Funds' shareholder services plan.

31
<PAGE>

HOW TO PURCHASE SHARES

There is currently no required minimum investment in the Funds described in
this Prospectus. The Funds are designed to be used as part of an allocated
investment portfolio in combination with Funds described in FRIC's Russell Funds
Prospectus or Institutional Funds Prospectus. Investment in the Funds described
in this Prospectus will be applied toward any applicable required minimum
initial investment with respect to other Funds.

Paying for Shares

All purchases must be made in US. dollars. Checks and other negotiable bank
drafts must be drawn on US. banks and made payable to "Frank Russell Investment
Company." The Funds reserve the right to reject any purchase order for any
reason including, but not limited to, receiving a check which does not clear the
bank or a payment which does not arrive in proper form by settlement date. An
overdraft charge may also be applied. 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.

Offering Dates and Times

Orders must be received by the Funds prior to the following designated times:
<TABLE>
<S> <C>
Close of the NYSE (currently 4:00 pm Eastern Time)* Real Estate Securities, Emerging
Markets, Equity T, Special Growth,
Tax Exempt Bond, Short Term Bond and
Money Market Funds

11:45 a.m. Eastern Time Tax Free Money Market Fund
</TABLE>

32
<PAGE>

<TABLE>
<S> <C>
12:15 p.m. Eastern Time US Government Money Market Fund
</TABLE>

* On days when the Public Securities Association declares an early closure
of the bond market, orders for purchase of shares of the Money Market Fund
must be received prior to the time of such early closure.

Purchases can be made on any day when Fund shares are offered. Because Financial
Intermedaries' processing time may vary, please ask your Financial Intermediary
representative when your account will be credited.

Order and Payment Procedures

By Mail

For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the Funds' Transfer Agent. Certified checks are not necessary,
but checks are accepted subject to collection at full face value in US funds.
Third party checks will not be accepted. Checks should be made payable to "Frank
Russell Investment Company."

By Federal Funds Wire

By Automated Clearing House ("ACH")

You can make initial or subsequent investments through ACH to the Funds'
Custodian, State Street Bank and Trust Company. 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 day received by the Funds' Custodian. In
that case, the order would be placed on the next business day.

Automated Investment Program

You can make regular investments (minimum $50) in Funds in an established
account on a monthly, quarterly, semiannual or annual basis by automatic
electronic

33
<PAGE>

funds transfer from a bank account. You must make a separate transfer for each
Fund in which you purchase shares. You may change the amount or stop the
automatic purchase at any time. Contact your Financial Intermediary for further
information on this program and an enrollment form.

Three Day Settlement Program

The Funds will accept orders from Financial Intermediaries to purchase shares
of the Funds for settlement on the third business day following the receipt of
the order. These orders are paid for by a federal funds wire if the Financial
Intermediary has enrolled in the program and agreed in writing to indemnify the
Funds against any losses resulting from non-receipt of payment.

EXCHANGE PRIVILEGE

By Mail or Telephone

An exchange involves the redemption of shares, which is treated as a sale for
income tax purposes. Thus, capital gain or loss may be realized. Please consult
your tax adviser for more information. 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).

In-Kind Exchange of Securities

34
<PAGE>

HOW TO REDEEM SHARES

Redemption Dates and Times

Redemption requests must be placed through a Financial Intermediary and
received by the Funds prior to the following designated times. Because
Financial Intermediaries' processing times may vary, please ask your Financial
Intermediary representative when your account will be debited. Requests can be
made by mail or telephone on any day when Fund shares are offered, or through
the Systematic Withdrawal Program.

<TABLE>
<S> <C>
Close of the NYSE (currently 4:00 pm Eastern Time)* Real Estate Securities, Emerging
Markets, Equity T, Special Growth,
Tax Exempt Bond, Short Term Bond and
Money Market Funds

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

12:15 p.m. Eastern Time US Government Money Market Fund
</TABLE>

By Mail or Telephone

35
<PAGE>

Systematic Withdrawal Program

In view of its investment objective and management strategies, Equity T Fund
shareholders are not able to participate in the systematic withdrawal program.

Accounts in Street Name

Many brokers, employee benefit plans and bank trusts combine their client's
Fund holdings in a single omnibus account with the Funds held in the brokers',
plans', or bank trusts' own name or "street name." Therefore, if you hold Fund
shares through a brokerage account, employee benefit plan or bank trust fund,
the Funds may have records only of the omnibus account. In this case, your
broker, employee benefit plan or bank is responsible for keeping track of your
account information. This means that you may not be able to request
transactions in your Fund shares directly through the Funds, but can do so only
through your broker, plan administrator or bank. Ask your Financial Intermediary
for information on whether your Fund shares are held in an omnibus account.

PAYMENT OF REDEMPTION PROCEEDS

By Check

By Wire

If you have established the electronic redemption option, your redemption
proceeds can be wired to your predesignated bank account on the next bank
business day after the

36
<PAGE>

Funds receive your redemption request. The Funds may charge a fee to cover the
cost of sending a wire transfer for redemptions less than $1,000, and your bank
may charge an additional fee to receive the wire. Wire transfers can be sent to
US commercial banks that are members of the Federal Reserve System.

WRITTEN INSTRUCTIONS

Proper Form: Written instructions must be in proper form. They must include:

A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)
The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered owners
For exchanges, the name of the Fund you are exchanging into
Your daytime telephone number

Signature Requirements Based on Account Type

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Account Type Requirements for Written Requests
- ----------------------------------------------------------------------------------------------------
<S> <C>
Individual, Joint Tenants, Written instructions must be signed by each shareholder,
Tenants in Common exactly as the names appear in the account registration.
- ----------------------------------------------------------------------------------------------------
UGMA or UTMA (custodial Written instructions must be signed by the custodian in his/her
accounts for minors) capacity as it appears in the account registration.
- ----------------------------------------------------------------------------------------------------
Corporation, Association Written instructions must be signed by authorized person(s),
stating his/her capacity as indicated by the corporate
resolution to act on the account.
A copy of the corporate resolution, certified within the past
90 days, authorizing the signer to act.
- ----------------------------------------------------------------------------------------------------
Estate, Trust, Pension, Profit Written instructions must be signed by all trustees.
Sharing Plan If the name of the trustee(s) does not appear in the account
registration, please provide a copy of the trust document
certified within the last 60 days.
- ----------------------------------------------------------------------------------------------------
Joint tenancy shareholders Written instructions must by signed by the surviving tenant(s).
whose co-tenants are A certified copy of the death certificate must accompany the
deceased request.
- ----------------------------------------------------------------------------------------------------
</TABLE>

Signature Guarantee

37
<PAGE>

association, clearing agency, or securities exchange or association, but not a
notary public. Call your financial institution to see if it has the ability to
guarantee a signature.

ACCOUNT POLICIES

Third Party Transactions

Redemption In-Kind

38
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand a Fund's
financial performance for the past 5 years (or, if a Fund or Class has not been
in operation for 5 years, since the beginning of operations for that Fund or
Class). Certain information reflects financial results for a single Fund share.
The total returns in the table represent how much your investment in the Fund
would have increased (or decreased) during each period, assuming reinvestment of
all dividends and distributions. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Funds' financial
statements, are included in the annual report, which is available upon request.
The information in the tables represents the Financial Highlights for the Fund's
Class E and Class S Shares, respectively, for the periods shown. No Class C
Shares of the Real Estate Securities, Emerging Markets, Special Growth, Tax
Exempt Bond or Short Term Bond Funds were issued during the periods shown. No
Class E Shares of the Tax Exempt Bond and Short Term Bond Funds were issued
during the periods shown.

Real Estate Securities Fund: Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996*
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value Beginning of Period........................... $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 Period................................ $31.02 $29.18
----------- -----------
Total Return (%).............................................. 18.20 15.75(a)

Ratios/Supplemental Data:
Net Assets, end of period ($000 omitted)................... 388 101

Ratios to average net assets (%)(b):
Operating expenses..................................... 1.71 1.77
Net investment income.................................. 3.94 5.31

Portfolio turnover rate (%)(b)............................. 49.40 51.75
</TABLE>

* For the period November 4, 1996 (commencement of sale) to December 31, 1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the periods ended June 30, 1998 and December 31, 1996 are
annualized.

39
<PAGE>

Real Estate Securities Fund: Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year.............. $ $ 29.19 $ 23.51 $ 22.53 $ 22.76
------ -------- -------- -------- --------
Income from Investment Operations:
Net investment income.......................... 1.36 1.39 1.32 1.25
Net realized and unrealized gain (loss) on
investments................................... 3.93 6.89 1.03 .40
------ -------- -------- -------- --------
Total From Investment Operations............. 5.29 8.28 2.35 1.65
------ -------- -------- -------- --------
Less Distributions:
Net investment income.......................... (1.41) (1.34) (1.35) (1.23)
Net realized gain on investments............... (2.21) (1.26) -- (.45)
In excess of net realized gain on
investments................................... -- -- -- (.20)
Tax return of capital.......................... -- -- (.02) --
------ -------- -------- -------- --------
Total Distributions.......................... (3.62) (2.60) (1.37) (1.88)
------ -------- -------- -------- --------
Net Asset Value, End of Year.................... $ 30.86 $ 29.19 $ 23.51 $ 22.53
======== ======== ======== ========
Total Return (%)(a)............................. 18.99 36.81 10.87 7.24
Ratios (%)/Supplemental Data:
Operating expenses, to average net assets
(b)........................................... 1.02 1.04 1.04 1.05
Net investment income to average net
assets (b).................................... 4.57 5.64 6.10 5.65
Portfolio turnover (b)......................... 49.40 51.75 23.49 45.84
Net assets, end of year ($000 omitted)......... 615,483 445,619 290,990 209,208
</TABLE>

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

40
<PAGE>

Emerging Markets Fund: Class E Shares

Net Asset Value Beginning of Period............................................

Income From Investment Operations:
Net investment income.......................................................
Net realized and unrealized gain (loss) on investments......................

Total Income From Investment Operations...................................

Less Distributions:
Net investment income.......................................................
Net realized gain on investments............................................

Total Distributions.......................................................

Net Asset Value, End of Period.................................................

Total Return (%)...............................................................

Ratios/Supplemental Data:
Net Assets, end of period ($000 omitted)....................................

Ratios to average net assets (%)(b):
Operating expenses......................................................
Net investment income...................................................

Portfolio turnover rate (%)(b)..............................................
</TABLE>

* For the period ______________, 1998 (commencement of sale) to December 31,
1998.
(a) Total return represents performance for the period __________, 1998 to
December 31, 1998.
(b) The ratios for the periods ended _________ and ___________ are annualized.

41
<PAGE>

Emerging Markets Fund - Class S

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year.................................. $ 12.35 $ 11.16 $ 12.25 $ 13.90
-------- -------- -------- --------
Income from Investment Operations:
Net investment income............................................. .14 .10 .11 .15
Net realized and unrealized gain (loss) on investments............ (.56) 1.26 (1.12) (1.24)
-------- -------- -------- --------
Total From Investment Operations................................ (.42) 1.36 (1.01) (1.09)
-------- -------- -------- --------
Less Distributions:
Net investment income............................................. (.05) (.08) (.03) (.10)
In excess of net investment income................................ (.09) (.09) (.02) (.10)
Net realized gain on investments.................................. -- -- -- (.31)
In excess of net realized gain on investments..................... -- -- (.03) (.05)
-------- -------- -------- --------
Total Distributions............................................. (.14) (.17) (.08) (.56)
-------- -------- -------- --------
Net Asset Value, End of Year........................................ $ 11.79 $ 12.35 $ 11.16 $ 12.25
======== ======== ======== ========
Total Return (%)(a)(c).............................................. (3.45) 12.26 (8.21) (5.83)
Ratios (%)/Supplemental Data:
Operating expenses, net, to average net assets (b)(c)............. 1.64 1.71 1.75 .80
Operating expenses, gross, to average net assets (b)(c)........... 1.64 1.72 1.80 .83
Net investment income to average net assets (b)(c)................ .87 .77 .88 1.10
Portfolio turnover (b)............................................ 50.60 34.62 71.16 57.47
Net assets, end of year ($000 omitted)............................ 333,052 271,490 172,673 127,271
</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%.
(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.

42
<PAGE>

Special Growth Fund: Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996*
----------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value Beginning of Period............................. $ 40.75 $ 43.48
-------- -------
Income From Investment Operations:
Net investment income........................................ (.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)
-------- -------
Net Asset Value, End of Period.................................. $ 45.42 $ 40.75
-------- -------
Total Return (%)................................................ 27.90 4.04(a)

Ratios/Supplemental Data:
Net Assets, end of period ($000 omitted)..................... 3,154 910

Ratios to average net assets (%)(b):
Operating expenses....................................... 1.83 1.89
Net investment income.................................... (.51) (.38)

Portfolio turnover rate (%)(b)............................... 97.19 118.13
</TABLE>

* For the period November 4, 1996 (commencement of sale) to December 31,
1996.
(a) Total return represents performance for the period November 4, 1996 to
December 31, 1996.
(b) The ratios for the periods ended June 30, 1998 and December 31, 1996 are
annualized.

43
<PAGE>

Special Growth Fund: Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................................... $ 40.79 $ 39.17 $ 33.47 $ 35.82
-------- -------- -------- --------
Income from Investment
Operations:
Net investment income........................ .08 .12 .18 .16
Net realized and unrealized gain
(loss) on investments....................... 11.18 6.87 9.25 (.71)
-------- -------- -------- --------
Total From Investment
Operations................................ 11.26 6.99 9.43 (.55)
-------- -------- -------- --------
Less Distributions:
Net investment income........................ (.08) (.12) (.21) (.10)
Net realized gain on
investments................................. (6.25) (5.25) (3.52) (.85)
In excess of net realized gain on
investments................................. -- -- -- (.85)
-------- -------- -------- --------
Total Distributions........................ (6.33) (5.37) (3.73) (1.80)
-------- -------- -------- --------
Net Asset Value, End of Year.................. $ 45.72 $ 40.79 $ 39.17 $ 33.47
======== ======== ======== ========
Total Return (%).............................. 28.77 18.65 28.52 (3.71)
Ratios (%)/Supplemental Data:
Operating expenses, net to
average net assets.......................... 1.15 1.19 1.22 1.20
Net investment income to
average net assets.......................... .18 .28 .49 .50
Portfolio turnover........................... 97.19 118.13 87.56 55.40
Net assets, end of year
($000 omitted).............................. 572,635 393,048 313,678 229,077
Per share amount of fees
reimbursed ($ omitted)...................... -- -- -- --
</TABLE>

44
<PAGE>

Equity T Fund - Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996+
------------ -------------- --------------
<S> <C> <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......... 3.28 .61
investments....................................... -------- -------
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..... 1.00 1.00
(b)(c)
Operating expenses, gross, to average net assets... 1.08 2.83
(b)(c)
Net investment income to average net assets........ .92 1.62
(b)(c)
Portfolio turnover (b)............................. 39.23 8.86
Net assets, end of year ($000 omitted)............. 109,735 19,931
Average commission rate paid per share of.......... .0271 .0301
security ($ omitted)
</TABLE>

+ 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.

45
<PAGE>

Tax Exempt Bond Fund - Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................................ $ 21.02 $ 21.24 $ 20.48 $ 21.45
------- ------- ------- -------
Income from Investment
Operations:
Net investment income........................... .84 .85 .81 .86
Net realized and unrealized gain
(loss) on investments.......................... .18 (.21) .77 (.97)
------- ------- ------- -------
Total From Investment
Operations.................................... 1.02 .64 1.58 (.11)
------- ------- ------- -------
Less Distributions:
Net investment income........................... (.84) (.86) (.82) (.86)
In excess net investment
income......................................... (.01)
Total Distributions........................... (.85) (.86) (.82) (.86)
------- ------- ------- -------
Net Asset Value, End of Year..................... $ 21.19 $ 21.02 $ 21.24 $ 20.48
======= ======= ======= =======
Total Return (%)................................. 4.92 3.07 7.81 (0.54)
Ratios (%)/Supplemental Data:
Operating expenses, to average
net assets..................................... .71 .75 .74 .72
Net investment income to
average net assets............................. 3.99 4.02 3.91 4.14
Portfolio turnover (a).......................... 40.79 74.34 73.91 71.71
Net assets, end of year ($000
omitted)....................................... 83,076 66,344 63,838 48,975
</TABLE>

(a) Beginning in 1992, variable rate daily demand securities were excluded from
the turnover calculation.

46
<PAGE>

Short Term Bond Fund - Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................................... $ 18.36 $ 18.55 $ 17.98 $ 18.99
-------- -------- -------- --------
Income from Investment
Operations:
Net investment income......................... 1.08 1.04 1.16 1.21
Net realized and unrealized gain
(loss) on investments........................ -- .19 .59 (1.07)
-------- -------- -------- --------
Total From Investment
Operations................................. 1.08 .85 1.75 .14
-------- -------- -------- --------
Less Distributions:
Net investment income......................... (1.09) (1.04) (1.18) (1.15)
Net realized gain on
investments.................................. -- -- -- --
Tax return of capital......................... -- -- -- --
-------- -------- -------- --------
Total Distributions......................... (1.09) (1.04) (1.18) (1.15)
-------- -------- -------- --------
Net Asset Value, End of Year................... $ 18.35 $ 18.36 $ 18.55 $ 17.98
======== ======== ======== ========
Total Return (%)(a)............................ 6.02 4.76 9.95 .82
Ratios (%)/Supplemental Data:
Operating expenses to average net
assets (a)................................... .66 .70 .58 .19
Net investment income to average
net assets (a)............................... 5.70 5.70 6.41 6.52
Portfolio turnover............................ 213.14 264.40 269.31 233.75
Net assets, end of year
($000 omitted)............................... 229,470 222,983 183,577 144,030
</TABLE>

(a) For periods prior to April 1, 1995, Fund performance, operating expenses,
and net investment income do not include any management fees 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%.

47
<PAGE>

Money Market Fund - Class S Shares

(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%.

48
<PAGE>

US Government Money Market Fund - Class S Shares

49
<PAGE>

Tax Free Money Market Fund - Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year........................... $ 1.0000 $ 1.0000 $1.0000 $ 1.0000
-------- -------- ------- --------
Income from Investment
Operations:
Net investment income
.0355 .0329 .0370 .0279
-------- -------- ------- --------
Less Distributions:
Net investment
income..................................... (.0355) (.0329) (.0370) (.0279)
-------- -------- ------- --------
Net Asset Value, End of
Year........................................ $ 1.0000 $ 1.0000 $1.0000 $ 1.0000
======== ======== ======= ========
Total Return (%)(a).......................... 3.61 3.35 3.76 2.83
Ratios (%)/Supplemental
Data:
Operating expenses, net,
to average daily net
assets..................................... .28 .42 .48 .40
Operating expenses,
gross, to average
daily net assets........................... .38 .42 .48 .40
Net investment income
to average daily net
assets..................................... 3.55 3.28 3.69 2.84
Net assets, end of year
($000 omitted)............................. 130,725 102,207 78,000 100,819
</TABLE>

50
<PAGE>

MONEY MANAGER INFORMATION

REAL ESTATE SECURITIES FUND

Cohen & Steers Capital Management, 757 Third Avenue, New York, NY 10017.

AEW Capital Management, L.P., 225 Franklin Street, Boston, MA 02110-2803.

EMERGING MARKETS FUND

Genesis Asset Managers, Ltd., 21 Knights Bridge, London, SW1X 7LY England.

J.P. Morgan Investment Management Inc., 522 Fifth Avenue, 6th Floor, New York,
NY 10036.

Montgomery Asset Management LLC, 101 California Street, 35th Floor, San
Francisco, CA 94111.

EQUITY T FUND

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

SPECIAL GROWTH FUND

Delphi Management, Inc., 50 Rowes Wharf, Suite 440, Boston, MA 02110.

Fiduciary International, Inc., 2 World Trade Center, New York, NY 10048.

GlobeFlex Capital, L.P., 4365 Executive Drive, Suite 720, San Diego, CA 92121.

Jacobs Levy Equity Management, Inc., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.

Sirach Capital Management, Inc., One Union Square, Suite 3323, 600 Union
Street, Seattle, WA 98101.

Wellington Management Company LLP, 75 State Street, Boston, MA 02109.

51
<PAGE>

Westpeak Investment Advisors, L.P. 1011 Walnut Street, Suite 400, Boulder, CO
80302.

TAX EXEMPT BOND FUND

MFS Institutional Advisors, Inc., 500 Boylston Street, Boston, MA 02116.

Standish, Ayer & Wood, Inc., One Financial Center, Boston, MA 02111.

SHORT TERM BOND FUND

BlackRock Financial Management, 345 Park Ave., 29th Floor, New York, NY 10154.

Standish, Ayer & Wood, Inc., One Financial Center, Boston, MA 02111.

STW Fixed Income Management Ltd., 26 Victoria Street, 3rd Floor, P.O. Box 2910
Hamilton HM LX, Bermuda.

MONEY MARKET FUND

Frank Russell Investment Management Company, 909 A Street, Tacoma, WA 98402.

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.

52
<PAGE>

<TABLE>
<S> <C>
For more information about the Funds, the FRANK RUSSELL INVESTMENT COMPANY
following documents are available without charge: Class C, E and S Shares:

Annual/Semiannual Reports: Additional information Real Estate Securities Fund
about the Funds' investments is available in the Emerging Markets Fund
Funds' annual and semiannual reports to Special Growth Fund
shareholders. In each Fund's annual report, you Tax Exempt Bond Fund
will find a discussion of the market conditions Short Term Bond Fund
and investment strategies that significantly
affected the Fund's performance during its last
fiscal year. Class S Shares:

Statement of Additional Information (SAI): The Equity T Fund
SAI provides more detailed information about the Money Market Fund
Funds. US Government Money Market Fund
Tax Free Money Market Fund
The annual report for each Fund and the SAI are
incorporated into this Prospectus by reference.
You may obtain free copies of the reports and the
SAI, and may request other information, by
contacting your Financial Intermediary or the
Funds at:
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
Telephone: 1-800-787-7354
Internet: http://www.russell.com

You can review and copy information about the
Funds (including the SAI) at the Securities and
Exchange Commission's Public Reference Room in
Washington, D.C. You can obtain information on
the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. You
can obtain copies of this information upon paying
a duplicating fee by writing to the Public
Reference Section of the Commission, Washington,
D.C. 20549-6009. Reports and other information
about the Funds are also available on the SEC File No. 811-3153
Commission's Internet website at
http://www.sec.gov.
</TABLE>

53
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A Street,
Tacoma, WA 98402
Telephone (800) 787-7354
In Washington (253) 627-7001

[LOGO OF FRANK RUSSELL INVESTMENT COMPANY]

Institutional Funds Prospectus
May 1, 1999

Class E and I Shares:

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

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary - Investment Objectives and Principal Investment Strategies
- Principal Risks.....................................................
- Performance.........................................................
- Fees and Expenses...................................................
Summary Comparison of the Funds...........................................................
The Purpose of the Funds--Multi-Style, Multi-Manager Diversification......................
Management of the Funds...................................................................
The Money Managers........................................................................
Portfolio Turnover........................................................................
Dividends and Distributions...............................................................
Taxes.....................................................................................
How Net Asset Value Is Determined.........................................................
Distribution and Shareholder Servicing Arrangements.......................................
How to Purchase Shares....................................................................
Exchange Privilege........................................................................
How to Redeem Shares......................................................................
Payment of Redemption Proceeds............................................................
Written Instructions......................................................................
Account Policies..........................................................................
Financial Highlights......................................................................
Money Manager Information.................................................................
</TABLE>

2
<PAGE>

RISK/RETURN SUMMARY

Investment Objective and Principal Investment Strategies
--------------------------------------------------------

EQUITY I FUND
- -------------

Investment To provide income and capital growth by investing principally
Objective in equity securities.

Principal The Equity I Fund invests primarily in common stocks of medium
Investment and large capitalization companies. These companies are
Strategies predominately US-based, although the Fund may invest a limited
portion of its assets in non-US firms from time to time.

The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different money
managers who employ distinct, but complementary, investment
styles. The Fund expects to use three principal investment
styles:
. Growth Style emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer, and service
sectors.
. Value Style emphasizes investments in equity securities of
companies that appear to be undervalued relative to their
corporate worth, based on earnings, book or asset value,
revenues, or cash flow. These companies are generally
found among industrial, financial, and utilities sectors.
. Market-Oriented Style emphasizes investments in companies
that appear to be undervalued relative to their growth
prospects. This style may encompass elements of both the
growth and value styles. These companies may be found in
any industry sector.

Additionally, the Fund is diversified by equity substyle. For
example, within the Growth Style, the Fund expects to employ
both an Earnings Momentum substyle (concentrating on companies
with more volatile and accelerating growth rates) and
Consistent Growth substyle (concentrating on companies with
stable earnings growth over an economic cycle).

When determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors

3
<PAGE>

include a money manager's investment style and substyle and its
performance record as well as the characteristics of the money
manager's typical portfolio investments. These characteristics
include capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings, and earnings and
price volatility statistics. The Fund also considers the manner
in which money managers' historical and expected investment
returns correlate with one another.

EQUITY II FUND
- --------------

Investment To maximize total return primarily through capital appreciation
Objective and assuming a higher level of volatility than Equity I Fund.

Principal The Equity II Fund invests primarily in common stocks of small
Investment and medium capitalization companies. These companies are
Strategies predominately US-based, although the Fund may invest in non-US
firms from time to time.

The Fund's investments may include companies that have been
publicly traded for less than five years and smaller companies,
such as companies not listed in the Russell 2000(R) Index.

4
<PAGE>

in the technology, health care, consumer, and service
sectors.
. Value Style emphasizes investments in equity securities of
companies that appear to be undervalued relative to their
corporate worth, based on earnings, book or asset value,
revenues, or cash flow. These companies are generally found
among industrial, financial, and utilities sectors.
. Market-Oriented Style emphasizes investments in companies
that appear to be undervalued relative to their growth
prospects. This style may encompass elements of both the
growth and value styles. These companies may be found in
any industry sector.

When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the money
manager's typical portfolio investments. These characteristics
include capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings, and earnings and
price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.

The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the performance
of appropriate equity markets by investing in stock index
futures contracts. This causes the Fund to perform as though
its cash reserves were actually invested in those markets.
Additionally the Fund invests its liquidity reserves in one or
more FRIC money market Funds.

A portion of a Fund's investments may be "illiquid" securities
(i.e., securities that do not have a readily available market
or that are subject to resale restrictions). Additionally, the
Fund may lend up to one-third of its portfolio securities to
earn additional income. These loans may be terminated at any
time. The Fund will receive either cash or US government debt
obligations as collateral.

EQUITY III FUND
- ---------------

5
<PAGE>

Investment To achieve a high level of current income, while maintaining
Objective the potential for capital appreciation.

Principal The Equity III Fund invests primarily in common stocks of
Investment medium and large capitalization companies. These companies are
Strategies predominately US-based, although the Fund may invest in non-US
firms from time to time.

Because the Fund's investment objective is primarily to provide
a high level of current income, the Fund generally pursues a
value style of securities selection. This style emphasizes
investments in equity securities of companies that appear to be
undervalued relative to their corporate worth, based on
earnings, book or asset value, revenues, or cash flow.

The Fund employs a multi-manager approach whereby portions of
the Fund are allocated to different money managers who employ
distinct, but complementary, investment sub-styles. The Fund
expects to use two principal investment substyles of the value
style:
. Yield Substyle--emphasizes investments in equity securities
with above-average yield relative to the market. Generally,
these securities are issued by companies in the financial
and utilities industries and, to a lesser extent, other
industries.
. Low Price/Earnings Ratio Substyle--emphasizes investments
in equity securities of companies that are considered
undervalued relative to their corporate worth, based on
earnings, book or asset value, revenues, or cash flow.
These companies are generally found among industrial,
financial, and utilities sectors. From time to time, this
substyle may also include investments in companies with
above-average earnings growth prospects, if they appear to
be undervalued in relation to their securities' historical
price levels.

When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment substyle and
performance record as well as the characteristics of the money
manager's typical portfolio investments. These characteristics
include capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings, and earnings and
price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.

6
<PAGE>

The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the performance
of appropriate equity markets by investing in stock index
futures contracts. This causes the Fund to perform as though
its cash reserves were actually invested in those markets.
Additionally the Fund invests its liquidity reserves in one or
more FRIC money market Funds.

The Fund may lend up to one-third of its portfolio securities
to earn additional income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.

EQUITY Q FUND
- -------------

Principal The Equity Q Fund invests primarily in common stocks of medium
Investment and large capitalization companies. These companies are
Strategies predominately US-based, although the Fund may invest in non-US
firms from time to time.

The Fund employs a multi-manager approach whereby portions of
the Fund are allocated to different money managers who employ
distinct, but complementary, investment styles. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors include
a money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings, and earnings and
price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment

7
<PAGE>

returns correlate with one another.

Each of the Fund's money managers use quantitative models to
rank securities based upon their expected 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 outperform and constructs a portfolio
that has risks similar to the 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 Fund's money managers typically use a variety of
quantitative models, ranking securities within each model and
on a composite basis using proprietary weighting formulas.
Examples of those quantitative models are dividend discount
models, price/cash flow models, price/earnings models, earnings
surprise and earnings estimate revisions models, and price
momentum models.

Although the Fund, like any mutual fund, maintains liquidity
reserves (i.e., cash awaiting investment or held to meet
redemption requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in stock
index futures contracts. This causes the Fund to perform as
though its cash reserves were actually invested in those
markets. Additionally the Fund invests its liquidity reserves
in one or more FRIC money market Funds.

The Fund may lend up to one-third of its portfolio securities
to earn additional income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.

INTERNATIONAL FUND
- ------------------

Investment To provide favorable total return and additional diversification
Objective for US investors.

Principal The International Fund invests primarily in equity securities
Investment issued by companies domiciled outside the United States and in
Strategies depository receipts, which represent ownership of securities of
non-US companies.

8
<PAGE>

The Fund's investments span most of the developed nations of
the world (particularly Europe and the Far East) to maintain a
high degree of diversification among countries and currencies.
Because international equity investment performance has a
reasonably low correlation to US equity performance, this Fund
may be appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.

The Fund may seek to protect its investments against adverse
currency exchange rate changes by purchasing forward currency
contracts. These contracts enable the Fund to "lock in" the US
dollar price of a security that it plans to buy or sell. The
Fund may not accurately predict currency movements.

9
<PAGE>

capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings, and earnings and
price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.

The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the performance
of appropriate equity markets by investing in stock index
futures contracts. This causes the Fund to perform as though
its cash reserves were actually invested in those markets.
Additionally the Fund invests its liquidity reserves in one or
more FRIC money market Funds.

Up to 15% of the Fund's investments may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale restrictions).
Additionally, the Fund may lend up to one-third of its
portfolio securities to earn additional income. These loans
may be terminated at any time. The Fund will receive either
cash or US government debt obligations as collateral.

FIXED INCOME I FUND
- -------------------

Investment To provide effective diversification against equities and a
Objective stable level of cash flow by investing in fixed-income
securities.

Principal The Fixed Income I Fund invests primarily in fixed-income
Investment securities. In particular, the Fund holds debt securities
Strategies issued or guaranteed by the US government or, to a lesser
extent by non-US governments, or by their respective agencies
and instrumentalities. It also holds mortgage-backed
securities, including collateralized mortgage obligations. The
Fund also invests in corporate debt securities and
dollar-denominated obligations issued in the US by non-US banks
and corporations (Yankee Bonds). A majority of the Fund's
holdings are US dollar denominated. From time to time the Fund
may invest in municipal debt obligations.

The average weighted duration of the Fund's portfolio typically
ranges within 10% of the average weighted duration of the
Lehman Brothers Aggregate Bond Index, but may vary up to 25%
from the Index's duration. The Fund has no restrictions on
individual security duration.

10
<PAGE>

FIXED INCOME III FUND
- ---------------------

Principal The Fixed Income III Fund invests primarily in fixed-income
Investment securities. In particular, the Fund holds debt securities
Strategies issued or guaranteed by the US government or, to a lesser
extent by non-US governments, or by their respective agencies
and

11
<PAGE>

instrumentalities. It also holds mortgage-backed securities,
including collateralized mortgage obligations. The Fund also
invests in corporate debt securities and dollar-denominated
obligations issued in the US by non-US banks and corporations
(Yankee Bonds). A majority of the Fund's holdings are US dollar
denominated. From time to time the Fund may invest in municipal
debt obligations.

The average weighted duration of the Fund's portfolio typically
ranges within ten percent of the average weighted duration of the
Lehman Brothers Aggregate Bond Index, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on individual
security duration.

The Fund may enter into interest rate futures contracts, options
on such futures contracts, and interest rate swaps (i.e.,
agreements to exchange the Fund's rights to receive certain

12
<PAGE>

interest payments) as a substitute for holding physical
securities or to facilitate the implementation of its investment
strategy.

Principal Risks
---------------

<TABLE>
<CAPTION>
Risk Associated Relevant
With: Description Fund
- ----- ----------- ----
<S> <C> <C>
Multi-manager The interplay of the various strategies employed by a All Funds
approach Fund's multiple money managers may result in the
Fund's holding a concentration of certain types of
securities. This concentration may be beneficial or
detrimental to the Fund's performance depending upon
the performance of those securities and the overall
economic environment.

Equity securities The value of equity securities will rise and fall in Equity I
response to the activities of the company that issued Equity II
the stock, general market conditions, and/or economic Equity III
conditions. Equity Q
International

. Value Stocks Investments in value stocks are subject to risks that Equity I
(i) their intrinsic values may never be realized by Equity II
the market or (ii) such stock may turn out not to have Equity III
been undervalued. Equity Q
International

. Growth Stocks Growth company stocks may provide minimal dividends Equity I
that can cushion stock prices in a market decline. Equity II
The value of growth company stocks may rise and fall Equity Q
dramatically based, in part, on investors' perceptions International
of the company rather than on fundamental analysis of
the stocks.

. Market-Oriented Market-oriented investments are generally subject to Equity I
Investments the risks associated with growth and value stocks. Equity II
Equity Q
</TABLE>

13
<PAGE>

<TABLE>
<S> <C> <C>
International

. Securities of small Investments in smaller companies may involve greater Equity II
capitalization risks because these companies generally have a limited International
companies track record. Smaller companies often have narrower
markets and more limited managerial and financial
resources than larger, more established companies. As
a result, their performance can be more volatile,
which could increase the volatility of a Fund's
portfolio.

Fixed-income Prices of fixed-income securities rise and fall in Fixed Income I
securities response to interest rate changes. Generally, when Fixed Income III
interest rates rise, prices of fixed-income securities
fall. The longer the duration of the security, the
more sensitive the security is to this risk. There is
also a risk that one or more of the securities will be
downgraded in credit rating or go into default.
Lower-rated bonds generally have higher credit risks.

. Non-investment Although lower rated debt securities generally offer a Fixed Income III
grade fixed- higher yield than higher rated debt securities, they
income involve higher risks. They are especially subject to:
securities . adverse changes in general economic conditions and
in the industries in which their issuers are engaged,
. changes in the financial condition of their
issuers, and
. price fluctuations in response to changes in interest
rates.
As a result, issuers of lower rated debt securities
are more likely than other issuers to miss principal
and interest payments or to default.

International A Fund's return and net asset value may be Fixed Income III
securities significantly affected by political or economic International
conditions and regulatory requirements in a particular
country. Foreign markets, economies and political
systems may be less stable than US markets, and
changes in exchange rates of foreign currencies can
affect the value of a Fund's foreign assets. Foreign
laws and accounting standards typically are not as
strict as they are in the US and there may be less
public information available about foreign companies.
A Fund's foreign debt securities are typically
obligations of sovereign governments. These
securities are particularly subject to a risk of
default from political instability.

. Instruments of US Non-US corporations and banks issuing dollar Fixed Income I
and foreign banks denominated instruments in the US are not necessarily Fixed Income III
and branches and subject to the same regulatory requirements that apply
foreign to US corporations and banks, such as accounting,
corporations, auditing and recordkeeping standards, the public
including Yankee availability of information and, for banks, reserve
Bonds requirements, loan limitations, and examinations.
This increases the possibility that a non-US
corporation or
</TABLE>

14
<PAGE>

<TABLE>
<S> <C> <C>
bank may become insolvent or otherwise unable to
fulfill its obligations on these instruments.

Derivatives (e.g. If a Fund incorrectly forecasts interest rates in Fixed Income I
futures contracts, using derivatives, the Fund could lose money. Price Fixed Income III
options on futures, movements of a futures contract, option or structured
interest rate swaps, note may not be identical to price movements of
structured notes) portfolio securities or a securities index resulting
in the risk that, when a Fund buys a futures contract
or option as a hedge, the hedge may not be completely
effective.

Municipal Municipal obligations are affected by economic, Fixed Income I
Obligations business or political developments. These securities Fixed Income III
may be subject to 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.

Exposing Liquidity By exposing its liquidity reserves to the equity Equity I
Reserves to Equity market, a Fund's performance tends to correlate more Equity II
Markets closely to the performance of the market as a whole. Equity III
Although this increases a Fund's performance if equity Equity Q
markets rise, it reduces a Fund's performance if International
equity markets decline.

Securities Lending If a borrower of a Fund's securities fails All Funds
financially, the Fund's recovery of the loaned
securities may be delayed or the Fund may lose its
rights to the collateral.

An investment in any of the Funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

Performance
-----------

15
<PAGE>

The following bar charts illustrate the risks of investing in the Funds by
showing how the performance of each Fund's Class I shares varies from year to
year over a 10 year period (or, if a Fund has not been in operation for 10
years, since the beginning of operations of such Fund). The return for the
other class of shares offered by this Prospectus will differ from the Class I
returns shown in the bar chart, depending upon the fees and expenses of that
class. The chart does not reflect any account maintenance fee or any fee that
you may be required to pay upon redemption of the Fund's shares. Any such
charge will reduce your return.

Past performance is no indication of future results.

During the period shown in the bar charts, each Fund had the following highest
and lowest quarterly return: To be filed by Amendment

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Best Worst
Quarter Quarter
------- -------
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Equity I ___% (__Q/9_) ___% (__Q/9_)
- ------------------------------------------------------------------------------------------
Equity II ___% (__Q/9_) ___% (__Q/9_)
- ------------------------------------------------------------------------------------------
Equity III ___% (__Q/9_) ___% (__Q/9_)
- ------------------------------------------------------------------------------------------
Equity Q ___% (__Q/9_) ___% (__Q/9_)
- ------------------------------------------------------------------------------------------
International ___% (__Q/9_) ___% (__Q/9_)
- ------------------------------------------------------------------------------------------
Fixed Income I ___% (__Q/9_) ___% (__Q/9_)
- ------------------------------------------------------------------------------------------
Fixed Income III ___% (__Q/9_) ___% (__Q/9_)
- ------------------------------------------------------------------------------------------
</TABLE>

16
<PAGE>

Average annual total returns*
for the periods ended December 31, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Years 10 Years (if earlier)**
------ ------- -------- --------------
<S> <C> <C> <C> <C>
Equity I Fund
Class I 25.10% 22.83% 18.61% 17.17%
Russell 1000(R) Index 27.02 23.37 19.03 17.95
Equity II Fund
Class I 0.70 13.98 14.43 13.98
Russell 2500(TM) Index 0.38 14.13 14.61 14.82
Equity III Fund
Class I 11.53 19.81 17.27 17.36
Russell 1000(R) Value Index 15.63 20.86 17.39 17.63
Equity Q Fund
Class I 25.98 23.62 19.17 16.28
Russell 1000 (R) Index 27.02 23.37 19.03 16.34
International Fund
Class I 13.52 7.54 8.04 14.83
MSCI EAFE Index 20.33 9.51 5.86 15.74
Fixed Income I Fund
Class I 8.37 7.10 9.08 11.17
Lehman Brothers Aggregate Bond Index 8.69 7.27 9.26 11.56
Fixed Income III Fund
Class I** 6.80 6.85 -- 7.51
Lehman Brothers Aggregate Bond Index 8.69 7.27 -- 7.45
</TABLE>

* No Class E Shares of any Fund were issued during the periods shown. Had the
shareholder servicing fees for Class E Shares been reflected in the returns
for Class I Shares shown above, returns would have been lower. For periods
prior to April 1, 1995, Fund performance results are reported gross of
investment management fees. For periods thereafter, Fund performance results
are reported net of investment management fees.
** Class I Shares of Fixed Income III Fund - For the period January 29, 1993
(commencement of sales) to December 31, 1993

30-Day Yields*
for the period ended December 31, 1998
Fixed Income I - Class I ____%
Fixed Income III - Class I ____%

* No Class E Shares of either Fund were issued during the period shown.

To obtain current 30-day yield information, please call 1-800-787-7354.

Fees and Expenses
-----------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.

Shareholder Fees (% of transaction amount)

17
<PAGE>

<TABLE>
<CAPTION>
Maximum
Maximum Sales Account
Maximum Sales Charge (Load) Maintenance
Charge Imposed on Maximum Fees (for
(Load) Imposed Reinvested Deferred Sales Redemption Exchange accounts under
on Purchases Dividends Charge (Load) Fees Fees $10,000)**
------------ --------- ------------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Each Fund (Class E)* None None None None None 12.50/yr
Each Fund (Class I)* None None None None None 12.50/yr
</TABLE>

* If you purchase any class of shares of the Funds, you or your Financial
Intermediary may pay a quarterly shareholder investment services fee directly
to FRIMCo pursuant to a separate agreement with FRIMCo. The fee is calculated
as a percentage of the amount you or your Financial Intermediary have
invested in the Funds.
** The fee will be deducted from dividends payable to each applicable account or
by liquidating shares in the account, or both. The fee will be waived for:
(i) accounts held by retirement plans representing multiple participants;
(ii) accounts held by trustees, officers, employees, and certain third-party
contractors of FRIC and its affiliates and their spouses and children; and
(iii) classes of accounts for which maintenance costs are absorbed by a
third-party.

Annual Operating Expenses (% of net assets)

Other Expenses
(including
Administrative
Fees and Total Annual
Advisory Distribution Shareholder Fund Operating
Fee+ (12b-1) Fees Servicing Fees)# Expenses#+
---- ------------ ---------------- ----------
<S> <C> <C> <C> <C>
Class E Shares

Equity I Fund................................ .55% .00% .40% 0.95%
Equity II Fund............................... .70% .00% .48% 1.18%
Equity III Fund.............................. .55% .00% .45% 1.00%
Equity Q Fund................................ .55% .00% .38% 0.93%
International Fund........................... .70% .00% .56% 1.26%
Fixed Income I Fund.......................... .25% .00% .41% 0.66%
Fixed Income III Fund........................ .50% .00% .46% 0.96%

Class I Shares

Equity I Fund................................ .55% .00% .15% 0.70%
Equity II Fund............................... .70% .00% .23% 0.93%
Equity III Fund.............................. .55% .00% .20% 0.75%
Equity Q Fund................................ .55% .00% .13% 0.68%
International Fund........................... .70% .00% .31% 1.01%
Fixed Income I Fund.......................... .25% .00% .16% 0.41%
Fixed Income III Fund........................ .50% .00% .21% 0.71%
</TABLE>

# Annual Class E Shares operating expenses are based on average net assets
expected to be invested during the year ending December 31, 1999. During the
course of this period, expenses may be more or less than the amount shown.
"Other Expenses" for Class E Shares include a shareholder servicing fee of
0.25% of average daily net assets. Prior to December 1, 1998, FRIMCo provided
advisory and administrative services to the Funds pursuant to a single
Management Agreement for which each Fund paid a single fee. Thereafter
FRIMCo's advisory and administrative services are provided under a separate
advisory agreement and administrative agreement which provide for the fees
reflected in the table above.

18
<PAGE>

for information concerning what additional fees, if any, will be charged.
Each Fund may also pay, in addition to the fee set forth above, a fee which
compensates FRIMCo for managing collateral which the Funds have received in
securities lending and certain other portfolio transactions which are not
treated as net assets of that Fund ("additional assets") in determining the
Fund's net asset value per share. The additional fee payable to FRIMCo will
equal an amount of up to 0.07% of each Fund's additional assets on an
annualized basis.

Example
This example is intended to help you compare the cost of investing in each Fund
with the cost of investing in other mutual funds.

Although your actual costs may be higher or lower, under these assumptions your
costs would be:

Class E: 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity I Fund.................................. $ 95 $299 $525 $1,195
Equity II Fund................................. 118 372 652 1,484
Equity III Fund................................ 100 315 553 1,258
Equity Q Fund.................................. 93 293 514 1,170
International Fund............................. 126 397 696 1,585
Fixed Income I Fund............................ 66 208 365 830
Fixed Income III Fund.......................... 96 303 530 1,207
</TABLE>

Class I: 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity I Fund.................................. $ 70 $221 $387 $ 880
Equity II Fund................................. 93 293 514 1,170
Equity III Fund................................ 75 236 414 943
Equity Q Fund.................................. 68 214 376 855
International Fund............................. 101 318 558 1,270
Fixed Income I Fund............................ 41 129 227 516
Fixed Income III Fund.......................... 71 224 392 893
</TABLE>

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 Fund................. 0-35% 100% Diversification
</TABLE>

19
<PAGE>

<TABLE>
<S> <C> <C> <C>
Fixed Income III Fund............... --% 100% Income and capital appreciation
</TABLE>

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.

20
<PAGE>

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.

MANAGEMENT OF THE FUNDS

FRIMCo recommends money managers to the Funds, allocates Fund assets among
them, oversees them, and evaluates their results. FRIMCo also oversees the
management

21
<PAGE>

of the Funds' liquidity reserves. The Funds' money managers select the
individual portfolio securities for the assets assigned to them.

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

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

. Jean E. Carter, who has been a Portfolio Manager of FRIMCo since April
1994. Ms. Carter, jointly with another portfolio manager listed in this
section, 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 listed in this section, has primary responsibility for management
of the International, and International Securities Funds.

. 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 listed in this section, has primary responsibility for management
of the Emerging Markets and Real Estate Securities Funds.

22
<PAGE>

. C. Nola Kulig, who has been a Portfolio Manager of FRIMCo since January
1996. From 1994 to 1995, Ms. Kulig was a member of the Alpha Strategy
Group. From 1988 to 1994, Ms. Kulig was Senior Research Analyst with
Russell. Ms. Kulig, jointly with another portfolio manager listed in this
section, 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.

The aggregate annual rate of advisory and administrative fees, payable to
FRIMCo monthly on a pro rata basis, are the following percentages of each Fund's
average daily net assets: Equity I Fund, 0.60%; Equity II Fund, 0.75%; Equity
III Fund, 0.60%; Equity Q Fund, 0.60%; International Fund, 0.75%; Fixed Income I
Fund, 0.30%; and Fixed Income III Fund, 0.55%. Of these aggregate amounts 0.05%
is attributable to administrative services. Prior to December 1, 1998, FRIMCo
provided advisory and administrative services to the Funds pursuant to a single
Management Agreement for which each Fund paid a single fee. Thereafter,
FRIMCo's advisory and administrative services are provided under a separate
advisory agreement and an administrative agreement. Each Fund may also pay, in
addition to the aggregate fees set forth above, a fee which compensates FRIMCo
for managing collateral which the Funds have received in securities lending and
certain other portfolio transactions which are not treated as net assets of that
Fund ("additional assets") in determining the Fund's net asset value per share.
The additional fee payable to FRIMCo will equal an amount of up to 0.07% of each
Fund's additional assets on an annualized basis.

THE MONEY MANAGERS

23
<PAGE>

PORTFOLIO TURNOVER

DIVIDENDS AND DISTRIBUTIONS

Income Dividends

<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 and
Fixed Income III Funds

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

Capital Gains Distributions

24
<PAGE>

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 may not have participated in the
increase of the net asset value of a Fund, regardless of whether you reinvested
the dividends.

Automatic Reinvestment

TAXES

When you sell or exchange your shares of a Fund, you may have a capital gain
or loss. The tax rate on any gain from the sale or exchange of your shares
depends on how long you have held your shares.

Any foreign taxes paid by a Fund on its investments may be passed through to
its shareholders as foreign tax credits.

25
<PAGE>

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 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
professional with respect to the applicability of these rules.

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.

HOW NET ASSET VALUE IS DETERMINED

Net Asset Value Per Share

Valuation of Portfolio Securities

Securities held by the Funds are typically priced using market quotations or
pricing services when the prices are believed to be reliable--that is, when the
prices reflect the fair market value of the 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. If you hold shares in a Fund, such as the
International Fund, that holds portfolio securities that are listed primarily on
foreign exchanges, the net asset value of the Fund's shares may change on a day
when you will not be able to purchase or redeem Fund shares. This is because
the value of those portfolio securities may change on weekends or other days
when the Fund does not price its shares.

DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS

The Funds offer multiple classes of shares: Class E shares and Class I
Shares.

26
<PAGE>

Class I Shares do not participate in the Funds' shareholder services plan.

HOW TO PURCHASE SHARES

There is an aggregate $5 million minimum initial investment requirement for
the Funds described in this Prospectus in combination with the Funds described
in FRIC's Specialty Funds Prospectus or LifePoints Funds Prospectus, in an
allocated investment portfolio. 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. Trustees, officers, employees,
and certain third-party contractors of FRIC and its affiliates and their spouses
and children are not subject to any initial minimum investment requirement.

Financial Intermediaries may charge their customers a fee for providing
investment-related services. Financial Intermediaries generally receive no
compensation from the Funds or the Funds' service providers with respect to
Class I Shares of the Funds. Financial Intermediaries may receive shareholder
servicing compensation from the Funds' Distributor with respect to Class E
shares of the Funds.

Paying for Shares

27
<PAGE>

arrive in proper form by settlement date. An overdraft charge may also be
applied. 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.

Offering Dates and Times

Order and Payment Procedures

By Mail

By Federal Funds Wire

By Automated Clearing House ("ACH")

Automated Investment Program

28
<PAGE>

Three Day Settlement Program

EXCHANGE PRIVILEGE

By Mail or Telephone

You may exchange shares of any Fund you own for shares of any other Fund on
the basis of the 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 FRIC 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 your Financial
Intermediary.

In-Kind Exchange of Securities

29
<PAGE>

HOW TO REDEEM SHARES

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 the Funds' Transfer Agent
receives 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 redemption for 15 days following the purchase to assure payment
has been collected.

Redemption Dates and Times

By Mail or Telephone

Systematic Withdrawal Program

30
<PAGE>

the end of the month in which a payment is scheduled. When you redeem your
shares under a systematic withdrawal program, it is a taxable transaction.

Accounts in Street Name

PAYMENT OF REDEMPTION PROCEEDS

By Check

By Wire

WRITTEN INSTRUCTIONS

Proper Form: Written instructions must be in proper form. They must include:

A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)

31
<PAGE>

The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered account owners
For exchange, the name of the Fund you are exchanging into
Your daytime telephone number

Signature Requirements Based on Account Type

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Account Type Requirements for Written Requests
- -------------------------------------------------------------------------------------------------
<S> <C>
Individual, Joint Tenants, Written instructions must be signed by each shareholder,
Tenants in Common exactly as the names appear in the account registration.
- -------------------------------------------------------------------------------------------------
UGMA or UTMA (custodial Written instructions must be signed by the custodian in his/her
accounts for minors) capacity as it appears in the account registration.
- -------------------------------------------------------------------------------------------------
Corporation, Association Written instructions must be signed by authorized person(s),
stating his/her capacity as indicated by the corporate
resolution to act on the account.
A copy of the corporate resolution, certified within the past
90 days, authorizing the signer to act.
- -------------------------------------------------------------------------------------------------
Estate, Trust, Pension, Profit Written instructions must be signed by all trustees.
Sharing Plan If the name of the trustee(s) does not appear in the account
registration, please provide a copy of the trust document
certified within the last 60 days.
- -------------------------------------------------------------------------------------------------
Joint tenancy shareholders Written instructions must by signed by the surviving tenant(s).
whose co-tenants are A certified copy of the death certificate must accompany the
deceased request.
- -------------------------------------------------------------------------------------------------
</TABLE>

Signature Guarantee

ACCOUNT POLICIES

Third Party Transactions

Redemption In-Kind

32
<PAGE>

33
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand a Fund's
financial performance for the past 5 years (or, if a Fund or Class has not been
in operation for 5 years, since the beginning of operations for that Fund or
Class). Certain information reflects financial results for a single Fund share.
The total returns in the table represent how much your investment in the Fund
would have increased (or decreased) during each period, assuming reinvestment of
all dividends and distributions. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Funds' financial
statements, are included in the annual report, which is available upon request.
The information in the tables represents the Financial Highlights for the Fund's
Class I Shares for the periods shown. No Class E Shares were issued during the
periods shown.

Equity I Fund - Class I Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year..................... $ 30.34 $ 28.00 $ 23.32 $ 24.91
---------- -------- -------- --------
Income From Investment
Operations:
Net investment income .34 .42 .52 .62
Net realized and
unrealized gain (loss)
on investments....................... 8.89 5.96 7.71 (.41)
---------- -------- -------- --------
Total From
Investment
Operations......................... 9.23 6.38 8.23 .21
---------- -------- -------- --------
Less Distributions:
Net investment income (.34) (.42) (.52) (.62)
Net realized gain on
investments.......................... (8.72) (3.62) (3.03) (.94)
In excess of net realized
gain on investments.................. -- -- -- (.24)
---------- -------- -------- --------
Total Distributions................. (9.06) (4.04) (3.55) (1.80)
---------- -------- -------- --------
Net Asset Value, End of
Year.................................. $ 30.51 $ 30.34 $ 28.00 $ 23.32
========== ======== ======== ========
Total Return (%)(a).................... 32.02 23.58 35.94 .79
Ratios (%)/Supplemental Data:
Operating expenses to
average net assets (a) .70 .71 .59 .12
Net investment income
to average net assets (a)............ .96 1.38 1.91 2.52
Portfolio turnover.................... 110.75 99.51 92.04 75.02
Net assets, end of year
($000 omitted)....................... 1,136,373 961,953 751,497 547,242
</TABLE>

34
<PAGE>

Equity II Fund - Class I Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year................................ $ 30.05 $ 28.88 $ 25.00 $ 26.58
-------- -------- -------- --------
Income From Investment
Operations:
Net investment income.................. .11 .16 .27 .36
Net realized and unrealized
gain (loss)
on investments........................ 8.11 4.96 6.80 (.86)
-------- -------- -------- --------
Total From Investment
Operations.......................... 8.22 5.12 7.07 (.50)
-------- -------- -------- --------
Less Distributions:
Net investment income.................. (.11) (.16) (.29) (.31)
Net realized gain on
investments........................... (5.20) (3.79) (2.90) (.21)
In excess of net realized gain
on investments........................ -- -- -- (.56)
-------- -------- -------- --------
Total Distributions.................. (5.31) (3.95) (3.19) (1.08)
-------- -------- -------- --------
Net Asset Value, End
of Year................................ $ 32.96 $ 30.05 $ 28.88 $ 25.00
======== ======== ======== ========
Total Return (%)(a)..................... 28.66 18.51 28.67 (2.60)
Ratios (%)/Supplemental
Data:
Operating expenses to
average net assets (a)................ .92 .95 .83 .23
Net investment income to
average net assets (a)................ .35 .52 .97 1.46
Portfolio turnover..................... 103.00 120.78 89.31 58.04
Net assets, end of year
($000 omitted)........................ 482,159 365,955 279,566 202,977
</TABLE>

35
<PAGE>

Equity III Fund - Class I Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year................................ $ 29.68 $ 29.11 $ 24.18 $ 27.05
-------- -------- -------- --------
Income From Investment
Operations:
Net investment income............... .60 .70 .82 .93
Net realized and unrealized gain
(loss) on investments.............. 8.69 5.10 7.73 (.85)
-------- -------- -------- --------
Total From Investment
Operations....................... 9.29 5.80 8.55 .08
-------- -------- -------- --------
Less Distributions:
Net investment income............... (.60) (.71) (.83) (.91)
In excess of net investment
income............................. (.01) -- -- --
Net realized gain on
investments........................ (8.56) (4.52) (2.79) (1.94)
In excess of net realized gain on
investments........................ -- -- -- (.10)
-------- -------- -------- --------
Total Distributions............... (9.17) (5.23) (3.62) (2.95)
-------- -------- -------- --------
Net Asset Value, End of Year......... $ 29.80 $ 29.68 $ 29.11 $ 24.18
======== ======== ======== ========
Total Return (%)(a).................. 33.13 20.90 35.96 1.16
Ratios (%)/Supplemental Data:
Operating expenses to average
net assets (a)..................... .78 .79 .65 .17
Net investment income to
average net assets (a)............. 1.77 2.23 2.90 3.39
Portfolio turnover.................. 128.86 100.78 103.40 85.92
Net assets, end of year
($000 omitted)..................... 242,112 221,778 222,541 177,807
</TABLE>

36
<PAGE>

Equity Q Fund - Class I Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year............................ $ 32.94 $ 30.40 $ 24.43 $ 26.03
-------- -------- -------- --------
Income From Investment
Operations:
Net investment income.............. .44 .58 .59 .69
Income
Net realized and unrealized
gain (loss) on investments........ 10.01 6.33 8.52 (.41)
-------- -------- -------- --------
Total income from
Investment Operations........... 10.45 6.91 9.11 .28
-------- -------- -------- --------
Less Distributions:
Net investment income.............. (.44) (.58) (.61) (.69)
In excess of net investment
income............................ -- (.01) -- --
Net realized gain on
investments....................... (7.05) (3.78) (2.53) (.97)
In excess of net realized
gain on investments............... -- -- -- (.22)
-------- -------- -------- --------
Total Distributions.............. (7.49) (4.37) (3.14) (1.88)
-------- -------- -------- --------
Net Asset Value, End of
Year............................... $ 35.90 $ 32.94 $ 30.40 $ 24.43
======== ======== ======== ========
Total Return (%)(a)................. 33.07 23.67 37.91 .99
Ratios (%) Supplemental Data:
Operating expenses to
average net assets (a)............ .68 .71 .58 .11
Net investment income to
average net assets (a)............ 1.17 1.80 2.07 2.74
Portfolio turnover................. 94.89 74.59 74.00 45.87
Net assets, end of year
($000 omitted).................... 987,760 818,281 620,259 430,661
</TABLE>

37
<PAGE>

International Fund - Class I Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year................................. $ 37.39 $ 36.26 $ 34.28 $ 37.34
-------- -------- -------- --------
Income From Investment
Operations:
Net investment income................ .46 .44 .48 .61
Net realized and unrealized gain
(loss) on investments............... (.28) 2.41 3.16 .65
-------- -------- -------- --------
Total Income From
Investment Operations............. .18 2.85 3.64 1.26
-------- -------- -------- --------
Less Distributions:
Net investment income................ (.37) (.35) (.64) (.36)
In excess of net investment
income.............................. (.18) -- (.08) --
Net realized gain on
investments......................... (1.95) (1.37) (.94) (3.73)
In excess of net realized gain
on investments...................... (.47) -- -- (.23)
-------- -------- -------- --------
Total Distributions................ (2.97) (1.72) (1.66) (4.32)
-------- -------- -------- --------
Net Asset Value, End of Year.......... $ 34.60 $ 37.39 $ 36.26 $ 34.28
======== ======== ======== ========
Total Return (%)(a)................... .58 7.98 10.71 5.38
Ratios (%)/Supplemental Data:
Operating expenses, net, to
average net assets (a).............. 1.00 1.04 .88 .32
Operating expenses, gross, to
average net assets (a).............. 1.00 1.05 .89 .34
Net investment income to
average net assets (a).............. 1.14 1.20 1.41 1.63
Portfolio turnover................... 79.45 42.69 36.78 71.09
Net assets, end of year
($000 omitted)...................... 972,735 944,380 796,777 674,180
</TABLE>

38
<PAGE>

Fixed Income I Fund - Class I Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year................................. $ 20.99 $ 21.59 $ 19.59 $ 21.74
-------- -------- -------- --------
Income From Investment
Operations:
Net investment income................ 1.37 1.38 1.42 1.46
Net realized and unrealized gain
(loss) on investments............... .54 (.62) 2.02 (2.06)
-------- -------- -------- --------
Total From Investment
Operations........................ 1.91 .76 3.44 (.60)
-------- -------- -------- --------
Less Distributions:
Net investment income................ (1.39) (1.36) (1.44) (1.44)
In excess of net investment
income.............................. -- -- -- --
Net realized gain on
investments......................... -- -- -- --
In excess of net realized gain on
investments......................... -- -- -- (.11)
-------- -------- -------- --------
Total Distributions................ (1.39) (1.36) (1.44) (1.55)
-------- -------- -------- --------
Net Asset Value, End of Year.......... $ 21.51 $ 20.99 $ 21.59 $ 19.59
======== ======== ======== ========
Total Return (%)(a)................... 9.42 3.75 18.03 (2.97)
Ratios (%)/Supplemental Data:
Operating expenses to average
net assets (a)...................... .42 .42 .35 .10
Net investment income to
average net assets (a).............. 6.54 6.57 6.82 7.06
Portfolio turnover................... 165.81 147.31 138.05 173.97
Net assets, end of year ($000
omitted)............................ 798,252 662,899 638,317 496,038
</TABLE>

39
<PAGE>

Fixed Income III Fund - Class I Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year............................... $ 10.17 $ 10.34 $ 9.37 $ 10.44
-------- -------- -------- --------
Income From Investment Operations:
Net investment income........................................... .63 .64 .67 .66
Net realized and unrealized gain (loss) on investments......... .32 (.16) .97 (1.07)
-------- -------- -------- --------
Total From Investment Operations............................. .95 .48 1.64 (.41)
-------- -------- -------- --------
Less Distributions:
Net investment income........................................... (.62) (.64) (.67) (.66)
In excess of net investment income.............................. (.02) (.01) -- --
Net realized gain on investments................................ (.06) -- -- --
In excess of net realized gain on investments................... -- -- -- --
-------- -------- -------- --------
Total Distributions.......................................... (.70) (.65) (.67) (.66)
-------- -------- -------- --------
Net Asset Value, End of Year..................................... $ 10.42 $ 10.17 $ 10.34 $ 9.37
======== ======== ======== ========
Total Return (%)(a).............................................. 9.64 4.88 17.99 (3.89)
Ratios (%)/Supplemental Data:
Operating expenses, net, to average net assets (a).............. .70 .73 .61 .20
Operating expenses, gross, to average net assets (a)............ .70 .73 .61 .20
Net investment income to average net assets (a)................. 6.13 6.32 6.83 7.02
Portfolio turnover (a).......................................... 274.84 144.26 141.37 134.11
Net assets, end of year ($000 omitted).......................... 382,433 292,077 252,465 166,620
</TABLE>

40
<PAGE>

MONEY MANAGER INFORMATION

EQUITY I FUND

Alliance Capital Management L.P., US Bank Place, 601 2nd Ave. South, Suite
5000, Minneapolis, MN 55402-4322.

Barclays Global Fund Advisors, 45 Fremont Street, 17th Floor, San Francisco,
CA 94105.

Equinox Capital Management, Inc., 590 Madison Avenue, 41st Floor, New York, NY
10022.

INVESCO Capital Management, Inc., 1315 Peachtree Street N.E., Suite 500,
Atlanta, GA 30309.

Lincoln Capital Management Company, 200 South Wacker Drive, Suite 2100,
Chicago, IL 60606.

Morgan Stanley Dean Witter Investment Management Inc., 1221 Avenue of the
Americas, New York, NY 10020.

Peachtree Asset Management, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308.

Sanford C. Bernstein & Co., Inc., 767 Fifth Avenue, 21st Floor, New York, NY
10153.

Suffolk Capital Management, Inc., 1633 Broadway, 40th Floor, New York, NY
10019.

Trinity Investment Management Corporation, 75 Park Plaza, Boston, MA 02116.

EQUITY II FUND

Delphi Management, Inc., 50 Rowes Wharf, Suite 440, Boston, MA 02110.

Fiduciary International, Inc., 2 World Trade Center, New York, NY 10048.

41
<PAGE>

GlobeFlex Capital, L.P., 4365 Executive Drive, Suite 720, San Diego, CA 92121.

Jacobs Levy Equity Management, Inc., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.

Sirach Capital Management, Inc., One Union Square, Suite 3323, 600 Union
Street, Seattle, WA 98101.

Wellington Management Company LLP, 75 State Street, Boston, MA 02109.

Westpeak Investment Advisors, L.P., 1011 Walnut Street, Suite 400, Boulder, CO
80302.

EQUITY III FUND

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

Trinity Investment Management Corporation, See: Equity I Fund.

Westpeak Investment Advisors, L.P., See: Equity II Fund.

EQUITY Q FUND

Barclays Global Fund Advisors, See: Equity I Fund.

Franklin Portfolio Associates LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.

J.P. Morgan Investment Management, Inc., 522 Fifth Ave., 6th Floor, New York,
NY 10036.

INTERNATIONAL FUND

Delaware International Advisers Limited, 80 Cheapside, 3rd Floor, London
EC2V6EE England.

Fidelity Management Trust Company, 82 Devonshire Street, Boston, MA 02109.

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

Mastholm Asset Management, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue, WA
98004.

Montgomery Asset Management LLC, 101 California Street, San Francisco, CA
94111.

Oeschle International Advisors, LLC, One International Place, 23rd Floor,
Boston, MA 02110.

42
<PAGE>

Sanford C. Bernstein & Co., Inc., See: Equity I Fund.

The Boston Company Asset Management, Inc., One Boston Place, 14th Floor
Boston, MA 02108-4402.

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.

Standish, Ayer & Wood, Inc., One Financial Center, Boston, MA 02111.

FIXED INCOME III FUND

Credit Suisse Asset Management, One Citicorp Center, 153 East 53rd Street,
58th Floor, New York, NY 10022.

Pacific Investment Management Company, See: Fixed Income I Fund.

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

43
<PAGE>

For more information about the Funds, the following FRANK RUSSELL INVESTMENT
documents are available without charge: COMPANY
Class E and I Shares:
Annual/Semiannual Reports: Additional information
about the Funds' investments is available in the Equity I Fund
Funds' annual and semiannual reports to Equity II Fund
shareholders. In each Fund's annual report, you Equity III Fund
will find a discussion of the market conditions and Equity Q Fund
investment strategies that significantly affected International Fund
the Fund's performance during its last fiscal year. Fixed Income I Fund
Fixed Income III Fund

Statement of Additional Information (SAI): The SAI
provides more detailed information about the Funds.

SEC File No. 811-3153

44
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A Street
Tacoma, WA 98402
TELEPHONE (800) 787-7354
IN WASHINGTON (253) 627-7001

[LOGO OF RUSSELL APPEARS]

INSTITUTIONAL FUNDS PROSPECTUS
MAY 1, 1999

PREMIER CLASS SHARES:

EQUITY I FUND
EQUITY II FUND
EQUITY III FUND
EQUITY Q FUND
INTERNATIONAL FUND
FIXED INCOME I FUND
FIXED INCOME III FUND

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S> <C>
Risk/Return Summary - Investment Objectives and Principal Investment Strategies...........
- Principal Risks.....................................................
- Performance.........................................................
- Fees and Expenses...................................................
Summary Comparison of the Funds...........................................................
The Purpose of the Funds--Multi-Style, Multi-Manager Diversification......................
Management of the Funds...................................................................
The Money Managers........................................................................
Portfolio Turnover........................................................................
Dividends and Distributions...............................................................
Taxes.....................................................................................
How Net Asset Value Is Determined.........................................................
How to Purchase Shares....................................................................
Exchange Privilege........................................................................
How to Redeem Shares......................................................................
Payment of Redemption Proceeds............................................................
Written Instructions......................................................................
Account Policies..........................................................................
Financial Highlights......................................................................
Money Manager Information.................................................................
</TABLE>

<PAGE>

RISK/RETURN SUMMARY

Investment Objective and Principal Investment Strategies
--------------------------------------------------------

EQUITY I FUND
- -------------

INVESTMENT To provide income and capital growth by investing principally
OBJECTIVE in equity securities.

PRINCIPAL The Equity I Fund invests primarily in common stocks of medium
INVESTMENT and large capitalization companies. These companies are
STRATEGIES predominately US-based, although the Fund may invest a limited
portion of its assets in non-US firms from time to time.

The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different money
managers who employ distinct, but complementary, investment
styles. The Fund expects to use three principal investment
styles:
. GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer, and service
sectors.
. VALUE STYLE emphasizes investments in equity securities
of companies that appear to be undervalued relative to
their corporate worth, based on earnings, book or asset
value, revenues, or cash flow. These companies are
generally found among industrial, financial, and
utilities sectors.
. MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.

Additionally, the Fund is diversified by equity substyle.
For example, within the Growth Style, the Fund expects to
employ both an Earnings Momentum substyle (concentrating
on companies with more volatile and accelerating growth
rates) and Consistent Growth substyle (concentrating on
companies with stable earnings growth over an economic
cycle).

When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors

<PAGE>

include a money manager's investment style and substyle
and its performance record as well as the characteristics
of the money manager's typical portfolio investments.
These characteristics include capitalization size, growth
and profitability measures, valuation ratios, economic
sector weightings, and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.

The Fund intends to be fully invested at all times.
Although the Fund, like any mutual fund, maintains
liquidity reserves (i.e., cash awaiting investment or held
to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets
by investing in stock index futures contracts. This causes
the Fund to perform as though its cash reserves were
actually invested in those markets. Additionally the Fund
invests its liquidity reserves in one or more Frank
Russell Investment Company (FRIC) money market Funds.

The Fund may lend up to one-third of its portfolio
securities to earn additional income. These loans may be
terminated at any time. The Fund will receive either cash
or US government debt obligations as collateral.

EQUITY II FUND
- --------------

INVESTMENT To maximize total return primarily through capital appreciation
OBJECTIVE and assuming a higher level of volatility than Equity I Fund.

Principal The Equity II Fund invests primarily in common stocks of small
INVESTMENT and medium capitalization companies. These companies are
STRATEGIES predominately US-based, although the Fund may invest in non-US
firms from time to time.

The Fund's investments may include companies that have been
publicly traded for less than five years and smaller companies,
such as companies not listed in the Russell 2000 Index.

. GROWTH STYLE emphasizes investments in equity securities
of companies with above-average earnings growth prospects.
These companies are generally found

<PAGE>

in the technology, health care, consumer, and service
sectors.
. VALUE STYLE emphasizes investments in equity securities of
companies that appear to be undervalued relative to their
corporate worth, based on earnings, book or asset value,
revenues, or cash flow. These companies are generally
found among industrial, financial, and utilities sectors.
. MARKET-ORIENTED STYLE emphasizes investments in companies
that appear to be undervalued relative to their growth
prospects. This style may encompass elements of both the
growth and value styles. These companies may be found in
any industry sector.

Up to 15% of a Fund's investments may be "illiquid" securities
(i.e., securities that do not have a readily available market or
that are subject to resale restrictions). Additionally, the Fund
may lend up to one-third of its portfolio securities to earn
additional income. These loans may be terminated at any time. The
Fund will receive either cash or US government debt obligations
as collateral.

EQUITY III FUND
- ---------------

<PAGE>

INVESTMENT To achieve a high level of current income, while maintaining
OBJECTIVE the potential for capital appreciation.

PRINCIPAL The Equity III Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies. These companies
STRATEGIES are predominately US-based, although the Fund may invest in
non-US firms from time to time.

Because the Fund's investment objective is primarily to
provide a high level of current income, the Fund generally
pursues a value style of securities selection. This style
emphasizes investments in equity securities of companies
that appear to be undervalued relative to their corporate
worth, based on earnings, book or asset value, revenues, or
cash flow.

. LOW PRICE/EARNINGS RATIO SUBSTYLE--emphasizes
investments in equity securities of companies that are
considered undervalued relative to their corporate
worth, based on earnings, book or asset value,
revenues, or cash flow. These companies are generally
found among industrial, financial, and utilities
sectors. From time to time, this substyle may also
include investments in companies with above-average
earnings growth prospects, if they appear to be
undervalued in relation to their securities' historical
price levels.

When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment substyle and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings, and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with one
another.

<PAGE>

The Fund intends to be fully invested at all times.
Although the Fund, like any mutual fund, maintains
liquidity reserves (i.e., cash awaiting investment or held
to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets
by investing in stock index futures contracts. This causes
the Fund to perform as though its cash reserves were
actually invested in those markets. Additionally the Fund
invests its liquidity reserves in one or more FRIC money
market Funds.

The Fund may lend up to one-third of its portfolio
securities to earn additional income. These loans may be
terminated at any time. The Fund will receive either cash
or US government debt obligations as collateral.

EQUITY Q FUND
- -------------

INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell 1000 Index
over a market cycle of four to six years), while
maintaining volatility and diversification similar to the
Index.

PRINCIPAL The Equity Q Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies. These companies
STRATEGIES are predominately US-based, although the Fund may invest
in non-US firms from time to time.

The Fund generally pursues a market-oriented style of
security selection based on quantitative investment
models. This style emphasizes investments in companies
that appear to be undervalued relative to their growth
prospects.

The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers who
employ distinct, but complementary, investment styles.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings, and earnings and price volatility statistics.
The Fund also considers the manner in which money
managers' historical and expected investment

<PAGE>

returns correlate with one another.

Each of the Fund's money managers use quantitative models
to rank securities based upon their expected 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 outperform and
constructs a portfolio that has risks similar to the
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 Fund's money managers typically use a variety of
quantitative models, ranking securities within each model
and on a composite basis using proprietary weighting
formulas. Examples of those quantitative models are
dividend discount models, price/cash flow models,
price/earnings models, earnings surprise and earnings
estimate revisions models, and price momentum models.

Although the Fund, like any mutual fund, maintains
liquidity reserves (i.e., cash awaiting investment or held
to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets
by investing in stock index futures contracts. This causes
the Fund to perform as though its cash reserves were
actually invested in those markets. Additionally the Fund
invests its liquidity reserves in one or more FRIC money
market Funds.

The Fund may lend up to one-third of its portfolio
securities to earn additional income. These loans may be
terminated at any time. The Fund will receive either cash
or US government debt obligations as collateral.

INTERNATIONAL FUND
- ------------------

INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.

PRINCIPAL The International Fund invests primarily in equity
INVESTMENT securities issued by companies domiciled outside the
STRATEGIES United States and in depository receipts, which represent
ownership of securities of non-US companies.

<PAGE>

The Fund's investments span most of the developed nations
of the world (particularly Europe and the Far East) to
maintain a high degree of diversification among countries
and currencies. Because international equity investment
performance has a reasonably low correlation to US equity
performance, this Fund may be appropriate for investors
who want to reduce their investment portfolio's overall
volatility by combining an investment in this Fund with
investments in US equities.

The Fund may seek to protect its investments against
adverse currency exchange rate changes by purchasing
forward currency contracts. These contracts enable the
Fund to "lock in" the US dollar price of a security that
it plans to buy or sell. The Fund may not accurately
predict currency movements.

. GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer, and service
sectors.
. VALUE STYLE emphasizes investments in equity securities
of companies that appear to be undervalued relative to
their corporate worth, based on earnings, book or asset
value, revenues, or cash flow. These companies are
generally found among industrial, financial, and
utilities sectors.
. MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector. A
variation of this style maintains investments that
replicate country and sector weightings of a broad
international market index.

<PAGE>

capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings, and earnings
and price volatility statistics. The Fund also considers
the manner in which money managers' historical and
expected investment returns correlate with one another.

The Fund intends to be fully invested at all times.
Although the Fund, like any mutual fund, maintains
liquidity reserves (i.e., cash awaiting investment or held
to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets
by investing in stock index futures contracts. This causes
the Fund to perform as though its cash reserves were
actually invested in those markets. Additionally the Fund
invests its liquidity reserves in one or more FRIC money
market Funds.

Up to 15% of the Fund's investments may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to one-
third of its portfolio securities to earn additional
income. These loans may be terminated at any time. The
Fund will receive either cash or US government debt
obligations as collateral.

FIXED INCOME I FUND
- -------------------

INVESTMENT To provide effective diversification against equities and a
OBJECTIVE stable level of cash flow by investing in fixed-income
securities.

PRINCIPAL The Fixed Income I Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government or, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds mortgage-
backed securities, including collateralized mortgage
obligations. The Fund also invests in corporate debt
securities and dollar-denominated obligations issued in the
US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time the Fund may invest in municipal debt
obligations.

The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, but may vary up
to 25% from the Index's duration. The Fund has no
restrictions on individual security duration.

<PAGE>

The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ
over time. To a lesser extent, the Fund may attempt to
anticipate shifts in interest rates and hold securities
that the Fund expects to perform well in relation to
market indexes, as a result of such shifts. Additionally,
the Fund typically holds proportionately fewer US Treasury
obligations than are represented in the Lehman Brothers
Aggregate Bond Index.

The Fund employs multiple money managers, each with
complementary expertise in the fixed-income markets. When
determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include portfolio biases, magnitude of
sector shifts, and duration movements. The Fund also
considers the manner in which money managers' historical
and expected investment returns correlate with one
another.

The Fund may enter into interest rate futures contracts,
options on such futures contracts, and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy.

The Fund may lend up to one-third of its portfolio
securities to earn additional income. These loans may be
terminated at any time. The Fund will receive either cash
or US government debt obligations as collateral.

FIXED INCOME III FUND
- ---------------------

INVESTMENT To provide maximum total return, primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from broad fixed-income market
portfolios.

<PAGE>

instrumentalities. It also holds mortgage-backed
securities, including collateralized mortgage obligations.
The Fund also invests in corporate debt securities and
dollar-denominated obligations issued in the US by non-US
banks and corporations (Yankee Bonds). A majority of the
Fund's holdings are US dollar denominated. From time to
time the Fund may invest in municipal debt obligations.

The Fund may invest up to 25% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by
the Fund to be of comparable quality.

The average weighted duration of the Fund's portfolio
typically ranges within ten percent of the average
weighted duration of the Lehman Brothers Aggregate Bond
Index, but may vary up to 25% from the Index's duration.
The Fund has no restrictions on individual security
duration.

The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ
over time. To a lesser extent, the Fund may attempt to
anticipate shifts in interest rates and hold securities
that the Fund expects to perform well in relation to
market indexes, as a result of such shifts. Additionally,
the Fund typically holds proportionately fewer US Treasury
obligations than are represented in the Lehman Brothers
Aggregate Bond Index.

The Fund employs multiple money managers, each with
complementary expertise in the fixed-income markets. When
determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include portfolio biases, magnitude of
sector shifts, and duration movements. The Fund also
considers the manner in which money managers' historical
and expected investment returns correlate with one
another.

The Fund may enter into interest rate futures contracts,
options on such futures contracts, and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain

<PAGE>

interest payments) as a substitute for holding physical
securities or to facilitate the implementation of its
investment strategy.

The Fund may lend up to one-third of its portfolio
securities to earn additional income. These loans may be
terminated at any time. The Fund will receive either cash
or US government debt obligations as collateral.

PRINCIPAL RISKS
---------------

<TABLE>
<CAPTION>
RELEVANT
RISK ASSOCIATED WITH: DESCRIPTION FUND
- --------------------- ----------- ----
<S> <C> <C>
Multi-manager approach The interplay of the various strategies employed by a All Funds
Fund's multiple money managers may result in the
Fund's holding a concentration of certain types of
securities. This concentration may be beneficial or
detrimental to the Fund's performance depending upon
the performance of those securities and the overall
economic environment.

EQUITY SECURITIES The value of equity securities will rise and fall in Equity I
response to the activities of the company that issued Equity II
the stock, general market conditions, and/or economic Equity III
conditions. Equity Q
International

. Market-Oriented Market-oriented investments are generally subject to Equity I
Investments the risks associated with growth and value stocks. Equity II
Equity Q
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
International

FIXED-INCOME SECURITIES Prices of fixed-income securities rise and fall in Fixed Income I
response to interest rate changes. Generally, when Fixed Income III
interest rates rise, prices of fixed-income securities
fall. The longer the duration of the security, the
more sensitive the security is to this risk. There is
also a risk that one or more of the securities will be
downgraded in credit rating or go into default.
Lower-rated bonds generally have higher credit risks.

. Non-investment Although lower rated debt securities generally offer a Fixed Income III
grade fixed- higher yield than higher rated debt securities, they
income involve higher risks. They are especially subject to:
securities . adverse changes in general economic conditions and
in the industries in which their issuers are engaged,
. changes in the financial condition of their
issuers, and
. price fluctuations in response to changes in
interest rates.
As a result, issuers of lower rated debt securities
are more likely than other issuers to miss principal
and interest payments or to default.

INTERNATIONAL A Fund's return and net asset value may be Fixed Income III
SECURITIES significantly affected by political or economic International
conditions and regulatory requirements in a particular
country. Foreign markets, economies and political
systems may be less stable than US markets, and
changes in exchange rates of foreign currencies can
affect the value of a Fund's foreign assets. Foreign
laws and accounting standards typically are not as
strict as they are in the US and there may be less
public information available about foreign companies.
A Fund's foreign debt securities are typically
obligations of sovereign governments. These
securities are particularly subject to a risk of
default from political instability.

. Instruments of US Non-US corporations and banks issuing dollar Fixed Income I
and foreign banks and denominated instruments in the US are not necessarily Fixed Income III
branches and foreign subject to the same regulatory requirements that apply
corporations, to US corporations and banks, such as accounting,
including Yankee Bonds auditing and recordkeeping standards, the public
availability of information and, for banks, reserve
requirements, loan limitations, and examinations.
This increases the possibility that a non-US
corporation or
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
bank may become insolvent or otherwise unable to
fulfill its obligations on these instruments.

DERIVATIVES (E.G. If a Fund incorrectly forecasts interest rates in Fixed Income I
FUTURES CONTRACTS, using derivatives, the Fund could lose money. Price Fixed Income III
OPTIONS ON FUTURES, movements of a futures contract, option or structured
INTEREST RATE SWAPS, note may not be identical to price movements of
STRUCTURED NOTES) portfolio securities or a securities index resulting
in the risk that, when a Fund buys a futures contract
or option as a hedge, the hedge may not be completely
effective.

MUNICIPAL Municipal obligations are affected by economic, Fixed Income I
OBLIGATIONS business or political developments. These securities Fixed Income III
may be subject to 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.

EXPOSING LIQUIDITY By exposing its liquidity reserves to the equity Equity I
RESERVES TO EQUITY market, a Fund's performance tends to correlate more Equity II
MARKETS closely to the performance of the market as a whole. Equity III
Although this increases a Fund's performance if equity Equity Q
markets rise, it reduces a Fund's performance if International
equity markets decline.

SECURITIES LENDING If a borrower of a Fund's securities fails All Funds
financially, the Fund's recovery of the loaned
securities may be delayed or the Fund may lose its
rights to the collateral.

YEAR 2000 The Funds' operations depend on the smooth functioning All Funds
of their service providers' computer systems. The
Funds and their shareholders could be adversely
affected if those computer systems do not properly
process and calculate date-related information on or
after January 1, 2000. Many computer software systems
in use today cannot distinguish between the year 2000
and the year 1900. Although year 2000-related
computer problems could have a negative effect on the
Funds and their shareholders, the Funds' service
providers have advised the Funds that they are working
to avoid such problems. Because it is the obligation
of those service providers to ensure the proper
functioning of their computer systems, the Funds do
not expect to incur any material expense in connection
with year 2000 preparations.
</TABLE>

An investment in any of the Funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

PERFORMANCE
-----------

<PAGE>

The following bar charts illustrate the risks of investing in the Funds by
showing how the performance of each Fund's Class I Shares varies from year to
year over a 10 year period (or, if a Fund has not been in operation for 10
years, since the beginning of operations of such Fund). Class I Shares are not
offered in this Prospectus. Class I Shares and Premier Class Shares will have
substantially similar annual returns because the shares of each class are
invested in the same portfolio of securities; annual returns for each class will
differ only to the extent that the Class I Shares and Premier Class Shares do
not have the same expenses. The chart does not reflect any account maintenance
fee or any fee that you may be required to pay upon redemption of the Fund's
shares. Any such charge will reduce your return.

Past performance is no indication of future results.

- --------------------------------------------------------------------------------
[bar chart may include returns for more than one fund, subject to general
requirement that the info presented appear in a clear and understandable
manner]
[Fixed Income III - include life of the Fund]

To be filed by Amendment
- --------------------------------------------------------------------------------

During the period shown in the bar charts, the Class I Shares of each Fund had
the following highest and lowest quarterly return:

To be filed by Amendment
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Best Worst
Quarter Quarter
------- -------
- --------------------------------------------------------------------------------
<S> <C> <C>
Equity I ___% (__Q/9_) ___% (__Q/9_)
- --------------------------------------------------------------------------------
Equity II ___% (__Q/9_) ___% (__Q/9_)
- --------------------------------------------------------------------------------
Equity III ___% (__Q/9_) ___% (__Q/9_)
- --------------------------------------------------------------------------------
Equity Q ___% (__Q/9_) ___% (__Q/9_)
- --------------------------------------------------------------------------------
International ___% (__Q/9_) ___% (__Q/9_)
- --------------------------------------------------------------------------------
Fixed Income I ___% (__Q/9_) ___% (__Q/9_)
- --------------------------------------------------------------------------------
Fixed Income III ___% (__Q/9_) ___% (__Q/9_)
- --------------------------------------------------------------------------------
</TABLE>

The following table further illustrates the risks of investing in the Funds by
showing how each Fund's average annual returns for 1, 5 and 10 years (or, if a
Fund has not been in operation for 10 years, since the beginning of operations
of such Fund) compare with the returns of certain indexes that measure broad
market performance. For the periods shown, no Premier Class Shares of the Funds
were operational; information is being provided with respect to Class I
Shares, which differ from Premier Class Shares with respect to expenses of each
Class.

AVERAGE ANNUAL TOTAL RETURNS*
for the periods ended December 31, 1998

Since
Inception

<PAGE>

<TABLE>
<CAPTION>
1 Year 5 Years 10 Years (if earlier)**
---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Equity I Fund
Class I 25.10% 22.83% 18.61% 17.17%
Russell 1000 (R) Index 27.02 23.37 19.03 17.95
Equity II Fund
Class I 0.70 13.98 14.43 13.98
Russell 2500 (TM) Index 0.38 14.13 14.61 14.82
Equity III Fund
Class I 11.53 19.81 17.27 17.36
Russell 1000 (R) Value Index 15.63 20.86 17.39 17.63
Equity Q Fund
Class I 25.98 23.62 19.17 16.28
Russell 1000 (R) Index 27.02 23.37 19.03 16.34
International Fund
Class I 13.52 7.54 8.04 14.83
MSCI EAFE Index 20.33 9.51 5.86 15.74
Fixed Income I Fund
Class I 8.37 7.10 9.08 11.17
Lehman Brothers Aggregate Bond Index 8.69 7.27 9.26 11.56
Fixed Income III Fund
Class I** 6.80 6.85 -- 7.51
Lehman Brothers Aggregate Bond Index 8.69 7.27 -- 7.45
</TABLE>

* For periods prior to April 1, 1995, Fund performance results are reported
gross of investment management fees. For periods thereafter, Fund
performance results are reported net of investment management fees.
** Class I Shares of Fixed Income III Fund - For the period January 29, 1993
(commencement of sales) to December 31, 1993

30-DAY YIELDS*

for the period ended December 31, 1998
Fixed Income I - Class I ____%
Fixed Income III - Class I ____%
* No Premier Class Shares of either Fund were issued during the period shown.

To obtain current 30-day yield information, please call 1-800-787-7354.

FEES AND EXPENSES
-----------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.

SHAREHOLDER FEES (% of transaction amount)

<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM SALES CHARGE (LOAD) MAXIMUM
CHARGE IMPOSED ON MAXIMUM ACCOUNT
(LOAD) IMPOSED REINVESTED DEFERRED SALES REDEMPTION EXCHANGE MAINTENANCE
ON PURCHASES DIVIDENDS CHARGE (LOAD)* FEES FEES FEES
- --------------- --------- --------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
None None None None None None
</TABLE>

ANNUAL OPERATING EXPENSES (% of net assets)

<PAGE>

OTHER EXPENSES
(INCLUDING
ADMINISTRATIVE
FEES AND
SHAREHOLDER TOTAL ANNUAL
ADVISORY DISTRIBUTION SERVICING FUND OPERATING
FEE+ (12B-1) FEES FEES)# EXPENSES#+
---- ------------ ------ ----------
<S> <C> <C> <C> <C>
Equity I Fund................................ .55% .00% .22% 0.77%
Equity II Fund............................... .70% .00% .36% 1.06%
Equity III Fund.............................. .55% .00% .29% 0.84%
Equity Q Fund................................ .55% .00% .20% 0.75%
International Fund........................... .70% .00% .39% 1.09%
Fixed Income I Fund.......................... .25% .00% .26% 0.51%
Fixed Income III Fund........................ .50% .00% .31% 0.81%
</TABLE>

# Annual Premier Class Shares operating expenses are based on average net
assets expected to be invested during the year ending December 31, 1999.
During the course of this period, expenses may be more or less than the
amount shown. Prior to December 1, 1998, FRIMCo provided advisory and
administrative services to the Funds pursuant to a single Management
Agreement for which each Fund paid a single fee. Thereafter FRIMCo's
advisory and administrative services are provided under a separate advisory
agreement and administrative agreement which provide for the fees reflected
in the table above.

+ If you purchase any class of Shares of the Fund through a Financial
Intermediary, such as a bank or an investment adviser, you may also pay
additional fees to the intermediary for services provided by the
intermediary. You should contact your intermediary for information
concerning what additional fees, if any, will be charged. Each Fund may
also pay, in addition to the fee set forth above, a fee which compensates
FRIMCo for managing collateral which the Funds have received in securities
lending and certain other portfolio transactions which are not treated as
net assets of that Fund ("additional assets") in determining the Fund's net
asset value per share. The additional fee payable to FRIMCo will equal an
amount of up to 0.07% of each Fund's additional assets on an annualized
basis.

EXAMPLE
This example is intended to help you compare the cost of investing in each Fund
with the cost of investing in other mutual funds.

Although your actual costs may be higher or lower, under these assumptions your
costs would be:

<TABLE>
<CAPTION>
Premier Class: 1 Year 3 Years 5 Years 10 Years
- ------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity I Fund.................................. $ 77 $243 $425 $ 968
Equity II Fund................................. 106 334 586 1,333
Equity III Fund................................ 84 265 464 1,057
Equity Q Fund.................................. 75 236 414 943
International Fund............................. 109 344 602 1,371
Fixed Income I Fund............................ 51 161 282 641
Fixed Income III Fund.......................... 81 255 448 1,019
</TABLE>

SUMMARY COMPARISON OF THE FUNDS

<PAGE>

<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 Fund................. 0-35% 100% Diversification
Fixed Income III Fund............... --% 100% Income and capital appreciation
</TABLE>

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.

. 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.

The Funds believe investors should seek to hold fully diversified
portfolios that reflect both their own individual investment time horizons and
their ability to accept risk.

<PAGE>

The Funds 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 employing a multi-style, multi-manager
approach.

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.

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.

MANAGEMENT OF THE FUNDS

<PAGE>

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

. Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
June 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 listed in this section, has primary responsibility for
management of the Fixed Income I, Diversified Bond, Short Term Bond,
Fixed Income III, Tax Exempt Bond and Multistrategy Bond Funds.

. Randal C. Burge, who has been a Portfolio Manager of FRIMCo since June
1995. From 1990 to 1995, Mr. Burge was a Client Executive for Frank
Russell Australia. Mr. Burge, jointly with another portfolio manager
listed in this section, has primary responsibility for management of the
Fixed Income I, Fixed Income III, Diversified Bond, Short Term Bond, Tax
Exempt Bond, Multistrategy Bond, and Emerging Markets Funds.

. Jean E. Carter, who has been a Portfolio Manager of FRIMCo since April
1994. Ms. Carter, jointly with another portfolio manager listed in this
section, 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 listed in this section, has primary
responsibility for management of the International, and International
Securities Funds.

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

<PAGE>

. 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 listed in this section, has primary responsibility for
management of the Emerging Markets and Real Estate Securities Funds.

. C. Nola Kulig, who has been a Portfolio Manager of FRIMCo since January
1996. From 1994 to 1995, Ms. Kulig was a member of the Alpha Strategy
Group. From 1988 to 1994, Ms. Kulig was Senior Research Analyst with
Russell. Ms. Kulig, jointly with another portfolio manager listed in
this section, 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.

. 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 listed in this section, 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.

The aggregate annual rate of advisory and administrative fees, payable to
FRIMCo monthly on a pro rata basis, are the following percentages of each Fund's
average daily net assets: Equity I Fund, 0.60%; Equity II Fund, 0.75%; Equity
III Fund, 0.60%; Equity Q Fund, 0.60%; International Fund, 0.75%; Fixed Income I
Fund, 0.30%; and Fixed Income III Fund, 0.55%. Of these aggregate amounts 0.05%
is attributable to administrative services. Prior to December 1, 1998, FRIMCo
provided advisory and administrative services to the Funds pursuant to a single
Management Agreement for which each Fund paid a single fee. Thereafter, FRIMCo's
advisory and administrative services are provided under a separate advisory
agreement and an administrative agreement. Each Fund may also pay, in addition
to the aggregate fees set forth above, a fee which compensates FRIMCo for
managing collateral which the Funds have received in securities lending and
certain other portfolio transactions which are not treated as net assets of that
Fund ("additional assets") in determining the Fund's net asset value per share.
The additional fee payable to FRIMCo will equal an amount of up to 0.07% of each
Fund's additional assets on an annualized basis.

THE MONEY MANAGERS

<PAGE>

shareholders within 60 days of when a money manager begins providing services.
The Funds select money managers 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 any
Fund's selection or termination of a money manager.

PORTFOLIO TURNOVER

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 and
Fixed Income III Funds

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

<PAGE>

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 a 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 may not have participated in the
increase of the net asset value of a Fund, regardless of whether you reinvested
the dividends.

AUTOMATIC REINVESTMENT

TAXES

In general, distributions from a Fund are taxable to you as either ordinary
income or capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any capital gains
distributed by a Fund are taxable to you as long-term capital gains no matter
how long you have owned your shares. Every January, you will receive a statement
that shows the tax status of distributions you received for the previous year.
Distributions declared in December but paid in January are taxable as if they
were paid in December. Distributions taxed as capital gains may be taxable at
different rates depending on how long a Fund holds its assets.

When you sell or exchange your shares of a Fund, you may have a capital
gain or loss. The tax rate on any gain from the sale or exchange of your shares
depends on how long you have held your shares.

Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-US investors may be
subject to US

<PAGE>

withholding and estate tax. You should consult your tax professional about
federal, state, local or foreign tax consequences in holding shares of a Fund.

Any foreign taxes paid by a Fund on its investments may be passed through
to its shareholders as foreign tax credits.

By law, a Fund must withhold 31% of your distributions and proceeds if you
do not provide your correct taxpayer identification number, or certify that such
number is correct, or if the IRS instructs the Fund to do so.

THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN A FUND.

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

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 New York Stock
Exchange (NYSE) is open for trading. All Funds determine net asset value as of
the close of the NYSE (currently 4:00 p.m. Eastern time).

VALUATION OF PORTFOLIO SECURITIES

Securities held by the Funds are typically priced using market quotations
or pricing services when the prices are believed to be reliable--that is, when
the prices reflect the fair market value of the 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. If you hold shares in a Fund, such as the
International Fund, that holds portfolio securities that are listed primarily on
foreign exchanges, the net asset value of the Fund's shares may change on a day
when you will not be able to purchase or redeem Fund shares. This is because the
value of

<PAGE>

those portfolio securities may change on weekends or other days when the Fund
does not price its shares.

HOW TO PURCHASE SHARES

There is no minimum initial investment requirement for the Funds described
in this Prospectus.

PAYING FOR SHARES

You may purchase shares of the Funds through a Financial Intermediary on
any business day the Funds are open. Purchase orders are processed at the next
net asset value per share calculated after the Funds' receive your order in
proper form (defined in the "Written Instructions" section), and accept the
order.

OFFERING DATES AND TIMES

Orders must be received by the Funds prior to the close of the NYSE
(currently 4:00 p.m. Eastern time). Purchases can be made on any day when Fund
shares are offered. Because Financial Intermedaries' processing time may vary,
please ask your Financial Intermediary representative when your account will be
credited.

ORDER AND PAYMENT PROCEDURES

Generally, you must place purchase orders for Fund shares through a
Financial Intermediary. You may pay for your purchase by mail or electronic
funds transfer. Initial purchases require a completed and signed Application for
each new account regardless of the investment method. Specific payment
arrangements should be made with your Financial Intermediary.

<PAGE>

BY MAIL

For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the Funds' Transfer Agent. Certified checks are not necessary,
but checks are accepted subject to collection at full face value in US funds.
Third party checks will not be accepted. Checks should be made payable to "Frank
Russell Investment Company."

BY FEDERAL FUNDS WIRE

You can pay for orders by wiring federal funds to the Funds' Custodian,
State Street Bank and Trust Company. All wires must include your account
registration and account number for identification. Inability to properly
identify a wire transfer may prevent or delay timely settlement of your
purchase.

BY AUTOMATED CLEARING HOUSE ("ACH")

You can make initial or subsequent investments through ACH to the Funds'
Custodian, State Street Bank and Trust Company. 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 day received by the Funds' Custodian. In
that case, the order would be placed on the next business day.

AUTOMATED INVESTMENT PROGRAM

You can make regular investments (minimum $50) in Funds in an established
account on a monthly, quarterly, semiannual or annual basis by automatic
electronic funds transfer from a bank account. You must make a separate transfer
for each Fund in which you purchase shares. You may change the amount or stop
the automatic purchase at any time. Contact your Financial Intermediary for
further information on this program and an enrollment form.

THREE DAY SETTLEMENT PROGRAM

The Funds will accept orders from Financial Intermediaries to purchase
shares of the Funds for settlement on the third business day following the
receipt of the order. These orders are paid for by a federal funds wire if the
Financial Intermediary has enrolled in the program and agreed in writing to
indemnify the Funds against any losses resulting from non-receipt of payment.

<PAGE>

EXCHANGE PRIVILEGE

BY MAIL OR TELEPHONE

Exchanges may be made by mail or by telephone if the registration of the
two accounts is identical. Contact your Financial Intermediary for assistance in
exchanging shares and, because Financial Intermediaries' processing time may
vary, to find out when your account will be credited or debited. To request an
exchange in writing, please follow the procedures in the "Written Instructions"
section before mailing to your Financial Intermediary.

An exchange involves the redemption of shares, which is treated as a sale
for income tax purposes. Thus, capital gain or loss may be realized. Please
consult your tax adviser for more information. 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).

IN-KIND EXCHANGE OF SECURITIES

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. If you are contemplating an in-kind exchange you should consult your
tax adviser.

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 way the Fund values its assets. Any interest
earned on the securities following their delivery to the Funds and prior to the
exchange will be considered in valuing the securities. All interest, dividends,
subscription or other rights attached to the securities becomes the property of
the Fund, along with the securities. Please contact your Financial Intermediary
for further information.

<PAGE>

HOW TO REDEEM SHARES

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 the Funds' Transfer Agent
receives 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 redemption for 15 days following the purchase to assure payment
has been collected.

REDEMPTION DATES AND TIMES

BY MAIL OR TELEPHONE

SYSTEMATIC WITHDRAWAL PROGRAM

ACCOUNTS IN STREET NAME

<PAGE>

responsible for keeping track of your account information. This means that you
may not be able to request transactions in your Fund shares directly through the
Funds, but can do so only through your broker, plan administrator or bank. Ask
your Financial Intermediary for information on whether your Fund shares are held
in an omnibus account.

PAYMENT OF REDEMPTION PROCEEDS

BY CHECK

When you redeem your shares, a check for the redemption proceeds will be
sent to the shareholder(s) of record at the address of record within seven days
after the Funds receive a redemption request in proper form.

BY WIRE

WRITTEN INSTRUCTIONS

Proper Form: Written instructions must be in proper form. They must include:

SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE

- --------------------------------------------------------------------------------
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUEST
- --------------------------------------------------------------------------------
Individual, Joint Tenants, Written instructions must be signed by each
Tenants in Common shareholder, exactly as the names appear in
the account registration.
- --------------------------------------------------------------------------------
UGMA or UTMA (custodial Written instructions must be signed by the
accounts for minors) custodian in his/her capacity as it appears in
the account registration.
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
Corporation, Association Written instructions must be signed by
authorized person(s), stating his/her
capacity as indicated by the corporate
resolution to act on the account.
A copy of the corporate resolution,
certified within the past 90 days,
authorizing the signer to act on the account.
- --------------------------------------------------------------------------------
Estate, Trust, Pension, Profit Written instructions must be signed by all
Sharing Plan trustees. If the name of the trustee(s) does
not appear in the account registration,
please provide a copy of the trust document
certified within the last 60 days.
- --------------------------------------------------------------------------------
Joint tenancy shareholders Written instructions must by signed by the
whose co-tenants are surviving tenant(s). A certified copy of the
deceased death certificate must accompany the request.
-------------------------------------------------------------------------------

SIGNATURE GUARANTEE

ACCOUNT POLICIES

THIRD PARTY TRANSACTIONS

REDEMPTION IN-KIND

A Fund may pay for any portion of the redemption amount in excess of
$250,000 by a distribution in-kind of securities from the Fund's portfolio,
instead of in cash. If you receive an in-kind distribution of portfolio
securities, and choose to sell them, you will incur brokerage charges.

<PAGE>

FINANCIAL HIGHLIGHTS

This Prospectus offers shares of the Premier Class Shares of each Fund,
which have not yet commenced operations for the periods shown below. Although
the information presented reflects the Class I Shares of each Fund, Premier
Class Shares have similar fees and charges and would have presented similar
results. The financial highlights table is intended to help you understand a
Fund's financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent how much your investment in the Fund would have increased (or
decreased) during each period, assuming reinvestment of all dividends and
distributions. This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the Funds' financial statements, are included in the
annual report, which is available upon request.

EQUITY I FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR................................ $ 30.34 $ 28.00 $ 23.32 $ 24.91
---------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............................ .34 .42 .52 .62
Net realized and
unrealized gain (loss)
on investments.................................. 8.89 5.96 7.71 (.41)
---------- -------- -------- --------
Total From
Investment
Operations.................................... 9.23 6.38 8.23 .21
---------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income............................ (.34) (.42) (.52) (.62)
Net realized gain on
investments..................................... (8.72) (3.62) (3.03) (.94)
In excess of net realized
gain on investments............................. -- -- -- (.24)
---------- -------- -------- --------
Total Distributions............................ (9.06) (4.04) (3.55) (1.80)
---------- -------- -------- --------
NET ASSET VALUE, END OF
YEAR............................................. $ 30.51 $ 30.34 $ 28.00 $ 23.32
========== ======== ======== ========
TOTAL RETURN (%)(A)............................... 32.02 23.58 35.94 .79
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to
average net assets (a).......................... .70 .71 .59 .12
Net investment income
to average net assets (a)....................... .96 1.38 1.91 2.52
Portfolio turnover............................... 110.75 99.51 92.04 75.02
Net assets, end of year
($000 omitted).................................. 1,136,373 961,953 751,497 547,242
</TABLE>

<PAGE>

EQUITY II FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR........................................... $ 30.05 $ 28.88 $ 25.00 $ 26.58
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............................. .11 .16 .27 .36
Net realized and unrealized
gain (loss)
on investments................................... 8.11 4.96 6.80 (.86)
-------- -------- -------- --------
Total From Investment
Operations..................................... 8.22 5.12 7.07 (.50)
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income............................. (.11) (.16) (.29) (.31)
Net realized gain on
investments...................................... (5.20) (3.79) (2.90) (.21)
In excess of net realized gain
on investments................................... -- -- -- (.56)
-------- -------- -------- --------
Total Distributions............................. (5.31) (3.95) (3.19) (1.08)
-------- -------- -------- --------
NET ASSET VALUE, END
OF YEAR........................................... $ 32.96 $ 30.05 $ 28.88 $ 25.00
======== ======== ======== ========
TOTAL RETURN (%)(A)................................ 28.66 18.51 28.67 (2.60)
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets (a)........................... .92 .95 .83 .23
Net investment income to
average net assets (a)........................... .35 .52 .97 1.46
Portfolio turnover................................ 103.00 120.78 89.31 58.04
Net assets, end of year
($000 omitted)................................... 482,159 365,955 279,566 202,977
</TABLE>

<PAGE>

EQUITY III FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR................................... $ 29.68 $ 29.11 $ 24.18 $ 27.05
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.................. .60 .70 .82 .93
Net realized and unrealized gain
(loss) on investments................. 8.69 5.10 7.73 (.85)
-------- -------- -------- --------
Total From Investment
Operations.......................... 9.29 5.80 8.55 .08
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income.................. (.60) (.71) (.83) (.91)
In excess of net investment
income................................ (.01) -- -- --
Net realized gain on
investments........................... (8.56) (4.52) (2.79) (1.94)
In excess of net realized gain on
investments........................... -- -- -- (.10)
-------- -------- -------- --------
Total Distributions.................. (9.17) (5.23) (3.62) (2.95)
-------- -------- -------- --------
NET ASSET VALUE, END OF YEAR............ $ 29.80 $ 29.68 $ 29.11 $ 24.18
======== ======== ======== ========
TOTAL RETURN (%)(A)..................... 33.13 20.90 35.96 1.16
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a)........................ .78 .79 .65 .17
Net investment income to
average net assets (a)................ 1.77 2.23 2.90 3.39
Portfolio turnover..................... 128.86 100.78 103.40 85.92
Net assets, end of year
($000 omitted)........................ 242,112 221,778 222,541 177,807
</TABLE>

<PAGE>

EQUITY Q FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
OF YEAR.............................. $ 32.94 $ 30.40 $ 24.43 $ 26.03
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................ .44 .58 .59 .69
INCOME
Net realized and unrealized
gain (loss) on investments.......... 10.01 6.33 8.52 (.41)
-------- -------- -------- --------
Total income from
Investment Operations............. 10.45 6.91 9.11 .28
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income................ (.44) (.58) (.61) (.69)
In excess of net investment
income.............................. -- (.01) -- --
Net realized gain on
investments......................... (7.05) (3.78) (2.53) (.97)
In excess of net realized
gain on investments................. -- -- -- (.22)
-------- -------- -------- --------
Total Distributions................ (7.49) (4.37) (3.14) (1.88)
-------- -------- -------- --------
NET ASSET VALUE, END OF
YEAR................................. $ 35.90 $ 32.94 $ 30.40 $ 24.43
======== ======== ======== ========
TOTAL RETURN (%)(A)................... 33.07 23.67 37.91 .99
RATIOS (%) SUPPLEMENTAL DATA:
Operating expenses to
average net assets (a).............. .68 .71 .58 .11
Net investment income to
average net assets (a).............. 1.17 1.80 2.07 2.74
Portfolio turnover................... 94.89 74.59 74.00 45.87
Net assets, end of year
($000 omitted)...................... 987,760 818,281 620,259 430,661
</TABLE>

<PAGE>

INTERNATIONAL FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR........................................ $ 37.39 $ 36.26 $ 34.28 $ 37.34
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....................... .46 .44 .48 .61
Net realized and unrealized gain
(loss) on investments...................... (.28) 2.41 3.16 .65
-------- -------- -------- --------
Total Income From
Investment Operations.................... .18 2.85 3.64 1.26
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income....................... (.37) (.35) (.64) (.36)
In excess of net investment
income..................................... (.18) -- (.08) --
Net realized gain on
investments................................ (1.95) (1.37) (.94) (3.73)
In excess of net realized gain
on investments............................. (.47) -- -- (.23)
-------- -------- -------- --------
Total Distributions....................... (2.97) (1.72) (1.66) (4.32)
-------- -------- -------- --------
NET ASSET VALUE, END OF YEAR................. $ 34.60 $ 37.39 $ 36.26 $ 34.28
======== ======== ======== ========
TOTAL RETURN (%)(A).......................... .58 7.98 10.71 5.38
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets (a)..................... 1.00 1.04 .88 .32
Operating expenses, gross, to
average net assets (a)..................... 1.00 1.05 .89 .34
Net investment income to
average net assets (a)..................... 1.14 1.20 1.41 1.63
Portfolio turnover.......................... 79.45 42.69 36.78 71.09
Net assets, end of year
($000 omitted)............................. 972,735 944,380 796,777 674,180
</TABLE>

<PAGE>

FIXED INCOME I FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR....................................... $ 20.99 $ 21.59 $ 19.59 $ 21.74
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income...................... 1.37 1.38 1.42 1.46
Net realized and unrealized gain
(loss) on investments..................... .54 (.62) 2.02 (2.06)
-------- -------- -------- --------
Total From Investment
Operations.............................. 1.91 .76 3.44 (.60)
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income...................... (1.39) (1.36) (1.44) (1.44)
In excess of net investment
income.................................... -- -- -- --
Net realized gain on
investments............................... -- -- -- --
In excess of net realized gain on
investments............................... -- -- -- (.11)
-------- -------- -------- --------
Total Distributions...................... (1.39) (1.36) (1.44) (1.55)
-------- -------- -------- --------
NET ASSET VALUE, END OF YEAR................ $ 21.51 $ 20.99 $ 21.59 $ 19.59
======== ======== ======== ========
TOTAL RETURN (%)(A)......................... 9.42 3.75 18.03 (2.97)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a)............................ .42 .42 .35 .10
Net investment income to
average net assets (a).................... 6.54 6.57 6.82 7.06
Portfolio turnover......................... 165.81 147.31 138.05 173.97
Net assets, end of year ($000
omitted).................................. 798,252 662,899 638,317 496,038
</TABLE>

<PAGE>

FIXED INCOME III FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................................... $ 10.17 $ 10.34 $ 9.37 $ 10.44
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... .63 .64 .67 .66
Net realized and unrealized gain (loss) on investments............. .32 (.16) .97 (1.07)
-------- -------- -------- --------
Total From Investment Operations................................. .95 .48 1.64 (.41)
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income............................................... (.62) (.64) (.67) (.66)
In excess of net investment income.................................. (.02) (.01) -- --
Net realized gain on investments.................................... (.06) -- -- --
In excess of net realized gain on investments....................... -- -- -- --
-------- -------- -------- --------
Total Distributions.............................................. (.70) (.65) (.67) (.66)
-------- -------- -------- --------
NET ASSET VALUE, END OF YEAR......................................... $ 10.42 $ 10.17 $ 10.34 $ 9.37
======== ======== ======== ========
TOTAL RETURN (%)(A).................................................. 9.64 4.88 17.99 (3.89)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (a).................. .70 .73 .61 .20
Operating expenses, gross, to average net assets (a)................ .70 .73 .61 .20
Net investment income to average net assets (a)..................... 6.13 6.32 6.83 7.02
Portfolio turnover (a).............................................. 274.84 144.26 141.37 134.11
Net assets, end of year ($000 omitted).............................. 382,433 292,077 252,465 166,620
</TABLE>

<PAGE>

MONEY MANAGER INFORMATION

The money managers have no affiliations with the Funds or the Funds'
service providers other than their management of Fund assets. 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 FRIC, or to other clients of Frank
Russell Company, including its wholly owned subsidiary, Frank Russell Trust
Company.

EQUITY I FUND

Alliance Capital Management L.P., US Bank Place, 601 2nd Ave. South, Suite
5000, Minneapolis, MN 55402-4322.

Barclays Global Fund Advisors, 45 Fremont Street, 17th Floor, San
Francisco, CA 94105.

Equinox Capital Management, Inc., 590 Madison Avenue, 41st Floor, New York,
NY 10022.

INVESCO Capital Management, Inc., 1315 Peachtree Street N.E., Suite 500,
Atlanta, GA 30309.

Lincoln Capital Management Company, 200 South Wacker Drive, Suite 2100,
Chicago, IL 60606.

Morgan Stanley Dean Witter Investment Management Inc., 1221 Avenue of the
Americas, New York, NY 10020.

Peachtree Asset Management, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308.

Sanford C. Bernstein & Co., Inc., 767 Fifth Avenue, 21st Floor, New York,
NY 10153.

Suffolk Capital Management, Inc., 1633 Broadway, 40th Floor, New York, NY
10019.

Trinity Investment Management Corporation, 75 Park Plaza, Boston, MA 02116.

EQUITY II FUND

Delphi Management, Inc., 50 Rowes Wharf, Suite 440, Boston, MA 02110.

Fiduciary International, Inc., 2 World Trade Center, New York, NY 10048.

<PAGE>

GlobeFlex Capital, L.P., 4365 Executive Drive, Suite 720, San Diego, CA
92121.

Jacobs Levy Equity Management, Inc., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.

Sirach Capital Management, Inc., One Union Square, Suite 3323, 600 Union
Street, Seattle, WA 98101.

Wellington Management Company LLP, 75 State Street, Boston, MA 02109.

Westpeak Investment Advisors, L.P., 1011 Walnut Street, Suite 400, Boulder,
CO 80302.

EQUITY III FUND

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

Trinity Investment Management Corporation, See: Equity I Fund.

Westpeak Investment Advisors, L.P., See: Equity II Fund.

EQUITY Q FUND

Barclays Global Fund Advisors, See: Equity I Fund.

Franklin Portfolio Associates LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.

J.P. Morgan Investment Management, Inc., 522 Fifth Ave., 6th Floor, New
York, NY 10036.

INTERNATIONAL FUND

Delaware International Advisers Limited, 80 Cheapside, 3rd Floor, London
EC2V6EE England.

Fidelity Management Trust Company, 82 Devonshire Street, Boston, MA 02109.

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

Mastholm Asset Management, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue,
WA 98004.

Montgomery Asset Management LLC, 101 California Street, San Francisco, CA
94111.

Oeschle International Advisors, LLC, One International Place, 23rd Floor,
Boston, MA 02110.

40
<PAGE>

Sanford C. Bernstein & Co., Inc., See: Equity I Fund.

The Boston Company Asset Management, Inc., One Boston Place, 14th Floor
Boston, MA 02108-4402.

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.

Standish, Ayer & Wood, Inc., One Financial Center, Boston, MA 02111.

FIXED INCOME III FUND

Credit Suisse Asset Management, One Citicorp Center, 153 East 53rd Street,
58th Floor, New York, NY 10022.

Pacific Investment Management Company, See: Fixed Income I Fund.

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

IN CONSIDERING INVESTMENT IN THE FUNDS, DO NOT RELY ON ANY INFORMATION
UNLESS IT IS CONTAINED IN THIS PROSPECTUS OR IN THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION. THE FUNDS HAVE NOT AUTHORIZED ANYONE TO ADD ANY
INFORMATION OR TO MAKE ANY ADDITIONAL STATEMENTS ABOUT THE FUNDS. THE FUNDS MAY
NOT BE AVAILABLE IN SOME JURISDICTIONS OR TO SOME PERSONS. THE FACT THAT YOU
HAVE RECEIVED THIS PROSPECTUS SHOULD NOT, IN ITSELF, BE TREATED AS AN OFFER TO
SELL FUND SHARES TO YOU. CHANGES IN THE AFFAIRS OF THE FUNDS OR IN THE FUNDS'
MONEY MANAGERS MAY OCCUR AFTER THE DATE ON THE COVER PAGE OF THIS PROSPECTUS.
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED TO REFLECT ANY MATERIAL CHANGES
TO THE INFORMATION IT CONTAINS.

<PAGE>

<TABLE>
<S> <C>
For more information about the Funds, the following FRANK RUSSELL INVESTMENT COMPANY
documents are available without charge: Premier Class Shares:

ANNUAL/SEMIANNUAL REPORTS: Additional information
about the Funds' investments is available in the Equity I Fund
Funds' annual and semiannual reports to Equity II Fund
shareholders. In each Fund's annual report, you Equity III Fund
will find a discussion of the market conditions and Equity Q Fund
investment strategies that significantly affected International Fund
the Fund's performance during its last fiscal year. Fixed Income I Fund
Fixed Income III Fund
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI
provides more detailed information about the Funds.

SEC File No. 811-3153

<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A Street,
Tacoma, WA 98402
TELEPHONE (800) 787-7354
IN WASHINGTON (253) 627-7001

[LOGO APPEARS HERE]

INSTITUTIONAL FUNDS PROSPECTUS
MAY 1, 1999

CLASS Y SHARES:

EQUITY I FUND
EQUITY II FUND
EQUITY III FUND
EQUITY Q FUND
INTERNATIONAL FUND
FIXED INCOME I FUND
FIXED INCOME III FUND

As with all mutual funds, the Securities and Exchange Commission doesn't
guarantee that the information in this prospectus is accurate or complete, nor
has it approved or disapproved of these securities. It is a criminal offense to
state otherwise.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S> <C>
Risk/Return Summary - Investment Objectives and Principal Investment Strategies......
- Principal Risks................................................
- Performance....................................................
- Fees and Expenses..............................................
Summary Comparison of the Funds......................................................
The Purpose of the Funds--Multi-Style, Multi-Manager Diversification.................
Investment Objectives, Principal Strategies and Risks................................
Management of the Funds..............................................................
The Money Managers...................................................................
Portfolio Turnover...................................................................
Dividends and Distributions..........................................................
Taxes................................................................................
How Net Asset Value Is Determined....................................................
How to Purchase Shares...............................................................
Exchange Privilege...................................................................
How to Redeem Shares.................................................................
Payment of Redemption Proceeds.......................................................
Written Instructions.................................................................
Account Policies.....................................................................
Financial Highlights.................................................................
Money Manager Information............................................................
</TABLE>

<PAGE>

EQUITY I FUND
- -------------

INVESTMENT To provide income and capital growth by investing
OBJECTIVE principally in equity securities.

PRINCIPAL The Equity I Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies. These companies
STRATEGIES are predominately US-based, although the Fund may invest a
limited portion of its assets in non-US firms from time to
time.

. GROWTH STYLE emphasizes investments in equity
securities of companies with above-average
earnings growth prospects. These companies are
generally found in the technology, health care,
consumer, and service sectors.
. VALUE STYLE emphasizes investments in equity
securities of companies that appear to be
undervalued relative to their corporate worth,
based on earnings, book or asset value, revenues,
or cash flow. These companies are generally found
among industrial, financial, and utilities
sectors.
. MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative
to their growth prospects. This style may
encompass elements of both the growth and value
styles. These companies may be found in any
industry sector.

Additionally, the Fund is diversified by equity substyle.
For example, within the Growth Style, the Fund expects to
employ both an Earnings Momentum substyle (concentrating
on companies with more volatile and accelerating growth
rates) and Consistent Growth substyle (concentrating on
companies with stable earnings growth over an economic
cycle).

<PAGE>

valuation ratios, economic sector weightings, and earnings
and price volatility statistics. The Fund also considers
the manner in which money managers' historical and
expected investment returns correlate with one another.

The Fund intends to be fully invested at all times.
Although the Fund, like any mutual fund, maintains
liquidity reserves (i.e., cash awaiting investment or held
to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets
by investing in stock index futures contracts. This causes
the Fund to perform as though its cash reserves were
actually invested in those markets. Additionally the Fund
invests its liquidity reserves in one or more Frank
Russell Investment Company (FRIC) money market Funds.

The Fund may lend up to one-third of its portfolio
securities to earn additional income. These loans may be
terminated at any time. The Fund will receive either cash
or US government debt obligations as collateral.

EQUITY II FUND
- --------------

INVESTMENT To maximize total return primarily through capital
OBJECTIVE appreciation and assuming a higher level of volatility
than Equity I Fund.

PRINCIPAL The Equity II Fund invests primarily in common stocks of
INVESTMENT small and medium capitalization companies. These companies
STRATEGIES are predominately US-based, although the Fund may invest
in non-US firms from time to time.

The Fund's investments may include companies that have
been publicly traded for less than five years and smaller
companies, such as companies not listed in the Russell
2000(R) Index.

<PAGE>

their corporate worth, based on earnings, book or
asset value, revenues, or cash flow. These
companies are generally found among industrial,
financial, and utilities sectors.
. MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative
to their growth prospects. This style may
encompass elements of both the growth and value
styles. These companies may be found in any
industry sector.

When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings, and earnings and price volatility statistics.
The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.

The Fund intends to be fully invested at all times.
Although the Fund, like any mutual fund, maintains
liquidity reserves (i.e., cash awaiting investment or held
to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets
by investing in stock index futures contracts. This causes
the Fund to perform as though its cash reserves were
actually invested in those markets. Additionally the Fund
invests its liquidity reserves in one or more FRIC money
market Funds.

Up to 15% of a Fund's investments may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to one-
third of its portfolio securities to earn additional
income. These loans may be terminated at any time. The
Fund will receive either cash or US government debt
obligations as collateral.

EQUITY III FUND
- ---------------

INVESTMENT To achieve a high level of current income, while
OBJECTIVE maintaining the potential for capital appreciation.

PRINCIPAL The Equity III Fund invests primarily in common stocks of
medium

<PAGE>

INVESTMENT and large capitalization companies. These companies are
STRATEGIES predominately US-based, although the Fund may invest in
non-US firms from time to time.

Because the Fund's investment objective is primarily to
provide a high level of current income, the Fund generally
pursues a value style of securities selection. This style
emphasizes investments in equity securities of companies
that appear to be undervalued relative to their corporate
worth, based on earnings, book or asset value, revenues,
or cash flow.

. YIELD SUBSTYLE--emphasizes investments in equity
securities with above-average yield relative to
the market. Generally, these securities are issued
by companies in the financial and utilities
industries and, to a lesser extent, other
industries.
. LOW PRICE/EARNINGS RATIO SUBSTYLE--emphasizes
investments in equity securities of companies that
are considered undervalued relative to their
corporate worth, based on earnings, book or asset
value, revenues, or cash flow. These companies are
generally found among industrial, financial, and
utilities sectors. From time to time, this
substyle may also include investments in companies
with above-average earnings growth prospects, if
they appear to be undervalued in relation to their
securities' historical price levels.

When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment substyle and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings, and earnings and price volatility statistics.
The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.

The Fund intends to be fully invested at all times.
Although the Fund, like any mutual fund, maintains
liquidity reserves (i.e., cash awaiting investment or held
to meet redemption requests),

<PAGE>

the Fund exposes these reserves to the performance of
appropriate equity markets by investing in stock index
futures contracts. This causes the Fund to perform as
though its cash reserves were actually invested in those
markets. Additionally the Fund invests its liquidity
reserves in one or more FRIC money market Funds.

The Fund may lend up to one-third of its portfolio
securities to earn additional income. These loans may be
terminated at any time. The Fund will receive either cash
or US government debt obligations as collateral.

EQUITY Q FUND
- -------------

INVESTMENT To provide a total return greater than the total return of
OBJECTIVE 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.

The Fund generally pursues a market-oriented style of
security selection based on quantitative investment
models. This style emphasizes investments in companies
that appear to be undervalued relative to their growth
prospects.

The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers who
employ distinct, but complementary, investment styles.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings, and earnings and price volatility statistics.
The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.

Each of the Fund's money managers use quantitative models
to rank securities based upon their expected ability to
outperform

<PAGE>

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 outperform and constructs a
portfolio that has risks similar to the 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 Fund's money managers typically use a variety of
quantitative models, ranking securities within each model
and on a composite basis using proprietary weighting
formulas. Examples of those quantitative models are
dividend discount models, price/cash flow models,
price/earnings models, earnings surprise and earnings
estimate revisions models, and price momentum models.

Although the Fund, like any mutual fund, maintains
liquidity reserves (i.e., cash awaiting investment or held
to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets
by investing in stock index futures contracts. This causes
the Fund to perform as though its cash reserves were
actually invested in those markets. Additionally the Fund
invests its liquidity reserves in one or more FRIC money
market Funds.

The Fund may lend up to one-third of its portfolio
securities to earn additional income. These loans may be
terminated at any time. The Fund will receive either cash
or US government debt obligations as collateral.

INTERNATIONAL FUND
- ------------------

INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.

PRINCIPAL The International Fund invests primarily in equity
INVESTMENT securities issued by companies domiciled outside the
STRATEGIES United States and in depository receipts, which
represent ownership of securities of non-US companies.

The Fund's investments span most of the developed nations
of the world (particularly Europe and the Far East) to
maintain a high degree of diversification among countries
and currencies.

<PAGE>

Because international equity investment performance has a
reasonably low correlation to US equity performance, this
Fund may be appropriate for investors who want to reduce
their investment portfolio's overall volatility by
combining an investment in this Fund with investments in
US equities.

The Fund may seek to protect its investments against
adverse currency exchange rate changes by purchasing
forward currency contracts. These contracts enable the
Fund to "lock in" the US dollar price of a security that
it plans to buy or sell. The Fund may not accurately
predict currency movements.

. GROWTH STYLE emphasizes investments in equity
securities of companies with above-average
earnings growth prospects. These companies are
generally found in the technology, health care,
consumer, and service sectors.
. VALUE STYLE emphasizes investments in equity
securities of companies that appear to be
undervalued relative to their corporate worth,
based on earnings, book or asset value, revenues,
or cash flow. These companies are generally found
among industrial, financial, and utilities
sectors.
. MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative
to their growth prospects. This style may
encompass elements of both the growth and value
styles. These companies may be found in any
industry sector. A variation of this style
maintains investments that replicate country and
sector weightings of a broad international market
index.

When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings, and earnings and price volatility statistics.
The Fund also considers the manner in which money
managers' historical and expected investment

<PAGE>

returns correlate with one another.

The Fund intends to be fully invested at all times.
Although the Fund, like any mutual fund, maintains
liquidity reserves (i.e., cash awaiting investment or held
to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets
by investing in stock index futures contracts. This causes
the Fund to perform as though its cash reserves were
actually invested in those markets. Additionally the Fund
invests its liquidity reserves in one or more FRIC money
market Funds.

Up to 15% of the Fund's investments may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to one-
third of its portfolio securities to earn additional
income. These loans may be terminated at any time. The
Fund will receive either cash or US government debt
obligations as collateral.

FIXED INCOME I FUND
- -------------------

INVESTMENT To provide effective diversification against equities and
OBJECTIVE a stable level of cash flow by investing in fixed-income
securities.

PRINCIPAL The Fixed Income I Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government or, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds mortgage-
backed securities, including collateralized mortgage
obligations. The Fund also invests in corporate debt
securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time the Fund may invest in municipal debt
obligations.

The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted
duration of the Lehman Brothers Aggregate Bond Index, but
may vary up to 25% from the Index's duration. The Fund has
no restrictions on individual security duration.

The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are

<PAGE>

undervalued and concentrate the Fund's investments in
those sectors. These sectors will differ over time. To a
lesser extent, the Fund may attempt to anticipate shifts
in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes, as
a result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than
are represented in the Lehman Brothers Aggregate Bond
Index.

The Fund employs multiple money managers, each with
complementary expertise in the fixed-income markets. When
determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include portfolio biases, magnitude of
sector shifts, and duration movements. The Fund also
considers the manner in which money managers' historical
and expected investment returns correlate with one
another.

The Fund may enter into interest rate futures contracts,
options on such futures contracts, and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy.

The Fund may lend up to one-third of its portfolio
securities to earn additional income. These loans may be
terminated at any time. A Fund will receive either cash or
US government debt obligations as collateral.

FIXED INCOME III FUND
- ---------------------

PRINCIPAL The Fixed Income III Fund invests primarily in fixed-
INVESTMENT income securities. In particular, the Fund holds debt
STRATEGIES securities issued or guaranteed by the US government or,
to a lesser extent by non-US governments, or by their
respective agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued
in the US by non-US banks and corporations

<PAGE>

(Yankee Bonds). A majority of the Fund's holdings are US
dollar denominated. From time to time the Fund may invest
in municipal debt obligations.

The Fund may invest up to 25% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by
the Fund to be of comparable quality.

The average weighted duration of the Fund's portfolio
typically ranges within ten percent of the average
weighted duration of the Lehman Brothers Aggregate Bond
Index, but may vary up to 25% from the Index's duration.
The Fund has no restrictions on individual security
duration.

The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ
over time. To a lesser extent, the Fund may attempt to
anticipate shifts in interest rates and hold securities
that the Fund expects to perform well in relation to
market indexes, as a result of such shifts. Additionally,
the Fund typically holds proportionately fewer US Treasury
obligations than are represented in the Lehman Brothers
Aggregate Bond Index.

The Fund employs multiple money managers, each with
complementary expertise in the fixed-income markets. When
determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include portfolio biases, magnitude of
sector shifts, and duration movements. The Fund also
considers the manner in which money managers' historical
and expected investment returns correlate with one
another.

The Fund may enter into interest rate futures contracts,
options on such futures contracts, and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy.

The Fund may lend up to one-third of its portfolio
securities to

<PAGE>

earn additional income. These loans may be terminated at
any time. A Fund will receive either cash or US government
debt obligations as collateral.

PRINCIPAL RISKS
---------------

<TABLE>
<CAPTION>
RISK ASSOCIATED RELEVANT
WITH: DESCRIPTION FUND
- ----- ----------- ----
<S> <C> <C>
MULTI-MANAGER The interplay of the various strategies employed by a All Funds
APPROACH Fund's multiple money managers may result in the
Fund's holding a concentration of certain types of
securities. This concentration may be beneficial or
detrimental to the Fund's performance depending upon
the performance of those securities and the overall
economic environment.

. Market-Oriented Market-oriented investments are generally subject to Equity I
Investments the risks associated with growth and value stocks. Equity II
Equity Q
International

. Securities of small Investments in smaller companies may involve greater Equity II
capitalization risks because these companies generally have a limited International
track record. Smaller companies often have narrower
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
companies markets and more limited managerial and financial
resources than larger, more established companies. As
a result, their performance can be more volatile,
which could increase the volatility of a Fund's
portfolio.

FIXED-INCOME Prices of fixed-income securities rise and fall in Fixed Income I
SECURITIES response to interest rate changes. Generally, when Fixed Income III
interest rates rise, prices of fixed-income securities
fall. The longer the duration of the security, the
more sensitive the security is to this risk. There is
also a risk that one or more of the securities will be
downgraded in credit rating or go into default.
Lower-rated bonds generally have higher credit risks.

. Non-investment Although lower rated debt securities generally offer a Fixed Income III
grade fixed- higher yield than higher rated debt securities, they
income involve higher risks. They are especially subject to:
securities . adverse changes in general economic conditions and
in the industries in which their issuers are engaged,
. changes in the financial condition of their
issuers, and
. price fluctuations in response to changes in
interest rates.
As a result, issuers of lower rated debt securities
are more likely than other issuers to miss principal
and interest payments or to default.

DERIVATIVES (E.G. If a Fund incorrectly forecasts interest rates in Fixed Income I
FUTURES CONTRACTS, using derivatives, the Fund could lose money. Price Fixed Income III
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
OPTIONS ON FUTURES, movements of a futures contract, option or structured
INTEREST RATE SWAPS, note may not be identical to price movements of
STRUCTURED NOTES) portfolio securities or a securities index resulting
in the risk that, when a Fund buys a futures contract
or option as a hedge, the hedge may not be completely
effective.

EXPOSING LIQUIDITY By exposing its liquidity reserves to the equity market, Equity I
RESERVES TO EQUITY a Fund's performance tends to correlate more closely Equity II
MARKETS to the performance of the market as a whole. Although Equity III
this increases a Fund's performance if equity markets Equity Q
rise, it reduces a Fund's performance if equity markets International
decline.

SECURITIES LENDING If a borrower of a Fund's securities fails All Funds
financially, the Fund's recovery of the loaned
securities may be delayed or the Fund may lose its
rights to the collateral.

An investment in any of the Funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

PERFORMANCE
-----------

<PAGE>

invested in the same portfolio of securities; annual returns for each class will
differ only to the extent that the Class I Shares and Class Y Shares do not have
the same expenses. The chart does not reflect any account maintenance fee or
any fee that you may be required to pay upon redemption of the Fund's shares.
Any such charge will reduce your return.

Past performance is no indication of future results.

----------------------------------------------------------------------------
[bar chart may include returns for more than one fund, subject to
general requirement that the info presented appear in a clear and
understandable manner]
[Fixed Income III - include life of the Fund]

To be filed by Amendment
----------------------------------------------------------------------------

During the period shown in the bar charts, the Class I Shares of each Fund had
the following highest and lowest quarterly return:

To be filed by Amendment
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Best Worst
Quarter Quarter
---------- ----------
----------------------------------------------------------------------------------------
<S> <C> <C>
Equity I ___% (__Q/9_) ___% (__Q/9_)
----------------------------------------------------------------------------------------
Equity II ___% (__Q/9_) ___% (__Q/9_)
----------------------------------------------------------------------------------------
Equity III ___% (__Q/9_) ___% (__Q/9_)
----------------------------------------------------------------------------------------
Equity Q ___% (__Q/9_) ___% (__Q/9_)
----------------------------------------------------------------------------------------
International ___% (__Q/9_) ___% (__Q/9_)
----------------------------------------------------------------------------------------
Fixed Income I ___% (__Q/9_) ___% (__Q/9_)
----------------------------------------------------------------------------------------
Fixed Income III ___% (__Q/9_) ___% (__Q/9_)
----------------------------------------------------------------------------------------
</TABLE>

<PAGE>

The following table further illustrates the risks of investing in the Funds by
showing how each Fund's average annual returns for 1, 5 and 10 years (or, if a
Fund has not been in operation for 10 years, since the beginning of operations
of such Fund) compare with the returns of certain indexes that measure broad
market performance. For the periods shown, no Class Y Shares of the Funds were
operational; information is being provided with respect to Class I Shares, which
differ from Class Y Shares with respect to expenses of each Class.

AVERAGE ANNUAL TOTAL RETURNS*
for the periods ended December 31, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Years 10 Years (if earlier)**
------ ------- -------- ----------------
<S> <C> <C> <C> <C>
Equity I Fund
Class I 25.10% 22.83% 18.61% 17.17%
Russell 1000 Index 27.02 23.37 19.03 17.95
Equity II Fund
Class I 0.70 13.98 14.43 13.98
Russell 2500 Index 0.38 14.13 14.61 14.82
Equity III Fund
Class I 11.53 19.81 17.27 17.36
Russell 1000 Value Index 15.63 20.86 17.39 17.63
Equity Q Fund
Class I 25.98 23.62 19.17 16.28
Russell 1000 Index 27.02 23.37 19.03 16.34
International Fund
Class I 13.52 7.54 8.04 14.83
MSCI EAFE Index 20.33 9.51 5.86 15.74
Fixed Income I Fund
Class I 8.37 7.10 9.08 11.17
Lehman Brothers Aggregate Bond Index 8.69 7.27 9.26 11.56
Fixed Income III Fund
Class I** 6.80 6.85 -- 7.51
Lehman Brothers Aggregate Bond Index 8.69 7.27 -- 7.45
</TABLE>

30-DAY YIELDS*

for the period ended December 31, 1998
Fixed Income I - Class I ____%
Fixed Income III - Class I ____%
* No Class Y Shares of either Fund were issued during the period shown.

To obtain current 30-day yield information, please call 1-800-787-7354.

FEES AND EXPENSES
-----------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.

<PAGE>

SHAREHOLDER FEES (% of transaction amount)

<TABLE>
<CAPTION>
MAXIMUM
SALES CHARGE
MAXIMUM SALES (LOAD) MAXIMUM
CHARGE IMPOSED ON MAXIMUM ACCOUNT
(LOAD) IMPOSED REINVESTED DEFERRED SALES REDEMPTION EXCHANGE MAINTENANCE
ON PURCHASES DIVIDENDS CHARGE (LOAD)* FEES FEES FEES
- --------------- ------------ ---------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
None None None None None None
</TABLE>

ANNUAL OPERATING EXPENSES (% OF NET ASSETS)

<TABLE>
<CAPTION>
Other Expenses
(INCLUDING
ADMINISTRATIVE
FEES AND TOTAL ANNUAL
ADVISORY DISTRIBUTION SHAREHOLDER FUND OPERATING
FEE+ (12B-1) FEES SERVICING FEES)# EXPENSES#+
--- ------------ ------------------- ----------
<S> <C> <C> <C> <C>
Equity I Fund............................ .55% .00% .04% 0.59%
Equity II Fund........................... .70% .00% .08% 0.78%
Equity III Fund.......................... .55% .00% .09% 0.64%
Equity Q Fund............................ .55% .00% .02% 0.57%
International Fund....................... .70% .00% .20% 0.90%
Fixed Income I Fund...................... .25% .00% .05% 0.30%
Fixed Income III Fund.................... .50% .00% .08% 0.58%
</TABLE>

# Annual Class Y Shares operating expenses are based on average net assets
expected to be invested during the year ending December 31, 1999. Prior to
December 1, 1998, FRIMCo provided advisory and administrative services to
the Funds pursuant to a single Management Agreement for which each Fund paid
a single fee. Thereafter FRIMCo's advisory and administrative services are
provided under a separate advisory agreement and administrative agreement
which provide for the fees reflected in the table above. In this connection
the administrative fees payable by Class Y Shares are expected to be
approximately 0.01%.

+ If you purchase any class of Shares of the Fund through a Financial
Intermediary, such as a bank or an investment adviser, you may also pay
additional fees to the intermediary for services provided by the
intermediary. You should contact your intermediary for information
concerning what additional fees, if any, will be charged. Each Fund may also
pay, in addition to the fee set forth above, a fee which compensates FRIMCo
for managing collateral which the Funds have received in securities lending
and certain other portfolio transactions which are not treated as net assets
of that Fund ("additional assets") in determining the Fund's net asset value
per share. The additional fee payable to FRIMCo will equal an amount of up
to 0.07% of each Fund's additional assets on an annualized basis.

EXAMPLE
This example is intended to help you compare the cost of investing in each Fund
with the cost of investing in other mutual funds.

Although your actual costs may be higher or lower, under these assumptions your
costs would be:

<PAGE>

<TABLE>
<CAPTION>
Class Y: 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity I Fund................................ $59 $186 $326 $ 742
Equity II Fund............................... 78 246 431 981
Equity III Fund.............................. 64 202 354 805
Equity Q Fund................................ 57 180 315 717
International Fund........................... 90 284 497 1,132
Fixed Income I Fund.......................... 30 95 166 377
Fixed Income III Fund........................ 58 183 320 730
</TABLE>

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 Fund............... 0-35% 100% Diversification
Fixed Income III Fund............. --% 100% Income and capital appreciation
</TABLE>

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.

<PAGE>

. 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.

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.

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.

MANAGEMENT OF THE FUNDS

<PAGE>

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

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

. Jean E. Carter, who has been a Portfolio Manager of FRIMCo since April
1994. Ms. Carter, jointly with another portfolio manager listed in this
section, has primary responsibility for management of the International,
and International Securities Funds.

<PAGE>

. 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 listed in this section, has primary responsibility for management
of the International, and International Securities Funds.

. 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 listed in this section, has primary responsibility for management
of the Emerging Markets and Real Estate Securities Funds.

. C. Nola Kulig, who has been a Portfolio Manager of FRIMCo since January
1996. From 1994 to 1995, Ms. Kulig was a member of the Alpha Strategy
Group. From 1988 to 1994, Ms. Kulig was Senior Research Analyst with
Russell. Ms. Kulig, jointly with another portfolio manager listed in this
section, 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.

The aggregate annual rate of advisory and administrative fees, payable to
FRIMCo monthly on a pro rata basis, are the following percentages of each Fund's
average daily net assets: Equity I Fund, 0.60%; Equity II Fund, 0.75%; Equity
III Fund, 0.60%; Equity Q Fund, 0.60%; International Fund, 0.75%; Fixed Income I
Fund, 0.30%; and Fixed Income III Fund, 0.55%. Of these aggregate amounts 0.05%
is attributable to administrative services. Prior to December 1, 1998, FRIMCo
provided advisory and administrative services to the Funds pursuant to a single
Management Agreement for which each Fund paid a single fee. Thereafter,
FRIMCo's advisory and administrative services are provided under a separate
advisory agreement and an administrative agreement. Each Fund may also pay, in
addition to the aggregate fees set forth above, a fee which compensates FRIMCo
for managing collateral which the Funds have received in securities lending and
certain other portfolio transactions which are not treated as net

<PAGE>

assets of that Fund ("additional assets") in determining the Fund's net asset
value per share. The additional fee payable to FRIMCo will equal an amount of up
to 0.07% of each Fund's additional assets on an annualized basis.

THE MONEY MANAGERS

PORTFOLIO TURNOVER

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS

<PAGE>

<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 and
Fixed Income III Funds

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

CAPITAL GAINS DISTRIBUTIONS

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

TAXES

<PAGE>

you as long-term capital gains no matter how long you have owned your shares.
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
Distributions taxed as capital gains may be taxable at different rates depending
on how long a Fund holds its assets.

When you sell or exchange your shares of a Fund, you may have a capital gain
or loss. The tax rate on any gain from the sale or exchange of your shares
depends on how long you have held your shares.

Any foreign taxes paid by a Fund on its investments may be passed through to
its shareholders as foreign tax credits.

THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN A FUND.

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

<PAGE>

HOW NET ASSET VALUE IS DETERMINED

NET ASSET VALUE PER SHARE

The net asset value per share is calculated for shares 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 New York Stock Exchange (NYSE) is
open for trading. All Funds determine net asset value as of the close of the
NYSE (currently 4:00 p.m. Eastern time).

VALUATION OF PORTFOLIO SECURITIES

Securities held by the Funds are typically priced using market quotations or
pricing services when the prices are believed to be reliable--that is, when the
prices reflect the fair market value of the 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. If you hold shares in a Fund, such as the
International Fund, that holds portfolio securities that are listed primarily on
foreign exchanges, the net asset value of the Fund's shares may change on a day
when you will not be able to purchase or redeem Fund shares. This is because
the value of those portfolio securities may change on weekends or other days
when the Fund does not price its shares.

HOW TO PURCHASE SHARES

There is a $10 million minimum initial investment in Class Y Shares of a
single Fund for the Funds described in this Prospectus.

PAYING FOR SHARES

<PAGE>

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.

OFFERING DATES AND TIMES

ORDER AND PAYMENT PROCEDURES

BY MAIL

BY FEDERAL FUNDS WIRE

BY AUTOMATED CLEARING HOUSE ("ACH")

AUTOMATED INVESTMENT PROGRAM

<PAGE>

EXCHANGE PRIVILEGE

BY MAIL OR TELEPHONE

IN-KIND EXCHANGE OF SECURITIES

<PAGE>

HOW TO REDEEM SHARES

REDEMPTION DATES AND TIMES

BY MAIL OR TELEPHONE

SYSTEMATIC WITHDRAWAL PROGRAM

<PAGE>

ACCOUNTS IN STREET NAME

PAYMENT OF REDEMPTION PROCEEDS

BY CHECK

BY WIRE

WRITTEN INSTRUCTIONS

PROPER FORM: Written instructions must be in proper form. They must include:

<PAGE>

SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUESTS
- ------------------------------------------------------------------------------------------------
<S> <C>
Individual, Joint Tenants, Written instructions must be signed by each shareholder,
Tenants in Common exactly as the names appear in the account registration.

- ------------------------------------------------------------------------------------------------
UGMA or UTMA (custodial Written instructions must be signed by the custodian in his/her
accounts for minors) capacity as it appears in the account registration.
- ------------------------------------------------------------------------------------------------
Corporation, Association Written instructions must be signed by authorized person(s),
stating his/her capacity as indicated by the corporate
resolution to act on the account.
A copy of the corporate resolution, certified within the past
90 days, authorizing the signer to act.
- ------------------------------------------------------------------------------------------------
Estate, Trust, Pension, Profit Written instructions must be signed by all trustees.
Sharing Plan If the name of the trustee(s) does not appear in the account
registration, please provide a copy of the trust document
certified within the last 60 days.
- ------------------------------------------------------------------------------------------------
Joint tenancy shareholders Written instructions must by signed by the surviving tenant(s).
whose co-tenants are A certified copy of the death certificate must accompany the
deceased request.
- ------------------------------------------------------------------------------------------------
</TABLE>

SIGNATURE GUARANTEE

ACCOUNT POLICIES

REDEMPTION IN-KIND

<PAGE>

FINANCIAL HIGHLIGHTS

This Prospectus offers shares of Class Y Shares of the Funds, which have not
yet commenced operations for the periods shown below. Although the information
presented reflects the Class I Shares of each Fund, Class Y Shares have similar
fees and charges and would have presented similar results. The financial
highlights table is intended to help you understand the Funds' financial
performance for the past 5 years. Certain information reflects financial
results for a single Fund share. The total returns in the table represent how
much your investment in the Fund would have increased (or decreased) during each
period, assuming reinvestment of all dividends and distributions. This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Funds' financial statements, are included in the annual report, which
is available upon request.

EQUITY I FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR................................ $ 30.34 $ 28.00 $ 23.32 $ 24.91
---------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .34 .42 .52 .62
Net realized and
unrealized gain (loss)
on investments.................................. 8.89 5.96 7.71 (.41)
---------- -------- -------- --------
Total From
Investment
Operations.................................... 9.23 6.38 8.23 .21
---------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income (.34) (.42) (.52) (.62)
Net realized gain on
investments..................................... (8.72) (3.62) (3.03) (.94)
In excess of net realized
gain on investments............................. -- -- -- (.24)
---------- -------- -------- --------
Total Distributions............................ (9.06) (4.04) (3.55) (1.80)
---------- -------- -------- --------
NET ASSET VALUE, END OF
YEAR............................................. $ 30.51 $ 30.34 $ 28.00 $ 23.32
========== ======== ========= ========
TOTAL RETURN (%)(A)............................... 32.02 23.58 35.94 .79
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to
average net assets (a) .70 .71 .59 .12
Net investment income
to average net assets (a)....................... .96 1.38 1.91 2.52
Portfolio turnover............................... 110.75 99.51 92.04 75.02
Net assets, end of year
($000 omitted).................................. 1,136,373 961,953 751,497 547,242
</TABLE>

<PAGE>

EQUITY II FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR........................................... $ 30.05 $ 28.88 $ 25.00 $ 26.58
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............................. .11 .16 .27 .36
Net realized and unrealized
gain (loss)
on investments................................... 8.11 4.96 6.80 (.86)
-------- -------- -------- --------
Total From Investment
Operations..................................... 8.22 5.12 7.07 (.50)
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income............................. (.11) (.16) (.29) (.31)
Net realized gain on
investments...................................... (5.20) (3.79) (2.90) (.21)
In excess of net realized gain
on investments................................... -- -- -- (.56)
-------- -------- -------- --------
Total Distributions............................. (5.31) (3.95) (3.19) (1.08)
-------- -------- -------- --------
NET ASSET VALUE, END
OF YEAR........................................... $ 32.96 $ 30.05 $ 28.88 $ 25.00
======== ======== ======== ========
TOTAL RETURN (%)(A)................................ 28.66 18.51 28.67 (2.60)
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets (a)........................... .92 .95 .83 .23
Net investment income to
average net assets (a)........................... .35 .52 .97 1.46
Portfolio turnover................................ 103.00 120.78 89.31 58.04
Net assets, end of year
($000 omitted)................................... 482,159 365,955 279,566 202,977
</TABLE>

<PAGE>

EQUITY III FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR...................................... $ 29.68 $ 29.11 $ 24.18 $ 27.05
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income..................... .60 .70 .82 .93
Net realized and unrealized gain
(loss) on investments.................... 8.69 5.10 7.73 (.85)
-------- -------- -------- --------
Total From Investment
Operations............................. 9.29 5.80 8.55 .08
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income..................... (.60) (.71) (.83) (.91)
In excess of net investment
income................................... (.01) -- -- --
Net realized gain on
investments.............................. (8.56) (4.52) (2.79) (1.94)
In excess of net realized gain on
investments.............................. -- -- -- (.10)
-------- -------- -------- --------
Total Distributions..................... (9.17) (5.23) (3.62) (2.95)
-------- -------- -------- --------
NET ASSET VALUE, END OF YEAR............... $ 29.80 $ 29.68 $ 29.11 $ 24.18
======== ======== ======== ========
TOTAL RETURN (%)(A)........................ 33.13 20.90 35.96 1.16
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a)........................... .78 .79 .65 .17
Net investment income to
average net assets (a)................... 1.77 2.23 2.90 3.39
Portfolio turnover........................ 128.86 100.78 103.40 85.92
Net assets, end of year
($000 omitted)........................... 242,112 221,778 222,541 177,807
</TABLE>

<PAGE>

EQUITY Q FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR................................... $ 32.94 $ 30.40 $ 24.43 $ 26.03
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income..................... .44 .58 .59 .69
INCOME
Net realized and unrealized
gain (loss) on investments............... 10.01 6.33 8.52 (.41)
-------- -------- -------- --------
Total income from
Investment Operations.................. 10.45 6.91 9.11 .28
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income..................... (.44) (.58) (.61) (.69)
In excess of net investment
income................................... -- (.01) -- --
Net realized gain on
investments.............................. (7.05) (3.78) (2.53) (.97)
In excess of net realized
gain on investments...................... -- -- -- (.22)
-------- -------- -------- --------
Total Distributions..................... (7.49) (4.37) (3.14) (1.88)
-------- -------- -------- --------
NET ASSET VALUE, END OF
YEAR...................................... $ 35.90 $ 32.94 $ 30.40 $ 24.43
======== ======== ======== ========
TOTAL RETURN (%)(A)........................ 33.07 23.67 37.91 .99
RATIOS (%) SUPPLEMENTAL DATA:
Operating expenses to
average net assets (a)................... .68 .71 .58 .11
Net investment income to
average net assets (a)................... 1.17 1.80 2.07 2.74
Portfolio turnover........................ 94.89 74.59 74.00 45.87
Net assets, end of year
($000 omitted)........................... 987,760 818,281 620,259 430,661
</TABLE>

<PAGE>

INTERNATIONAL FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR............................................ $ 37.39 $ 36.26 $ 34.28 $ 37.34
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........................... .46 .44 .48 .61
Net realized and unrealized gain
(loss) on investments.......................... (.28) 2.41 3.16 .65
-------- -------- -------- --------
Total Income From
Investment Operations........................ .18 2.85 3.64 1.26
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income........................... (.37) (.35) (.64) (.36)
In excess of net investment
income......................................... (.18) -- (.08) --
Net realized gain on
investments.................................... (1.95) (1.37) (.94) (3.73)
In excess of net realized gain
on investments................................. (.47) -- -- (.23)
-------- -------- -------- --------
Total Distributions........................... (2.97) (1.72) (1.66) (4.32)
-------- -------- -------- --------
NET ASSET VALUE, END OF YEAR..................... $ 34.60 $ 37.39 $ 36.26 $ 34.28
======== ======== ======== ========
TOTAL RETURN (%)(A).............................. .58 7.98 10.71 5.38
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets (a)......................... 1.00 1.04 .88 .32
Operating expenses, gross, to
average net assets (a)......................... 1.00 1.05 .89 .34
Net investment income to
average net assets (a)......................... 1.14 1.20 1.41 1.63
Portfolio turnover.............................. 79.45 42.69 36.78 71.09
Net assets, end of year
($000 omitted)................................. 972,735 944,380 796,777 674,180
</TABLE>

<PAGE>

FIXED INCOME I FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR............................................ $ 20.99 $ 21.59 $ 19.59 $ 21.74
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........................... 1.37 1.38 1.42 1.46
Net realized and unrealized gain
(loss) on investments.......................... .54 (.62) 2.02 (2.06)
-------- -------- -------- --------
Total From Investment
Operations................................... 1.91 .76 3.44 (.60)
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income........................... (1.39) (1.36) (1.44) (1.44)
In excess of net investment
income......................................... -- -- -- --
Net realized gain on
investments.................................... -- -- -- --
In excess of net realized gain on
investments.................................... -- -- -- (.11)
-------- -------- -------- --------
Total Distributions........................... (1.39) (1.36) (1.44) (1.55)
-------- -------- -------- --------
NET ASSET VALUE, END OF YEAR..................... $ 21.51 $ 20.99 $ 21.59 $ 19.59
======== ======== ======== ========
TOTAL RETURN (%)(A).............................. 9.42 3.75 18.03 (2.97)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a)................................. .42 .42 .35 .10
Net investment income to
average net assets (a)......................... 6.54 6.57 6.82 7.06
Portfolio turnover.............................. 165.81 147.31 138.05 173.97
Net assets, end of year ($000
omitted)....................................... 798,252 662,899 638,317 496,038
</TABLE>

<PAGE>

FIXED INCOME III FUND - CLASS I SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.......................................... $ 10.17 $ 10.34 $ 9.37 $ 10.44
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................................................... .63 .64 .67 .66
Net realized and unrealized gain (loss) on investments.................... .32 (.16) .97 (1.07)
-------- -------- -------- --------
Total From Investment Operations........................................ .95 .48 1.64 (.41)
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income...................................................... (.62) (.64) (.67) (.66)
In excess of net investment income......................................... (.02) (.01) -- --
Net realized gain on investments........................................... (.06) -- -- --
In excess of net realized gain on investments.............................. -- -- -- --
-------- -------- -------- --------
Total Distributions..................................................... (.70) (.65) (.67) (.66)
-------- -------- -------- --------
NET ASSET VALUE, END OF YEAR................................................ $ 10.42 $ 10.17 $ 10.34 $ 9.37
======== ======== ======== ========
TOTAL RETURN (%)(A)(C)...................................................... 9.64 4.88 17.99 (3.89)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets (c) .70 .73 .61 .20
Operating expenses, gross, to average net assets (c) .70 .73 .61 .20
Net investment income to average net assets (c)............................ 6.13 6.32 6.83 7.02
Portfolio turnover (b)..................................................... 274.84 144.26 141.37 134.11
Net assets, end of year ($000 omitted)..................................... 382,433 292,077 252,465 166,620
</TABLE>

(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%.