RUSSELL FRANK INVESTMENT CO, 485BPOS, 1999-04-16

RUSSELL FRANK INVESTMENT CO
485BPOS, 1999-04-16

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
---------

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ______ _____
Post-Effective Amendment No. 43 X
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and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----
Amendment No. 43
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FRANK RUSSELL INVESTMENT COMPANY
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

909 A Street, Tacoma, Washington 98402
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(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)

( X ) on (May 1, 1999) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)

( ) on (date) 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>

+++++++++++++++
+RUSSELL FUNDS+
+++++++++++++++

FRANK RUSSELL INVESTMENT COMPANY

Russell Funds

PROSPECTUS

CLASS C E AND S SHARES

DIVERSIFIED EQUITY FUND

SPECIAL GROWTH FUND

EQUITY INCOME FUND

QUANTITATIVE EQUITY FUND

INTERNATIONAL SECURITIES FUND

EMERGING MARKETS FUND

REAL ESTATE SECURITIES FUND

SHORT TERM BOND FUND

DIVERSIFIED BOND FUND

MULTISTRATEGY BOND FUND

MAY 1, 1999

909 A STREET, TACOMA, WA 98402 . 800-787-7354 . 258-627-7001

As with all mutual funds, the Securities and Exchange Commission has neither
determined that the information in this Prospectus is accurate or complete, nor
approved or disapproved of these securities. It is a criminal offense to state
otherwise.

[RUSSELL LOGO]
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TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary......................................................... 3
Investment Objectives and Principal Investment Strategies................. 3
Principal Risks........................................................... 13
Performance............................................................... 18
Fees and Expenses......................................................... 21
Summary Comparison of the Funds............................................. 24
The Purpose of the Funds--Multi-Style, Multi-Manager Diversification........ 25
Management of the Funds..................................................... 26
The Money Managers.......................................................... 28
Portfolio Turnover.......................................................... 28
Dividends and Distributions................................................. 29
Taxes....................................................................... 29
How Net Asset Value Is Determined........................................... 30
Distribution and Shareholder Servicing Arrangements......................... 31
How to Purchase Shares...................................................... 31
Exchange Privilege.......................................................... 33
How to Redeem Shares........................................................ 34
Payment of Redemption Proceeds.............................................. 35
Written Instructions........................................................ 35
Account Policies............................................................ 36
Financial Highlights........................................................ 37
Money Manager Information................................................... 56
</TABLE>
<PAGE>

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES

Diversified Equity Fund

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

Principal Investment Strategies. The Diversified Equity Fund invests
primarily in common stocks of medium and large capitalization 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.

. 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.

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 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
income. These loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.

3
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Special Growth Fund

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

Principal Investment Strategies. The Special Growth Fund invests primarily
in common stocks of small and medium capitalization companies. These companies
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.

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.

Up to 15% of a Fund's net assets 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 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 Objective. To achieve a high level of current income, while
maintaining the potential for capital appreciation.

4
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Principal Investment Strategies. The Equity Income Fund invests primarily in
common stocks of medium and large capitalization companies, most of which are
US-based.

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, emphasizing investments in common stocks 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.

Quantitative Equity Fund

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

Principal Investment Strategies. The Quantitative Equity Fund invests
primarily in common stocks of medium and large capitalization companies, which
are predominately US-based.

5
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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 investment styles.
The Fund intends these styles to complement one another. 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 a money manager has ranked the securities, it then
selects the securities most likely to outperform and constructs, for its
segment of the Fund, a portfolio that has risks similar to the Russell 1000
Index. Each money manager performs this process independently from each other
money manager.

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

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

6
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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.

. 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.

Up to 15% of the Fund's net assets 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 income. These loans may be terminated at any
time. The Fund will receive either cash or US government debt obligations as
collateral.

Emerging Markets Fund

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

7
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Principal Investment Strategies. The Emerging Markets Fund will primarily
invest in equity securities of companies that are located in countries with
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.

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, such as other
investment companies, which enjoy broader or more efficient access to shares
of Emerging Market Companies in certain countries.

The Fund employs a multi-manager approach whereby portions of the Fund are
allocated to different money managers who employ distinct investment styles.
The Fund intends these styles to complement one another. 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 net assets 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 income. These loans may be terminated at any
time. A Fund will receive either cash or US government debt obligations as
collateral.

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.

Real Estate Securities Fund

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

8
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Principal Investment Strategies. The Fund seeks to achieve its objective by
concentrating its investments in equity securities of issuers whose value is
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.

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 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 FRIC money market Funds.

Short Term Bond Fund

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

Principal Investment Strategies. The Short Term Bond Fund invests primarily
in fixed-income securities. In particular, the Fund holds debt 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
(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.

9
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The average weighted duration of the Fund's portfolio typically 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 its own 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, but not for leverage purposes.

Diversified Bond Fund

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

Principal Investment Strategies. The Diversified Bond Fund invests primarily
in investment grade fixed-income securities. In particular, the Fund holds
debt 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 (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, which was 4.5 years as of December 31, 1998, but may vary up to
25% from the Index's duration. The Fund has no restrictions on individual
security duration.

10
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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.

Multistrategy Bond Fund

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

Principal Investment Strategies. The Multistrategy Bond Fund invests
primarily in fixed-income securities. In particular, the Fund holds debt
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
(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
a Fund money manager 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 Lehman Brothers Aggregate
Bond Index, which was 4.5 years as of Deceember 31, 1998, but may vary up to
25% from the Index's duration. The Fund has no restrictions on individual
security duration.

11
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12
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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.

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ------------------------------- -------------
<C> <S> <C>
Multi-manager approach The investment styles employed All Funds
by a Fund's money managers may
not be complementary. The
interplay of the various
strategies employed by a 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. The multiple
manager approach could result
in a high level of portfolio
turnover, resulting in higher
Fund brokerage expenses and
increased tax liability from
the Fund's realization of
capital gains
Equity securities The value of equity securities Diversified Equity
will rise and fall in response Special Growth
to the activities of the Equity Income
company that issued the stock, Quantitative Equity
general market conditions, International
and/or economic conditions. Securities
Emerging Markets
Real Estate
Securities
. Value Stocks Investments in value stocks are Diversified Equity
subject to risks that (i) their Special Growth
intrinsic values may never be Equity Income
realized by the market or (ii) International
such stock may turn out not to Securities
have been undervalued.
. Growth Stocks Growth company stocks may Diversified Equity
provide minimal dividends that Special Growth
can cushion stock prices in a International
market decline. The value of Securities
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 Diversified Equity
Investments generally subject to the risks Special Growth
associated with growth and Quantitative Equity
value stocks. International
Securities
</TABLE>

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<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- -------------------------------- -------------
<C> <S> <C>
. Securities of small Investments in smaller companies Special Growth
capitalization may involve greater risks
companies because these companies
generally have a limited 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 securities Prices of fixed-income Short Term Bond
securities rise and fall in Diversified Bond
response to interest rate Multistrategy Bond
changes. Generally, when
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. A 1%
increase in interest rates would
reduce the value of a $100 note
by approximately one dollar if
it had a one year duration, but
would reduce its value by
approximately fifteen dollars if
it had a 15 year duration. 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 grade Although lower rated debt Short Term Bond
fixed-income securities generally offer a Multistrategy Bond
securities higher yield than higher rated
debt securities, they involve
higher risks. They are
especially subject to:
. 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.
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- -------------------------------- -------------
<C> <S> <C>
International A Fund's return and net asset International
securities value may be significantly Securities
affected by political or Emerging Markets
economic conditions and Short Term Bond
regulatory requirements in a Multistrategy Bond
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.
. Non-U.S. debt A Fund's foreign debt securities Short Term Bond
securities are typically obligations of Multistrategy Bond
sovereign governments. These
securities are particularly
subject to a risk of default
from political instability.
. Emerging market Investments in emerging or Emerging Markets
countries developing markets involve
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 Short Term Bond
and foreign banks issuing dollar denominated Diversified Bond
and branches and instruments in the US are not Multistrategy Bond
foreign necessarily subject to the same
corporations, regulatory requirements that
including Yankee apply to US corporations and
Bonds banks, such as accounting,
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 bank may become
insolvent or otherwise unable to
fulfill its obligations on these
instruments.
Derivatives (e.g. If a Fund incorrectly forecasts Short Term Bond
futures contracts, interest rates in using Diversified Bond
options on futures, derivatives, the Fund could lose Multistrategy Bond
interest rate swaps) money. Price movements of a
futures contract, option or
structured note may not be
identical to price movements of
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.
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ------------------------------- -------------
<C> <S> <C>
Real estate securities Just as real estate values go Real Estate
up and down, companies involved Securities
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 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 Real Estate
changes in the value of the 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 Obligations Municipal obligations are Short Term Bond
affected by economic, business Diversified Bond
or political developments. Multistrategy Bond
These securities 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.
Repurchase Agreements Under a repurchase agreement, a Emerging Markets
bank or broker sells securities
to a Fund and agrees to
repurchase them at 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 Diversified Equity
Reserves to Equity reserves to the equity market, Special Growth
Markets a Fund's performance tends to Equity Income
correlate more closely to the Quantitative Equity
performance of the market as a International
whole. Although this increases Securities
a Fund's performance if equity Emerging Markets
markets rise, it reduces a Real Estate
Fund's performance if equity Securities
markets decline.
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ---------------------------------- -------------
<C> <S> <C>
Securities Lending If a borrower of a Fund's All Funds
securities fails financially, the
Fund's recovery of the loaned
securities may be delayed or the
Fund may lose its rights to the
collateral.
Year 2000
. Year 2000 and Fund The Funds' operations depend on All Funds
operations the smooth functioning 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.
. Year 2000 and The Funds and their shareholders All Funds
Fund portfolio could be adversely affected if the
investments computer systems of the issuers in
which the Funds invest or those of
the service providers they depend
upon, do not properly process and
calculate date-related information
on or after January 1, 2000. If
such an event occurred, the value
of those issuer's securities could
be reduced.
. Year 2000 and Fund A Fund that invests significantly International
portfolio in Non-US issuers may be exposed Emerging Markets
investments in non- to a higher degree of risk from Short Term Bond
U.S. issuers Year 2000 issues than other Funds. Fixed Income III
It is generally believed that Non-
US governments and issuers are
less prepared for Year 2000
related contingencies than the US
government and US-based issuers,
which could result in a more
significant diminution in value of
non-US issuer's securities on or
after January 1, 2000.
</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.

17
<PAGE>

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.

[BAR CHART APPEARS HERE]

<TABLE>
<CAPTION>
Diversified Special Equity Quantitative International Emerging Real Estate Short Term Diversified Multistrategy
Equity Growth Income Equity Securities Markets Securities Bond Bond Bond
Class S Class S Class S Class S Class S Class S Class S Class S Class S Class S
----------- ------- ------- ------------ ------------- -------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 29.06% 23.92% 25.61% 26.08% 22.24% 10.99% 12.52%
1990 -7.01% -14.28% -6.90% -5.60% -15.34% -15.92% 9.71% 7.58%
1991 31.05% 43.11% 27.52% 31.70% 11.99% 37.08% 12.31% 15.29%
1992 8.32% 12.52% 11.51% 8.67% -6.94% 17.29% 2.74% 6.57%
1993 10.53% 15.48% 13.23% 12.56% 33.48% 17.42% 6.98% 10.02%
1994 -0.01% -3.71% 0.69% 0.19% 4.86% -5.83% 7.24% 0.82% -3.25% -4.35%
1995 32.17% 28.52% 34.76% 37.69% 10.20% -8.21% 10.87% 9.95% 17.76% 17.92%
1996 23.29% 18.65% 21.45% 23.08% 7.63% 12.26% 36.81% 4.76% 3.43% 4.97%
1997 31.32% 28.77% 33.59% 32.70% 0.26% -3.45% 18.99% 6.02% 9.09% 9.50%
1998 25.18% 0.42% 12.99% 24.82% 12.90% -27.57% -15.94% 6.09% 8.09% 6.79%
</TABLE>

18
<PAGE>

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

<TABLE>
<CAPTION>
Best Worst
Quarter Quarter
-------------- ----------------
<S> <C> <C>
Diversified Equity.............................. 22.46% (4Q/98) (15.19)% (3Q/90)
Special Growth.................................. 22.40% (1Q/91) (22.45)% (3Q/90)
Equity Income................................... 16.47% (1Q/91) (15.63)% (3Q/90)
Quantitative Equity............................. 22.58% (4Q/98) (14.38)% (3Q/90)
International Securities........................ 16.06% (4Q/98) (17.66)% (3Q/90)
Emerging Markets................................ 22.69% (4Q/93) (21.64)% (3Q/98)
Real Estate Securities.......................... 24.69% (1Q/91) (14.24)% (3Q/90)
Short Term Bond................................. 4.80% (2Q/89) (0.72)% (1Q/94)
Diversified Bond................................ 6.87% (2Q/89) (2.79)% (1Q/94)
Multistrategy Bond.............................. 6.23% (2Q/95) (3.44)% (1Q/94)
</TABLE>

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

<TABLE>
<CAPTION>
Since
1 Year 5 Years 10 Years Inception**
------ ------- -------- -----------
<S> <C> <C> <C> <C>
Diversified Equity Fund
Class E**............................ 24.59% 22.11% 17.73% -- %
Class S.............................. 25.11 22.32 17.83 --
Russell 1000(R) Index................ 27.02 23.37 19.03 --
Special Growth Fund
Class E**............................ 0.04 13.42 14.00 --
Class S.............................. 0.42 13.68 14.13 --
Russell 2500(TM) Index............... 0.38 14.13 14.61 --
Equity Income Fund
Class E**............................ 12.41 19.68 16.54 --
Class S.............................. 12.99 19.99 16.70 --
Russell 1000(R) Value Index.......... 15.63 20.86 17.39 --
Quantitative Equity Fund
Class E**............................ 24.34 22.66 18.20 --
Class S.............................. 24.82 22.97 18.35 --
Russell 1000(R) Index................ 27.02 23.37 19.03 --
International Securities Fund
Class E**............................ 12.53 6.84 7.20 --
Class S.............................. 12.90 7.08 7.32 --
MSCI EAFE Index...................... 20.33 9.51 5.86 --
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
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
Since
1 Year 5 Years 10 Years Inception**
------ ------- -------- -----------
<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
Short Term Bond Fund**
Class S............................... 6.09 5.49 6.98 --
Merrill Lynch 1-2.99 Years Treasury
Index................................ 7.00 5.99 7.37 --
Diversified Bond Fund
Class E**............................. 7.63 6.54 8.43 --
Class S............................... 8.09 6.80 8.56 --
Lehman Brothers Aggregate Bond Index.. 8.69 7.27 9.26 --
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 -- 7.45
</TABLE>
- ---------------------

* No returns are shown for Class C Shares of any Fund or Class E Shares of
the Short Term Bond Fund, because those shares were not 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 of the Short-Term Bond Fund been reflected in the returns
shown for Class S Shares, the returns shown would have been lower.

** The returns shown for the Class E Shares reflect the deduction of Rule 12b-
1 distribution fees beginning on the date each Fund's commencement of its
Class E operations, which is identified below, until May 18, 1998.
Effective May 18, 1998, Class E Shares of the Funds no longer charged Rule
12b-1 distribution fees, which had reduced returns prior to that date. The
results shown have not been increased to reflect the effect of the
elimination of those fees. Returns for periods prior to each Fund's
commencement of operations of its Class E Shares are those of the Fund's
Class S Shares, and therefore do not reflect deduction of Rule 12b-1
distribution or shareholder services fees. Each Fund commenced operations
of its Class E Shares on the following dates: the Diversified Equity Fund--
May 27, 1997; the Equity Income, Quantitative Equity, Special Growth,
International Securities, Real Estate Securities, and Diversified Bond
Funds--November 4, 1996; the Multistrategy Bond Fund--September 11, 1998;
the Emerging Markets Fund--September 22, 1998; and the Short-Term Bond
Fund--February 18, 1999.

+ Prior to April 1, 1999, the comparative index for the Emerging Markets Fund
was the Extended Barings Emerging Markets Index. The Fund believes that the
IFC Investable Composite Index better represents the universe of securities
researched and purchased by emerging markets managers more closely
approximates the Fund's investment portfolio and covers a much broader
universe of securities within emerging markets.

++ The Emerging Markets Fund and the Fixed Income III Fund commenced
operations on January 29, 1993. For periods prior to April 1, 1995,
performance results for those Funds do not reflect deduction of investment
management fees. The Real Estate Securities Fund commenced operations on
July 28, 1989.

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

<TABLE>
<CAPTION>
Current
-------
<S> <C>
Short Term Bond--Class S............................................. 4.89%
Diversified Bond--Class E............................................ 5.14%
Diversified Bond--Class S............................................ 5.40%
Multistrategy Bond--Class E.......................................... 5.68%
Multistrategy Bond--Class S.......................................... 5.93%
</TABLE>
---------------------

* No yields are shown for Class C Shares of each Fund, or for Class E
Shares of Short Term Bond Fund, because those shares were not issued
during the period shown.

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

20
<PAGE>

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

(fees paid directly from your investment)

<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> <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>
- ---------------------

* For the Special Growth, Real Estate Securities, Emerging Markets and Short
Term Bond Funds, the annual account maintenance fee is imposed on accounts
under $5,000. For the Diversified Equity, Equity Income, Quantitative
Equity, International Securities, Diversified Bond and Multistrategy Bond
Funds, the annual account maintenance fee is imposed on accounts under
$10,000. 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 the amounts stated above
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.

21
<PAGE>

Annual Operating Expenses (expenses that are deducted from Fund assets) (% 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.................. 0.73% 0.75% 0.47% 1.95%
Special Growth Fund.... 0.90% 0.75% 0.55% 2.20%
Equity Income Fund..... 0.75% 0.75% 0.56% 2.06%
Quantitative Equity
Fund.................. 0.73% 0.75% 0.46% 1.94%
International
Securities Fund....... 0.90% 0.75% 0.65% 2.30%
Emerging Markets Fund.. 1.15% 0.75% 0.91% 2.81%
Real Estate Securities
Fund.................. 0.80% 0.75% 0.55% 2.10%
Short Term Bond Fund... 0.45% 0.75% 0.47% 1.67%
Diversified Bond Fund.. 0.40% 0.75% 0.44% 1.59%
Multistrategy Bond
Fund*................. 0.60% 0.75% 0.46% 1.81%
Class E Shares
Diversified Equity
Fund.................. 0.73% 0.00% 0.47% 1.20%
Special Growth Fund.... 0.90% 0.00% 0.55% 1.45%
Equity Income Fund..... 0.75% 0.00% 0.56% 1.31%
Quantitative Equity
Fund.................. 0.73% 0.00% 0.46% 1.19%
International
Securities Fund....... 0.90% 0.00% 0.65% 1.55%
Emerging Markets Fund.. 1.15% 0.00% 0.91% 2.06%
Real Estate Securities
Fund.................. 0.80% 0.00% 0.55% 1.35%
Short Term Bond Fund... 0.45% 0.00% 0.47% 0.92%
Diversified Bond Fund.. 0.40% 0.00% 0.44% 0.84%
Multistrategy Bond
Fund*................. 0.60% 0.00% 0.46% 1.06%
Class S Shares
Diversified Equity
Fund.................. 0.73% 0.00% 0.22% 0.95%
Special Growth Fund.... 0.90% 0.00% 0.30% 1.20%
Equity Income Fund..... 0.75% 0.00% 0.31% 1.06%
Quantitative Equity
Fund.................. 0.73% 0.00% 0.21% 0.94%
International
Securities Fund....... 0.90% 0.00% 0.40% 1.30%
Emerging Markets Fund.. 1.15% 0.00% 0.66% 1.81%
Real Estate Securities
Fund.................. 0.80% 0.00% 0.30% 1.10%
Short Term Bond Fund... 0.45% 0.00% 0.22% 0.67%
Diversified Bond Fund.. 0.40% 0.00% 0.19% 0.59%
Multistrategy Bond
Fund*................. 0.60% 0.00% 0.21% 0.81%
</TABLE>

22
<PAGE>

+ 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 financial 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.

* FRIC's advisor, Frank Russell Investment Management Company (FRIMCo) has
contractually agreed to waive, at least until April 30, 2000, 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. Taking the fee waiver into account, the actual annual total operating
expenses for Class S Shares would be 0.80% of the average net assets of the
Multistrategy Bond Fund. The annual total operating expenses for Class C
Shares and Class E Shares would have been approximately 1.80% and 1.05%,
respectively, of the Fund's average net assets.

** 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 operating expenses for Class C Shares of each Fund and Class E Shares
for the Short Term Bond Fund 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. Since then FRIMCo's
advisory and administrative services have been provided under a separate
advisory agreement and administrative agreement which provide for the fees
reflected in the table.

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. The example does not reflect
the deduction of an annual $12.50 account maintenance fee imposed on accounts
with less than the required minimum balance. If it did, the costs shown would
be higher.

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

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class C:
Diversified Equity Fund......................... $195 $615 $1,077 $2,452
Special Growth Fund............................. 220 694 1,216 2,767
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
Emerging Markets Fund........................... 281 886 1,553 3,534
Real Estate Securities Fund..................... 210 662 1,160 2,641
Short Term Bond Fund............................ 167 526 923 2,101
Diversified Bond Fund........................... 159 501 879 2,000
Multistrategy Bond Fund......................... 181 571 1,000 2,277
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class E:
Diversified Equity Fund......................... $120 $378 $ 663 $1,509
Special Growth Fund............................. 145 457 801 1,824
Equity Income Fund.............................. 131 413 724 1,648
Quantitative Equity Fund........................ 119 375 658 1,497
International Securities Fund................... 155 489 856 1,950
Emerging Markets Fund........................... 206 649 1,138 2,591
Real Estate Securities Fund..................... 135 426 746 1,698
Short Term Bond Fund............................ 92 290 508 1,157
Diversified Bond Fund........................... 84 265 464 1,057
Multistrategy Bond Fund......................... 106 334 586 1,333
Class S:
Diversified Equity Fund......................... $ 95 $299 $ 525 $1,195
Special Growth Fund............................. 120 378 663 1,509
Equity Income Fund.............................. 106 334 586 1,333
Quantitative Equity Fund........................ 94 296 519 1,182
International Securities Fund................... 130 410 718 1,635
Emerging Markets Fund........................... 181 571 1,000 2,277
Real Estate Securities Fund..................... 110 347 608 1,384
Short Term Bond Fund............................ 67 211 370 843
Diversified Bond Fund........................... 59 186 326 742
Multistrategy Bond Fund......................... 81 255 448 1,019
</TABLE>

SUMMARY COMPARISON OF THE FUNDS

<TABLE>
<CAPTION>
Anticipated Maximum
Equity Debt
Fund Investments Investments Focus
---- ----------- ----------- -----
<S> <C> <C> <C>
Diversified Equity 65-100% 35% Income and capital growth
Fund...................
Special Growth Fund..... 65-100% 35% Maximum total return primarily through
capital appreciation
Equity Income Fund...... 65-100% 35% Current income
Quantitative Equity 100% 0% Total return
Fund...................
International Securities 65-100% 35% Total return
Fund...................
Emerging Markets Fund... 65-100% 35% Maximum total return, primarily through
capital appreciation
Real Estate Securities 65-100% 35% Total return
Fund...................
Short Term Bond Fund.... 0-35% 100% Preservation of capital and generation
of current income
Diversified Bond Fund... 35% 100% Current income and diversification
Multistrategy Bond 0% 100% Maximum total return primarily through
Fund................... capital appreciation
</TABLE>

24
<PAGE>

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 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 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

25
<PAGE>

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.

The Funds conduct their business through a number of service providers, who
act on behalf of the Funds. FRIMCo, the Funds' administrator and investment
adviser, performs the Funds' day to day corporate management and also
evaluates and oversees the Funds' money managers. Each of the Funds' money
managers makes all investment decisions for the portion of the Fund assigned
to it by FRIMCo. The Funds' custodian, State Street Bank, maintains custody of
all of the Funds' assets. FRIMCo, in its capacity as the Funds' transfer
agent, is responsible for maintaining the Funds' shareholder records and
carrying out shareholder transactions. When a Fund acts in one of these areas,
it does so through the service provider responsible for that area.

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.

26
<PAGE>

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.

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%; Special
Growth Fund, 0.95%; Equity Income Fund, 0.80%; Quantitative Equity Fund,
0.78%; International Securities Fund, 0.95%; Emerging Markets Fund, 1.20%;
Real Estate Securities Fund, 0.85%; Short Term Bond Fund, 0.50%; Diversified
Bond Fund, 0.45%; and Multistrategy Bond Fund, 0.65%. The fees of the Funds,
other than the Short Term Bond and Diversified Bond 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. Since then, 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.

27
<PAGE>

THE MONEY MANAGERS

Each Fund allocates its assets among the money managers listed under "Money
Manager Information" at the end of 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. Additionally, each manager must operate within more specific
constraints developed from time to time by FRIMCo. FRIMCo develops such
constraints for each manager based on FRIMCo's assessment of the manager's
expertise and investment style. By assigning more specific constraints to each
money manager, FRIMCo intends to capitalize on the strengths of each money
manager and to combine their investment activities in a complementary fashion.
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

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,
your tax liability increases. The annual portfolio turnover rates for each of
the Funds are shown in the Financial Highlights tables in this Prospectus.

28
<PAGE>

DIVIDENDS AND DISTRIBUTIONS

Income Dividends

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

<TABLE>
<CAPTION>
Declared Payable Funds
- -------- ------- -----
<S> <C> <C>
Monthly.... Early in the following month Diversified Bond and
Multistrategy
Bond Funds
Quarterly.. Mid: April, July, October and December Diversified Equity, Special
Growth, Equity Income,
Quantitative Equity, Real
Estate Securities and Short
Term Bond Funds
Annually... Mid-December International Securities and
Emerging Markets 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.

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

29
<PAGE>

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, Special Growth Fund, Equity
Income Fund, Quantitative Equity Fund or Real Estate Securities 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 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. The NYSE is not open on national
holidays. 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>

International Securities Fund or Emerging Markets 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 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 in an allocated investment portfolio, with a balance of at least
$10,000 in any individual Fund account with respect to the Diversified Equity,
Equity Income, Quantitative Equity, International Securities, Diversified Bond
and Multistrategy Bond Funds and with a balance of at least $5,000 in any
individual Fund account with respect to Special Growth, Emerging Markets, Real
Estate Securities and Short Term Bond Funds.

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.

31
<PAGE>

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.

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.
You will be responsible for any resulting loss to the Funds. 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 Intermediaries' 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.

Automated Investment Program

32
<PAGE>

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) at the next net asset value per
share calculated after the Funds received the exchange request in good order.

In-Kind Exchange of Securities

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 for 15 days following the purchase by exchange or until the transfer
has settled, whichever comes first. 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.

33
<PAGE>

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 or until the check clears, whichever occurs first, 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

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

34
<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

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

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

35
<PAGE>

Signature Requirements Based on Account Type

<TABLE>
<CAPTION>
Account Type Requirements for Written Requests
- -------------------------------------------------------------------------------
<C> <S>
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.
- -------------------------------------------------------------------------------
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, Written instructions must be signed by all
Profit 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.
</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.

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.

36
<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 throughout each year or period ended December 31. 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 Funds' 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 of any
Fund, and no Class E Shares of the Short Term Bond Fund, 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.............................. $43.64 $45.55
------ ------
Income from Investment Operations:
Net investment income (c)..................................... .10 .06
Net realized and unrealized gain (loss) on investments........ 10.34 7.97
------ ------
Total Income From Investment Operations..................... 10.44 8.03
------ ------
Less Distributions:
Net investment income......................................... (.08) (.07)
Net realized gain on investments.............................. (2.60) (9.87)
------ ------
Total Distributions......................................... (2.68) (9.94)
------ ------
Net Asset Value, End of Year.................................... $51.40 $43.64
====== ======
Total Return (%)(a)............................................. 24.59 15.99
Ratios (%)/Supplemental Data:
Operating expenses, to average net assets (b)................. 1.33 1.63
Net investment income (loss) to average net assets (b)........ .21 .10
Portfolio turnover (b)........................................ 100.31 114.11
Net assets, end of year ($000 omitted)........................ 9,007 2,839
</TABLE>
- ---------------------
+ For the period May 27, 1997 (commencement of operations) to December 31,
1997.

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

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

37
<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......................... $ 43.64 $ 41.45 $ 38.62 $ 32.26 $ 34.88
--------- --------- ------- ------- -------
Income From Investment
Operations:
Net investment income (a)... .30 .37 .48 .60 .58
Net realized and unrealized
gain (loss) on
investments................ 10.34 12.06 8.15 10.63 (.49)
--------- --------- ------- ------- -------
Total From Investment
Operations............... 10.64 12.43 8.63 11.23 .09
--------- --------- ------- ------- -------
Less Distributions:
Net investment income....... (.29) (.37) (.48) (.60) (.58)
Net realized gain on
investments................ (2.60) (9.87) (5.32) (4.27) (2.13)
--------- --------- ------- ------- -------
Total Distributions....... (2.89) (10.24) (5.80) (4.87) (2.71)
--------- --------- ------- ------- -------
Net Asset Value, End of Year.. $ 51.39 $ 43.64 $ 41.45 $ 38.62 $ 32.26
========= ========= ======= ======= =======
Total Return (%).............. 25.11 31.32 23.29 35.17 (0.01)
Ratios (%)/Supplemental Data:
Operating expenses to
average net assets......... .91 .92 .94 .95 .95
Net investment income to
average net assets......... .62 .80 1.18 1.56 1.73
Portfolio turnover.......... 100.31 114.11 99.90 92.53 57.53
Net assets, end of year
($000 omitted)............. 1,367,016 1,042,620 699,691 530,645 414,036
</TABLE>
- ---------------------

(a) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

38
<PAGE>

Special Growth Fund--Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996+
------ ------ ------
<S> <C> <C> <C>
Net Asset Value Beginning of Period.................... $45.42 $40.75 $43.48
------ ------ ------
Income From Investment Operations:
Net investment income (c)............................ (.17) (.13) (.02)
Net realized and unrealized gain (loss) on
investments......................................... .09 11.05 1.63
------ ------ ------
Total Income From Investment Operations............ (.08) 10.92 1.61
------ ------ ------
Less Distributions:
Net realized gain on investments..................... (2.43) (6.25) (4.34)
------ ------ ------
Total Distributions................................ (2.43) (6.25) (4.34)
------ ------ ------
Net Asset Value, End of Period......................... $42.91 $45.42 $40.75
====== ====== ======
Total Return (%)(a).................................... .04 27.90 4.04
Ratios (%)/Supplemental Data:
Operating expenses to average net assets (b)......... 1.58 1.83 1.89
Net investment income to average net assets (b)...... (.39) (.51) (.38)
Portfolio turnover (b)............................... 129.19 97.19 118.13
Net Assets, end of year ($000 omitted)............... 6,139 3,153 910
</TABLE>
- ---------------------

+ For the period November 4, 1996 (commencement of operations) to December 31,
1996.

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

(b) The ratios for the period ended December 31, 1996 are annualized.

39
<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............................. $ 45.72 $ 40.79 $ 39.17 $ 33.47 $ 35.82
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (a)....... .01 .08 .12 .18 .16
Net realized and unrealized gain
(loss) on investments.......... .08 11.18 6.87 9.25 (.71)
------- ------- ------- ------- -------
Total From Investment
Operations................... .09 11.26 6.99 9.43 (.55)
------- ------- ------- ------- -------
Less Distributions:
Net investment income........... (.04) (.08) (.12) (.21) (.10)
Net realized gain on
investments.................... (2.43) (6.25) 5.25) (3.52) (1.70)
------- ------- ------- ------- -------
Total Distributions........... (2.47) (6.33) (5.37) (3.73) (1.80)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $ 43.34 $ 45.72 $ 40.79 $ 39.17 $ 33.47
======= ======= ======= ======= =======
Total Return (%).................. .42 28.77 18.65 28.52 (3.71)
Ratios (%)/Supplemental Data:
Operating expenses, net to
average net assets............. 1.15 1.15 1.19 1.22 1.20
Net investment income to average
net assets..................... .03 .18 .28 .49 .50
Portfolio turnover.............. 129.19 97.19 118.13 87.56 55.40
Net assets, end of year ($000
omitted)....................... 595,862 572,635 393,048 313,678 229,077
</TABLE>
- ---------------------

(a) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

40
<PAGE>

Equity Income Fund--Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996+
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year..................... $41.43 $40.22 $41.86
------ ------ ------
Income From Investment Operations:
Net investment income (c)............................ .37 .32 .10
Net realized and unrealized gain (loss) on
investments......................................... 4.49 12.20 2.39
------ ------ ------
Total Income From Investment Operations............ 4.86 12.52 2.49
------ ------ ------
Less Distributions:
Net investment income................................ (.51) (.07) (.18)
Net realized gain on investments..................... (4.33) (11.24) (3.95)
------ ------ ------
Total Distributions................................ (4.84) (11.31) (4.13)
------ ------ ------
Net Asset Value, End of Year........................... $41.45 $41.43 $40.22
====== ====== ======
Total Return (%) (a)................................... 12.41 32.68 6.23
Ratios (%)/Supplemental Data:
Operating expenses to average net assets (b)......... 1.42 1.74 1.77
Net investment income to average net assets (b)...... .90 .77 1.50
Portfolio turnover (b)............................... 149.63 139.33 106.40
Net assets, end of year ($000 omitted)............... 745 338 122
</TABLE>
- ---------------------

+ For the period November 4, 1996 (commencement of operations) to December 31,
1996.

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

(b) The ratios for the period December 31, 1996 are annualized.

41
<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............................. $ 41.08 $ 40.22 $ 38.43 $ 32.21 $ 35.90
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (a)....... .55 .69 .82 .94 .90
Net realized and unrealized gain
(loss) on investments.......... 4.49 12.11 7.03 10.08 (.70)
------- ------- ------- ------- -------
Total From Investment
Operations................... 5.04 12.80 7.85 11.02 .20
------- ------- ------- ------- -------
Less Distributions:
Net investment income........... (.53) (.70) (.83) (.97) (.89)
Net realized gain on
investments.................... (4.33) (11.24) (5.23) (3.83) (3.00)
------- ------- ------- ------- -------
Total Distributions........... (4.86) (11.94) (6.06) (4.80) (3.89)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $ 41.26 $ 41.08 $ 40.22 $ 38.43 $ 32.21
======= ======= ======= ======= =======
Total Return (%).................. 12.99 33.59 21.45 34.76 .69
Ratios (%)/Supplemental Data:
Operating expenses to average
net assets..................... 1.01 1.04 1.07 1.06 1.04
Net investment income to average
net assets..................... 1.30 1.51 2.03 2.51 2.56
Portfolio turnover.............. 149.63 139.33 106.40 92.40 89.91
Net assets, end of year ($000
omitted)....................... 250,491 226,952 195,132 180,116 144,285
</TABLE>
- ---------------------

(a) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

42
<PAGE>

Quantitative Equity Fund--Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996+
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year..................... $36.80 $33.05 $33.81
------ ------ ------
Income From Investment Operations:
Net investment income (c)............................ .12 .14 .05
Net realized and unrealized gain (loss) on
investments......................................... 8.54 9.95 1.87
------ ------ ------
Total Income From Investment Operations............ 8.66 10.09 1.92
------ ------ ------
Less Distributions:
Net investment income................................ (.16) (.07) (.08)
Net realized gain on investments..................... (2.80) (6.27) (2.60)
------ ------ ------
Total Distributions................................ (2.96) (6.34) (2.68)
------ ------ ------
Net Asset Value, End of Year........................... $42.50 $36.80 $33.05
====== ====== ======
Total Return (%) (a)................................... 24.34 31.70 5.91
Ratios (%)/Supplemental Data:
Operating expenses to average net assets (b)......... 1.31 1.59 1.65
Net investment income to average net assets (b)...... .30 .33 .81
Portfolio turnover (b)............................... 77.23 87.67 74.33
Net assets, end of year ($000 omitted)............... 7,479 2,344 322
</TABLE>
- ---------------------

+ For the period November 4, 1996 (commencement of operations) to December 31,
1996.

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

(b) The ratios for the period ended December 31, 1996 are annualized.

43
<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........................... $ 36.78 $ 33.05 $ 30.76 $ 24.84 $ 26.44
--------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income (a)..... .27 .38 .51 .50 .49
Net realized and unrealized
gain (loss) on investments... 8.55 10.00 6.24 8.72 (.19)
--------- ------- ------- ------- -------
Total From Investment
Operations................. 8.82 10.38 6.75 9.22 .30
--------- ------- ------- ------- -------
Less Distributions:
Net investment income......... (.27) (.38) (.51) (.51) (.49)
Net realized gain on
investments.................. (2.80) (6.27) (3.95) (2.79) (1.41)
--------- ------- ------- ------- -------
Total Distributions......... (3.07) (6.65) (4.46) (3.30) (1.90)
--------- ------- ------- ------- -------
Net Asset Value, End of Year.... $ 42.53 $ 36.78 $ 33.05 $ 30.76 $ 24.84
========= ======= ======= ======= =======
Total Return (%)................ 24.82 32.70 23.08 37.69 .19
Ratios (%)/Supplemental Data:
Operating expenses to average
net assets................... .91 .91 .93 .93 .94
Net investment income to
average net assets........... .69 1.04 1.59 1.71 1.95
Portfolio turnover............ 77.23 87.67 74.33 78.83 45.97
Net assets, end of year ($000
omitted)..................... 1,316,051 996,880 663,925 488,948 380,592
</TABLE>
- ---------------------

(a) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

44
<PAGE>

International Securities Fund--Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996+
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year..................... $54.64 $58.47 $58.56
------ ------ ------
Income From Investment Operations:
Net investment income (c)............................ .28 .35 (.03)
Net realized and unrealized gain (loss) on
investments......................................... 6.53 (.64) 1.68
------ ------ ------
Total Income From Investment Operations............ 6.81 (.29) 1.65
------ ------ ------
Less Distributions:
Net investment income................................ (.57) (.29) (.43)
Net realized gain on investments..................... (.20) (3.25) (1.31)
------ ------ ------
Total Distributions................................ (.77) (3.54) (1.74)
------ ------ ------
Net Asset Value, End of Year........................... $60.68 $54.64 $58.47
====== ====== ======
Total Return (%)(a).................................... 12.53 (.41) 2.86
Ratios (%)/Supplemental Data:
Operating expenses, to average assets (b)............ 1.64 1.96 2.00
Net investment income (loss) to average net assets
(b)................................................. .49 .19 (.61)
Portfolio turnover (b)............................... 68.46 73.54 42.43
Net assets, end of year ($000 omitted)............... 4,431 1,271 623
</TABLE>
- ---------------------

+ For the period November 4, 1996 (commencement of operations) to December 31,
1996.

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

(b) The ratios for the period ended December 31, 1996 are annualized.

45
<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............................. $ 54.69 $ 58.48 $ 56.61 $ 53.96 $ 57.95
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (a)....... .69 .56 .53 .56 .44
Net realized and unrealized gain
(loss) on investments.......... 6.32 (.46) 3.72 4.89 1.23
------- ------- ------- ------- -------
Total From Investment
Operations................... 7.01 .10 4.25 5.45 1.67
------- ------- ------- ------- -------
Less Distributions:
Net investment income .......... (.64) (.64) (.48) (1.11) (.06)
Net realized gain on
investments.................... (.20) (3.25) (1.90) (1.69) (5.60)
------- ------- ------- ------- -------
Total Distributions........... (.84) (3.89) (2.38) (2.80) (5.66)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $ 60.86 $ 54.69 $ 58.48 $ 56.61 $ 53.96
======= ======= ======= ======= =======
Total Return (%).................. 12.90 .26 7.63 10.20 4.86
Ratios (%)/Supplemental Data:
Operating expenses, net, to
average assets................. 1.22 1.26 1.30 1.30 1.30
Operating expenses, gross, to
average assets................. 1.22 1.26 1.31 1.31 1.33
Net investment income to average
net assets..................... 1.15 .91 .91 .97 .70
Portfolio turnover.............. 68.46 73.54 42.43 42.96 72.23
Net assets, end of year ($000
omitted)....................... 940,779 839,767 743,615 623,389 563,333
</TABLE>
- ---------------------

(a) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

46
<PAGE>

Emerging Markets Fund--Class E Shares

<TABLE>
<CAPTION>
1998+
-----
<S> <C>
Net Asset Value Beginning of Period...................................... $7.37
-----
Income From Investment Operations:
Net investment income (c).............................................. (.02)
Net realized and unrealized gain (loss) on investments................. 1.13
-----
Total Income From Investment Operations.............................. 1.11
-----
Net Asset Value, End of Period........................................... $8.48
=====
Total Return (%) (a)..................................................... 15.06
Ratios (%)/Supplemental Data:
Operating expenses to average net assets (b)........................... --
Net investment income to average net assets (b)........................ --
Portfolio turnover..................................................... 59.35
Net Assets, end of year ($000 omitted)................................. 39
</TABLE>
- ---------------------
+ For the period September 22, 1998 (commencement of operations) to December
31, 1998.
(a) Period less than one year are annualized.
(b) The ratios are not meaningful due to the Funds' short period of operations.
(c) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

47
<PAGE>

Emerging Markets Fund--Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................. $ 11.79 $ 12.35 $ 11.16 $ 12.25 $ 13.90
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (b)....... .12 .14 .10 .11 .15
Net realized and unrealized gain
(loss) on investments.......... (3.35) (.56) 1.26 (1.12) (1.24)
------- ------- ------- ------- -------
Total From Investment
Operations................... (3.23) (.42) 1.36 (1.01) (1.09)
------- ------- ------- ------- -------
Less Distributions:
Net investment income........... (.08) (.14) (.17) (.05) (.20)
Net realized gain on
investments.................... -- -- -- (.03) (.36)
------- ------- ------- ------- -------
Total Distributions........... (.08) (.14) (.17) (.08) (.56)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $ 8.48 $ 11.79 $ 12.35 $ 11.16 $ 12.25
======= ======= ======= ======= =======
Total Return (%)(a)............... (27.57) (3.45) 12.26 (8.21) (5.83)
Ratios (%)/Supplemental Data:
Operating expenses, net, to
average net assets (a)......... 1.75 1.64 1.71 1.75 .80
Operating expenses, gross, to
average net assets (a)......... 1.75 1.64 1.72 1.80 .83
Net investment income to average
net assets (a)................. 1.20 .87 .77 .88 1.10
Portfolio turnover.............. 59.35 50.60 34.62 71.16 57.47
Net assets, end of year ($000
omitted)....................... 294,349 333,052 271,490 172,673 127,271
</TABLE>
- ---------------------

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

(b) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

48
<PAGE>

Real Estate Securities Fund--Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996+
------ ------ ------
<S> <C> <C> <C>
Net Asset Value Beginning of Year...................... $31.02 $29.18 $26.67
------ ------ ------
Income From Investment Operations:
Net investment income (c)............................ 1.26 1.14 .24
Net realized and unrealized gain (loss) on
investments......................................... (6.12) 3.95 3.85
------ ------ ------
Total Income From Investment Operations............ (4.86) 5.09 4.09
------ ------ ------
Less Distributions:
Net investment income................................ (1.43) (1.04) (.32)
Net realized gain on investments..................... (.46) (2.21) (1.26)
------ ------ ------
Total Distributions................................ (1.89) (3.25) (1.58)
------ ------ ------
Net Asset Value, End of Period......................... $24.27 $31.02 $29.18
====== ====== ======
Total Return (%) (a)................................... (16.25) 18.20 15.75
Ratios (%)/Supplemental Data:
Operating expenses to average net assets (b)......... 1.47 1.71 1.77
Net investment income to average net assets.......... 4.90 3.94 5.31
Portfolio turnover (%)(b)............................ 42.58 49.40 51.75
Net Assets, end of period ($000 omitted)............. 843 388 101
</TABLE>
- ---------------------

+ For the period November 4, 1996 (commencement of sale) to December 31, 1996.

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

(b) The ratios for the period ended December 31, 1996 are annualized.

49
<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............................. $ 30.86 $ 29.19 $ 23.51 $ 22.53 $ 22.76
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (a)....... 1.34 1.36 1.39 1.32 1.25
Net realized and unrealized gain
(loss) on investments.......... (6.13) 3.93 6.89 1.03 .40
------- ------- ------- ------- -------
Total From Investment
Operations................... (4.79) 5.29 8.28 2.35 1.65
------- ------- ------- ------- -------
Less Distributions:
Net investment income........... (1.17) (1.41) (1.34) (1.35) (1.23)
Net realized gain on
investments.................... (.46) (2.21) (1.26) -- (.65)
Tax return of capital........... -- -- -- (.02) --
------- ------- ------- ------- -------
Total Distributions........... (1.63) (3.62) (2.60) (1.37) (1.88)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $ 24.44 $ 30.86 $ 29.19 $ 23.51 $ 22.53
======= ======= ======= ======= =======
Total Return (%)(a)............... (15.94) 18.99 36.81 10.87 7.24
Ratios (%)/Supplemental Data:
Operating expenses, to average
net assets (b)................. 1.05 1.02 1.04 1.04 1.05
Net investment income to average
net assets (b)................. 4.93 4.57 5.64 6.10 5.65
Portfolio turnover (b).......... 42.58 49.40 51.75 23.49 45.84
Net assets, end of year ($000
omitted)....................... 576,326 615,483 445,619 290,990 209,208
</TABLE>
- ---------------------

(a) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

50
<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............................. $ 18.35 $ 18.36 $ 18.55 $ 17.98 $ 18.99
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (b)....... .99 1.08 1.04 1.16 1.21
Net realized and unrealized gain
(loss) on investments.......... .11 -- (.19) .59 (1.07)
------- ------- ------- ------- -------
Total From Investment
Operations................... 1.10 1.08 .85 1.75 .14
------- ------- ------- ------- -------
Less Distributions:
Net investment income........... (.99) (1.09) (1.04) (1.18) (1.15)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $ 18.46 $ 18.35 $ 18.36 $ 18.55 $ 17.98
======= ======= ======= ======= =======
Total Return (%)(a)............... 6.09 6.02 4.76 9.95 .82
Ratios (%)/Supplemental Data:
Operating expenses to average
net assets (a)................. .66 .66 .70 .58 .19
Net investment income to average
net assets (a)................. 5.37 5.70 5.70 6.41 6.52
Portfolio turnover.............. 129.85 213.14 264.40 269.31 233.75
Net assets, end of year ($000
omitted)....................... 260,539 229,470 222,983 183,577 144,030
</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%.
(b) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

51
<PAGE>

Diversified Bond Fund--Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996+
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year..................... $24.06 $22.98 $23.16
------ ------ ------
Income From Investment Operations:
Net investment income (c)............................ 1.32 1.22 .25
Net realized and unrealized gain (loss) on
investments......................................... .45 .66 (.09)
------ ------ ------
Total From Investment Operations................... 1.77 1.88 .16
------ ------ ------
Less Distributions:
Net investment income................................ (1.56) (.72) (.34)
Net realized gain on investments..................... (.35) (.08) --
------ ------ ------
Total Distributions................................ (1.91) (.80) (.34)
------ ------ ------
Net Asset Value, End of Year........................... $23.92 $24.06 $22.98
====== ====== ======
Total Return (%) (a)................................... 7.63 8.35 .67
Ratios (%)/Supplemental Data:
Operating expenses, to average assets (b)............ .98 1.29 1.31
Net investment income to average net assets (b)...... 5.42 5.64 5.75
Portfolio turnover (b)............................... 216.88 172.43 138.98
Net assets, end of year ($000 omitted)............... 4,703 2,469 962
</TABLE>
- ---------------------

+ For the period November 4, 1996 (commencement of operations) to December 31,
1996.

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

(b) The ratios for the period ended December 31, 1996 are annualized.

52
<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............................. $ 23.43 $ 22.97 $ 23.69 $ 21.53 $ 23.73
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (a)....... 1.38 1.45 1.47 1.54 1.46
Net realized and unrealized gain
(loss) on investments.......... .47 .56 (.71) 2.18 (2.22)
------- ------- ------- ------- -------
Total From Investment
Operation.................... 1.85 2.01 .76 3.72 (.76)
------- ------- ------- ------- -------
Less Distributions:
Net investment income........... (1.40) (1.47) (1.48) (1.56) (1.42)
Net realized gain on
investments.................... (.35) (.08) -- -- (.02)
------- ------- ------- ------- -------
Total Distributions........... (1.75) (1.55) (1.48) (1.56) (1.44)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $ 23.53 $ 23.43 $ 22.97 $ 23.69 $ 21.53
======= ======= ======= ======= =======
Total Return (%).................. 8.09 9.09 3.43 17.76 (3.25)
Ratios (%)/Supplemental Data:
Operating expenses to average
assets......................... .57 .60 .61 .59 .56
Net investment income to average
net assets..................... 5.83 6.35 6.46 6.69 6.57
Portfolio turnover.............. 216.88 172.43 138.98 135.85 153.21
Net assets, end of year ($000
omitted)....................... 808,761 687,331 554,804 513,808 525,315
</TABLE>
- ---------------------

(a) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

53
<PAGE>

Multistrategy Bond Fund--Class E Shares

<TABLE>
<CAPTION>
1998+
------
<S> <C>
Net Asset Value, Beginning of Year...................................... $10.30
------
Income From Investment Operations:
Net investment income (c)............................................. .16
Net realized and unrealized gain (loss) on investments................ .07
------
Total From Investment Operations.................................... .23
------
Less Distributions:
Net investment income................................................. (.20)
Net realized gain on investments...................................... (.23)
------
Total Distributions................................................. (.43)
------
Net Asset Value, End of Year............................................ $10.10
======
Total Return (%)(a)..................................................... 1.89
Ratios (%)/Supplemental Data:
Operating expenses, to average assets (b)............................. --
Net investment income to average net assets (b)....................... --
Portfolio turnover (b)................................................ 334.86
Net assets, end of year ($000 omitted)................................ 2,610
</TABLE>
- ---------------------

+ For the period September 11, 1998 (commencement of operations) to December
31, 1998.

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

(b) The ratios are not meaningful due to the Fund's short period of operation.

54
<PAGE>

Multistrategy Bond Fund--Class S Shares

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................. $ 10.26 $ 10.11 $ 10.25 $ 9.29 $ 10.31
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (a)....... .60 .60 .61 .65 .58
Net realized and unrealized gain
(loss) on investments.......... .08 .33 (.12) .97 (1.03)
------- ------- ------- ------- -------
Total From Investment
Operations................... .68 .93 .49 1.62 (.45)
------- ------- ------- ------- -------
Less Distributions:
Net investment income........... (.60) (.61) (.62) (.66) (.57)
Net realized gain on
investments.................... (.23) (.17) (.01) -- --
------- ------- ------- ------- -------
Total Distributions........... (.83) (.78) (.63) (.66) (.57)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $ 10.11 $ 10.26 $ 10.11 $ 10.25 $ 9.29
======= ======= ======= ======= =======
Total Return (%).................. 6.79 9.50 4.97 17.92 (4.35)
Ratios (%)/Supplemental Data:
Operating expenses, net, to
average net assets............. .80 .80 .81 .85 .85
Operating expenses, gross, to
average net assets............. .81 .83 .88 .89 .90
Net investment income to average
net assets..................... 5.76 5.93 6.19 6.61 6.26
Portfolio turnover.............. 334.86 263.75 145.38 142.26 136.39
Net assets, end of year ($000
omitted)....................... 547,747 437,312 305,428 218,765 173,035
</TABLE>
- ---------------------
(a) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

55
<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.

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.

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

56
<PAGE>

EQUITY INCOME FUND

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

Trinity Investment Management Corporation, See: Diversified Equity Fund.

Westpeak Investment Advisors, L.P. See: Special Growth Fund.

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.

EMERGING MARKETS FUND

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

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

Montgomery Asset Management LLC, See: International Securities Fund.

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.

57
<PAGE>

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.

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., See: Short Term Bond Fund.

MULTISTRATEGY BOND FUND

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: Short Term 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.

58
<PAGE>

For more information about the Funds, the following documents are available
without charge:

ANNUAL/SEMIANNUAL REPORTS: Additional information about the Funds' investments
is available in the Funds' annual and semiannual reports to shareholders. In
each Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.

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
800-787-7354
Fax: 253-591-3495
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.

FRANK RUSSELL INVESTMENT COMPANY
Class C, E and S shares:

Diversified Equity Fund
Special Growth Fund
Equity Income Fund
Quantitative Equity Fund
International Securities Fund
Emerging Markets Fund
Real Estate Securities Fund
Short Term Bond Fund
Diversified Bond Fund
Multistrategy Bond Fund

Distributor: Russell Fund Distributors, Inc.
[LOGO OF RUSSELL APPEARS HERE] SEC File No. 811-3153
36-08-056 (5/99)
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY

INSTITUTIONAL FUNDS
PROSPECTUS

EQUITY I FUND - PREMIER CLASS SHARES
EQUITY II FUND - PREMIER CLASS SHARES
EQUITY III FUND - PREMIER CLASS SHARES
EQUITY Q FUND - PREMIER CLASS SHARES
INTERNATIONAL FUND - PREMIER CLASS SHARES
EMERGING MARKETS FUND - CLASS C, E AND S SHARES
REAL ESTATE SECURITIES FUND - CLASS C, E AND S SHARES
SHORT TERM BOND FUND - CLASS C, E AND S SHARES
FIXED INCOME I FUND - PREMIER CLASS SHARES
FIXED INCOME III FUND - PREMIER CLASS SHARES

May 1, 1999

909 A Street, Tacoma, WA 98402
800-787-7354
253-627-7001

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary - Investment Objectives and Principal Investment Strategies.............................. 3
- Principal Risks........................................................................ 18
- Performance............................................................................ 22
- Fees and Expenses...................................................................... 24
Summary Comparison of the Funds.............................................................................. 26
The Purpose of the Funds--Multi-Style, Multi-Manager Diversification......................................... 27
Management of the Funds...................................................................................... 28
The Money Managers........................................................................................... 31
Portfolio Turnover........................................................................................... 31
Dividends and Distributions.................................................................................. 32
Taxes........................................................................................................ 33
How Net Asset Value Is Determined............................................................................ 34
Distribution and Shareholder Servicing Arrangements.......................................................... 34
How to Purchase Shares....................................................................................... 35
Exchange Privilege........................................................................................... 37
How to Redeem Shares......................................................................................... 38
Payment of Redemption Proceeds............................................................................... 39
Written Instructions......................................................................................... 39
Account Policies............................................................................................. 40
Financial Highlights......................................................................................... 41
Money Manager Information.................................................................................... 51
</TABLE>
<PAGE>

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
--------------------------------------------------------

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 most of which are
STRATEGIES US-based.

. 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

1
<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 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 most of which are
STRATEGIES US-based.

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.

The Fund employs a "multi-style, multi manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles, intended to
complement one another:
. 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

2
<PAGE>

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 net assets 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 income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.

3
<PAGE>

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

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, most of which are
STRATEGIES US-based.

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, emphasizing
investments in common stocks 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-style, multi manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment sub-styles.
The Fund uses two principal investment sub-styles, intended
to complement one another:
. 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.

4
<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 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.

PRINCIPAL The Equity Q Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies which are
STRATEGIES predominately US-based.

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 investment styles. The Fund intends these
styles to complement one another. 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.

5
<PAGE>

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 a money manager has ranked the securities, it then
selects the securities most likely to outperform and
constructs, for its segment of the Fund, a portfolio that
has risks similar to the Russell 1000(R) Index. Each money
manager performs this process independently from each other
money manager.

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 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.

6
<PAGE>

PRINCIPAL The International 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.

When determining how to allocate its assets among money

7
<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 the Fund's net assets 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 income. These
loans may be terminated at any time. The Fund will receive
either cash or 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

8
<PAGE>

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.

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,
such as other investment companies, which enjoy broader or
more efficient access to shares of Emerging Market Companies
in certain countries.

The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers who
employ distinct 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 net assets may be "illiquid"
securities

9
<PAGE>

(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 income. These loans may be
terminated at any time. A Fund will receive either cash or
US government debt obligations as collateral.

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.

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

INVESTMENT To generate a high level of total return through above
OBJECTIVE average 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 investment styles. The
Fund intends these styles to complement one another.

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 and price volatility
statistics. The Fund also considers the

10
<PAGE>

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 FRIC money market Funds.

Up to 15% of the Fund's net assets 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 income. These
loans may be terminated at any time. The Fund will receive
either cash of 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.

11
<PAGE>

PRINCIPAL The Short Term Bond Fund invests primarily in
INVESTMENT fixed-income securities. In particular, the Fund
STRATEGIES holds debt 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
(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 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
its oen 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.

12
<PAGE>

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 but not for leverage
purposes.

The Fund may lend up to one-third of its portfolio
securities to earn 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
OBJECTIVE equities and a stable level of cash flow by
investing in fixed-income securities.

PRINCIPAL The Fixed Income I Fund invests primarily in
INVESTMENT investment grade fixed-income securities. In
STRATEGIES particular, the Fund holds debt 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 (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, which was 4.5 years as of
December 31, 1998, 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. In
seeking investments that will produce cash flow,
the Fund's money managers also 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

13
<PAGE>

obligations than are represented in the Lehman
Brothers Aggregate Bond Index.

The Fund employs multiple money managers, each with
its own 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 but not for leverage
purposes.

The Fund may lend up to one-third of its portfolio
securities to earn 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
OBJECTIVE capital appreciation and by assuming a higher level
of volatility than is ordinarily expected from
broad fixed-income market portfolios.

PRINCIPAL The Fixed Income III Fund invests primarily in
INVESTMENT fixed-income securities. In particular, the Fund
STRATEGIES holds debt 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
(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

14
<PAGE>

more nationally recognized securities rating
organizations or in unrated securities judged by a
Fund money manager 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 Lehman Brothers
Aggregate Bond Index, which was 4.5 years as of
December 31, 1998, 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
its own 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 but not for leverage
purposes.

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

15
<PAGE>

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.

<TABLE>
<CAPTION>
RISK ASSOCIATED RELEVANT
WITH: DESCRIPTION FUND
- ----- ----------- ----
<S> <C> <C>
MULTI-MANAGER APPROACH The investment styles employed by a Fund's money All Funds
managers may not be complementary. The interplay of
the various strategies employed by a 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. The multiple manager approach
could result in a high level of portfolio turnover,
resulting in higher Fund brokerage expenses and
increased tax liability from the Fund's realization
of capital gains

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
Emerging Markets
Real Estate Securities

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

. Growth Stocks Growth company stocks may provide minimal Equity I
dividends that can cushion stock prices in Equity II
a market decline. The value of growth company Equity Q
stocks may rise and fall dramatically based, International
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 Equity I
Investments the risks associated with growth and value stocks. Equity II
Equity Q
International
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
. Securities of small Investments in smaller companies may involve greater Equity II
capitalization 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 SECURITIES Prices of fixed-income securities rise and fall in Short Term Bond
response to interest rate changes. Generally, when Fixed Income I
interest rates rise, prices of fixed-income securities Fixed Income III
fall. The longer the duration of the security, the
more sensitive the security is to this risk. A 1%
increase in interest rates would reduce the value of
a $100 note by approximately one dollar if it had a
one year duration, but would reduce its value by
approximately fifteen dollars if it had a 15 year
duration. 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 Short Term Bond
grade fixed- higher yield than higher rated debt securities, they Fixed Income III
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 SECURITIES A Fund's return and net asset value may be International
significantly affected by political or economic Emerging Markets
conditions and regulatory requirements in a particular Short Term Bond
country. Foreign markets, economies and political Fixed Income III
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

. Non-U.S. debt A Fund's foreign debt securities are typically Short Term Bond
securities obligations of sovereign governments. These Fixed Income III
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
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
subject to currency transfer restrictions and may
experience delays and disruptions in securities
settlement procedures.

. Instruments of Non-US corporations and banks issuing dollar Short Term Bond
US and foreign banks denominated instruments in the US are not necessarily Fixed Income I
and branches and subject to the same regulatory requirements that apply Fixed Income III
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. FUTURES If a Fund incorrectly forecasts interest rates in Short Term Bond
CONTRACTS, OPTIONS ON using derivatives, the Fund could lose money. Price Fixed Income I
FUTURES, INTEREST RATE movements of a futures contract, option or structured Fixed Income III
SWAPS) note may not be identical to price movements of
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
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, Fixed Income I
OBLIGATIONS business or political developments. These securities Fixed Income III
may be subject to provisions of litigation, Short Term Bond
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.
</TABLE>

18
<PAGE>

<TABLE>
<S> <C> <C>
REPURCHASE Under a repurchase agreement, a bank or broker sells Emerging Markets
AGREEMENTS securities to a Fund and agrees to repurchase them at
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 Equity I
RESERVES TO EQUITY MARKETS market, a Fund's performance tends to correlate more Equity II
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. Emerging Markets
Real Estate Securities

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

. Year 2000 and The Funds' operations depend on the smooth functioning All Funds
Fund operations 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.

. Year 2000 and The Funds and their shareholders could be adversely All Funds
Fund portfolio affected if the computer systems of the issuers in
investments which the Funds invest or those of the service
providers they depend upon, do not properly process
and calculate date-related information on or after
January 1, 2000. If such an event occurred, the
value of those issuer's securities could be reduced.

. Year 2000 and A Fund that invests significantly in Non-US issuers International
Fund portfolio may be exposed to a higher degree of risk from Year Emerging Markets
investments in 2000 issues than other Funds. It is generally Short Term Bond
non-U.S. issuers believed that Non-US governments and issuers are less Fixed Income III
prepared for Year 2000 related contingencies than
the US government and US-based issuers, which could
result in a more significant diminution in value of
non-US issuer's securities on or after January 1,
2000.

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.
</TABLE>
19

<PAGE>

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

The following bar charts illustrate the risks of investing in the Funds by
showing how the performance of the Class I Shares of Equity I, Equity II, Equity
III, Equity Q, International, Fixed Income I and Fixed Income III Funds, and of
the Class S Shares of Emerging Markets, Real Estate Securities and Short Term
Bond Funds, 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 return for the Class
C and E Shares of Emerging Markets, Real Estate Securities and Short Term Bond
Funds will differ from the Class S returns shown in the bar chart, depending
upon the fees and expenses of that class. The Funds expect the Premier Class
Shares to have lower expenses than the Class I Shares. 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 APPEARS HERE]

Real Short
Emerging Estate Term
Equity Equity Equity Equity Inter- Markets Securities Bond Fixed Fixed
I II III Q national Class S Class S Class S I III
------ ------ ------ ----- -------- -------- ---------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 30.79% 24.63% 28.07% 27.10% 24.06% 10.99% 13.35%
1990 -5.64% -14.76% -5.73% -4.81% -15.94% -15.92% 9.71% 8.60%
1991 31.22% 42.40% 27.86% 32.14% 13.47% 37.08% 12.31% 16.01%
1992 9.02% 13.31% 12.30% 9.97% -6.11% 17.29% 2.74% 7.26%
1993 11.61% 16.70% 14.95% 13.80% 35.56% 17.42% 6.98% 10.46%
1994 0.79% -2.60% 1.16% 0.99% 5.38% -5.83% 7.34% 0.82% -2.97% -3.89
1995 35.94% 28.67% 35.96% 37.91% 10.71% -8.21% 10.87% 9.95% 18.03% 17.99%
1996 23.58% 18.51% 20.90% 23.67% 7.98% 12.26% 36.81% 4.76% 3.75% 4.88%
1997 32.02% 28.66% 33.13% 33.07% 0.58% -3.45% 18.99% 6.02% 9.42% 9.64%
1998 25.10% 0.70% 11.53% 25.98% 13.52% -27.57% -15.94% 6.09% 8.37% 6.80%
------ ------ ------ ----- -------- -------- ---------- ------- ------- ------
</TABLE>

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

-------------------------------------------------------------------------
Best Worst
Quarter Quarter
------- -------
-------------------------------------------------------------------------
Equity I 22.53% (4Q/98) (14.93)% (3Q/90)
-------------------------------------------------------------------------
Equity II 21.20% (1Q/91) (22.61)% (3Q/90)
-------------------------------------------------------------------------
Equity III 16.54% (1Q/91) (15.28)% (3Q/90)
-------------------------------------------------------------------------
Equity Q 23.00% (4Q/98) (14.37)% (3Q/90)
-------------------------------------------------------------------------
International 16.10% (4Q/98) (18.43)% (3Q/90)
-------------------------------------------------------------------------
Emerging Markets 22.69% (4Q/93) (21.64)% (3Q/98)
-------------------------------------------------------------------------
Real Estate Securities 24.69% (1Q/91) (14.24)% (3Q/90)
-------------------------------------------------------------------------
Short Term Bond 4.80% (2Q/89) (0.72)% (1Q/94)
-------------------------------------------------------------------------
Fixed Income I 6.95% (2Q/89) (2.75)% (1Q/94)
-------------------------------------------------------------------------
Fixed Income III 4.44% (4Q/95) (3.12)% (1Q/94)
-------------------------------------------------------------------------

20
<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 Premier Class Shares of the Funds
were issued; information is being provided with respect to Class I Shares,
which differ from Premier Class Shares with respect to expenses of each Class.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS*
for the periods ended December 31, 1998
Since
1 Year 5 Years 10 Years Inception**
------ ------- -------- -----------
<S> <C> <C> <C> <C>
Equity I Fund
Class I 25.10% 22.83% 18.61%
Russell 1000(R)Index 27.02 23.37 19.03
Equity II Fund
Class I 0.70 13.98 14.43
Russell 2500(TM)Index 0.38 14.13 14.61
Equity III Fund
Class I 11.53 19.81 17.27
Russell 1000(R)Value Index 15.63 20.86 17.39
Equity Q Fund
Class I 25.98 23.62 19.17
Russell 1000(R)Index 27.02 23.37 19.03
International Fund
Class I 13.52 7.54 8.04
MSCI EAFE Index 20.33 9.51 5.86
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
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
Short Term Bond Fund
Class S 6.09 5.49 6.98
Merrill Lynch 1-2.99 Years Treasury Index 7.00 5.99 7.37
Fixed Income I Fund
Class I 8.37 7.10 9.08
Lehman Brothers Aggregate Bond Index 8.69 7.27 9.26
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, performance results for each Fund
other than the Real Estate Securities Fund do not reflect deduction of
investment management fees. No returns are shown for Class C Shares of the
Real Estate Securities, Emerging Markets and Short Term Bond Funds or
Class E Shares of The Short Term Bond Funds because those shares were not
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 shown for
Class S Shares of those Funds, the returns shown would have been lower.

** The Emerging Markets Fund and the Fixed Income III Fund each commenced
operations on January 29, 1993. The Real Estate Securities Fund commenced
operations on July 28, 1989.

21
<PAGE>

*** The returns shown for Class E Shares of Real Estate Securities Fund
reflects the deduction of Rule 12b-1 distribution fees from the
commencement of that Fund's Class E operations on November 4, 1996 until
May 18, 1998. Effective May 18, 1998, Class E Shares of that Fund are no
longer subject to a Rule 12b-1 distribution fee, which reduced performance
results prior to that date. Returns for periods prior to each Fund's
commencement of operations of its Class E Shares are those of the Fund's
Class S Shares, and therefore, do not reflect deduction of shareholder
services fees that apply to Class E Shares. The results shown have not been
increased to reflect the effect of the elimination of this fee. For periods
prior to April 1, 1995, performance results for each Fund other than the
Real Estate Securities Fund do not reflect deduction of investment
management fees.

+ Prior to April 1, 1999, the comparative index for the Emerging Markets Fund
was the Extended Barings Emerging Markets Index. The Fund believes that the
IFC Investable Composite Index better represents the universe of securities
researched and purchased by emerging markets managers, more closely
approximates the Fund's investment portfolio, and covers a much broader
universe of securities within emerging markets.

30-DAY YIELDS*
for the period ended December 31, 1998

Current
-------
Short Term Bond - Class S 4.89%
Fixed Income I - Class I 5.48%
Fixed Income III - Class I 6.33%

* No yields are shown for Class C Shares of Short Term Bond or Class E and
Premier Class Shares for each Fund because those shares were not 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
(fees paid directly from your investment)

<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> <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
Each Fund (Premier None None None None None None
Class)
</TABLE>

* For the Equity I, Equity II, Equity III, Equity Q, International, Fixed
Income I and Fixed Income III Funds the annual account maintenance fee is
imposed on accounts under $10,000. For the Emerging Markets, Real Estate
Securities and Short Term Bond Funds the annual account maintenance fee is
imposed on accounts under $5,000. 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. In addition, the
fee will be waived for accounts established before January 1, 1999. For the
Real Estate Securities, Emerging Markets and Short Term Bond Funds the fee
will be waived for accounts established before July 1, 1998. Investors
considering an investment of less than the amounts stated above 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.

If you purchase any class of shares of the Funds, you or your Financial
Intermediary may pay an annual 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 and may range from .00% to .40% of the amount invested.

ANNUAL OPERATING EXPENSES
(expenses that are deducted from Fund assets)
(% of net assets)

22
<PAGE>

Emerging Markets Fund................................... 1.15% 0.75% 0.91% 2.81%
Real Estate Securities Fund............................. 0.80% 0.75% 0.55% 2.10%
Short Term Bond Fund.................................... 0.45% 0.75% 0.47% 1.67%

CLASS E SHARES

Emerging Markets Fund................................... 1.15% 0.00% 0.91% 2.06%
Real Estate Securities Fund............................. 0.80% 0.00% 0.55% 1.35%
Short Term Bond Fund.................................... 0.45% 0.00% 0.47% 0.92%

CLASS S SHARES

Emerging Markets Fund................................... 1.15% 0.00% 0.66% 1.81%
Real Estate Securities Fund............................. 0.80% 0.00% 0.30% 1.10%
Short Term Bond Fund.................................... 0.45% 0.00% 0.22% 0.67%

PREMIER CLASS SHARES

Equity I Fund........................................... 0.55% 0.00% 0.22% 0.77%
Equity II Fund.......................................... 0.70% 0.00% 0.36% 1.06%
Equity III Fund......................................... 0.55% 0.00% 0.29% 0.84%
Equity Q Fund........................................... 0.55% 0.00% 0.20% 0.75%
International Fund...................................... 0.70% 0.00% 0.39% 1.09%
Fixed Income I Fund..................................... 0.25% 0.00% 0.26% 0.51%
Fixed Income III Fund................................... 0.50% 0.00% 0.31% 0.81%
</TABLE>

+ 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 Financial 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.

# The annual operating expenses for the Premier Class Shares of each Fund,
Class C Shares of each applicable Fund, and Class E Shares of Short Term
Bond Fund, 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. Since then 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.

23
<PAGE>

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.

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. The example does not reflect the
deduction of an annual $12.50 account maintenance fee imposed on accounts with
less than the required minimum balance. If it did, the costs shown would be
higher.

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

<TABLE>
<CAPTION>
Class C: 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Emerging Markets Fund.................................. $281 $886 $1,553 $3,534
Real Estate Securities Fund............................ 210 662 1,160 2,641
Short Term Bond Fund................................... 167 526 923 2,101

Class E: 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
Emerging Markets Fund.................................. $206 $649 $1,138 $2,591
Real Estate Securities Fund............................ 135 426 746 1,698
Short Term Bond Fund................................... 92 290 508 1,157

Class S: 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
Emerging Markets Fund.................................. $181 $571 $1,000 $2,277
Real Estate Securities Fund............................ 110 347 608 1,384
Short Term Bond Fund................................... 67 211 370 843

Premier Class: 1 Year 3 Years 5 Years 10 Years
- ------------- ------ ------- ------- --------
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

<TABLE>
<CAPTION>
ANTICIPATED MAXIMUM
EQUITY DEBT
FUND EXPOSURE EXPOSURE FOCUS
---- -------- -------- -----
<S> <C> <C> <C>
Equity I Fund.......................... 65-100% 35% Income and capital growth
</TABLE>

24
<PAGE>

<TABLE>
<S> <C> <C> <C>
Equity II Fund......................... 65-100% 35% Maximum total return primarily through
capital appreciation
Equity III Fund........................ 65-100% 35% Current income
Equity Q Fund.......................... 100% --% Total return
International Fund..................... 65-100% 35% Total return
Emerging Markets Fund.................. 65-100% 35% Maximum total return primarily through
capital appreciation
Real Estate Securities Fund............ 65-100% 35% Total return
Short Term Bond Fund................... 0-35% 100% Preservation of capital
Fixed Income I Fund.................... 0-35% 100% Current income and diversification
Fixed Income III Fund.................. --% 100% Maximum total return primarily through
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 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.

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.

25
<PAGE>

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 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.

The Funds conduct their business through a number of service providers, who
act on behalf of the Funds. FRIMCo, the Funds' administrator and investment
adviser, performs the Funds' day to day corporate management and oversees the
Funds' money managers. Each of the Funds' money managers makes all investment
decisions for the portion of the Fund assigned to it by FRIMCo. The Funds'
custodian, State Street Bank, maintains custody of all of the Funds' assets.
FRIMCo, in its capacity as the Funds' transfer agent, is responsible for
maintaining the Funds' shareholder records and carrying out shareholder
transactions. When a Fund acts in one of these areas, it does so through the
service provider responsible for that area.

MANAGEMENT OF THE FUNDS

26
<PAGE>

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.

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.

. 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

27
<PAGE>

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.

. 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%; Fixed Income III Fund, 0.55% Emerging Markets Fund, 1.20%; Real
Estate Securities Fund, 0.85%; and Short Term Bond Fund, 0.50%. The fees for
Emerging Markets and Real Estate Securities 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

28
<PAGE>

Agreement for which each Fund paid a single fee. Since then, 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 Information" at the end of 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. Additionally, each manager must operate within more specific
constraints developed from time to time by FRIMCo. FRIMCo develops such
constraints for each manager based on FRIMCo's assessment of the manager's
expertise and investment style. By assigning more specific constraints to each
money manager, FRIMCo intends to capitalize on the strengths of each money
manager and to combine their investment activities in a complementary fashion.
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

29
<PAGE>

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:

<TABLE>
<CAPTION>
Declared Payable Funds
-------- ------- -----
<S> <C> <C>
Quarterly...................... Mid: April, July, October and December Equity I, Equity II, Equity III, Equity
Q, Real Estate Securities, Short Term
Bond, Fixed Income I and Fixed Income
III Funds

Annually....................... Mid-December International and Emerging Markets Funds
</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.

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.

30
<PAGE>

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.

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 Equity I, Equity II, Equity III, Equity Q and Real
Estate Securities Funds will generally qualify, in part, for the corporate
dividends-received deduction. However, the portion of the dividends so qualified
depends on the aggregate qualifying dividend income received by 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.

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.

31
<PAGE>

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. The NYSE is not open on national holidays.
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 or Emerging Markets Funds, 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 Equity I, Equity II, Equity III, Equity Q, International, Fixed Income
I and Fixed Income III Funds offer Premier Class Shares through this Prospectus.
The Emerging Markets, Real Estate Securities and Short Term Bond 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 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

32
<PAGE>

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 AND PREMIER CLASS SHARES participate in neither the Funds'
distribution plan nor the Funds' shareholder services plan.

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.

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. You
will be responsible for any resulting loss to the Funds. 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.

33
<PAGE>

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

BY AUTOMATED CLEARING HOUSE ("ACH")

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

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.

34
<PAGE>

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) at the next net asset value per
share calculated after the Funds received the exchange request in good order.

IN-KIND EXCHANGE OF SECURITIES

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 for 15 days following the purchase by exchange or until the
transfer has settled, whichever comes first. 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

35
<PAGE>

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 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 or until the check
clears, whichever occurs first, 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

SYSTEMATIC WITHDRAWAL PROGRAM

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

36
<PAGE>

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

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 REQUESTS
- --------------------------------------------------------------------------------

37
<PAGE>

- --------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
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, Written instructions must be signed by all
Profit 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

38
<PAGE>

FINANCIAL HIGHLIGHTS

This Prospectus offers shares of Premier Class Shares of the Equity I,
Equity II, Equity III, Equity Q, International, Fixed Income I and Fixed Income
III Funds, 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 the Funds' 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 throughout each year or period ended December
31. 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 Funds' annual report, which is
available upon request. No Class C Shares of the Emerging Markets, Real Estate
Securities and Short Term Bond Funds, and no Class E Shares of the Short Term
Bond Fund, 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................... $ 30.51 $ 30.34 $ 28.00 $ 23.32 $ 24.91
---------- ---------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (b) .27 .34 .42 .52 .62
Net realized and
unrealized gain (loss)
on investments.................... 7.10 8.89 5.96 7.71 (.41)
---------- ---------- --------- --------- ---------
Total From
Investment
Operations ................... 7.37 9.23 6.38 8.23 .21
---------- ---------- --------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income (.27) (.34) (.42) (.52) (.62)
Net realized gain on
investments....................... (2.44) (8.72) (3.62) (3.03) (1.18)
---------- ---------- --------- --------- ---------
Total Distributions............. (2.71) (9.06) (4.04) (3.55) (1.80)
---------- ---------- --------- --------- ---------
NET ASSET VALUE, END OF
YEAR................................ $ 35.17 $ 30.51 $ 30.34 $ 28.00 $ 23.32
========== ========== ========= ========= =========

TOTAL RETURN (%)(a)................... 25.10 32.02 23.58 35.94 .79
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets (a) .70 .70 .71 .59 .12
Net investment income
to average net assets (a) .82 .96 1.38 1.91 2.52
Portfolio turnover.................. 100.68 110.75 99.51 92.04 75.02
Net assets, end of year
($000 omitted).................... 1,381,704 1,136,373 961,953 751,497 547,242
</TABLE>

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

(b) For the period ended December 31, 1998, average month-end shares outstanding
were used for this calculation.

39
<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................................. $ 32.96 $ 30.05 $ 28.88 $ 25.00 $ 26.58
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (b)............... .09 .11 .16 .27 .36
Net realized and unrealized
gain (loss)
on investments........................ .04 8.11 4.96 6.80 (.86)
-------- -------- -------- -------- --------
Total From Investment
Operations........................ .13 8.22 5.12 7.07 (.50)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income................... (.10) (.11) (.16) (.29) (.31)
Net realized gain on
investments........................... (2.05) (5.20) (3.79) (2.90) (.77)
-------- -------- -------- -------- --------
Total Distributions................. (2.15) (5.31) (3.95) (3.19) (1.08)
-------- -------- -------- -------- --------
NET ASSET VALUE, END
OF YEAR................................. $ 30.94 $ 32.96 $ 30.05 $ 28.88 $ 25.00
======== ======== ======== ======== ========

TOTAL RETURN (%)(a)....................... .70 28.66 18.51 28.67 (2.60)
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses to
average net assets (a)................ .91 .92 .95 .83 .23
Net investment income to
average net assets (a)................ .29 .35 .52 .97 1.46
Portfolio turnover...................... 128.87 103.00 120.78 89.31 58.04
Net assets, end of year
($000 omitted)........................ 533,819 482,159 365,955 279,566 202,977
</TABLE>

(b) For the period ended December 31, 1998, average month-end shares outstanding
were used for this calculation.

40
<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................................ $ 29.80 $ 29.68 $ 29.11 $ 24.18 $ 27.05
-------- -------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (b)........... .47 .60 .70 .82 .93
Net realized and unrealized gain
(loss) on investments............. 2.75 8.69 5.10 7.73 (.85)
-------- -------- --------- --------- ---------
Total From Investment
Operations.................... 3.22 9.29 5.80 8.55 .08
-------- -------- --------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income............... (.47) (.61) (.71) (.83) (.91)
Net realized gain on
investments....................... (3.43) (8.56) (4.52) (2.79) (2.04)
-------- -------- --------- ---------- ---------
Total Distributions................... (3.90) (9.17) (5.23) (3.62) (2.95)
-------- -------- --------- --------- ---------
NET ASSET VALUE, END OF YEAR.......... $ 29.12 $ 29.80 $ 29.68 $ 29.11 $ 24.18
======== ======== ========= ========= =========

TOTAL RETURN (%)(a)................... 11.53 33.13 20.90 35.96 1.16
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a).................... .74 .78 .79 .65 .17
Net investment income to
average net assets (a)............ 1.54 1.77 2.23 2.90 3.39
Portfolio turnover.................. 135.53 128.86 100.78 103.40 85.92
Net assets, end of year
($000 omitted).................... 210,491 242,112 221,778 222,541 177,807
</TABLE>

(b) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

41
<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........................... $ 35.90 $ 32.94 $ 30.40 $ 24.43 $ 26.03
---------- ---------- ---------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(b).......... .32 .44 .58 .59 .69
INCOME
Net realized and unrealized
gain (loss) on investments...... 8.53 10.01 6.33 8.52 (.41)
---------- ---------- ---------- --------- ---------
Total income from
Investment Operations....... 8.85 10.45 6.91 9.11 .28
---------- ---------- ---------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income............. (.32) (.44) (.59) (.61) (.69)
Net realized gain on
investments..................... (4.21) (7.05) (3.78) (2.53) (1.19)
---------- ---------- ---------- --------- ---------
Total Distributions........... (4.53) (7.49) (4.37) (3.14) (1.88)
---------- ---------- ---------- --------- ---------
NET ASSET VALUE, END OF
YEAR.............................. $ 40.22 $ 35.90 $ 32.94 $ 30.40 $ 24.43
========== ========== ========== ========= =========

TOTAL RETURN (%)(a)................. 25.98 33.07 23.67 37.91 .99

Operating expenses to
average net assets (a).......... .69 .68 .71 .58 .11
Net investment income to
average net assets (a).......... .85 1.17 1.80 2.07 2.74
Portfolio turnover ............... 74.56 94.89 74.59 74.00 45.87
Net assets, end of year
($000 omitted).................. 1,175,900 987,760 818,281 620,259 430,661
</TABLE>

(b) For the period ended December 31, 1998, average month-end shares outstanding
were used for this calculation.

42
<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.................................... $ 34.60 $ 37.39 $ 36.26 $ 34.28 $ 37.34
---------- ---------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (b)............... .52 .46 .44 .48 .61
Net realized and unrealized gain
(loss) on investments ................ 4.10 (.28) 2.41 3.16 .65
---------- ---------- --------- --------- ---------
Total Income From
Investment Operations............. 4.62 .18 2.85 3.64 1.26
---------- ---------- --------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income................... (.59) (.55) (.35) (.72) (.36)
Net realized gain on
investments........................... (.60) (2.42) (1.37) (.94) (3.96)
---------- ---------- --------- --------- ---------
Total Distributions................. (1.19) (2.97) (1.72) (1.66) (4.32)
---------- ---------- --------- --------- ---------
NET ASSET VALUE, END OF YEAR.............. $ 38.03 $ 34.60 $ 37.39 $ 36.26 $ 34.28
========== ========== ========= ========= =========

TOTAL RETURN (%)(a)....................... 13.52 .58 7.98 10.71 5.38
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average net assets (a)................ .98 1.00 1.04 .88 .32
Operating expenses, gross, to
average net assets (a)................ .98 1.00 1.05 .89 .34
Net investment income to
average net assets (a)................ 1.38 1.14 1.20 1.41 1.63
Portfolio turnover...................... 64.47 79.45 42.69 36.78 71.09
Net assets, end of year
($000 omitted)........................ 1,013,679 972,735 944,380 796,777 674,180
</TABLE>

(b) For the period ended December 31, 1998, average month-end shares outstanding
were used for this calculation.

43
<PAGE>

EMERGING MARKETS FUND: CLASS E SHARES

<TABLE>
<CAPTION>
1998+
------------
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD..................................... $ 7.37
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (c)...................................... (.02)
Net realized and unrealized gain (loss) on investments......... 1.13
------------
Total Income From Investment Operations................... 1.11
============
NET ASSET VALUE, END OF PERIOD.......................................... $ 8.48
============

TOTAL RETURN (%) (A).................................................... 15.06
RATIOS(%)/SUPPLEMENTAL DATA:
Operating expenses, to average net assets(b) .................. ---
Net investment income to average net assets (b)................ ---
Portfolio turnover............................................. 59.35
Net Assets, end of year ($000 omitted)................... 39
</TABLE>

+ For the period September 22, 1998 (commencement of operations) to December
31, 1998.

(a) Period less than one year are annualized.

(b) The ratios are not meaningful due to the Funds' short period of operations.

EMERGING MARKETS FUND - CLASS S SHARES

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year......................... $ 11.79 $ 12.35 $ 11.16 $ 12.25 $ 13.90
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b)................................ .12 .14 .10 .11 .15
Net realized and unrealized gain (loss) on investments... (3.35) (.56) 1.26 (1.12) (1.24)
-------- -------- -------- -------- --------
Total From Investment Operations..................... (3.23) (.42) 1.36 (1.01) (1.09)
-------- -------- -------- -------- --------
Less Distributions:
Net investment income.................................... (.08) (.14) (.17) (.05) (.20)
Net realized gain on investments......................... -- -- -- (.03) (.36)
--- --- --- -------- --------
Total Distributions.................................. (.08) (.14) (.17) (.08) (.56)
-------- -------- -------- -------- --------
Net Asset Value, End of Year............................... $ 8.48 $ 11.79 $ 12.35 $ 11.16 $ 12.25
======== ======== ======== ======== ========

Total Return (%)(a)........................................ (27.57) (3.45) 12.26 (8.21) (5.83)
Ratios (%)/Supplemental Data:
Operating expenses, net, to average net assets (a)....... 1.75 1.64 1.71 1.75 .80
Operating expenses, gross, to average net assets (a)..... 1.75 1.64 1.72 1.80 .83
Net investment income to average net assets (a).......... 1.20 .87 .77 .88 1.10
Portfolio turnover ...................................... 59.35 50.60 34.62 71.16 57.47
Net assets, end of year ($000 omitted)................... 294,349 333,052 271,490 172,673 127,271
</TABLE>

(b) For the period ended December 31, 1998, average month-end shares outstanding
were used for this calculation.

44
<PAGE>

REAL ESTATE SECURITIES FUND: CLASS E SHARES

<TABLE>
<CAPTION>
1998 1997 1996+
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR............................ $ 31.02 $ 29.18 $ 26.67
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (c)........................... 1.26 1.14 .24
Net realized and unrealized gain (loss) on
investments........................................ (6.12) 3.95 3.85
------- ------- -------
Total Income From Investment Operations......... (4.86) 5.09 4.09
------- ------- -------
LESS DISTRIBUTIONS:
Net investment income................................ (1.43) (1.04) (.32)
Net realized gain on investments..................... (.46) (2.21) (1.26)

Total Distributions............................. (1.89) (3.25) (1.58)
------- ------- -------
NET ASSET VALUE, END OF PERIOD................................ $ 24.27 $ 31.02 $ 29.18
======= ======= =======

TOTAL RETURN (%) (A).......................................... (16.25) 18.20 15.75
RATIOS %/SUPPLEMENTAL DATA:
Operating expense, to average net assets(b).......... 1.47 1.71 1.77
Net investment income to average net assets(b)....... 4.90 3.94 5.31
Portfolio turnover ratio (%)(b)...................... 42.58 49.40 51.75
Net Assets, end of period ($000 omitted) ............ 843 388 101
</TABLE>

+ For the period November 4, 1996 (commencement of sale) to December 31, 1996.

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

(b) The ratios for the period ended December 31, 1996 are annualized.

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.......... $ 30.86 $ 29.19 $ 23.51 $ 22.53 $ 22.76
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a)................. 1.34 1.36 1.39 1.32 1.25
Net realized and unrealized gain
(loss) on investments.................. (6.13) 3.93 6.89 1.03 .40
-------- -------- -------- -------- --------
Total From Investment Operations...... (4.79) 5.29 8.28 2.35 1.65
-------- -------- -------- -------- --------

LESS DISTRIBUTIONS:
Net investment income..................... (1.17) (1.41) (1.34) (1.35) (1.23)
Net realized gain on investments.......... (.46) (2.21) (1.26) -- (.65)
Tax return of capital..................... -- -- -- (.02) --
-------- -------- -------- -------- --------
Total Distributions................... (1.63) (3.62) (2.60) (1.37) (1.88)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR................ $ 24.44 $ 30.86 $ 29.19 $ 23.51 $ 22.53
======== ======== ======== ======== ========

TOTAL RETURN (%)............................ (15.94) 18.99 36.81 10.87 7.24
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, to average
net assets............................. 1.05 1.02 1.04 1.04 1.05
Net investment income to average
net assets............................. 4.93 4.57 5.64 6.10 5.65
Portfolio turnover........................ 42.58 49.40 51.75 23.49 45.84
Net assets, end of year ($000 omitted).... 576,326 615,483 445,619 290,990 209,208
</TABLE>

(a) For the period ended December 31, 1998, average month-end shares outstanding
were used for this calculation.

45
<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....................... $ 18.35 $ 18.36 $ 18.55 $ 17.98 $ 18.99
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (b).. .99 1.08 1.04 1.16 1.21
Net realized and unrealized gain
(loss) on investments.... .11 -- (.19) .59 (1.07)
-------- -------- -------- -------- --------
Total From Investment
Operations........... 1.10 1.08 .85 1.75 .14
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income...... (.99) (1.09) (1.04) (1.18) (1.15)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR. $ 18.46 $ 18.35 $ 18.36 $ 18.55 $ 17.98
======== ======== ======== ======== ========

TOTAL RETURN (%)(A).......... 6.09 6.02 4.76 9.95 .82
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average net
assets (a)............... .66 .66 .70 .58 .19
Net investment income to average
net assets (a)........... 5.37 5.70 5.70 6.41 6.52
Portfolio turnover......... 129.85 213.14 264.40 269.31 233.75
Net assets, end of year
($000 omitted)........... 260,539 229,470 222,983 183,577 144,030
</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%.

(b) For the period ended December 31, 1998, average month-end shares outstanding
were used for this calculation.

46
<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....................... $ 21.51 $ 20.99 $ 21.59 $ 19.59 $ 21.74
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(b)... 1.32 1.37 1.38 1.42 1.46
Net realized and unrealized gain
(loss) on investments.... .45 .54 (.62) 2.02 (2.06)
-------- -------- -------- -------- --------
Total From Investment
Operations .......... 1.77 1.91 .76 3.44 (.60)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income...... (1.31) (1.39) (1.36) (1.44) (1.44)
Net realized gain on
investments.............. (.21) -- -- -- (.11)
-------- -------- -------- -------- --------
Total Distributions.... (1.52) (1.39) (1.36) (1.44) (1.55)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR. $ 21.76 $ 21.51 $ 20.99 $ 21.59 $ 19.59
======== ======== ======== ======== ========

TOTAL RETURN (%)(a).......... 8.37 9.42 3.75 18.03 (2.97)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses to average
net assets (a)........... .39 .42 .42 .35 .10
Net investment income to
average net assets (a)... 6.03 6.54 6.57 6.82 7.06
Portfolio turnover......... 226.70 165.81 147.31 138.05 173.97
Net assets, end of year ($000
omitted)................. 978,491 798,252 662,899 638,317 496,038
</TABLE>

(b) For the period ended December 31, 1998, average month-end shares outstanding
were used for this calculation.

47
<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........................... $ 10.42 $ 10.17 $ 10.34 $ 9.37 $ 10.44
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b)................................. .62 .63 .64 .67 .66
Net realized and unrealized gain (loss) on investments... .08 .32 (.16) .97 (1.07)
-------- -------- -------- -------- --------
Total From Investment Operations..................... .70 .95 .48 1.64 (.41)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income..................................... (.62) (.64) (.65) (.67) (.66)
Net realized gain on investments.......................... (.28) (.06) -- -- --
-------- -------- -------- -------- --------
Total Distributions.................................. (.90) (.70) (.65) (.67) (.66)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR................................. $ 10.22 $ 10.42 $ 10.17 $ 10.34 $ 9.37
======== ======== ======== ======== ========

TOTAL RETURN (%)............................................. 6.80 9.64 4.88 17.99 (3.89)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average net assets(a) .67 .70 .73 .61 .20
Net investment income to average net assets(a)............ 5.91 6.13 6.32 6.83 7.02
Portfolio turnover ....................................... 342.49 274.84 144.26 141.37 134.11
Net assets, end of year ($000 omitted).................... 462,190 382,433 292,077 252,465 166,620
</TABLE>

(b) For the period ended December 31, 1998, average month-end shares outstanding
were used for this calculation.

48
<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.

49
<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

50
<PAGE>

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

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

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

EMERGING MARKETS FUND

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

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

Montgomery Asset Management LLC, See: International Fund.

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.

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.

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., See: Short Term Bond Fund.

FIXED INCOME III FUND

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

51
<PAGE>

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.

52
<PAGE>

<TABLE>
<CAPTION>
<S> <C>
For more information about the Funds, the FRANK RUSSELL INVESTMENT
following documents are available without COMPANY
charge:
Equity I Fund - Premier Class
ANNUAL/SEMIANNUAL REPORTS: Additional Equity II Fund - Premier Class
information about the Funds' investments Equity III Fund - Premier Class
is available in the Funds' annual and semiannual Equity Q Fund - Premier Class
reports to shareholders. In each Fund's annual International Fund - Premier Class
report, you will find a discussion of the market Emerging Markets Fund - Classes C, E, S
conditions and investment strategies that Real Estate Securities Fund - Classes C, E, S
significantly affected the Fund's performance Short Term Bond Fund - Classes C, E, S
during its last fiscal year. Fixed Income I Fund - Premier Class
Fixed Income III Fund - Premier Class
</TABLE>

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
Fax: 253-591-4395
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.

53
<PAGE>

+++++++++++++++++++++
+INSTITUTIONAL FUNDS+
+++++++++++++++++++++

FRANK RUSSELL INVESTMENT COMPANY

Institutional Funds

PROSPECTUS

EQUITY I FUND - CLASS E AND I SHARES

EQUITY II FUND - CLASS E AND 1 SHARES

EQUITY III FUND - CLASS E AND I SHARES

EQUITY G FUND - CLASS E AND I SHARES

INTERNATIONAL FUND - CLASS E AND I SHARES

EMERGING MARKETS FUND - CLASS C, E AND S SHARES

REAL ESTATE SECURITIES FUND - CLASS C, E AND S SHARES

SHORT TERM BOND FUND - CLASS C, E AND S SHARES

FIXED INCOME I FUND - CLASS E AND I SHARES

FIXED INCOME III FUND - CLASS E AND I SHARES

MAY 1, 1999

909 A. STREET, TACOMA, WA 98401 . 800-757-7354 - 253-627-7001

As with all mutual funds, the Securities and Exchange commission has neither
determined that the information in this Prospectus is accurate or complete, nor
approved or disapproved of these securities. It is a criminal offense to state
otherwise.
[RUSSELL LOGO]
<PAGE>

TABLE OF CONTENTS

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES

Equity I Fund

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

Principal Investment Strategies. The Equity I Fund invests primarily in
common stocks of medium and large capitalization companies most of which are
US-based.

The Fund employs a "multi-style, multi-manager" approach whereby portions of
the Fund are allocated to different money managers who employ distinct
investment styles. The Fund uses three principal investment styles, intended
to complement one another:

3
<PAGE>

Equity II Fund

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

Principal Investment Strategies. The Equity II Fund invests primarily in
common stocks of small and medium capitalization companies most of which are
US-based.

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.

The Fund employs a "multi-style, multi-manager" approach whereby portions of
the Fund are allocated to different money managers who employ distinct
investment styles. The Fund uses three principal investment styles, intended
to complement one another:

A portion of a Fund's net assets 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 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 Objective. To achieve a high level of current income, while
maintaining the potential for capital appreciation.

4
<PAGE>

Principal Investment Strategies. The Equity III Fund invests primarily in
common stocks of medium and large capitalization companies, most of which are
US-based.

Equity Q Fund

Principal Investment Strategies. The Equity Q Fund invests primarily in
common stocks of medium and large capitalization companies which are
predominately US-based.

5
<PAGE>

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 a money manager has ranked the securities, it then
selects the securities most likely to outperform and constructs, for its
segment of the Fund, a portfolio that has risks similar to the Russell 1000(R)
Index. Each money manager performs this process independently from each other
money manager.

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.

International Fund

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

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

6
<PAGE>

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.

. 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.

Emerging Markets Fund

7
<PAGE>

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.

The Fund employs a multi-manager approach whereby portions of the Fund are
allocated to different money managers who employ distinct 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.

Up to 15% of the Fund's net assets 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 income. These loans may be terminated at any
time. A Fund will receive either cash or US government debt obligations as
collateral.

8
<PAGE>

Real Estate Securities Fund

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

The Fund employs a "multi-style, multi-manager" approach whereby portions of
the Fund are allocated to different money managers who employ distinct
investment styles. The Fund intends these styles to complement one another.

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 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 FRIC money market Funds.

Short Term Bond Fund

9
<PAGE>

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.

Fixed Income I Fund

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

Principal Investment Strategies. The Fixed Income I Fund invests primarily
in investment grade fixed-income securities. In particular, the Fund holds
debt 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 (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.

10
<PAGE>

The Fund invests in securities of issuers in a variety of sectors of the
fixed-income market. In seeking investments that will produce cash flow, the
Fund's money managers also 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.

Fixed Income III Fund

Principal Investment Strategies. The Fixed Income III Fund invests primarily
in fixed-income securities. In particular, the Fund holds debt 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
(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.

11
<PAGE>

12
<PAGE>

PRINCIPAL RISKS

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

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

. Growth Stocks Growth company stocks may Equity I
provide minimal dividends Equity II
that can cushion stock Equity Q
prices in a market decline. International
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.
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ----------- -------------
<C> <S> <C>
. Market-Oriented Market-oriented investments are Equity I
Investments generally subject to the risks Equity II
associated with growth and value Equity Q
stocks. International
. Securities of small Investments in smaller companies Equity II
capitalization may involve greater risks because
companies these companies generally have a
limited 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 securities Prices of fixed-income securities Short Term Bond
rise and fall in response to Fixed Income I
interest rate changes. Generally, Fixed Income III
when 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. A 1%
increase in interest rates would
reduce the value of a $100 note by
approximately one dollar if it had
a one year duration, but would
reduce its value by approximately
fifteen dollars if it had a 15
year duration. 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 grade Although lower rated debt Short Term Bond
fixed-income securities generally offer a Fixed Income III
securities higher yield than higher rated
debt securities, they involve
higher risks. They are especially
subject to:
. 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.
</TABLE>

14
<PAGE>

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ----------- -------------
<C> <S> <C>
International A Fund's return and net asset International
securities value may be significantly Emerging Markets
affected by political or economic Short Term Bond
conditions and regulatory Fixed Income III
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.
. Non-U.S. debt A Fund's foreign debt securities Short Term Bond
securities are typically obligations of Fixed Income III
sovereign governments. These
securities are particularly
subject to a risk of default from
political instability.
. Emerging market Investments in emerging or Emerging Markets
Countries developing markets involve
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 Short Term Bond
and foreign banks issuing dollar denominated Fixed Income I
and branches and instruments in the US are not Fixed Income III
foreign necessarily subject to the same
corporations, regulatory requirements that apply
including Yankee to US corporations and banks, such
Bonds as accounting, 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 bank may become
insolvent or otherwise unable to
fulfill its obligations on these
instruments.
Derivatives (e.g. If a Fund incorrectly forecasts Short Term Bond
futures contracts, interest rates in using Fixed Income I
options on futures, derivatives, the Fund could lose Fixed Income III
interest rate swaps) money. Price movements of a
futures contract, option or
structured note may not be
identical to price movements of
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.
</TABLE>

15
<PAGE>

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ----------- -------------
<C> <S> <C>
Real estate securities Just as real estate values go up Real Estate
and down, companies involved in Securities
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 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 Real Estate
in the value of the underlying Securities
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 Obligations Municipal obligations are affected Fixed Income I
by economic, business or political Fixed Income III
developments. These securities may Short Term Bond
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.
Repurchase Agreements Under a repurchase agreement, a Emerging Markets
bank or broker sells securities to
a Fund and agrees to repurchase
them at 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 Equity I
Reserves to Equity to the equity market, a Fund's Equity II
Markets performance tends to correlate Equity III
more closely to the performance of Equity Q
the market as a whole. Although International
this increases a Fund's Emerging Markets
performance if equity markets Real Estate
rise, it reduces a Fund's Securities
performance if equity markets
decline.
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ----------- -------------
<C> <S> <C>
Securities Lending If a borrower of a Fund's All Funds
securities fails financially, the
Fund's recovery of the loaned
securities may be delayed or the
Fund may lose its rights to the
collateral.
Year 2000
. Year 2000 and The Funds' operations depend on All Funds
Fund operations the smooth functioning 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.
. Year 2000 and The Funds and their shareholders All Funds
Fund portfolio could be adversely affected if the
investments computer systems of the issuers in
which the Funds invest or those of
the service providers they depend
upon, do not properly process and
calculate date-related information
on or after January 1, 2000. If
such an event occurred, the value
of those issuer's securities could
be reduced.
. Year 2000 and A Fund that invests significantly International
Fund portfolio in Non-US issuers may be exposed Emerging Markets
investments in to a higher degree of risk from Short Term Bond
non-U.S. issuers Year 2000 issues than other Funds. Fixed Income III
It is generally believed that Non-
US governments and issuers are
less prepared for Year 2000
related contingencies than the US
government and US-based issuers,
which could result in a more
significant diminution in value of
non-US issuer's securities on or
after January 1, 2000.
</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.

17
<PAGE>

PERFORMANCE

The following bar charts illustrate the risks of investing in the Funds by
showing how the performance of Class I shares of Equity I, Equity II, Equity
III, Equity Q, International, Fixed Income I and Fixed Income III Funds and of
Class S shares of Emerging Markets, Real Estate Securities and Short Term Bond
Funds 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 or 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.

[BAR CHART APPEARS HERE]

<TABLE>
<CAPTION>
Real Short
Emerging Estate Term
Equity Equity Equity Equity Inter- Markets Securities Bond Fixed Fixed
I II III Q national Class S Class S Class S I III
------- ------- ------- ------- ---------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 30.79% 24.63% 28.07% 27.10% 24.06% 10.99% 13.35%
1990 -5.64% -14.76% -5.73% -4.81% -15.94% -15.92% 9.71% 8.60%
1991 31.22% 42.40% 27.86% 32.14% 13.47% 37.08% 12.31% 16.01%
1992 9.02% 13.31% 12.30% 9.97% -6.11% 17.29% 2.74% 7.26%
1993 11.61% 16.70% 14.95% 13.80% 35.56% 17.42% 6.98% 10.46%
1994 0.79% -2.60% 1.16% 0.99% 5.38% -5.83% 7.24% 0.82% -2.97% -3.89%
1995 35.94% 28.67% 35.96% 37.91% 10.71% -8.21% 10.87% 9.95% 18.03% 17.99%
1996 23.58% 18.51% 20.90% 23.67% 7.98% 12.26% 36.81% 4.76% 3.75% 4.88%
1997 32.02% 28.66% 33.13% 33.07% 0.58% -3.45% 18.99% 6.02% 9.42% 9.64%
1998 25.10% 0.70% 11.53% 25.98% 13.52% -27.57% -15.94% 6.09% 8.37% 6.80%
------- ------- ------- ------- ---------- -------- ---------- ------- ---------- --------
</TABLE>

18
<PAGE>

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

<TABLE>
<CAPTION>
Best Worst
Quarter Quarter
------------- ---------------
<S> <C> <C>
Equity I..................................... 22.53% (4Q/98) (14.93)% (3Q/90)
Equity II.................................... 21.20% (1Q/91) (22.61)% (3Q/90)
Equity III................................... 16.54% (1Q/91) (15.28)% (3Q/90)
Equity Q..................................... 23.00% (4Q/98) (14.37)% (3Q/90)
International................................ 16.10% (4Q/98) (18.43)% (3Q/90)
Emerging Markets............................. 22.69% (4Q/93) (21.64)% (3Q/98)
Real Estate Securities....................... 24.69% (1Q/91) (14.24)% (3Q/90)
Short Term Bond.............................. 4.80% (2Q/89) (0.72)% (1Q/94)
Fixed Income I............................... 6.95% (2Q/89) (2.75)% (1Q/94)
Fixed Income III............................. 4.44% (4Q/95) (3.12)% (1Q/94)
</TABLE>

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

<TABLE>
<CAPTION>
Since
1 Year 5 Years 10 Years Inception**
------ ------- -------- -----------
<S> <C> <C> <C> <C>
Equity I Fund
Class I............................... 25.10% 22.83% 18.61% -- %
Russell 1000(R) Index................. 27.02 23.37 19.03 --
Equity II Fund
Class I............................... 0.70 13.98 14.43 --
Russell 2500(TM) Index................ 0.38 14.13 14.61 --
Equity III Fund
Class I............................... 11.53 19.81 17.27 --
Russell 1000(R) Value Index........... 15.63 20.86 17.39 --
Equity Q Fund
Class I............................... 25.98 23.62 19.17 --
Russell 1000(R) Index................. 27.02 23.37 19.03 --
International Fund
Class I............................... 13.52 7.54 8.04 --
MSCI EAFE Index....................... 20.33 9.51 5.86 --
Emerging Markets Fund***
Class E**............................. (27.61) (7.47) -- (0.65)
Class S............................... (27.57) (7.46) -- (0.64)
Extended Barings Emerging Markets
IFC Investable Composite Index++...... (22.02) (10.14) -- 0.95
Index................................. (18.76) (6.30) -- 4.17
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
Since
1 Year 5 Years 10 Years Inception**
------ ------- -------- -----------
<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
Short Term Bond Fund
Class S............................... 6.09 5.49 6.98 --
Merrill Lynch 1-2.99 Years Treasury
Index................................ 7.00 5.99 7.37 --
Fixed Income I Fund
Class I............................... 8.37 7.10 9.08 --
Lehman Brothers Aggregate Bond Index.. 8.69 7.27 9.26 --
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 returns are shown for Class C Shares of the Real Estate Securities,
Emerging Markets and Short Term Bond Funds or Class E Shares of Equity I,
Equity II, Equity III, Equity Q, International, Fixed Income I, Fixed
Income III and Short Term Bond Funds because those shares were not 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 shown for
Class I and Class S Shares, the returns shown would have been lower.

** The Emerging Markets Fund and the Fixed Income III Fund each commenced
operations on January 29, 1993. For periods prior to April 1, 1995,
performance results for those Funds do not reflect deduction of investment
management fees. The Real Estate Securities Fund commenced operations on
July 28, 1989.

*** The returns shown for Class E Shares of Real Estate Securities Fund
reflects the deduction of Rule 12b-1 distribution fees from the
commencement of that Fund's Class E operations on November 4, 1996 until
May 18, 1998. Effective May 18, 1998, Class E Shares of that Fund are no
longer subject to a Rule 12b-1 distribution fee, which reduced performance
results prior to that date. Returns for periods prior to the Real Estate
Securities Fund's and the Emerging Markets Fund's commencement of
operations of its Class E Shares are those of the Fund's Class S Shares,
and therefore, do not reflect deduction of shareholder services fees that
apply to Class E Shares. The results shown have not been increased to
reflect the effect of the elimination of this fee. For periods prior to
April 1, 1995, performance results for each Fund other than the Real
Estate Securities Fund do not reflect deduction of investment management
fees.

++ Prior to April 1, 1999, the comparative index for the Emerging Markets
Fund was the Extended Barings Emerging Markets Index. The Fund believes
that the IFC Investable Composite Index better represents the universe of
securities researched and purchased by emerging markets managers, more
closely approximates the Fund's investment portfolio, and covers a much
broader universe of securities within emerging markets.

30-Day Yields*

for the period ended December 31, 1998

<TABLE>
<CAPTION>
Current
-------
<S> <C>
Short Term Bond--Class S............................................. 4.89%
Fixed Income I--Class I.............................................. 5.48%
Fixed Income III--Class I............................................ 6.33%
</TABLE>
- ---------------------

* No yields are shown for Class C Shares of Short Term Bond, or Class E Shares
of each Fund, because those Shares were not issued during the period shown.

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

20
<PAGE>

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

(fees paid directly from your investment)

<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> <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 I).............. None None None None None 12.50/yr
Each Fund
(Class S).............. None None None None None 12.50/yr
</TABLE>
- ---------------------

* For the Equity I, Equity II, Equity III, Equity Q, International, Fixed
Income I and Fixed Income III Funds the annual account maintenance fee is
imposed on accounts under $10,000. For the Emerging Markets, Real Estate
Securities and Short Term Bond Funds the annual account maintenance fee is
imposed on accounts under $5,000. 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. In addition, the fee
will be waived for accounts established before January 1, 1999. For the Real
Estate Securities, Emerging Markets and Short Term Bond Funds the fee will
be waived for accounts established before July 1, 1998. Investors
considering an investment of less than the amounts stated above 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.

If you purchase any class of shares of certain Funds, you or your Financial
Intermediary may pay an annual 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 and may range from .00% to .40% of the amount invested.

21
<PAGE>

Annual Operating Expenses (expenses that are deducted from Fund assets) (% 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
Emerging Markets Fund... 1.15% 0.75% 0.91% 2.81%
Real Estate Securities
Fund................... 0.80% 0.75% 0.55% 2.10%
Short Term Bond Fund.... 0.45% 0.75% 0.47% 1.67%
Class E Shares
Equity I Fund........... 0.55% 0.00% 0.40% 0.95%
Equity II Fund.......... 0.70% 0.00% 0.48% 1.18%
Equity III Fund......... 0.55% 0.00% 0.45% 1.00%
Equity Q Fund........... 0.55% 0.00% 0.38% 0.93%
International Fund...... 0.70% 0.00% 0.56% 1.26%
Emerging Markets Fund... 1.15% 0.00% 0.91% 2.06%
Real Estate Securities
Fund................... 0.80% 0.00% 0.55% 1.35%
Short Term Bond Fund.... 0.45% 0.00% 0.47% 0.92%
Fixed Income I Fund..... 0.25% 0.00% 0.41% 0.66%
Fixed Income III Fund... 0.50% 0.00% 0.46% 0.96%
Class I Shares
Equity I Fund........... 0.55% 0.00% 0.15% 0.70%
Equity II Fund.......... 0.70% 0.00% 0.23% 0.93%
Equity III Fund......... 0.55% 0.00% 0.20% 0.75%
Equity Q Fund........... 0.55% 0.00% 0.13% 0.68%
International Fund...... 0.70% 0.00% 0.31% 1.01%
Fixed Income I Fund..... 0.25% 0.00% 0.16% 0.41%
Fixed Income III Fund... 0.50% 0.00% 0.21% 0.71%
Class S Shares
Emerging Markets Fund... 1.15% 0.00% 0.66% 1.81%
Real Estate Securities
Fund................... 0.80% 0.00% 0.30% 1.10%
Short Term Bond Fund.... 0.45% 0.00% 0.22% 0.67%
</TABLE>
- ---------------------

+ 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 financial 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.

# Annual Class E Shares operating expenses for the Equity I, Equity II, Equity
III, Equity Q, International, Fixed Income I, Fixed Income III and Short
Term Bond Funds, and annual Class C Shares operating expenses for the
Emerging Markets, Real Estate Securities and Short Term Bond Funds, 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. Since then 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.

22
<PAGE>

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>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class C:
Emerging Markets Fund........................... $281 $886 $1,553 $3,534
Real Estate Securities Fund..................... 210 662 1,160 2,641
Short Term Bond Fund............................ 167 526 923 2,101
Class E:
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
Emerging Markets Fund........................... 206 649 1,138 2,591
Real Estate Securities Fund..................... 135 426 746 1,698
Short Term Bond Fund............................ 92 290 508 1,157
Fixed Income I Fund............................. 66 208 365 830
Fixed Income III Fund........................... 96 303 530 1,207
Class I:
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
Class S:
Emerging Markets Fund........................... $181 $571 $1,000 $2,277
Real Estate Securities Fund..................... 110 347 608 1,384
Short Term Bond Fund............................ 67 211 370 843
</TABLE>

23
<PAGE>

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% Income and capital growth
Equity II Fund.......... 65-100% 35% Maximum total return primarily through
capital appreciation
Equity III Fund......... 65-100% 35% Current income
Equity Q Fund........... 100% -- % Total return
International Fund...... 65-100% 35% Total return
Emerging Markets Fund... 65-100% 35% Maximum total return primarily through
capital appreciation
Real Estate Securities 65-100% 35% Total return
Fund...................
Short Term Bond Fund.... 0-35% 100% Preservation of capital
Fixed Income I Fund..... 0-35% 100% Current income and diversification
Fixed Income III Fund... -- % 100% Maximum total return primarily through
capital appreciation
</TABLE>

24
<PAGE>

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

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

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

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

25
<PAGE>

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.

The Funds conduct their business through a number of service providers, who
act on behalf of the Funds. FRIMCo, the Funds' administrator and investment
adviser, performs the Funds' day to day corporate management and oversees the
Funds' money managers. Each of the Funds' money managers makes all investment
decisions for the portion of the Fund assigned to it by FRIMCo. The Funds'
custodian, State Street Bank, maintains custody of all of the Funds' assets.
FRIMCo, in its capacity as the Funds' transfer agent, is responsible for
maintaining the Funds' shareholder records and carrying out shareholder
transactions. When a Fund acts in one of these areas, it does so through the
service provider responsible for that area.

MANAGEMENT OF THE FUNDS

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.

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.

26
<PAGE>

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.

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%; Fixed Income III Fund, 0.55%; Emerging Markets Fund,
1.20%; Real Estate Securities Fund, 0.85%; and Short Term Bond Fund, 0.50%. The
fees for Emerging Markets and Real Estate Securities 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. Since then, 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.

27
<PAGE>

THE MONEY MANAGERS

Each Fund allocates its assets among the money managers listed under "Money
Manager Information" at the end of 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. Additionally, each manager must operate within more specific
constraints developed from time to time by FRIMCo. FRIMCo develops such
constraints for each manager based on FRIMCo's assessment of the manager's
expertise and investment style. By assigning more specific constraints to each
money manager, FRIMCo intends to capitalize on the strengths of each money
manager and to combine their investment activities in a complementary fashion.
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

28
<PAGE>

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, Real Estate
Securities, Short Term Bond,
Fixed Income I and Fixed Income
III, Funds

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

CAPITAL GAINS DISTRIBUTIONS

BUYING A DIVIDEND

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

29
<PAGE>

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 Equity I, Equity II, Equity III, Equity Q and Real
Estate Securities Funds will generally qualify, in part, for the corporate
dividends-received deduction. However, the portion of the dividends so
qualified depends on the aggregate qualifying dividend income received by 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.

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. The NYSE is not open on national holidays.
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>

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 Equity I, Equity II, Equity III, Equity Q, International, Fixed Income I
and Fixed Income III Funds offer multiple classes of shares: Class E shares and
Class I Shares. The Emerging Markets, Real Estate Securities and Short Term
Bond Funds offer multiples 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 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 I SHARES do not participate in the Funds' shareholder services
plan.

CLASS S SHARES do not participate in the Funds' distribution plan or the
Funds' shareholder services plan.

HOW TO PURCHASE SHARES

MINIMUM INVESTMENT FOR EQUITY I, EQUITY II, EQUITY III, EQUITY Q,
INTERNATIONAL, FIXED INCOME I AND FIXED INCOME III FUNDS. There is an aggregate
$5 million minimum initial investment requirement for these Funds in
combination with the other Funds described in this Prospectus and the Tax
Exempt Bond, Equity T, Money Market, US Government Money Market, Tax Free Money
Market Funds and the LifePoints Funds that are described in separate
Prospectuses. The Funds are designed to be used as part of 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.

MINIMUM INVESTMENT FOR EMERGING MARKETS, REAL ESTATE SECURITIES AND SHORT
TERM BOND FUNDS. There is currently no required minimum investment in these
Funds. The Funds are designed to be used

31
<PAGE>

as part of an allocated investment portfolio in combination with other FRIC
Funds described in FRIC's Russell Funds Prospectus. Investment in these Funds
will be applied toward any applicable required minimum initial investment with
respect to other Funds.

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 or 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

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.
You will be responsible for any resulting loss to the Funds. 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

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.

32
<PAGE>

BY AUTOMATED CLEARING HOUSE ("ACH")

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

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.

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) at the next net asset value per share
calculated after the Funds received the exchange request in good order.

IN-KIND EXCHANGE OF SECURITIES

33
<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 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

SYSTEMATIC WITHDRAWAL PROGRAM

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.

34
<PAGE>

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

WRITTEN INSTRUCTIONS

PROPER FORM: Written instructions must be in proper form. They must include:

35
<PAGE>

SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE

<TABLE>
<CAPTION>
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUESTS
- -------------------------------------------------------------------------------
<C> <S>
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.
- -------------------------------------------------------------------------------
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, Written instructions must be signed by all
Profit 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.
</TABLE>

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.

36
<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 throughout each year or period ended December 31. 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 Funds' annual report, which is available upon request. No Class C Shares
of the Emerging Markets, Real Estate Securities and Short Term Bond Funds were
issued during the periods shown. No Class E Shares of the Equity I, Equity II,
Equity III, Equity Q, International, Short Term Bond, Fixed Income I and Fixed
Income III Funds 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......................... $ 30.51 $ 30.34 $ 28.00 $ 23.32 $ 24.91
--------- --------- ------- ------- -------
Income From Investment Opera-
tions:
Net investment income (b)... .27 .34 .42 .52 .62
Net realized and unrealized
gain (loss) on
investments................ 7.10 8.89 5.96 7.71 (.41)
--------- --------- ------- ------- -------
Total From Investment
Operations............... 7.37 9.23 6.38 8.23 .21
--------- --------- ------- ------- -------
Less Distributions:
Net investment income....... (.27) (.34) (.42) (.52) (.62)
Net realized gain on
investments................ (2.44) (8.72) (3.62) (3.03) (1.18)
--------- --------- ------- ------- -------
Total Distributions....... (2.71) (9.06) (4.04) (3.55) (1.80)
--------- --------- ------- ------- -------
Net Asset Value, End of Year.. $ 35.17 $ 30.51 $ 30.34 $ 28.00 $ 23.32
========= ========= ======= ======= =======
Total Return (%)(a)........... 25.10 32.02 23.58 35.94 .79
Ratios (%)/Supplemental Data:
Operating expenses to
average net assets (a)..... .70 .70 .71 .59 .12
Net investment income to
average net assets (a)..... .82 .96 1.38 1.91 2.52
Portfolio turnover.......... 100.68 110.75 99.51 92.04 75.02
Net assets, end of year
($000 omitted)............. 1,381,704 1,136,373 961,953 751,497 547,242
</TABLE>
- ---------------------

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

(b) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

37
<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........................ $ 32.96 $ 30.05 $ 28.88 $ 25.00 $ 26.58
-------- -------- -------- -------- --------
Income From Investment Opera-
tions:
Net investment income (b).. .09 .11 .16 .27 .36
Net realized and unrealized
gain (loss) on
investments............... .04 8.11 4.96 6.80 (.86)
-------- -------- -------- -------- --------
Total From Investment
Operations.............. .13 8.22 5.12 7.07 (.50)
-------- -------- -------- -------- --------
Less Distributions:
Net investment income...... (.10) (.11) (.16) (.29) (.31)
Net realized gain on
investments............... (2.05) (5.20) (3.79) (2.90) (.77)
-------- -------- -------- -------- --------
Total Distributions...... (2.15) (5.31) (3.95) (3.19) (1.08)
-------- -------- -------- -------- --------
Net Asset Value, End of
Year........................ $ 30.94 $ 32.96 $ 30.05 $ 28.88 $ 25.00
======== ======== ======== ======== ========
Total Return (%)(a).......... .70 28.66 18.51 28.67 (2.60)
Ratios (%)/Supplemental Data:
Operating expenses to
average net assets (a).... .91 .92 .95 .83 .23
Net investment income to
average net assets (a).... .29 .35 .52 .97 1.46
Portfolio turnover......... 128.87 103.00 120.78 89.31 58.04
Net assets, end of year
($000 omitted)............ 533,819 482,159 365,955 279,566 202,977
</TABLE>
- ---------------------

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

(b) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

38
<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........................ $ 29.80 $ 29.68 $ 29.11 $ 24.18 $ 27.05
-------- -------- -------- -------- --------
Income From Investment Opera-
tions:
Net investment income (b).. .47 .60 .70 .82 .93
Net realized and unrealized
gain (loss) on
investments............... 2.75 8.69 5.10 7.73 (.85)
-------- -------- -------- -------- --------
Total From Investment
Operations.............. 3.22 9.29 5.80 8.55 .08
-------- -------- -------- -------- --------
Less Distributions:
Net investment income...... (.47) (.61) (.71) (.83) (.91)
Net realized gain on
investments............... (3.43) (8.56) (4.52) (2.79) (2.04)
-------- -------- -------- -------- --------
Total Distributions...... (3.90) (9.17) (5.23) (3.62) (2.95)
-------- -------- -------- -------- --------
Net Asset Value, End of
Year........................ $ 29.12 $ 29.80 $ 29.68 $ 29.11 $ 24.18
======== ======== ======== ======== ========
Total Return (%)(a).......... 11.53 33.13 20.90 35.96 1.16
Ratios (%)/Supplemental Data:
Operating expenses to
average net assets (a).... .74 .78 .79 .65 .17
Net investment income to
average net assets (a).... 1.54 1.77 2.23 2.90 3.39
Portfolio turnover......... 135.53 128.86 100.78 103.40 85.92
Net assets, end of year
($000 omitted)............ 210,491 242,112 221,778 222,541 177,807
</TABLE>
- ---------------------

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

(b) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

39
<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................... $ 35.90 $ 32.94 $ 30.40 $ 24.43 $ 26.03
---------- -------- -------- -------- --------
Income From Investment Op-
erations:
Net investment income
(b)..................... .32 .44 .58 .59 .69
Income
Net realized and
unrealized gain (loss)
on investments.......... 8.53 10.01 6.33 8.52 (.41)
---------- -------- -------- -------- --------
Total income from
Investment
Operations............ 8.85 10.45 6.91 9.11 .28
---------- -------- -------- -------- --------
Less Distributions:
Net investment income.... (.32) (.44) (.59) (.61) (.69)
Net realized gain on
investments............. (4.21) (7.05) (3.78) (2.53) (1.19)
---------- -------- -------- -------- --------
Total Distributions.... (4.53) (7.49) (4.37) (3.14) (1.88)
---------- -------- -------- -------- --------
Net Asset Value, End of
Year...................... $ 40.22 $ 35.90 $ 32.94 $ 30.40 $ 24.43
========== ======== ======== ======== ========
Total Return (%)(a)........ 25.98 33.07 23.67 37.91 .99
Operating expenses to
average net assets (a).. .69 .68 .71 .58 .11
Net investment income to
average net assets (a).. .85 1.17 1.80 2.07 2.74
Portfolio turnover....... 74.56 94.89 74.59 74.00 45.87
Net assets, end of year
($000 omitted).......... 1,175,900 987,760 818,281 620,259 430,661
</TABLE>
- ---------------------

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

(b) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

40
<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........................... $ 34.60 $ 37.39 $ 36.26 $ 34.28 $ 37.34
--------- ------- ------- ------- -------
Income From Investment Opera-
tions:
Net investment income (b)..... .52 .46 .44 .48 .61
Net realized and unrealized
gain (loss) on investments... 4.10 (.28) 2.41 3.16 .65
--------- ------- ------- ------- -------
Total Income From Investment
Operations................. 4.62 .18 2.85 3.64 1.26
--------- ------- ------- ------- -------
Less Distributions:
Net investment income......... (.59) (.55) (.35) (.72) (.36)
Net realized gain on
investments.................. (.60) (2.42) (1.37) (.94) (3.96)
--------- ------- ------- ------- -------
Total Distributions......... (1.19) (2.97) (1.72) (1.66) (4.32)
--------- ------- ------- ------- -------
Net Asset Value, End of Year.... $ 38.03 $ 34.60 $ 37.39 $ 36.26 $ 34.28
========= ======= ======= ======= =======
Total Return (%)(a)............. 13.52 .58 7.98 10.71 5.38
Ratios (%)/Supplemental Data:
Operating expenses, net, to
average net assets (a)....... .98 1.00 1.04 .88 .32
Operating expenses, gross, to
average net
assets (a)................... .98 1.00 1.05 .89 .34
Net investment income to
average net assets (a)....... 1.38 1.14 1.20 1.41 1.63
Portfolio turnover............ 64.47 79.45 42.69 36.78 71.09
Net assets, end of year ($000
omitted)..................... 1,013,679 972,735 944,380 796,777 674,180
</TABLE>
- ---------------------

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

(b) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

41
<PAGE>

Emerging Markets Fund--Class E Shares

<TABLE>
<CAPTION>
1998
-----
<S> <C>
Net Asset Value Beginning of Period...................................... $7.37
-----
Income From Investment Operations:
Net investment income (c).............................................. (.02)
Net realized and unrealized gain (loss) on investments................. 1.13
-----
Total Income From Investment Operations.............................. 1.11
-----
Net Asset Value, End of Period........................................... $8.48
=====
Total Return (%)(a)...................................................... 15.06
Ratios(%)/Supplemental Data:
Operating expenses, to average net assets (b).......................... --
Net investment income to average net assets (b)........................ --
Portfolio turnover..................................................... 59.35
Net Assets, end of year ($000 omitted)................................. 39
</TABLE>
- ---------------------

+ For the period September 22, 1998 (commencement of operations) to December
31, 1998.

(a) Period less than one year are annualized.

(b) The ratios are not meaningful due to the Funds' short period of operations.

42
<PAGE>

Emerging Markets Fund--Class S Shares

(b) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

43
<PAGE>

Real Estate Securities Fund--Class E Shares

<TABLE>
<CAPTION>
1998 1997 1996+
------ ------ ------
<S> <C> <C> <C>
Net Asset Value Beginning of Year...................... $31.02 $29.18 $26.67
------ ------ ------
Income From Investment Operations:
Net investment income (c)............................ 1.26 1.14 .24
Net realized and unrealized gain (loss) on
investments......................................... (6.12) 3.95 3.85
------ ------ ------
Total Income From Investment Operations............ (4.86) 5.09 4.09
------ ------ ------
Less Distributions:
Net investment income................................ (1.43) (1.04) (.32)
Net realized gain on investments..................... (.46) (2.21) (1.26)
Total Distributions................................ (1.89) (3.25) (1.58)
------ ------ ------
Net Asset Value, End of Period......................... $24.27 $31.02 $29.18
====== ====== ======
Total Return (%)(a).................................... (16.25) 18.20 15.75
Ratios%/Supplemental Data:
Operating expense, to average net assets (b)......... 1.47 1.71 1.77
Net investment income to average net assets (b)...... 4.90 3.94 5.31
Portfolio turnover ratio (%)(b)...................... 42.58 49.40 51.75
Net Assets, end of period ($000 omitted)............. 843 388 101
</TABLE>
- ---------------------

+ For the period November 4, 1996 (commencement of sale) to December 31, 1996.

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

(b) The ratios for the period ended December 31, 1996 are annualized.

44
<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............................. $ 30.86 $ 29.19 $ 23.51 $ 22.53 $ 22.76
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (a)....... 1.34 1.36 1.39 1.32 1.25
Net realized and unrealized gain
(loss) on investments.......... (6.13) 3.93 6.89 1.03 .40
------- ------- ------- ------- -------
Total From Investment
Operations................... (4.79) 5.29 8.28 2.35 1.65
------- ------- ------- ------- -------
Less Distributions:
Net investment income........... (1.17) (1.41) (1.34) (1.35) (1.23)
Net realized gain on
investments.................... (.46) (2.21) (1.26) -- (.65)
Tax return of capital........... -- -- -- (.02) --
------- ------- ------- ------- -------
Total Distributions........... (1.63) (3.62) (2.60) (1.37) (1.88)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $ 24.44 $ 30.86 $ 29.19 $ 23.51 $ 22.53
======= ======= ======= ======= =======
Total Return (%).................. (15.94) 18.99 36.81 10.87 7.24
Ratios (%)/Supplemental Data:
Operating expenses, to average
net assets..................... 1.05 1.02 1.04 1.04 1.05
Net investment income to average
net assets..................... 4.93 4.57 5.64 6.10 5.65
Portfolio turnover.............. 42.58 49.40 51.75 23.49 45.84
Net assets, end of year ($000
omitted)....................... 576,326 615,483 445,619 290,990 209,208
</TABLE>
- ---------------------

(a) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

45
<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........................ $ 18.35 $ 18.36 $ 18.55 $ 17.98 $ 18.99
-------- -------- -------- -------- --------
Income from Investment Opera-
tions:
Net investment income (b).. .99 1.08 1.04 1.16 1.21
Net realized and unrealized
gain (loss) on
investments............... .11 -- (.19) .59 (1.07)
-------- -------- -------- -------- --------
Total From Investment
Operations.............. 1.10 1.08 .85 1.75 .14
-------- -------- -------- -------- --------
Less Distributions:
Net investment income...... (.99) (1.09) (1.04) (1.18) (1.15)
-------- -------- -------- -------- --------
Net Asset Value, End of
Year........................ $ 18.46 $ 18.35 $ 18.36 $ 18.55 $ 17.98
======== ======== ======== ======== ========
Total Return (%)(a).......... 6.09 6.02 4.76 9.95 .82
Ratios (%)/Supplemental Data:
Operating expenses to
average net assets (a).... .66 .66 .70 .58 .19
Net investment income to
average net assets (a).... 5.37 5.70 5.70 6.41 6.52
Portfolio turnover......... 129.85 213.14 264.40 269.31 233.75
Net assets, end of year
($000 omitted)............ 260,539 229,470 222,983 183,577 144,030
</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%.

(b) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

46
<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........................ $ 21.51 $ 20.99 $ 21.59 $ 19.59 $ 21.74
-------- -------- -------- -------- --------
Income From Investment Opera-
tions:
Net investment income (b).. 1.32 1.37 1.38 1.42 1.46
Net realized and unrealized
gain (loss) on
investments............... .45 .54 (.62) 2.02 (2.06)
-------- -------- -------- -------- --------
Total From Investment
Operations.............. 1.77 1.91 .76 3.44 (.60)
-------- -------- -------- -------- --------
Less Distributions:
Net investment income...... (1.31) (1.39) (1.36) (1.44) (1.44)
Net realized gain on
investments............... (.21) -- -- -- (.11)
-------- -------- -------- -------- --------
Total Distributions...... (1.52) (1.39) (1.36) (1.44) (1.55)
-------- -------- -------- -------- --------
Net Asset Value, End of
Year........................ $ 21.76 $ 21.51 $ 20.99 $ 21.59 $ 19.59
======== ======== ======== ======== ========
Total Return (%)(a).......... 8.37 9.42 3.75 18.03 (2.97)
Ratios (%)/Supplemental Data:
Operating expenses to
average net assets (a).... .39 .42 .42 .35 .10
Net investment income to
average net assets (a).... 6.03 6.54 6.57 6.82 7.06
Portfolio turnover......... 226.70 165.81 147.31 138.05 173.97
Net assets, end of year
($000 omitted)............ 978,491 798,252 662,899 638,317 496,038
</TABLE>
- ---------------------

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

(b) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

47
<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........................ $ 10.42 $ 10.17 $ 10.34 $ 9.37 $ 10.44
-------- -------- -------- -------- --------
Income From Investment Opera-
tions:
Net investment income (b).. .62 .63 .64 .67 .66
Net realized and unrealized
gain (loss) on
investments............... .08 .32 (.16) .97 (1.07)
-------- -------- -------- -------- --------
Total From Investment
Operations.............. .70 .95 .48 1.64 (.41)
-------- -------- -------- -------- --------
Less Distributions:
Net investment income...... (.62) (.64) (.65) (.67) (.66)
Net realized gain on
investments............... (.28) (.06) -- -- --
Total Distributions...... (.90) (.70) (.65) (.67) (.66)
-------- -------- -------- -------- --------
Net Asset Value, End of
Year........................ $ 10.22 $ 10.42 $ 10.17 $ 10.34 $ 9.37
======== ======== ======== ======== ========
Total Return (%)............. 6.80 9.64 4.88 17.99 (3.89)
Ratios (%)/Supplemental Data:
Operating expenses, net, to
average net assets (a).... .67 .70 .73 .61 .20
Net investment income to
average net assets (a).... 5.91 6.13 6.32 6.83 7.02
Portfolio turnover......... 342.49 274.84 144.26 141.37 134.11
Net assets, end of year
($000 omitted)............ 462,190 382,433 292,077 252,465 166,620
</TABLE>
- ---------------------

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

(b) For the period ended December 31, 1998, average month-end shares
outstanding were used for this calculation.

48
<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.