RUSSELL FRANK INVESTMENT CO, 485APOS, 2000-11-01

RUSSELL FRANK INVESTMENT CO
485APOS, 2000-11-01

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<PAGE>

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A
---------

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-----
Pre-Effective Amendment No. _____ _____
Post-Effective Amendment No. 49 X
---- -----

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----
Amendment No. 49 X
------ -----

FRANK RUSSELL INVESTMENT COMPANY
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

909 A Street, Tacoma, Washington 98402
------------------------------------ --------
(Address of Principal Executive Office) (ZIP Code)

Registrant's Telephone Number, including area code: 253/627-7001

Gregory J. Lyons, Associate General Counsel Deborah R. Gatzek, Esq.
Frank Russell Investment Company Stradley, Ronon, Stevens & Young
909 A Street 1840 Gateway Drive, 2nd Floor
Tacoma, Washington 98402 San Mateo, CA 94404
253-596-2406 650-377-1601

________________________________________________________________________________
(Name and Address of Agent for Service)

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

It is proposed that this filing will become effective (check appropriate
box)

( ) immediately upon filing pursuant to paragraph (b)
( ) on December 1, 1999 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) on (date) pursuant to paragraph (a)(1)
( X ) 75 days after filing pursuant to paragraph (a)(2)
( ) on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY

Tax-Managed
Global Equity Fund

PROSPECTUS
CLASS E SHARES

___________, 2001

909 A Street, Tacoma, WA 98402 . 800-787-7354 . 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.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary....................................................... 1
Investment Objective.................................................... 1
Principal Investment Strategies......................................... 1
Principal Risks......................................................... 3
Performance............................................................. 4
Fees and Expenses....................................................... 4
The Purpose of the Fund--Multi-Style, Multi-Manager Diversification....... 6
Management of the Underlying Funds and the Global Equity Fund............. 8
The Money Managers for the Underlying Funds............................... 9
Investment Objective and Principle Investment Strategies of the Underlying
Funds.................................................................... 11
Principal Risks........................................................... 19
Dividends and Distributions............................................... 21
Taxes..................................................................... 22
How Net Asset Value is Determined......................................... 23
Distribution and Shareholder Servicing Arrangements....................... 23
How to Purchase Shares.................................................... 24
Exchange Privilege........................................................ 26
How to Redeem Shares...................................................... 26
Payment of Redemption Proceeds............................................ 27
Written Instructions...................................................... 28
Account Policies.......................................................... 29
Financial Highlights...................................................... 30
Money Manager Information................................................. 31
</TABLE>
<PAGE>

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Tax-Managed Global Equity Fund seeks to achieve high, long-term capital
appreciation on an after-tax basis, while recognizing the possibility of high
fluctuations in year-to-year market values.

PRINCIPAL INVESTMENT STRATEGIES

The Frank Russell Investment Company (FRIC) Tax-Managed Global Equity Fund
(referred to as the Global Equity Fund or the Fund) is a "fund of funds," and
diversifies its assets by investing, at present, in the Class S Shares of
several other FRIC Funds (Underlying Funds). The Global Equity Fund seeks to
achieve its investment objective by investing in different combinations of the
Underlying Funds using a tax-efficient strategy.

The Global Equity Fund seeks to achieve its investment objectives while
minimizing shareholder tax consequences arising from its portfolio management
activities. In its attention to tax consequences of portfolio management, the
Global Equity Fund differs from most other fund-of-funds, which are managed to
maximize pre-tax return without regard to whether their portfolio management
activities result in taxable distributions to shareholders.

The Global Equity Fund intends to minimize its taxable distributions to
shareholders in three ways:

First, the Global Equity Fund strives to realize its returns as long-term
capital gains, and not as investment income, under US tax laws. To do so,
the Fund typically buys shares of Underlying Funds with the intention of
holding them long enough to qualify for capital gain tax treatment.

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

Third, the Global Equity Fund allocates a portion of its assets to
Underlying Funds that employ tax-efficient strategies.

When the Global Equity Fund's shares are redeemed, the Fund could be
required to sell portfolio securities resulting in its realization of net
capital gains, impacting all shareholders. The Global Equity Fund believes
that multiple purchases and redemptions of Fund shares by individual
shareholders could adversely affect its strategy of tax-efficiency and could
reduce its ability to contain costs. The Global Equity Fund further believes
that short-term investments in the Fund are inconsistent with its long-term
strategy. For this reason, the Global Equity Fund will apply its general right
to refuse any purchases by rejecting purchase orders from investors whose
patterns of purchases and redemptions in the Fund is, in the opinion of the
Fund, inconsistent with the Fund's strategy.

1
<PAGE>

The Global Equity Fund allocates its assets by investing in shares of a
diversified group of Underlying Funds. The Underlying Funds in which the Fund
invests are shown in the table below. The Global Equity Fund intends its
strategy of investing in combinations of Underlying Funds to result in
investment diversification that an investor could otherwise achieve only by
holding numerous individual investments.

<TABLE>
<CAPTION>
Tax-Managed
Underlying Fund Global Equity Fund
--------------- ------------------
<S> <C>
Tax-Managed Large Cap Fund (formerly Equity T Fund)...... 50%
International Securities Fund............................ 20%
Tax-Managed Small Cap Fund............................... 15%
Quantitative Equity Fund................................. 10%
Emerging Markets Fund.................................... 5%
</TABLE>

The Global Equity Fund intends to be fully invested at all times. Although
the Fund, like all other mutual funds, 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 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 Global Equity Fund can change the allocation of its assets among
Underlying Funds at any time, if its investment adviser, Frank Russell
Investment Management Company (FRIMCo) believes that doing so would better
enable the Global Equity Fund to pursue its investment objective. From time to
time, the Global Equity Fund adjusts its investments within set limits based
on FRIMCo's outlook for the economy, financial markets generally and relative
market valuation of the asset classes represented by each Underlying Fund.
Additionally, the Global Equity Fund may deviate from set limits when, in
FRIMCo's opinion, it is necessary to do so to pursue the Global Equity Fund's
investment objective. However, the Global Equity Fund expects that amounts it
allocates to each Underlying Fund will generally vary only within 10% of the
ranges specified in the table above.

Diversification

The Global Equity Fund is a "nondiversified" investment company for purposes
of the Investment Company Act of 1940 because it invests in the securities of
a limited number of issuers (i.e., the Underlying Funds). Each of the
Underlying Funds in which the Global Equity Fund invests is a diversified
investment company.

2
<PAGE>

PRINCIPAL RISKS

You should consider the following factors before investing in the Global
Equity Fund:

. An investment in the Global Equity Fund, like any investment, has risks.
The value of the Fund fluctuates, and you could lose money.

. Since the assets of the Global Equity Fund are invested primarily in
shares of the Underlying Funds, the investment performance of the Global
Equity Fund is directly related to the investment performance of the
Underlying Funds in which it invests.

. The policy of the Global Equity Fund is to allocate its assets among the
Underlying Funds within certain ranges. Therefore, the Fund may have
less flexibility to invest than a mutual fund without such constraints.

. The Global Equity Fund is exposed to the same risks as the Underlying
Funds in direct proportion to the allocation of its assets among the
Underlying Funds. These risks include the risks associated with a multi-
manager approach to investing, as well as those associated with
investing in equity securities and international securities. For further
detail on the risks summarized here, please refer to the section
"Principal Risks."

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

. The officers, Trustees and FRIMCo presently serve as officers, Trustees
and investment manager of the Underlying Funds. Therefore, conflicts may
arise as those persons and FRIMCo fulfill their fiduciary
responsibilities to the Global Equity Fund and to the Underlying Funds.

. The Global Equity Fund is designed for long-term investors who seek to
minimize the impact of taxes on their investment returns. The Fund is
not designed for short-term investors or for tax-deferred investment
vehicles such as IRAs and 40l(k) plans.

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

3
<PAGE>

PERFORMANCE

Because the Global Equity Fund had not been in operation for a full
calendar year when this Prospectus was printed, no performance history is
included. Performance history will be available for the Global Equity Fund
after it has been in operation for one calendar year.

FEES AND EXPENSES

The following tables describe the fees and expenses that you may pay if you
buy and hold Shares of the Global Equity Fund.

Shareholder Fees
(fees paid directly from your investment)

<TABLE>
<CAPTION>
Maximum Sales
Charge (Load)
Maximum Sales Imposed on Maximum
Charge (Load) Reinvested Deferred Sales Redemption Exchange
Imposed on Purchases Dividends Charge (Load) Fees Fees
-------------------- ------------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Class E.. None None None None None
</TABLE>

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
(% of net assets)

<TABLE>
<CAPTION>
Other Expenses Total Gross Total Net
(reflecting Annual Fund Expense Waivers Annual Fund
Shareholder Operating and Operating
Advisory Fee Servicing Fees)* Expenses# Reimbursements+ Expenses
------------ -------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Class E Shares.......... 0.20% 0.25% 0.45% (0.20)% 0.25%
</TABLE>
---------------------
* The Fund expenses shown in this table do not include the pro-rata expenses
of the Underlying Funds, which are shown in the next two tables. For
purposes of this table, "Other Expenses" for Class E reflects a shareholder
services fee of up to 0.25% of average daily net assets.

# If you purchase any class of Shares of the Global Equity 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 which, in turn, may pay fees to FRIMCo for services FRIMCo
provides to the Financial Intermediary. You should contact your financial
intermediary for information concerning what additional fees, if any, will
be charged.

+ FRIMCo has contractually agreed to waive, at least through February 28,
2002, its 0.20% advisory fee. Certain operating expenses of the Global
Equity Fund will be paid by the Underlying Funds and/or FRIMCo, as more
fully described below.

Direct Expenses

The Global Equity Fund does not bear any direct operating expenses. Those
operating expenses include those arising from accounting, administrative,
custody, auditing, legal and transfer agent services. They do not include
expenses attributable to advisory fees (which are currently waived by FRIMCo),
any Rule 12b-1 distribution fee, any shareholder service fees, or any
nonrecurring extraordinary expenses, which will be borne by the Global Equity
Fund or its appropriate classes of shares.

4
<PAGE>

The Global Equity Fund's direct operating expenses are borne either by the
Underlying Funds in which the Global Equity Fund invests or by FRIMCo. This
arrangement is governed by Special Servicing Agreements among each of the
affected Funds and FRIMCo. Those agreements are entered into on a yearly basis
and must be re-approved annually by FRIC's Board of Trustees.

Indirect Expenses

Shareholders in the Global Equity Fund bear indirectly the proportionate
expenses of the Underlying Funds in which the Global Equity Fund invests. The
following table provides the expense ratios for each of the Underlying Funds
in which the Global Equity Fund may invest (based on information as of
December 31, 1999).

<TABLE>
<CAPTION>
Total Net Operating
Underlying Fund (Class S Shares) Expense Ratios
-------------------------------- -------------------
<S> <C>
Quantitative Equity Fund................................ 0.93%
International Securities Fund........................... 1.30%
Emerging Markets Fund................................... 1.91%
Tax-Managed Large Cap Fund (formerly Equity T Fund)..... 0.85%
Tax-Managed Small Cap Fund*............................. 1.25%
</TABLE>
---------------------
* Estimated based on average net assets expected to be invested during the
first twelve months of operations.

Based on these expense ratios, the Global Equity Fund expects its total
direct and indirect operating expense ratios (calculated as a percentage of
average net assets) to be as follows:

<TABLE>
<CAPTION>
Class E
-------
<S> <C>
Global Equity Fund................................................... 1.31%
</TABLE>

The Global Equity Fund's total expense ratio is based on its estimated total
direct operating expense ratio plus a weighted average of the expense ratios
of the Underlying Funds in which it plans to invest. These total expense
ratios may be higher or lower depending on the allocation of the Global Equity
Fund's assets among the Underlying Funds, the actual expenses of the
Underlying Funds and the actual expenses of the Global Equity Fund.

Example

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

The example assumes that you invest $10,000 in the Global Equity Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The example also assumes your investment has a 5% return each
year, and that operating expenses, which include the indirect expenses of the
Underlying Funds, remain the same.

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

<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
Class E....................................................... $133 $457
</TABLE>

5
<PAGE>

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

The Global Equity Fund is offered through certain bank trust departments,
registered investment advisers, broker-dealers and other financial services
organizations that have been selected by the Global Equity Fund's adviser or
distributor (Financial Intermediaries). The Global Equity Fund offers
investors the opportunity to invest in a diversified mutual fund investment
allocation program and is designed to provide a means for investors to use
FRIMCo's 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.

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 Global Equity Fund believes investors should seek to hold fully
diversified portfolios that reflect both their own individual investment time
horizons and their ability to accept risk. The Global Equity Fund believes
that for many, this can be accomplished through strategically purchasing
shares in one or more of the Underlying 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 Global Equity Fund believes, 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. A
number of the Underlying Funds in which the Global Equity Fund invests combine
these select managers with other managers within the same asset class who
employ complementary styles. By combining complementary investment styles
within an

6
<PAGE>

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 Global Equity Fund has a greater potential than most mutual funds for
diversification among investment styles and money managers since the Global
Equity Fund invests in shares of several Underlying Funds. The Global Equity
Fund was created to provide a mutual fund investor with a simple but effective
means of structuring a diversified mutual fund investment program suited to
meet the investor's individual needs. FRIMCo has long stressed the value of
diversification in an investment program, and has offered its advisory
expertise in assisting investors on how to design their individual investment
program.

The diversification afforded by the allocation of the Global Equity Fund's
investment in the Underlying Funds is illustrated in the following chart:

PIE GRAPH
Tax-Managed Global Equity Fund
Tax-Managed Large Cap Fund 50%
International Securities 20
Tax-Managed Small Cap Fund 15
Quantitative Equity 10
Emerging Markets 5
---
100%

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

7
<PAGE>

MANAGEMENT OF THE UNDERLYING FUNDS
AND THE GLOBAL EQUITY FUND

The investment adviser of the Global Equity Fund and each of the Underlying
Funds is FRIMCo, 909 A Street, Tacoma, Washington 98402. FRIMCo pioneered the
"multi-style, multi-manager" investment method in mutual funds and, as of June
30, 2000, managed over $18 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 Global Equity Fund and each of the
Underlying 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 Global Equity Fund, the Underlying Funds, and, FRIMCo with the
asset management consulting services that it provides to its other consulting
clients. Neither the Global Equity Fund nor the Underlying Funds compensate
Russell for these services. Russell and its affiliates have offices around the
world, in Tacoma, New York, Toronto, London, Paris, Sydney, Auckland,
Singapore 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 Underlying Funds, allocates
Underlying Fund assets among them, oversees them, and evaluates their results.
FRIMCo also oversees the management of the Underlying Funds' liquidity
reserves. The Underlying Funds' money managers select the individual portfolio
securities for the assets in the Underlying Funds assigned to them.

James A. Jornlin is responsible for the day to day decisions regarding the
investment and reinvestment of the Global Equity Fund within its target asset
allocation strategy percentages. Mr. Jornlin has managed the Global Equity
Fund since its inception. He also oversees certain Underlying Funds as
described below.

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

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

. Jean Carter, who has been Director of Global Equities since January
2000. From 1994 to 1999, Ms. Carter was a Portfolio Manager of FRIMCo.

. 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 has, jointly with
Mr. Jornlin, primary responsibility for management of the International
and International Securities Funds.

. James M. Imhof, Director 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 Portfolio Manager of FRIMCo since
January 2000. From 1995 to 1999, Mr. Jornlin was a Senior Investment
Officer of FRIMCo. From 1991 to 1995, Mr. Jornlin was a Senior Research
Analyst with Russell. Mr. Jornlin has primary responsibility for
management of the Tax-Managed Global Equity, Equity Aggressive Strategy,
Aggressive Strategy, Balanced Strategy, Moderate Strategy and
Conservative Strategy Funds, has, jointly with Mr. Ogard, primary
responsibility for the

8
<PAGE>

management of the Real Estate Securities Fund, has, jointly with Ms.
Duncan, primary responsibility for the management of the International and
International Securities Funds and has, jointly with Mr. Parish, primary
responsibility for the management of Emerging Markets Fund.

. Eric W. Ogard, who has been a Portfolio Manager of FRIMCo since March
2000. Mr. Ogard was a Research Analyst for FRIMCo from 1995 to 1997 and
a Senior Research Analyst for FRIMCo from 1997 to 2000. Mr. Ogard has,
jointly with Mr. Trittin, primary responsibility for the management of
the Equity I, Equity II, Equity III, Equity Q, Tax-Managed Large Cap,
Tax-Managed Small Cap, Diversified Equity, Quantitative Equity, Special
Growth and Equity Income Funds and has, jointly with Mr. Jornlin,
primary responsibility for the management of the Real Estate Securities
Fund.

. Symon Parish who has been a Portfolio Manager of Frank Russell Company
Limited, an affiliate of FRIMCo, since 1996. From 1994 to 1996, Mr.
Parish was a client service executive in Russell's Auckland office. Mr.
Parish has, jointly with Mr. Jornlin, primary responsibility for the
Emerging Markets Fund.

. 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 has, jointly with
Mr. Ogard, primary responsibility for management of the Equity I, Equity
II, Equity III, Equity Q, Tax-Managed Large Cap, Tax-Managed Small Cap,
Diversified Equity, Quantitative Equity, Special Growth and Equity
Income Funds.

For its investment advisory and administrative services, FRIMCo receives an
aggregate fee from the Global Equity Fund at the annual rate of 0.25% of the
average daily net assets of the Fund, payable to FRIMCo monthly on a pro rata
basis. Of this aggregate amount, 0.20% is attributable to advisory services and
0.05% is attributable to administrative services. FRIMCo has contractually
agreed to waive its 0.20% advisory fee to which it is entitled from the Global
Equity Fund.

In addition to the advisory fee payable by the Global Equity Fund, the Fund
will bear indirectly a proportionate share of operating expenses that include
the advisory fees paid by the Underlying Funds in which it invests. While a
shareholder of the Global Equity Fund will also bear a proportionate part of
advisory fees paid by an Underlying Fund, each of the advisory fees paid is
based upon the services received by the Global Equity Fund. From the advisory
fee that it receives from each Underlying Fund, FRIMCo pays the Underlying
Fund's money managers for their investment selection services. FRIMCo retains
any remainder as compensation for the services described above and to pay
expenses. The annual rate of the advisory and administrative fees, payable to
FRIMCo monthly on a pro rata basis, are the following percentages of the
average daily net assets of each Underlying Fund: Quantitative Equity Fund
0.78%, International Securities Fund 0.95%, Emerging Markets Fund 1.20%, Tax-
Managed Large Cap Fund 0.75% and Tax-Managed Small Cap Fund 1.03%. Of this
aggregate amount, 0.05% is attributable to administrative services.

THE MONEY MANAGERS FOR THE UNDERLYING FUNDS

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

9
<PAGE>

when a money manager begins providing services. The Underlying 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 Underlying 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 an Underlying Fund. At the same time, however,
each money manager must operate within the Underlying 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 Underlying Funds' officers, neither
the Board, the officers, FRIMCo, nor Russell evaluates the investment merits
of the money managers' individual security selections.

J.P. Morgan Investment Management, Inc. ("Morgan") manages the Tax-Managed
Large Cap Fund. Robin Chance is the individual responsible for the management
of the Fund. Ms. Chance, Vice President and member of the Structured Equity
Group, has responsibility for tax aware structured equity strategies. Ms.
Chance joined Morgan in 1987. Ms. Chance is a CFA and a graduate of the
University of Pennsylvania's Management and Technology Program, also earning
an MBA from New York University's Stern School of Business.

Geewax, Terker & Company manages the Tax-Managed Small Cap Fund. John Julius
Geewax is the portfolio manager responsible for the management of the Fund.
Mr. Geewax is a graduate of the University of Pennsylvania and has earned a
J.D. from the University of Pennsylvania as well as an MBA and a PhD from the
Wharton School of the University of Pennsylvania. Mr. Geewax co-founded the
firm in 1982. He is currently a general partner and portfolio manager
responsible for research and development and trading oversight for all of the
firm's investment services.

10
<PAGE>

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
OF THE UNDERLYING FUNDS

The objective and principal strategies of each Underlying Fund are described
in this section. Further information about the Underlying Funds is contained
in the Statement of Additional Information as well as in the Prospectuses of
the Underlying Funds. Because the Global Equity Fund invests in the Underlying
Funds, investors of the Global Equity Fund will be affected by the Underlying
Funds' investment strategies in direct proportion to the amount of assets the
Global Equity Fund allocates to the Underlying Fund pursuing such policies. To
request a copy of a Prospectus for an Underlying Fund, contact FRIC at
800/787-7354 (in Washington, 253/627-7001).

QUANTITATIVE EQUITY FUND

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

Principal The Quantitative Equity Fund invests primarily in common
Investment stocks of medium and large capitalization companies which are
Strategies predominately US based. The Fund generally pursues a market-
oriented style of security selection, which incorporates both
a growth style and a value style, based on quantitative
investment models which are mathematical formulas based on
statistical analyses. 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 whose
approaches are intended 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 December 31, 1999 had a capitalization of
approximately $1.1 billion.

11
<PAGE>

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.

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.

From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.

INTERNATIONAL SECURITIES FUND

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

Principal The International Securities Fund invests primarily in equity
Investment securities issued by companies domiciled outside the US and in
Strategies 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.

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 sectors.

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<PAGE>

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

. Market-Oriented Style emphasizes investments in companies
that appear to be undervalued relative to their growth
prospects. This style may encompass elements of both the
growth and value styles. These companies may be found in
any industry sector. A variation of this style maintains
investments that replicate country and sector weightings of
a broad international market index.

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

A portion 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

13
<PAGE>

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 US.

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 but may involve a further layering of expenses.

The Fund employs a multi-manager approach whereby portions of
the Fund are allocated to different money managers whose
approaches are intended 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 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.

A portion 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.

14
<PAGE>

TAX-MANAGED LARGE CAP FUND
(formerly Equity T Fund)

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

Principal The Tax-Managed Large Cap Fund invests primarily in equity
Investment securities of large capitalization US companies, as
Strategies represented by the S&P 500 market index, although the Fund may
invest a limited amount in non-US firms from time to time. The
Fund generally invests in companies with a market
capitalization of at least $4 billion.

The Fund generally pursues a market-oriented style of security
selection. Managers select securities from the broad equity
market rather than focusing on the growth or value segments of
the market. As a result, the Fund holds securities
representing a broad cross section of companies and
industries. Security selection is based on quantitative
investment models which are mathematical formulas based on
statistical analyses. This style emphasizes investments in
large capitalization companies that, on a long-term basis,
appear to be undervalued relative to their growth prospects,
and may include both growth and value securities. Although it
is not an index fund, under normal market conditions, the Tax-
Managed Large Cap Fund will invest at least 65 percent of the
value of its total assets in securities that are included in
the S&P 500 market index.

The Fund seeks to realize capital growth while minimizing
shareholder tax consequences arising from the Fund's portfolio
management activities. In its attention to tax consequences of
its investment decisions, the Fund differs from most equity
mutual funds, which are managed to maximize pre-tax total
return without regard to whether their portfolio management
activities result in taxable distributions to shareholders.

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

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

. First, the Fund strives to realize its returns as long-term
capital gains, and not as investment income, under US tax
laws. To do so, the Fund typically buys stocks with the
intention of holding them long enough to qualify for
capital gain tax treatment.

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

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

15
<PAGE>

The Fund selects and holds portfolio securities based on its
assessment of their potential for long-term total returns. The
Fund uses a dividend discount model to gauge securities'
anticipated returns relative to their industry peers. This
model forecasts the expected future dividends of individual
securities and calculates the expected return at the current
share price. The Fund identifies securities that exhibit
superior total return prospects. From among those securities,
using a quantitative after-tax model, the Fund chooses stocks
from a variety of economic sectors and industries, generally
in the proportions that those sectors and industries are
represented in the S&P 500 Index.

When Shares are redeemed, the Fund could be required to sell
portfolio securities resulting in its realization of net
capital gains, impacting all shareholders. The Fund believes
that multiple purchases and redemptions of Fund shares by
individual shareholders could adversely affect the Fund's
strategy of tax-efficiency and could reduce its ability to
contain costs. The Fund further believes that short-term
investments in the Fund are inconsistent with its long-term
strategy. For this reason, the Fund will apply its general
right to refuse any purchases by rejecting purchase orders
from investors whose patterns of purchases and redemptions in
the Fund is inconsistent with the Fund's strategy.

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. The
Fund may also invest its liquidity reserves in one or more
Frank Russell Investment Company (FRIC) money market funds.

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.

TAX-MANAGED SMALL CAP FUND

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

Principal The Tax-Managed Small Cap Fund invests primarily in equity
Investment securities of US companies, although the Fund may invest a
Strategies limited amount in non-US firms from time to time. The Fund
invests primarily in companies with market capitalizations of
between $4 billion and $78 million.

16
<PAGE>

investment models which are mathematical formulas based on
statistical analyses. This style emphasizes investments in
small capitalization companies that, on a long-term basis,
appear to be undervalued relative to their growth prospects,
and may include both growth and value securities. Under normal
market conditions, the Tax-Managed Small Cap Fund will invest
at least 65 percent of the value of its total assets in
securities that are not included in the S&P 500 market index.

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

The Fund selects and holds portfolio securities based on its
assessment of their potential for long term total returns.

When the Fund's shares are redeemed, the Fund could be
required to sell portfolio securities resulting in its
realization of net capital gains, impacting all shareholders.
The Fund believes that multiple purchases and redemptions of
Fund shares by individual shareholders could adversely affect
the Fund's strategy of tax-efficiency and could reduce its
ability to contain costs. The Fund further believes that
short-term investments in the Fund are inconsistent with its
long-term strategy. For this reason, the Fund will apply its
general right to refuse any purchases by rejecting purchase
orders from investors whose patterns of purchases and
redemptions in the Fund is inconsistent with the Fund's
strategy.

17
<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 generally
as though its cash reserves were actually invested in those
markets. The Fund may also invest its liquidity reserves in
one or more Frank Russell Investment Company (FRIC) money
market funds.

18
<PAGE>

PRINCIPAL RISKS

The following table describes principal types of risks the Global Equity
Fund is subject to, based on the investments made by the Underlying Funds, and
lists next to each description the Underlying Funds most likely to be affected
by the risk. Other Underlying Funds that are not listed may be subject to one
or more of the risks, based on the allocation of assets among the Underlying
Funds, but will not do so in a way that is expected to principally affect the
performance of the Global Equity Fund or Underlying Fund as a whole. Please
refer to the Global Equity Fund's Statement of Additional Information for a
discussion of risks associated with types of securities held by the Underlying
Funds and the investment practices employed by the individual Underlying
Funds.

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ----------- -------------
<C> <S> <C>
Multi-manager The investment styles employed by a Global Equity Fund
Approach Fund's money managers may not be
complementary. The interplay of the (Underlying Funds:
various strategies employed by a Fund's Quantitative Equity
multiple money managers may result in a International Securities
Fund holding a concentration of certain Emerging Markets)
types of securities. This concentration
may be beneficial or detrimental to a
Fund's performance depending upon the
performance of those securities and the
overall economic environment. The multi-
manager approach could result in a high
level of portfolio turnover, resulting
in higher Fund brokerage expenses and
increased tax liability from a Fund's
realization of capital gains.

Tax-sensitive A Fund's tax-managed equity investment Global Equity Fund
Management strategy may not provide as high a
return before consideration of federal (Underlying Funds:
income tax consequences as other funds. Tax-Managed Large Cap
A tax-sensitive investment strategy Tax-Managed Small Cap)
involves active management and a Fund
can realize capital gains.

Equity Securities The value of equity securities will rise Global Equity Fund
and fall in response to the activities
of the company that issued the stock, (All Underlying Funds)
general market conditions and/or
economic conditions.

. Value Stocks Investments in value stocks are subject Global Equity Fund
to risks that (i) their intrinsic values
may never be realized by the market or (Underlying Funds:
(ii) such stock may turn out not to have International Securities
been undervalued. Tax-Managed Large Cap
Tax-Managed Small Cap)
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ----------- -------------
<C> <S> <C>
. Growth Stocks Growth company stocks may provide Global Equity Fund
minimal dividends which could otherwise
cushion stock prices in a market (Underlying Funds:
decline. The value of growth company International
stocks may rise and fall significantly Securities
based, in part, on investors' Tax-Managed Large Cap
perceptions of the company, rather than Tax-Managed Small Cap)
on fundamental analysis of the stocks.

. Market-Oriented Market-oriented investments are Global Equity Fund
Investments generally subject to the risks
associated with growth and value stocks. (Underlying Funds:
Quantitative Equity
International
Securities
Tax-Managed Large Cap
Tax-Managed Small Cap)

. Securities of Small Investments in smaller companies may Global Equity Fund
Capitalization involve greater risks because these
Companies companies generally have a limited track (Underlying Fund:
record. Smaller companies often have Tax-Managed Small Cap)
narrower markets and more limited
managerial and financial resources than
larger, more established companies. As a
result, their performance can be more
volatile, which may increase the
volatility of a Fund's portfolio.

International A Fund's return and net asset value may Global Equity Fund
Securities be significantly affected by political
or economic conditions and regulatory (Underlying Funds:
requirements in a particular country. International
Foreign markets, economies and political Securities
systems may be less stable than US Emerging Markets)
markets, and changes in exchange rates
of foreign currencies can affect the
value of a Fund's foreign assets.
Foreign laws and accounting standards
typically are not as strict as they are
in the US and there may be less public
information available about foreign
companies. A Fund's foreign debt
securities are typically obligations of
sovereign governments. These securities
are particularly subject to a risk of
default from political instability.
Foreign securities markets may be less
liquid and have fewer transactions than
US securities markets. Additionally,
international markets may experience
delays and disruptions in securities
settlement procedures for a Fund's
portfolio securities.
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ----------- -------------
<C> <S> <C>
. Emerging Market Investments in emerging or developing Global Equity Fund
Countries markets involve exposure to economic
structures that are generally less (Underlying Fund:
diverse and mature, and to political Emerging Markets)
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 for the
Fund's portfolio securities.

Exposing Liquidity By exposing its liquidity reserves to Global Equity Fund
Reserves to Equity the equity market principally by use of
Markets equity futures, a Fund's performance (Underlying Funds:
tends to correlate more closely to the Quantitative Equity
performance of the market as a whole. International
Although this increases a Fund's Securities
performance if equity markets rise, it Tax-Managed Large Cap
reduces a Fund's performance if equity Tax-Managed Small Cap)
markets decline.

Securities Lending If a borrower of a Fund's securities Global Equity Fund
fails financially, the Fund's recovery
of the loaned securities may be delayed (Underlying Funds:
or the Fund may lose its rights to the All Underlying Funds)
collateral which could result in a loss
to a Fund.
</TABLE>

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

DIVIDENDS AND DISTRIBUTIONS

Income Dividends

The Global Equity 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, if any, for the Global Equity Fund on an annual basis, with
payment being made in mid-December.

Capital Gains Distributions

The Board intends to declare capital gain distributions (both short-term and
long-term) once a year in mid-December to reflect any net short-term and net
long-term capital gains realized by the Fund as of October 31 of the current
fiscal year. The Fund may be required to make an additional distribution if
necessary, in any year for operational or other reasons. Distributions that
are declared in October, November, or December to shareholders of record in
such months, and paid in January of the following year, will be treated for
tax purposes as if received on December 31 of the year in which they were
declared.

In addition, the Global Equity Fund receives capital gains distributions
from the Underlying Funds. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, the Global Equity Fund
may generate capital gains through rebalancing the portfolio to meet the
Fund's allocation percentages.

21
<PAGE>

Buying a Dividend

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

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 Global
Equity 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 Global
Equity Fund at Frank Russell Investment Company c/o Boston Financial Data
Services, 2 Heritage Drive, N. Quincy, MA 02171.

TAXES

In general, distributions from the Global Equity 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 Global Equity Fund or receive
them in cash. Any long-term capital gains distributed by the Global Equity
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.

When you sell or exchange your shares of the Global Equity 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.

The Fund makes no representation as to the amount or variability of its
capital gain distributions which may vary as a function of several variables
including, but not limited to, prevailing dividend yield levels, general
market conditions, shareholders redemption patterns and Fund cash equitization
activity.

The Global Equity 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 the Global Equity Fund.

Although the Tax-Managed Large Cap and the Tax-Managed Small Cap Funds are
managed to minimize the amount of capital gains realized during a particular
year, the realization of capital gains is not entirely within either of those
Underlying Fund's or its money manager's control. Shareholder purchase and
redemption activity, as well as those Underlying Fund's performance, will
impact the amount of capital gains realized. Capital gains distributions by
the Tax-Managed Large Cap Fund and Tax-Managed Small Cap Fund may vary
considerably from year to year.

By law, the Global Equity 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 Global Equity
Fund to do so.

22
<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 the
Global Equity Fund.

Additional information on these and other tax matters relating to the Global
Equity Fund and its shareholders is included in the section entitled "Taxes"
in the Fund's Statement of Additional Information.

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 the
Global Equity Fund on each business day on which Shares are offered or
redemption orders are tendered. For the Global Equity Fund, 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 or Good Friday. The Global Equity Fund and
all Underlying Funds determine net asset value at 4:00 p.m. Eastern Time or as
of the close of the NYSE, whichever is earlier. The determination is made by
appraising the Global Equity Fund's underlying investments on each business
day (i.e., the Underlying Funds at the current net asset value per share of
such Underlying Fund).

Money market instruments maturing within 60 days of the valuation date that
are held by the Tax-Managed Large Cap and Tax-Managed Small Cap Funds are
valued at "amortized cost" unless the Board determines that amortized cost
does not represent fair value. Under this method, a portfolio instrument is
initially valued at cost, and thereafter a constant accretion/amortization to
maturity of any discount or premium is assumed. While amortized cost provides
certainty in valuation, it may result in periods when the value of an
instrument is higher or lower than the price those Underlying Funds would
receive if they sold the instrument.

Valuation of Portfolio Securities

Securities held by the Underlying 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
Underlying 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. The Global Equity Fund invests in
Underlying Funds, such as the International Securities Fund, that holds
portfolio securities listed primarily on foreign exchanges. The net asset
value of those Underlying Funds' shares and therefore, the Global Equity
Fund's Shares, may change on a day when you will not be able to purchase or
redeem Global Equity Fund Shares. This is because the value of those portfolio
securities may change on weekends or other days when the Global Equity Fund
does not price its shares.

DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS

The Global Equity Fund offers multiple classes of shares: Class C Shares,
Class E Shares and Class S Shares.

Class C Shares participate in the Global Equity Fund's Rule 12b-1
distribution plan and in its shareholder-servicing plan. Under the
distribution plan, 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 Class C

23
<PAGE>

Shares pay shareholder-servicing fees of 0.25% on an annualized basis for
services provided to Class C shareholders. Because both of these fees are
paid out of the Class C Share assets on an ongoing basis, over time these
fees will increase the cost of a Class C Share investment in the Global
Equity Fund, and the distribution fee may cost an investor more than paying
other types of sales charges.

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

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

HOW TO PURCHASE SHARES

The Global Equity Fund is 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.

For Class E Shares, there is a $2,500 required minimum initial investment
for each account in the Global Equity Fund. The Global Equity Fund reserves
the right to change the categories of investors eligible to purchase shares or
the required minimum investment amounts. You may be eligible to purchase Fund
shares if you do not meet the required initial minimum investment. You should
consult your Financial Intermediary for details, which are summarized in the
Funds' statement of additional information.

Financial Intermediaries may charge their customers a fee for providing
investment-related services. Financial Intermediaries that maintain omnibus
accounts with the Funds may receive administrative fees from the Fund or its
transfer agent. Financial Intermediaries may receive distribution and
shareholder servicing compensation with respect to Class E Shares.

Paying for Shares

You may purchase Shares of the Global Equity Fund through a Financial
Intermediary on any business day the Fund is open. Purchase orders are
processed at the next net asset value per share calculated after the Global
Equity Fund receives your order in proper form (defined in the "Written
Instructions" section), and accepts 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 Global Equity Fund reserves 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 or purchase orders from investors whose pattern of purchases
and redemptions is, in the opinion of the Fund, inconsistent with the Fund's
long-term strategy. Unless a Financial Intermediary has enrolled in the Three-
Day Settlement Program described below, the settlement date is the first
business day following receipt by the Fund of your order. You will be
responsible for any resulting loss to the Fund. 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.

24
<PAGE>

Offering Dates and Times

Orders must be received by the Global Equity Fund prior to 4:00 p.m. Eastern
Time or the close of the NYSE, whichever is earlier. Purchases can be made on
any day when Global Equity 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 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 Global Equity Fund's Transfer Agent. Certified checks
are not necessary, but checks are accepted subject to collection at full face
value in US funds. Cash, third party checks and checks drawn on credit card
accounts generally 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 Global Equity Fund's
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 Fund's
Custodian, State Street Bank and Trust Company.

Automated Investment Program

You can make regular investments (minimum $50) in the Global Equity Fund in
an established account on a monthly, quarterly, semiannual or annual basis by
automatic electronic funds transfer from a bank account. 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 Global Equity Fund will accept orders at the next computed net asset
value through Financial Intermediaries to purchase Shares of the Fund 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 Global Equity
Fund against any losses resulting from non-receipt of payment.

25
<PAGE>

EXCHANGE PRIVILEGE

By Mail or Telephone

Through your Financial Intermediary, you may be able to exchange shares of
the Global Equity Fund for shares of another FRIC Fund. Shares of the Global
Equity 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 FRIC 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 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 Global Equity Fund's investment advisor, may,
at its discretion, permit you to acquire Shares in exchange for securities you
currently own. Any securities exchanged must meet the investment objective,
policies and limitations of the Global Equity Fund, have a readily
ascertainable market value, be liquid, 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 price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by the Fund will be valued in the same way the Fund values
its assets. Any interest earned on the securities following their delivery to
the Global Equity Fund 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 Global Equity Fund may be redeemed through your Financial
Intermediary on any business day the Fund is open at the next net asset value
per share calculated after the Fund's Transfer Agent receives an order in
proper form (defined in the "Written Instructions" section). Payment will
ordinarily be made within

26
<PAGE>

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. As more fully described in the Fund's Principal
Investment Strategies, the Fund will apply its general right to refuse any
purchases by rejecting purchase orders from investors whose patterns of
purchases and redemptions in the Fund is, the opinion of the Fund,
inconsistent with the Fund's long-term strategy.

Redemption Dates and Times

Redemption requests must be placed through a Financial Intermediary and
received by the Global Equity Fund prior to 4:00 p.m. Eastern Time or the
close of the NYSE, whichever is earlier. 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 Global Equity Fund shares are offered.

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 Fund does not offer a systematic withdrawal program in view of its
portfolio management strategy.

Accounts in Street Name

Many brokers, employee benefit plans and bank trusts combine their client's
holdings in a single omnibus account held in the brokers', plans', or bank
trusts' own name or "street name." Therefore, if you hold Global Equity Fund
shares through a brokerage account, employee benefit plan or bank trust fund,
the Global Equity Fund 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 Shares directly through the Fund, but can do so
only through your broker, plan administrator or bank. Ask your Financial
Intermediary for information on whether your Global Equity 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 Global Equity Fund receives 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 Global Equity Fund receives your redemption

27
<PAGE>

request. The Fund 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

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 and 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 Global Equity Fund reserves 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.

28
<PAGE>

ACCOUNT POLICIES

Third Party Transactions

If you purchase Global Equity 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

The 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 and
continue to be subject to tax consequences and market risk pending any sale.

Stale Checks

For the protection of shareholders and the Fund, if a check issued for the
payment of a redemption or distribution is not cashed for more than 180 days
from issuance, it will not be honored. The Fund has adopted procedures
described in the statement of additional information regarding the treatment
of stale checks, or you may contact your Financial Intermediary for additional
information.

29
<PAGE>

FINANCIAL HIGHLIGHTS

The following financial highlights tables are intended to help you
understand the Fund's financial performance for since the beginning of
operations of the Fund. Certain information reflects financial results for a
single Fund share throughout the four months ended April 30, 2000. The total
returns in the table represent how much your investment in the Fund would have
increased (or decreased) during that period, assuming reinvestment of all
dividends and distributions. The information in the following tables
represents the Financial Highlights for the Fund's Class S Shares for the
period shown. No Class E Shares were issued during the period shown.

Class S

<TABLE>
<S> <C>
Net Asset Value, Beginning of Period............................... $10.00
------

Income From Operations
Net investment income (loss)(a)(b)**............................. --
Net realized and unrealized gain (loss).......................... .06
------

Total income from operations..................................... .06
------

Distributions
From net investment income....................................... (.02)

Net Asset Value, End of Period..................................... $10.04
======

Total Return (%)(c)................................................ .58

Ratios/Supplemental Data:
Net Assets, end of period (in thousands)......................... 7,575

Ratio to average net assets (%)(d):
Operating expenses, net........................................ .00
Operating expenses, gross...................................... .20
Net investment income (c)...................................... .13

Portfolio turnover rate (%)...................................... 18.87
</TABLE>
---------------------
* For the period February 1, 2000 (commencement of sale) to April 30, 2000
(Unaudited).
** Less than $.01 per share.
(a) Average month-end shares outstanding were used for this calculation.
(b) Recognition of net investment income by the Fund is affected by the
timing of the declaration of dividends by the underlying companies in
which the Fund invests.
(c) Not annualized.
(d) Annualized.

30
<PAGE>

MONEY MANAGER INFORMATION

The money managers have no affiliations with the Global Equity Fund or the
Fund's service providers other than their management of Underlying 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 FRIMCo or of Frank Russell Company, including Frank Russell
Company's wholly-owned subsidiary, Frank Russell Trust Company.

This section identifies the money managers for the Underlying Funds in which
the Global Equity Fund invests.

QUANTITATIVE EQUITY FUND

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

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.

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

INTERNATIONAL SECURITIES FUND

Alliance Capital Management L.P., 1345 Avenue of the Americas, New York,
NY 10105.

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

Driehaus Capital Management, Inc., 25 East Eric Street, Chicago, IL 60611-
2703.

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

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

Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, DE 19801-1165.

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

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

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

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

EMERGING MARKETS FUND

Alliance Capital Management L.P., 1345 Avenue of the Americas, New York,
NY 10105.

Foreign & Colonial Emerging Markets Limited, Exchange House, Primrose
Street, London, England EC2A 2NY.

31
<PAGE>

Genesis Asset Managers Limited, 21 Knightsbridge, London SW1X 7LY England.

Nicholas-Applegate Capital Management, 600 W. Broadway 29th Floor, San
Diego, CA 92101.

Schroders Capital Management International Limited, 31 Greshman Street,
London EC2V 7QA England.

TAX-MANAGED LARGE CAP FUND
(Formerly Equity T Fund)

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

Tax-Managed Small Cap Fund

Geewax, Terker & Company, 99 Starr Street, Phoenixville, PA 19460.

WHEN CONSIDERING AN INVESTMENT IN THE GLOBAL EQUITY FUND, DO NOT RELY ON ANY
INFORMATION UNLESS IT IS CONTAINED IN THIS PROSPECTUS OR IN THE GLOBAL EQUITY
FUND STATEMENT OF ADDITIONAL INFORMATION. THE GLOBAL EQUITY FUND HAS NOT
AUTHORIZED ANYONE TO ADD ANY INFORMATION OR TO MAKE ANY ADDITIONAL STATEMENTS
ABOUT THE FUND. THE FUND 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 GLOBAL EQUITY FUND SHARES TO YOU.
CHANGES IN THE AFFAIRS OF THE FUND OR IN THE UNDERLYING 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.

32
<PAGE>

For more information about the Tax-Managed Global Equity Fund, the following
documents are available without charge:

ANNUAL/SEMIANNUAL REPORTS: Additional information about the Tax-Managed Global
Equity Fund's is available in the Fund's semiannual report to shareholders. In
the semi-annual report, you will find a discussion of the Fund's holdings and of
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 Tax-Managed Global Equity Fund.

You may obtain free copies of the semi-annual report for the Fund and of the SAI
or may request other information, by contacting your Financial Intermediary or
the Fund at:

Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
1-800-787-7354
Fax: 253-591-3495
Website: russell.com

You can review and copy information about the Tax-Managed Global Equity Fund
(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 1-202-942-8090. Reports and
other information about the LifePoints Tax-Managed Global Equity Fund are
available on the EDGAR Database on the Commission's Internet website at
http://www.sec.gov. Copies of this information may be obtained, after paying a
duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, DC 20549-0102

FRANK RUSSELL INVESTMENT COMPANY
Class E Shares:

Tax-Managed Global Equity Fund

Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36-08-099 (11/00)
<PAGE>

SUBJECT TO COMPLETION Dated November 1, 2000

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sales of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.

Russell Funds

PROSPECTUS

CLASS C, E, I, AND S SHARES:

SELECT GROWTH FUND

SELECT VALUE FUND

________ __, 2000

FRANK RUSSELL INVESTMENT COMPANY
909 A STREET, TACOMA, WA 98402 . 800-787-7354 . 253-627-7001

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary........................................................ 1
Investment Objective, Principal Investment Strategies and Principal
Risks................................................................... 1
Performance.............................................................. 2
Fees and Expenses........................................................ 2
Summary Comparison of the Funds............................................ 4
The Purpose of the Funds--Multi-Style, Multi-Manager Diversification....... 5
Investment Objective and Principal Investment Strategies................... 7
Risks...................................................................... 9
Management of the Funds.................................................... 11
The Money Managers......................................................... 12
Portfolio Turnover......................................................... 12
Dividends and Distributions................................................ 13
Taxes...................................................................... 13
How Net Asset Value is Determined.......................................... 14
Distribution and Shareholder Servicing Arrangements........................ 15
How to Purchase Shares..................................................... 15
Exchange Privilege......................................................... 17
How to Redeem Shares....................................................... 18
Payment of Redemption Proceeds............................................. 19
Written Instructions....................................................... 19
Account Policies........................................................... 20
Money Manager Information.................................................. 21
</TABLE>
<PAGE>

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS

SELECT GROWTH FUND

Investment To provide capital appreciation.
Objective

Principal The Select Growth Fund invests in large, medium and small
Investment capitalization stocks with above average growth rates and
Strategies favorable earnings momentum.

The Fund employs a "multi-manager" approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. The Fund
intends to be fully invested at all times.

Principal An investment in the Fund, like any investment, has risks. The
Risks value of the Fund fluctuates, and you could lose money. The
principal risks of investing in the Fund are those associated
with investing in equity securities, particularly in using a
growth style of security selection, using a multi-manager
approach, securities lending and exposing liquidity reserves
to equity markets. Please refer to the "Risks" section later
in this Prospectus for further details.

SELECT VALUE FUND

Investment To provide capital appreciation.
Objective

Principal The Select Value Fund invests primarily in large, medium and
Investment small capitalization stocks that appear to be undervalued on
Strategies the basis of earnings, cash flow or private market value.

Principal An investment in the Fund, like any investment, has risks. The
Risks value of the Fund fluctuates, and you could lose money. The
principal risks of investing in the Fund are those associated
with investing in equity securities, particularly in using a
value style of security selection, using a multi-manager
approach, securities lending and exposing liquidity reserves
to equity markets. Please refer to the "Risks" section later
in this Prospectus for further details.

1
<PAGE>

PERFORMANCE

Because neither Fund has been in operation for a full calendar year when
this Prospectus was printed, the performance history and average annual
returns for the Funds are not included. Performance history and average
annual returns will be available for each Fund after it has been in
operation for one calendar year.

FEES AND EXPENSES

The following tables describe 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)
Charge Imposed on Maximum
(Load) Imposed Reinvested Deferred Sales Redemption Exchange
on Purchases Dividends Charge (Load) Fees Fees
-------------- ------------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Each Fund, Classes C, E,
I and S................ None None None None None
</TABLE>

2
<PAGE>

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
(% of net assets)

<TABLE>
<CAPTION>
Other Expenses
(including Total Net
Administrative Total Gross Annual
Fees and Annual Fund Fund
Advisory Distribution Shareholder Operating Fee Waivers and Operating
Fee* (12b-1) Fees Servicing Fees)** Expense# Reimbursements+ Expenses
-------- ------------ ----------------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Class C Shares
Select Growth......... 0.80% 0.75% 1.06% 2.61% (0.51)% 2.10%
Select Value.......... 0.70% 0.75% 1.04% 2.49% (0.49)% 2.00%
Class E Shares
Select Growth......... 0.80% 0.00% 1.06% 1.86% (0.51)% 1.35%
Select Value.......... 0.70% 0.00% 1.04% 1.74% (0.49)% 1.25%
Class I Shares
Select Growth......... 0.80% 0.00% 0.60% 1.40% (0.51)% 0.89%
Select Value.......... 0.70% 0.00% 0.58% 1.28% (0.49)% 0.79%
Class S Shares
Select Growth......... 0.80% 0.00% 0.81% 1.61% (0.51)% 1.10%
Select Value.......... 0.70% 0.00% 0.79% 1.49% (0.49)% 1.00%
</TABLE>
---------------------
* Each Fund may also pay, in addition to the fees set forth above, a fee which
compensates the Funds' advisor, Frank Russell Investment Management Company
(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 operating expenses for each Fund are based on average net assets
expected to be invested during the Fund's first 12 months of operation.
During the course of that 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 and Class E Shares.

# If you purchase any class of Shares of a 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.

+ For the Select Growth Fund, FRIMCo has contractually agreed to waive, at
least until February 28, 2002, up to the full amount of its 0.85% combined
advisory and administrative fees for that Fund, and to reimburse the Fund to
the extent that Fund-level expenses exceed 0.83% of the average daily net
assets of that Fund on an annual basis. Fund-level expenses for the Select
Growth Fund do not include transfer agency fees, administrative fees, 12b-1
fees or shareholder servicing fees. In addition, after applying the foregoing
waiver, FRIMCo has contractually agreed to waive, at least until February 28,
2002, up to the full amount of its transfer agency fees in an amount
necessary to ensure that "Total Net Fund Operating Expenses" for Class I
Shares of the Select Growth Fund do not exceed 0.89%.

For the Select Value Fund, FRIMCo has contractually agreed to waive at least
until February 28, 2002, up to the full amount of its 0.75% combined advisory
and administrative fees for that Fund, and to reimburse the Fund to the
extent that Fund-level expenses exceed 0.73% of the average daily net assets
of that Fund at an annual basis. Fund-level expenses for the Select Value
Fund do not include transfer agency fees, administrative fees, 12b-1 fees or
shareholder servicing fees. In addition, after applying the foregoing waiver,
FRIMCo has contractually agreed to waive, at least until February 28, 2002,
up to the full amount of its transfer agency fees in an amount necessary to
ensure that "Total Net Fund Operating Expenses" for Class I Shares of the
Select Value Fund do not exceed 0.79%.

3
<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.

The example assumes that you invest $10,000 in a Fund for the time periods
indicated, and then redeem all of your Shares at the end of the period. The
example also assumes your investment has a 5% return each year and that
operating expenses remain the same.

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 Shares
Select Growth................................. $213 $763 $1,340 $2,907
Select Value.................................. 203 729 1,282 2,790
Class E Shares
Select Growth................................. 137 535 958 2,139
Select Value.................................. 127 499 897 2,010
Class I Shares
Select Growth................................. 91 393 717 1,635
Select Value.................................. 81 358 656 1,502
Class S Shares
Select Growth................................. 112 458 828 1,868
Select Value.................................. 102 423 767 1,738
</TABLE>

SUMMARY COMPARISON OF THE FUNDS

<TABLE>
<CAPTION>
Anticipated Maximum
Equity Debt
Fund Investments Investments Focus
---- ----------- ----------- -----
<C> <C> <C> <S>
Select Growth Fund........ 65-100% 35% Maximum total return
primarily through capital
appreciation
Select Value Fund......... 65-100% 35% Maximum total return
primarily through capital
appreciation
</TABLE>

4
<PAGE>

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

The Frank Russell Investment Company (FRIC) Funds (FRIC 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
FRIC 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.

The FRIC 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 FRIC Funds believe that for many, this can
be accomplished through strategically purchasing shares in one or more of the
FRIC Funds many of which have been structured to provide access to specific
asset classes employing a multi-style, multi-manager approach.

The FRIC 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 FRIC Funds
combine these select managers with other managers within the same asset class
who employ complementary styles. By combining

5
<PAGE>

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.

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.

6
<PAGE>

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES

SELECT GROWTH FUND

Investment To provide capital appreciation.
Objective

Principal The Select Growth Fund invests in large, medium and small
Investment capitalization stocks with above average growth rates and
Strategies favorable earnings momentum.

The Fund employs a "multi-manager" approach whereby portions
of the Fund are allocated to different money managers whose
approaches to growth stock investing are intended to
complement one another. While specific stock selection
criteria are unique to each manager, each manager purchases
stocks of companies expected grow at above-average rates. This
approach generally results in significant investments in
higher growth sectors, such as the technology, health care and
service sectors.

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 approach,
portfolio characteristics and performance patterns in
different market environments. Portfolio 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.

7
<PAGE>

SELECT VALUE FUND

Investment To provide capital appreciation.
Objective

Principal The Select Value Fund invests in large, medium and small
Investment capitalization value stocks that appear to be undervalued on
Strategies the basis of earnings, cash flow or private market value.

The Fund employs a "multi-manager" approach whereby portions
of the Fund are allocated to different money managers whose
approaches to identifying undervalued securities are intended
to complement one another. While specific stock selection
criteria are unique to each manager, each manager purchases
stocks of companies deemed to be undervalued in the market.
This approach generally results in significant investments in
industrials, financials, utilities and other mature
industries.

8
<PAGE>

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. If a Fund is
not listed it may still 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 the investment practices employed by
the individual Funds.

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ----------- -------------
<C> <S> <C>
Multi-manager Approach The investment styles and strategies Select Growth
employed by a Fund's money managers Select Value
may not be complementary. The
interplay of the various strategies
employed by a Fund's multiple money
managers may result in a Fund holding
a concentration of certain types of
securities. This concentration may be
beneficial or detrimental to a Fund's
performance depending upon the
performance of those securities and
the overall economic environment. The
multi-manager approach could result
in a high level of portfolio
turnover, resulting in higher Fund
brokerage expenses and increased tax
liability from a Fund's realization
of capital gains.

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

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

. Growth Stocks Growth company stocks may provide Select Growth
minimal dividends which could
otherwise cushion stock prices in a
market decline. The value of growth
company stocks may rise and fall
significantly based, in part, on
investors' perceptions of the
company, rather than on fundamental
analysis of the stocks.

. Securities of Small Investments in smaller companies may Select Growth
Capitalization involve greater risks because these Select Value
Companies 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 may increase the
volatility of a Fund's portfolio.
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ----------- -------------
<C> <S> <C>
Exposing Liquidity By exposing its liquidity reserves to Select Growth
Reserves to Equity the equity market, principally by use Select Value
Markets of equity futures, a Fund's
performance tends to correlate more
closely to the performance of the
market as a whole. Although this
increases a Fund's performance if
equity markets rise, it reduces a
Fund's performance if equity markets
decline.

Securities Lending If a borrower of a Fund's securities Select Growth
fails financially, the Fund's Select Value
recovery of the loaned securities may
be delayed or the Fund may lose its
rights to the collateral, which could
result in a loss to a Fund.
</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.

10
<PAGE>

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, as of June 30, 2000, managed over $18 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, Paris,
Sydney, Auckland, Singapore and Tokyo.

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.

. Jean Carter, who has been Director of Global Equities since January 2000.
From 1994 to 1999, Ms. Carter was a Portfolio Manager of FRIMCo.

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

. Erik W. Ogard, who has been a Portfolio Manager of FRIMCo since March
2000. Mr. Ogard was a Research Analyst for FRIMCo from 1995 to 1997 and a
Senior Research Analyst for FRIMCo from 1997 to 2000. Mr. Ogard has,
jointly with Mr. Trittin, primary responsibility for the management of
the Select Growth and Select Value 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 has, jointly with
Mr. Ogard, primary responsibility for management of the Select Growth and
Select Value 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: Select Growth Fund, 0.85%; and Select Value
Fund, 0.75%. Of these aggregate amounts 0.05% is attributable to
administrative services. FRIMCo has contractually agreed to waive, at least
until February 28, 2002, a portion of its 0.85% and 0.75% combined advisory
and administrative fees for the Select Growth Fund and Select Value Fund,
respectively, up to the full amount of those fees for Fund-level expenses that
exceed 0.83% and 0.73%, respectively, of the average daily net assets of those
Funds on an annual basis. Additionally, FRIMCo has agreed to reimburse the
Select Growth Fund and Select Value Fund at least until February 28, 2002, for
all remaining Fund-level expenses that exceed

11
<PAGE>

0.83% and 0.73%, respectively, of the average daily net assets of those Funds
on an annual basis. Fund-level expenses for the Funds do not include transfer
agency fees, administrative fees, 12b-1 fees or shareholder servicing fees.

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 evaluates the investment merits of the money managers' individual
security selections.

PORTFOLIO TURNOVER

The portfolio turnover rates for the 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 will be shown in the Financial Highlights tables after the Funds
have completed their first fiscal year.

12
<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 (if any), according to the following schedule:

<TABLE>
<CAPTION>
Declared Payable Funds
-------- ------- -----
<S> <C> <C>
Quarterly.................. Mid: April, July, October and December Select Value

Annually................... Mid-December Select Growth
</TABLE>

Capital Gains Distributions

The Board intends to declare capital gain distributions (both short-term and
long-term) once a year in mid-December to reflect any net short-term and net
long-term capital gains realized by a Fund as of October 31 of the current
fiscal year. A Fund may be required to make an additional distribution if
necessary, in any year for operational or other reasons. Distributions that
are declared in October, November or December to shareholders of record in
such months, and paid in January of the following year, will be treated for
tax purposes as if received on December 31 of the year in which they were
declared.

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. To avoid "buying a dividend," check a Fund's
distribution dates before you invest.

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 at Frank Russell Investment Company c/o Boston Financial Data
Services, 2 Heritage Drive, N. Quincy, MA 02171.

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 long-term
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.

13
<PAGE>

When you sell or exchange your Shares of a Fund, you may have a capital gain
or loss. Any loss incurred on the sale or exchange of Shares, held for six
months or less, will be treated as a long-term capital loss to the extent of
capital gains dividends received with respect to such Shares. The tax rate on
any gain from the sale or exchange of your shares depends on how long you have
held your Shares.

The Funds make no representation as to the amount of variability of each
Funds' capital gain distributions which may vary as a function of several
variables including, but not limited to, prevailing dividend yield levels,
general market conditions, shareholders redemption patterns and Fund cash
equalization activity.

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 of
holding shares of a Fund.

When a Fund invests in securities of certain foreign countries, the Fund may
have taxes withheld on the income received from these securities. If more than
50% of the total fair market value of the Fund's assets is made up of foreign
securities, then the Fund may elect to pass through such taxes to shareholders
as a foreign tax credit.

If you are a corporate investor, a portion of the dividends from net
investment income paid by the 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.
You should consult your own tax adviser 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
Funds' Statement of Additional Information.

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
or Good Friday. All Funds determine net asset value at 4:00 p.m. Eastern Time
or the close of the NYSE, whichever is earlier.

Valuation of Portfolio Securities

14
<PAGE>

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.

DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS

The Funds offer multiple classes of Shares: Class C Shares, Class E Shares,
Class I 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 the 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% on an
annualized basis 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 your
investment in Class C Shares of 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
shareholder servicing fees of 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 and Class S Shares do not participate in either the Funds'
distribution plan or the Funds' shareholder servicing 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.

For each of the Class E and Class S Shares, there is a $2,500 required
minimum initial investment for each account in each Fund. For the Class C
Shares, there is a $1,000 required minimum initial investment for each account
in each Fund. For the Class I Shares, there is a $250,000 required minimum
initial investment for each account in each Fund. Each Fund reserves the right
to change the categories of investors eligible to purchase its shares or the
required minimum investment amount. You may be eligible to purchase Shares if
you do not meet the required initial minimum investment. You should consult
your Financial Intermediary for details, which are summarized in the Funds'
Statement of Additional Information.

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.

15
<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 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 4:00 p.m. Eastern Time or the
close of the NYSE, whichever is earlier. 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

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.

16
<PAGE>

Automated Investment Program

You can make regular investments (minimum $50) in the 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 at the next computed net asset value 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.

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. 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 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, not be subject to restrictions on resale and have a
market value, plus any cash, equal to at least $100,000.

17
<PAGE>

The price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by a Fund will be valued in the same way the Fund values
its assets. Any interest earned on the securities following their delivery to
the Funds and prior to the exchange will be considered in valuing the
securities. All interest, dividends, subscription or other rights attached to
the securities becomes the property of the Fund, along with the securities.
Please contact your Financial Intermediary for further information.

HOW TO REDEEM SHARES

Shares of the Funds may be redeemed through your Financial Intermediary on
any business day the Funds are open at the next net asset value per share
calculated after the Funds' Transfer Agent receives an order in proper form
(defined in the "Written Instructions" section). Payment will ordinarily be
made within seven days after receipt of your request in proper form. Shares
recently purchased by check may not be available for redemption for 15 days
following the purchase 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 4:00 p.m. Eastern Time or the close of the
NYSE, whichever is earlier. 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
described below.

By Mail or Telephone

Systematic Withdrawal Program

The Select Growth and Select Value 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.

18
<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 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:

19
<PAGE>

Signature Requirements Based on Account Type

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 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 and
continue to be subject to tax consequences and market risk pending any sale.

Stale Checks

20
<PAGE>

procedures described in the statement of additional information regarding the
treatment of stale checks, or you may contact your Financial Intermediary for
additional information.

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 FRIMCo or
of Frank Russell Company, including Frank Russell Company's wholly owned
subsidiary, Frank Russell Trust Company.

SELECT GROWTH FUND

CapitalWorks Investment Partners, LLC 401 West "A" Street, Suite 1675, San
Diego, CA 92101.

Fuller & Thaler Asset Management 411 Borel Avenue, Suite 402, San Mateo, CA
94402.

Strong Capital Management, Inc. 100 Heritage Reserve, Menomonee Falls, WI
53051.

TCW London International Limited 16 Charles II Street, London, SW1Y 4QU,
England.

Turner Investment Partners, Inc. 1235 Westlakes Drive, Suite 350, Berwyn,
PA 19312.

SELECT VALUE FUND

Iridian Asset Management LLC, 276 Post Road West, Westport, Connecticut
06880.

MFS Institutional Advisors, Inc., 500 Boylston Street, Boston, MA 02116-
3741.

Systematic Financial Management, L.P. 6900 College Boulevard, Suite 570,
Overland Park, KS 66211.

WHEN CONSIDERING AN 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.

21
<PAGE>

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

ANNUAL/SEMIANNUAL REPORTS: Additional information about the Funds' investments
will be available in the Funds' annual and semiannual reports to shareholders
once the Funds have completed their first annual or semiannual period for the
funds. 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 annual reports for
the funds and of 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 sec.gov.

FRANK RUSSELL INVESTMENT COMPANY
Class C, E, I, and S Shares
Select Growth Fund
Select Value Fund

Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36-08-098 (1100)

[LOGO OF FRANK RUSSELL INVESTMENT COMPANY]
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY

SELECT FUNDS

PROSPECTUS

CLASS Y SHARES:

SELECT GROWTH FUND

SELECT VALUE FUND

_______________, 2001

909 A STREET, TACOMA, WA 98402 . 800-787-7354 . 253-627-7001

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary............................................................................................. 1
Investment Objective, Principal Investment Strategies and Principal Risks.................................. 1
Performance................................................................................................ 2
Fees and Expenses.......................................................................................... 2
Summary Comparison of the Funds................................................................................. 4
The Purpose of the Funds-Multi-Style, Multi-Manager Diversification............................................. 5
Investment Objective and Principal Investment Strategies........................................................ 7
Risks........................................................................................................... 9
Management of the Funds......................................................................................... 11
The Money Managers.............................................................................................. 12
Portfolio Turnover.............................................................................................. 12
Dividends and Distributions..................................................................................... 13
Taxes........................................................................................................... 14
How Net Asset Value is Determined............................................................................... 15
How to Purchase Shares.......................................................................................... 15
Exchange Privilege.............................................................................................. 17
How to Redeem Shares............................................................................................ 17
Payment of Redemption Proceeds.................................................................................. 18
Written Instructions............................................................................................ 20
Account Policies................................................................................................ 21
Money Manager Information....................................................................................... 21
</TABLE>
<PAGE>

RISK/RETURN SUMMARY

Investment Objective, Principal Investment Strategies and Principal Risks

SELECT GROWTH FUND
------------------

Investment To provide capital appreciation.
Objective

Principal The Select Growth Fund invests in large, medium and small
Investment capitalization stocks with above average growth rates and
Strategies favorable earnings momentum.

The Fund employs a "multi-manager" approach whereby portions of
the Fund are allocated to different money managers whose
approaches are intended to complement one another. The Fund
intends to be fully invested at all times.

Principal An investment in the Fund, like any investment, has risks. The
Risks value of the Fund fluctuates, and you could lose money. The
principal risks of investing in the Fund are those associated
with investing in equity securities, particularly in using a
growth style of security selection, using a multi-manager
approach, securities lending and exposing liquidity reserves to
equity markets. Please refer to the "Risks" section later in this
Prospectus for further details.

SELECT VALUE FUND
-----------------

Investment To provide capital appreciation.
Objective

The Fund employs a "multi-manager" approach whereby portions of
the Fund are allocated to different money managers whose
approaches are intended to complement one another. The Fund
intends to be fully invested at all times.

Principal An investment in the Fund, like any investment, has risks. The
Risks value of the Fund fluctuates, and you could lose money. The
principal risks of investing in the Fund are those associated
with investing in equity securities, particularly in using a
value style of security selection, using a multi-manager
approach, securities lending and exposing liquidity reserves to
equity markets. Please refer to the "Risks" section later in this
Prospectus for further details.

1
<PAGE>

Performance

--------------------------------------------------------------------------------
Because neither Fund has been in operation for a full calendar year when this
Prospectus was printed, the performance history and average annual returns for
the Funds are not included. Performance history and average annual returns will
be available for each Fund after it has been in operation for one calendar year.

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

Fees And Expenses

The following tables describe 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)
------------- -------------
Charge (Load) Imposed on Maximum
------------- ---------- -------
Imposed on Reinvested Deferred Sales Redemption Exchange
---------- ---------- -------------- ---------- --------
Purchases Dividends Charge (Load) Fees Fees
--------- --------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
Each Fund, Class Y............................. None None None None None
</TABLE>

2
<PAGE>

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
(% of net assets)

<TABLE>
<CAPTION>
Other Expenses
--------------
(including Total Gross Total Net
---------- ----------- ---------
Administrative Fees Annual Fund Annual Fund
------------------- ----------- -----------
and Shareholder Operating Fee Waivers and Operating
--------------- --------- --------------- ---------
Advisory Fee* Servicing Fees)** Expense# Reimbursements+ Expenses
------------- ----------------- -------- --------------- --------
<S> <C> <C> <C> <C> <C>
Class Y Shares
Select Growth.......... 0.80% 0.54% 1.34% (0.51)% 0.83%
Select Value........... 0.70% 0.52% 1.22% (0.49)% 0.73%
</TABLE>
_________________________________

* Each Fund may also pay, in addition to the fees set forth above, a fee
which compensates the Funds' advisor, Frank Russell Investment Management
Company (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.

# If you purchase any class of Shares of a 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.

+ For the Select Growth Fund, FRIMCo has contractually agreed to waive, at
least until February 28, 2002, up to the full amount of its 0.85% combined
advisory and administrative fees for that Fund, and to reimburse the Fund
to the extent that Fund-level expenses exceed 0.83% of the average daily
net assets of that Fund on an annual basis. Fund-level expenses for the
Select Growth Fund do not include transfer agency fees, administrative
fees, 12b-1 fees or shareholder servicing fees. In addition, after applying
the foregoing waiver, FRIMCo has contractually agreed to waive, at least
until February 28, 2002, a portion of its transfer agency fees for Class Y
Shares to the extent that those fees would affect "Other Expenses" of Class
Y Shares of the Fund by one basis point or more.

For the Select Value Fund, FRIMCo has contractually agreed to waive at
least until February 28, 2002, up to the full amount of its 0.75% combined
advisory and administrative fees for that Fund, and to reimburse the Fund
to the extent that Fund-level expenses exceed 0.73% of the average daily
net assets of that Fund at an annual basis. Fund-level expenses for the
Select Value Fund do not include transfer agency fees, administrative fees,
12b-1 fees or shareholder servicing fees. In addition, after applying the
foregoing waiver, FRIMCo has contractually agreed to waive, at least until
February 28, 2002, a portion of its transfer agency fees for Class Y Shares
to the extent that those fees would affect "Other Expenses" of Class Y
Shares of the Fund by one basis point or more.

3
<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 Y Shares
Select Growth.............................. $85 $374 $685 $1,567
Select Value............................... 75 340 625 1,435
</TABLE>

SUMMARY COMPARISON OF THE FUNDS

<TABLE>
<CAPTION>
Fund Anticipated Maximum Focus
---- -----
Equity Debt
Investments Investments
----------- -----------
<S> <C> <C> <C>
Select Growth Fund......................... 65-100% 35% Maximum total return primarily
through capital appreciation
Select Value Fund.......................... 65-100% 35% Maximum total return primarily
through capital appreciation
</TABLE>

4
<PAGE>

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

The Frank Russell Investment Company (FRIC) Funds (FRIC 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 FRIC 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.

The FRIC 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 FRIC Funds believe that for many, this can be
accomplished through strategically purchasing shares in one or more of the FRIC
Funds many of 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.

5
<PAGE>

The FRIC 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 FRIC 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 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.

6
<PAGE>

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES

SELECT GROWTH FUND
------------------

Investment To provide capital appreciation.
Objective

Principal The Select Growth Fund invests in large, medium and small
Investment capitalization stocks with above average growth rates and
Strategies favorable earnings momentum.

The Fund employs a "multi-manager" approach whereby portions of
the Fund are allocated to different money managers whose
approaches to growth stock investing are intended to complement
one another. While specific stock selection criteria are unique
to each manager, each manager purchases stocks of companies
expected grow at above-average rates. This approach generally
results in significant investments in higher growth sectors, such
as the technology, health care and service sectors.

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 approach, portfolio characteristics
and performance patterns in different market environments.
Portfolio 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.

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.

From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal investment
policies in an attempt to respond to adverse market, economic,
political or other conditions. If this occurs, the Fund may not
achieve its investment objective during such times.

7
<PAGE>

SELECT VALUE FUND
-----------------

Investment To provide capital appreciation.
Objective

The Fund employs a "multi-manager" approach whereby portions of
the Fund are allocated to different money managers whose
approaches to identifying undervalued securities are intended to
complement one another. While specific stock selection criteria
are unique to each manager, each manager purchases stocks of
companies deemed to be undervalued in the market. This approach
generally results in significant investments in industrials,
financials, utilities and other mature industries.

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 approach, portfolio characteristics
and performance patterns in different market environments.
Portfolio 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.

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.

From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal investment
policies in an attempt to respond to adverse market, economic,
political or other conditions. If this occurs, the Fund may not
achieve its investment objective during such times.

8
<PAGE>

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. If a Fund is not
listed it may still 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 the investment practices employed by the
individual Funds.

<TABLE>
<CAPTION>
Risk Associated With: Description Relevant Fund
--------------------- ----------- -------------
<S> <C> <C>
Multi-manager Approach The investment styles and strategies Select Growth
employed by a Fund's money managers may Select Value
not be complementary. The interplay of the
various strategies employed by a Fund's
multiple money managers may result in a
Fund holding a concentration of certain
types of securities. This concentration
may be beneficial or detrimental to a
Fund's performance depending upon the
performance of those securities and the
overall economic environment. The multi-
manager approach could result in a high
level of portfolio turnover, resulting in
higher Fund brokerage expenses and
increased tax liability from a Fund's
realization of capital gains.

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

. Value Stocks Investments in value stocks are subject to Select Value
risks that (i) their intrinsic values may
never be realized by the market or (ii)
such stock may turn out not to have been
undervalued.
</TABLE>

9
<PAGE>

<TABLE>
<S> <C> <C>
. Growth Stocks Growth company stocks may provide minimal Select Growth
dividends which could otherwise cushion
stock prices in a market decline. The
value of growth company stocks may rise
and fall significantly based, in part, on
investors' perceptions of the company,
rather than on fundamental analysis of the
stocks.

. Securities of Small Investments in smaller companies may Select Growth
Capitalization involve greater risks because these Select Value
Companies 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 may increase the
volatility of a Fund's portfolio.

Exposing Liquidity By exposing its liquidity reserves to the Select Growth
Reserves to Equity equity market, principally by use of Select Value
Markets equity futures, a Fund's performance tends
to correlate more closely to the
performance of the market as a whole.
Although this increases a Fund's
performance if equity markets rise, it
reduces a Fund's performance if equity
markets decline.

Securities Lending If a borrower of a Fund's securities fails Select Growth
financially, the Fund's recovery of the Select Value
loaned securities may be delayed or the
Fund may lose its rights to the
collateral, which could result in a loss
to a Fund.
</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.

10
<PAGE>

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, as of June 30, 2000, managed over $18 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, Paris, Sydney,
Auckland, Singapore 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.

. Jean Carter, who has been Director of Global Equities since January
2000. From 1994 to 1999, Ms. Carter was a Portfolio Manager of FRIMCo.

. Erik W. Ogard, who has been a Portfolio Manager of FRIMCo since March
2000. Mr. Ogard was a Research Analyst for FRIMCo from 1995 to 1997
and a Senior Research Analyst for FRIMCo from 1997 to 2000. Mr. Ogard
has, jointly with Mr. Trittin, primary responsibility for the
management of the Select Growth and Select Value 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 has, jointly
with Mr. Ogard, primary responsibility for management of the Select
Growth and Select Value Funds.

11
<PAGE>

portion of its 0.85% and 0.75% combined advisory and administrative fees for the
Select Growth Fund and Select Value Fund, respectively, up to the full amount of
those fees for Fund-level expenses that exceed 0.83% and 0.73%, respectively, of
the average daily net assets of those Funds on an annual basis. Additionally,
FRIMCo has agreed to reimburse the Select Growth Fund and Select Value Fund at
least until February 28, 2002, for all remaining Fund-level expenses that exceed
0.83% and 0.73%, respectively, of the average daily net assets of those Funds on
an annual basis. Fund-level expenses for the Funds do not include transfer
agency fees, administrative fees, 12b-1 fees or shareholder servicing fees.

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 evaluates the investment merits of the money managers' individual
security selections.

PORTFOLIO TURNOVER

The portfolio turnover rates for the 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

12
<PAGE>

Fund realizes capital gains upon selling portfolio securities, your tax
liability increases. The annual portfolio turnover rates for each of the Funds
will be shown in the Financial Highlights tables after the Funds have completed
their first fiscal year.

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 (if any), according to the following schedule:

<TABLE>
<CAPTION>
Declared Payable Funds
-------- ------- -----
<S> <C> <C>
Quarterly...................... Mid: April, July, October and Select Value
December

Annually....................... Mid-December Select Growth
</TABLE>

Capital Gains Distributions

The Board intends to declare capital gain distributions (both short-term
and long-term) once a year in mid-December to reflect any net short-term and net
long-term capital gains realized by a Fund as of October 31 of the current
fiscal year. A Fund may be required to make an additional distribution if
necessary, in any year for operational or other reasons. Distributions that are
declared in October, November or December to shareholders of record in such
months, and paid in January of the following year, will be treated for tax
purposes as if received on December 31 of the year in which they were declared.

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. To avoid "buying a dividend," check a Fund's distribution dates
before you invest.

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 at
Frank Russell Investment Company c/o Boston Financial Data Services, 2 Heritage
Drive, N. Quincy, MA 02171.

13
<PAGE>

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 long-term 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.

When you sell or exchange your Shares of a Fund, you may have a capital
gain or loss. Any loss incurred on the sale or exchange of Shares, held for six
months or less, will be treated as a long-term capital loss to the extent of
capital gains dividends received with respect to such Shares. The tax rate on
any gain from the sale or exchange of your shares depends on how long you have
held your Shares.

When a Fund invests in securities of certain foreign countries, the Fund
may have taxes withheld on the income received from these securities. If more
than 50% of the total fair market value of the Fund's assets is made up of
foreign securities, then the Fund may elect to pass through such taxes to
shareholders as a foreign tax credit.

If you are a corporate investor, a portion of the dividends from net
investment income paid by the 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. You should consult your own tax adviser 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 Funds'
Statement of Additional Information.

14
<PAGE>

HOW NET ASSET VALUE IS DETERMINED

Net Asset Value Per Share

The net asset value per share is calculated for Shares of each class of
each Fund on each business day on which Shares are offered or redemption orders
are tendered. For all Funds, a business day is one on which the New York Stock
Exchange (NYSE) is open for trading. The NYSE is not open on national holidays
or Good Friday. All Funds determine net asset value at 4:00 p.m. Eastern Time or
the close of the NYSE, whichever is earlier.

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.

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.

For the Class Y Shares, there is a $10 million required minimum initial
investment for each account in each Fund.

Financial Intermediaries may charge their customers a fee for providing
investment-related services.

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 arrive in proper form by settlement date. Unless a
Financial Intermediary has enrolled in the Three-Day Settlement Program
described below, the settlement date if the first business day following receipt
by the Funds of your order. 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

15
<PAGE>

Order and Payment Procedures

Generally, you must place purchase orders for 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.
Cash, third party checks and checks drawn on credit card account generally 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 the 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 at the next computed net asset value 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.

16
<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. 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

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 price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by a Fund will be valued in the same way the Fund values its
assets. Any interest earned on the securities following their delivery to the
Funds and prior to the exchange will be considered in valuing the securities.
All interest, dividends, subscription or other rights attached to the securities
becomes the property of the Fund, along with the securities. Please contact your
Financial Intermediary for further information.

HOW TO REDEEM SHARES

Shares of the Funds may be redeemed through your Financial Intermediary on
any business day the Funds are open at the next net asset value per share
calculated after the Funds' Transfer Agent receives an order in proper form
(defined in the "Written Instructions" section). Payment will ordinarily be made
within seven days after receipt of your request in proper form. Shares recently
purchased by

17
<PAGE>

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 4:00 p.m. Eastern Time or the close of the NYSE,
whichever is earlier. 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 described
below.

By Mail or Telephone

Systematic Withdrawal Program

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

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

Accounts in Street Name

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

18
<PAGE>

By Wire

19
<PAGE>

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

Signature Requirements Based on Account Type

<TABLE>
<S> <C>
Account Type Requirements for Written Requests

Individual, Joint Tenants, Written instructions must be signed by each shareholder, exactly as the
Tenants in Common names appear in the account registration.

UGMA or UTMA (custodial accounts Written instructions must be signed by the custodian in his/her
for minors) capacity as it appears in the account registration.

Corporation, Association Written instructions must be signed by authorized person(s), stating
his/her capacity as indicated by the corporate resolution to act on the
account and a copy of the corporate resolution, certified within the
past 90 days, authorizing the signer to act.

Estate, Trust, Pension, Profit Written instructions must be signed by all trustees. If the name of the
Sharing Plan 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 whose Written instructions must by signed by the surviving tenant(s). A
co-tenants are deceased certified copy of the death certificate must accompany the request.
</TABLE>

20
<PAGE>

Signature Guarantee

ACCOUNT POLICIES

Third Party Transactions

Redemption In-Kind

Stale Checks

For the protection of shareholders and the Funds, if a check issued for the
payment of redemption or distribution is not cashed for more than 180 days from
issuance, it will not be honored. The Funds have adopted procedures described in
the statement of additional information regarding the treatment of stale checks,
or you may contact your Financial Intermediary for additional information.

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 FRIMCo or of
Frank Russell Company, including Frank Russell Company's wholly owned
subsidiary, Frank Russell Trust Company.

Select Growth Fund

CapitalWorks Investment Partners, LLC 401 West "A" Street, Suite 1675, San
Diego, CA 92101.

Fuller & Thaler Asset Management 411 Borel Avenue, Suite 402, San Mateo, CA
94402.

Strong Capital Management, Inc. 100 Heritage Reserve, Menomonee Falls, WI
53051.

TCW London International Limited 16 Charles II Street, London, SW1Y 4QU,
England.

21
<PAGE>

Turner Investment Partners, Inc. 1235 Westlakes Drive, Suite 350, Berwyn, PA
19312.

Select Value Fund

Iridian Asset Management LLC, 276 Post Road West, Westport, Connecticut 06880.

MFS Institutional Advisors, Inc., 500 Boylston Street, Boston, MA 02116-3741.

Systematic Financial Management, L.P. 6900 College Boulevard, Suite 570,
Overland Park, KS 66211.

When considering an 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.

22
<PAGE>

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

ANNUAL/SEMIANNUAL REPORTS: Additional information about the Funds' investments
will be available in the Funds' annual and semiannual reports to shareholders
once the Funds have completed their first annual or semi-annual period. 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 SAI is incorporated into this Prospectus by reference. You may obtain free
copies of the annual reports for the Funds once the Funds have completed their
first annual or semi-annual period and of 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: 253-591-3495
Website: 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 1-202-942-8090. Reports and other information about
the Funds are available on the EDGAR Database on the Commission's Internet
website at http://www.sec.gov. Copies of this information may be obtained, after
paying a duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102.

FRANK RUSSELL INVESTMENT COMPANY

Class Y Shares:

Select Growth Fund
Select Value Fund

Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36- - (0201)
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700
In Washington (253) 627-7001

STATEMENT OF ADDITIONAL INFORMATION

__________, 2001

Frank Russell Investment Company ("FRIC") is a single legal entity
organized as a Massachusetts business trust. FRIC operates investment portfolios
referred to as "Funds." FRIC offers Shares of beneficial interest in the Funds
in multiple separate Prospectuses.

This Statement of Additional Information ("Statement") is not a
prospectus; this Statement should be read in conjunction with the Funds'
Prospectuses. Prospectuses may be obtained without charge by telephoning or
writing FRIC at the number or address shown above.

Capitalized terms not otherwise defined in this Statement shall have the
meanings assigned to them in the Prospectuses.

This Statement incorporates by reference FRIC's Annual Reports to
Shareholders as of October 31, 2000. Copies of the Funds' Annual Reports and
Semi-Annual Reports accompany this Statement.

As of the date of this Statement, FRIC is comprised of the following
Funds, each of which commenced operations on the date indicated:

<TABLE>
<CAPTION>
Fund Inception
Fund Date Prospectus Date
---- ---- ---------------
<S> <C> <C>
Equity I Fund October 15, 1981 May 1, 2000
Equity II Fund December 28, 1981 May 1, 2000
Equity III Fund November 27, 1981 May 1, 2000
Equity Q Fund May 29, 1987 May 1, 2000
Tax-Managed Large Cap Fund (formerly October 7, 1996 May 1, 2000 (Classes C and S)
Equity T Fund) November 15, 2000 (Class E)
Tax-Managed Small Cap Fund December 1, 1999 May 1, 2000 (Classes C and S)
November 15, 2000 (Class E)
International Fund January 31, 1983 May 1, 2000
Emerging Markets Fund January 29, 1993 May 1, 2000
Fixed Income I Fund October 15, 1981 May 1, 2000
Fixed Income III Fund January 29, 1993 May 1, 2000
Money Market Fund October 15, 1981 May 1, 2000
Diversified Equity Fund September 5, 1985 May 1, 2000
</TABLE>
<PAGE>

<TABLE>
<S> <C> <C>
Special Growth Fund September 5, 1985 May 1, 2000
Equity Income Fund September 5, 1985 May 1, 2000
Quantitative Equity Fund May 15, 1987 May 1, 2000
International Securities Fund September 5, 1985 May 1, 2000
Real Estate Securities Fund July 28, 1989 May 1, 2000
Diversified Bond Fund September 5, 1985 May 1, 2000
Short Term Bond Fund October 30, 1981 May 1, 2000
Multistrategy Bond Fund January 29, 1993 May 1, 2000
Tax Exempt Bond Fund September 5, 1985 May 1, 2000
U.S. Government Money Market Fund September 5, 1985 May 1, 2000
Tax Free Money Market Fund May 8, 1987 May 1, 2000
Select Growth Fund _________, 2001 _________, 2001
Select Value Fund _________, 2001 _________, 2001
</TABLE>

A shareholder of the Equity I, Equity II, Equity III, Equity Q, International,
Fixed Income I or Fixed Income III Funds may enter into a separate agreement
with Frank Russell Investment Management Company ("FRIMCo") to obtain certain
services from, and pay a separate quarterly individual shareholder investment
services fee directly to, FRIMCo. The amount of the fee is based upon the assets
subject to the applicable agreement and the services obtained under that
agreement. A shareholder of the other Funds does not execute such an agreement
to acquire such services and pays no such fees. In each case, FRIMCo may charge
fees to a shareholder for non-investment services provided directly to that
shareholder.

Each of the Funds (except the money market funds) presently offers interests in
different classes of Shares as described in the table below. For purposes of
this Statement, each Fund that issues multiple classes of Shares is referred to
as a "Multiple Class Fund." Seven of the Funds, the Equity I, Equity II, Equity
III, Equity Q, International, Fixed Income I and Fixed Income III Funds, are
referred to in this Statement as the "Institutional Funds." Unless otherwise
indicated, this Statement relates to all classes of Shares of the Funds.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Fund Class C Class E Class S Class I Class Y
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity I X X X
----------------------------------------------------------------------------------------------------------------------
Equity II X X X
----------------------------------------------------------------------------------------------------------------------
Equity III X X X
----------------------------------------------------------------------------------------------------------------------
Equity Q X X X
----------------------------------------------------------------------------------------------------------------------
Tax-Managed Large Cap X X X
----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax-Managed Small Cap X X X
--------------------------------------------------------------------------------------------------------
International X X X
--------------------------------------------------------------------------------------------------------
Emerging Markets X X X
--------------------------------------------------------------------------------------------------------
Fixed Income I X X X
--------------------------------------------------------------------------------------------------------
Fixed Income III X X X
--------------------------------------------------------------------------------------------------------
Money Market X
--------------------------------------------------------------------------------------------------------
Diversified Equity X X X
--------------------------------------- ------------ ------------ ------------ ------------ ------------
Special Growth X X X
--------------------------------------------------------------------------------------------------------
Equity Income X X X
--------------------------------------------------------------------------------------------------------
Quantitative Equity X X X
--------------------------------------------------------------------------------------------------------
International Securities X X X
--------------------------------------------------------------------------------------------------------
Real Estate Securities X X X
--------------------------------------------------------------------------------------------------------
Diversified Bond X X X
--------------------------------------------------------------------------------------------------------
Short Term Bond X X X
--------------------------------------------------------------------------------------------------------
Multistrategy Bond X X X
--------------------------------------------------------------------------------------------------------
Tax Exempt Bond X X X
--------------------------------------------------------------------------------------------------------
U.S. Government Money Market X
--------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax Free Money Market X
--------------------------------------------------------------------------------------------------------
Select Growth Fund X X X X X
--------------------------------------------------------------------------------------------------------
Select Value Fund X X X X X
--------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

TABLE OF CONTENTS

CERTAIN TERMS USED IN THIS STATEMENT ARE DEFINED IN THE
GLOSSARY, WHICH BEGINS ON PAGE 71

<TABLE>
<CAPTION>
Page
<S> <C>
STRUCTURE AND GOVERNANCE..................................................................................... 1
Organization and Business History..................................................................... 1
Shareholder Meetings.................................................................................. 1
Controlling Shareholders.............................................................................. 1
Trustees and Officers................................................................................. 7

OPERATION OF FRIC............................................................................................ 12
Service Providers..................................................................................... 12
Consultant............................................................................................ 12
Advisor and Administrator............................................................................. 12
Money Managers........................................................................................ 15
Distributor........................................................................................... 16
Custodian and Portfolio Accountant.................................................................... 16
Transfer and Dividend Disbursing Agent................................................................ 17
Order Placement Designees............................................................................. 17
Independent Accountants............................................................................... 17
Code of Ethics........................................................................................ 17
Plan Pursuant to Rule 18f-3........................................................................... 19
Distribution Plan..................................................................................... 20
Shareholder Services Plan............................................................................. 21
Fund Expenses......................................................................................... 23
Purchase and Redemption of Fund Shares................................................................ 23
Valuation of Fund Shares.............................................................................. 23
Valuation of Portfolio Securities..................................................................... 24
Portfolio Transaction Policies........................................................................ 24
Portfolio Turnover Rate............................................................................... 25
Brokerage Allocations................................................................................. 26
</TABLE>
<PAGE>

<TABLE>
<S> <C>
Brokerage Commissions................................................................................. 27
Yield and Total Return Quotations..................................................................... 31

INVESTMENT RESTRICTIONS, POLICIES AND CERTAIN INVESTMENTS.................................................... 32
Investment Restrictions............................................................................... 32
Investment Policies................................................................................... 35
Certain Investments................................................................................... 39

TAXES........................................................................................................ 56

MONEY MANAGER INFORMATION.................................................................................... 59

RATINGS OF DEBT INSTRUMENTS.................................................................................. 65

FINANCIAL STATEMENTS......................................................................................... 70

GLOSSARY..................................................................................................... 71
</TABLE>
<PAGE>

STRUCTURE AND GOVERNANCE

ORGANIZATION AND BUSINESS HISTORY. FRIC commenced business operations as a
Maryland corporation on October 15, 1981. On January 2, 1985, FRIC reorganized
by changing its domicile and legal status to a Massachusetts business trust.

FRIC is currently organized and operating under an amended Master Trust
Agreement dated July 26, 1984, and the provisions of Massachusetts's law
governing the operation of a Massachusetts business trust. The Board of Trustees
("Board" or the "Trustees") may amend the Master Trust Agreement from time to
time; provided, however, that any amendment which would materially and adversely
affect shareholders of FRIC as a whole, or shareholders of a particular Fund,
must be approved by the holders of a majority of the Shares of FRIC or the Fund,
respectively. FRIC is a registered open-end management investment company of the
diversified type.

FRIC is authorized to issue Shares of beneficial interest, and may divide the
Shares into two or more series, each of which evidences a pro rata ownership
interest in a different investment portfolio -- a "Fund." Each Fund is a
separate trust under Massachusetts law. The Trustees may, without seeking
shareholder approval, create additional Funds at any time. The Master Trust
Agreement provides that shareholders may be required to redeem their shares at
any time (1) if the Trustees determine in their sole discretion that failure to
so redeem may have material adverse consequences to the shareholders of FRIC or
of any Fund or (2) upon such other conditions as may from time to time be
determined by the Trustees and set forth in the prospectus with respect to the
maintenance of shareholder accounts of a minimum amount.

FRIC's Funds are authorized to issue Shares of beneficial interest in one or
more classes. Shares of each class of a Fund have a par value of $.01 per share,
are fully paid and nonassessable, and have no preemptive or conversion rights.
Shares of each class of a Fund represent proportionate interests in the assets
of that Fund and have the same voting and other rights and preferences as the
Shares of other classes of the Fund. Shares of each class of a Fund are entitled
to the dividends and distributions earned on the assets belonging to the Fund
that the Board declares. Each class of Shares is designed to meet different
investor needs. The Class C Shares are subject to a Rule 12b-1 fee of up to
0.75% and a shareholder services fee of up to 0.25%. Class E Shares are subject
to a shareholder services fee of up to 0.25%. The Class I, Class Y, and Class S
Shares are not subject to either a Rule 12b-1 fee or a shareholder services fee.
Unless otherwise indicated, "Shares" in this Statement refers to all classes of
Shares of the Funds.

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

Frank Russell Company has the right to grant (and withdraw) the nonexclusive use
of the name "Frank Russell" or any variation.

SHAREHOLDER MEETINGS. FRIC will not hold annual meetings of shareholders, but
special meetings may be held. Special meetings may be convened (i) by the Board,
(ii) upon written request to the Board by shareholders holding at least 10% of
FRIC's outstanding Shares, or (iii) upon the Board's failure to honor the
shareholders' request described above, by shareholders holding at least 10% of
the outstanding Shares by giving notice of the special meeting to shareholders.
Each share of a class of a Fund has one vote in Trustee elections and other
matters submitted for shareholder vote. On any matter which affects only a
particular Fund or class, only Shares of that Fund or class are entitled to
vote. There are no cumulative voting rights.

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

1
<PAGE>

At December 31, 2000, the following shareholders owned 5% or more of any Class
of any Fund's Shares:

2
<PAGE>

3
<PAGE>

4
<PAGE>

5
<PAGE>

6
<PAGE>

At December 31, 2000, the following shareholders could be deemed "control" the
following Funds because such shareholder owns more than 25% of the voting Shares
of the indicated Fund:

The Trustees and officers of FRIC, as a group, own less than 1% of any Class of
each Fund.

TRUSTEES AND OFFICERS. The Board of Trustees is responsible for overseeing
generally the operation of the Funds, including reviewing and approving the
Funds' contracts with FRIMCo, Russell and the money managers. A Trustee may be
removed at any time by, in substance, a vote of two-thirds of FRIC Shares. A
vacancy in the Board shall be filled by a vote of a majority of the remaining
Trustees so long as, in substance, two-thirds of the Trustees have been elected
by shareholders. The officers, all of whom are employed by and are officers of
FRIMCo or its affiliates, are responsible for the day-to-day management and
administration of the Funds' operations.

FRIC paid in aggregate $_____________ for the year ended October 31, 2000 to the
Trustees who are not officers or employees of FRIMCo or its affiliates. Trustees
are paid an annual fee plus travel and other expenses incurred in attending
Board meetings. FRIC's officers and employees are paid by FRIMCo or its
affiliates.

The following table contains the Trustees and officers and their positions with
FRIC, their dates of birth, their present and principal occupations during the
past five years and the mailing addresses of Trustees who are not affiliated
with FRIC.

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

7
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Principal Occupation(s)
Name, Age, Position(s) Held During the
Address with Fund Past 5 Years
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*George F. Russell, Trustee Emeritus Also currently: Trustee Emeritus and Chairman Emeritus,
Jr., Born July 3, 1932 and Chairman Russell Insurance Funds; Director, Chairman of the Board
Emeritus since and Chief Executive Officer, Russell Building Management
909 A Street 1998. Company, Inc.; Director and Chairman of the Board, Frank
Tacoma, Washington Russell Company; Director and Chairman of the Board,
98402-1616 Frank Russell Investments (Delaware), Inc.; Chairman
Emeritus/Director Emeritus, Frank Russell Trust Company;
Chairman Emeritus, Frank Russell Securities, Inc.; Director
Emeritus, Frank Russell Investment Management Company;
Director, Chairman of the Board and President, Russell 20/20
Association. From 1984 to December 1998, Trustee and Chairman
of the Board of FRIC. From August 1996 to December 1998,
Trustee and Chairman of the Board of Russell Insurance Funds.
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
*Lynn L. Anderson, Trustee, Also currently: Trustee, President and Chief Executive
Born April 22, 1939 President and Officer, Russell Insurance Funds; Director, Chief
Chief Executive Executive Officer and Chairman of the Board, Russell
909 A Street Officer since Fund Distributors, Inc.; Trustee, Chairman of the Board,
Tacoma, Washington 1987. President, The SSgA Funds (investment company); Director
98402-1616 and Chairman of the Board, Frank Russell Investment
Management Company; Chairman of the Board, Frank Russell
Trust Company; Director and Chairman of the Board, Frank
Russell Investment Company PLC; Director, Frank Russell
Investments (Ireland) Limited, Frank Russell Investments
(Cayman) Ltd., and Frank Russell Investments (UK) Ltd.;
March 1997 to December 1998, Director, Frank Russell
Company; June 1993 to November 1995, Director, Frank
Russell Company. Until September 1994, Director and
President, The Laurel Funds, Inc. (investment company).
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Paul E. Anderson, Trustee since 1984. Also currently: Trustee, Russell Insurance Funds. 1996 to
Born October 15, 1931 present, President, Anderson Management Group LLC
(architectural design and manufacturing). 1984 to 1996,
23 Forest Glen Lane President, Vancouver Door Company, Inc.
Tacoma, Washington 98409
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Paul Anton, Ph.D., Trustee since 1985. Also currently: Trustee, Russell Insurance Funds. President,
Paul Anton and Associates (Marketing Consultant on emerging
Born December 1, 1919 international markets for small corporations). 1991-1994,
Adjunct Professor, International Marketing, University of

PO Box 212 Washington, Tacoma, Washington.
Gig Harbor, Washington
98335
---------------------------------------------------------------------------------------------------------------
</TABLE>

8
<PAGE>

800 North C Street
Tacoma, Washington 98403
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Kristianne Blake Trustee since 2000. Also currently: Trustee, Russell Insurance Funds; President,
Born January 22, 1954 Kristianne Gates Blake, P.S. (accounting services); Trustee,
WM Group of Funds; Trustee, William H. & Mary M. Gates
P.O. Box 28338 Charitable Remainder Annuity Trust.
Spokane, Washington
99228
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Lee C. Gingrich, Trustee since 1984. Also currently: Trustee, Russell Insurance Funds and
Born October 6, 1930 President, Gingrich Enterprises, Inc. (Business and Property
Management).
1730 North Jackson Tacoma,
Washington 98406
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Eleanor W. Palmer, Trustee since 1984. Also currently: Trustee, Russell Insurance Funds and
Born May 5, 1926 Director of Frank Russell Trust Company. Retired.

2025 Narrows View Circle
#232-D, P.O. Box 1057
Gig Harbor, Washington
98335
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Raymond P. Tennison, Jr. Trustee since 2000. Also currently: Trustee, Russell Insurance Funds and
Born December 21, 1955 President, Simpson Investment Company and several additional
subsidiary companies, including Simpson Timber Company,
1301 Fifth Avenue Simpson Paper Company and Simpson Tacoma Kraft Company.
Suite 2800 Prior to July 1997, President and Board member, Simpson
Seattle, Washington 98101 Paper Company. Trustee, Simpson Employee Retirement Fund.
---------------------------------------------------------------------------------------------------------------
</TABLE>

9
<PAGE>

909 A Street Russell Investment Management Company; Director and Chief
Tacoma, Washington Investment Officer, Russell Fund Distributors, Inc.;
98402-1616 Director-Futures Trading, Frank Russell Investments
(Ireland) Limited and Frank Russell Investments (Cayman)
Ltd.; Senior Vice President and Director of Portfolio
Trading, Frank Russell Canada Limited/Limitee. April 1990 to
November 1995, Director of Investments of Frank Russell
Investment Management Company.
---------------------------------------------------------------------------------------------------------------
</TABLE>

10
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Name, Age, Position(s) Held During the
Address with Fund Past 5 Years
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Karl J. Ege, Secretary and General Also currently: Secretary and General Counsel of
Born October 8, 1941 Counsel since 1994. Russell Insurance Funds; Director, Secretary and
General Counsel, Russell Real Estate Advisors, Inc.
909 A Street and Frank Russell Capital, Inc.; Secretary, General
Tacoma, Washington Counsel and Managing Director--Law and Government
98402-1616 Affairs of Frank Russell Company; Secretary and
General Counsel of Frank Russell Investment
Management Company, Frank Russell Trust Company and
Russell Fund Distributors, Inc.; Director and
Secretary of Russell Insurance Agency, Inc., Frank
Russell Investments (Delaware), Inc., A Street
Investment Associates, Inc., Russell International
Services Co., Inc. and Russell 20-20 Association;
Director and Assistant Secretary of Frank Russell
Company Limited (London) and Russell Systems Ltd.;
Director of Frank Russell Investment Company LLC,
Frank Russell Securities, Inc., Frank Russell Company
PTY, Limited, Frank Russell Institutional Funds plc,
Frank Russell Qualifying Investor Fund, Russell
Investment Management Ltd., Frank Russell Investment
Company PLC, Frank Russell Investments (Ireland)
Limited, Frank Russell Investment (Japan), Ltd.,
Frank Russell Company, S.A., Frank Russell Japan Co.,
Ltd., Frank Russell Company (NZ) Limited, Russell
Investment Nominee Co PTY Ltd and Frank Russell
Investments (UK) Ltd. April 1992 to December, 1998,
Director, Frank Russell Company.
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
*Peter F. Apanovitch, Manager of Short-Term Also currently: Manager of Short-Term Investment
Born May 3, 1945 Investment Funds. Funds, Russell Insurance Funds, Frank Russell
Investment Management Company and Frank Russell Trust

909 A Street Company.
Tacoma, Washington
98402-1616
---------------------------------------------------------------------------------------------------------------
</TABLE>

TRUSTEE COMPENSATION TABLE

<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS ANNUAL FROM FRIC
TRUSTEE FROM FRIC PART OF FRIC EXPENSES BENEFITS UPON PAID TO TRUSTEES
------- ------------------- --------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Lynn L. Anderson $0 $0 $0 $0
Paul E. Anderson $ $0 $0

Paul Anton, PhD. $ $0 $0 $ *

William E. Baxter $ $0 $0 $ *

Kristianne Blake $0 $0 $0 $0
Lee C. Gingrich $ $0 $0 $ *

Eleanor W. Palmer $ $0 $0 $ *

Raymond P. Tennison, Jr. $0 $0 $0 $0
</TABLE>

* Received $__________ for service as trustees on the Board of Trustees
for the Russell Insurance Funds.

11
<PAGE>

OPERATION OF FRIC

SERVICE PROVIDERS. Most of FRIC's necessary day-to-day operations are performed
by separate business organizations under contract to FRIC. The principal service
providers are:

Consultant Frank Russell Company

Advisor, Administrator, Transfer and Frank Russell Investment Management
Company
Dividend Disbursing Agent

Money Managers Multiple professional discretionary
investment management organizations

Custodian and Portfolio Accountant State Street Bank and Trust Company

CONSULTANT. Frank Russell Company, the corporate parent of Frank Russell
Investment Management Company ("FRIMCo"), was responsible for organizing FRIC
and provides ongoing consulting services, described in the Prospectuses, to FRIC
and FRIMCo. FRIMCo does not pay Frank Russell Company an annual fee for
consulting services.

Frank Russell Company provides comprehensive consulting and money manager
evaluation services to institutional clients, including FRIMCo and Frank Russell
Trust Company, and to high net worth individuals and families ($100 million)
through its Russell Private Investment Division. Frank Russell Company also
provides: (i) consulting services for international investment to these and
other clients through its International Division and its wholly owned
subsidiaries, Frank Russell Company London (Frank Russell Company Limited),
Frank Russell Canada (Frank Russell Canada Limited/Limitee), Frank Russell
Australia (Frank Russell Company Pty., Limited), Frank Russell Japan, Frank
Russell AG (Zurich), Frank Russell Company S.A. (Paris), Frank Russell Company
(N.Z.) Limited (Auckland), and Frank Russell Investments (Delaware), Inc., and
(ii) investment account and portfolio evaluation services to corporate pension
plan sponsors and institutional money managers through its Russell Data Services
Division. Frank Russell Securities, Inc., a wholly owned subsidiary of Frank
Russell Company, carries on an institutional brokerage business. Frank Russell
Capital Inc., a wholly owned subsidiary of Frank Russell Company, carries on an
investment banking business as a registered broker-dealer. Frank Russell Trust
Company, a wholly owned subsidiary of Frank Russell Company, provides
comprehensive trust and investment management services to corporate pension and
profit-sharing plans. Frank Russell Investments (Cayman) Ltd., a wholly owned
subsidiary of Frank Russell Company, provides investment advice and other
services. Frank Russell Investment (Ireland) Ltd., a wholly owned subsidiary of
Frank Russell Company, provides investment advice and other services. Frank
Russell International Services Co., Inc., a wholly owned subsidiary of Frank
Russell Company, provides services to US personnel secunded to overseas
enterprises. Russell Fiduciary Services Company, a wholly owned subsidiary of
Frank Russell Company, provides fiduciary services to pension and welfare
benefit plans and other institutional investors. The mailing address of Frank
Russell Company is 909 A Street, Tacoma, WA 98402.

As affiliates, Frank Russell Company and FRIMCo may establish certain
intercompany cost allocations that reflect the consulting services supplied to
FRIMCo. George F. Russell, Jr., Trustee Emeritus and Chairman Emeritus of FRIC,
is the Chairman of the Board of Frank Russell Company. FRIMCo is a wholly owned
subsidiary of Frank Russell Company.

Frank Russell Company is a subsidiary of The Northwestern Mutual Life Insurance
Company ("Northwestern Mutual"). Founded in 1857, Northwestern Mutual is a
mutual insurance corporation organized under the laws of Wisconsin. Northwestern
Mutual's products consist of a full range of permanent and term life insurance,
disability income insurance, long-term care insurance, mutual funds and
annuities for personal, estate, retirement, business, and benefits planning.
Northwestern Mutual provides its insurance products and services through an
exclusive network of approximately 7,200 agents associated with over 100 general
agencies nationwide. Northwestern Mutual leads the U.S. in both individual life
insurance sold annually and total individual life insurance in force.

12
<PAGE>

investment programs for each of the Funds, selects money managers for the Funds
(subject to approval by the Board), allocates assets among money managers,
monitors the money managers' investment programs and results, and may exercise
investment discretion over assets invested in the Funds' Liquidity Portfolio.
(See, "Investment Policies--Liquidity Portfolio.") FRIMCo also acts as FRIC's
transfer agent, dividend disbursing agent and as the money manager for the Money
Market and US Government Money Market Funds. FRIMCo, as agent for FRIC, pays the
money managers' fees for the Funds, as a fiduciary for the Funds, out of the
advisory fee paid by the Funds to FRIMCo. The remainder of the advisory fee is
retained by FRIMCo as compensation for the services described above and to pay
expenses.

Each of the Funds pays an advisory fee and an administrative fee directly to
FRIMCo, billed monthly on a pro rata basis and calculated as a specified
percentage of the average daily net assets of each of the Funds. Services which
are administrative in nature are provided by FRIMCo pursuant to an
Administrative Agreement for an annual fee of 0.05% of each Fund's average daily
net asset value. (See the applicable Prospectus for the Funds' annual advisory
percentage rates.)

FRIMCo has contractually agreed to waive all or a portion of its combined
advisory and administrative fees for certain Funds. This arrangement is not part
of the Advisory Agreement with FRIC or the Administrative Agreement and may be
changed or discontinued. FRIMCo currently calculates its advisory fee based on a
Fund's average daily net assets less any advisory fee incurred on the Fund's
assets to the extent the Fund incurs advisory fees for investing a portion of
its assets in FRIC's Money Market Fund.

The following Funds paid FRIMCo the listed advisory and administrative fees
(gross of reimbursements and/or waivers) for the years ended October 31, 2000
and December 31, 1999 and 1998:

<TABLE>
<CAPTION>
YEARS ENDED
-----------
10/31/00 12/31/99 12/31/98
-------- -------- --------
<S> <C> <C> <C>
Diversified Equity $11,377,505 $9,580,094
Special Growth 5,867,193 5,901,577
Equity Income 1,793,367 2,039,971
Quantitative Equity 11,129,142 9,056,015
International Securities 9,446,953 8,859,189
Real Estate Securities 5,193,244 5,183,218
Diversified Bond 3,695,482 3,407,594
Multistrategy Bond 3,667,917 3,241,445
Tax Exempt Bond 498,685 525,312
U.S. Government Money Market 392,940 372,920

Tax Free Money Market 491,260 429,613
Equity I 8,904,910 7,626,293
Equity II 4,636,747 3,792,749
Equity III 1,179,507 1,403,784
Equity Q 7,390,737 6,563,229
Tax-Managed Large Cap (formerly 3,180,328 1,463,604
Equity T) 375,054
Tax-Managed Small Cap* 18,536 --
International 8,145,109 7,709,349
Emerging Markets 4,222,210 4,020,121
Fixed Income I 3,037,359 2,631,177
Fixed Income III 2,521,293 2,380,980
Short Term Bond 2,269,960 1,216,062
Money Market 5,108,573 2,719,009
</TABLE>

* Tax-Managed Small Cap Fund commenced operations December 1, 1999.

13
<PAGE>

Effective October 15, 1997, FRIMCo voluntarily agreed to waive 0.15% of its
0.25% combined advisory and administrative fee for the Money Market Fund. FRIMCo
waived fees in the amounts of $1,631,406, $3,065,144 and $___________ for the
years ended December 31, 1998 and 1999 and October 31, 2000, respectively. As a
result of the waivers, the Fund paid advisory and administrative equal to
$1,087,604, $2,043,429 and $___________ for the years ended December 31, 1998
and 1999 and October 31, 2000, respectively.

Prior to June 15, 1998, FRIMCo voluntarily agreed to waive 0.13% of its 0.20%
advisory and administrative fees for the US Government Money Market Fund.
Effective June 15, 1998, FRIMCo has contractually agreed to waive a portion of
its combined advisory fee, up to the full amount of those fees, equal to the
amount by which the Fund's total operating expenses exceed 0.30% of the Fund's
average daily net assets on an annual basis. FRIMCo waived fees in the amounts
of $316,055, $379,754 and $____________ for the years ended December 31, 1998
and 1999 and October 31, 2000, respectively. As a result of the waivers, the
Fund paid advisory and administrative equal to $56,865, $13,186 and $___________
for the years ended December 31, 1998 and 1999 and October 31, 2000,
respectively.

Effective January 1, 1997, FRIMCo voluntarily agreed to waive 0.10% of its 0.25%
combined advisory and administrative fees for the Tax Free Money Market Fund.
FRIMCo waived fees in the amounts of $171,845, $196,504 and $________ for the
years ended December 31, 1998 and 1999 and October 31, 2000, respectively. As a
result of the waivers, the Fund paid advisory and administrative equal to
$257,768, $294,756 and $________ for the years ended December 31, 1998 and 1999
and October 31, 2000, respectively.

Effective May 1, 1996 until ________________, FRIMCo contractually agreed to
waive a portion of its combined advisory and administrative fees for the
Multistrategy Bond Fund, to the extent Fund level expenses exceed 0.80% of
average daily net assets on an annual basis. FRIMCo waived fees in the amounts
of $57,035 $327,074 and $___________ for the years ended December 31, 1998 and
1999 and October 31, 2000, respectively. As a result of the waivers, the Fund
paid advisory and administrative fees equal to $3,184,410, $3,340,842 and
$___________ for the years ended December 31, 1998 and 1999 and October 31,
2000, respectively.

FRIMCo has contractually agreed to waive a portion of its 1.03% combined
advisory and administrative fees for the Tax-Managed Small Cap Fund, up to the
full amount of those fees, equal to the amount by which total Fund-level
expenses exceed 1.25% of the Fund's average daily net assets on an annual basis.
In addition, FRIMCo has contractually agreed to reimburse the Fund for any
remaining total Fund-level expenses after any FRIMCo waiver which exceed 1.25%
of average daily net assets on an annual basis. FRIMCo waived fees in the amount
of $18,536 and $____________ for the [years] ended December 31, 1999 and October
31, 2000. In addition, FRIMCo reimbursed the Fund $101,897 and $___________ for
expenses over the cap in 1999 and 2000, respectively. As a result of the waivers
and reimbursements, the Fund paid no advisory and administrative fees for the
[years] ended December 31, 1999 and October 31, 2000. The Fund commenced
operations on December 1, 1999.

Effective September 29, 2000, FRIMCo has contractually agreed to waive, at least
until ________________, an amount up to the full amount of its aggregate 0.50%
combined advisory and administrative fees for the Short Term Bond Fund, and to
reimburse the Fund to the extent that Fund-level expenses exceed 0.52% of
average daily net assets of that Fund for the month of October 2000 and
thereafter on an annual basis. FRIMCo waived fees in the amount of $____________
for the year ended October 31, 2000. In addition, FRIMCo reimbursed the Fund
$___________ for expenses over the cap in 2000. As a result of the waivers and
reimbursements, the Fund paid advisory and administrative fees for the year
ended October 31, 2000 equal to $____________.

Effective January 1, 2000, FRIMCo has contractually agreed to waive, at least
until ____________, a portion of its transfer agency fees for Class E Shares of
the Fixed Income III Fund to the extent that such fees exceed 0.05% of the
average daily net assets on an annual basis with respect to Class E of that
Fund. FRIMCo waived fees in the amount of $____________ for the year ended
October 31, 2000.

Effective January 1, 2000, FRIMCo has contractually agreed to waive, at least
until _____________, a portion of its transfer agency fees for Class Y Shares of
each Fund to the extent that those fees would affect "Other Expenses" of Class Y
Shares of a Fund by one basis point or more.

14
<PAGE>

For the Select Growth Fund, FRIMCo has contractually agreed to waive, at least
until February 28, 2002, up to the full amount of its 0.85% combined advisory
and administrative fees for that Fund, and to reimburse the Fund to the extent
that Fund-level expenses exceed 0.83% of the average daily net assets of that
Fund on an annual basis. Fund-level expenses for the Select Growth Fund do not
include transfer agency fees, administrative fees, 12b-1 fees or shareholder
servicing fees. In addition, after applying the foregoing waiver, FRIMCo has
contractually agreed to waive, at least until February 28, 2002, up to the full
amount of its transfer agency fees in an amount necessary to ensure that "Total
Net Fund Operating Expenses" for Class I Shares of the Select Growth Fund do not
exceed 0.89%.

For the Select Value Fund, FRIMCo has contractually agreed to waive at least
until February 28, 2002, up to the full amount of its 0.75% combined advisory
and administrative fees for that Fund, and to reimburse the Fund to the extent
that Fund-level expenses exceed 0.73% of the average daily net assets of that
Fund at an annual basis. Fund-level expenses for the Select Value Fund do not
include transfer agency fees, administrative fees, 12b-1 fees or shareholder
servicing fees. In addition, after applying the foregoing waiver, FRIMCo has
contractually agreed to waive, at least until February 28, 2002, up to the full
amount of its transfer agency fees in an amount necessary to ensure that "Total
Net Fund Operating Expenses" for Class I Shares of the Select Value Fund do not
exceed 0.79%.

FRIMCo is a wholly-owned subsidiary of Frank Russell Company, a subsidiary of
The Northwestern Mutual Life Insurance Company. FRIMCo's mailing address is 909
A Street, Tacoma, WA 98402.

MONEY MANAGERS. Except with respect to the Money Market and US Government Money
Market Funds, the Funds' money managers have no affiliations or relationships
with FRIC or FRIMCo other than as discretionary managers for all or a portion of
a Fund's portfolio, except some money managers (and their affiliates) may effect
brokerage transactions for the Funds (see, "Brokerage Allocations" and
"Brokerage Commissions"). Money managers may serve as advisors or discretionary
managers for Frank Russell Trust Company, other investment vehicles sponsored or
advised by Frank Russell Company or its affiliates, other consulting clients of
Frank Russell Company, other off-shore vehicles and/or for accounts which have
no business relationship with the Frank Russell Company organization.

From its advisory fees, FRIMCo, as agent for FRIC, pays all fees to the money
managers for their investment selection services. Quarterly, each money manager
is paid the pro rata portion of an annual fee, based on the average for the
quarter of all the assets allocated to the money manager. For the years ended
December 31, 1998 and 1999 and October 31, 2000, management fees paid to the
money managers were:

<TABLE>
<CAPTION>
Annual rate
Fund $ Amount Paid (as a % of average daily net assets)
---- ------------- ------------------------------------
1998 1999 2000 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Equity I $2,646,978 $2,988,941 0.21% 0.20%
Equity II 2,296,509 0.39% 0.36%
Equity III 421,765 342,095 0.18% 0.17%
Fixed Income I 620,482 702,784 0.07% 0.07%
Short Term Bond 414,057 795,354 0.17% 0.17%
Fixed Income III 861,391 854,445 0.19% 0.18%
International 3,863,814 3,785,779 0.37% 0.34%
Equity Q 2,026,435 2,286,487 0.19% 0.18%
Tax-Managed Large Cap 606,948 1,130,665 0.31% 0.27%
Tax-Managed Small Cap* -- 6,673 -- 0.34%
Emerging Markets 2,230,317 2,151,950 0.66% 0.65%
</TABLE>

15
<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Diversified Equity 2,556,100 2,908,409 0.21% 0.20%
Special Growth 2,419.648 2,249,925 0.39% 0.36%
Equity Income 460,134 384,336 0.18% 0.17%
Diversified Bond 529,842 555,643 0.07% 0.07%
International Securities 3,505,016 3,429,899 0.37% 0.34%
Multistrategy Bond 990,456 1,046,997 0.19% 0.18%
Quantitative Equity 2,153,019 2,623,428 0.19% 0.18%
Real Estate Securities 1,757,612 1,711,842 0.29% 0.28%
Tax Exempt Bond 252,321 305,104 0.23% 0.19%
Tax Free Money Market 134,817 146,901 0.08% 0.08%
</TABLE>

* The Tax-Managed Small Cap Fund commenced operations on December 1, 1999.

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

DISTRIBUTOR. Russell Fund Distributors, Inc. (the "Distributor") serves as the
distributor of FRIC Shares. The Distributor receives no compensation from FRIC
for its services other than Rule 12b-1 compensation and shareholder services
compensation for certain classes of Shares pursuant to FRIC's Rule 12b-1
Distribution Plan and Shareholder Services Plan, respectively. The Distributor
is a wholly owned subsidiary of FRIMCo and its mailing address is 909 A Street,
Tacoma, WA 98402.

CUSTODIAN AND PORTFOLIO ACCOUNTANT. State Street Bank and Trust Company ("State
Street") serves as the custodian for FRIC. State Street also provides basic
portfolio recordkeeping required for each of the Funds for regulatory and
financial reporting purposes. For these services, State Street is paid the
following annual fees, which will be billed and payable on a monthly basis:

CUSTODY:

Domestic Custody - (i) $3,000 per portfolio per fund; (ii) First $10 billion in
average daily net assets - 0.75%, Over $10 billion - 0.65%. Global Custody - (i)
First $500 million in month end net assets - 0.11% - 0.35%, Over $500 million -
0.03% - 0.35% depending on the geographic classification of the investments in
the international funds (ii) a transaction charge ranging from $25 - $100
depending on the geographic classification of the investments in the
international funds. All Custody - (i) Portfolio transaction charges range from
$6.00 - $25.00 depending on the type of transaction; (ii) Futures and Options
charges range from $8.00 - $25.00; (iii) monthly pricing fees of $375.00 per
portfolio (except for the Tax Free Money Market Fund) and $6.00 - $11.00 per
security; (iv) on-line access charges of $2,500 per fund; and (v) Reimbursement
of out-of-pocket expenses including postage, transfer fees, stamp duties, taxes,
wire fees, telexes and freight. In addition, interest earned on uninvested cash
balances will be used to offset the Funds' custodian expense.

FUND ACCOUNTING:

Domestic Fund Accounting - (i) $10,000 per portfolio; and (ii) 0.015% of average
daily net assets. International Fund Accounting - (i) $24,000 per portfolio per
year; and (ii) 0.03% of month end net assets. Yield calculation services -$4,200

16
<PAGE>

per fixed income fund. Tax accounting services - $8,500 per Equity Fund, $11,000
per Fixed Income Fund, and $15,000 per Global Fund. The mailing address for
State Street Bank and Trust Company is: 1776 Heritage Drive, North Quincy, MA
02171.

TRANSFER AND DIVIDEND DISBURSING AGENT. FRIMCo serves as Transfer Agent for
FRIC. For this service, FRIMCo is paid a fee for transfer agency and dividend
disbursing services provided to FRIC. From this fee, which is based upon the
number of shareholder accounts and total assets of the Funds, FRIMCo compensates
unaffiliated agents who assist in providing these services. FRIMCO is also
reimbursed by FRIC for certain out-of-pocket expenses, including postage, taxes,
wires, stationery and telephone. FRIMCo's mailing address is 909 A Street,
Tacoma, WA 98402.

ORDER PLACEMENT DESIGNEES. FRIC has authorized certain Financial Intermediaries
to accept on its behalf purchase and redemption orders for FRIC Shares. Certain
Financial Intermediaries are authorized, subject to approval of FRIC's
Distributor, to designate other intermediaries to accept purchase and redemption
orders on FRIC's behalf. With respect to those intermediaries, FRIC will be
deemed to have received a purchase or redemption order when such a Financial
Intermediary or, if applicable, an authorized designee, accepts the order. The
customer orders will be priced at the applicable Fund's net asset value next
computed after they are accepted by such a Financial Intermediary or an
authorized designee, provided that Financial Intermediary or an authorized
designee timely transmits the customer order to FRIC.

INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP serves as the independent
accountants of FRIC. PricewaterhouseCoopers LLP is responsible for performing
annual audits of the financial statements and financial highlights of the Funds
in accordance with generally accepted auditing standards and a review of federal
tax returns. The mailing address of PricewaterhouseCoopers LLP is 1800 First
Interstate Center, 999 Third Avenue, Seattle, WA 98104-4098.

CODES OF ETHICS. FRIC, FRIMCo and RFD have each adopted a Code of Ethics as
required under SEC Rule 17j-1. These Codes permit personnel subject to the Codes
to invest in securities, which may include securities in which the Funds can
invest. Personal investments are subject to the regulatory and disclosure
provisions of the respective Codes. In addition, each Money Manager has adopted
a Code of Ethics under Rule 17j-1. The table below indicates whether each Money
Manager's Code of Ethics permits personnel covered by the Code to invest in
securities and, where appropriate, to invest in securities in which a Fund
advised by that Money Manager may invest.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Is personal investing Are investments in securities owned by the advised Fund
Money Manager allowed? allowed?
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AEW Capital Management, L.P. Yes No
----------------------------------------------------------------------------------------------------------------------
Alliance Capital Management Yes Yes, but not in securities with pending or possible client
L.P. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Barclays Global Fund Yes Yes, but not in securities with pending or possible client
Advisors N.A. buy or sell orders and certain blackouts apply to
securities of Barclays PLC and securities underwritten by
Barclays affiliates
----------------------------------------------------------------------------------------------------------------------
BlackRock Financial Yes Yes, but not in securities with pending or possible client
Management buy or sell orders
----------------------------------------------------------------------------------------------------------------------
The Boston Company Asset Yes Yes, but not in securities with pending or possible client
Management buy or sell orders, also, certain persons may not purchase
securities issued by financial services organizations
----------------------------------------------------------------------------------------------------------------------
CapitalWorks Investment Yes Yes, but not in securities with pending or possible client
Partners buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Cohen & Steers Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
David J. Greene & Company, Yes Yes
LLC
----------------------------------------------------------------------------------------------------------------------
Delaware International Yes Yes, but not in securities with pending or possible client
Advisors Limited buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Delphi Management, Inc. Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
</TABLE>

17
<PAGE>

<TABLE>
<S> <C> <C>
----------------------------------------------------------------------------------------------------------------------
Driehaus Capital Yes Yes, but not in securities with pending or possible client
Management, Inc. buy or sell orders unless the order is bunched with the
client's, the client is able to fully complete its own
order, and the order receives the average price for that
day
----------------------------------------------------------------------------------------------------------------------
Equinox Capital Management, Yes Yes, but not in securities with pending or possible client
Inc. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Fidelity Management Trust Yes Cannot purchase securities on a restricted list
Company
----------------------------------------------------------------------------------------------------------------------
Foreign & Colonial Emerging Yes Cannot purchase securities on a restricted list
Markets Limited
----------------------------------------------------------------------------------------------------------------------
Franklin Portfolio Yes Yes, but not in securities with pending or possible client
Associates LLC buy or sell orders, also, certain persons may not invest
in securities of financial services organizations
----------------------------------------------------------------------------------------------------------------------
Geewax, Terker & Company Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Genesis Asset Managers, Ltd. Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
GlobeFlex Capital, L.P. Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Jacobs Levy Equity Yes Yes, but not in securities with pending or possible client
Management, Inc. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
J.P. Morgan Investment Yes Cannot purchase securities on a restricted list or
Management, Inc. securities of financial services organizations
----------------------------------------------------------------------------------------------------------------------
Lazard Asset Management Yes Cannot purchase securities on a restricted list
----------------------------------------------------------------------------------------------------------------------
Lincoln Capital Management Yes Yes, but not in securities with pending or possible client
Company buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Marsico Capital Management, Severely restricts No
LLC personal trading except
for a limited number of
specific transactions such
as purchase of mutual
fund shares, commercial
paper, etc.
----------------------------------------------------------------------------------------------------------------------
Marvin & Palmer Associates, Yes Yes
Inc.
----------------------------------------------------------------------------------------------------------------------
Mastholm Asset Management, Yes Yes, but not in securities with pending or possible client
LLC buy or sell orders
----------------------------------------------------------------------------------------------------------------------
MFS Institutional Advisors, Yes Yes, but not in securities with pending or possible client
Inc. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Miller, Anderson & Yes Yes, but not in securities with pending or possible client
Sherrerd, LLP buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Montgomery Asset Management Yes Yes, but not in securities with pending or possible client
LLC buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Nicholas Applegate Capital Yes Yes, but not in securities with pending or possible client
Management buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Oechsle International Yes Yes, but not in securities with pending or possible client
Advisors, LLC buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Pacific Investment Yes Yes, but not in securities with pending or possible client
Management Company buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Peachtree Asset Management Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Schroders Capital Yes Cannot purchase securities on a restricted list
Management International
Limited
----------------------------------------------------------------------------------------------------------------------
</TABLE>

18
<PAGE>

<TABLE>
<S> <C> <C>
----------------------------------------------------------------------------------------------------------------------
Security Capital Global Yes Yes, but not in securities with pending or possible client
Capital Management Group buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Sirach Capital Management, Yes Yes, but not in securities with pending or possible client
Inc. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Standish, Ayer & Wood, Inc. Yes Cannot purchase securities on a restricted list
----------------------------------------------------------------------------------------------------------------------
STW Fixed Income Management Yes Yes, but not in securities with pending or possible client
Ltd. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Strong Capital Management Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Suffolk Capital Management Yes Yes, but not in securities with pending or possible client
Ltd. buy or sell orders or in securities of which 10% or more
are held in portfolios managed by Suffolk
----------------------------------------------------------------------------------------------------------------------
TimesSquare Capital Yes Yes, but not in securities with pending or possible client
Management, Inc. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Turner Investment Partners Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Weiss, Peck & Greer, L.L.C. Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Westpeak Investment Yes Yes, but not in securities with pending or possible client
Advisors, L.P. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
</TABLE>

PLAN PURSUANT TO RULE 18f-3. Securities and Exchange Commission (the "SEC") Rule
18f-3 under the 1940 Act, permits a registered open-end investment company to
issue multiple classes of Shares in accordance with a written plan approved by
the investment company's board of trustees that is filed with the SEC. At a
meeting held on April 22, 1996, the Board adopted a plan pursuant to Rule 18f-3
(the "Rule 18f-3 Plan") on behalf of each Fund that issues multiple classes of
Shares (each a "Multiple Class Fund"). At a meeting held on June 3, 1998, the
Board amended the Rule 18f-3 Plan to create classes for the Institutional Funds.
On November 9, 1998, the Board again amended the Rule 18f-3 Plan to revise the
previously authorized classes. On August 9, 1999, the Board amended the Rule
18f-3 Plan to create classes for the Tax-Managed Small Cap Fund, Tax-Managed
Large Cap Fund. On November 22, 1999, the Board amended the Rule 18f-3 Plan to
create Class A Shares for all Funds except the Institutional Funds and the money
market funds. On August 7, 2000 the Board amended the Rule 18f-3 Plan (i) to
create Class B Shares of all Funds except the Institutional Funds, (ii) to
create Class A Shares, Class C Shares, Class E Shares and Class S Shares of the
Select Growth Fund and Select Value Fund (neither of which are offered hereby),
(iii) to create Class E Shares of the Tax-Managed Small Cap Fund, Tax-Managed
Large Cap Fund, and Tax-Managed Global Equity Fund; (iv) to redesignate the
existing Class S Shares of the Money Funds as Class I Shares and create new
Class A and Class S Shares of the Money Funds; and (v) to permit holders of
Class B Shares who have paid the applicable contingent deferred sales charge to
exchange those Shares for A Shares of the same Fund without imposition of the
Class A front-end Sales Charge. On October 27, 2000 the Board amended the Rule
18f-3 Plan (i) to revoke the August 7, 2000 redesignation of the Class S Shares
of the Money Funds as Class I Shares, (ii) to revoke the creation of new Class S
Shares of the Money Funds, and (iii) to create Class I Shares and Class Y Shares
of the Select Growth Fund and Select Value Fund (neither of which are offered
hereby).

For purposes of this Statement of Additional Information, each Fund that issues
multiple classes of Shares is referred to as a "Multiple Class Fund." The key
features of the Rule 18f-3 plan are as follows: Shares of each class of a
Multiple Class Fund represent an equal pro rata interest in the underlying
assets of that Fund, and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations, qualifications
and terms and conditions, except that: (1) each class of Shares offered in
connection with a Rule 12b-1 plan may bear certain fees under its respective
Rule 12b-1 plan and may have exclusive voting rights on matters pertaining to
that plan and any related agreements; (2) each class of Shares may contain a
conversion feature; (3) each class of Shares may bear differing amounts of
certain class expenses; (4) different policies may be established with respect
to the payment of distributions on the classes of Shares of a Multiple Class
Fund to equalize the net asset values of the classes or, in the absence of such
policies, the net asset value per share of the different classes may differ at
certain times; (5) each class of Shares of a Multiple Class Fund may have
different exchange privileges from another class; (6) each class of Shares of a
Multiple Class Fund may have a different class designation from another class of
that Fund; and (7) each class of Shares offered in connection with a shareholder
servicing plan would bear certain fees under its respective plan.

19
<PAGE>

DISTRIBUTION PLAN. Under the 1940 Act, the SEC has adopted Rule 12b-1, which
regulates the circumstances under which the Funds may, directly or indirectly,
bear distribution expenses. Rule 12b-1 provides that the Funds may pay for such
expenses only pursuant to a plan adopted in accordance with Rule 12b-1.
Accordingly, the Multiple Class Funds have adopted a distribution plan (the
"Distribution Plan") for the Multiple Class Funds' Class C Shares, which are
described in the respective Funds' Prospectuses. In adopting the Distribution
Plan, a majority of the Trustees, including a majority of the Trustees who are
not "interested persons" (as defined in the 1940 Act) of FRIC and who have no
direct or indirect financial interest in the operation of the Distribution Plan
or in any agreements entered into in connection with the Distribution Plan (the
"Independent Trustees"), have concluded, in conformity with the requirements of
the 1940 Act, that there is a reasonable likelihood that the Distribution Plan
will benefit each respective Multiple Class Fund and its shareholders. In
connection with the Trustees' consideration of whether to adopt the Distribution
Plan, the Distributor, as the Multiple Class Funds' principal underwriter,
represented to the Trustees that the Distributor believes that the Distribution
Plan should result in increased sales and asset retention for the Multiple Class
Funds by enabling the Multiple Class Funds to reach and retain more investors
and Financial Intermediaries (such as brokers, banks, financial planners,
investment advisors and other financial institutions), although it is impossible
to know for certain, in the absence of a Distribution Plan or under an
alternative distribution arrangement, the level of sales and asset retention
that a Multiple Class Fund would have.

The 12b-1 fees may be used to compensate (a) Selling Agents (as defined below)
for sales support services provided, and related expenses incurred with respect
to Class C Shares, by such Selling Agents, and (b) the Distributor for
distribution services provided by it, and related expenses incurred, including
payments by the Distributor to compensate Selling Agents for providing support
services. The Distribution Plan is a compensation-type plan. As such, FRIC makes
no distribution payments to the Distributor with respect to Class C Shares
except as described above. Therefore, FRIC does not pay for unreimbursed
expenses of the Distributor, including amounts expended by the Distributor in
excess of amounts received by it from FRIC, interest, carrying or other
financing charges in connection with excess amounts expended, or the
Distributor's overhead expenses. However, the Distributor may be able to recover
such amount or may earn a profit from future payments made by FRIC under the
Distribution Plan.

The Distribution Plan provides that each Multiple Class Fund may spend annually,
directly or indirectly, up to 0.75% of the average daily net asset value of its
Class C and Class D Shares for any activities or expenses primarily intended to
result in the sale of Class C and Class D Shares of a Multiple Class Fund. Such
payments by FRIC will be calculated daily and paid periodically and shall not be
made less frequently than quarterly. Any amendment to increase materially the
costs that a Multiple Class Fund's Shares may bear for distribution pursuant to
the Distribution Plan shall be effective upon a vote of the holders of the
affected Class of the lesser of (a) more than fifty percent (50%) of the
outstanding Shares of the affected Class of a Multiple Class Fund or (b) sixty-
seven percent (67%) or more of the Shares of the affected Class of a Multiple
Class Fund present at a shareholders' meeting, if the holders of more than 50%
of the outstanding Shares of the affected Class of such Fund are present or
represented by proxy (a "1940 Act Vote"). The Distribution Plan does not provide
for the Multiple Class Funds to be charged for interest, carrying or any other
financing charges on any distribution expenses carried forward to subsequent
years. A quarterly report of the amounts expended under the Distribution Plan,
and the purposes for which such expenditures were incurred, must be made to the
Trustees for their review. The Distribution Plan may not be amended without
approval of the holders of the affected Class of Shares. The Distribution Plan
and material amendments to it must be approved annually by all of the Trustees
and by the Independent Trustees. While the Distribution Plan is in effect, the
selection and nomination of the Independent Trustees shall be committed to the
discretion of such Independent Trustees. The Distribution Plan is terminable, as
to a Multiple Class Fund's Shares, without penalty at any time by (a) a vote of
a majority of the Independent Trustees, or (b) a vote of the holders of the
lesser of (a) more than fifty percent (50%) of the outstanding Shares of the
affected Class of a Multiple Class Fund or (b) a 1940 Act Vote.

Under the Distribution Plan, the Multiple Class Funds may also enter into
agreements ("Selling Agent Agreements") with Financial Intermediaries and with
the Distributor to provide sales support services with respect to Multiple Class
Fund Shares held by or for the customers of the Financial Intermediaries.
Financial Intermediaries that have entered into Selling Agent Agreements are
referred to in this Statement as "Selling Agents."

20
<PAGE>

Under the Distribution Plan, the following Multiple Class Funds' Class C Shares
accrued expenses in the following amounts, payable as compensation to the
Distributor, for the year ended October 31, 2000 (these amounts were for
compensation to dealers):

Class C
-------
Diversified Equity
Special Growth
Equity Income
Quantitative Equity
International Securities
Real Estate Securities
Diversified Bond
Tax-Managed Large Cap
Tax-Managed Small Cap
Short Term Bond
Multistrategy Bond
Tax Exempt Bond
Emerging Markets

SHAREHOLDER SERVICES PLAN. A majority of the Trustees, including a majority of
Independent Trustees, has adopted and amended a Shareholder Services Plan for
certain classes of Shares of the Funds ("Servicing Plan"). The Servicing Plan
was adopted on April 22, 1996 and amended on June 3, 1998, November 9, 1998,
August 9, 1999, November 22, 1999 and August 7, 2000.

Under the Service Plan, FRIC may compensate the Distributor or any investment
advisers, banks, broker-dealers, financial planners or other financial
institutions that are dealers of record or holders of record or that have a
servicing relationship with the beneficial owners or record holders of Shares of
the Class A, Class C or Class E, offering such Shares ("Servicing Agents"), for
any activities or expenses primarily intended to assist, support or service
their clients who beneficially own or are primarily intended to assist, support
or service their clients who beneficially own or are record holders of Shares of
FRIC's Class A, Class C or Class E. Such payments by FRIC will be calculated
daily and paid quarterly at a rate or rates set from time to time by the
Trustees, provided that no rate set by the Trustees for any Class A, Class C or
Class E Shares may exceed, on an annual basis, 0.25% of the average daily net
asset value of that Fund's Shares.

Among other things, the Service Plan provides that (1) the Distributor shall
provide to FRIC's officers and Trustees, and the Trustees shall review at least
quarterly, a written report of the amounts expended by it pursuant to the
Service Plan, or by Servicing Agents pursuant to Service Agreements, and the
purposes for which such expenditures were made; (2) the Service Plan shall
continue in effect for so long as its continuance is specifically approved at
least annually by the Trustees, and any material amendment thereto is approved
by a majority of the Trustees, including a majority of the Independent Trustees,
cast in person at a meeting called for that purpose; (3) while the Service Plan
is in effect, the selection and nomination of the Independent Trustees shall be
committed to the discretion of such Independent Trustees; and (4) the Service
Plan is terminable, as to a Multiple Class Fund's Shares, by a vote of a
majority of the Independent Trustees.

21
<PAGE>

Under the Service Plan, the following Multiple Class Funds' Class C and Class E
Shares accrued expenses in the following amounts payable to the Distributor, for
the year ended October 31, 2000:

Class C Class E
------- -------
Diversified Equity

Special Growth

Equity Income

Quantitative Equity

International Securities

Real Estate Securities

Diversified Bond

Tax-Managed Large Cap
Tax-Managed Small Cap
Short-Term Bond

Equity I
Equity II
Equity III
Fixed I
Fixed III
International
Equity Q
Emerging Markets

Diversified Equity

Real Estate Securities

Special Growth

Equity Income

Short-Term Bond

Diversified Bond

International Securities

Multistrategy Bond

Tax Exempt Bond
Quantitative Equity

No Class A Shares of any Fund and no Class E Shares of the Tax-Managed Large Cap
or Tax-Managed Small Cap Funds were issued during the period shown. No Shares
of any class of the Select Growth or Select Value Funds were issued during the
periods shown.

22
<PAGE>

FUND EXPENSES. The Funds will pay all their expenses other than those expressly
assumed by FRIMCo. The principal expense of the Funds is the annual advisory fee
and the annual administrative fee, each payable to FRIMCo. The Funds' other
expenses include: fees for independent accountants, legal, transfer agent,
registrar, custodian, dividend disbursement, and portfolio and shareholder
recordkeeping services, and maintenance of tax records (except for Money Market,
Tax Exempt Bond, U.S. Government Money Market, and Tax Free Money Market Funds);
state taxes; brokerage fees and commissions; insurance premiums; association
membership dues; fees for filing of reports and registering Shares with
regulatory bodies; and such extraordinary expenses as may arise, such as federal
taxes and expenses incurred in connection with litigation proceedings and claims
and the legal obligations of FRIC to indemnify the Trustees, officers,
employees, shareholders, distributors and agents with respect thereto.

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

As of the date of this Statement, FRIMCo has contractually agreed to waive
and/or reimburse until all or a portion of its aggregate combined advisory and
administrative fees with respect to certain Funds.

PURCHASE AND REDEMPTION OF FUND SHARES

Minimum Investment Requirements. You may be eligible to purchase Fund Shares if
-------------------------------
you do not meet the applicable required minimum investment. The Funds, at their
discretion, may waive the initial minimum investment requirement for some
employee benefit plans and other plans with at least $5 million in total plan
assets or if requirements are met for a combined purchase privilege, cumulative
quantity discount, or statement of intention. The Funds may also, at their
discretion, waive the minimum initial investment for clients of certain
Financial Intermediaries who have entered into special arrangements with the
Funds. If you invest less than the required minimum investment in a Fund, and
the minimum investment required has not been waived for you, the Funds reserve
the right to refuse your order or to correct, within a reasonable period, your
purchase transaction and notify you promptly of that correction.

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.

Stale Checks. If you do not cash a dividend, distribution, or redemption check
------------
within 180 days from the date it was issued, the Funds will act to protect
themselves and you. No interest will accrue on amounts represented by uncashed
checks.

For uncashed dividend and distribution checks and uncashed redemption checks of
$25 or less, the Funds will deem the uncashed check to be an order to reinvest
the proceeds of the uncashed check into your account with that Fund at its then-
current net asset value, and, if the uncashed check represents a dividend or
distribution, the Funds will deem it to be an order to reinvest all future Fund
dividends and distributions unless otherwise notified by you. If you do not have
an open account with that Fund, an uncashed check of more than $25 will be
deemed an order to purchase shares of the Frank Russell Investment Company Money
Market Fund, and the proceeds of any uncashed checks for $25 or less will be
held in the Fund's general account for your benefit in accordance with
applicable law.

For redemption checks of more than $25, the Fund will reissue the check. If the
reissued check is not cashed within 180 days from the date it was reissued, the
Funds will deem that to be an order to reinvest the proceeds of the uncashed
check into your account with that Fund at its then-current net asset value. If
you no longer have a current account open for that Fund, the uncashed check will
be deemed an order to purchase shares of the Frank Russell Investment Company
Money Market Fund.

Solicitation Fees FRIMCo may enter into written agreements with certain
-----------------
Financial Intermediaries in which it agrees to pay a solicitation fee, or
finders fee, out of its own resources, to such intermediaries in connection with
their referral of certain prospective investors to the Funds. Each prospective
shareholder on whose behalf a fee may be paid will receive from the intermediary
a disclosure statement setting forth the details of the arrangement and the
amount of fee to be received by the intermediary.

VALUATION OF FUND SHARES. The net asset value per share is calculated for each
Fund Class on each business day on which Shares are offered or orders to redeem
are tendered. A business day is one on which the New York Stock Exchange
("NYSE") is open for trading, and for the Money Market, US Government Money
Market, and Tax Free Money Market

23
<PAGE>

Funds, any day on which both the NYSE is open for trading and the Boston Federal
Reserve Bank is open for business. Currently, the NYSE is open for trading every
weekday except New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The Boston Federal Reserve Bank is open for business Good Friday
and every day the NYSE is open, except Columbus Day and Veterans' Day.

Net asset value per share is computed for each class of Shares of a Fund by
dividing the current value of the Fund's assets attributable to each class of
Shares, less liabilities attributable to that class of Shares, by the number of
each individual class of Shares of the Fund outstanding, and rounding to the
nearest cent.

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

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

Because many fixed-income securities do not trade each day, last sale or bid
prices often are not available. As a result, these securities may be valued
using prices provided by a pricing service when the prices are believed to be
reliable--that is, when the prices reflect the fair market value of the
securities.

International equity securities traded on a national securities exchange are
valued on the basis of the last sale price. International securities traded
over-the-counter are valued on the basis of the mean of bid prices. If there is
no last sale or mean bid price, the securities may be valued on the basis of
prices provided by a pricing service when the prices are believed to be
reliable.

Money market instruments maturing within 60 days of the valuation date held by
the Funds are valued using the amortized cost method. Under this method, a
portfolio instrument is initially valued at cost, and thereafter a constant
accretion/amortization to maturity of any discount or premium is assumed. The
Funds utilize the amortized cost valuation method in accordance with Rule 2(a)-7
of the 1940 Act. The money market instruments are valued at "amortized cost"
unless the Board determines that amortized cost does not represent fair value.
Money market instruments maturing within 60 days of the valuation date held by
the non-money market Funds are also valued at "amortized cost" unless the Board
determines that amortized cost does not represent fair value. While amortized
cost provides certainty in valuation, it may result in periods when the value of
an instrument is higher or lower than the price a Fund would receive if it sold
the instrument.

Municipal obligations are appraised or priced by an independent pricing source,
approved by the Board, which utilizes relevant information, such as bond
transactions, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities.

The Funds value securities for which market quotations are not readily available
at "fair value," as determined in good faith and in accordance with procedures
established by the Board.

PORTFOLIO TRANSACTION POLICIES. Generally, securities are purchased for the
Equity I, Equity III, Equity Q, International, Emerging Markets, Fixed Income I,
Diversified Equity, Equity Income, Quantitative Equity, International
Securities, Real Estate Securities, Select Growth, Select Value and Diversified
Bond Funds for investment income and/or capital appreciation and not for short-
term trading profits. However, these Funds may dispose of securities without
regard to the time they have been held when such action, for defensive or other
purposes, appears advisable to their money managers. The Equity II, Fixed Income
III, Special Growth, Short Term Bond, Multistrategy Bond and Tax Exempt Bond
Funds trade

24
<PAGE>

more actively to realize gains and/or to increase yields on investments by
trading to take advantage of short-term market variations. This policy is
expected to result in higher portfolio turnover for these Funds. Conversely, the
Tax-Managed Large Cap Fund and the Tax-Managed Small Cap Fund, which seek to
minimize the impact of taxes on their shareholders, attempt to limit short-term
capital gains and to minimize the realization of net long-term capital gains.
These policies are expected to result in a low portfolio turnover rate for the
Tax-Managed Large Cap Fund and the Tax-Managed Small Cap Fund.

The portfolio turnover rates for certain multi-manager Funds are likely to be
somewhat higher than the rates for comparable mutual funds with a single money
manager. Decisions to buy and sell securities for each Fund are made by a money
manager independently from other money managers. Thus, one money manager could
be selling a security when another money manager for the same Fund is purchasing
the same security thereby increasing the Fund's portfolio turnover ratios and
brokerage commissions. The Funds' changes of money managers may also result in a
significant number of portfolio sales and purchases as the new money manager
restructures the former money manager's portfolio. In view of the Tax-Managed
Large Cap and Tax-Managed Small Cap Funds' investment objective and policies,
those Funds' ability to change money managers may be constrained.

The Funds, except the Tax Exempt Bond, Tax-Managed Large Cap and Tax-Managed
Small Cap Funds, do not give significant weight to attempting to realize long-
term capital gains when making portfolio management decisions.

PORTFOLIO TURNOVER RATE. The portfolio turnover rate for each Fund is calculated
by dividing the lesser of purchases or sales of portfolio securities for the
particular year, by the monthly average value of the portfolio securities owned
by the Fund during the past 13 months. For purposes of determining the rate, all
short-term securities, including options, futures, forward contracts, and
repurchase agreements, are excluded. Significant variations in the portfolio
turnover rates for any Fund generally are primarily attributable to money
manager changes, market volatility, and/or duration of portfolio investments.

25
<PAGE>

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

YEARS ENDED
-----------
10/31/00 12/31/99
-------- --------
Equity I 112%

Equity II 112

Equity III 146

Equity Q 90
Tax-Managed Large Cap (formerly Equity T) 48
Tax-Managed Small Cap* 3
International 119

Emerging Markets 95
Fixed Income I 139

Fixed Income III 131

Diversified Equity 110

Special Growth 112

Equity Income 138

Quantitative Equity 90
International Securities 121

Real Estate Securities 43
Diversified Bond 152

Short Term Bond 177

Multistrategy Bond 134

Tax Exempt Bond 119

* The Tax-Managed Small Cap Fund commenced operations on December 1, 1999.

A high portfolio turnover rate generally will result in higher brokerage
transaction costs and may result in higher levels of realized capital gains or
losses with respect to a Fund's portfolio securities (see "Taxes").

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

Subject to the arrangements and provisions described below, the selection of a
broker or dealer to execute portfolio transactions is usually made by the money
manager. FRIC's advisory agreements with FRIMCo and the money managers provide,
in substance and subject to specific directions from officers of FRIC or FRIMCo,
that in executing portfolio transactions and selecting brokers or dealers, the
principal objective is to seek the best overall terms available to the Fund.
Securities will ordinarily be purchased in the primary markets, and the money
manager shall consider all factors it deems relevant in assessing the best
overall terms available for any transaction, including the breadth of the market
in the security,

26
<PAGE>

the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any (for the
specific transaction and on a continuing basis).

In addition, the advisory agreements authorize FRIMCo and the money managers,
respectively, in selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, to consider the
"brokerage and research services" (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided to the Fund, FRIMCo and/or to
the money manager (or their affiliates). FRIMCo and the money managers are
authorized to cause the Funds to pay a commission to a broker or dealer who
provides such brokerage and research services for executing a portfolio
transaction which is in excess of the amount of commissions another broker or
dealer would have charged for effecting that transaction. FRIMCo or the money
manager, as appropriate, must determine in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided -- viewed in terms of that particular transaction or in terms of all
the accounts over which FRIMCo or the money manager exercises investment
discretion. Any commission, fee or other remuneration paid to an affiliated
broker-dealer is paid in compliance with FRIC's procedures adopted in accordance
with Rule 17e-1 of the 1940 Act.

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

FRIMCo and each Money Manager arrange for the purchase and sale of FRIC's
securities and selects brokers and dealers (including affiliates), which in its
best judgment provide prompt and reliable execution at favorable prices and
reasonable commission rates. FRIMCo and each Money Manager may select brokers
and dealers which provide it with research services and may cause FRIC to pay
such brokers and dealers commissions which exceed those other brokers and
dealers may have charged, if it views the commissions as reasonable in relation
to the value of the brokerage and/or research services. In selecting a broker,
including affiliates, for a transaction, the primary consideration is prompt and
effective execution of orders at the most favorable prices. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable FRIMCo and each Money Manager to supplement its own
research and analysis.

The Funds may effect portfolio transactions with or through Frank Russell
Securities, Inc. ("FRS"), an affiliate of FRIMCo, only when the applicable money
manager determines that the Funds will receive competitive execution, price and
commissions. Where brokerage transactions are effected by money managers on
behalf of the Funds through FRS at the request of the FRIMCo, research services
obtained from third party service providers at market rates are provided to
FRIMCo by FRS. Such research services include performance measurement
statistics, fund analytics systems and market monitoring systems. This
arrangement may be used by any Fund other than those Funds which invest
principally in fixed income securities. All Funds may also effect portfolio
transactions on an agency basis through, and pay brokerage commissions to,
brokerage affiliates of the money managers.

BROKERAGE COMMISSIONS. The Board reviews, at least annually, the commissions
paid by the Funds to evaluate whether the commissions paid over representative
periods of time were reasonable in relation to commissions being charged by
other brokers and the benefits to the Funds. Frank Russell Company maintains an
extensive database showing commissions paid by institutional investors, which is
the primary basis for making this evaluation. Certain services received by
FRIMCo or money managers attributable to a particular transaction may benefit
one or more other accounts for which investment discretion is exercised by the
money manager, or a Fund other than that for which the particular portfolio
transaction was effected. The fees of the money managers are not reduced by
reason of their receipt of such brokerage and research services.

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

2000 1999 1998
---- ---- ----

Equity I $ 2,508,532 $ 2,185,029
Equity II 1,236,438 1,111,879
Equity III 544,612 671,292
Equity Q 1,295,797 1,328,183
Tax-Managed Large Cap 403,032 176,555
(formerly Equity T)
Tax-Managed Small Cap* 26,712 --

27
<PAGE>

International 5,068,657 3,100,978
Emerging Markets 2,035,042 1,414,084
Diversified Equity 2,438,549 2,137,221
Special Growth 1,226,126 1,362,922
Equity Income 615,257 732,684
Quantitative Equity 1,450,748 1,404,098
International Securities 4,794,982 2,865,227
Real Estate Securities 1,029,242 1,127,266
------------ ------------
Total $ 24,673,726 $ 19,617,418
============ ============

* Tax-Managed Small Cap Fund commenced operations on December 1, 1999.

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

Fixed Income I, Fixed Income III, Diversified Bond, Short Term Bond,
Multistrategy Bond, Tax Exempt Bond, Money Market, US Government Money Market
and Tax Free Money Market Funds normally do not pay a stated brokerage
commission on transactions.

During the year ended October 21, 2000 approximately $____________ million of
the brokerage commissions of the Funds were directed to brokers who provided
research services to FRIMCo. The research services included industry and company
analysis, portfolio strategy reports, economic analysis, and statistical data
pertaining to the capital markets.

28
<PAGE>

Gross brokerage commissions received by affiliated broker/dealers from
affiliated and non-affiliated money managers for the year ended October 31,
2000 from portfolio transactions effected for the Funds, were as follows:

PERCENT
OF TOTAL
AFFILIATED BROKER/DEALER COMMISSIONS COMMISSIONS
------------------------ ----------- -----------

The percentage of total affiliated transactions (relating to trading activity)
to total transactions during the year ended October 31, 2000 for the Funds was
__________%.

29
<PAGE>

During the year ended October 31, 2000, the Funds purchased securities issued
by the following regular brokers or dealers as defined by Rule 10b-1 of the 1940
Act, each of which is one of the Funds' ten largest brokers or dealers by dollar
amounts of securities executed or commissions received on behalf of the Funds.
The value of broker-dealer securities held as of October 31, 2000, was as
follows:

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

FUND

------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>

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

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

30
<PAGE>

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

At October 31, 2000, the Funds did not have any holdings in their top 10
following broker-dealers:

YIELD AND TOTAL RETURN QUOTATIONS. The Funds compute their average annual total
return by using a standardized method of calculation required by the SEC and
report average annual total return for each class of Shares which they offer.

Average annual total return is computed by finding the average annual compounded
rates of return on a hypothetical initial investment of $1,000 over the one,
five and ten year periods (or life of the Funds, as appropriate), that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:

P(1+T)/n/ = ERV

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

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

Yields are computed by using standardized methods of calculation required by the
SEC. Similar to average annual total return calculations, a Fund calculates
yields for each class of Shares that it offers. Yields for Funds other than
Funds investing primarily in money market instruments (the "Money Market Funds")
are calculated by dividing the net investment income per share earned during a
30-day (or one month) period by the maximum offering price per share on the last
day of the period, according to the following formula:

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

Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = average daily number of Shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period

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

31
<PAGE>

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

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

Current and effective yields for the Class S Shares of the Money Market Funds
are reported in the Funds' respective Prospectuses.

Each Fund may, from time to time, advertise non-standard performances, including
average annual total return for periods other than 1, 5 or 10 years or since
inception.

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

Tax-equivalent yields for the Tax Exempt Bond and Tax Free Money Market Funds
are calculated by dividing that portion of the yield of the appropriate Fund as
computed above which is tax exempt by one minus a stated income tax rate
(36.9%). The tax-equivalent yields for the Tax Exempt Bond and Tax Free Money
Market Funds are reported in the Funds' respective Prospectuses.

INVESTMENT RESTRICTIONS, POLICIES AND CERTAIN INVESTMENTS

Each Fund's investment objective is "fundamental" which means each investment
objective may not be changed without the approval of a majority of each Fund's
shareholders. Certain investment policies may also be fundamental. Other
policies may be changed by a Fund without shareholder approval. The Funds'
investment objectives are set forth in the respective Prospectuses.

INVESTMENT RESTRICTIONS. Each Fund is subject to the following fundamental
investment restrictions. Unless otherwise noted, these restrictions apply on a
Fund-by-Fund basis at the time an investment is being made.

No Fund will:

1. Invest in any security if, as a result of such investment, less than 75%
of its total assets would be represented by cash; cash items; securities of
the US government, its agencies, or instrumentalities; securities of other
investment companies; and other securities limited in respect of each
issuer to an amount not greater in value than 5% of the total assets of
such Fund. Investments by Funds, other than the Tax Free Money Market and
U.S. Government Money Market Funds, in Shares of the Money Market Fund are
not subject to this restriction, or to Investment Restrictions 2, 3, and
13. (See, "Investment Policies -- Cash Reserves.")

2. Invest 25% or more of the value of the Fund's total assets in the
securities of companies primarily engaged in any one industry (other than
the US government, its agencies and instrumentalities), but such
concentration may occur incidentally as a result of changes in the market
value of portfolio securities. This restriction does not apply to the Real
Estate Securities Fund. The Real Estate Securities Fund may invest 25% or
more of its total assets in the securities of

32
<PAGE>

companies directly or indirectly engaged in the real estate industry. The
Money Market Fund may invest more than 25% of its assets in money market
instruments issued by domestic branches of US banks having net assets in
excess of $100,000,000. (Refer to the description of the Real Estate
Securities Fund and the Money Market Fund in the applicable Prospectuses
for a description of each Fund's policy with respect to concentration in a
particular industry.)

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

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

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

6. Purchase or sell commodities or commodities contracts except stock
index and financial futures contracts.

7. Borrow money, except that the Fund may borrow as a temporary measure
for extraordinary or emergency purposes, and not in excess of five percent
of its net assets; provided, that the Fund may borrow to facilitate
redemptions (not for leveraging or investment), provided that borrowings do
not exceed an amount equal to 33 1/3% of the current value of the Fund's
assets taken at market value, less liabilities other than borrowings. If at
any time the Fund's borrowings exceed this limitation due to a decline in
net assets, such borrowings will be reduced to the extent necessary to
comply with this limitation within three days. Reverse repurchase
agreements will not be considered borrowings for purposes of the foregoing
restrictions, provided that the Fund will not purchase investments when
borrowed funds (including reverse repurchase agreements) exceed 5% of its
total assets.

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

9. Engage in the business of underwriting securities issued by others or
purchase securities subject to legal or contractual restrictions on
disposition, except as permitted by the Tax Exempt Bond and Tax Free Money
Market Funds' investment objectives.

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

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

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

13. Purchase the securities of other investment companies except to the
extent permitted by the 1940 Act and any applicable rules and regulations
and except as permitted by any applicable exemptive orders from the 1940
Act.

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

33
<PAGE>

15. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit any Fund from making any
otherwise permissible borrowings, mortgages or pledges, or entering into
permissible reverse repurchase agreements, and options and futures
transactions, or issuing shares of beneficial interest in multiple classes.

An additional fundamental policy is that (a) Fixed Income I, Diversified
Bond and Short Term Bond Funds may acquire convertible bonds which will be
disposed of by the Funds in as timely a manner as is practical after
conversion, and (b) Tax Exempt Bond Fund will not invest in interests in
oil, gas or other mineral exploration or development programs.

For purposes of these investment restrictions, the Tax Exempt Bond and Tax
Free Money Market Funds will consider as a separate issuer each:
governmental subdivision (i.e., state, territory, possession of the United
States or any political subdivision of any of the foregoing, including
agencies, authorities, instrumentalities, or similar entities, or of the
District of Columbia) if its assets and revenues are separate from those of
the government body creating it and the security is backed by its own
assets and revenues; the non-governmental user of an industrial development
bond, if the security is backed only by the assets and revenues of a non-
governmental user. The guarantee of a governmental or some other entity is
considered a separate security issued by the guarantor as well as the other
issuer for Investment Restrictions, industrial development bonds and
governmental issued securities. The issuer of all other municipal
obligations will be determined by the money manager on the basis of the
characteristics of the obligation, the most significant being the source of
the funds for the payment of principal and interest.

34
<PAGE>

INVESTMENT POLICIES.

Fund Investment Securities
--------------------------

The following tables illustrate the investments that the Funds primarily
invest in or are permitted to invest in:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Diversified Equity Quantitative International Diversified Multistrategy Real Estate Select Select
Type of Portfolio Equity Income Equity Securities Bond Bond Securities Growth Value
Security Fund Fund Fund Fund Fund Fund Fund Fund Fund
----------------- ------ ------ ------ ------ ------ ------ ----- ----- ----
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stocks....... [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Common stock
equivalents
---------------------------------------------------------------------------------------------------------------------------------
(warrants)........ [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
(options)......... [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
(convertible debt
securities)..... [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
(depository [X] [X] [X] [X] [X]
receipts).........
---------------------------------------------------------------------------------------------------------------------------------
Preferred stocks.... [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Equity derivative
securities........ [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Debt securities
(below investment
gradeor junk
bonds)............ [X]
---------------------------------------------------------------------------------------------------------------------------------
US government
securities........ [X] [X] [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Municipal
obligations......... [X]
---------------------------------------------------------------------------------------------------------------------------------
Investment company
Securities........ [X] [X] [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Foreign securities.. [X] [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
US Tax
Tax- Tax- Tax Short Government Free
Emerging Managed Managed Special Exempt Term Money Money Money
Type of Portfolio Markets Large Cap Small Cap Growth Bond Bond Market Market Market
Securities Fund Fund Fund Fund Fund Fund Fund Fund Fund
-------------- --------- --------- -------- -------- -------- -------- ------ ------------ --------
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stocks.......... [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Common stock equivalents
---------------------------------------------------------------------------------------------------------------------------------
(warrants)........... [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
(options)............ [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
(convertible debt
securities)........ [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
(depository receipts) [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Preferred stocks....... [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Equity derivative
securities............. [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Debt securities
(below investment
grade or junk
bonds)............ [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
US government securities [X] [X] [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Municipal obligations.. [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Investment company
Securities........... [X] [X] [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Foreign securities..... [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

35
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Fixed Fixed
Type of Portfolio Equity I Equity II Equity III Equity Q International Income I Income III
Security Fund Fund Fund Fund Fund Fund Fund
------------- ------- --------- --------- ------- ------ ------- -------
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stocks.............. [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Common stock equivalents
---------------------------------------------------------------------------------------------------------------------------------
(warrants)............... [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
(options)................ [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
(convertible debt
securities)............ [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
(depository receipts).... [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Preferred stocks........... [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Equity derivative [X] [X] [X] [X] [X]
securities.................
---------------------------------------------------------------------------------------------------------------------------------
Debt securities (below
investment grade or junk
bonds)............... [X]
---------------------------------------------------------------------------------------------------------------------------------
US government securities... [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Municipal obligations...... [X]
---------------------------------------------------------------------------------------------------------------------------------
Investment company
[securities]............... [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Foreign securities......... [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Other Investment Practices

The Funds use investment techniques commonly used by other mutual funds.
The table below summarizes the principal investment practices of the Funds, each
of which may involve certain special risks. The Glossary located at the back of
the Statement of Additional Information describes each of the investment
techniques identified below.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Diversified Equity Quantitative International Diversified Multistrategy Select Select
Type of Portfolio Equity Income Equity Securities Bond Bond Growth Value
Security Fund Fund Fund Fund Fund Fund Fund Fund
----------------- -------- -------- -------- -------- ------ ------ ------- ------
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash reserves.............. [X] [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Repurchase
agreements(1).............. [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
When-issued and forward
commitment securities...... [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase
agreements................. [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Lending portfolio
securities not to exceed
33 1/3% of total Fund
assets.................... [X] [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Illiquid securities
limited to 15% of a
Fund's net assets)........ [X] [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Forward currency
contracts(2).............. [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Write (sell) call and
put options on securities,
securities indexes and
foreign currencies(3)..... [X] [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Purchase options on
securities, securities
indexes, and
currencies(3)............. [X] [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Interest rate futures
contracts, stock
index futures contracts,
foreign currency contracts
and options on futures
(4)....................... [X] [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Liquidity portfolios.... [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

36
<PAGE>

(2) Each of the International Securities, Diversified Bond and Multistrategy
Bond Funds may not invest more than one-third of its assets in these
contracts.
(3) A Fund will only engage in options where the options are traded on a
national securities exchange or in an over-the-counter market. A Fund may
invest up to 5% of its net assets, represented by the premium paid, in call
and put options. A Fund may write a call or put option to the extent that
the aggregate value of all securities or other assets used to cover all
such outstanding options does not exceed 25% of the value of its net
assets.
(4) A Fund does not enter into any futures contracts or related options if the
sum of initial margin deposits on futures contracts, related options
(including options on securities, securities indexes and currencies) and
premiums paid for any such related options would exceed 5% of its total
assets. A Fund does not purchase futures contracts or related options if,
as a result, more than one-third of its total assets would be so invested.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
US Tax
Real Tax- Tax- Tax Short Government Free
Estate Emerging Managed Managed Special Exempt Term Money Money Money
Type of Portfolio Securities Markets Large Cap Small Cap Growth Bond Bond Market Market Market
Securities Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
----------------- ---------- ------- --------- --------- ------ ------- ----- ------- ---------- ------
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash reserves.............. [X] [X] [X] [X] [X] [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements(1)... [X] [X] [X] [X] [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
When-issued and forward
commitment securities.... [X] [X] [X] [X] [X] [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase
agreements............... [X] [X] [X] [X] [X] [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
Lending portfolio
securities not to
exceed 33 1/3% of
total Fund assets........ [X] [X] [X] [X] [X] [X] [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities
limited to 15% of a
Fund's net assets)....... [X] [X] [X] [X] [X] [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities
(limited to 10% of a
Fund's net assets)....... [X] [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
Forward currency
contracts(2)............. [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
Write (sell) call and put
options on securities,
securities indexes and
foreign currencies(3).... [X] [X] [X] [X] [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
Purchase options on
securities, securities
indexes, and
currencies(3).............. [X] [X] [X] [X] [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
Interest rate futures
contracts, stock index
futures contracts,
foreign currency
contracts and
options on futures(4).... [X] [X] [X] [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
Credit and liquidity
enhancements............. [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
Liquidity portfolio........ [X] [X] [X] [X] [X] [X]
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

37
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Fixed Fixed
Type of Portfolio Equity I Equity II Equity III Equity Q International Income I Income III
Security Fund Fund Fund Fund Fund Fund Fund I
------------- ------- --------- --------- ------- ------ ------- -------
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
Cash reserves.............. [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements(1)... [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
When-issued and forward
commitment securities.... [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase
agreements............... [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Lending portfolio
securities not to exceed
33 1/3% of total Fund
assets................... [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Illiquid securities
(limited to 15% of a
Fund's net assets)....... [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Forward currency
contracts(2)............. [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Write (sell) call and put
options on securities,
securities indexes and
foreign currencies(3).... [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Purchase options on
securities, securities
indexes, and [X] [X] [X] [X] [X] [X] [X]
currencies(3)............
---------------------------------------------------------------------------------------------------------------------------------
Interest rate futures
contracts, stock index
futures contracts,
foreign currency
contracts and
options on futures(4).... [X] [X] [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
Liquidity portfolio........ [X] [X] [X] [X] [X]
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

Cash Reserves. Each Fund (except the Money Market, U.S. Government Money
-------------
Market and Tax Free Money Market Funds), and its money managers, may elect to
invest the Fund's cash reserves in one or more of FRIC's money market funds.
Those money market funds seek to maximize current income to the extent
consistent with the preservation of capital and liquidity, and the maintenance
of a stable $1.00 per share net asset value by investing solely in short-term
money market instruments. The Funds will use this procedure only so long as
doing so does not adversely affect the portfolio management and operations of
the money market funds and FRIC's other Funds. Those money market funds, and the
Funds investing in them, treat such investments as the purchase and redemption
of the money market funds' Shares. Any Fund investing in a money market fund
pursuant to this procedure participates equally on a pro rata basis in all
income, capital gains, and net assets of the money market fund, and will have
all rights and obligations of a shareholder as provided in FRIC's Master Trust
Agreement, including voting rights. However, Shares of a money market fund
issued to other Funds will be voted by the Trustees in the same proportion as
the Shares of the money market fund that are held by shareholders that are not
Funds. Funds investing in a money market fund effectively do not pay an advisory
or administrative fee to a money market fund and thus do not pay duplicative
advisory or administrative fees, as FRIMCo waives a portion of its advisory or
administrative fees due from those Funds in an amount that offsets the advisory
or administrative fees it receives from the applicable money market fund in
respect of those investments.

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

38
<PAGE>

The holding of significant amounts of cash is contrary to the investment
objectives of the Equity I, Equity II, Equity III, Equity Q, Tax-Managed Large
Cap, Tax-Managed Small Cap, International, Diversified Equity, Special Growth,
Equity Income, Quantitative Equity and International Securities Funds. The more
cash these Funds hold, the more difficult it is for their returns to meet or
surpass their respective benchmarks. FRIMCo will exercise investment discretion
or select a money manager to exercise investment discretion for approximately 5-
15% of the Funds' assets assigned to a "Liquidity Portfolio."

A Liquidity Portfolio addresses this potential detriment by having FRIMCo
or a money manager selected for this purpose create a temporary equity exposure
for cash reserves by purchasing index options and index futures contracts in
amounts that expose the Liquidity Portfolio to the performance of the relevant
index. This will enable the Funds to hold cash while receiving a return on the
cash which is similar to that of equity securities.

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

Russell 1000(R) Index. The Russell 1000(R) Index consists of the 1,000
---------------------
largest US companies by capitalization. The Index does not include cross
corporate holdings in a company's capitalization. For example, when IBM owned
approximately 20% of Intel, only 80% of the total shares outstanding of Intel
were used to determine Intel's capitalization. Also not included in the Index
are closed-end investment companies, companies that do not file a Form 10-K
report with the SEC, foreign securities and American Depository Receipts.

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

Frank Russell Company chooses the stocks to be included in the Index solely
on a statistical basis and it is not an indication that Frank Russell Company or
FRIMCo believes that the particular security is an attractive investment.

CERTAIN INVESTMENTS.

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

Reverse Repurchase Agreements. A Fund may enter into reverse repurchase
-----------------------------
agreements to meet redemption requests where the liquidation of portfolio
securities is deemed by the Fund's money manager to be inconvenient or
disadvantageous. A reverse repurchase agreement is a transaction whereby a Fund
transfers possession of a portfolio security to a bank or broker-dealer in
return for a percentage of the portfolio securities' market value. The Fund
retains record ownership of the security involved including the right to receive
interest and principal payments. At an agreed upon future date, the Fund
repurchases the security by paying an agreed upon purchase price plus interest.
Liquid assets of a Fund equal in value to the repurchase price, including any
accrued interest, will be segregated on the Fund's records while a reverse
repurchase agreement is in effect.

High Risk Bonds. The Funds, other than the Emerging Markets, Fixed Income
---------------
III, Short Term Bond, and Multistrategy Bond Funds, do not invest their assets
in securities rated less than BBB by S&P or Baa by Moody's, or in unrated
securities judged by the money managers to be of a lesser credit quality than
those designations. Securities rated BBB by S&P or Baa by Moody's are the lowest
ratings which are considered "investment grade," although Moody's considers
securities rated Baa, and S&P considers

39
<PAGE>

bonds rated BBB, to have some speculative characteristics. The Funds, other than
the Emerging Markets, Fixed Income III, Short Term Bond, and Multistrategy Bond
Funds, will dispose of, in a prudent and orderly fashion, securities whose
ratings drop below these minimum ratings. The market value of debt securities
generally varies inversely in relation to interest rates.

The Emerging Markets, Fixed Income III, Short Term Bond, and Multistrategy
Bond Funds will invest in "investment grade" securities and may invest up to 5%
of its total assets (in the case of the Emerging Markets Fund), 10% of its total
assets (in the case of the Short Term Bond Fund), and 25% of its total assets
(in the case of the Fixed Income III and Multistrategy Bond Funds) in debt
securities rated less than BBB by S&P or Baa by Moody's, or in unrated
securities judged by the money managers of the Funds to be of comparable
quality. Lower rated debt securities generally offer a higher yield than that
available from higher grade issues. However, lower rated debt securities involve
higher risks, because they are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are engaged, to
changes in the financial condition of the issuers and to price fluctuation in
response to changes in interest rates. During periods of economic downturn or
rising interest rates, highly leveraged issuers may experience financial stress
which could adversely affect their ability to make payments of principal and
interest and increase the possibility of default. In addition, the market for
lower rated debt securities has expanded rapidly in recent years, and its growth
has paralleled a long economic expansion. The market for lower rated debt
securities is generally thinner and less active than that for higher quality
securities, which would limit the Funds' ability to sell such securities at fair
value in response to changes in the economy or the financial markets. While such
debt may have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposure to adverse conditions. The money
managers of the Fixed Income III, Multistrategy Bond, Short Term Bond, and
Emerging Markets Funds will seek to reduce the risks associated with investing
in such securities by limiting the Funds' holdings in such securities and by the
depth of their own credit analysis.

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

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

Risk Factors. The growth of the market for lower rated debt securities has
paralleled a long period of economic expansion. Lower rated debt securities may
be more susceptible to real or perceived adverse economic and competitive
industry conditions than investment grade securities. The prices of low rated
debt securities have been found to be less sensitive to interest rate changes
than investment grade securities, but more sensitive to economic downturns,
individual corporate developments, and price fluctuations in response to
changing interest rates. A projection of an economic downturn or of a period of
rising interest rates, for example, could cause a sharper decline in the prices
of low rated debt securities because the advent of a recession could lessen the
ability of a highly leveraged company to make principal and interest payments on
its debt securities. If the issuer of low rated debt securities defaults, a Fund
may incur additional expenses to seek financial recovery.

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

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

The money managers of the Funds may use ratings to assist in investment
decisions. Ratings of debt securities represent a rating agency's opinion
regarding their quality and are not a guarantee of quality. Rating agencies
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies

40
<PAGE>

may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial condition may be better or worse
than a rating indicates.

Illiquid Securities. The Funds will not purchase or otherwise acquire any
-------------------
security if, as a result, more than 15% of a Fund's net assets (taken at current
value) would be invested in securities, including repurchase agreements of more
than seven days' duration, that are illiquid by virtue of the absence of a
readily available market or because of legal or contractual restrictions on
resale. In addition, the Funds will not invest more than 10% of their respective
net assets (taken at current value) in securities of issuers which may not be
sold to the public without registration under the Securities Act of 1933, as
amended (the "1933 Act"). These policies do not include (1) commercial paper
issued under Section 4(2) of the 1933 Act, or (2) restricted securities eligible
for resale to qualified institutional purchasers pursuant to Rule 144A under the
1933 Act that are determined to be liquid by the money managers in accordance
with Board approved guidelines. These guidelines adopted by the Board for the
determination of liquidity of securities take into account trading activity for
such securities and the availability of reliable pricing information, among
other factors. If there is a lack of trading interest in a particular Rule 144A
security, a Fund's holding of that security may be illiquid. There may be
undesirable delays in selling illiquid securities at prices representing their
fair value.

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

Forward Commitments. A Fund may contract to purchase securities for a fixed
-------------------
price at a future date beyond customary settlement time (a "forward commitment"
or "when-issued" transaction) so long as such transactions are consistent with
the Fund's ability to manage its investment portfolio and meet redemption
requests. A Fund may dispose of a forward commitment or when-issued transaction
prior to settlement if it is appropriate to do so and realize short-term profits
or losses upon such sale. When effecting such transactions, liquid assets of the
Fund in a dollar amount sufficient to make payment for the portfolio securities
to be purchased will be segregated on the Fund's records at the trade date and
maintained until the transaction is settled. Forward commitments and when-issued
transactions involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date or the other party to the transaction
fails to complete the transaction.

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

Lending Portfolio Securities. Cash collateral received by a Fund when it
----------------------------
lends its portfolio securities is invested in high-quality short-term debt
instruments, short-term bank collective investment and money market mutual funds
(including funds advised by the Custodian, for which it may receive an asset-
based fee), and other investments meeting certain quality and maturity
established by the Funds. Income generated from the investment of the cash
collateral is first used to pay the rebate interest cost to the borrower of the
securities then to pay for lending transaction costs, and then the remainder is
divided between the Fund and the lending agent.

Each Fund will retain most rights of beneficial ownership, including
dividends, interest or other distributions on the loaned securities. Voting
rights may pass with the lending. A Fund will call loans to vote proxies if a
material issue affecting the investment is to be voted upon.

FRIC may incur costs or possible losses in excess of the interest and fees
received in connection with securities lending transactions. Some securities
purchased with cash collateral are subject to market fluctuations while a loan
is outstanding. To the extent that the value of the cash collateral as invested
is insufficient to return the full amount of the collateral plus rebate interest
to the borrower upon termination of the loan, a Fund must immediately pay the
amount of the shortfall to the borrower.

41
<PAGE>

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

Options On Securities And Indexes. Each Fund, except as noted above, may
---------------------------------
purchase and write both call and put options on securities and securities
indexes in standardized contracts traded on foreign or national securities
exchanges, boards of trade, or similar entities, or quoted on NASDAQ or on a
regulated foreign over-the-counter market, and agreements, sometimes called cash
puts, which may accompany the purchase of a new issue of bonds from a dealer.
The Funds intend to treat options in respect of specific securities that are not
traded on a national securities exchange and the securities underlying covered
call options as not readily marketable and therefore subject to the limitations
on the Funds' ability to hold illiquid securities. The Funds intend to purchase
and write call and put options on specific securities.

An option on a security (or securities index) is a contract that gives the
purchaser of the option, in return for a premium, the right (but not the
obligation) to buy from (in the case of a call) or sell to (in the case of a
put) the writer of the option the security underlying the option at a specified
exercise price at any time during the option period. The writer of an option on
a security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier
(established by the exchange upon which the stock index is traded) for the index
option. (An index is designed to reflect specified facets of a particular
financial or securities market, a specified group of financial instruments or
securities, or certain economic indicators.) Options on securities indexes are
similar to options on specific securities except that settlement is in cash and
gains and losses depend on price movements in the stock market generally (or in
a particular industry or segment of the market), rather than price movements in
the specific security.

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

A Fund will write call options and put options only if they are "covered."
In the case of a call option on a security, the option is "covered" if the Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, liquid assets in such amount are placed in a
segregated account by the Custodian) upon conversion or exchange of other
securities held by the Fund. For a call option on an index, the option is
covered if the Fund maintains with the Custodian liquid assets equal to the
contract value. A call option is also covered if the Fund holds a call on the
same security or index as the call written where the exercise price of the call
held is (1) equal to or less than the exercise price of the call written, or (2)
greater than the exercise price of the call written, provided the difference is
maintained by the Fund in liquid assets in a segregated account with the
Custodian. A put option on a security or an index is "covered" if the Fund
maintains liquid assets equal to the exercise price in a segregated account with
the Custodian. A put option is also covered if the Fund holds a put on the same
security or index as the put written where the exercise price of the put held is
(1) equal to or greater than the exercise price of the put written, or (2) less
than the exercise price of the put written, provided the difference is
maintained by the Fund in liquid assets in a segregated account with the
Custodian.

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

To close out a position when writing covered options, a Fund may make a
"closing purchase transaction," which involves purchasing an option on the same
security with the same exercise price and expiration date as the option which it
previously wrote on the security. To close out a position as a purchaser of an
option, a Fund may make a "closing sale transaction," which involves liquidating
the Fund's position by selling the option previously purchased. The Fund will

42
<PAGE>

realize a profit or loss from a closing purchase or sale transaction depending
upon the difference between the amount paid to purchase an option and the amount
received from the sale thereof.

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

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

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

Risks Associated With Options On Securities And Indexes. There are several
risks associated with transactions in options on securities and on indexes. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.

If a put or call option purchased by a Fund is not sold when it has
remaining value, and if the market price of the underlying security, in the case
of a put, remains equal to or greater than the exercise price or, in the case of
a call, remains less than or equal to the exercise price, the Fund will lose its
entire investment (i.e., the premium paid) on the option. Also, where a put or
call option on a particular security is purchased to hedge against price
movements in a related security, the price of the put or call option may move
more or less than the price of the related security.

There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option may expire worthless. If a Fund were
unable to close out a covered call option that it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise.

As the writer of a covered call option, a Fund forgoes, during the option's
life, the opportunity to profit from increases in the market value of the
underlying security above the exercise price, but, as long as its obligation as
a writer continues, has retained a risk of loss should the price of the
underlying security decline. Where a Fund writes a put option, it is exposed
during the term of the option to a decline in the price of the underlying
security.

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

Options On Foreign Currency. A Fund may buy and sell put and call options
---------------------------
on foreign currencies either on exchanges or in the over-the-counter market for
the purpose of hedging against changes in future currency exchange rates. Call
options convey the right to buy the underlying currency at a price which is
expected to be lower than the spot price of the currency at the time the option
expires. Put options convey the right to sell the underlying currency at a price
which is anticipated to be higher than the spot price of the currency at the
time the option expires. Currency options traded on US or other exchanges may be
subject to position limits which may limit the ability of a Fund to reduce
foreign currency risk using such options. Over-the-counter options differ from
traded options in that they are two-party contracts with price and other terms
negotiated between buyer and seller, and generally do not have as much market
liquidity as exchange-traded options.

43
<PAGE>

Futures Contracts And Options On Futures Contracts. A Fund may invest in
--------------------------------------------------
interest rate futures contracts, foreign currency futures contracts, or stock
index futures contracts, and options thereon that are traded on a US or foreign
exchange or board of trade, as specified in the Prospectuses. An interest rate,
foreign currency or index futures contract provides for the future sale by one
party and purchase by another party of a specified quantity of financial
instruments (such as GNMA certificates or Treasury bonds) or foreign currency or
the cash value of an index at a specified price at a future date. A futures
contract on an index (such as the S&P 500) is an agreement between two parties
(buyer and seller) to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. In the case of futures contracts traded on US exchanges, the exchange
itself or an affiliated clearing corporation assumes the opposite side of each
transaction (i.e., as buyer or seller). A futures contract may be satisfied or
closed out by delivery or purchase, as the case may be, of the financial
instrument or by payment of the change in the cash value of the index.
Frequently, using futures to effect a particular strategy instead of using the
underlying or related security or index will result in lower transaction costs
being incurred. Although the value of an index may be a function of the value of
certain specified securities, no physical delivery of these securities is made.
A public market exists in futures contracts covering several indexes as well as
a number of financial instruments and foreign currencies. For example: the S&P
500; the Russell 2000(R); Nikkei 225; CAC-40; FT-SE 100; the NYSE composite; US
Treasury bonds; US Treasury notes; GNMA Certificates; three-month US Treasury
bills; Eurodollar certificates of deposit; the Australian Dollar; the Canadian
Dollar; the British Pound; the German Mark; the Japanese Yen; the French Franc;
the Swiss Franc; the Mexican Peso; and certain multinational currencies, such as
the European Currency Unit ("ECU"). It is expected that other futures contracts
will be developed and traded in the future.

Each Fund may also purchase and write call and put options on futures
contracts. Options on futures contracts possess many of the same characteristics
as options on securities and indexes (discussed above). A futures option gives
the holder the right, in return for the premium paid, to assume a long position
(in the case of a call) or short position (in the case of a put) in a futures
contract at a specified exercise price at any time during the period of the
option. Upon exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true. An option on a futures contract
may be closed out (before exercise or expiration) by an offsetting purchase or
sale of an option on a futures contract of the same series.

There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures contract or a futures option position. Most
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent a Fund from liquidating an unfavorable
position and the Fund would remain obligated to meet margin requirements until
the position is closed.

A Fund will only enter into futures contracts or options on futures
contracts which are standardized and traded on a US or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. A Fund
will enter into a futures contract only if the contract is "covered" or if the
Fund at all times maintains with its custodian liquid assets equal to or greater
than the fluctuating value of the contract (less any margin or deposit). A Fund
will write a call or put option on a futures contract only if the option is
"covered." For a discussion of how to cover a written call or put option, see
"Options on Securities and Indexes" above.

A Fund may enter into contracts and options on futures contracts for "bona fide
hedging" purposes, as defined under the rules of the Commodity Futures Trading
Commission (the "CFTC"). A Fund may also enter into futures contracts and
options on futures contracts for non hedging purposes provided the aggregate
initial margin and premiums required to establish these positions will not
exceed 5% of the Fund's net assets.

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

When a purchase or sale of a futures contract is made by a Fund, the Fund
is required to deposit with the Custodian (or broker, if legally permitted) a
specified amount of cash or US government securities ("initial margin"). The
margin required

44
<PAGE>

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

A Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.

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

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

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

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

When selling a call option on a futures contract, a Fund will maintain with
the Custodian (and mark-to-market on a daily basis) liquid assets that, when
added to the amounts deposited with a futures commission merchant as margin,
equal the total market value of the futures contract underlying the call option.
Alternatively, the Fund may "cover" its position by entering into a long
position in the same futures contract at a price no higher than the strike price
of the call option, by owning the instruments underlying the futures contract,
or by holding a separate call option permitting the Fund to purchase the same
futures contract at a price not higher than the strike price of the call option
sold by the Fund.

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

In order to comply with applicable regulations of the Commodity Futures
Trading Commission ("CFTC") pursuant to which the Funds avoid being deemed to be
"commodity pools," the Funds are limited in entering into futures contracts and
options on futures contracts to positions which constitute "bona fide hedging"
positions within the meaning and intent of

45
<PAGE>

applicable CFTC rules, and with respect to positions for non-hedging purposes,
to positions for which the aggregate initial margins and premiums will not
exceed 5% of the net assets of a Fund as determined under the CFTC Rules.

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

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

Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.

There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent a Fund from liquidating an unfavorable
position and the Fund would remain obligated to meet margin requirements until
the position is closed.

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

Hedging Strategies. Stock index futures contracts may be used by the Equity
------------------
I, Equity II, Equity III, Equity Q, International, Emerging Markets, Diversified
Equity, Special Growth, Equity Income, Quantitative Equity, Tax-Managed Large
Cap, Tax-Managed Small Cap, Select Value, Select Growth and International
Securities Funds as an "equitization" vehicle for cash reserves held by the
Funds. For example: equity index futures contracts are purchased to correspond
with the cash reserves in each of the Funds. As a result, a Fund will realize
gains or losses based on the performance of the equity market corresponding to
the relevant indexes for which futures contracts have been purchased. Thus, each
Fund's cash reserves will always be fully exposed to equity market performance.

46
<PAGE>

Financial futures contracts may be used by the International, Emerging
Markets, Fixed Income I, Fixed Income III, International Securities, Diversified
Bond, Short Term Bond, Multistrategy Bond and Tax Exempt Bond Funds as a hedge
during or in anticipation of interest rate changes. For example: if interest
rates were anticipated to rise, financial futures contracts would be sold (short
hedge) which would have an effect similar to selling bonds. Once interest rates
increase, fixed-income securities held in a Fund's portfolio would decline, but
the futures contract value would decrease, partly offsetting the loss in value
of the fixed-income security by enabling the Fund to repurchase the futures
contract at a lower price to close out the position.

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

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

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

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

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

Risk Factors. There are certain investment risks in using futures contracts
and/or options as a hedging technique. One risk is the imperfect correlation
between price movement of the futures contracts or options and the price
movement of the portfolio securities, stock index or currency subject of the
hedge. The risk increases for the Tax Exempt Bond Fund since financial futures
contracts that may be engaged in are on taxable securities rather than tax
exempt securities. There is no assurance that the price of taxable securities
will move in a similar manner to the price of tax exempt securities. Another
risk is that a liquid secondary market may not exist for a futures contract
causing a Fund to be unable to close out the futures contract thereby affecting
the Fund's hedging strategy.

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

Forward Foreign Currency Exchange Transactions ("Forward Currency
-----------------------------------------------------------------
Contracts"). The Funds may engage in forward currency contracts to hedge against
---------
uncertainty in the level of future exchange rates. The Funds will conduct their

47
<PAGE>

forward foreign currency exchange transactions either on a spot (i.e. cash)
basis at the rate prevailing in the currency exchange market, or through
entering into forward currency exchange contracts ("forward contract") to
purchase or sell currency at a future date. A forward contract involves an
obligation to purchase or sell a specific currency. For example, to exchange a
certain amount of US dollars for a certain amount of Japanese Yen--at a future
date, which may be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. Forward
currency contracts are (a) traded in an interbank market conducted directly
between currency traders (typically, commercial banks or other financial
institutions) and their customers, (b) generally have no deposit requirements
and (c) are consummated without payment of any commissions. A Fund may, however,
enter into forward currency contracts containing either or both deposit
requirements and commissions. In order to assure that a Fund's forward currency
contracts are not used to achieve investment leverage, the Fund will segregate
liquid assets in an amount at all times equal to or exceeding the Fund's
commitments with respect to these contracts. The Funds may engage in a forward
contract that involves transacting in a currency whose changes in value are
considered to be linked (a proxy) to a currency or currencies in which some or
all of the Funds' portfolio securities are or are expected to be denominated. A
Fund's dealings in forward contracts will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of foreign currency with respect to specific receivables or
payables of the Funds generally accruing in connection with the purchase or sale
of their portfolio securities. Position hedging is the sale of foreign currency
with respect to portfolio security positions denominated or quoted in the
currency. A Fund may not position hedge with respect to a particular currency to
an extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in or
currency convertible into that particular currency (or another currency or
aggregate of currencies which act as a proxy for that currency). The Funds may,
however, enter into a position hedging transaction with respect to a currency
other than that held in the Funds' portfolios, if such a transaction is deemed a
hedge. If a Fund enters into this type of hedging transaction, liquid assets
will be placed in a segregated account in an amount equal to the value of the
Fund's total assets committed to the consummation of the forward contract. If
the value of the securities placed in the segregated account declines,
additional liquid assets will be placed in the account so that the value of the
account will equal the amount of the Fund's commitment with respect to the
contract. Hedging transactions may be made from any foreign currency into US
dollars or into other appropriate currencies.

At or before the maturity of a forward foreign currency contract, a Fund
may either sell a portfolio security and make delivery of the currency, or
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the Fund will obtain,
on the same maturity date, the same amount of the currency which it is obligated
to deliver. If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward currency contract prices. Should forward prices decline
during the period between the Fund's entering into a forward contract for the
sale of a currency and the date that it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the extent that
the price of the currency that it has agreed to sell exceeds the price of the
currency that it has agreed to purchase. Should forward prices increase, the
Fund will suffer a loss to the extent that the price of the currency it has
agreed to purchase exceeds the price of the currency that it has agreed to sell.
There can be no assurance that new forward currency contracts or offsets will be
available to a Fund.

Upon maturity of a forward currency contract, the Funds may (a) pay for and
receive, or deliver and be paid for, the underlying currency, (b) negotiate with
the dealer to roll over the contract into a new forward currency contract with a
new future settlement date or (c) negotiate with the dealer to terminate the
forward contract by entering into an offset with the currency trader whereby the
parties agree to pay for and receive the difference between the exchange rate
fixed in the contract and the then current exchange rate. A Fund also may be
able to negotiate such an offset prior to maturity of the original forward
contract. There can be no assurance that new forward contracts or offsets will
always be available to the Funds.

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

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

48
<PAGE>

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

The market for forward currency contracts may be limited with respect to
certain currencies. These factors will restrict a Fund's ability to hedge
against the risk of devaluation of currencies in which the Fund holds a
substantial quantity of securities and are unrelated to the qualitative rating
that may be assigned to any particular portfolio security. Where available, the
successful use of forward currency contracts draws upon a money manager's
special skills and experience with respect to such instruments and usually
depends on the money manager's ability to forecast interest rate and currency
exchange rate movements correctly. Should interest or exchange rates move in an
unexpected manner, a Fund may not achieve the anticipated benefits of forward
currency contracts or may realize losses and thus be in a worse position than if
such strategies had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price fluctuation limits
with respect to forward currency contracts, and adverse market movements could
therefore continue to an unlimited extent over a period of time. In addition,
the correlation between movements in the prices of such instruments and
movements in the price of the securities and currencies hedged or used for cover
will not be perfect. In the case of proxy hedging, there is also a risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time a Fund is engaged in that strategy.

A Fund's ability to dispose of its positions in forward currency contracts
will depend on the availability of active markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of forward currency contracts. Forward currency contracts may be closed
out only by the parties entering into an offsetting contract. Therefore, no
assurance can be given that the Fund will be able to utilize these instruments
effectively for the purposes set forth above.

Forward foreign currency transactions are subject to the additional risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected by (1)
other complex foreign, political, legal and economic factors, (2) lesser
availability than in the United States of data on which to make trading
decisions, (3) delays in a Fund's ability to act upon economic events occurring
in foreign markets during non-business hours in the United States, (4) the
imposition of different exercise and settlement terms and procedures and margin
requirements than in the United States, (5) lesser trading volume and (6) that a
perceived linkage between various currencies may not persist throughout the
duration of the contracts.

Depository Receipts. A Fund may hold securities of foreign issuers in the
-------------------
form of American Depository Receipts ("ADRs"), American Depository Shares
("ADSs") and European Depository Receipts ("EDRs"), or other securities
convertible into securities of eligible European or Far Eastern issuers. These
securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs typically are issued
by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depository Receipts ("CDRs"), are issued in Europe typically
by foreign banks and trust companies and evidence ownership of either foreign or
domestic securities. Generally, ADRs and ADSs in registered form are designed
for use in United States securities markets and EDRs in bearer form are designed
for use in European securities markets. For purposes of a Fund's investment
policies, the Fund's investments in ADRs, ADSs and EDRs will be deemed to be
investments in the equity securities representing securities of foreign issuers
into which they may be converted.

ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into US dollars, the disposition of non-cash distributions, and the
performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders with respect to the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored

49
<PAGE>

facilities, except that the issuer of the deposited securities enters into a
deposit agreement with the depository. The deposit agreement sets out the rights
and responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
Funds may invest in sponsored and unsponsored ADRs.

Bank Instruments. The Diversified Bond, Multistrategy Bond, Short Term
----------------
Bond, Money Market, Fixed Income I and Fixed Income III Funds may invest in bank
instruments, which include European certificates of deposit ("ECDs"), European
time deposits ("ETDs") and Yankee Certificates of deposit ("Yankee CDs"). ECDs,
ETDs, and Yankee CDs are subject to somewhat different risks from the
obligations of domestic banks. ECDs are dollar denominated certificates of
deposit issued by foreign branches of US and foreign banks; ETDs are US dollar
denominated time deposits in a foreign branch of a US bank or a foreign bank;
and Yankee CDs are certificates of deposit issued by a US branch of a foreign
bank denominated in US dollars and held in the United States. Different risks
may also exist for ECDs, ETDs, and Yankee CDs because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily subject
to the same regulatory requirements that apply to domestic banks, such as
reserve requirements, loan limitations, examinations, accounting, auditing and
recordkeeping, and the public availability of information. These factors will be
carefully considered by the money managers when evaluating credit risk in the
selection of investments for the Multistrategy Bond Fund.

Indexed Commercial Paper. Indexed commercial paper is US-dollar denominated
------------------------
commercial paper the yield of which is linked to certain foreign exchange rate
movements. The yield to the investor on indexed commercial paper is established
at maturity as a function of spot exchange rates between the US dollar and a
designated currency as of or about that time. The yield to the investor will be
within a range stipulated at the time of purchase of the obligation, generally
with a guaranteed minimum rate of return that is below, and a potential maximum
rate of return that is above, market yields on US-dollar denominated commercial
paper, with both the minimum and maximum rates of return on the investment
corresponding to the minimum and maximum values of the spot exchange rate two
business days prior to maturity. While such commercial paper entails risk of
loss of principal, the potential risk for realizing gains as a result of changes
in foreign currency exchange rates enables a Fund to hedge (or cross-hedge)
against a decline in the US dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. Currently
only the Fixed Income III and Multistrategy Bond Funds intend to invest in
indexed commercial paper, and then only for hedging purposes.

US Government Obligations. The types of US government obligations the Funds
-------------------------
may purchase include: (1) a variety of US Treasury obligations which differ only
in their interest rates, maturities and times of issuance: (a) US Treasury bills
at time of issuance have maturities of one year or less, (b) US Treasury notes
at time of issuance have maturities of one to ten years and (c) US Treasury
bonds at time of issuance generally have maturities of greater than ten years;
(2) obligations issued or guaranteed by US government agencies and
instrumentalities and supported by any of the following: (a) the full faith and
credit of the US Treasury (such as Government National Mortgage Association
participation certificates), (b) the right of the issuer to borrow an amount
limited to a specific line of credit from the US Treasury, (c) discretionary
authority of the US government agency or instrumentality or (d) the credit of
the instrumentality (examples of agencies and instrumentalities are: Federal
Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks and Federal National Mortgage
Association). No assurance can be given that the US government will provide
financial support to such US government agencies or instrumentalities described
in (2)(b), (2)(c) and (2)(d) in the future, other than as set forth above, since
it is not obligated to do so by law. Accordingly, such US government obligations
may involve risk of loss of principal and interest. The Funds may invest in
fixed-rate and floating or variable rate US government obligations. The Funds
may purchase US government obligations on a forward commitment basis.

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

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<PAGE>

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

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

Zero Coupon Securities. Zero coupon securities are notes, bonds and
----------------------
debentures that (1) do not pay current interest and are issued at a substantial
discount from par value, (2) have been stripped of their unmatured interest
coupons and receipts or (3) pay no interest until a stated date one or more
years into the future. These securities also include certificates representing
interests in such stripped coupons and receipts. Zero coupon securities trade at
a discount from their par value and are subject to greater fluctuations of
market value in response to changing interest rates.

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

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

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

Asset-Backed Securities. Asset-backed securities represent undivided
fractional interests in pools of instruments, such as consumer loans, and are
similar in structure to mortgage-related pass-through securities. Payments of
principal and interest are passed through to holders of the securities and are
typically supported by some form of credit enhancement, such as a letter of
credit, surety bond, limited guarantee by another entity or by priority to
certain of the borrower's other securities. The degree of enhancement varies,
generally applying only until exhausted and covering only a fraction of the
security's par value. If the credit enhancement held by a Fund has been
exhausted, and if any required payments of principal and interest are not made
with respect to the underlying loans, the Fund may experience loss or delay in
receiving payment and a decrease in the value of the security.

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

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<PAGE>

Loan Participations. The Funds may purchase participations in commercial
-------------------
loans. Such indebtedness may be secured or unsecured. Loan participations
typically represent direct participation in a loan to a corporate borrower, and
generally are offered by banks or other financial institutions or lending
syndicates. In purchasing the loan participations, a Fund assumes the credit
risk associated with the corporate buyer and may assume the credit risk
associated with the interposed bank or other financial intermediary. The
participation may not be rated by a nationally recognized rating service.
Further, loan participations may not be readily marketable and may be subject to
restrictions on resale. Loan participations are generally illiquid investments
and are priced through a nationally recognized pricing service which determines
loan prices by surveying available dealer quotations. If the corporate borrower
defaults on its obligations, a Fund may end up owning the underlying collateral.

Municipal Obligations. "Municipal obligations" are debt obligations issued
---------------------
by states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multi-state agencies or authorities the interest from which is exempt from
federal income tax in the opinion of bond counsel to the issuer. Municipal
obligations include debt obligations issued to obtain funds for various public
purposes and certain industrial development bonds issued by or on behalf of
public authorities. Municipal obligations are classified as general obligation
bonds, revenue bonds and notes.

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

GENERAL OBLIGATION BONDS - are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal and
interest.

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

INDUSTRIAL DEVELOPMENT BONDS - are a type of revenue bond and do
not generally constitute the pledge of credit of the issuer of such
bonds. The payment of the principal and interest on such bonds is
dependent on the facility's user to meet its financial obligations and
the pledge, if any, of real and personal property financed as security
for such payment. Industrial development bonds are issued by or on
behalf of public authorities to raise money to finance public and
private facilities for business, manufacturing, housing, ports,
pollution control, airports, mass transit and other similar type
projects.

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

TAX ANTICIPATION NOTES - are issued to finance working capital
needs of municipalities and are generally issued in anticipation of
future tax revenues.

BOND ANTICIPATION NOTES - are issued in expectation of a
municipality issuing a long-term bond in the future. Usually the long-
term bonds provide the money for the repayment of the notes.

REVENUE ANTICIPATION NOTES - are issued in expectation of receipt
of other types of revenues such as certain federal revenues.

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

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

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

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<PAGE>

TAX FREE FLOATING AND VARIABLE RATE DEMAND NOTES - are municipal
obligations backed by an obligation of a commercial bank to the issuer
thereof which allows the issuer to issue securities with a demand
feature, which, when exercised, usually becomes effective within
thirty days. The rate of return on the notes is readjusted
periodically according to some objective standard such as changes in a
commercial bank's prime rate.

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

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

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

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

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

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

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<PAGE>

Interest Rate Transactions. The Fixed Income III, Short Term Bond and
--------------------------
Multistrategy Bond Funds may enter into interest rate swaps, on either an
asset-based or liability-based basis, depending on whether they are hedging
their assets or their liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Funds receiving or paying, as the case may be, only the net amount of the two
payments. When a Fund engages in an interest rate swap, it exchanges its
obligations to pay or rights to receive interest payments for the obligations or
rights to receive interest payments of another party (i.e., an exchange of
floating rate payments for fixed rate payments). The Fund expects to enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of their portfolios or to protect against any increase in
the price of securities they anticipate purchasing at a later date. Inasmuch as
these hedging transactions are entered into for good faith hedging purposes, the
money managers and the Funds believe such obligations do not constitute senior
securities and, accordingly, will not treat them as being subject to the Funds'
borrowing restrictions. The net amount of the excess, if any, of the Funds'
obligations over their entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or liquid high-grade debt
securities having an aggregate net asset value at least equal to the accrued
excess will be maintained in a segregated account by the Funds' custodian. To
the extent that the Funds enter into interest rate swaps on other than a net
basis, the amount maintained in a segregated account will be the full amount of
the Funds' obligations, if any, with respect to such interest rate swaps,
accrued on a daily basis. The Funds will not enter into any interest rate swaps
unless the unsecured senior debt or the claims-paying ability of the other party
thereto is rated in the highest rating category of at least one nationally
recognized rating organization at the time of entering into such transaction. If
there is a default by the other party to such a transaction, the Funds will have
contractual remedies pursuant to the agreement related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid.

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

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

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

54
<PAGE>

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

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

Other Debt Securities. Multistrategy Bond and Fixed Income III Funds may
---------------------
invest in debt securities issued by supranational organizations such as:

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

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

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

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

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

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

Credit And Liquidity Enhancements. The Money Market Funds may invest in
---------------------------------
securities supported by credit and liquidity enhancements from third parties,
generally letters of credit from foreign or domestic banks. Adverse changes in
the credit quality of these institutions could cause losses to Money Market
Funds that invest in these securities and may affect their share price.

55
<PAGE>

TAXES

Distributions
-------------

Distributions of Net Investment Income. The Funds receive income generally
in the form of dividends and interest on their investments. This income, less
expenses incurred in the operation of a Fund, constitutes its net investment
income from which dividends may be paid to you. Any distributions by a Fund from
such income will be taxable to you as ordinary income, whether you take them in
cash or in additional Shares.

Distributions of Capital Gains. The Funds may derive capital gains and
losses in connection with sales or other dispositions of their portfolio
securities. Distributions derived from the excess of net short-term capital gain
over net long-term capital loss will be taxable to you as ordinary income.
Distributions paid from long-term capital gains realized by a Fund will be
taxable to you as long-term capital gain, regardless of how long you have held
your Shares in the Fund. Any net short-term or long-term capital gains realized
by a Fund (net of any capital loss carryovers) generally will be distributed
once each year, and may be distributed more frequently, if necessary, in order
to reduce or eliminate federal excise or income taxes on a Fund.

Information on the Tax Character of Distributions. Each Fund will inform
you of the amount and character of your distributions at the time they are paid,
and will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year. If you have not
held a Fund's Shares for a full year, you may have designated and distributed to
you as ordinary income or capital gain a percentage of income and/or capital
gains that is not equal to the actual amount of such income and/or capital gains
earned during the period of your investment in a Fund.

Taxes
-----

Election to be Taxed as a Regulated Investment Company. Each Fund has
elected to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code (the "Code"), has qualified as such for its most
recent fiscal year, and intends to so qualify during the current fiscal year. As
a regulated investment company, a Fund generally pays no federal income tax on
the income and gains it distributes to you. The Board reserves the right not to
maintain the qualification of a Fund as a regulated investment company if it
determines such course of action to be beneficial to you. In such case, a Fund
will be subject to federal, and possibly state, corporate taxes on its taxable
income and gains, and distributions to you will be taxed as ordinary income or
capital gains to the extent of a Fund's available earnings and profits.

Excise Tax Distribution Requirements. The Code requires a Fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its net capital gain income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to you by December 31 of each year in order to avoid federal excise
taxes. Each Fund intends to declare and pay sufficient dividends in December (or
in January that are treated by you as received in December) but does not
guarantee and can give no assurances that its distributions will be sufficient
to eliminate all such taxes.

Redemption of Fund Shares. Redemptions and exchanges of a Fund's Shares
are taxable transactions for federal and state income tax purposes that cause
you to recognize a gain or loss. If you hold your Shares as a capital asset, the
gain or loss that you realize will be capital gain or loss. Any loss incurred on
the redemption or exchange of Shares held for six months or less will be treated
as a long-term capital loss to the extent of any long-term capital gains
distributed to you by a Fund on those Shares.

Beginning after the year 2005 (2000 for certain shareholders), gain on the
sale or redemption of Shares held more than five years may be subject to a
reduced rate of tax.

All or a portion of any loss that you realize upon the redemption of your
Fund Shares will be disallowed to the extent that you purchase other Shares in
such Fund (through reinvestment of dividends or otherwise) within 30 days before
or after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new Shares you purchase.

US Government Obligations. Many states grant tax-free status to dividends
paid to you from interest earned on direct obligations of the US government,
subject in some states to minimum investment requirements that must be met by a
Fund.

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<PAGE>

Investments in GNMA/FNMA securities, bankers' acceptances, commercial
paper and repurchase agreements collateralized by US government securities do
not generally qualify for tax-free treatment. The rules on exclusion of this
income are different for corporations.

Dividends-Received Deduction For Corporations. Distributions from
Diversified Equity, Equity Income, Quantitative Equity, Real Estate Securities,
Special Growth, Tax-Managed Large Cap, Tax-Managed Small Cap, Equity I, Equity
II, Equity III and Equity Q Funds may qualify in part for the 70% dividends-
received deduction for corporations. The portion of the dividends so qualified
depends on the aggregate taxable qualifying dividend income received by such
Funds from domestic (US) sources. The Fund will send to shareholders statements
each year advising the amount of the dividend income which qualifies for such
treatment. All dividends, including those which qualify for the dividends-
received deduction, must be included in your alternative minimum taxable income
calculation.

Effect of Foreign Investments on Distributions. Most foreign exchange gains
realized on the sale of debt instruments are treated as ordinary income by Funds
which invest in foreign securities. Similarly, foreign exchange losses realized
by such Funds on the sale of debt instruments are generally treated as ordinary
income losses. These gains when distributed will be taxable to you as ordinary
dividends, and any losses will reduce such Fund's ordinary income otherwise
available for distribution to you. This treatment could increase or reduce such
Fund's ordinary income distributions to you, and may cause some or all of such
Fund's previously distributed income to be classified as a return of capital.

The Funds may be subject to foreign withholding taxes on income from
certain of their foreign securities. If more than 50% of a Fund's total assets
at the end of the fiscal year are invested in securities of foreign
corporations, such Fund may elect to pass-through to you your pro rata share of
foreign taxes paid by the Fund. If this election is made, the year-end statement
you receive from the Fund will show more taxable income than was actually
distributed to you. However, you will be entitled to either deduct your share of
such taxes in computing your taxable income or claim a foreign tax credit for
such taxes against your US federal income tax. Each of these Funds will provide
you with the information necessary to complete your individual income tax return
if such election is made.

If a Fund invests in an entity that is classified as a "passive foreign
investment company" (a "PFIC") for federal income tax purposes, the application
of certain provisions of the Code (applying to PFICs) could result in the
imposition of certain federal income taxes to the Fund. Under the Code, a Fund
can elect to mark-to-market their PFIC holdings in lieu of paying taxes on gains
or distributions therefrom. In addition, Emerging Markets Fund may invest up to
10% of its total assets in the stock of foreign investment companies that may be
treated as PFICs under the Code. Certain other foreign corporations, not
operated as investment companies, may nevertheless satisfy the PFIC definition.
A portion of the income and gains that the Fund derives may be subject to a
nondeductible federal income tax at the Fund level, whether or not the
corresponding income is distributed to you. In this case, you would not be
permitted to claim a credit on your own tax return for the tax paid by the fund.
In some cases, Emerging Markets Fund may be able to avoid this tax by electing
to be taxed currently on its share of the PFIC's income, whether or not such
income is actually distributed by the PFIC. The Emerging Markets Fund will
endeavor to limit its exposure to the PFIC tax by investing in PFICs only where
the election to be taxed currently will be made. Because it is not always
possible to identify a foreign issuer as a PFIC in advance of making the
investment, the Fund may incur the PFIC tax in some instances. Investment income
received from sources within foreign countries may be subject to foreign income
taxes withheld at the source. The US has entered into tax treaties with many
foreign countries which may entitle a Fund to a reduced rate on such taxes or
exemption from taxes on such income. It is impossible to determine the effective
rate of foreign tax for a Fund in advance since the amount of assets invested
within various countries is not known.

Exempt Interest Dividends. The Tax Exempt Bond Fund and Tax Free Money
Market Fund do not intend to purchase any municipal obligations required, in the
opinion of bond counsel, to be treated as a preference item by shareholders when
determining their alternative minimum tax liability. Exempt income paid by the
Funds is includable in the tax base for determining the extent to which a
shareholder's Social Security or railroad retirement benefits will be subject to
federal income tax. The Code also provides that interest on indebtedness
incurred, or continued, to purchase or carry Tax Exempt Bond Fund and Tax Free
Money Market Fund Shares, is not deductible; and that persons who are
"substantial users" (or persons related thereto) of facilities financed by
private activity bonds may not be able to treat the dividends paid by either
Fund as tax free. Such persons should consult their tax advisers before
purchasing Shares of the Tax Exempt Bond Fund or Tax Free Money Market Fund.

Investment in Complex Securities. The Funds may invest in complex
securities. Such investments may be subject to numerous special and complicated
tax rules. These rules could affect whether gains and losses recognized by a
Fund are

57
<PAGE>

treated as ordinary income or capital gain and/or accelerate the recognition of
income to a Fund or defer a Fund's ability to recognize losses. In turn, these
rules may affect the amount, timing or character of the income distributed to
you by a Fund.

From November 1, 1999 to December 31, 1999, the Real Estate Securities
Fund, Short Term Bond Fund, Diversified Bond Fund and the Multistrategy Bond
Fund incurred net realized capital losses of $4,344,347, $283,698, $2,227,479
and $6,282,764, respectively. As permitted by tax regulations, the Real Estate
Securities Fund, Short Term Bond Fund, Diversified Bond Fund and the
Multistrategy Bond Fund intend to elect to defer these losses and treat them as
arising in the year ending October 31, 2000.

At December 31, 1999, certain of the Funds had net tax basis capital loss
carryforwards which may be applied against any realized net taxable gains of
each succeeding year until their respective expiration dates, whichever occurs
first. Available capital loss carryforwards and expiration dates are as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Real Estate Emerging Short Term Bond Diversified Bond Multistrategy
Year Securities Fund Markets Fund Fund Fund Bond Fund
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/31/01 -- -- (4,813,748) -- --
------------------------------------------------------------------------------------------------------------
12/31/02 -- -- (5,161,817) -- --
------------------------------------------------------------------------------------------------------------
12/31/03 -- (2,887,175) (2,834,049) -- --
------------------------------------------------------------------------------------------------------------
12/31/04 -- (348,806) (1,947,924) -- --
------------------------------------------------------------------------------------------------------------
12/31/05 -- -- (574,853) -- --
------------------------------------------------------------------------------------------------------------
12/31/06 (2,695,613) (56,335,865) (51,911) -- --
------------------------------------------------------------------------------------------------------------
12/31/07 (22,446,311) (29,958,651) (3,470,874) (11,070,653) (17,634,520)
------------------------------------------------------------------------------------------------------------
TOTALS (25,141,924) (86,530,497) (18,855,176) (11,070,653) (17,634,520)
------------------------------------------------------------------------------------------------------------
</TABLE>

Redemptions in Kind. Each Fund has committed itself to pay in cash (by
check) all requests for redemption by any shareholder of record, limited in
amount, however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the Fund's net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the U.S. Securities and
Exchange Commission. In the case of redemption requests in excess of these
amounts FRIC's Board reserves the right to make payments in whole or in part in
securities or other assets of a Fund, in case of an emergency, or if the payment
of such a redemption in cash would be detrimental to the existing shareholders
of the Fund. In these circumstances, the securities distributed would be valued
at the price used to compute the Fund's net assets and you may incur brokerage
fees in converting the securities to cash. The Funds do not intend to redeem
illiquid securities in kind. If this happens, however, you may not be able to
recover your investment in a timely manner.

58
<PAGE>

MONEY MANAGER INFORMATION

DIVERSIFIED EQUITY FUND

Alliance Capital Management L.P. is a limited partnership owned (i) 35.3%
by Alliance Capital Management Holding L.P., a publicly traded limited
partnership and (ii) approximately 62.5% by AXA Financial, Inc. ("AXA
Financial"). AXA Financial is controlled by AXA, a publicly traded insurance
holding company. AXA Financial's indirect wholly-owned subsidiary, Alliance
Capital Management Corporation is the general partner of Alliance Capital
Management L.P. and Alliance Capital Management Holding L.P.

Barclays Global Fund Advisors N.A. is a wholly-owned subsidiary of Barclays
Global Investors, N.A.

Equinox Capital Management, LLC is 100% employee owned, with majority
ownership held by Ron Ulrich.

Jacobs Levy Equity Management, Inc. is owned by Bruce Jacobs and Kenneth
Levy.

Marsico Capital Management, LLC is owned 50% by Marsico Management
Holdings, LLC and 50% by TFM Holdings, LLLP. Marsico Management Holdings is a
wholly owned subsidiary of Bank of America, N.A. which in turn is a wholly owned
subsidiary of Bank of America Corporation. TFM Holdings, LLLP is a Colorado
limited liability limited partnership whose sole general partner is TFM
Managers, Inc. which is wholly-owned by Thomas F. Marsico.

Peachtree Asset Management is a division of SSB Citi Fund Management LLC.
SSB Citi Fund Management LLC is 100% owned by Salomon Smith Barney Holdings,
Inc. which is a wholly owned subsidiary of Citigroup Inc.

Strong Capital Management, Inc. is a corporation controlled by Richard S.
Strong.

Suffolk Capital Management, Inc. is a wholly owned subsidiary of Old Mutual
PLC, a publicly traded corporation.

Turner Investment Partners Inc. is a corporation controlled by Robert E.
Turner.

Westpeak Investment Advisors, L.P. ("Westpeak") is a limited partnership
that is a wholly-owned subsidiary of Nvest Holdings, Inc. ("Nvest Holdings").
Nvest Holdings] is a wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest
Companies"). Nvest Companies owns the entire limited partnership interest in
Westpeak. Nvest Companies' general partner, CDCAM North America, LLC is a
wholly-owned subsidiary of CDCAM North America Corporation ("CDCAM NA"). CDCAM
NA is the sole limited partner of Nvest Companies. CDCAM NA is a wholly-owned
subsidiary of CDC Asset Management, a French company ("CDCAM"). CDCAM is
majority-owned by CDC Finance and indirectly owned, through CDC Finance, Caisse
Nationale des Caisses D'Epargne and CNP Assurances, by Caisse des Depots et
Consignations ("CDC"). CDC is wholly-owned by the French Government.

SPECIAL GROWTH FUND

CapitalWorks Investment Partners, LLC is a liability company controlled by
its members who include John D. Wylie, Jack C. Marshall, Mark J. Correnti and
Donovan T. Garcia.

David J. Greene and Company, LLC, is a limited liability company controlled
by Michael C. Greene and Alan I. Greene.

Delphi Management, Inc. is 100% owned by Scott Black.

GlobeFlex Capital, L.P. is a California limited partnership. Its general
partners are Robert J. Anslow, Jr. and Marina L. Marrelli.

Jacobs Levy Equity Management, Inc. See: Diversified Equity Fund.

59
<PAGE>

Sirach Capital Management, Inc. is a wholly-owned subsidiary of Old Mutual
PLC, a publicly traded corporation.

TimesSquare Capital Management, Inc. is a wholly-owned, indirect subsidiary
of CIGNA Corporation, a publicly traded corporation.

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

EQUITY INCOME FUND

Barclays Global Fund Advisors, See: Diversified Equity Fund.

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

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

QUANTITATIVE EQUITY FUND

Barclays Global Fund Advisors. See: Diversified Equity Fund.

Franklin Portfolio Associates LLC is a Massachusetts limited liability
company owned by Mellon Financial Corporation.

J.P. Morgan Investment Management, Inc. is a wholly owned subsidiary of
J.P. Morgan & Co., Inc., a publicly held bank holding company.

Jacobs Levy Equity Management, Inc. See: Diversified Equity Fund.

INTERNATIONAL SECURITIES FUND

Alliance Capital Management L.P. See: Diversified Equity Fund.

Delaware International Advisers Limited is an indirect, wholly-owned
subsidiary of Lincoln National Corporation, a publicly traded company.

Driehaus Capital Management, Inc. is controlled and wholly-owned by Richard
H. Driehaus.

Fidelity Management Trust Company is a wholly-owned subsidiary of FMR Corp.
Members of the Edward C. Johnson 3rd family are predominant owners of a class of
shares of common stock representing approximately 49% of the voting power of FMR
Corp.

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

Marvin & Palmer Associates, Inc. is controlled and majority owned by David
F. Marvin and Stanley Palmer.

Mastholm Asset Management, LLC is a Washington limited liability company
that is controlled by the following members: Douglas R. Allen, Thomas M. Garr,
Robert L. Gernstetter, Joseph P. Jordan, Arthur M. Tyson and Theordore J. Tyson.

Montgomery Asset Management LLC is a Delaware limited liability company
with majority ownership held by Commerzbank AG, a foreign banking organization.

Oechsle International Advisors is a Delaware limited liability company that
is controlled by its member manager, Oechsle Group, LLC, a Delaware limited
liability company. Oechsle Group, LLC is controlled by the following members: S.
Dewey Keesler, Stephen P. Langer, L. Sean Roche and Warren R. Walker.

The Boston Company Asset Management, LLC is a wholly owned, indirect
subsidiary of Mellon Financial Corporation, a publicly held corporation.

60
<PAGE>

DIVERSIFIED BOND FUND

Lincoln Capital Management Company is over 50% owned by John Cole, Dave
Fowler, Jay Freedman, Parker Hall, Peter Knez, Kenneth Meyer and Alan Sebulsky.

Pacific Investment Management Company ("PIMCO") is a subsidiary of PIMCO
Advisors L.P. ("PIMCO Advisors"). The general partners of PIMCO Advisors are
PIMCO Partners, G.P. and PIMCO Advisors Holdings L.P. ("PAH"). PIMCO Partners,
G.P. is a general partnership between PIMCO Holding LLC, a Delaware limited
liability company and indirect wholly-owned subsidiary of Pacific Life Insurance
Company, and PIMCO Partners LLC, a California limited liability company
controlled by the current PIMCO Managing Directors and two former Managing
Directors of PIMCO. PIMCO Partners, G.P. is the sole general partner of PAH. It
is expected that on or about May 5, 2000, Allianz of America, Inc., ("A of A")
will acquire (the "Acquisition") majority ownership of PIMCO Advisors and its
subsidiaries, including PIMCO. After the closing of the Acquisition, A of A will
own approximately 70% of the outstanding partnership interests in PIMCO
Advisors. Pacific Life Insurance Company will retain its approximately 30%
interest in an indirect general partner of PIMCO Advisors. In connection with
the Acquisition, A of A will enter into a put/call arrangement for the possible
disposition of Pacific Life Insurance Company's indirect interest in PIMCO
Advisors.

Standish, Ayer & Wood, Inc. is organized as a Sub-chapter S Corporation and
is 100% owned by its twenty-five directors, with no director having more than
25% ownership.

MULTISTRATEGY BOND FUND

Lazard Asset Management is a division of Lazard Freres & Co. LLC (LF&Co) a
broker/dealer which is a New York limited liability company.

Miller, Anderson & Sherrerd, LLP ("MAS") is a Pennsylvania limited
liability partnership. MAS is wholly-owned by indirect subsidiaries of Morgan
Stanley Dean Witter & Co., and is a division of Morgan Stanley Dean Witter
Investment Management.

Pacific Investment Management Company. See: Diversified Bond Fund.

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

REAL ESTATE SECURITIES FUND

AEW Management and Advisors, L.P. (formerly, AEW Capital Management, L.P.)
is a limited partnership that is a wholly-owned subsidiary of AEW Capital
Management, L.P., which in turn is a wholly-owned subsidiary of Nvest Holdings,
Inc. ("Nvest Holdings"). Nvest Holdings is a wholly-owned subsidiary of Nvest
Companies, L.P. ("Nvest Companies"). Nvest Companies owns the entire limited
partnership interest in AEW. Nvest Companies' general partner, CDCAM North
America, LLC is a wholly-owned subsidiary of CDCAM North America Corporation
("CDCAM NA"). CDCAM NA is the sole limited partner of Nvest Companies. CDCAM NA
is a wholly-owned subsidiary of CDC Asset Management, a French company
("CDCAM"). CDCAM is majority-owned CDC Finance and indirectly owned, through CDC
Finance, Caisse Nationale des Caisses D'Epargne and CNP Assurances, by Caisse
des Depots et Consignations ("CDC"). CDC is wholly-owned by the French
Government.

Cohen & Steers Capital Management is a corporation whose two principals,
Robert H. Steers and Martin Cohen, control the corporation within the meaning of
the 1940 Act.

Security Capital Global Capital Management Group Incorporated is an
indirect, wholly-owned subsidiary of Security Capital, a publicly traded
corporation.

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<PAGE>

EMERGING MARKETS FUND

Alliance Capital Management L.P. See: Diversified Equity Fund.

Foreign & Colonial Emerging Markets Limited is a wholly-owned subsidiary of
Hypo Foreign & Colonial Management (Holding) Limited ("HFCM"), the holding
company of the Foreign & Colonial Group of Fund managers. HFCM is controlled by
Bayerische Hypo-und Vereinsbank AG, the second largest commercial bank in
Germany.

Genesis Asset Managers Limited is a limited liability company organized
under the laws of the state of Guernsey, the Channel Islands. Genesis Asset
Managers Limited is affiliated with and has common investment executives with
the Genesis Group of fund management companies. The Genesis Group, whose holding
company is Genesis Holdings International Limited, is controlled 55% by
management and associated interests, and the balance held by outside
shareholders, with the largest single holding being 15%.

Nicholas-Applegate Capital Management is a California limited partnership
whose general partner is Nicholas-Applegate Capital Management Holdings, L.P., a
California limited partnership whose general partner is Nicholas-Applegate
Capital Management Holdings, Inc., a California corporation controlled by Arthur
E. Nicholas.

Schroders Investment Management North America Limited is 100% owned by
Schroders plc, which is publicly traded on the London Stock Exchange.

TAX-MANAGED LARGE CAP FUND

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

TAX-MANAGED SMALL CAP FUND

Geewax, Terker & Company is a general partnership with its general
partners, John J. Geewax and Bruce E Terker, each owning 50% of the firm.

TAX EXEMPT BOND FUND

MFS Institutional Advisors, Inc. is an indirect subsidiary of and is
controlled by Sun Life Assurance Company of Canada (US), a mutual insurance
company.

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

SHORT TERM BOND FUND

BlackRock Financial Management operates as a partially owned independent
subsidiary of the PNC Bank. On October 1, 1999 the firm completed an initial
public offering ("IPO") of its common stock. Currently, 14% of BlackRock stock
is publicly held, PNC Bank owns approximately 70%, and BlackRock's employees own
16%.

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

STW Fixed Income Management Ltd. is a Bermuda exempted company. William H.
Williams III is the sole shareholder.

MONEY MARKET FUND

Frank Russell Investment Management Company is wholly-owned by Frank
Russell Company, a subsidiary of The Northwestern Mutual Life Insurance Company.

US GOVERNMENT MONEY MARKET FUND

Frank Russell Investment Management Company. See: Money Market Fund.

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<PAGE>

TAX FREE MONEY MARKET FUND

Weiss, Peck & Greer, L.L.C. is a wholly-owned subsidiary of Robeco Groep
N.V.

EQUITY I FUND

Alliance Capital Management L.P. See: Diversified Equity Fund.

Barclays Global Fund Advisors. See: Diversified Equity Fund.

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

Jacobs Levy Equity Management Inc. See: Diversified Equity Fund.

Marsico Capital Management, LLC. See: Diversified Equity Fund

Peachtree Asset Management. See: Diversified Equity Fund.

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

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

Turner Investment Partners Inc. See: Diversified Equity Fund.

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

EQUITY II FUND

CapitalWorks Investment Partners, LLC. See: Special Growth Fund.

David J. Greene and Company, LLC. See: Special Growth Fund.

Delphi Management, Inc. See: Special Growth Fund.

GlobeFlex Capital, L.P. See: Special Growth Fund.

Jacobs Levy Equity Management Inc. See: Diversified Equity Fund.

Sirach Capital Management, Inc. See: Special Growth Fund.

TimesSquare Capital Management, Inc., See: Special Growth Fund.

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

EQUITY III FUND

Barclays Global Fund Advisors. See: Diversified Equity Fund.

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

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

63
<PAGE>

EQUITY Q FUND

Barclays Global Fund Advisors. See: Diversified Equity Fund.

Franklin Portfolio Associates LLC. See: Quantitative Equity Fund.

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

Jacobs Levy Equity Management Inc. See: Diversified Equity Fund.

INTERNATIONAL FUND

Alliance Capital Management L.P. See: Diversified Equity Fund

Delaware International Advisers Limited. See: International Securities
Fund.

Driehaus Capital Management, Inc. See: International Securities Fund.

Fidelity Management Trust Company. See: International Securities Fund.

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

Marvin & Palmer Associates, Inc. See: International Securities Fund.

Mastholm Asset Management, LLC. See: International Securities Fund.

Montgomery Asset Management, LLC. See: International Securities Fund.

Oechsle International Advisors, LLC. See: International Securities Fund.

The Boston Company Asset Management, Inc. See: International Securities
Fund.

FIXED INCOME I FUND

Lincoln Capital Management Company. See: Diversified Bond Fund.

Pacific Investment Management Company. See: Diversified Bond Fund.

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

FIXED INCOME III FUND

Lazard Asset Management. See: Multistrategy Bond Fund.

Miller, Anderson & Sherrerd, LLP. See: Multistrategy Bond Fund.

Pacific Investment Management Company. See: Diversified Bond Fund.

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

64
<PAGE>

RATINGS OF DEBT INSTRUMENTS

CORPORATE AND MUNICIPAL BOND RATINGS.

MOODY'S INVESTORS SERVICE, INC. (MOODY'S):

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

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

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

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

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

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

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

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

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

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

STANDARD & POOR'S RATINGS GROUP ("S&P"):

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

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

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

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<PAGE>

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

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

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

BB rating category is also used for debt subordinated to senior debt that
is assigned an actual implied BBB- rating.

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

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

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

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

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

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

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

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

STATE, MUNICIPAL NOTES AND TAX EXEMPT DEMAND NOTES.

MOODY'S:

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

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<PAGE>

Symbols used are as follows:

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

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

S&P:

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

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

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

Note rating symbols are as follows:

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

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

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

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

COMMERCIAL PAPER RATINGS.

MOODY'S:

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

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

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

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<PAGE>

S&P:

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

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

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

DUFF & PHELPS, INC.:

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

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

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

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

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

Duff 2--High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.

Good Grade

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

Satisfactory Grade

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

Non-Investment Grade

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

Default

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<PAGE>

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

IBCA, INC.:

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

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

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

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

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

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

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

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

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

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

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

FITCH INVESTORS SERVICE, INC. ("FITCH"):

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

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

Fitch short-term ratings are as follows:

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

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<PAGE>

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

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

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

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

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

THOMSON BANKWATCH ("TBW") SHORT-TERM RATINGS:

The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.

These ratings are derived exclusively from a quantitative analysis of publicly
available information. Qualitative judgments have not been incorporated. The
ratings are intended to be applicable to all operating entities of an
organization but there may be in some cases more credit liquidity and/or risk in
one segment of the business than another.

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

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

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

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

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

FINANCIAL STATEMENTS

The 2000 annual financial statements of the Funds, including notes to the
financial statements and financial highlights and the Report of Independent
Accountants, are included in FRIC's Annual Reports to Shareholders. Copies of
these Annual Reports accompany this Statement and are incorporated herein by
reference.

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<PAGE>

GLOSSARY

Bank instruments -- Include certificates of deposit, bankers' acceptances
and time deposits, and may include European certificates of deposit ("ECDs"),
European time deposits ("ETDs") and Yankee certificates of deposit ("Yankee
CDs"). ECDs are dollar denominated certificates of deposit issued by foreign
branches of US and foreign banks; ETDs are US dollar denominated time deposits
in a foreign branch of a US bank or a foreign bank; and Yankee CDs are
certificates of deposit issued by a US branch of a foreign bank demonimated is
US dollars and held in the United States.

Brady Bonds -- Product of the "Brady Plan," under which bonds are issued in
exchange for cash and certain of the country's outstanding commercial bank
loans.

Board -- The Board of Trustees of FRIC.

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

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

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

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

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

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

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

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

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

Financial Intermediary -- A bank trust department, registered investment
adviser, broker-dealer or other financial services organization that has been
selected by FRIMCo or by FRIC's Distributor.

FNMA-- Federal National Mortgage Association.

Forward commitments -- Each Fund may agree to purchase securities for a
fixed price at a future date beyond customary settlement time (a "forward
commitment" or "when-issued" transaction), so long as the transactions are
consistent with the Fund's ability to manage its portfolio and meet redemption
requests. When effecting these transactions, liquid

71
<PAGE>

assets of a Fund of a dollar amount sufficient to make payment for the portfolio
securities to be purchased are segregated on the Fund's records at the trade
date and maintained until the transaction is settled.

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

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

FRIMCo -- Frank Russell Investment Management Company, FRIC's investment
adviser, administrator and transfer and dividend paying agent.

Funds -- The 23 investment series of FRIC described in this Statement. Each
Fund is considered a separate registered investment company (or RIC) for federal
income tax purposes, and each Fund has its own investment objective, policies
and restrictions.

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

GNMA -- Government National Mortgage Association

Illiquid securities -- The Funds, other than the Money Market Funds, will
not purchase or otherwise acquire any security if, as a result, more than 15% of
a Fund's net assets (taken at current value) would be invested in securities,
including repurchase agreements maturing in more than seven days, that are
illiquid because of the absence of a readily available market or because of
legal or contractual resale restrictions. In the case of the Money Market Funds,
this restriction is 10% of each Fund's net assets. No Fund will invest more than
10% of its respective net assets (taken at current value) in securities of
issuers that may not be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"). These policies do not
include (1) commercial paper issued under Section 4(2) of the 1933 Act, or (2)
restricted securities eligible for resale to qualified institutional purchasers
pursuant to Rule 144A under the 1933 Act that are determined to be liquid by the
money managers in accordance with Board-approved guidelines.

Institutional Funds -- Equity I, Equity II, Equity III, Equity Q,
International, Fixed Income I and Fixed Income III Funds, each a Fund of FRIC.

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

Lending portfolio securities -- Each Fund, other than each Money Market
Fund, may lend portfolio securities with a value of up to 33 1/3% of each Fund's
total assets. These loans may be terminated at any time. A Fund will receive
either cash (and agree to pay a "rebate" interest rate), US government or US
government agency obligations as collateral in an amount equal to at least 102%
(for loans of US securities) or 105% (for non-US securities) of the current
market value of the loaned securities. The collateral is daily
"marked-to-market," and the borrower will furnish additional collateral in the
event

72
<PAGE>

that the value of the collateral drops below 100% of the market value of the
loaned securities. If the borrower of the securities fails financially, there is
a risk of delay in recovery of the securities or loss of rights in the
collateral. Consequently, loans are made only to borrowers which are deemed to
be of good financial standing.

Liquidity portfolio -- FRIMCo will manage or will select a money manager to
exercise investment discretion for approximately 5%-15% of Diversified Equity,
Equity Income, Quantitative Equity, International Securities, Real Estate
Securities, Emerging Markets, Special Growth, Tax-Managed Large Cap, Equity I,
Equity II, Equity III, Equity Q and International Funds' assets assigned to a
Liquidity portfolio. The Liquidity portfolio will be used to temporarily create
an equity exposure for cash balances until those balances are invested in
securities or used for Fund transactions.

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

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

Municipal obligations -- Debt obligations issued by states, territories and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies and instrumentalities, or multi-state agencies
or authorities the interest from which is exempt from federal income tax,
including the alternative minimum tax, in the opinion of bond counsel to the
issuer. Municipal obligations include debt obligations issued to obtain funds
for various public purposes as well as certain industrial development bonds
issued by or on behalf of public authorities. Municipal obligations may include
project, tax anticipation, revenue anticipation, bond anticipation, and
construction loan notes; tax-exempt commercial paper; fixed and variable rate
notes; obligations whose interest and principal are guaranteed or insured by the
US government or fully collateralized by US government obligations; industrial
development bonds; and variable rate obligations.

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

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

NYSE -- New York Stock Exchange

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

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

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

Repurchase agreements -- A Fund may enter into repurchase agreements with a
bank or broker-dealer that agrees to repurchase the securities at the Fund's
cost plus interest within a specified time (normally the next business day). If
the party agreeing to repurchase should default and if the value of the
securities held by the Fund (102% at the time of agreement) should fall below
the repurchase price, the Fund could incur a loss. Subject to the overall
limitations described in "Illiquid Securities" in this Glossary, a Fund will not
invest more than 15% (10%, in the case of each Money Market Fund) of its net
assets (taken at current market value) in repurchase agreements maturing in more
than seven days.

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<PAGE>

return for a percentage of the portfolio security's market value. The Fund
retains record ownership of the transferred security, including the right to
receive interest and principal payments. At an agreed upon future date, the Fund
repurchases the security by paying an agreed upon purchase price plus interest.
Liquid assets of the Fund equal in value to the repurchase price, including any
accrued interest, are segregated on the Fund's records while a reverse
repurchase agreement is in effect.

Russell 1000(R) Index. The Russell 1000 Index consists of the 1,000 largest
US companies by capitalization (i.e., market price per share times the number of
shares outstanding). The smallest company in the Index at the time of selection
has a capitalization of approximately $1 billion. The Index does not include
cross-corporate holdings in a company's capitalization. For example, when IBM
owned approximately 20% of Intel, only 80% of the total shares outstanding of
Intel were used to determine Intel's capitalization. Also not included in the
Index are closed-end investment companies, companies that do not file a Form
10-K report with the SEC, foreign securities, and American Depository Receipts.
The Index's composition is changed annually to reflect changes in market
capitalization and share balances outstanding. The Russell 1000(R) Index is used
as the basis for Quantitative Equity Fund's performance because FRIMCo believes
it represents the universe of stocks in which most active money managers invest
and is representative of the performance of publicly traded common stocks most
institutional investors purchase.

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

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

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

SEC -- US Securities and Exchange Commission

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

Statement -- FRIC's Statement of Additional Information

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

US -- United States

US government obligations -- These include US Treasury bills, notes, bonds
and other obligations issued or guaranteed by the US government, its agencies or
instrumentalities. US Treasury bills, notes and bonds, and GNMA participation
certificates, are issued or guaranteed by the US government. Other securities
issued by US government agencies or instrumentalities are supported only by the
credit of the agency or instrumentality (for example, those issued by the
Federal Home Loan Bank) whereas others, such as those issued by FNMA, have an
additional line of credit with the US Treasury.

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

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

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

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

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<PAGE>

FRANK RUSSELL INVESTMENT COMPANY

909 A Street

Tacoma, Washington 98402

Telephone (800) 972-0700

In Washington (253) 627-7001

STATEMENT OF ADDITIONAL INFORMATION

__________, 2001

This Statement of Additional Information ("Statement") is not a Prospectus;
this Statement should be read in conjunction with the Fund of Funds'
Prospectuses, which may be obtained without charge by telephoning or writing
FRIC at the number or address shown above.

Capitalized terms not otherwise defined in this Statement shall have the
meanings assigned to them in the Prospectuses.

This Statement incorporates by reference the Fund of Funds' Annual Reports
to Shareholders as of October 31, 2000. Copies of the Fund of Funds' Annual
Reports accompany this Statement.

This Statement describes the Class C, Class D, Class E and Class S Shares
of the Equity Aggressive Strategy, Aggressive Strategy, Balanced Strategy,
Moderate Strategy and Conservative Strategy Funds and the Class C[, Class E] and
Class S Shares of the Tax-Managed Global Equity Fund (collectively, the "Fund of
Funds"), each of which invests in different combinations of other funds (the
"Underlying Funds") which invests in different combinations of stocks, bonds and
cash equivalents.

<TABLE>
<CAPTION>
FUND
FUND INCEPTION DATE PROSPECTUS DATE
---- -------------- ---------------
<S> <C> <C>
Equity Aggressive Strategy Fund September 30, 1997 May 1, 2000
Aggressive Strategy Fund September 16, 1997 May 1, 2000
Balanced Strategy Fund September 16, 1997 May 1, 2000
Moderate Strategy Fund October 2, 1997 May 1, 2000
Conservative Strategy Fund November 7, 1997 May 1, 2000
Tax-Managed Global Equity Fund, Classes C and S February 1, 2000 May 1, 2000
Tax-Managed Global Equity Fund, Class E February 1, 2000 _____, 2001
</TABLE>
<PAGE>

The Underlying Funds in which the Fund of Funds currently invest commenced
operations on the dates indicated below:

FUND INCEPTION DATE
---- --------------

Diversified Equity Fund September 5, 1985
Special Growth Fund September 5, 1985
Quantitative Equity Fund May 15, 1987
International Securities Fund September 5, 1985
Diversified Bond Fund September 5, 1985
Short Term Bond Fund October 30, 1981
Multistrategy Bond Fund January 29, 1993
Real Estate Securities Fund July 28, 1989
Emerging Markets Fund January 29, 1993
Tax-Managed Large Cap Fund (formerly Equity T Fund) October 7, 1996
Tax-Managed Small Cap Fund December 1, 1999
<PAGE>

TABLE OF CONTENTS

CERTAIN TERMS USED IN THIS STATEMENT OF ADDITIONAL INFORMATION ARE DEFINED IN
THE GLOSSARY, WHICH BEGINS ON PAGE 62

<TABLE>
<CAPTION>
Page
<S> <C>
STRUCTURE AND GOVERNANCE............................................................. 1
Organization and Business History............................................. 1
Shareholder Meetings.......................................................... 1
Controlling Shareholders...................................................... 2
Trustees and Officers......................................................... 2

OPERATION OF FRIC.................................................................... 11
Service Providers............................................................. 11
Consultant.................................................................... 12
Advisor and Administrator..................................................... 12
Money Managers................................................................ 14
Distributor................................................................... 15
Custodian and Portfolio Accountant............................................ 15
Transfer and Dividend Disbursing Agent........................................ 16
Order Placement Designees..................................................... 16
Independent Accountants....................................................... 16
Codes of Ethics............................................................... 16
Plan Pursuant to Rule 18f-3................................................... 18
Distribution Plan............................................................. 19
Shareholder Services Plan..................................................... 20
Underlying Fund Expenses...................................................... 21
Fund of Funds Operating Expenses.............................................. 21
Purchase and Redemption of Fund of Funds Shares............................... 22
Valuation of the Fund of Fund Shares.......................................... 23
Pricing of Securities......................................................... 23
Portfolio Turnover Rates of the Fund of Funds................................. 23
Portfolio Transaction Policies of the Underlying Funds........................ 24
Brokerage Allocations......................................................... 24
Brokerage Commissions......................................................... 25
Yield and Total Return Quotations............................................. 26

INVESTMENT RESTRICTIONS, POLICIES AND PRACTICES OF THE FUND OF FUNDS................. 27
Investment Restrictions....................................................... 27
Investment Policies and Practices of the Fund of Funds........................ 28

INVESTMENT POLICIES OF THE UNDERLYING FUNDS.......................................... 30
CERTAIN INVESTMENTS OF THE UNDERLYING FUNDS.......................................... 33
TAXES................................................................................ 50
MONEY MANAGER INFORMATION FOR UNDERLYING FUNDS....................................... 51
RATINGS OF DEBT INSTRUMENTS.......................................................... 55
FINANCIAL STATEMENTS................................................................. 61
GLOSSARY............................................................................. 62
</TABLE>
<PAGE>

STRUCTURE AND GOVERNANCE

ORGANIZATION AND BUSINESS HISTORY. FRIC commenced business operations as a
Maryland corporation in October 1981. On January 2, 1985, FRIC reorganized by
changing its domicile and legal status to a Massachusetts business trust.

FRIC is currently organized and operating under an amended Master Trust
Agreement dated July 26, 1984, and the provisions of Massachusetts law governing
the operation of a Massachusetts business trust. The Board of Trustees ("Board")
may amend the Master Trust Agreement from time to time; provided, however, that
any amendment which would materially and adversely affect shareholders of FRIC
as a whole, or shareholders of a particular Fund, must be approved by the
holders of a majority of the Shares of FRIC or the Fund, respectively. FRIC is a
registered open-end management investment company of the diversified type.

FRIC is authorized to issue Shares of beneficial interest, and may
divide the Shares into two or more series, each of which evidences a pro rata
ownership interest in a different investment portfolio -- a "Fund." Each Fund is
a separate trust under Massachusetts law. The Trustees may, without seeking
shareholder approval, create additional Funds at any time. The Master Trust
Agreement provides that shareholders may be required to redeem their Shares at
any time (1) if the Trustees determine in their sole discretion that failure to
so redeem may have material adverse consequences to the shareholders of FRIC or
of any Fund or (2) upon such other conditions as may from time to time be
determined by the Trustees and set forth in the prospectus with respect to the
maintenance of shareholder accounts of a minimum amount.

FRIC Funds are authorized to issue Shares of beneficial interest in one or
more classes. Shares of each class of a Fund have a par value of $0.01 per
share, are fully paid and nonassessable, and have no preemptive or conversion
rights. Shares of each class of a Fund represent proportionate interests in the
assets of that Fund and have the same voting and other rights and preferences as
the Shares of other classes of the Fund. Shares of each class of a Fund are
entitled to the dividends and distributions earned on the assets belonging to
the Fund that the Board declares. Each class of Shares is designed to meet
different investor needs. Each of the Fund of Funds described in this Statement,
other than the Tax-Managed Global Equity Fund which only offers Shares of
beneficial interest in the Class C, Class E and S Shares, offers Shares of
beneficial interest in the Class C, Class D, Class E and Class S Shares. The
Class C, Class D and Class E Shares are subject to a shareholder services fee of
up to 0.25%. In addition, the Class D Shares are subject to a Rule 12b-1 fee of
up to 0.75% (presently limited to 0.25%) and the Class C Shares are subject to a
0.75% Rule 12b-1 fee. Unless otherwise indicated, "Shares" in this Statement
refers to the Class C, Class D and Class E Shares of the Fund of Funds, other
than the Tax-Managed Global Equity Fund, and Class C, Class E and Class S
Shares of the Tax-Managed Fund Global Equity Fund.

Frank Russell Company has the right to grant (and withdraw) the
nonexclusive use of the name "Frank Russell" or any variation.

SHAREHOLDER MEETINGS. FRIC will not hold annual meetings of shareholders,
but special meetings may be held. Special meetings may be convened (i) by the
Board, (ii) upon written request to the Board by shareholders holding at least
10% of the outstanding Shares, or (iii) upon the Board's failure to honor the
shareholders' request described above, by shareholders holding at least 10% of
the outstanding Shares by giving notice of the special meeting to shareholders.
Each share of a class of a Fund has one vote in Trustee elections and other
matters

1
<PAGE>

submitted for shareholder vote. On any matter which affects only a particular
Fund or class, only Shares of that Fund or class are entitled to vote. There are
no cumulative voting rights.

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

At December 31, 2000, the following shareholders owned 5% or more of any
Class of any Fund's Shares:

2
<PAGE>

3
<PAGE>

4
<PAGE>

At December 31, 2000, the following shareholders could be deemed to
"control" the following Fund of Funds because such shareholder owns more than
25% of the voting Shares of the indicated Fund of Funds:

For information in this regard with respect to the Underlying Funds, refer
to the Statement of Additional Information for the Underlying Funds.

5
<PAGE>

The Trustees and officers of FRIC, as a group, own less than 1% of any
Class of each Fund.

TRUSTEES AND OFFICERS. The Board of Trustees is responsible for overseeing
generally the operation of the Funds, including reviewing and approving the
Funds' contracts with Frank Russell Investment Management Company ("FRIMCo"),
Frank Russell Company ("Russell") and the money managers. A Trustee may be
removed at any time by, in substance, a vote of two-thirds of FRIC Shares. A
vacancy in the Board shall be filled by a vote of a majority of the remaining
Trustees so long as, in substance, two-thirds of the Trustees have been elected
by shareholders. The officers, all of whom are employed by and are officers of
FRIMCo or its affiliates, are responsible for the day-to-day management and
administration of the Funds' operations.

FRIC paid $__________ in the aggregate for the year ended October 31,
2000 to the Trustees who are not officers or employees of FRIMCo or its
affiliates. Trustees are paid an annual fee plus travel and other expenses
incurred in attending Board meetings. FRIC's officers and employees are paid by
FRIMCo or its affiliates.

The following table contains the Trustees and officers and their positions
with FRIC, their ages, their present and principal occupations during the past
five years and the mailing addresses of Trustees who are not affiliated with
FRIC.

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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Principal Occupation(s)
Name, Age, Position(s) Held During the
Address with Fund Past 5 Years
<S> <C> <C>
*George F. Russell, Trustee Emeritus and Also currently: Trustee Emeritus and Chairman Emeritus,
Jr., Born July 3, 1932 Chairman Emeritus Russell Insurance Funds; Director, Chairman of the Board and
since 1998. Chief Executive Officer, Russell Building Management Company,
909 A Street Inc.; Director and Chairman of the Board, Frank Russell
Tacoma, Washington Company; Director and Chairman of the Board, Frank Russell
98402-1616 Investments (Delaware), Inc.; Chairman Emeritus/Director
Emeritus, Frank Russell Trust Company; Chairman Emeritus,
Frank Russell Securities, Inc.; Director Emeritus, Frank
Russell Investment Management Company; Director, Chairman of
the Board and President, Russell 20/20 Association. From 1984
to December 1998, Trustee and Chairman of the Board of FRIC.
From August 1996 to December 1998, Trustee and Chairman of
the Board of Russell Insurance Funds.

*Lynn L. Anderson, Trustee, President Also currently: Trustee, President and Chief Executive
Born April 22, 1939 and Chief Executive Officer, Russell Insurance Funds; Director, Chief Executive
Officer since 1987. Officer and Chairman of the Board, Russell Fund Distributors,
909 A Street Inc.; Trustee, Chairman of the Board, President, The SSgA
Tacoma, Washington Funds (investment company); Director and Chairman of the
98402-1616 Board, Frank Russell Investment Management Company; Chairman
of the Board, Frank Russell Trust Company; Director and
Chairman of the Board, Frank Russell Investment Company PLC;
Director, Frank Russell Investments (Ireland) Limited, Frank
Russell Investments (Cayman) Ltd., and Frank Russell
Investments (UK) Ltd.; March 1997 to December 1998, Director,
Frank Russell Company; June 1993 to November 1995, Director,
----------------------------------------------------------------------------------------------------------------
</TABLE>

6
<PAGE>

<TABLE>
<S> <C>
Frank Russell Company. Until September 1994, Director and
President, The Laurel Funds, Inc. (investment company).
----------------------------------------------------------------------------------------------------------------
</TABLE>

7
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Principal Occupation(s)
Name, Age, Position(s) Held During the
Address with Fund Past 5 Years
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paul E. Anderson, Trustee since 1984. Also currently: Trustee, Russell Insurance Funds. 1996 to
Born October 15, 1931 present, President, Anderson Management Group LLC
(architectural design and manufacturing). 1984 to 1996,
23 Forest Glen Lane President, Vancouver Door Company, Inc.
Tacoma, Washington
98409

Paul Anton, Ph.D., Trustee since 1985. Also currently: Trustee, Russell Insurance Funds. President,
Born December 1, 1919 Paul Anton and Associates (Marketing Consultant on emerging
international markets for small corporations). 1991-1994,
PO Box 212 Adjunct Professor, International Marketing, University of
Gig Harbor, Washington Washington, Tacoma, Washington.
98335

William E. Baxter, Trustee since 1984. Trustee, Russell Insurance Funds.
Born June 8, 1925 Retired.

800 North C Street
Tacoma, Washington 98403

Kristianne Blake Trustee since 2000. Also currently: Trustee, Russell Insurance Funds; President,
Born January 22, 1954 Kristianne Gates Blake, P.S. [(accounting services)];
Trustee, WM Group of Funds; Trustee, William H. & Mary M.
P.O. Box 28338 Gates Charitable Remainder Annuity Trust.
Spokane, Washington
99228

Lee C. Gingrich, Trustee since 1984. Also currently: Trustee, Russell Insurance Funds and
Born October 6, 1930 President, Gingrich Enterprises, Inc. (Business and Property
Management).
1730 North Jackson
Tacoma, Washington
98406
----------------------------------------------------------------------------------------------------------------
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Principal Occupation(s)
Name, Age, Position(s) Held During the
Address with Fund Past 5 Years
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eleanor W. Palmer, Trustee since 1984. Also currently: Trustee, Russell Insurance Funds and Director of
Born May 5, 1926 Frank Russell Trust Company. Retired.

2025 Narrows View
Circle #232-D, P.O.
Box 1057
Gig Harbor,
Washington 98335

Raymond P. Tennison, Jr. Trustee since 2000. Also currently: Trustee, Russell Insurance Funds and President,
Born December 21, 1955 Simpson Investment Company and several additional subsidiary
companies, including Simpson Timber Company, Simpson Paper
1301 Fifth Avenue Company and Simpson Tacoma Kraft Company. Prior to July 1997,
Suite 2800 President and Board member, Simpson Paper Company. Trustee,
Seattle, Washington Simpson Employee Retirement Fund.
98101

*Mark E. Swanson, Treasurer and Chief Also currently: Treasurer and Chief Accounting Officer, Russell
Born November 26, 1963 Accounting Officer Insurance Funds; Director, Fund Administration Frank Russell
since 1998. Trust Company; Treasurer, Assistant Secretary and Principal
909 A Street Accounting Officer, SSgA Funds (investment company); Director of
Tacoma, Washington Fund Administration, Frank Russell Investment Management
98402-1616 Company; Manager, Funds Accounting and Taxes, Russell Fund
Distributors, Inc. April 1996 to August 1998, Assistant
Treasurer, Frank Russell Investment Company; August 1996 to
August 1998, Assistant Treasurer, Russell Insurance Funds;
November 1995 to July 1998, Assistant Secretary, SSgA Funds;
February 1997 to July 1998, Manager, Funds Accounting and Taxes,
Frank Russell Investment Management Company.

*Randall P. Lert, Director of Also currently: Director of Investments, Russell Insurance
Born October 3, 1953 Investments since Funds; Chief Investment Officer, Frank Russell Trust Company;
1991. Director and Chief Investment Officer, Frank Russell Investment
909 A Street Management Company; Director and Chief Investment Officer,
Tacoma, Washington Russell Fund Distributors, Inc.; Director-Futures Trading, Frank
98402-1616 Russell Investments (Ireland) Limited and Frank Russell
Investments (Cayman) Ltd.; Senior Vice President and Director of
Portfolio Trading, Frank Russell Canada Limited/Limitee. April
1990 to November 1995, Director of Investments of Frank Russell
Investment Management Company.
-------------------------------------------------------------------------------------------------------------------
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Principal Occupation(s)
Name, Age, Position(s) Held During the
Address with Fund Past 5 Years
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Karl J. Ege, Secretary and General Also currently: Secretary and General Counsel of Russell
Born October 8, 1941 Counsel since 1994. Insurance Funds; Director, Secretary and General Counsel,
Russell Real Estate Advisors, Inc. and Frank Russell Capital,
909 A Street Inc.; Secretary, General Counsel and Managing Director--Law and
Tacoma, Washington Government Affairs of Frank Russell Company; Secretary and
98402-1616 General Counsel of Frank Russell Investment Management Company,
Frank Russell Trust Company and Russell Fund Distributors,
Inc.; Director and Secretary of Russell Insurance Agency, Inc.,
Frank Russell Investments (Delaware), Inc., A Street Investment
Associates, Inc., Russell International Services Co., Inc. and
Russell 20-20 Association; Director and Assistant Secretary of
Frank Russell Company Limited (London) and Russell Systems
Ltd.; Director of Frank Russell Investment Company LLC, Frank
Russell Securities, Inc., Frank Russell Company PTY, Limited,
Frank Russell Institutional Funds plc, Frank Russell Qualifying
Investor Fund, Russell Investment Management Ltd., Frank
Russell Investment Company PLC, Frank Russell Investments
(Ireland) Limited, Frank Russell Investment (Japan), Ltd.,
Frank Russell Company, S.A., Frank Russell Japan Co., Ltd.,
Frank Russell Company (NZ) Limited, Russell Investment Nominee
Co PTY Ltd and Frank Russell Investments (UK) Ltd. April 1992
to December, 1998, Director, Frank Russell Company.

*Peter F. Apanovitch, Manager of Short-Term Also currently: Manager of Short-Term Investment Funds, Russell
Born May 3, 1945 Investment Funds. Insurance Funds, Frank Russell Investment Management Company
and Frank Russell Trust Company.
909 A Street
Tacoma, Washington
98402-1616
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

TRUSTEE COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR ESTIMATED
RETIREMENT ANNUAL TOTAL
AGGREGATE BENEFITS BENEFITS COMPENSATION
COMPENSATION ACCRUED AS PART UPON FROM FRIC PAID
TRUSTEE FROM FRIC OF FRIC EXPENSES RETIREMENT TO TRUSTEES
------- --------- ---------------- ---------- -----------
<S> <C> <C> <C> <C>
Lynn L. Anderson $0 $0 $0 $0
Paul E. Anderson $ $0 $0 $ *
Paul Anton, PhD $ $0 $0 $ *
William E. Baxter $ $0 $0 $ *
Kristianne Blake $0 $0 $0 $0
Lee C. Gingrich $ $0 $0 $ *
Eleanor W. Palmer $ $0 $0 $ *
Raymond P. Tennison, Jr. $0 $0 $0 $0
</TABLE>

* Received $___________ each for service as Trustees on the Russell Insurance
Funds' Board of Trustees.

10
<PAGE>

OPERATION OF FRIC

SERVICE PROVIDERS. Most of FRIC's necessary day-to-day operations are
performed by separate business organizations under contract to FRIC. The
principal service providers are:

Consultant Frank Russell Company

Advisor, Administrator, Transfer and Frank Russell Investment
Dividend Disbursing Agent Management Company

Money Managers for the Multiple professional
Underlying Funds discretionary investment
management organizations

Custodian and Portfolio Accountant State Street Bank and Trust
Company

CONSULTANT. Frank Russell Company, the corporate parent of Frank Russell
Investment Management Company (FRIMCo), was responsible for organizing FRIC and
provides ongoing consulting services, described in the Prospectus, to FRIC and
FRIMCo. FRIMCo does not pay Frank Russell Company an annual fee for consulting
services.

Frank Russell Company provides comprehensive consulting and money manager
evaluation services to institutional clients, including FRIMCo and Frank Russell
Trust Company, and to high net worth individuals and families ($100 million)
through its Russell Private Investment Division. Frank Russell Company also
provides: (i) consulting services for international investment to these and
other clients through its International Division and its wholly owned
subsidiaries, Frank Russell Company London (Frank Russell Company Limited),
Frank Russell Canada (Frank Russell Canada Limited/Limitee), Frank Russell
Australia (Frank Russell Company Pty., Limited), Frank Russell Japan, Frank
Russell AG (Zurich), Frank Russell Company S.A. (Paris) and Frank Russell
Company (N.Z.) Limited (Auckland), and Frank Russell Investments (Delaware),
Inc., and (ii) investment account and portfolio evaluation services to corporate
pension plan sponsors and institutional money managers through its Russell Data
Services Division. Frank Russell Securities, Inc., a wholly owned subsidiary of
Frank Russell Company, carries on an institutional brokerage business. Frank
Russell Capital Inc., a wholly owned subsidiary of Frank Russell Company,
carries on an investment banking business as a registered broker-dealer. Frank
Russell Trust Company, a wholly-owned subsidiary of Frank Russell Company,
provides comprehensive trust and investment management services to corporate
pension and profit-sharing plans. Frank Russell Investments (Cayman) Ltd., a
wholly owned subsidiary of Frank Russell Company, provides investment advice and
other services. Frank Russell Investment (Ireland) Ltd., a wholly owned
subsidiary of Frank Russell Company, provides investment advice and other
services. Frank Russell International Services Co., Inc., a wholly owned
subsidiary of Frank Russell Company, provides services to U.S. personnel
secunded to overseas enterprises. Russell Fiduciary Services Company, a wholly
owned subsidiary of Frank Russell Company, provides fiduciary services to
pension and welfare benefit plans and other institutional investors. The mailing
address of Frank Russell Company is 909 A Street, Tacoma, WA 98402

Frank Russell Company is a subsidiary of The Northwestern Mutual Life
Insurance Company ("Northwestern Mutual"). Founded in 1857, Northwestern Mutual
is a mutual insurance corporation organized under the laws of Wisconsin.
Northwestern Mutual's products consist of a full range of permanent and term
life insurance, disability income insurance, long-term care insurance, mutual
funds and annuities for personal, estate, retirement, business, and benefits
planning. Northwestern Mutual provides its insurance products and services
through an exclusive network of approximately 7,200 agents associated with over
100 general agencies nationwide. Northwestern Mutual leads the U.S. in both
individual life insurance sold annually and total individual life insurance in
force.

11
<PAGE>

ADVISOR AND ADMINISTRATOR. FRIMCo provides or oversees the provision of
all general management and administration, investment advisory and portfolio
management, and distribution services for the Funds. FRIMCo provides the Funds
with office space, equipment and the personnel necessary to operate and
administer the Funds' business and to supervise the provision of services by
third parties such as the money managers (in the case of the Underlying Funds)
and custodian. FRIMCo also develops the investment programs for each of the
Funds, selects money managers for the Underlying Funds (subject to approval by
the Board), allocates assets among money managers, monitors the money managers'
investment programs and results, and may exercise investment discretion over
assets invested in the Underlying Funds' Liquidity Portfolios. (See, "Investment
Policies of the Underlying Funds -- Liquidity Portfolios.") FRIMCo also acts as
FRIC's transfer agent and dividend disbursing agent. FRIMCo, as agent for FRIC,
pays the money managers' fees for the Underlying Funds, as a fiduciary for the
Underlying Funds, out of the advisory fee paid by the Underlying Funds to
FRIMCo. The remainder of the advisory fee is retained by FRIMCo as compensation
for the services described above and to pay expenses.

Each of the Funds pays an advisory fee and an administrative fee to
FRIMCo, billed monthly on a pro rata basis and calculated as a specified
percentage of the average daily net assets of each of the Funds. Services which
are administrative in nature are provided by FRIMCo pursuant to an
Administrative Agreement for an annual fee of 0.05% of each Fund's average daily
net asset value. (See the Prospectuses for the Underlying Funds' annual
percentage rates.)

The following Fund of Funds paid FRIMCo the listed advisory and
administrative fees (gross of reimbursement and/or waivers) for the years ended
October 31, 2000 and December 31, 1999 and 1998.

<TABLE>
<CAPTION>
Fund of Funds 10/31/00 12/31/99 12/31/98
------------- -------- -------- --------
<S> <C> <C> <C>
Equity Aggressive Fund $403,512 $151,953

Aggressive Strategy Fund 312,714 96,256

Balanced Strategy Fund 650,215 277,200

Moderate Strategy Fund 94,535 30,361

Conservative Strategy Fund 35,959 6,465

Tax-Managed Global Equity Fund -- --
</TABLE>

While FRIMCo will perform investment advisory services for the Fund of
Funds (i.e., determining the percentages of the Underlying Funds which will be
purchased by each Fund of Funds, and periodically adjusting the percentages and
the Underlying Funds), FRIMCo has waived and/or reimbursed its management and
advisory fees since each Fund of Fund's inception and has contractually agreed
to continue the waiver of advisory fee through ____________. Advisory fees do
not vary among classes of Shares. Administrative fees for each Fund of Funds are
borne by the Underlying Funds in accordance with the Funds' Special Servicing
Agreements. For the fiscal years ended October 31, 2000 and December 31, 1999
and 1998, respectively, FRIMCo waived fees in the following amounts: Equity
Aggressive Strategy Fund: $________, $403,512 and $151,953; Aggressive Strategy
Fund: $_________, $312,714 and $96,256; Balanced

12
<PAGE>

Strategy Fund: $_________, $650,215 and $277,200; Moderate Strategy Fund:
$________, $94,535 and $30,361; and Conservative Strategy Fund: $________,
$35,959 and $6,465. For the fiscal year ended October 31, 2000, FRIMCo waived
$___________ in fees for the Tax-Managed Global Equity Fund. For the fiscal
years ended October 31, 2000 and December 31, 1999 and 1998, respectively,
FRIMCo reimbursed the Fund of Funds in the following amounts: Equity Aggressive
Strategy Fund, $________, $11,875 and $74,469; Aggressive Strategy Fund,
$________, $11,979 and $62,426; Balanced Strategy Fund, $_______, $12,780 and
$126,140; Moderate Strategy Fund, $_________, $10,913 and $52,221; and
Conservative Strategy Fund, $________, $3,912 and $46,954. For the fiscal year
ended October 31, 2000, FRIMCo reimbursed the Tax-Managed Global Equity Fund in
the amount of $__________. Each of the Fund of Funds will indirectly bear their
proportionate share of the combined advisory and administrative fees paid by the
Underlying Funds in which they invest. While a shareholder of a Fund of Funds
will also bear a proportionate part of the combined advisory and administrative
fees paid by an Underlying Fund, those fees paid are based upon the services
received by the respective Underlying Fund.

The Underlying Funds in which the Fund of Funds currently invest paid
FRIMCo the listed advisory and administrative fees (gross of reimbursements
and/or waivers) for the years ended October 31, 2000 and December 31, 1999 and
1998:

<TABLE>
<CAPTION>
YEARS ENDED
-----------
10/31/00 12/31/99 12/31/98
-------- -------- --------
<S> <C> <C> <C>
Diversified Equity $11,377,505 $9,580,094

Special Growth 5,867,193 5,901,577

Quantitative Equity 11,129,142 9,056,015

International Securities 9,446,953 8,859,189

Diversified Bond 3,695,482 3,407,594

Short Term Bond 2,269,960 1,216,062

Multistrategy Bond 3,667,917 3,241,445

Real Estate Securities 5,193,244 5,183,218

Emerging Markets 4,222,210 4,020,121

Tax-Managed Large Cap 3,180,328 1,463,604

Tax-Managed Small Cap* 18,536 --

Tax Exempt Bond 498,685 525,312

Tax Free Money Market 491,260 429,613
</TABLE>

* Tax-Managed Small Cap Fund commenced operations on December 1, 1999.

Effective May 1, 1996 through April 30, 2000, FRIMCo has contractually
agree to waive a portion of its combined advisory and administrative fees for
the Multistrategy Bond Fund, to the extent Fund level expenses exceed 0.80% of
average daily net assets on an annual basis, FRIMCo waived fees in the amounts
of $57,035, $327,074 and $____________ for the years ended December 31, 1998 and
1999 and October 31, 2000, respectively. As a result of the waivers, the Fund
paid advisory and administrative fees equal to $3,184,410, $3,340,842 and
$__________ for the years ended December 31, 1998 and 1999 and October 31, 2000,
respectively.

FRIMCo has contractually agreed to waive a portion of its 1.03% combined
advisory and administrative fees for the Tax-Managed Small Cap Fund, up to the
full amount of those fees, equal to the amount by which Fund-Level expenses
exceed 1.25% of the Fund's average daily net assets on an annual basis. In
addition, FRIMCo has contractually agreed to reimburse the Fund for any
remaining total Fund-level expenses after any FRIMCo waiver which exceeds 1.25%
of average daily net assets on an annual basis. FRIMCo waived fees in the amount
of $18,536 and $__________ for the years ended December 31, 1999 and October 31,
2000, respectively. In addition, FRIMCo reimbursed the Fund $101,897 and
$_____________ for expenses over the cap in 1999 and 2000, respectively. As a
result of the waivers and reimbursements, the Fund paid no advisory and
administrative

13
<PAGE>

fees for the years ended December 31, 1999 and October 31, 2000. The Tax-
Managed Small Cap Fund commenced operations on December 1, 1999.

Effective September 29, 2000, FRIMCo has contractually agreed to waive, at least
until September 30, 2001, an amount up to the full amount of its aggregate 0.50%
combined advisory and administrative fees for the Short Term Bond Fund, and to
reimburse the Fund to the extent that Fund-level expenses exceed 0.52% of
average daily net assets of that Fund for the month of October 2000 and
thereafter on an annual basis. FRIMCo waived fees in the amount of $__________
for the year ended October 31, 2000. In addition, FRIMCo reimbursed the Fund
$_____________ for expenses over the cap in 2000, respectively. As a result of
the waivers and reimbursements, the Fund $______________ in advisory and
administrative fees for the year ended October 31, 2000.

FRIMCo is a wholly owned subsidiary of Frank Russell Company, a
subsidiary of The Northwestern Mutual Life Insurance Company. FRIMCo's mailing
address is 909 A Street, Tacoma, WA 98402.

MONEY MANAGERS. The money managers of the Underlying Funds have no
affiliations or relationships with FRIC or FRIMCo other than as discretionary
managers for all or a portion of a Fund's portfolio, except some money managers
(and their affiliates) may effect brokerage transactions for the Underlying
Funds (see, "Brokerage Allocations" and "Brokerage Commissions"). Money managers
may serve as advisors or discretionary managers for Frank Russell Trust Company,
other investment vehicles sponsored or advised by Frank Russell Company or its
affiliates, other consulting clients of Frank Russell Company, other offshore
vehicles and/or for accounts which have no business relationship with the Frank
Russell Company organization

From its advisory fees received from the Underlying Funds, FRIMCo, as
agent for FRIC, pays all fees to the money managers for their investment
selection services. Quarterly, each money manager is paid the pro rata portion
of an annual fee, based on the average for the quarter of all the assets
allocated to the money manager. For the years ended December 31, 1998 and 1999
and October 31, 2000, management fees paid to the money managers of the
Underlying Funds were:

<TABLE>
<CAPTION>
Annual rate
Fund $ Amount Paid (as a % of average daily net assets)
-------------------------------- ----------------------------------------------- -------------------------------------
1998 1999 2000 1998 1999 2000
---- ---- ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Diversified Equity $ 2,556,100 $ 2,908,409 0.21% 0.20%
Special Growth 2,419,648 2,249,925 0.39% 0.36%
Quantitative Equity 2,153,019 2,623,428 0.19% 0.18%
International Securities 3,505,016 3,429,899 0.37% 0.34%
Diversified Bond 529,842 555,643 0.07% 0.07%
</TABLE>

14
<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
Short Term Bond 414,057 795,354 0.17% 0.17%
Multistrategy Bond 990,456 1,046,997 0.19% 0.18%
Real Estate Securities 1,757,612 1,711,842 0.29% 0.28%
Emerging Markets 2,230,317 2,151,950 0.66% 0.65%
Tax-Managed Large Cap 606,948 1,130,665 0.31% 0.27%
Tax-Managed Small Cap* -- 6,673 -- 0.34%
Tax Exempt Bond 252,321 305,104 0.23% 0.19%
Tax Free Money Market 134,817 146,901 0.08% 0.08%
</TABLE>

_______________________
* The Tax-Managed Small Cap Fund commenced operations on December 1,
1999.

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

DISTRIBUTOR. Russell Fund Distributors, Inc. (the "Distributor") serves
as the distributor of FRIC Shares. The Distributor receives no compensation from
FRIC for its services other than Rule 12b-1 compensation and shareholder
services compensation for certain classes of Shares pursuant to FRIC's Rule 12b-
1 Distribution Plan and its Shareholder Services Plan, respectively. The
Distributor is a wholly owned subsidiary of FRIMCo and its mailing address is
909 A Street, Tacoma, WA 98402.

CUSTODIAN AND PORTFOLIO ACCOUNTANT. State Street Bank and Trust Company
("State Street") serves as the custodian for FRIC. State Street also provides
basic portfolio recordkeeping required for each of the Underlying Funds for
regulatory and financial reporting purposes. For these services, State Street is
paid the following annual fees, which will be billed and payable on a monthly
basis:

Custody:

15
<PAGE>

Domestic Custody (Underlying Funds) - (i) $3,000 per portfolio per
fund; (ii) First $10 billion in average daily net assets - 0.75%, Over
$10 billion - 0.65%. Global Custody ( Underlying Funds) - (i) First
$500 million in month end net assets - 0.11% - 0.35%, Over $500
million-0.03% - 0.35% depending on the geographic classification of the
investments in the international funds (ii) a transaction charge
ranging from $25 - $100 depending on the geographic classification of
the investments in the international funds. All Custody (Underlying
Funds) - (i) Portfolio transaction charges range from $6.00 - $25.00
depending on the type of transaction; (ii) Futures and Options charges
range from $8.00 - $25.00; (iii) monthly pricing fees of $375.00 per
portfolio and $6.00 - $11.00 per security; (iv) on-line access charges
of $2,500 per fund; and (v) Reimbursement of out-of-pocket expenses
including postage, transfer fees, stamp duties, taxes, wire fees,
telexes and freight. Portfolio transaction charges for the Fund of
Funds are equal to $5.00 each. In addition, interest earned on
uninvested cash balances will be used to offset the Fund of Funds' and
Underlying Funds' custodian expense, as applicable.

Fund Accounting:

Domestic Fund Accounting Underlying Funds - (i) $10,000 per portfolio;
and (ii) 0.015% of average daily net assets. International Fund
Accounting Underlying Funds - (i) $24,000 per portfolio per year; and
(ii) 0.03% of month end net assets. Fund of Funds Account - $12,000 per
portfolio; Yield calculation services Fund of Funds and Underlying
Funds - $4,200 per fixed income fund. Tax accounting services - $8,500
per Equity Fund, $11,000 per Fixed Income Fund, and $15,000 per Global
Fund. The mailing address for State Street Bank and Trust Company is:
1776 Heritage Drive, North Quincy, MA 02171.

TRANSFER AND DIVIDEND DISBURSING AGENT. FRIMCo serves as Transfer Agent
for FRIC. For this service FRIMCo is paid a per-account fee for transfer agency
and dividend disbursing services provided to FRIC. From this fee, which is based
upon the number of shareholder accounts and total assets of the Funds, FRIMCo
compensates unaffiliated agents who assist in providing these services. FRIMCo
is also reimbursed by FRIC for certain out-of-pocket expenses, including
postage, taxes, wires, stationery and telephone. The Fund of Funds' investments
in the Underlying Funds will not be charged a fee. FRIMCo's mailing address is
909 A Street, Tacoma, WA 98402.

ORDER PLACEMENT DESIGNEES. FRIC has authorized certain Financial
Intermediaries to accept on its behalf purchase and redemption orders for FRIC
Shares. Certain Financial Intermediaries are authorized, subject to approval of
FRIC's Distributor, to designate other intermediaries to accept purchase and
redemption orders on FRIC's behalf. With respect to those intermediaries, FRIC
will be deemed to have received a purchase or redemption order when such a
Financial Intermediary or, if applicable, an authorized designee, accepts the
order. The customer orders will be priced at the applicable Fund's net asset
value next computed after they are accepted by such a Financial Intermediary or
an authorized designee, provided that Financial Intermediary or an authorized
designee timely transmits the customer order to FRIC.

INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP serves as the
independent accountants of FRIC. PricewaterhouseCoopers LLP is responsible for
performing annual audits of the financial statements and financial highlights of
the Funds in accordance with generally accepted auditing standards and a review
of federal tax returns. The mailing address of PricewaterhouseCoopers LLP is
1800 First Interstate Center, 999 Third Avenue, Seattle, WA 98104-4098.

CODES OF ETHICS. FRIC, FRIMCo and RFD have each adopted a Code of
Ethics as required under SEC Rule 17j-1. These Codes permit personnel subject to
the Codes to invest in securities, which may include securities in which the
Underlying Funds can invest. Personal investments are subject to the regulatory
and disclosure provisions of the respective Codes. In addition, each Money
Manager has adopted a Code of Ethics under Rule 17j-1. The table below indicates
whether each Money Manager's Code of Ethics permits personnel covered by the
Code to invest in securities and, where appropriate, to invest in securities in
which an Underlying Fund advised by that Money Manager may invest.

<TABLE>
<CAPTION>
----------------------------- --------------------------- ------------------------------------------------------------
Is personal investing Are investments in securities owned by the advised Fund
Money Manager allowed? allowed?
----------------------------- --------------------------- ------------------------------------------------------------
<S> <C> <C>
</TABLE>

16
<PAGE>

<TABLE>
<S> <C> <C>
----------------------------------------------------------------------------------------------------------------------
AEW Capital Yes No
Management, L.P.
----------------------------------------------------------------------------------------------------------------------
Alliance Capital Yes Yes, but not in securities with pending or possible client
Management L.P. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Barclays Global Fund Yes Yes, but not in securities with pending or possible client
Advisors N.A. buy or sell orders and certain blackouts apply to
securities of Barclays PLC and securities underwritten by
Barclays affiliates
----------------------------------------------------------------------------------------------------------------------
BlackRock Financial Yes Yes, but not in securities with pending or possible client
Management buy or sell orders
----------------------------------------------------------------------------------------------------------------------
The Boston Company Yes Yes, but not in securities with pending or possible client
Asset Management buy or sell orders, also, certain persons may not purchase
securities issued by financial services organizations
----------------------------------------------------------------------------------------------------------------------
CapitalWorks Investment Yes Yes, but not in securities with pending or possible client
Partners buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Cohen & Steers Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Delaware International Yes Yes, but not in securities with pending or possible client
Advisors Limited buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Delphi Management, Inc. Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Driehaus Capital Yes Yes, but not in securities with pending or possible client
Management, Inc. buy or sell orders unless the order is bunched with the
client's, the client is able to fully complete its own
order, and the order receives the average price for that
day
----------------------------------------------------------------------------------------------------------------------
Equinox Capital Yes Yes, but not in securities with pending or possible client
Management, Inc. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Fidelity Management Yes Cannot purchase securities on a restricted list
Trust Company
----------------------------------------------------------------------------------------------------------------------
Foreign & Colonial Yes Cannot purchase securities on a restricted list
Emerging Markets
Limited
----------------------------------------------------------------------------------------------------------------------
Franklin Portfolio Yes Yes, but not in securities with pending or possible client
Associates LLC buy or sell orders, also, certain persons may not invest
in securities of financial services organizations
----------------------------------------------------------------------------------------------------------------------
Geewax, Terker & Company Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Genesis Asset Managers, Yes Yes, but not in securities with pending or possible client
Ltd. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
GlobeFlex Capital, L.P. Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Jacobs Levy Equity Yes Yes, but not in securities with pending or possible client
Management, Inc. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
J.P. Morgan Investment Yes Cannot purchase securities on a restricted list or
Management, Inc. securities of financial services organizations
----------------------------------------------------------------------------------------------------------------------
Lazard Asset Yes Cannot purchase securities on a restricted list
Management
----------------------------------------------------------------------------------------------------------------------
Lincoln Capital Yes Yes, but not in securities with pending or possible client
Management Company buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Marsico Capital Severely restricts No
Management, LLC personal trading except
for a limited number of
specific transactions such
as purchase of mutual fund
shares,
----------------------------------------------------------------------------------------------------------------------
</TABLE>

17
<PAGE>

<TABLE>
<S> <C> <C>
----------------------------------------------------------------------------------------------------------------------
commercial Paper, etc.
----------------------------------------------------------------------------------------------------------------------
Marvin & Palmer Associates, Yes Yes
Inc.
----------------------------------------------------------------------------------------------------------------------
Mastholm Asset Management, Yes Yes, but not in securities with pending or possible client
LLC buy or sell orders
----------------------------------------------------------------------------------------------------------------------
MFS Institutional Advisors, Yes Yes, but not in securities with pending or possible client
Inc. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Miller, Anderson & Yes Yes, but not in securities with pending or possible client
Sherrerd, LLP buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Montgomery Asset Management Yes Yes, but not in securities with pending or possible client
LLC buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Nicholas Applegate Capital Yes Yes, but not in securities with pending or possible client
Management buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Oechsle International Yes Yes, but not in securities with pending or possible client
Advisors, LLC buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Pacific Investment Yes Yes, but not in securities with pending or possible client
Management Company buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Peachtree Asset Management Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Schroders Capital Yes Cannot purchase securities on a restricted list
Management International
Limited
----------------------------------------------------------------------------------------------------------------------
Security Capital Global Yes Yes, but not in securities with pending or possible client
Capital Management Group buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Sirach Capital Management, Yes Yes, but not in securities with pending or possible client
Inc. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Standish, Ayer & Wood, Inc. Yes Cannot purchase securities on a restricted list
----------------------------------------------------------------------------------------------------------------------
STW Fixed Income Management Yes Yes, but not in securities with pending or possible client
Ltd. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Strong Capital Management Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Suffolk Capital Management Yes Yes, but not in securities with pending or possible client
Ltd. buy or sell orders or in securities of which 10% or more
are held in portfolios managed by Suffolk
----------------------------------------------------------------------------------------------------------------------
Turner Investment Partners Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Weiss, Peck & Greer, L.L.C. Yes Yes, but not in securities with pending or possible client
buy or sell orders
----------------------------------------------------------------------------------------------------------------------
Westpeak Investment Yes Yes, but not in securities with pending or possible client
Advisors, L.P. buy or sell orders
----------------------------------------------------------------------------------------------------------------------
</TABLE>

18
<PAGE>

Funds, (ii) to create Class A Shares, Class C Shares, Class E Shares and Class S
Shares of the Select Growth Fund and Select Value Fund (neither of which are
offered hereby), (iii) to create Class E Shares of the Tax-Managed Small Cap
Fund, Tax-Managed Large Cap Fund, and Tax-Managed Global Equity Fund; (iv) to
redesignate the existing Class S Shares of the Money Funds as Class I Shares and
create new Class A and Class S Shares of the Money Funds; and (v) to permit
holders of Class B Shares who have paid the applicable contingent deferred sales
charge to exchange those Shares for A Shares of the same Fund without imposition
of the Class A front-end Sales Charge. On October 27, 2000 the Board amended the
Rule 18f-3 Plan (i) to revoke the August 7, 2000 redesignation of the Class S
Shares of the Money Funds as Class I Shares, (ii) to revoke the creation of new
Class S Shares of the Money Funds, and (iii) to create Class I Shares and Class
Y Shares of the Select Growth Fund and Select Value Fund (neither of which are
offered hereby).

For purposes of this Statement of Additional Information, each Fund that
issues multiple classes of Shares is referred to as a "Multiple Class Fund." The
key features of the Rule 18f-3 plan are as follows: Shares of each class of a
Multiple Class Fund represent an equal pro rata interest in the underlying
assets of that Fund, and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations, qualifications
and terms and conditions, except that: (1) each class of Shares offered in
connection with a Rule 12b-1 plan may bear certain fees under its respective
Rule 12b-1 plan and may have exclusive voting rights on matters pertaining to
that plan and any related agreements; (2) each class of Shares may contain a
conversion feature; (3) each class of Shares may bear differing amounts of
certain class expenses; (4) different policies may be established with respect
to the payment of distributions on the classes of Shares of a Multiple Class
Fund to equalize the net asset values of the classes or, in the absence of such
policies, the net asset value per share of the different classes may differ at
certain times; (5) each class of Shares of a Multiple Class Fund may have
different exchange privileges from another class; (6) each class of Shares of a
Multiple Class Fund may have a different class designation from another class of
that Fund; and (7) each class of Shares offered in connection with a shareholder
servicing plan may bear certain fees under its respective plan.

DISTRIBUTION PLAN. Under the 1940 Act, the SEC has adopted Rule 12b-1,
which regulates the circumstances under which the Funds may, directly or
indirectly, bear distribution expenses. Rule 12b-1 provides that the Funds may
pay for such expenses only pursuant to a plan adopted in accordance with Rule
12b-1. Accordingly, the Multiple Class Funds have adopted a distribution plan
(the "Distribution Plan") for the Multiple Class Funds' Class C and Class D
Shares, which are described in the respective Funds' Prospectus. In adopting the
Distribution Plan, a majority of the Trustees, including a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of FRIC
and who have no direct or indirect financial interest in the operation of the
Distribution Plan or in any agreements entered into in connection with the
Distribution Plan (the "Independent Trustees"), have concluded, in conformity
with the requirements of the 1940 Act, that there is a reasonable likelihood
that the Distribution Plan will benefit each respective Multiple Class Fund and
its shareholders. In connection with the Trustees' consideration of whether to
adopt the Distribution Plan, the Distributor, as the Multiple Class Funds'
principal underwriter, represented to the Trustees that the Distributor believes
that the Distribution Plan should result in increased sales and asset retention
for the Multiple Class Funds by enabling the Multiple Class Funds to reach and
retain more investors and Financial Intermediaries (such as brokers, banks,
financial planners, investment advisors and other financial institutions),
although it is impossible to know for certain, in the absence of a Distribution
Plan or under an alternative distribution arrangement, the level of sales and
asset retention that a Multiple Class Fund would have.

The 12b-1 fees may be used to compensate (a) Selling Agents (as defined
below) for sales support services provided, and related expenses incurred with
respect to Class C and Class D Shares, by such Selling Agents, and (b) the
Distributor for distribution services provided by it, and related expenses
incurred, including payments by the Distributor to compensate Selling Agents for
providing support services. The Distribution Plan is a compensation-type plan.
As such, FRIC makes no distribution payments to the Distributor with respect to
Class C and Class D Shares except as described above. Therefore, FRIC does not
pay for unreimbursed expenses of the Distributor, including amounts expended by
the Distributor in excess of amounts received by it from FRIC, interest,
carrying or other financing charges in connection with excess amounts expended,
or the Distributor's overhead expenses. However, the Distributor may be able to
recover such amount or may earn a profit from future payments made by FRIC under
the Distribution Plan.

19
<PAGE>

primarily intended to result in the sale of Class C and Class D Shares of a
Multiple Class Fund. Such payments by FRIC will be calculated daily and paid
periodically and shall not be made less frequently than quarterly. Any amendment
to increase materially the costs that a Multiple Class Fund's Shares may bear
for distribution pursuant to the Distribution Plan shall be effective upon a
vote of the holders of the affected Class of the lesser of (a) more than fifty
percent (50%) of the outstanding Shares of the affected Class of a Multiple
Class Fund or (b) sixty-seven percent (67%) or more of the Shares of affected
Class of a Multiple Class Fund present at a shareholders' meeting, if the
holders of more than 50% of the outstanding Shares of the affected Class of such
Fund are present or represented by proxy (a "1940 Act Vote"). The Distribution
Plan does not provide for the Multiple Class Funds to be charged for interest,
carrying or any other financing charges on any distribution expenses carried
forward to subsequent years. A quarterly report of the amounts expended under
the Distribution Plan, and the purposes for which such expenditures were
incurred, must be made to the Trustees for their review. The Distribution Plan
may not be amended without approval of the holders of the affected Class of
Shares. The Distribution Plan and material amendments to it must be approved
annually by all of the Trustees and by the Independent Trustees. While the
Distribution Plan is in effect, the selection and nomination of the Independent
Trustees shall be committed to the discretion of such Independent Trustees. The
Distribution Plan is terminable, as to a Multiple Class Fund's Shares, without
penalty at any time by (a) a vote of a majority of the Independent Trustees, or
(b) a vote of the holders of the lesser of (a) more than fifty percent (50%) of
the outstanding Shares of the affected Class of a Multiple Class Fund or (b) a
1940 Act Vote.

Under the Distribution Plan, the Multiple Class Funds may also enter into
agreements ("Selling Agent Agreements") with Financial Intermediaries and with
the Distributor to provide sales support services with respect to Multiple Class
Fund Class C or Class D Shares held by or for the customers of the Financial
Intermediaries. Financial Intermediaries that have entered into Selling Agent
Agreements are referred to in this Statement as "Selling Agents."

Under the Distribution Plan, the following Multiple Class Funds' Class C
and Class D Shares accrued expenses in the following amounts, payable as
compensation to the Distributor, for the year ended October 31, 2000 (these
amounts were for compensation to dealers):

<TABLE>
<CAPTION>
Fund of Funds Class C Class D
------------- ------- -------
<S> <C> <C>
Equity Aggressive Strategy Fund

Aggressive Strategy Fund

Balanced Strategy Fund

Moderate Strategy Fund

Conservative Strategy Fund

Tax-Managed Global Equity Fund
</TABLE>

SHAREHOLDER SERVICES PLAN. A majority of the Trustees, including a
majority of Independent Trustees, has adopted and amended a Shareholder Services
Plan for certain classes of Shares of the Fund of Funds ("Servicing Plan"). The
Servicing Plan was adopted on April 22, 1996 and amended on June 3, 1998,
November 9, 1998, August 9, 1999 and November 22, 1999.

Under the Service Plan, FRIC may compensate the Distributor or any
investment advisers, banks, broker-dealers, financial planners or other
financial institutions that are dealers of record or holders of record or that
have a servicing relationship with the beneficial owners or record holders of
Shares of Class A, Class C, Class D or Class E, offering such Shares ("Servicing
Agents"), for any activities or expenses primarily intended to assist, support
or service their clients who beneficially own or are primarily intended to
assist, support or service their clients who beneficially own or are record
holders of Shares of Class A, Class C, Class D or Class E. Such payments by FRIC
will be calculated daily and paid quarterly at a rate or rates set from time to
time by the Trustees, provided that no

20
<PAGE>

rate set by the Trustees for Shares of Class A, Class C, Class D or Class E may
exceed, on an annual basis, 0.25% of the average daily net asset value of that
Fund's Class A, Class C, Class D, or Class E Shares.

Among other things, the Service Plan provides that (1) the Distributor
shall provide to FRIC's officers and Trustees, and the Trustees shall review at
least quarterly, a written report of the amounts expended by it pursuant to the
Service Plan, or by Servicing Agents pursuant to Service Agreements, and the
purposes for which such expenditures were made; (2) the Service Plan shall
continue in effect for so long as its continuance is specifically approved at
least annually by the Trustees, and any material amendment thereto is approved
by a majority of the Trustees, including a majority of the Independent Trustees,
cast in person at a meeting called for that purpose; (3) while the Service Plan
is in effect, the selection and nomination of the Independent Trustees shall be
committed to the discretion of such Independent Trustees; and (4) the Service
Plan is terminable, as to a Multiple Class Fund's Shares, by a vote of a
majority of the Independent Trustees.

Under the Service Plan, the following Fund of Funds' Class C, Class D and
Class E Shares accrued expenses in the following amounts payable to the
Distributor, for the year ended October 31, 2000:

<TABLE>
<CAPTION>
Fund of Funds Class C Class D Class E
------------- ------- ------- -------
<S> <C> <C> <C>
Equity Aggressive Strategy Fund

Aggressive Strategy Fund

Balanced Strategy Fund

Moderate Strategy Fund

Conservative Strategy Fund

Tax-Managed Global Equity Fund
</TABLE>

No Class A Shares were issued during the year ended October 31, 2000.

UNDERLYING FUND EXPENSES

The Underlying Funds will pay all their expenses other than those
expressly assumed by FRIMCo. The principal expense of the Underlying Funds is
the annual advisory fee and annual administrative fee, each payable to FRIMCo.
The Underlying Funds' other expenses include: fees for independent accountants,
legal, transfer agent, registrar, custodian, dividend disbursement, and
portfolio and shareholder recordkeeping services, and maintenance of tax records
payable to Frank Russell Company; state taxes; brokerage fees and commissions;
insurance premiums; association membership dues; fees for filing of reports and
registering Shares with regulatory bodies; and such extraordinary expenses as
may arise, such as federal taxes and expenses incurred in connection with
litigation proceedings and claims and the legal obligations of FRIC to indemnify
its Trustees, officers, employees, shareholders, distributors and agents with
respect thereto.

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

As of the date of this Statement, FRIMCo has voluntarily agreed to waive
and/or reimburse until ___________ all or a portion of its advisory and
administrative fees with respect to certain Underlying Funds.

FUND OF FUNDS OPERATING EXPENSES

21
<PAGE>

Each Fund of Funds is expected to have a low operating expense ratio
although, as a shareholder of the Underlying Funds, each Fund of Funds
indirectly bears its pro rata share of the advisory fees charged to, and
expenses of operating, the Underlying Funds in which it invests. It is currently
contemplated that all other operating expenses (shareholder servicing, legal,
accounting, etc.) except for the 0.20% advisory fee and any Rule 12b-1 Fees and
Shareholder Service Fees will be paid for in accordance with these Special
Servicing Agreements (each a "Servicing Agreement") among each Fund of Funds,
its Underlying Funds and FRIMCo. Under the Servicing Agreement, FRIMCo arranges
for all services pertaining to the operations of the Fund of Funds, including
transfer agency services but not including any services covered by the Fund of
Funds' advisory fee or any Rule 12b-1 or Shareholder Service Fees. However, it
is expected that the additional assets invested in the Underlying Funds by the
Fund of Funds will produce economies of operations and other savings for the
Underlying Funds which will exceed the cost of the services required for the
operation of the Fund of Funds. In this case, the Servicing Agreement provides
that the officers of FRIC, at the direction of the Trustees, may apply such
savings to payment of the aggregate operating expenses of Fund of Funds which
have invested in that Underlying Fund, so that the Underlying Fund will bear
those operating expenses in proportion to the average daily value of the shares
owned by the Fund of Funds, provided that no Underlying Fund will bear such
operating expenses in excess of the estimated savings to it. In the event that
the aggregate financial benefits to the Underlying Funds do not exceed the costs
of the Fund of Funds, the Servicing Agreement provides that FRIMCo will bear
that portion of costs determined to be greater than the benefits. Those costs
include Fund accounting, custody, auditing, legal, blue sky and, as well as
organizational, transfer agency, prospectus, shareholder reporting, proxy,
administrative and miscellaneous expenses.

PURCHASE AND REDEMPTION OF FUND OF FUNDS SHARES

Minimum Investment Requirements. You may be eligible to purchase Fund of
-------------------------------
Funds Shares if you do not meet the applicable required minimum investment. The
Fund of Funds, at their discretion, may waive the initial minimum investment
requirement for some employee benefit plans and other plans with at least $5
million in total plan assets or if requirements are met for a combined purchase
privilege, cumulative quantity discount, or statement of intention. The Funds
may also, at their discretion, waive the minimum initial investment for clients
of certain Financial Intermediaries who have entered into special arrangements
with the Funds. If you invest less than the required minimum investment in a
Fund of Funds, and the minimum investment required has not been waived for you,
the Funds of Funds reserve the right to refuse your order or to correct, within
a reasonable period, your purchase transaction and notify you promptly of that
correction.

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.

The Fund of Funds may also waive the required minimum initial investment
for IRAs and UGMAs and similar vehicles on which an explicit or practical
initial investment restriction is imposed by a regulatory body.

Stale Checks. If you do not cash a dividend, distribution, or redemption
------------
check within 180 days from the date it was issued, the Funds of Funds will act
to protect themselves and you. No interest will accrue on amounts represented by
uncashed checks.

[X] For uncashed dividend and distribution checks and uncashed
redemption checks of $25 or less, the Fund of Funds will deem the
unchased check to be an order to reinvest the proceeds of the uncashed
check into your account with that Fund at its then-current net asset
value, and, if the uncashed check represents a dividend or distribution,
the Fund of Funds will deem it to be an order to reinvest all future Fund
dividends and distributions unless otherwise notified by you. If you do
not have an open account with that Fund, an uncashed check of more than
$25 will be deemed an order to purchase shares of the Frank Russell
Investment Company Money Market Fund, and the proceeds of any uncashed
checks for $25 or less will be held in the Fund's general account for
your benefit in accordance with applicable law.

[X] For redemption checks of more than $25, the Fund will reissue
the check. If the reissued check is not cashed within 180 days from the
date it was reissued, the Funds will deem that to be an order to reinvest
the proceeds of the uncashed check into your account with that Fund at
its then-current net asset value. If you no longer have a current account
open for that Fund, the uncashed check will be deemed an order to
purchase shares of the Frank Russell Investment Company Money Market
Fund.

22
<PAGE>

VALUATION OF THE FUND OF FUNDS SHARES

The net asset value per share of each Class of Shares is calculated
separately for each Fund of Funds on each business day on which Shares are
offered or orders to redeem are tendered. A business day is one on which the New
York Stock Exchange is open for trading. Currently, the New York Stock Exchange
is open for trading every weekday, except New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.

Net asset value per share is computed for each class of Shares of a Fund
by dividing the current value of the Fund's assets attributable to each class of
Shares, less liabilities attributable to that class of Shares, by the number of
each individual class of Shares of the Fund outstanding, and rounding to the
nearest cent.

PRICING OF SECURITIES

The Class S Shares of the Underlying Funds held by each Fund of Funds are
valued at their net asset value. The Emerging Markets, International Securities,
Diversified Bond and Multistrategy Bond Funds' portfolio securities actively
trade on foreign exchanges which may trade on Saturdays and on days that the
Underlying Funds do not offer or redeem shares. The trading of portfolio
securities on foreign exchanges on such days may significantly increase or
decrease the net asset value of the Class S Shares of the Underlying Fund when a
shareholder (such as a Fund of Funds) is not able to purchase or redeem
Underlying Fund Shares. Further, because foreign securities markets may close
prior to the time the Underlying Funds determine net asset value, events
affecting the value of the portfolio securities occurring between the time
prices are determined and the time the Underlying Funds calculate net asset
value may not be reflected in the calculation of net asset value unless FRIMCo
determines that a particular event would materially affect the net asset value.

PORTFOLIO TURNOVER RATES OF THE FUND OF FUNDS

The portfolio turnover rate for each Fund of Funds is calculated by
dividing the lesser of purchases or sales of Underlying Fund Shares for the
particular year, by the monthly average value of the Underlying Fund Shares
owned by the Fund of Funds during the year. The Fund of Funds will purchase or
sell Underlying Fund Shares to: (i) accommodate purchases and sales of each Fund
of Funds' Shares; (ii) change the percentages of each Fund of Funds' assets
invested in each of the Underlying Funds in response to market conditions; and
(iii) maintain or modify the allocation of each Fund of Funds' assets among the
Underlying Funds generally within the percentage limits described in the
Prospectus.

23
<PAGE>

The portfolio turnover rates for the last two years for each Fund of Funds
were:

YEARS ENDED
-----------
Fund of Funds 10/31/00 12/31/99
------------- -------- --------
Equity Aggressive Strategy Fund 76.20%

Aggressive Strategy Fund 71.44

Balanced Strategy Fund 64.63

Moderate Strategy Fund 120.04

Conservative Strategy Fund 125.01

Tax-Managed Global Equity Fund

PORTFOLIO TRANSACTION POLICIES OF THE UNDERLYING FUNDS

Decisions to buy and sell securities for the Underlying Funds are made by
the money managers for the assets assigned to them, and by FRIMCo or the money
manager for the Underlying Funds' Liquidity Portfolios. The Underlying Funds,
other than the Tax-Managed Large Cap, Tax-Managed Small Cap and Tax Exempt Bond
Funds, do not give significant weight to attempting to realize long-term, rather
than short-term, capital gains while making portfolio investment decisions. The
portfolio turnover rates for certain multi-manager Underlying Funds are likely
to be somewhat higher than the rates for comparable mutual funds with a single
money manager. The money managers make decisions to buy or sell securities
independently from other money managers. Thus, one money manager could be
selling a security when another money manager for the same Underlying Fund (or
for another series of FRIC) is purchasing the same security. In addition, when a
money manager's services are terminated and another retained, the new manager
may significantly restructure the portfolio. These practices may increase the
Underlying Funds' portfolio turnover rates, realization of gains or losses,
brokerage commissions and other transaction based costs. The Underlying Funds'
changes of money managers may also result in a significant number of portfolio
sales and purchases as the new money manager restructures the former money
manager's portfolio. In view of the Tax-Managed Large Cap and Tax-Managed Small
Cap Funds' investment objective and policies, such Funds' ability to change
money managers may be constrained. The annual portfolio turnover rates for each
of the Underlying Funds for the periods ended October 31, 2000 and December 31,
1999, respectively, were as follows: Diversified Equity Fund, ____% and 110%;
Special Growth Fund, _____% and 112%; Quantitative Equity Fund,____% and 90%;
International Securities Fund, ______% and 121%; Diversified Bond Fund, ______%
and 152%; Short Term Bond Fund, _____% and 177%; Multistrategy Bond Fund, _____%
and 134%; Real Estate Securities Fund, ____% and 43%; and Emerging Markets Fund,
_____% and 95%; Tax-Managed Large Cap Fund, _____% and 48%; Tax-Managed Small
Cap _____% and 3% (did not commence operations until December 1, 1999); and Tax
Exempt Bond Fund, ____% and] 119%.

BROKERAGE ALLOCATIONS

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

Subject to the arrangements and provisions described below, the selection
of a broker or dealer to execute portfolio transactions is usually made by the
money manager of the Underlying Fund. FRIC's advisory agreements with FRIMCo and
the money managers provide, in substance and subject to specific directions from
officers of

24
<PAGE>

FRIC or FRIMCo, that in executing portfolio transactions and selecting brokers
or dealers, the principal objective is to seek the best overall terms available
to the Underlying Fund. Securities will ordinarily be purchased in the primary
markets, and the money manager shall consider all factors it deems relevant in
assessing the best overall terms available for any transaction, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any (for the specific transaction and on a
continuing basis).

In addition, the advisory agreements authorize FRIMCo and the money
managers, respectively, in selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, to consider the
"brokerage and research services" (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided to the Underlying Fund, FRIMCo
and/or to the money manager (or their affiliates). FRIMCo and the money managers
are authorized to cause the Underlying Funds to pay a commission to a broker or
dealer who provides such brokerage and research services for executing a
portfolio transaction which is in excess of the amount of commissions another
broker or dealer would have charged for effecting that transaction. FRIMCo or
the money manager, as appropriate, must determine in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided -- viewed in terms of that particular transaction or in terms
of all the accounts over which FRIMCo or the money manager exercises investment
discretion. Any commission, fee or other remuneration paid to an affiliated
broker-dealer is paid in compliance with FRIC's procedures adopted in accordance
with Rule 17e-1 of the 1940 Act.

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

The Underlying Funds may effect portfolio transactions with or through
Frank Russell Securities, Inc. ("FRS"), an affiliate of FRIMCo, only when the
applicable money manager determines that the Underlying Fund will receive
competitive execution, price and commissions. Where brokerage transactions are
effected by money managers on behalf of the Underlying Funds through FRS at the
request of the FRIMCo, research services obtained from third party service
providers at market rates are provided to FRIMCo by FRS. Such research services
include performance measurement statistics, fund analytics systems and market
monitoring systems. This arrangement may be used by any Underlying Fund other
than those Underlying Funds which invest principally in fixed income securities.
All Underlying Funds may also effect portfolio transactions on an agency basis
through, and pay brokerage commissions to, the brokerage affiliates of money
managers.

BROKERAGE COMMISSIONS

The Board reviews, at least annually, the commissions paid by the
Underlying Funds to evaluate whether the commissions paid over representative
periods of time were reasonable in relation to commissions being charged by
other brokers and the benefits to the Underlying Funds. Frank Russell Company
maintains an extensive database showing commissions paid by institutional
investors, which is the primary basis for making this evaluation. Certain
services received by FRIMCo or money managers attributable to a particular
transaction may benefit one or more other accounts for which investment
discretion is exercised by the money manager, or a Fund other than that for
which the particular portfolio transaction was effected. The fees of the money
managers are not reduced by reason of their receipt of such brokerage and
research services.

25
<PAGE>

For information regarding brokerage commissions paid by the Underlying
Funds and the Underlying Funds' holdings of securities issued by the top ten
broker dealers used by those Funds, refer to the Statement of Additional
Information for the Underlying Funds.

YIELD AND TOTAL RETURN QUOTATIONS

The Fund of Funds compute their average annual total return by using a
standardized method of calculation required by the SEC, and report average
annual total return for each class of Shares which they offer.

Average annual total return is computed by finding the average annual
compounded rates of return on a hypothetical initial investment of $1,000 over
the one, five and ten year periods (or life of the Fund of Funds, as
appropriate), that would equate the initial amount invested to the ending
redeemable value, according to the following formula:

P(1+T)/n/= ERV

The calculation assumes that all dividends and distributions of each Fund
of Funds are reinvested at the price stated in the Prospectus on the dividend
dates during the period, and includes all recurring fees that are charged to all
shareholder accounts. The average annual total returns for one or more classes
of Shares will be reported in the applicable Prospectus.

Yields are computed by using standardized methods of calculation required
by the SEC. Similar to average annual total return calculations, a Fund of Funds
calculates yields for each class of Shares which it offers. Yields for the Fund
of Funds, which do not invest primarily in money market instruments, are
calculated by dividing the net investment income per share earned during a 30-
day (or one month) period by the maximum offering price per share on the last
day of the period, according to the following formula:

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

The yields for the Fund of Funds investing primarily in fixed-income
instruments are reported in the Prospectus. Yield may fluctuate daily and does
not provide a basis for determining future yields.

Tax-equivalent yield for the Tax Exempt Bond Fund is calculated by
dividing that portion of the yield of the appropriate Fund as computed above
which is tax exempt by one minus a stated income tax rate (36.9%). The tax-
equivalent yield for the Tax Exempt Bond Fund is reported in the Funds'
respective Prospectus.

Each Fund of Funds may, from time to time, advertise non-standard
performances, including average annual total return for periods other than 1, 5
or 10 years or since inception.

26
<PAGE>

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

INVESTMENT RESTRICTIONS, POLICIES AND
PRACTICES OF THE FUND OF FUNDS

Each Fund of Funds' investment objective is "fundamental" which means
each investment objective may not be changed without the approval of a majority
of each Fund's shareholders. Certain investment policies may also be
fundamental. Other policies may be changed by a Fund without shareholder
approval. The Fund of Funds' investment objectives are set forth in the
respective Prospectus.

INVESTMENT RESTRICTIONS. Each Fund of Funds is subject to the following
fundamental investment restrictions. Unless otherwise noted, these restrictions
apply on a Fund-by-Fund basis at the time an investment is being made. No Fund
of Funds will:

2. Invest 25% or more of the value of the Fund of Funds' total assets
in the securities of companies primarily engaged in any one industry (other than
the US government, its agencies and instrumentalities, and Shares of the
Underlying Funds).

3. Acquire more than 5% of the outstanding voting securities, or 10% of
all of the securities, of any one issuer, except with respect to Shares of FRIC
Funds.

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

5. Purchase or sell real estate; provided that each Fund of Funds may
invest in the Real Estate Securities Fund, which may own securities secured by
real estate or interests therein or issued by companies which invest in real
estate or interests therein.

6. Purchase or sell commodities or commodities contracts.

7. Borrow money, except that the Fund may borrow as a temporary measure
for extraordinary or emergency purposes, and not in excess of five percent of
its net assets; provided, that the Fund may borrow to facilitate redemptions
(not for leveraging or investment), provided that borrowings do not exceed an
amount equal to 33 1/3% of the current value of the Fund's assets taken at
market value, less liabilities other than borrowings. If at any time the Fund's
borrowings exceed this limitation due to a decline in net assets, such
borrowings will be reduced to the extent necessary to comply with this
limitation within three days. Reverse repurchase agreements will not be
considered borrowings for purposes of the foregoing restrictions, provided that
the Fund will not purchase investments when borrowed funds (including reverse
repurchase agreements) exceed 5% of its total assets.

8. Purchase securities on margin or effect short sales (except that a
Fund of Funds may obtain such short-term credits as may be necessary for the
clearance of purchases or sales of securities).

9. Engage in the business of underwriting securities issued by others
or purchase securities subject to legal or contractual restrictions on
disposition.

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

27
<PAGE>

11. Make loans of money or securities to any person or firm; provided,
however, that the making of a loan shall not be construed to include (i) the
entry into "repurchase agreements;" or (ii) the lending of portfolio securities
in the manner generally described in the Fund of Funds' Prospectus in the
section titled "Investment Policies, Restrictions and Risks of the Fund of Funds
and Tax-Managed Funds -- Lending Portfolio Securities."

12. Purchase or sell options.

13. Purchase the securities of other investment companies except to the
extent permitted by the 1940 Act and any applicable rules and regulations and
except as permitted by any applicable exemptive orders from the 1940 Act (and as
described below).

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

15. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit any Fund from making any otherwise
permissible borrowings, mortgages or pledges, entering into permissible reverse
repurchase agreements, or issuing shares of beneficial interest in multiple
classes.

Because of their investment objectives and policies, the Fund of Funds
will concentrate more than 25% of their assets in the mutual fund industry. In
accordance with the Fund of Funds' investment policies set forth in the
Prospectus, each of the Fund of Funds may invest more than 25% of its assets in
the Underlying Funds. However, each of the Underlying Funds in which each Fund
of Funds will invest (other than the Real Estate Securities Fund) will not
concentrate more than 25% of its total assets in any one industry. The Real
Estate Securities Fund may invest 25% or more of its total assets in the
securities of companies directly or indirectly engaged in the real estate
industry.

INVESTMENT POLICIES AND PRACTICES OF THE FUND OF FUNDS

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

MONEY MARKET INSTRUMENTS. Each Fund of Funds may invest in securities
maturing within 397 days or less at the time from the trade date or such other
date upon which a Fund of Funds' interest in a security is subject to market
action. Each Fund of Funds will follow procedures reasonably designed to assure
that the prices so determined approximate the current market value of the Fund's
securities. The procedures also address such matters as diversification and
credit quality of the securities the Fund of Funds purchase, and were designed
to ensure compliance by the Funds with the requirements of Rule 2a-7 of the 1940
Act.

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

The guidelines adopted by the Board for the determination of liquidity of
securities take into account trading activity for the securities and the
availability of reliable pricing information, among other factors. If there is a
lack of

28
<PAGE>

trading interest in a particular Rule 144A security, a Fund's holding of that
security may be illiquid. There may be undesirable delays in selling illiquid
securities at prices representing their fair value.

29
<PAGE>

INVESTMENT POLICIES OF THE UNDERLYING FUNDS

The investment objective and principal investment strategy for each of the
Underlying Funds is provided in their Prospectuses. The following table
illustrates the investments that the Underlying Funds primarily invest in or are
permitted to invest in.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Diversified Special Quantitative International Diversified Short Term
Equity Growth Equity Securities Bond Bond
Type of Practice Fund Fund Fund Fund Fund Fund
---------------- ----------- ------- ------------ ------------- ----------- ----------
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common stocks................................ |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Common stock equivalents
(warrants)................................. |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Common stock equivalents
(options).................................. |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Common stock equivalents
(convertible debt
securities)............................. |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Common stock equivalents
(depository receipts)...................... |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Preferred stocks............................. |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Equity derivative securities ................ |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Debt securities (below
investment grade or junk
bonds)..................................... |X|
------------------------------------------------------------------------------------------------------------------------------------
US government securities..................... |X| |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Municipal obligations........................ |X|
------------------------------------------------------------------------------------------------------------------------------------
Investment company
securities................................. |X| |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Foreign securities........................... |X| |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Multistrategy Real Estate Emerging Tax-Managed Tax-Managed
Bond Securities Markets Large Cap Small Cap Tax Exempt
Type of Practice Fund Fund Fund Fund Fund Fund
---------------- ------------- ---------- -------- ----------- ----------- ----------
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common stocks................................. |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Common stock equivalents
(warrants).................................. |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Common stock equivalents
(options)................................... |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Common stock equivalents
(convertible debt
securities)............................. |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Common stock equivalents
(depository receipts).......................
------------------------------------------------------------------------------------------------------------------------------------
Preferred stocks.............................. |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Equity derivative securities.................. |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Debt securities (below
investment grade or junk
bonds)...................................... |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
US government securities...................... |X| |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Municipal obligations......................... |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Investment company
securities.................................. |X| |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Foreign securities............................ |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

30
<PAGE>

Other Investment Practices of the Underlying Funds. The Underlying Funds use
--------------------------------------------------
investment techniques commonly used by other mutual funds. The table below
summarizes the principal investment practices of the Underlying Funds, each of
which may involve certain special risks. The Glossary located at the back of the
SAI describes each of the investment techniques identified below.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Diversified Special Quantitative International Diversified Short Term
Equity Growth Equity Securities Bond Bond
Type of Practice Fund Fund Fund Fund Fund Fund
---------------- ----------- ------- ------------ ------------- ----------- ----------
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash reserves............................ |X| |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements(1)................. |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
When-issued and forward
commitment securities.................. |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase
agreements............................. |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Lending portfolio securities not to
exceed 33 1/3% of total Fund assets.... |X| |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities (limited to
15% of a Fund's net assets)............ |X| |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Forward currency contracts(2)............ |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Write (sell) call and put options on
securities, securities indexes and
foreign currencies(3)................... |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities,
securities indexes, and
currencies(3) ......................... |X| |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Interest rate futures
contracts, stock index futures
contracts, foreign currency contracts
and options on futures(4) ............. |X| |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Liquidity portfolios..................... |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

------------------------------------------------------------------------------------------------------------------------------------
Forward currency
contracts(2).................... |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Write (sell) call and put
options on securities,
securities indexes and
foreign currencies(3)........... |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities,
securities indexes, and
currencies(3)................... |X| |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Interest rate futures
contracts, stock index
futures contracts, foreign
currency contracts and
options on futures(4)........... |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Liquidity portfolios.............. |X| |X| |X| |X|
------------------------------------------------------------------------------------------------------------------------------------
Credit and Liquidity
Enhancements...................... |X|
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

31
<PAGE>

________________
(1) Under the 1940 Act, repurchase agreements are considered to be loans by a
Fund and must be fully collateralized by collateral assets. If the seller
defaults on its obligations to repurchase the underlying security, a Fund
may experience delay or difficulty in exercising its rights to realize upon
the security, may incur a loss if the value of the security declines and may
incur disposition costs in liquidating the security.

(2) Each of the International Securities, Diversified Bond, Multistrategy Bond,
Short Term Bond and Emerging Markets Funds may not invest more than one-
third of its assets in these contracts.

(3) A Fund will only engage in options where the options are traded on a
national securities exchange or in an over-the-counter market. A Fund may
invest up to 5% of its net assets, represented by the premium paid, in call
and put options. A Fund may write a call or put option to the extent that
the aggregate value of all securities or other assets used to cover all such
outstanding options does not exceed 25% of the value of its net assets.

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

Cash Reserves. Each Fund of Funds and each Underlying Fund (the "Funds")
-------------
and its money managers may elect to invest a Fund's cash reserves in one or more
of FRIC's money market funds. Those money market funds seek to maximize current
income to the extent consistent with the preservation of capital and liquidity,
and the maintenance of a stable $1.00 per share net asset value by investing
solely in short-term money market instruments. The Fund of Funds and the
Underlying Funds will use this procedure only so long as doing so does not
adversely affect the portfolio management and operations of the money market
funds and FRIC's other Funds. Those money market funds and the Fund of Funds and
Underlying Funds investing in them treat such investments as the purchase and
redemption of money market fund shares. Any Fund of Funds or Underlying Fund
investing in a money market fund pursuant to this procedure participates equally
on a pro rata basis in all income, capital gains and net assets of the money
market fund, and will have all rights and obligations of a shareholder as
provided in FRIC's Master Trust Agreement, including voting rights. However,
shares of a money market fund issued to the Fund of Funds or Underlying Funds
will be voted by the Trustees of FRIC in the same proportion as the shares of
the money market fund that are held by shareholders who are not Fund of Funds or
Underlying Funds. Fund of Funds and Underlying Funds investing in a money market
fund effectively do not pay advisory or administrative management fees to a
money market fund and thus do no pay duplicative advisory or administrative fees
as FRIMCo waives a portion of its advisory or administrative fees due from those
Funds in an amount that offsets the advisory or administrative fees it receives
from the applicable money market fund in respect of those investments.

Liquidity Portfolio. An Underlying Fund at times has to sell portfolio
-------------------
securities in order to meet redemption requests. The selling of securities may
effect an Underlying Fund's performance since the money manager sells the
securities for other than investment reasons. An Underlying Fund can avoid
selling its portfolio securities by holding adequate levels of cash to meet
anticipated redemption requests. The holding of significant amounts of cash is
contrary, however, to the investment objectives of the Diversified Equity,
Special Growth, Quantitative Equity, International Securities, Tax-Managed Large
Cap and Tax-Managed Small Cap Funds. The more cash these Underlying Funds hold,
the more difficult it is for their returns to meet or surpass their respective
benchmarks. FRIMCo will exercise investment discretion or select a money manager
to exercise investment discretion for approximately 5-15% of the Funds' assets
assigned to a "Liquidity Portfolio."

A Liquidity Portfolio addresses this potential detriment by having FRIMCo,
or a money manager selected for this purpose, create a temporary equity exposure
for cash reserves by purchasing index options and index futures contracts in
amounts that expose the Liquidity Portfolio to the performance of the relevant
index until those cash reserves are invested in securities or used for
Underlying Fund transactions. This will enable those four Underlying Funds to
hold cash while receiving a return on the cash which is similar to holding
equity securities.

Russell 1000 Index. The Russell 1000(R) Index consists of the 1,000 largest
------------------
US companies by capitalization. The Index does not include cross corporate
holdings in a company's capitalization. For example, when IBM owned
approximately 20% of Intel, only 80% of the total shares outstanding of Intel
were used to determine Intel's capitalization. Also not included in the Index
are closed-end investment companies, companies that do not file a Form 10-K
report with the SEC, foreign securities and American Depository Receipts.

32
<PAGE>

CERTAIN INVESTMENTS OF THE UNDERLYING FUNDS

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

Reverse Repurchase Agreements. An Underlying Fund may enter into reverse
-----------------------------
repurchase agreements to meet redemption requests where the liquidation of
portfolio securities is deemed by the Underlying Fund's money manager to be
inconvenient or disadvantageous. A reverse repurchase agreement is a transaction
whereby an Underlying Fund transfers possession of a portfolio security to a
bank or broker-dealer in return for a percentage of the portfolio securities'
market value. The Underlying Fund retains record ownership of the security
involved including the right to receive interest and principal payments. At an
agreed upon future date, the Underlying Fund repurchases the security by paying
an agreed upon purchase price plus interest. Liquid assets of an Underlying Fund
equal in value to the repurchase price, including any accrued interest, will be
segregated on the Underlying Fund's records while a reverse repurchase agreement
is in effect.

High Risk Bonds. The Underlying Funds, other than the Emerging Markets,
---------------
Short Term Bond, and Multistrategy Bond Funds, do not invest their assets in
securities rated less than BBB by S&P or Baa by Moody's, or in unrated
securities judged by the money managers to be of a lesser credit quality than
those designations. Securities rated BBB by S&P or Baa by Moody's are the lowest
ratings which are considered "investment grade" securities, although Moody's
considers securities rated Baa, and S&P considers bonds rated BBB, to have some
speculative characteristics. The Underlying Funds, other than Emerging Markets,
Short Term Bond, and Multistrategy Bond Funds, will dispose of, in a prudent and
orderly fashion, securities whose ratings drop below these minimum ratings. The
market value of debt securities generally varies inversely in relation to
interest rates.

The Emerging Markets, Short Term Bond, and Multistrategy Bond Funds will
invest in "investment grade" securities and may invest up to 5% of its total
assets (in the case of the Emerging Markets Fund), 10% of its total assets (in
the case of the Short Term Bond Fund) and 25% of its total assets (in the case
of the Multistrategy Bond Fund) in debt securities rated less than BBB by S&P or
Baa by Moody's, or in unrated securities judged by the money managers of the
Funds to be of comparable quality. Lower rated debt securities generally offer a
higher yield than that available from higher grade issues. However, lower rated
debt securities involve higher risks, because they are especially subject to
adverse changes in general economic conditions and in the industries in which
the issuers are engaged, to changes in the financial condition of the issuers
and to price fluctuation in response to changes in interest rates. During
periods of economic downturn or rising interest rates, highly leveraged issuers
may experience financial stress which could adversely affect their ability to
make payments of principal and interest and increase the possibility of default.
In addition, the market for lower rated debt securities has expanded rapidly in
recent years, and its growth has paralleled a long economic expansion. The
market for lower rated debt securities is generally thinner and less active than
that for higher quality securities, which would limit the Underlying Funds'
ability to sell such securities at fair value in response to changes in the
economy or the financial markets. While such debt may have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions. The money managers of the Multistrategy
Bond, Short Term Bond and Emerging Markets Funds will seek to reduce the risks
associated with investing in such securities by limiting the Funds' holdings in
such securities and by the depth of their own credit analysis.

33
<PAGE>

Risk Factors. The growth of the market for lower rated debt securities has
------------
paralleled a long period of economic expansion. Lower rated debt securities may
be more susceptible to real or perceived adverse economic and competitive
industry conditions than investment grade securities. The prices of low rated
debt securities have been found to be less sensitive to interest rate changes
than investment grade securities, but more sensitive to economic downturns,
individual corporate developments, and price fluctuations in response to
changing interest rates. A projection of an economic downturn or of a period of
rising interest rates, for example, could cause a sharper decline in the prices
of low rated debt securities because the advent of a recession could lessen the
ability of a highly leveraged company to make principal and interest payments on
its debt securities. If the issuer of low rated debt securities defaults, a Fund
may incur additional expenses to seek financial recovery.

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

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

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

Illiquid Securities. The Underlying Funds will not purchase or otherwise
-------------------
acquire any security if, as a result, more than 15% of a Fund's net assets
(taken at current value) would be invested in securities, including repurchase
agreements of more than seven days' duration, that are illiquid by virtue of the
absence of a readily available market or because of legal or contractual
restrictions on resale. In addition, the Underlying Funds will not invest more
than 10% of their respective net assets (taken at current value) in securities
of issuers which may not be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"). These policies do not
include (1) commercial paper issued under Section 4(2) of the 1933 Act, or (2)
restricted securities eligible for resale to qualified institutional purchasers
pursuant to Rule 144A under the 1933 Act that are determined to be liquid by the
money managers in accordance with Board approved guidelines. These guidelines
adopted by the Board for the determination of liquidity of securities take into
account trading activity for such securities and the availability of reliable
pricing information, among other factors. If there is a lack of trading interest
in a particular Rule 144A security, an Underlying Fund's holding of that
security may be illiquid. There may be undesirable delays in selling illiquid
securities at prices representing their fair value.

34
<PAGE>

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

Forward Commitments. An Underlying Fund may contract to purchase
-------------------
securities for a fixed price at a future date beyond customary settlement time
(a "forward commitment" or "when-issued" transaction), so long as such
transactions are consistent with an Underlying Fund's ability to manage its
investment portfolio and meet redemption requests. An Underlying Fund may
dispose of a forward commitment or when-issued transaction prior to settlement
if it is appropriate to do so and realize short-term profits or losses upon such
sale. When effecting such transactions, liquid assets of the Underlying Fund in
a dollar amount sufficient to make payment for the portfolio securities to be
purchased will be segregated on the Fund's records at the trade date and
maintained until the transaction is settled. Forward commitments and when-issued
transactions involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date or the other party to the transaction
fails to complete the transaction.

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

Lending Portfolio Securities. Cash collateral received by an Underlying
----------------------------
Fund when it lends its portfolio securities is invested in high-quality
short-term debt instruments, short-term bank collective investment and money
market mutual funds (including funds advised by the Custodian, for which it may
receive an asset- based fee), and other investments meeting certain quality and
maturity established by the Underlying Funds. Income generated from the
investment of the cash collateral is first used to pay the rebate interest cost
to the borrower of the securities then to pay for lending transaction costs, and
then the remainder is divided between the Underlying Fund and the lending agent.

Each Underlying Fund will retain most rights of beneficial ownership,
including dividends, interest or other distributions on the loaned securities.
Voting rights may pass with the lending. An Underlying Fund will call loans to
vote proxies if a material issue affecting the investment is to be voted upon.

An Underlying Fund may incur costs or possible losses in excess of the
interest and fees received in connection with securities lending transactions.
Some securities purchased with cash collateral are subject to market
fluctuations while a loan is outstanding. To the extent that the value of the
cash collateral as invested is insufficient to return the full amount of the
collateral plus rebate interest to the borrower upon termination of the loan, an
Underlying Fund must immediately pay the amount of the shortfall to the
borrower.

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

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

35
<PAGE>

from a dealer. The Underlying Funds intend to treat options in respect of
specific securities that are not traded on a national securities exchange and
the securities underlying covered call options as not readily marketable and
therefore subject to the limitations on the Underlying Funds' ability to hold
illiquid securities. The Underlying Funds intend to purchase and write call and
put options on specific securities.

An option on a security (or securities index) is a contract that gives
the purchaser of the option, in return for a premium, the right (but not the
obligation) to buy from (in the case of a call) or sell to (in the case of a
put) the writer of the option the security underlying the option at a specified
exercise price at any time during the option period. The writer of an option on
a security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier
(established by the exchange upon which the stock index is traded) for the index
option. (An index is designed to reflect specified facets of a particular
financial or securities market, a specified group of financial instruments or
securities, or certain economic indicators.) Options on securities indexes are
similar to options on specific securities except that settlement is in cash and
gains and losses depend on price movements in the stock market generally (or in
a particular industry or segment of the market), rather than price movements in
the specific security.

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

An Underlying Fund will write call options and put options only if they
are "covered." In the case of a call option on a security, the option is
"covered" if the Underlying Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, liquid assets
in such amount are placed in a segregated account by the Custodian) upon
conversion or exchange of other securities held by the Underlying Fund. For a
call option on an index, the option is covered if the Underlying Fund maintains
with the Custodian liquid assets equal to the contract value. A call option is
also covered if the Underlying Fund holds a call on the same security or index
as the call written where the exercise price of the call held is (1) equal to or
less than the exercise price of the call written, or (2) greater than the
exercise price of the call written, provided the difference is maintained by the
Fund in liquid assets in a segregated account with the Custodian. A put option
on a security or an index is "covered" if the Underlying Fund maintains liquid
assets equal to the exercise price in a segregated account with the Custodian. A
put option is also covered if the Underlying Fund holds a put on the same
security or index as the put written where the exercise price of the put held is
(1) equal to or greater than the exercise price of the put written, or (2) less
than the exercise price of the put written, provided the difference is
maintained by the Underlying Fund in liquid assets in a segregated account with
the Custodian.

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

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

36
<PAGE>

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

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

Risks Associated With Options On Securities And Indexes. There are
-------------------------------------------------------
several risks associated with transactions in options on securities and on
indexes. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.

There can be no assurance that a liquid market will exist when an
Underlying Fund seeks to close out an option position. If an Underlying Fund
were unable to close out an option that it had purchased on a security, it would
have to exercise the option in order to realize any profit or the option may
expire worthless. If an Underlying Fund were unable to close out a covered call
option that it had written on a security, it would not be able to sell the
underlying security unless the option expired without exercise.

As the writer of a covered call option, an Underlying Fund forgoes,
during the option's life, the opportunity to profit from increases in the market
value of the underlying security above the exercise price, but, as long as its
obligation as a writer continues, has retained a risk of loss should the price
of the underlying security decline. Where an Underlying Fund writes a put
option, it is exposed during the term of the option to a decline in the price of
the underlying security.

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

Options On Foreign Currency. An Underlying Fund may buy or sell put and
---------------------------
call options on foreign currencies either on exchanges or in the over-the-
counter market for the purpose of hedging against changes in future currency
exchange rates. Call options convey the right to buy the underlying currency at
a price which is expected to be lower than the spot price of the currency at the
time the option expires. Put options convey the right to sell the underlying
currency at a price which is anticipated to be higher than the spot price of the
currency at the time the option expires. Currency options traded on US or other
exchanges may be subject to position limits which may limit the ability of an
Underlying Fund to reduce foreign currency risk using such options. Over-the-
counter options differ from traded options in that they are two-party contracts
with price and other terms negotiated between

37
<PAGE>

buyer and seller, and generally do not have as much market liquidity as
exchange-traded options. None of the Underlying Funds, other than the
Multistrategy Bond and Emerging Markets Funds, currently intends to write or
purchase such options.

Futures Contracts And Options On Futures Contracts. An Underlying Fund
--------------------------------------------------
may invest in interest rate futures contracts, foreign currency futures
contracts, or stock index futures contracts, and options thereon that are traded
on a US or foreign exchange or board of trade, as specified in their
Prospectuses. An interest rate, foreign currency or index futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of financial instruments (such as GNMA certificates or
Treasury bonds) or foreign currency at a specified price at a future date. A
futures contract on an index (such as the S&P 500) is an agreement between two
parties (buyer and seller) to take or make delivery of an amount of cash equal
to the difference between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written. In the case of futures contracts traded on US exchanges, the
exchange itself or an affiliated clearing corporation assumes the opposite side
of each transaction (i.e., as buyer or seller). A futures contract may be
satisfied or closed out by delivery or purchase, as the case may be, of the
financial instrument or by payment of the change in the cash value of the index.
Frequently, using futures to effect a particular strategy instead of using the
underlying or related security or index will result in lower transaction costs
being incurred. Although the value of an index may be a function of the value of
certain specified securities, no physical delivery of these securities is made.
A public market exists in futures contracts covering several indexes as well as
a number of financial instruments and foreign currencies. For example: the S&P
500; the Russell 2000(R); Nikkei 225; CAC-40; FT-SE 100; the NYSE composite; US
Treasury bonds; US Treasury notes; GNMA Certificates; three-month US Treasury
bills; Eurodollar certificates of deposit; the Australian Dollar; the Canadian
Dollar; the British Pound; the German Mark; the Japanese Yen; the French Franc;
the Swiss Franc; the Mexican Peso; and certain multinational currencies, such as
the ECU. It is expected that other futures contracts will be developed and
traded in the future.

An Underlying Fund may also purchase and write call and put options on
futures contracts. Options on futures contracts possess many of the same
characteristics as options on securities and indexes (discussed above). A
futures option gives the holder the right, in return for the premium paid, to
assume a long position (in the case of a call) or short position (in the case of
a put) in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. An option on
a futures contract may be closed out before exercise or expiration by an
offsetting purchase or sale on option on a futures contract of the same series.

There can be no assurance that a liquid market will exist at a time when
an Underlying Fund seeks to close out a futures contract or a futures option
position. Most futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single day; once the
daily limit has been reached on a particular contract, no trades may be made
that day at a price beyond that limit. In addition, certain of these instruments
are relatively new and without a significant trading history. As a result, there
is no assurance that an active secondary market will develop or continue to
exist. Lack of a liquid market for any reason may prevent an Underlying Fund
from liquidating an unfavorable position and the Fund would remain obligated to
meet margin requirements until the position is closed.

An Underlying Fund will only enter into futures contracts or options on
futures contracts which are standardized and traded on a US or foreign exchange
or board of trade, or similar entity, or quoted on an automated quotation
system. An Underlying Fund will enter into a futures contract only if the
contract is "covered" or if the Fund at all times maintains with its custodian
liquid assets equal to or greater than the fluctuating value of the contract
(less any margin or deposit). An Underlying Fund will write a call or put option
on a futures contract only if the option is "covered." For a discussion of how
to cover a written call or put option, see "Options on Securities and Indexes"
above.

An Underlying Fund may enter into contracts and options on futures
contracts for "bona fide hedging" purposes, as defined under the rules of the
Commodity Futures Trading Commission (the "CFTC"). An Underlying Fund may also
enter into futures contracts and options on futures contracts for non hedging
purposes provided the aggregate initial margin and premiums required to
establish these positions will not exceed 5% of the Fund's net assets.

38
<PAGE>

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

When a purchase or sale of a futures contract is made by an Underlying
Fund, the Fund is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or US government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Underlying Fund
upon termination of the contract, assuming all contractual obligations have been
satisfied. Each Underlying Fund expects to earn interest income on its initial
margin deposits.

A futures contract held by an Underlying Fund is valued daily at the
official settlement price of the exchange on which it is traded. Each day the
Underlying Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as "marking
to market." Variation margin does not represent a borrowing or loan by an
Underlying Fund, but is instead a settlement between the Fund and the broker of
the amount one would owe the other if the futures contract expired. In computing
daily net asset value, each Underlying Fund will mark-to- market its open
futures positions.

An Underlying Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by it. Such margin
deposits will vary depending on the nature of the underlying futures contract
(and the related initial margin requirements), the current market value of the
option, and other futures positions held by the Underlying Fund.

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

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

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

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

When selling a call option on a futures contract, an Underlying Fund will
maintain with the Custodian (and mark-to-market on a daily basis) liquid assets
that, when added to the amounts deposited with a futures commission

39
<PAGE>

merchant as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Underlying Fund may "cover" its
position by entering into a long position in the same futures contract at a
price no higher than the strike price of the call option, by owning the
instruments underlying the futures contract, or by holding a separate call
option permitting the Fund to purchase the same futures contract at a price not
higher than the strike price of the call option sold by the Fund.

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

In order to comply with applicable regulations of the CFTC pursuant to
which the Underlying Funds avoid being deemed to be a "commodity pools," the
Funds are limited in entering into futures contracts and options on futures
contracts to positions which constitute "bona fide hedging" positions within the
meaning and intent of applicable CFTC rules, and with respect to positions for
non-hedging purposes, to positions for which the aggregate initial margins and
premiums will not exceed 5% of the net assets of a Fund as determined under the
CFTC Rules.

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

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

Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.

There can be no assurance that a liquid market will exist at a time when
an Underlying Fund seeks to close out a futures or a futures option position.
Most futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single day; once the daily limit
has been reached on a particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain of these instruments are
relatively new and without a significant trading history. As a result, there is
no assurance that an active secondary market will develop or continue to exist.
Lack of a liquid market for any reason may prevent an Underlying Fund from
liquidating an unfavorable position and the Underlying Fund would remain
obligated to meet margin requirements until the position is closed.

40
<PAGE>

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

Hedging Strategies. Stock index futures contracts may be used by the
------------------
Diversified Equity, Special Growth, Quantitative Equity, International
Securities, Emerging Markets, Tax-Managed Large Cap and Tax-Managed Small Cap
Funds as an "equitization" vehicle for cash reserves held by the Funds. For
example: equity index futures contracts are purchased to correspond with the
cash reserves in each of the Funds. As a result, an Underlying Fund will realize
gains or losses based on the performance of the equity market corresponding to
the relevant indexes for which futures contracts have been purchased. Thus, each
Underlying Fund's cash reserves will always be fully exposed to equity market
performance.

Financial futures contracts may be used by the International Securities,
Diversified Bond, Short Term Bond, Multistrategy Bond, Emerging Markets and Tax
Exempt Bond Funds as a hedge during or in anticipation of interest rate changes.
For example: if interest rates were anticipated to rise, financial futures
contracts would be sold (short hedge) which would have an effect similar to
selling bonds. Once interest rates increase, fixed-income securities held in the
Fund's portfolio would decline, but the futures contract value would decrease,
partly offsetting the loss in value of the fixed-income security by enabling the
Underlying Fund to repurchase the futures contract at a lower price to close out
the position.

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

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

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

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

41
<PAGE>

futures contract to hedge against a decline in the foreign exchange rates or the
value of its foreign securities. The Underlying Fund may write a call option on
a foreign currency futures contract as a partial hedge against the effects of
declining foreign exchange rates on the value of foreign securities.

Risk Factors. There are certain investment risks in using futures
------------
contracts and/or options as a hedging technique. One risk is the imperfect
correlation between price movement of the futures contracts or options and the
price movement of the portfolio securities, stock index or currency subject of
the hedge. The risk increases for the Tax Exempt Bond Fund since financial
futures contracts that may be engaged in involve taxable securities rather than
tax exempt securities. There is no assurance that the price of taxable
securities will move in a similar manner to the price of tax exempt securities.
Another risk is that a liquid secondary market may not exist for a futures
contract causing an Underlying Fund to be unable to close out the futures
contract thereby affecting a Fund's hedging strategy.

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

Forward Foreign Currency Exchange Transactions ("Forward Currency
-----------------------------------------------------------------
Contracts"). The International Securities, Diversified Bond, Short Term Bond,
-----------
Multistrategy Bond and Emerging Markets Funds may engage in forward currency
contracts to hedge against uncertainty in the level of future exchange rates.
The Funds will conduct their forward foreign currency exchange transactions
either on a spot (i.e. cash) basis at the rate prevailing in the currency
exchange market, or through entering into forward currency exchange contracts
("forward contract") to purchase or sell currency at a future date. A forward
contract involves an obligation to purchase or sell a specific currency. For
example, to exchange a certain amount of U.S. dollars for a certain amount of
Japanese Yen, at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. Forward currency contracts are (a) traded in an interbank market
conducted directly between currency traders (typically, commercial banks or
other financial institutions) and their customers, (b) generally have no deposit
requirements and (c) are consummated without payment of any commissions. A Fund
may, however, enter into forward currency contracts containing either or both
deposit requirements and commissions. In order to assure that a Fund's forward
currency contracts are not used to achieve investment leverage, the Fund will
segregate liquid assets in an amount at all times equal to or exceeding the
Fund's commitments with respect to these contracts. The Underlying Funds may
engage in a forward contract that involves transacting in a currency whose
changes in value are considered to be linked (a proxy) to a currency or
currencies in which some or all of the Underlying Funds' portfolio securities
are or are expected to be denominated. An Underlying Fund's dealings in forward
contracts will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of foreign
currency with respect to specific receivables or payables of the Funds generally
accruing in connection with the purchase or sale of their portfolio securities.
Position hedging is the sale of foreign currency with respect to portfolio
security positions denominated or quoted in the currency. An Underlying Fund may
not position hedge with respect to a particular currency to an extent greater
than the aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in or currency
convertible into that particular currency (or another currency or aggregate of
currencies which act as a proxy for that currency). The Underlying Funds may,
however, enter into a position hedging transaction with respect to a currency
other than that held in the Funds' portfolios, if such a transaction is deemed a
hedge. If an Underlying Fund enters into this type of hedging transaction,
liquid assets will be placed in a segregated account in an amount equal to the
value of the Fund's total assets committed to the consummation of the forward
contract. If the value of the securities placed in the segregated account
declines, additional liquid assets will be placed in the account so that the
value of the account will equal the amount of the Underlying Fund's commitment
with respect to the contract. Hedging transactions may be made from any foreign
currency into US dollars or into other appropriate currencies.

At or before the maturity of a forward foreign currency contract, an
Underlying Fund may either sell a portfolio security and make delivery of the
currency, or retain the security and offset its contractual obligation to

42
<PAGE>

deliver the currency by purchasing a second contract pursuant to which the
Underlying Fund will obtain, on the same maturity date, the same amount of the
currency which it is obligated to deliver. If the Underlying Fund retains the
portfolio security and engages in an offsetting transaction, the Fund, at the
time of execution of the offsetting transaction, will incur a gain or a loss to
the extent that movement has occurred in forward currency contract prices.
Should forward prices decline during the period between the Fund's entering into
a forward contract for the sale of a currency and the date that it enters into
an offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent that the price of the currency that it has agreed to sell
exceeds the price of the currency that it has agreed to purchase. Should forward
prices increase, the Underlying Fund will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency that it has agreed to sell. There can be no assurance that new forward
currency or offsets will be available to a Fund.

Upon maturity of a forward currency contract, the Underlying Funds may
(a) pay for and receive, or deliver and be paid for, the underlying currency,
(b) negotiate with the dealer to roll over the contract into a new forward
currency contract with a new future settlement date or (c) negotiate with the
dealer to terminate the forward contract by entering into an offset with the
currency trader whereby the parties agree to pay for and receive the difference
between the exchange rate fixed in the contract and the then current exchange
rate. An Underlying Fund also may be able to negotiate such an offset prior to
maturity of the original forward contract. There can be no assurance that new
forward contracts or offsets will always be available to the Underlying Funds.

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

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

The market for forward currency contracts may be limited with respect to
certain currencies. These factors will restrict an Underlying Fund's ability to
hedge against the risk of devaluation of currencies in which the Fund holds a
substantial quantity of securities and are unrelated to the qualitative rating
that may be assigned to any particular portfolio security. Where available, the
successful use of forward contracts draws upon a money manager's special skills
and experience with respect to such instruments and usually depends on the money
manager's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, a
Fund may not achieve the anticipated benefits of forward contracts or may
realize losses and thus be in a worse position than if such strategies had not
been used. Unlike many exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits with respect to forward
contracts, and adverse market movements could therefore continue to an unlimited
extent over a period of time. In addition, the correlation between movements in
the prices of such instruments and movements in the price of the securities and
currencies hedged or used for cover will not be perfect. In the case of proxy
hedging, there is also a risk that the perceived linkage between various
currencies may not be present or may not be present during the particular time
the Underlying Funds are engaged in that strategy.

An Underlying Fund's ability to dispose of its positions in forward
contracts will depend on the availability of active markets in such instruments.
It is impossible to predict the amount of trading interest that may exist in
various types of forward contracts. Forward foreign currency contracts may be
closed out only by the parties entering into an

43
<PAGE>

offsetting contract. Therefore, no assurance can be given that an Underlying
Fund will be able to utilize these instruments effectively for the purposes set
forth above.

Forward foreign currency transactions are subject to the additional risk
of governmental actions affecting trading in or the prices of foreign currencies
or securities. The value of such positions also could be adversely affected by
(1) other complex foreign, political, legal and economic factors, (2) lesser
availability than in the United States of data on which to make trading
decisions, (3) delays in an Underlying Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, (5) lesser trading
volume and (6) that a perceived linkage between various currencies may not
persist throughout the duration of the contracts

Depository Receipts. An Underlying Fund may hold securities of foreign
-------------------
issuers in the form of American Depository Receipts ("ADRs"), American
Depository Shares ("ADSs") and European Depository Receipts ("EDRs"), or other
securities convertible into securities of eligible European or Far Eastern
issuers. These securities may not necessarily be denominated in the same
currency as the securities for which they may be exchanged. ADRs and ADSs
typically are issued by an American bank or trust company and evidence ownership
of underlying securities issued by a foreign corporation. EDRs, which are
sometimes referred to as Continental Depository Receipts ("CDRs"), are issued in
Europe typically by foreign banks and trust companies and evidence ownership of
either foreign or domestic securities. Generally, ADRs and ADSs in registered
form are designed for use in United States securities markets and EDRs in bearer
form are designed for use in European securities markets. For purposes of an
Underlying Fund's investment policies, the Underlying Fund's investments in
ADRs, ADSs and EDRs will be deemed to be investments in the equity securities
representing securities of foreign issuers into which they may be converted.

ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respect
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions, and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders with respect to the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
Underlying Funds may invest in sponsored and unsponsored ADRs.

Bank Instruments. The Diversified Bond, Short Term Bond and Multistrategy
----------------
Bond Funds may invest in bank instruments, which include European certificates
of deposit ("ECDs"), European time deposits ("ETDs") and Yankee Certificates of
deposit ("Yankee CDs"). ECDs, ETDs, and Yankee CDs are subject to somewhat
different risks from the obligations of domestic banks. ECDs are dollar
denominated certificates of deposit issued by foreign branches of US and foreign
banks; ETDs are US dollar denominated time deposits in a foreign branch of a US
bank or a foreign bank; and Yankee CDs are certificates of deposit issued by a
US branch of a foreign bank denominated in US dollars and held in the United
States. Different risks may also exist for ECDs, ETDs, and Yankee CDs because
the banks issuing these instruments, or their domestic or foreign branches, are
not necessarily subject to the same regulatory requirements that apply to
domestic banks, such as reserve requirements, loan limitations, examinations,
accounting, auditing and recordkeeping, and the public availability of
information. These factors will be carefully considered by the money managers
when evaluating credit risk in the selection of investments.

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<PAGE>

Indexed Commercial Paper. Indexed commercial paper is US-dollar
------------------------
denominated commercial paper the yield of which is linked to certain foreign
exchange rate movements. The yield to the investor on indexed commercial paper
is established at maturity as a function of spot exchange rates between the US
dollar and a designated currency as of or about that time. The yield to the
investor will be within a range stipulated at the time of purchase of the
obligation, generally with a guaranteed minimum rate of return that is below,
and a potential maximum rate of return that is above, market yields on US-dollar
denominated commercial paper, with both the minimum and maximum rates of return
on the investment corresponding to the minimum and maximum values of the spot
exchange rate two business days prior to maturity. While such commercial paper
entails risk of loss of principal, the potential risk for realizing gains as a
result of changes in foreign currency exchange rates enables a Fund to hedge (or
cross- hedge) against a decline in the US dollar value of investments
denominated in foreign currencies while providing an attractive money market
rate of return. Currently only the Multistrategy Bond Fund intends to invest in
indexed commercial paper, and then only for hedging purposes.

US Government Obligations. The types of US government obligations the
-------------------------
Underlying Funds may purchase include: (1) a variety of US Treasury obligations
which differ only in their interest rates, maturities and times of issuance: (a)
US Treasury bills at time of issuance have maturities of one year or less, (b)
US Treasury notes at time of issuance have maturities of one to ten years and
(c) US Treasury bonds at time of issuance generally have maturities of greater
than ten years; (2) obligations issued or guaranteed by US government agencies
and instrumentalities and supported by any of the following: (a) the full faith
and credit of the US Treasury (such as Government National Mortgage Association
("GNMA") participation certificates), (b) the right of the issuer to borrow an
amount limited to a specific line of credit from the US Treasury, (c)
discretionary authority of the US government agency or instrumentality or (d)
the credit of the instrumentality (examples of agencies and instrumentalities
are: Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks and
Federal National Mortgage Association). No assurance can be given that the US
government will provide financial support to such US government agencies or
instrumentalities described in (2)(b), (2)(c) and (2)(d) in the future, other
than as set forth above, since it is not obligated to do so by law. Accordingly,
such US government obligations may involve risk of loss of principal and
interest. The Underlying Funds may invest in fixed-rate and floating or variable
rate US government obligations. The Underlying Funds may purchase US government
obligations on a forward commitment basis.

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

Mortgage Pass-Through Securities. Mortgage pass-through securities are
--------------------------------
securities representing interests in "pools" of mortgages in which payments of
both interest and principal on the securities are generally made monthly. The
securities are "pass-through" securities because they provide investors with
monthly payments of principal and interest which in effect are a "pass-through"
of the monthly payments made by the individual borrowers on the underlying
mortgages, net of any fees paid to the issuer or guarantor. The principal
governmental issuer of such securities is the GNMA, which is a wholly-owned US
government corporation within the Department of Housing and Urban Development.
Government-related issuers include the Federal Home Loan Mortgage Corporation
("FHLMC"), a corporate instrumentality of the United States created pursuant to
an Act of Congress, and which is

45
<PAGE>

owned entirely by the Federal Home Loan Banks, and the Federal National Mortgage
Association ("FNMA"), a government sponsored corporation owned entirely by
private stockholders. Commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers also create pass-through pools of conventional residential mortgage
loans. Such issuers may be the originators of the underlying mortgage loans as
well as the guarantors of the mortgage-related securities.

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

Asset-Backed Securities. Asset-backed securities represent undivided
-----------------------
fractional interests in pools of instruments, such as consumer loans, and are
similar in structure to mortgage-related pass-through securities. Payments of
principal and interest are passed through to holders of the securities and are
typically supported by some form of credit enhancement, such as a letter of
credit, surety bond, limited guarantee by another entity or by priority to
certain of the borrower's other securities. The degree of enhancement varies,
generally applying only until exhausted and covering only a fraction of the
security's par value. If the credit enhancement held by an Underlying Fund has
been exhausted, and if any required payments of principal and interest are not
made with respect to the underlying loans, the Underlying Fund may experience
loss or delay in receiving payment and a decrease in the value of the security.

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

Loan Participations. The Funds may purchase participations in commercial
-------------------
loans. Such indebtedness may be secured or unsecured. Loan participations
typically represent direct participation in a loan to a corporate borrower, and
generally are offered by banks or other financial institutions or lending
syndicates. In purchasing the loan participations, a Fund assumes the credit
risk associated with the corporate buyer and may assume the credit risk
associated with the interposed bank or other financial intermediary. The
participation may not be rated by a nationally recognized rating service.
Further, loan participations may not be readily marketable and may be subject to
restrictions on resale. Loan participations are generally illiquid investments
that are priced through a nationally recognized pricing service which determines
loan prices by surveying available dealer quotations. If a corporate borrower
defaults on its obligations, a Fund may end up owning the underlying
collateral.

Municipal Obligations. "Municipal obligations" are debt obligations
---------------------
issued by states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, or multi-state agencies or authorities the interest from
which is exempt from federal income tax in the opinion of bond counsel to the
issuer. Municipal obligations include debt obligations issued to obtain funds
for various public purposes and certain industrial development bonds issued by
or on behalf of public authorities. Municipal obligations are classified as
general obligation bonds, revenue bonds and notes.

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

GENERAL OBLIGATION BONDS - are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal and
interest.

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

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<PAGE>

real and personal property financed as security for such payment.
Industrial development bonds are issued by or on behalf of public
authorities to raise money to finance public and private facilities for
business, manufacturing, housing, ports, pollution control, airports, mass
transit and other similar type projects.

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

TAX ANTICIPATION NOTES - are issued to finance working capital needs
of municipalities and are generally issued in anticipation of future tax
revenues.

BOND ANTICIPATION NOTES - are issued in expectation of a municipality
issuing a long-term bond in the future. Usually the long-term bonds provide
the money for the repayment of the notes.

REVENUE ANTICIPATION NOTES - are issued in expectation of receipt of
other types of revenues such as certain federal revenues.

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

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

TAX FREE FLOATING AND VARIABLE RATE DEMAND NOTES - are municipal
obligations backed by an obligation of a commercial bank to the issuer
thereof which allows the issuer to issue securities with a demand feature,
which, when exercised, usually becomes effective within thirty days. The
rate of return on the notes is readjusted periodically according to some
objective standard such as changes in a commercial bank's prime rate.

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

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

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<PAGE>

Interest Rate Transactions. The Short Term Bond and Multistrategy Bond
--------------------------
Funds may enter into interest rate swaps, on either an asset-based or
liability-based basis, depending on whether they are hedging their assets or
their liabilities, and will usually enter into interest rate swaps on a net
basis, i.e., the two payment streams are netted out, with the Funds receiving or
paying, as the case may be, only the net amount of the two payments. When a Fund
engages in an interest rate swap, it exchanges its obligations to pay or rights
to receive interest payments for the obligations or rights to receive interest
payments of another party (i.e., an exchange of floating rate payments for fixed
rate payments). The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of their
portfolios or to protect against any increase in the price of securities they
anticipate purchasing at a later date. Inasmuch as these hedging transactions
are entered into for good faith hedging purposes, the money managers and the
Funds believe such obligations do not constitute senior securities and,
accordingly, will not treat them as being subject to the Funds' borrowing
restrictions. The net amount of the excess, if any, of the Funds' obligations
over their entitlements with respect to each interest rate swap will be accrued
on a daily basis and an amount of cash or liquid high-grade debt securities
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Funds' custodian. To the extent that
the Funds enter into interest rate swaps on other than a net basis, the amount
maintained in a segregated account will be the full amount of the Funds'
obligations, if any, with respect to such interest rate swaps, accrued on a
daily basis. The Funds will not enter into any interest rate swaps unless the
unsecured senior debt or the claims-paying ability of the other party thereto is
rated in the highest rating category of at least one nationally recognized
rating organization at the time of entering into such transaction. If there is a
default by the other party to such a transaction, the Funds will have
contractual remedies pursuant to the agreement related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid.

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<PAGE>

Investment In Emerging Markets. Foreign investment may include emerging
------------------------------
market debt. Emerging markets consist of countries determined by the money
managers of the Fund to have developing or emerging economies and markets. These
countries generally include every country in the world except the United States,
Canada, Japan, Australia and most countries located in Western Europe. The Funds
may invest in the following types of emerging market debt -- bonds; notes and
debentures of emerging market governments; debt and other fixed-income
securities issued or guaranteed by emerging market government agencies,
instrumentalities or central banks; and other fixed-income securities issued or
guaranteed by banks or other companies in emerging markets which the money
managers believe are suitable investments for the Funds. The risks associated
with investing in foreign securities are often heightened for investments in
developing or emerging markets. Investments in emerging or developing markets
involve exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less stability,
than those of more developed countries. Moreover, the economies of individual
emerging market countries may differ favorably or unfavorably from the US
economy in such respects as the rate of growth in gross domestic product, the
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Because the Funds' foreign securities will generally be
denominated in foreign currencies, the value of such securities to the Funds
will be affected by changes in currency exchange rates and in exchange control
regulations. A change in the value of a foreign currency against the US dollar
will result in a corresponding change in the US dollar value of the Funds'
foreign securities. In addition, some emerging market countries may have fixed
or managed currencies which are not free-floating against the US dollar.
Further, certain emerging market countries' currencies may not be
internationally traded. Certain of these currencies have experienced a steady
devaluation relative to the US dollar. Many emerging market countries have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had,
and may continue to have, negative effects on the economies and securities
markets of certain emerging market countries.

Foreign Government Securities. Foreign government securities which the
-----------------------------
Underlying Funds may invest in generally consist of obligations issued or backed
by the national, state or provincial government or similar political

49
<PAGE>

subdivisions or central banks in foreign countries. Foreign government
securities also include debt obligations of supranational entities, which
include international organizations designated or backed by governmental
entities to promote economic reconstruction or development, international
banking institutions and related government agencies. These securities also
include debt securities of "quasi-government agencies" and debt securities
denominated in multinational currency units of an issuer.

Other Debt Securities. Multistrategy Bond Fund may invest in debt
---------------------
securities issued by supranational organizations such as:

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

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

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

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

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

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

TAXES

Distributions
-------------

Distributions of Net Investment Income. The Fund of Funds receive income
generally in the form of dividends and interest on their investments. This
income, less expenses incurred in the operation of a Fund of Funds, constitutes
its net investment income from which dividends may be paid to you. Any
distributions by a Fund of Funds from such income will be taxable to you as
ordinary income, whether you take them in cash or in additional Shares.

Distributions of Capital Gains. The Fund of Funds may derive capital gains
and losses in connection with sales or other dispositions of their portfolio
securities which are made up, for the most part, of Shares of the Underlying
Funds. Distributions derived from the excess of net short-term capital gain over
net long-term capital loss will be taxable to you as ordinary income.
Distributions paid from long-term capital gains realized by a Fund of Funds will
be taxable to you as long-term capital gain, regardless of how long you have
held your Shares in the Fund of Funds. Any net short-term or long-term capital
gains realized by a Fund of Funds (net of any capital loss carryovers) generally
will be distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate federal excise or income taxes on a
Fund of Funds.

Information on the Tax Character of Distributions. Each Fund of Funds will
-------------------------------------------------
inform you of the amount and character of your distributions at the time they
are paid, and will advise you of the tax status for federal income tax purposes
of such distributions shortly after the close of each calendar year. If you have
not held a Fund of Funds'

50
<PAGE>

Shares for a full year, you may have designated and distributed to you as
ordinary income or capital gain a percentage of income and/or capital gains that
is not equal to the actual amount of such income or capital gains earned during
the period of your investment in a Fund of Funds.

Taxes
-----

Election to be Taxed as a Regulated Investment Company. Each Fund of Funds
has elected to be treated as a regulated investment company under Subchapter M
of the Internal Revenue Code (the "Code"), has qualified as such for its most
recent fiscal year, and intends to so qualify during the current fiscal year. As
a regulated investment company, a Fund of Funds generally pays no federal income
tax on the income and gains it distributes to you. The Board reserves the right
not to maintain the qualification of a Fund of Funds as a regulated investment
company if it determines such course of action to be beneficial to you. In such
case, a Fund of Funds will be subject to federal, and possibly state, corporate
taxes on its taxable income and gains, and distributions to you will be taxed as
ordinary income or capital gains to the extent of a Fund of Funds's available
earnings and profits.

Excise Tax Distribution Requirements. The Code requires a Fund of Funds to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its net capital gain income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to you by December 31 of each year in order to avoid federal excise
taxes. Each Fund of Funds intends to declare and pay sufficient dividends in
December (or in January that are treated by you as received in December) but
does not guarantee and can give no assurances that its distributions will be
sufficient to eliminate all such taxes.

Redemption of Fund Shares. Redemptions and exchanges of a Fund of Funds'
Shares are taxable transactions for federal and state income tax purposes that
cause you to recognize a gain or loss. If you hold your Shares as a capital
asset, the gain or loss that you realize will be capital gain or loss. Any loss
incurred on the redemption or exchange of Shares held for six months or less
will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by a Fund of Funds on those Shares.

Beginning after the year 2005 (2000 for certain shareholders) gain on the
sale or redemption of Shares held more than five years may be subject to a
reduced rate of tax.

All or a portion of any loss that you realize upon the redemption of your
Fund of Funds Shares will be disallowed to the extent that you purchase other
Shares in such Fund of Funds (through reinvestment of dividends or otherwise)
within 30 days before or after your share redemption. Any loss disallowed under
these rules will be added to your tax basis in the new Shares you purchase.

MONEY MANAGER INFORMATION
FOR THE UNDERLYING FUNDS

DIVERSIFIED EQUITY FUND

Barclays Global Fund Advisors N.A. is a wholly-owned subsidiary of Barclays
Global Investors, N.A.

Equinox Capital Management, LLC is 100% employee owned, with majority
ownership held by Ron Ulrich.

Jacobs Levy Equity Management, Inc. is owned by Bruce Jacobs and Kenneth
Levy.

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Strong Capital Management, Inc. is a corporation controlled by Richard S.
Strong.

Suffolk Capital Management, Inc. is a wholly owned subsidiary of Old Mutual
PLC, a publicly traded corporation.

Turner Investment Partners Inc. is a corporation controlled by Robert E.
Turner.

Westpeak Investment Advisors, L.P. ("Westpeak") is a limited partnership
that is a wholly-owned subsidiary of Nvest Holdings, Inc. ("Nvest Holdings").
Nvest Holdings is a wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest
Companies"). Nvest Companies owns the entire limited partnership interest in
Westpeak. Nvest Companies' general partner, CDCAM North America, LLC is a
wholly-owned subsidiary of CDCAM North America Corporation ("CDCAM NA"). CDCAM
NA is the sole limited partner of Nvest Companies. CDCAM NA is a wholly-owned
subsidiary of CDC Asset Management, a French company ("CDCAM"). CDCAM is
majority-owned by CDC Finance and indirectly owned, through CDC Finance, Caisse
Nationale des Caisses D'Epargne and CNP Assurances, by Caisse des Depots et
Consignations ("CDC"). CDC is wholly-owned by the French Government.

SPECIAL GROWTH FUND

CapitalWorks Investment Partners, LLC is a liability company controlled by
its members who include John D. Wylie, Jack C. Marshall, Mark J. Correnti and
Donovan T. Garcia.

David J. Greene and Company, LLC, is a limited liability company controlled
by Michael C. Greene and Alan I. Greene.

Delphi Management, Inc. is 100% owned by Scott Black.

GlobeFlex Capital, L.P. is a California limited partnership. Its general
partners are Robert J. Anslow, Jr. and Marina L. Marrelli.

Jacobs Levy Equity Management, Inc. See: Diversified Equity Fund.

Sirach Capital Management, Inc. is a wholly-owned subsidiary of Old Mutual
PLC, a publicly traded corporation.

TimesSquare Capital Management, Inc. is a wholly-owned, indirect subsidiary
of CIGNA Corporation, a publicly traded corporation.

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

QUANTITATIVE EQUITY FUND

Barclays Global Fund Advisors. See: Diversified Equity Fund.

Franklin Portfolio Associates LLC is a Massachusetts limited liability
company owned by Mellon Financial Corporation.

J.P. Morgan Investment Management, Inc. is a wholly owned subsidiary of
J.P. Morgan & Co., Inc., a publicly held bank holding company.

Jacobs Levy Equity Management, Inc. See: Diversified Equity Fund.

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INTERNATIONAL SECURITIES FUND

Alliance Capital Management L.P. See: Diversified Equity Fund

Delaware International Advisers Limited is an indirect, wholly-owned
subsidiary of Lincoln National Corporation, a publicly traded company.

Driehaus Capital Management, Inc. is controlled and wholly-owned by Richard
H. Driehaus.

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

Marvin & Palmer Associates, Inc. is controlled and majority owned by David
F. Marvin and Stanley Palmer.

Montgomery Asset Management LLC is a Delaware limited liability company
with majority ownership held by Commerzbank AG, a foreign banking organization.

The Boston Company Asset Management, LLC is a wholly owned, indirect
subsidiary of Mellon Financial Corporation, a publicly held corporation.

DIVERSIFIED BOND FUND

Lincoln Capital Management Company is over 50% owned by John Cole, Dave
Fowler, Jay Freedman, Parker Hall, Peter Knez, Kenneth Meyer and Alan Sebulsky.

Standish, Ayer & Wood, Inc. is organized as a Sub-chapter S Corporation and
is 100% owned by its twenty-five directors, with no director having more than
25% ownership.

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SHORT TERM BOND FUND

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

STW Fixed Income Management Ltd. is a Bermuda exempted company. William H.
Williams III is the sole shareholder.

MULTISTRATEGY BOND FUND

Lazard Asset Management is a division of Lazard Freres & Co. LLC (LF&Co) a
broker/dealer which is a New York limited liability company.

Pacific Investment Management Company. See: Diversified Bond Fund.

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

REAL ESTATE SECURITIES FUND

AEW Management and Advisors, L.P. (formerly, AEW Capital Management, L.P.)
is a limited partnership that is a wholly-owned subsidiary of AEW Capital
Management, L.P., which in turn is a wholly-owned subsidiary of Nvest Holdings,
Inc. ("Nvest Holdings"). Nvest Holdings is a wholly-owned subsidiary of Nvest
Companies, L.P. ("Nvest Companies"). Nvest Companies owns the entire limited
partnership interest in AEW. Nvest Companies' general partner, CDCAM North
America, LLC is a wholly-owned subsidiary of CDCAM North America Corporation
("CDCAM NA"). CDCAM NA is the sole limited partner of Nvest Companies. CDCAM NA
is a wholly-owned subsidiary of CDC Asset Management, a French company
("CDCAM"). CDCAM is majority-owned by CDC Finance and indirectly owned, through
CDC Finance, Caisse Nationale des Caisses D'Epargne and CNP Assurances, by
Caisse des Depots et Consignations ("CDC"). CDC is wholly-owned by the French
Government.

Cohen & Steers Capital Management is a corporation whose two principals,
Robert H. Steers and Martin Cohen, control the corporation within the meaning of
the 1940 Act.

Security Capital Global Capital Management Group Incorporated is an
indirect, wholly-owned subsidiary of Security Capital, a publicly traded
corporation.

EMERGING MARKETS FUND

Alliance Capital Management L.P. See: Diversified Equity Fund.

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executives with the Genesis Group of fund management companies. The Genesis
Group, whose holding company is Genesis Holdings International Limited, is
controlled 55% by management and associated interests, and the balance held by
outside shareholders, with the largest single holding being 15%.

Schroders Investment Management North America Limited is 100% owned by
Schroders plc, which is publicly traded on the London Stock Exchange.

TAX-MANAGED LARGE CAP

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

TAX-MANAGED SMALL CAP

Geewax, Terker & Company is a general partnership with its general
partners, John J. Geewax and Bruce E Terker, each owning 50% of the firm.

RATINGS OF DEBT INSTRUMENTS

CORPORATE AND MUNICIPAL BOND RATINGS.

MOODY'S INVESTORS SERVICE, INC. (MOODY'S):

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

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

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

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

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

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

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

Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification in its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic
category; the modifier 2 indicates a mid-range ranking; and modifier 3
indicates that the issue ranks in the lower end of its generic rating
category. STANDARD & POOR'S RATINGS GROUP ("S&P"):

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

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

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

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

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

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

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

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

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

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

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

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

STATE, MUNICIPAL NOTES AND TAX EXEMPT DEMAND NOTES. MOODY'S:

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

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

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

S&P:

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

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

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

Note rating symbols are as follows:

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

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

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

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

COMMERCIAL PAPER RATINGS.

MOODY'S:

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

Relative differences in these factors determine whether the issuer's
commercial paper is rated Prime-1, Prime-2, or Prime-3.

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

S&P:

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

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

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

DUFF & PHELPS, INC.:

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

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

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

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

Good Grade

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

Satisfactory Grade

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

Non-Investment Grade

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

Default

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

IBCA, INC.:

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

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

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

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

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

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

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

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

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

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

FITCH INVESTORS SERVICE, INC. ("FITCH"):

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

Fitch short-term ratings are as follows:

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

F-1 -- Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F1+.

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

THOMSON BANKWATCH ("TBW") SHORT-TERM RATINGS:

The TBW Short-Term Ratings apply to commercial paper, other senior short-
term obligations and deposit obligations of the entities to which the
rating has been assigned.

These ratings are derived exclusively from a quantitative analysis of
publicly available information. Qualitative judgments have not been
incorporated. The ratings are intended to be applicable to all operating
entities of an organization but there may be in some cases more credit
liquidity and/or risk in one segment of the business than another.

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

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

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

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

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

FINANCIAL STATEMENTS

The 2000 annual financial statements of the Fund of Funds, including notes
to the financial statements and financial highlights and the Report of
Independent Accountants, are included in the Fund of Funds Annual Report to
Shareholders. A copy of the Fund of Funds' Annual Report dated October 31, 2000
accompanies this Statement and is incorporated herein by reference.

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GLOSSARY

Bank instruments -- Include certificates of deposit, bankers' acceptances
and time deposits, and may include European certificates of deposit ("ECDs"),
European time deposits ("ETDs") and Yankee certificates of deposit ("Yankee
CDs"). ECDs are dollar denominated certificates of deposit issued by foreign
branches of US and foreign banks; ETDs are US dollar denominated time deposits
in a foreign branch of a US bank or a foreign bank; and Yankee CDs are
certificates of deposit issued by a US branch of a foreign bank denominated is
US dollars and held in the United States.

Brady Bonds -- Product of the "Brady Plan," under which bonds are issued in
exchange for cash and certain of the country's outstanding commercial bank
loans.

Board -- The Board of Trustees of FRIC.

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

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

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

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

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

Financial Intermediary -- A bank trust department, registered investment
adviser, broker-dealer or other financial services organization that has been
selected by FRIMCo or by FRIC's Distributor.

FNMA-- Federal National Mortgage Association.

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

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

FRIMCo -- Frank Russell Investment Management Company, FRIC's investment
advisor, administrator and transfer and dividend paying agent.

Funds -- The 32 investment series of FRIC. Each Fund is considered a
separate registered investment company (or RIC) for federal income tax purposes,
and each Fund has its own investment objective, policies and restrictions.

GNMA -- Government National Mortgage Association

Illiquid securities -- The Underlying Funds will not purchase or otherwise
acquire any security if, as a result, more than 15% of a Fund's net assets
(taken at current value) would be invested in securities, including repurchase
agreements maturing in more than seven days, that are illiquid because of the
absence of a readily available market or because of legal or contractual resale
restrictions. No Underlying Fund will invest more than 10% of its respective net
assets (taken at current value) in securities of issuers that may not be sold to
the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"). These policies do not include (1) commercial paper issued
under Section 4(2) of the 1933 Act, or (2) restricted securities eligible for
resale to qualified institutional purchasers pursuant to Rule 144A under the
1933 Act that are determined to be liquid by the money managers in accordance
with Board-approved guidelines.

Lending portfolio securities -- Each Underlying Fund may lend portfolio
securities with a value of up to 33 1/3% of each Fund's total assets. These
loans may be terminated at any time. A Fund will receive either cash (and agree
to pay a "rebate" interest rate), US government or US government agency
obligations as collateral in an amount equal to at least 102% (for loans of US
securities) or 105% (for non-US securities) of the current market value of the
loaned securities. The collateral is daily "marked-to-market," and the borrower
will furnish additional

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collateral in the event that the value of the collateral drops below 100% of the
market value of the loaned securities. If the borrower of the securities fails
financially, there is a risk of delay in recovery of the securities or loss of
rights in the collateral. Consequently, loans are made only to borrowers which
are deemed to be of good financial standing.

Liquidity portfolio -- FRIMCo will manage or will select a money manager to
exercise investment discretion for approximately 5%-15% of Diversified Equity,
Special Growth, Quantitative Equity, International Securities, Real Estate
Securities and Emerging Markets Funds' assets assigned to a Liquidity portfolio.
The Liquidity portfolio will be used to temporarily create an equity exposure
for cash balances until those balances are invested in securities or used for
Fund transactions.

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

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

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

NYSE -- New York Stock Exchange

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

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

Repurchase agreements -- An Underlying Fund may enter into repurchase
agreements with a bank or broker-dealer that agrees to repurchase the securities
at the Fund's cost plus interest within a specified time (normally the next
business day). If the party agreeing to repurchase should default and if the
value of the securities held by the Fund (102% at the time of agreement) should
fall below the repurchase price, the Fund could incur a loss. Subject to the
overall limitations described in "Illiquid Securities" in this Glossary, a Fund
will not invest more than 15% of its net assets (taken at current market value)
in repurchase agreements maturing in more than seven days.

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Reverse repurchase agreements -- A Fund may enter into reverse repurchase
agreements to meet redemption requests when a money manager determines that
selling portfolio securities would be inconvenient or disadvantageous. A reverse
repurchase agreement is a transaction where a Fund transfers possession of a
portfolio security to a bank or broker-dealer in return for a percentage of the
portfolio security's market value. The Fund retains record ownership of the
transferred security, including the right to receive interest and principal
payments. At an agreed upon future date, the Fund repurchases the security by
paying an agreed upon purchase price plus interest. Liquid assets of the Fund
equal in value to the repurchase price, including any accrued interest, are
segregated on the Fund's records while a reverse repurchase agreement is in
effect.

Russell 1000(R) Index. The Russell 1000(R) Index consists of the 1,000
largest US companies by capitalization (i.e., market price per share times the
number of shares outstanding). The smallest company in the Index at the time of
selection has a capitalization of approximately $1 billion. The Index does not
include cross-corporate holdings in a company's capitalization. For example,
when IBM owned approximately 20% of Intel, only 80% of the total shares
outstanding of Intel were used to determine Intel's capitalization. Also not
included in the Index are closed-end investment companies, companies that do not
file a Form 10-K report with the SEC, foreign securities, and American
Depository Receipts. The Index's composition is changed annually to reflect
changes in market capitalization and share balances outstanding. The Russell
1000(R) Index is used as the basis for Quantitative Equity Fund's performance
because FRIMCo believes it represents the universe of stocks in which most
active money manager invest and is representative of the performance of publicly
traded common stocks most institutional investors purchase.

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

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

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

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

Statement -- FRIC's Statement of Additional Information.

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

Underlying Funds -- The FRIC Funds in which the Fund of Funds invest in.

US -- United States

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

65
<PAGE>

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

66
<PAGE>

FRANK RUSSELL INVESTMENT
------------------------
COMPANY
-------
File No. 2-71299 and 811-3153
1933 Act Post-Effective
Amendment. No. 49
1940 Act Amendment No. 49

PART C
OTHER INFORMATION
-----------------

Item 23. Exhibits
--------

(a) 1.1 Master Trust Agreement (incorporated by reference to Item
24(b)(1)(a) filed under Post-Effective Amendment No. 32 dated May
1, 1996)

1.2 Amendment No. 1 to Master Trust Agreement dated November 29, 1984
(incorporated by reference to Item 24(b)(1)(b) filed under Post-
Effective Amendment No. 32 dated May 1, 1996)

1.3 Amendment No. 2 to Master Trust Agreement dated May 29, 1985
(incorporated by reference to Item 24(b)(1)(c) filed under Post-
Effective Amendment No. 32 dated May 1, 1996)

1.4 Amendment No. 3 to Master Trust Agreement dated January 26, 1987
(incorporated by reference to Item 24(b)(1)(d) filed under Post-
Effective Amendment No. 32 dated May 1, 1996)

1.5 Amendment No. 4 to Master Trust Agreement dated February 23, 1989
(incorporated by reference to Item 24(b)(1)(e) filed under Post-
Effective Amendment No. 32 dated May 1, 1996)

1.6 Amendment No. 5 to Master Trust Agreement dated May 11, 1992
(incorporated by reference to Item 24(b)(1)(f) filed under Post-
Effective Amendment No. 32 dated May 1, 1996)

1.7 Amendment No. 6 to Master Trust Agreement dated March 19, 1996
(incorporated by reference to Item 24(b)(1)(g) filed under Post-
Effective Amendment No. 32 dated May 1, 1996)

1.8 Amendment No. 7 to Master Trust Agreement dated April 22, 1996
(incorporated by reference to Item 24(b)(1)(h) filed under Post-
Effective Amendment No. 33 dated May 7, 1996)

1.9 Amendment No. 8 to Master Trust Agreement dated November 4, 1996
(incorporated by reference to Item 24(b)(1)(i) filed under Post-
Effective Amendment No. 36 dated February 13, 1997)
<PAGE>

1.10 Amendment No. 9 to Master Trust Agreement dated April 27, 1998
(incorporated by reference to Item 24(b)(1)(j) filed under Post-
Effective Amendment No. 40 dated November 12, 1998)

1.11 Amendment No. 10 to Master Trust Agreement dated April 27, 1998
(incorporated by reference to Item 24(b)(1)(k) filed under Post-
Effective Amendment No. 40 dated November 12, 1998)

1.12 Amendment No. 11 to Master Trust Agreement dated June 3, 1998
(incorporated by reference to Item 24(b)(1)(l) filed under Post-
Effective Amendment No. 40 dated November 12, 1998)

1.13 Amendment No. 12 to Master Trust Agreement dated October 5, 1998
(incorporated by reference to Item 24(b)(1)(m) filed under Post-
Effective Amendment No. 41 dated January 7, 1999)

1.14 Amendment No. 13 to Master Trust Agreement dated November 9, 1998
(incorporated by reference to Item 24(b)(1)(n) filed under Post-
Effective Amendment No. 41 dated January 7, 1999)

1.15 Amendment No. 14 to Master Trust Agreement dated April 26, 1999
(incorporated by reference to Item 24(b)(1)(n) filed under Post-
Effective Amendment No. 44 dated September 2, 1999)

1.16 Amendment No. 15 to Master Trust Agreement dated June 28, 1999
(incorporated by reference to Item 24(b)(1)(n) filed under Post-
Effective Amendment No. 44 dated September 2, 1999)

1.17 Amendment No. 16 to Master Trust Agreement dated August 9, 1999
(incorporated by reference to Item 24(b)(1)(n) filed under Post-
Effective Amendment No. 44 dated September 2, 1999)

1.18 Amendment No. 17 to Master Trust Agreement dated August 9, 1999
(incorporated by reference to Item 24(b)(1)(n) filed under Post-
Effective Amendment No. 44 dated September 2, 1999)

1.19 Amendment No. 18 to Master Trust Agreement dated August 9, 1999
(incorporated by reference from Post-Effective Amendment No. 46
dated April 27, 2000)

1.20 Amendment No. 19 to Master Trust Agreement dated August 9, 1999
(incorporated by reference from Post-Effective Amendment No. 46
dated April 27, 2000)

1.21 Amendment No. 20 to Master Trust Agreement dated August 7, 2000
(incorporated by reference from Post-Effective Amendment No. 47
dated September 1, 2000)
<PAGE>

1.22 Form of Amendment No. 21 to Master Trust Agreement dated October
27, 2000

(b) 1.1 Bylaws dated August 8, 1984 (incorporated by reference to Item
24(b)(2) filed under Post-Effective Amendment No. 38 dated February
24, 1998)

(c) 1.1 Form of Shares of Beneficial Interest for the Equity I, Equity II,
Equity III, Fixed Income I, Fixed Income II, International and
Money Market Funds (incorporated by reference to Item 24(b)(4)(a)
filed under Post-Effective Amendment No. 39 dated April 28, 1998)

1.2 Form of Shares of Beneficial Interest for the Diversified Equity,
Special Growth, Equity Income, Diversified Bond, Volatility
Constrained Bond, International Securities, Limited Volatility Tax
Free and U.S. Government Money Market Funds (incorporated by
reference to Item 24(b)(4)(b) filed under Post-Effective Amendment
No. 39 dated April 28, 1998)

1.3 Form of Shares of Beneficial Interest for the Quantitative Equity,
Equity Q and Tax Free Money Market Funds (incorporated by reference
to Item 24(b)(4)(c) filed under Post-Effective Amendment No. 39
dated April 28, 1998)

1.4 Form of Shares of Beneficial Interest for the Real Estate
Securities Fund (incorporated by reference to Item 24(b)(4)(d)
filed under Post-Effective Amendment No. 39 dated April 28, 1998)

(d) 1.1 Advisory Agreement with Frank Russell Investment Management Company
dated January 1, 1999 (incorporated by reference to Item
23(4)(a)(1) filed under Post-Effective Amendment No. 42 dated
February 28, 1999)

1.2 Form of Letter Agreement adding Tax-Managed Equity Aggressive
Strategy (later renamed Tax-Managed Global Equity), Tax-Managed
Aggressive Strategy, Tax-Managed Moderate Strategy, Tax-Managed
Conservative Strategy and Tax-Managed Small Cap Funds to the
Advisory Agreement (incorporated by reference to Item 23(4)(a)(2)
filed under Post-Effective Amendment No. 44 dated September , 1999)

1.3 Form of Letter Agreement adding Select Growth Fund and Select Value
Fund to the Advisory Agreement

2.1 Service Agreement with Frank Russell Company and Frank Russell
Investment Management Company dated May 1, 1987 (incorporated by
reference to Item 24(b)(5)(b)(1) filed under Post-Effective
Amendment No. 38 dated February 24, 1998)

2.2 Letter Agreement with Frank Russell Company and Frank Russell
Investment Management Company dated May 1, 1989 adding Real Estate
Securities Fund to the Service Agreement (incorporated by reference
to Item
<PAGE>

24(b)(5)(b)(2) filed under Post-Effective Amendment No. 38
dated February 24, 1998)

2.3 Amendment No. 1 to Service Agreement dated July 1, 1992 with Frank
Russell Company and Frank Russell Investment Management Company
changing services and fees (incorporated by reference to Item
24(b)(5)(b)(3) filed under Post-Effective Amendment No. 38 dated
February 24, 1998)

2.4 Letter Agreement dated August 24, 1992 adding Fixed Income III,
Multistrategy Bond and Emerging Markets Funds to the Service
Agreement (incorporated by reference to Item 24(b)(5)(b)(4) filed
under Post-Effective Amendment No. 38 dated February 24, 1998)

2.5 Amendment No. 2 to the Service Agreement dated August 1995 with
Frank Russell Company and Frank Russell Investment Management
Company (incorporated by reference to Item 24(b)(5)(b)(5) filed
under Post-Effective Amendment No. 32 dated May 1, 1996)

2.6 Letter Agreement dated March 14, 1996 with State Street Bank and
Trust Company for development of a Tax Accounting System
(incorporated by reference to Item 24(b)(5)(b)(7) filed under Post-
Effective Amendment No. 32 dated May 1, 1996)

3.1 Yield Calculation Services Agreement dated August 2, 1988 with
State Street Bank and Trust Company (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

3.2 Letter Agreement to the Yield Calculation Services Agreement dated
May 1, 1989 adding the Real Estate Securities Fund (incorporated by
reference from Post-Effective Amendment No. 46 dated April 27,
2000)

3.3 Letter Agreement to the Yield Calculation Services Agreement dated
August 24, 1992 adding the Fixed Income III and Multistrategy Bond
Funds (incorporated by reference from Post-Effective Amendment No.
46 dated April 27, 2000)

3.4 Letter Agreement to the Yield Calculation Services Agreement dated
August 24, 1992 adding the Fixed Income III and Multistrategy Bond
Funds (incorporated by reference from Post-Effective Amendment No.
46 April 27, 2000)

3.5 Letter Agreement to the Yield Calculation Services Agreement dated
April 12, 1996 adding the Equity T Fund (later renamed the Tax-
Managed Large Cap Fund) (incorporated by reference to Item
24(b)(5)(b)(6) filed under Post-Effective Amendment No. 32 dated
May 1, 1996)

3.6 Letter Agreement to the Yield Calculation Services Agreement dated
January 28, 1997 adding Aggressive Strategy, Balanced Strategy,
Moderate Strategy,
<PAGE>

Conservative Strategy and Equity Balanced Strategy Funds
(incorporated by reference to Item 24(b)(5)(b)(8) filed under Post-
Effective Amendment No. 36 dated February 13, 1997)

3.7 Letter Agreement to the Yield Calculation Services Agreement dated
January 26, 1999 redesignating Class C Shares as Class E Shares and
the existing shares of Institutional Funds to Class I Shares
(incorporated by reference to Item 23(4)(b)(9) filed under Post-
Effective Amendment No. 42 dated February 18, 1999)

3.8 Letter Agreement to the Yield Calculation Services Agreement dated
January 26, 1999 redesignating Premier Adviser Class Shares as
Premier Class Shares and Premier Institutional Class Shares as
Class E Shares (incorporated by reference to Item 23(4)(b)(10)
filed under Post-Effective Amendment No. 42 dated February 18,
1999)

3.9 Form of Letter Agreement to the Yield Calculation Services
Agreement adding Tax-Managed Equity Aggressive Strategy (later
renamed Tax-Managed Global Equity), Tax-Managed Aggressive
Strategy, Tax-Managed Moderate Strategy, Tax-Managed Conservative
Strategy and Tax-Managed Small Cap Funds (incorporated by reference
to Item 23(4)(b)(11) filed under Post-Effective Amendment No. 44
dated September 2, 1999)

3.10 Form of Letter Agreement to the Yield Calculation Services
Agreement adding Class E Shares to the Tax-Managed Large Cap and
Tax-Managed Small Cap Funds (incorporated by reference to Post-
Effective Amendment No. 47 dated September 1, 2000)

3.11 Form of Letter Agreement to the Yield Calculation Services
Agreement adding the Select Growth Fund and the Select Value Fund,
each consisting of Class C Shares, Class E Shares, Class I Shares
and Class S Shares, and adding Class E Shares to the Tax-Managed
Global Equity Fund

4.1 Form of Portfolio Management Contract, as amended, with Money
Managers and Frank Russell Investment Management Company
(incorporated by reference to Item 23(4)(c)(3) filed under Post-
Effective Amendment No. 44 dated September 2, 1999)

5.1 Administrative Agreement with Frank Russell Investment Management
Company dated January 1, 1999 (incorporated by reference to Item
23(4)(d)(1) filed under Post-Effective Amendment No. 42 dated
February 18, 1999)

5.2 Form of Letter Agreement to the Administrative Agreement adding
Tax-Managed Equity Aggressive Strategy (later renamed Tax-Managed
Global Equity), Tax-Managed Aggressive Strategy, Tax-Managed
Moderate Strategy, Tax-Managed Conservative Strategy and Tax-
Managed Small Cap
<PAGE>

Funds. (incorporated by reference to Item 23(4)(d)(2) filed under
Post-Effective Amendment No. 44 dated September 2, 1999)

5.3 Form of Letter Agreement to the Administrative Agreement adding
Select Growth Fund and Select Value Fund

(e) 1.1 Distribution Agreement with Russell Fund Distributors, Inc. dated
January 1, 1999 due to change in control (incorporated by reference
to Item 23(5)(a)(16) filed under Post-Effective Amendment No. 42
dated February 18, 1999)

1.2 Letter Agreement to the Distribution Agreement with Russell Fund
Distributors adding Class C Shares of Short Term Bond Fund and
Class C and E Shares of Tax Exempt Bond Fund (incorporated by
reference to Post-Effective Amendment No. 42 dated February 18,
1999)

1.3 Form of Letter Agreement adding Tax-Managed Equity Aggressive
Strategy (later renamed Tax-Managed Global Equity), Tax-Managed
Aggressive Strategy, Tax-Managed Moderate Strategy, Tax-Managed
Conservative Strategy and Tax-Managed Small Cap Funds to the
Distribution Agreement. (incorporated by reference to Item
23(5)(a)(8) filed under Post-Effective Amendment No. 44 dated
September 2, 1999)

1.4 Form of Letter Agreement to the Distribution Agreement adding Class
E Shares to the Tax-Managed Large Cap and Tax-Managed Small Cap
Funds (incorporated by reference to Post-Effective Amendment No. 47
dated September 1, 2000)

1.5 Form of Letter Agreement to the Distribution Agreement adding the
Select Growth Fund and the Select Value Fund, each consisting of
Class C Shares, Class E Shares, Class I Shares and Class S Shares,
and adding Class E Shares to the Tax-Managed Global Equity Fund

(f) 1.1 Bonus or Profit Sharing Plans (none)

(g) 1.1 Custodian Contract with State Street Bank and Trust Company dated
October 31, 1988 (incorporated by reference to Item 24(b)(8)(a)
filed under Post-Effective Amendment No. 38 dated February 24,
1998)

1.2 Letter Agreement dated May 1, 1989 adding Real Estate Securities
Fund to the Custodian Contract (incorporated by reference to Item
24(b)(8)(b) filed under Post-Effective Amendment No. 38 dated
February 24, 1998)

1.3 Agreement dated August 24, 1992 adding Fixed Income III and
Multistrategy Bond Funds to the Custodian Contract (incorporated by
reference to Item 24(b)(8)(c) filed under Post-Effective Amendment
No. 38 dated February 24, 1998)
<PAGE>

1.4 Letter Agreement dated October 27, 1992 adding Emerging Markets Fund
to the Custodian Contract (incorporated by reference to Item
24(b)(8)(d) filed under Post-Effective Amendment No. 38 dated
February 24, 1998)

1.5 Amendment No. 1 to Custodian Contract dated January 31, 1994 with
State Street Bank and Trust Company amending Section 3.5 of the
Agreement (incorporated by reference to Item 24(b)(8)(e) filed under
Post-Effective Amendment No. 38 dated February 24, 1998)

1.6 Form of Amendment to Custodian Contract with State Street Bank and
Trust Company amending Sections 2.2 and 2.7 of the Agreement
(incorporated by reference to Item 24(b)(8)(f) filed under Post-
Effective Amendment No. 38 dated February 24, 1998)

1.7 Amendment dated October 31, 1998 to the Custodian Contract with State
Street Bank amending Section 2.7 of the Agreement (incorporated by
reference to Item 24(b)(8)(g) filed under Post-Effective Amendment
No. 38 dated February 24, 1998)

1.8 Amendment to the Fee Schedule of the Custodian Contract with State
Street Bank and Trust Company (incorporated by reference to Item
24(b)(8)(h) filed under Post-Effective Amendment No. 38 dated
February 24, 1998)

1.9 Amendment to the Custodian Contract dated August 11, 1995 with State
Street Bank and Trust Company for addition of Omnibus accounts
(incorporated by reference to Item 24(b)(8)(i) filed under Post-
Effective Amendment No. 32 dated May 1, 1996)

1.10 Amendment to the Custodian Contract dated April 18, 1994 with State
Street Bank and Trust Company amending Section 7 of the Fee Schedule
for all Funds except the Emerging Markets Fund (incorporated by
reference to Item 24(b)(8)(j) filed under Post-Effective Amendment
No. 32 dated May 1, 1996)

1.11 Amendment to the Custodian Contract dated August 7, 1995 with State
Street Bank and Trust Company amending Section 7 of the Fee Schedule
for the Emerging Markets Fund (incorporated by reference to Item
24(b)(8)(k) filed under Post-Effective Amendment No. 32 dated May 1,
1996)

1.12 Amendment to the Custodian Contract dated April 12, 1996 with State
Street Bank and Trust Company adding Equity T Fund (later renamed
Tax-Managed Large Cap Fund) (incorporated by reference to Item
24(b)(8)(l) filed under Post-Effective Amendment No. 32 dated May 1,
1996)

1.13 Amendment to the Custodian Contract dated January 28, 1997 with State
Street Bank and Trust Company adding Aggressive Strategy, Balanced
Strategy, Moderate Strategy, Conservative Strategy and Equity
Balanced Strategy Funds (incorporated by reference to Item
24(b)(8)(m) filed under Post-Effective Amendment No. 36 dated
February 13, 1997)
<PAGE>

1.14 Form of Amendment to the Custodian Contract with State Street Bank
and Trust Company adding Tax-Managed Equity Aggressive Strategy
(later renamed Tax-Managed Global Equity), Tax-Managed Aggressive
Strategy, Tax-Managed Moderate Strategy, Tax-Managed Conservative
Strategy and Tax-Managed Small Cap Funds (incorporated by reference
to Item 23(7)(n) filed under Post-Effective Amendment No. 44 dated
September 2, 1999)

1.15 Form of Amendment to the Custodian Contract with State Street Bank
and Trust Company adding the Select Growth Fund and the Select Value
Fund

(h) 1.1 Transfer and Dividend Disbursing Agency Agreement dated April 1, 1988
with Frank Russell Investment Management Company (incorporated by
reference to Item 24(b)(9)(a)(1) filed under Post-Effective Amendment
No. 38 dated February 24, 1998)

1.2 Letter Agreement and Amended Schedule A dated May 1, 1989 adding Real
Estate Securities Fund to the Transfer and Dividend Disbursing Agency
Agreement (incorporated by reference to Item 24(b)(9)(a)(2) filed
under Post-Effective Amendment No. 38 dated February 24, 1998)

1.3 Letter Agreement and Amended Schedule A dated August 24, 1992 adding
Fixed Income III, Multistrategy Bond and Emerging Markets Funds to
the Transfer and Dividend Disbursing Agency Agreement (incorporated
by reference to Item 24(b)(9)(a)(3) filed under Post-Effective
Amendment No. 38 dated February 24, 1998)

1.4 Letter Agreement and Amended Schedule A dated August 11, 1995 adding
omnibus accounts to the Transfer Agency and Dividend Disbursing
Agency Agreement (incorporated by reference to Item 24(b)(9)(a)(4)
filed under Post-Effective Amendment No. 32 dated May 1, 1996)

1.5 Letter Agreement dated April 10, 1996 adding Equity T Fund (later
renamed Tax-Managed Large Cap Fund) to the Transfer and Dividend
Disbursing Agency Agreement (incorporated by reference to Item
24(b)(9)(a)(5) filed under Post-Effective Amendment No. 32 dated May
1, 1996)

1.6 Letter Agreement and Amended Schedule A dated November 5, 1996 adding
Aggressive Strategy, Balanced Strategy, Moderate Strategy,
Conservative Strategy and Equity Balanced Strategy Funds to the
Transfer and Dividend Disbursing Agency Agreement (incorporated by
reference to Item 24(b)(9)(a)(6) filed under Post-Effective Amendment
No. 36 dated February 13, 1997)

1.7 Form of Letter Agreement and Amended Schedule to Transfer and
Dividend Disbursing Agreement redesignating Class C Shares as Class E
Shares and the existing shares of the Institutional Funds as Class I
Shares (incorporated
<PAGE>

by reference to Item 23(8)(a)(7) filed under Post-Effective Amendment
No. 42 dated February 18, 1999)

1.8 Letter Agreement to Transfer and Dividend Disbursing Agreement dated
December 1, 1998 redesignating Premier Adviser Class Shares as
Premier Class Shares and Premier Institutional Class Shares as Class
E Shares (incorporated by reference to Item 23(5)(a)(7) filed under
Post-Effective Amendment No. 42 dated February 18, 1999)

1.9 Form of Letter Agreement to Transfer and Dividend Disbursing Agency
Agreement for reimbursement for lost shareholder search expenses
(incorporated by reference to Item 23(8)(a)(9) filed under Post-
Effective Amendment No. 43 dated April 16, 1999)

1.10 Form of Letter Agreement adding Tax-Managed Equity Aggressive
Strategy (later renamed Tax-Managed Global Equity), Tax-Managed
Aggressive Strategy, Tax-Managed Moderate Strategy, Tax-Managed
Conservative Strategy and Tax-Managed Small Cap Funds to Transfer and
Dividend Disbursing Agency Agreement (incorporated by reference to
Item 23(8)(a)(10) filed under Post-Effective Amendment No. 44 dated
September 2, 1999)

1.11 Form of Letter Agreement and Amended Schedule A revising fee schedule
with respect to Transfer and Dividend Disbursing Agency Agreement
(incorporated by reference from Post-Effective Amendment No. 46 dated
April 27, 2000)

1.12 Form of Letter Agreement and Amended Schedule A revising fee schedule
with respect to Transfer and Dividend Disbursing Agency Agreement
(incorporated by reference to Post-Effective Amendment No. 47 dated
September 1, 2000)

1.13 Form of Letter Agreement and Amended Schedule A to the Transfer and
Dividend Disbursing Agency Agreement

2.1 General forms of Frank Russell Investment Management Company's Asset
Management Services Agreements with Bank Trust Departments and with
other clients (incorporated by reference to Item 24(b)(9)(b) filed
under Post-Effective Amendment No. 38 dated February 24, 1998)

2.2 General forms of Frank Russell Investment Management Company's Asset
Management Services Agreement with its clients (incorporated by
reference to Item 24(b)(9)(c) filed under Post-Effective Amendment
No. 38 dated February 24, 1998)

2.3 General form of Frank Russell Investment Management Company's Asset
Management Services Agreement with Private Investment Consulting
clients
<PAGE>

of Frank Russell Company (incorporated by reference to Item
24(b)(9)(c) filed under Post-Effective Amendment No. 38 dated
February 24, 1998)

2.4 General Form of Frank Russell Investment Management Company Asset
Management Services Agreement with non-compete clause customers
(incorporated by reference to Item 24(b)(9)(f) filed under Post-
Effective Amendment No. 38 dated February 24, 1998)

4.1 Letter Agreements regarding fee waivers & reimbursements

5.1 Credit Agreement dated as of December 30, 1999 among Frank Russell
Investment Company, Bank of America, N.A., State Street Bank and
Trust Company and Other Banks (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

6.1 Form of Revised Shareholder Servicing Plan (incorporated by reference
to Post-Effective Amendment No. 47 dated September 1, 2000)

(i) 1.1 Opinion and Consent of Counsel (to be filed by amendment)

(j) 1.1 Other Opinions - Consent of Independent Accountants (to be filed by
amendment)

1.2 Limited Powers of Attorney of Frank Russell Investment Company
Trustees dated October 27, 2000 with respect to Amendment No. 49 to
the SEC Registration Statement of Frank Russell Investment Company

(k) 1.1 Financial Statements omitted from Item 22 (none)

(l) 1.1 Agreement dated October 5, 1981 related to Initial Capital provided
by Frank Russell Company (incorporated by reference to Item 24(b)(13)
filed under Post-Effective Amendment No. 38 dated February 24, 1998)

(m) 1.1 Form of revised Rule 12b-1 Distribution Financing Plan (incorporated
by reference to Post-Effective Amendment No. 47 dated September 1,
2000)

(n) 1.1 Financial Data Schedule (none)

(o) 1.1 Form of Revised Multiple Class Plan Pursuant to Rule 18f-3
(incorporated by reference to Post-Effective Amendment No, 48 dated
October 19, 2000)

(p) Codes of Ethics of the following information advisors and sub-advisors:

1.1 Frank Russell Investment Management Company (incorporated by
reference from Post-Effective Amendment No. 46 dated April 27, 2000)

1.2 AEW Capital Management, L.P. (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.3 Alliance Capital Management L.P. (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

<PAGE>

1.4 Barclays Global Fund Advisors N.A. (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.5 BlackRock Financial Management (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.6 The Boston Company Asset Management (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.7 CapitalWords International Partners (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.8 Cohen & Steers (incorporated by reference from Post-Effective
Amendment No. 46 dated April 27, 2000)

1.9 David J. Greene & Company, LLC (incorporated by reference from Post-
Effective Amendment No. 48 dated October 19, 2000)

1.10 Delaware International Advisors Limited (incorporated by reference
from Post-Effective Amendment No. 46 dated April 27, 2000)

1.11 Delphi Management, Inc. (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.12 Driehaus Capital Management, Inc. (incorporated by reference to Post-
Effective Amendment No. 47 dated September 1, 2000)

1.13 Equinox Capital Management, Inc. (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.14 Fidelity Management Trust Company (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.15 Fiduciary International, Inc. (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.16 Foreign & Colonial Emerging Markets Limited (incorporated by
reference from Post-Effective Amendment No. 46 dated April 27, 2000)

1.17 Franklin Portfolio Associates LLC (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.18 Geewax, Terker & Company (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.19 Genesis Asset Managers, LTd. (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.20 GlobeFlex Capital, L.P. (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.21 Jacobs Levy Equity Management, Inc. (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.22 J.P. Morgan Investment Management, Inc. (incorporated by reference
from Post-Effective Amendment No. 46 dated April 27, 2000)

1.23 Lazard Asset Management (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.24 Lincoln Capital Management Company (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.25 Marsico Capital Management, LLC (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.26 Marvin & Palmer Associates, Inc. (incorporated by reference to Post-
Effective Amendment No. 47 dated September 1, 2000)

1.27 Mastholm Asset Management, LLC (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)
<PAGE>

1.28 MFS Institutional Advisors, Inc. (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.29 Miller, Anderson & Sherrerd, LLP (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.30 Montgomery Asset Management LLC (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.31 Nicholas Applegate Capital Management (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.32 Oechsle International Advisors, LLC (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.33 Pacific Investment Management Company (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.34 Peachtree Asset Management (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.35 Sanford C. Bernstein & Co., Inc. (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.36 Schroders Capital Management International Limited (incorporated by
reference from Post-Effective Amendment No. 46 dated April 27, 2000)

1.37 Security Capital Global Capital Management Group (incorporated by
reference from Post-Effective Amendment No. 46 dated April 27, 2000)

1.38 Sirach Capital Management, Inc. (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.39 Standish, Ayer & Wood, Inc. (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.40 STW Fixed Income Management Ltd. (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

1.41 Strong Capital Management (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.42 Suffolk Capital Management Ltd. (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.43 TimesSquare Capital Management, Inc. (incorporated by reference from
Post-Effective Amendment No. 47 dated October 19, 2000)

1.44 Turner Investment Partners (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.45 Weiss, Peck & Greer, L.L.C. (incorporated by reference from Post-
Effective Amendment No. 46 dated April 27, 2000)

1.46 Westpeak Investment Advisors, L.P. (incorporated by reference from
Post-Effective Amendment No. 46 dated April 27, 2000)

Item 24. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
None

Item 25. Indemnification
---------------

Indemnification is provided to officers and Trustees of the Registrant
pursuant to Section 6.4 of Article VI of Registrant's First Amended
and Restated Master Trust Agreement, which reads as follows:
<PAGE>

"Section 6.4 Indemnification of Trustees, Officers, etc. The Trust shall
indemnify (from the assets of the Sub-Trust or Sub-Trusts in question)
each of its Trustees and officers (including persons who serve at the
trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder,
creditor or otherwise [hereinafter referred to as a "Covered Person"])
against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred
by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before
any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with
which such person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Trustee or officer,
director or trustee, except with respect to any matter as to which it
has been determined that such Covered Person (i)P did not act in good
faith in the reasonable belief that such Covered Person's action was in
or not opposed to the best interests of the Trust or (ii) had acted with
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's office
(either and both of the conduct described in (i) and (ii) being referred
to hereafter as "Disabling Conduct"). A determination that the Covered
Person is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not liable
by reason of Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against a Covered Person for insufficiency of
evidence of Disabling Conduct, or (iii) a reasonable determination,
based upon a review of the facts, that the Covered Person was not liable
by reason of Disabling Conduct by (a) a vote of a majority of a quorum
of Trustees who are neither "interested persons" of the Trust as defined
in section 2(a)(19) of the 1940 Act nor parties to the proceeding, or
(b) an independent legal counsel in a written opinion. Expenses,
including accountants' and counsel fees so incurred by any such Covered
Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by
the Sub-Trust in question in advance of the final disposition of any
such action, suit or proceeding, provided that the Covered Person shall
have undertaken to repay the amounts so paid to the Sub-Trust in
question if it is ultimately determined that indemnification of such
expenses is not authorized under this Article VI and (i) the Covered
Person shall have provided security for such undertaking, (ii) the Trust
shall be insured against losses arising by reason of any lawful
advances, or (iii) a majority of a quorum of the disinterested Trustees
who are not a party to the proceeding, or an independent legal counsel
in a written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the Covered Person ultimately will be
found entitled to indemnification."
<PAGE>

Insurance is provided to officers and Trustees of the Registrant
pursuant to Section I.A of Registrant's Mutual Fund and Directors and
Officers Errors and Omissions Professional Liability Insurance policy,
which reads as follows:

"Section I.A. Insuring Agreements. The Insurer will pay to or on behalf
of the Insured(s) in accordance with the terms hereof all Loss in excess
of the Deductible set forth in Item 4(a) of the Declarations up to the
available Limit of Liability set forth in Item 3 thereof, which is
incurred by the Insured(s) as the result of any Claim first made against
them during the Policy Period or the Discovery Period, if purchased,
except such Loss which the Insured Company pays to the Insured(s) as
indemnification."

"Insured(s)" means any past, present or future partner, officer,
director, trustee or employee of the Insured Company while acting in
his/her capacity as such and, in the event of the death, incapacity
or bankruptcy of an Insured, the estate, heirs, legal representatives
or assigns of such person.

"Loss" means that amount, including Defense Costs, which the
Insured(s) or the Insured Company shall become legally obligated to
pay or for which the Insured Company legally indemnifies the
Insured(s) as the result of a Claim first made against the Insured(s)
and/or the Insured Company during the Policy Period or the Discovery
Period, if purchased; provided, however, that Loss shall not include
salaries, wages, fees, overhead or benefit expenses associated with
any Insured(s); nor shall Loss include punitive or exemplary damages,
criminal or civil fines or penalties imposed by law, taxes, the
multiple portion of any multiple damages or matters uninsurable under
the law pursuant to which this Policy is construed.

"Claim" means any judicial or administrative proceeding, including
any appeal therefrom, against (1) the Insured Company or any
Insured(s) for a Wrongful Act as a result of which the Insured
Company or such Insured(s) may be subjected to a binding adjudication
of liability for damages or other relief or (2) any Insured(s) solely
by reason of their status as partners, officers, directors, trustees
or employees of the Insured Company.

"Policy Period" means that period from the inception date set forth
in Item 2 of the Declarations to the expiration date set forth
therein or to any earlier cancellation date pursuant to Section IX(D)
hereof; provided, however, that the Discovery Period, if purchased in
accordance with Section III(A) hereof, shall be deemed to be part of
and not in addition to the Policy Period.

"Insured Company" means each entity named in Item 1 of the
Declarations, and shall include any Subsidiary of such Insured
Company as of the inception date of this Policy which has been
expressly identified as such in the Application and which has not
been excluded by the Insurer.
<PAGE>

Undefined terms referenced in the description of the Registrant's
Mutual Fund and Directors and Officers Errors and Omissions
Professional Liability Insurance policy are defined elsewhere in
the Policy.

Item 26. Business and Other Connections of Investment Advisor
----------------------------------------------------

See Registrant's prospectus sections "The Purpose of the Fund--Multi-
Style, Multi-Manager Diversification," "The Money Managers," "Money
Manager Profiles," and "Management of the Funds," the Statement of
Additional Information sections "Structure and Governance--Trustees
and Officers," and "Operation of Investment Company--Consultant."

Item 27. Principal Underwriters
----------------------

(a) SSgA Funds

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

<TABLE>
<CAPTION>
Name and Positions and Position and
Principal Business Officers with Offices with
Address Registrant Underwriter
------------------ -------------- ------------
<S> <C> <C>
George F. Russell, Jr. Trustee Emeritus, Chairman None
Emeritus

Lynn L. Anderson Trustee, President, Chief Director, Chairman of the Board
Executive Officer, Chairman and Chief Executive Officer
of the Board

Mark E. Swanson Treasurer and Chief None
Accounting Officer

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

Peter F. Apanovitch Manager of Short Term None
Investment Funds

Randall P. Lert Director of Investments Director

J. David Griswold None Assistant Secretary and Associate
General Counsel

Gregory J. Lyons Assistant Secretary and Assistant Secretary
Associate General Counsel
</TABLE>
<PAGE>

<TABLE>
<S> <C> <C>
Deedra S. Walkey Assistant Secretary None

Amy Osler Assistant Secretary None

Rick J. Chase Assistant Treasurer None

Kimberly A. Stoll Assistant Treasurer None

B. James Rohrbacher None Director of Compliance and
Internal Audit, Chief Compliance
Officer

Linda L. Gutmann None Treasurer and Controller

Carla L. Anderson None Assistant Secretary

John James None Assistant Secretary

Mary Beth Rhoden Assistant Secretary None
</TABLE>

Item 28. Location of Accounts and Records
--------------------------------
All accounts and records required to be maintained by section 31(a) of
the 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained in the
following locations:
FRIC FRIMCo
---- ------
Frank Russell Investment Company Frank Russell Investment
909 A Street Management Company
Tacoma, Washington 98402 909 A Street
Tacoma, Washington 98402

SS MM
-- --
State Street Bank & Trust Company Money Managers
1776 Heritage Drive JA4N See, Prospectus Section
---
North Quincy, Massachusetts 02171 "Money Manager Profiles"
for Names and Addresses

Rule 31a-1
----------
(a) Records forming basis for financial statements - at
principal offices of SS, FRIC, FRIMCo, and MM for each
entity
(b) FRIC Records:
(1) SS - Journals, etc.
(2) SS - Ledgers, etc.
(3) Inapplicable
(4) FRIC - Corporate charter, etc.
(5) MM - Brokerage orders
(6) MM - Other portfolio purchase orders
<PAGE>

(7) SS - Contractual commitments
(8) SS and FRIC - Trial balances
(9) MM - Reasons for brokerage allocations
(10) MM - Persons authorizing purchases and sales
(11) FRIC and MM - Files of advisory material
(12) ---
(c) Inapplicable
(d) FRIMCo - Broker-dealer records, to the extent applicable
(e) Inapplicable
(f) FRIMCo and MM - Investment adviser records

Item 29. Management Services
-------------------
None except as described in Parts A and B.

Item 30. Undertakings
------------
Registrant has elected to include its Management's discussion of Fund
performance required under N-1A, Item 5A in its annual report.
Registrant therefore undertakes to provide annual reports without
charge to any recipient of a Prospectus who requests the information.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Frank Russell Investment Company has duly
caused this Post Effective Amendment No. 49 to its Registration Statements to be
signed on its behalf by the undersigned thereto duly authorized, in the City of
Tacoma, and State of Washington, on this 30th day of October, 2000.

FRANK RUSSELL INVESTMENT COMPANY
--------------------------------
Registrant

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

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on October 30, 2000.

Signatures Title
---------- -----

/s/ Lynn L. Anderson Trustee and President,
---------------------------
Lynn L. Anderson in his capacity as
Chief Executive Officer

/s/ Mark E. Swanson Treasurer, in his capacity
----------------------------
Mark E. Swanson as Chief Accounting Officer

____________________________ Trustee
Paul E. Anderson*

____________________________ Trustee
Paul Anton, PhD*

____________________________ Trustee
William E. Baxter*

____________________________ Trustee
Kristianne Blake*

____________________________ Trustee
Lee C. Gingrich*

____________________________ Trustee
Eleanor W. Palmer*

____________________________ Trustee
Raymond P. Tennison, Jr.*

By: /s/ Gregory J. Lyons Assistant Secretary
------------------------
Gregory J. Lyons

* Original Powers of Attorney authorizing the President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary, and each of them
singly to sign this Amendment on behalf of each member of the Board of Trustees
of Frank Russell Investment Company which accompany this filing as Exhibit
(j)1.4.
<PAGE>

EXHIBIT INDEX
-------------

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Name of Exhibit Exhibit Number
--------------- --------------
----------------------------------------------------------------------------------------------------
<S> <C>
Form of Amendment No. 21 to Master Trust (a)1.22
Agreement dated October 27, 2000
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Form of Letter Agreement to the Advisory (d)1.3
Agreement adding the Select Growth Fund
and the Select Value Fund
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Form of Letter Agreement to the Yield (d)3.11
Calculation Services Agreement adding
the Select Growth Fund and the Select
Value Fund, each consisting of Class C
Shares, Class E Shares, Class I Shares
and Class S Shares, and adding Class E
Shares to the Tax-Managed Global Equity
Fund
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Form of Letter Agreement to the (d)5.3
Administrative Agreement adding Select
Growth Fund and Select Value Fund
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------

Form of Letter Agreement to the (e)1.5
Distribution Agreement adding the
Select Growth Fund and the Select Value
Fund, each consisting of Class C
Shares, Class E Shares, Class I Shares
and Class S Shares, and adding Class E
Shares to the Tax-Managed Global Equity
Fund
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Form of Amendment to the Custodian (g)1.15
Contract with State Street Bank and
Trust Company adding the Select Growth
Fund and the Select Value Fund
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Form of Letter Agreement and Amended (h)1.13
Schedule A to the Transfer and Dividend
Disbursing Agency Agreement
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Letter Agreements Regarding Fee Waivers (h)4.1
and Reimbursements
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<S> <C>
----------------------------------------------------------------------------------------------------
Opinion and Consent of Counsel To be filed by amendment
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Consent of Independent Accountants To be filed by amendment
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Limited Powers of Attorney of Frank (j)1.2
Russell Investment Company Trustees
dated October 27, 2000 with respect to
Amendment No. 49 to the SEC
Registration Statement of Frank Russell
Investment Company
----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

FRANK RUSSELL INVESTMENT COMPANY

FILE NO. 2-71299
FILE NO. 811-3153
-----------------

EXHIBITS
--------

Listed in Part C, Item 23
To Post-Effective Amendment No. 49
and Amendment No. 49
to
Registration Statement on Form N-1A
Under
Securities Act of 1933
and
Investment Company Act of 1940