<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box: [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
FRANK RUSSELL INVESTMENT COMPANY
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary proxy materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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FRANK RUSSELL INVESTMENT COMPANY
909 A STREET
TACOMA, WASHINGTON 98402
1-800-787-7354
Dear Shareholder:
Enclosed is a Notice of Special Meeting in lieu of Annual Meeting of
Shareholders of the Frank Russell Investment Company (the "Investment
Company"). The Special Meeting has been called for Thursday, November 19, 1998
at 10:00 a.m., local time, at the offices of the Investment Company at 909 A
Street, Tacoma, Washington. The accompanying Proxy Statement details the
proposals being presented for your consideration as shareholders of the
Investment Company's sub-trusts (the "Funds").
The Special Meeting will consider several proposals, and shareholders will
be asked to: (i) elect the members of the Board of Trustees of the Investment
Company; (ii) ratify the selection of PricewaterhouseCoopers LLP as the
Investment Company's independent accountants; (iii) approve a proposed
advisory agreement between the Investment Company, on behalf of each Fund, and
Frank Russell Investment Management Company ("FRIMCo"), restructuring the
organization of FRIMCo's services and compensating FRIMCo for managing certain
additional assets of each Fund; (iv) approve a proposed advisory agreement
between the Investment Company, on behalf of each Fund, and FRIMCo, to take
effect upon the acquisition of Frank Russell Company by The Northwestern
Mutual Life Insurance Company; (v) approve a change in each Fund's fundamental
investment restrictions limiting borrowing to authorize a higher borrowing
level for the purpose of meeting redemptions; and (vi) approve the elimination
of certain fundamental investment restrictions applicable to the Funds.
Shareholders of the Limited Volatility Tax Free Fund also will be asked to
approve an additional proposal to revise the Fund's investment objective.
The enclosed materials provide details of the proposals. Accordingly, a
proxy card for the Special Meeting in lieu of Annual Meeting of Shareholders
is enclosed. IT IS IMPORTANT THAT YOU COMPLETE, SIGN AND RETURN YOUR CARD AS
SOON AS POSSIBLE TO ENSURE THAT YOUR VOTE IS COUNTED AT THE SPECIAL MEETING.
Please return your proxy card as soon as possible.
Sincerely,
/s/ Karl J. Ege
Karl J. Ege, Esq.
Secretary
NOTE: If you own shares of more than one Fund, you will receive a separate
proxy card for each Fund. PLEASE COMPLETE THE CARD PROVIDED FOR EACH FUND IN
WHICH YOU OWN SHARES so that each Fund will have the quorum needed to conduct
its business.
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
909 A STREET
TACOMA, WASHINGTON 98402
NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING
OF SHAREHOLDERS OF THE
FRANK RUSSELL INVESTMENT COMPANY
TO BE HELD ON THURSDAY, NOVEMBER 19, 1998
To the Shareholders of each of the Diversified Equity, Special Growth,
Equity Income, Quantitative Equity, Diversified Bond, International
Securities, U.S. Government Money Market, Tax Free Money Market, Real Estate
Securities, Multistrategy Bond, Limited Volatility Tax Free, Equity I,
Equity II, Equity III, Equity Q, Equity T, International, Emerging Markets,
Fixed Income I, Fixed Income II, Fixed Income III, Money Market, Aggressive
Strategy, Balanced Strategy, Moderate Strategy, Conservative Strategy and
Equity Balanced Strategy Funds (collectively, the "Funds"):
NOTICE IS HEREBY GIVEN that a Special Meeting in lieu of Annual Meeting of
the Shareholders (the "Shareholders") of the Frank Russell Investment Company
(the "Investment Company") will be held at the Investment Company's offices
located at 909 A Street, Tacoma, Washington, on Thursday, November 19, 1998 at
10:00 a.m., local time, for the following purposes:
1. This item number has been reserved for a matter affecting another
series of the Investment Company.
2. To elect the members of the Board of Trustees of the Investment
Company.
3. To ratify the selection of PricewaterhouseCoopers LLP as the
Investment Company's independent accountants.
4. To approve a proposed advisory agreement with Frank Russell
Investment Management Company ("FRIMCo"), the current investment manager
of the Investment Company, restructuring the manner in which services are
provided to the Funds, providing for compensation to FRIMCo for managing
certain additional assets of the Funds and, with respect to the Limited
Volatility Tax Free Fund, reducing the advisory fee.
5. To approve a proposed advisory agreement with FRIMCo, to take effect
upon the closing of the acquisition of Frank Russell Company by The
Northwestern Mutual Life Insurance Company.
6. To approve a change to the Funds' fundamental investment restrictions
limiting borrowing activities, authorizing a higher borrowing level for
the purpose of meeting shareholder redemption requests.
7. To approve the elimination of certain fundamental investment
restrictions applicable to the Funds.
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8. To approve a change in the fundamental investment objective of the
Limited Volatility Tax Free Fund.
The Special Meeting also will consider and act upon any other business (none
being known as of the date of this notice) as may legally come before the
Special Meeting or any adjournment thereof.
The attached Proxy Statement provides more information concerning each of
the proposed items upon which Shareholders will be asked to vote.
Shareholders of record as of the close of business on September 21, 1998,
are entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof.
By Order of the Board of Trustees,
/s/ Karl J. Ege
KARL J. EGE, ESQ.
Secretary
Tacoma, Washington
October 19, 1998
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING! WHETHER OR
NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE COMPLETE AND SIGN THE
ENCLOSED PROXY CARD(S) AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE,
WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU DESIRE TO VOTE
IN PERSON YOU MAY REVOKE YOUR PROXY PRIOR TO THE MEETING.
Please complete and return all proxy cards enclosed. Each is for a separate
Fund.
2
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FRANK RUSSELL INVESTMENT COMPANY
909 A STREET
TACOMA, WASHINGTON 98402
1-800-787-7354
PROXY STATEMENT
DATED OCTOBER 19, 1998
FOR A SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF
SHAREHOLDERS OF FRANK RUSSELL INVESTMENT COMPANY
TO BE HELD NOVEMBER 19, 1998
SUMMARY
WHAT IS THE PURPOSE OF THIS PROXY STATEMENT?
The principal purpose of this Proxy Statement is to seek Shareholder
approval of the matters identified in the table below. Following the table,
before addressing the specific Proposals, this Proxy Statement provides you
with important information regarding how the Funds operate.
<TABLE>
<CAPTION>
PROPOSAL SHAREHOLDERS SOLICITED
- -------------------------------------------------------------------------------
<C> <S> <C>
1. This item number has been reserved for a matter -- --
affecting another series of the Investment
Company.
- -------------------------------------------------------------------------------
2. To elect the Board of Trustees of the Investment Each Fund
Company.
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3. To ratify the selection of Each Fund
PricewaterhouseCoopers LLP as the Investment
Company's independent accountants.
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4. To approve a proposed advisory agreement Each Fund, voting
("Advisory Agreement") with Frank Russell with respect to its
Investment Management Company ("FRIMCo"), the agreement
current investment manager to the Investment
Company, restructuring the manner in which
services are provided to the Funds, reducing the
compensation payable thereunder by the Limited
Volatility Tax Free Fund, and providing for
compensation to FRIMCo for managing certain
additional assets of the Funds.
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5. To approve a proposed advisory agreement with Each Fund
FRIMCo, to take effect upon the closing of the
acquisition of Frank Russell Company by The
Northwestern Mutual Life Insurance Company.
- -------------------------------------------------------------------------------
6. To approve a change to the Funds' fundamental Each Fund
investment restrictions, authorizing a higher
borrowing level for the purpose of meeting
Shareholder redemption requests.
- -------------------------------------------------------------------------------
7. Revise the Funds' fundamental investment
restrictions to:
- -------------------------------------------------------------------------------
7a. Eliminate the restriction on investing in Each Fund
interests in oil, gas or other mineral
exploration or developmental programs;
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROPOSAL SHAREHOLDERS SOLICITED
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<C> <S> <C>
7b. Eliminate the restriction on investing in Each Fund
securities of an issuer which, together with any
predecessor, has been in operation for less than
three years if, as a result, more than 5% of the
Fund's total assets would then be invested in
such securities;
- -------------------------------------------------------------------------------
7c. Eliminate the restriction on purchasing or Each Fund
retaining the securities of an issuer if, to the
Fund's knowledge, one or more of the trustees or
officers of the Investment Company, or one or
more of the directors of the money manager
responsible for the investment or its directors
or officers, individually own beneficially more
than of 1% of the securities of such issuer and
together own more than 5% of such securities;
and
- -------------------------------------------------------------------------------
7d. Eliminate the restriction that the Fund will not Equity I, Equity II,
invest more than 5% of the current market value Equity III, Equity
of its assets in warrants which are not listed Q, Equity T,
on the New York or American Stock Exchanges. Emerging Markets,
Fixed Income II,
Fixed Income III,
Diversified Equity,
Special Growth,
Equity Income,
Quantitative Equity
and Multistrategy
Bond Funds
- -------------------------------------------------------------------------------
8. To approve a change in the Fund's fundamental Limited Volatility
investment objective. Tax Free Fund only
</TABLE>
HOW ARE THE FUNDS MANAGED?
Each Fund is a sub-trust of the Frank Russell Investment Company, an open-
end, management investment company organized under the laws of the
Commonwealth of Massachusetts, with principal offices located at 909 A Street,
Tacoma, Washington 98402. The management of the business and affairs of the
Investment Company is the responsibility of the Board of Trustees (the "Board"
or the "Trustees"). The Board oversees the Funds' operations, including
reviewing and approving the Funds' contracts with Frank Russell Investment
Management Company ("FRIMCo" or the "Manager"), Frank Russell Company ("FRC")
and the Funds' money managers. The Investment Company's officers, all of whom
are employed by and are officers of FRIMCo or its affiliates, are responsible
for the day-to-day management and administration of the Funds' operations. The
money managers are responsible for selection of individual portfolio
securities for the assets assigned to them.
Each of the Funds is managed by FRIMCo, whose address is 909 A Street,
Tacoma, Washington 98402. As described in more detail in the proposals below,
FRIMCo:
. provides or supervises the general management and administration,
investment advisory and portfolio management, and distribution services
for the Funds;
. furnishes the Funds with office space, equipment and personnel to
operate and administer the Funds' business, and supervises services
provided by third parties, such as the money managers and the
custodian;
2
<PAGE>
. develops investment guidelines and restrictions, selects money
managers, allocates assets among money managers and monitors the money
managers' investment programs and results; and
. provides the Funds with transfer agent, dividend disbursing and
shareholder recordkeeping services.
FRIMCo pays the expenses of providing these services (other than transfer
agent, dividend disbursing, and shareholder recordkeeping), as well as a
portion of the costs of preparing and distributing materials that describe the
Funds. FRIMCo is a wholly owned subsidiary of FRC, which provides
comprehensive asset management consulting services to institutional pools of
investment assets. George F. Russell, Jr., Chairman of the Board of the
Investment Company, is the Chairman of the Board and controlling shareholder
of FRC.
The Investment Company has received an exemptive order from the U.S.
Securities and Exchange Commission ("SEC") which permits the Investment
Company, with the approval of the Board, to engage and terminate money
managers without a shareholder vote and to disclose the aggregate fees paid to
the Manager and the money managers of each Fund. On January 22, 1996, the
shareholders of the Investment Company voted to approve this arrangement.
Exhibit A to this Proxy Statement lists the money managers for the Funds. The
money managers will not change as a result of the proposals that Shareholders
are being asked to consider at the Special Meeting.
WHAT ARE THE VARIOUS FEES AND EXPENSES FOR THE FUNDS?
The following summarizes the fees and expenses of the Funds under the
current service agreements. Shareholders of each of the Funds are being asked
to consider a proposal to restructure the current service arrangements, which
is described in Proposal #4 below. The advisory agreement submitted to
Shareholders of the Limited Volatility Tax Free Fund will also reflect a
reduction in the rate of the compensation payable under that agreement.
Investment Management Fees: Under its Management Agreement with the
Investment Company, FRIMCo receives a management fee from each Fund for
FRIMCo's services. From this fee, FRIMCo, as the Investment Company's agent,
pays the money managers for their investment selection services. The remainder
of the management fee is retained by FRIMCo as compensation for the services
described above and to pay expenses. Quarterly, each money manager is paid the
pro rata portion of an annual fee, based on the average of all assets
allocated to the money manager for the quarter. Additional information
regarding the management fees of the Funds is set forth under "Information
Regarding the Current Management Agreement and Proposed Advisory Agreement" in
this Proxy Statement.
Administrative Services: FRIMCo provides the Investment Company with
administrative services and facilities necessary to operate the Funds. FRIMCo
also serves as the dividend-paying agent, transfer agent and shareholder
servicing agent for the Funds.
3
<PAGE>
PROPOSAL #1: THIS ITEM NUMBER HAS BEEN RESERVED FOR A MATTER AFFECTING ANOTHER
FUND
PROPOSAL #2: TO ELECT THE MEMBERS OF THE BOARD OF TRUSTEES
At its meeting held on October 5, 1998, the Trustees determined to present
the election of the Board of Trustees to Shareholders at the Special Meeting.
Messrs. Russell, Lynn L. Anderson, Paul E. Anderson, Baxter, Gingrich, Dr.
Anton and Ms. Palmer (the "Current Trustees"), after due consideration,
unanimously approved each nominee, identified below to stand for election to
the Board of Trustees. Mr. Russell will not stand for reelection as a voting
Trustee of the Investment Company, although he has been elected to serve as a
Trustee Emeritus immediately upon the completion of his present service as a
Trustee. In considering the nominees for election as Trustees of the
Investment Company, the Trustees took into account the qualifications of each
of the nominees and the concern for the continued efficient conduct of the
Investment Company's business.
In particular, the Trustees considered the requirements of the Investment
Company Act of 1940 (the "1940 Act") as they apply to the election of
Trustees. One factor considered by the Board is the requirement imposed by the
1940 Act's Rule 12b-1 that the selection and nomination of trustees who are
not "interested persons" (as that term is defined in Section 2(a)(19) of the
1940 Act) under the Investment Company's Rule 12b-1 Plans (the "Independent
Trustees") must be committed, in the first instance, to the Independent
Trustees then in office. The Independent Trustees met separately with
Investment Company counsel, and proposed the nomination of the Independent
Trustees whose names are set forth below.
At its meeting held on October 5, 1998, the Board also noted the proposed
change in control of FRC described in Proposal #5 below. Under Section 15(f)
of the 1940 Act, for a period of three years following a change of control, at
least 75% of the members of the Board of Trustees must be individuals who are
not "interested persons" of FRIMCo or its predecessor entities. Based upon the
current affiliations of the nominees for election, the election of a Board
comprised of the six nominees set forth in this Proposal #2 will satisfy that
requirement.
The Current Trustees will continue to serve as Trustees until the Trustees
elected by the Shareholders take office, although Mr. Russell will resign as a
voting Trustee effective December 30, 1998, or at such date as may be
considered appropriate to assure that the composition of the Board complies
with Section 15(f). Upon the election and qualification of the new Trustees,
the six nominees listed below will constitute the Board of Trustees of the
Investment Company. It is anticipated that the nominees will take office at
the first regularly scheduled Board meeting following their election, which
Board Meeting is currently anticipated to be held in January, 1999. Mr.
Russell and Mr. Lynn Anderson are, and will continue to be "interested
persons" of the Investment Company. Mr. Russell has been designated by the
Board of Trustees as a Trustee
4
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Emeritus of the Investment Company as described above pursuant to the Amended
Master Trust Agreement. As a Trustee Emeritus, he will be expected to attend
meetings of the Board, will participate in discussions of the business of the
Investment Company, and may continue to provide the benefit of his advice and
experience to the Board. Under the Amended Master Trust Agreement, a Trustee
Emeritus does not vote on any matter before the Board, and is not liable for
the actions taken or omitted by the Board.
Because the Investment Company does not hold regular annual meetings, each
nominee, if elected, will hold office until his or her successor is elected
and qualified. The Board may call special meetings of shareholders for action
by shareholder vote as may be required by the 1940 Act or required or
permitted by the Amended Master Trust Agreement and by-laws of the Investment
Company. In compliance with the 1940 Act, shareholder meetings will be held to
elect Trustees whenever fewer than a majority of the Trustees holding office
have been elected by the shareholders or, if necessary in the case of filling
vacancies, to assure that at least two-thirds of the Trustees holding office
after vacancies are filled have been elected by shareholders.
THE NOMINEES
The following information is provided for each of the six nominees. It
includes the nominee's name, principal occupation(s) or employment during the
past five years, and directorships with other companies which file reports
periodically with the SEC. Unless otherwise noted, the mailing address for
each nominee is Frank Russell Investment Company, 909 A Street, Tacoma, WA
98402. Each of the nominees is currently a Trustee of the Investment Company,
and, except as otherwise indicated, has served as a Trustee since 1984.
Mr. Lynn Anderson is the only nominee for election as a Trustee who is an
"interested person" of the Investment Company as defined in the 1940 Act. This
designation results from his ownership interest and position as an officer of
certain FRC affiliates. As used in the list below, "Frank Russell Company"
includes its corporate predecessor, Frank Russell Co., Inc.
*Lynn L. Anderson -- 59 years old -- Trustee, President and Chief Executive
Officer since 1987. Trustee, President and Chief Executive Officer, Russell
Insurance Funds; Director, Chief Executive Officer and Chairman of the Board,
Russell Fund Distributors, Inc.; Trustee, Chairman of the Board, President and
Treasurer. The SSgA Funds (investment company); Director, Chief Executive
Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman of the Board, Frank Russell Investment Company
Public Limited PLC; Director, Frank Russell Company, Frank Russell Investments
(Ireland) Limited, Frank Russell Investments (Cayman) Ltd. and Frank Russell
Investments (UK) Ltd.; Russell Insurance Agency, Inc.; Frank Russell
Investment Company, PLC; June 1993 to November 1995, Director, Frank Russell
Company. Until September 1994, Director and President, The Laurel Funds, Inc.
5
<PAGE>
(investment company); November 1995 to December 1996; Director and Chairman,
Russell MLC Management Company; December 1996 to March 1997, Director and
Chairman, Frank Russell Company (Delaware), Inc.
Paul E. Anderson -- 67 years old -- Trustee. 23 Forest Glen Lane, Tacoma,
Washington 98409. Trustee, Russell Insurance Funds; 1996 to Present,
President, Forest Limited Partnership. 1984 to 1996, President, Vancouver Door
Company, Inc.
Paul Anton, Ph.D. -- 78 years old -- Trustee since 1985. PO Box 212, Gig
Harbor, Washington 98335. Trustee, Russell Insurance Funds. President, Paul
Anton and Associates (Marketing Consultant on emerging international markets
for small corporations). 1991-1994, Adjunct Professor, International
Marketing, University of Washington, Tacoma, Washington.
William E. Baxter -- 73 years old -- Trustee. 800 North C Street, Tacoma,
Washington 98403. Trustee, Russell Insurance Funds; Retired.
Lee C. Gingrich -- 68 years old -- Trustee. 1730 North Jackson, Tacoma,
Washington 98406. Trustee, Russell Insurance Funds. President, Gingrich
Enterprises, Inc. (Business and Property Management).
Eleanor W. Palmer -- 72 years old -- Trustee. 2025 Narrows View Circle #232-
D, P.O. Box 1057, Gig Harbor, Washington 98335. Trustee, Russell Insurance
Funds; Director of Frank Russell Trust Company.
The Investment Company pays fees only to the Independent Trustees of the
Investment Company. Compensation of officers and Trustees who are "interested
persons" of the Investment Company (as indicated by an asterisk) is paid by
FRIMCo or its affiliates.
All of the nominees attended each regular Board of Trustees meeting held in
1997, and the special meeting of the Board of Trustees held on June 6, 1997,
except for Paul Anderson, who was absent from two meetings, Lynn L. Anderson,
who was absent from three meetings, and Eleanor W. Palmer, who was absent from
one meeting. The Board of Trustees has an Audit Committee, which is composed
of the Independent Trustees of the Investment Company. The function of the
Audit Committee is to advise the Board with regard to the appointment of the
Investment Company's independent accountants, review and approve audit and
non-audit services of the Investment Company's independent accountants, and
meet with the Investment Company's financial officers to review the conduct of
accounting and internal controls. The Committee also serves as a vehicle for
these Trustees to consult separately with the Investment Company's outside
counsel. The Audit Committee met once during the year ended December 31, 1997.
All members of the Audit Committee attended the Audit Committee meeting. The
Board does not have standing nominating or compensation committees.
6
<PAGE>
The following represents the compensation paid to each Current Trustee for
the year ended December 31, 1997:
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION THE INVESTMENT COMPANY
FROM THE INVESTMENT AND THE FUND COMPLEX
TRUSTEE COMPANY PAID TO TRUSTEES
------- ------------------- -----------------------
<S> <C> <C>
Lynn L. Anderson................ $ 0 $ 0
Paul E. Anderson................ $20,000 $31,263*
Paul Anton, PhD................. $20,000 $31,263*
William E. Baxter............... $20,000 $31,263*
Lee C. Gingrich................. $20,000 $31,263*
Eleanor W. Palmer............... $20,000 $31,263*
George F. Russell............... $ 0 $ 0
</TABLE>
- ----------
* The Trustees received $11,263 for service as trustees on the Board of
Trustees for the Russell Insurance Funds ($4,000 of which was for services
during 1996).
OFFICERS OF THE INVESTMENT COMPANY
Information about the Investment Company's principal executive officers
(other than Lynn Anderson), including their names, ages, position(s) with the
Investment Company, and principal occupation or employment during the past
five years, is set forth below. An asterisk (*) indicates that the officer is
an "interested person" of the Investment Company as defined in the 1940 Act.
As used in the table, "Frank Russell Company" includes its corporate
predecessor, Frank Russell Co., Inc.
*George F. Russell, Jr. -- 66 years old -- Trustee and Chairman of the Board
since 1984. Trustee and Chairman of the Board of Russell Insurance Funds since
1996; Director, Chairman of the Board and Chief Executive Officer, Russell
Building Management Company, Inc.; Director and Chairman of the Board, Frank
Russell Company, Frank Russell Securities, Inc., Frank Russell Trust Company,
Frank Russell Investments (Delaware), Inc.; Director, Frank Russell Investment
Management Company; Director, Chairman of the Board, and President, Russell
20/20 Association.
*Mark E. Swanson -- 34 years old -- Treasurer and Chief Accounting Officer
since August 1998. Treasurer and Chief Accounting Officer, Russell Insurance
Funds; Interim Director, Finance and Operations, Frank Russell Trust Company;
Assistant Secretary and Principal Accounting Officer, SSgA Funds (investment
company); Interim Director of Fund Administration and Accounting, Frank
Russell Investment Management 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, the Seven Seas Series Fund; February 1997 to July 1998,
Manager, Funds Accounting and Taxes, Frank Russell Investment Management
Company.
7
<PAGE>
*Randall P. Lert -- 45 years old -- Director of Investments since 1991.
Director of Investments, Russell Insurance Funds; Senior Investment Officer
and Director of Investment Services, Frank Russell Trust Company; Director and
Chief Investment Officer, Frank Russell Investment Management Company;
Director and Chief Investment Officer, Russell Fund Distributors, Inc.
Director-Futures Trading, Frank Russell Investments (Ireland) Limited and
Frank Russell Investments (Cayman) Ltd.; Senior Vice President and Director of
Portfolio Trading, Frank Russell Canada Limited/Limitee. April 1990 to
November 1995, Director of Investments of Frank Russell Investment Management
Company.
*Karl J. Ege -- 57 years old -- Secretary and General Counsel since 1994.
Secretary and General Counsel of Russell Insurance Funds. Director, Secretary
and General Counsel, Russell Fiduciary Services Co., Frank Russell Capital,
Inc.; Secretary, General Counsel and Managing Director--Law and Government
Affairs of Frank Russell Company; Secretary and General Counsel of Frank
Russell Investment Management Company, Frank Russell Trust Company and Russell
Fund Distributors, Inc.; Director and Secretary of Russell Building Management
Company Inc., Russell International Services Co., Inc. and Russell 20-20
Association; Director and Assistant Secretary of Frank Russell Company Limited
(London) and Russell Systems Ltd.; Director, Frank Russell Investment Company
LLC, Frank Russell Investments (Cayman) Ltd., Frank Russell Investment Company
PLC, Frank Russell Investments (Ireland) Limited, Frank Russell Company S.A.,
Frank Russell Japan Co. Ltd., Frank Russell Company (NZ) Limited, Russell
Investment Nominee Co PTY Ltd and Frank Russell Investments (UK) Ltd.;
Secretary, A Street Investments, Inc.; Director and Secretary, Frank Russell
Investments (Delaware), Inc.; July 1992 to June 1994, Director, President and
Secretary of Frank Russell Shelf Corporation; From July 1993 to December 1996,
Secretary, Russell MLC Management Company.
*Peter Apanovitch -- 53 years old -- Manager of Short-Term Investment Funds
since 1991. Manager of Short-Term Investment Funds, Russell Insurance Funds;
Manager of Short-Term Investment Funds, Frank Russell Investment Management
Company and Frank Russell Trust Company.
The persons named in the proxy intend, in the absence of contrary
instructions, to vote all proxies in favor of the election of each nominee. A
Shareholder may vote for or withhold authority with respect to any or all of
the nominees. If an executed proxy is returned without voting instructions,
the shares will be voted for all nominees named herein. All of the nominees
have consented to being named in this Proxy Statement and to serve if elected.
The Investment Company knows of no reason why any nominee would be unable or
unwilling to serve if elected. Should any of the nominees become unable or
unwilling to accept nomination or election prior to the Special Meeting, the
persons named in the proxy will exercise their voting power to vote for such
substitute person or persons as the Current Trustees of the Investment Company
may recommend.
8
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If any nominee is not approved by the shareholders of the Investment Company,
the Board will consider alternative nominations.
The nominees who receive the greatest number of votes cast by the
shareholders of the Investment Company who are present at the Meeting in
person or by proxy will be declared elected.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE TO ELECT AS TRUSTEES THE NOMINEES FOR ELECTION
TO THE BOARD OF TRUSTEES OF THE INVESTMENT COMPANY
PROPOSAL #3: RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS
THE INVESTMENT COMPANY'S INDEPENDENT ACCOUNTANTS
At its meeting on April 27, 1998, pursuant to a request by the management of
the Investment Company, the Board, including a majority of the Independent
Trustees of the Investment Company, selected the firm of
PricewaterhouseCoopers LLP to be independent accountants for the Investment
Company for the fiscal year ended December 31, 1998. Shareholders of all of
the sub-trusts of the Investment Company are being asked at the Special
Meeting to ratify the selection of PricewaterhouseCoopers LLP, a firm formed
by the recent merger of the Investment Company's accountant with another
prominent accounting firm.
Services in connection with the audit function to be performed by the
Investment Company's independent accountants include: (i) the examination of
the annual financial statements of the Investment Company; (ii) all services
rendered in order to permit the accountants to render a formal opinion on the
Investment Company's financial statements; and (iii) provision of assistance
and consultations with respect to filings with the SEC. PricewaterhouseCoopers
LLP does not have any direct or indirect financial interest in the Investment
Company. It is not expected that a representative of PricewaterhouseCoopers
LLP will be present at the Special Meeting. If a representative is present, he
or she will have an opportunity to make a statement if he or she desires to do
so, and would be available to respond to appropriate questions.
To be ratified, the appointment of PricewaterhouseCoopers LLP must receive
the affirmative vote of a majority of the securities of the Investment Company
which are present at the Meeting in person or by proxy, and vote on this
proposal.
THE BOARD OF TRUSTEES RECOMMENDS
THAT SHAREHOLDERS VOTE TO RATIFY THE
SELECTION OF PRICEWATERHOUSECOOPERS LLP AS
THE INVESTMENT COMPANY'S INDEPENDENT ACCOUNTANTS
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PROPOSAL #4: TO APPROVE A NEW ADVISORY
AGREEMENT BETWEEN THE INVESTMENT COMPANY,
ON BEHALF OF EACH FUND, AND FRANK RUSSELL
INVESTMENT MANAGEMENT COMPANY, RESTRUCTURING
SERVICES AND PROVIDING COMPENSATION
FOR MANAGING ADDITIONAL ASSETS
SUMMARY OF THE PROPOSED ADVISORY AGREEMENT
The Board of the Investment Company has approved and recommended to the
shareholders of the Investment Company a new investment advisory agreement
which (i) would distinguish investment advisory services from administrative
services provided to the Investment Company, and (ii) would assign additional
investment supervisory duties to the Manager and provide compensation for
those services. The new advisory agreement presented to the shareholders of
the Limited Volatility Tax Free Fund will also reflect a reduction of the
compensation paid to the Manager.
WHAT ARE THE CURRENT ARRANGEMENTS FOR INVESTMENT SUPERVISORY SERVICES FOR THE
FUNDS?
From the inception of the Investment Company to the present time, the
Investment Company has received both its investment advisory and its
administrative services from FRIMCo pursuant to a management agreement between
the Investment Company and FRIMCo. The current management agreement with
FRIMCo (the "Management Agreement"), dated April 1, 1995, as revised to add
additional sub-trusts from time to time, was approved by the shareholders of
each sub-trust of the Investment Company, at a special meeting held on January
22, 1996 (which special meeting was specifically called to consider and
approve the Management Agreement). The Management Agreement was continued
until April 30, 1999, by the Board, including all of the Trustees who are not
"interested persons" of FRIMCo, at its meeting held on April 27, 1998. The
continuance of the current Management Agreement assured that the Investment
Company would continue to receive the services of FRIMCo after April 30, 1998.
WHAT CHANGES WOULD BE MADE UNDER THE NEW ADVISORY AGREEMENT?
The Board has concluded that the Investment Company would benefit from the
approval of a new investment advisory agreement (the "Advisory Agreement") to
replace the current Management Agreement. This portion of the Proxy Statement
describes the proposed Advisory Agreement and the current Management
Agreement. The Board recommends that the Shareholders approve the proposed
Advisory Agreement. The proposed Advisory Agreement reflects two changes
applicable to all Funds, and one further change applicable to the Limited
Volatility Tax Free Fund:
(i) The investment advisory and administrative services which are
currently provided under the Management Agreement will be separated into
an Advisory Agreement and a separate administration agreement.
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(ii) FRIMCo will assume the responsibility for managing additional
assets of the Funds that are not treated as net assets under the current
agreement, and will be compensated for that responsibility at a rate not
to exceed 0.07 of 1% per annum (0.0007) of those additional assets.
(iii) The stated advisory fee paid by the Limited Volatility Tax Free
Fund under the Management Agreement will be reduced from 0.50% to 0.30%
for the reasons described in Proposal #8 below.
Set forth below is a discussion of the reasons for each of these changes,
and a summary of the terms of proposed Advisory Agreement. A copy of the
proposed Advisory Agreement is attached as Exhibit C to this Proxy Statement.
HOW WILL THE NEW AGREEMENT RESTRUCTURE AND SEPARATE DIFFERENT SERVICES?
As noted above, since the inception of the Investment Company, FRIMCo has
provided both advisory and administrative services under a single agreement.
The current Management Agreement follows this pattern. Both advisory services
and administrative services, and the aggregate fee paid for both types of
services, are provided for in the Management Agreement. The combination of two
types of services (and of the consolidated fee for those services) in a single
agreement causes the advisory fees paid by the Investment Company's sub-trusts
to appear to be higher than those which some competitors pay for investment
advisory services. In addition, under the 1940 Act, a change to the current
Management Agreement affecting only administrative services still must be
approved by Shareholders because the Management Agreement also covers advisory
services. This makes it difficult for the Investment Company to refine or
enhance the scope of administrative services that it receives from FRIMCo,
although this effort and expense normally is not imposed on other investment
companies which make changes to a purely administrative agreement.
To address these concerns, management asked the Board to consider a proposal
to separate the Management Agreement into two separate agreements--the
proposed Advisory Agreement and an Administration Agreement. Having a separate
Advisory Agreement would enable the Investment Company to present fee
information in a manner that conforms with the format used by most other
mutual funds. This will allow potential investors to more easily and
conveniently compare each Fund's advisory fees with those of similar mutual
funds. The stated advisory fee will reflect only amounts paid for advisory
services, while administrative costs will be identified under the other
expense categories. Expense tables reflecting the separation of the two
components of the present fee are included as Exhibit D to this Proxy
Statement. Having a separate Administration Agreement will allow the
Investment Company more flexibility in adjusting the administrative services
it receives from FRIMCo. The Administration Agreement will not deal with the
Investment Company's advisory services and will not be subject to Section 15
of the 1940 Act. Thus, changes can be made to the Administration Agreement
upon Board approval without the need to hold a shareholder meeting.
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The proposal to separate the advisory and administrative functions is being
submitted to all of the Funds in the Investment Company, and restructures the
arrangements for each of the Funds. As a separate matter, management also
proposed that the Board approve a recommendation to reduce the advisory fee
for the Limited Volatility Tax Free Fund. With respect to that reduction in
the fee for the Limited Volatility Tax Free Fund, the Board sought and
received assurances from FRIMCo that the reduction in the fee paid to FRIMCo
would not impair the extent or the quality of the services which would be
provided to that Fund in consideration of the lower fee.
At its meeting on June 3, 1998, the Board reviewed the combination of
investment advisory and administrative services currently provided to the
Investment Company under the current Management Agreement. The Board then
considered the scope of the two sets of services which will be provided to the
Investment Company under the proposed Advisory Agreement and the
Administration Agreement. FRIMCo has advised the Board, and the Board has
determined after further analysis, that the services which will be provided
under the two proposed agreements are essentially identical in scope to those
currently provided under the current Management Agreement. The Board has also
concluded that, while changes in the scope of and cost to the sub-trusts of
administrative services could be authorized by the Board in the future, the
scope and cost at this time will not be changed by the adoption of the
proposed agreements. FRIMCo has advised the Board that there is no current
expectation of any reduction in services to, or any material increase in fees
payable by, the Investment Company under the proposed agreements as a result
of this restructuring of the current Management Agreement.
HOW WILL THE FUNDS COMPENSATE FRIMCO FOR ADDITIONAL INVESTMENT
RESPONSIBILITIES?
The current Management Agreement provides that each Fund will pay to FRIMCo
an investment management fee which is based upon the net assets of the sub-
trusts under the supervision of FRIMCo. The assets upon which the fee is based
include only that portion of a Fund's assets which are included in the "net
assets" of the Fund.
The development of new investment practices available to investment
companies, or the use by investment companies of some investment techniques to
a greater extent than had been possible in the past, has offered the
Investment Company the opportunity to seek additional investment opportunities
which can benefit its shareholders. Certain of these techniques require that
the Investment Company assume responsibility for investment oversight of cash
or other collateral which the Investment Company receives from other parties
to a transaction. For example, if a sub-trust lends a portfolio security which
it owns to a third party (typically, a broker dealer), it will require that
party to deliver to the sub-trust as collateral for the return of the security
an amount of cash which is greater in amount than the value of the security
loaned. The sub-trust then benefits by a portion of the additional income,
after payment of such items as additional costs and fees, which it can obtain
by the investment of that cash collateral in U.S. Government
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securities or repurchase agreements secured by U.S. Government securities.
Neither the collateral, nor the instrument in which the collateral is
invested, are deemed to be a part of the net assets of the sub-trusts upon
which FRIMCo's current management fee is computed.
For the Funds to obtain the benefit of these transactions, however, the
investment of these assets is required. The Board has requested that FRIMCo,
as the Manager of the Investment Company, supervise the investment of these
additional assets, and has concluded that the careful use of these techniques
by the Investment Company, and the receipt of the services of FRIMCo required
to utilize these techniques, is in the interests of the Funds and the
shareholders of the Funds. The Board has determined that obtaining these
benefits for the Funds is in the interest of the shareholders, and believes
that assigning this responsibility to FRIMCo will allow the Funds greater
control over risks of such investment activities. FRIMCo has proposed, and the
Trustees have agreed, that it is reasonable to compensate FRIMCo for its
supervision of these additional assets. (FRIMCo does not receive any other
fees for its services in connection with the lending of portfolio securities.)
The Board has therefore concluded that it is reasonable that the proposed
Advisory Agreement should include a provision which will permit a sub-trust to
compensate FRIMCo for investment management of these assets which are not
treated as net assets of each Fund at a rate not to exceed 0.07 of 1% per
annum of such assets. Such fee is payable on such assets only as and when they
are held by the Fund and subject to the oversight of FRIMCo.
CONSIDERATIONS BY THE BOARD
In its deliberations at the June Board meeting, the Trustees requested and
evaluated information which the Trustees considered appropriate to evaluate
the new structure and compensation arrangements. The Board also considered
information relating to the previous performance of FRIMCo; extensive annual
financial, personnel, and expense information obtained by the Board in
connection with consideration of the extension of the current Management
Agreement; and the duty of the Board to carefully weigh such information in
order to determine whether to approve the Advisory Agreement. While the Board
recognizes that changes under the Administration Agreement could provide for
either increases or decreases in services or fees, any amendment to the
Administration Agreement would have to be approved not only by a majority of
the Board, but also by a majority of the Trustees who are not interested
persons of FRIMCo. The Trustees also noted that the independence of the Board
is enhanced because, as discussed above, the Investment Company has in effect
Plans of Distribution pursuant to which the selection of the Independent
Trustees is committed to the discretion of the Independent Trustees then in
office. The Board considered the fiduciary duty of the Board in connection
with continuance of or amendment to any advisory agreement.
Based upon the information obtained by the Board, the Trustees concluded
that the approval of the proposed Advisory Agreement, including the advisory
fee for
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management of assets which are not deemed to be part of the net assets of a
sub-trust, is in the interests of the Investment Company, the Funds and their
shareholders. In reaching this decision, the Board did not determine the
relative importance of the factors which were discussed. The discussion by the
Trustees with Fund counsel reflected consideration by the Board of all of the
issues considered.
To be approved, the Advisory Agreement must receive the affirmative vote of
a "majority of the outstanding voting securities" of each Fund, as defined in
the 1940 Act. Under the 1940 Act, a vote of a majority of the outstanding
voting securities of each Fund means the lesser of (i) 67% or more of the
shares of each Fund represented at the Special Meeting, if more than 50% of
the outstanding shares are present at the Special Meeting or represented by
proxy, or (ii) more than 50% of the outstanding shares of each Fund.
THE BOARD OF TRUSTEES RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE PROPOSED
ADVISORY AGREEMENT WITH FRIMCO FOR EACH FUND,
INCLUDING THE RESTRUCTURING OF SERVICES AND
COMPENSATION FOR MANAGING ADDITIONAL ASSETS
PROPOSAL #5: TO APPROVE A PROPOSED
AGREEMENT WITH FRIMCO, ON BEHALF OF EACH FUND, TO
TAKE EFFECT UPON THE ACQUISITION OF FRANK RUSSELL COMPANY
BY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
INTRODUCTION
FRIMCo currently serves as the investment manager to the Funds pursuant to
the Management Agreement described above in Proposal #4. If Proposal #4 is
approved and implemented, FRIMCo will continue to serve as the investment
adviser to the Funds pursuant to the new Advisory Agreement. On August 10,
1998, FRC entered into an Agreement and Plan of Merger (the "Transaction
Agreement") with The Northwestern Mutual Life Insurance Company ("Northwestern
Mutual") pursuant to which Northwestern Mutual will acquire at the effective
time all of the outstanding common stock of FRC through the merger of Project
Rainier Corp., a wholly-owned subsidiary of Northwestern Mutual, with and into
FRC (the "Transaction"). Northwestern Mutual is a Milwaukee-based mutual
insurance company with assets of more than $76 billion at June 30, 1998, and
annual revenues of more than $12.3 billion for the year ended December 31,
1997. Northwestern Mutual Investment Services, LLC ("NMIS"), a wholly-owned
subsidiary of Northwestern Mutual, serves as investment adviser to the Mason
Street Funds, Inc. (a family of retail mutual funds sponsored by Northwestern
Mutual) and Northwestern Mutual Series Fund, Inc. (the investment fund for
Northwestern Mutual's variable annuity and life insurance contracts). NMIS had
approximately $9 billion under
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management at June 30, 1998. The mailing address of Northwestern Mutual is 720
East Wisconsin Avenue, Milwaukee, Wisconsin 53202-4797.
Pursuant to the Transaction Agreement, FRC will be the surviving corporation
in the merger, and will continue to exist as a Washington corporation, as a
subsidiary of Northwestern Mutual. The corporate headquarters of FRC will
remain in Tacoma, Washington. FRC will retain its name and operating
independence and will continue to operate globally as a separate company.
George F. Russell, Jr. will continue as Chairman of the Board of Directors of
FRC. Michael J. A. Phillips will continue as Chief Executive Officer of FRC
and as a member of FRC's Board of Directors.
Consummation of the Transaction will constitute an "assignment," as that
term is defined in the 1940 Act, of either the Management Agreement or the
Advisory Agreement, whichever agreement is then in effect. As required by the
1940 Act, each of these Agreements provides for its automatic termination in
the event of its assignment. In anticipation of the Transaction and the
resulting termination, a new investment agreement (the "New Agreement")
between the Funds and FRIMCo is being submitted for approval by shareholders
of the Funds. A copy of the Management Agreement is attached hereto as Exhibit
B. A copy of the Advisory Agreement is attached hereto as Exhibit C. THE NEW
AGREEMENT FOR THE FUNDS WILL CONTAIN IN ALL MATERIAL RESPECTS EITHER THE SAME
TERMS AS THE MANAGEMENT AGREEMENT, OR THE SAME TERMS AS THE TERMS IN THE
ADVISORY AGREEMENT THAT ARE THEN IN EFFECT AT THE TIME OF THE CONSUMMATION OF
THE TRANSACTION, other than the effective date of the respective agreement.
BOARD OF TRUSTEES EVALUATION AND CONCLUSIONS
At a Board of Trustees meeting on August 10, 1998, the Board was advised
that FRC and Northwestern Mutual had entered into the Transaction Agreement.
The Board directed the officers of the Investment Company to obtain additional
information concerning Northwestern Mutual, the terms of the Transaction, and
the impact of the Transaction on the Investment Company. Extensive information
was provided to the Board by FRC and Northwestern Mutual, and this information
was reviewed by the Board. In addition, the Independent Trustees also
consulted with the Investment Company's outside counsel concerning these
matters. After a careful review and evaluation of this information, a special
meeting of the Board was held on October 5, 1998 to consider the information
provided by FRC and Northwestern Mutual.
At its October meeting, the Board of the Investment Company focused upon the
effect of the proposed Transaction on the Investment Company. Representatives
of FRC and Northwestern Mutual attended the meeting and described the terms of
the proposed Transaction and the perceived benefits to the FRC organization,
FRIMCo and FRIMCo's investment advisory clients. In the course of these
discussions, FRIMCo and FRC advised the Independent Trustees that they did not
expect that the proposed Transaction
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<PAGE>
would have a material effect on the operations of the Investment Company or
its shareholders. FRC has advised the Independent Trustees that the
Transaction Agreement, by its terms, does not contemplate any changes in the
structure or operations of FRIMCo, or in the way that FRIMCo provides services
to the Investment Company. Representatives of Northwestern Mutual have
informed the Trustees that Northwestern Mutual currently intends to maintain
the separate existence of the investment companies that FRIMCo advises, and
the funds that NMIS manages.
Though no specific plans have been developed at this time, the Trustees have
been advised by FRC that there may be some changes in personnel currently
involved in providing services to the Investment Company in order to combine
the strengths and efficiencies of FRC and Northwestern Mutual. With respect to
non-investment advisory services, Northwestern Mutual and FRC will seek to
identify ways in which FRIMCo and other subsidiaries of Northwestern Mutual
(including Robert W. Baird & Co. Incorporated) can more effectively meet the
administrative needs of the Investment Company and its affiliates. Any changes
in investment advisory services would require approval by the Board and
Shareholders in accordance with the 1940 Act. Any restructuring of non-
advisory services provided by FRIMCo will be subject to the review and
approval of the Board of Trustees, including the Trustees who are not
"interested persons" of FRC or Northwestern. In their discussions with the
Trustees, Northwestern Mutual representatives also emphasized the strengths of
the Northwestern Mutual organization and its commitment to provide the FRC
organization, including FRIMCo, with the resources necessary to continue to
provide high quality services to the Investment Company and the other
investment advisory clients of the FRC organization.
The Board of the Investment Company was advised that the Transaction
Agreement provides for FRC to rely, and that FRC intends to rely, on Section
15(f) of the 1940 Act, which provides a safe harbor for an investment adviser
to an investment company (and the adviser's affiliated persons) to retain any
amount or benefit received in connection with a change in control of the
investment adviser so long as the two conditions described below are met.
First, for a period of three years after the Transaction, at least 75% of
the members of the Board of Trustees of the Investment Company must not be
"interested persons" of the Investment Company's investment adviser or its
predecessor adviser. Assuming the election of the nominees listed in Proposal
#2, the Board of the Investment Company would be in compliance with this
provision of Section 15(f) at the time of, or prior to, the consummation of
the Transaction. (See Proposal #2 concerning the election of the Board of
Trustees.)
Second, an "unfair burden" must not be imposed upon the Investment Company
as a result of such Transaction or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden" is defined in
Section 15(f) to include any arrangement during the two-year period after the
Transaction whereby the investment adviser, or any interested person of any
such adviser, receives or is entitled to receive
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any compensation, directly or indirectly, from the Investment Company or its
shareholders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the Investment Company
(other than ordinary fees for bona fide services as principal underwriter for
the Investment Company). No compensation agreements which would violate
Section 15(f) are contemplated in connection with the Transaction.
FRIMCo has undertaken to pay the incremental costs associated with the
preparation, filing, printing, and distribution of these proxy materials, and
of holding the Special Meeting in lieu of Annual Meeting, as well as any other
fees and expenses incurred by the Investment Company in connection with the
Transaction, including the fees and expenses of legal counsel to the
Investment Company, to the extent that such costs are more than those
associated with the annual meeting costs which the Investment Company would
bear in the absence of this proposal.
During the course of their deliberations, the Independent Trustees
considered a variety of factors. These factors included the nature, quality
and extent of the services furnished by FRIMCo to the Investment Company; the
investment record of FRIMCo in managing the Funds in the Investment Company,
including the special role of FRIMCo as a "manager of managers"; the increased
complexity of the domestic and international securities markets; and
comparative data as to investment performance, advisory fees and other fees,
including administrative fees, and expense ratios. The Board also considered
the risks assumed by FRIMCo by serving as adviser to the Investment Company;
the necessity for FRIMCo to maintain and enhance its ability to retain and
attract capable personnel to serve the Investment Company; FRIMCo's
profitability from advising the Investment Company; and other benefits
received by FRIMCo from serving the Investment Company. In connection with the
acquisition of FRC by Northwestern Mutual, the Board noted that there could be
possible economies of scale or other advantages to the Investment Company of
having an adviser with a parent which also serves other investment companies.
The Board also considered current and developing conditions in the financial
services industry, including the entry into the industry of large and well
capitalized companies which are spending and appear to be prepared to continue
to spend substantial sums to engage experienced personnel and to provide
services to competing investment companies; and the financial resources of
FRIMCo and the continuance of appropriate incentive compensation arrangements
to assure that FRIMCo will continue to furnish high quality services to the
Investment Company.
In addition to the foregoing factors, the Independent Trustees gave careful
consideration to the likely impact of the Transaction on the FRC organization.
In this regard, the Independent Trustees considered, among other things, the
following factors: the structure of the Transaction, which is expected to
afford FRIMCo executives significant autonomy over FRIMCo's operations and
could potentially provide meaningful FRC equity participation and incentives
for certain FRIMCo employees; FRIMCo's, FRC's and Northwestern Mutual's
commitment to enable FRIMCo to pay
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compensation adequate to attract and retain top quality personnel; information
regarding the financial resources and business reputation of Northwestern
Mutual; the complementary nature of various aspects of the business of FRIMCo
and the Northwestern Mutual organization; and the current intention of
Northwestern Mutual to maintain separate Frank Russell and Northwestern Mutual
brands in the mutual fund business. Based on the foregoing, the Independent
Trustees concluded that the Transaction should cause no reduction in the
quality of services provided to the Investment Company and concluded that the
Transaction should enhance FRIMCo's ability to provide such services. The
Independent Trustees considered the foregoing factors with respect to each of
the sub-trusts of the Investment Company, and the Investment Company
collectively. The Trustees, including the Independent Trustees, concluded that
the on-going reorganization of the organizational and operational structure of
the sub-trusts of the Investment Company permitted the Trustees to conclude
that no sub-trust would be affected differently from the Investment Company as
a whole in these respects, and therefore determined that the conclusions of
the Board with respect to these matters would have equal impact with respect
to every sub-trust in the Investment Company.
As a result of these deliberations, at the Board of Trustees meeting on
October 5, 1998, the Trustees of the Investment Company, including the
Independent Trustees, approved the New Agreement for the Investment Company,
and recommended that shareholders of each of the sub-trusts in the Investment
Company approve the New Agreement, to become effective upon the completion of
the change of control of FRC and the termination of the agreement then in
effect. (See Proposal #4 concerning the current investment management
agreement, and the proposed advisory agreement.) In reaching this decision,
the Board did not determine the relative importance of the factors which were
discussed. The discussion by the Trustees with Fund counsel reflected
consideration by the Board of all of the issues considered.
The Board has not determined what action would be taken in the event that
any sub-trust does not approve the New Agreement for that sub-trust, and the
Transaction closes. In such a circumstance, the Board would seek to obtain for
the sub-trust suitable advisory services from FRIMCo or another investment
advisor on both an interim and/or a continuing basis. The approval of
continuing arrangements would be subject to the approval of the shareholders
of the affected sub-trust. The Trustees have determined that, in the event the
Transaction is not completed, FRIMCo will continue to serve the Investment
Company under the terms of the agreement then in effect.
INFORMATION CONCERNING THE TRANSACTION AND NORTHWESTERN MUTUAL
Under the Transaction Agreement, at the effective time of the Transaction,
each share of FRC common stock then outstanding (other than shares for which
dissenters' rights have been exercised) will be converted into the right to
receive $905,000,000 divided by the number of fully diluted units of equity of
FRC (taking into account all
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outstanding shares of FRC capital stock, options to acquire shares of FRC
capital stock, equity appreciation units and other equity related rights),
adjusted as described below. Such share price will be increased or reduced
based on the change (taking into account certain pro forma adjustments) in
FRC's net worth per share between March 31, 1998 and closing. In addition,
$90,000,000 of the $905,000,000 will be held back by Northwestern Mutual at
the closing to cover any adjustments occasioned by changes in the net worth of
FRC and for any losses incurred by Northwestern Mutual or FRC as a result of
the breach by FRC of certain specified representations made by FRC in the
Transaction Agreement, and will be distributed to the former FRC shareholders
and other former holders of FRC equity related rights no earlier than October
1, 1999, to the extent there are no such adjustments or claims in respect of
the breach of the specified representations. FRC currently has approximately
200 shareholders.
Certain shareholders of FRC who have held their shares of common stock for
less than twelve months will have the option to convert such shares of common
stock into FRC preferred stock prior to the closing. Such preferred stock will
be subject to certain put and call rights during certain periods (at a price
per share equal to the amount that would have been paid if the preferred stock
had been common stock at the effective time of the Transaction, plus a
percentage of cumulative earnings per share of FRC on a fully diluted basis
from such effective time to the quarter preceding the put or call) but will
convert to FRC common stock if not redeemed or repurchased after four years.
George Russell, his family members and their related trusts are expected to
own approximately 59% in the aggregate of the fully diluted equity units of
FRC at the effective time of the Transaction. Lynn Anderson is also a
shareholder of FRC and is expected to own approximately 1% of the fully
diluted equity units of FRC at the effective time of the Transaction.
At and after the effective time of the Transaction, FRC will be a subsidiary
of Northwestern Mutual. FRIMCo will remain a wholly-owned subsidiary of FRC.
In connection with the Transaction, 50,000,000 shares of new FRC common stock
will be reserved for future issuance under a FRC Incentive Payments Plan. The
Incentive Payments Plan will be established to enhance the value of FRC and
its subsidiaries, including FRIMCo, by motivating superior performance of
management and key employees of the FRC organization after the closing of the
Transaction through the award of shares of FRC common stock and cash (to cover
certain income tax consequences of any stock award) to certain employees of
FRC and its subsidiaries. Over the course of a five-year period from the
effective time of the Transaction, participants in the Incentive Payments Plan
could collectively earn awards constituting up to 20% of the outstanding
common stock of FRC, depending upon FRC's cumulative earnings over the five-
year period. George Russell and his wife, Jane Russell, will be awarded 20% in
the aggregate of the total number of incentive shares that may be issued under
the Incentive Payments Plan. Lynn Anderson is expected to participate in the
Incentive Payments Plan. The number of incentive shares to be granted to Mr.
Anderson will be determined after the closing of the Transaction.
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At the closing, FRC and Northwestern Mutual will enter into a Governance
Agreement (the "Governance Agreement"). Under the Governance Agreement, the
Board of Directors of FRC will be comprised of five persons. Initially,
Northwestern Mutual will elect to the FRC Board George F. Russell, Jr.,
Michael J.A. Phillips (both of whom are currently members of FRC's Board) and
three other Northwestern Mutual-designated persons. Thereafter, Northwestern
Mutual has agreed to take all actions within its power to cause the FRC Board
at all times to be comprised of (i) FRC's Chief Executive Officer and one
other senior officer or employee of FRC designated by the Chief Executive
Officer and approved by a majority of the other FRC directors then in office
(with Messrs. Russell and Phillips, each a "Russell-designated director"); and
(ii) three other persons designated by Northwestern Mutual.
The names, addresses and principal occupations of the initial Russell-
designated directors are as follows:
George F. Russell, Jr., 909 A Street, Tacoma, Washington, 98402; Trustee
and Chairman of the Board since 1984, Frank Russell Investment Company;
Trustee and Chairman of the Board, Russell Insurance Funds; Director,
Chairman of the Board, and Chief Executive Officer, Russell Building
Management Company, Inc.; Director and Chairman of the Board, Frank
Russell Company, Frank Russell Securities, Inc., Frank Russell Trust
Company, Frank Russell Investments (Delaware), Inc.; Director, Frank
Russell Investment Management Company; Director, Chairman of the Board and
President, Russell 20/20 Association.
Michael J.A. Phillips, 909 A Street, Tacoma, Washington, 98402;
Director, President and Chief Executive Officer, Frank Russell Company;
Director and President, Frank Russell Investments (Delaware), Inc.;
Director, Frank Russell Capital Inc., Frank Russell Japan Co., Ltd., Frank
Russell Trust Company, Russell Systems Limited, Frank Russell Company
Limited and Frank Russell Company Pty Limited.
The three initial directors to be designated by Northwestern Mutual have not
yet been determined, but will be selected prior to the closing of the
Transaction. It is currently anticipated that such directors will be selected
from among the executive officers of Northwestern Mutual.
The Governance Agreement, which will terminate no later than December 31,
2008, vests the officers of FRC with the responsibility for day-to-day
management and implementation of FRC's annual operating budget and strategic
plan. However, FRC Board approval is required before certain specified actions
may be taken by FRC or its subsidiaries including, (i) the registration,
issuance and/or sales of securities of FRC and its subsidiaries; (ii) the
merger, consolidation or sale of a substantial portion of assets with or to
another entity (other than another FRC company); (iii) entering into certain
joint ventures, partnerships or other business combinations or acquisitions;
(iv) entering into any material business or line of business other than
investment management, investment consulting, securities trading, analytical
services, and other similar financial
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services, or discontinuing any material line of business; (v) entering into
material exclusivity contracts, or other agreements, which materially restrict
the manner in which FRC or its subsidiaries conduct their investment
management business in any jurisdiction, or any U.S. distribution agreements
with any life insurance company or life insurance marketing company other than
Northwestern Mutual and its affiliates; (vi) selling, leasing or otherwise
disposing of certain assets or property; (vii) assuming, incurring, or
becoming liable for certain material indebtedness for borrowed money; (viii)
pledging, mortgaging or encumbering certain assets; (ix) amending its articles
of incorporation or bylaws or undertaking any recapitalization or similar
plan; (x) changing FRC's heads of internal audit or compliance; (xi) approving
any transaction with key employees or certain related parties; (xii) taking
any action with respect to a FRC stockholder meeting; (xiii) declaring
dividends or distributions on FRC's shares; or (xiv) taking any action
required to be taken or approved by the FRC Board under Washington State
corporate law. With respect to (iv) and (v) above, FRC Board approval must
include the approval of the Chief Executive Officer of FRC. In addition, for a
period of ten years from the date of the Governance Agreement, FRC may not
change its name or move its principal place of business to a location other
than Tacoma, Washington, without the unanimous vote or consent of the FRC
Board.
The closing of the Transaction is subject to a number of conditions,
including, among others, approval by FRC shareholders; a determination that at
the closing date FRC's annualized revenues from investment advisory, retainer
consulting and analytical services (neutralized for market effect and currency
fluctuations) have not fallen below 90% of the level of such revenues as of
July 31, 1998; the absence of any restraining order or injunction preventing
the Transaction, or any litigation seeking such an injunction; the continued
accuracy of the representations and warranties contained in the Transaction
Agreement; delivery and/or filing of certain documents contemplated by the
Transaction Agreement; all material governmental approvals having been
obtained; holders of not more than 2% of the outstanding FRC common stock
having exercised their statutory appraisal rights; and compliance in all
material respects with all agreements and obligations contained in the
Transaction Agreement. Holders entitled to vote a percentage of shares of FRC
sufficient to approve the Transaction have entered into an agreement with
Northwestern Mutual in which they have agreed to vote such shares in favor of
the approval of the Transaction. The Transaction is expected to close on or
about December 30, 1998, with the merger becoming effective on January 1,
1999.
The information set forth under this Proposal #5 concerning FRC and the
Transaction has been provided to the Funds by FRC, and the information set
forth under this Proposal #5 concerning Northwestern Mutual has been provided
to the Funds by Northwestern Mutual.
Founded in 1857, Northwestern Mutual is a mutual insurance corporation
organized under the laws of Wisconsin. Its home office is located at 720 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202-4797. Northwestern Mutual's
products consist of a full
21
<PAGE>
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 (approximately $78 billion in 1997) and total individual life
insurance in force (more than $500 billion at June 30, 1998). Northwestern
Mutual employs over 3,600 people, mostly in Milwaukee, Wisconsin.
FRC, one of the world's leading investment management and consulting firms,
provides investment advice, analytical tools and funds to institutional and
individual investors in more than 30 countries. FRC, through its subsidiaries,
currently manages approximately $40 billion in assets and provides investment
strategy consulting, including manager selection, for more than $1 trillion in
retainer client assets. It is also well known for its family of market
indexes, including the Russell 2000(R). Russell indexes provide complete sets
of performance benchmarks for investors in Australia, Canada, Japan and the
United States. FRC is a three-time winner of Washington CEO magazine's "Best
Large Company to Work For" award in Washington State, and in 1997 was chosen
from among some 12 million family companies to receive the "National Family
Business of the Year" Award. Founded in 1936, the FRC organization is an
established presence in the asset management and mutual fund industry.
REQUIRED VOTE
Approval of this Proposal requires the affirmative vote of a "majority of
the outstanding voting securities" of the Funds, as defined in the 1940 Act,
and as described in more detail in the last paragraph under Proposal #4.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE TO APPROVE THE PROPOSED AGREEMENT WITH
FRIMCO ON BEHALF OF THE FUNDS, TO TAKE EFFECT
UPON THE ACQUISITION OF FRC BY NORTHWESTERN MUTUAL
22
<PAGE>
PROPOSAL #6: TO APPROVE AN AMENDMENT TO
EACH FUND'S FUNDAMENTAL INVESTMENT
RESTRICTIONS TO INCREASE THE AMOUNT WHICH THE
FUND MAY BORROW TO MEET REDEMPTIONS
WHAT IS THE CURRENT LIMITATION ON BORROWING BY THE FUNDS?
Section 18(f)(1) of the 1940 Act provides that it shall be unlawful for any
registered open-end investment company to issue any class of senior security
or to sell any senior security of which it is the issuer, except that any such
registered company shall be permitted to borrow from any bank; provided, that
immediately after any such borrowing, there is an asset coverage of at least
300 per cent for all borrowings of the investment company; and provided
further, that in the event that such asset coverage shall at any time fall
below 300 per cent the registered company shall, within three days thereafter
(not including Sundays and holidays) or such longer period as the SEC may
allow, reduce the amount of its borrowings to an extent that the asset
coverage of such borrowings shall be at least 300 per cent.
The Investment Company, on behalf of the Funds, has previously adopted a
fundamental investment restriction that limits the borrowing authority of each
sub-trust to less than the amount that is permitted by the 1940 Act as
described in the prior paragraph. Specifically, each Fund's investment
restriction on borrowing currently provides:
"[The Fund will not:] Borrow amounts more than 5% of the Fund's total
assets taken at cost or at market value, whichever is lower, and only from
banks as a temporary measure for extraordinary or emergency purposes,
except that [the] Fund may engage in reverse repurchase agreements to meet
redemption requests without immediately selling any portfolio instruments.
The Fund will not mortgage, pledge or in any other manner transfer as
security for any indebtedness, any of its assets. Collateral arrangements
with respect to margin for futures contracts are not deemed a pledge of
assets."
WHY IS AN INCREASE IN THE BORROWING LIMITATION PROPOSED?
At a Board meeting held on April 27, 1998, management reported to the Board
on the prospects for entering into a line of credit for the Investment Company
with a commercial bank, whereby the Investment Company's sub-trusts would be
permitted to borrow money under the line of credit in order to meet redemption
requests. This practice would permit the Funds to pay redemption proceeds to
shareholders without the need to make untimely and disadvantageous
dispositions of securities. Given the current investment restriction of the
Investment Company, borrowings by the Funds for this purpose would be limited
to five percent of each Fund's assets.
At the Board meeting, management recommended that the Trustees consider
approving a revision to the fundamental restriction that would authorize a
higher
23
<PAGE>
borrowing level for the purpose of efficiently meeting shareholder redemption
requests. FRIMCo, in advocating an increase in the borrowing limits for the
Investment Company's sub-trusts, noted that raising the maximum level of
borrowing to conform to the 1940 Act's limitation would give the Investment
Company's money managers greater flexibility in meeting shareholder redemption
requests.
The officers of the Investment Company noted that an increase in the maximum
level of borrowing permitted to the Investment Company's sub-trusts would
permit the Investment Company to negotiate a larger line of credit with a
bank, although the officers advised the Board that there is no current
intention to do so at this time.
At a meeting on June 3, 1998, the Board approved a proposal to increase the
borrowing limit under each Fund's fundamental investment restriction, and
directed that the officers of the Investment Company submit to Shareholders a
proposal to approve such amendment to permit borrowing at a higher level by
the Funds. If approved, each Fund's investment restriction would be revised to
state:
"[The Fund will not:] 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 restriction, provided that the Fund will not
purchase investments when borrowed funds (including reverse repurchase
agreements) exceed 5% of its total assets."
The revised fundamental investment restriction will take effect after
receipt of approval by Shareholders.
To be approved, the proposal must receive the affirmative vote of "a
majority of the outstanding voting securities" of each Fund, as defined in the
1940 Act, and as described in more detail in the last paragraph under Proposal
#4.
THE BOARD OF TRUSTEES RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE A CHANGE IN
EACH FUND'S FUNDAMENTAL RESTRICTIONS TO INCREASE THE
LIMITS ON BORROWING MONEY FOR THE PURPOSE
OF MEETING REDEMPTIONS
24
<PAGE>
PROPOSAL #7: TO APPROVE THE ELIMINATION OF CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS APPLICABLE TO THE FUNDS
In October 1996, Congress enacted the National Securities Markets
Improvement Act of 1996 ("NSMIA") to promote efficiency and capital formation
in the financial markets. Among its provisions, NSMIA preempted states from
regulating the offering of securities of registered investment companies, such
as the Investment Company. In practical effect, NSMIA nullified a body of
differing state securities laws applicable to operational and investment
requirements that had historically been imposed on investment companies by
some states.
As a result of the enactment of NSMIA, certain of the fundamental and non-
fundamental investment policies and restrictions adopted in the past by the
Funds to comply with state qualification requirements were rendered no longer
necessary. At the Board meeting held on November 4, 1996, management
recommended that the Trustees approve, subject to Shareholder approval, the
elimination of certain fundamental and non-fundamental investment policies and
restrictions, which appear in the Investment Company's Statements of
Additional Information. The fundamental restrictions for each of the Funds
which are proposed to be eliminated are substantially as follows:
1) The Fund will not invest in interests in oil, gas or other mineral
exploration or development programs;
2) The Fund will not invest in securities of an issuer which, together
with any predecessor, has been in operation for less than three years if,
as a result, more than 5% of the Fund's total assets would then be
invested in such securities; and
3) The Fund will not purchase or retain the securities of an issuer if,
to the Fund's knowledge, one or more of the Trustees or officers of the
Investment Company, or one or more of the officers or directors of the
money manager responsible for the investment or its directors or officers,
individually own beneficially more than 1/2 of 1% of the securities of
such issuer and together own beneficially more than 5% of such securities.
In addition, Shareholders of the Equity I, Equity II, Equity III, Equity Q,
Equity T, Emerging Markets, Fixed Income II, Fixed Income III, Diversified
Equity, Special Growth, Equity Income, Quantitative Equity, and Multistrategy
Bond Funds are being asked to approve the elimination of the following
additional fundamental restriction:
4) The Fund will not invest more than 5% of the current market value of
its assets in warrants which are not listed on the New York or American
Stock Exchanges.
Management believes that the fundamental restrictions identified above limit
the Funds' money managers without a commensurate reduction in risk for the
Funds, and hence, benefit neither the Funds nor their Shareholders. Since
NSMIA has preempted the
25
<PAGE>
states' ability to compel the Funds' compliance with these investment
restrictions, the Board approved the elimination, subject to Shareholder
approval, of each of the restrictions set forth above. However, the Funds have
no present intention to engage in those types of investment activities from
which the Funds were previously restricted.
Shareholders must vote to eliminate each investment restriction identified
above individually.
To be approved, the elimination of each fundamental investment restriction
must receive the affirmative vote of "a majority of the outstanding voting
securities" of each Fund, as defined in the 1940 Act, and as described in more
detail in the last paragraph under Proposal #4.
THE BOARD OF TRUSTEES RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE ELIMINATION OF
CERTAIN FUNDAMENTAL INVESTMENT RESTRICTIONS
APPLICABLE TO THE FUNDS
PROPOSAL #8: TO APPROVE A PROPOSED CHANGE
IN THE LIMITED VOLATILITY TAX FREE FUND'S FUNDAMENTAL
INVESTMENT OBJECTIVE
The Limited Volatility Tax Free Fund's (the "Tax Free Fund") current
investment objective is to provide a high level of federal tax-exempt income
consistent with preservation of capital, by investing primarily in municipal
obligations maturing in seven years or less from the date of acquisition. At a
Board meeting held on April 27, 1998, management recommended that the Tax Free
Fund's investment objective be revised to state that the Fund will seek to
provide a high level of federal tax exempt current income by investing
primarily in a diversified portfolio of investment grade municipal securities.
The principal significance of this change will be to permit the Tax Free Fund
to adjust its maximum maturity limit to reflect investment factors affecting
the marketplace, instead of operating within a fixed maximum maturity of seven
years. The Tax Free Fund currently intends to invest 100%, and will always
invest at least 80%, of its net assets in municipal obligations.
Management suggested, and the Board agreed, that an increase in the range of
maturities which the Tax Free Fund might acquire could offer the potential for
an improvement in the range of yields available to the Fund for investment.
For the same reason, management suggested that it would expect to ease the Tax
Free Fund's credit restrictions to permit the possibility of investing in
securities which offer a higher yield in recognition of the slightly higher
risk posed by the creditworthiness of the issuer. Management described the
concept that portfolio investments with a longer maturity might be more
volatile in the marketplace, and noted that the increase in the range was
expected to produce a corresponding increase in the average weighted maturity
of the
26
<PAGE>
portfolio. The Board considered these factors, and concluded that there was a
reasonable basis to anticipate that the additional return would justify the
possibility of a change in the portfolio's average maturity.
In conjunction with the modification of the Tax Free Fund's investment
objective, management indicated to the Board that the Tax Free Fund's current
benchmark would change from The Lehman Brothers Three Year Municipal Bond
Index to The Lehman Brothers Three to Ten Year Municipal Bond Index. This
index will better reflect the wider range of maturities available to the Tax
Free Fund under this proposal. Furthermore, it was also proposed that the
advisory fee for the Tax Free Fund be reduced from 0.45%/1/ to 0.30% of the
Tax Free Fund's average daily net assets. Management suggested that the fee
reduction in Proposal #4 above, together with the proposed changes, could
improve the Tax Free Fund's market identity and could result in increased
sales of the Fund's shares. In this regard, it was also proposed that the name
of the Tax Free Fund be changed to the Tax Exempt Bond Fund.
The Board considered these factors, and recommended that the proposed change
in the Tax Free Fund's investment objective be presented for shareholder
approval at the Special Meeting. To be approved, the new investment objective
must receive the affirmative vote of a "majority of the outstanding voting
securities" of the Tax Free Fund, as defined in the 1940 Act, and as described
in more detail in the last paragraph of Proposal #4. The Board also approved
the proposed change in the name of the Fund.
- ----------
1 The 0.45% was 0.50% before the implementation of the proposal to reallocate
advisory and administrative services.
THE BOARD OF TRUSTEES RECOMMENDS THAT
SHAREHOLDERS OF THE TAX FREE FUND VOTE TO
APPROVE THE PROPOSED INVESTMENT OBJECTIVE
27
<PAGE>
INFORMATION REGARDING THE CURRENT MANAGEMENT AGREEMENT
The table below sets forth (i) the net assets of each Fund as of the
Investment Company's year ended December 31, 1997; (ii) the rate of management
fee, computed daily and payable monthly, to which FRIMCo is entitled for the
services provided and expenses assumed pursuant to the Management Agreement;
(iii) the management fees paid by FRIMCo to each Fund's money managers for
their investment selection services for the year ended December 31, 1997; and
(iv) the actual management fees (net of waivers) paid by each Fund for the
year ended December 31, 1997.
<TABLE>
<CAPTION>
ANNUAL
MANAGEMENT FEES PAID TO MANAGEMENT FEES
FEE (BASED MONEY MANAGERS (NET OF WAIVERS)
NET ASSETS AS ON AVERAGE FOR FISCAL YEAR FOR
NAME OF FUND OF 12/31/97 NET ASSETS) ENDED 12/31/97 YEAR ENDED 12/31/97
------------ ----------------- ----------- --------------- -------------------
<S> <C> <C> <C> <C>
Diversified Equity
Fund................... $1,042,619,846.00 0.78 0.23 0.78
Special Growth Fund..... $ 572,635,141.00 0.95 0.40 0.95
Equity Income Fund...... $ 226,952,198.00 0.80 0.19 0.80
Quantitative Equity
Fund................... $ 996,879,538.00 0.78 0.19 0.78
International Securities
Fund................... $ 839,766,613.00 0.95 0.39 0.95
Diversified Bond Fund... $ 687,330,897.00 0.45 0.08 0.45
Multistrategy Bond
Fund................... $ 437,311,610.00 0.65 0.21 0.58
Limited Volatility Tax
Free Fund.............. $ 83,075,721.00 0.50 0.25 0.50
Volatility Constrained
Bond Fund.............. $ 172,976,445.00 0.50 0.17 0.50
Real Estate Securities
Fund................... $ 615,482,560.00 0.85 0.29 0.85
U.S. Government Money
Market Fund............ $ 187,412,297.00 0.25 0.00 0.03
Tax Free Money Market
Fund................... $ 130,724,586.00 0.25 0.10 0.15
Equity I Fund........... $1,136,372,648.00 0.60 0.23 0.60
Equity II Fund.......... $ 482,158,859.00 0.75 0.40 0.75
Equity III Fund......... $ 242,111,519.00 0.60 0.19 0.60
Equity Q Fund........... $ 987,760,320.00 0.60 0.19 0.60
International Fund...... $ 972,734,906.00 0.75 0.39 0.75
Emerging Markets Fund... $ 333,051,657.00 1.20 0.68 1.20
Fixed Income I Fund..... $ 798,252,421.00 0.30 0.08 0.30
Fixed Income II Fund.... $ 229,469,933.00 0.50 0.17 0.50
Fixed Income III Fund... $ 382,433,194.00 0.55 0.21 0.55
Equity T Fund........... $ 109,735,041.00 0.75 0.31 0.68
Money Market Fund....... $ 926,282,567.00 0.25 0.00 0.10
Aggressive Strategy
Fund................... $ 5,307,274.00 0.25 0.00 0.00
Balanced Strategy Fund.. $ 3,554,496.00 0.25 0.00 0.00
Moderate Strategy Fund.. $ 385,127.00 0.25 0.00 0.00
Conservative Strategy
Fund................... $ 22,620.00 0.25 0.00 0.00
Equity Balanced Strategy
Fund................... $ 2,985,162.00 0.25 0.00 0.00
</TABLE>
28
<PAGE>
The table below sets forth the fees and expenses for each Fund that are
expected to be incurred as a result of the implementation of the Proposed
Advisory Agreement described above in Proposal #4. For your reference, the
current and the proposed management fees, other expenses and total Fund
operating expenses are depicted.
<TABLE>
<CAPTION>
CURRENT PROPOSED
CURRENT CURRENT TOTAL FUND PROPOSED PROPOSED TOTAL FUND
MANAGEMENT OTHER OPERATING MANAGE- OTHER OPERATING
NAME OF FUND FEE EXPENSES EXPENSES MENT FEE EXPENSES EXPENSES
------------ ---------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Diversified Equity
Fund................... 0.78 0.17 0.95 0.73 0.22 0.95
Special Growth Fund..... 0.95 0.25 1.20 0.90 0.30 1.20
Equity Income Fund...... 0.80 0.26 1.06 0.75 0.31 1.06
Quantitative Equity
Fund................... 0.78 0.16 0.94 0.73 0.21 0.94
International Securities
Fund................... 0.95 0.35 1.30 0.90 0.40 1.30
Diversified Bond Fund... 0.45 0.14 0.59 0.40 0.19 0.59
Multistrategy Bond
Fund................... 0.65 0.22 0.87 0.60 0.27 0.87
Limited Volatility Tax
Free Fund.............. 0.50 0.21 0.71 0.30 0.26 0.56
Volatility Constrained
Bond Fund.............. 0.50 0.24 0.74 0.45 0.29 0.74
Real Estate Securities
Fund................... 0.85 0.54 1.39 0.80 0.59 1.39
U.S. Government Money
Market Fund............ 0.25 0.27 0.52 0.20 0.32 0.52
Tax Free Money Market
Fund................... 0.25 0.13 0.38 0.20 0.18 0.38
Equity I Fund........... 0.60 0.10 0.70 0.55 0.15 0.70
Equity II Fund.......... 0.75 0.18 0.93 0.70 0.23 0.93
Equity III Fund......... 0.60 0.15 0.75 0.55 0.20 0.75
Equity Q Fund........... 0.60 0.08 0.68 0.55 0.13 0.68
International Fund...... 0.75 0.26 1.01 0.70 0.31 1.01
Emerging Markets Fund... 1.20 0.61 1.81 1.15 0.66 1.81
Fixed Income I Fund..... 0.30 0.11 0.41 0.25 0.16 0.41
Fixed Income II Funds... 0.50 0.17 0.67 0.45 0.22 0.67
Fixed Income III Fund... 0.55 0.16 0.71 0.50 0.21 0.71
Equity T Fund........... 0.75 0.32 1.07 0.70 0.37 1.07
Money Market Fund....... 0.25 0.06 0.31 0.20 0.11 0.31
Aggressive Strategy
Fund................... 0.25 0.25 0.50 0.20 0.30 0.50
Balanced Strategy Fund.. 0.25 0.25 0.50 0.20 0.30 0.50
Moderate Strategy Fund.. 0.25 0.25 0.50 0.20 0.30 0.50
Conservative Strategy
Fund................... 0.25 0.25 0.50 0.20 0.30 0.50
Equity Balanced Strategy
Fund................... 0.25 0.25 0.50 0.20 0.30 0.50
</TABLE>
29
<PAGE>
For the year ended December 31, 1997, brokerage commissions paid by the
Funds were:
<TABLE>
<S> <C>
Equity I Fund...................................................... $ 2,525,291
Equity II Fund..................................................... 743,450
Equity III Fund.................................................... 540,862
Equity Q Fund...................................................... 1,323,995
Equity T Fund...................................................... 40,539
International Fund................................................. 2,679,272
Emerging Markets Fund.............................................. 1,722,534
Diversified Equity Fund............................................ 2,340,509
Special Growth Fund................................................ 828,211
Equity Income Fund................................................. 515,622
Quantitative Equity Fund........................................... 1,069,927
International Securities Fund...................................... 2,193,334
Real Estate Securities Fund........................................ 641,659
-----------
Total........................................................... $17,165,205
===========
</TABLE>
Fixed Income I, Fixed Income II, Fixed Income III, Diversified Bond,
Multistrategy Bond, Limited Volatility Tax Free, US Government Money Market
and Tax Free Money Market Funds normally do not pay a stated brokerage
commission on a transaction. These latter Funds, however, engage in
transactions with dealers acting as principal and the costs of such
transactions involve dealer spreads rather than brokerage commissions.
DIRECTORS AND OFFICERS OF FRIMCO
Set forth below are the names and current positions of the directors and
officers of FRIMCo, along with their positions with FRC and/or the Investment
Company, if applicable:
<TABLE>
<CAPTION>
NAME INVESTMENT COMPANY FRIMCO FRC
---- ------------------ ------ ---
<S> <C> <C> <C>
George F. Russell, Jr......... Trustee, Director Director,
Chairman of Chairman of
the Board the Board
Lynn L. Anderson.............. Trustee, Director, Director
President, and Chairman of
Chief the Board and
Executive Chief
Officer Executive
Officer
Randall P. Lert............... Director of Director --
Investments
Eric A. Russell............... -- Director, Director
President
Karl J. Ege................... Secretary and Secretary and Director,
General General Secretary and
Counsel Counsel General
Counsel
Peter F. Apanovitch........... Manager of Manager of --
Short Term Short Term
Investment Investment
Funds Funds
Mark E. Swanson............... Treasurer and Interim --
Chief Director of
Accounting Fund
Officer Administration
and Accounting
</TABLE>
30
<PAGE>
INFORMATION REGARDING THE SOLICITATION AND REVOCATION
OF PROXIES AND VOTING INFORMATION
This Proxy Statement is provided on behalf of the Board of Trustees of the
Investment Company in connection with a Special Meeting in lieu of Annual
Meeting of Shareholders of the Investment Company to be held at the offices of
the Investment Company at 909 A Street, Tacoma, Washington 98402, on Thursday,
November 19, 1998 at 10:00 a.m., local time, and at any or all adjournments
thereof. This Proxy Statement is first being mailed to Shareholders on or
about October 19, 1998. You may revoke your proxy at any time before it is
exercised by delivering a written notice to the Investment Company expressly
revoking your proxy, by signing and forwarding to the Investment Company a
later-dated proxy, or by attending the Special Meeting and casting your votes
in person.
The Investment Company requests that broker-dealer firms, custodians,
nominees and fiduciaries forward proxy material to the beneficial owners of
the shares held of record by such persons. The Investment Company may
reimburse such broker-dealer firms, custodians, nominees and fiduciaries for
their reasonable expenses incurred in connection with such proxy solicitation.
The cost of soliciting these proxies will be borne by each Fund, to the extent
of its direct operational expenses, and by FRIMCo. In addition to
solicitations by mail, some of the officers and employees of the Investment
Company, FRIMCo and Russell Fund Distributors, Inc. ("Distributors") without
extra remuneration, may conduct additional solicitations by telephone or
facsimile or computer transmission or in person. The Investment Company has
engaged Management Information Systems to solicit proxies from brokers, banks,
other institutional holders and individual shareholders for an approximate
fee, including out-of-pocket expenses, ranging between $100,000 and $125,000.
WHO MAY VOTE AT THE SPECIAL MEETING?
The Board of the Investment Company has fixed the close of business on
September 21, 1998, as the record date (the "Record Date") for the
determination of Shareholders entitled to notice of and to vote at the Special
Meeting and any adjournments thereof. Only holders of record of shares at the
close of business on the Record Date are entitled to notice of, and to vote
at, the Special Meeting and any adjournments thereof. The holders of 5% or
more of a Fund's shares are listed in the section "Principal Shareholders"
below. At the close of business on the Record Date, the total number of voting
shares of each Fund issued and outstanding was:
<TABLE>
<CAPTION>
TOTAL NUMBER OF
NAME OF FUND VOTING SHARES OUTSTANDING
------------ -------------------------
<S> <C>
Diversified Equity Fund............................. 25,854,118.228
Special Growth Fund................................. 14,152,605.448
Equity Income Fund.................................. 6,265,900.300
Quantitative Equity Fund............................ 28,925,638.822
International Securities Fund....................... 15,151,655.731
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
TOTAL NUMBER OF
NAME OF FUND VOTING SHARES OUTSTANDING
------------ -------------------------
<S> <C>
Diversified Bond Fund............................... 32,376,933.148
Multistrategy Bond Fund............................. 50,019,618.693
Limited Volatility Tax Free Fund.................... 5,620,717.167
Real Estate Securities Fund......................... 23,111,462.623
U.S. Government Money Market Fund................... 163,590,561.150
Tax Free Money Market Fund.......................... 174,352,796.480
Equity I Fund....................................... 39,041,506.113
Equity II Fund...................................... 15,870,896.305
Equity III Fund..................................... 6,846,758.636
Equity Q Fund....................................... 28,599,326.949
International Fund.................................. 27,571,219.230
Emerging Markets Fund............................... 35,826,023.873
Fixed Income I Fund................................. 43,801,363.994
Fixed Income II Fund................................ 13,519,212.924
Fixed Income III Fund............................... 44,236,094.602
Equity T Fund....................................... 14,733,199.593
Money Market Fund................................... 415,020,060.700
Aggressive Strategy Fund............................ 5,392,618.618
Balanced Strategy Fund.............................. 13,801,111.072
Moderate Strategy Fund.............................. 1,607,639.757
Conservative Strategy Fund.......................... 401,786.942
Equity Balanced Strategy Fund....................... 8,763,644.624
-----------------
Total Shares........................................ 1,264,526,959.366
=================
</TABLE>
The holder of record of each full share of beneficial interest of a Fund
outstanding as of the close of business on the Record Date is entitled to one
vote for each share held of record upon each matter properly submitted to the
Special Meeting or any adjournments thereof, with a proportionate vote for
each fractional share.
WHAT OTHER BUSINESS WILL BE DISCUSSED AT THE SPECIAL MEETING IN LIEU OF ANNUAL
MEETING?
The Board of Trustees does not intend to present any matters before the
Special Meeting in lieu of Annual Meeting other than as described in this
Proxy Statement, and is not aware of any other matters to be brought before
the Meeting or any adjournments thereof by others. IF ANY OTHER MATTER LEGALLY
COMES BEFORE THE MEETING, YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS OF THE BOARD OF TRUSTEES OF THE INVESTMENT COMPANY, AND IN THE
JUDGMENT OF THE NAMED PROXIES.
WHAT IF A QUORUM IS NOT PRESENT AT THE SPECIAL MEETING IN LIEU OF ANNUAL
MEETING?
In the event a quorum is not present at the Special Meeting in lieu of
Annual Meeting or sufficient votes to approve a proposal are not received, the
persons named as proxies may propose one or more adjournments of the Special
Meeting to permit further solicitation of proxies. A shareholder vote may be
taken on any other matter to properly come before the Meeting prior to such
adjournment if sufficient votes to approve such matters have been received and
such vote is otherwise appropriate. Any adjournment of the Meeting will
require the affirmative vote of a majority of those shares present at the
32
<PAGE>
Meeting or represented by proxy and voting. The persons named as proxies on
the proxy card will vote against any such adjournment those proxies required
to be voted against such proposal. They will vote in favor of an adjournment
all other proxies which they are entitled to vote. The costs of any such
additional solicitation and of any adjourned session will be borne by the
Investment Company. Abstentions and broker "non-votes" (i.e., proxies from
brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other person entitled to vote shares
on a particular matter with respect to which the brokers or nominees do not
have discretionary power) will be counted as shares that are present for
purposes of determining the presence of a quorum. Abstentions (but not broker
non-votes) have the effect of a "no" vote when determining whether a proposal
has received sufficient votes to be approved.
PRINCIPAL SHAREHOLDERS
As of September 21, 1998, the only persons known by the Investment Company
to be beneficial owners of more than 5% of the Investment Company's voting
securities are:
<TABLE>
<CAPTION>
BENEFICIARY OWNER NAME AND ADDRESS SHARES PERCENT
- --------------------------------------------------------------------------------
<S> <C> <C>
Ronald Blue & Co ..................................... 249,972,380.534 19.768%
1100 Johnson Ferry Road, N.E.
Atlanta, GA 30342
- --------------------------------------------------------------------------------
Anchor/Russell Capital Advisors, Inc. ................ 93,222,375.280 7.372%
One Post Office Square, 38th Floor
Boston, MA 02109
- --------------------------------------------------------------------------------
Miller/Russell and Associates, Inc. .................. 81,373,172.206 6.435%
2929 E. Camelback Road Suite 223
Phoenix, AZ 85016
</TABLE>
The persons known to hold more than 5% of the respective Funds are listed in
the table in Exhibit E.
ADDITIONAL INFORMATION
HOW ARE THE FUNDS DISTRIBUTED?
Russell Funds Distributors, Inc., located at 909 A Street, Tacoma, WA 98402,
a wholly-owned subsidiary of FRIMCo, serves as the principal underwriter of
the Investment Company's shares. Distributors receives no compensation from
the Investment Company for its services.
MASSACHUSETTS STATE LAW CONSIDERATIONS
The Investment Company is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such
a trust may, under certain circumstances, be held personally liable as
partners for its obligations. However, the Amended Master Trust Agreement of
the Investment Company contains
33
<PAGE>
an express disclaimer of shareholder liability for acts or obligations of the
Investment Company and provides for indemnification and reimbursement of
expenses out of the Investment Company's property for any shareholder held
personally liable for the obligations of the Investment Company. The Amended
Master Trust Agreement also provides that the Investment Company may maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Investment Company, the shareholders of
the sub-trusts, Trustees, officers, employees and agents covering possible
tort and other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability also is limited to
circumstances in which both inadequate insurance exists and the Investment
Company itself is unable to meet its obligations.
Under Massachusetts law, the Investment Company is not required to hold
annual meetings. In the past, the Funds have availed themselves of these
provisions of state law to achieve cost savings by eliminating printing costs,
mailing charges and other expenses involved to hold routine annual meetings.
The Funds may, however, hold a meeting for such purposes as changing
fundamental investment restrictions, approving a new investment management
agreement or any other matters which are required to be acted on by
shareholders under the 1940 Act. In addition, a meeting also may be called by
shareholders holding at least 10% of the shares entitled to vote at the
meeting for the purpose of voting upon the removal of Trustees, in which case
shareholders may receive assistance in communicating with other shareholders
such as that provided in Section 16(c) of the 1940 Act. The Investment Company
is holding the Special Meeting in lieu of an annual meeting because of the
items that must be presented for Shareholders' consideration and approval.
As of September 21, 1998, the officers and Trustees of the Investment
Company as a group beneficially owned less than 1% of the shares of each Fund
outstanding on such date.
ANNUAL AND SEMI-ANNUAL REPORTS
A Fund will furnish, without charge, a copy of the Fund's Annual Report and
the most recent Semi-Annual Report succeeding the Annual Report to a
Shareholder upon request. A Shareholder may receive the report by writing to
the Secretary, Frank Russell Investment Company, 909 A Street, Tacoma,
Washington 98402 or by telephoning 1-800-787-7354.
By Order of the Trustees,
/s/ Karl J. Ege
Karl J. Ege
Secretary
October 19, 1998
34
<PAGE>
EXHIBITS TO PROXY STATEMENT
EXHIBIT
A. List of Money Managers.
B. Current Management Agreement (the "Management Agreement") between the
Investment Company and FRIMCo.
C. Proposed Advisory Agreement ("Proposed Advisory Agreement") between the
Investment Company and FRIMCo.
D. Expense Tables Reflecting Separation of Advisory and Administrative
Fees.
E. Five Percent Shareholders.
35
<PAGE>
EXHIBIT A
LIST OF MONEY MANAGERS
As of the date of this Proxy Statement, the money managers for the Funds,
along with their addresses, are as follows:
DIVERSIFIED EQUITY FUND
Alliance Capital Management L.P., First Bank Place, 601 2nd Ave. South,
Suite 5000, Minneapolis, MN 55402-4322.
Barclays Global Fund Advisors N.A., 45 Freemont Street, San Francisco, CA
94105.
Equinox Capital Management, Inc., 590 Madison Ave., 41st Floor, New York, NY
10022.
INVESCO Capital Management, Inc., 1315 Peachtree Street N.E., Suite 500,
Atlanta, GA 30309.
Lincoln Capital Management Company, 200 South Wacker Drive, Suite 2100,
Chicago, IL 60606.
Morgan Stanley Asset Management, Inc., 1221 Avenue of the Americas, New
York, NY 10020.
Peachtree Asset Management, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308.
Schneider Capital Management, 460 E. Swedesford Road, Suite 1080, Wayne, PA
19087.
Suffolk Capital Management, Inc., 250 West 57th Street, Suite 420, New York,
NY 10107.
Trinity Investment Management Corp., 75 Park Plaza, Boston, MA 02116.
SPECIAL GROWTH FUND
Delphi Management, Inc., 50 Rowes Wharf, Suite 440, Boston, MA 02110.
Fiduciary International, Inc., 2 World Trade Center, New York, NY 10048.
GlobeFlex Capital, L.P., 4365 Executive Drive, Suite 720, San Diego, CA
92121.
Jacobs Levy Equity Management, Inc., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.
Sirach Capital Management, Inc., One Union Square, Suite 3323, 600 Union
Street, Seattle, WA 98101.
Wellington Management Company LLP, 75 State Street, Boston, MA 02109.
A-1
<PAGE>
Westpeak Investment Advisors, L.P., 1011 Walnut Street, Suite 400, Boulder,
CO 80302.
EQUITY INCOME FUND
Equinox Capital Management, Inc., See: Diversified Equity Fund.
Trinity Investment Management Corp., See: Diversified Equity Fund.
Westpeak Investment Advisors, L.P., See: Special Growth Fund
QUANTITATIVE EQUITY FUND
Barclays Global Fund Advisors N.A., See: Diversified Equity Fund.
Franklin Portfolio Associates LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.
J.P. Morgan Investment Management Inc., 522 Fifth Ave., New York, NY 10036.
INTERNATIONAL SECURITIES FUND
J.P. Morgan Investment Management Inc., See: Quantitative Equity Fund.
Marathon Asset Management Limited, Orion House, 5 Upper St. Martin S. Lane,
London, England WC2H 9EA.
Mastholm Asset Management, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue,
WA 98004.
Oechsle International Advisors, LLC One International Place, 23rd Floor,
Boston, MA 02110.
Rowe Price-Fleming International, Inc., 100 East Pratt Street, 9th Floor,
Baltimore, MD 21202, and 4th Floor, 25 Copthall Ave., London, England EC2R
7DR.
Sanford C. Bernstein & Co., Inc., 767 Fifth Avenue, New York, NY 10153.
The Boston Company Asset Management, Inc., One Boston Place, 14th Floor,
Boston, MA 02108-4402.
DIVERSIFIED BOND FUND
Lincoln Capital Management Company, See: Diversified Equity Fund.
Pacific Investment Management Company, 840 Newport Center Drive, Suite 360,
Newport Beach, CA 92660.
Standish, Ayer & Wood, Inc., One Financial Center, Boston, MA 02111.
A-2
<PAGE>
MULTISTRATEGY BOND FUND
BEA Associates, One Citicorp Center, 153 East 53rd Street, 58th Floor, New
York, NY 10022.
Pacific Investment Management Company, See: Diversified Bond Fund.
Standish, Ayer & Wood, Inc., See: Diversified Bond Fund.
LIMITED VOLATILITY TAX FREE FUND
MFS Institutional Advisors, Inc., 500 Boylston Street, Boston, MA 02116.
Standish Ayer & Wood, Inc., See Diversified Bond Fund.
REAL ESTATE SECURITIES FUND
Cohen & Steers Capital Management, 757 Third Avenue, New York, NY 10017.
AEW Capital Management, L.P., 225 Franklin Street, Boston, MA 02110-2803.
U.S. GOVERNMENT MONEY MARKET FUND
Frank Russell Investment Management Company, 909 A Street, Tacoma, WA 98402.
TAX FREE MONEY MARKET FUND
Weiss, Peck & Greer Advisers, L.L.C., One New York Plaza, 30th Floor, New
York, NY 10004.
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.
INVESCO Capital Management, Inc., See: Diversified Equity Fund.
Lincoln Capital Management Company, See: Diversified Equity Fund.
Morgan Stanley Asset Management, Inc., See: Diversified Equity Fund.
Peachtree Asset Management, See: Diversified Equity Fund.
Schneider Capital Management, See: Diversified Equity Fund.
Suffolk Capital Management, Inc., See: Diversified Equity Fund.
Trinity Investment Management Corp., See: Diversified Equity Fund.
A-3
<PAGE>
EQUITY II FUND
Delphi Management, Inc., See: Special Growth Fund.
Fiduciary International, Inc., See: Special Growth Fund.
GlobeFlex Capital, L.P., See: Special Growth Fund.
Jacobs Levy Equity Management, Inc., See: Special Growth Fund.
Sirach Capital Management, Inc., See: Special Growth Fund.
Wellington Management Company, See: Special Growth Fund.
Westpeak Investment Advisors, L.P., See Special Growth Fund.
EQUITY III FUND
Equinox Capital Management, Inc., See: Diversified Equity Fund
Trinity Investment Management Corp., See: Diversified Equity Fund
Westpeak Investment Advisors, L.P., See: Special Growth Fund
EQUITY Q FUND
Barclays Global Fund Advisors, See: Diversified Equity Fund.
Franklin Portfolio Associates Trust, See: Quantitative Equity Fund.
J.P. Morgan Investment Management Inc., See: Quantitative Equity Fund.
INTERNATIONAL FUND
J.P. Morgan Investment Management Inc., See: Quantitative Equity Fund.
Marathon Asset Management Limited, See: International Securities Fund.
Mastholm Asset Management, LLC, See: International Securities Fund.
Oechsle International Advisors, LLC, See: International Securities Fund.
Rowe Price-Fleming International, Inc., See: International Securities Fund.
Sanford C. Bernstein & Co., See: International Securities Fund.
The Boston Company Asset Management, Inc., See: International Securities
Fund.
EMERGING MARKETS FUND
Genesis Asset Managers, Ltd., 21 Knights Bridge, London, SW1X 7LY.
J.P. Morgan Asset Management, Inc., See: Quantitative Equity Fund.
A-4
<PAGE>
Montgomery Asset Management LCC., 101 California Street, San Francisco, CA
94111.
FIXED INCOME I FUND
Lincoln Capital Management Company, See: Diversified Equity Fund.
Pacific Investment Management Company, See: Diversified Bond Fund.
Standish, Ayer & Wood, Inc., See: Diversified Bond Fund.
FIXED INCOME II FUND
BlackRock Financial Management, 345 Park Ave., 31st Floor, New York, NY
10154.
Standish, Ayer & Wood, Inc., See: Diversified Bond Fund.
STW Fixed Income Management, Ltd., Trinity Hall, 43 Cedar Avenue, Hamilton
HM KX, Bermuda.
FIXED INCOME III FUND
BEA Associates, See: Multistrategy Bond Fund.
Pacific Investment Management Company, See: Diversified Bond Fund.
Standish, Ayer & Wood, Inc., See: Volatility Constrained Bond Fund.
EQUITY T FUND
J.P. Morgan Investment Management, Inc., See: Quantitative Equity Fund.
MONEY MARKET FUND
Frank Russell Investment Management Company, See: U.S. Government Money
Market Fund.
A-5
<PAGE>
EXHIBIT B
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT amended and restated this 27th day of April, 1998
(the"Agreement"), between FRANK RUSSELL INVESTMENT COMPANY, a Massachusetts
business trust hereinafter called the "Trust" and FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY, a Washington Corporation hereinafter called the "Manager."
WHEREAS, the Trust has been organized by and at the expense of a company
affiliated with the Manager and operates as an investment company of the
"series" type registered under the Investment Company Act of 1940 ("1940 Act")
for the purpose of investing and reinvesting its assets in portfolios of
securities, each of which has distinct investment objectives and policies
(each distinct portfolio being referred to herein as a "Sub-Trust"), as set
forth more fully in its Master Trust Agreement, its By-Laws and its
Registration Statements under the 1940 Act and the Securities Act of 1933, all
as heretofore amended and supplemented; and the Trust desires to avail itself
of the services, information, advice, assistance, and facilities of a manager
and to have a manager perform for it various management, administrative,
statistical, research, money manager selection, investment management, and
other services; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Adviser's Act of 1940 and will engage in the business of rendering
investment advice, counseling, money manager recommendation, and supervisory
services to investment consulting clients; and the Manager and its affiliated
corporations have undertaken the initiative and expense of organizing the
Trust in order to have a means to commingle assets for certain investors to
have access to and utilize the "Multi-Style, Multi-Manager" method of
investment and to provide services to the Trust in consideration of and on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, Trust and the Manager agree as follows:
1. Employment of the Manager. The Trust hereby employs the Manager to manage
the investment and reinvestment of the Trust's assets and to act as a
discretionary Money Manager to certain of the Sub-Trusts in the manner set
forth in Section 2(B) of this Agreement, and to administer its business and
administrative operations, subject to the direction of the Board of Trustees
and the officers of the Trust, for the period, in the manner, and on the terms
hereinafter set forth. The Manager hereby accepts such employment and agrees
during such period to render the services and to assume the obligations herein
set forth. The Manager shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Trust in any way.
B-1
<PAGE>
2. Obligations of and Services to be Provided by the Manager. The Manager
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
A. Management and Administrative Services.
(1) The Manager shall furnish to the Trust adequate (a) office
space, which may be space within the offices of the Manager or in such
other place as may be agreed upon from time to time, (b) office
furnishings, facilities, and equipment as may be reasonably required
for managing and administering the business and operations of the
Trust, including (i) complying with the business trust, securities,
and tax reporting requirements of the United States and the various
states in which the Trust does business, (ii) conducting
correspondence and other communications with the Shareholders of the
Trust, and (iii) maintaining or supervising the maintenance of all
internal bookkeeping, accounting, and auditing services and records in
connection with the Trust's investment and business activities. The
Trust agrees that its shareholder recordkeeping services, the
computing of net asset value and the preparation of certain of its
records required by Rule 31 under the 1940 Act are maintained by the
Trust's Transfer Agent, Custodian, and Money Managers, and that with
respect to these records the Manager's obligations under this Section
2(A) are supervisory in nature.
(2) The Manager shall employ or provide and compensate the
executive, administrative, secretarial, and clerical personnel
necessary to supervise the provision of the services set forth in sub-
paragraph 2(A) (l), and shall bear the expense of providing such
services except as provided in Section 4 of this Agreement. The
Manager shall also compensate all officers and employees of the Trust
who are officers or employees of the Manager, or its affiliated
companies.
B. Investment Management Services.
(1) The Trust intends to appoint one or more persons or companies
("Money manager[s]") for each of the Sub-Trusts or segments thereof,
and each Money Manager shall have full investment discretion and shall
make all determinations with respect to the investment of a Sub-
Trust's assets assigned to the Money Manager and the purchase and sale
of portfolio securities with those assets, and such steps as may be
necessary to implement its decision. The Manager shall not be
responsible or liable for the investment merits of any decision by a
Money Manager to purchase, hold, or sell a security for a Sub-Trust
portfolio.
(2) The Manager shall, subject to and in accordance with the
investment objectives and policies of the Trust and each Sub-Trust and
any directions which the Trust's Board of Trustees may issue to the
Manager, have: (i) overall supervisory responsibility for the general
management and investment of the
B-2
<PAGE>
Trust's assets and securities portfolios; and (ii) full investment
discretion to make all determinations with respect to the investment
of Sub-Trust assets not assigned to a Money Manager.
(3) The Manager shall develop overall investment programs and
strategies for each Sub-Trust, or segments thereof, shall revise such
programs as necessary, and shall monitor and report periodically to
the Board of Trustees concerning the implementation of the programs.
(4) The Manager shall research and evaluate Money Managers and shall
advise the Board of Trustees of the Trust of the Money Managers which
the Manager believes are best suited to invest the assets of each Sub-
Trust; shall monitor and evaluate the investment performance of each
Money Manager employed by the Trust; shall determine the portion of
each Sub-Trust's assets to be managed by each Money Manager; shall
recommend changes or additions of Money Managers when appropriate;
shall coordinate the investment activities of the Money Managers; and
acting as a fiduciary for the Trust shall compensate the Money
Managers.
(5) The Manager shall render to the Trust's Board of Trustees such
periodic reports concerning the Trust's and Sub-Trust's business and
investments as the Board of Trustees shall reasonably request.
C. Use of Frank Russell Company Research.
The Manager is hereby authorized and expected to utilize the research
and other resources of Frank Russell Company, its corporate parent, or any
predecessor organization, in providing the Investment Management Services
specified in Subsection "B," above. Neither the Manager nor the Trust
shall be obligated to pay any fee to Frank Russell Company for these
services.
D. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials.
The Manager will make available and provide financial, accounting, and
statistical information required by the Trust for the preparation of
registration statements, reports, and other documents required by federal
and state securities laws, and with such information as the Trust may
reasonably request for use in the preparation of such documents or of
other materials necessary or helpful for the underwriting and distribution
of the Trust's shares.
E. Other Obligations and Services.
The Manager shall make available its officers and employees to the Board
of Trustees and officers of the Trust for consultation and discussions
regarding the administration and management of the Trust and its
investment activities.
3. Execution and Allocation of Portfolio Brokerage Commissions. The Manager
or the Money Managers, subject to and in accordance with any directions which
the
B-3
<PAGE>
Trust's Board of Trustees may issue from time to time, shall place, in the
name of the Trust, orders for the execution of the Sub-Trusts' portfolio
transactions. When placing such orders, the primary objective of the Manager
and Money Managers shall be to obtain the best net price and execution for the
Trust, but this requirement shall not be deemed to obligate the Manager or a
Money Manager to place any order solely on the basis of obtaining the lowest
commission rate if the other standards set forth in this section have been
satisfied. The Trust recognizes that there are likely to be many cases in
which different brokers are equally able to provide such best price and
execution and that, in selecting among such brokers with respect to particular
trades, it is desirable to choose those brokers who furnish "brokerage and
research services" (as defined in Section 28(e) (3) of the Securities Exchange
Act of 1934) or statistical quotations and other information to the Trust, the
Manager and/or the Money Managers in accord with the standards set forth
below. Moreover, to the extent that it continues to be lawful to do so and so
long as the Board determines as a matter of general policy that the Trust will
benefit, directly or indirectly, by doing so, the Manager or a Money Manager
may place orders with a broker who charges a commission for that transaction
which is in excess of the amount of commission that another broker would have
charged for effecting that transaction, provided that the excess commission is
reasonable in relation to the value of brokerage and research services
provided by that broker. Accordingly, the Trust and the Manager agree that the
Manager and the Money Managers shall select brokers for the execution of the
Sub-Trusts' portfolio transactions from among:
A. Those brokers and dealers who provide brokerage and research
services, or statistical quotations and other information to the Trust,
specifically including the quotations necessary to determine the Trust's
net assets, in such amount of total brokerage as may reasonably be
required in light of such services;
B. Those brokers and dealers who supply brokerage and research services
to the Manager and/or its affiliated corporations, or the Money Managers,
which relate directly to portfolio securities, actual or potential, of the
Trust, or which place the Manager or Money Managers in a better position
to make decisions in connection with the management of the Trust's assets
and portfolios, whether or not such data may also be useful to the Manager
and its affiliates, or the Money Managers and their affiliates, in
managing other portfolios or advising other clients, in such amount of
total brokerage as may reasonably be required; and
C. Frank Russell Securities, Inc., an affiliate of Manager, when the
Manager or Money Manager has determined that the Trust will receive
competitive execution, price, and commissions. The Manager shall render
regular reports to the Trust, not more frequently than quarterly, of how
much total brokerage business has been placed with Frank Russell
Securities, Inc., and the manner in which the allocation has been
accomplished.
The Manager agrees and each Money Manager will be required to agree,
that no investment decision will be made or influenced by a desire to
provide brokerage for allocation in accordance with the foregoing, and
that the right to make such
B-4
<PAGE>
allocation of brokerage shall not interfere with the Managers' or Money
Managers' primary duty to obtain the best net price and execution for the
Trust.
4. Expenses of the Trust. It is understood that the Trust will pay all its
expenses other than those expressly assumed by the Manager herein, which
expenses payable by the Trust shall include:
A. Fees for the services of the Money Managers;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, dividend disbursing agent, and
shareholder recordkeeping services;
D. Expenses of custodial services including recordkeeping services
provided by the Custodian;
E. Expenses of obtaining quotations for calculating the value of the
Trust's net assets;
F. Expenses of obtaining Portfolio Activity Reports and Analyses of
International Management reports for each portfolio of each Sub-Trust;
G. Expenses of maintaining each Sub-Trust's tax records;
H. Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors,
stockholders, or employees of the Manager;
I. Taxes levied against the Trust;
J. Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Trust;
K. Costs, including the interest expense, of borrowing money;
L. Costs and/or fees incident to meetings of the Trust, the preparation
and mailings of prospectuses and reports of the Trust to its Shareholders,
the filing of reports with regulatory bodies, the maintenance of the
Trust's existence, and the registration of shares with federal and state
securities authorities;
M. Legal fees, including the legal fees related to the registration and
continued qualification of the Trust shares for sale;
N. Costs of printing stock certificates representing shares of the
Trust;
O. Trustees' fees and expenses to trustees who are not officers,
employees, or stockholders of the Manager or any of its affiliates;
B-5
<PAGE>
P. The Trust's pro rata portion of the fidelity bond required by Section
17(g) of the 1940 Act, or other insurance premiums;
Q. Association membership dues; and
R. Extraordinary expenses as may arise including expenses incurred in
connection with litigation, proceedings, other claims, and the legal
obligations of the Trust to indemnify its Trustees, officers, employees,
shareholders, distributors, and agents with respect thereto.
5. Activities and Affiliates of the Manager.
A. The services of the Manager and its affiliated corporations to the
Trust hereunder are not to be deemed exclusive, and the Manager and any of
its affiliates shall be free to render similar services to others.
(1) The Manager and its affiliated corporations shall use the same
skill and care in the management of the Sub-Trust's portfolios as they
use in the administration of other accounts to which they provide
asset management consulting and manager selection services, but they
shall not be obligated to give the Trust more favorable or
preferential treatment vis-a-vis their other clients.
(2) The Trust expressly recognizes that Frank Russell Trust Company
("Trust Company"), a corporation affiliated with the Manager, is also
a client of a corporation affiliated with the Manager and receives
substantially the same portfolio structuring and money manager
selection services from the affiliate as does the Trust that Trust
Company has, or may have, commingled investment funds with
substantially the same investment objectives, strategies, and programs
as the Trust; that the Trust was organized by and at the expense of a
corporation affiliated with the Manager for the express purpose of
offering the same type of investment management services to the
Trust's shareholders, at least some of whom could not obtain these
services through Trust Company, as Trust Company provides to its trust
customers; and that over time Trust Company and the Trust may utilize
some of the same money managers and have similar portfolio securities
holdings.
B. Subject to and in accordance with the Master Trust Agreement (as
defined below) and By-Laws of the Trust and to Section 10(a) of the 1940
Act, it is understood that Trustees, officers, agents, and shareholders of
the Trust are or may be interested in the Manager or its affiliates
directors, agents, or shareholders of the Manager or its affiliates; that
directors, officers, agents, and shareholders of the Manager or its
affiliates are or may be interested in the Trust as Trustees, officers,
agents, shareholders, or otherwise; that the Manager or its affiliates may
be interested in the Trust as shareholders or otherwise; and that the
effect of any such interests shall be governed by said Master Trust
Agreement, By-Laws, and the 1940 Act.
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<PAGE>
6. Compensation of the Manager.
A. As consideration for the Manager's services to the following Sub-
Trusts, the Manager shall receive from each of these Sub-Trusts an annual
management fee, accrued daily at the rate of 1/365th of the applicable
management fee and payable following the last day of each month, of the
following annual percentages of each Sub-Trust's average daily net assets
during the month:
<TABLE>
<S> <C>
Diversified Equity................................................... .78%
Special Growth....................................................... .95%
Equity Income........................................................ .80%
Quantitative Equity.................................................. .78%
Diversified Bond..................................................... .45%
Volatility Constrained Bond.......................................... .50%
International Securities............................................. .95%
Multistrategy Bond................................................... .65%
Limited Volatility Tax Free.......................................... .50%
U.S. Government Money Market......................................... .25%
Tax Free Money Market................................................ .25%
Real Estate Securities............................................... .85%
Emerging Markets..................................................... 1.20%
Money Market......................................................... .25%
Equity I............................................................. .60%
Equity II............................................................ .75%
Equity III........................................................... .60%
Equity Q............................................................. .60%
International........................................................ .75%
Fixed Income I....................................................... .30%
Fixed Income II...................................................... .50%
Fixed Income III..................................................... .55%
Equity T............................................................. .75%
Aggressive Strategy.................................................. .25%
Balanced Strategy.................................................... .25%
Moderate Strategy.................................................... .25%
Conservative Strategy................................................ .25%
Equity Balanced Strategy............................................. .25%
</TABLE>
From this management fee, the Manager shall compensate the Money Managers as
a fiduciary of the Trust.
7. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder or on the part of
the Manager or its corporate affiliates, the Manager and its corporate
affiliates shall not be subject to liability to the Trust or to any
Shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding, or sale of any security.
B. No provision of this Agreement shall be construed to protect any,
trustee or officer of the Trust, or the Manager and its corporate
affiliates, from liability in violation of Sections 17(h) and (i) of the
1940 Act.
B-7
<PAGE>
8. Renewal and Termination.
A. This Agreement shall become effective on and as of April 27, 1998 and
shall continue in effect as to each Sub-Trust until April 30, 2000. The
Agreement is renewable annually thereafter for successive one-year periods
(a) by a vote of a majority of the Trustees of the Trust, or (b) as to any
Sub-Trust, by a vote of a majority of the outstanding voting securities of
that Sub-Trust, and in either case by a majority of the Trustees who are
not parties to the Agreement or interested persons of any parties to the
Agreement (other than as Trustees of the Trust) cast in person at a
meeting called for purposes of voting on the Agreement; provided, however,
that if the shareholders of any one or more Sub-Trusts fail to approve the
Agreement as provided herein, the Manager may continue to serve in such
capacity in the manner and to the extent permitted by the 1940 Act and
Rules and Regulations thereunder.
B. This Agreement:
(a) May at any time be terminated without the payment of any penalty
either by vote of the Board of Trustees of the Trust or, as to any
Sub-Trust, by vote of a majority of the outstanding voting securities
of the Sub-Trust, on 60 days' written notice to the Manager;
(b) Shall immediately terminate in the event of its assignment; and
(c) May be terminated by the Manager on 60 days' written notice to
the Trust.
C. As used in this Section 8, the terms of "assignment", "interested
person" and "vote of a majority of the outstanding voting securities"
shall have the meanings set forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in writing addressed
and delivered, or mailed postpaid, to the other party at any office of
such party.
9. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule, or otherwise, the remainder of
this Agreement shall not be affected thereby.
10. Reservation of Name. The parties hereto acknowledge that Frank Russell
Company has reserved the right to grant the non-exclusive use of the name
"Frank Russell," or any derivative thereof, to any other investment company,
investment advisor, distributor or other business enterprise, and to withdraw
from the Trust the use of the name "Frank Russell." In the event that Frank
Russell Company should elect to withdraw the use of the name "Frank Russell"
from the Trust, the Trust will submit the question of continuing this
Agreement to a vote of its Shareholders.
B-8
<PAGE>
11. Limitation of Liability. The Master Trust Agreement dated July 26, 1984,
as amended from time to time, establishing the Trust, which is hereby referred
to and a copy of which is on file with the Secretary of The Commonwealth of
Massachusetts, provides that the name Frank Russell Investment Company means
the Trustees from time to time serving (as Trustees but not personally) under
said Master Trust Agreement. It is expressly acknowledged and agreed that the
obligations of the Trust hereunder shall not be binding upon any of the
Shareholders, Trustees, officers, employees, or agents of the Trust,
personally, but shall bind only the trust property of the Trust, as provided
in its Master Trust Agreement. The execution and delivery of this Agreement
have been authorized by the Trustees of the Trust and signed by the President
of the Trust, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Trust as provided in
its Master Trust Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the day and year first written above.
FRANK RUSSELL
INVESTMENT COMPANY
<TABLE>
<CAPTION>
<S> <C>
/s/ Karl J. Ege /s/ Lynn L. Anderson President
_______________________________ By: ____________________________________
Karl J. Ege, Secretary Lynn L. Anderson,
</TABLE>
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
<TABLE>
<CAPTION>
<S> <C>
/s/ Karl J. Ege /s/ Eric A. Russell
_______________________________ By: ____________________________________
Karl J. Ege, Secretary Eric A. Russell, President
</TABLE>
FRANK RUSSELL COMPANY agrees to provide consulting services without charge
to the Investment Company upon the request of the Board of Trustees or
officers of the Trust, or upon the request of manager pursuant to Section
2(C).
FRANK RUSSELL COMPANY
<TABLE>
<CAPTION>
<S> <C>
/s/ Karl J. Ege /s/ Michael J. A. Phillips
_______________________________ By: ____________________________________
Karl J. Ege, Secretary Michael J. A. Phillips, President
</TABLE>
B-9
<PAGE>
EXHIBIT C
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT dated this day of , 1998 (the "Agreement"),
between FRANK RUSSELL INVESTMENT COMPANY, a Massachusetts business trust
hereinafter called the "Trust" and FRANK RUSSELL INVESTMENT MANAGEMENT
COMPANY, a Washington Corporation hereinafter called the "Manager."
WHEREAS, the Trust has been organized by and at the expense of a company
affiliated with the Manager and operates as an investment company of the
"series" type registered under the Investment Company Act of 1940 ("1940 Act")
for the purpose of investing and reinvesting its assets in portfolios of
securities, each of which has distinct investment objectives and policies
(each distinct portfolio being referred to herein as a "Sub-Trust"), as set
forth more fully in its Master Trust Agreement, its By-Laws and its
Registration Statements under the 1940 Act and the Securities Act of 1933, all
as heretofore amended and supplemented; and the Trust desires to avail itself
of the services, information, advice, assistance, and facilities of a manager
and to have a manager perform for it various statistical, research, money
manager selection, investment management, and other services; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Adviser's Act of 1940 and will engage in the business of rendering
investment advice, counseling, money manager recommendation, and supervisory
services to investment consulting clients; and the Manager and its affiliated
corporations have undertaken the initiative and expense of organizing the
Trust in order to have a means to commingle assets for certain investors to
have access to and utilize the "Multi-Style, Multi-Manager" method of
investment and to provide services to the Trust in consideration of and on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, Trust and the Manager agree as follows:
1. Employment of the Manager. The Trust hereby employs the Manager to manage
the investment and reinvestment of the Trust's assets and to act as a
discretionary Money Manager to certain of the Sub-Trusts in the manner set
forth in Section 2(B) of this Agreement, subject to the direction of the Board
of Trustees and the officers of the Trust, for the period, in the manner, and
on the terms hereinafter set forth. The Manager hereby accepts such employment
and agrees during such period to render the services and to assume the
obligations herein set forth. The Manager shall for all purposes herein be
deemed to be an independent contractor and shall, except as expressly provided
or authorized (whether herein or otherwise), have no authority to act for or
represent the Trust in any way.
2. Obligations of and Services to be Provided by the Manager. The Manager
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
C-1
<PAGE>
A. [Reserved]
B. Investment Management Services.
(1) The Trust intends to appoint one or more persons or companies
("Money manager[s]") for each of the Sub-Trusts or segments thereof,
and each Money Manager shall have full investment discretion and shall
make all determinations with respect to the investment of a Sub-
Trust's assets assigned to the Money Manager and the purchase and sale
of portfolio securities with those assets, and such steps as may be
necessary to implement its decision. The Manager shall not be
responsible or liable for the investment merits of any decision by a
Money Manager to purchase, hold, or sell a security for a Sub-Trust
portfolio.
(2) The Manager shall, subject to and in accordance with the
investment objectives and policies of the Trust and each Sub-Trust and
any directions which the Trust's Board of Trustees may issue to the
Manager, have: (i) overall supervisory responsibility for the general
management and investment of the Trust's assets and securities
portfolios; and (ii) full investment discretion to make all
determinations with respect to the investment of Sub-Trust assets not
assigned to a Money Manager.
(3) The Manager shall develop overall investment programs and
strategies for each Sub-Trust, or segments thereof, shall revise such
programs as necessary, and shall monitor and report periodically to
the Board of Trustees concerning the implementation of the programs.
(4) The Manager shall research and evaluate Money Managers and shall
advise the Board of Trustees of the Trust of the Money Managers which
the Manager believes are best suited to invest the assets of each Sub-
Trust; shall monitor and evaluate the investment performance of each
Money Manager employed by the Trust; shall determine the portion of
each Sub-Trust's assets to be managed by each Money Manager; shall
recommend changes or additions of Money Managers when appropriate;
shall coordinate the investment activities of the Money Managers; and
acting as a fiduciary for the Trust shall compensate the Money
Managers.
(5) The Manager shall render to the Trust's Board of Trustees such
periodic reports concerning the Trust's and Sub-Trust's business and
investments as the Board of Trustees shall reasonably request.
C. Use of Frank Russell Company Research.
The Manager is hereby authorized and expected to utilize the research
and other resources of Frank Russell Company, its corporate parent, or any
predecessor organization, in providing the Investment Management Services
specified in Subsection "B," above. Neither the Manager nor the Trust
shall be obligated to pay any fee to Frank Russell Company for these
services.
C-2
<PAGE>
D. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials.
The Manager will make available and provide financial, accounting, and
statistical information required by the Trust for the preparation of
registration statements, reports, and other documents required by federal
and state securities laws, and with such information as the Trust may
reasonably request for use in the preparation of such documents or of
other materials necessary or helpful for the underwriting and distribution
of the Trust's shares.
E. Other Obligations and Services.
The Manager shall make available its officers and employees to the Board
of Trustees and officers of the Trust for consultation and discussions
regarding the management of the Trust and its investment activities.
3. Execution and Allocation of Portfolio Brokerage Commissions. The Manager
or the Money Managers, subject to and in accordance with any directions which
the Trust's Board of Trustees may issue from time to time, shall place, in the
name of the Trust, orders for the execution of the Sub-Trusts' portfolio
transactions. When placing such orders, the primary objective of the Manager
and Money Managers shall be to obtain the best net price and execution for the
Trust, but this requirement shall not be deemed to obligate the Manager or a
Money Manager to place any order solely on the basis of obtaining the lowest
commission rate if the other standards set forth in this section have been
satisfied. The Trust recognizes that there are likely to be many cases in
which different brokers are equally able to provide such best price and
execution and that, in selecting among such brokers with respect to particular
trades, it is desirable to choose those brokers who furnish "brokerage and
research services" (as defined in Section 28(e) (3) of the Securities Exchange
Act of 1934) or statistical quotations and other information to the Trust, the
Manager and/or the Money Managers in accord with the standards set forth
below. Moreover, to the extent that it continues to be lawful to do so and so
long as the Board determines as a matter of general policy that the Trust will
benefit, directly or indirectly, by doing so, the Manager or a Money Manager
may place orders with a broker who charges a commission for that transaction
which is in excess of the amount of commission that another broker would have
charged for effecting that transaction, provided that the excess commission is
reasonable in relation to the value of brokerage and research services
provided by that broker. Accordingly, the Trust and the Manager agree that the
Manager and the Money Managers shall select brokers for the execution of the
Sub-Trusts' portfolio transactions from among:
A. Those brokers and dealers who provide brokerage and research
services, or statistical quotations and other information to the Trust,
specifically including the quotations necessary to determine the Trust's
net assets, in such amount of total brokerage as may reasonably be
required in light of such services;
B. Those brokers and dealers who supply brokerage and research services
to the Manager and/or its affiliated corporations, or the Money Managers,
which relate
C-3
<PAGE>
directly to portfolio securities, actual or potential, of the Trust, or
which place the Manager or Money Managers in a better position to make
decisions in connection with the management of the Trust's assets and
portfolios, whether or not such data may also be useful to the Manager and
its affiliates, or the Money Managers and their affiliates, in managing
other portfolios or advising other clients, in such amount of total
brokerage as may reasonably be required; and
C. Frank Russell Securities, Inc., an affiliate of Manager, when the
Manager or Money Manager has determined that the Trust will receive
competitive execution, price, and commissions. The Manager shall render
regular reports to the Trust, not more frequently than quarterly, of how
much total brokerage business has been placed with Frank Russell
Securities, Inc., and the manner in which the allocation has been
accomplished.
The Manager agrees and each Money Manager will be required to agree, that no
investment decision will be made or influenced by a desire to provide
brokerage for allocation in accordance with the foregoing, and that the right
to make such allocation of brokerage shall not interfere with the Managers' or
Money Managers' primary duty to obtain the best net price and execution for
the Trust.
4. Expenses of the Trust. It is understood that the Trust will pay all its
expenses other than those expressly assumed by the Manager herein, which
expenses payable by the Trust shall include:
A. Fees for the services of the Money Managers;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, dividend disbursing agent, and
shareholder recordkeeping services;
D. Expenses of custodial services including recordkeeping services
provided by the Custodian;
E. Expenses of obtaining quotations for calculating the value of the
Trust's net assets;
F. Expenses of obtaining Portfolio Activity Reports and Analyses of
International Management reports for each portfolio of each Sub-Trust;
G. Expenses of maintaining each Sub-Trust's tax records;
H. Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors,
stockholders, or employees of the Manager;
I. Taxes levied against the Trust;
C-4
<PAGE>
J. Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Trust;
K. Costs, including the interest expense, of borrowing money;
L. Costs and/or fees incident to meetings of the Trust, the preparation
and mailings of prospectuses and reports of the Trust to its Shareholders,
the filing of reports with regulatory bodies, the maintenance of the
Trust's existence, and the registration of shares with federal and state
securities authorities;
M. Legal fees, including the legal fees related to the registration and
continued qualification of the Trust shares for sale;
N. Costs of printing stock certificates representing shares of the
Trust;
O. Trustees' fees and expenses to trustees who are not officers,
employees, or stockholders of the Manager or any of its affiliates;
P. The Trust's pro rata portion of the fidelity bond required by Section
17(g) of the 1940 Act, or other insurance premiums;
Q. Association membership dues; and
R. Extraordinary expenses as may arise including expenses incurred in
connection with litigation, proceedings, other claims, and the legal
obligations of the Trust to indemnify its Trustees, officers, employees,
shareholders, distributors, and agents with respect thereto.
5. Activities and Affiliates of the Manager.
A. The services of the Manager and its affiliated corporations to the
Trust hereunder are not to be deemed exclusive, and the Manager and any of
its affiliates shall be free to render similar services to others.
(1) The Manager and its affiliated corporations shall use the same
skill and care in the management of the Sub-Trust's portfolios as they
use in the administration of other accounts to which they provide
asset management consulting and manager selection services, but they
shall not be obligated to give the Trust more favorable or
preferential treatment vis-a-vis their other clients.
(2) The Trust expressly recognizes that Frank Russell Trust Company
("Trust Company"), a corporation affiliated with the Manager, is also
a client of a corporation affiliated with the Manager and receives
substantially the same portfolio structuring and money manager
selection services from the affiliate as does the Trust; that Trust
Company has, or may have, commingled investment funds with
substantially the same investment objectives, strategies, and programs
as the Trust; that the Trust was organized by and at the expense of a
corporation affiliated with the Manager for the express purpose of
offering the same type of investment management services to the
Trust's shareholders, at least some of whom could not obtain these
services through Trust Company, as
C-5
<PAGE>
Trust Company provides to its trust customers; and that over time
Trust Company and the Trust may utilize some of the same money
managers and have similar portfolio securities holdings.
B. Subject to and in accordance with the Master Trust Agreement (as defined
below) and By-Laws of the Trust and to Section 10(a) of the 1940 Act, it is
understood that Trustees, officers, agents, and shareholders of the Trust are
or may be interested in the Manager or its affiliates directors, agents, or
shareholders of the Manager or its affiliates; that directors, officers,
agents, and shareholders of the Manager or its affiliates are or may be
interested in the Trust as Trustees, officers, agents, shareholders, or
otherwise; that the Manager or its affiliates may be interested in the Trust
as shareholders or otherwise; and that the effect of any such interests shall
be governed by said Master Trust Agreement, By-Laws, and the 1940 Act.
6. Compensation of the Manager.
A. As consideration for the Manager's services to the following Sub-
Trusts, the Manager shall receive from each of these Sub-Trusts an annual
management fee, accrued daily at the rate of 1/365th of the applicable
management fee and payable following the last day of each month, of the
following annual percentages of each Sub-Trust's average daily net assets
during the month:
<TABLE>
<S> <C>
Diversified Equity................................................... .73%
Special Growth....................................................... .90%
Equity Income........................................................ .75%
Quantitative Equity.................................................. .73%
Diversified Bond..................................................... .40%
Volatility Constrained Bond.......................................... .45%
International Securities............................................. .90%
Multistrategy Bond................................................... .60%
Limited Volatility Tax Free (to be renamed Tax Free Bond)............ .30%
U.S. Government Money Market......................................... .20%
Tax Free Money Market................................................ .20%
Real Estate Securities............................................... .80%
Emerging Markets..................................................... 1.15%
Money Market......................................................... .20%
Equity I............................................................. .55%
Equity II............................................................ .70%
Equity III........................................................... .55%
Equity Q............................................................. .55%
International........................................................ .70%
Fixed Income I....................................................... .25%
Fixed Income II (to be renamed Short-Term Bond)...................... .45%
Fixed Income III..................................................... .50%
Equity T............................................................. .70%
Aggressive Strategy.................................................. .20%
Balanced Strategy.................................................... .20%
Moderate Strategy.................................................... .20%
Conservative Strategy................................................ .20%
Equity Balanced Strategy............................................. .20%
</TABLE>
C-6
<PAGE>
From this management fee, the Manager shall compensate the Money Managers as
a fiduciary of the Trust.
B. When a Sub-Trust holds cash, securities or other investment assets
which are not treated as net assets of the Sub-Trust for the purpose of
determining the net asset value per share of such Sub-Trust, the Manager
may receive an additional annual fee, accrued daily at the rate of 1/365th
of the fee and payable following the last day of each month, of 0.07% of
the value of such assets for the exercise of investment supervision over
such assets.
7. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder or on the part of
the Manager or its corporate affiliates, the Manager and its corporate
affiliates shall not be subject to liability to the Trust or to any
Shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding, or sale of any security.
B. No provision of this Agreement shall be construed to protect any
trustee or officer of the Trust, or the Manager and its corporate
affiliates, from liability in violation of Sections 17(h) and (i) of the
1940 Act.
8. Renewal and Termination.
A. This Agreement shall become effective on and as of January 1, 1999
and shall continue in effect as to each Sub-Trust until April 30, 2000.
The Agreement is renewable annually thereafter for successive one-year
periods (a) by a vote of a majority of the Trustees of the Trust, or (b)
as to any Sub-Trust, by a vote of a majority of the outstanding voting
securities of that Sub-Trust, and in either case by a majority of the
Trustees who are not parties to the Agreement or interested persons of any
parties to the Agreement (other than as Trustees of the Trust) cast in
person at a meeting called for purposes of voting on the Agreement;
provided, however, that if the shareholders of any one or more Sub-Trusts
fail to approve the Agreement as provided herein, the Manager may continue
to serve in such capacity in the manner and to the extent permitted by the
1940 Act and Rules and Regulations thereunder.
B. This Agreement:
(a) May at any time be terminated without the payment of any penalty
either by vote of the Board of Trustees of the Trust or, as to any
Sub-Trust, by vote of a majority of the outstanding voting securities
of the Sub-Trust, on 60 days' written notice to the Manager;
(b) Shall immediately terminate in the event of its assignment; and
C-7
<PAGE>
(c) May be terminated by the Manager on 60 days' written notice to
the Trust.
C. As used in this Section 8, the terms of "assignment", "interested
person" and "vote of a majority of the outstanding voting securities"
shall have the meanings set forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in writing addressed
and delivered, or mailed postpaid, to the other party at any office of
such party.
9. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule, or otherwise, the remainder of
this Agreement shall not be affected thereby.
10. Reservation of Name. The parties hereto acknowledge that Frank Russell
Company has reserved the right to grant the non-exclusive use of the name
"Frank Russell," or any derivative thereof, to any other investment company,
investment advisor, distributor or other business enterprise, and to withdraw
from the Trust the use of the name "Frank Russell." In the event that Frank
Russell Company should elect to withdraw the use of the name "Frank Russell"
from the Trust, the Trust will submit the question of continuing this
Agreement to a vote of its Shareholders.
11. Limitation of Liability. The Master Trust Agreement dated July 26, 1984,
as amended from time to time, establishing the Trust, which is hereby referred
to and a copy of which is on file with the Secretary of The Commonwealth of
Massachusetts, provides that the name Frank Russell Investment Company means
the Trustees from time to time serving (as Trustees but not personally) under
said Master Trust Agreement. It is expressly acknowledged and agreed that the
obligations of the Trust hereunder shall not be binding upon any of the
Shareholders, Trustees, officers, employees, or agents of the Trust,
personally, but shall bind only the trust property of the Trust, as provided
in its Master Trust Agreement. The execution and delivery of this Agreement
have been authorized by the Trustees of the Trust and signed by the President
of the Trust, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Trust as provided in
its Master Trust Agreement.
C-8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the day and year first written above.
FRANK RUSSELL INVESTMENT
COMPANY
- ---------------------------------- By: _________________________________
Karl J. Ege, Secretary Lynn L. Anderson, President
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
- ---------------------------------- By: _________________________________
Karl J. Ege, Secretary Eric A. Russell, President
FRANK RUSSELL COMPANY agrees to provide consulting services without charge
to the Investment Company upon request of the Board of Trustees or offices of
the Trust, or upon the request of manager pursuant to Section 2(C).
FRANK RUSSELL COMPANY
- ---------------------------------- By: _________________________________
Karl J. Ege, Secretary Michael J. A. Phillips,
President
C-9
<PAGE>
EXHIBIT D
EXPENSE TABLES REFLECTING SEPARATION OF ADVISORY AND ADMINISTRATIVE FEES
EQUITY I FUND
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.60% 0.55%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.10% 0.15%
---- ----
Total Fund Operating Expenses................................. 0.70% 0.70%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1,000 investment assuming (1) 5% annual re-
turn and (2) redemption at the end of each
time period
Existing Fee.................................. $ 7 $22 $39 $88
=== === === ===
Proposed Fee.................................. $ 7 $22 $39 $88
=== === === ===
</TABLE>
EQUITY II FUND
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.75% 0.70%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.18% 0.23%
---- ----
Total Fund Operating Expenses................................. 0.93% 0.93%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1,000 investment assuming (1) 5% annual re-
turn and (2) redemption at the end of each
time period
Existing Fee.................................. $ 9 $29 $51 $117
=== === === ====
Proposed Fee.................................. $ 9 $29 $51 $117
=== === === ====
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-1
<PAGE>
EQUITY III FUND
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.60% 0.55%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.15% 0.20%
---- ----
Total Fund Operating Expenses................................. 0.75% 0.75%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1,000 investment assuming (1) 5% annual re-
turn and (2) redemption at the end of each
time period
Existing Fee.................................. $ 8 $24 $41 $94
=== === === ===
Proposed Fee.................................. $ 8 $24 $41 $94
=== === === ===
</TABLE>
EQUITY Q FUND
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.60% 0.55%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.08% 0.13%
---- ----
Total Fund Operating Expenses................................. 0.68% 0.68%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1,000 investment assuming (1) 5% annual re-
turn and (2) redemption at the end of each
time period
Existing Fee.................................. $ 7 $21 $38 $86
=== === === ===
Proposed Fee.................................. $ 7 $21 $38 $86
=== === === ===
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-2
<PAGE>
INTERNATIONAL FUND
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.75% 0.70%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.26% 0.31%
---- ----
Total Fund Operating Expenses................................. 1.01% 1.01%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $10 $32 $56 $127
=== === === ====
Proposed Fee.................................. $10 $32 $56 $127
=== === === ====
</TABLE>
FIXED INCOME I FUND
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.30% 0.25%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.11% 0.16%
---- ----
Total Fund Operating Expenses................................. 0.41% 0.41%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 4 $13 $23 $52
=== === === ===
Proposed Fee.................................. $ 4 $13 $23 $52
=== === === ===
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-3
<PAGE>
FIXED INCOME II FUND
(TO BE RENAMED SHORT-TERM BOND)
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.50% 0.45%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.17% 0.22%
---- ----
Total Fund Operating Expenses................................. 0.67% 0.67%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 7 $21 $37 $84
=== === === ===
Proposed Fee.................................. $ 7 $21 $37 $84
=== === === ===
</TABLE>
FIXED INCOME III FUND
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.55% 0.50%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.16% 0.21%
---- ----
Total Fund Operating Expenses................................. 0.71% 0.71%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 7 $22 $39 $89
=== === === ===
Proposed Fee.................................. $ 7 $22 $39 $89
=== === === ===
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-4
<PAGE>
REAL ESTATE SECURITIES FUND CLASS S
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.85% 0.80%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.25% 0.30%
---- ----
Total Fund Operating Expenses................................. 1.10% 1.10%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $11 $35 $61 $138
=== === === ====
Proposed Fee.................................. $11 $35 $61 $138
=== === === ====
</TABLE>
EMERGING MARKETS FUND CLASS S
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 1.20% 1.15%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.61% 0.66%
---- ----
Total Fund Operating Expenses................................. 1.81% 1.81%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $18 $57 $100 $228
=== === ==== ====
Proposed Fee.................................. $18 $57 $100 $228
=== === ==== ====
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-5
<PAGE>
EQUITY T FUND
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waivers)................................. 0.68% 0.63%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.32% 0.37%
---- ----
Total Fund Operating Expenses (Net of Waivers)................ 1.00% 1.00%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $20 $63 $111 $252
=== === ==== ====
Proposed Fee.................................. $20 $63 $111 $252
=== === ==== ====
</TABLE>
- ----------
You would pay the following expenses on an investment in Equity T fund,
assuming no redemption: 1 year--$10, 3 years--$32, 5 years--$55 and 10 years--
$126
LIMITED VOLATILITY TAX FREE FUND
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.50% 0.30%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.21% 0.26%
---- ----
Total Fund Operating Expenses................................. 0.71% 0.56%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 7 $22 $39 $89
=== === === ===
Proposed Fee.................................. $ 6 $18 $31 $70
=== === === ===
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-6
<PAGE>
MONEY MARKET FUND
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver).................................. 0.10% 0.08%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.06% 0.08%
---- ----
Total Fund Operating Expenses (Net of Waiver)................. 0.16% 0.16%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 2 $ 5 $ 9 $20
=== === === ===
Proposed Fee.................................. $ 2 $ 5 $ 9 $20
=== === === ===
</TABLE>
U.S. GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver).................................. 0.03% 0.02%
12b-1 Fees.................................................... None None
Other Expenses (Net of Waiver)................................ 0.27% 0.28%
---- ----
Total Fund Operating Expenses (Net of Waiver)................. 0.30% 0.30%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 3 $ 9 $17 $38
=== === === ===
Proposed Fee.................................. $ 3 $ 9 $17 $38
=== === === ===
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-7
<PAGE>
TAX FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver).................................. 0.15% 0.12%
12b-1 Fees.................................................... None None
Other Expenses (Net of Waiver)................................ 0.13% 0.16%
---- ----
Total Fund Operating Expenses (Net of Waiver)................. 0.28% 0.28%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 3 $ 9 $15 $35
=== === === ===
Proposed Fee.................................. $ 3 $ 9 $15 $35
=== === === ===
</TABLE>
DIVERSIFIED EQUITY FUND CLASS S
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.78% 0.73%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.17% 0.22%
---- ----
Total Fund Operating Expenses................................. 0.95% 0.95%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $10 $30 $52 $119
=== === === ====
Proposed Fee.................................. $10 $30 $52 $119
=== === === ====
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-8
<PAGE>
SPECIAL GROWTH FUND CLASS S
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.95% 0.90%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.25% 0.30%
---- ----
Total Fund Operating Expenses................................. 1.20% 1.20%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $12 $38 $66 $151
=== === === ====
Proposed Fee.................................. $12 $38 $66 $151
=== === === ====
</TABLE>
EQUITY INCOME FUND CLASS S
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.80% 0.75%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.26% 0.31%
---- ----
Total Fund Operating Expenses................................. 1.06% 1.06%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $11 $33 $59 $133
=== === === ====
Proposed Fee.................................. $11 $33 $59 $133
=== === === ====
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-9
<PAGE>
QUANTITATIVE EQUITY FUND CLASS S
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.78% 0.73%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.16% 0.21%
---- ----
Total Fund Operating Expenses................................. 0.94% 0.94%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 9 $30 $52 $118
=== === === ====
Proposed Fee.................................. $ 9 $30 $52 $118
=== === === ====
</TABLE>
INTERNATIONAL SECURITIES FUND CLASS S
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.95% 0.90%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.35% 0.40%
---- ----
Total Fund Operating Expenses................................. 1.30% 1.30%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $13 $41 $72 $164
=== === === ====
Proposed Fee.................................. $13 $41 $72 $164
=== === === ====
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-10
<PAGE>
DIVERSIFIED BOND FUND CLASS S
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.45% 0.40%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.14% 0.19%
---- ----
Total Fund Operating Expenses................................. 0.59% 0.59%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 6 $19 $33 $74
=== === === ===
Proposed Fee.................................. $ 6 $19 $33 $74
=== === === ===
</TABLE>
VOLATILITY CONSTRAINED BOND FUND CLASS S
(TO BE RENAMED TAX FREE BOND)
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.50% 0.45%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.24% 0.29%
---- ----
Total Fund Operating Expenses................................. 0.74% 0.74%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 7 $23 $41 $93
=== === === ===
Proposed Fee.................................. $ 7 $23 $41 $93
=== === === ===
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-11
<PAGE>
MULTISTRATEGY BOND FUND CLASS S
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver).................................. 0.58% 0.53%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.22% 0.27%
---- ----
Total Fund Operating Expenses (Net of Waiver)................. 0.80% 0.80%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 8 $25 $44 $101
--- --- --- ----
Proposed Fee.................................. $ 8 $25 $44 $101
=== === === ====
</TABLE>
DIVERSIFIED EQUITY FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.78% 0.73%
12b-1 Fees.................................................... None None
Shareholder Servicing Fee..................................... 0.25% 0.25%
Other Expenses................................................ 0.23% 0.28%
---- ----
Total Fund Operating Expenses................................. 1.26% 1.26%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $13 $40 $70 $158
--- --- --- ----
Proposed Fee.................................. $13 $40 $70 $158
=== === === ====
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-12
<PAGE>
SPECIAL GROWTH FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.95% 0.90%
12b-1 Fees.................................................... None None
Shareholder Servicing Fee..................................... 0.25% 0.25%
Other Expenses................................................ 0.30% 0.35%
---- ----
Total Fund Operating Expenses................................. 1.50% 1.50%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $15 $47 $83 $189
--- --- --- ----
Proposed Fee.................................. $15 $47 $83 $189
=== === === ====
</TABLE>
EQUITY INCOME FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.80% 0.75%
12b-1 Fees.................................................... None None
Shareholder Servicing Fee..................................... 0.25% 0.25%
Other Expenses................................................ 0.31% 0.36%
---- ----
Total Fund Operating Expenses................................. 1.36% 1.36%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $14 $43 $75 $171
--- --- --- ----
Proposed Fee.................................. $14 $43 $75 $171
=== === === ====
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-13
<PAGE>
QUANTITATIVE EQUITY FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.78% 0.73%
12b-1 Fees.................................................... None None
Shareholder Servicing Fee..................................... 0.25% 0.25%
Other Expenses................................................ 0.19% 0.24%
---- ----
Total Fund Operating Expenses................................. 1.22% 1.22%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $12 $38 $67 $153
--- --- --- ----
Proposed Fee.................................. $12 $38 $67 $153
=== === === ====
</TABLE>
INTERNATIONAL SECURITIES FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.95% 0.90%
12b-1 Fees.................................................... None None
Shareholder Servicing Fee..................................... 0.25% 0.25%
Other Expenses................................................ 0.40% 0.45%
---- ----
Total Fund Operating Expenses................................. 1.60% 1.60%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $16 $50 $88 $201
--- --- --- ----
Proposed Fee.................................. $16 $50 $88 $201
=== === === ====
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-14
<PAGE>
EMERGING MARKETS FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 1.20% 1.15%
12b-1 Fees.................................................... None None
Shareholder Servicing Fee..................................... 0.25% 0.25%
Other Expenses................................................ 0.61% 0.66%
---- ----
Total Fund Operating Expenses................................. 2.06% 2.06%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $21 $65 $114 $259
--- --- ---- ----
Proposed Fee.................................. $21 $65 $114 $259
=== === ==== ====
</TABLE>
REAL ESTATE SECURITIES FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.85% 0.80%
12b-1 Fees.................................................... None None
Shareholder Servicing Fee..................................... 0.25% 0.25%
Other Expenses................................................ 0.29% 0.34%
---- ----
Total Fund Operating Expenses................................. 1.39% 1.39%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $14 $44 $77 $175
--- --- --- ----
Proposed Fee.................................. $14 $44 $77 $175
=== === === ====
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-15
<PAGE>
DIVERSIFIED BOND FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.45% 0.40%
12b-1 Fees.................................................... None None
Shareholder Servicing Fee..................................... 0.25% 0.25%
Other Expenses................................................ 0.18% 0.23%
---- ----
Total Fund Operating Expenses................................. 0.88% 0.88%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 9 $28 $49 $111
--- --- --- ----
Proposed Fee.................................. $ 9 $28 $49 $111
=== === === ====
</TABLE>
VOLATILITY CONSTRAINED BOND FUND CLASS E
(TO BE RENAMED TAX FREE BOND)
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee.................................................. 0.50% 0.45%
12b-1 Fees.................................................... None None
Shareholder Servicing Fee..................................... 0.25% 0.25%
Other Expenses................................................ 0.24% 0.29%
---- ----
Total Fund Operating Expenses................................. 0.99% 0.99%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $10 $31 $55 $125
--- --- --- ----
Proposed Fee.................................. $10 $31 $55 $125
=== === === ====
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-16
<PAGE>
MULTISTRATEGY BOND FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver).................................. 0.58% 0.53%
12b-1 Fees.................................................... None None
Shareholder Servicing Fee..................................... 0.25% 0.25%
Other Expenses................................................ 0.22% 0.27%
---- ----
Total Fund Operating Expenses (Net of Waiver)................. 1.05% 1.05%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $11 $33 $58 $132
=== === === ====
Proposed Fee.................................. $11 $33 $58 $132
=== === === ====
</TABLE>
EQUITY BALANCED STRATEGY FUND CLASS D
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver)................................ 0.00% 0.00%
12b-1 Fees.................................................. 0.25% 0.25%
Shareholder Servicing Fee................................... 0.25% 0.25%
Other Expenses (Net of Reimbursement)....................... 0.00% 0.00%
---- ----
Total Fund Operating Expenses (Net of Waiver and Reimburse-
ment)...................................................... 0.50% 0.50%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 5 $16 $28 $63
--- --- --- ---
Proposed Fee.................................. $ 5 $16 $28 $63
=== === === ===
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-17
<PAGE>
AGGRESSIVE STRATEGY FUND CLASS D
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver)................................ 0.00% 0.00%
12b-1 Fees.................................................. 0.25% 0.25%
Shareholder Servicing Fee................................... 0.25% 0.25%
Other Expenses (Net of Reimbursement)....................... 0.00% 0.00%
---- ----
Total Fund Operating Expenses (Net of Waiver and Reimburse-
ment)...................................................... 0.50% 0.50%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 5 $16 $28 $63
=== === === ===
Proposed Fee.................................. $ 5 $16 $28 $63
=== === === ===
</TABLE>
BALANCED STRATEGY FUND CLASS D
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver)................................ 0.00% 0.00%
12b-1 Fees.................................................. 0.25% 0.25%
Shareholder Servicing Fee................................... 0.25% 0.25%
Other Expenses (Net of Reimbursement)....................... 0.00% 0.00%
---- ----
Total Fund Operating Expenses (Net of Waiver and Reimburse-
ment)...................................................... 0.50% 0.50%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 5 $16 $28 $63
--- --- --- ---
Proposed Fee.................................. $ 5 $16 $28 $63
=== === === ===
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-18
<PAGE>
MODERATE STRATEGY FUND CLASS D
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver)................................ 0.00% 0.00%
12b-1 Fees.................................................. 0.25% 0.25%
Shareholder Servicing Fee................................... 0.25% 0.25%
Other Expenses (Net of Reimbursement)....................... 0.00% 0.00%
---- ----
Total Fund Operating Expenses (Net of Waiver and Reimburse-
ment)...................................................... 0.50% 0.50%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 5 $16 $28 $63
=== === === ===
Proposed Fee.................................. $ 5 $16 $28 $63
=== === === ===
</TABLE>
CONSERVATIVE STRATEGY FUND CLASS D
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver)................................ 0.00% 0.00%
12b-1 Fees.................................................. 0.25% 0.25%
Shareholder Servicing Fee................................... 0.25% 0.25%
Other Expenses (Net of Reimbursement)....................... 0.00% 0.00%
---- ----
Total Fund Operating Expenses (Net of Waiver and Reimburse-
ment)...................................................... 0.50% 0.50%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 5 $16 $28 $63
=== === === ===
Proposed Fee.................................. $ 5 $16 $28 $63
=== === === ===
</TABLE>
- ----------
*The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-19
<PAGE>
EQUITY BALANCED STRATEGY FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver)................................ 0.00% 0.00%
12b-1 Fees.................................................. None None
Shareholder Servicing Fee................................... 0.25% 0.25%
Other Expenses (Net of Reimbursement)....................... 0.00% 0.00%
---- ----
Total Fund Operating Expenses (Net of Waiver and Reimburse-
ment)...................................................... 0.25% 0.25%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 3 $ 8 $14 $31
=== === === ===
Proposed Fee.................................. $ 3 $ 8 $14 $31
=== === === ===
</TABLE>
AGGRESSIVE STRATEGY FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver)................................ 0.00% 0.00%
12b-1 Fees.................................................. None None
Shareholder Servicing Fee................................... 0.25% 0.25%
Other Expenses (Net of Reimbursement)....................... 0.25% 0.25%
---- ----
Total Fund Operating Expenses (Net of Waiver and Reimburse-
ment)...................................................... 0.25% 0.25%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 ivestment assuming (1) 5% annual return
and (2) redemption at the end of each time
period
Existing Fee.................................. $ 3 $ 8 $14 $31
=== === === ===
Proposed Fee.................................. $ 3 $ 8 $14 $31
=== === === ===
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-20
<PAGE>
BALANCED STRATEGY FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver)................................ 0.00% 0.00%
12b-1 Fees.................................................. None None
Shareholder Servicing Fee................................... 0.25% 0.25%
Other Expenses (Net of Reimbursement)....................... 0.00% 0.00%
---- ----
Total Fund Operating Expenses (Net of Waiver and Reimburse-
ment)...................................................... 0.25% 0.25%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 3 $ 8 $14 $31
--- --- --- ---
Proposed Fee.................................. $ 3 $ 8 $14 $31
=== === === ===
</TABLE>
MODERATE STRATEGY FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver)................................ 0.00% 0.00%
12b-1 Fees.................................................. None None
Shareholder Servicing Fee................................... 0.25% 0.25%
Other Expenses (Net of Reimbursement)....................... 0.00% 0.00%
---- ----
Total Fund Operating Expenses (Net of Waiver and Reimburse-
ment)...................................................... 0.25% 0.25%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 3 $ 8 $14 $31
=== === === ===
Proposed Fee.................................. $ 3 $ 8 $14 $31
=== === === ===
</TABLE>
- ----------
*The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-21
<PAGE>
CONSERVATIVE STRATEGY FUND CLASS E
<TABLE>
<CAPTION>
EXISTING PROPOSED
FEE FEE*
-------- --------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee (Net of Waiver)................................ 0.00% 0.00%
12b-1 Fees.................................................. None None
Shareholder Servicing Fee................................... 0.25% 0.25%
Other Expenses (Net of Reimbursement)....................... 0.00% 0.00%
---- ----
Total Fund Operating Expenses (Net of Waiver and Reimburse-
ment)...................................................... 0.25% 0.25%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a
$1000 investment assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Existing Fee.................................. $ 3 $ 8 $14 $31
=== === === ===
Proposed Fee.................................. $ 3 $ 8 $14 $31
=== === === ===
</TABLE>
- ----------
* The additional fee of not more than 0.07 of 1% which would be payable on
assets which are not included in net assets for the purpose of computing
the basic advisory fee, is applied only when such assets are invested by
FRIMCo. Such amount is not expected to affect the amount of the gross
proposed fee shown above.
D-22
<PAGE>
EXHIBIT E
FIVE PERCENT SHAREHOLDERS
<TABLE>
<CAPTION>
FUND NAME BENEFICIARY OWNER NAME SHARES PERCENT
- --------- ------------------------------- ------------- -------
<S> <C> <C> <C>
Aggressive Strategy...... Board of Pensions of the Church 1,399,606.016 25.954%
of God Inc. TTEES
Church of God Pension Plan
Attn: Doug Hamlin
P.O. Box 2559
Anderson, IN 46108-2559
Aggressive Strategy...... Charles Schwab & Co., Inc. 672,135.484 12.464%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Aggressive Strategy...... Halbert, Hargrove/Russell, Inc. 443,241.637 8.219%
111 West Ocean Boulevard
Suite 1240
Long Beach, CA 90802
Balanced Strategy........ Board of Pensions of the Church 5,191,190.403 37.614%
of God Inc. TTEES
Church of God Pension Plan-
Annuity
Attn: Doug Hamlin
P.O. Box 2559
Anderson, IN 46108-2559
Balanced Strategy........ Capinco/Sargento 2,451,610.404 17.764%
Firstar Trust Company FBO
Sargento
Attn: Income/Mutual Funds Dept
P.O. Box 1787
Milwaukee, WI 53201-1787
Balanced Strategy........ Board of Pensions of the Church 2,071,489.625 15.010%
of God Inc. TTEES
Church of God Pension Plan
Attn: Doug Hamlin
P.O. Box 2559
Anderson, IN 46108-2559
Balanced Strategy........ Charles Schwab & Co., Inc. 716,417.064 5.191%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Conservative Strategy.... Board of Pensions of the Church 205,490.387 51.144%
of God Inc. TTEES
Church of God Pension Plan
Attn: Doug Hamlin
P.O. Box 2559
Anderson, IN 46108-2559
Conservative Strategy.... Standard-Knapp Inc. 57,307.172 14.263%
Prof Sharing & Savings Plan
127 Main Street
Portland, CT 06480-1860
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
FUND NAME BENEFICIARY OWNER NAME SHARES PERCENT
- --------- ------------------------------- ------------- -------
<S> <C> <C> <C>
Conservative Strategy... LBMC Employee Benefit Group LLC 36,129.949 8.992%
5203 Maryland Way
Suite 200
Brentwood, TN 37024-186
Conservative Strategy... First Security Bank 401(K) PSP 23,230.097 5.782%
PO Box 690
Batesville, MS 38606-0690
Diversified Bond........ Citizens Bank Saginaw 5,090,953.232 15.724%
Attn: Trust/Investment Dept.
101 N Washington
Saginaw, MI 48607-1206
Emerging Markets........ VAR & Co. 4,789,347.018 13.368%
First Trust, N.A.
Funds Accounting
P.O. Box 64482
St Paul, MN 55164-0482
Emerging Markets........ Ronald Blue & Co. 3,523,690.289 9.836%
1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
Emerging Markets........ Charles Schwab & Co., Inc. 2,432,431.892 6.790%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Emerging Markets........ Atlantic Capital Management, 1,999,603.701 5.581%
LLC
Two Hannover Square,
Suite 1100
434 Fayetteville Street Mall
Raleigh, NC 27601
Equity Balanced Capinco/Sargento 4,156,802.274 47.432%
Strategy.............. Firstar Trust Company FBO
Sargento
Attn: Income/Mutual Funds Dept.
P.O. Box 1787
Milwaukee, WI 53201-1787
Equity Balanced Board of Pensions of the Church 1,229,817.873 14.033%
Strategy.............. of God Inc. TTEES
Church of God Pension Plan
Attn: Doug Hamlin
P.O. Box 2559
Anderson, IN 46108-2559
Equity Balanced Halbert, Hargrove/Russell, Inc. 638,029.593 7.280%
Strategy.............. 111 West Ocean Boulevard
Suite 1240
Long Beach, CA 90802
Equity Balanced Charles Schwab & Co., Inc 546,424.614 6.235%
Strategy.............. Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
FUND NAME BENEFICIARY OWNER NAME SHARES PERCENT
- --------- ------------------------------- ------------- -------
<S> <C> <C> <C>
Equity I................. VAR & Co. 7,061,873.323 18.088%
First Trust, N.A.
Funds Accounting
P.O. Box 64482
St. Paul, MN 55164-0482
Equity I................. Ronald Blue & Co. 5,508,631.256 14.110%
1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
Equity I................. Anchor/Russell Capital 2,006,514.024 5.139%
Advisors, Inc.
One Post Office Square
38th Floor
Boston, MA 02109
Equity I................. Charles Schwab & Co., Inc 1,881,302.910 4.819%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Equity II................ Ronald Blue & Co. 2,245,003.608 14.145%
1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
Equity II................ Miller/Russell and Associates, 1,256,466.905 7.917%
Inc.
2929 E. Camelback Road
Suite 223
Phoenix, AZ 85016
Equity II................ Atlantic Capital Management, 1,136,051.710 7.158%
LLC
Two Hannover Square, Suite 1100
434 Fayetteville Street Mall
Raleigh, NC 27601
Equity II................ VAR & Co. 1,071,674.757 6.752%
First Trust, N.A.
Funds Accounting
P.O. Box 64482
St. Paul, MN 55164-0482
Equity II................ Anchor/Russell Capital 968,774.194 6.104%
Advisors, Inc.
One Post Office Square
38th Floor
Boston, MA 02109
Equity II................ Reber/Russell Company 900,223.213 5.672%
1225 17th Street
Suite 1400
Denver, CO 80202-582
Equity II................ Charles Schwab & Co., Inc 892,581.586 5.624%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
E-3
<PAGE>
<TABLE>
<CAPTION>
FUND NAME BENEFICIARY OWNER NAME SHARES PERCENT
- --------- ------------------------------- ----------- -------
<S> <C> <C> <C>
Equity II.................. JATO/ADM 836,807.421 5.273%
National City Bank of
Minneapolis
Attn: Trust Dept
PO Box E 1919
Minneapolis, MN 55480-9999
Equity III................. VAR & Co. 909,879.749 13.289%
First Trust, N.A.
Funds Accounting
P.O. Box 64482
St. Paul, MN 55164-0482
Equity III................. VAR & Co. 708,137.285 10.343%
First Trust, N.A.
Funds Accounting
P.O. Box 64482
St. Paul, MN 55164-0482
Equity III................. Anchor/Russell Capital 691,049.056 10.093%
Advisors, Inc.
One Post Office Square
38th Floor
Boston, MA 02109
Equity III................. Ingham/Russell Investment 637,098.651 9.305%
Advisors,
1570 Madruga Avenue
4th Floor
Coral Gables, FL 33146
Equity III................. Reber/Russell Company 601,333.042 8.783%
1225 17th Street
Suite 1400
Denver, CO 80202-582
Equity III................. Miller/Russell and Associates, 547,182.807 7.992%
Inc.
2929 E. Camelback Road
Suite 223
Phoenix, AZ 85016
Equity III................. International Shipowners 362,069.702 5.288%
Reinsurance Co. S.A.
B.P. 841
L-2018
Luxembourg
Equity Income.............. Citizens Bank 358,459.190 5.721%
Saginaw
Attn: Trust/Investment Dept.
101 N. Washington
Saginaw, MI 48607-1206
Equity Income.............. Carey & Co. 358,290.934 5.718%
Huntington National Bank
Attn: Mutual Funds MC 1024
P.O. Box 1558
Columbus, OH 43216-1558
Equity Income.............. Charles Schwab & Co., Inc 328,048.785 5.235%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
E-4
<PAGE>
<TABLE>
<CAPTION>
FUND NAME BENEFICIARY OWNER NAME SHARES PERCENT
- --------- ------------------------------- ------------- -------
<S> <C> <C> <C>
Equity Q................. VAR & Co. 5,949,036.269 20.801%
First Trust, N.A.
Funds Accounting
P.O. Box 64482
St. Paul, MN 55164-0482
Equity Q................. Ronald Blue & Co. 4,593,369.059 16.061%
1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
Equity Q................. Miller/Russell and Associates, 1,915,456.450 6.698%
Inc.
2929 E. Camelback Road
Suite 223
Phoenix, AZ 85016
Equity Q................. Anchor/Russell Capital 1,715,223.751 5.997%
Advisors, Inc.
One Post Office Square
38th Floor
Boston, MA 02109
Equity T................. Ronald Blue & Co. 3,187,817.168 21.637%
1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
Equity T................. Charles Schwab & Co., Inc 2,319,803.281 15.745%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Equity T................. Indiana Trust 1 1,645,641.470 11.170%
Indiana Trust & Investment
Management Company
P.O. Box 5149
Mishawaka, IN 46546-5149
Equity T................. Miller/Russell and Associates, 1,057,646.319 7.179%
Inc.
2929 E. Camelback Road
Suite 223
Phoenix, AZ 85016
Equity T................. Atlantic Capital Management, 990,734.951 6.725%
LLC
Two Hannover Square,
Suite 1100
434 Fayetteville Street Mall
Raleigh, NC 27601
Fixed Income I........... Ronald Blue & Co. 5,625,349.097 12.843%
1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
Fixed Income I........... JATO/ADM 5,346,429.864 12.206%
National City Bank of
Minneapolis
Attn: Trust Dept
PO Box E 1919
Minneapolis, MN 55480-9999
</TABLE>
E-5
<PAGE>
<TABLE>
<CAPTION>
FUND NAME BENEFICIARY OWNER NAME SHARES PERCENT
- --------- ------------------------------- ------------- -------
<S> <C> <C> <C>
Fixed Income I........... VAR & Co. 4,694,727.218 10.718%
First Trust, N.A.
Funds Accounting
P.O. Box 64482
St. Paul, MN 55164-0482
Fixed Income I........... Anchor/Russell Capital 4,131,527.815 9.432%
Advisors, Inc.
One Post Office Square
38th Floor
Boston, MA 02109
Fixed Income I........... Davis & Co. 3,093,353.081 7.062%
First Union Cust. Serv. Center
1525 West W.T. Harris Boulevard
Mail Code NC 1151-1076
Charlotte, NC 28288
Fixed Income II.......... Ronald Blue & Co. 4,053,238.547 29.981%
1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
Fixed Income II.......... First Tennessee Bank NA 1,288,376.704 9.530%
First Tennessee Bank FBO
Knox County Reinvest A/C
Attn: Trust Securities--Third
Floor
165 Madison Avenue
Memphis, TN 38103-2723
Fixed Income II.......... Reber/Russell Company 1,166,029.036 8.625%
1225 17th Street
Suite 1400
Denver, CO 80202-582
Fixed Income II.......... Lawton/Russell, Inc. 853,007.708 6.310%
311 South Wacker
Suite 1750
Chicago, IL 60606-662
Fixed Income II.......... Anchor/Russell Capital 845,193.374 6.252%
Advisors, Inc.
One Post Office Square
38th Floor
Boston, MA 02109
Fixed Income III......... VAR & Co. 9,431,451.501 21.321%
First Trust, N.A.
Funds Accounting
P.O. Box 64482
St. Paul, MN 55164-0482
Fixed Income III......... Ronald Blue & Co. 7,372,964.574 16.667%
1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
Fixed Income III......... Miller/Russell and Associates, 5,072,861.529 11.468%
Inc.
2929 E. Camelback Road
Suite 223
Phoenix, AZ 85016
</TABLE>
E-6
<PAGE>
<TABLE>
<CAPTION>
FUND NAME BENEFICIARY OWNER NAME SHARES PERCENT
- --------- ------------------------------- ------------- -------
<S> <C> <C> <C>
Fixed Income III........ Savant/Russell, Inc. 2,420,792.356 5.472%
6929 Sunrise Blvd.
Suite 109
Citrus Heights, CA 95610
International........... VAR & Co. 5,395,150.572 19.568%
First Trust, N.A.
Funds Accounting
P.O. Box 64482
St. Paul, MN 55164-0482
International........... Ronald Blue & Co. 4,105,541.845 14.891%
1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
International........... VAR & Co. 1,474,490.740 5.348%
First Trust, N.A.
Funds Accounting
P.O. Box 64482
St. Paul, MN 55164-0482
International........... Atlantic Capital Management, 1,381,689.415 5.011%
LLC
Two Hannover Square,
Suite 1100
434 Fayetteville Street Mall
Raleigh, NC 27601
International........... Anchor/Russell Capital 1,357,248.689 4.923%
Advisors, Inc.
One Post Office Square
38th Floor
Boston, MA 02109
International........... Miller/Russell and Associates, 1,355,453.337 4.916%
Inc.
2929 E. Camelback Road
Suite 223
Phoenix, AZ 85016
Limited Volatility Tax Ronald Blue & Co. 1,566,334.043 27.867%
Free.................. 1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
Limited Volatility Tax Halbert, Hargrove/Russell, Inc. 1,072,394.730 19.079%
Free.................. 111 West Ocean Boulevard
Suite 1240
Long Beach, CA 90802
Moderate Strategy....... Board of Pensions of the Church 833,512.256 51.847%
of God Inc TTEES
Church of God Pension Plan
Attn: Doug Hamlin
P.O. Box 2559
Anderson, IN 46108-2559
Moderate Strategy....... Standard-Knapp Inc. 129,692.037 8.067%
Prof Sharing & Savings Plan
127 Main Street
Portland, CT 06480-1860
</TABLE>
E-7
<PAGE>
<TABLE>
<CAPTION>
FUND NAME BENEFICIARY OWNER NAME SHARES PERCENT
- --------- ------------------------------- --------------- -------
<S> <C> <C> <C>
Moderate Strategy....... Charles Schwab & Co., Inc 86,946.919 5.408%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Money Market............ Ronald Blue & Co. 177,751,693.790 42.830%
1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
Money Market............ Anchor/Russell Capital 60,139,028.510 14.491%
Advisors, Inc.
One Post Office Square 38th
Floor
Boston, MA 02109
Money Market............ Board of Pensions of the Church 48,659,508.880 11.725%
of God Inc TTEES
Church of God Pension Plan
Attn: Doug Hamlin
P.O. Box 2559
Anderson, IN 46108-2559
Money Market............ University of Puget Sound 23,025,337.180 5.548%
Attn: Controller
1500 North Warner
Tacoma, WA 98416-0001
Multistrategy Bond...... Halbert, Hargrove/Russell, Inc. 3,135,537.001 6.269%
111 West Ocean Boulevard
Suite 1240
Long Beach, CA 90802
Real Estate Securities.. Ronald Blue & Co. 3,995,098.406 17.286%
1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
Real Estate Securities.. VAR & Co. 2,229,110.674 9.645%
First Trust, N.A.
Funds Accounting
P.O. Box 64482
St. Paul, MN 55164-0482
Special Growth.......... FM Co 689,274.761 4.870%
Huntington National Bank
One Financial Plaza
Holland, MI 49423-9166
Tax Free Money Market... Citizens Bank 54,327,323.640 31.159%
Saginaw
Attn: Trust/Investment Dept.
101 N Washington
Saginaw, MI 48607-1206
Tax Free Money Market... Miller/Russell and Associates, 32,441,334.180 18.607%
Inc.
2929 E. Camelback Road
Suite 223
Phoenix, AZ 85016
</TABLE>
E-8
<PAGE>
<TABLE>
<CAPTION>
FUND NAME BENEFICIARY OWNER NAME SHARES PERCENT
- --------- ------------------------------- -------------- -------
<S> <C> <C> <C>
Tax Free Money Market... Ronald Blue & Co. 20,626,188.340 11.830%
1100 Johnson Ferry Road, N.E.
Suite 600
Atlanta, GA 30342
Tax Free Money Market... Sandra N Tillotson TTEE 18,632,276.870 10.687%
Sandra N Tillotson Family Trust
DTD 10/1/96
3500 E Deer Hollow Drive
Sandy, UT 84092-4509
Tax Free Money Market... Craig S Tillotson Fam. Tr. DTD 9,178,110.350 5.264%
10/1/96
Craig S. Tillotson TTE
C/O Clara's
1565 East 3300 South
Salt Lake City, UT 84106-3370
Tax Free Money Market... Halbert, Hargrove/Russell, Inc. 9,105,177.630 5.222%
111 West Ocean Boulevard
Suite 1240
Long Beach, CA 90802
US Government Money 15,548,330.480 9.504%
Market................ TRI-AD Capital Management, Inc.
221 West Crest Street
Suite 300
Escondido, CA 92025
US Government Money
Market................ Miller/Russell and Associates, 12,367,748.280 7.560%
Inc.
2929 E. Camelback Road
Suite 223
Phoenix, AZ 85016
US Government Money
Market................ Anchor/Russell Capital 9,773,707.260 5.974%
Advisors, Inc.
One Post Office Square
38th Floor
Boston, MA 02109
US Government Money
Market................ Winona National and Savings 7,953,401.610 4.862%
Bank
Winkalt & Co.
P.O. Box 499
Winona, MN 55987-0499
Volatility Constrained
Bond.................. Harbor Capital Management, Inc. 855,154.293 8.500%
831 East Morehead Street
Suite 350
Charlotte, NC 28202
</TABLE>
E-9
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY PROXY
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS NOVEMBER 19, 1998
FUND NAME
The undersigned hereby revokes all previous proxies for the undersigned's shares
and appoints Gregory J. Lyons and Rick Chase, and each of them, proxies of the
undersigned with full power of substitution to vote all shares of the above-
referenced Fund (the "Fund") which the undersigned is entitled to vote at the
Fund's Special Meeting in Lieu of Annual Meeting of Shareholders ("Special
Meeting") to be held at the offices of the Investment Company (the "Investment
Company") at 909 A Street, Tacoma, WA 98402 at 10:00 a.m., local time, on
Thursday, the 19th day of November 1998, including any adjournment thereof, upon
such business as may properly be brought before the Special Meeting.
TO AVOID THE EXPENSE OF MULTIPLE MAILINGS TO THE SAME SHAREHOLDER, WE HAVE,
WHENEVER POSSIBLE, INCLUDED PROXY CARDS FOR ALL YOUR ACCOUNTS
IN THE FUNDS INVOLVED IN THIS PROXY IN ONE ENVELOPE.
Please vote by filling in the boxes below.
<TABLE>
<CAPTION>
NO. 1 Not Applicable.
FOR all WITHHOLD
nominees authority to
except as vote for all
marked nominees
--------- ------------
<S> <C> <C> <C>
NO. 2 To elect the following six nominees as Trustees: Lynn
L. Anderson, Paul E. Anderson, Paul Anton, PhD, William
E. Baxter, Lee C. Gingrich, Eleanor W. Palmer.
(Instructions: To withhold authority to vote for any
individual nominee(s), write the name(s) of the
nominee(s) on the line below.)
<CAPTION>
FOR AGAINST ABSTAIN
--------- ---------- -----------
<S> <C> <C> <C> <C>
No. 3 To ratify the selection of PricewaterhouseCoopers LLP as
the independent accountants for the Investment Company.
NO. 4 To approve a new advisory agreement with FRIMCo.
NO. 5 To approve a new advisory agreement with FRIMCo, to take
effect upon the acquisition of Frank Russell Company by
The Northwestern Mutual Life Insurance Company.
NO. 6 To approve a change to the Fund's fundamental investment
restrictions, authorizing a higher borrowing level to
meet redemptions.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--------- ---------- -----------
<S> <C> <C> <C> <C>
NO. 7 To eliminate the Fund's fundamental investment
restrictions concerning:
NO. 7.A. investing in interests in oil, gas or other mineral
exploration or developmental programs;
NO. 7.B. investment in issuers that have been in operation for
less than three years;
NO. 7.C. investing in issuers beneficially owned by certain
affiliated persons of the Investment Company; and
NO. 7.D. investing in warrants that are not listed on the
New York or American Stock Exchange, if applicable.
NO. 8 To approve a change in the Limited Volatility Tax Free
Bond Fund's Investment Objective.
</TABLE>
<TABLE>
<CAPTION>
GRANT WITHHOLD
--------- ----------
<S> <C> <C>
To consider and act upon any other business which may
legally come before the meeting
</TABLE>
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF TRUSTEES. IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS
PROXY SHALL BE VOTED IN FAVOR OF THE ELECTION OF THE NOMINEES OF THE BOARD, TO
RATIFY THE SELECTION OF ACCOUNTANTS, AND IN FAVOR OF THE PROPOSALS TO APPROVE AN
ADVISORY AGREEMENT AND TO AMEND AN INVESTMENT OBJECTIVE AND CERTAIN FUNDAMENTAL
RESTRICTIONS. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING ABOUT WHICH
THE PROXY HOLDERS ARE NOT AWARE AT THIS TIME, THE PROXY HOLDERS MAY VOTE IN
ACCORDANCE WITH THE VIEWS OF THE TRUSTEES THEREON. MANAGEMENT IS NOT AWARE OF
ANY SUCH MATTERS.
Dated:
--------------------------------------
Signature
-----------------------------------
Signature
-----------------------------------
<PAGE>
Note: Please sign exactly as your name appears on the proxy. If signing for
estates, trusts or corporations, title or capacity should be stated. If shares
are held jointly, each holder must sign.
