<PAGE>
As filed with the Securities and Exchange Commission on September 20, 1996
Registration No. 33-18030
811-5371
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -----------------------------------------------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _4_ [X]
Post-Effective Amendment No. ___ [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. _4_
RUSSELL INSURANCE FUNDS
(as successor to Russell Insurance Funds, Inc.
a Maryland Corporation)
(Exact Name of Registrant as Specified in Charter
909 A STREET, TACOMA, WASHINGTON 98402
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (206) 627-7001
Karl J. Ege, Esq.
Russell Insurance Funds
909 A Street
Tacoma, Washington 98402
(Name and Address of Agent for Service)
Approximate date of commencement of proposed sale to the public:
As soon as practical after the effective date of the Registration Statement.
Approximate Date of Proposed Public Offering
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/x/ 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
DECLARATION PURSUANT TO RULE 24f-2
The Registrant has previously registered an indefinite amount of securities
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. A filing fee of $500 has been paid with the initial
filing of the registration statement.
<PAGE>
Russell Insurance Funds (the "Trust") is a business trust organized under
the laws of the Commonwealth of Massachusetts. It is the successor to Russell
Insurance Funds, Inc., a corporation organized under the laws of the State of
Maryland (the "Predecessor"). This amendment is filed pursuant to Rule 414
under the Securities Act of 1933 ("Rule 414"). The Trust does hereby adopt
pursuant to Rule 414 the registration statement on Form N-1A of the
Predecessor, and further adopts and subscribes to any orders, interpretive or
no-action positions, or other regulatory provisions affecting the conduct of
the business of the Predecessor, and agrees to be bound by any conditions
attendant upon such orders or positions.
This amendment is also filed for the purpose of revising the disclosure
documents contained in such registration statement to reflect material
changes therein, all in accordance with paragraph (d) of Rule 414.
<PAGE>
RUSSELL INSURANCE FUNDS
FORM N-1A
CROSS REFERENCE SHEET
_________________
Part A
Item No. Prospectus Heading
- --------- ------------------
1. Cover Page Cover Page
2. Synopsis
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Investment Objectives and
Policies; Risk Factors;
Fund Instruments and
Other Investment Information;
Investment Limitations
5. Management of the Fund Management of the Funds
6. Capital Stock and Other Securities Description of Capital Stock;
Dividends and Distributions;
Taxes; Miscellaneous
7. Purchase of Securities Being Offered How to Purchase and Redeem
Shares; Pricing of Shares
8. Redemption or Repurchase How to Purchase and Redeem
Shares
9. Pending Legal Proceedings Not Applicable
Part B Heading in Statement
Item No. of Additional Information
- -------- --------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
<PAGE>
12. General Information and History Description of Capital Stock
13. Investment Objectives and Policies Investment Objectives and Policies;
Additional Information on Fund
Instruments; Additional Investment
Limitations
14. Management of the Registrant Management of the Funds
15. Control Persons and Principal Management of the Funds
Holders of Securities
16. Investment Advisory and Other Management of the Funds;
Services Independent Auditors
17. Brokerage Allocation Fund Transactions
18. Capital Stock and Other Securities Description of Capital Stock
19. Purchase, Redemption, and Pricing of Additional Purchase and Redemption
Securities Being Offered Information; Net Asset Value and
Net Income-Money Market Liquidity
Fund
20. Tax Status Additional Information Concerning
Taxes
21. Underwriters Additional Purchase and Redemption
Information
22. Calculation of Performance Data Performance and Yield Information
23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
RUSSELL INSURANCE FUNDS
909 A Street, Tacoma, WA 98402
Telephone (800) 972-0700
In Washington (206) 627-7001
Russell Insurance Funds ("RIF") is a "series mutual fund" with four
different investment portfolios referred to individually as "Funds." This
Prospectus describes and offers shares of each of the four Funds to qualified
insurance company separate accounts offering variable insurance products. Shares
will be sold to the insurance company separate accounts at net asset value.
Each Fund's assets are invested by one or more investment management
organizations researched and recommended by Frank Russell Company ("FRC"). An
affiliate of FRC, Frank Russell Investment Management Company ("FRIMCo"),
advises, operates and administers RIF.
Each Fund seeks to achieve a specific investment objective by using distinct
investment strategies:
MULTI-STYLE EQUITY FUND--Seeks income and capital growth by investing
principally in equity securities.
AGGRESSIVE EQUITY FUND--Seeks to provide capital appreciation by assuming a
higher level of volatility than is ordinarily expected from the Multi-Style
Equity Fund, by investing in equity securities.
NON-U.S. FUND--Seeks favorable total return and additional diversification
for United States investors by investing primarily in equity and debt securities
of non-United States companies and non-United States governments.
CORE BOND FUND--Seeks to maximize total return through capital appreciation
and income by assuming a level of volatility consistent with the broad
fixed-income market, by investing in fixed-income securities.
This Prospectus sets forth concisely significant information about RIF and
its four Funds. RIF has filed a Statement of Additional Information dated
September 25, 1996, with the Securities and Exchange Commission. A copy of the
Statement of Additional Information may be obtained without charge by writing to
the Secretary of RIF at the address shown above. This Prospectus should be read
carefully and retained for future reference.
SHARES OF THE FUNDS ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION (THE "FDIC") OR BY ANY OTHER GOVERNMENT AGENCY; ARE NOT
OBLIGATIONS OF THE FDIC OR ANY OTHER GOVERNMENT AGENCY; ARE NOT
DEPOSITS OR OBLIGATIONS OF ANY BANK; ARE NOT ENDORSED OR
GUARANTEED BY ANY BANK; ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED; AND MAY FLUCTUATE IN VALUE, SO THAT
WHEN THEY ARE SOLD, THEY MAY BE WORTH MORE
OR LESS THAN WHEN THEY WERE PURCHASED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS DATED SEPTEMBER 25, 1996
<PAGE>
HIGHLIGHTS AND TABLE OF CONTENTS
RUSSELL INSURANCE FUNDS ("RIF") is organized as a Massachusetts business
trust under a Master Trust Agreement dated July 11, 1996. RIF is authorized to
issue an unlimited number of shares evidencing beneficial interests in different
investment Funds, which interests may be offered in one or more classes. RIF is
a diversified open-end management investment company, commonly known as a
"mutual fund." Frank Russell Company, which is a consultant to RIF, has been
primarily engaged since 1969 in providing asset management consulting services
to large corporate employee benefit funds. Major components of its consulting
services are: (i) quantitative and qualitative research and evaluation aimed at
identifying the most appropriate investment management firms to invest large
pools of assets in accord with specific investment objectives and styles; and
(ii) the development of strategies for investing assets using "multi-style,
multi-manager diversification." SEE PAGE .
MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION is a method for investing large
pools of assets by dividing the assets into segments to be invested using
different investment styles, and selecting money managers for each segment based
upon their expertise in that style of investment. SEE PAGE .
THE PURPOSE OF RIF is to provide an investment base for a variety of
insurance products (the "Policies") which will be issued by one or more
insurance companies (each referred to herein as an "Insurance Company"). (See
page for information concerning monitoring of conflicts which may arise from
sales to a number of Insurance Companies). RIF believes that policyowners may
benefit from the "multi-style, multi-manager diversification" techniques and
money manager evaluation services of FRC on an economical and efficient basis.
SEE PAGE .
GENERAL MANAGEMENT OF RIF is provided by Frank Russell Investment Management
Company ("FRIMCo"), a wholly-owned subsidiary of FRC, which also furnishes
officers and staff required to manage and administer RIF on a day-to-day basis.
FRC provides RIF and FRIMCo with comprehensive consulting and money manager
evaluation services. SEE PAGE .
SUB-ADVISERS ("MONEY MANAGERS") for the assets of the Funds are evaluated
and recommended to the Board of RIF by FRIMCo based upon the consultation and
advice of FRC. The Money Managers have complete discretion to purchase and sell
portfolio securities for their segment of a Fund consistent with that Fund's
investment objectives, policies and restrictions, and the specific strategies
developed by FRC and FRIMCo. SEE PAGE .
EXPENSES OF RIF are borne by RIF. Each Fund pays a management fee to FRIMCo,
its expenses and its portion of the general expenses of RIF. FRIMCo, as agent to
the Funds, pays from its fees, the investment advisory fees of the Money
Managers of the Funds. The remainder of the fee is retained by FRIMCo, for
conducting RIF's general operations and for providing investment supervision for
the Funds. Each Fund pays directly for other services provided to shareholders,
and for other operating expenses and for certain performance and Money Manager
evaluation reports furnished by FRC to RIF and FRIMCo. SEE PAGE .
INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES apply to each Fund. Those
designated as "fundamental" may not be changed without the approval of a
majority of a Fund's shareholders. SEE PAGE .
DIVIDENDS AND DISTRIBUTIONS will normally be reinvested in additional shares
by the Insurance Company. Dividends from net investment income are declared
quarterly by the Multi-Style Equity Fund, the Aggressive Equity Fund and the
Core Bond Fund and annually by the Non-U.S. Fund. All Funds will declare
distributions from net realized capital gains, if any, at least annually. SEE
PAGE .
TAXES PAYABLE BY THE FUNDS are expected to be nominal, since each Fund will
seek to reduce taxes by distributing substantially all of its net investment
income and realized capital gains to Insurance Company separate accounts
("Separate Accounts") for the benefit of policyholders. Policyholders should
review the section on "Taxes" in the prospectus of the Policies for a
description of the federal tax effects concerning the Policies, and should
consult a tax adviser concerning state or local taxes. SEE PAGE .
2
<PAGE>
VALUATION OF FUND SHARES occurs each business day on which shares are
offered or orders to redeem shares are tendered. The value of a share of a Fund
is based upon the next computed current market value of the assets of the Fund,
less its liabilities, divided by the number of shares of the Fund. PAGE .
SHARES OF EACH FUND ARE SOLD AND REDEEMED at the net asset value next
computed after receipt of the order. The Funds do not assess a redemption
charge. SEE PAGES AND .
ADDITIONAL INFORMATION is also included in this Prospectus concerning: RIF's
Custodian; Accountants and Reports; Organization, Capitalization and Voting; and
Money Manager Profiles. SEE PAGES AND .
3
<PAGE>
THE PURPOSE OF RIF
RIF has been organized to provide the investment base for one or more
variable insurance products ("Policies") to be issued by an Insurance Company.
Accordingly, the interest of a policyowner in RIF's shares is subject to the
terms of the Policy described in the accompanying prospectus for the Policy,
which should be reviewed carefully by a person considering the purchase of a
Policy. That prospectus describes the relationship between increases or
decreases in the net asset value of Fund shares and any distributions on such
shares, and the benefits provided under the Policy. The rights of an Insurance
Company as a shareholder of a Fund should be distinguished from the rights of a
policyowner which are described in the Policies. As long as shares of the Funds
are sold only to the Insurance Company, the term "shareholder" or "shareholders"
in this Prospectus shall refer to an Insurance Company owning shares of RIF.
FRANK RUSSELL COMPANY--CONSULTANT TO RIF
Frank Russell Company, founded in 1936, has been providing comprehensive
asset management consulting services since 1969 for institutional pools of
investment assets, principally those of large corporate employee benefit plans.
FRC and its affiliates have offices in Tacoma, New York, Toronto, London,
Zurich, Paris, Sydney, Auckland, Tokyo and Hong Kong, and have approximately
1,000 associates.
Three functions are at the core of FRC's consulting service:
OBJECTIVE SETTING: defining appropriate investment objectives and desired
investment returns based upon the client's unique situation and tolerance for
risk.
ASSET ALLOCATION: allocating a client's assets among different asset
classes--such as common stocks, fixed-income securities, international
securities, temporary cash investments and real estate--in the manner most
likely to achieve the client's objectives.
MONEY MANAGER RESEARCH: evaluating and recommending professional investment
advisory and management organizations to make specific portfolio investments for
each asset class in accord with the specific objectives, investment styles and
strategies.
When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique with the objectives of
reducing risk and increasing returns.
MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION
Frank Russell Company believes capital market history shows that no one
particular asset class provides consistent and/or above-average total return
results, either on an absolute or relative basis, over extended periods of time.
For example, there are periods of time when equity securities out-perform fixed-
income securities, and vice-versa. There are periods when securities with
particular characteristics-- investment styles--out-perform other types of
securities. For example, there are periods of time when equity securities with
growth characteristics out-perform equities with income characteristics, and
vice-versa. While these performance cycles tend to repeat themselves, they do so
with no regularity. The blending of asset classes and investment styles on a
complementary basis can obtain more consistent returns over longer time periods
with a reduction of risk (volatility), although a particular asset class or
investment style--or particular fund investing in one asset class or using a
particular style--may not achieve above-average performance at any given point
in the market.
Similarly, Frank Russell Company believes financial markets generally are
efficient, and few money managers have shown the ability to time the major highs
and lows in the securities markets with any high degree of consistency. However,
some money managers have shown a consistent ability to achieve superior results
within selected asset classes and styles and have demonstrated expertise in
particular areas. Thus, by combining a mix of investment styles within each
asset class and then selecting money managers for their
4
<PAGE>
ability to invest effectively in a particular style, the expectation is the
achievement of increased returns, while controlling the amount of additional
risk inherent in seeking such returns.
GENERAL MANAGEMENT OF RIF
RIF's Board of Trustees is responsible for overseeing generally the
operation of RIF, including reviewing and approving RIF's contracts with FRIMCo,
FRC and the Money Managers. RIF'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 RIF's operations. The Money Managers are
responsible for individual portfolio securities selection for the assets
assigned to them.
FRIMCo: (i) provides or oversees the provision of all general management and
administration, investment advisory and portfolio management, and distribution
services for RIF; (ii) provides RIF with office space, equipment, and personnel
necessary to operate and administer RIF's business, and to supervise the
provision of services by third parties, such as the Money Managers and the
custodian bank; (iii) develops the investment programs, selects the Money
Managers, allocates assets among the Money Managers, and monitors the Money
Managers' investment programs and results; (iv) is authorized to select or hire
Money Managers to select individual portfolio securities held in RIF's
"Liquidity Portfolios" (see, "Investment Policies--Liquidity Portfolios"); and
(v) provides RIF with transfer agent and shareholder recordkeeping services.
FRIMCo bears the expenses it incurs in providing these services (other than
transfer agent and shareholder recordkeeping), as well as the costs of preparing
and distributing explanatory materials concerning the Funds (less any amounts
reimbursed by the Insurance Company for marketing materials).
The responsibility of overseeing the Money Managers rests upon the officers
and employees of FRIMCo. These officers and employees, including their business
experience for the past five years, are identified below:
- Randall P. Lert, who has been Director--Investments, Frank Russell
Investment Management Company since 1989.
- Loran M. Kaufman, who has been Director--Fund Development, Frank Russell
Investment Management Company since 1990.
- Jean E. Carter, who has been a Senior Investment Officer of Frank Russell
Investment Management Company since 1994. From 1990 to 1994, Ms. Carter
was a Client Executive in the Investment Group of Frank Russell Company.
- James M. Imhof, Manager--Portfolio Trading, Frank Russell Investment
Management Company, who has managed the day to day management of Frank
Russell Investment Management Company Funds and ongoing analysis and
monitoring of Fund managers since 1989.
- Peter F. Apanovitch, who has been the Manager--Short-Term Investment Funds
for Frank Russell Investment Management Company and Frank Russell Trust
Company since 1991.
- James A. Jornlin, who has been a Senior Investment Officer of Frank
Russell Investment Management Company since April 1995. From 1994 to 1995
Director of Alpha Strategy Group Frank Russell Company. From 1991 to March
1995, Mr. Jornlin was employed as a Senior Research Analyst with Frank
Russell Company.
- Randal C. Burge, who has been a Senior Investment Officer of Frank Russell
Investment Management Company since June 1995. From 1990 to 1995, Mr.
Burge was a Client Executive for Frank Russell Company Australia.
- Madelyn Smith, who has been a Senior Investment Strategist for the Frank
Russell Investment Management Company since January 1996. From 1993 to
1995, Ms. Smith was investment strategist
5
<PAGE>
for Frank Russell Company. From 1987 to 1993, Ms. Smith was a director of
Investment Equity Manager Research of Frank Russell Company.
- Dennis J. Trittin, who has been a Senior Portfolio Manager of Frank
Russell Investment Management Company since January 1996. From 1988 to
1996, Mr. Trittin was director of US Equity Manager Research Department
with Frank Russell Company.
- C. Nola Williams, who has been a Senior Investment Strategist of Frank
Russell Investment Management Company since January 1996. From 1994 to
1995, Ms. Williams was a member of the Alpha Strategy Group. From 1988 to
1994, Ms. Williams was a Senior Research Analyst with Frank Russell
Company.
FRC provides to each Fund and to FRIMCo asset management consulting
services--including the objective setting and asset allocation technology, and
the Money Manager research and evaluation assistance--which FRC provides to its
other consulting clients. FRC receives no fee from RIF or FRIMCo for these
consulting services. FRC and FRIMCo, as affiliated companies, may establish
certain intercompany cost allocations for budgeting and product profitability
purposes which may reflect FRC services supplied to FRIMCo.
George F. Russell, Jr., Chairman of the Board of Trustees of RIF, is the
Chairman of the Board, and controlling shareholder of FRC. FRIMCo is a
wholly-owned subsidiary of FRC.
RIF has received an exemptive order from the U.S. Securities and Exchange
Commission (the "SEC") which permits RIF, with the approval of its Board of
Trustees, to engage and terminate Money Managers without a shareholder vote and
to disclose, on an aggregate basis, the fees paid to the Money Managers of each
RIF Fund.
For its services, FRIMCo receives a management fee from each Fund. From this
fee, FRIMCo, acting as agent for RIF, is responsible for paying the Money
Managers for their investment selection services. The remainder is retained by
FRIMCo as compensation for the services described above and to pay expenses. The
Management Fee of each Fund is payable monthly on a pro rata basis, at the
annual rate of: Multi-Style Equity Fund, .78%; Aggressive Equity Fund, .95%;
Non-U.S. Fund, .95%; and Core Bond Fund, .60% of average daily net assets. The
fee paid by some of the Funds may be higher than the fees charged to other
mutual funds with similar objectives which use only a single money manager.
EXPENSES OF THE FUNDS
The Funds will pay all of their expenses other than those expressly assumed
by FRIMCo. The Funds' principal expenses are expected to include the management
and transfer agent fees payable to FRIMCo; fees for custodial, portfolio
accounting, tax accounting and yield calculation services payable to State
Street Bank and Trust Company; fees for independent auditing and legal services;
deferred organizational expenses; and fees for filing reports and registering
shares with regulatory bodies.
THE MONEY MANAGERS
The assets of each Fund are allocated currently among the Money Managers
listed in the section "Money Manager Profiles" and FRIMCo. THE ALLOCATION OF A
FUND'S ASSETS AMONG MONEY MANAGERS AND FRIMCO MAY BE CHANGED AT ANY TIME BY
FRIMCO. MONEY MANAGERS ARE EMPLOYED FOR MANAGEMENT OF THE ASSETS OF A FUND
PURSUANT TO MANAGEMENT CONTRACTS APPROVED BY THE BOARD OF TRUSTEES OF RIF
(INCLUDING A MAJORITY OF CERTAIN TRUSTEES WHO ARE NOT INTERESTED PERSONS OF RIF
OR FRIMCO), AND A MONEY MANAGER'S SERVICES MAY BE TERMINATED AT ANY TIME BY
FRIMCO, THE BOARD OF TRUSTEES, OR THE SHAREHOLDERS OF AN AFFECTED FUND. A Fund
may, without the approval of its shareholders, provide for the employment of a
new Money Manager pursuant to the provisions of a new management contract. RIF
will notify shareholders of the Fund concerned within 60 days of when a Money
Manager begins or stops providing services or of implementation of a material
change in a Money Manager's contract.
6
<PAGE>
From its management fees, FRIMCo, as agent for RIF, pays all fees to the
Money Managers for their investment selection services. Quarterly, each Money
Manager is paid the pro rata portion of an annual fee, based on the quarterly
average of all the assets allocated to the Money Manager. Fees will begin to
accrue and be paid once each Fund commences operation. FRIMCo will retain, as
compensation for the services described under "General Management of the Funds"
and to pay its expenses, the difference between these Fees and the management
fee of the applicable Fund. The difference is retained by FRIMCo. Fees paid to
the Money Managers are not affected by any voluntary or statutory expense
limitations. Some Money Managers may receive investment research prepared by
Frank Russell Company as additional compensation, or may receive brokerage
commissions for executing portfolio transactions for the Funds through
broker-dealer affiliates.
Each Money Manager has agreed that once RIF has advanced fees to FRIMCo as
agent to make payment of the Money Manager's fee, that Money Manager will look
only to FRIMCo as agent to make the payment of its fee.
Money Managers are selected for RIF's Funds based primarily upon the
research and recommendations of Frank Russell Company, which evaluates
qualitatively and quantitatively each Money Manager's skills and results in
managing assets for specific asset classes, investment styles and strategies.
Short-term investment performance, by itself, is not a controlling factor in
recommending or terminating a Money Manager.
Each Money Manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund within the Fund's investment objectives,
restrictions and policies, and the more specific strategies developed by FRC and
FRIMCo with respect to the particular investment style for which the Money
Manager was engaged. Although the Money Managers' activities are subject to
general oversight by the Board of Trustees and officers of RIF, neither the
Board, the officers, FRIMCo nor FRC evaluate the investment merits of the Money
Managers' portfolio security selections. However, the Funds' cash holdings may
be managed by FRIMCo to achieve economies of scale.
INVESTMENT OBJECTIVES, RESTRICTIONS AND POLICIES
Each Fund has certain "fundamental" investment objectives, restrictions and
policies which may be changed only with the approval of a majority of the
shareholders of that Fund. If there is a change in a fundamental investment
objective, investors should consider whether the Fund remains an appropriate
investment in light of their then current financial position and needs. Other
policies reflect current practices of the Funds, and may be changed by the Funds
without the approval of shareholders. This section of the Prospectus describes
the Funds' principal objectives, restrictions and policies. A more detailed
discussion appears in the Statement of Additional Information ("SAI").
INVESTMENT OBJECTIVES
Each Fund's objective is "fundamental," as are the types of securities in
which it will invest. Ordinarily, each Fund will invest more than 65% of its net
assets in the types of securities identified in its statement of objectives.
However, the Funds may hold assets as cash reserves for temporary and defensive
purposes when their Money Managers deem that a more conservative approach is
desirable or when suitable purchase opportunities do not exist. (See,
"Investment Policies--Cash Reserves.")
MULTI-STYLE EQUITY FUND'S objective is to provide income and capital growth
by investing principally in equity securities.
The Fund may invest in common and preferred stocks, securities convertible
into common stocks, rights and warrants.
AGGRESSIVE EQUITY FUND'S objective is to seek to provide capital
appreciation by assuming a higher level of volatility than is ordinarily
expected from Multi-Style Equity Fund by investing in equity securities.
7
<PAGE>
The Fund may invest in common and preferred stock, convertible securities,
rights and warrants. The Fund's investments may include companies whose
securities have been publicly traded for less than five years and smaller
companies, such as companies not listed in the Russell 1000-Registered
Trademark- Index. A substantial portion of the Fund's portfolio will generally
consist of equity securities of "emerging growth-type" companies which tend to
reinvest most of their earnings, rather than pay significant cash dividends; or
companies characterized as "special situations" where the Money Managers believe
that cyclical developments in the securities markets, the industry, or the
issuer itself present opportunities for capital growth.
NON-U.S. FUND'S objective is to provide favorable total return and
additional diversification for US investors by investing primarily in equity and
fixed-income securities of non-US companies, and securities issued by non-US
governments.
The Fund invests primarily in equity securities issued by companies
domiciled outside of the United States. The Fund may also invest in fixed-income
securities, including instruments issued by non-US governments and their
agencies, and in US companies which derive, or are expected to derive, a
substantial portion of their revenues from operations outside of the United
States.
The Fund may invest in equity and debt securities denominated in other than
US dollars and gold-related equity investments, including gold mining stocks and
gold-backed debt instruments. However, as a matter of fundamental policy, the
Fund will not invest more than 20% of its net assets in gold-related
investments. Under normal market conditions, at least 65% of the value of the
Fund's total assets will be invested in at least three different countries, not
including the United States.
CORE BOND FUND'S objective is to maximize total return, through capital
appreciation and income by assuming a level of volatility consistent with the
broad fixed-income market, by investing in fixed-income securities.
The Fund will invest primarily in fixed-income securities. The Fund's
investments will include: US government securities; obligations of foreign
governments or their subdivisions, agencies and instrumentalities; securities of
international agencies or supranational agencies; corporate debt securities;
loan participations; corporate commercial paper; indexed commercial paper;
variable, floating and zero coupon rate securities; mortgage and other
asset-backed securities; municipal obligations; variable amount demand master
notes (these notes represent a borrowing arrangement between a commercial paper
issuer and an institutional lender, such as the Fund); bank certificates of
deposit, fixed time deposits and bankers' acceptances; repurchase agreements and
reverse repurchase agreements; and foreign currency exchange related securities.
The Fund may also invest in convertible securities and derivatives,
including warrants and interest rate swaps. Interest rate swaps involve the
exchange by the Fund with another party of its respective commitments to pay or
receive interest (e.g., an exchange of floating rate payments for fixed rate
payments). The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment.
As described above, the Fund may invest in debt securities issued by
supranational organizations, such as: the World Bank, which was chartered to
finance development projects in developing member countries; the European
Community, which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union of
various European nations' steel and coal industries; and the Asian Development
Bank, which is an international development bank established to lend funds,
promote investment and provide technical assistance to member nations in the
Asian and Pacific regions.
The Fund may invest in debt securities denominated in the European Currency
Unit (the "ECU"), which is a "basket" consisting of specific amounts of currency
of member states of the European
8
<PAGE>
Community. These specific amounts of currency comprising the ECU may be adjusted
by the Counsel of Ministers of the European Community to reflect changes in the
relative values of the underlying currencies. The Money Managers investing in
such securities do not believe that such adjustments will adversely affect
holders of ECU-denominated obligations or the marketability of such securities.
European supranationals, in particular, issue ECU-denominated obligations.
Investments in bank certificates of deposit, time deposits and bankers'
acceptances include Eurodollar Certificates of Deposit ("ECD"), which are issued
by foreign branches of US or foreign banks; Eurodollar Time Deposits ("ETD"),
which are issued by foreign branches of US or foreign banks; and Yankee
Certificates of Deposit ("Yankee CDs"), which are issued by US branches of
foreign banks. These instruments may be US dollar or foreign currency
denominated and are subject to the risks of non-US issuers described under
"Investment Policies--Investment in Foreign Securities."
The variable and floating rate securities the Fund may invest in provide for
a periodic adjustment in the interest rate paid on the obligations. The terms of
such obligations must provide that interest rates are adjusted periodically
based upon some appropriate interest rate adjustment index as provided in the
respective obligations. The adjustment intervals may be regular, and range from
daily up to annually, or may be event based, such as on a change in the prime
rate. The Fund may also invest in zero coupon, US Treasury, foreign government
and US and foreign corporate debt securities, which are bills, notes and bonds
that have been stripped of their unmatured interest coupons and receipts or
certificates representing interests in such stripped debt obligations and
coupons. A zero coupon security pays no interest to its holder prior to
maturity. Accordingly, such securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest.
The Fund's portfolio may include debt securities issued by domestic or
foreign entities, and denominated in US dollars or foreign currencies. It is
anticipated that no more than 25% of the Fund's assets will be denominated in
foreign currencies. Foreign currency exchange transactions (options on foreign
currencies, foreign currency futures contracts and forward foreign currency
exchange contracts) will only be used by the Fund for the purpose of hedging
against foreign currency exchange risk arising from the Fund's investment, or
anticipated investment, in securities denominated in foreign currencies. Foreign
investment may include emerging market debt. The risks associated with
investment in securities issued by foreign governments and companies, and the
countries considered to be emerging markets, are described under "Investment
Policies--Investment in Foreign Securities." Emerging markets consist of
countries determined by the Money Managers of the Fund to have developing or
emerging economies and markets. These countries generally include every country
in the world except the United States, Canada, Japan, Australia and most
countries located in Western Europe. The emerging market debt in which the Fund
may invest includes bonds, notes and debentures of emerging market governments
and debt and other fixed income securities issued or guaranteed by such
governments' agencies, instrumentalities or central banks, or by banks or other
companies in emerging markets determined by the Money Managers to be suitable
investments for the Fund. Under current market conditions, it is expected that
emerging market debt will consist predominantly of Brady Bonds and other
sovereign debt. Brady Bonds are products of the "Brady Plan," under which bonds
are issued in exchange for cash and certain of a country's outstanding
commercial bank loans.
The Fund may invest up to 25% of its assets in debt securities that are
rated below "investment grade" (i.e., rated lower than BBB by Standard & Poor's
Ratings Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's") or
in unrated securities judged by the Money Managers of the Fund to be of
comparable quality. Debt rated BB, B, CCC, CC and C and debt rated Ba, B, Caa,
Ca and C is regarded by S&P and Moody's, respectively, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. For S&P, BB indicates
the lowest degree of speculation and C the highest. For Moody's, Ba indicates
the lowest degree of speculation and C the highest. These lower rated securities
may include obligations that are in default or that face the
9
<PAGE>
risk of default with respect to principal or interest. Such securities are
sometimes referred to as "junk bonds." For additional information on the ratings
used by S&P and Moody's and a description of lower rated debt securities, please
refer to RIF's Statement of Additional Information.
INVESTMENT RESTRICTIONS
The Funds have fundamental investment restrictions which cannot be changed
without shareholder approval. The principal restrictions are the following
which, unless otherwise noted, apply on a Fund-by-Fund basis at the time an
investment is being made. No Fund will:
1. Invest in any security if, as a result of such investment, less than 75% of
its assets would be represented by cash; cash items; securities of the US
government, its agencies, or instrumentalities; securities of other
investment companies; and other securities limited in respect of each issuer
to an amount not greater in value than 5% of the total assets of such Fund.
2. Invest 25% or more of the value of the Fund's total assets in the securities
of companies primarily engaged in any one industry (other than the US
government, its agencies and instrumentalities).
3. Acquire more than 5% of the outstanding voting securities, or 10% of all of
the securities, of any one issuer.
4. Borrow amounts in excess of 5% of its total assets taken at cost or at
market value, whichever is lower, and then only for temporary purposes. The
Funds also have certain non-fundamental investment restrictions, including a
restriction that no Fund will invest more than 5% of its assets in
securities of issuers which, together with any predecessor, have been in
operation for less than three years; or invest more than 5% of its assets in
warrants.
INVESTMENT POLICIES
The Funds use certain investment instruments and techniques commonly used by
institutional investors. The principal policies are the following:
CASH RESERVES. Each Fund is authorized to invest its cash reserves (and
funds awaiting investment in the specific types of securities to be acquired by
a Fund) in money market instruments, including shares of unaffiliated money
market funds, and in debt securities which are at least comparable in quality to
the Fund's permitted investments, including call deposits with the RIF's
custodian.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with
a bank or broker-dealer that agrees to repurchase the securities at the Fund's
cost plus interest within a specified time (normally the next business day). If
the party agreeing to repurchase should default and if the value of the
securities held by the Fund (102% at time of the agreement) should fall below
the repurchase price, the Fund could incur a loss. Subject to the overall
limitations described in "Investment Policies--Illiquid Securities," no Fund
will invest more than 15% of its total assets (taken at current market value) in
repurchase agreements maturing in more than seven days.
LIQUIDITY PORTFOLIOS. FRIMCo will exercise investment discretion or select
a Money Manager to exercise investment discretion for approximately 5%-15% of
each of the Multi-Style Equity, Aggressive Equity, and Non-U.S. Funds' assets
assigned to a "Liquidity Portfolio." Each Fund's Liquidity Portfolio will be
used to create temporarily, through investments in options and futures
contracts, an equity exposure for that Fund's cash balances until those balances
are invested in equities or used for Fund transactions. The purpose of having
this portfolio is to hedge against the effect that changes in general market
conditions might have on the value of securities that are held in the applicable
Fund's portfolios or of securities that the Funds intend to purchase.
10
<PAGE>
FORWARD COMMITMENTS. Each Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time (a "forward
commitment" or "when-issued" transaction), so long as such transactions are
consistent with the Fund's ability to manage its investment portfolio and honor
redemption requests. When effecting such transactions, cash or liquid high-grade
debt obligations of the Fund of a dollar amount sufficient to make payment for
the portfolio securities to be purchased will be segregated on the Fund's
records at the trade date and maintained until the transaction is settled.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements to meet redemption requests where the liquidation of portfolio
securities is deemed by a Money Manager to be inconvenient or disadvantageous. A
reverse repurchase agreement is a transaction whereby a Fund transfers
possession of a portfolio security to a bank or broker-dealer in return for a
percentage of the portfolio security's market value. The Fund retains record
ownership of the security involved including the right to receive interest and
principal payments. At an agreed upon future date, the Fund repurchases the
security by paying an agreed upon purchase price plus interest. Cash or liquid
high-grade debt obligations of the Fund equal in value to the repurchase price,
including any accrued interest, will be segregated on the Fund's records while a
reverse repurchase agreement is in effect. Subject to the overall limitations
described in "Investment Policies--Illiquid Securities," no Fund will invest
more than 15% of its total assets (taken at current market value) in reverse
repurchase agreements maturing in more than seven days.
LENDING PORTFOLIO SECURITIES. Each Fund may lend portfolio securities with
a value of up to 50% of its total assets. Such loans may be terminated at any
time. The Fund will receive either cash (and agree to pay a "rebate" interest
rate), US government, or US government agency securities as collateral in an
amount equal to at least 100% of the current market value of the current loaned
securities plus accrued interest. The collateral is "marked-to-market" on a
daily basis, and the borrower will furnish additional collateral in the event
that the value of the collateral drops below 100% of the market value of the
loaned securities.
Cash collateral is invested in high-quality short-term instruments,
short-term bank collective investment and money market mutual funds (including
funds advised by State Street Bank, the Funds' custodian, for which it may
receive an asset-based fee) and other investments meeting certain quality and
maturity requirements established by the Funds. Income generated from the
investment of the cash collateral is first used to pay the rebate interest cost
to the borrower of the securities and the remainder is then divided between the
Fund and the Fund's custodian.
The Fund will retain most rights of beneficial ownership, including
dividends, interest or other distributions on the loaned securities. Voting
rights may pass with the lending. The Fund will call loans to vote proxies if a
material issue affecting the investment is to be voted upon. Should the borrower
of the securities fail financially, there is a risk of delay in recovery of the
securities or loss of rights in the collateral. Consequently, loans are made
only to borrowers which are deemed to be of good financial standing. RIF may
incur costs or possible losses in excess of the interest and fees received in
connection with securities lending transactions. Some securities purchased with
cash collateral are subject to market fluctuations while a loan is outstanding.
To the extent that the value of the cash collateral as invested is insufficient
to return the full amount of the collateral plus rebate interest to the borrower
upon termination of the loan, the Fund must immediately pay the amount of the
shortfall to the borrower.
ILLIQUID SECURITIES. The Funds, will not purchase or otherwise acquire any
security if, as a result, more than 15% of its net assets (taken at current
value) would be invested in securities, including repurchase agreements of more
than seven days' duration, that are illiquid by virtue of the absence of a
readily available market or because of legal or contractual restrictions on
resale. In addition, the Funds will not invest more than 10% in securities of
issuers which may not be sold to the public without registration under the
Securities Act of 1933 (the "1933 Act"). These policies do not include (1)
commercial paper issued under Section 4(2) of the 1933 Act or (2) restricted
securities eligible for resale to qualified institutional purchasers pursuant to
Rule 144A under the 1933 Act that are determined to be liquid by the Money
Managers in accordance with Board-approved guidelines. Such guidelines take into
account trading
11
<PAGE>
activity for such securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, the Fund's holding of that security may be
illiquid. There may be undesirable delays in selling illiquid securities at
prices representing their fair value.
INVESTMENT IN FOREIGN SECURITIES. The Funds may invest in foreign
securities traded on US or foreign exchanges or in the over-the-counter market.
Investing in securities issued by foreign governments and corporations involves
considerations and possible risks not typically associated with investing in
obligations issued by the US government and domestic corporations. Less
information may be available about foreign companies than about domestic
companies, and foreign companies generally are not subject to the same uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic companies.
The values of foreign investments are affected by changes in currency exchange
rates or exchange control regulations, application of foreign tax laws,
including withholding taxes, changes in governmental administration or economic
or monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States. Investments in foreign countries could be affected by
other factors not present in the United States, including nationalization,
expropriation, confiscatory taxation, lack of uniform accounting and auditing
standards and potential difficulties in enforcing contractual obligations and
could be subject to extended settlement periods or restrictions affecting the
prompt return of capital to the United States.
The risks associated with investing in foreign securities are often
heightened for investments in developing or emerging markets. Moreover, the
economies of individual emerging market countries may differ favorably or
unfavorably from the US economy in such respects as the rate of growth in gross
domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Because the Fund's securities
will generally be denominated in foreign currencies, the value of such
securities to the Fund will be affected by changes in currency exchange rates
and in exchange control regulations. A change in the value of a foreign currency
against the US dollar will result in a corresponding change in the US dollar
value of the Fund's securities. In addition, some emerging market countries may
have fixed or managed currencies which are not free-floating against the US
dollar. Further, certain emerging market countries' currencies may not be
internationally traded. Certain of these currencies have experienced a steady
devaluation relative to the US dollar. Many emerging markets countries have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had,
and may continue to have, negative effects on the economies and securities
markets of certain emerging market countries.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS ("FORWARD CURRENCY
CONTRACTS"). The Non-U.S. and Core Bond Funds may enter into forward currency
contracts, which are agreements to exchange one currency for another--for
example, to exchange a certain amount of US dollars for a certain amount of
Japanese Yen--at a future date. The date (which may be any agreed upon fixed
number of days in the future), the amount of currency to be exchanged and the
price at which the exchange will take place, will be negotiated and fixed for
the term of the contract at the time that a Fund enters into a contract. The
Funds may engage in forward contracts that involve transacting in a currency
whose changes in value are considered to be linked (a proxy) to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated. Forward currency contracts are (a) traded in an
interbank market conducted directly between currency traders (typically,
commercial banks or other financial institutions) and their customers, (b)
generally have no deposit requirements and (c) are consummated without payment
of any commissions. The Funds may, however, enter into forward currency
contracts containing either or both deposit requirements and commissions. In
order to assure that the Funds' forward currency contracts are not used to
achieve investment leverage, the Funds will segregate
12
<PAGE>
cash or readily marketable high-quality securities in an amount at all times
equal to or exceeding the Funds' commitment with respect to these contracts.
Upon maturity of a forward currency contract, the Funds may (a) pay for and
receive the underlying currency, (b) negotiate with the dealer to roll over the
contract into a new forward currency contract with a new future settlement date
or (c) negotiate with the dealer to terminate the forward currency contract by
entering into an offset with the currency trader whereby the Funds pay for and
receive the difference between the exchange rate fixed in the contract and the
then current exchange rate. The Fund also may be able to negotiate such an
offset prior to maturity of the original forward currency contract. There can be
no assurance that new forward currency contracts or offsets will always be
available to the Funds.
Forward currency contracts will be used only to hedge against anticipated
future changes in exchange rates which otherwise might either adversely affect
the value of the Fund's portfolio securities or adversely affect the price of
securities which the Funds intend to purchase at a later date. The amount the
Funds may invest in forward currency contracts is limited to the amount of the
Funds' aggregate investments denominated in foreign currencies.
The market for forward currency contracts may be limited with respect to
certain currencies. These factors will restrict a Fund's ability to hedge
against the risk of devaluation of currencies in which the Fund holds a
substantial quantity of securities and are unrelated to the qualitative rating
that may be assigned to any particular portfolio security. Where available, the
successful use of forward currency contracts draws upon a Money Manager's
special skills and experience with respect to such instruments and usually
depends on the Money Manager's ability to forecast interest rate and currency
exchange rate movements correctly. Should interest or exchange rates move in an
unexpected manner, a Fund may not achieve the anticipated benefits of forward
currency contracts or may realize losses and thus be in a worse position than if
such strategies had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price fluctuation limits
with respect to forward currency contracts and adverse market movements could
therefore continue to an unlimited extent over a period of time. In addition,
the correlation between movements in the prices of such instruments and
movements in the price of the securities and currencies hedged or used for cover
will not be perfect. In the case of proxy hedging, there is also a risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time the Funds are engaged in that strategy.
A Fund's ability to dispose of its positions in forward contracts will
depend on the availability of active markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of forward currency contracts. Forward foreign currency contracts may be
closed out only by the parties entering into an offsetting contract. Therefore,
no assurance can be given that a Fund will be able to utilize these instruments
effectively for the purposes set forth above.
OPTIONS. The Funds, may purchase and sell (write) call and put options on
securities and securities indexes provided such options are traded on a national
securities exchange or in an over-the-counter market. The Funds, may also
purchase and sell put and call options on foreign currencies.
A Fund may invest up to 5% of its assets, represented by the premium paid,
in call and put options. A Fund may write a call or put option to the extent
that the aggregate value of all securities or other assets used to cover all
such outstanding options does not exceed 25% of the value of its net assets.
CALL AND PUT OPTIONS ON SECURITIES. A call option on a specific security
gives the purchaser of the option the right to buy, and obligates the writer to
sell, the underlying security at the exercise price at any time during the
option period. Conversely, a put option on a specific security gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security at the exercise price at any time during the option period.
A Fund may purchase a call option on securities to protect against
substantial increases in prices of securities the Fund intends to purchase
pending its ability or desire to purchase such securities in an
13
<PAGE>
orderly manner. A Fund may purchase a put option on securities to protect
holdings in an underlying or related security against a substantial decline in
market value. Securities are considered related if their price movements
generally correlate to one another.
A Fund may write a call or a put option only if the option is covered by the
Fund holding a position in the underlying securities or by other means which
would permit immediate satisfaction of the Fund's obligations as the writer of
the option.
To close out a position when writing covered options, a Fund may make a
"closing purchase transaction," which involves purchasing an option on the same
security with the same exercise price and expiration date as the option which it
previously wrote on the security. To close out a position as a purchaser of an
option, a Fund may make a "closing sale transaction," which involves liquidating
the Fund's position by selling the option previously purchased. The Fund will
realize a profit or loss from a closing purchase or sale transaction depending
upon the difference between the amount paid to purchase an option and the amount
received from the sale thereof.
The Funds intend to treat options in respect of specific securities that are
not traded on a national securities exchange and the securities underlying
covered call options as not readily marketable and therefore subject to the
limitations on the Funds' ability to hold illiquid securities.
The Funds intend to purchase and write call and put options on specific
securities. The Funds will purchase and write options only to the extent
permitted by the policies of state securities authorities in states where the
shares of the Funds are qualified for offer and sale.
SECURITIES INDEX OPTIONS. An option on a securities index is a contract
which gives the purchaser of the option, in return for the premium paid, the
right to receive from the writer of the option cash equal to the difference
between the closing price of the index and the exercise price of the option
times a multiplier established by the exchange on which the stock index is
traded. It is similar to an option on a specific security except that settlement
is in cash and gains and losses depend on price movements in the stock market
generally (or in a particular industry or segment of the market) rather than
price movements in the specific security. Only the Multi-Style Equity,
Aggressive Equity, and Non-U.S. Funds, currently intend to purchase and write
call and put options on securities indexes.
The purchase and writing of options involves certain risks. If a put or call
option purchased by a Fund is not sold when it has remaining value, and if the
market price of the underlying security, in the case of a put, remains equal to
or greater than the exercise price or, in the case of a call, remains less than
or equal to the exercise price, the Fund will lose its entire investment (i.e.,
the premium paid) on the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security.
Where a Fund writes a call option, it has, in return for the premium it
receives, given up the opportunity to profit from a price increase in the
underlying security above the exercise price, but, as long as its obligation as
a writer continues, has retained the risk of loss should the price of the
underlying security decline. Where a Fund writes a put option, it is exposed
during the term of the option to a decline in the price of the underlying
security.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Fund may be unable to close
out a position.
OPTIONS ON FOREIGN CURRENCY. The Funds may purchase and write call and put
options on foreign currencies for the purpose of hedging against changes in
future currency exchange rates. Call options convey the right to buy the
underlying currency at a price which is expected to be lower than the spot price
of the currency at the time the option expires. Put options convey the right to
sell the underlying currency
14
<PAGE>
at a price which is anticipated to be higher than the spot price of the currency
at the time the option expires. Currency options traded on US or other exchanges
may be subject to position limits which may limit the ability of a Fund to
reduce foreign currency risk using such options. Over-the-counter options differ
from traded options in that they are two-party contracts with price and other
terms negotiated between buyer and seller and generally do not have as much
market liquidity as exchange-traded options. For a more detailed description of
options, including a discussion of the risks associated with options, see "Call
and Put Options on Specific Securities," above. None of the Funds currently
intends to write or purchase such exchange-traded options.
Futures Contracts and Options on Futures Contracts. The Funds may invest in
interest rate futures contracts, stock index futures contracts and foreign
currency futures contracts and options thereon that are traded on a United
States or foreign exchange or board of trade.
An interest rate or foreign currency futures contract is an agreement
between two parties (buyer and seller) to take or make delivery of a specified
quantity of financial instruments (such as certificates issued by the Government
National Mortgage Association ("GNMA") or Treasury bonds) or foreign currency at
a specified price at a future date. A futures contract on an index (such as the
S&P 500) is an agreement between two parties (buyer and seller) to take or make
delivery of an amount of cash equal to the difference between the value of the
index at the close of the last trading day of the contract and the price at
which the index contract was originally written. In the case of futures
contracts traded on US exchanges, the exchange itself or an affiliated clearing
corporation assumes the opposite side of each transaction (i.e., as buyer or
seller). A futures contract may be satisfied or closed out by delivery or
purchase, as the case may be, of the financial instrument or by payment of the
change in the cash value of the index. Frequently, using futures to effect a
particular strategy instead of using the underlying or related security or index
will result in lower transaction costs being incurred.
Each Fund may also purchase and write call options and put options on
futures contracts. An option on a futures contract gives the holder the right,
in return for the premium paid, to assume a long position (in the case of a
call) or a short position (in the case of a put) in a futures contract at a
specified exercise price prior to the expiration of the option. Upon exercise of
a call option, the holder acquires a long position in the futures contract and
the writer is assigned the opposite short position. In the case of a put option,
the opposite is true. An option on a futures contract may be closed out (before
exercise or expiration) by an offsetting purchase or sale of an option on a
futures contract of the same series.
There are several risks associated with the use of futures and options on
futures contracts for hedging purposes. There can be no guarantee that there
will be a correlation between price movements in the hedging vehicle and in the
portfolio securities being hedged. An incorrect correlation could result in a
loss on both the hedged securities in a Fund and the hedging vehicle so that the
portfolio return might have been greater had hedging not been attempted.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures contract or a futures option position. Most
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent a Fund from liquidating an unfavorable
position and the Fund would remain obligated to meet margin requirements until
the position is closed.
The Fund will only enter into futures contracts or options on futures
contracts which are standardized and traded on a US or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. A Fund
will enter into a futures contract only if the contract is "covered" or if the
Fund at all times maintains with its custodian cash or cash equivalents equal to
or greater than the fluctuating value of the contract (less any margin or
deposit). A Fund will write a call or put option on a futures
15
<PAGE>
contract only if the option is "covered." For a discussion of how to cover a
written call or put option, see "Options" above.
A Fund may enter into contracts and options on futures contracts for "bona
fide hedging" purposes, as defined under the rules of the Commodity Futures
Trading Commission. A Fund may also enter into futures contracts and options on
futures contracts for non-hedging purposes provided the aggregate initial margin
and premiums required to establish these positions will not exceed 5% of the
Fund's net assets.
HIGH RISK BONDS. The Funds, other than the Core Bond Fund, do not invest
assets in securities rated less than BBB by S&P or Baa by Moody's, or in unrated
securities judged by the Money Managers to be of a lesser credit quality than
those designations. Securities rated BBB by S&P or Baa by Moody's and above are
considered by those rating agencies to be "investment grade" securities,
although Moody's and S&P consider securities rated Baa to have some speculative
characteristics. The Funds, other than the Core Bond Fund, will dispose of, in a
prudent and orderly fashion, securities whose ratings drop below these minimum
ratings. For additional information, please refer to the Funds' Statement of
Additional Information.
The Core Bond Fund will invest in "investment grade" securities and may
invest up to 25% of its total assets in debt securities rated less than BBB by
S&P or Baa by Moody's, or in unrated securities judged by the Money Managers of
the Fund to be of comparable quality. Lower rated debt securities generally
offer a higher yield than that available from higher grade issues. However,
lower rated debt securities involve higher risks, in that they are especially
subject to adverse changes in general economic conditions and in the industries
in which the issuers are engaged, to changes in the financial condition of the
issuers and to price fluctuation in response to changes in interest rates.
During periods of economic downturn or rising interest rates, highly leveraged
issuers may experience financial stress which could adversely affect their
ability to make payments of principal and interest and increase the possibility
of default. In addition, the market for lower rated debt securities has expanded
rapidly in recent years, and its growth paralleled a long economic expansion.
The market for lower rated debt securities is generally thinner and less active
than that for higher quality securities, which would limit the Fund's ability to
sell such securities at fair value in response to changes in the economy or the
financial markets. While such debt may have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions. The Money Managers of the Core Bond Fund will
seek to reduce the risks associated with investing in such securities by
limiting the Fund's holdings in such securities and by the depth of their own
credit analysis. For additional information, please refer to the Statement of
Additional Information.
U.S. GOVERNMENT OBLIGATIONS. The types of US government obligations the
Funds may at times invest in include: (1) a variety of US Treasury obligations,
which differ only in their interest rates, maturities and times of issuance: (a)
US Treasury bills have a maturity of one year or less; (b) US Treasury notes
have original maturities of one to ten years; and (c) US Treasury bonds have
original maturities of greater than ten years; (2) obligations issued or
guaranteed by US government agencies and instrumentalities, which are supported
by any of the following: (a) the full faith and credit of the US Treasury (such
as GNMA participation certificates); (b) the right of the issuer to borrow an
amount limited to a specific line of credit from the US Treasury; (c)
discretionary authority of the US government agency or instrumentality; or (d)
the credit of the instrumentality (examples of agencies and instrumentalities
are Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks, and
Federal National Mortgage Association). No assurance can be given that the US
government will provide financial support to such US government agencies or
instrumentalities described in (2)(b), (2)(c) and (2)(d) in the future, other
than as set forth above, since it is not obligated to do so by law. The Funds
may purchase US government obligations on a forward commitment basis.
16
<PAGE>
PORTFOLIO TRANSACTION POLICIES
Decisions to buy and sell securities are made by the Money Managers for the
assets assigned to them, and by FRIMCo or the Money Manager for the Liquidity
Portfolios. Money Managers make decisions to buy or sell securities
independently from other Managers. Thus, one Manager could be selling a security
when another Manager for the same Fund is purchasing the same security. In
addition, when a Money Manager's services are terminated and another retained,
the new Money Manager may significantly restructure the portfolio within the
investment guidelines and restrictions imposed on the portfolio. These practices
may increase the Funds' portfolio turnover rates, realization of gains or
losses, brokerage commissions and other transaction based costs. The annual
portfolio turnover rate is not expected to exceed 90% for the Multi-Style Equity
Fund, 90% for the Aggressive Equity Fund, 75% for the Non-U.S. Fund, and 200%
for the Core Bond Fund. A high portfolio turnover rate generally will result in
higher brokerage transaction costs and may result in higher levels of realized
capital gains or losses with respect to a Fund's portfolio securities (see
"Taxes"). RIF's Board of Trustees monitors portfolio activities to minimize
possible adverse consequences.
The Funds may effect portfolio transactions with or through Frank Russell
Securities, Inc., an affiliate of FRIMCo, when a Money Manager determines that
the Fund will receive competitive execution, price and commissions.
Frank Russell Securities refunds up to 70% of the commission paid to the
Funds effecting such transactions, after reimbursement for research services
provided to FRIMCo, to reduce such Funds' brokerage expenses and correspondingly
enhance the Funds' investment returns. This arrangement is used by Multi-Style
Equity, Aggressive Equity, and Non-U.S. Funds. All Funds may also effect
portfolio transactions through and pay brokerage commissions to the Money
Managers (or their affiliates).
DIVIDENDS AND DISTRIBUTIONS
INCOME DIVIDENDS
The Board of Trustees presently intends to declare dividends from net
investment income, for payment on the following schedule:
<TABLE>
<CAPTION>
DECLARED PAYABLE
- ----------- ----------------------------
<S> <C> <C>
Mid: February, April, July Multi-Style Equity, Aggressive Equity and Core
Quarterly and October Bond Funds
Annually Mid-February Non-U.S. Fund
</TABLE>
CAPITAL GAINS DISTRIBUTIONS
The Board intends to declare distributions from capital gains through
December 31 (excess of capital gains over capital losses) annually, generally in
mid-February. In addition, in order to satisfy certain distribution
requirements, a Fund may declare special year-end dividend and capital gains
distributions. Such distributions, if received by shareholders by January 31,
are deemed to have been paid by a Fund and received by shareholders on December
31 of the prior year.
AUTOMATIC REINVESTMENT
All dividends and distributions will be automatically reinvested, at the net
asset value per share at the close of business on the record date, in additional
shares of the Fund paying the dividend or making the distribution unless a
shareholder elects to have dividends or distributions paid in cash or invested
in another Fund. Any election may be changed by delivering written notice no
later than ten days prior to the payment date to Frank Russell Investment
Management Company, RIF's transfer and dividend paying agent, at Operations
Department, P.O. Box 1591, Tacoma, WA 98401.
17
<PAGE>
TAXES
Each Fund intends to qualify and to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As such, a Fund is not subject to Federal income tax on
that part of its investment company taxable income (consisting generally of net
investment income, net gains from certain foreign currency transactions, and net
short-term capital gain, if any) and any net capital gain (the excess of net
long-term capital gain over net short-term capital loss) that it distributes to
its shareholders. It is the intention of each Fund to distribute all such income
and gains.
Fund shares are offered only to separate accounts of Insurance Companies
(which are insurance company separate accounts that fund the variable
contracts). For a discussion of the taxation of life insurance companies and the
separate accounts, as well as the tax treatment of the variable contracts and
the holders thereof, see the discussion regarding "Federal Tax Considerations"
included in the prospectus for the variable contracts.
Each Fund intends to comply with the diversification requirements imposed by
Section 817(h) of the Code and the regulations thereunder. These requirements
are in addition to the diversification requirements imposed on each Fund by
Subchapter M of the Code and the 1940 Act. These requirements place certain
limitations on the assets of each separate account that may be invested in
securities of a single issuer, and, because Section 817(h) and the regulations
thereunder treat a Fund's assets as assets of the related separate account,
these limitations also apply to the Fund's assets that may be invested in
securities of a single issuer. Generally, the regulations provide that, as of
the end of each calendar quarter, or within 30 days thereafter, no more than 55%
of a Fund's total assets may be represented by any one investment, no more than
70% by any two investments, nor more than 80% by any three investments, and no
more than 90% by any four investments. For purposes of Section 817(h), all
securities of the same issuer, all interests in the same real property project,
and all interests in the same commodity are treated as a single investment. A
government security includes any security issued or guaranteed or insured by the
United States or an instrumentality of the United States. Failure of a Fund to
satisfy the Section 817(h) requirements could result in adverse tax consequences
to the Insurance Company and holders of Policies, other than as described in the
prospectus for the Policies.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting the Funds and their shareholders; see the
Statement of Additional Information and Policy Prospectus for a more detailed
discussion. Prospective investors are urged to consult their tax advisers.
PERFORMANCE AND YIELD INFORMATION
TOTAL RETURN
From time to time, in advertisements, sales literature, or reports to
shareholders, the performance of the Funds may be quoted and compared to that of
other mutual funds with similar investment objectives and to other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performances of mutual funds, or information prepared by the Variable Annuity
Research and Data Service (VARDS) which is the most widely quoted and referenced
variable products analytical resource. The performance of the Multi-Style
Equity, Aggressive Equity and Non-U.S. Funds may be also compared to the
Standard & Poor's 500 Stock Index ("S&P 500"), an index of unmanaged groups of
common stocks, the Consumer Price Index, the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange or the Russell 1000r Index, an index of the 1,000
largest US companies by capitalization.
18
<PAGE>
Performance data as reported in national financial publications including,
but not limited to, Money Magazine, Forbes, Barron's, The Wall Street Journal
and The New York Times, or in publications of a local or regional nature, may
also be used in comparing the performance of the Funds. From time to time, each
of the Funds may advertise its performance using "average annual total return"
over various periods of time. Such total return figure reflects the average
percentage change in the value of an investment in a Fund from the beginning
date of the measuring period to the end of the measuring period. Average total
return figures will be given for the most recent one-year periods, and may be
given for other periods as well (such as from the commencement of a Fund's
operations, or on a year-by-year basis). Each of these Funds may also use
aggregate total return figures for various periods, representing the cumulative
change in the value of an investment in a Fund for the specific period. Both
methods of calculating total return assume that dividends and capital gain
distributions made by a Fund during the period are reinvested in Fund shares.
Fund total return information will not be quoted separately from the
corresponding total return information of a separate account that invests in the
relevant Fund.
YIELD
From time to time, in advertisements, sales literature, or reports to
shareholders, the yield of the Core Bond Fund may be quoted and compared to
those of other mutual funds with a similar investment objective and to other
relevant indexes or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
Yield data as reported in national financial publications including, but not
limited to, Money Magazine, Forbes, Barron's, The Wall Street Journal and The
New York Times, or in publications of a local or regional nature, may also be
used in comparing the Funds' yields.
The Core Bond Fund may advertise its effective yield which is calculated by
dividing its average daily net investment income per share during a 30-day (or
one month) base period identified in the advertisement by its net asset value
per share on the last day of the period. This income is then annualized.
Performance and yields will fluctuate and any quotation of performance or
yield should not be considered as representative of a Fund's future performance.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in a Fund with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Fund yield information will not be quoted separately from
the corresponding yield information of a separate account that invests in the
relevant Fund.
FRIMCO'S HISTORICAL PERFORMANCE
Since RIF Funds are new portfolios, there is no information regarding their
past investment performance. However, FRIMCo has a history of investment
performance managing other investment portfolios with investment objectives,
strategies, policies, and restrictions substantially similar to the Funds'. Set
forth below are historical performance data provided by FRIMCo pertaining to
those investment portfolios. The data is provided to illustrate past performance
in managing similar portfolios. The results presented are not intended to
predict or suggest the return to be experienced by any Funds or the return an
individual investor might achieve by investing in a Fund. A Fund's investment
returns may differ from those of the relevant portfolio because, among other
things, the Fund's fees and expenses may differ from those of the applicable
portfolio.
19
<PAGE>
PERCENTAGE TOTAL RETURNS(1)
PERIODS ENDING DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
ANNUALIZED
-------------------------------------------------------
THREE FIVE INCEPTION INCEPTION
ONE YEAR YEARS YEARS TEN YEARS TO DATE DATE
--------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
FRANK RUSSELL INVESTMENT COMPANY
RIF Multi-Style Equity Fund comparable]
DIVERSIFIED EQUITY FUND 35.17 14.31 16.22 13.76 15.06 10/01/85
[RIF Aggressive Equity Fund comparable]
SPECIAL GROWTH FUND 28.52 12.63 18.13 12.34 13.69 10/01/85
[RIF Non-US Fund comparable]
INTERNATIONAL SECURITIES FUND 10.20 15.54 9.95 13.33 14.36 10/01/85
FRANK RUSSELL TRUST COMPANY
[RIF Core Bond Fund comparable]
FIXED INCOME I FUND 19.09 8.99 10.35 10.48 12.40 11/01/80
</TABLE>
- ------------------------
(1) Performance is calculated based on the SEC standardized method, except for
Frank Russell Trust Company Fixed Income I Fund, the performance of which is
calculated using a time-weighted method. Periods of 12 months and over are
annualized. Indexes are unmanaged. Performance is reported net of fund
investment management fees except for Frank Russell Trust Company Fixed
Income I Fund which is shown gross of management fees. The annual management
fee over the period(s) shown was 0.78% for Diversified Equity Fund; 0.95%
for Special Growth Fund; and 0.95% for International Securities Fund.
VALUATION OF FUND SHARES
NET ASSET VALUE PER SHARE
The net asset value per share is calculated for each Fund on each business
day on which shares are offered or orders to redeem are tendered. For all Funds
a business day is one on which the New York Stock Exchange is open for trading.
Net asset value per share is computed for a Fund by dividing the current value
of the Fund's assets, less its liabilities, by the number of shares of the Fund
outstanding, and rounding to the nearest cent. All Funds determine net asset
value as of the close of the New York Stock Exchange (currently 4:00 p.m.
Eastern time).
VALUATION OF PORTFOLIO SECURITIES
With the exceptions noted below, the Funds value portfolio securities at
"fair market value." This generally means that equity securities and
fixed-income securities listed and traded principally on any national securities
exchange are valued on the basis of the last sale price or, lacking any sale, at
the closing bid price, on the primary exchange on which the security is traded.
United States over-the-counter equity and fixed-income securities and options
are valued on the basis of the closing bid price, and futures contracts are
valued on the basis of last sell price.
Because many fixed-income securities do not trade each day, last sale or bid
prices are frequently not available. Fixed-income securities therefore may be
valued using prices provided by a pricing service when such prices are believed
to reflect the fair market value of such securities. International equity
securities traded on a national securities exchange are valued on the basis of
the last sale price. Non-U.S. traded over-the-counter securities are valued on
the basis of the mean of bid prices. In the absence of a last sale or
20
<PAGE>
mean bid price, respectively, such securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities.
Money market instruments maturing within 60 days of the valuation date held
by Funds are valued at "amortized cost," unless the Board determines that
amortized cost does not represent fair value. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument.
The Funds value securities for which market quotations are not readily
available at "fair value," as determined in good faith pursuant to procedures
established by the Board of Trustees.
PURCHASE OF FUND SHARES
Separate accounts of the Insurance Companies place orders based on, among
other things, the amount of premium payments to be invested pursuant to
Policies. Individuals may not place orders directly with RIF. See the prospectus
of the Separate Account and Policies of the Insurance Company for more
information on the purchase of Fund shares and with respect to the availability
for investment in specific Funds. The Funds do not issue share certificates.
Purchase orders from Separate Accounts based on premiums and transaction
requests received by the Insurance Company on a given business day in accordance
with procedures established by the Insurance Company will be effected at the net
asset value of the applicable Fund determined on such business day if the orders
are received by RIF in proper form and in accordance with applicable
requirements on the next business day and Federal funds (monies of member banks
within the Federal Reserve System which are held on deposit at a Federal Reserve
Bank) in the net amount of such orders are received by RIF on such next business
day in accordance with applicable requirements. It is each Insurance Company's
responsibility to properly transmit purchase orders and Federal funds in
accordance with applicable requirements. Policy owners should refer to the
prospectus for their Policy and Separate Account in this regard.
REDEMPTION PROCEDURES
Fund shares may be redeemed at any time by the Separate Accounts of the
Insurance Companies. Individuals may not place redemption orders directly with
the Fund. Redemption requests for Separate Accounts based on premiums and
transaction requests received by the Insurance Company on a given business day
in accordance with procedures established by the Insurance Company will be
effected at the net asset value of the applicable Fund determined on such
business day if the requests are received by RIF in proper form and in
accordance with applicable requirements on the next business day. It is each
Insurance Company's responsibility to properly transmit redemption requests in
accordance with applicable requirements. Policy owners should consult their
Insurance Company in this regard. The value of the shares redeemed may be more
or less than their original cost, depending on the Fund's then-current net asset
value. No charges are imposed by a Fund when shares are redeemed.
RIF ordinarily will make payment for all shares redeemed within seven days
after receipt by RIF or its transfer agent of a redemption request in proper
form, except as provided by rules of the SEC.
Should any conflict between variable annuity Policy owners and variable life
insurance Policy owners arise which would require that a substantial amount of
net assets be withdrawn from a Fund, orderly Fund management could be disrupted
to the potential detriment of affected policy owners.
ADDITIONAL INFORMATION
DISTRIBUTOR, CUSTODIAN, INDEPENDENT ACCOUNTANTS, AND REPORTS
Russell Fund Distributors, Inc., a wholly owned subsidiary of FRIMCo, is the
principal Distributor for RIF shares sold to the Insurance Company. The
Distributor receives no compensation from RIF for its services.
21
<PAGE>
State Street Bank and Trust Company ("State Street"), Boston, Massachusetts,
holds all portfolio securities and cash assets of each Fund and provides
portfolio recordkeeping services. State Street is authorized to deposit
securities in securities depositories or to use the services of sub-custodians.
State Street has no responsibility for the supervision and management of RIF.
Coopers & Lybrand L.L.P., Boston, Massachusetts, are the Fund's independent
accountants. Shareholders will receive unaudited semiannual financial statements
and annual financial statements audited by Coopers & Lybrand L.L.P. Shareholders
may also receive additional reports concerning the Funds, or their accounts from
FRIMCo.
ORGANIZATION, CAPITALIZATION AND VOTING
RIF was organized as a Maryland corporation on October 8, 1987, and was
reorganized by changing its domicile and legal status to a Massachusetts
business trust under a Master Trust Agreement dated July 11, 1996. Frank Russell
Company has the right to grant the nonexclusive use of the name "Frank Russell"
or any derivation thereof to any other investment company or other business
enterprise, and to withdraw from RIF the use of the name "Frank Russell" or its
derivations.
RIF issues shares of beneficial interest divisible into an unlimited number
of funds, each of which is a separate trust under Massachusetts law, and the
funds' shares may be offered in multiple classes. (The Funds do not presently
offer interests in multiple classes, although they may do so in the future.)
Each Fund share represents an equal proportionate interest in the assets of that
Fund, has a par value of $.01 per share, and is entitled to such dividends and
distributions earned on the assets belonging to such Fund as may be declared by
the Board of Trustees. Shares of a Fund are fully paid and nonassessable and
have no preemptive or conversion rights. Each Fund share has one vote; there are
no cumulative voting rights. There is no Annual Meeting of shareholders, but
Special Meetings may be held. On any matter which affects only a particular
Fund, only shareholders of that Fund vote unless otherwise required by the 1940
Act or the Master Trust Agreement.
The Trustees of RIF hold office for the life of RIF. A Trustee may resign or
retire, and a Trustee may be removed at any time by, in substance, a vote of
two-thirds of RIF's shares. A vacancy in the Board of Trustees shall be filled
by the vote of a majority of the remaining Trustees so long as, in substance,
two-thirds of the Trustees have been elected by shareholders.
In connection with an exemptive order which RIF received from the SEC, it
has committed to a "pass-through" voting procedure which will generally require
an Insurance Company to cast votes at RIF meetings as directed by Policyholders,
and to cast votes for which it has not received voting instructions from
Policyholders in the same proportion as those for which instructions have been
received. Policyholders should review their prospectus for their Policies to
determine their rights and responsibilities, and to ascertain when the Insurance
Company may disregard voting instructions.
Under the terms of a second exemptive order received by RIF from the SEC,
shares of a Fund may be sold to separate accounts of more than one Insurance
Company to fund variable life and variable annuity Policies. RIF's Board of
Trustees will monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. An irreconcilable conflict that is not resolved
might result in the withdrawal of a substantial amount of assets, causing a
negative impact on net asset value.
MONEY MANAGER PROFILES
The Money Managers, have no other affiliations with the Funds or with Frank
Russell Company. Each Money Manager has been in business for at least three
years, and is principally engaged in managing institutional investment accounts.
These Money Managers may also serve as managers or advisers to other RIF Funds,
or to other clients of Frank Russell Company, including its wholly owned
subsidiary, Frank Russell Trust Company.
22
<PAGE>
MULTI-STYLE EQUITY FUND
CHANCELLOR CAPITAL MANAGEMENT, INC. ("Chancellor"), 1166 Avenue of the
Americas, New York, NY 10036, is a Delaware Corporation indirectly controlled by
Robert George Wade, Jr. and USF&G Corporation. Mr. Wade is the general partner
of a partnership whose limited partners are Chancellor employees, and who own a
controlling interest in Chancellor. Chancellor recently agreed to be acquired in
its entirety by Liechtenstein Global Trust. It is expected that the acquisition
will be consummated by the end of 1996.
EQUINOX CAPITAL MANAGEMENT INC., 399 Park Ave., 28th Floor, New York, NY
10022. Equinox is a registered investment adviser with majority ownership held
by Ron Ulrich.
WESTPEAK INVESTMENT ADVISORS, LP, 1011 Walnut Street, Suite 300, Boulder, CO
80302, is indirectly controlled by Metropolitan Life Insurance Company.
AGGRESSIVE EQUITY FUND
ROTHSCHILD ASSET MANAGEMENT, INC., 1251 Avenue of the Americas, New York, NY
10020, is a wholly owned subsidiary of Rothschild North America, Inc.,
established by the Rothschild Group to manage the group's U.S. interests.
WESTPEAK INVESTMENT ADVISORS, LP, see Multi-Style Equity Fund.
NON-U.S. FUND
J.P. MORGAN INVESTMENT MANAGEMENT, INC., 522 Fifth Ave., 14th Floor, New
York, NY 10036, is a wholly owned subsidiary of J.P. Morgan & Co., Inc., a
publicly held bank holding company.
OECHSLE INTERNATIONAL ADVISORS L.P., One International Place, 44th Floor,
Boston, MA 02110, is a limited partnership which is 100% controlled by its
general partners of its general partner, Oechsle Group, L.P. The general
partners are: S. Dewey Keesler, Stephen P. Langer, Walter Oechsle, L. Sean
Roche, Steven H. Schaefer, Tetsuo Shiozumi, Andrew Paslin and Warren Walker.
THE BOSTON COMPANY ASSET MANAGEMENT, INC., One Boston Place, Boston, MA
02108, is 100% owned by Mellon Bank Corporation, a publicly held corporation.
CORE BOND FUND
PACIFIC INVESTMENT MANAGEMENT COMPANY, 840 Newport Center Drive, Suite 360,
Newport Beach, CA 92660, is a subsidiary partnership of PIMCO Advisors L.P.
("Partnership"). PIMCO Partners, G.P. is the sole general partner of the
Partnership. Pacific Financial Asset Management Corporation indirectly holds a
majority interest in PIMCO Partners, G.P., with the remainder held indirectly by
a group comprised of PIMCO Managing Directors.
STANDISH, AYER & WOOD, INC., One Financial Center, Boston, MA 02110, is a
company whose ownership is divided among seventeen directors, with no director
having more than a 25% ownership interest.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE FUNDS OR THE MONEY MANAGERS SINCE THE DATE HEREOF; HOWEVER, IF
ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE
DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
23
<PAGE>
RUSSELL INSURANCE FUNDS
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700
In Washington (206) 627-7001
MONEY MANAGERS
MULTI-STYLE EQUITY FUND
Chancellor Capital Management
Equinox Capital Management Inc.
Westpeak Investment Advisors, LP
AGGRESSIVE EQUITY FUND
Rothschild Asset Management, Inc.
Westpeak Investment Advisors, LP
NON-U.S. FUND
J.P. Morgan Investment Management, Inc.
Oechsle International Advisors
The Boston Company Asset Management, Inc.
CORE BOND FUND
Pacific Investment Management Company
Standish. Ayer & Wood
MANAGER, TRANSFER AND DIVIDEND PAYING AGENT
Frank Russell Investment Management Company
909 A Street
Tacoma, Washington 98402
CONSULTANT
Frank Russell Company
909 A Street
Tacoma, Washington 98402
DISTRIBUTOR
Russell Fund Distributors, Inc.
909 A Street
Tacoma, Washington 98402
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
2600 - One Commerce Square
Philadelphia, Pennsylvania 19103-7098
OFFICE OF SHAREHOLDER INQUIRIES
909 A Street
Tacoma, Washington 98402
(800) 972-0700
In Washington (206) 627-7001
<PAGE>
RUSSELL INSURANCE FUNDS
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700
In Washington (206) 627-7001
STATEMENT OF ADDITIONAL INFORMATION
September 25, 1996
Russell Insurance Funds ("RIF") is a single legal entity organized as
a business trust under the laws of The Commonwealth of Massachusetts. RIF
operates four investment portfolios, each referred to as a "Fund":
Multi-Style Equity Fund
Aggressive Equity Fund
Non-U.S. Fund
Core Bond Fund
The Funds serve as the investment base for a variety of insurance products
(the "Policies") to be issued by one or more insurance companies (each
referred to herein as an "Insurance Company").
This Statement of Additional Information supplements or describes in greater
detail information concerning RIF and the Funds contained in the Prospectus
of the Funds dated September 25, 1996. This Statement is not a Prospectus;
the Statement should be read in conjunction with the Funds' Prospectus.
Prospectuses may be obtained without charge by telephoning or writing RIF at
the number or address shown above. You should retain this Statement of
Additional Information for future reference.
<PAGE>
TABLE OF CONTENTS
Page
----
STRUCTURE AND GOVERNANCE
Organization and Business History
Shareholder Meetings
Controlling Shareholders
Trustees and Officers
OPERATION OF INVESTMENT COMPANY
Service Providers
Consultant
Manager
Money Managers
Distributor
Custodian
Transfer and Dividend Disbursing Agent
Expenses
Valuation of Fund Shares
Portfolio Transaction Policies
Portfolio Turnover Rate
Brokerage Allocations
Brokerage Commissions
Yield and Total Return Quotations
INVESTMENT RESTRICTIONS, POLICIES AND CERTAIN INVESTMENTS
Investment Restrictions
Investment Policies
Certain Investments
TAXES
RATINGS OF DEBT INSTRUMENTS
FINANCIAL STATEMENTS
<PAGE>
STRUCTURE AND GOVERNANCE
ORGANIZATION AND BUSINESS HISTORY. RIF was originally organized as a Maryland
corporation, and on July 11, 1996, was reorganized as a Massachusetts
business trust. RIF had not commenced business operations prior to the date
of this Statement of Additional Information.
RIF is currently organized and operates under a Master Trust Agreement dated
July 11, 1996 and the provisions of Massachusetts law governing the operation
of a Massachusetts business trust. The Board of Trustees may amend the
Master Trust Agreement from time to time; provided, however, that any
amendment which would materially and adversely affect shareholders of RIF as
a whole, or shareholders of a particular Fund, must be approved by the
holders of a majority of the shares of RIF or Fund, respectively.
RIF is authorized to issue shares of beneficial interest, and may divide the
shares into two or more series, each of which evidences a pro rata ownership
interest in a different investment portfolio -- a "Fund." The Trustees may,
without seeking shareholder approval, create additional Funds at any time.
The Master Trust Agreement provides that a shareholder may be required to
redeem shares in a Fund under circumstances set forth in the Master Trust
Agreement.
Under the Master Trust Agreement, RIF's Funds are authorized to issue shares
of beneficial interest in one or more classes. The Funds do not presently
offer shares in multiple classes, although they may do so in the future.
Under certain unlikely circumstances, as is the case with any Massachusetts
business trust, a shareholder of a Fund may be held personally liable for the
obligations of the Fund. The Master Trust Agreement provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of a Fund and that every written agreement, obligation or other
undertaking of the Funds shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust
Agreement also provides that RIF shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of a Fund
and satisfy any judgment thereon. Thus, the risk of any shareholder
incurring financial loss beyond his investment on account of shareholder
liability is limited to circumstances in which a Fund itself would be unable
to meet its obligations.
SHAREHOLDER MEETINGS. RIF will not have an annual meeting of shareholders,
but special meetings may be held. Special meetings may be convened by (i)
the Board of Trustees, (ii) upon written request to the Board by shareholders
holding at least 10% of the outstanding shares, or (iii) upon the Board's
failure to honor the shareholders' request described above, by shareholders
holding at least 10% of the outstanding shares by giving notice of the
special meeting to shareholders.
CONTROLLING SHAREHOLDERS. The Trustees have the authority and responsibility
to manage the business of RIF, and hold office for life unless they resign or
are removed by, in substance, a vote of two-thirds of RIF shares outstanding.
Under these circumstances, no one person, entity or shareholder "controls"
RIF.
<PAGE>
The following shareholders owned 5% or more of the voting shares of RIF or of
the Fund at September 16, 1996:
Russell Insurance Funds: General American Life Insurance Co., 700 Market
Street, St. Louis, MO 63166, owns 100% of outstanding shares.
Multi-Style Equity Fund: General American Life Insurance Co., 700 Market
Street, St. Louis, MO 63166, owns 100% of the outstanding shares.
Aggressive Equity Fund: General American Life Insurance Co., 700 Market
Street, St. Louis, MO 63166, owns 100% of the outstanding shares.
Non-U.S. Fund: General American Life Insurance Co., 700 Market Street, St.
Louis, MO 63166, owns 100% of the outstanding shares.
Core Bond Fund: General American Life Insurance Co., 700 Market Street, St.
Louis, MO 63166, owns 100% of the outstanding shares.
TRUSTEES AND OFFICERS. The Board of Trustees is responsible for overseeing
generally the operations of RIF. The officers, all of whom are employed by
Frank Russell Investment Management Company ("FRIMCo") or its affiliates, are
responsible for the day-to-day management and administration of RIF's
operations. RIF did not pay any amounts for the year ended December 31, 1995
to the Trustees as a group who are not officers or employees of FRIMCo or its
affiliates. Trustees are paid an annual fee plus travel and other expenses
incurred in attending Board meetings. The Funds' officers and employees,
including those who are Trustees, are paid by Frank Russell Investment
Management Company or its affiliates.
The following table lists the Trustees and officers and their positions with
RIF, their present and principal occupations during the past five years, and
the mailing addresses of Trustees who are not affiliated with RIF. The
mailing address for all Trustees and officers affiliated with RIF is Russell
Insurance Funds, 909 A Street, Tacoma, WA 98402.
An asterisk (*) indicates that the Trustee or officer is an "interested
person" of RIF as defined in RIF Act of 1940, as amended (the "1940 Act"). As
used in the table, "Frank Russell Company" includes its corporate
predecessor, Frank Russell Co., Inc.
*George F. Russell, Jr. -- 64 years old -- Trustee and Chairman of the Board.
Trustee and Chairman of the Board, Frank Russell Investment Company. Director
and Chairman of the Board, Frank Russell Company; Director, Chief Executive
Officer and Chairman of the Board, Russell Building Management Company, Inc.,
Director and Chairman of the Board, Frank Russell Securities, Inc. and Frank
Russell Trust Company, Director, Frank Russell Investment Management Company;
Director, Chairman of the Board and President of Russell 20-20 Association.
March 1988 to April 1992, Director of Russell-Zisler, Inc.; January 1957 to
March 1993, Chief Executive Officer of Frank Russell Company; March 1982 to
November 1995, Chairman of the Board of Frank Russell Investment Management
Company.
-2-
<PAGE>
*Lynn L. Anderson -- 57 years old -- Trustee, President and Chief Executive
Officer. Trustee, President and Chief Executive Officer, Frank Russell
Investment Company. Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc.; Trustee, Chairman of the Board and
President, The Seven Seas Series Fund (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, Frank Russell Investment
Company Public Limited Company; Director and Chairman of the Board, Frank
Russell Company (Delaware); March 1989 to June 1993, Director, Frank Russell
Company, Director of Frank Russell Investments (Ireland) Limited and Frank
Russell Investments (UK) Limited. Until September 1994, Director and
President, The Laurel Funds, Inc. (investment company).
Paul E. Anderson -- 65 years old -- Trustee. 23 Forest Glen Lane, Tacoma,
Washington 98409. Trustee, Frank Russell Investment Company. President,
Vancouver Door Company, Inc.
Paul Anton, Ph.D. -- 76 years old -- Trustee. 2218 55th Street, N.W., Gig
Harbor, Washington 98335. Trustee, Frank Russell Investment Company.
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 -- 71 years old -- Trustee. 800 North C Street, Tacoma,
Washington 98403. Trustee, Frank Russell Investment Company. Retired.
Lee C. Gingrich -- 65 years old -- Trustee. 1730 North Jackson, Tacoma,
Washington 98406. Trustee, Frank Russell Investment Company. President,
Gingrich Enterprises, Inc. (Business and Property Management).
Eleanor W. Palmer -- 70 years old -- Trustee. 2025 Narrows View Circle, P.O.
Box 1057, Gig Harbor, Washington 98335. Retired. Trustee, Frank Russell
Investment Company. Until August 1981, Director, Vice President and Treasurer
of Frank Russell Company; since October 1980, Director of Frank Russell Trust
Company.
*George W. Weber -- 45 years old -- Treasurer and Chief Accounting Officer.
Treasurer and Chief Accounting Officer, Frank Russell Investment Company;
Director of Fund Administration and Operations, Frank Russell Investment
Management Company and Russell Fund Distributors, Inc.; Director of Finance
and Operations, Frank Russell Trust Company; Senior Vice President and Fund
Treasurer, The Seven Seas Series Fund (investment company); March 1993 to
January 1996, Vice President, Operations, Funds Management, J.P. Morgan;
December 1985 to March 1993, Senior Vice President, Operations, Frank Russell
Investment Company, The Laurel Funds, Inc. and The Seven Seas Series Fund
(investment companies); Director of Operations, Frank Russell Investment
Management Company and Frank Russell Trust Company; Director, Russell Fund
Distributors, Inc.
*Randall P. Lert -- 42 years old -- Director of Investments. Director of
Investments of Frank Russell Investment Company; Senior Investment Officer
and Director of Investment Services, Frank Russell Trust Company; Director
and Chief Investment Officer, Frank Russell Investment Management Company;
Director, Russell Fund Distributors, Inc. April 1990 to November 1995,
Director of Investments of Frank Russell Investment Management Company.
-3-
<PAGE>
*Karl J. Ege -- 54 years old -- Secretary and General Counsel. Trustee,
Secretary and General Counsel of Frank Russell Investment Company; Director,
Secretary and General Counsel 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; Director of Frank Russell Company Party
Limited and Frank Russell Japan; Director and Assistant Secretary of Frank
Russell Company Limited and Russell Systems Ltd. Director, Frank Russell
Investment Company LLC, Frank Russell Investments (Cayman) Ltd., Frank
Russell Investment Company Public Limited Company and Frank Russell
Investments (Ireland) Limited; Director and Secretary, Frank Russell Company
(Delaware) and Frank Russell International Services, Co., Inc.; Director,
Secretary and General Counsel, Russell Fiduciary Services Company and Frank
Russell Capital Inc.; Director of Frank Russell Company, S.A., Frank Russell
Company (N.Z.) Limited, Frank Russell Investments (UK) Limited and Russell
Investment Nominee Co. PTY Ltd., Director and Secretary, Russell 20-20
Association. From July 1992 to June 1994, Director, President and Secretary
of Frank Russell Shelf Corporation. From 1972 to 1991, Partner, Bogle and
Gates (law firm).
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Accrued Estimated Annual Total Compensation
Compensation as part of RIF Benefits Upon From t RIF Paid to
Trustee from RIF Expenses Retirement Trustees
- ------------------- ------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Lynn L. Anderson $0 $0 $0 $0
Paul E. Anderson $0 $0 $0 $0*
Paul Anton, PhD. $0 $0 $0 $0*
William E. Baxter $0 $0 $0 $0*
Lee C. Gingrich $0 $0 $0 $0*
Eleanor W. Palmer $0 $0 $0 $0*
George F. Russell $0 $0 $0 $0
</TABLE>
- -------------
* As of the date of this Statement of Additional Information, the Funds had
not commenced operations therefore no fees were paid. Trustee compensation
is anticipated to be $8,000 per disinterested trustee on an annual basis.
-4-
<PAGE>
OPERATION OF INVESTMENT COMPANY
SERVICE PROVIDERS. Most of RIF's necessary day-to-day operations are
performed by separate business organizations under contract to RIF. The
principal service providers are:
Consultant Frank Russell Company
Manager, Transfer and Dividend Frank Russell Investment Management Company
Disbursing Agent
Money Managers Multiple professional discretionary
investment management organizations
Custodian and Portfolio State Street Bank and Trust Company
Accountant
Principal Underwriter Russell Fund Distributors, Inc.
CONSULTANT. Frank Russell Company, the corporate parent of FRIMCo, was
responsible for organizing and reorganizing RIF and provides ongoing
consulting services, described in the Prospectus, to RIF and FRIMCo. Frank
Russell Company provides analytical data to the Funds. The reports are paid
for by the Funds. FRIMCo does not pay Frank Russell Company an annual fee for
consulting services. RIF had not yet commenced operations as of the date of
this Statement of Additional Information, and therefore, no Fund paid any
fees to Frank Russell Company for analytical data for those periods.
Frank Russell Company provides comprehensive consulting and Money Manager
evaluation services to institutional clients, including FRIMCo and Frank
Russell Trust Company, and to high net worth individuals and families ($100
million) through its Russell Private Investment Division. Frank Russell
Company also provides: (i) consulting services for international investment
to these and other clients through its International Division and its wholly
owned subsidiaries, Frank Russell Company London (Frank Russell Company
Limited), Frank Russell Canada (Frank Russell Canada Limited/Limitee), Frank
Russell Australia (Frank Russell Company Pty., Limited), Frank Russell Japan,
Frank Russell AG (Zurich), Frank Russell Company S.A. (Paris), Frank Russell
Company (N.Z.) Limited (New Zealand) and Frank Russell Company (Delaware),
and (ii) investment account and portfolio evaluation services to corporate
pension plan sponsors and institutional money managers, through its Russell
Data Services Division. Frank Russell Securities, Inc., a wholly owned
subsidiary of Frank Russell Company, carries on an institutional brokerage
business as a member of the New York Stock Exchange. Frank Russell Capital
Inc., a wholly owned subsidiary of Frank Russell Company, carries on an
investment banking business as a registered broker-dealer. Frank Russell
Trust Company, a wholly-owned subsidiary of Frank Russell Company, provides
comprehensive trust and investment management services to corporate pension
and profit-sharing plans. Frank Russell Investment (Cayman) Ltd., a wholly
owned subsidiary of Frank Russell Company, provides investment advice and
other services. Frank Russell Investment (Ireland) Ltd., a wholly owned
subsidiary of Frank Russell Company, provides investment advice and other
services. Frank Russell International Services Co., Inc., a wholly owned
subsidiary of Frank Russell Company, provides services to U.S. personnel
seconded to overseas enterprises.
-5-
<PAGE>
Russell Fiduciary Services Company, a wholly owned subsidiary of Frank
Russell Company, provides fiduciary services to pension and welfare benefit
plans and other institutional investors. The mailing address of Frank Russell
Company is 909 A Street, Tacoma, WA 98402.
MANAGER. FRIMCo provides or oversees the provision of all general management
and administration, investment advisory and portfolio management, and
distribution services for the Funds. FRIMCo provides the Funds with office
space, equipment and the personnel necessary to operate and administer the
Funds' business and to supervise the provision of services by third parties,
such as the Money Managers and custodian. FRIMCo also develops the investment
programs for each of the Funds, selects Money Managers for the Funds (subject
to approval by the Board of Trustees), allocates assets among the Money
Managers, monitors the Money Managers' investment programs and results, and
may exercise investment discretion over assets invested in the Funds'
Liquidity Portfolios. (See, "Investment Policies---Liquidity Portfolios.")
FRIMCo also acts as RIF's transfer agent, dividend disbursing agent. FRIMCo,
as agent for RIF, pays the Money Managers' fees for the Funds, as a fiduciary
for the Funds.
Each of the Funds pays an annual management fee to FRIMCo, billed monthly on
a pro rata basis and calculated as a specified percentage of the average
daily net assets of each of the Funds. FRIMCo, on behalf of RIF, uses a
portion of the Management Fee to pay the Money Managers' fees for the Funds.
In doing so, FRIMCo acts as a fiduciary for the Funds.
Because RIF had not commenced operations prior to the date of this Statement
of Additional Information, no Fund has yet paid any management fee to FRIMCo.
FRIMCo is a wholly owned subsidiary of Frank Russell Company. FRIMCo's
mailing address is 909 A Street, Tacoma, WA 98402.
MONEY MANAGERS. The Money Managers have no affiliations or relationships with
RIF or FRIMCo, other than as discretionary managers for all or a portion of a
Fund's portfolio, except some Money Managers (and their affiliates) may
effect brokerage transactions for the Funds (see, "Brokerage Allocations" and
"Brokerage Commissions"). The Money Managers may serve as advisers or
discretionary managers for Frank Russell Trust Company, Frank Russell
Investment Company, other consulting clients of Frank Russell Company, and/or
for accounts which have no business relationship with the Frank Russell
Company organization.
From its management fees, FRIMCo, as agent for RIF, pays all fees to the
Money Managers for their investment selection services. Quarterly, each Money
Manager is paid the pro rata portion of an annual fee, based on the average
for the quarter of all the assets allocated to the Money Manager. Because the
Funds had not commenced operations prior to the date of this Statement of
Additional Information, no management fees have yet been paid to the Money
Managers. Fees paid to the Money Managers are not affected by any voluntary
or statutory expense limitations. Some Money Managers may receive investment
research prepared by Frank Russell Company as additional compensation, or may
receive brokerage commissions for executing portfolio transactions for the
Funds through broker-dealer affiliates.
-6-
<PAGE>
DISTRIBUTOR. Russell Fund Distributors, Inc. serves as the distributor of
Investment Company shares. The distributor receives no compensation from RIF
for its services. The distributor is a wholly owned subsidiary of FRIMCo and
its mailing address is: 909 A Street, Tacoma, WA 98402.
CUSTODIAN. State Street Bank and Trust Company ("State Street") serves as the
custodian for RIF. State Street also provides fund accounting, yield
calculation and tax accounting services for each of the Funds for regulatory,
tax and financial reporting purposes. For its services, State Street is paid
a fixed, asset-based and various transaction fees. The mailing address of
State Street is 1776 Heritage Drive, North Quincy, MA 02171.
TRANSFER AND DIVIDEND DISBURSING AGENT. FRIMCo serves as the transfer agent
for RIF. For this service, FRIMCo is paid a fee of $20.00 per shareholder
transaction. FRIMCo is also reimbursed by RIF for certain out-of-pocket
expenses, including postage, taxes, wires, stationery, and telephone.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P. serves as the independent
accountants of RIF. Coopers & Lybrand L.L.P. is responsible for performing
annual audits of the financial statements and financial highlights of the
Funds in accordance with generally accepted auditing standards, a review of
federal tax returns, and, pursuant to Rule 17f-2 of the 1940 Act, three
security counts of positions held at the Custodian. The mailing address of
Coopers & Lybrand L.L.P. is One Post Office Square, Boston, MA 02109.
FUND EXPENSES. The Funds will pay all their expenses other than those
expressly assumed by FRIMCo. The principal expense of the Funds is the annual
management fee payable to FRIMCo. The Funds' other expenses include: fees for
independent accountants, legal, transfer agent, registrar, custodian, fund
accounting, tax accounting, dividend disbursement, state taxes; brokerage
fees and commissions; insurance premiums; association membership dues; fees
for filing of reports and registering shares with regulatory bodies; deferred
organizational expenses; and such extraordinary expenses as may arise, such
as federal taxes and expenses incurred in connection with litigation
proceedings and claims and the legal obligations of RIF to indemnify its
Trustees, officers, employees, shareholders, distributors and agents with
respect thereto.
Whenever an expense can be attributed to a particular Fund, the expense is
charged to that Fund. Other common expenses are allocated among the Funds
based primarily upon their relative net assets.
FRIMCo may, from time to time, voluntarily agree to reimburse Fund expenses
in excess of certain limits on an annualized basis. These limits may be
changed or rescinded at any time to certain of the Funds. In addition to such
"voluntary limits," if certain expenses of any Fund exceed the expense
limitations established by the State of California, FRIMCo will pay the
excess amount. California's expense limitation is 2.5% of RIF's first $30
million of average net assets, 2.0% of the next $70 million of average net
assets, and 1.5% of the remaining average net assets for any year.
VALUATION OF FUND SHARES. The net asset value per share is calculated for
each Fund on which shares are offered or orders to redeem are tendered. A
business day is one on which the New York Stock Exchange (the "Exchange") is
open for trading. Currently, the Exchange is open for trading every weekday
except New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
-7-
<PAGE>
The Non-U.S. Fund's portfolio securities actively trade on foreign exchanges,
which may trade on Saturdays and on days that the Fund does not offer or
redeem shares. The trading of portfolio securities on foreign exchanges on
such days may significantly increase or decrease the net asset value of Fund
shares when the shareholder is not able to purchase or redeem Fund shares.
Further, because foreign securities markets may close prior to the time the
Fund determines net asset value, events affecting the value of the portfolio
securities occurring between the time prices are determined and the time the
Fund calculates net asset value may not be reflected in the calculation of
net asset value unless FRIMCo determines that a particular event would
materially affect the net asset value.
PORTFOLIO TRANSACTION POLICIES. Generally, securities are purchased for the
Funds for investment income and/or capital appreciation and not for
short-term trading profits. However, these Funds may dispose of securities
without regard to the time they have been held when such action, for
defensive or other purposes, appears advisable to their Money Managers.
The portfolio turnover rates for certain Funds are likely to be somewhat
higher than the rates for comparable mutual funds with a single money
manager. Decisions to buy and sell securities for each Fund are made by a
Money Manager independently from other Money Managers. Thus, one Money
Manager could be selling a security when another Money Manager for the same
Fund is purchasing the same security, thereby increasing the Fund's portfolio
turnover ratios and brokerage commissions. The Funds' changes of Money
Managers may also result in a significant number of portfolio sales and
purchases, as the new Money Manager restructures the former Money Manager's
portfolio.
The Funds do not give significant weight to attempting to realize long-term,
rather than short-term, capital gains when making portfolio management
decisions.
PORTFOLIO TURNOVER RATE. The portfolio turnover rate for each Fund is
calculated by dividing the lesser of purchases or sales of portfolio
securities for the particular year, by the monthly average value of the
portfolio securities owned by the Fund during the year. For purposes of
determining the rate, all short-term securities, including options, futures,
forward contracts, and repurchase agreements, are excluded.
Because the Funds had no operations prior to the date of this Statement of
Additional Information, they do not have a history of portfolio turnover
rates. However, portfolio turnover rates are expected not to exceed those set
forth in the Prospectus under "Portfolio Transaction Policies."
BROKERAGE ALLOCATIONS. Transactions on U.S. stock exchanges involve the
payment of negotiated brokerage commissions; on non-U.S. exchanges,
commissions are generally fixed. There is generally no stated commission in
the case of securities traded in the over-the-counter markets, including most
debt securities and money market instruments, but the price includes an
undisclosed "commission" in the form of a mark-up or mark-down. The cost of
securities purchased from underwriters includes an underwriting commission or
concession.
Subject to the arrangements and provisions described below, the selection of
a broker or dealer to execute portfolio transactions is usually made by the
Money Manager. RIF's Agreements with Management Company and the Money
Managers provide, in substance and subject to specific directions from
officers of the Funds or Management Company, that in executing portfolio
transactions and selecting brokers or dealers, the principal
-8-
<PAGE>
objective is to seek the best overall terms available to the Fund. Securities
will ordinarily be purchased from the primary markets, and the Money Manager
shall consider all factors it deems relevant in assessing the best overall
terms available for any transaction, including the breadth of the market in
the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any (for the specific transaction and on a continuing basis).
In addition, those Agreements authorize FRIMCo and the Money Manager,
respectively, in selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, to consider
the "brokerage and research services" (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) provided to the Funds, FRIMCo
and/or to the Money Manager (or their affiliates). FRIMCo and the Money
Managers are authorized to cause the Funds to pay a commission to a broker or
dealer who provides such brokerage and research services for executing a
portfolio transaction which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction. RIF,
FRIMCo or the Money Manager, as appropriate, must determine in good faith
that such commission was reasonable in relation to the value of the brokerage
and research services provided -- viewed in terms of that particular
transaction or in terms of all the accounts over which FRIMCo or the Money
Manager exercises investment discretion. Any commission, fee or other
remuneration paid to an affiliated broker-dealer is paid in compliance with
RIF's procedures adopted in accordance with Rule 17e-1 of 1940 Act.
FRIMCo does not expect RIF ordinarily to effect a significant portion of
RIF's total brokerage business with broker-dealers affiliated with its Money
Managers. However, a Money Manager may effect portfolio transactions for the
segment of a Fund's portfolio assigned to the Money Manager with a
broker-dealer affiliated with the manager, as well as with brokers affiliated
with other Money Managers.
RIF effects portfolio transactions with or through Frank Russell Securities,
Inc. only when it has been determined by the applicable Money Managers that
RIF will receive competitive execution, price and commission. Frank Russell
Securities refunds up to 70% of the commissions paid to the Funds effecting
such transactions, after reimbursement for research services provided to
FRIMCo. This arrangement is used by Multi-Style Equity, Aggressive Equity and
Non-U.S. Funds.
BROKERAGE COMMISSIONS. The Board of Trustees reviews, at least annually, the
commissions paid by the Funds to evaluate whether the commissions paid over
representative periods of time were reasonable in relation to commissions
being charged by other brokers and the benefits to the Funds. Frank Russell
Company maintains an extensive data base showing commissions paid by
institutional investors, which is the primary basis for making this
evaluation. Certain services received by FRIMCo or the Money Managers
attributable to a particular transaction may benefit one or more other
accounts for which investment discretion is exercised by the Money Manager,
or a Fund other than that for which the particular portfolio transaction was
effected. The fees of the Money Managers are not reduced by reason of their
receipt of such brokerage and research services.
Because the Funds had not yet commenced operations as of the date of this
Statement of Additional Information, they do not yet have a history of paying
brokerage commissions.
-9-
<PAGE>
YIELD AND TOTAL RETURN QUOTATIONS. The Funds compute their average annual
total return by using a standardized method of calculation required by the
Securities and Exchange Commission (the "SEC"). Average annual total return
is computed by finding the average annual compounded rates of return on a
hypothetical initial investment of $1,000 over the one, five and ten year
periods (or life of the funds, as appropriate), that would equate the initial
amount invested to the ending redeemable value, according to the following
formula:
P(1+T) to the power of n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
N = number of years; and
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the one, five or ten year period at the
end of the one, five, or ten year period (or fractional
portion thereof).
The calculation assumes that all dividends and distributions of each Fund are
reinvested at the price stated in the Prospectus on the dividend dates during
the period, and includes all recurring fees that are charged to all
shareholder accounts. The average annual total returns for the Funds are
reported in the Prospectus.
Yields are computed by using standardized methods of calculation required by
the SEC. Yields for Funds are calculated by dividing the net investment
income per share earned during a 30-day (or one month) period by the maximum
offering price per share on the last day of the period, according to the
following formula:
YIELD = 2[(a-b+1)to the power of 6 -1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
The yields for the Funds investing primarily in fixed-income instruments are
reported in the Prospectus. Yield may fluctuate daily and does not provide a
basis for determining future yields.
Each Fund may, from time to time, advertise non-standard performances,
including average annual total return.
Each Fund may compare its performance with various industry standards of
performance, including the VARDS Report, Lipper Analytical Services, Inc. or
other industry publications, business periodicals, rating services and market
indices.
-10-
<PAGE>
INVESTMENT RESTRICTIONS, POLICIES AND CERTAIN INVESTMENTS
Each Fund has certain fundamental investment objectives, restrictions and
policies which may be changed only with the approval of a majority of the
shareholders of that Fund. Other policies may be changed by the Funds without
shareholder approval. The Funds' investment objectives are set forth in the
Prospectus.
INVESTMENT RESTRICTIONS. Each Fund is subject to the following fundamental
investment restrictions. Unless otherwise noted, these restrictions apply on
a Fund-by-Fund basis at the time an investment is being made. No Fund will:
1. Invest in any security if, as a result of such investment, less than 75%
of its assets would be represented by cash; cash items; securities of the
U.S. government, its agencies, or instrumentalities; securities of other
investment companies; and other securities limited in respect of each issuer
to an amount not greater in value than 5% of the total assets of such Fund.
2. Invest 25% or more of the value of the Fund's total assets in the
securities of companies primarily engaged in any one industry (other than the
U.S. government, its agencies and instrumentalities), but such concentration
may occur incidentally as a result of changes in the market value of
portfolio securities.
3. Acquire more than 5% of the outstanding voting securities, or 10% of all
of the securities, of any one issuer.
4. Invest in companies for the purpose of exercising control or management.
5. Purchase or sell real estate; provided that a Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
6. Purchase or sell commodities or commodities contracts, or interests in
oil, gas or other mineral exploration or development programs, except stock
index and financial futures contracts.
7. 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 a 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
and options written are not deemed a pledge of assets.
8. Purchase securities on margin or effect short sales (except that a Fund
may obtain such short-term credits as may be necessary for the clearance of
purchases or sales of securities, may trade in futures and related options,
and may make margin payments in connection with transactions in futures
contracts and related options).
9. Engage in the business of underwriting securities issued by others or
purchase securities.
-11-
<PAGE>
10. RIF will not participate on a joint or a joint and several basis in any
trading account in securities except to the extent permitted by the 1940 Act,
and any applicable rules and regulations and except as permitted by any
applicable exemptive orders from the 1940 Act. The "bunching" of orders for
the sale or purchase of marketable portfolio securities with two or more
Funds, or with a Fund and such other accounts under the management of FRIMCo
or any Money Manager for the Funds to save brokerage costs or to average
prices among them shall not be considered a joint securities trading account.
11. Make loans of money or securities to any person or firm; provided,
however, that the making of a loan shall not be construed to include (i) the
acquisition for investment of bonds, debentures, notes or other evidences of
indebtedness of any corporation or government which are publicly distributed
or of a type customarily purchased by institutional investors; (ii) the entry
into "repurchase agreements"; or (iii) the lending of portfolio securities in
the manner generally described and in the Prospectus section "Investment
Policies -- Lending Portfolio Securities."
12. Purchase or sell options except to the extent permitted by the policies
set forth in the sections "Certain Investments -- Options on Securities and
Indices", "Certain Investments -- Foreign Currency Options", "Certain
Investments -- Futures Contracts and Options on Future Contracts" and
"Certain Investments -- Forward Foreign Currency Contracts" below.
13. RIF will not purchase the securities of other investment companies except
to the extent permitted by the 1940 Act, and any applicable rules and
regulations and except as permitted by any applicable exemptive orders from
the 1940 Act.
14. Purchase from or sell portfolio securities to its officers, Trustees or
other "interested persons" (as defined in the 1940 Act) of the Fund,
including the Fund's Money Managers and their affiliates, except as permitted
by the 1940 Act, SEC rules or exemptive orders.
15. Invest more than 5% of the current market value of its assets in warrants
nor more than 2% of such value in warrants which are not listed on the New
York or American Stock Exchanges; warrants attached to other securities are
not subject to this limitation.
16. Purchase or retain the securities of an issuer if, to the Fund's
knowledge, one or more of the Trustees or officers of the Fund, or one or
more of the officers or directors of the Money Manager responsible for the
investment, individually own beneficially more than l/2 of l% of the
securities of such issuer and together own beneficially more than 5% of such
securities. Compliance with this policy by the Fund's Trustees and officers
is monitored by Fund officers.
Each Fund has adopted the following additional "non-fundamental" investment
restrictions, which may be changed without shareholder approval, in
compliance with applicable law and regulatory policy. No Fund will:
1) Invest in real estate limited partnerships that are not readily
marketable;
2) Invest in oil, gas and mineral leases; or
-12-
<PAGE>
3) 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.
INVESTMENT POLICIES.
LIQUIDITY PORTFOLIOS. A Fund at times has to sell portfolio securities in
order to meet redemption requests. The selling of securities may effect a
Fund's performance since the Money Manager sells the securities for other
than investment reasons. A Fund can avoid selling its portfolio securities by
holding adequate levels of cash to meet anticipated redemption requests.
The holding of significant amounts of cash is contrary to the investment
objectives of each of the Funds. The more cash the Funds hold, the more
difficult it is for their returns to meet or surpass their respective
benchmarks.
A Liquidity Portfolio addresses this potential detriment by having FRIMCo or
a Money Manager selected for this purpose create an equity exposure for each
equity funds cash reserves through the use of options and futures contracts.
This will enable the Funds to hold cash while receiving a return on the cash
which is similar to holding equity securities.
Liquidity Portfolios will be used for each of the Funds except the Core Bond
Fund.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with
the seller--a bank or securities dealer--who agrees to repurchase the
securities at the Fund's cost plus interest within a specified time (normally
one day). The securities purchased by the Fund have a total value in excess
of the value of the repurchase agreement and are held by the Fund's custodian
bank until repurchased. Repurchase agreements assist a Fund in being invested
fully while retaining "overnight" flexibility in pursuit of investments of a
longer-term nature.
The Fund will limit repurchase transactions to those member banks of the
Federal Reserve System and primary dealers in U.S. government securities
whose credit worthiness is continually monitored and found satisfactory by
the Funds' Money Managers.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements to meet redemption requests where the liquidation of portfolio
securities is deemed by the Fund's Money Managers to be inconvenient or
disadvantageous. A reverse repurchase agreement is a transaction whereby a
Fund transfers possession of a portfolio security to a bank or broker-dealer
in return for a percentage of the portfolio securities' market value. The
Fund retains record ownership of the security involved including the right to
receive interest and principal payments. At an agreed upon future date, the
Fund repurchases the security by paying an agreed upon purchase price plus
interest. Cash or liquid high-grade debt obligations of the Fund equal in
value to the repurchase price, including any accrued interest, will be
segregated on the Fund's records while a reverse repurchase agreement is in
effect.
-13-
<PAGE>
HIGH RISK BONDS. The Funds, other than the Core Bond Fund, do not invest
assets in securities rated less than BBB by Standard & Poor's Ratings Group
("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), or in unrated
securities judged by the Money Managers to be of a lesser credit quality than
those designations. Securities rated BBB by S&P or Baa by Moody's are the
lowest ratings which are considered "investment grade." The Funds, other than
the Core Bond Fund, will dispose of securities which they have purchased
which drop below these minimum ratings.
Securities rated BBB by S&P or Baa by Moody's may involve greater risks than
securities in higher rating categories. Securities receiving S&P's BBB rating
are regarded as having adequate capacity to pay interest and repay principal.
Such securities typically exhibit adequate investor protections but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this
category than in higher rating categories.
Securities possessing Moody's Baa rating are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security is judged adequate for the present,
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such securities lack outstanding
investment characteristics and in fact may have speculative characteristics
as well.
RISK FACTORS. The market for lower rated debt securities is relatively new,
its operating history is not extensive, and its growth has paralleled a long
period of economic expansion. Lower rated debt securities may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than investment grade securities. The prices of low rated debt
securities have been found to be less sensitive to interest rate changes than
investment grade securities, but more sensitive to economic downturns,
individual corporate developments, and price fluctuations in response to
changing interest rates. A projection of an economic downturn or of a period
of rising interest rates, for example, could cause a sharper decline in the
prices of low rated debt securities because the advent of a recession could
lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If the issuer of low rated debt
securities owned by the Fund defaults, the Core Bond Fund may incur
additional expenses to seek financial recovery.
In addition, the markets in which low rated debt securities are traded are
more limited than those for higher rated securities. The existence of
limited markets for particular securities may diminish the Core Bond Fund's
ability to sell the securities at fair value either to meet redemption
requests or to respond to changes in the economy or in the financial markets
and could adversely affect and cause fluctuations in the daily net asset
value of the Core Bond Fund's shares.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the credit
worthiness of issuers of low rated securities may be more complex than for
issuers of other investment grade securities, and the ability of the Core
Bond Fund to achieve its investment objectives may be more dependent on
credit analysis than would be the case if the Fund was investing only in
investment grade securities.
The Money Managers of the Core Bond Fund may use ratings to assist in
investment decisions. Ratings of debt securities represent a rating agency's
opinion regarding their quality and are not a guarantee of quality. Rating
-14-
<PAGE>
agencies attempt to evaluate the safety of principal and interest payments
and do not evaluate the risks of fluctuations in market value. Also, rating
agencies may fail to make timely changes in credit ratings in response to
subsequent events, so that an issuer's current financial condition may be
better or worse than a rating indicates.
ILLIQUID SECURITIES. The expenses of registration of restricted securities
that are illiquid (excluding securities that may be resold by a Fund pursuant
to Rule 144A, as explained in the Prospectus) may be negotiated at the time
such securities are purchased by a Fund. When registration is required, a
considerable period may elapse between a decision to sell the securities and
the time the sale would be permitted. Thus, the Fund may not be able to
obtain as favorable a price as that prevailing at the time of the decision to
sell. The Fund also may acquire, through private placements, securities
having contractual resale restrictions, which might lower the amount
realizable upon the sale of such securities.
DELAYED DELIVERY TRANSACTIONS. A Fund may make contracts to purchase
securities for a fixed price at a future date beyond customary settlement
time ("forward commitments" or "when-issued" transactions) consistent with
the Fund's ability to manage its investment portfolio and meet redemption
requests. The Fund may dispose of a commitment or when issued transaction
prior to settlement if it is appropriate to do so and realize short-term
profits or losses upon such sale. When effecting such transactions, cash or
liquid high-grade debt obligations of the Fund in a dollar amount sufficient
to make payment for the portfolio securities to be purchased will be
segregated on the Fund's records at the trade date and maintained until the
transaction is settled. Forward commitments and when-issued transactions
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date or the other party to the transaction fails to
complete the transaction.
Additionally, under certain circumstances, the Non-U.S. Fund may occasionally
engage in "free trade" transactions in which delivery of securities sold by
the Fund is made prior to the Fund's receipt of cash payment therefor or the
Fund's payment of cash for portfolio securities occurs prior to the Fund's
receipt of those securities. "Free trade" transactions involve the risk of
loss to the Non-U.S. Fund if the other party to the "free trade" transaction
fails to complete the transaction after the Fund has tendered cash payment or
securities, as the case may be.
OPTIONS AND FUTURES. The Funds may purchase and sell (write) both call and
put options on securities, securities indexes, and foreign currencies, and
enter into interest rate, foreign currency and index futures contracts and
purchase and sell options on such futures contracts for hedging purposes. If
other types of options, futures contracts, or options on futures contracts
are traded in the future, the Funds may also use those instruments, provided
that the Funds' Board determines that their use is consistent with the Funds'
investment objectives, and provided that their use is consistent with
restrictions applicable to options and futures contracts currently eligible
for use by the Funds (i.e., that written call or put options will be
"covered" or "secured" and that futures and options on futures contracts will
be used only for hedging purposes).
OPTIONS ON SECURITIES AND INDEXES. Each Fund, except as noted above, may
purchase and write both call and put options on securities and securities
indexes in standardized contracts traded on foreign or national securities
exchanges, boards of trade, or similar entities, or quoted on NASDAQ or on a
regulated foreign over-the-counter market, and agreements, sometimes called
cash puts, which may accompany the purchase of a new issue of bonds from a
dealer.
-15-
<PAGE>
An option on a security (or index) is a contract that gives the holder of the
option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified
exercise price at any time during the term of the option. The writer of an
option on a security has the obligation upon exercise of the option to
deliver the underlying security upon payment of the exercise price or to pay
the exercise price upon delivery of the underlying security. Upon exercise,
the writer of an option on an index is obligated to pay the difference
between the cash value or the index and the exercise price multiplied by the
specified multiplier for the index option. (An index is designed to reflect
specified facets of a particular financial or securities market, a specified
group of financial instruments or securities, or certain economic indicators.)
A Fund will write call options and put options only if they are "covered." In
the case of a call option on a security, the option is "covered" if the Fund
owns the security underlying the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount are placed in a segregated account by its custodian) upon conversion
or exchange of other securities held by the Fund. For a call option on an
index, the option is covered if the Fund maintains with its custodian cash or
cash equivalents equal to the contract value. A call option is also covered
if the Fund holds a call on the same security or index as the call written
where the exercise price of the call held is (1) equal to or less than the
exercise price of the call written, or (2) greater than the exercise price
multiplied by the number of contracts multiplied by a multiplier, of the call
written, provided the difference is maintained by the Fund in cash or cash
equivalents in a segregated account with its custodian. A put option on a
security or an index is "covered" if the Fund maintains cash or cash
equivalents equal to the exercise price in a segregated account with its
custodian. A put option is also covered if the Fund holds a put on the same
security or index as the put written where the exercise price of the put held
is (1) equal to or greater than the exercise price of the put written, or (2)
less than the exercise price of the put written, provided the difference is
maintained by the Fund in cash or cash equivalents in a segregated account
with its custodian.
If an option written by a Fund expires, the Fund realizes a short-term
capital gain equal to the premium received at the time the option was
written. If an option purchased by a Fund expires unexercised, the Fund
realizes a capital loss (long or short-term, depending on whether the Fund's
holding period for the option is greater than one year) equal to the premium
paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration).
There can be no assurance, however, that a closing purchase or sale
transaction can be effected when the Fund desires.
A Fund will realize a short-term capital gain from a closing transaction on
an option it has written if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the Fund will
realize a capital loss. If the premium received from a closing sale
transaction is more than the premium paid to purchase the option, the Fund
will realize a capital gain or, if it is less, the Fund will realize a
capital loss. With respect to closing transactions on purchased options, the
capital gain or loss realized will be short or long- term depending on the
holding period of the option closed out. The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in
relation to
-16-
<PAGE>
the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by a Fund is an asset of
the Fund. The premium received for an option written by a Fund is recorded as
a deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing bid price.
RISKS ASSOCIATED WITH OPTIONS ON SECURITIES AND INDEXES. There are several
risks associated with transactions in options on securities and on indexes.
For example, there are significant differences between the securities and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A
decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful
to some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option may expire worthless. If a Fund
were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security unless the
option expired without exercise. As the writer of a covered call option, a
Fund forgoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above
the sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased by a Fund, the Fund would
not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it has purchased.
Except to the extent that a call option on an index written by the Fund is
covered by an option on the same index purchased by the Fund, movements in
the index may result in a loss to the Fund; however, such losses may be
mitigated by changes in the value of the Fund's securities during the period
the option was outstanding.
FOREIGN CURRENCY OPTIONS. A Fund may buy or sell put and call options on
foreign currencies either on exchanges or in the over-the-counter market. A
put option on a foreign currency gives the purchaser of the option the right
to sell a foreign currency at the exercise price until the option expires,
while a call option gives the purchaser the right to sell the foreign
currency at such price. Currency options traded on U.S. or other exchanges
may be subject to position limits which may limit the ability of a Fund to
reduce foreign currency risk using such options. Over-the-counter options
differ from traded options in that they are two-party contracts with price
and other terms negotiated between buyer and seller, and generally do not
have as much market liquidity as exchange-traded options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Fund may use interest
rate, foreign currency or index futures contracts, as specified for the Fund
in the Prospectus. An interest rate, foreign currency or index futures
contract provides for the future sale by one party and purchase by another
party of a specified quantity of a financial instrument, foreign currency or
the cash value of an index at a specified price and time. A futures contract
on an index is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the difference between the value
of the index at the close of the last trading day of the contract and the
-17-
<PAGE>
price at which the index contract was originally written. Although the value
of an index might be a function of the value of certain specified securities,
no physical delivery of these securities is made. A public market exists in
futures contracts covering several indexes as well as a number of financial
instruments and foreign currencies. For example: the S&P 500; the Russell
2000-R-; Nikkei 225; CAC-40; FT-SE 100; the NYSE composite; U.S. Treasury
bonds; U.S. Treasury notes; GNMA Certificates; three-month U.S. Treasury
bills; Eurodollar certificates of deposit; the Australian Dollar; the
Canadian Dollar; the British Pound; the German Mark; the Japanese Yen; the
French Franc; the Swiss Franc; the Mexican Peso; and certain multinational
currencies, such as the European Currency Unit ("ECU"). It is expected that
other futures contracts will be developed and traded in the future.
A Fund may purchase and write call and put options on futures contracts.
Options on futures contracts possess many of the same characteristics as
options on securities and indexes (discussed above). A futures option gives
the holder the right, in return for the premium paid, to assume a long
position (call) or short position (put) in a futures contract at a specified
exercise price at any time during the period of the option. Upon exercise of
a call option, the holder acquires a long position in the futures contract
and the writer is assigned the opposite short position. In the case of a put
option, the opposite is true.
As long as required by regulatory authorities, each Fund will limit its use
of futures contracts and options on futures contracts to hedging
transactions. For example, a Fund might use futures contracts to hedge
against anticipated changes in interest rates that might adversely affect
either the value of the Fund's securities or the price of the securities
which the Fund intends to purchase. Additionally, a Fund may use futures
contracts to create equity exposure for its cash reserves for liquidity
purposes.
A Fund will only enter into futures contracts and options on futures
contracts which are standardized and traded on a U.S. or foreign exchange,
board of trade, or similar entity, or quoted on an automated quotation system.
When a purchase or sale of a futures contract is made by a Fund, the Fund is
required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. government securities ("initial margin").
The margin required for a futures contract is set by the exchange on which
the contract is traded and may be modified during the term of the contract.
The initial margin is in the nature of a performance bond or good faith
deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. Each Fund expects to earn interest income on its initial margin
deposits. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by a Fund
but is instead a settlement between the Fund and the broker of the amount one
would owe the other if the futures contract expired. In computing daily net
asset value, each Fund will mark-to-market its open futures positions.
A Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
-18-
<PAGE>
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund realizes a
capital gain, or if it is more, the Fund realizes a capital loss. Conversely,
if an offsetting sale price is more than the original purchase price, the
Fund realizes a capital gain, or if it is less, the Fund realizes a capital
loss. The transaction costs must also be included in these calculations.
LIMITATIONS ON USE OF FUTURES AND OPTIONS ON FUTURES CONTRACTS. A Fund will
not enter into a futures contract or futures option contract if, immediately
thereafter, the aggregate initial margin deposits relating to such positions
plus premiums paid by it for open futures option positions, less the amount
by which any such options are "in-the-money," would exceed 5% of the Fund's
total assets. A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise price. A put
option is "in-the-money" if the exercise price exceeds the value of the
futures contract that is the subject of the option.
When purchasing a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) cash, U.S. government securities, or
other highly liquid debt securities that, when added to the amounts deposited
with a futures commission merchant as margin, are equal to the market value
of the futures contract. Alternatively, the Fund may "cover" its position by
purchasing a put option on the same futures contract with a strike price as
high or higher than the price of the contract held by the Fund.
When selling a futures contract, a Fund will maintain with its custodian (and
mark-to-market on a daily basis) liquid assets that, when added to the amount
deposited with a futures commission merchant as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the
Fund may "cover" its position by owning the instruments underlying the
contract (or, in the case of an index futures contract, a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based), or by holding a call option permitting the Fund to
purchase the same futures contract at a price no higher than the price of the
contract written by the Fund (or at a higher price if the difference is
maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) cash, U.S. government
securities, or other highly liquid debt securities that, when added to the
amounts deposited with a futures commission merchant as margin, equal the
total market value of the futures contract underlying the call option.
Alternatively, the Fund may cover its position by entering into a long
position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to
purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund.
When selling a put option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) cash, U.S. government
securities, or other highly liquid debt securities that equal the purchase
price of the futures contract, less any margin on deposit. Alternatively, the
Fund may cover the position either by entering into a short position in the
same futures contract, or by owning a separate put option permitting it to
sell the same futures contract so long as the strike price of the purchased
put option is the same or higher than the strike price of the put option sold
by the Fund.
-19-
<PAGE>
In order to comply with applicable regulations of the Commodity Futures
Trading Commission ("CFTC") pursuant to which the Funds avoid being deemed a
"commodity pool," the Funds are limited in their futures activities to
positions which constitute "bona fide hedging" positions within the meaning
and intent of applicable CFTC rules, and with respect to positions which do
not qualify under that hedging test, to positions for which the aggregate
initial margins and premiums will not exceed 5% of the net assets of the Fund
as determined under the CFTC Rules.
The requirements for qualification as a regulated investment company also may
limit the extent to which a Fund may enter into futures, options on futures
contracts or forward contracts. See "Taxation."
RISKS ASSOCIATED WITH FUTURES AND OPTIONS ON FUTURES CONTRACTS. There are
several risks associated with the use of futures contracts and options on
futures contracts as hedging techniques. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract. There can be no guarantee that there will be a correlation between
price movements in the hedging vehicle and in the Fund securities being
hedged. In addition, there are significant differences between the securities
and futures markets that could result in an imperfect correlation between the
markets, causing a given hedge not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as variations in
speculative market demand for futures and options on futures contracts on
securities, including technical influences in futures trading and options on
futures contracts, and differences between the financial instruments being
hedged and the instruments underlying the standard contracts available for
trading in such respects as interest rate levels, maturities, and credit
worthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge
may be unsuccessful to some degree because of market behavior or unexpected
interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a
price beyond that limit. The daily limit governs only price movements during
a particular trading day and therefore does not limit potential losses
because the limit may work to prevent the liquidation of unfavorable
positions. For example, futures prices have occasionally moved to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of positions and subjecting some holders of
futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures or a futures option position, and that Fund
would remain obligated to meet margin requirements until the position is
closed. In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be
no assurance that an active secondary market will develop or continue to
exist.
ADDITIONAL RISKS OF OPTIONS ON SECURITIES, FUTURES CONTRACTS, OPTIONS ON
FUTURES CONTRACTS, AND FORWARD CURRENCY EXCHANGE CONTRACTS AND OPTIONS
THEREON. Options on securities, futures contracts, options on futures
contracts, currencies and options on currencies may be traded on foreign
exchanges. Such transactions: may not be regulated
-20-
<PAGE>
as effectively as similar transactions in the United States; may not involve
a clearing mechanism and related guarantees; and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by
(1) other complex foreign political, legal and economic factors, (2) lesser
availability than in the United States of data on which to make trading
decisions, (3) delays in a Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(4) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (5) lesser trading
volume.
HEDGING STRATEGIES. Stock index futures contracts may be used by the Funds as
an "equitization" vehicle for cash reserves held by the Funds. For example:
equity index futures contracts are purchased to correspond with the cash
reserves in each of the Funds, except the Core Bond Fund. As a result, such a
Fund will realize gains or losses based on the performance of the equity
market corresponding to the relevant indices for which futures contracts have
been purchased. Thus, each such Fund's cash reserves always will be fully
exposed to equity market performance.
Financial futures contracts may be used by the Non-U.S. and Core Bond Funds
as a hedge during or in anticipation of interest rate changes.
The Funds may purchase a put option on a stock index futures contract instead
of selling a futures contract in anticipation of market decline. Purchasing a
call option on a stock index futures contract is used instead of buying a
futures contract in anticipation of a market advance, or to temporarily
create an equity exposure for cash balances until those balances are invested
in equities. Options on financial futures are used in a similar manner in
order to hedge portfolio securities against anticipated changes in interest
rates.
When purchasing a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) cash, U.S. government securities, or
other highly liquid debt securities that, when added to the amounts deposited
with a futures commission merchant as margin, are equal to the market value
of the futures contract. Alternatively, the Fund may "cover" its position by
purchasing a put option on the same futures contract with a strike price as
high or higher than the price of the contract held by the Fund.
FOREIGN CURRENCY FUTURES CONTRACTS. The Funds are also permitted to enter
into foreign currency futures contracts in accordance with their investment
objectives and as limited by the procedures outlined above.
A foreign currency futures contract is a bilateral agreement pursuant to
which one party agrees to make, and the other party agrees to accept delivery
of a specified type of debt security or currency at a specified price.
Although such futures contacts by their terms call for actual delivery or
acceptance of debt securities or currency, in most cases the contracts are
closed out before the settlement date without the making or taking of
delivery.
The Funds may sell a foreign currency futures contract to hedge against
possible variations in the exchange rate of the foreign currency in relation
to the U.S. dollar. When a Money Manager anticipates a significant change in
a foreign exchange rate while intending to invest in a foreign security, a
Fund may purchase a foreign currency futures contract to hedge against a rise
in foreign exchange rates pending completion of the anticipated transaction.
Such a purchase would serve as a temporary measure to protect the Fund
against any rise in the foreign exchange rate which may add additional costs
to acquiring the foreign security position. The Fund may also purchase call or
-21-
<PAGE>
put options on foreign currency futures contracts to obtain a fixed
foreign exchange rate. The Fund may purchase a call option or write a put
option on a foreign exchange futures contract to hedge against a decline in
the foreign exchange rates or the value of its foreign securities. The Fund
may write a call option on a foreign currency futures contract as a partial
hedge against the effects of declining foreign exchange rates on the value of
foreign securities.
RISK FACTORS. There are certain investment risks in using futures contracts
and/or options as a hedging technique. One risk is the imperfect correlation
between price movement of the futures contracts or options and the price
movement of the portfolio securities, stock index or currency subject of the
hedge. Another risk is that a liquid secondary market may not exist for a
futures contract causing a Fund to be unable to close out the futures
contract thereby affecting a Fund's hedging strategy.
In addition, foreign currency options and foreign currency futures involve
additional risks. Such transactions: may not be regulated as effectively as
similar transactions in the United States; may not involve a clearing
mechanism and related guarantees; and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities. The value
of such positions could also be adversely affected by (i) other complex
foreign, political, legal and economic factors, (ii) lesser availability than
in the United States of data on which to make trading decisions, (iii) delays
in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the United States, (iv) the imposition
of different exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading volume.
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Funds may engage in
forward foreign currency exchange transactions to hedge against uncertainty
in the level of future exchange rates. The Funds will conduct their forward
foreign currency exchange transactions either on a spot (i.e. cash) basis at
the rate prevailing in the currency exchange market, or through entering into
forward currency exchange contracts ("forward contract") to purchase or sell
currency at a future date. A forward contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. The Funds may engage in a forward
contract that involves transacting in a currency whose changes in value are
considered to be linked (a proxy) to a currency or currencies in which some
or all of the Funds' portfolio securities are or are expected to be
denominated. A Fund's dealings in forward contracts will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of foreign currency with respect
to specific receivables or payables of the Funds generally accruing in
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of foreign currency with respect to portfolio security
positions denominated or quoted in the currency. A Fund may not position
hedge with respect to a particular currency to an extent greater than the
aggregate market value (at the time of making such sale) of the securities
held in its portfolio denominated or quoted in or currency convertible into
that particular currency (or another currency or aggregate of currencies
which act as a proxy for that currency). A Fund may, however, enter into a
position hedging transaction with respect to a currency other than that held
in the Fund's portfolio, if such a transaction is deemed a hedge. If a Fund
enters into this type of hedging transaction, cash or liquid high-grade debt
securities will be placed in a segregated account in an amount equal to the
value of the Fund's total assets committed to the consummation of the forward
contract. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account so that
the value of the account will equal the amount of the Fund's commitment with
respect to the contract. Hedging transactions may be made from any foreign
currency into U.S. dollars or into other appropriate currencies.
-22-
<PAGE>
At or before the maturity of a forward foreign currency contract, the Fund
may either sell a portfolio security and make delivery of the currency, or
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the Fund will
obtain, on the same maturity date, the same amount of the currency which it
is obligated to deliver. If the Fund retains the portfolio security and
engages in an offsetting transaction, the Fund, at the time of execution of
the offsetting transaction, will incur a gain or a loss to the extent that
movement has occurred in forward currency contract prices. Should forward
prices decline during the period between the Fund's entering into a forward
contract for the sale of a currency and the date that it enters into an
offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent that the price of the currency that it has agreed to sell
exceeds the price of the currency that it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency that it has agreed to sell.
The cost to the Fund of engaging in currency transactions varies with factors
such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because transactions in currency exchange
are usually conducted on a principal basis, no fees or commissions are
involved. The use of forward foreign currency contracts does not eliminate
fluctuations in the underlying prices of the securities, but it does
establish a rate of exchange that can be achieved in the future. In addition,
although forward foreign currency contracts limit the risk of loss due to a
decline in the value of the hedged currency, at the same time, they limit any
potential gain that might result should the value of the currency increase.
If a devaluation is generally anticipated, a Fund may be able to contract to
sell the currency at a price above the devaluation level that it anticipates.
A Fund will not enter into a currency transaction if, as a result, it will
fail to qualify as a regulated investment company under the Internal Revenue
Code of 1986, as amended (the "Code"), for a given year.
Forward foreign currency contracts are not regulated by the SEC. They are
traded through financial institutions acting as market-makers. In the forward
foreign currency market, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over
a period of time. Moreover, a trader of forward contracts could lose amounts
substantially in excess of its initial investments, due to the collateral
requirements associated with such positions.
Forward foreign currency transactions are subject to the risk of governmental
actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected by
(a) other complex foreign political and economic factors, (b) lesser
availability than in the United States of data on which to make trading
decisions, (c) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States
and the United Kingdom, (d) the imposition of different exercise and
settlement terms and procedures and margin requirements than in the United
States, (e) lesser trading volume and (f) that a perceived linkage between
various currencies may not persist throughout the duration of the contracts.
INDEXED COMMERCIAL PAPER. Indexed commercial paper is U.S.-dollar denominated
commercial paper the yield of which is linked to certain foreign exchange
rate movements. The yield to the investor on indexed commercial
-23-
<PAGE>
paper is established at maturity as a function of spot exchange rates between
the U.S. dollar and a designated currency as of or about that time. The yield
to the investor will be within a range stipulated at the time of purchase of
the obligation, generally with a guaranteed minimum rate of return that is
below, and a potential maximum rate of return that is above, market yields on
U.S.-dollar denominated commercial paper, with both the minimum and maximum
rates of return on the investment corresponding to the minimum and maximum
values of the spot exchange rate two business days prior to maturity. While
such commercial paper entails risk of loss of principal, the potential risk
for realizing gains as a result of changes in foreign currency exchange rates
enables a Fund to hedge (or cross-hedge) against a decline in the U.S.-dollar
value of investments denominated in foreign currencies while providing an
attractive money market rate of return. The staff of the SEC is currently
considering whether the purchase of this type of commercial paper would
result in the issuance of a "senior security." If required by the appropriate
authorities to assure that investments in indexed commercial paper are not
used to achieve investment leverage, a Fund will segregate cash or readily
marketable high-quality securities in an amount at all times equal or
exceeding the Fund's commitment with respect to these contracts.
U.S. GOVERNMENT OBLIGATIONS. The types of U.S. government obligations the
Funds may purchase include: (1) a variety of U.S. Treasury obligations which
differ only in their interest rates, maturities and times of issuance: (a)
U.S. Treasury bills at time of issuance have maturities of one year or less,
(b) U.S. Treasury notes at time of issuance have maturities of one to ten
years and (c) U.S. Treasury bonds at time of issuance generally have
maturities of greater than ten years; (2) obligations issued or guaranteed by
U.S. government agencies and instrumentalities are supported by any of the
following: (a) the full faith and credit of the U.S. Treasury (such as
Government National Mortgage Association participation certificates), (b) the
right of the issuer to borrow an amount limited to a specific line of credit
from the U.S. Treasury, (c) discretionary authority of the U.S. government
agency or instrumentality, or (d) the credit of the instrumentality (examples
of agencies and instrumentalities are: Federal Land Banks, Farmers Home
Administration, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, Federal Home Loan Banks and Federal National Mortgage Association). No
assurance can be given that the U.S. government will provide financial
support to such U.S. government agencies or instrumentalities described in
(2)(b), (2)(c) and (2)(d) in the future, other than as set forth above, since
it is not obligated to do so by law. The Funds may purchase U.S. government
obligations on a forward commitment basis.
VARIABLE AND FLOATING RATE SECURITIES. A floating rate security is one whose
terms provide for the automatic adjustment its interest rate whenever a
specified interest rate changes. A variable rate security is one whose terms
provide for the automatic establishment of a new interest rate on set dates.
The interest rate on floating rate securities is ordinarily tied to and is a
percentage of the prime rate of a specified bank or some similar objective
standard, such as 90-day U.S. Treasury Bill rate, and may change as often as
twice daily. Generally, changes in interest rates on floating rate securities
will reduce changes in the security's market value from the original purchase
price resulting in the potential for capital appreciation or capital
depreciation being less than for fixed income obligations with a fixed
interest rate.
ZERO COUPON SECURITIES. Zero coupon securities are notes, bonds and
debentures that (i) do not pay current interest and are issued at a
substantial discount from par value, (ii) have been stripped of their
unmatured interest coupons and receipts or (iii) pay no interest until a
stated date one or more years into the future. These securities also include
certificates representing interests in such stripped coupons and receipts.
Zero coupon securities trade at a
-24-
<PAGE>
discount from their par value and are subject to greater fluctuations of
market value in response to changing interest rates.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. The forms of
mortgage-related and other asset-backed securities the Funds may invest in
include the securities described below:
MORTGAGE PASS-THROUGH SECURITIES. Mortgage pass-through securities are
securities representing interests in "pools" of mortgages in which
payments of both interest and principal on the securities are generally
made monthly. The securities are "pass-through" securities because they
provide investors with monthly payments of principal and interest which
in effect are a "pass through" of the monthly payments made by the
individual borrowers on the underlying mortgages, net of any fees paid to
the issuer or guarantor. The principal governmental issuer of such
securities is the Government National Mortgage Association ("GNMA"),
which is a wholly-owned U.S. government corporation within the Department
of Housing and Urban Development. Government-related issuers include the
Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the United States created pursuant to an act of
Congress which is owned entirely by the Federal Home Loan Banks, and the
Federal National Mortgage Association ("FNMA"), a government sponsored
corporation owned entirely by private stockholders. Commercial banks,
savings and loans institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such
issuers may be the originators of the underlying mortgage loans as well
as the guarantors of the mortgage-related securities.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are hybrid instruments with characteristics of both
mortgage-backed bonds and mortgage pass-through securities. Similar to a
bond, interest and pre-paid principal on a CMO are paid, in most cases,
monthly. CMOs may be collateralized by whole mortgage loans, but are more
typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured into
multiple classes (or "tranches"), with each class bearing a different
stated maturity.
ASSET-BACKED SECURITIES. Asset-backed securities represent undivided
fractional interests in pools of instruments, such as consumer loans, and
are similar in structure to mortgage-related pass-through securities.
Payments of principal and interest are passed through to holders of the
securities and are typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guarantee
by another entity or by priority to certain of the borrower's other
securities. The degree of enhancement varies, generally applying only
until exhausted and covering only a fraction of the security's par value.
If the credit enhancement held by a Fund has been exhausted, and if any
required payments of principal and interest are not made with respect to
the underlying loans, a Fund may experience loss or delay in receiving
payment and a decrease in the value of the security.
RISK FACTORS. Prepayment of principal on mortgage or asset-backed
securities may expose a Fund to a lower rate of return upon reinvestment
of principal. Also, if a security subject to prepayment has been
purchased at a premium, in the event of prepayment the value of the
premium would be lost. Like other fixed income securities, the value of
mortgage-related securities is affected by fluctuations in interest rates.
-25-
<PAGE>
MUNICIPAL OBLIGATIONS. "Municipal obligations" are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multi-state agencies or authorities, the interest from which is exempt from
federal income tax in the opinion of bond counsel to the issuer. Municipal
obligations include debt obligations issued to obtain funds for various
public purposes and certain industrial development bonds issued by or on
behalf of public authorities. Municipal obligations are classified as general
obligation bonds, revenue bonds and notes.
MUNICIPAL BONDS. Municipal bonds generally have maturities of more than
one year when issued and have two principal classifications -- General
Obligation Bonds and Revenue Bonds.
GENERAL OBLIGATION BONDS - are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and
interest.
REVENUE BONDS - are payable only from the revenues derived from a
particular facility or group of facilities or from the proceeds of
special excise or other specific revenue service.
INDUSTRIAL DEVELOPMENT BONDS - are a type of revenue bond and do not
generally constitute the pledge of credit of the issuer of such
bonds. The payment of the principal and interest on such bonds is
dependent on the facility's user to meet its financial obligations
and the pledge, if any, of real and personal property financed as
security for such payment. Industrial development bonds are issued
by or on behalf of public authorities to raise money to finance
public and private facilities for business, manufacturing, housing,
ports, pollution control, airports, mass transit and other similar
type projects.
MUNICIPAL NOTES. Municipal notes generally have maturities of one year
or less when issued and are used to satisfy short-term capital needs.
Municipal notes include:
TAX ANTICIPATION NOTES - are issued to finance working capital needs
of municipalities and are generally issued in anticipation of future
tax revenues.
BOND ANTICIPATION NOTES - are issued in expectation of a
municipality issuing a longer term bond in the future. Usually the
long-term bonds provide the money for the repayment of the notes.
REVENUE ANTICIPATION NOTES - are issued in expectation of receipt of
other types of revenues such as certain federal revenues.
CONSTRUCTION LOAN NOTES - are sold to provide construction financing
and may be insured by the Federal Housing Administration. After
completion of the project, FNMA or GNMA frequently provides
permanent financing.
-26-
<PAGE>
PRE-REFUNDED MUNICIPAL BONDS - are bonds no longer secured by the
credit of the issuing entity, having been escrowed with U.S.
Treasury Securities as a result of a refinancing by the issuer. The
bonds are escrowed for retirement either at original maturity or at
an earlier call date.
TAX FREE COMMERCIAL PAPER - is a promissory obligation issued or
guaranteed by a municipal issuer and frequently accompanied by a
letter of credit of a commercial bank. It is used by agencies of
state and local governments to finance seasonal working capital
needs, or as short-term financing in anticipation of long-term
financing.
TAX FREE FLOATING AND VARIABLE RATE DEMAND NOTES - are municipal
obligations backed by an obligation of a commercial bank to the
issuer thereof which allows the issuer to issue securities with a
demand feature, which, when exercised, usually becomes effective
within thirty days. The rate of return on the notes is readjusted
periodically according to some objective standard such as changes in
a commercial bank's prime rate.
TAX FREE PARTICIPATION CERTIFICATES - are tax free floating or
variable rate demand notes which are issued by a bank, insurance
company or other financial institution or affiliated organization
that sells a participation in the note. The Funds' Money Managers
will continually monitor the pricing, quality and liquidity of the
floating and variable rate demand instruments held by the Funds,
including the participation certificates.
A participation certificate gives a Fund an undivided interest in
the municipal obligation in the proportion that the Fund's
participation interest bears to the total principal amount of the
municipal obligation and provides the demand feature described
below. Each participation is backed by: an irrevocable letter of
credit or guaranty of a bank which may be the bank issuing the
participation certificate, a bank issuing a confirming letter of
credit to that of the issuing bank, or a bank serving as agent of
the issuing bank with respect to the possible repurchase of the
certificate of participation; or insurance policy of an insurance
company that the Money Manager has determined meets the prescribed
quality standards for the Fund. The Fund has the right to sell the
participation certificate back to the institution and draw on the
letter of credit or insurance on demand after thirty days' notice
for all or any part of the full principal amount of the Fund's
participation interest in the security plus accrued interest. The
Funds' Money Managers intend to exercise the demand feature only (1)
upon a default under the terms of the bond documents, (2) as needed
to provide liquidity to the Fund in order to make redemptions of
Fund shares, or (3) to maintain the required quality of its
investment portfolio.
The institutions issuing the participation certificates will retain
a service and letter of credit fee and a fee for providing the
demand feature, in an amount equal to the excess of the interest
paid on the instruments over the negotiated yield at which the
participations were purchased by the Fund. The total fees generally
range from 5% to 15% of the applicable prime rate or other interest
rate index. The Fund will attempt to have the issuer of the
participation certificate bear the cost of the insurance. The Fund
retains the option to purchase insurance if necessary, in which case
the cost of insurance will be a capitalized expense of the Fund.
-27-
<PAGE>
The Funds will enter into put and stand-by commitments with
institutions, such as banks and broker-dealers, that the Funds'
Money Managers continually believe satisfy the Funds' credit quality
requirements. The ability of a Fund to exercise the put or stand-by
commitment may depend on the seller's ability to purchase the
securities at the time the put or stand-by commitment is exercised
or on certain restrictions in the buy back arrangement. Such
restrictions may prohibit a Fund from exercising the put or stand-by
commitment except to maintain portfolio flexibility and liquidity.
In the event the seller would be unable to honor a put or stand-by
commitment for financial reasons, the Funds may, in the opinion of
Funds' management, be a general creditor of the seller. There may be
certain restrictions in the buy back arrangement which may not
obligate the seller to repurchase the securities. (See, "Certain
Investments -- Municipal Notes -- Tax-Free Participation
Certificates.")
FOREIGN GOVERNMENT SECURITIES. Foreign government securities which the Funds
may invest in generally consist of obligations issued or backed by the
national, state or provincial government or similar political subdivisions or
central banks in foreign countries. Foreign government securities also
include debt obligations of supranational entities, which include
international organizations designated or backed by governmental entities to
promote economic reconstruction or development, international banking
institutions and related government agencies. These securities also include
debt securities of "quasi-government agencies" and debt securities
denominated in multinational currency units of an issuer.
TAXES
In order to qualify for treatment as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended ("Code"),
each Fund must distribute annually to its shareholders at least 90% of its
investment company taxable income (generally, net investment income plus net
short-term capital gain) ("Distribution Requirement") and also must meet
several additional requirements. Among these requirements are the following:
(i) at least 90% of a Fund's gross income each taxable year must be derived
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign
currencies (exclusive of losses), or other income (including gains from
options, futures, or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies ("Income Requirement");
(ii) less than 30% of a Fund's gross income each taxable year may be derived
from gains (exclusive of losses) from the sale or other disposition of any
stock or securities; any options, futures, or forward contracts; foreign
currencies including any options or futures thereon (which are not directly
related to a Fund's business in investing) held for less than three months
(the "Short-Short Limitation"); (iii) at the close of each quarter of a
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities of
other RICs and other securities, with such other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value
of the Fund and that does not represent more than 10% of the outstanding
voting securities of such issuer; and (iv) at the close of each quarter of
the Fund's taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. government securities or the
securities of other RICs) of any one issuer.
-28-
<PAGE>
As noted in the Prospectus, each Fund must, and intends to, comply with the
diversification requirements imposed by Section 817(h) of the Code and the
regulations thereunder. For information concerning the consequences of
failure to meet the requirements of Section 817(h), see the prospectus for
the variable contracts.
The Funds will not be subject to the 4% Federal excise tax imposed on RICs
that do not distribute substantially all their income and gains each calendar
year because that tax does not apply to a RIC whose only shareholders are
segregated asset accounts of life insurance companies held in connection with
variable annuity contracts and/or variable life insurance policies.
The foregoing is only a general summary of some of the important Federal
income tax considerations generally affecting the Funds and their
shareholders. No attempt is made to present a complete explanation of the
Federal tax treatment of the Funds' activities, and this discussion and the
discussion in the prospectuses and/or statements of additional information
for variable contracts are not intended as a substitute for careful tax
planning. Accordingly, potential investors are urged to consult their own
tax advisers for more detailed information and for information regarding any
state, local, or foreign taxes applicable to the variable contracts and the
holders thereof.
ISSUES RELATED TO HEDGING AND OPTION INVESTMENTS. The use of hedging
instruments, such as options and futures contracts, involves specialized and
complex rules that will determine the character for income tax purposes of
the income received in connection therewith by the Fund and thereby affect,
among other things, the amount and proportion of distributions that will be
taxable to shareholders as ordinary income or capital gain.
As described above and in the Prospectuses, the Funds may buy and sell
foreign currencies and options on foreign currencies, and may enter into
forward currency contracts and currency futures contracts. The Funds
anticipate that these investment activities will not prevent the Funds from
qualifying as a regulated investment company. As a general rule, gains or
losses on the disposition of debt securities denominated in a foreign
currency that are attributable to fluctuations in exchange rates between the
date that the debt securities are acquired and the date of disposition, gains
and losses from the disposition of foreign currencies, and gains and losses
attributable to options on foreign currencies, forward currency contracts and
currency futures contracts will be treated as ordinary income or loss.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time the fund accrues interest or other receivables, or expenses
or other liabilities, denominated in a foreign currency and the time a Fund
actually collects such receivables, or pays such liabilities, are generally
treated as ordinary income or loss. Similarly, gains or losses on disposition
of debt securities denominated in a foreign currency between the date of
acquisition of the security and the date of disposition also are treated as
ordinary gain or loss. These gains, referred to under the Code as "Section
988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders,
rather than increasing or decreasing the amount of the Fund's capital gains
or losses.
As noted above and in the Prospectus, the Funds may acquire forward currency
contracts, currency futures contracts and options on foreign currencies to
hedge their risk of currency fluctuations with regard to property held or to
be held by the Funds, and before the close of the day on which the Funds
enters into the contract or option, the Funds will, as a general rule,
identify on their records that the contract or option was entered into as
part of a
-29-
<PAGE>
hedging transaction. If the Funds were to invest in a forward
currency contract, currency futures contract or option on a foreign currency
and offsetting positions in such contracts or options, and if the two
offsetting positions were characterized as a straddle (as opposed to a hedge)
for federal income tax purposes, then the Funds might not be able to receive
the benefit of certain realized losses from the liquidation of one of those
positions for an indefinite period of time (i.e., until the gain position and
any successor positions are disposed of). The Funds expect that their
activities with respect to forward foreign currency contracts, currency
futures contracts and options on foreign currencies will not require it, as a
general rule, to have to treat such contracts or options as straddle
positions for federal income tax purposes. Under current law, unless certain
requirements are satisfied, the Funds, will be required to calculate
separately certain gains and losses attributable to certain of their forward
currency contracts, currency futures contracts and options on foreign
currencies even if the Funds acquired the contract or option to hedge their
risk of currency fluctuations with regard to capital assets held or to be
held by the Funds. The Internal Revenue Service, however, has the authority
to issue additional regulations that would permit or require the Funds either
to integrate some or all of their forward currency contracts, currency
futures contracts, options on foreign currencies and hedged investments as a
single transaction or otherwise to treat the contracts or options in the
manner that is consistent with the hedged investments. It is uncertain if or
when these regulations will be issued.
To the extent that the Fund's forward contracts, currency futures contracts
or options on foreign currencies can be classified as either regulated
futures contracts or foreign currency contracts (as described in section
1256(b) of the Code) (collectively referred to herein as "section 1256
contracts"), such investments will be taxed pursuant to a special
"mark-to-market" system. Under the mark-to-market system, the Funds may be
treated as realizing a greater or lesser amount of gains or losses than
actually realized. As a general rule, except for certain currency related
activities (as described above) in which gain or loss is treated as ordinary
income or loss, gain or loss on section 1256 contracts is treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss, and
accordingly, the mark-to-market system generally will affect the amount of
capital gains or losses taxable to the Funds and the amount of distributions
taxable to a shareholder. Moreover, if the Funds invested in both section
1256 contracts and offsetting positions with respect to such contracts, then
the Funds might not be able to receive the benefit of certain realized losses
for an indeterminate period of time (i.e., until disposition of the "gain
leg" of the straddle and any successor position). The Funds expect that its
activities with respect to section 1256 contracts and offsetting positions in
such contracts (a) will not cause it or its shareholders to be treated as
receiving a materially greater amount of ordinary income, capital gains,
dividends, or distributions than actually realized or received by the Funds
and (b) will permit it to use substantially all of the losses of the Funds
for the fiscal years in which such losses actually occur.
Generally, the hedging transactions and certain other transactions in
options, futures and forward contracts undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by a Fund. In addition,
losses realized by a Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures
and forward contracts to a Fund are not entirely clear. The transactions may
increase the amount of short-term capital gain realized by a Fund which is
taxed as ordinary income when distributed to shareholders.
-30-
<PAGE>
A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary
according to the election(s) made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gains, may be increased or decreased substantially in any
given fiscal year as compared to a fund that did not engage in such hedging
transactions.
The 30% limit on gains from the disposition of certain options, futures and
forward contracts held less than three months and the qualifying income and
diversification requirements applicable to a Fund's assets may limit the
extent to which a Fund will be able to engage in transactions in options,
futures contracts or forward contracts.
Income (excluding certain gains) from transactions in options and futures
contracts derived by the Fund with respect to its business of investing in
securities, will qualify as permissible income under the Income Requirement.
Furthermore, any increase in value on a position that is part of a
"designated hedge" will be offset by any decrease in value (whether realized
or not) of the offsetting hedging position during the period of the hedge for
purposes of determining whether the Fund satisfies the Short-Short
Limitation. Thus, only the net gain (if any) from the designated hedge will
be included in gross income for purposes of that limitation.
The Fund anticipates engaging in hedging transactions that are intended to
qualify for this treatment, but at the present time it is not clear whether
this treatment will be available to all of the Fund's hedging transactions.
To the extent this treatment is not available, the Fund may be forced to
defer the closing out of certain options and futures contracts beyond the
time when it otherwise would be advantageous to do so, in order for the Fund
to qualify as a RIC. Income derived from currencies, options, futures and
forward contracts on currencies directly related to the Fund's principal
business of investing in stocks or securities is excluded from the
Short-Short Limitation computation.
If a call option written by the Fund expires, the Fund will realize a
short-term capital gain equal to the amount of the premium it received for
writing the option. If the Fund terminates its obligations under a call
option it has written, or if the Fund writes a put option terminating its
rights as the holder of a put option, the Fund will realize a short-term
capital gain or loss, depending on whether the cost of the closing
transaction is less than or exceeds the premium received when the option was
written. If a call option written by the Fund is exercised, the Fund will be
treated as having sold the underlying security and will realize a long-term
or short-term capital gain and loss, depending on the holding period of the
underlying security and on whether the sum of the option price received upon
the exercise plus the premium received when the option was written exceeds or
is less than the basis of the optioned security.
If an option purchased by a Fund expires, the Fund generally will realize a
capital loss equal to the cost of the option, long-term if the option was
held for more than one year. If the Fund sells the option, it generally will
realize
-31-
<PAGE>
a capital gain or loss, depending on whether the proceeds from the sale are
greater or less than the cost of the option plus the transaction costs. If
the Fund exercises a call option, the cost of the option will be added to the
basis of the security purchased. If the Fund exercises a put option, it will
realize a capital gain or loss (depending on the Fund's basis for the
underlying security), which will be long-term or short-term depending on the
holding period of the underlying security. Any such capital gain will be
decreased (or loss increased) by the premium paid for the option.
FOREIGN INCOME TAXES. Investment income received from sources within foreign
countries may be subject to foreign income taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
would entitle the Fund to a reduced rate on such taxes or exemption from
taxes on such income. It is impossible to determine the effective rate of
foreign tax for a Fund in advance since the amount of the assets to be
invested within various countries is not known.
If a Fund invests in an entity that is classified as a "passive foreign
investment company" ("PFIC") for federal income tax purposes, the application
of certain provisions of the Code applying to PFICs could result in the
imposition of certain federal income taxes on the Fund. Under U.S. Treasury
regulations for PFICs, the Non-U.S. Fund can elect to mark-to-market its PFIC
holdings in lieu of paying taxes on gains or distributions therefrom.
STATE AND LOCAL TAXES. Depending upon the extent of a Fund's activities in
states and localities in which its offices are maintained, in which its
agents or independent contractors are located or in which it is otherwise
deemed to be conducting business, a Fund may be subject to the tax laws of
such states or localities.
RATINGS OF DEBT INSTRUMENTS
CORPORATE AND MUNICIPAL BOND RATINGS.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S):
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large
or exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
-32-
<PAGE>
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great period of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time
may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal and interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification in its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic
category; the modifier 2 indicates a mid-range ranking; and modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS GROUP ("S&P"):
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
-33-
<PAGE>
BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. While bonds with this rating normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than debt in
higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB -- Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual implied BBB- rating.
B -- Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual implied BB or BB- rating.
CCC -- Bonds rated CCC have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual implied B or B-
rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating. The C
rating has been used to cover a situation where a bankruptcy petition
has been filed but debt service payments are continued.
C1 -- The rating C1 is reserved for income bonds on which no interest is
being paid.
D -- Bonds rated D are in payment default. The D rating is used when
interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
-34-
<PAGE>
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
appropriate category.
Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic issues. The ratings measure the credit
worthiness of the obligor but do not take into account currency exchange and
related uncertainties.
STATE, MUNICIPAL NOTES AND TAX EXEMPT DEMAND NOTES.
MOODY'S:
Moody's rating for state, municipal and other short-term obligations
will be designated Moody's Investment Grade ("MIG"). This distinction is
in recognition of the differences between short-term credit risk and
long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors
of the first importance in bond risk are of lesser importance in the
short run. Symbols used are as follows:
MIG-1--Notes bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing or both.
MIG-2--Notes bearing this designation are of high quality, with margins
of protection ample although not so large as in the preceding group.
S&P:
A S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in 3 years or less will likely receive
a note rating. Notes maturing beyond 3 years will most likely receive a
long-term debt rating. The following criteria will be used in making
that assessment:
-- Amortization schedule (the larger the final maturity relative to
other maturities, the more likely it will be treated as a note).
-- Source of Payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1--Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
-35-
<PAGE>
S&P assigns "dual" ratings to all long-term debt issues that have as
part of their provisions a variable rate demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand
feature. The long-term debt rating symbols are used to denote the put
option (for example, "AAA/A-1+") or if the nominal maturity is short, a
rating of "SP-1+/AAA" is assigned.
COMMERCIAL PAPER RATINGS.
MOODY'S:
Commercial paper rated Prime by Moody's is based upon its evaluation of
many factors, including: (1) management of the issuer; (2) the issuer's
industry or industries and the speculative-type risks which may be
inherent in certain areas; (3) the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten
years; (7) financial strength of a parent company and the relationships
which exist with the issue; and (8) recognition by the management of
obligations which may be present or may arise as a result of public
interest questions and preparations to meet such obligations. Relative
differences in these factors determine whether the issuer's commercial
paper is rated Prime-1, Prime-2, or Prime-3.
Prime-1 - indicates a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics: (1) leading market positions
in well established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structures with moderate
reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash
generation; and (5) well established access to a range of financial
markets and assured sources of alternative liquidity.
Prime-2 - indicates a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is
maintained.
S&P:
Commercial paper rated A by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements. Long-term
senior debt is rated A or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow
have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer
has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness
of the above factors determine whether the issuer's commercial paper
is rated A-1, A-2, or A-3.
-36-
<PAGE>
A-1--This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
DUFF & PHELPS, INC.:
Duff & Phelps' short-term ratings are consistent with the rating
criteria utilized by money market participants. The ratings apply to
all obligations with maturities of under one year, including commercial
paper, the uninsured portion of certificates of deposit, unsecured bank
loans, master notes, bankers' acceptances, irrevocable letters of
credit, and current maturities of long-term debt. Asset-backed
commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including
trade credit, bank lines, and the capital markets. An important
consideration is the level of an obligor's reliance on short-term funds
on an ongoing basis.
The distinguishing feature of Duff & Phelps' short-term ratings is the
refinement of the traditional '1' category. The majority of short-term
debt issuers carry the highest rating, yet quality differences exist
within that tier. As a consequence, Duff & Phelps has incorporated
gradations of '1+' (one plus) and '1-' (one minus) to assist investors
in recognizing those differences.
Duff 1+--Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
Duff 1--Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.
Duff 1- --High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk
factors are very small.
Good Grade
Duff 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
Satisfactory Grade
-37-
<PAGE>
Duff 3--Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
Non-Investment Grade
Duff 4--Speculative investment characteristics. Liquidity is not
sufficient to ensure against disruption in debt service. Operating
factors and market access may be subject to a high degree of variation.
Default
Duff 5--Issuer failed to meet scheduled principal and/or interest
payments.
IBCA, INC.:
In addition to conducting a careful review of an institution's reports
and published figures, IBCA's analysts regularly visit the companies
for discussions with senior management. These meetings are fundamental
to the preparation of individual reports and ratings. To keep abreast
of any changes that may affect assessments, analysts maintain contact
throughout the year with the management of the companies they cover.
IBCA's analysts speak the languages of the countries they cover, which
is essential to maximize the value of their meetings with management
and to properly analyze a company's written materials. They also have a
thorough knowledge of the laws and accounting practices that govern the
operations and reporting of companies within the various countries.
Often, in order to ensure a full understanding of their position,
companies entrust IBCA with confidential data. While this data cannot
be disclosed in reports, it is taken into account when assigning
ratings. Before dispatch to subscribers, a draft of the report is
submitted to each company to permit correction of any factual errors
and to enable clarification of issues raised.
IBCA's Rating Committees meet at regular intervals to review all
ratings and to ensure that individual ratings are assigned consistently
for institutions in all the countries covered. Following the Committee
meetings, ratings are issued directly to subscribers. At the same time,
the company is informed of the ratings as a matter of courtesy, but not
for discussion.
A1+--Obligations supported by the highest capacity for timely repayment.
A1--Obligations supported by a very strong capacity for timely
repayment.
A2--Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
-38-
<PAGE>
B1--Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher
categories.
B2--Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial
conditions.
C1--Obligations for which there is an inadequate capacity to ensure
timely repayment.
D1--Obligations which have a high risk of default or which are
currently in default.
FITCH INVESTORS SERVICE, INC.:
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes,
and municipal and investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's
obligations in a timely manner.
Fitch short-term ratings are as follows:
F-1+--Exceptionally strong credit quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1--Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F-1+.
F-2--Good credit quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned 'F-1+' and 'F-1' ratings.
F-3--Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate, however, near-term adverse changes could cause
these securities to be rated below investment grade.
F-5--Weak credit quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial
and economic conditions.
D--Default. Issues assigned this rating are in actual or imminent
payment default.
-39-
<PAGE>
THOMSON BANKWATCH (TBW) SHORT-TERM RATINGS:
The TBW Short-Term Ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which
the rating has been assigned. These ratings are derived exclusively
from a quantitative analysis of publicly available information.
Qualitative judgments have not been incorporated. The ratings are
intended to be applicable to all operating entities of an organization
but there may be in some cases more credit liquidity and/or risk in one
segment of the business than another.
The TBW Short-Term Rating applies only to unsecured instruments that
have a maturity of one year or less, and reflect the likelihood of an
untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external)
than obligations with higher ratings, capacity to service
principal and interest in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
FINANCIAL STATEMENTS
As of the date of this Statement of Additional Information, RIF had not yet
commenced operations. However, audited financial statements with respect to
RIF's initial capitalization are set forth below. Additionally, after RIF
commences operations, financial statements of RIF, including notes thereto
and financial highlights and the Report of the Independent Auditors will be
included in RIF's annual report to shareholders and incorporated herein by
reference.
-40-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
of Russell Insurance Funds:
We have audited the accompanying statements of assets and liabilities of each
of the series of Russell Insurance Funds (comprised of Multi-Style Equity
Fund, Aggressive Equity Fund, Non-U.S. Fund, and Core Bond Fund (the
"Funds")), as of August 30, 1996. These financial statements are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit of the financial
statements provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Funds enumerated above
as of August 30, 1996, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
September 12, 1996
<PAGE>
RUSSELL INSURANCE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
August 30, 1996
<TABLE>
<CAPTION>
Multi-Style Aggressive Non-U.S. Core
Equity Fund Equity Fund Fund Bond Fund
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Cash....................................... $ 25,000 $ 25,000 $25,000 $ 25,000
Deferred organization costs (Note)......... 10,000 10,000 10,000 10,000
--------- --------- ------- --------
TOTAL ASSETS............................... 35,000 35,000 35,000 35,000
LIABILITIES:
Payable to Manager (Note).................. 10,000 10,000 10,000 10,000
--------- --------- ------- --------
NET ASSETS................................. $ 25,000 $ 25,000 $25,000 $ 25,000
--------- --------- ------- --------
--------- --------- ------- --------
NET ASSETS CONSIST OF:
Shares of beneficial interest.............. $ 25 $ 25 $ 25 $ 25
Additional paid-in capital................. 24,975 24,975 24,975 24,975
--------- --------- ------- --------
NET ASSETS................................. $ 25,000 $ 25,000 $25,000 $ 25,000
--------- --------- ------- --------
--------- --------- ------- --------
Net asset value, offering and redemption
price per share ($25,000 divided by 2,500
shares of $.01 par value shares of beneficial
interest outstanding, respectively)........ $10.00 $10.00 $10.00 $10.00
--------- --------- ------- --------
--------- --------- ------- --------
</TABLE>
NOTE:
The Russell Insurance Funds (the "Investment Company") is an open-end
Investment Company established as a "Massachusetts Business Trust" under a
Declaration of Trust dated July 11, 1996 and is registered under the
Investment Company Act of 1940, as amended. The Multi-Style Equity Fund,
Aggressive Equity Fund, Non-U.S. Fund, and Core Bond Fund (the "Funds") are
new series of the Russell Insurance Funds. The Funds' authorized capital
consists of an unlimited number of shares of beneficial interest at a $.01
par value.
The deferred organization costs are estimated by the Funds in connection with
their organization. The Funds are expected to reimburse Frank Russell
Investment Management Company (the "Manager"), for the payment of these costs
made in advance by the Manager. The costs have been deferred and will be
amortized on a straight-line basis over a five-year period beginning at the
commencement of operations of the Funds. In the event that any of the initial
shares of the Funds are redeemed during the amortization period, the
redemption proceeds will be reduced by any unamortized organizational
expenses in the same proportion as the number of initial shares being
redeemed bears to the number of initial shares outstanding at the time of
such redemption. Offering costs, including all initial registration costs,
will be charged to expense during each Fund's first twelve months of
operation.
The cash is in a non-interest bearing account at the Funds' custodian bank
and will be held until the Funds become operational.
<PAGE>
RUSSELL INSURANCE FUNDS
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(b) Exhibits
1 Master Trust Agreement
2 Bylaws
5(a) Management Agreement between Russell Insurance Funds ("RIF") and
Frank Russell Investment Management Company ("FRIMCo") dated August 5,
1996
5(b) Form of Portfolio Management Agreement among RIF, FRIMCo and Money
Managers
6 Distribution on Agreement between RIF and Russell Fund Distributors,
Inc. dated August 5, 1996
8(a) Custody Agreement between RIF and State Street Bank and Trust
Company ("State Street") dated August 5, 1996.
9(a) Form of Participation Agreement between RIF and General American
Life Insurance Company("General American").
9(b) Transfer and Dividend Disbursing Agency Agreement between RIF and
FRIMCo dated August 5, 1996
9(c) Form of Tax Accounting Services Agreement between RIF and State
Street.
9(d) Form of Yield Calculation Services Agreement between RIF and State
Street.
9(e) Joint Insurance Agreement between RIF and Frank Russell Investment
Company dated August 5, 1996
10 Opinion and Consent of Counsel regarding the legality of the
securities being registered, together with consent to the inclusion of
that opinion in this Registration Statement.
<PAGE>
11(a) Consent of Independent Auditors.
11(b) Limited Powers of Attorney of RIF Trustees with respect to
Amendments to the SEC Registration Statement of RIF.
13 Form of Seed Money Subscription Agreement between RIF and General
American.
16 Schedules of performance quotation computation.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record Holders as of
Title of Class September 16, 1996
--------------- -------------------------------
Multi-Style Equity Fund 1
Aggrestive Equity Fund 1
Non-U.S. Fund 1
Core Bond Fund 1
ITEM 27. INDEMNIFICATION
Registrant will obtain from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. In
no event will Registrant indemnify any of its directors, officers, employees,
or agents against any liability to which such person would otherwise be
subject by reason of his willful misfeasance, bad faith, gross negligence in
the performance of his duties, or by reason of his reckless disregard of the
duties involved in the conduct of his office or arising under his agreement
with Registrant. Registrant will comply with Rule 484 under the Securities
Act of 1933, as amended, and Release No. 11330 under the Investment Company
Act of 1940, as amended, in connection with any indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1940 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in connection with the
successful defense
<PAGE>
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the 1940 Act and will be governed by the
final adjudication of such issue.
ITEM 28(A). BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
SEE, Registrant's prospectus sections "Frank Russell Company -- Consultant to
the Funds," "The Money Managers" and Money Manager Profiles," the Statement
of Additional Information sections "Structure and Governance -- Trustees and
Officers," and "Operation of Investment Company -- Consultant."
ITEM 29. PRINCIPAL UNDERWRITER
Russell Fund Distributors, Inc. is the principal underwriter of the
Registrant with respect to sales of Registrant's shares to Insurance
Companies. The directors and officers of Russell Fund Distributors,
Inc., their principal business address in each case is 909 A Street,
Tacoma, Washington 98402, and their respective positions and offices
with the Registrant and Russell Fund Distributors, Inc. are set forth
below:
Name Positions and Offices Positions and Offices
with Registrant with Underwriter
Lynn L. Anderson Trustee, President, Chief Director, Chairman of the
Executive Officer Board and Chief Executive
Officer
Eric A. Russell None Director, President
George W. Weber Treasurer, Chief Accounting Director, Fund Administration
Officer and Operations
Karl J. Ege Secretary and General Counsel Secretary and General Counsel
Randall P. Lert Director of Investments Director, Chief Investment
Officer
Gregory J. Lyons Assistant Secretary and Assistant Secretary
Associate General Counsel
Julie A. Pavel None Senior Tax Analyst
Norma Schellberg None Treasurer
<PAGE>
Jack H. Gruber None Director, Client Services
J. David Griswold None Assistant Secretary,
Associate General Counsel
and Chief Compliance Officer
Richard Jasper None National Director, Sales
Mary E. Hughs None Assistant Secretary
Warren Thompson III None Corporate Tax Counsel
John J. James None Assistant Secretary
Sandra J. Burke Assistant Treasurer None
Deedra S. Walkey Assistant Treasurer None
Amy L. Osler Assistant Treasurer None
Loran M. Kaufman None Director, Funds Development
Jean E. Carter None Senior Investment Officer
Mark E. Swanson Assistant Treasurer Manager, Fund Accounting
and Taxes
Kenneth W. Lamb Assistant Treasurer Manager, Funds Administration
David H. Hamilton None Manager, Fund Operations and
Shareholder Records
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
RIF FRIMCo
- --- ------
Russell Insurance Funds Frank Russell Investment
909 A Street Management Company
Tacoma, Washington 98402 909 A Street
Tacoma, Washington 98402
SS MM
- -- --
State Street Bank & Trust Company Money Managers
1776 Heritage Drive JA4N SEE, Prospectus Section
North Quincy, Massachusetts 02171 "Money Manager Profiles"
for Names and Addresses
ITEM 31 MANAGEMENT SERVICES
None as described in Parts A and B.
ITEM 31A-1
(a) Records forming basis for financial statements - at
principal offices of SS, RIF FRIMCo and MM for each entity
(b) FRIC Records:
(1) SS - Journals, etc.
(2) SS - Ledgers, etc.
(3) Inapplicable
(4) RIF - Corporate charter, etc.
(5) MM - Brokerage orders
(6) MM - Other portfolio purchase orders
(7) SS - Contractual commitments
(8) SS and RIF - Trial balances
(9) MM - Reasons for brokerage allocations
(10) MM - Persons authorizing purchases and sales
(11) FRIC and MM - Files of advisory material
(12) ---
(c) Inapplicable
(d) FRIMCo - Broker-dealer records, to the extent applicable
(e) Frank Russell Investment Company; The Seven Seas Series Fund
<PAGE>
(f) FRIMCo and MM - Investment adviser records
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish each person to whom a Prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
The Registrant undertakes, if requested to do so by the holders of at least
10% of the Registrant's outstanding shares, to call a meeting of shareholders
for the purpose of voting upon the question of removal of a director or
directors and to assist in communications with other shareholders as required
by Section 16(c).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Tacoma in the State of
Washington on the 30th day of August, 1996.
RUSSELL INSURANCE FUNDS
By: /s/ Lynn L. Anderson
---------------------
Lynn L. Anderson
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on August 30, 1996 and on the date(s) indicated.
Signature Title(s) Date
--------- -------- ----
/s/Lynn L. Anderson Trustee and President, in
- -------------------- his capacity as Chief
Lynn L. Anderson* Executive Officer
/s/George W. Weber Treasurer, in his capacity
- -------------------- as Chief Accounting Officer
- -------------------- Trustee
Paul E. Anderson*
- -------------------- Trustee
Paul Anton, PhD*
- -------------------- Trustee
William E. Baxter*
<PAGE>
- -------------------- Trustee
Lee C. Gingrich
- -------------------- Trustee
Eleanor W. Palmer*
- -------------------- Trustee
George F. Russell, Jr.*
By: /s/ Gregory J. Lyons August 30, 1996
----------------------
Gregory J. Lyons
* Original Powers of Attorney authorizing the persons holding the offices
of President, Treasurer, any Assistant Treasurer, Secretary or any
Assistant Secretary of Russell Insurance Funds, and each of them singly
to sign this Amendment thereto on behalf of the Board of Trustees of
Russell Insurance Funds are on file with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT INDEX
Name of Exhibit Exhibit Number
- --------------- --------------
Master Trust Agreement 99.1
By-Laws 99.2
Management Agreement between Russell Insurance Funds ("RIF") and 99.5(a)
Frank Russell Investment Company ("FRIMCo") dated August 5, 1996
Form of Portfolio Management Agreement among RIF, FRIMCo 99.5(b)
and Money Manager
Distribution Agreement between RIF and Russell Fund 99.6
Distributors, Inc. dated August 5, 1996
Custody Agreement between RIF and State Street Bank and 99.8(a)
Trust Company ("State Street") dated August 5, 1996
Participation Agreement between RIF and General American Life 99.9(a)
Insurance Company ("General American")
Transfer and Dividend Disbursing Agency Agreement between RIF 99.9(b)
and FRIMCo dated August 5, 1996
Form of Tax Accounting Services Agreement between RIF and 99.9(c)
State Street
Form of Yield Calculation Services Agreement between RIF 99.9(d)
and State Street
Joint Insurance Agreement between RIF and Frank Russell 99.9(e)
Investment Company ("FRIC") dated August 5, 1996
Opinion and Consent of Counsel regarding the legality of the 99.10
securities being registered, together with consent to the
inclusion of that opinion in that Registration Statement
Consent of Independent Auditors 99.11(a)
Limited Power of Attorney of RIF Trustees with respect to 99.11(b)
Amendments to the SEC Registration Statement of RIF
<PAGE>
Form of Seed Money Subscription Agreement between RIF and 99.13
General American
Schedules of Performance Quotation Computation 99.16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
of Russell Insurance Funds:
We have audited the accompanying statements of assets and liabilities of each of
the series of Russell Insurance Funds (comprised of Multi-Style Equity Fund,
Aggressive Equity Fund, Non-U.S. Fund, and Core Bond Fund (the "Funds")), as of
August 30, 1996. These financial statements are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evedence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit of the financial statements provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Funds enumerated above as
of August 30, 1996, in conformity with generally accepted accounting principles.
Boston, Massachusetts
September 12, 1996 Coopers & Lybrand L.L.P.
<PAGE>
RUSSELL INSURANCE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
August 30, 1996
<TABLE>
<CAPTION>
MULTI-STYLE AGGRESSIVE NON-U.S. CORE
EQUITY FUND EQUITY FUND FUND BOND FUND
------------ ------------ ------------ -------------
ASSETS:
<S> <C> <C> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . $ 25,000 $ 25,000 $ 25,000 $ 25,000
Deferred organization costs (Note) . . . . . . . 10,000 10,000 10,000 10,000
---------- ---------- ---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . 35,000 35,000 35,000 35,000
LIABILITIES:
Payable to Manager (Note). . . . . . . . . . . . 10,000 10,000 10,000 10,000
---------- ---------- ---------- ----------
NET ASSETS . . . . . . . . . . . . . . . . . . . $ 25,000 $ 25,000 $ 25,000 $ 25,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET ASSETS CONSIST OF:
Shares of beneficial interest. . . . . . . . . . $ 25 $ 25 $ 25 $ 25
Additional paid-in capital . . . . . . . . . . . 24,975 24,975 24,975 24,975
---------- ---------- ---------- ----------
NET ASSETS . . . . . . . . . . . . . . . . . . . $ 25,000 $ 25,000 $ 25,000 $ 25,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net asset value, offering and redemption price
per share ($25,000 divided by 2,500 shares of
$.01 par value shares of beneficial interest
outstanding, respectively). . . . . . . . . . $10.00 $10.00 $10.00 $10.00
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
NOTE:
The Russell Insurance Funds (the "Investment Company") is an open-end Investment
Company established as a "Massachusetts Business Trust" under a Declaration of
Trust dated July 11, 1996 and is registered under the Investment Company Act of
1940, as amended. The Multi-Style Equity Fund, Aggressive Equity Fund, Non-
U.S. Fund, and Core Bond Fund (the "Funds") are new series of the Russell
Insurance Funds. The Funds' authorized capital consists of an unlimited number
of shares of beneficial interest at a $.01 par value.
The deferred organization costs are estimated by the Funds in connection with
their organization. The Funds are expected to reimburse Frank Russell
Investment Management Company (the "Manager"), for the payment of these costs
made in advance by the Manager. The costs have been deferred and will be
amortized on a straight-line basis over a five-year period beginning at the
commencement of operations of the Funds. In the event that any of the initial
shares of the Funds are redeemed during the amortization period, the redemption
proceeds will be reduced by any unamortized organizational expenses in the same
proportion as the number of initial shares being redeemed bears to the number
of initial shares outstanding at the time of such redemption. Offering costs,
including all initial registration costs, will be charged to expense during each
Fund's first twelve months of operation.
The cash is in a non-interest bearing account at the Funds' custodian bank and
will be held until the Funds become operational.
<PAGE>
Exhibit 99.1
RUSSELL INSURANCE FUNDS
MASTER TRUST AGREEMENT
July 11, 1996
<PAGE>
RUSSELL INSURANCE FUNDS
MASTER TRUST AGREEMENT
Page
-----
ARTICLE I. NAME AND DEFINITIONS 6
Section 1.1 Name 6
Section 1.2 Definitions 7
(a) "Trust" 7
(b) "Trustees" 7
(c) "Shares" 7
(d) "Sub-Trust" or "Series" 7
(e) "Shareholder" 7
(f) "1940 Act" 7
(g) "Commission" 7
(h) "Declaration of Trust" 7
(i) "By-Laws" 7
(j) "Classes" 7
ARTICLE II. PURPOSE OF TRUST 8
ARTICLE III. THE TRUSTEES 8
Section 3.1 Number, Designation, Election, Term, etc. 8
(a) Initial Trustees 8
(b) Number 8
(c) Election and Term 8
(d) Resignation and Retirement 9
(e) Removal 9
(f) Vacancies 9
(g) Effect of Death, Resignation, etc. 10
(h) No Accounting 10
Section 3.2 Powers of Trustees 10
(a) Investments 11
(b) Disposition of Assets 11
(c) Ownership Powers 11
(d) Subscription 11
(e) Form of Holding 12
(f) Reorganization, etc. 12
(g) Voting Trusts, etc. 12
(h) Compromise 12
<PAGE>
(i) Partnerships, etc. 12
(j) Borrowing and Security 12
(k) Guarantees, etc. 12
(l) Insurance 13
(m) Pensions, etc. 13
Section 3.3 Certain Contracts 14
(a) Advisory and Sub-Advisory 14
(b) Administration 14
(c) Distribution 14
(d) Custodian and Depository 15
(e) Transfer and Dividend Disbursing
Agency 15
(f) Shareholder Servicing 15
(g) Accounting 15
Section 3.4 Payment of Trust Expenses and Compensation
of Trustees 16
Section 3.5 Ownership of Assets of the Trust 17
ARTICLE IV. SHARES 17
Section 4.1 Description of Shares 17
Section 4.2 Establishment and Designation of Sub-Trusts 19
(a) Assets Belonging to Sub-Trusts 19
(b) Liabilities Belonging to Sub-Trusts 20
(c) Dividends 20
(d) Liquidation 21
(e) Voting 21
(f) Redemption by Shareholder 22
(g) Redemption by Trust 22
(h) Net Asset Value 23
(i) Transfer 24
(j) Equality 25
(k) Fractions 25
(l) Conversion Rights 26
Section 4.3 Ownership of Shares 26
Section 4.4 Investments in the Trust 26
Section 4.5 No Pre-emptive Rights 27
<PAGE>
Section 4.6 Status of Shares and Limitation of
Personal Liability 27
ARTICLE V. SHAREHOLDERS' VOTING POWERS AND MEETINGS 27
Section 5.1 Voting Powers 27
Section 5.2 Meetings 28
Section 5.3 Record Dates 29
Section 5.4 Quorum and Required Vote 29
Section 5.5 Action by Written Consent 30
Section 5.6 Inspection of Records 30
Section 5.7 Additional Provisions 30
Section 5.8 Shareholder Communications 30
ARTICLE VI. LIMITATION OF LIABILITY; INDEMNIFICATION 31
Section 6.1 Trustees, Shareholders, etc. Not Personally
Liable; Notice 31
Section 6.2 Trustees' Good Faith Action; Expert
Advice; No Bond or Surety 32
Section 6.3 Indemnification of Shareholders 32
Section 6.4 Indemnification of Trustees, Officers, etc. 33
Section 6.5 Compromise Payment 34
Section 6.6 Indemnification Not Exclusive, etc. 34
Section 6.7 Liability of Third Persons Dealing With
Trustees 35
ARTICLE VII. MISCELLANEOUS 35
Section 7.1 Duration and Termination of Trust 35
Section 7.2 Reorganization 35
<PAGE>
Section 7.3 Amendments 36
Section 7.4 Filing of Copies; References; Headings 37
Section 7.5 Applicable Law 38
<PAGE>
RUSSELL INSURANCE FUNDS
MASTER TRUST AGREEMENT
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts this 11th
day of July, 1996, by the Trustees hereunder, and by the holders of shares of
beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH
WHEREAS this Trust has been formed to carry on the business of an
investment company; and
WHEREAS this Trust is authorized to issue its shares of beneficial interest
in separate series, each separate series to be a Sub-Trust hereunder, all in
accordance with the provisions hereinafter set forth; and
WHEREAS the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the benefit of the holders from time to time
of shares of beneficial interest in this Trust or Sub-Trusts created hereunder
as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 NAME. This Trust shall be known as "RUSSELL INSURANCE FUNDS"
and the Trustees shall conduct the business of the Trust under that name or any
other name or names as they may from time to time determine. Notwithstanding
the foregoing, the Trust expressly acknowledges and agrees that if Frank Russell
Company, a corporation organized and existing under the laws of the State of
Washington, or any of its corporate affiliates, no longer serves as investment
adviser or manager to the Trust, the Trust will immediately take all action
necessary to change its name to delete any reference to "Frank Russell."
Section 1.2 DEFINITIONS. Whenever used herein, unless otherwise required
by the context or specifically provided:
<PAGE>
(a) The "TRUST" refers to the Massachusetts business trust
established by this Agreement and Declaration of Trust, as amended from time to
time, inclusive of each and every Sub-Trust established hereunder;
(b) "TRUSTEES" refers to the Trustees of the Trust and of each Sub-
Trust hereunder named herein or elected in accordance with Article III;
(c) "SHARES" refers to the transferable units of interest into which
the beneficial interest in the Trust and each Sub-Trust of the Trust (as the
context may require) shall be divided from time to time;
(d) "SERIES" or "SUB-TRUST" refers to Series of Shares established
and designated under or in accordance with the provisions of Article IV, each of
which Series shall be a Sub-Trust of the Trust;
(e) "SHAREHOLDER" means a record owner of Shares;
(f) The "1940 ACT" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder or exemptions therefrom, all as adopted and
amended from time to time;
(g) The term "COMMISSION" shall have the meaning given it in the 1940
Act;
(h) "DECLARATION OF TRUST" shall mean this Agreement and Declaration
of Trust as amended or restated from time to time;
(i) "BY-LAWS" shall mean the By-Laws of the Trust, as amended or
restated from time to time; and
(j) "CLASSES" shall mean a sub-division of the Trust, established by
this Agreement or by action of the Trustees, consisting of a portion of the
Shares of a Series or Sub-Trust, provided, that all Shares of a Sub-Trust shall
have a proportionate undivided interest in the assets of such Sub-Trust as
determined in accordance with the rights and preferences established as to each
such Class.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to operate as an investment company and to
offer Shareholders of the Trust and each Sub-Trust of the Trust one or more
investment vehicles investing primarily in equity securities and/or debt
instruments.
<PAGE>
ARTICLE III
THE TRUSTEES
Section 3.1 NUMBER, DESIGNATION, ELECTION, TERM, ETC.
(a) INITIAL TRUSTEES. Upon their execution of this Declaration of
Trust or a counterpart hereof or some other writing in which they accept such
Trusteeship and agree to the provisions hereof, Karl J. Ege and George W. Weber
shall become Trustees hereof and of each Sub-Trust hereunder.
(b) NUMBER. The Trustees serving as such, whether named above or
hereafter becoming a Trustee, may increase or decrease the number of Trustees to
a number other than the number theretofore determined. No decrease in the
number of Trustees shall have the effect of removing any Trustee from office
prior to the expiration of such Trustee's term, but the number of Trustees may
be decreased in conjunction with the removal of a Trustee pursuant to subsection
(e) of this Section 3.1.
(c) ELECTION AND TERM. The Trustees named above may elected
additional Trustees of the Trust prior to the public offering of Shares of the
Trust. Each Trustee, whether named above or hereafter becoming a Trustee, shall
serve as a Trustee of the Trust and of each Sub-Trust hereunder during the
lifetime of this Trust and until its termination as hereinafter provided except
as such Trustee sooner dies, resigns or is removed. Subject to Section 16(a) of
the 1940 Act, the Trustees may elect their own successors, designate new and
additional Trustees, and may, pursuant to Section 3.1(f) hereof, appoint
Trustees to fill vacancies.
(d) RESIGNATION AND RETIREMENT. Any Trustee may resign such
Trustee's trust or retire as a Trustee, by written instrument signed by the
Trustee and delivered to the other Trustees or to any officer of the Trust, and
such resignation or retirement shall take effect upon such delivery or upon such
later date as is specified in such instrument and shall be effective as to the
Trust and each Sub-Trust hereunder.
(e) REMOVAL. Any Trustee may be removed with or without cause at any
time: (i) by written instrument, signed by at least two-thirds of the number of
Trustees prior to such removal, specifying the date upon which such removal
shall become effective; or (ii) by vote of Shareholders holding not less than
two-thirds of the Shares then outstanding, cast in person or by proxy at any
meeting called for the purpose, specifying the date upon which such removal
shall become effective; or (iii) by a written declaration signed by Shareholders
holding not less than two-thirds of the Shares then outstanding, and such
declaration shall become effective when filed with the Trust's custodian bank
(or, in the absence of a custodian bank, with the Secretary of the Trust). Any
such removal shall be effective as to the Trust and each Sub-Trust hereunder.
(f) VACANCIES. Any vacancy or anticipated vacancy resulting from any
reason, including without limitation the death, resignation, retirement, removal
or
<PAGE>
incapacity of any of the Trustees, or resulting from an increase in the number
of Trustees by the other Trustees, may (but need not, unless required by the
1940 Act) be filled by a majority of the remaining Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, through the appointment in writing
of such other person, as such remaining Trustees, in their discretion, shall
determine, and such appointment shall be effective upon the written acceptance
of the person named therein to serve as a Trustee and agreement by such person
to be bound by the provisions of this Declaration of Trust, except that any such
appointment in anticipation of a vacancy to occur by reason of retirement,
resignation, or increase in number of Trustees to be effective at a later date
shall become effective only at or after the effective date of said retirement,
resignation, or increase in number of Trustees. As soon as any Trustee so
appointed shall have accepted such appointment and shall have agreed in writing
to be bound by this Declaration of Trust and the appointment is effective, the
Trust estate shall vest in the new Trustee, together with the continuing
Trustees, without any further act or conveyance.
(g) EFFECT OF DEATH, RESIGNATION, ETC. The death, resignation,
retirement, removal, or incapacity of the Trustees, or any one of them, shall
not operate to annul or terminate the Trust or any Sub-Trust hereunder or to
revoke or terminate any existing agency or contract created or entered into
pursuant to the terms of this Declaration of Trust.
(h) NO ACCOUNTING. Except to the extent required by the 1940 Act or
under circumstances which would justify the Trustee's removal for cause, no
person ceasing to be a Trustee as a result of the Trustee's death, resignation,
retirement, removal or incapacity (nor the estate of any such person) shall be
required to make an accounting to the Shareholders or remaining Trustees upon
such cessation.
Section 3.2 POWERS OF TRUSTEES. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purpose of the Trust. Without limiting the
foregoing, the Trustees may adopt By-Laws not inconsistent with this Declaration
of Trust providing for the conduct of the business and affairs of the Trust, and
may amend and repeal them to the extent that such By-Laws do not reserve that
right to the Shareholders; they may from time to time, in accordance with the
provisions of Section 4.1 hereof, establish Sub-Trusts, each such Sub-Trust to
operate as a separate and distinct investment medium and with separately defined
investment objectives and policies and distinct investment purpose; they may, as
they consider appropriate, elect and remove officers and appoint and terminate
agents and consultants and hire and terminate employees, any one or more of the
foregoing of whom may be a Trustee, and may provide for the compensation of all
of the foregoing; they may appoint from their own number, and terminate, any one
or more committees consisting of two or more Trustees, including without implied
limitation an executive committee, which may, when the Trustees are not in
session and subject to the 1940 Act, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; in accordance with
Section 3.3, they may employ one or more advisers, administrators, depositories
and custodians and may authorize any depository or custodian to employ
subcustodians or
<PAGE>
agents and to deposit all or any part of such assets in a system or systems for
the central handling of securities and debt instruments, retain transfer,
dividend, accounting or shareholder servicing agents or any of the foregoing,
provide for the distribution of Shares by the Trust through one or more
distributors, principal underwriters or otherwise, set record dates or times for
the determination of Shareholders or various of them with respect to various
matters; they may compensate or provide for the compensation of the Trustees,
officers, advisers, administrators, custodians, other agents, consultants and
employees of the Trust or the Trustees on such terms as they deem appropriate;
and, in general, they may delegate to any officer of the Trust, to any committee
of the Trustees and to any employee, adviser, administrator, distributor,
depository, custodian, transfer and dividend disbursing agent, or any other
agent or consultant of the Trust, such authority, powers, functions and duties
as they consider desirable or appropriate for the conduct of the business and
affairs of the Trust, including without implied limitation, the power and
authority to act in the name of the Trust and of the Trustees, to sign documents
and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with the
1940 Act or other applicable law, the Trustees shall have power and authority
for and on behalf of the Trust and each separate Sub-Trust established
hereunder:
(a) INVESTMENTS. To invest and reinvest cash and other property, and
to hold cash or other property uninvested without in any event being bound or
limited by any present or future law or custom in regard to investments by
trustees;
(b) DISPOSITION OF ASSETS. To sell, exchange, lend, pledge,
mortgage, hypothecate, write options on and lease any or all of the assets of
the Trust;
(c) OWNERSHIP POWERS. To vote or give assent, or exercise any rights
of ownership, with respect to stock or other securities, debt instruments or
property; and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities, debt instruments
or property as the Trustees shall deem proper;
(d) SUBSCRIPTION. To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities or debt
instruments;
(e) FORM OF HOLDING. To hold any security, debt instrument or
property in a form not indicating any trust, whether in bearer, unregistered or
other negotiable form, or in the name of the Trustees or of the Trust or of any
Sub-Trust or in the name of a custodian, subcustodian or other depositary or a
nominee or nominees or otherwise;
(f) REORGANIZATION, ETC. To consent to or participate in any plan
for the reorganization, consolidation or merger of any corporation or issuer,
any security or debt instrument of which is or was held in the Trust; to consent
to any contract, lease,
<PAGE>
mortgage, purchase or sale of property by such corporation or issuer, and to pay
calls or subscriptions with respect to any security or debt instrument held in
the Trust;
(g) VOTING TRUSTS, ETC. To join with other holders of any securities
or debt instruments in acting through a committee, depositary, voting trustee or
otherwise, and in that connection to deposit any security or debt instrument
with, or transfer any security or debt instrument to, any such committee,
depositary or trustee, and to delegate to them such power and authority with
relation to any security or debt instrument (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to pay,
such portion of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(h) COMPROMISE. To compromise, arbitrate or otherwise adjust claims
in favor of or against the Trust or any Sub-Trust on any matter in controversy,
including but not limited to claims for taxes;
(i) PARTNERSHIPS, ETC. To enter into joint ventures, general or
limited partnerships and any other combinations or associations;
(j) BORROWING AND SECURITY. To borrow funds and to mortgage and
pledge the assets of the Trust or any Sub-Trust or any part thereof to secure
obligations arising in connection with such borrowing;
(k) GUARANTEES, ETC. To endorse or guarantee the payment of any
notes or other obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and to mortgage
and pledge the Trust property (or Sub-Trust property) or any part thereof to
secure any of or all such obligations;
(l) INSURANCE. To purchase and pay for entirely out of Trust
property such insurance as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and principal on
its portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, consultants, investment advisers,
managers, administrators, distributors, principal underwriters, or independent
contractors, or any thereof (or any person connected therewith), of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such person in
any such capacity, including any action taken or omitted that may be determined
to constitute negligence, whether or not the Trust would have the power to
indemnify such person against such liability; and
(m) PENSIONS, ETC. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trust and provisions, including the
purchasing of life insurance and annuity contracts
<PAGE>
as a means of providing such retirement and other benefits, for any or all of
the Trustees, officers, employees and agents of the Trust.
Except as otherwise provided by the 1940 Act or other applicable law,
this Declaration of Trust or the By-Laws, any action to be taken by the Trustees
on behalf of the Trust or any Sub-Trust may be taken by a majority of the
Trustees present at a meeting of Trustees (a quorum, consisting of at least a
majority of the Trustees then in office, being present), within or without
Massachusetts, including any meeting held by means of a conference telephone or
other communications equipment by means of which all persons participating in
the meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting, or by written consents of a
majority of the Trustees then in office (or such larger or different number as
may be required by the 1940 Act or other applicable law).
Section 3.3 CERTAIN CONTRACTS. Subject to compliance with the provisions
of the 1940 Act, but notwithstanding any limitations of present and future law
or custom in regard to delegation of powers by trustees generally, the Trustees
may, at any time and from time to time and without limiting the generality of
their powers and authority otherwise set forth herein, enter into one or more
contracts with any one or more corporations, trusts, associations, partnerships,
limited partnerships, other types of organization, or individuals ("Contracting
Party"), to provide for the performance and assumption of some or all of the
following services, duties and responsibilities to, for or on behalf of the
Trust and/or any Sub-Trust, and/or the Trustees, and to provide for the
performance and assumption of such other services, duties and responsibilities
in addition to those set forth below as the Trustees may determine appropriate,
and to authorize such Contracting Party to employ or retain any one or more
corporations, trusts, associations, partnerships, limited partnerships, other
types of organization, or individuals to provide to the Trust or to the
Contracting Party such services:
(a) ADVISORY AND SUB-ADVISORY. Subject to the general supervision of
the Trustees and in conformity with the stated policy of the Trustees with
respect to the investments of the Trust or of the assets belonging to any Sub-
Trust of the Trust (as that phrase is defined in subsection (a) of Section 4.2),
to appoint an adviser and sub-advisers to manage such investments and assets,
make investment decisions with respect thereto, and to place purchase and sale
orders for portfolio transactions relating to such investments and assets;
(b) ADMINISTRATION. Subject to the general supervision of the
Trustees and in conformity with any policies of the Trustees with respect to the
operations of the Trust and each Sub-Trust, to supervise all or any part of the
operations of the Trust and each Sub-Trust, and to provide all or any part of
the administrative and clerical personnel, office space and office equipment and
services appropriate for the efficient administration and operations of the
Trust and each Sub-Trust;
(c) DISTRIBUTION. To distribute the Shares of the Trust and each
Sub-Trust, to be principal underwriter of such Shares, and/or to act as agent of
the Trust and
<PAGE>
each Sub-Trust in the sale of Shares and the acceptance or rejection of orders
for the purchase of Shares;
(d) CUSTODIAN AND DEPOSITORY. To act as depository for and to
maintain custody of the property of the Trust and each Sub-Trust and accounting
records in connection therewith;
(e) TRANSFER AND DIVIDEND DISBURSING AGENCY. To maintain records of
the ownership of outstanding Shares, the issuance and redemption and the
transfer thereof, and to disburse any dividends declared by the Trustees and in
accordance with the policies of the Trustees and/or the instructions of any
particular Shareholder to reinvest any such dividends;
(f) SHAREHOLDER SERVICING. To provide service with respect to the
relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares, and similar matters; and
(g) ACCOUNTING. To handle all or any part of the accounting
responsibilities, whether with respect to the Trust's properties, Shareholders
or otherwise.
The same person may be the Contracting Party for some or all of the services,
duties and responsibilities to, for and of the Trust and/or the Trustees, and
the contracts with respect thereto may contain such terms interpretive of or in
addition to the delineation of the services, duties and responsibilities
provided for, including provisions that are not inconsistent with the 1940 Act
relating to the standard of duty of and the rights to indemnification of the
Contracting Party and others, as the Trustees may determine. Nothing herein
shall preclude, prevent or limit the Trust or a Contracting Party from entering
into sub-contractual arrangements relative to any of the matters referred to in
Sections 3.3(a) through (g) hereof.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
Contracting Party, or of or for any parent or affiliate of any Contracting
Party or that the Contracting Party or any parent or affiliate thereof is a
Shareholder or has an interest in the Trust or any Sub-Trust, or that
(ii) any Contracting Party may have a contract providing for the
rendering of any similar services to one or more other corporations,
trusts, associations, partnerships, limited partnerships or other
organizations, or have other business or interests,
shall not affect the validity of any contract for the performance and assumption
of services, duties and responsibilities to, for or of the Trust or any Sub-
Trust and/or the Trustees or
<PAGE>
disqualify any Shareholder, Trustee or officer of the Trust from voting upon or
executing the same or create any liability or accountability to the Trust, any
Sub-Trust or its Shareholders, provided that in the case of any relationship or
interest referred to in the preceding clause (i) on the part of any Trustee or
officer of the Trust either (x) the material facts as to such relationship or
interest have been disclosed to or are known by the Trustees not having any such
relationship or interest and the contract involved is approved in good faith by
a majority of such Trustees not having any such relationship or interest (even
though such unrelated or disinterested Trustees are less than a quorum of all of
the Trustees), (y) the material facts as to such relationship or interest and as
to the contract have been disclosed to or are known by the Shareholders entitled
to vote thereon and the contract involved is specifically approved in good faith
by vote of the Shareholders, or (z) the specific contract involved is fair to
the Trust as of the time it is authorized, approved or ratified by the Trustees
or by the Shareholders.
Section 3.4 PAYMENT OF TRUST EXPENSES AND COMPENSATION OF TRUSTEES. The
Trustees are authorized to pay or to cause to be paid out of the principal or
income of the Trust or any Sub-Trust, or partly out of principal and partly out
of income, and to charge or allocate the same to, between or among such one or
more of the Sub-Trusts that may be established and designated pursuant to
Article IV, as the Trustees deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust or any Sub-Trust,
or in connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, investment adviser, administrator, distributor,
principal underwriter, auditor, counsel, depository, custodian, transfer agent,
dividend disbursing agent, accounting agent, shareholder servicing agent, and
such other agents, consultants, and independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper to incur.
Without limiting the generality of any other provision hereof, the Trustees
shall be entitled to reasonable compensation from the Trust for their services
as Trustees and may fix the amount of such compensation.
Section 3.5 OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trustees.
ARTICLE IV
SHARES
Section 4.1 DESCRIPTION OF SHARES. The beneficial interest in the Trust
shall be divided into Shares, all at $.01 par value and of one class, but the
Trustee shall have the authority from time to time to divide the class of
Shares into two or more Series of Shares (each of which Series of Shares
shall be a separate and distinct Sub-Trust of the Trust, including without
limitation those Sub-Trusts specifically established and designated in
Section 4.2), as they deem necessary or desirable. Each Sub-Trust
established hereunder shall be deemed to be a separate trust under
Massachusetts General Laws Chapter 182. The Trustees shall have exclusive
power without the requirement of shareholder approval
<PAGE>
to establish and designate such separate and distinct Sub-Trusts, and to fix and
determine the relative rights and preferences as between the shares of the
separate Sub-Trusts as to right of redemption and the price, terms and manner of
redemption, special and relative rights as to dividends and other distributions
and on liquidation, sinking or purchase fund provisions, conversion rights, and
conditions under which the several Sub-Trusts shall have separate voting rights
or no voting rights.
The number of authorized Shares and the number of Shares of each Sub-
Trust that may be issued is unlimited, and the Trustees may issue Shares of any
Sub-Trust for such consideration and on such terms as they may determine (or for
no consideration if pursuant to a Share dividend or split-up), all without
action or approval of the Shareholders. All Shares when so issued on the terms
determined by the Trustees shall be fully paid and nonassessable (but may be
subject to mandatory contribution back to the Trust as provided in subsection
(h) of Section 4.2). The Trustees may classify or reclassify any unissued Shares
or any Shares previously issued and reacquired of any Sub-Trust into one or more
Sub-Trusts that may be established and designated from time to time. The
Trustees may hold as treasury Shares, reissue for such consideration and on such
terms as they may determine, or cancel, at their discretion from time to time,
any Shares of any Sub-Trust reacquired by the Trust.
In addition, the Trustees shall have the exclusive power, with or
without Shareholder approval, to establish and designate, and to issue by
Classes, Shares of any Sub-Trust or to divide the Shares of any Sub-Trust into
Classes, each Class having such different dividend, liquidation, voting, and
other rights as the Trustees may determine in their sole discretion. The fact
that Shares of a Sub-Trust shall have been issued without the designation of any
Classes of such Sub-Trust, or of any specific Class of such Sub-Trust, shall not
limit the authority of the Trustees to establish and designate such Shares as a
Class, or to establish and designate one or more Classes or additional Classes,
without the approval of Shareholders of such Sub-Trust, provided that the
establishment and designation of any Class of a Sub-Trust shall not materially
adversely affect the rights of any existing Shareholder. In furtherance
thereof, any Shares designated and issued by a Sub-Trust will be designated as
Shares of a particular Class of the Sub-Trust.
The Trustees may from time to time close the transfer books or
establish record dates and times for the purposes of determining the holders of
Shares entitled to be treated as such, to the extent provided or referred to in
Section 5.3.
The establishment and designation of any Sub-Trust or Class in
addition to those established and designated in Section 4.2 shall be effective
upon the execution by a majority of the then Trustees of an instrument setting
forth such establishment and designation and the relative rights and preferences
of the Shares of such Sub-Trust or Class, or as otherwise provided in such
instrument. At any time that there are no Shares outstanding of any particular
Sub-Trust or Class previously established and designated, the Trustees may, by
an instrument executed by a majority of their number, abolish that Sub-Trust or
Class and the establishment and designation thereof. Each instrument referred
to in this paragraph shall have the status of an amendment to this Declaration
of Trust.
<PAGE>
Any Trustee, officer or other agent of the Trust, and any organization
in which any such person is interested, may acquire, own, hold and dispose of
Shares of any Sub-Trust of the Trust to the same extent as if such person were
not a Trustee, officer or other agent of the Trust; and the Trust may issue and
sell or cause to be issued and sold and may purchase Shares of any Sub-Trust
from any such person or any such organization subject only to the general
limitations, restrictions or other provisions applicable to the sale or purchase
of Shares of such Sub-Trust generally.
Section 4.2 ESTABLISHMENT AND DESIGNATION OF SUB-TRUSTS. Without limiting
the authority of the Trustees set forth in Section 4.1 to establish and
designate any further Sub-Trusts, the Trustees hereby establish and designate
five Sub-Trusts: the "Multi-Style Equity Fund," the "Aggressive Equity Fund,"
the "Non-U.S. Fund," the "Core Bond Fund," and the "Money Market Liquidity
Fund." The Multi-Style Equity Fund Shares, the Aggressive Equity Fund Shares,
the Non-U.S. Fund Shares, the Core Bond Fund Shares, and the Money Market
Liquidity Fund Shares, and any Shares of any further Sub-Trusts that may from
time to time be established and designated by the Trustees shall (unless the
Trustees otherwise determine with respect to some further Sub-Trust at the time
of establishing and designating the same) have the following relative rights and
preferences, and the power of the Trustees to establish relative rights and
preferences of Sub-Trusts pursuant to this Section 4.2 shall not detract from or
limit the power of the Trustees under Section 4.1 to determine and set the
relative rights and preferences of any Class thereof:
(a) ASSETS BELONGING TO SUB-TRUSTS. All consideration received by
the Trust for the issue or sale of Shares of a particular Sub-Trust, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be,
shall be held by the Trustees in trust for the benefit of the holders of Shares
of that Sub-Trust and shall irrevocably belong to that Sub-Trust for all
purposes, and shall be so recorded upon the books of account of the Trust. Such
consideration, assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items (as
hereinafter defined) allocated to that Sub-Trust as provided in the following
sentence, are herein referred to as "assets belonging to" that Sub-Trust. In
the event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Sub-Trust (collectively "General Items"), the Trustees shall
allocate such General Items to and among any one or more of the Sub-Trusts
established and designated from time to time in such manner and on such basis as
they, in their sole discretion, deem fair and equitable; and any General Items
so allocated to a particular Sub-Trust shall belong to that Sub-Trust. Each
such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Sub-Trusts for all purposes.
<PAGE>
(b) LIABILITIES BELONGING TO SUB-TRUSTS. The assets belonging to
each particular Sub-Trust shall be charged with the liabilities in respect of
that Sub-Trust and all expenses, costs, charges and reserves attributable to
that Sub-Trust, and any general liabilities, expenses, costs, charges or
reserves of the Trust which are not readily identifiable as belonging to any
particular Sub-Trust shall be allocated and charged by the Trustees to and among
any one or more of the Sub-Trusts established and designated from time to time
in such manner and on such basis as the Trustees in their sole discretion deem
fair and equitable. The liabilities, expenses, costs, charges and reserves
allocated and so charged to a Sub-Trust are herein referred to as "liabilities
belonging to" that Sub-Trust. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and binding upon the
Shareholders of all Sub-Trusts for all purposes. Any creditor of any Sub-Trust
may look only to the assets of that Sub-Trust to satisfy such creditor's debt.
The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items shall be treated as
income and which items as capital; and each such determination and allocation
shall be conclusive and binding upon the Shareholders.
(c) DIVIDENDS. Dividends and distributions on Shares of a particular
Sub-Trust or Class thereof may be paid with such frequency as the Trustees may
determine, which may be daily or otherwise pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of Shares of that Sub-Trust or Class thereof, from
such of the income and capital gains, accrued or realized, from the assets
belonging to that Sub-Trust, as the Trustees may determine, after providing for
actual and accrued liabilities belonging to that Sub-Trust. All dividends and
distributions on Shares of a particular Sub-Trust shall be distributed pro rata
to the holders of Shares of Series or Classes of that Sub-Trust designated by
the Trustees in proportion to the number of Shares of that Sub-Trust held by
such holders at the date and time of record established for the payment of such
dividends or distributions, except that in connection with any dividend or
distribution program or procedure, the Trustees may determine that no dividend
or distribution shall be payable on Shares as to which the Shareholder's
purchase order and/or payment have not been received by the time or times
established by the Trustees under such program or procedure. Such dividends and
distributions may be made in cash or Shares of that Sub-Trust or a combination
thereof as determined by the Trustees or pursuant to any program that the
Trustees may have in effect at the time for the election by each Shareholder of
the mode of the making of such dividend or distribution to that Shareholder.
Any such dividend or distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with subsection (h) of Section 4.2.
(d) LIQUIDATION. In the event of the liquidation or dissolution of
the Trust or any Sub-Trust, the Shareholders of each Sub-Trust that has been
established and designated and that has voted to be liquidated or dissolved,
shall be entitled to receive, when and as declared by the Trustees, the excess
of the assets belonging to that Sub-Trust over the liabilities belonging to that
Sub-Trust. The assets so distributable to the
<PAGE>
Shareholders of any particular Sub-Trust shall be distributed among such
Shareholders in proportion to the number of Shares of that Sub-Trust held by
them and recorded on the books of the Trust, adjusted for such distinctions
between Shares of Classes of a Sub-Trust as the Trustees, in their discretion,
deem just and equitable. The liquidation of any particular Sub-Trust may be
authorized by vote of a majority of the Trustees then in office subject to the
approval of a majority of the outstanding voting Shares of that Sub-Trust, as
defined in the 1940 Act.
(e) VOTING. On each matter submitted to a vote of the Shareholders,
each holder of a Share of each Sub-Trust shall be entitled to one vote for each
whole Share and to a proportionate fractional vote for each fractional Share
standing in his name on the books of the Trust and all Shares of each Sub-Trust
entitled to vote shall vote as a separate class except as otherwise required by
the 1940 Act. As to any matter which does not affect the interest of a
particular Sub-Trust, only the holders of Shares of the one or more affected
Sub-Trusts shall be entitled to vote thereon.
(f) REDEMPTION BY SHAREHOLDER. Each holder of Shares of a particular
Sub-Trust shall have the right at such times as may be permitted by the Trust,
but no less frequently than once each week, to require the Trust to redeem all
or any part of such holder's Shares of that Sub-Trust at a redemption price
equal to the net asset value per Share of that Sub-Trust next determined in
accordance with subsection (h) of this Section 4.2 after the Shares are properly
tendered for redemption. Payment of the redemption price shall be in cash;
provided, however, that if the Trustees determine, which determination shall be
conclusive, that conditions exist which make payment wholly in cash unwise or
undesirable, the Trust may, subject to the requirements of the 1940 Act, make
payment wholly or partly in securities or other assets belonging to the Sub-
Trust of which the Shares being redeemed are part at the value of such
securities or assets used in such determination of net asset value.
Notwithstanding the foregoing, the Trust: (i) shall redeem Shares at
such times as may be required to comply with the requirements of the 1940 Act
and applicable rules and regulations thereunder, and (ii) may postpone payment
of the redemption price and may suspend the right of the holders of Shares of
any Sub-Trust to require the Trust to redeem Shares of that Sub-Trust during any
period or at any time when and to the extent permissible under the 1940 Act.
(g) REDEMPTION BY TRUST. Each Share of each Sub-Trust that has been
established and designated is subject to redemption by the Trust at the
redemption price which would be applicable if such Share was then being redeemed
by the Shareholder pursuant to subsection (f) of this Section 4.2: (a) at any
time, if the Trustees determine in their sole discretion that failure to so
redeem may have materially adverse consequences to the holders of the Shares of
the Trust or any Sub-Trust thereof, (b) upon such other conditions as may from
time to time be determined by the Trustees, including without limitation in
furtherance of subsection (i) of this Section 4.2, and set forth in the then
current Prospectus of the Trust with respect to maintenance of Shareholder
accounts of a minimum amount, (c) as may be required to satisfy a requirement in
an Order under the
<PAGE>
1940 Act permitting "Mixed and Shared Funding" by the Trust, or (d) at any time
from any Shareholder who does not have an effective contractual relationship, to
be referred to and known initially as an Asset Management Services Agreement
(each an "Asset Management Agreement"), with Frank Russell Company, a
corporation organized and existing under the laws of the State of Washington, or
any of its corporate affiliates or any successors in interest thereto whether by
merger, consolidation or otherwise, which serves as the Trust's principal
investment adviser and provides management and administrative services to the
Trust. Upon such redemption the holders of the Shares so redeemed shall have no
further right with respect thereto other than to receive payment of such
redemption price.
Upon the mailing of a written notice to the holder of Shares at its
address as shown on the Trust's books and records which notice shall set forth
the Trust's intention to do so, after five days from the date of the mailing of
the notice, the Trust shall then have the right, without taking any further
action to redeem the Shares of any holder who does not have a then currently
effective Asset Management Agreement, or comparable contractual arrangement,
with Frank Russell Company or any of its corporate affiliates or any successors
in interest thereto including any person or company which serves as the
principal adviser to and provides management and administrative services to the
Trust.
(h) NET ASSET VALUE. The net asset value per Share of any
Sub-Trust, or any Class of Shares of a Sub-Trust, shall be the quotient
obtained by dividing the value of the net assets of that Sub-Trust (being the
value of the assets belonging to that Sub-Trust less the liabilities
belonging to that Sub-Trust), or a Class thereof, by the total number of
Shares of that Sub-Trust ( or such Class) outstanding, all determined in
accordance with the methods and procedures, including without limitation
those with respect to rounding, established by the Trustees from time to time.
The Trustees may determine to maintain the net asset value per Share
of any Sub-Trust at a designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the 1940 Act for the
continuing declarations of income attributable to that Sub-Trust as dividends
payable in additional Shares of that Sub-Trust at the designated constant
dollar amount and for the handling of any losses attributable to that
Sub-Trust. Such procedures may provide that in the event of any loss each
Shareholder shall be deemed to have contributed to the capital of the Trust
attributable to that Sub-Trust the Shareholder's pro rata portion of the
total number of Shares required to be cancelled in order to permit the net
asset value per Share of that Sub-Trust to be maintained, after reflecting
such loss, at the designated constant dollar amount. Each Shareholder of the
Trust shall be deemed to have agreed, by such holder's investment in any
Sub-Trust with respect to which the Trustees shall have adopted any such
procedure, to make the contribution referred to in the preceding sentence in
the event of any such loss.
(i) TRANSFER. Subject to the limitations set forth in Section 4.2(g)
above, and in the following paragraph, all Shares of each particular Sub-Trust
shall be freely transferable, but transfers of Shares of a particular Sub-Trust
will be recorded on
<PAGE>
the Share transfer records of the Trust applicable to that Sub-Trust only at
such times as Shareholders shall have the right to require the Trust to redeem
Shares of that Sub-Trust and at such other times as may be permitted by the
Trustees.
The Trust is hereby granted and shall have a right of first refusal to
purchase any Shares from any Shareholder who does not then have an Asset
Management Agreement with Frank Russell Company and who then wishes to transfer
such Shares to any person, other than the Trust, at a price equal to the then
per Share net asset value on the date such right of first refusal is exercised.
A right of first refusal shall be exercised by the Trust by mailing written
notice to the holder of Shares at its address as shown in the Trust's books and
records and shall become effective on the fifth day following the mailing of
such notice.
Notwithstanding the foregoing, the Trust reserves the right, to the
maximum extent permitted by the Massachusetts General Laws and the 1940 Act, to
prohibit or restrict the transfer of its Shares from the person or company, as
those terms are defined in the 1940 Act, to whom the Shares were issued to any
other person or company; to prohibit the continued holding of its Shares by any
person or company which does not have an Asset Management Agreement; and to
prohibit the transfer to or the continued holding of its Shares by any holder if
the acquisition or holding of Shares of the Trust by such person or company
would adversely affect the status of the Trust or any holder of its Shares under
applicable provisions of the Internal Revenue Code. In furtherance of the
foregoing, and not in limitation thereof, so long as Shares of the Trust are
offered pursuant to arrangements with the Trust's principal investment adviser
and provider of management and administrative services, the Trust reserves the
right:
(i) To refuse to register or to transfer Shares to any person or
company other than the person or company to whom such Shares were originally
issued and, in lieu of such registration and transfer, to redeem such Shares at
the then current net asset value at the price and in the manner specified in
subsection (f) of this Section 4.2; and
(ii) Upon the mailing of a written notice to the holder of Shares at
its address as shown on the Trust's books and records which notice shall set
forth the Trust's intention to do so, after five days from the date of the
mailing of the notice, to redeem the Shares of any holder who does not have a
then currently effective Asset Management Agreement, or comparable contractual
arrangement, with Frank Russell Company or any of its corporate affiliates or
any successors in interest thereto including any person or company which serves
as the principal adviser to and provides management and administrative services
to the Trust.
(j) EQUALITY. Subject to the provisions herein relating to the
issuance of Shares of a Sub-Trust in one or more Classes, all Shares of each
particular Sub-Trust shall represent an equal proportionate interest in the
assets belonging to that Sub-Trust (subject to the liabilities belonging to that
Sub-Trust), and each Share of any particular Sub-Trust shall be equal to each
other Share of that Sub-Trust; but the provisions of this
<PAGE>
sentence shall not restrict any distinctions permissible under subsection (c) of
this Section 4.2 that may exist with respect to dividends and distributions on
Shares of the same Sub-Trust. The Trustees may from time to time divide or
combine the Shares of any particular Sub-Trust into a greater or lesser number
of Shares of any particular Sub-Trust into a greater or lesser number of Shares
of that Sub-Trust without thereby changing the proportionate beneficial interest
in the assets belonging to that Sub-Trust or in any way affecting the rights of
Shares of any other Sub-Trust.
(k) FRACTIONS. Any fractional Share of any Sub-Trust, if any such
fractional Share is outstanding, shall carry proportionately all the rights and
obligations of a whole Share of that Sub-Trust, including rights and obligations
with respect to voting, receipt of dividends and distributions, redemption of
Shares, and liquidation of the Trust or any Sub-Trust.
(l) CONVERSION RIGHTS. Subject to compliance with the requirements
of the 1940 Act, the Trustees shall have the authority to provide that holders
of Shares of any Sub-Trust shall have the right to convert said Shares into
Shares of one or more other Sub-Trust in accordance with such requirements and
procedures as may be established by the Trustees.
Section 4.3 OWNERSHIP OF SHARES. The ownership of Shares shall be recorded
on the books of the Trust or of a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Sub-Trust that has
been established and designated. No certificates certifying the ownership of
Shares need be issued except as the Trustees may otherwise determine from time
to time. The Trustees may make such rules as they consider appropriate for the
issuance of Share certificates, the use of facsimile signatures, the transfer of
Shares and similar matters. The record books of the Trust as kept by the Trust
or any transfer or similar agent, as the case may be, shall be conclusive as to
who are the Shareholders and as to the number of Shares of each Sub-Trust held
from time to time by each such Shareholder.
Section 4.4 INVESTMENTS IN THE TRUST. The Trustees may accept investments
in the Trust and each Sub-Trust thereof from such persons and on such terms and
for such consideration, not inconsistent with the provisions of the 1940 Act, as
they from time to time authorize. The Trustees may authorize any distributor,
principal underwriter, custodian, transfer agent or other person to accept
orders for the purchase of Shares that conform to such authorized terms and to
reject any purchase orders for Shares whether or not conforming to such
authorized terms.
To the extent permitted by the 1940 Act and to the extent that the
portfolio management and operations of the Money Market Liquidity Fund are not
adversely affected, each Sub-Trust other than the Money Market Liquidity Fund,
may invest its cash assets in Shares of the Money Market Liquidity Fund to the
extent permitted by the then current Prospectus applicable to such Sub-Trust.
For all Trust purposes, such investments in the Money Market Liquidity Fund by
other Sub-Trusts will be deemed the issuance of Shares by the Money Market
Liquidity Fund to the Sub-Trusts and the withdrawal of such
<PAGE>
investments will be deemed a redemption of Shares of the Money Market
Liquidity Fund. Similarly, each of the other Sub-Trusts will deem such an
investment a purchase or redemption of Shares of the Money Market Liquidity
Fund. Any Sub-Trust investing in the Money Market Liquidity Fund pursuant to
this procedure will participate equally on a pro-rata basis in all income,
capital gains and net assets of the Money Market Liquidity Fund and will have
all rights and obligations of a Shareholder as provided in this Declaration
of Trust, including voting rights hereunder provided, however, that such
Shares of the Money Market Liquidity Fund issued to such other Sub-Trusts
shall be voted by the Trustees in the same proportion as the Shares of the
Money Market Liquidity Fund which are not held by the other Sub-Trusts.
Section 4.5 NO PRE-EMPTIVE RIGHTS. Shareholders shall have no pre-emptive
or other right to subscribe to any additional Shares or other securities issued
by the Trust.
Section 4.6 STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the Trust or any Sub-Trust thereof nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or
agent of the Trust shall have any power to bind personally any Shareholder, nor
except as specifically provided herein to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 5.1 VOTING POWERS. The Shareholders shall have power to vote only
(i) for the election or removal of Trustees as provided in Section 3.1, (ii)
with respect to any contract with a Contracting Party as provided in Section 3.3
as to which Shareholder approval is required by the 1940 Act, (iii) with respect
to any termination or reorganization of the Trust or any Sub-Trust to the extent
and as provided in Sections 7.1 and 7.2, (iv) with respect to any amendment of
this Declaration of Trust to the extent and as provided in Section 7.3, (v) to
the same extent as the stockholders of a Massachusetts business corporation as
to whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or any Sub-Trust thereof or the Shareholders (provided, however, that a
Shareholder of a particular Sub-Trust shall not be entitled to a derivative or
class action on behalf of any
<PAGE>
other Sub-Trust (or Shareholder of any other Sub-Trust) of the Trust) and (vi)
with respect to such additional matters relating to the Trust as may be required
by the 1940 Act, this Declaration of Trust, the By-Laws or any registration of
the Trust with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy.
A proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.
Section 5.2 MEETINGS. No annual or regular meeting of Shareholders is
required. Special meetings of Shareholders may be called by the Trustees from
time to time for the purpose of taking action upon any matter requiring the vote
or authority of the Shareholders as herein provided or upon any other matter
deemed by the Trustees to be necessary or desirable. Written notice of any
meeting of Shareholders shall be given or caused to be given by the Trustees by
mailing or transmitting such notice at least seven days before such meeting,
postage prepaid, stating the time, place and purpose of the meeting, to each
Shareholder at the Shareholder's address as it appears on the records of the
Trust. The Trustees shall promptly call and give notice of a meeting of
Shareholders for the purpose of voting upon removal of any Trustee of the Trust
when requested to do so in writing by Shareholders holding not less than 10% of
the Shares then outstanding. If the Trustees shall fail to call or give notice
of any meeting of Shareholders for a period of 30 days after written application
by Shareholders holding at least 10% of the Shares then outstanding requesting a
meeting be called for any other purpose requiring action by the Shareholders as
provided herein or in the By-Laws, then Shareholders holding at least 10% of the
Shares then outstanding may call and give notice of such meeting, and thereupon
the meeting shall be held in the manner provided for herein in case of call
thereof by the Trustees.
Section 5.3 RECORD DATES. For the purpose of determining the Shareholders
who are entitled to vote or act at any meeting or any adjournment thereof, or
who are entitled to participate in any dividend or distribution, or for the
purpose of any other action, the Trustees may from time to time close the
transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date and time not more
than 60 days prior to the date of any meeting of Shareholders or other action as
the date and time of record for the determination of Shareholders entitled to
vote at such meeting or any adjournment thereof or to be treated as Shareholders
of record for purposes of such other action, and any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof or to be treated as a Shareholder of record
for purposes of such other action, even though such holder has since that date
and time disposed of such Shares, and no Shareholder becoming
<PAGE>
such after that date and time shall be so entitled to vote at such meeting or
any adjournment thereof or to be treated as a Shareholder of record for purposes
of such other action.
Section 5.4 QUORUM AND REQUIRED VOTE. A majority of the Shares entitled to
vote shall be a quorum for the transaction of business at a Shareholders'
meeting, but any lesser number shall be sufficient for adjournments. Any
adjourned session or sessions may be held, within a reasonable time after the
date set for the original meeting without the necessity of further notice. A
majority of the Shares voted, at a meeting of which a quorum is present shall
decide any questions and a plurality shall elect a Trustee, except when a
different vote is required or permitted by any provision of the 1940 Act or
other applicable law or by this Declaration of Trust or the By-Laws.
Section 5.5 ACTION BY WRITTEN CONSENT. Subject to the provisions of the
1940 Act and other applicable law, any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on the matter
(or such larger proportion thereof as shall be required by the 1940 Act or by
any express provision of this Declaration of Trust or the By-Laws) consent to
the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5.6 INSPECTION OF RECORDS. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted stockholders of
a Massachusetts business corporation under the Massachusetts Business
Corporation Law.
Section 5.7 ADDITIONAL PROVISIONS. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
Section 5.8 SHAREHOLDER COMMUNICATIONS. Whenever ten or more Shareholders
of record who have been such for at least six months preceding the date of
application, and who hold in the aggregate either Shares having a net asset
value of at least $25,000 or at least 1% of the outstanding Shares, whichever is
less, shall apply to the Trustees in writing, stating that they wish to
communicate with other Shareholders with a view to obtaining signatures to a
request for a Shareholder meeting and accompanied by a form of communication and
request which they wish to transmit, the Trustees shall within five business
days after receipt of such application either (1) afford to such applicants
access to a list of the names and addresses of all Shareholders as recorded on
the books of the Trust or Sub-Trust, as applicable; or (2) inform such
applicants as to the approximate number of Shareholders of record, and the
approximate cost of mailing to them the proposed communication and form of
request.
If the Trustees elect to follow the course specified in clause (2)
above, the Trustees, upon the written request of such applicants, accompanied by
a tender of the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all Shareholders of
record at their addresses as recorded
<PAGE>
on the books, unless within five business days after such tender the Trustees
shall mail to such applicants and file with the Commission, together with a copy
of the material to be mailed, a written statement signed by at least a majority
of the Trustees to the effect that in their opinion either such material
contains untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion. The Trustees shall
thereafter comply with any order entered by the Commission and the requirements
of the 1940 Act and the Securities Exchange Act of 1934.
ARTICLE VI
LIMITATION OF LIABILITY; INDEMNIFICATION
Section 6.1 TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE.
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Sub-Trust with which such person
dealt for payment under such credit, contract or claim; and neither the
Shareholders of any Sub-Trust nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, nor any other Sub-Trust
shall be personally liable therefor. Every note, bond, contract, instrument,
certificate or undertaking and every other act or thing whatsoever executed or
done by or on behalf of the Trust, any Sub-Trust or the Trustees or any of them
in connection with the Trust shall be conclusively deemed to have been executed
or done only by or for the Trust (or the Sub-Trust) or the Trustees and not
personally. Nothing in this Declaration of Trust shall protect any Trustee or
officer against any liability to the Trust or the Shareholders to which such
Trustee or officer would otherwise be subject by reason of wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee or of such officer.
Every note, bond, contract, instrument, certificate or undertaking
made or issued by the Trustees or by any officers or officer shall give notice
that this Declaration of Trust is on file with the Secretary of The Commonwealth
of Massachusetts and shall recite to the effect that the same was executed or
made by or on behalf of the Trust or by them as Trustees or Trustee or as
officers or officer and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust, or the particular
Sub-Trust in question, as the case may be, but the omission thereof shall not
operate to bind any Trustees or Trustee or officers or officer or Shareholders
or Shareholder individually.
Section 6.2 TRUSTEES' GOOD FAITH ACTION; EXPERT ADVICE; NO BOND OR SURETY.
The exercise by the Trustees of their powers and discretion hereunder shall be
binding upon everyone interested. A Trustee shall be liable for the Trustee's
own wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law.
Subject to the foregoing, (a) the Trustees shall not be responsible or liable in
any event for any neglect or wrongdoing of any officer, agent, employee,
<PAGE>
consultant, adviser, administrator, distributor or principal underwriter,
custodian or transfer, dividend disbursing, shareholder servicing or accounting
agent of the Trust, nor shall any Trustee be responsible for the act or omission
of any other Trustee; (b) the Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of Trust
and their duties as Trustees, and shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice;
and (c) in discharging their duties, the Trustees, when acting in good faith,
shall be entitled to rely upon the books of account of the Trust and upon
written reports made to the Trustees by any officer appointed by them, any
independent public accountant, and (with respect to the subject matter of the
contract involved) any officer, partner or responsible employee of a Contracting
Party appointed by the Trustees pursuant to Section 3.3. The Trustees as such
shall not be required to give any bond or surety or any other security for the
performance of their duties.
Section 6.3 INDEMNIFICATION OF SHAREHOLDERS. In case any Shareholder (or
former Shareholder) of any Sub-Trust of the Trust shall be charged or held to be
personally liable for any obligation or liability of the Trust solely by reason
of being or having been a Shareholder and not because of such Shareholder's acts
or omissions or for some other reason, said Sub-Trust (upon proper and timely
request by the Shareholder) shall assume the defense against such charge and
satisfy any judgment thereon, and the Shareholder or former Shareholder (or such
Shareholder's or former Shareholder's heirs, executors, administrators or other
legal representatives or in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled out of the assets of
said Sub-Trust estate to be held harmless from and indemnified against all loss
and expense arising from such liability.
Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC. The Trust shall
indemnify (from the assets of the Sub-Trust or Sub-Trusts in question) each of
its Trustees and officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise [hereinafter referred to as
a "Covered Person"]) against all liabilities, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person (i) did not act in good faith in the reasonable belief that such Covered
Person's action was in or not opposed to the best interests of the Trust or (ii)
had acted with wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office
(either and both of the conduct described in (i) and (ii) being referred to
hereafter as "Disabling Conduct"). A determination that the Covered Person is
entitled to indemnification may be made by (i) a final decision on the merits by
a court or other body before whom the proceeding was
<PAGE>
brought that the person to be indemnified was not liable by reason of Disabling
Conduct, (ii) dismissal of a court action or an administrative proceeding
against a Covered Person for insufficiency of evidence of Disabling Conduct, or
(iii) a reasonable determination, based upon a review of the facts, that the
Covered Person was not liable by reason of Disabling Conduct by (a) a vote of a
majority of a quorum of Trustees who are neither "interested persons" of the
Trust as defined in section 2(a)(19) of the 1940 Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion. Expenses,
including accountants' and counsel fees so incurred by any such Covered Person
(but excluding amounts paid in satisfaction of judgments, in compromise or as
fines or penalties), may be paid from time to time by the Sub-Trust in question
in advance of the final disposition of any such action, suit or proceeding,
provided that the Covered Person shall have undertaken to repay the amounts so
paid to the Sub-Trust in question if it is ultimately determined that
indemnification of such expenses is not authorized under this Article VI and (i)
the Covered Person shall have provided security for such undertaking, (ii) the
Trust shall be insured against losses arising by reason of any lawful advances,
or (iii) a majority of a quorum of the disinterested Trustees who are not a
party to the proceeding, or an independent legal counsel in a written opinion,
shall have determined, based on a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the Covered
Person ultimately will be found entitled to indemnification.
Section 6.5 COMPROMISE PAYMENT. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 6.4,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such
indemnification shall be approved (a) by a majority of the disinterested
Trustees who are not a party to the proceeding or (b) by an independent legal
counsel in a written opinion. Approval by the Trustees pursuant to clause (a)
or by independent legal counsel pursuant to clause (b) shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with any of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in
or not opposed to the best interests of the Trust or to have been liable to the
Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.
Section 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The right of
indemnification provided by this Article VI shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article VI, "Covered Person" shall include such person's heirs, executors
and administrators, an "interested Covered Person" is one against whom the
action, suit or other proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending or threatened.
Nothing contained in this Article VI shall affect any rights to indemnification
to which personnel of the Trust, other
<PAGE>
than Trustees and officers, and other persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such person.
Section 6.7 LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
ARTICLE VII
MISCELLANEOUS
Section 7.1 DURATION AND TERMINATION OF TRUST. Unless terminated as
provided herein, the Trust shall continue without limitation of time and,
without limiting the generality of the foregoing, no change, alteration or
modification with respect to any Sub-Trust shall operate to terminate the
Trust. The Trust may be terminated at any time by a majority of the Trustees
then in office subject to a favorable vote of a majority of the outstanding
voting securities, as defined in the 1940 Act, Shares of each Sub-Trust
voting separately by Sub-Trust.
Upon termination, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or accrued or
anticipated as may be determined by the Trustees, the Trust shall in
accordance with such procedures as the Trustees consider appropriate reduce
the remaining assets to distributable form in cash, securities or other
property, or any combination thereof, and distribute the proceeds to the
Shareholders, in conformity with the provisions of subsection (d) of Section
4.2.
Section 7.2 REORGANIZATION. The Trustees may sell, convey, merge and
transfer the assets of the Trust, or the assets belonging to any one or more
Sub-Trusts, to another trust, partnership, association or corporation
organized under the laws of any state of the United States, or to the Trust
to be held as assets belonging to another Sub-Trust of the Trust, in exchange
for cash, shares or other securities (including, in the case of a transfer to
another Sub-Trust of the Trust, Shares of such other Sub-Trust) with such
transfer either (1) being made subject to, or with the assumption by the
transferee of, the liabilities belonging to each Sub-Trust the assets of
which are so transferred, or (2) not being made subject to, or not with the
assumption of, such liabilities; provided, however, that no assets belonging
to any particular Sub-Trust shall be so transferred unless the terms of such
transfer shall have first been approved at a meeting called for the purpose
by the affirmative vote of the holders of a majority of the outstanding
voting Shares, as defined in the 1940 Act, of that Sub-Trust. Following such
transfer, the Trustees shall distribute such cash, shares or other securities
(giving due effect to the assets and liabilities belonging to and any other
differences among the various Sub-Trusts the assets belonging to which have
so been transferred) among the Shareholders of the Sub-Trust the assets
belonging to which have been so transferred; and if all of the assets of the
Trust have been so transferred, the Trust shall be terminated.
<PAGE>
The Trust, or any one or more Sub-Trusts, may, either as the
successor, survivor, or non-survivor, (1) consolidate with one or more other
trusts, partnerships, associations or corporations organized under the laws
of The Commonwealth of Massachusetts or any other state of the United States,
to form a new consolidated trust, partnership, association or corporation
under the laws of which any one of the constituent entities is organized, or
(2) merge into one or more other trusts, partnerships, associations or
corporations organized under the laws of The Commonwealth of Massachusetts or
any other state of the United States, or have one or more such trusts,
partnerships, associations or corporations merged into it, any such
consolidation or merger to be upon such terms and conditions as are specified
in an agreement and plan of reorganization entered into by the Trust, or one
or more Sub-Trusts, as the case may be, in connection therewith. The terms
"merge" or "merger" as used herein shall also include the purchase or
acquisition of any assets of any other trust, partnership, association or
corporation which is an investment company organized under the laws of The
Commonwealth of Massachusetts or any other state of the United States. Any
such consolidation or merger shall require the affirmative vote of the
holders of a majority of the outstanding voting Shares, as defined in the
1940 Act, of each Sub-Trust affected thereby.
Section 7.3 AMENDMENTS. All rights granted to the Shareholders under
this Declaration of Trust are granted subject to the reservation of the right
to amend this Declaration of Trust as herein provided, except that no
amendment shall repeal the limitations on personal liability of any
Shareholder or Trustee or repeal the prohibition of assessment upon the
Shareholders without the express consent of each Shareholder or Trustee
involved. Subject to the foregoing, the provisions of this Declaration of
Trust (whether or not related to the rights of Shareholders) may be amended
at any time, so long as such amendment does not adversely affect the rights
of any Shareholder with respect to which such amendment is or purports to be
applicable and so long as such amendment is not in contravention of
applicable law, including the 1940 Act, by an instrument in writing signed by
a majority of the then Trustees (or by an officer of the Trust pursuant to
the vote of a majority of such Trustees). Any amendment to this Declaration
of Trust that adversely affects the rights of Shareholders may be adopted at
any time by an instrument in writing signed by a majority of the then
Trustees (or by an officer of the Trust pursuant to a vote of a majority of
such Trustees) when authorized to do so by the vote in accordance with
subsection (e) of Section 4.2 of Shareholders holding a majority of the
Shares entitled to vote. Subject to the foregoing, any such amendment shall
be effective as provided in the instrument containing the terms of such
amendment or, if there is no provision therein with respect to effectiveness,
upon the execution of such instrument and of a certificate (which may be a
part of such instrument) executed by a Trustee or officer of the Trust to the
effect that such amendment has been duly adopted.
Section 7.4 FILING OF COPIES; REFERENCES; HEADINGS. The original or
a copy of this instrument and of each amendment hereto shall be kept at the
office of the Trust where it may be inspected by any Shareholder. A copy of
this instrument and of each amendment hereto shall be filed by the Trust with
the Secretary of The Commonwealth of Massachusetts and with the Boston City
Clerk, as well as any other governmental office
<PAGE>
where such filing may from time to time be required, but the failure to make any
such filing shall not impair the effectiveness of this instrument or any such
amendment. Anyone dealing with the Trust may rely on a certificate by an
officer of the Trust as to whether or not any such amendments have been made, as
to the identities of the Trustees and officers, and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such amendments. In this instrument and in any
such amendment, references to this instrument, and all expressions like
"herein," "hereof" and "hereunder" shall be deemed to refer to this instrument
as a whole as the same may be amended or affected by any such amendments. The
masculine gender shall include the feminine and neuter genders. Headings are
placed herein for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
instrument. This instrument may be executed in any number of counterparts each
of which shall be deemed an original.
Section 7.5 APPLICABLE LAW. This Declaration of Trust is made in The
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth,
including the Massachusetts Business Corporation Law as the same may be amended
from time to time, to which reference is made with the intention that matters
not specifically covered herein or as to which an ambiguity may exist shall be
resolved as if the Trust were a business corporation organized in Massachusetts,
but the reference to said Business Corporation Law is not intended to give the
Trust, the Trustees, the Shareholders or any other person any right, power,
authority or responsibility available only to or in connection with an entity
organized in corporate form. The Trust shall be of the type referred to in
Section 1 of Chapter 182 of the Massachusetts General Laws and of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
IN WITNESS WHEREOF, the undersigned hereunto set their hands and seal in
the City of Boston, Massachusetts for themselves and their assigns, as of the
day and year first above written.
/s/ Karl J. Ege
-----------------------------------
Karl J. Ege
/s/ George W. Weber
------------------------------------
George W. Weber
<PAGE>
STATE OF WASHINGTON
County of Pierce
Then personally appeared the above-named Karl J. Ege and George W. Weber
who acknowledged the foregoing instrument to be their free act and deed, before
me, this 11th day of July, 1996.
Notorial Seal /s/ Maurie S. Jackson
--------------------------------------
Notary Public
My commission expires: 8/7/98
<PAGE>
Exhibit 99.2
BY-LAWS
OF
RUSSELL INSURANCE FUNDS
ARTICLE 1
AGREEMENT AND DECLARATION
OF TRUST AND PRINCIPAL OFFICE
1.1 AGREEMENT AND DECLARATION OF TRUST. These By-Laws shall be subject to
the Agreement and Declaration of Trust (also referred to as the Master Trust
Agreement), as from time to time in effect (the "Declaration of Trust"), of
RUSSELL INSURANCE FUNDS, the Massachusetts business trust established by the
Declaration of Trust (the "Trust").
1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of the Trust
shall be located in Tacoma, Washington.
ARTICLE 2
MEETINGS OF TRUSTEES
2.1 REGULAR MEETINGS. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2 SPECIAL MEETINGS. Special meetings of the Trustees may be held at any
time and at any place designated in the call of the meeting when called by the
Chairman of the Board, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Secretary
or an Assistant Secretary or by the officer of the Trustees calling the meeting.
2.3 NOTICE. It shall be sufficient notice to a Trustee of a special
meeting to send notice by mail at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the Trustee at the
Trustee's usual or last known business or residence address or to give notice to
the Trustee in person or by telephone at least twenty-four hours before the
meeting. Notice of a meeting need not be given to any Trustee if a written
waiver of notice, executed by the Trustee before or after the meeting, is filed
with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of
<PAGE>
notice to the Trustee. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
2.4 QUORUM. At any meeting of the Trustees a majority of the Trustees
then in office shall constitute a quorum. Any meeting may be adjourned from
time to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
2.5 PARTICIPATION BY TELEPHONE. One or more of the Trustees or of any
committee of the Trustees may participate in a meeting thereof by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
ARTICLE 3
OFFICERS
3.1 ENUMERATION; QUALIFICATION. The officers of the Trust shall be a
Chairman of the Board, a President, a Treasurer, a Secretary and such other
officers, including Vice Presidents, if any, as the Trustees from time to time
may in their discretion elect. The Trust may also have such agents as the
Trustees from time to time may in their discretion appoint. The chairman of the
Board shall be a Trustee and may, but need not be, a shareholder; and any other
officer may, but need not be, a Trustee or shareholder. Any two or more offices
may be held by the same person.
3.2 ELECTION. The Chairman of the Board, the President, the Treasurer and
the Secretary shall be elected annually by the Trustees at a meeting held within
the first four months of the Trust's fiscal year. The meeting at which the
officers are elected shall be known as the annual meeting of Trustees. Other
officers, if any, may be, elected or appointed by the Trustees at said meeting
or at any other time. Vacancies in any office may be filled at any time.
3.3 TENURE. The Chairman of the Board, the President, the Treasurer and
the Secretary shall hold office until the next annual meeting of the Trustees
and until their respective successors are chosen and qualified, or in each case
until such officer sooner dies, resigns, is removed or becomes disqualified.
Each other officer shall. hold office and each agent shall retain authority at
the pleasure of the Trustees.
3.4 POWERS. Subject to the other provisions of these By-Laws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such
-2-
<PAGE>
duties and powers as are commonly incident to the office occupied by such
officer as if the Trust were organized as a Massachusetts business corporation
and such other duties and powers as the Trustees may from time to time
designate.
3.5 CHAIRMAN; PRESIDENT. Unless the Trustees otherwise provide, the
Chairman of the Board, or, if there is no Chairman, or in the absence of the
Chairman, the President, shall preside at all meetings of the shareholders and
of the Trustees. Unless the Trustees otherwise provide, the President shall be
the Chief Executive Officer.
3.6 VICE PRESIDENT. The Vice President, or if there be more than one Vice
President, the Vice Presidents in the order determined by the Trustees (or if
there be no such determination, then in the order of their election) shall in
the absence of the President or in the event of the President's inability or
refusal to act, perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other duties and have such
other powers as the Board of Trustees may from time to time prescribe.
3.7 TREASURER. The Treasurer shall be the chief financial and accounting
officer of the Trust, and shall, subject to the provisions of the Declaration of
Trust and to any arrangement made by the Trustees with a custodian, investment
adviser or manager, or transfer, shareholder servicing or similar agent, be in
charge of the valuable papers, books of account and accounting records of the
Trust, and shall have such other duties and powers as may be designated from
time to time by the Trustees or by the President.
3.8 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Trustees
(or if there be no such determination, then in the order of their election),
shall, in the absence of the Treasurer or in the event of the Treasurer's
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Trustees may from time to time prescribe.
3.9 SECRETARY. The Secretary shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the, Trust. In the
absence of the Secretary from any meeting of the shareholders or Trustees, an
Assistant Secretary, or if there be none or if such Assistant Secretary is
absent, a temporary secretary chosen at such meeting shall record the
proceedings thereof in the aforesaid books.
-3-
<PAGE>
3.10 ASSISTANT SECRETARY. The Assistant Secretary, or if there shall be
more than one, the Assistant Secretaries in the order determined by the Trustees
(or if there be no such determination, then in the order of their election),
shall, in the absence of the Secretary or in the event of the Secretary's
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Trustees may from time to time prescribe.
3.11 RESIGNATIONS AND REMOVALS. Any Trustee or officer may resign at any
time by written instrument signed by the Trustee or officer and delivered to the
Chairman of the Board, the President or the Secretary or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. The Trustees may remove any officer elected by
them with or without cause. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee or officer resigning and no officer
removed shall have any right to any compensation for any period following such
Trustee or officer's resignation or removal, or any right to damages on account
of such removal.
ARTICLE 4
COMMITTEES
4.1 GENERAL. The Trustees, by vote of a majority of the Trustees then in
office, may elect from their number an Executive Committee or other committees
and may delegate thereto some or all of their powers except those which by law,
by the Declaration of Trust, or by these By-Laws may not be delegated. Except
as the Trustees may otherwise determine, any such committee may make rules for
the conduct of its business, but unless otherwise provided by the Trustees or in
such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-Laws for the Trustees themselves. All members
of such committees shall hold such offices at the pleasure of the Trustees. The
Trustees may abolish any such committee at any time. Any committee to which the
Trustees delegate any of their powers or duties shall keep records of its
members and shall report its action to the Trustees. The Trustees shall have
power to rescind any action of any committee, but no such rescission shall have
retroactive effect.
-4-
<PAGE>
ARTICLE 5
REPORTS
5.1 GENERAL. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.
ARTICLE 6
FISCAL YEAR
6.1 GENERAL. The fiscal year of the Trust shall be fixed by resolution of
the Trustees.
ARTICLE 7
SEAL
7.1 GENERAL. The seal of the Trust shall consist of a flat-faced die with
the word "Massachusetts," together with the name of the Trust and the year of
its organization cut or engraved thereon, but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument or other paper executed
and, delivered by or on behalf of the Trust.
ARTICLE 8
EXECUTION OF PAPERS
8.1 GENERAL. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President, any Vice President, or by the Treasurer and need not bear the
seal of the Trust.
ARTICLE 9
ISSUANCE OF SHARE CERTIFICATES
9.1 SHARE CERTIFICATES. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
-5-
<PAGE>
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share certificates
either in limited cases or to all shareholders. In that event, a shareholder
may receive a certificate stating the number of shares owned by such
shareholder, in such form as shall be prescribed from time to time by the
Trustees. Such certificate shall be signed by the President or a Vice President
and by the Treasurer or Assistant Treasurer. Such signatures may be facsimiles
if the certificate is signed by a transfer agent, or by a registrar, other than
a Trustee, officer or employee of the Trust. In case any officer who has signed
or whose facsimile signature has been placed on such certificate shall cease to
be such officer before such certificate is issued, it may be issued by the Trust
with the same effect as if such officer were such officer at the time-of its
issue.
9.2 LOSS OF CERTIFICATES. In case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 ISSUANCE OF NEW CERTIFICATE TO PLEDGEE. A pledgee of shares
transferred as collateral security shall be entitled to a new certificate if the
instrument of transfer substantially describes the debt or duty that is intended
to be secured thereby. Such new certificate shall express on its face that it
is held as collateral security, and the name of the pledgor shall be stated
thereon, who alone shall be liable as a shareholder, and entitled to vote
thereon.
9.4 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each shareholder, require the surrender of shares certificates to the Trust
for cancellation. Such surrender and cancellation shall not affect the
ownership of shares in the Trust.
ARTICLE 10
DEALINGS WITH TRUSTEES AND OFFICERS
10.1 GENERAL. Any Trustee, officer or other agent of the Trust may
acquire, own and dispose of shares of the Trust to the same extent as if such
person were not a Trustee, officer or agent; and the Trustees may accept
subscriptions to shares or repurchase shares from any firm or company in which
any Trustee, officer or other agent of the Trust may have an interest.
-6-
<PAGE>
ARTICLE 11
AMENDMENTS TO THE BY-LAWS
11.1 GENERAL. These By-Laws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
The foregoing By-Laws were adopted by the Board of Trustees on August 5
1996.
/s/ Karl J. Ege
----------------------------------------
Karl J. Ege
Secretary
-7-
<PAGE>
Exhibit 99.5(a)
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made this 5th day of August , 1996 between RUSSELL
INSURANCE FUNDS, a Massachusetts business trust hereinafter called (the "Trust")
and FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY, a Washington corporation
hereinafter called ("FRIMCo.")
WHEREAS, the Trust has been organized by and at the expense of a company
affiliated with FRIMCo 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 Bylaws 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 its various management, administrative, statistical,
research, money manager selection, investment management, and other services;
and
WHEREAS, FRIMCo is registered as an investment adviser under the Investment
Adviser's Act of 1940 and will engage in the business of rendering investment
advisor, counseling, money manager recommendation, and supervisory services to
investment consulting clients; and FRIMCo 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, the trust and FRIMCo agree as follows:
1. EMPLOYMENT OF FRIMCO. The Trust hereby employs FRIMCo 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. FRIMCo hereby accepts such employment
and agrees during such period to render the services and to assume the
obligations herein set forth. FRIMCo 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 FRIMCO. FRIMCo undertakes to
provide the services hereinafter set forth and to assume the following
obligations:
<PAGE>
A. Management and Administrative Services.
(1) FRIMCo shall furnish to the Trust adequate (a) office space,
which may be space within the offices of FRIMCo or in such
other place as may be agreed upon from time to time, (b)
office furnishing, 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
("Shareholders"), 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 FRIMCo's obligations under this
Section 2(A) are supervisory in nature.
(2) FRIMCo 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)(1), and shall bear the expense of providing such
services except as provided in Section 4 of this Agreement.
FRIMCo shall also compensate all officers and employees of the
Trust who are officers or employees of FRIMCo, 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. FRIMCo shall not be responsible or liable for
the investment merits any decision by a Money Manager to
purchase, hold, or sell a security for a Sub-Trust portfolio.
(2) FRIMCo shall, subject to and in accordance with the investment
objectives and policies of the Trust and each Sub-Trust and
any
<PAGE>
directions which the Trust's Board of Trustees may issue to
FRIMCo, 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) FRIMCo 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) FRIMCo shall research and evaluate Money Managers and shall
advise the Board of Trustees of the Trust of the Money
Managers which FRIMCo 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) FRIMCo 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.
FRIMCo 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 FRIMCo 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.
FRIMCo 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.
<PAGE>
E. Other Obligations and Services.
FRIMCo 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. FRIMCo 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-Trust's portfolio
transactions. When placing such orders, the primary objective of FRIMCo
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 FRIMCo 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 and Exchange Act of 1934) or statistical quotations and other
information to the Trust, FRIMCo 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, FRIMCo 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 FRIMCo agree that FRIMCo and the Money Managers
shall select brokers for the execution of the Sub-Trust's 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 supply brokerage and research services to
FRIMCo and/or its affiliated corporations, or the Money Managers,
which relate directly to portfolio securities, actual or potential, of
the Trust, or which place FRIMCo 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 FRIMCo and its
<PAGE>
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 FRIMCo, when FRIMCo or
Money Manager has determined that the Trust will receive competitive
execution, price, and commission. FRIMCo 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.
FRIMCo 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
FRIMCo's or Money Manager's 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 FRIMCo herein, which
expressly assumed by FRIMCo herein, which expenses payable by the Trust
shall include:
A. Fees for the services of the Money Manager;
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 FRIMCo;
I. Taxes levied against the Trust;
<PAGE>
J. Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Trust;
K. Cots, 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 FRIMCo 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 FRIMCO.
A. The services of FRIMCo and its affiliated corporations to the Trust
hereunder are not to be deemed exclusive, and FRIMCo and any of its
affiliates shall be free to render similar services to others.
(1) FRIMCo 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 Investment
Company ("FRIC") is a client of FRIMCo and that Frank Russell
Trust Company ("Trust Company"), a corporation affiliated with
FRIMCo, is also a client of a corporation affiliated with
FRIMCo
<PAGE>
and each of FRIC and Trust Company receives substantially the
same portfolio structuring and money manager selection
services from the affiliate as does the Trust; that each of
FRIC and Trust Company has, or may have, commingled investment
funds with substantially the same investment objectives,
strategies, and programs as the Trust; that each of FRIC and
the Trust was organized by and at the expense of FRIMCo or of
a corporation affiliated with FRIMCo 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 FRIC or Trust Company, as FRIC
provides to its Shareholders and as Trust Company provides to
its trust customers; and that over time FRIC, Trust Company
and the Trust may utilize some of the same money managers and
have similar portfolio securities holders.
B. Subject to and in accordance with the Master Trust Agreement (as
defined below) and Bylaws 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 FRIMCo or its
affiliates as directors, agents, or stockholders of FRIMCo or its
affiliates are or may be interested in the Trust as Trustees,
officers, agents, Shareholders, or otherwise; that FRIMCo 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, Bylaws, and the 1940 Act.
6. COMPENSATION OF FRIMCO.
FRIMCo shall receive from each of the following 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. The
annual management fee, including the fee payable to the Money Managers (for
each respective Sub-Trust), shall be computed based on the following annual
percentage of each Sub-Trust's average daily net assets during the month:
Multi-Style Equity 0.78%
Aggressive Equity 0.95
Non-U.S. 0.95
Core Bond 0.60
Money Market Liquidity 0.25
From this management fee, FRIMCo, acting as a fiduciary of the Trust, shall
compensate the Money Managers.
<PAGE>
7. LIABILITIES OF FRIMCO.
A. In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder or on the part
of FRIMCo or its corporate affiliates, FRIMCo 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 FRIMCo and its corporate
affiliates, from liability in violation of Section 17(h) and (i) of
the 1940 Act.
8. RENEWAL AND TERMINATION.
A. This Agreement shall become effective on and as of August 5, 1996 and
shall continue in effect as to each Sub-Trust until May 31, 1998. 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
person 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,
FRIMCo 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 FRIMCo;
(b) Shall immediately terminate in the event of its assignment;
and
(c) May be terminated by FRIMCo on 60 days' written notice to the
Trust.
C. As used in this Section 8, the Terms "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.
<PAGE>
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
"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 "Russell." In the event that
Frank Russell Company should elect to withdraw the use of the name
"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 11, 1996,
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 Russell Insurance
Funds 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
officers 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.
RUSSELL INSURANCE FUNDS
/s/Gregory J. Lyons By: /s/ Lynn L. Anderson
- ------------------------------------- ----------------------------
Gregory J. Lyons, Assistant Secretary Lynn L. Anderson, President
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
/s/Gregory J. Lyons By: /s/ Eric A. Russell
- ------------------------------------- ----------------------------
Gregory J. Lyons, Assistant Secretary Eric A. Russell, President
<PAGE>
FRANK RUSSELL COMPANY agrees to provide consulting services without charge to
the Trust 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
/s/J. David Griswold By: /s/ Michael J. A. Phillips
- ------------------------------------- ----------------------------
J. David Griswold, Assistant Secretary Michael J. A. Phillips, President
<PAGE>
Exhibit 99.5(b)
Contract Mailed:
Effective Date:
Termination Date: April 30,
Fund(s):
Mr.
Re: Russell Insurance Funds Portfolio Management Contract
Dear Mr. :
Russell Insurance Funds ("Investment Company"), a Massachusetts business
trust, is a diversified open-end management investment company of the series
type registered as an investment company under the Investment Company Act of
1940 ("Act"), and subject to the rules and regulations promulgated thereunder.
The Investment Company is a so-called "series" company which issues shares
evidencing beneficial interests in separate investment portfolios, each with
different investment objectives and policies ("Funds").
Frank Russell Investment Management Company ("FRIMCo") acts as the manager
and administrator of the Investment Company pursuant to the terms of a
Management Agreement, and is an "investment adviser" to the Investment Company
as defined in Section 2(a)(20) of the Act. FRIMCo is responsible for the day-to-
day management and administration of the Investment Company and for the
coordination of investment of each Fund's assets in portfolio securities.
However, specific portfolio purchases and sales for each Fund's investment
portfolio, or a portion thereof, are to be made by portfolio management
organizations recommended and selected by FRIMCo, and appointed by, and subject
to the approval of, the Board of Directors of the Investment Company.
1. APPOINTMENT AS A MONEY MANAGER. Investment Company being duly
authorized hereby appoints and employs you ("Money Manager") as a discretionary
money manager to the Investment Company's Fund(s) designated above, on the terms
and conditions set forth herein, for those assets of the Fund(s) which FRIMCo,
as a fiduciary for Investment Company, determines to assign to you (those assets
being referred to for the Fund(s) individually and collectively as the "Fund
Account").
2. ACCEPTANCE OF APPOINTMENT; STANDARD OF PERFORMANCE. Money Manager
accepts the appointment as a discretionary money manager and agrees to use its
best professional judgment to make timely investment decisions for the
Investment Company with respect to the investments of the Fund Account in
accordance with the provisions of this Contract.
3. PORTFOLIO MANAGEMENT SERVICES OF MONEY MANAGER. Money Manager is
hereby employed and authorized to select portfolio securities for investment by
the Fund(s), to determine to purchase and sell securities of the Fund Account,
and upon
<PAGE>
making any purchase or sale decision, to place orders for the execution of such
portfolio transactions in accordance with paragraphs 5 and 6 hereof and Exhibit
A hereto (as amended from time to time). In providing portfolio management
services to the Fund Account: Money Manager shall be subject to such investment
restrictions as are set forth in the Act and Rules thereunder, the supervision
and control of the Board of Directors of the Investment Company, such specific
instructions as the Board may adopt and communicate to Money Manager, the
investment objectives, policies and restrictions of the Fund(s) furnished
pursuant to paragraph 4, and instructions from FRIMCo; and Money Manager shall
maintain on behalf of the Investment Company the records listed in Exhibit B
hereto (as amended from time to time). At Investment Company's reasonable
request, Money Manager will consult with Investment Company or with FRIMCo, with
respect to any decision made by it with respect to the investments of the Fund
Account.
4. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The Investment
Company shall provide Money Manager with a statement of the investment
objectives and policies of the Fund Account and any specific investment
restrictions applicable thereto as established by Investment Company, including
those set forth in its Prospectus as amended from time to time. Investment
Company retains the right, on written notice to Money Manager from the
Investment Company or FRIMCo, to modify any such objectives, policies or
restrictions in any manner at any time.
5. TRANSACTION PROCEDURES. All transactions will be consummated by
payment to or delivery by State Street Bank & Trust Company (the "Custodian"),
or such depositories, or agents, as may be designated by the Custodian, as
custodian for the Investment Company, of all cash and/or securities due to or
from the Fund Account, and Money Manager shall not have possession or custody
thereof or any responsibility or liability with respect thereto. Money Manager
shall advise Custodian and confirm in writing to Investment Company all
investment orders for the Fund Account placed by it with brokers and dealers at
the time and in the manner and as set forth in Exhibit A hereto (as amended from
time to time). Investment Company shall issue to the Custodian such instructions
as may be appropriate in connection with the settlement of any transaction
initiated by Money Manager. Investment Company shall be responsible for all
custodial arrangements and the payment of all custodial charges and fees, and
upon giving proper instructions to the Custodian, Money Manager shall have no
responsibility or liability with respect to custodial arrangements or the acts,
omissions or other conduct of the Custodian.
6. ALLOCATION OF BROKERAGE. Money Manager shall have authority and
discretion to select brokers and dealers to execute portfolio transactions
initiated by Money Manager, and for the selection of the markets on/in which the
transaction will be executed.
A. In doing so, the Money Manager's primary objective shall be to seek to
select a broker-dealer that can be expected to obtain the best net price and
execution for the Investment Company. However, this responsibility shall not be
deemed to obligate the Money Manager to solicit competitive bids for each
transaction; and Money Manager shall have no obligation to seek the lowest
available commission cost to Investment Company, so long as Money Manager
believes in good faith, based upon its knowledge of the capabilities of the firm
selected, that the broker or dealer can be expected to obtain the best price on
a particular transaction and that the commission cost is reasonable in relation
to the total quality and reliability of the brokerage and research services made
available by
<PAGE>
the broker to Money Manager viewed in terms of either that particular
transaction or of Money Manager's overall responsibilities with respect to its
clients, including the Investment Company, as to which Money Manager exercises
investment discretion, notwithstanding that Investment Company may not be the
direct or exclusive beneficiary of any such services or that another broker may
be willing to charge Investment Company a lower commission on the particular
transaction.
B. Investment Company shall retain the right to request that transactions
giving rise to brokerage commissions, in an amount to be agreed upon by
Investment Company and Money Manager, shall be executed by brokers and dealers
which provide brokerage or research services to the Investment Company or
FRIMCo, or as to which an ongoing relationship will be of value to Investment
Company in its management of the Fund(s), which services and relationship may,
but need not, be of direct benefit to the Fund Account, so long as (i) the Money
Manager believes in good faith, based upon its knowledge of the capabilities of
the firm selected, that the broker or dealer can be expected to obtain the best
price on a particular transaction and (ii) the Investment Company determines
that the commission cost is reasonable in relation to the total quality and
reliability of the brokerage and research services made available to Investment
Company, or to FRIMCo for the benefit of its clients for which it exercises
investment discretion, notwithstanding that the Fund Account may not be the
direct or exclusive beneficiary of any such service or that another broker may
be willing to charge Investment Company a lower commission on the particular
transaction.
C. Money Manager agrees that it will not execute any portfolio
transactions with a broker or dealer which is an "affiliated person" (as defined
in the Act) of the Investment Company or of any Money Manager for the Investment
Company without the prior written approval of the Investment Company. Investment
Company agrees that it will provide Money Manager with a list of brokers and
dealers which are "affiliated persons" of the Investment Company and its Money
Managers.
D. As used in this paragraph 6, "brokerage and research services" shall
have the meaning defined in Section 28(e)(3) of the Securities Exchange Act of
1934.
7. PROXIES. Unless FRIMCo gives written instructions to the contrary,
Money Manager shall vote all proxies solicited by or with respect to the issuers
of securities in which assets of the Fund Account may be invested. Money Manager
shall use its best good faith judgment to vote such proxies in a manner which
best serves the interests of the Investment Company's shareholders.
8. REPORTS TO MONEY MANAGER. Investment Company shall provide Money
Manager with such periodic reports concerning the status of the Fund Account as
Money Manager may reasonably request.
9. FEES FOR SERVICES. The compensation of Money Manager for its services
under this Contract shall be calculated and paid by FRIMCo, acting as a
fiduciary for Investment Company, in accordance with the attached Exhibit C. To
the extent that the Investment Company, as principal, has discharged or been
relieved of, its duty to pay over to FRIMCo, by reason of its payment of FRIMCo,
in its capacity as a fiduciary for Investment Company, any or all amounts
payable to the Money Manager, the Money Manager agrees to look to the agent for
payment of amounts payable to Money Manager hereunder. Money Manager hereby
agrees to contact the Secretary of the Investment Company if payment is not
received from FRIMCo.
<PAGE>
10. OTHER INVESTMENT ACTIVITIES OF MONEY MANAGER. Investment Company
acknowledges that Money Manager, or one or more of its affiliates, may have
investment responsibilities or render investment advice to, or perform other
investment advisory services for, other individuals or entities ("Affiliated
Accounts"). Subject to the provisions of paragraph 2 hereof, Investment Company
agrees that Money Manager or its affiliates may give advice or exercise
investment responsibility and take such other action with respect to other
Affiliated Accounts which may differ from advice given or the timing or nature
of action taken with respect to the Fund Account, provided that Money Manager
acts in good faith, and provided, further, that it is Money Manager's policy to
allocate, within its reasonable discretion, investment opportunities to the Fund
Account over a period of time on a fair and equitable basis relative to the
Affiliated Accounts, taking into account the investment objectives and policies
of the Fund Account and any specific investment restrictions applicable thereto.
Investment Company acknowledges that one or more of the Affiliated Accounts may
at any time hold, acquire, increase, decrease, dispose of or otherwise deal with
positions in investments in which the Fund Account may have an interest from
time to time, whether in transactions which may involve the Fund Account or
otherwise. Money Manager shall have no obligation to acquire for the Fund
Account a position in any investment which any Affiliated Account may acquire,
and the Investment Company shall have no first refusal, coinvestment or other
rights in respect of any such investment, either for the Fund Account or
otherwise.
11. CERTIFICATE OF AUTHORITY. Investment Company, FRIMCo and Money Manager
shall furnish to each other from time to time certified copies of the
resolutions of their Board of Directors, Board of Trustees or executive
committee evidencing the authority of officers and employees who are authorized
to act on behalf of Investment Company, Fund Account, FRIMCo and/or Money
Manager.
12. LIMITATION OF LIABILITY. Money Manager shall not be liable for any
action taken, omitted or suffered to be taken by it in its reasonable judgment,
in good faith and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Contract, or in accordance with (or
in the absence of) specific directions or instructions from Investment Company;
provided, however, that such acts or omissions shall not have resulted from
Money Manager's willful misfeasance, bad faith or gross negligence, violation of
the standard of care established by and applicable to Money Manager in its
actions under this Contract, or breach of its duty or of its obligations
hereunder.
13. CONFIDENTIALITY. Subject to the right of each Money Manager and
Investment Company to comply with applicable law, including any demand of any
regulatory or taxing authority having jurisdiction over it, the parties hereto
shall treat as confidential all information pertaining to the Fund Account and
the actions of each Money Manager and Investment Company in respect thereof.
14. ASSIGNMENT. No assignment, as that term is defined in Section 2(a)(4)
of the Act, of this Contract shall be made by Money Manager, and this Contract
shall terminate automatically in the event that it is assigned. Money Manager
shall notify Investment Company in writing sufficiently in advance of any
proposed change of control, as defined in Section 2(a)(9) of the Act, as will
enable Investment Company to consider whether an assignment as defined in
Section 2(a)(4) of the Act will occur, and to take the steps necessary to enter
into a new Contract with Money Manager.
<PAGE>
15. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Investment Company represents, warrants and agrees that:
A. Money Manager has been duly appointed by the Board of Trustees of the
Investment Company to provide investment services to the Fund Account as
contemplated hereby.
B. Investment Company will deliver to Money Manager a true and complete
copy of its current prospectus as effective from time to time, such other
documents or instruments governing the investments of Fund Account, and such
other information as is necessary for Money Manager to carry out its obligations
under this Contract.
C. The organization of the Investment Company and the conduct of the
business of Fund(s) and the Fund Account as contemplated by this Contract,
complies, and shall at all times comply, with the requirements imposed upon the
Investment Company by applicable law.
16. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF MONEY MANAGER. Money
Manager represents, warrants and agrees that:
A. Money Manager is registered as an "investment adviser" under the
Investment Advisers Act of 1940 ("Advisers Act"); or it is a "bank" as defined
in Section 202(a)(2) of the Advisers Act or an "insurance company" as defined in
Section 202(a)(12) of the Advisers Act.
B. Money Manager will maintain, keep current and preserve on behalf of
the Investment Company, in the manner required or permitted by the Act, the
records identified in Exhibit B. Money Manager agrees that such records (other
than those required by No. 4 of Exhibit B) are the property of the Investment
Company, and will be surrendered to the Investment Company promptly upon
request.
C. Money Manager will adopt a written code of ethics complying with the
requirements of Rule 17j-1 under the Act, will provide to the Investment Company
a copy of the code of ethics and evidence of its adoption, and will make such
reports to the Investment Company as required by Rule 17j-1 under the Act.
D. Money Manager will notify the Investment Company of any changes in the
membership of its partnership within a reasonable time after such change.
17. AMENDMENT. This Contract may be amended at any time, but only by
written agreement between Money Manager and Investment Company, which amendment,
other than amendments to Exhibits A and B, must be approved by the Board of
Trustees of the Investment Company in the manner required by the Act.
18. EFFECTIVE DATE; TERM. This Contract shall become effective for the
Fund(s) on the effective date set forth on page 1 of this Contract, and shall
continue in effect until the termination date set forth on page 1 of this
Contract. Thereafter, the Contract shall continue in effect for successive
annual periods only so long as its continuance has been specifically approved at
least annually by the Board of Trustees of the Investment Company in the manner
required by the Act.
19. TERMINATION. This Contract may be terminated by either party hereto,
without the payment of any penalty, immediately upon written notice to the other
party, but any such termination shall not affect the status, obligations, or
liabilities of any party hereto to the other.
<PAGE>
20. APPLICABLE LAW. To the extent that state law shall not have been
preempted by the provisions of any laws of the United States heretofore or
hereafter enacted, as the same may be amended from time to time, this Contract
shall be administered, construed, and enforced according to the laws of the
State of Washington.
21. NOTICE OF LIABILITY LETTER. Money Manager will notify, in writing, any
organization with whom it places orders for the execution of Investment Company
portfolio transactions that the organization will be: (i) executing portfolio
transactions of a Massachusetts business trust; and (ii) that the Investment
Company's Master Trust Agreement contains an express disclaimer of shareholder,
officer or Trustee liability for acts or obligations of the Investment Company
and requires that all obligations of the Investment Company be satisfied out of
its assets. Mailing a notice substantially similar to Exhibit D will be deemed
to be compliance with this section.
22. LIMITATION OF LIABILITY. The Master Trust Agreement dated July 11,
1996, as amended from time to time, establishing the Investment Company, 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 Investment Company hereunder shall not be
binding upon any of the shareholders, Trustees, officers, employees or agents of
the Investment Company, personally, but shall bind only the trust property of
the Investment Company, as provided in its Master Trust Agreement. The execution
and delivery of this Agreement have been authorized by the Trustees of the
Investment Company and signed by the President of the Investment Company, 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
<PAGE>
any of them individually or to impose any liability on any of them personally,
but shall bind only the trust property of the Investment Company as provided in
its Master Trust Agreement.
(Money Manager) Russell Insurance Funds
Frank Russell Investment Management
Company,
as a fiduciary for Russell Insurance Funds
BY: BY:
-------------------------- --------------------------------
Lynn L. Anderson
President
DATE: DATE:
------------------------ ------------------------------
EXHIBITS: A. Operational Procedures (including Schedules 1, 2 and 3).
B. Recordkeeping Requirements.
C. Fee Schedule.
D. Notice of Liability Letter.
<PAGE>
RUSSELL INSURANCE FUNDS
PORTFOLIO MANAGEMENT CONTRACT
EXHIBIT A
Operational Procedures
A Money Manager ("MM") for Russell Insurance Funds ("Investment Company") should
abide by certain rules and procedures in order to minimize operational problems.
MM will be required to have various records and files (as required by regulatory
agencies) at their offices. MM will have to maintain a certain flow of
information to State Street Bank & Trust Company ("SSB"), the custodian bank for
Investment Company.
MM will be required to furnish SSB with daily information as to executed trades.
SSB should receive this data no later than the morning following the day of the
trade. The necessary information should be transmitted to SSB (1) via facsimile
machine (the direct line to the facsimile machine is 617-985-3999) or (2) via an
electronic communications system ("System") approved by SSB that meets the
following criteria:
- The System must provide a method by which State Street can
reasonably ensure that each communication received by it
through the System actually originated from the MM.
- Only persons properly authorized by MM's senior operations
officer shall be authorized to access the System and enter
information, and MM must employ reasonable procedures to
permit only authorized persons to have access to the System.
- MM will create separate System files containing the daily
executed securities trade information with respect to each
Investment Company portfolio it manages, or MM will transmit
separately the trades for each such portfolio.
- SSB, through System or otherwise, will provide to MM prompt
certification or acknowledgment of SSB's receipt of each
transmission by MM of executed trade information.
- If the System malfunctions, MM will transmit all trade
information via facsimile transmission.
Upon receipt of brokers' confirmations, MM or SSB will be required to notify the
other party if any differences exist. The reporting of trades by the MM to SSB
must include the following:
- Purchase or Sale
- Security name
- Number of shares or principal amount
- Price per share or bond
- Commission rate per share or bond, or if a net trade
- Executing broker
- Trade date
<PAGE>
- Settlement date
- If security is not eligible for DTC
- This information can be reported using your forms, if
applicable
When opening accounts with brokers for Investment Company, the account should be
a cash account. No margin accounts are to be maintained. The broker should be
advised to use SSB IDC's ID system number (No. 20997) to facilitate the receipt
of information by SSB. If this procedure is followed, DK problems will be held
down to a minimum and additional costs of security trades will not become an
important factor in doing business. Delivery and receipt instructions are
attached as Schedule 2.
MM will be required to submit to SSB a daily trade authorization report, either
through a System or, if a facsimile transmission is used, on a form signed by
two authorized individuals prior to settlement date and a list of authorized
persons with specimen signatures must have previously been sent to SSB (see
Schedule 3). The daily trade authorization report will contain information on
which SSB can rely to either accept delivery or deliver out of the account,
securities as per MM trades. If facsimile transmission is used, a preprinted
form will be supplied to MM by Investment Company, or MM can use an equivalent
form acceptable to SSB and Investment Company.
<PAGE>
SCHEDULE 1
Reserved for future use.
<PAGE>
SCHEDULE 2
Mailing Instructions and Delivery Instructions:
Confirmation Instructions (Copy of Broker Advice):
State Street Bank and Trust Company
Mutual Fund Services
1776 Heritage Drive (A4E)
North Quincy, MA 02171
Attn: Fund Name/Fund Number
For the account of Russell Insurance Funds
( FUND NAME )
Delivery Instructions:
All DTC Eligible Securities:
Depository Trust Company (DTC) #997 Custodian Services
#20997 Agent Bank
All Ineligible DTC Securities (i.e., Commercial Paper)
State Street Bank and Trust Company
State Street Boston-Securities Corp.
61 Broadway
Main Concourse Level
New York, NY 10006
"VS Payment" (Federal Funds on Commercial Paper Only)
For the account of Russell Insurance Funds
( FUND NAME )
All Government Issues:
Delivered through Book Entry of Federal Reserve
Bank to: State St Bos/SPEC/FUND NAME/FUND #
(VS Payment Federal Funds)
Foreign Holdings:
Please confer with Brad Payne, State Street Bank,
(Phone: 617-985-5389) to obtain delivery instructions
of the State Street Global Custody Network
<PAGE>
SCHEDULE 3
EXAMPLE OF AUTHORIZED SIGNATURE LETTER
(To Be Typed on Your Letterhead)
[DATE]
State Street Bank and Trust
Mutual Fund Services
1776 Heritage Drive (A4E)
North Quincy, MA 02171
Attention: Russell Insurance Funds
RE: Persons Authorized To Execute Trades For Fund
The following list of individuals are authorized to execute and report trade
instructions on behalf of the Fund. Should there be any changes to the
authorized persons listed below, we will notify you immediately of those
changes.
NAME SIGNATURE
Sincerely yours,
[Money Manager]
<PAGE>
Exhibit B
RECORDS TO BE MAINTAINED BY MONEY MANAGER
*1. A record of each brokerage order, and all other portfolio purchases
and sales, given by Money Manager or on behalf of the Investment
Company for, or in connection with, the purchase or sale of
securities, whether executed or unexecuted. Such records shall
include:
A. The name of the broker,
B. The terms and conditions of the order, and of any modification or
cancellation thereof,
C. The time of entry or cancellation,
D. The price at which executed,
E. The time of receipt of report of execution, and
F. The name of the person who placed the order on behalf of the
Investment Company (1940 Act Rule, 31a-1(b)(5) and (6)).
*2. A record for each fiscal quarter, completed within ten (10) days after
the end of the quarter, showing specifically the basis or bases upon
which the allocation of orders for the purchase and sale of portfolio
securities to brokers or dealers, and the division of brokerage
commissions or other compensation on such purchase and sale orders.
The record:
A. Shall include the consideration given to:
(i) the sale of shares of the Company
(ii) the supplying of services or benefits by brokers or
dealers to:
(a) The Investment Company,
(b) FRIMCo,
(c) Yourself (i.e., the Money Manager), and
(d) Any person other than the foregoing
(iii) Any other considerations other than the technical
qualifications of the brokers and dealers as such.
B. Shall show the nature of the services or benefits made available.
C. Shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such
allocation of purchase and sale orders and such division of
brokerage commissions or other compensation.
D. The identities of the persons responsible for making the
determination of such allocation and such division of brokerage
commissions or other compensation (1940 Act, Rule 31a-1(b)(9)).
*3. A record in the form of an appropriate memorandum identifying the
person or persons, committees, or groups authorizing the purchase or
sale of portfolio securities. Where an authorization is made by a
committee or group, a record shall
<PAGE>
be kept of the names of its members who participate in the
authorization. There shall be retained as part of this record any
memorandum, recommendation, or instruction supporting or authorizing
the purchase or sale of portfolio securities (1940 Act, Rule 31a-1(b)
(10)) and such other information as is appropriate to support the
authorization.**
*4. Such accounts, books and other documents as are required to be
maintained by registered investment advisers by rule adopted under
Section 204 of the Investment Advisers Act of 1940, to the extent such
records are necessary or appropriate to record Money Manager's
transactions with the Investment Company. (1940 Act, Rule 31a-1(f)).
_______________________________
* Maintained as property of the Investment Company pursuant to 1940 Act
Rule 31a-3(a).
** Such information might include: the current Form 10-K, annual and
quarterly reports, press releases, reports by analysts and from
brokerage firms (including their recommendations, i.e., buy, sell,
hold), and any internal reports or portfolio manager reviews.
<PAGE>
EXHIBIT C
PORTFOLIO MANAGER FEE
RUSSELL INSURANCE FUNDS
FUND NAME
For investment advisory services provided to the Fund Account under this
Agreement, Frank Russell Investment Management Company ("FRIMCo") as a fiduciary
for Investment Company shall pay Money Manager a fee determined by multiplying
the Average Account Assets by the Applicable Percentage as defined below. All
fees shall be calculated annually and paid quarterly. Fees for partial periods
shall be prorated for any calendar quarter for which services were rendered.
The Applicable Percentage for any quarter shall be the weighted average fee
determined by applying the Average Total Assets to the following table (e.g.,
the resulting total FEE in dollars divided by the Average Total Assets).
___ b.p. on the first $_______________
___ b.p. on the next $_______________
___ b.p. on the next $_______________
___ b.p. on all amounts thereafter
(expressed as annualized rates)
For purposes of this Exhibit:
"Average Account Assets" for any quarter shall mean the average of the assets in
the Fund Account on the last business day of the preceding calendar quarter and
the last business day of each month during the calendar quarter.
"Average Total Assets" for any quarter shall mean the sum of the Average Account
Assets and the average for the same quarter of all other assets in other
accounts (calculated in the same manner as Average Account Assets) managed by
Money Manager for the Frank Russell Group of Companies which use a substantially
equivalent investment strategy to that employed by Money Manager for the Fund
Account.
"Frank Russell Group of Companies" shall mean FRIMCo and any affiliated company
which controls, is controlled by or is under common control with the FRIMCo.
<PAGE>
EXHIBIT D
Gentlemen:
Russell Insurance Funds, a Massachusetts business trust (the "Trust") and an
SEC-registered investment company, has requested that I correspond with you
concerning purchases and/or sales of the Trust's portfolio instruments that will
be made on behalf of the Trust with your organization.
The Trust is required under its Master Trust Agreement to inform you that
although the Trust is organized as a Massachusetts business trust, the Trust's
Master Trust Agreement contains an express disclaimer of shareholder, officer
and trustee liability for acts or obligations of the Trust and requires that all
obligations of the Trust be satisfied out of its assets. The purpose of this
disclaimer is for the Trust's shareholders, officers and Trustees to have the
same protection against being liable for the Trust's obligations as
shareholders, officers and Directors of a corporation. THE RESPONSIBILITY OF THE
TRUST FOR ITS TRANSACTIONS WITH YOU IS NOT CHANGED BY THIS NOTICE. No action is
needed on your part in response to this notice.
Should you have any questions concerning the information contained herein,
please contact Gregory J. Lyons, Associate General Counsel of the Trust, at
(206) 596-2406.
Sincerely yours,
<PAGE>
Exhibit 99.6
DISTRIBUTION AGREEMENT
OF
RUSSELL INSURANCE FUNDS
This Distribution Agreement is made this 5th day of August , 1996, by and
between Russell Insurance Funds, a Massachusetts business trust ("Investment
Company"), and Russell Fund Distributors, Inc., a Washington corporation
("Distributor").
WHEREAS, the Investment Company is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and offers for sale district series of shares of
common stock, each corresponding to a distinct portfolio ("Fund"), currently
four;
WHEREAS, Russell Fund Distributors, Inc. is registered as a mutual fund broker-
dealer with appropriate regulatory agencies;
WHEREAS, the Investment Company intends to serve as a funding vehicle for
variable annuity contracts and variable life insurance policies to be offered by
the separate accounts of certain life insurance companies;
WHEREAS, the Investment Company wishes to retain Distributor as the Investment
Company's distributor in connection with the offering and sale of the shares of
Funds as now exist and as hereafter may be established ("Shares") and to furnish
certain other services to the Investment Company as specified in this Agreement;
and
WHEREAS, Distributor is willing to furnish such services on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. The Investment Company hereby appoints Distributor to perform those
services described in this Agreement for each Fund of the Investment
Company in existence as of the date hereof ("Initial Funds"). In the event
that the Investment Company establishes one or more series of shares other
than the Initial Funds with respect to which it desires to retain the
Distributor to serve as distributor and principal underwriter hereunder, it
shall so notify the Distributor in writing, indicating the fee, if any, to
be payable with respect to the additional series of shares. If the
Distributor is willing to render such services, it shall so notify the
Investment Company in writing, whereupon such series of shares shall become
a Fund hereunder. In such event a writing signed by both the Investment
Company and the Distributor shall be annexed hereto as a part hereof
indicating that such additional series of shares has become a Fund
hereunder.
<PAGE>
2. The Investment Company authorizes Distributor as agent for the Investment
Company, subject to applicable federal and state law and the Master Trust
Agreement, Bylaws and current Prospectus and Statement of Additional
Information of the Investment Company: (a) to promote and offer each Fund
and the Investment Company; (b) to solicit orders for the purchase of the
Shares of each Fund subject to such terms and conditions as the Investment
Company may specify; and (c) to accept orders for the purchase of the
Shares of each Fund on behalf of the Investment Company. Distributor shall
offer the Shares of each Fund on an agency or "best efforts" basis under
which the Investment Company shall only issue such Shares as are actually
sold.
In connection with such sales and offers of sale, the Investment Company
shall not be responsible in any way for any other information, statements
or representations given or made by Distributor or its representatives or
agents, except such information or representations as are contained in the
Prospectus or in information furnished in writing to Distributor by the
Investment Company.
3. The offering price of the Shares shall be the net asset value per share (as
determined by the Investment Company) of the outstanding Shares of the
Investment Company plus a sales charge (if any) and a shareholder services
charge (if any) as set forth in the Investment Company's current
Prospectus. The Investment Company shall make available to Distributor a
statement of each computation of net asset value and of the details
entering into such computation.
4. As used in this Agreement, the term "Registration Statement" shall mean the
Registration Statement most recently filed by the Investment Company with
the Securities and Exchange Commission and effective under the Securities
Act of 1933, as such Registration Statement is amended by any amendments
thereto at the time in effect, and the terms "Prospectus" and "Statement of
Additional Information" shall mean the form of Prospectus and Statement of
Additional Information filed by the Investment Company as part of the
Registration Statement.
5. The Investment Company agrees, at its own expense, to register the Shares
with the Securities and Exchange Commission, state and other regulatory
bodies, and to prepare and file from time to time such Prospectuses,
amendments, reports and other documents as may be necessary to maintain the
Registration Statement. The Investment Company shall bear all expenses
related to preparing and typesetting such Prospectuses, Statements of
Additional Information and other materials required by law and such other
expenses, including printing and mailing expenses, related to the
Investment Company's communications with persons who are shareholders of
each Fund of the Investment Company.
6. The Investment Company agrees to indemnify, defend and hold harmless
Distributor, each person who has been, is, or may hereafter be an officer,
director, or employee or agent of Distributor, and any person who controls
Distributor
<PAGE>
within the meaning of Section 15 of the 1933 Act from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Distributor, its
officers or Directors, or any such controlling person may incur under the
1933 Act or under common law which arises out of or is alleged to arise out
of or is based upon a violation of any of the terms of this Agreement or
otherwise arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement, Prospectuses or
Statement of Additional Information or arising out of or based upon any
alleged omission to state a material fact required to be stated in said
documents or necessary to make the statements in said documents not
misleading, provided that in no event shall anything contained in this
Agreement be construed so as to protect Distributor against any liability
to the Investment Company or its shareholders to which Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
7. Distributor agrees to indemnify, defend and hold harmless the Investment
Company, each person who has been, is, or may hereafter be an officer,
director, or employee or agent of Distributor, and any person who controls
the Investment Company within the meaning of Section 15 of the 1933 Act
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
the Investment Company, its officers or Trustees, or any such controlling
person may incur under the 1933 Act or under common law which arises out of
or is alleged to arise out of or is based upon a violation of any of the
terms of this Agreement or otherwise arising out of or based upon any
alleged untrue statement of a material fact contained in information
furnished in writing by Distributor to the Investment Company for use in
the Registration Statement, Prospectuses or Statements of Additional
Information or arising out of or based upon any alleged omission to state a
material fact in connection with such information required to be stated in
the Registration Statement, Prospectuses or Statement of Additional
Information, or necessary to make such information not misleading.
8. The Investment Company reserves the right at any time to withdraw all
offerings of the Shares by written notice to the Distributor at its
principal office.
9. Distributor at its sole discretion may repurchase Shares offered for sale
by the shareholders. Repurchase of Shares by Distributor shall be at the
net asset value next determined after a repurchase order has been received.
On each business day, Distributor shall notify or shall arrange for
notification by telex, facsimile transmission, other electronic
transmission, or in writing the Investment Company's transfer agent of the
orders for repurchase of shares received by Distributor since the last such
report, the amount to be paid for such Shares, and the identity of
shareholders offering Shares for repurchase. Upon such notice, the
<PAGE>
Investment Company shall pay Distributor such amounts as are required by
Distributor for the repurchase of such Shares in cash or in the form of a
credit against monies due the Investment Company from Distributor as
proceeds from the sale of Shares. Distributor will receive no commission
or other remuneration for repurchasing Shares. The Investment Company
reserves the right to suspend such repurchases upon written notice to
Distributor. Distributor further agrees to act as agent for the Investment
Company to receive and transmit promptly to the Investment Company's
transfer agent shareholder requests for redemption of Shares or to arrange
for such notification and transmission.
10. Distributor is an independent contractor and shall be agent for the
Investment Company only with respect to the sale and repurchase of the
Shares.
11. The services of Distributor to the Investment Company under this Agreement
are not to be deemed exclusive, and the Distributor shall be free to render
similar services or other services to others so long as its services
hereunder are not impaired thereby.
12. Distributor shall prepare reports for the Board of Trustees of the
Investment Company upon request showing information concerning expenditures
related to this Agreement.
13. As used in this Agreement, the term "net asset value" shall have the
meaning ascribed to it in the Investment Company's Master Trust Agreement;
and the terms "assignment," "interested person," and "majority of the
outstanding voting securities" shall have the meanings given to them by
Section 2(a) of the 1940 Act, subject to such exemptions as may be granted
by the Securities and Exchange Commission by any rule, regulation or order.
14. This Agreement shall become effective (i) with respect to the Initial Funds
on a date specified by the Investment Company's President; and (ii) with
respect to each additional Fund on the date which the additional Fund
commences offering its shares to the public, so long as the provisions of
Section 1 have been complied with. The Agreement shall continue in effect
for each Fund for two years following the effective date of this Agreement
with respect to the Fund; and thereafter only so long as its continuance is
specifically approved at least annually by a majority of the Trustees of
the Investment Company who are not parties to the Agreement or interested
persons of any such party cast in person at a meeting called for the
purpose of voting on such approval, or by vote of a majority of the
outstanding voting securities of the Fund.
15. This Agreement may be terminated at any time:
(a) By the Trustees of the Investment Company or by vote of a majority
of the outstanding voting securities of the Investment Company by
sixty days' notice addressed to the Distributor at its principal
place of business;
<PAGE>
(b) By the Distributor by sixty days' written notice addressed to the
Investment Company at its principal place of business; and
(c) Immediately in the event of its assignment.
16. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination
is sought, and no amendment of this Agreement shall be effective until
approved by vote of a majority of the Board of Trustees, by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of such Fund affected by the amendment.
17. 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. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
18. This Agreement shall be construed in accordance with the laws of the State
of Washington and any applicable federal law.
19. The Master Trust Agreement dated July 11, 1996, as amended from time to
time, establishing the Investment Company, 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 Russell Insurance Funds 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 Investment Company hereunder shall not be binding
upon any of the Shareholders, Trustees, officers, employees or agents of
the Investment Company, personally, but shall bind only the trust property
of the Investment Company, as provided in its Master Trust Agreement. The
execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an officer of the
Investment Company, 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
<PAGE>
personally, but shall bind only the trust property of the Investment
Company as provided in this Master Trust Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their officers thereunto duly authorized as of the date written above.
Attest: RUSSELL INSURANCE FUNDS
By: /s/ Karl J. Ege By: /s/ Lynn L. Anderson
------------------------ --------------------------
Lynn L. Anderson
President
Attest: RUSSELL FUND DISTRIBUTORS, INC.
By: /s/ Karl J. Ege By: /s/ Eric A.Russell
------------------------ --------------------------
Eric A. Russell
President
<PAGE>
Exhibit 99.8(a)
CUSTODIAN CONTRACT
Between
RUSSELL INSURANCE FUNDS
And
STATE STREET BANK AND TRUST COMPANY
2IF593
Global/Series/Trust
Investment Advisor
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Employment of Custodian and Property to be Held By it. . . . . . . . . . .1
1.1 Appointment of Investment Manager. . . . . . . . . . . . . . . . . .2
1.2 Separate Investment Accounts . . . . . . . . . . . . . . . . . . . .2
1.3 Notices Regarding Investment Manager's Tenure. . . . . . . . . . . .2
1.4 Investment Manager's Apparent Authority. . . . . . . . . . . . . . .2
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States . . . . . . . . . .2
2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . . . . . .2
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . . . . . .3
2.3 Registration of Securities . . . . . . . . . . . . . . . . . . . . .5
2.4 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.5 Availability of Federal Funds. . . . . . . . . . . . . . . . . . . .5
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . . . . . .6
2.7 Payment of Fund Monies . . . . . . . . . . . . . . . . . . . . . . .6
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased. . . . . . . . . . . . . . . . . . .7
2.9 Appointment of Agents. . . . . . . . . . . . . . . . . . . . . . . .7
2.10 Deposit of Fund Assets in U.S. Securities System . . . . . . . . . .8
2.11 Fund Assets Held in the Custodian's Direct
Paper System . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.12 Segregated Account . . . . . . . . . . . . . . . . . . . . . . . . 10
2.13 Ownership Certificates for Tax Purposes. . . . . . . . . . . . . . 10
2.14 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.15 Communications Relating to Portfolio Securities. . . . . . . . . . 11
2.16 Authorized Persons . . . . . . . . . . . . . . . . . . . . . . . . 11
2.17 Proper Instructions. . . . . . . . . . . . . . . . . . . . . . . . 11
2.18 Actions Permitted Without Express Authority. . . . . . . . . . . . 12
2.19 Evidence of Authority. . . . . . . . . . . . . . . . . . . . . . . 12
2.20 Affiliation Between Fund and Custodian . . . . . . . . . . . . . . 12
2.21 Persons Having Access to Assets of the Portfolios . . . . . . . . 12
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States . . . . . . . . . . . . . . . 13
3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . . . . . 13
<PAGE>
3.2 Assets to be Held. . . . . . . . . . . . . . . . . . . . . . . . . 13
3.3 Foreign Securities Systems . . . . . . . . . . . . . . . . . . . . 13
3.4 Holding Securities . . . . . . . . . . . . . . . . . . . . . . . . 13
3.5 Agreements with Foreign Banking Institutions . . . . . . . . . . . 14
3.6 Access of Independent Accountants of the Fund. . . . . . . . . . . 14
3.7 Reports by Custodian . . . . . . . . . . . . . . . . . . . . . . . 14
3.8 Transactions in Foreign Custody Account. . . . . . . . . . . . . . 14
3.9 Liability of Foreign Sub-Custodians. . . . . . . . . . . . . . . . 15
3.10 Liability of Custodian . . . . . . . . . . . . . . . . . . . . . . 15
3.11 Reimbursement for Advances . . . . . . . . . . . . . . . . . . . . 15
3.12 Monitoring Responsibilities. . . . . . . . . . . . . . . . . . . . 16
3.13 Branches of U.S. Banks . . . . . . . . . . . . . . . . . . . . . . 16
3.14 Tax Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. Duties of Custodian With Respect to the Books of
Account and Calculation of Net Asset Value and Net Income. . . . . . . . 17
6. Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7. Opinion of Fund's Independent Accountants. . . . . . . . . . . . . . . . 18
8. Reports to Fund by Independent Public Accountants. . . . . . . . . . . . 18
9. Compensation of Custodian. . . . . . . . . . . . . . . . . . . . . . . . 18
10. Responsibility of Custodian. . . . . . . . . . . . . . . . . . . . . . . 18
11. Effective Period, Termination and Amendment. . . . . . . . . . . . . . . 20
12. Successor Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13. Interpretive and Additional Provisions . . . . . . . . . . . . . . . . . 21
14. Additional Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
15. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . . . . 22
16. Prior Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
17. Shareholder Communications Election. . . . . . . . . . . . . . . . . . . 22
<PAGE>
CUSTODIAN CONTRACT
This Contract between Russell Insurance Funds, a Massachusetts business
trust organized and existing under the laws of Massachusetts, having its
principal place of business at 909 A Street, Tacoma, Washington 98402
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in five series, the
Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Core Bond Fund,
and Money Market Liquidity Fund (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 14, being herein referred to as the "Portfolio(s)");
WHEREAS, the Fund desires to have the investment securities and cash of
each Portfolio held by the Custodian in accordance with the provisions of the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder;
WHEREAS, the Custodian is willing to provide custodial services to the
Fund pursuant to the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Fund's
Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver
to the Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.17), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians,
<PAGE>
located in the United States but only in accordance with an applicable vote by
the Board of Trustees of the Fund on behalf of the applicable Portfolio(s), and
provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any sub-
custodian so employed than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodian for the Fund's foreign securities on
behalf of the applicable Portfolio(s) the foreign banking institutions and
foreign securities depositories designated in Schedule A hereto but only in
accordance with the provisions of Article 3.
1.1 APPOINTMENT OF INVESTMENT MANAGER. The Fund shall appoint one or more
independent investment Managers, pursuant to a written Investment
Management Agreement describing the powers and duties of the Investment
Manager, to direct the investment and reinvestment of the Portfolios.
1.2 SEPARATE INVESTMENT ACCOUNTS. The Fund may direct the Custodian to
segregate the Portfolios into more than one separate Investment Account,
and in that case, the Fund shall appoint one or more independent
Investment Managers, pursuant to such an Investment Management Agreement,
to direct the investment and reinvestment of each such Portfolio's
Account.
1.3 NOTICES REGARDING INVESTMENT MANAGER'S TENURE. The Fund on behalf of
each Portfolio shall furnish the Custodian with notice of the appointment
of each Investment Manager hereunder, and of the termination of any such
appointment. Such notice shall specify whether or not the Investment
Manager's responsibility encompasses the entire Fund or a separate
Portfolio's Account.
1.4 INVESTMENT MANAGER'S APPARENT AUTHORITY. The Custodian shall
conclusively presume that each Investment Manager, under its Investment
Management Agreement, is entitled to act, in directing the investment and
reinvestment of the Fund, or the separate Portfolio for which it is
responsible, in its sole and independent discretion and without
limitation, except for any limitations which from time to time the Fund
advises the Custodian shall modify the scope of the authority which the
Investment Manager shall be presumed to have under this sentence. The
Investment Manager's instructions to the Custodian will be given in such
manner and form as the Custodian and the Investment Manager may mutually
agree.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE
CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by it
in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies (each, a "U.S. Securities System")
and (b) commercial paper of an issuer for which State Street Bank and
Trust Company acts as issuing and paying agent ("Direct
<PAGE>
Paper") which is deposited and/or maintained in the Direct Paper System
of the Custodian pursuant to Section 2.1 1.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only upon
receipt of Proper Instructions from the Fund on behalf of the applicable
Portfolio, which may be continuing instructions when deemed appropriate
by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities System,
in accordance with the provisions of Section 2. 1 0 hereof,
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange for
a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
that, in any such case, the new securities are to be delivered to
the Custodian;
7) Upon the sale of such securities for the account of the Portfolio,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except
as may arise from the Custodian's own negligence or willful
misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or
3
<PAGE>
pursuant to any deposit agreement; provided that, in any such case, the
new securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Portfolio, BUT ONLY against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in
the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible for
the delivery of securities owned by the Portfolio prior to the
receipt of such collateral if it receives Proper Instructions to
do so;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by
the Fund on behalf of the Portfolio, BUT ONLY against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Portfolio of
the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind, as
may be described from time to time in the currently effective
prospectus and statement of additional information of the Fund,
related to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
4
<PAGE>
15) For any other proper corporate purpose, BUT ONLY upon receipt of,
in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, specifying the securities of the Portfolio to be
delivered, setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom delivery of such
securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, UNLESS the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian
shall utilize its best efforts only to timely collect income due the Fund
on such securities and to notify the Fund on a best efforts basis only of
relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from
or for the account of the Portfolio, other than cash maintained by the
Portfolio in a bank account established and used in accordance with Rule
17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; PROVIDED, however, that every such bank or trust company shall
be qualified to act as a custodian under the Investment Company Act of
1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Trustees of the Fund. Such funds shall be deposited by the Custodian in
its capacity as Custodian and shall be withdrawable by the Custodian only
in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf of
a Portfolio. make federal funds available to such
5
<PAGE>
Portfolio as of specified times agreed upon from time to time by the Fund
and the Custodian in the amount of checks received in payment for Shares
of such Portfolio which are deposited into the Portfolio's account.
2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on the
date of payment by the issuer, such securities are held by the Custodian
or its agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (1O) shall be the responsibility of the Fund. In the absence
of any agreement to the contrary, the Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to which
the Portfolio is properly entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the
Portfolio but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options on
futures contracts to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad which
is qualified under the Investment Company Act of 1940, as amended,
to act as a custodian and has been designated by the Custodian as
its agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian referred to
in Section 2.3 hereof or in proper form for transfer; (b) in the
case of a purchase effected through a U.S. Securities System, in
accordance with the conditions set forth in Section 2.10 hereof,
(c) in the case of a purchase involving the Direct Paper System,
in accordance with the conditions set forth in Section 2.1 1; (d)
in the case of repurchase agreements entered into between the Fund
on behalf of the Portfolio and the Custodian, or another bank, or
a broker-dealer which is a member of NASD, (i) against delivery of
the securities either in certificate form or through an entry
crediting the Custodian's account at the Federal Reserve Bank with
such securities or (ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by the Custodian
along with written evidence of the agreement by the Custodian to
repurchase such securities from the Portfolio or (e) for transfer
to a time deposit account of the Fund in any bank, whether
domestic or foreign; such
6
<PAGE>
transfer may be effected prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper Instructions from the Fund
as defined in Section 2.17;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof,
3) For the redemption or repurchase of Shares issued by the Portfolio
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for
the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses
of the Fund whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth
the purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or persons
to whom such payment is to be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES
PURCHASED, ETC. Notwithstanding Sections 2.2 and 2.7 of the
Agreement, entitled Delivery of Securities and Payment of Fund
Monies, respectively, the Bank can (1) make payment of Fund monies
for the purchase of securities prior to the receipt of such
securities; and (2) deliver Fund securities prior to the receipt
of payment for such securities; provided, that the Bank can pay
Fund monies and purchase Fund securities in accordance with this
Section 2.8 only to the extent that the Fund instructs it to do so
in writing (the "Instructions"), which Instructions shall be
standing and effective until such time as the Fund notifies the
Bank otherwise in writing. To the extent that the Bank makes any
such payments prior to receipt of securities or any such
deliveries prior to receipt of payments in the absence of
Instructions to do so, the Bank shall be absolutely liable to the
Fund for such securities or such payments, as the case may be, to
the same extent as if the securities or payments had been received
by the Bank. The Fund agrees to indemnify and hold the Bank
harmless for any and all liability arising out of transactions
executed in accordance with the Instructions, except for losses
resulting from the Bank's negligence, lack of good faith or
wi11ful misconduct.
7
<PAGE>
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; PROVIDED, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented in
an account ("Account") of the Custodian in the U.S. Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the U.S. Securities
System that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Portfolio.
The Custodian shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the U.S. Securities System
that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Portfolio. Copies of all advices from the U.S. Securities
System of transfers of securities for the account of the Portfolio
shall identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon request,
the Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio ir. the form of a written advice or notice and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio.
8
<PAGE>
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the U.S. Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 11 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from use
of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents or
of any of its or their employees or from failure of the Custodian or
any such agent to enforce effectively such rights as it may have
against the U.S. Securities System; at the election of the Fund, it
shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of any
such loss or damage if and to the extent that the Portfolio has not
been made whole for any such loss or damage.
2.11 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the Fund
on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
9
<PAGE>
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the U.S.
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.12 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
the Custodian pursuant to Section 2.1 0 hereof, (i) in accordance with
the provisions of any agreement among the Fund on behalf of the
Portfolio, the Custodian and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance with
the rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading Commission
or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or
written by the Portfolio or commodity futures contracts or options
thereon purchased or sold by the Portfolio, (iii) for the purposes of
compliance by the Portfolio with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of
the Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for other
proper corporate purposes, BUT ONLY in the case of clause (iv), upon
receipt of, in addition to Proper Instructions from the Fund on behalf of
the applicable Portfolio, a certified copy of a resolution of the Board
of Trustees or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.14 PROXIES. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Portfolio or a nominee of the Portfolio, all
10
<PAGE>
proxies, without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Portfolio such proxies, all
proxy soliciting materials and all notices relating to such securities.
2.15 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES
Subject to the provisions of Section 2.3, the Custodian shall transmit
promptly to the Fund for each Portfolio all written information
(including, without limitation, pendency of calls and maturities of
domestic securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on behalf
of the Portfolio and the maturity of futures contracts purchased or sold
by the Portfolio) received by the Custodian from issuers of the
securities being held for the Portfolio. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Portfolio
all written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer. If the Portfolio desires to
take action with respect to any tender offer, exchange offer or any other
similar transaction, the Portfolio shall notify the Custodian at least
three business days prior to the date on which the Custodian is to take
such action.
2.16 AUTHORIZED PERSONS. (a) Authorized Persons shall be deemed to include the
President, and any Vice President, the Secretary, the Treasurer, or any
other person, whether or not any such person is an officer or employee of
the Fund, duly authorized by the Board of Trustees of the Fund to give
oral instructions and written instructions on behalf of the Fund and
listed in the certification annexed hereto as Appendix A or such other
certification as may be received by the Custodian from time to time. (b)
Annexed hereto as Appendix A is a certification signed by two of the
present officers of the Fund setting forth the names and the signatures
of the present Authorized Persons. The Fund agrees to furnish to the
Custodian a new certification in similar form in the event that any such
present Authorized Person ceases to be such an Authorized Person or in
the event that other or additional Authorized Persons are elected or
appointed. Until such new certification shall be received, the Custodian
shall be fully protected in acting under the provisions of this Contract
upon oral instructions or signatures of the present Authorized Persons as
set forth in the last delivered certification.
2.17 PROPER INSTRUCTIONS. Proper Instructions as used throughout this Article
2 means a writing signed or initialed by one or more Authorized Persons.
Each such writing shall set forth the specific transaction or type of
transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered
Proper Instructions if the Custodian reasonably believes them to have
been given by an Authorized Person to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions
to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board
of Trustees of the Fund accompanied by a detailed description of
procedures approved by the Board of Trustees. Proper Instructions may
include communications effected directly between electro-mechanical or
electronic devices provided that the Board of Trustees and the
11
<PAGE>
Custodian are satisfied that such procedures afford adequate safeguards
for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian
pursuant to any three-party agreement which requires a segregated asset
account in accordance with Section 2.12.
2.18 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Custodian may in its
discretion, without express authority from the Fund on behalf of each
applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, PROVIDED that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees of the Fund.
2.19 EVIDENCE OF AUTHORITY. The Custodian shall be protected in acting upon
any instructions, notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have been
properly executed by or on behalf of the Fund. The Custodian may receive
and accept a certified copy of a vote of the Board of Trustees of the
Fund as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by
the Board of Trustees pursuant to the Declaration of Trust as described
in such vote, and such vote may be considered as in full force and effect
until receipt by the Custodian of written notice to the contrary.
2.20 AFFILIATION BETWEEN FUND AND CUSTODIAN. It is understood the Trustees,
officers, employees, agents and shareholders of the Fund, and the
officers, Trustees, employees, agents and shareholders of the Fund's
investment advisor, are or may be interested in the Custodian as
trustees, officers, employees, agents, stockholders, or otherwise, and
that the Trustees, officers, employees, agents or stockholders of the
Custodian may interested in the Fund as Trustees, officers, employees,
agents, shareholders, or otherwise, or in the investment advisor as
officers, trustees, employees, agents, shareholders or otherwise.
2.21 PERSONS HAVING ACCESS TO ASSETS OF THE PORTFOLIOS. a) No Trustee,
officer, employee or agent of the Fund shall have physical access to the
assets of the Fund held by the Custodian or be authorized or permitted to
withdraw any investments of the Fund, nor shall the Custodian deliver any
assets of the Fund to any such person. No officer or director, employee
or agent of the Custodian who holds any similar position with the Fund or
the
12
<PAGE>
Advisor shall have access to the assets of the Fund. (b) Only officers
and employees of the Custodian shall have access to the assets of the
Fund. Such officers and employees shall be identified by certification
signed by a duly authorized officer of the Custodian from time to time.
The Custodian shall advise the Fund of any change in the individuals
authorized to have access to the assets of the Fund by written notice to
the Fund. (c) Nothing in this Section 2.21 shall prohibit any officer,
employee or agent of the Fund, or any officer, director, employee or
agent of the Advisor, from giving oral instructions or written
instructions to the Custodian or executing a Certificate so long as it
does not result in delivery of or access to assets of the Fund prohibited
by paragraph (a) of this Section 2.21.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE
OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt
of "Proper Instructions", as defined in Section 2.17 of this Contract,
together with a certified resolution of the Fund's Board of Trustees, the
Custodian and the Fund may agree to amend Schedule A hereto from time to
time to designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the employment
of any one or more such sub-custodians for maintaining custody of the
Portfolio's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions.
3.3 FOREIGN SECURITIES SYSTEMS. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in a clearing agency which acts as a securities depository or
in a book-entry system for the central handling of securities located
outside of the United States (each a "Foreign Securities System") only
through arrangements implemented by the foreign banking institutions
serving as sub-custodians pursuant to the terms hereof (Foreign
Securities Systems and U.S. Securities Systems are collectively referred
to herein as the "Securities Systems"). Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 HOLDING SECURITIES.. The Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, PROVIDED HOWEVER, that (i)
the records of the Custodian with respect to securities and other non-
cash property of
13
<PAGE>
the Fund which are maintained in such account shall identify by book-
entry those securities and other non-cash property belonging to the Fund
and (ii) the Custodian shall require that securities and other non-cash
property so held by the foreign sub-custodian be held separately from any
assets of the foreign sub-custodian or of others.
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall provide that: (a) the foreign banking
institution will indemnify or insure the Custodian and the Portfolio in
the event of loss arising from the failure of the foreign banking
institution to exercise reasonable care in performing its duties, (b) the
assets of each Portfolio will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the foreign
banking institution or its creditors or agent, except' a claim of payment
for their safe custody or administration; (c) beneficial ownership of the
assets of each Portfolio will be freely transferable without the payment
of money or value other than for custody or administration; (d) adequate
records will be maintained identifying the assets as belonging to each
applicable Portfolio; (e) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Custodian; (f) the
Portfolio will issue periodic reports with respect to the safekeeping of
the assets of each Portfolio, including, but not reasonably limited to,
notification of any transfer to or from the Portfolio's account and (g)
assets of the Portfolios held by the foreign sub-custodian will be
subject only to the instructions of the Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of such
foreign banking institution under its agreement with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities
and other assets of the Portfolio(s) held by foreign sub-custodians,
including but not limited to an identification of entities having
possession of the Portfolio(s) securities and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian on
behalf of each applicable Portfolio indicating, as to securities acquired
for a Portfolio, the identity of the entity having physical possession of
such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Except as otherwise provided
in paragraph (b) of this Section 3.8, the provisions of Section 2 of this
Contract to the extent relevant shall apply, MUTATIS MUTANDIS to the
foreign securities of the Fund held outside the United States by foreign
sub-custodians. (b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for the account
of each applicable Portfolio and delivery of securities maintained for
the account of each applicable Portfolio
14
<PAGE>
may be effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to
a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer. (c) Securities maintained in
the custody of a foreign sub-custodian may be maintained in the name of
such entity's nominee to the same extent as set forth in Section 2.3 of
this Contract, and the Fund agrees to hold any such nominee harmless from
any liability as a holder of record of such securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign sub-
custodian shall require the institution to exercise reasonable care in
the performance of its duties and to indemnify, and hold harmless, the
Custodian and each Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall
be entitled to be subrogated to the rights of the Custodian with respect
to any claims against a foreign banking institution as a consequence of
any such loss, damage, cost, expense, liability or claim if and to the
extent that the Fund has not been made whole for any such loss, damage,
cost, expense, liability or claim.
3.10 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3. 1 0, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or (b)
other losses (excluding a bankruptcy or insolvency of State Street London
Ltd. not caused by political risk) due to Acts of God, nuclear incident
or other losses under circumstances where the Custodian and State Street
London Ltd. have exercised reasonable care.
3.11 REIMBURSEMENT FOR ADVANCES. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a Portfolio
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may anise from its or its nominee's own negligent action,
negligent failure to act or Willful misconduct,
15
<PAGE>
any property at any time held for the account of the applicable Portfolio
shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available
cash and to dispose of such Portfolios assets to the extent necessary to
obtain reimbursement.
3.12 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to the
Fund, during the month of June and shall supplement with any material
changes occurring prior to the Fund's fourth quarterly Board of Trustees'
Meeting, information concerning the foreign sub-custodians employed by
the Custodian. Such information shall be similar in kind and scope to
that furnished to the Fund in connection with the initial approval of
this Contract. In addition, the Custodian will promptly inform the Fund
in the event that the Custodian learns of a material adverse change in
the financial condition of a foreign sub-custodian or any material loss
of the assets of the Fund or in the case of any foreign sub-custodian not
the subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there appears
to be a substantial likelihood that its shareholders' equity will decline
below $200 million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting
principles).
3.13 BRANCHES OF U.S. BANKS. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the
Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a sub-
custodian shall be governed by paragraph I of this Contract. (b) Cash
held for each Portfolio of the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund with
the Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
4. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection
16
<PAGE>
with the redemption or repurchase of Shares of the Fund, the Custodian shall
honor checks drawn on the Custodian by a holder of Shares, which checks have
been furnished by the Fund to the holder of Shares, when presented to the
Custodian in accordance with such procedures and controls as are mutually agreed
upon from time to time between the Fund and the Custodian.
5. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION
OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value
per share and the daily income of each Portfolio shall be made at the time or
times described from time to time in the Fund's currently effective prospectus
related to such Portfolio.
6. RECORDS
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder, applicable federal and state tax laws and any other
law or administrative rules or procedures which may be applicable to the Fund.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund, Auditors employed by the
Fund and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
17
<PAGE>
7. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-lA, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
8. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
9. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
10. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. Notwithstanding the
foregoing, the responsibility of the Custodian with respect to redemptions
effected by check shall be in accordance with a separate Agreement entered into
between the Custodian and the Fund.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events
18
<PAGE>
or circumstances beyond the reasonable control of the Custodian or any sub-
custodian or Securities System or any agent or nominee of any of the foregoing,
including, without limitation, nationalization or expropriation, imposition of
currency controls or restrictions, the interruption, suspension or restriction
of trading on or the closure of any securities market, power or other mechanical
or technological failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work stoppages,
natural disasters or other similar events or acts; (ii) errors by the Fund or
the Investment Advisor in their instructions to the Custodian provided such
instructions have been in accordance with this Contract; (iii) the insolvency of
or acts or omissions by a Securities System; (iv) any delay or failure of any
broker, agent or intermediary, central bank or other commercially prevalent
payment or clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company, corporation, or other
body in charge of registering or transferring securities in the name of the
Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any
consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of competent
jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth in Article 1 hereof with
respect to sub-custodians located in the United States (except as specifically
provided in Article 3.10).
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement; PROVIDED
THAT Custodian shall, with respect to Fund assets as to which Custodian has
perfected its lien and which custodian proposes to dispose of pursuant to the
foregoing right, give the Fund notice identifying such assets and the Fund shall
have three business days from receipt of such notice to notify the Custodian if
the Fund wishes the
19
<PAGE>
Custodian to dispose of Fund assets of equal value other than those identified
in such notice; in the absence of any contrary notification from the Fund,
Custodian shall be free to dispose of the Fund assets initially identified to
the extent necessary to realize the amounts to which it is entitled hereunder.
In no event shall the Custodian be liable for indirect or consequential damages.
11. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; PROVIDED, however that the
Custodian shall not with respect to a Portfolio act under Section 2.1 0 hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees of the Fund has approved the
initial use of a particular Securities System by such Portfolio and the receipt
of an annual certificate of the Secretary or an Assistant Secretary that the
Board of Trustees has reviewed the use by such Portfolio of such Securities
System, as required in each case by Rule 17f-4 under the Investment Company Act
of 1940, as amended and that the Custodian shall not with respect to a Portfolio
act under Section 2.11 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has reviewed the use by such
Portfolio of the Direct Paper System; PROVIDED FURTHER, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Declaration of Trust, and
further provided, that the Fund on behalf of one or more of the Portfolios may
at any time by action of its Board of Trustees (1) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
12. SUCCESSOR CUSTODIAN
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
20
<PAGE>
If no such successor custodian shall be appointed and the Fund elects to
hold or maintain its assets in its own custody to the extent and in the manner
provided by the Investment Company Act of 1940, as amended, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund evidencing such determination, deliver at the office of the
Custodian and transfer such securities, funds and other properties in accordance
with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
13. INTERPRETIVE AND ADDITIONAL PROVISIONAL
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, PROVIDED that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust of the Fund. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
14. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in
addition to Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Core
Bond Fund, and Money Market Liquidity Fund with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it shall
so notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
21
<PAGE>
15. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
16. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
17. SHAREHOLDER COMMUNICATIONS ELECTION
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
18. LIMITATION OF LIABILITY
The Master Trust Agreement dated July 11, 1996, as amended from time to
time, establishing the Fund, 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 Russell Insurance Funds means the Trustees from time to time serving
(as Trustees but not personally) under said Master Trust Agreement.
22
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 5th day of August, 1996.
ATTEST RUSSELL INSURANCE FUNDS, INC.
/s/ Gregory J. Lyons By /s/ Lynn L. Anderson
- ------------------------------- -------------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ Illegible Signature By /s/ Illegible Signature
- ------------------------------- -------------------------------------
Executive Vice President
<PAGE>
SCHEDULE A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Russell Insurance
Funds, Inc. for use as sub-custodians for the Fund's securities and other
assets:
(Insert banks and securities depositories)
Certified:
Fund's Authorized Officer
Date:
<PAGE>
Exhibit 99.9(a)
PARTICIPATION AGREEMENT
Among
RUSSELL INSURANCE FUNDS,
RUSSELL FUND DISTRIBUTORS, INC.
and
GENERAL AMERICAN LIFE INSURANCE COMPANY
THIS AGREEMENT is made and entered into as of this___day of _________,
1996, by and among GENERAL AMERICAN LIFE INSURANCE COMPANY, a Missouri
corporation (hereinafter the "Company"), on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as such
schedule may be amended from time to time (each such account hereinafter
referred to as the "Account" and collectively as the "Accounts"), and RUSSELL
INSURANCE FUNDS, a Massachusetts Business Trust (hereinafter the "Investment
Company"), and RUSSELL FUND DISTRIBUTORS, INC. a Washington corporation
(hereinafter the "Underwriter").
WHEREAS, Investment Company engages in business as a diversified open-
end management investment company and is available to act as the investment
vehicle for separate accounts established for variable life insurance policies
and variable annuity contracts (collectively, the "Variable Insurance
Products"); and
WHEREAS, the beneficial interest in the Investment Company is divided
into several series of shares, referred to individually as "Funds" and
representing the interest in a particular managed portfolio of securities and
other assets; and
WHEREAS, Investment Company is registered as an open-end management
investment company under the 1940 Act, and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Frank Russell Investment Management Company (the "Adviser")
is registered as an investment adviser under the federal Investment Advisers Act
of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life contracts under the 1933 Act, and offers or will offer for sale certain
variable life contracts which are or will be exempt from registration; and
WHEREAS, each Account is a duly organized, validly existing,
segregated asset account, established by resolution of the Board of Directors of
the Company, on the date shown
<PAGE>
for such Account on Schedule A hereto, to set aside and invest assets
attributable to one or more variable life contracts; and
WHEREAS, the Company has registered or will register one of the
Accounts as a unit investment trust under the 1940 Act and other Accounts are
exempt from registration; and
WHEREAS, the Underwriter is registered as a broker/dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act") and is a member in good standing of the National Association of Securities
Dealers, Inc. (hereinafter the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Funds on behalf of
each Account to fund certain of the aforesaid variable life contracts, and the
Underwriter is authorized to sell such shares to unit investment trusts such as
each Account at net asset value.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and other good and valuable consideration the receipt
of which is hereby acknowledged, the parties hereto, intending to be legally
bound hereby, agree as follows:
ARTICLE I. SALE OF INVESTMENT COMPANY SHARES
1.1 The Underwriter agrees to sell to the Company those shares of
Investment Company which each Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Investment
Company or its designee of the order for the shares of the Investment Company.
For purposes of this Section 1.1, the Company shall be the designee of the
Investment Company for receipt of such orders from each Account and receipt by
such designee shall constitute receipt by the Investment Company; provided that
the Investment Company receives notice of such order by 8:00 a.m. Pacific time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which Investment Company
calculated its net asset value pursuant to the rules of the Securities and
Exchange Commission.
1.2 The Investment Company agrees to make its shares available
indefinitely for purchase at the applicable net asset value per share by the
Company and its Accounts on those days on which the Investment Company
calculates its net asset value pursuant to rules of the Securities and Exchange
Commission, and the Investment Company shall use reasonable efforts to calculate
such net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Directors of the
Investment Company (hereinafter the "Board") may refuse to sell shares of any
Fund, or suspend or terminate the offering of shares of any Fund if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Fund.
2
<PAGE>
1.3 The Investment Company and the Underwriter agree that no shares of
any Fund will be sold to the general public.
1.4 The Investment Company agrees to redeem for cash, on the Company's
request, any full or fractional shares of the Investment Company held by the
Company, executing such requests on a daily basis at the net asset value next
computed after receipt by the Investment Company or its designee of the request
for redemption. For purposes of this Section 1.4, the Company shall be the
designee of the Investment Company for receipt of requests for redemption from
each Account, and receipt by such designee shall constitute receipt by the
Investment Company; provided that the Investment Company receives notice of such
request for redemption by 8:00 a.m. Pacific time on the next following Business
Day.
1.5 The Company agrees to purchase and redeem the shares of selected
Funds offered by the then-current prospectus of the Investment Company and in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable life contracts with the form number(s)
which are listed on Schedule B attached hereto and incorporated herein by this
reference, as such Schedule B may be amended from time to time hereafter by
mutual written agreement of all the parties hereto (the "Contracts"), may be
invested in the Investment Company, in such other investment companies advised
by the Adviser as may be mutually agreed to in writing by the parties hereto,
in the Company's general account or in other separate accounts of the Company
managed by the Company or an affiliate, provided that such amounts may also be
invested in an investment company other than the Investment Company if (a) such
other investment company, or series thereof, has investment objectives or
policies that are substantially different from the investment objectives and
policies of all the Funds of the Investment Company and (b) the Company gives
the Investment Company and the Underwriter 45 days written notice of its
intention to make such other investment company available as a funding vehicle
for the Contracts and (c) the Investment Company or Underwriter consents to the
use of such other investment company.
1.6 The Company shall pay for Investment Company shares on the next
Business Day after an order to purchase Investment Company shares is made in
accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire.
1.7 Issuance and transfer of the Investment Company's shares will be by
book entry only. Stock certificates will not be issued to the Company or any
Account. Shares ordered from the Investment Company will be recorded in an
appropriate title for each Account.
1.8 The Investment Company shall furnish same day notice (by wire or
telephone, followed by written confirmation) to the Company of any income
dividends or capital gain distributions payable on the Investment Company's
shares. The Company hereby elects to receive all such income dividends and
capital gain distributions as are payable on the Fund shares in additional
shares of that Fund. The Company reserves the right to revoke this election and
to receive all such income dividends and capital gain distributions in cash.
Investment Company
3
<PAGE>
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.9 The Investment Company shall make the net asset value per share for
each Fund available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are
registered under the 1933 Act or are exempt from registration thereunder; that
the Contracts will be issued and sold in compliance in all material respects
with all applicable Federal and State laws and that the sale of the Contracts
shall comply in all material respects with state insurance suitability
requirements. the Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established each Account prior to any issuance
or sale thereof as a segregated asset account under Section 376.309 of the
Insurance Code of the State of Missouri and that each Account is or will be
registered as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts or is
exempt from registration thereunder.
2.2 The Investment Company represents and warrants that Investment
Company shares sold pursuant to this Agreement shall be registered under the
1933 Act, duly authorized for issuance and sold in compliance with the laws of
the State of Missouri and all applicable federal and state securities laws and
that the Investment Company is and shall remain registered under the 1940 Act.
The Investment Company shall amend the Registration Statement for its shares
under the 1933 and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares. the Investment Company shall register
and qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Investment Company or
the Underwriter.
2.3 The Investment Company represents that it is currently qualified as
a Regulated Investment Company under Subchapter M of the Internal Revenue Code
of 1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4 The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts, under applicable provisions of
the Code and that it will make every effort to maintain such treatment and that
it will notify the Investment Company and the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
4
<PAGE>
2.5 The Investment Company currently does not intend to make any payments
to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the
Investment Company undertakes to have a board of trustees, a majority of whom
are not interested persons of the Investment Company, formulate and approve any
plan under Rule 12b-1 to finance distribution expenses.
2.6 The Investment Company makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states.
2.7 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Investment
Company shares in accordance with any applicable state laws and federal
securities laws, including without limitation the 1933 Act, the 1934 Act, and
the 1940 Act.
2.8 The Investment Company represents that it is lawfully organized and
validly existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act.
2.9 The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Investment Company in compliance in all material respects
any applicable state laws and federal securities laws.
2.10 The Investment Company and Underwriter represent and warrant that
all of their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money or securities of the Investment
Company are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Investment Company
in an amount not less than the minimal coverage as required currently by Rule
17g-(1) of the 1940 Act or related provisions as may be promulgated from time
to time. The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.11 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other entities dealing with the
money or securities of the Investment Company are and shall continue to be at
all times covered by a blanket fidelity bond or similar coverage for the benefit
of the Investment Company in an amount not less than five million dollars ($5
million). The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
5
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS: VOTING
3.1 The Underwriter shall provide the Company with as many printed
copies of the Investment Company's current prospectus and Statement of
Additional Information as the Company may reasonably request. If requested
by the Company in lieu thereof, the Investment Company shall provide
camera-ready film or computer diskettes containing the Investment Company's
prospectus and Statement of Additional Information and such other assistance
as is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for
the Investment Company is amended during the year) to have the prospectus for
the Contracts and the Investment Company's prospectus printed together in one
document, and to have the Statement of Additional Information for the
Investment Company and the Statement of Additional Information for the
Contracts printed together in one document. Alternatively, the Company may
print the Investment Company's prospectus and/or its Statement of Additional
Information in combination with other fund companies' prospectuses approved
pursuant to Section 1.5 and statements of additional information. Except as
provided in the following three sentences, all expenses of printing and
distributing Investment Company prospectuses and Statements of Additional
Information shall be the expense of the Company. For Prospectuses and
Statement of Additional Information provided by the Company to its existing
owners of Contracts in order to update disclosure as required by the 1933 Act
and/or the 1940 Act, the cost of printing shall be borne by the Investment
Company. If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Investment Company's
prospectus, the Investment Company will reimburse the Company in an amount
equal to the product of A and B where A is the number of such prospectuses
distributed to owners of the Contracts, and B is the Investment Company's per
unit cost of typesetting and printing the Investment Company's prospectus.
The same procedures shall be followed with respect to the Investment
Company's Statement of Additional Information.
The Company agrees to provide the Investment Company or its designee with
such information as may be reasonably requested by the Investment Company to
assure that the Investment Company's expenses do not include the cost of
printing any prospectuses or Statements of Additional Information other than
those actually distributed to existing owners of the Contracts.
3.2 The Investment Company's prospectus shall state that the Statement
of Additional Information for the Investment Company is available from the
Underwriter or the Company (or in the Fund's discretion, the Prospectus shall
state that such Statement is available from the Investment Company).
3.3 The Investment Company, at its expense, shall provide the Company
with copies of its proxy statements, reports to shareholders, and other required
communications (except for prospectuses and Statement of Additional Information,
which are covered in Section 3.1) to shareholders in such quantity as the
Company shall reasonably require for distributing to Contract owners.
6
<PAGE>
3.4 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote Investment Company shares in accordance with
instructions received from Contract owners; and
(iii) vote Investment Company shares for which no instructions
have been received in the same proportion as Investment
Company shares of such Fund for which instructions have been
received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Investment
Company shares held in any segregated asset account in its own right, to the
extent permitted by law.
3.5 The Investment Company will comply with all provisions of the 1940
Act requiring voting by shareholders, and in particular the Investment
Company will either provide for annual or special meetings or comply with the
requirements of Section 16(c) of the 1940 Act (although the Investment
Company is not one of the trusts described in Section 16(c) of that Act) as
well as with Sections 16(a) and, if and when applicable, 16(b). Further, the
Investment Company will act in accordance with the SEC's interpretation of
the requirements of Section 16(a) with respect to periodic elections of
directors and with whatever rules the SEC may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the
Investment Company or its designee, each piece of sales literature or other
promotional material, or component thereof, in which the Investment Company, the
Adviser, or the Underwriter is named, at least fifteen Business Days prior to
its use. No such material shall be used if the Investment Company or its
designee object to such use within fifteen Business Days after receipt of such
material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Investment Company or concerning
the Investment Company in connection with the sale of the Contracts other than
the information or representations contained in the registration statement or
prospectus for the Investment Company shares, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports or
proxy statements for the Investment Company, or in sales literature or other
promotional material approved by the Investment Company or its designee or by
the Underwriter, except with the permission of the Investment Company or the
Underwriter or the designee of either.
4.3 The Investment Company, the Underwriter, or their designees shall
furnish, or shall cause to be furnished, to the Company or its designee, each
piece of sales literature or other
7
<PAGE>
promotional material, or component thereof, in which the Company or its separate
Accounts are named at least fifteen Business Days prior to its use. No such
material shall be used if the Company or its designee objects to such use within
fifteen Business Days after receipt of such material.
4.4 The Investment Company and the Underwriter shall not give any
information or make any representations on behalf of the Company or concerning
the Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or offering
materials for the Contracts, as such may be amended or supplemented from time to
time, or in published reports for each Account which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Investment Company will provide to the Company at least one
complete copy of all registration statements, prospectuses, Statements of
Additional Information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the
Investment Company or its shares, contemporaneously with the filing of such
document with the Securities and Exchange Commission or other regulatory
authorities.
4.6 The Company will provide to the Investment Company at least one
complete copy of all registration statements, prospectuses, Statements of
Additional Information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Contracts or each Account, contemporaneously with the filing of
such document with the SEC or other regulatory authorities. In the case of
unregistered Contracts, in lieu of providing prospectuses and Statements of
Additional Information, the Company shall provide the Investment Company with
one complete copy of the offering materials for the Contracts.
4.7 For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, electronic media, or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, and registration
statements, prospectuses, Statements of Additional Information, shareholder
reports, and proxy materials.
8
<PAGE>
ARTICLE V. FEES AND EXPENSES
5.1 The Investment Company and the Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Investment
Company or any Fund adopts and implements a plan pursuant to Rule 12b-1 to
finance distribution expenses, then the Underwriter may make payments to the
Company or to the underwriter for the Contracts if and in amounts agreed to by
the Underwriter in writing and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter, or other
resources available to the Underwriter. No such payments shall be made directly
by the Investment Company. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Investment Company
under this Agreement shall be paid by the Investment Company. The Investment
Company shall see to it that all its shares are registered and authorized for
issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Investment Company, in accordance with applicable
state laws prior to their sale. The Investment Company shall bear the
expenses for the cost of registration and qualification of the Investment
Company's shares, preparation and filing of the Investment Company's
prospectus and registration statement, proxy materials and reports, setting
the prospectus in type, setting in type and printing the proxy materials and
reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, all taxes on the issuance or transfer
of the Investment Company's shares.
5.3 The Company shall bear the expenses of distributing the Investment
Company's prospectus, proxy materials, and reports to owners of Contracts issued
by the Company.
ARTICLE VI. DIVERSIFICATION
6.1 The Investment Company will at all times invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated as
variable contracts under the Internal Revenue Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Investment Company
will at all times comply with Section 817(h) of the Code and Treasury Regulation
1.817-5, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts and any amendments or other modifications
to such Section or Regulations.
ARTICLE VII. INDEMNIFICATION
7.1 INDEMNIFICATION BY THE COMPANY
7.1(a). The Company agrees to indemnify and hold harmless the Investment
Company and each member of the Board and officers and each person, if any, who
controls the Investment Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified
9
<PAGE>
Parties" for purposes of this Section 7.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or action in respect thereof) or settlements are related to the
sale or acquisition of the Investment Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in any Registration
Statement, prospectus or other offering materials for the Contracts or
contained in the Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished to the Company by or on behalf of the Investment
Company for use in any Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Investment Company's shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Investment Company not
supplied by the Company, or persons under its control) or wrongful conduct
of the Company or persons under its control, with respect to the sale or
distribution of the Contracts or Investment Company shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, prospectus, or sales
literature of the Investment Company or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in reliance
upon information furnished to the Investment Company by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of a result from any material breach of any
representation or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of Sections
7.1(b) and 7.1(c) hereof.
7.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified
10
<PAGE>
Party as such may arise from such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Investment Company, whichever is
applicable.
7.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Investment Company shares or the Contracts or the
operation of the Investment Company.
7.2 INDEMNIFICATION BY THE UNDERWRITER
7.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Investment Company's shares or the Contracts and;
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement or prospectus or sales literature of the Investment Company (or
any amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was
11
<PAGE>
made in reliance upon and in conformity with information furnished to the
Underwriter or Investment Company by or on behalf of the Company for use in
the Registration Statement or prospectus for the Investment Company or in
the sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Investment Company shares;
or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in any Registration
Statement, prospectus, other offering materials or sales literature for the
Contracts not supplied by the Underwriter or persons under its control) or
wrongful conduct of the Investment Company, Adviser, or Underwriter or
persons under their control, with respect to the sale or distribution of
the Contracts or Investment Company shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement, prospectus, other
offering materials or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Investment Company; or
(iv) arise as a result of any failure by the Investment Company to
provide the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Underwriter; as limited by and in accordance with the provisions of
Sections 7.2(b) and 7.2(c) hereof.
7.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or each Account, whichever is applicable.
7.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such
12
<PAGE>
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the
Underwriter will be entitled to participate, at its own expense, in the defense
thereof. The Underwriter also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice from
the Underwriter to such party of the Underwriter's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Underwriter will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
7.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of any Account.
7.3 INDEMNIFICATION BY THE INVESTMENT COMPANY
7.3(a). The Investment Company agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 7.3)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Investment Company or
litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Investment Company and:
(i) arise as a result of any failure by the Investment Company to
provide the services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation or warranty made by the Investment Company in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Investment Company, as limited by and in
accordance with the provisions of Sections 7.3(b) and 7.3(c) hereof.
7.3(b). The Investment Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's will misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Investment Company , the
Underwriter or any Account, which ever is applicable.
13
<PAGE>
7.3(c). The Investment Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Investment Company
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Investment Company of any such claim shall not relieve the Investment Company
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the
Investment Company will be entitled to participate, at its own expense, in the
defense thereof. The Investment Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Investment Company to such party of the Investment
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Investment Company will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
7.3(d). The Company and the Underwriter agree promptly to notify the
Investment Company of the commencement of any litigation or proceeding against
it or any of its respective officers or directors in connection with this
Agreement, the issuance or sale of the Contracts, with respect to the operation
of any Account, or the sale or acquisition of shares of the Investment Company.
ARTICLE VIII. APPLICABLE LAW
8.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Missouri.
8.2 To the extent they are applicable, this Agreement shall be subject to
the provisions of the 1933, 1934 and 1940 acts, and the rules and regulations
and rulings thereunder, including such exemptions from those statutes, rules and
regulations as the Securities and Exchange Commission may grant and the terms
hereof shall be interpreted and construed in accordance therewith.
ARTICLE IX. TERMINATION OF AGREEMENT
9.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
14
<PAGE>
(b) termination by the Company by written notice to the Investment
Company and the Underwriter with respect to any fund based upon the Company's
determination that shares of such Fund are not reasonable available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Investment
Company and the Underwriter with respect to any Fund in the event any of
the Fund's shares are not registered, issued, or sold materially in
accordance with applicable state or federal law or such law precludes the
use of such shares as the underlying investment media of the Contracts
issued or to be issued by the Company; or
(d) Termination by the Company by written notice to the Investment
Company and the Underwriter with respect to any Fund in the event that such
Fund ceases to qualify as a Regulated Investment Company under Subchapter M
of the Code or under any successor or similar provision, or if the Company
reasonably believes that the Investment Company may fail to so qualify; or
(e) termination by the Company by written notice to the Investment
Company and the Underwriter with respect to any Fund in the event that such
Fund fails to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Investment Company or the Underwriter
by written notice to the Company, if either one or both of the Investment
Company or the Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company or its affiliated
companies has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Investment
Company and the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that either the Investment Company or the
Underwriter has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(h) termination by the Investment Company or the Underwriter by
written notice to the Company if the Company gives the Investment Company
and the Underwriter the written notice specified in Section 1.5 hereof and
at the time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement; provided, however,
any termination under this Section 9.1(b) shall be effective forty-five
(45) days after the notice specified in Section 1.5 was given.
9.2 Notwithstanding any termination of this Agreement, the Investment
Company and the Underwriter shall at the option of the Company, continue to make
available additional shares of the Investment Company pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to
15
<PAGE>
as "Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investment in the Investment
Company, redeem investments in the Investment Company, or invest in the
Investment Company upon the making of additional purchase payments under the
Existing Contracts.
9.3 The Company shall not redeem Investment Company shares attributable
to the Contracts (as opposed to Investment Company shares attributable to the
Company's assets held in any of the Accounts) except (i) as necessary to
implement Contract Owner initiated transactions, or (ii) as required by state or
federal laws or regulations or judicial or other legal precedent of general
application (hereinafter referred to as a "Legally Required Redemption"). Upon
request, the Company will promptly furnish to the Investment Company and the
Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Investment Company and the Underwriter) to the
effect that any redemption pursuant to clause (ii) above is a Legally Required
Redemption. Furthermore, except in cases where permitted under the terms of the
Contracts, the Company shall not prevent Contract Owners from allocating
payments to a Fund that was otherwise available under the Contracts without
first giving the Investment Company or the Underwriter ninety (90) days notice
of its intention to do so.
ARTICLE X. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Investment Company:
909 A. Street
Tacoma, Washington 98402
Attention: Karl J. Ege, Esq.
If to the Company:
13045 Tesson Ferry Road
St. Louis, Missouri 63128
Attention: Barbara Synder
If to the Underwriter:
909 A. Street
Tacoma, Washington 98402
Attention: Karl J. Ege, Esq.
ARTICLE XI. MISCELLANEOUS
16
<PAGE>
11.1 All persons dealing with the Investment Company must look solely to
the property of the Investment Company for the enforcement of any claims against
the Investment Company as neither the Board, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Investment Company.
11.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
11.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.5 If any provisions of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
11.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable life
insurance operations of the Company are being conducted in a manner consistent
with the California Variable Life Insurance Regulations and any other applicable
law or regulations.
11.7 The Investment Company and Underwriter agree that to the extent any
advisory or other fees received by the Investment Company, the Underwriter, or
the Adviser are determined to be unlawful in legal or administrative
proceedings under the 1973 NAIC model variable life insurance regulation in the
states of California, Colorado, Maryland, or Michigan, the Underwriter shall
indemnify and reimburse the Company for any out of pocket expenses and actual
damages the Company has incurred as a result of any such proceeding; provided
however that the provisions of Section 7.2(b) and 7.2(c) shall apply to such
indemnification and reimbursement obligation. Such indemnification and
reimbursement obligation shall be in addition to any other indemnification and
reimbursement obligations of the Investment Company or the Underwriter under
this Agreement.
17
<PAGE>
11.8 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
11.9 This Agreements or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
11.10 The Company shall furnish, or shall cause to be furnished, to the
Investment Company or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory accounting
principles, as soon as practical and in any event within 90 days after the
end of each fiscal year;
(b) the Company's quarterly statement (statutory), as soon as practical
and in any event within 45 days after the end of each quarterly period; and
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders or policyholders, as soon as practical after the
delivery thereof; and
11.11 The Master Trust Agreement dated 11 July 1996, as amended from
time to time, establishing the Investment Company, which is hereby referred
to and a copy of which is on file with the Secretary of The Commonwealth of
Massachusetts, provided that the name Russell Insurance Funds 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 Investment Company hereunder shall not be binding upon
any of the shareholders, Trustees, officers, employees or agents of the
Investment Company, personally, but shall bind only the trust property of the
Investment Company as provided in its Master Trust Agreement. The execution
and delivery of this Agreement have been authorized by the Trustees of the
Investment Company and signed by the President of the Investment Company,
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 Investment Company
as provided in its Master Trust Agreement.
18
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed in its name and on behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
GENERAL AMERICAN LIFE
INSURANCE COMPANY
ATTEST: BY
---------------------------- ---------------------------
Secretary President
DATE:
RUSSELL INSURANCE FUNDS
ATTEST: BY
---------------------------- ---------------------------
Secretary President
DATE:
RUSSELL FUND
DISTRIBUTORS, INC.
ATTEST: BY
---------------------------- ---------------------------
Secretary President
DATE:
19
<PAGE>
SCHEDULE A
ACCOUNTS
Name of Account Date of Resolution of Company's
Board which Established the
Account
General American January 24, 1985
Separate Account Eleven
20
<PAGE>
SCHEDULE B
CONTRACTS
1. Contract Form Numbers:
FRC-VUL 100003 (10/95)
2. Funds currently available to act as investment vehicles for certain of the
above-listed contracts:
General Account of General American Life Insurance Company
Money Market Fund of General American Capital Company
Russell Insurance Funds, Inc.: Multi-Style Equity Fund
Aggressive Equity Fund
Non-U.S. Fund
Core Bond Fund
21
<PAGE>
Exhibit 99.9(b)
TRANSFER AND DIVIDEND
DISBURSING AGENCY AGREEMENT
AGREEMENT made as of this 5th day of August , 1996 by and between RUSSELL
INSURANCE FUNDS, a Massachusetts business trust having its principal place of
business at 909 A Street, Tacoma, Washington 98402 (hereinafter called the
"Investment Company") and FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY, a
Washington corporation having its principal place of business at 909 A Street,
Tacoma, Washington 98402 (hereinafter called "FRIMCo" or "Transfer Agent").
WITNESSETH THAT:
WHEREAS, Investment Company (i) is a diversified, open-end management
investment company of the "series" type and is registered as such under the
Investment Company Act of 1940, as amended, (ii) offers shares of classes of
capital stock identified in Schedule A with each class evidencing an interest in
a separate portfolio of investment securities (each of which is herein referred
to as a "Fund"), and may subsequently offer shares of additional Funds to be
organized and made subject to the provisions of this Agreement in accordance
with paragraph 25 hereof; and
WHEREAS, Investment Company desires to retain the Transfer Agent to render
transfer agency and dividend disbursing agency services to the Investment
Company and the Transfer Agent has agreed to act as Transfer Agent of the
Investment Company and as its Dividend Disbursing Agent;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto, intending to be legally bound, do hereby
agree as follows:
FRIMCo is hereby appointed Transfer Agent for the Stock of the Investment
Company and shall act as Plan Agent if one or more Plans exist for shareholders
of the Investment Company under the following terms and conditions:
DOCUMENT
1. In connection with the appointment of FRIMCo as Transfer Agent, the
Investment Company shall file with FRIMCo the following documents:
A. Certified copies of the Master Trust Agreement of the Investment
Company and all amendments thereto;
B. A certified copy of the Bylaws of the Investment Company as amended to
date;
<PAGE>
C. A copy of the resolution of the Board of Trustees of the Investment
Company authorizing the Agreement;
D. Specimens of all forms of outstanding and new stock certificates, if
any, in the forms approved by the Board of Trustees of the Investment
Company with a certificate of the Secretary of the Investment Company
as to such approval;
E. All account application forms and other documents relating to
shareholders' accounts;
F. Copies of all documents relating to plans instituted by the Investment
Company, including periodic investment and withdrawal plans, for which
FRIMCo is to act as Plan Agent;
G. An opinion of counsel for the Investment Company with respect to the
validity of the Stock, the number of shares authorized, the status of
redeemed shares and the number of shares with respect to which a
Registration Statement has been filed and is in effect.
FURTHER DOCUMENTATION
2. The Investment Company will also furnish from time to tome the
following documents:
A. Each resolution of the Board of Trustees of the Investment Company
authorizing the original issue of its shares;
B. Each Registration Statement filed with the Securities and Exchange
Commission and amendments thereof and orders relating thereto in
effect with respect to the sale of shares of the Investment Company'
C. A certified copy of each amendment to the Articles of Incorporation
and the Bylaws of the Investment Company;
D. Certified copies of each resolution of the Board of Trustees
authorizing officers to give instructions to FRIMCo;
E. Specimens of all new stock certificates, if any, accompanied by Board
of Trustees' resolutions approving such forms;
F. Such other certificates, documents or opinions which FRIMCo may, in
its discretion, deem necessary or appropriate in the proper
performance of its duties.
<PAGE>
AUTHORIZED SHARES
3. The Investment Company certifies to FRIMCo that as of the close of
business on the date of the Agreement, it has authorized shares of its Stock, as
stated in the then current Prospectus and Statement of Additional Information,
and certifies that by virtue of its Declaration of Trust and the provisions of
the laws of the state of its domicile shares of its Stock which are redeemed by
the Funds from their holders are restored to the status of authorized and
unissued shares.
TRANSFER AGENT TO REGISTER SHARES
4. FRIMCo shall record issues of shares of the Stock of the Funds.
Except as specifically agreed in writing between FRIMCo and the Investment
Company, FRIMCo shall have no obligation, when crediting shares of
countersigning and issuing certificates for shares, to take cognizance of any
other laws relating to the issue and sale of such shares.
TRANSFER AGENT TO RECORD TRANSFER
5. FRIMCo, upon receipt of proper instructions for transfer and surrender
to it of certificates, if any, in proper form for transfer, is authorized to
transfer on the records of the Funds maintained by it from time to time shares
of the Fund's Stock, and upon cancellation of surrendered certificates, if any,
to credit a like amount of shares to the transferee and to countersign, issue
and deliver new certificates if requested.
STOCK CERTIFICATES
6. The Investment Company shall supply FRIMCo with a sufficient supply of
blank stock certificates, if any are authorized, and from time to time shall
renew such supply upon request of FRIMCo. Any such blank stock certificates
shall be properly signed, manually or by facsimile, if authorized by the
Investment Company, and shall bear the corporate seal or facsimile thereof of
the Investment Company; and notwithstanding the death, resignation or removal of
any officers of the Investment Company authorized to sign certificates of stock,
FRIMCo may continue to countersign certificates which bear the manual or
facsimile signature of such officer until otherwise directed by the Investment
Company.
RECEIPT OF FUNDS
7. Upon receipt at the office designated by FRIMCo of any check or other
order drawn or endorsed to it as transfer agent for the Investment Company or as
plan agent for any shareholder of the Funds or otherwise identified as being for
the account of the Funds and in the case of a new account accompanied by a new
account application or sufficient information to establish an account, FRIMCo
shall stamp the check or other order with the date of receipt, shall forthwith
process the same for collection and, as of the opening of business on the second
business day following receipt of such check or other
<PAGE>
order, shall credit federal funds to the Funds in the face amount of the check
or other instrument and shall deposit the amount due the Funds to the Custodial
account of the Funds. Upon receipt of funds through the Federal Reserve Wire
System or conversion into federal funds of funds transmitted by other bank wire
transfer system, FRIMCo shall notify the Funds of such deposits, such
notification to be given on a daily basis. FRIMCo shall credit the
shareholder's account with number of shares purchased according to the price of
the Funds' shares in effect for such purchases as set forth in the Investment
Company's then current Prospectus(es).
RETURNED CHECKS
8. In the event that any check or other order for the payment of money is
returned unpaid for any reason, FRIMCo shall:
A. Give prompt notification to the Investment Company of the nonpayment
of said check.
B. In the absence of other instructions from the Investment Company, take
such steps as may be necessary to cancel promptly any shares purchased
on the basis of such returned check and shall cancel accumulated
dividends for such account.
NOTICE OF DISTRIBUTION
9. The Investment Company shall promptly inform FRIMCo of the declaration
of any dividend or distribution on account of its Stock.
DISTRIBUTIONS
10. FRIMCo shall act as Dividend Disbursing Agent for the Investment
Company, and, as such, in accordance with the provisions of the Investment
Company's Articles of Incorporation and then current Prospectus(es) and
Statement(s) of Additional Information shall prepare and mail or credit income
and capital gain payments to investors. As the Dividend Disbursing Agent it
shall, on or before the payment date of any such dividend or distribution,
notify the Custodian of the estimated amount required to pay any portion of said
dividend or distribution which is payable in cash, and the Investment Company
agrees that on or before the payment date of such distribution, it shall
instruct the Custodian to make available to the Dividend Disbursing Agent
sufficient funds for the cash amount to be paid out. If an investor is entitled
to receive additional shares by virtue of any such distribution or dividend,
appropriate credits will be made to his account.
REDEMPTIONS
11. FRIMCo shall process each order for the redemption of shares accepted
by it on behalf of the Funds from or on behalf of an investor and shall provide
to the investor or a person lawfully designated by the investor a confirmation
showing trade date, number
<PAGE>
of full and fractional shares redeemed (in the case of a fractional share,
rounded to three decimal places), the price per share and the total redemption
proceeds. In the event of a complete redemption, such confirmation shall show,
in addition, the amount of accumulated dividends included in such total
redemption proceeds not previously reported to the investor in a periodic
statement and the total distributions for the year to date. FRIMCo shall either
(a) prepare, affix the appropriate facsimile signature to, address and mail a
check in the appropriate amount to the appropriate person or, (b) in the event
redemption proceeds are to be wired through the Federal Reserve Wire system or
by bank wire cause such proceeds to be wired in federal funds to the bank or
trust company account designed by the investor for receiving such proceeds. The
requirements as to instruments of transfer and other documentation, the
applicable redemption price and the time of payment shall be as provided in the
then currently effective Prospectus(es), subject to such supplemental
requirements consistent with such Prospectus(es) as may be established by mutual
agreement between the Investment Company and FRIMCo. If FRIMCo or the
Investment Company determines that a request for redemption does not comply with
the requirements for redemption, FRIMCo shall promptly so notify the investor or
the investor's agent, together with the reason therefor, and shall effect such
redemption at the price in effect at the time of receipt of documents complying
with said standards. FRIMCo shall notify the Custodian and the Investment
Company on each business day of the amount of cash required to meet payments
made pursuant to the provisions of this paragraph and the Investment Company
shall instruct the Custodian to make available from time to time sufficient
funds therefor in the liquidation account of the Funds.
Procedures and standards for redemptions in kind and for effecting and
accepting redemption orders from investors and their agents by telephone shall
be established by mutual agreement between FRIMCo and the Investment Company
consistent with the then current Prospectus(es).
The Transfer Agent is authorized, upon receipt of Written Instructions from
the Investment Company, to make payment upon redemption of shares without a
signature guarantee. The Investment Company hereby agrees to indemnify and hold
the Transfer Agent, its successors and assigns, harmless of and from any and all
expenses, damages, claims, suits, liabilities, actions, demands, losses
whatsoever arising out of or in connection with a payment by the Transfer Agent
upon redemption of shares without a signature guarantee pursuant to proper
Written Instructions if such expense, damage, claim, suit, etc. is not the
result of negligence or willful misconduct by the Transfer Agent and upon the
request of the Transfer Agent the Investment Company shall assume the entire
defense of any action, suit or claims subject to the foregoing indemnity.
The authority of FRIMCo to perform its responsibilities under this
paragraph 11 with respect to any Fund shall be suspended upon receipt of
notification by it of the suspension of the determination of the Fund's net
asset value.
<PAGE>
WITHDRAWAL PLANS
12. FRIMCo shall process withdrawal orders in accordance with the terms of
any withdrawal plans instituted by the Investment Company and duly executed by
investors. Payments upon such withdrawal orders and redemptions of shares held
in withdrawal plan accounts for such payments shall be made at such times as the
Investment Company may determine with the approval of FRIMCo.
TAX RETURNS
13. FRIMCo shall prepare, file with the Internal Revenue Service and with
the appropriate State Agencies, and, if required, provide to investors or their
agents such returns for reporting dividends and distributions paid as are
required to be so filed and mailed, and shall withhold such sums as are required
to be withheld under applicable Federal and state income tax laws, rules and
regulations.
BOOKS AND RECORDS
14. FRIMCo shall maintain or cause to be maintained records showing for
each investor's account the following:
A. Names, addresses and tax identifying numbers;
B. Number of shares held;
C. Historical information regarding the account of each shareholder,
including dividends paid and date and price for all transactions;
D. Any stop or restraining order placed against the account'
E. Information with respect to withholdings in the case of a foreign
account;
F. Any dividend reinvestment order, plan application, dividend address
and correspondence relating to the current maintenance of the account;
G. If certificates are issued, certificate numbers and denominations for
any shareholder holding certificates.
H. Any information required in order for FRIMCo to perform the
calculations contemplated or required by this Agreement.
Any such records required to be maintained by Rule 31a-1 of the General
Rules and Regulations under the Investment Company Act of 1940 shall be
preserved for the periods prescribed in Rule 31a-2 of said rules as specifically
noted below. Such record retention shall be at the expense of the Investment
Company and records may be inspected by the Investment Company at reasonable
times. FRIMCo may, at its option at any time,
<PAGE>
and shall forthwith upon the Investment Company's demand, turn over to the
Investment Company and cease to retain in FRIMCo's files, records and documents
created and maintained by FRIMCo pursuant to this Agreement, which are no longer
needed by FRIMCo in performance of its services or for its protection. If not
so turned over to the Investment Company, such records and documents will be
retained by FRIMCo for six years from the year of creation, during the first two
of which such documents will be in readily accessible form. At the end of the
six year period, such records and documents will either be turned over to the
Investment Company, or destroyed in accordance with the Investment Company's
authorization.
INSPECTION OF RECORDS
15. In case of any request or demand for the inspection of the share
records of the Investment Company, the Transfer Agent shall immediately notify
the Investment Company and secure instructions as to permitting or refusing such
inspection. All records of the Investment Company are confidential and will not
be released to any party prior to notice to and authorization by Investment
Company unless required by applicable law or regulations, provided that the
Transfer Agent may exhibit such records to any person in any case where it is
advised by its counsel that it may be held liable for failure so to do pursuant
to any valid court order or decree.
INFORMATION TO BE FURNISHED
TO THE INVESTMENT COMPANY
16. FRIMCo shall furnish to the Investment Company periodically as agreed
upon the following information:
A. A copy of the daily transaction register;
B. Dividend and reinvestment blotters;
C. The total number of shares distributed in each state for "blue sky"
purposes as determined according to instructions delivered from time
to time by the Investment Company to FRIMCo.
OTHER INFORMATION TO
THE INVESTMENT COMPANY
17. FRIMCo shall furnish to the Investment Company such other information,
including shareholder lists, and statistical information as may be agreed upon
from time to time.
<PAGE>
CORRESPONDENCE
18. FRIMCo shall answer correspondence from shareholders and their agents
relating to their share accounts and such other correspondence as may from time
to time be mutually agreed upon.
PROXIES
19. FRIMCo shall mail such proxy cards and other material supplied to it
by the Investment Company in connection with shareholder meetings of the Funds
and shall receive, examine and tabulate returned proxies and certify the vote of
the Funds.
FEES AND CHARGES
20. FRIMCo shall receive such compensation from the Investment Company for
its services as the Investment Company's Transfer and Dividend Disbursing Agent,
as Plan Agent for shareholders of the Investment Company, and for its other
duties pursuant hereto as may be agreed from time to time, and shall be
reimbursed for the cost of any and all forms, including blank checks and
proxies, used by it in communicating with shareholders of the Funds, or
especially prepared for use in connection with its actions hereunder, as well as
the cost of postage, telephone and telegraph used in communicating with
shareholders of the Funds, it being agreed that FRIMCo, prior to ordering any
forms in such supply as it estimates will be adequate for more than two years'
use, shall obtain the written consent of the Investment Company. All forms for
which FRIMCo has received reimbursement from the Investment Company shall be and
remain the property of the Investment Company until used.
COMPLIANCE WITH GOVERNMENTAL
RULES AND REGULATIONS
21. The Investment Company assumes full responsibility for insuring that
the contents of each Prospectus and Statement of Additional Information of the
Investment Company complies with all applicable requirements of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and any
laws, rules and regulations of governmental authorities having jurisdiction.
INDEMNIFICATION
22. The Investment Company shall indemnify and hold FRIMCo harmless from
all loss, cost, damage and expense, incurred by it resulting from any claim,
demand, action or suit arising directly or indirectly out of or in connection
with the performance of its duties hereunder as Transfer and Dividend Disbursing
Agent and Plan Agent, or as a result of acting upon any instruction believed by
it to have been executed by a duly authorized officer of the Investment Company,
or upon any information, data, records or documents provided FRIMCo or its
agents by computer tape, telex, CRT data entry or other similar means authorized
by the Investment Company, PROVIDED that this indemnification shall not
<PAGE>
apply to actions or omissions of FRIMCo in cases of its own willful misconduct
or negligence. In order that the indemnification provision contained in this
paragraph 22 shall apply, however, it is understood that if in any case the
Investment Company may be asked to indemnify or save FRIMCo harmless, the
Investment Company shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood that FRIMCo
will use all reasonable care to identify and notify the Investment Company
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Investment
Company. The Investment Company shall have the option to defend FRIMCo against
any claim which may be the subject of this indemnification, and in the event
that the Investment Company so elects it will so notify FRIMCo, and thereupon
the Investment Company shall take over complete defense of the claim, and FRIMCo
shall in such situations incur no further legal or other expenses for which it
shall seek indemnification under this paragraph. FRIMCo shall in no case
confess any claim or make any compromise in any case in which the Investment
Company will be asked to indemnify FRIMCo except with the Investment Company's
prior written consent.
FURTHER ACTIONS
23. Each party agrees to perform such further acts and execute such
further documents as are necessary to effectuate the purposes hereof.
AMENDMENT AND TERMINATION
24. This Agreement may be modified or amended from time to time by mutual
agreement between the parties hereto. The Agreement may be terminated at any
time by one hundred twenty (120) days' written notice given by one party to the
other.
ADDITIONAL PROVISIONS
25. In the event that the Investment Company establishes additional Funds
with respect to which it desires to have FRIMCo render services as Transfer
Agent, Dividend Disbursing Agent and Plan Agent under the terms hereof, it shall
so notify FRIMCo in writing, and if FRIMCo agrees in writing to provide such
services, such Fund or Funds shall become subject to all provisions contained
herein.
ASSIGNMENT
26. This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Investment Company without the written
consent of the Transfer Agent or by the Transfer Agent without the written
consent of the Investment Company.
GOVERNING LAW
27. This Agreement shall be governed by the laws of the State of
Washington.
<PAGE>
LIMITATION OF LIABILITY
28. This Master Trust Agreement dated July 11, 1996, as amended from time
to time, establishing the Investment Company, 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 Russell Insurance Funds means the Trustees
from time to time serving (as Trustees but not personally) under said Master
Trust Agreement. It is expressly acknowledge and agreed that the obligations of
the Investment Company hereunder shall not be binding upon any of the
shareholders, Trustees, officers, employees or agents of the Investment Company,
personally, but shall bind only the trust property of the Investment Company, as
provided in its Master Trust Agreement. The execution and delivery of this
Agreement have been authorized by the Trustees of the Investment Company and
signed by the President of the Investment Company, 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 Investment Company as provided in its Master Trust Agreement.
EXECUTED under seal as of the day and year first above written.
ATTEST RUSSELL INSURANCE FUNDS
/s/Karl J. Ege By: /s/ Lynn L. Anderson
- -------------------------- -------------------------------
Secretary President
FRANK RUSSELL INVESTMENT
ATTEST MANAGEMENT COMPANY
/s/ Karl J. Ege By: /s/ Eric A. Russell
- -------------------------- -------------------------------
Secretary President
<PAGE>
SCHEDULE A
RUSSELL INSURANCE FUNDS
Multi-Style Equity
Aggressive Equity
Quantitative Equity
Non U.S.
Core Bond
<PAGE>
Exhibit 99.9(c)
_____________,1996
Russell Insurance Funds
909 A Street
Tacoma, WA 98402
Ladies and Gentlemen:
Reference is made to the Custodian Contract between State Street Bank and Trust
Company (the "Bank") and Russell Insurance Funds (the "Fund") dated __________,
1996 (the "Custodian Contract"). This letter sets forth our understanding of
the consideration and certain terms and conditions pursuant to which the Bank
will provide data to support tax reporting. and compliance testing to the
portfolios of the Fund in conjunction with the services provided under the
Custodian Contract.
The Bank has developed or will develop a system (the "System") to provide
certain data to support tax reporting and compliance testing to investment
companies, and will implement the System to provide such support to the Fund.
Development and implementation of the System will take place in three phases,
and is anticipated to continue through the year 1996. Details of the
development and implementation of the System is set forth in the Tax Accounting
Project Plan attached hereto as Schedule 1.
The System has not been and will not be developed for the Fund's exclusive use,
and the Bank shall be free to use the system to provide the tax reporting and
compliance testing support to others. This agreement shall not transfer to the
Fund any right to, or interest in the System or in any related trademark or
proprietary rights of the Bank.
Once the System is operational, the Bank shall provide the reports set forth on
Schedule 3 hereto (the "Reports") for the compensation set forth in Schedule 2
hereto.
The type of information to be contained in and the format of all Reports shall
be subject to review by the Fund's tax professionals, and the Bank shall have no
liability relating therefrom to qualification of any portfolio of the Fund as a
regulated investment company or any liability relating to the compliance with
any federal or state tax law, regulation or ruling by any portfolio of the Fund.
304
<PAGE>
Russell Insurance Funds
_________________, 1996
Page 2
The Bank shall not be liable in any way for any delays, inaccuracies, errors in
or omissions from the Reports or for any damages arising from or occasioned by
the provision of such Reports, unless due to the Bank's negligence. Under no
circumstances will the Bank be liable for special, indirect, incidental or
consequential damages of any kind whatsoever (including, without limitation,
attorneys' fees) with respect to the Reports except as set forth above.
If the System is unable to produce the Reports, the Bank shall reimburse the
Fund for any compensation set forth in Schedule 2 hereto actually paid to the
Bank during the preceding twelve months.
This letter agreement may be terminated by either party by an instrument in
writing delivered or mailed, postage prepaid to the other party. Such
termination will take effect not sooner than sixty (60) days after the date of
such delivery and, at the Fund's option, not later than (i) up to one-hundred-
eighty (180) days after such delivery or (ii) the Fund's procurement of
replacement services for those provided by the Bank under this letter agreement,
whichever occurs first. Subject to such notice period, this letter agreement
shall terminate simultaneously with a termination of the Custodian Contract, but
nothing in this letter agreement or in the Custodian Contract shall prevent the
termination of this letter agreement without the termination of the Custodian
Contract.
Except as otherwise provided herein, the Reports shall be provided subject to
the terms and conditions of the Custodian Contract. If any provision of this
letter agreement is inconsistent with the Custodian Contract, the terms of this
letter agreement shall govern with respect to the provisions of the Reports.
The signature below indicates the binding nature of this agreement and its
attachments.
Very truly yours, Accepted and Agreed:
State Street Bank and Trust Company Russell Insurance Funds
By:_________________________________ By:_____________________________________
Nancy E. Grady, Vice President Lynn L. Anderson, President
305
<PAGE>
SCHEDULE 1
TAX ACCOUNTING PROJECT PLAN
306
<PAGE>
Schedule 2
Fee Schedule
Fees:
$8,500 per Equity Fund
$11,000 per Fixed Income Fund
$15,000 per Global Fund.
Fees are reported on an annualized basis and will be billed and payable monthly:
312
<PAGE>
SCHEDULE 3
TAX REPORTING AND COMPLIANCE TESTING SUPPORT
- - Realized g/l reports for flexible reporting periods
- - Disallowed loss reports for flexible reporting periods
The system must be capable of recording and tracking cost basis
adjustments and acquisition date changes
- - Bifurcation reports
- - Gross gains report that can be run for flexible reporting periods
- - 5% report
- - 10% report
- - Report for dividends received on securities held for less than 45 days
- - Report of securities not paying a dividend within the past 12 month
- - Report of securities that demonstrates recording and tracking PFIC cost
basis adjustments
- - Report of securities that demonstrates recording and tracking of Section
1256 cost basis adjustments
313
<PAGE>
Exhibit 99.9(d)
FORM OF YIELD CALCULATION SERVICES AGREEMENT
AGREEMENT made between Russell Insurance Funds, a Massachusetts business
trust, organized and existing under the laws of Massachusetts having its
principal place of business at 909 A Street, Tacoma, Washington 98402 (the
"Fund") and State Street Bank and Trust Company ("State Street") having its
principal place of business at 225 Franklin Street, Boston, Massachusetts 02110,
hereinafter called "State Street."
WHEREAS, the Fund and State Street have heretofore entered into a Custodian
Agreement dated August 5, 1996, as amended;
WHEREAS, the Fund desires to disclose in its prospectus, statements of
additional information and advertising, certain performance results;
WHEREAS, the Fund is a "series" type investment company registered under
the Investment Company Act of 1940 and currently has 5 separate series
("Series");
WHEREAS, the Fund desires State Street to compute the performance results
of the Fund's Series in accordance with the provisions of Release No. 33-6753
and Release No. IC-16245 (February 2, 1988) (the "Releases") promulgated by the
Securities and Exchange Commission, and any subsequent amendments to, published
interpretations of or general conventions accepted by the staff of the
Securities and Exchange Commission with respect to such Releases;
WHEREAS, State Street is willing to perform such calculations.
NOW, THEREFORE, the parties hereto agree as follows:
(1) State Street shall compute the yield, or tax equivalent yield, for
each of the Fund's Series, except its Money Market Liquidity and Non-U.S.
Series, for stated periods of time, all as specified in Schedule 1 to Exhibit A
hereto, and promptly communicate the result of such computation, and all
supporting documentation relating to the computation, to the Fund;
(2) State Street will derive from the records it generates and
maintains for the Fund or obtain from Fund designated third party providers of
price or statistical data the items of data set forth in Schedule 2 to Exhibit A
hereto necessary for such computation, which Exhibit may be separately amended
or supplemented by the parties hereto from time to time as may be appropriate;
(3) The Fund or its designee shall provide State Street with the items
of data set forth on Exhibit B hereto required for such computation, which
Exhibit may be separately amended or supplemented by the parties hereto from
time to time as may be appropriate;
<PAGE>
(4) State Street shall have no responsibility to review, confirm or
otherwise assume any duty with respect to the accuracy or correctness of any
data supplied to it by the Fund, any of the Fund's designated agents or by
designated third party providers which the Fund or its designee may have
selected pursuant to Section 2 hereof;
(5) The Fund shall provide, from time to time as may be appropriate,
and State Street shall be entitled to rely on, the written standards and
guidelines to be followed by State Street in interpreting and applying the
computation methods set forth in the Releases as they specifically apply to the
Fund. In the event that the computation methods in the Releases or the
application to the Fund of a standard or guideline is not free from doubt or in
the event there is any question of interpretation as to the characterization of
a particular security or any aspect of a security or a payment with respect
thereto (E.G., original issue discount, participating debt security, income or
return of capital, etc.) or otherwise or as to any other element of the
computation which is pertinent to the Fund, the Fund or its designated agent
shall have the full responsibility for making the determination of how the
security, or payment is to be treated for purposes of the computation and how
the computation is to be made and shall inform State Street thereof on a timely
basis. All standards, guidelines and other information described herein shall
initially be set forth on Exhibit C hereto. State Street shall have no
responsibility to make independent determinations with respect to any item which
is covered by this Section, and shall not be responsible for the failure of its
computations to reflect such determinations which have not been communicated to
State Street by the Fund;
(6) The Fund shall keep State Street informed of all publicly available
information and of any non-public advice or information obtained by the Fund
subsequent to the date of this Agreement from its accountants or by its
personnel or the personnel of its investment adviser related to the computations
to be undertaken by State Street pursuant to this Agreement and State Street
shall not be charged with knowledge of such information unless it has been
furnished to State Street in writing;
(7) So long as and to the extent that State Street acts with reasonable
care, State Street shall be kept indemnified by and shall be without liability
to the Fund for its performance of its duties under this Agreement. The Fund
shall indemnify State Street for any expenses, assessments, claims or
liabilities which it may incur in connection with this Agreement, except as may
arise from its own negligent action, negligent failure to act or willful
misconduct. Any liability of State Street hereunder to each Fund shall be
limited to an amount not to exceed fees paid under this Agreement by each Fund
for the immediately preceding 12 month period. In no event shall State Street
be liable for claims of consequential damage arising out of an incorrect yield
or tax equivalent yield performed by it under this Agreement.;
(8) This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated, may be amended at any time
by mutual agreement of the parties hereto and may be terminated by either party
by an instrument in writing
<PAGE>
delivered or mailed postage prepaid to the other party such termination to take
effect not sooner than thirty (30) days after the day of such delivery or
mailing;
(9) For performance of its services, State Street shall receive such
compensation, if any, as agreed upon and shown in Exhibit D; which Exhibit may
be separately amended or supplemented by the parties hereto from time to time as
may be appropriate;
(10) If the Fund forms additional Series for which it desires State
Street to perform the services covered by this Agreement, this Agreement or the
applicable exhibits or both, as necessary, shall be amended by the parties.
(11) In connection with the operation of this Agreement, State Street
and the Fund may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provision shall be in writing signed by each party and shall be
annexed hereto;
(12) The Master Trust Agreement dated July 11, 1996, as amended from
time to time, establishing the Fund, 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 Russell Insurance Funds 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 Fund
hereunder shall not be binding upon any of the shareholders, Trustees, officers,
employees or agents of the Fund, personally, but shall bind only the trust
property of the Fund, as provided in its Master Trust Agreement. The execution
and delivery of this Agreement have been authorized by the Trustees of the Fund
and signed by the President of the Fund, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been make by any of them individually or to impose and
liability on any of them personally, but shall bind only the trust property of
the Fund, as provided in its Master Trust Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and on behalf by a duly authorized representative as of the
5th day of August, 1996.
RUSSELL INSURANCE FUNDS
BY:
---------------------------------
Name:
STATE STREET BANK AND TRUST COMPANY
BY:
---------------------------------
Name:
<PAGE>
EXHIBIT A
Computations to be made and data to be generated or obtained from sources
other than the Fund by State Street Bank and Trust Company in connection with
computations for each of the Fund's Series, except its Money Market Liquidity
and Non-U.S. Series, under Securities and Exchange Commission Release 33-6753
and IC-16245.
SCHEDULE 1
Computations to be made: Check one or more
Effective Tax Equivalent
Yield Yield Yield
----- ----------- -------------------
Time Periods [ X ] [ ] [ ]
30 day: Daily
Interim Period: N/A
SCHEDULE 2
Data Generated by Obtained From
Items State Street (identify source)
----- ------------ ----------------
1. N/A
2.
3.
4.
5.
<PAGE>
EXHIBIT B
Data to be supplied to State Street Bank and Trust Company in
connection with computations for each of the Fund's Series, except Non-U.S.
Series, under Securities and Exchange Commission Releases 33-6753 and IC-16245.
Data How Supplied and When
Items By Whom Supplied
----- ---------------- --------
1. Call/Put Date Money Manager on On each trade
notification of trade date plus one
2.
3.
4.
5.
<PAGE>
EXHIBIT C
Standards and guidelines to be followed by State Street Bank and Trust
Company in interpreting and applying computation methods indicated on Exhibit B.
APPLIES ONLY TO CORE BOND FUND.
GENERAL
On a daily trade date basis State Street will provide a Daily Income Report
which will include the following:
- Yield-to-maturity for each individual security from which a daily
income will be calculated based upon month-end market values.
- Adjustments for buys will be made on contractual settlement date.
- Adjustments for sells will be made on contractual settlement date.
For partial sells, the last market price of security will be used for
YTM calculations from T + 1 until settlement date. For sells in which
the entire position is sold, we will use sale price for YTM
calculation. SEC QUA of 5/13/88 question #7 indicates last sale price
should be used.
- Short-term securities will be those securities designated as short-
term by the advisor. Daily income amounts will be calculated for
these short-term securities using coupon rate x outstanding principal
amount. Note: The SEC has defined short-term securities to be those
with a maturity of less than 60 days.
- With respect to mortgage backed securities, daily income amounts will
be calculated using book income based upon coupon rate and outstanding
principal amount.
- Yield will be calculated based upon a rolling 30-day average. A yield
will be determined based upon each day's market value. The yield will
consist of the sum of the last 30 days' income including adjustments
per the trial balance for zero coupon bonds and short-term bonds net
of 30 days expenses for the period. A factor will be generated each
day and a new 30-day yield calculated. This is Option C of the SEC
Q&A question #1 of their 5/13/88 Release.
- Adjustments for buys will e made on contractual settlement date.
- Adjustments for sells will be made on contractual settlement date.
For sells, the last market price of security will be used for YTM
calculations from T + 1 until settlement date. SEC Q&A of 5/13/88
question #7 indicates last sale price should be used.
<PAGE>
- Short-term securities will be those securities designated as short-
term by the money manager. Note: The SEC has defined short-term
securities to be those with a maturity of less than 60 days.
- Put/call date, in conjunction with put/call price, will be substituted
for maturity date upon instructions from the money manager. Unless
instructed otherwise, State Street will use maturity date.
- In determining average daily shares outstanding and the corresponding
30 days rolling income amounts, shares and income amounts for weekends
will be based on the values as of the following Monday. The following
business day will also be used for holidays.
A comparison will be made daily of market value to current OID basis.
1. If OID basis is higher than market value, OID basis will be used in YTM
calculation.
2. If OID basis is less than market value, market value will be used in YTM
calculation.
3. If security is currently priced at a discount and did not have any original
discount (OID), use par value as basis for YTM calculation.
ASSET BACKED SECURITIES WHICH ARE RECEIVING PREPAYMENTS
- - Yields will be calculated using book income based upon coupon rate and
outstanding principal amount.
- - Adjustments for one period's gains or losses from principal paydowns are
included in the interest income.
- - Adjustments for one period's principal paydowns will be estimated and
adjusted for actual when received.
<PAGE>
EXHIBIT D
An annual fee shall be payable to State Street for its services under this
Agreement equal to $4,200 per Fund.
<PAGE>
Exhibit 99.9(e)
JOINT INSURANCE AGREEMENT
THIS JOINT INSURANCE AGREEMENT, dated as of August 5, 1996, by and among FRANK
RUSSELL INVESTMENT COMPANY, THE RUSSELL INSURANCE FUNDS, and such other funds as
may be included as parties to this Agreement as provided herein (each referred
to herein as a "Fund," and collectively referred to as the "Funds"), and Frank
Russell Company ("FRC"), and each of its subsidiaries, (hereinafter collectively
referred to , along with FRC, as the "Russell Companies").
RECITALS
WHEREAS, Section 17(g) of the Investment Company Act of 1940 (the "Act")
authorizes the U.S. Securities and Exchange Commission (the "SEC") to require
that the officers and employees of registered management investment companies be
bonded against larceny and embezzlement, and the SEC has promulgated Rule 17g-1
under the Act requiring such coverage in specified minimum amounts, and
WHEREAS, the Funds and the Russell Companies have obtained and maintain with
respect to the Funds the bonds and policies of insurance providing coverage
against larceny and embezzlement by their officers and employees described on
Attachment I hereto (all of such bonds and policies of insurance being referred
to hereafter collectively as the "Joint Bonds," such Attachment I being subject
to modification from time to time hereafter, to reflect the then current
coverage amounts and to reflect any other changes in the coverage), and
WHEREAS, the Board of Directors/Trustees of each Fund, by vote of a majority of
its members and a majority of those members of the Board of each Fund who are
not "interested persons" as defined by Section 2(a)(19) of the Act, has given
due consideration to all factors relevant to the amount, type, form, coverage
and apportionment of recoveries and premiums on the Joint Bonds and has approved
the form, term and amount of the Joint Bonds, the portion of the premiums
payable by each Fund, and the manner in which recovery on the Joint Bonds
("Joint Bond Proceeds"), if any, shall be shared by and among the parties hereto
as hereinafter set forth, and
WHEREAS, Rule 17d-1(d)(7) under the Act provides that an exemptive application
need not be filed with respect to an arrangement regarding joint liability
policies subject to the provisions set forth in such paragraph, and
WHEREAS, it is the intention of the Funds and the Russell Companies that this
Agreement restate and replace all prior agreements entered into by the parties
from time to time under Rule 17g-1(f) to establish the manner in which Joint
Bond Proceeds shall be shared, and desire to further amend such agreement and
restate it in its entirety by this Agreement.
<PAGE>
NOW, THEREFORE, IT IS HEREBY AGREED by and among the parties hereto, intending
to be so bound, as follows:
1. ALLOCATION OF PROCEEDS
a. In the event a single party suffers a loss or losses covered
under the Joint Bonds, the party suffering such loss or losses
shall be entitled to be indemnified up to the full amount of the
Joint Bond Proceeds.
b. If more than one party is damaged in a single loss for which
Joint Bond Proceeds are received, each such party shall receive
that portion of the Joint Bond Proceeds which represents the loss
sustained by that party, unless the recovery is inadequate to
indemnify fully each such party. If the recovery is inadequate
to indemnify fully each such party sustaining a loss, the Joint
Bond Proceeds shall be allocated among such parties as follows:
(1) Each party sustaining a loss shall be allocated an amount
equal to the lesser of its actual loss or the minimum
amount of bond coverage allocated to such party on
Attachment II hereto. Any party not fully indemnified
for its insurable losses as a result of this allocation
is hereafter referred to as an "Underinsured Party."
(2) The remaining portion of the Joint Bond Proceeds, if any,
shall be allocated to each Underinsured Party in the same
proportion as such party's allocation of minimum bond
coverage on Attachment II hereto bears to the aggregate
of the minimum bond coverage amounts set forth on
Attachment II for all Underinsured Parties, provided that
no party shall receive Joint Bond Proceeds in excess of
its actual insurable losses.
2. ALLOCATION OF PREMIUMS
a. The premiums payable with respect to the Joint Bonds
shall be allocated to each of the parties hereto on an
annual basis (and, in the event any increased or
additional premium is required to be paid during the
year, as of the date such increased or additional premium
is due) in the same proportion as each party's minimum
amount of bond coverage as then reflected on Attachment
II shall bear to the total of such minimum coverage.
3. BOND COVERAGE REQUIREMENTS AND CHANGES
a. Each party hereto has determined that the minimum amount
of fidelity bond coverage deemed appropriate to be
maintained by it is as set forth opposite its name in
Attachment II hereto. Each of the Funds represents and
warrants to each of the other parties hereto
<PAGE>
that the minimum amount of coverage required of it under
Rule 17g-1(d)(1) as of the date hereof is not more than
the amount reflected opposite its name in Attachment II
hereto. Each of the Funds further agrees that it will
promptly take such steps as may be necessary, from time
to time, to increase its minimum coverage as set forth in
Attachment II hereto (and, if necessary, the face amount
of the Joint Bonds) so that its minimum coverage as
therein set forth shall at no time be less than the
minimum coverage required of it under Rule 17g-1(d)(1).
b. The parties hereto may, from time to time hereafter,
agree to modify Attachment II hereto to reflect changes
in allocation of premium and coverage. All references in
this Agreement to "Attachment II" shall be to such
Attachment as amended as of the relevant date on which
premiums are to be allocated or losses are sustained.
4. ADDITION OF NEW FUNDS AND SERIES
The parties to this Agreement contemplate that additional funds
("Additional Funds") may be added to this group of funds from time to
time after the date of this Agreement. In the event an Additional
Fund is organized, such Fund may be included as an additional party to
this Agreement if the Board of Directors/Trustees of each of the Funds
(including the Additional Fund) approve such addition and establish a
revised minimum allocation of bond coverage. The inclusion of an
Additional Fund as a party to this Agreement shall be evidenced by
such Fund's execution of the Addendum to this Agreement and all
references herein to the "Funds" shall include any such Additional
Funds.
5. TERM OF AGREEMENT
This Agreement shall apply to the present fidelity bond coverage and
any renewals or replacements thereof and shall continue until
terminated by any party hereto upon the giving of not less than sixty
days written notice to the other parties.
6. DISPUTES
Any dispute arising under this Agreement shall be submitted to
arbitration in the City of Tacoma, Washington under the Rules of the
American Arbitration Association, and the decision rendered therein
shall be final and binding upon the parties hereto.
<PAGE>
7. GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with
the laws of the State of Washington, to the extent not inconsistent
with applicable provisions of the Act and the rules and regulations
promulgated thereunder by the SEC.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have caused this Agreement to be executed by a duly authorized officer or
representative on the date first written above.
Attest: FRANK RUSSELL INVESTMENT COMPANY
/s/Karl J. Ege /s/ Lynn L. Anderson
- ------------------------ -------------------------------
Secretary President
RUSSELL INSURANCE FUNDS
/s/Karl J. Ege /s/Lynn L. Anderson
- ------------------------ -------------------------------
Secretary President
FRANK RUSSELL COMPANY, on its own behalf
and on behalf of each of its subsidiaries
/s/Karl J. Ege /s/Michael J. A. Phillips
- ------------------------ -------------------------------
Secretary President
<PAGE>
ADDENDUM FOR ADDITIONAL FUNDS
FUND DATE OF INCLUSION
Attest: [Name] Fund, Inc.
_____________________ ______________________ ________, 199__
Secretary President
_____________________ ______________________ ________, 199__
_____________________ ______________________ ________, 199__
<PAGE>
ATTACHMENT I
POLICY COVERAGE
Investment Company Blanket Bond $2.95 million
(Gulf Insurance Company--
Bond Number GA5758564B )
This Attachment I reflects current fidelity bond coverage of $2.5 million on
FRIC from May 31, 1996 to May 31, 1997, and an additional $450,000 for both FRIC
and RIF from August 5, 1996 to May 31, 1997.
<PAGE>
ATTACHMENT II
Aggregate of Minimum
Fund Minimum Coverage Bond Coverage
---- ---------------- -------------
Frank Russell Investment
Company $2,500,000 $2,950,000
Russell Insurance Funds $ 450,000 $2,950,000
This Attachment II reflects allocations of minimum fidelity bond coverage Frank
Russell Investment Company for the period from May 31, 1996 through May 31,
1997, and for Russell Insurance Funds for the period from August 5, 1996 through
May 31, 1997.
<PAGE>
Exhibit 99.10
Stradley Ronon Stevens & Young, LLP.
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
Direct Dial: (215) 564-8074
September 12, 1996
Russell Insurance Funds
909 A Street
Tacoma, Washington 98402
Re: SHARE OPINION RE RUSSELL INSURANCE FUNDS
Gentlemen:
We have examined the Master Trust Agreement (the "Trust Agreement") of
Russell Insurance Funds (the "Trust"), a business trust organized under the laws
of the Commonwealth of Massachusetts. We have also reviewed the By-Laws of the
Trust, resolutions adopted by the Board of Trustees (the "Board") of the Trust
organizing the business of the Trust, all as amended to date, and various
pertinent proceedings we deem material.(1) The Trust Agreement creates
initial Sub-Trusts of the Trust, and empowers the Board to designate additional
series or Sub-Trusts of the Trust, and classes of such series, and to allocate
shares to such series or classes.
We have also examined a registration statement filed by the corporate
predecessor of the Trust (the "Registration Statement") registering the
predecessor as an investment company under the Investment Company Act of 1940,
as amended (the "1940 Act"), and registering securities of the registrant for
offering and sale under the Securities Act of 1933, as amended (the "1933 Act"),
as well as such other items as we deem material to this opinion. The
Registration Statement registers an indefinite number of shares of beneficial
interest of the registrant pursuant to the provisions of Rule 24f-2 under the
Investment Company Act. The Trust is filing with the U.S. Securities and
Exchange Commission (the "Commission"), this Pre-effective Amendment to that
Registration Statement to adopt the Registration Statement of the corporate
predecessor.
- -------------------------
(1) The Trust is the successor to a Maryland corporation of similar name.
<PAGE>
Russell Insurance Funds
September 12, 1996
Page 2
You have advised us that each year hereafter the Trust will timely
file with the Commission a notice pursuant to, and as required by, Rule 24f-2
perfecting the registration of the shares sold by the Trust under Rule 24f-2
during each fiscal year during which its election to register an indefinite
number of shares remains in effect.
You have also informed us that the shares of the Trust will be sold in
accordance with the Trust's usual method of distributing its registered shares,
under which prospectuses are made available for delivery to offerees and
purchasers of insurance policies issued by insurance companies which purchase
Trust shares, all in accordance with Section 5(b) of the Securities Act.
Based upon the foregoing information and examination, it is our
opinion that the Trust is a valid and subsisting business trust under the laws
of the Commonwealth of Massachusetts, and that the election to register an
indefinite number of shares of the Trust is proper, and such shares of the Trust
when issued for the consideration set by the Board pursuant to the Trust
Agreement, and subject to compliance with Rule 24f-2 when sold pursuant to such
rule, will be legally outstanding, fully-paid, and non-assessable shares of
beneficial interest, and the holders of such shares will have all the rights
provided for by the Trust Agreement. Under the laws of some states the
beneficial shareholders of a trust, under certain circumstances, may be held
personally liable for acts or obligations of the trust. The Master Trust
Agreement of this Trust contains an express disclaimer of shareholder liability
for acts or obligations of the Trust, and requires that notice of such
disclaimer be inserted in any contract, order, or instrument made by the Trust.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement of the Trust, covering the registration of the shares of
the Trust under the Securities Act and the applications and registration
statements, and amendments thereto, filed in accordance with the securities laws
of the several states in which shares of the Trust are offered, and we further
consent to reference in the Prospectus of the Trust to the fact that this
opinion concerning the legality of the issue has been rendered by us.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
BY: /s/ Steven M. Felsenstein
--------------------------
Steven M. Felsenstein
SMF/nlk
<PAGE>
Exhibit 99.11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees
of Russell Insurance Funds
We consent to the inclusion in Pre-Effective Amendment No. 4 to the
Registration Statement of Russell Insurance Funds on Form N-1A (File No.
33-18030) of our report dated September 12, 1996 on our audits of the
statements of assets and liabilities of each of the Funds of the Investment
Company, which reports are included in the Registration Statement. We also
consent to the reference to our Firm under the caption "Additional
Information".
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
September 17, 1996
<PAGE>
Exhibit 99.11(b)
LIMITED POWER OF ATTORNEY
with respect to
AMENDMENTS TO THE SECURITIES AND EXCHANGE COMMISSION
REGISTRATION STATEMENTS
of
RUSSELL INSURANCE FUNDS
Know by all men these presents that the undersigned hereby constitutes and
appoints the persons holding the offices of President, Treasurer, any Assistant
Treasurer, Secretary or any Assistant Secretary of Russell Insurance Funds from
time to time, and each of them, his or her attorneys-in-fact, each with the
power of substitution, for him or her in any and all capacities, to sign
amendments to Securities and Exchange Commission registration statements of
Russell Insurance Funds, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
or her substitutes, may do or cause to be done by virtue hereof.
/s/ Paul Anton
--------------------------------
Name
Trustee, Russell Insurance Funds
August 5, 1996
- -----------------------
Date
<PAGE>
Exhibit 99.11(b)
LIMITED POWER OF ATTORNEY
with respect to
AMENDMENTS TO THE SECURITIES AND EXCHANGE COMMISSION
REGISTRATION STATEMENTS
of
RUSSELL INSURANCE FUNDS
Know by all men these presents that the undersigned hereby constitutes and
appoints the persons holding the offices of President, Treasurer, any Assistant
Treasurer, Secretary or any Assistant Secretary of Russell Insurance Funds from
time to time, and each of them, his or her attorneys-in-fact, each with the
power of substitution, for him or her in any and all capacities, to sign
amendments to Securities and Exchange Commission registration statements of
Russell Insurance Funds, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
or her substitutes, may do or cause to be done by virtue hereof.
/s/ Eleanor W. Palmer
-------------------------------------
Name
Trustee, Russell Insurance Funds
August 5, 1996
- -----------------------
Date
<PAGE>
Exhibit 99.11(b)
LIMITED POWER OF ATTORNEY
with respect to
AMENDMENTS TO THE SECURITIES AND EXCHANGE COMMISSION
REGISTRATION STATEMENTS
of
RUSSELL INSURANCE FUNDS
Know by all men these presents that the undersigned hereby constitutes and
appoints the persons holding the offices of President, Treasurer, any Assistant
Treasurer, Secretary or any Assistant Secretary of Russell Insurance Funds from
time to time, and each of them, his or her attorneys-in-fact, each with the
power of substitution, for him or her in any and all capacities, to sign
amendments to Securities and Exchange Commission registration statements of
Russell Insurance Funds, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
or her substitutes, may do or cause to be done by virtue hereof.
/s/ George F. Russell, Jr.
------------------------------------
Name
Trustee, Russell Insurance Funds
August 5, 1996
- -----------------------
Date
<PAGE>
Exhibit 99.11(b)
LIMITED POWER OF ATTORNEY
with respect to
AMENDMENTS TO THE SECURITIES AND EXCHANGE COMMISSION
REGISTRATION STATEMENTS
of
RUSSELL INSURANCE FUNDS
Know by all men these presents that the undersigned hereby constitutes and
appoints the persons holding the offices of President, Treasurer, any Assistant
Treasurer, Secretary or any Assistant Secretary of Russell Insurance Funds from
time to time, and each of them, his or her attorneys-in-fact, each with the
power of substitution, for him or her in any and all capacities, to sign
amendments to Securities and Exchange Commission registration statements of
Russell Insurance Funds, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
or her substitutes, may do or cause to be done by virtue hereof.
/s/ Lynn L. Anderson
------------------------------
Name
Trustee, Russell Insurance Funds
August 5, 1996
- -----------------------
Date
<PAGE>
Exhibit 99.11(b)
LIMITED POWER OF ATTORNEY
with respect to
AMENDMENTS TO THE SECURITIES AND EXCHANGE COMMISSION
REGISTRATION STATEMENTS
of
RUSSELL INSURANCE FUNDS
Know by all men these presents that the undersigned hereby constitutes and
appoints the persons holding the offices of President, Treasurer, any Assistant
Treasurer, Secretary or any Assistant Secretary of Russell Insurance Funds from
time to time, and each of them, his or her attorneys-in-fact, each with the
power of substitution, for him or her in any and all capacities, to sign
amendments to Securities and Exchange Commission registration statements of
Russell Insurance Funds, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
or her substitutes, may do or cause to be done by virtue hereof.
/s/ William E. Baxter
----------------------------
Name
Trustee, Russell Insurance Funds
August 5, 1996
- -----------------------
Date
<PAGE>
Exhibit 99.11(b)
LIMITED POWER OF ATTORNEY
with respect to
AMENDMENTS TO THE SECURITIES AND EXCHANGE COMMISSION
REGISTRATION STATEMENTS
of
RUSSELL INSURANCE FUNDS
Know by all men these presents that the undersigned hereby constitutes and
appoints the persons holding the offices of President, Treasurer, any Assistant
Treasurer, Secretary or any Assistant Secretary of Russell Insurance Funds from
time to time, and each of them, his or her attorneys-in-fact, each with the
power of substitution, for him or her in any and all capacities, to sign
amendments to Securities and Exchange Commission registration statements of
Russell Insurance Funds, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
or her substitutes, may do or cause to be done by virtue hereof.
/s/ Paul E. Anderson
--------------------------------
Name
Trustee, Russell Insurance Funds
August 5, 1996
- ---------------------
Date
<PAGE>
Exhibit 99.13
SEED MONEY
SUBSCRIPTION AGREEMENT
AND EXEMPTIVE ORDER APPROVAL
RUSSELL INSURANCE FUNDS MULTI-STYLE EQUITY FUND
RUSSELL INSURANCE FUNDS AGGRESSIVE EQUITY FUND
RUSSELL INSURANCE FUNDS NON-U.S. FUND
RUSSELL INSURANCE FUNDS CORE BOND FUND
August 26, 1996
To: The Board of Trustees of Russell Insurance Funds
909 A Street
Tacoma, WA 98402
Ladies and Gentlemen:
SUBSCRIPTION AGREEMENT
We hereby subscribe to 2500 shares (the "Shares") of each of Russell
Insurance Funds Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S.
Fund and Core Bond Fund (each a "Fund"). Each Share shall have a par value of
$0.01 per share, and a price of $10.00 per share. We understand and agree
that (1) we will not redeem the Shares issued hereunder with respect to any
Fund until that Fund has commenced operations and has at least $25,000
additional investment from one or more other shareholders, (2) the redemption
proceeds of any Fund Shares purchased hereunder that are redeemed within five
years from the date of the Fund's commencement of operations will be reduced
by a pro rata share of any unamortized organizational expenses with respect
to the Fund and (3) the amount invested in each Fund hereunder will be held
in one or more non-interest bearing custodial accounts by Russell Insurance
Funds' custodian, and will not earn interest or otherwise be invested, until
the respective Fund commences operations.
In connection with our purchase of the Shares, we understand that: (1) the
Shares have not been registered under the Securities Act of 1933, as amended
(the "1933 Act"); (2) Russell Insurance Funds' sale of the Shares to us is
made in reliance on such sale being exempt under Section 4(2) of the 1933 Act
as not involving any public offering; and (3) in part, Russell Insurance
Funds' reliance on such exemption is predicated on our representation, which
we hereby confirm, that we are acquiring the Shares for investment for our
own account as the sole beneficial owner thereof, and not with a view to or
in connection with any resale or distribution of the Shares or any interest
therein. We hereby agree that we will not sell, assign or transfer the Shares
or any interest therein, except and until the Shares have been registered
under the 1933 Act or Russell Insurance Funds has received an opinion of its
counsel indicating to its satisfaction that said sale, assignment or transfer
will not violate the provisions of the 1933 Act or any rules or regulations
promulgated thereunder.
<PAGE>
In consideration for your acceptance of the foregoing subscription, we hereby
deliver to Russell Insurance Funds $100,000 in full and complete payment.
EXEMPTIVE ORDER APPROVAL
As sole shareholder of each Fund, we hereby approve the operation of the
Russell Insurance Funds in accordance with the exemptive order granted on
June 17, 1995 to the Russell Insurance Funds and Frank Russell Investment
Management Company by the Securities and Exchange Commission.
Dated: August 26, 1996 GENERAL AMERICAN LIFE INSURANCE
COMPANY
By:
-------------------------------------
Name:
Title:
ACKNOWLEDGED AND ACCEPTED
RUSSELL INSURANCE FUNDS
By:
----------------------------
Lynn L. Anderson
President
<PAGE>
Exhibit 99.16
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED 12/31/95
- --------------------------------------------------------------------------------
The following are the average annual total returns for the Frank Russell
Investment Company and Frank Russell Trust Company Funds, computed by finding
the average compounded rates of return over the periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods at
the end of the 1, 5 or 10 year periods (or fractional
portion thereof).
FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED EQUITY FUND
10.25
10.25 years $1,000 (1 + 15.06%) = $4,212
10
10 years $1,000 (1 + 13.76%) = $3,630
5
5 years $1,000 (1 + 16.22%) = $2,120
3
3 years $1,000 (1 + 14.31%) = $1,494
1
1 year $1,000 (1 + 35.17%) = $1,352
____________________________________________
FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND
10.25
10.25 years $1,000 (1 + 13.69%) = $3,725
10
10 years $1,000 (1 + 12.34%) = $3,201
5
5 years $1,000 (1 + 18.13%) = $2,300
3
3 years $1,000 (1 + 12.63%) = $1,429
1
1 year $1,000 (1 + 28.52%) = $1,285
____________________________________________
FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND
10.25
10.25 years $1,000 (1 + 14.36%) = $3,956
10
10 years $1,000 (1 + 13.33%) = $3,495
5
5 years $1,000 (1 + 9.95%) = $1,607
3
3 years $1,000 (1 + 15.54%) = $1,542
1
1 year $1,000 (1 + 10.20%) = $1,102
____________________________________________
FRANK RUSSELL TRUST COMPANY FIXED INCOME I FUND
16.17
16.17 years $1,000 (1 + 12.40%) = $6,621
10
10 years $1,000 (1 + 10.48%) = $2,709
5
5 years $1,000 (1 + 10.35%) = $1,636
3
3 years $1,000 (1 + 8.99%) = $1,295
1
1 year $1,000 (1 + 19.09%) = $1,191
