<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] CONFIDENTIAL, FOR USE OF THE
[_] Preliminary Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
RUSSELL INSURANCE FUNDS
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
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RUSSELL INSURANCE FUNDS
909 A STREET
TACOMA, WASHINGTON 98402
1-800-787-7354
Dear Shareholder:
Enclosed is a Notice of Special Meeting in lieu of Annual Meeting of
Shareholders of the Russell Insurance Funds (the "Investment Company"). The
Special Meeting has been called for Thursday, November 19, 1998 at 11:00 a.m.,
local time, at the offices of the Investment Company at 909 A Street, Tacoma,
Washington. The accompanying Proxy Statement details the proposals being
presented for your consideration.
The Special Meeting will consider several matters, and shareholders will be
asked to: (i) elect the members of the Board of Trustees of the Investment
Company; (ii) ratify the selection of PricewaterhouseCoopers LLP as the
Investment Company's independent accountants; (iii) approve a proposed
management agreement between the Investment Company, on behalf of each sub-
trust of the Investment Company (each a "Fund") and Frank Russell Investment
Management Company ("FRIMCo"), to take effect upon the acquisition of Frank
Russell Company by The Northwestern Mutual Life Insurance Company; and (iv)
approve a change in each Fund's fundamental investment restriction limiting
borrowing to authorize a higher borrowing level for the purpose of meeting
redemptions.
The enclosed materials provide details of the proposals. Accordingly, a
proxy card for the Special Meeting in lieu of Annual Meeting of Shareholders
is enclosed. IT IS IMPORTANT THAT YOU COMPLETE, SIGN AND RETURN YOUR CARD AS
SOON AS POSSIBLE TO ENSURE THAT YOUR VOTE IS COUNTED AT THE SPECIAL MEETING.
Please return your proxy card as soon as possible.
Sincerely,
/s/ Karl J. Ege
Karl J. Ege, Esq.
Secretary
NOTE: If you own shares of more than one Fund, you will receive a separate
proxy card for each Fund. PLEASE COMPLETE THE CARD PROVIDED FOR EACH FUND IN
WHICH YOU OWN SHARES so that each Fund will have the quorum needed to conduct
its business.
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RUSSELL INSURANCE FUNDS
909 A STREET
TACOMA, WASHINGTON 98402
NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING
OF SHAREHOLDERS
OF THE
RUSSELL INSURANCE FUNDS
TO BE HELD ON THURSDAY, NOVEMBER 19, 1998
To the Shareholders of Multi-Style Equity Fund, Aggressive Equity Fund, Non-
U.S. Fund and Core Bond Fund:
NOTICE IS HEREBY GIVEN that a Special Meeting in lieu of Annual Meeting of
the shareholders (the "Shareholders") of the four sub-trusts (each a "Fund,"
and collectively the "Funds") of Russell Insurance Funds (the "Investment
Company") will be held at the Investment Company's offices located at 909 A
Street, Tacoma, Washington, on Thursday, November 19, 1998 at 11:00 a.m.,
local time, for the following purposes:
1. To elect the members of the Board of Trustees of the Investment
Company.
2. To ratify the selection of PricewaterhouseCoopers LLP as the
Investment Company's independent accountants.
3. To approve a proposed management agreement with Frank Russell
Investment Management Company ("FRIMCo"), the current investment manager
of the Investment Company, to take effect upon the closing of the
acquisition of Frank Russell Company by The Northwestern Mutual Life
Insurance Company.
4. To approve a change to each Fund's fundamental investment restriction
limiting borrowing activities, authorizing a higher borrowing level for
the purpose of meeting shareholder redemption requests.
The Special Meeting also will consider and act upon any other business (none
being known as of the date of this notice) as may legally come before the
Special Meeting or any adjournment thereof.
The attached Proxy Statement provides more information concerning the items
upon which Shareholders will be asked to vote.
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Shareholders of record as of the close of business on September 21, 1998,
are entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof.
By Order of the Board of Trustees,
/s/ Karl J. Ege
KARL J. EGE, ESQ.
Secretary
Tacoma, Washington
October 19, 1998
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING! WHETHER OR
NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE COMPLETE AND SIGN THE
ENCLOSED PROXY CARD(S) AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE,
WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU DESIRE TO
VOTE IN PERSON YOU MAY REVOKE YOUR PROXY PRIOR TO THE MEETING. PLEASE
COMPLETE AND RETURN ALL PROXY CARDS ENCLOSED. EACH IS FOR A SEPARATE FUND.
<PAGE>
RUSSELL INSURANCE FUNDS
909 A STREET
TACOMA, WASHINGTON 98402
1-800-787-7354
PROXY STATEMENT
DATED OCTOBER 19, 1998
FOR A SPECIAL MEETING IN LIEU OF ANNUAL MEETING
OF SHAREHOLDERS OF
RUSSELL INSURANCE FUNDS
TO BE HELD NOVEMBER 19, 1998
SUMMARY
WHAT IS THE PURPOSE OF THIS PROXY STATEMENT?
The principal purpose of this Proxy Statement is to seek Shareholder
approval of the matters identified in the accompanying Notice of Special
Meeting in lieu of Annual Meeting. Shareholders of each Fund will be asked to
consider and approve, on behalf of their respective Fund(s), the four
proposals discussed in this Proxy Statement. Before addressing the specific
proposals, this Proxy Statement provides you with important information
regarding how the Funds operate.
HOW ARE THE FUNDS MANAGED?
Each Fund is a sub-trust of the Russell Insurance Funds, an open-end
management investment company organized under the laws of the Commonwealth of
Massachusetts, with principal offices located at 909 A Street, Tacoma,
Washington 98402. The management of the business and affairs of the Investment
Company is the responsibility of the Board of Trustees (the "Board" or
"Trustees"). The Board oversees the Funds' operations, including reviewing and
approving the Funds' contracts with Frank Russell Investment Management
Company ("FRIMCo" or the "Manager"), Frank Russell Company ("FRC") and the
Funds' money managers. The Investment Company's officers, all of whom are
employed by and are officers of FRIMCo or its affiliates, are responsible for
the day-to-day management and administration of the Funds' operations. The
money managers are responsible for selection of individual portfolio
securities for the assets assigned to them.
Shareholders will be asked to elect Trustees, ratify the selection of
accountants, and amend a restriction affecting borrowing. Shareholders will
also consider approval of a new management agreement to become effective at
the time of a change of control of FRC, the corporate parent of the investment
manager to the Investment Company.
Each Fund is managed by FRIMCo, whose address is 909 A Street, Tacoma,
Washington 98402. As described in more detail in connection with Proposal #3
below, FRIMCo:
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. provides or supervises the general management and administration,
investment advisory and portfolio management, and distribution services
for the Funds;
. furnishes the Funds with office space, equipment and personnel to
operate and administer the Funds' business, and supervises services
provided by third parties, such as the money managers and the custodian;
. develops investment guidelines and restrictions, selects money managers,
allocates assets among money managers and monitors the money managers'
investment programs and results; and
. provides the Funds with transfer agent, dividend disbursing and
shareholder recordkeeping services.
FRIMCo pays the expenses of providing these services (other than transfer
agent, dividend disbursing, and shareholder recordkeeping), as well as a
portion of the costs of preparing and distributing materials that describe the
Funds. FRIMCo is a wholly owned subsidiary of FRC, which provides
comprehensive asset management consulting services to institutional pools of
investment assets. The address of FRC is 909 A Street, Tacoma, Washington
98402. George F. Russell, Jr., Chairman of the Board of the Investment
Company, is the Chairman of the Board and controlling shareholder of FRC.
The Investment Company has received an exemptive order from the U.S.
Securities and Exchange Commission (the "SEC") which permits the Investment
Company, with the approval of the Board, to engage and terminate money
managers without a shareholder vote and to disclose the aggregate fees paid to
the manager and the money managers of each sub-trust.
The money managers for the Funds are listed in Exhibit A to this Proxy
Statement. The money managers will not change as a result of the proposals
that Shareholders are being asked to consider at the Special Meeting.
WHAT ARE THE VARIOUS FEES AND EXPENSES FOR THE FUNDS?
The following summarizes the fees and expenses of the Funds under the
current service agreements.
Investment Management Fees: Under its Management Agreement with the
Investment Company, FRIMCo receives a management fee from each Fund for
FRIMCo's services. From this fee, FRIMCo, as the Investment Company's agent,
pays the money managers for their investment selection services. The remainder
of the management fee is retained by FRIMCo as compensation for the services
described above and to pay expenses. Quarterly, each money manager is paid the
pro rata portion of an annual fee, based on the average of all assets
allocated to the money manager for the quarter. Additional information
regarding the management fees of the Funds is set
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forth under "Information Regarding the Current Management Agreement" in this
Proxy Statement.
Administrative Services: FRIMCo provides the Investment Company with
administrative services and facilities necessary to operate the Funds. FRIMCo
also serves as the dividend-paying agent, transfer agent and shareholder
servicing agent for the Funds.
PROPOSAL #1: TO ELECT THE MEMBERS OF THE BOARD OF TRUSTEES
At its meeting held on October 5, 1998, the Trustees determined to present
the election of the Board of Trustees to Shareholders at the Special Meeting.
Messrs. Russell, Lynn L. Anderson, Paul E. Anderson, Baxter and Gingrich, Dr.
Anton and Ms. Palmer (the "Current Trustees"), after due consideration,
unanimously approved each nominee identified below to serve as a member of the
Board of Trustees. Mr. Russell will not stand for re-election as a voting
Trustee of the Investment Company, although he has been elected to serve as a
Trustee Emeritus immediately upon the completion of his present service as a
Trustee. In considering the nominees for election as Trustees of the
Investment Company, the Trustees took into account the qualifications of each
of the nominees and the concern for the continued efficient conduct of the
Investment Company's business.
In particular, the Trustees considered the requirements of the Investment
Company Act of 1940, as amended, (the "1940 Act") as they apply to the
election of Trustees. One factor considered by the Board is the requirement
imposed by the 1940 Act that the selection and nomination of trustees who are
not "interested persons" (as that term is defined in Section 2(a)(19) of the
1940 Act) of the Investment Company (the "Independent Trustees") must be
committed, in the first instance, to the Independent Trustees then in office.
The Independent Trustees met separately with Investment Company counsel, and
proposed the nomination of the Independent Trustees whose names are set forth
below.
At a meeting held on October 5, 1998, the Board also noted the proposed
change in control of FRC described in Proposal #3 below. Under Section 15(f)
of the 1940 Act, for a period of three years following a change of control, at
least 75% of the members of the Board of Trustees must be individuals who are
not "interested persons" of FRIMCo or its predecessor entities. Based upon the
current affiliations of the nominees for election, the election of a Board
comprised of the six nominees set forth in this Proposal #1 will satisfy that
requirement.
The Current Trustees will continue to serve as Trustees until the Trustees
elected by the Shareholders take office, although Mr. Russell will resign as a
voting Trustee effective December 30, 1998, or at such date as may be
considered appropriate to assure that the composition of the Board complies
with Section 15(f). Upon the election and
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qualification of the new Trustees, the six nominees listed below will
constitute the Board of Trustees of the Investment Company. It is anticipated
that the nominees will take office at the first regularly scheduled Board
meeting following their election, which Board meeting is presently anticipated
to be held in January, 1999. Mr. Russell and Mr. Lynn Anderson are and will
continue to be "interested persons" of the Investment Company. Mr. Russell has
been designated by the Board of Trustees as a Trustee Emeritus of the
Investment Company as described above pursuant to the Master Trust Agreement.
As a Trustee Emeritus, he will be expected to attend meetings of the Board,
will participate in discussions of the business of the Investment Company, and
may continue to provide the benefit of his advice and experience to the Board.
Under the Master Trust Agreement, a Trustee Emeritus does not vote on any
matter before the Board, and is not liable for the actions taken or omitted by
the Board.
Because the Investment Company does not hold regular annual meetings, each
nominee, if elected, will hold office until his or her successor is elected
and qualified. The Board may call special meetings of shareholders for action
by shareholder vote as may be required by the 1940 Act or required or
permitted by the Master Trust Agreement and by-laws of the Investment Company.
In compliance with the 1940 Act, shareholder meetings will be held to elect
Trustees whenever fewer than a majority of the Trustees holding office have
been elected by the shareholders or, if necessary in the case of filling
vacancies, to assure that at least two-thirds of the Trustees holding office
after vacancies are filled have been elected by shareholders.
THE NOMINEES
The following information is provided for each of the six nominees. It
includes the nominee's name, principal occupation(s) or employment during the
past five years, and directorships with other companies which file reports
periodically with the SEC. Unless otherwise noted, the mailing address for
each nominee is Frank Russell Investment Company, 909 A Street, Tacoma, WA
98402. Each of the nominees is currently a Trustee of the Investment Company
and, except as otherwise indicated, has served as a Trustee since 1996.
Mr. Lynn Anderson is the only nominee for election as a Trustee who is an
"interested person" of the Investment Company as defined in the 1940 Act. This
designation results from his ownership interest and position as an officer of
certain FRC affiliates. As used in the list below, "Frank Russell Company"
includes its corporate predecessor, Frank Russell Co., Inc.
*Lynn L. Anderson -- 59 years old -- Trustee, President and Chief Executive
Officer since 1996. 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,
President, and Treasurer, The SSgA Funds (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment
Management Company; Director,
4
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Chief Executive Officer and President, Frank Russell Trust Company; Director
and Chairman of the Board, Frank Russell Investment Company Public Limited
PLC; Director, Frank Russell Company, Frank Russell Investments (Ireland)
Limited, Frank Russell Investments (Cayman) Ltd. and Frank Russell Investments
(UK) Ltd., Russell Insurance Agency, Inc., Frank Russell Investment Company,
PLC; June 1993 to November 1995, Director, Frank Russell Company. Until
September 1994, Director and President, The Laurel Funds, Inc. (investment
company); November 1995 to December 1996, Director and Chairman, Russell MLC
Management Company; December 1996 to March 1997, Director and Chairman, Frank
Russell Company (Delaware) Inc.
Paul E. Anderson -- 67 years old -- Trustee. 23 Forest Glen Lane, Tacoma,
Washington 98409. Trustee, Frank Russell Investment Company; 1996 to Present,
President, Forest Limited Partnership. 1984 to 1996, President, Vancouver Door
Company, Inc.
Paul Anton, Ph.D. -- 78 years old -- Trustee. PO Box 212, 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 -- 73 years old -- Trustee. 800 North C Street, Tacoma,
Washington 98403. Trustee, Frank Russell Investment Company, Retired.
Lee C. Gingrich -- 68 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 -- 72 years old -- Trustee. 2025 Narrows View Circle #232-
D, P.O. Box 1057, Gig Harbor, Washington 98335. Trustee, Frank Russell
Investment Company; Director of Frank Russell Trust Company.
The Investment Company pays fees only to the Independent Trustees of the
Investment Company. Compensation of officers and Trustees who are "interested
persons" of the Investment Company (as indicated by an asterisk) is paid by
FRIMCo or its affiliates.
All of the nominees attended each regular Board of Trustees meeting held in
1997, and the special meeting of the Board of Trustees held on June 6, 1997,
except for Paul Anderson, who was absent from two meetings, Lynn L. Anderson,
who was absent from three meetings, and Eleanor W Palmer, who was absent from
one meeting. The Board of Trustees has an Audit Committee, which is composed
of the Independent Trustees of the Investment Company. The function of the
Audit Committee is to advise the Board with regard to the appointment of the
Investment Company's independent accountants, review and approve audit and
non-audit services of the Investment Company's independent
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accountants, and meet with the Investment Company's financial officers to
review the conduct of accounting and internal controls. The Committee also
serves as a vehicle for these Trustees to consult separately with the
Investment Company's outside counsel. The Audit Committee met once during the
year ended December 31, 1997. All members of the Audit Committee attended the
Audit Committee meeting. The Board does not have standing nominating or
compensation committees.
The following represents the compensation paid to each Current Trustee for
the fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION THE INVESTMENT COMPANY
FROM THE INVESTMENT AND THE FUND COMPLEX
TRUSTEE COMPANY PAID TO TRUSTEES
- ------- ------------------- -----------------------
<S> <C> <C>
Lynn L. Anderson.................... $ 0 $ 0
Paul E. Anderson.................... $11,263* $31,263**
Paul Anton, PhD..................... $11,263* $31,263**
William E. Baxter................... $11,263* $31,263**
Lee C. Gingrich..................... $11,263* $31,263**
Eleanor W. Palmer................... $11,263* $31,263**
George F. Russell................... $ 0 $ 0
</TABLE>
- ----------
* Of this amount, $4,000 was for services during 1996.
** The Trustees received $20,000 for service as trustees on the Board of
Trustees for the Frank Russell Investment Company.
OFFICERS OF THE INVESTMENT COMPANY
Information about the Investment Company's principal executive officers
(other than Lynn Anderson), including their names, ages, position(s) with the
Investment Company, and principal occupation or employment during the past
five years, is set forth below. An asterisk (*) indicates that the officer is
an "interested person" of the Investment Company as defined in the 1940 Act.
As used in the table, "Frank Russell Company" includes its corporate
predecessor, Frank Russell Co., Inc.
*George F. Russell, Jr. -- 66 years old -- Trustee and Chairman of the Board
since 1996. Trustee and Chairman of the Board of Frank Russell Investment
Company; Director, Chairman of the Board and Chief Executive Officer, Russell
Building Management Company, Inc.; Director and Chairman of the Board, Frank
Russell Company, Frank Russell Securities, Inc., Frank Russell Trust Company,
Frank Russell Investments (Delaware), Inc.; Director, Frank Russell Investment
Management Company; Director, Chairman of the Board, and President, Russell
20/20 Association.
*Mark E. Swanson -- 34 years old -- Treasurer and Chief Accounting Officer
since August 1998. Treasurer and Chief Accounting Officer, Frank Russell
Investment Company; Interim Director, Finance and Operations, Frank Russell
Trust Company;
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Assistant Secretary and Principal Accounting Officer, SSgA Funds (investment
company); Interim Director of Fund Administration and Accounting, Frank
Russell Investment Management Company; Manager, Funds Accounting and Taxes,
Russell Fund Distributors, Inc. April 1996 to August 1998, Assistant
Treasurer, Frank Russell Investment Company; August 1996 to August 1998,
Assistant Treasurer, Frank Russell Investment Company; November 1995 to July
1998, Assistant Secretary, the SSgA Funds; February 1997 to July 1998,
Manager, Funds Accounting and Taxes, Frank Russell Investment Management
Company.
*Randall P. Lert -- 45 years old -- Director of Investments since 1996.
Director of Investments, 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 and Chief Investment Officer, Russell Fund Distributors,
Inc. Director-Futures Trading, Frank Russell Investments (Ireland) Limited and
Frank Russell Investments (Cayman) Ltd.; Senior Vice President and Director of
Portfolio Trading, Frank Russell Canada Limited/Limitee. April 1990 to
November 1995, Director of Investments of Frank Russell Investment Management
Company.
*Karl J. Ege -- 57 years old -- Secretary and General Counsel since 1996.
Secretary and General Counsel of Frank Russell Investment Company. Director,
Secretary and General Counsel, Russell Fiduciary Services Co., Frank Russell
Capital, Inc.; Director, Secretary, General Counsel and Managing Director --
Law and Government Affairs of Frank Russell Company; Secretary and General
Counsel of Frank Russell Investment Management Company, Frank Russell Trust
Company and Russell Fund Distributors, Inc.; Director and Secretary of Russell
Building Management Company Inc., Russell International Services Co., Inc. and
Russell 20-20 Association; Director and Assistant Secretary of Frank Russell
Company Limited (London) and Russell Systems Ltd.; Director, Frank Russell
Investment Company LLC, Frank Russell Investments (Cayman) Ltd., Frank Russell
Investment Company PLC, Frank Russell Investments (Ireland) Limited, Frank
Russell Company S.A., Frank Russell Japan Co. Ltd., Frank Russell Company (NZ)
Limited, Russell Investment Nominee Co PTY Ltd and Frank Russell Investments
(UK) Ltd.; Secretary, A Street Investments, Inc.; Director and Secretary,
Frank Russell Investments (Delaware), Inc.; July 1992 to June 1994, Director,
President and Secretary of Frank Russell Shelf Corporation; July 1993 to
December 1996, Secretary, Russell MLC Management Co.
*Peter Apanovitch -- 53 years old -- Manager of Short-Term Investment Funds
since 1996. Manager of Short-Term Investment Funds, Frank Russell Investment
Company; Manager of Short-Term Investment Funds, Frank Russell Investment
Management Company and Frank Russell Trust Company.
The persons named in the proxy intend, in the absence of contrary
instructions, to vote all proxies in favor of the election of each nominee. A
Shareholder may vote for or withhold authority with respect to any or all of
the nominees. If an executed proxy is
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returned without voting instructions, the shares will be voted for all
nominees named herein. All of the nominees have consented to being named in
this Proxy Statement and to serve if elected. The Investment Company knows of
no reason why any nominee would be unable or unwilling to serve if elected.
Should any of the nominees become unable or unwilling to accept nomination or
election prior to the Special Meeting, the persons named in the proxy will
exercise their voting power to vote for such substitute person or persons as
the Current Trustees of the Investment Company may recommend. If any nominee
is not approved by the Shareholders of the Investment Company, the Board will
consider alternative nominations.
The nominees who receive the greatest number of votes cast by the
shareholders of the Investment Company who are present at the Meeting in
person or by proxy will be declared elected.
THE BOARD OF TRUSTEES RECOMMENDS THAT
SHAREHOLDERS VOTE TO ELECT AS TRUSTEES THE
NOMINEES FOR ELECTION TO THE
BOARD OF TRUSTEES OF THE INVESTMENT COMPANY
PROPOSAL #2: RATIFICATION OF THE SELECTION OF
PRICEWATERHOUSECOOPERS LLP AS THE
INVESTMENT COMPANY'S INDEPENDENT ACCOUNTANTS
At its meeting on April 27, 1998, pursuant to a request by the management of
the Investment Company, the Board, including a majority of the Independent
Trustees of the Investment Company, selected the firm of
PricewaterhouseCoopers LLP to be independent accountants for the Investment
Company for the fiscal year ending December 31, 1998. Shareholders of all of
the sub-trusts of the Investment Company are being asked at the Special
Meeting to ratify the selection of PricewaterhouseCoopers LLP, a firm formed
by the recent merger of the Investment Company's accountant with another
prominent accounting firm.
Services in connection with the audit function to be performed by the
Investment Company's independent accountants include: (i) the examination of
the annual financial statements of the Investment Company; (ii) all services
rendered in order to permit the accountants to render a formal opinion on the
Investment Company's financial statements; and (iii) provision of assistance
and consultations with respect to filings with the SEC. PricewaterhouseCoopers
LLP does not have any direct or indirect financial interest in the Investment
Company. It is not expected that a representative of PricewaterhouseCoopers
LLP will be present at the Special Meeting. If a representative is present, he
or she will have an opportunity to make a statement if he or she so desires to
do so, and would be available to respond to appropriate questions.
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To be ratified, the appointment of PricewaterhouseCoopers LLP must receive
the affirmative vote of a majority of the securities of the Investment Company
which are present at the Meeting in person or by proxy, and vote on this
proposal.
THE BOARD OF TRUSTEES RECOMMENDS
THAT SHAREHOLDERS VOTE TO RATIFY THE
SELECTION OF PRICEWATERHOUSECOOPERS LLP AS
THE INVESTMENT COMPANY'S INDEPENDENT ACCOUNTANTS
PROPOSAL #3: TO APPROVE A PROPOSED MANAGEMENT
AGREEMENT BETWEEN THE INVESTMENT COMPANY,
ON BEHALF OF EACH FUND, AND FRANK RUSSELL
INVESTMENT MANAGEMENT COMPANY, TO TAKE EFFECT
UPON THE ACQUISITION OF FRANK RUSSELL COMPANY
BY THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
INTRODUCTION
FRIMCo currently serves as the investment manager to the Funds pursuant to
an investment management agreement (the "Management Agreement") described
below. The current Management Agreement with FRIMCo is dated August 5, 1996.
The Management Agreement was continued until April 30, 1999, by the Board,
including all of the Independent Trustees, at its meeting held on April 27,
1998. The continuance of the current Management Agreement assured that the
Investment Company would continue to receive the services of FRIMCo after
April 30, 1998. On August 10, 1998, FRC entered into an Agreement and Plan of
Merger (the "Transaction Agreement") with The Northwestern Mutual Life
Insurance Company ("Northwestern Mutual") pursuant to which Northwestern
Mutual will acquire at the effective time all of the outstanding common stock
of FRC through the merger of Project Rainier Corp., a wholly-owned subsidiary
of Northwestern Mutual, with and into FRC (the "Transaction"). Northwestern
Mutual is a Milwaukee-based mutual insurance company with assets of more than
$76 billion at June 30, 1998, and annual revenues of more than $12.3 billion
for the year ended December 31, 1997. Northwestern Mutual Investment Services,
LLC ("NMIS"), a wholly-owned subsidiary of Northwestern Mutual, serves as
investment adviser to the Mason Street Funds, Inc. (a family of retail mutual
funds sponsored by Northwestern Mutual) and Northwestern Mutual Series Fund,
Inc. (the investment fund for Northwestern Mutual's variable annuity and life
insurance contracts). NMIS had approximately $9 billion under management at
June 30, 1998. The mailing address of Northwestern Mutual is 720 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202-4797.
Pursuant to the Transaction Agreement, FRC will be the surviving corporation
in the merger, and will continue to exist as a Washington corporation, as a
subsidiary of Northwestern Mutual. The corporate headquarters of FRC will
remain in Tacoma,
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Washington. FRC will retain its name and operating independence and will
continue to operate globally as a separate company. George F. Russell, Jr.
will continue as Chairman of the Board of Directors of FRC. Michael J. A.
Phillips will continue as Chief Executive Officer of FRC and as a member of
FRC's Board of Directors.
Consummation of the Transaction will constitute an "assignment," as that
term is defined in the 1940 Act, of the Management Agreement. As required by
the 1940 Act, that Agreement provides for its automatic termination in the
event of its assignment. In anticipation of the Transaction and the resulting
termination, a new investment agreement (the "New Agreement") between the
Funds and FRIMCo is being submitted for approval by Shareholders of the Funds.
A copy of the Management Agreement is attached hereto as Exhibit B. THE NEW
AGREEMENT FOR THE FUNDS WILL CONTAIN IN ALL MATERIAL RESPECTS THE SAME TERMS
AS THE TERMS IN THE MANAGEMENT AGREEMENT THAT ARE IN EFFECT AT THE TIME OF THE
CONSUMMATION OF THE TRANSACTION, other than the effective date of the
agreement.
BOARD OF TRUSTEES EVALUATION AND CONCLUSIONS
At a Board of Trustees meeting on August 10, 1998, the Board was advised
that FRC and Northwestern Mutual had entered into the Transaction Agreement.
The Board directed the officers of the Investment Company to obtain additional
information concerning Northwestern Mutual, the terms of the Transaction, and
the impact of the Transaction on the Investment Company. Extensive information
was provided to the Board by FRC and Northwestern Mutual, and this information
was reviewed by the Board. In addition, the Independent Trustees also
consulted with the Investment Company's outside counsel concerning these
matters. After a careful review and evaluation of this information, a special
meeting of the Board was held on October 5, 1998 to consider the information
provided by FRC and Northwestern Mutual.
At its October meeting, the Board of the Investment Company focused upon the
effect of the proposed Transaction on the Investment Company. Representatives
of FRC and Northwestern Mutual attended the meeting and described the terms of
the proposed Transaction and the perceived benefits to the FRC organization,
FRIMCo and FRIMCo's investment advisory clients. In the course of these
discussions, FRIMCo and FRC advised the Independent Trustees that they did not
expect that the proposed Transaction would have a material effect on the
operations of the Investment Company or its shareholders. FRC has advised the
Independent Trustees that the Transaction Agreement, by its terms, does not
contemplate any changes in the structure or operations of FRIMCo, or in the
way that FRIMCo provides services to the Investment Company. Representatives
of Northwestern Mutual have informed the Trustees that Northwestern Mutual
currently intends to maintain the separate existence of the investment
companies that FRIMCo advises, and the funds that NMIS manages.
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<PAGE>
Though no specific plans have been developed at this time, the Trustees have
been advised by FRC that there may be some changes in personnel currently
involved in providing services to the Investment Company in order to combine
the strengths and efficiencies of FRC and Northwestern Mutual. With respect to
non-investment advisory services, Northwestern Mutual and FRC will seek to
identify ways in which FRIMCo and other subsidiaries of Northwestern Mutual
(including Robert W. Baird & Co. Incorporated) can more effectively meet the
administrative needs of the Investment Company and its affiliates. Any changes
in investment advisory services would require approval of the Board and
Shareholders in accordance with the 1940 Act. Any restructuring of non-
advisory services provided by FRIMCo will be subject to the review and
approval of the Board of Trustees, including the Trustees who are not
"interested persons" of FRC or Northwestern. In their discussions with the
Trustees, Northwestern Mutual representatives also emphasized the strengths of
the Northwestern Mutual organization and its commitment to provide the FRC
organization, including FRIMCo, with the resources necessary to continue to
provide high quality services to the Investment Company and the other
investment advisory clients of the FRC organization.
The Board of the Investment Company was advised that the Transaction
Agreement provides for FRC to rely, and that FRC intends to rely, on Section
15(f) of the 1940 Act, which provides a safe harbor for an investment adviser
to an investment company (and the adviser's affiliated persons) to retain any
amount or benefit received in connection with a change in control of the
investment adviser so long as the two conditions described below are met.
First, for a period of three years after the Transaction, at least 75% of
the members of the Board of Trustees of the Investment Company must not be
"interested persons" of the Investment Company's investment adviser or its
predecessor adviser. Assuming the election of the nominees listed in Proposal
#1, the Board of the Investment Company would be in compliance with this
provision of Section 15(f) at the time of, or prior to, the consummation of
the Transaction. (See Proposal #1 concerning the election of the Board of
Trustees.)
Second, an "unfair burden" must not be imposed upon the Investment Company
as a result of such Transaction or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden" is defined in
Section 15(f) to include any arrangement during the two-year period after the
Transaction whereby the investment adviser, or any interested person of any
such adviser, receives or is entitled to receive any compensation, directly or
indirectly, from the Investment Company or its shareholders (other than fees
for bona fide investment advisory or other services) or from any person in
connection with the purchase or sale of securities or other property to, from
or on behalf of the Investment Company (other than ordinary fees for bona fide
services as principal underwriter for the Investment Company). No compensation
agreements which would violate Section 15(f) are contemplated in connection
with the Transaction.
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<PAGE>
FRIMCo has undertaken to pay the costs associated with the preparation,
filing, printing, and distribution of these proxy materials, and of holding
the Special Meeting in lieu of Annual Meeting, as well as any other fees and
expenses incurred by the Investment Company in connection with the
Transaction, including the fees and expenses of legal counsel to the
Investment Company.
During the course of their deliberations, the Independent Trustees
considered a variety of factors. These factors included the nature, quality
and extent of the services furnished by FRIMCo to the Investment Company; the
investment record of FRIMCo in managing the Funds in the Investment Company,
including the special role of FRIMCo as a "manager of managers"; the increased
complexity of the domestic and international securities markets; and
comparative data as to investment performance, advisory fees and other fees,
including administrative fees, and expense ratios. The Board also considered
the risks assumed by FRIMCo by serving as adviser to the Investment Company;
the necessity for FRIMCo to maintain and enhance its ability to retain and
attract capable personnel to serve the Investment Company; FRIMCo's
profitability from advising the Investment Company; and other benefits
received by FRIMCo from serving the Investment Company. In connection with the
acquisition of FRC by Northwestern Mutual, the Board noted that there could be
possible economies of scale or other advantages to the Investment Company of
having an adviser with a parent which also serves other investment companies.
The Board also considered current and developing conditions in the financial
services industry, including the entry into the industry of large and well
capitalized companies which are spending and appear to be prepared to continue
to spend substantial sums to engage experienced personnel and to provide
services to competing investment companies; and the financial resources of
FRIMCo and the continuance of appropriate incentive compensation arrangements
to assure that FRIMCo will continue to furnish high quality services to the
Investment Company.
In addition to the foregoing factors, the Independent Trustees gave careful
consideration to the likely impact of the Transaction on the FRC organization.
In this regard, the Independent Trustees considered, among other things, the
following factors: the structure of the Transaction, which is expected to
afford FRIMCo executives significant autonomy over FRIMCo's operations and
could potentially provide meaningful FRC equity participation and incentives
for certain FRIMCo employees; FRIMCo's, FRC's and Northwestern Mutual's
commitment to enable FRIMCo to pay compensation adequate to attract and retain
top quality personnel; information regarding the financial resources and
business reputation of Northwestern Mutual; the complementary nature of
various aspects of the business of FRIMCo and the Northwestern Mutual
organization; and the current intention of Northwestern Mutual to maintain
separate Frank Russell and Northwestern Mutual brands in the mutual fund
business. Based on the foregoing, the Independent Trustees concluded that the
Transaction should cause no reduction in the quality of services provided to
the Investment Company and concluded that the Transaction should enhance
FRIMCo's ability to provide such services. The Independent Trustees considered
the foregoing
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<PAGE>
factors with respect to each of the sub-trusts of the Investment Company, and
the Investment Company collectively. The Trustees, including the Independent
Trustees, concluded that the on-going reorganization of the organizational and
operational structure of the sub-trusts of the Investment Company permitted
the Trustees to conclude that no sub-trust would be affected differently from
the Investment Company as a whole in these respects, and therefore determined
that the conclusions of the Board with respect to these matters would have
equal impact with respect to every sub-trust in the Investment Company.
As a result of these deliberations, at the Board of Trustees meeting on
October 5, 1998, the Trustees of the Investment Company, including the
Independent Trustees, approved the New Agreement for the Investment Company,
and recommended that shareholders of each of the sub-trusts in the Investment
Company approve the New Agreement, to become effective upon the completion of
the change of control of FRC and the termination of the Management Agreement
then in effect. In reaching this decision, the Board did not determine the
relative importance of the factors which were discussed. The discussion by the
Trustees with Fund counsel reflected consideration by the Board of all of the
issues considered.
The Board has not determined what action would be taken in the event that
any sub-trust does not approve the New Agreement for that sub-trust, and the
Transaction closes. In such a circumstance, the Board would seek to obtain for
the sub-trust suitable advisory services from FRIMCo or another investment
advisor on both an interim and/or a continuing basis. The approval of
continuing arrangements would be subject to the approval of the shareholders
of the affected sub-trust. The Trustees have determined that, in the event the
Transaction is not completed, FRIMCo will continue to serve the Investment
Company under the terms of the agreement then in effect.
INFORMATION CONCERNING THE TRANSACTION AND NORTHWESTERN MUTUAL
Under the Transaction Agreement, at the effective time of the Transaction,
each share of FRC common stock then outstanding (other than shares for which
dissenters' rights have been exercised) will be converted into the right to
receive $905,000,000 divided by the number of fully diluted units of equity of
FRC (taking into account all outstanding shares of FRC capital stock, options
to acquire shares of FRC capital stock, equity appreciation units and other
equity related rights), adjusted as described below. Such share price will be
increased or reduced based on the change (taking into account certain pro
forma adjustments) in FRC's net worth per share between March 31, 1998 and
closing. In addition, $90,000,000 of the $905,000,000 will be held back by
Northwestern Mutual at the closing to cover any adjustments occasioned by
changes in the net worth of FRC and for any losses incurred by Northwestern
Mutual or FRC as a result of the breach by FRC of certain specified
representations made by FRC in the Transaction Agreement, and will be
distributed to the former FRC shareholders and other former holders of FRC
equity related rights no earlier than October 1, 1999 to the extent
13
<PAGE>
that there are no such adjustments or claims in respect of the breach of the
specified representations. FRC currently has approximately 200 shareholders.
Certain shareholders of FRC who have held their shares of common stock for
less than twelve months will have the option to convert such shares of common
stock into FRC preferred stock prior to the closing. Such preferred stock will
be subject to certain put and call rights during certain periods (at a price
per share equal to the amount that would have been paid if the preferred stock
had been common stock at the effective time of the Transaction, plus a
percentage of cumulative earnings per share of FRC on a fully diluted basis
from such effective time to the quarter preceding the put or call) but will
convert to FRC common stock if not redeemed or repurchased after four years.
George Russell, his family members and their related trusts are expected to
own approximately 59% in the aggregate of the fully diluted equity units of
FRC at the effective time of the Transaction. Lynn Anderson is also a
shareholder of FRC and is expected to own approximately 1% of the fully
diluted equity units of FRC at the effective time of the Transaction.
At and after the effective time of the Transaction, FRC will be a subsidiary
of Northwestern Mutual. FRIMCo will remain a wholly-owned subsidiary of FRC.
In connection with the Transaction, 50,000,000 shares of new FRC common stock
will be reserved for future issuance under a FRC Incentive Payments Plan. The
Incentive Payments Plan will be established to enhance the value of FRC and
its subsidiaries, including FRIMCo, by motivating superior performance of
management and key employees of the FRC organization after the closing of the
Transaction through the award of shares of FRC common stock and cash (to cover
certain income tax consequences of any stock award) to certain employees of
FRC and its subsidiaries. Over the course of a five-year period from the
effective time of the Transaction, participants in the Incentive Payments Plan
could collectively earn awards constituting up to 20% of the outstanding
common stock of FRC, depending upon FRC's cumulative earnings over the five
year period. George Russell and his wife, Jane Russell, will be awarded 20% in
the aggregate of the total number of incentive shares that may be issued under
the Incentive Payments Plan. Lynn Anderson is expected to participate in the
Incentive Payments Plan. The number of incentive shares to be granted to Mr.
Anderson will be determined after the closing of the Transaction.
At the closing, FRC and Northwestern Mutual will enter into a Governance
Agreement (the "Governance Agreement"). Under the Governance Agreement, the
Board of Directors of FRC will be comprised of five persons. Initially,
Northwestern Mutual will elect to the FRC Board George F. Russell, Jr.,
Michael J.A. Phillips (both of whom are currently members of FRC's Board) and
three other Northwestern Mutual-designated persons. Thereafter, Northwestern
Mutual has agreed to take all actions within its power to cause the FRC Board
at all times to be comprised of (i) FRC's Chief Executive Officer and one
other senior officer or employee of FRC designated by the Chief Executive
Officer and approved by a majority of the other FRC directors then in
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<PAGE>
office (with Messrs. Russell and Phillips, each a "Russell-designated
director"); and (ii) three other persons designated by Northwestern Mutual.
The names, addresses and principal occupations of the initial Russell-
designated directors are as follows:
George F. Russell, Jr., 909 A Street, Tacoma, Washington, 98402; Trustee
and Chairman of the Board, Frank Russell Investment Company; Trustee and
Chairman of the Board, Russell Insurance Funds; Director, Chairman of the
Board, and Chief Executive Officer, Russell Building Management Company,
Inc.; Director and Chairman of the Board, Frank Russell Company, Frank
Russell Securities, Inc., Frank Russell Trust Company, Frank Russell
Investments (Delaware), Inc.; Director, Frank Russell Investment
Management Company; Director, Chairman of the Board and President, Russell
20/20 Association.
Michael J.A. Phillips, 909 A Street, Tacoma, Washington, 98402;
Director, President and Chief Executive Officer, Frank Russell Company;
Director and President, Frank Russell Investments (Delaware), Inc.;
Director, Frank Russell Capital Inc., Frank Russell Japan Co., Ltd., Frank
Russell Trust Company, Russell Systems Limited, Frank Russell Company
Limited and Frank Russell Company Pty Limited.
The three initial directors to be designated by Northwestern Mutual have not
yet been determined, but will be selected prior to the closing of the
Transaction. It is currently anticipated that such directors will be selected
from among the executive officers of Northwestern Mutual.
The Governance Agreement, which will terminate no later than December 31,
2008, vests the officers of FRC with the responsibility for day-to-day
management and implementation of FRC's annual operating budget and strategic
plan. However, FRC Board approval is required before certain specified actions
may be taken by FRC or its subsidiaries including, (i) the registration,
issuance and/or sales of securities of FRC and its subsidiaries; (ii) the
merger, consolidation or sale of a substantial portion of assets with or to
another entity (other than another FRC company); (iii) entering into certain
joint ventures, partnerships or other business combinations or acquisitions;
(iv) entering into any material business or line of business other than
investment management, investment consulting, securities trading, analytical
services, and other similar financial services, or discontinuing any material
line of business; (v) entering into material exclusivity contracts, or other
agreements, which materially restrict the manner in which FRC or its
subsidiaries conduct their investment management business in any jurisdiction,
or any U.S. distribution agreements with any life insurance company or life
insurance marketing company other than Northwestern Mutual and its affiliates;
(vi) selling, leasing or otherwise disposing of certain assets or property;
(vii) assuming, incurring, or becoming liable for certain material
indebtedness for borrowed money; (viii) pledging, mortgaging or encumbering
certain assets; (ix) amending its articles of
15
<PAGE>
incorporation or bylaws or undertaking any recapitalization or similar plan;
(x) changing FRC's heads of internal audit or compliance; (xi) approving any
transaction with key employees or certain related parties; (xii) taking any
action with respect to a FRC stockholder meeting; (xiii) declaring dividends
or distributions on FRC's shares; or (xiv) taking any action required to be
taken or approved by the FRC Board under Washington State corporate law. With
respect to (iv) and (v) above, FRC Board approval must include the approval of
the Chief Executive Officer of FRC. In addition, for a period of ten years
from the date of the Governance Agreement, FRC may not change its name or move
its principal place of business to a location other than Tacoma, Washington,
without the unanimous vote or consent of the FRC Board.
The closing of the Transaction is subject to a number of conditions,
including, among others, approval by FRC shareholders; a determination that at
the closing date FRC's annualized revenues from investment advisory, retainer
consulting and analytical services (neutralized for market effect and currency
fluctuations) have not fallen below 90% of the level of such revenues as of
July 31, 1998; the absence of any restraining order or injunction preventing
the Transaction, or any litigation seeking such an injunction; the continued
accuracy of the representations and warranties contained in the Transaction
Agreement; delivery and/or filing of certain documents contemplated by the
Transaction Agreement; all material governmental approvals having been
obtained; holders of not more than 2% of the outstanding FRC common stock
having exercised their statutory appraisal rights; and compliance in all
material respects with all agreements and obligations contained in the
Transaction Agreement. Holders entitled to vote a percentage of shares of FRC
sufficient to approve the Transaction have entered into an agreement with
Northwestern Mutual in which they have agreed to vote such shares in favor of
the approval of the Transaction. The Transaction is expected to close on or
about December 30, 1998, with the merger becoming effective on January 1,
1999.
The information set forth under this Proposal #3 concerning FRC and the
Transaction has been provided to the Investment Company by FRC, and the
information set forth under this Proposal #3 concerning Northwestern Mutual
has been provided to the Investment Company by Northwestern Mutual.
Founded in 1857, Northwestern Mutual is a mutual insurance corporation
organized under the laws of Wisconsin. Its home office is located at 720 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202-4797. Northwestern Mutual's
products consist of a full range of permanent and term life insurance,
disability income insurance, long term care insurance, mutual funds and
annuities for personal, estate, retirement, business and benefits planning.
Northwestern Mutual provides its insurance products and services through an
exclusive network of approximately 7,200 agents associated with over 100
general agencies nationwide. Northwestern Mutual leads the U.S. in both
individual life insurance sold annually (approximately $78 billion in 1997)
and total individual life insurance in force (more than $500 billion at June
30, 1998). Northwestern Mutual employs over 3,600 people, mostly in Milwaukee,
Wisconsin.
16
<PAGE>
FRC, one of the world's leading investment management and consulting firms,
provides investment advice, analytical tools and funds to institutional and
individual investors in more than 30 countries. FRC, through its subsidiaries,
currently manages approximately $40 billion in assets and provides investment
strategy consulting, including manager selection, for more than $1 trillion in
retainer client assets. It is also well known for its family of market
indexes, including the Russell 2000(R). Russell indexes provide complete sets
of performance benchmarks for investors in Australia, Canada, Japan and the
United States. FRC is a three-time winner of Washington CEO magazine's "Best
Large Company to Work For" award in Washington State, and in 1997 was chosen
from among some 12 million family companies to receive the "National Family
Business of the Year" Award. Founded in 1936, the FRC organization is an
established presence in the asset management and mutual fund industry.
REQUIRED VOTE
To be approved, the Management Agreement must receive the affirmative vote
of a "majority of the outstanding voting securities" of each Fund, as defined
in the 1940 Act. Under the 1940 Act, a vote of a majority of the outstanding
voting securities of each Fund means the lesser of (i) 67% or more of the
shares of each Fund represented at the Special Meeting, if more than 50% of
the outstanding shares are present at the Special Meeting or represented by
proxy, or (ii) more than 50% of the outstanding shares of each Fund.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE TO APPROVE THE PROPOSED MANAGEMENT AGREEMENT WITH
FRIMCO ON BEHALF OF THE FUNDS, TO TAKE EFFECT
UPON THE ACQUISITION OF FRC BY NORTHWESTERN MUTUAL
PROPOSAL #4: TO APPROVE AN AMENDMENT TO
EACH FUND'S FUNDAMENTAL INVESTMENT
RESTRICTIONS TO INCREASE THE AMOUNT WHICH THE
FUND MAY BORROW TO MEET REDEMPTIONS
WHAT IS THE CURRENT LIMITATION ON BORROWING BY THE FUNDS?
Section 18(f)(1) of the 1940 Act provides that it shall be unlawful for any
registered open-end investment company to issue any class of senior security
or to sell any senior security of which it is the issuer, except that any such
registered company shall be permitted to borrow from any bank; provided, that
immediately after any such borrowing, there is an asset coverage of at least
300 per cent for all borrowings of the investment company; and provided
further, that in the event that such asset coverage shall at any time fall
below 300 per cent the registered company shall, within three days thereafter
(not including Sundays and holidays) or such longer period as the SEC may
allow, reduce
17
<PAGE>
the amount of its borrowings to an extent that the asset coverage of such
borrowings shall be at least 300 per cent.
The Investment Company, on behalf of the Funds, has previously adopted a
fundamental investment restriction that limits the borrowing authority of each
sub-trust to less than the amount that is permitted by the 1940 Act as
described in the prior paragraph. Specifically, each Fund's investment
restriction on borrowing currently provides:
"[The Fund will not:] Borrow amounts more than 5% of the Fund's total
assets taken at cost or at market value, whichever is lower, and only from
banks as a temporary measure for extraordinary or emergency purposes,
except that [the] Fund may engage in reverse repurchase agreements to meet
redemption requests without immediately selling any portfolio instruments.
The Fund will not mortgage, pledge or in any other manner transfer as
security for any indebtedness, any of its assets. Collateral arrangements
with respect to margin for futures contracts are not deemed a pledge of
assets."
WHY IS AN INCREASE IN THE BORROWING LIMITATION PROPOSED?
At a Board meeting held on October 5, 1998, management reported to the Board
on the prospects for entering into a line of credit for the Investment Company
with a commercial bank, whereby the Investment Company's sub-trusts would be
permitted to borrow money under the line of credit in order to meet redemption
requests. This practice would permit the Funds to pay redemption proceeds to
shareholders without the need to make untimely and disadvantageous
dispositions of securities. Given the current investment restriction of the
Investment Company, borrowings by the Funds for this purpose would be limited
to five percent of each Fund's assets.
At the Board meeting, management recommended that the Trustees consider
approving a revision to the fundamental restriction that would authorize a
higher borrowing level for the purpose of efficiently meeting shareholder
redemption requests. FRIMCo, in advocating an increase in the borrowing limits
for the Investment Company's sub-trusts, noted that raising the maximum level
of borrowing to conform to the 1940 Act's limitation would give the Investment
Company's money managers greater flexibility in meeting shareholder redemption
requests.
The officers of the Investment Company noted that an increase in the maximum
level of borrowing permitted to the Investment Company's sub-trusts would
permit the Investment Company to negotiate a larger line of credit with a
bank, although the officers advised the Board that there is no current
intention to do so at this time.
At that meeting, the Board approved a proposal to increase the borrowing
limit under each Fund's fundamental investment restriction, and directed that
the officers of the Investment Company submit to Shareholders a proposal to
approve such amendment
18
<PAGE>
to permit borrowing at a higher level by the Funds. If approved, each Fund's
investment restriction would be revised to state:
"[The Fund will not:] Borrow money, except that the Fund may borrow as a
temporary measure for extraordinary or emergency purposes, and not in
excess of five percent of its net assets; provided, that the Fund may
borrow to facilitate redemptions (not for leveraging or investment),
provided that borrowings do not exceed an amount equal to 33 1/3% of the
current value of the Fund's assets taken at market value, less liabilities
other than borrowings. If at any time the Fund's borrowings exceed this
limitation due to a decline in net assets, such borrowings will be reduced
to the extent necessary to comply with this limitation within three days.
Reverse repurchase agreements will not be considered borrowings for
purposes of the foregoing restriction, provided that the Fund will not
purchase investments when borrowed funds (including reverse repurchase
agreements) exceed 5% of its total assets."
The revised fundamental investment restriction will take effect after
receipt of approval by Shareholders.
To be approved, the proposal must receive the affirmative vote of "a
majority of the outstanding voting securities" of each Fund, as defined in the
1940 Act and as described in more detail in the last paragraph under Proposal
#3.
THE BOARD OF TRUSTEES RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE A CHANGE IN
EACH FUND'S FUNDAMENTAL RESTRICTIONS TO INCREASE THE
LIMITS ON BORROWING MONEY FOR THE PURPOSE
OF MEETING REDEMPTIONS
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<PAGE>
INFORMATION REGARDING THE CURRENT
MANAGEMENT AGREEMENT
The table below sets forth (i) the net assets of each Fund as of the
Investment Company's year ended December 31, 1997; (ii) the rate of management
fees, computed daily and payable monthly, to which FRIMCo is entitled for the
services provided and expenses assumed pursuant to the Management Agreement;
(iii) the actual management fees (net of waivers) paid by the Funds for the
year ended December 31, 1997; and (iv) the management fees paid by FRIMCo to
money managers for their services for the year ended December 31, 1997.
<TABLE>
<CAPTION>
ANNUAL
MANAGEMENT MANAGEMENT FEES FEES PAID TO
NET ASSETS FEE (BASED (NET OF WAIVERS) MONEY MANAGERS
AS ON AVERAGE FOR YEAR ENDED FOR YEAR ENDED
FUNDS OF 12/31/97 NET ASSETS) 12/31/97 12/31/97
- ----- ----------- ----------- ---------------- --------------
<S> <C> <C> <C> <C>
Multi-Style Equity
Fund................... $23,639,008 0.78% $88,827 $53,897
Aggressive Equity Fund.. $15,371,664 0.95% $82,318 $75,321
Non-U.S. Fund........... $ 6,876,259 0.95% $25,460 $23,654
Core Bond Fund.......... $ 8,522,683 0.60% $ 0 $14,574
</TABLE>
Until further notice, FRIMCo intends to voluntarily waive all or a portion
of its management fees, and, if necessary, reimburse total fund operating
expenses, to the extent necessary for each of the Funds to maintain annual
expense ratios of not more than 0.92% for the Multi-Style Equity Fund; 1.25%
for the Aggressive Equity Fund; 1.30% for the Non-U.S. Fund and 0.80% for the
Core Bond Fund. Any such waiver may be revised or eliminated at any time.
For the year ended December 31, 1997, the brokerage commissions paid by the
Funds were:
<TABLE>
<S> <C>
Multi-Style Equity Fund............. $36,614
Aggressive Equity Fund.............. $39,991
Non-US Fund......................... $22,186
</TABLE>
The Core Bond Fund normally does not pay a stated brokerage commission on a
transaction. The Core Bond Fund does, however, engage in transactions with
dealers acting as principal and the costs of such transactions involve dealer
spreads rather than brokerage commissions.
20
<PAGE>
DIRECTORS AND OFFICERS OF FRIMCO
Set forth below are the names and current positions of the officers and
directors of FRIMCo, along with their positions with FRC and/or the Investment
Company, as applicable:
<TABLE>
<CAPTION>
NAME INVESTMENT COMPANY FRIMCO FRC
---- ------------------ ------ ---
<S> <C> <C> <C>
George F. Russell, Trustee, Chairman Director Director, Chairman
Jr. ................... of the Board of the Board
Lynn L. Anderson........ Trustee, President, and Director, Chairman Director
Chief Executive of the Board and
Officer Chief Executive Officer
Randall P. Lert......... Director of Investments Director --
Eric A. Russell......... -- Director, President Director
Karl J. Ege............. Secretary and Secretary and Director,
General Counsel General Counsel Secretary and
General Counsel
Peter F. Apanovitch..... Manager of Short Term Manager of Short Term --
Investment Funds Investment Funds
Mark E. Swanson......... Treasurer and Chief Interim Director of Fund --
Accounting Officer Administration and
Accounting
</TABLE>
INFORMATION REGARDING THE SOLICITATION AND REVOCATION
OF PROXIES AND VOTING INFORMATION
This Proxy Statement is provided on behalf of the Board of Trustees of the
Investment Company in connection with a Special Meeting in lieu of Annual
Meeting of Shareholders of the Investment Company to be held at the offices of
the Investment Company at 909 A Street, Tacoma, Washington 98402, on Thursday,
November 19, 1998 at 11:00 a.m., local time, and at any or all adjournments
thereof. This Proxy Statement is being mailed to Shareholders on or about
October 19, 1998. You may revoke your proxy at any time before it is exercised
by delivering a written notice to the Investment Company expressly revoking
your proxy, by signing and forwarding to the Investment Company a later-dated
proxy, or by attending the Special Meeting and casting your votes in person.
The Investment Company requests that broker-dealer firms, custodians,
nominees and fiduciaries forward proxy material to the beneficial owners of
the shares held of record by such persons. Under the terms of certain
exemptive orders which the SEC has issued to the Investment Company, insurance
companies which have placed assets in the Funds are required to forward
proxies to policy holders to request voting instructions. The cost of
soliciting these proxies will be borne by each Fund, to the extent of its
direct operational expenses, and by FRIMCo. In addition to solicitations by
mail, some of the
21
<PAGE>
officers and employees of the Investment Company, FRIMCo and Russell Fund
Distributors, Inc. ("Distributors"), without extra remuneration, may conduct
additional solicitations by telephone, or facsimile or computer transmission
or in person.
WHO MAY VOTE AT THE SPECIAL MEETING?
The Board of the Investment Company has fixed the close of business on
September 21, 1998, as the record date (the "Record Date") for the
determination of Shareholders entitled to notice of and to vote at the Special
Meeting and any adjournments thereof. Only holders of record of shares at the
close of business on the Record Date are entitled to notice of, and to vote
at, the Special Meeting and any adjournments thereof. The holders of 5% or
more of each Fund's shares are listed in the section "Principal Shareholders"
below. At the close of business on the Record Date, the total number of voting
shares of each Fund issued and outstanding was the following:
<TABLE>
<S> <C>
Multi-Style Equity Fund................................... 3,984,687 Shares
Aggressive Equity Fund.................................... 1,737,951 Shares
Non-U.S. Bond Fund........................................ 1,608,032 Shares
Core Bond Fund............................................ 2,377,688 Shares
</TABLE>
The total number of voting shares of the Investment Company issued and
outstanding was 9,708,359.
The holder of record of each full share of beneficial interest of each Fund
outstanding as of the close of business on the Record Date is entitled to one
vote for each share held of record upon each matter properly submitted to the
Special Meeting or any adjournments thereof, with a proportionate vote for
each fractional share.
WHAT OTHER BUSINESS WILL BE DISCUSSED AT THE SPECIAL MEETING IN LIEU OF ANNUAL
MEETING?
The Board of Trustees does not intend to present any matters before the
Special Meeting in lieu of Annual Meeting other than as described in this
Proxy Statement, and is not aware of any other matters to be brought before
the Meeting or any adjournments thereof by others. IF ANY OTHER MATTER LEGALLY
COMES BEFORE THE MEETING, YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS OF THE BOARD OF TRUSTEES OF THE INVESTMENT COMPANY, AND IN THE
JUDGMENT OF THE NAMED PROXIES.
WHAT IF A QUORUM IS NOT PRESENT AT THE SPECIAL MEETING IN LIEU OF ANNUAL
MEETING?
In the event a quorum is not present at the Special Meeting in lieu of
Annual Meeting or sufficient votes to approve a proposal are not received, the
persons named as proxies may propose one or more adjournments of the Meeting
to permit further solicitation of proxies. A shareholder vote may be taken on
any other matter to properly come before the Meeting prior to such adjournment
if sufficient votes to approve such matters have been received and such vote
is otherwise appropriate. Any adjournment of the Meeting will require the
affirmative vote of a majority of those shares present at the Meeting or
represented by proxy and voting. The persons named as proxies on the proxy
22
<PAGE>
card will vote against any such adjournment those proxies required to be voted
against such proposal. They will vote in favor of an adjournment all other
proxies which they are entitled to vote. The costs of any such additional
solicitation and of any adjourned session will be borne by the Investment
Company. Abstentions and broker "non-votes" (i.e., proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owner or other person entitled to vote shares on a particular
matter with respect to which the brokers or nominees do not have discretionary
power) will be counted as shares that are present for purposes of determining
the presence of a quorum. Abstentions (but not broker non-votes) have the
effect of a "no" vote when determining whether a proposal has received
sufficient votes to be approved.
PRINCIPAL SHAREHOLDERS
As of September 21, 1998, the only persons known by the Investment Company
to be beneficial owners of more than 5% of the Investment Company's voting
securities were:
<TABLE>
<CAPTION>
RUSSELL
MULTI-STYLE AGGRESSIVE CORE BOND INSURANCE
EQUITY FUND EQUITY FUND NON-U.S. FUND FUND FUND
INSURANCE ---------------- -------------- -------------- ---------------- ----------------
COMPANY SHARES % SHARES % SHARES % SHARES % SHARES %
--------- --------- ------ ------- ------ ------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Security Equity Life
Insurance Co. ......... 1,527,688 38.34% 965,270 55.54% 413,936 25.74% 440,121 32.41% 3,347,015 34.48%
84 Business Park, Ste.
303
Armont, NY 10504-1738
COVA Financial Services
Life Insurance Co. .... 1,410,874 35.40% 305,284 17.57% 680,741 42.33% 1,166,817 49.07% 3,563,717 36.71%
One Tower Lane, Ste.
3000
Oakbrook Terace, IL
60181-4644
General American Life
Insurance Co........... 1,046,124 26.25% 467,397 26.89% 513,356 31.92% 770,751 18.51% 2,797,628 28.82%
700 Market Street
St. Louis, MO
63101-1887
</TABLE>
ADDITIONAL INFORMATION
HOW ARE THE FUNDS DISTRIBUTED?
Distributors, located at 909 A Street, Tacoma, WA 98402, a wholly-owned
subsidiary of FRIMCo, serves as the principal underwriter of the Investment
Company's shares. Distributors receives no compensation from the Investment
Company for its services.
MASSACHUSETTS STATE LAW CONSIDERATIONS
The Investment Company is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such
a trust may, under certain circumstances, be held personally liable as
partners for its obligations.
23
<PAGE>
However, the Master Trust Agreement of the Investment Company contains an
express disclaimer of shareholder liability for acts or obligations of the
Investment Company and provides for indemnification and reimbursement of
expenses out of the Investment Company's property for any shareholder held
personally liable for the obligations of the Investment Company. The Master
Trust Agreement also provides that the Investment Company may maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Investment Company, the shareholders of
the sub-trusts, Trustees, officers, employees and agents covering possible
tort and other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability also is limited to
circumstances in which both inadequate insurance exists and the Investment
Company itself is unable to meet its obligations.
Under Massachusetts law, the Investment Company is not required to hold
annual meetings. In the past, the Funds have availed themselves of these
provisions of state law to achieve cost savings by eliminating printing costs,
mailing charges and other expenses involved to hold routine annual meetings.
Each Fund may, however, hold a meeting for such purposes as changing
fundamental investment restrictions, approving a new investment management
agreement or any other matters which are required to be acted on by
shareholders under the 1940 Act. In addition, a meeting also may be called by
shareholders holding at least 10% of the shares entitled to vote at the
meeting for the purpose of voting upon the removal of Trustees, in which case
shareholders may receive assistance in communicating with other shareholders
such as that provided in Section 16(c) of the 1940 Act. The Investment Company
is holding the Special Meeting because of the items that must be presented for
Shareholders' consideration and approval.
As of September 21, 1998, the officers and Trustees of the Investment
Company as a group beneficially owned less than 1% of the shares of each Fund
outstanding on such date.
ANNUAL AND SEMI-ANNUAL REPORTS
A Fund will furnish, without charge, a copy of the Fund's Annual Report and
the most recent Semi-Annual Report succeeding the Annual Report, to a
Shareholder upon request. A Shareholder may receive the report by writing to
the Secretary, Russell Insurance Funds, 909 A Street, Tacoma, Washington 98402
or by telephoning 1-800-787-7354.
By Order of the Trustees,
/s/ Karl J. Ege
Karl J. Ege
Secretary
October 19, 1998
24
<PAGE>
EXHIBITS TO PROXY STATEMENT
EXHIBIT
A. List of Money Managers for the Underlying Funds.
B. Present Management Agreement (the "Management Agreement") between the
Investment Company and FRIMCo.
25
<PAGE>
EXHIBIT A
As of the date of this Proxy Statement, the money managers for the Funds,
along with their addresses, are as follows:
MULTI-STYLE EQUITY FUND
Alliance Capital Management, L.P., 601 2nd Ave. South, Suite 5000,
Minneapolis, MN 55402-4322
Equinox Capital Management Inc., 590 Madison Avenue, 41st Floor, New York,
NY 10022
Westpeak Investment Advisors, LP, 1011 Walnut Street, Suite 400, Boulder, CO
80302
AGGRESSIVE EQUITY FUND
Rothschild Asset Management, Inc., 1251 Avenue of the Americas, 51st Floor,
New York, NY 10020
Westpeak Investment Advisors, LP, 1011 Walnut Street, Suite 400, Boulder, CO
80302
NON-U.S. FUND
J.P. Morgan Investment Management, Inc., 522 Fifth Avenue, 14th Floor, New
York, NY 10036
Oechsle International Advisors, LLC, One International Place, 23rd Floor,
Boston, MA 02110
The Boston Company Asset Management, Inc., One Boston Place, 14th Floor,
Boston, MA 02108
CORE BOND FUND
Pacific Investment Management Company, 840 Newport Center Drive, Suite 360,
Newport Beach, CA 92660
Standish, Ayer & Wood, Inc., One Financial Center, Boston, MA 02110
A-1
<PAGE>
EXHIBIT B
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 it 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
Advisers Act of 1940 and will engage in the business of rendering investment
advice, counseling, money manager recommendation, and supervisory services to
investment consulting clients; and 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:
B-1
<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 of 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
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.
B-2
<PAGE>
(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.
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
B-3
<PAGE>
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
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
B-4
<PAGE>
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;
J. Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Trust;
K. Costs, including the interest expense, of borrowing money;
L. Costs and/or fees incident to meetings of the Trust, the preparation
and mailings of prospectuses and reports of the Trust to its Shareholders,
the filing of reports with regulatory bodies, the maintenance of the
Trust's existence, and the registration of shares with federal and state
securities authorities;
M. Legal fees, including the legal fees related to the registration and
continued qualification of the Trust shares for sale;
N. Costs of printing stock certificates representing shares of the
Trust;
B-5
<PAGE>
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 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
B-6
<PAGE>
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:
<TABLE>
<S> <C>
Multi-Style Equity.................................................. 0.78%
Aggressive Equity................................................... 0.95
Non-U.S............................................................. 0.95
Core Bond........................................................... 0.60
Money Market Liquidity.............................................. 0.25
</TABLE>
From this management fee, FRIMCo, acting as a fiduciary of the Trust, shall
compensate the Money Managers.
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 interestedperson 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,
B-7
<PAGE>
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.
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
B-8
<PAGE>
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
<TABLE>
<S> <C>
/s/ Gregory J. Lyons By: /s/ Lynn L. Anderson
_________________________________ _________________________
Gregory J. Lyons, Assistant Lynn L. Anderson,
Secretary President
</TABLE>
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
<TABLE>
<S> <C>
/s/ Gregory J. Lyons By: /s/ Eric A. Russell
_________________________________ _________________________
Gregory J. Lyons, Assistant Eric A. Russell,
Secretary President
</TABLE>
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 Michael J. A. Phillips,
Secretary President
B-9
<PAGE>
RUSSELL INSURANCE FUNDS PROXY
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS NOVEMBER 19, 1998
FUND NAME PRINTS HERE
The undersigned hereby revokes all previous proxies for the undersigned's shares
and appoints Gregory J. Lyons and Rick Chase, and each of them, proxies of the
undersigned with full power of substitution to vote all shares of the above-
referenced fund (the "Fund") which the undersigned is entitled to vote at the
Fund's Special Meeting in Lieu of Annual Meeting of Shareholders ("Special
Meeting") to be held at the offices of Russell Insurance Funds (the "Investment
Company"), at 909 A Street, Tacoma, WA 98402 at 11:00 a.m., local time, on
Thursday, the 19th day of November 1998, including any adjournment thereof, upon
such business as may properly be brought before the Special Meeting.
TO AVOID THE EXPENSE OF MULTIPLE MAILINGS TO THE SAME SHAREHOLDER, WE HAVE,
WHEVEVER POSSIBLE, INCLUDED PROXY CARDS FOR ALL YOUR ACCOUNTS
IN THE FUNDS INVOLVED IN THIS PROXY IN ONE ENVELOPE.
Please vote by filling in the boxes below.
<TABLE>
<CAPTION>
WITHHOLD
FOR all authority
Nominees to vote
except as for all
marked nominees
--------- -------
<S> <C> <C> <C>
NO. 1 To elect the following six nominees as
Trustees: Lynn L. Anderson, Paul E. Anderson,
Paul Anton, PhD, William E. Baxter, Lee C.
Gingrich, and Eleanor W. Palmer.
(Instructions: To withhold authority to vote
for any individual nominee(s), write the name
of the nominee(s) below.)
_____________________________________________
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C> <C>
No. 2 To ratify the selection of
PricewaterhouseCoopers LLP as the independent
accountants for the Investment Company.
No. 3 To approve a new management agreement with
FRIMCo to take effect upon the acquisition of
Frank Russell Company by The Northwestern
Mutual Life Insurance Company.
NO. 4 To approve a change to the Fund's fundamental
investment restrictions, authorizing a higher
borrowing level for the purpose of meeting
redemptions.
GRANT WITHHOLD
----- --------
To consider and act upon any other business
which may legally come before the meeting
</TABLE>
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
TRUSTEES. IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY
SHALL BE VOTED IN FAVOR OF THE ELECTION OF THE NOMINEES TO THE BOARD, TO RATIFY
THE SELECTION OF ACCOUNTANTS, AND IN FAVOR OF THE PROPOSALS TO APPROVE A
MANAGEMENT AGREEMENT AND TO AMEND A FUNDAMENTAL RESTRICTION. IF ANY OTHER
MATTERS PROPERLY COME BEFORE THE MEETING ABOUT WHICH THE PROXY HOLDERS ARE NOT
AWARE AT THIS TIME, THE PROXY HOLDERS MAY VOTE IN ACCORDANCE WITH THE VIEWS OF
THE TRUSTEES THEREON. MANAGEMENT IS NOT AWARE OF ANY SUCH MATTERS.
<PAGE>
Dated:___________________________
_________________________________________
Signature
_________________________________________
Signature
Note: Please sign exactly as your name appears on the proxy. If signing for
estates, trusts or corporations, title or capacity should be stated. If shares
are held jointly, each holder must sign.
