<PAGE> 1
As filed with the Securities and Exchange Commission
on October 15, 1996
Registration No. 33-_____
811-____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
PRE-EFFECTIVE AMENDMENT NO. __ [ ]
POST-EFFECTIVE AMENDMENT NO. __ [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
AMENDMENT NO. __ [ ]
(Check appropriate box or boxes)
PACIFIC INNOVATIONS TRUST,
A DELAWARE BUSINESS TRUST
(Exact Name of Registrant as Specified in Charter)
103 Bellevue Parkway
Wilmington, Delaware 19809
(Address of Principal Executive Offices, including Zip Code)
Jay F. Nussblatt
103 Bellevue Parkway
Wilmington, Delaware 19809
(Name and Address of Agent for Service)
COPIES TO:
MICHAEL GLAZER CATHY O'KELLY
PAUL, HASTINGS, JANOFSKY & WALKER VEDDER, PRICE, KAUFMAN & KAMMHOLZ
555 S. FLOWER STREET 222 N. LASALLE
LOS ANGELES, CALIFORNIA 90071 CHICAGO, ILLINOIS 60695
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE FOLLOWING EFFECTIVE DATE.
------------------
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
_________________________________________
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant is
hereby registering under the Securities Act of 1933 an indefinite number of
shares of beneficial interest. In accordance with Rule 24f-2, a registration
fee in the amount of $500 accompanies this Registration Statement.
Registrant's initial Rule 24f-2 Notice will be filed no later than March 1,
1997.
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PACIFIC INNOVATIONS TRUST,
A DELAWARE BUSINESS TRUST
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
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N-1A ITEM NO. LOCATION
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PART A
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Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . . The Funds at a Glance
Item 3. Condensed Financial Information . . . . . . . . . . . Not Applicable
Item 4. General Description of Registrant . . . . . . . . . . Cover Page; Fund Investments; The Business of the Funds;
Description of Shares
Item 5. Management of Fund . . . . . . . . . . . . . . . . . The Business of the Funds
Item 5A. Management's Discussion of Fund Performance . . . . . Not Applicable
Item 6. Capital Stock and Other Securities . . . . . . . . . Description of Shares; More on the Funds' Shares; Tax
Information
Item 7. Purchase of Securities Being Offered . . . . . . . . More on the Funds' Shares
Item 8. Redemption of Repurchase . . . . . . . . . . . . . . More on the Funds' Shares
Item 9. Pending Legal Proceedings . . . . . . . . . . . . . . Not Applicable
PART B
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History . . . . . . . . . . . Not Applicable
Item 13. Investment Objectives and Policies . . . . . . . . . . Investment Objectives and Policies
Item 14. Management of the Fund . . . . . . . . . . . . . . . . Management
Item 15. Control Persons and Principal Holders of Securities . General Information
Item 16. Investment Advisory and Other Services . . . . . . . . Management
Item 17. Brokerage Allocation and Other Practices . . . . . . . Management
Item 18. Capital Stock and Other Securities . . . . . . . . . . General Information
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered . . . . . . . . . . . . . . . . . . Additional Purchase and Redemption Information
Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . . . Additional Information Concerning Taxes
Item 21. Underwriters . . . . . . . . . . . . . . . . . . . . . General Information
Item 22. Calculation of Performance Data . . . . . . . . . . . General Information
Item 23. Financial Statements . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to the Registration Statement.
<PAGE> 3
PROSPECTUS INVESTMENT PORTFOLIOS OFFERED
BY PACIFIC INNOVATIONS TRUST
, 1996
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THE PACIFIC INNOVATIONS SERIES OF FUNDS CONSISTS OF SEVEN FUNDS OFFERED BY
PACIFIC INNOVATIONS TRUST, A DELAWARE BUSINESS TRUST WHICH IS AN OPEN-END
MANAGEMENT INVESTMENT COMPANY (THE "TRUST") REGISTERED UNDER THE INVESTMENT
COMPANY ACT OF 1940 (THE "1940 ACT"). SHARES OF THE FUNDS MAY BE OFFERED AND
SOLD ONLY TO SEPARATE ACCOUNTS ("SEPARATE ACCOUNTS") OF PACIFIC MUTUAL LIFE
INSURANCE COMPANY ("PACIFIC MUTUAL") TO SERVE AS THE INVESTMENT MEDIUM FOR
VARIABLE ANNUITY CONTRACTS (COLLECTIVELY, "CONTRACTS"). BY THIS PROSPECTUS, THE
TRUST IS OFFERING SHARES IN THE FOLLOWING FUNDS (EACH A "FUND" AND,
COLLECTIVELY, THE "FUNDS"):
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-- Money Market Fund -- Mid-Cap Equity Fund
-- Managed Bond Fund -- Aggressive Growth Fund
-- Capital Income Fund -- International Fund
-- Blue Chip Fund
</TABLE>
Bank of America National Trust and Savings Association ("Bank of America"
or the "Manager") serves as the Funds' manager. Based in San Francisco,
California, Bank of America and its affiliates have over $50 billion under
management, of which over $12 billion is in mutual funds. Scudder, Stevens &
Clark, Inc. and Wellington Management Company, LLP (each a "Subadviser" and,
collectively, the "Subadvisers") serve as subadvisers to the Managed Bond Fund
and International Fund, respectively.
This Prospectus describes concisely the information about the Funds and the
Trust that you should know before investing. Please read it carefully and retain
it for future reference. More information about the Funds and the Trust is
contained in a Statement of Additional Information (the "SAI") that has been
filed with the Securities and Exchange Commission. To obtain a free copy, call
(800) . The SAI dated , 1996, as it may be
revised from time to time, is incorporated by reference into this Prospectus.
Shares of the Funds are not bank deposits or obligations of, or guaranteed
or endorsed by, Bank of America or any of its affiliates and are not federally
insured by, guaranteed by, obligations of or otherwise supported by the U. S.
Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other governmental agency. Investment in a Fund involves investment risk,
including the possible loss of principal amount invested.
------------------------
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF THE
SEPARATE ACCOUNT, WHICH ACCOMPANIES THIS PROSPECTUS. BOTH
PROSPECTUSES SHOULD BE READ CAREFULLY AND
RETAINED FOR FUTURE REFERENCE.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is part of a Registration Statement that has been filed
with the Securities and Exchange Commission in Washington, D.C. under the
Securities Act of 1933. This Prospectus does not constitute an offer in any
State in which, or to any person to whom, such offering may not lawfully be
made.
<PAGE> 4
CONTENTS
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PAGE
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THE FUNDS AT A GLANCE................................................................. 3
FUND INVESTMENTS
Investment Objectives and Policies.................................................. 4
Common Investment Policies.......................................................... 8
Diversification and Changes in Investment Policies.................................. 16
Other Investment Practices and Considerations....................................... 16
THE BUSINESS OF THE FUNDS
Fund Management..................................................................... 18
Expenses............................................................................ 18
Service Providers................................................................... 18
Fee Waivers......................................................................... 20
MORE ON THE FUNDS' SHARES
How to Buy Shares................................................................... 20
How to Redeem Shares................................................................ 20
How are Shares Priced?.............................................................. 21
Can I Exchange My Investments From One Fund to Another?............................. 21
Dividends and Distributions......................................................... 21
TAX INFORMATION
Tax Information..................................................................... 22
MEASURING PERFORMANCE
Measuring Performance............................................................... 22
Prior Performance of The Manager and Subadvisers.................................... 22
DESCRIPTION OF SHARES
Description of Shares............................................................... 24
APPENDIX A
Corporate Bond and Other Ratings.................................................... A-1
Distributor: Manager:
BISYS Fund Services Limited Partnership Bank of America National Trust
3435 Stelzer Road and Savings Association
Columbus, OH 43219-3035 555 California Street
San Francisco, CA 94104
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2
<PAGE> 5
THE FUNDS AT A GLANCE
A summary of the highlights of the Pacific Innovations Series of Funds
appears below. This chart is only a summary. You should also read the complete
descriptions of each Fund's investment objectives and policies, which begins on
the next page, and related information.
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PRIMARY INVESTMENTS INVESTMENT ADVISER
(UNDER NORMAL OR
FUND OBJECTIVE CIRCUMSTANCES) SUBADVISER
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<S> <C> <C> <C>
Money Market Liquidity and Short-term debt Bank of America
current income obligations issued
consistent with or guaranteed by
preservation of U.S. Government, its
capital agencies,
authorities or
instrumentalities
- --------------------------------------------------------------------------------------------
Managed Bond Interest income and Investment grade, Scudder, Stevens &
capital appreciation intermediate and Clark, Inc.
longer term bonds.
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Capital Income Total investment Convertible bonds Bank of America
return, comprised of and convertible
current income and preferred stocks
capital appreciation
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Blue Chip Long-term capital Blue chip stocks Bank of America
appreciation
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Mid-Cap Equity Capital appreciation Stocks of companies Bank of America
with medium market
capitalizations
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Aggressive Growth Maximize capital Common stocks and Bank of America
appreciation securities
convertible into
common stocks of
companies with
smaller market
capitalizations
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International Long-term capital Foreign equity Wellington
growth securities Management Company,
LLP
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</TABLE>
3
<PAGE> 6
FUND INVESTMENTS
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of each Fund.
There can be no assurance that any Fund will achieve its investment objective.
MONEY MARKET FUND
INVESTMENT OBJECTIVE. The investment objective of the Money Market Fund is
to provide liquidity and as high a level of current income as is consistent with
the preservation of capital.
INVESTMENT POLICIES. The Money Market Fund invests primarily in short-term
debt obligations issued or guaranteed as to interest and principal by the U.S.
Government, its agencies, authorities or instrumentalities and in repurchase
agreements with respect to such obligations.
The Money Market Fund invests at least 95% of its total assets, measured at
the time of purchase, in a diversified portfolio of dollar denominated money
market securities that are rated in the highest rating category for short term
instruments, or, if not rated, are determined by the Manager to be of equivalent
quality. The Fund may invest up to 5% of its total assets, measured at the time
of investment, in money market securities that are in the second-highest rating
category for short-term debt obligations, or, if not rated, are determined by
the Manager to be of equivalent quality. Assets of the Fund will be invested in
securities with remaining maturities of thirteen months or less as defined by
the Securities and Exchange Commission, and the dollar-weighted average
portfolio maturity of each Fund will not exceed 90 days. The Fund attempts to
maintain a stable net asset value of $1.00 per share, although there can be no
assurance that it will be able to do so.
The Money Market Fund may purchase certain U.S. Government agency
securities (such as guaranteed notes of the Federal Aviation Administration,
Department of Defense, Bureau of Indian Affairs and Private Export Funding
Corporation) which often provide higher yields than are available from the more
common types of government-backed investments. However, such specialized
investments may only be available from a few sources, in limited amounts, or
only in very large denominations; they may also require specialized capability
in portfolio servicing and in legal matters related to government guarantees.
While frequently offering attractive yields, the limited-activity markets of
many of these securities mean that if the Money Market Fund were required to
liquidate any of them it might not be able to do so advantageously; accordingly,
the Money Market Fund intends normally to hold such securities to maturity or
pursuant to repurchase agreements, and to limit its investment in such
securities (as well as repurchase agreements maturing in more than seven days)
to not more than 10% of the Fund's net assets.
The Money Market Fund may invest in "stripped" securities, which are U.S.
Treasury bonds and notes the unmatured interest coupons of which have been
separated from the underlying principal obligation. Stripped securities are zero
coupon obligations that are normally issued at a discount to their "face value,"
and may exhibit greater price volatility than ordinary debt securities because
of the manner in which their principal and interest are returned to investors. A
number of securities firms and banks have stripped the interest coupons and
resold them in custodian receipt programs with different names such as Treasury
Income Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS"). Privately-issued stripped securities such as TIGRs and CATS
are not themselves guaranteed by the U.S. Government, but the future payment of
principal or interest on U.S. Treasury obligations which they represent is so
guaranteed. The Money Market Fund may invest no more than 35% of its assets in
stripped securities.
In addition to the foregoing investment policies, and subject to the
requirements set forth above and in the SAI, the Money Market Fund may invest in
accordance with other policies discussed below under "Common Investment
Policies."
4
<PAGE> 7
MANAGED BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Managed Bond Fund is
to provide interest income and capital appreciation.
INVESTMENT POLICIES. The Managed Bond Fund, which is subadvised by Scudder,
Stevens & Clark, Inc. ("Scudder"), invests substantially all of its assets in a
diversified portfolio of investment grade intermediate and longer term
securities, which consist of domestic and foreign corporate and governmental
fixed income obligations, mortgage-backed securities, collateralized mortgage
obligations ("CMOs"), asset backed securities, municipal securities and cash
equivalents. Under normal circumstances, at least 65% of the Fund's net assets
will be invested in investment grade bonds. Under normal market conditions, the
average duration of the Fund's portfolio will be between two and five years.
The Managed Bond Fund may invest up to 35% of its total assets in
securities that are not rated "investment grade" -- that is, not rated within
the four highest rating categories by a nationally recognized statistical rating
organization such as Standard & Poor's Corporation ("S&P"), Duff & Phelps Credit
Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch") or Moody's Investor
Service, Inc. ("Moody's"). The Fund intends that the securities it purchases
will be rated at least "BB" by S&P, D&P or Fitch or "Ba" by Moody's, or that if
the investment is unrated it will be deemed of comparable quality by Scudder.
Securities rated "BB" or "Ba" have speculative characteristics and present
greater risks as to the timely payment of principal and interest than investment
grade securities. (See "Other Investment Practices and Considerations -- Certain
Risk Factors" below.) These ratings are described in Appendix A to this
Prospectus.
Interest income is expected to be the primary basis for investment return
from an investment in the Fund, and capital appreciation the secondary basis.
The Fund will attempt to achieve capital appreciation by moderate market timing
in response to anticipated interest rate changes. The Fund will also attempt to
take advantage of undervalued sectors while selling bonds in overvalued sectors.
However, since investments will normally consist of bonds and mortgage-backed
securities, the Fund's ability to achieve capital appreciation is limited.
In addition to the foregoing investment policies, the Managed Bond Fund may
invest in accordance with other policies discussed below under "Common
Investment Policies."
CAPITAL INCOME FUND
INVESTMENT OBJECTIVE. The Capital Income Fund seeks to provide investors
with a total investment return, comprised of current income and capital
appreciation, consistent with prudent investment risk.
INVESTMENT POLICIES. The Capital Income Fund invests in a diversified
portfolio consisting principally of convertible bonds and convertible preferred
stocks ("Convertible Securities") of domestic issuers.
The Convertible Securities held in the Fund's portfolio will, for the most
part, be securities issued by U.S. issuers. Under normal circumstances at least
65% of its total assets will be invested in Convertible Securities. Up to 15% of
its total assets also may be held in Eurodollar Convertible Securities. In
addition to Convertible Securities, and subject to the investment policy above,
the Fund also may invest in securities issued or guaranteed by the U.S.
Government (and its agencies and instrumentalities), nonconvertible bonds and
dividend-paying equity securities that are consistent with the Fund's investment
objective, and money market securities.
Similar to straight debt obligations, convertible securities pay a fixed
rate of interest and return principal at maturity; unlike straight debt, they
may be converted into a set amount of corporate common stock. When investing in
such Convertible Securities the Fund is looking for the opportunity, through the
conversion feature, to participate in the capital appreciation of the common
stock into which the Convertible Securities are convertible, while earning
higher current income than is available from the common stock. Investors should
note that the Fund may convert its Convertible Securities when conditions are
not necessarily favorable for their disposition or because of developments with
respect to the issuers or trading markets of such Convertible Securities.
5
<PAGE> 8
Convertible Securities acquired by the Fund that are rated below investment
grade, or that are not rated, have speculative characteristics and present
greater risks as to the timely payment of principal and interest (or dividends)
than investment grade securities. (See "Other Investment Practices and
Considerations -- Certain Risk Factors" below.) The Fund intends that the
Convertible Securities it purchases will be rated at least "B" by a nationally
recognized statistical rating organization, or that if the investment is unrated
it will be deemed of comparable quality by Bank of America. These ratings are
described in Appendix A to this Prospectus. The Fund is intended for long term
investors who can accept the risks associated with investments in high yield
securities and should not constitute a complete investment program.
In addition to the foregoing investment policies, the Capital Income Fund
may invest in accordance with other policies discussed below under "Common
Investment Policies."
BLUE CHIP FUND
INVESTMENT OBJECTIVE. The Blue Chip Fund seeks long-term capital
appreciation.
INVESTMENT POLICIES. The Blue Chip Fund invests substantially all of its
assets in stocks included in either the Dow Jones Industrial Average ("DJIA") or
the Standard and Poor's 500 Index ("S&P 500"); however, up to 15% of its total
assets may be invested in stocks that are not included in these indices. The S&P
500 is an unmanaged index of 500 widely held stocks and the DJIA is an average
of 30 actively traded blue chip stocks. Although the DJIA and S&P 500 are
comprised principally of the common stocks of domestic issuers, they may also
include some American Depositary Receipts ("ADRs"). ADRs are dollar-denominated
receipts for the shares of a foreign-based corporation held by a U.S. bank and
traded in U.S. markets.
In addition to the foregoing investment policies, the Blue Chip Fund may
invest in accordance with other policies discussed below under "Common
Investment Policies."
MID-CAP EQUITY FUND
INVESTMENT OBJECTIVE. The Mid-Cap Equity Fund seeks capital appreciation.
Income is a secondary consideration.
INVESTMENT POLICIES. The Mid-Cap Equity Fund invests substantially all of
its assets in common stocks of domestic companies with market capitalizations
(aggregate market price of outstanding publicly-traded shares) from $300 million
to $3 billion at the time of purchase, and in ADRs evidencing ownership of
underlying securities of foreign issuers of similar size.
In addition to the foregoing investment policies, the Mid-Cap Equity Fund
may invest in accordance with other policies discussed below under "Common
Investment Policies."
AGGRESSIVE GROWTH FUND
INVESTMENT OBJECTIVE. The Aggressive Growth Fund seeks to maximize capital
appreciation.
INVESTMENT POLICIES. The Aggressive Growth Fund invests in a diversified
portfolio of securities comprised mainly of common stocks and securities
convertible into common stocks. Fund holdings will consist primarily of common
stocks of domestic companies, most of which will be small-capitalized companies,
that Bank of America expects will achieve above average growth in earnings and
price. Small-capitalized companies generally have limited product lines, markets
and financial resources, and are dependent upon a limited management group. As a
result of the Fund's investments, an investment in the Fund involves greater
risks than portfolios that invest in less volatile stocks (see "Other Investment
Practices and Considerations -- Certain Risk Factors" below).
While the Fund intends to invest primarily in common stock and securities
convertible into such stock, its policy is flexible as to the proportion of its
assets that will be invested in common stocks, and the proportion may be changed
without shareholder approval. However, as a matter of fundamental policy, not
less than 65% of the Fund's total assets will be invested in equity securities
(except during temporary defensive periods). The Fund may invest up to 20% of
its total assets in securities issued by foreign issuers. Such investments will
6
<PAGE> 9
be made either directly in such issuers or indirectly through ADRs or closed-end
investment companies. Investments in closed-end investment companies will be
limited to 10% or less of the Fund's total assets. The Fund is intended for
aggressive long-term investors seeking above average gains who are willing to
accept the greater risks associated with investment in small-capitalized
companies and should not constitute a complete investment program.
In addition to the foregoing investment policies, the Aggressive Growth
Fund may invest in accordance with other policies discussed below under "Common
Investment Policies."
INTERNATIONAL FUND
INVESTMENT OBJECTIVE. The International Fund seeks long-term capital
growth.
INVESTMENT POLICIES. The International Fund, which is subadvised by
Wellington Management Company, LLP ("Wellington Management"), invests during
normal market conditions at least 80% of its total assets in equity securities
of companies that are domiciled or have their principal activities in countries
outside the United States. Normally the Fund will invest in equity securities of
companies in at least three different foreign countries, subject to certain
further diversification requirements described under "Common Investment
Policies -- Foreign Securities." The domicile or the location of the principal
activities of a company will be the country under whose laws the company is
organized, in which the principal trading market for the equity securities
issued by the company is located, or in which the company has over half of its
assets or derives over half of its revenues or profits. Equity securities in
which the Fund may invest consist of common stocks, preferred stocks, securities
convertible into common stocks or preferred stocks, and warrants to purchase
such securities. The Fund may also invest in futures and options for purposes of
adjusting country exposure and for hedging or income enhancement purposes.
In connection with its investments in foreign securities, the Fund may
purchase and sell foreign currencies on a spot or forward basis. Such
transactions will be entered into (i) to lock in a particular foreign exchange
rate pending settlement of a purchase or sale of a foreign security or pending
the receipt of interest, principal or dividend payments on a foreign security
held by the Fund ("transaction hedging"), (ii) to hedge against a decline in the
value, in U.S. dollars or in another currency, of a foreign currency in which
securities held by the Fund are denominated ("position hedging"), or (iii) as
part of a foreign index futures and options strategy. A forward currency
contract is an obligation to purchase or sell a currency against another
currency at a future date at a price set at the time the contract is entered
into. Although forward contracts typically will involve the purchase or sale of
foreign currency against the dollar, the Fund may also purchase or sell one
foreign currency forward against another foreign currency. There are certain
markets where it is not possible to engage in effective foreign currency
hedging. Employing currency hedging strategies does not eliminate fluctuations
in the prices of portfolio securities or prevent losses if the prices of such
securities decline. Such strategies involve some transactional expenses for the
Fund. They also involve the risk that anticipated currency movements will not be
predicted accurately and the Fund's total return could be adversely affected as
a result.
The Fund may invest up to 20% of its total assets (at the time of purchase)
in convertible bonds and debt securities. These debt obligations include U.S.
Government and foreign government securities and corporate debt securities,
including Samurai and Yankee bonds and Eurobonds. The Fund will limit its
purchase of debt securities to investment grade obligations. The Fund may also
invest, without limitation, in securities of foreign issuers in the form of ADRs
or other similar securities evidencing ownership of underlying securities issued
by foreign issuers. ADRs purchased for the Fund will be included as part of the
80% of assets in foreign equity securities. These securities may not necessarily
be denominated in the same currency as the securities underlying the ADRs.
In addition to the foregoing investment policies, the International Fund
may invest in accordance with other policies described below under "Common
Investment Policies." An investment in non-U.S. securities involves certain
risks which may not be present in a fund which invests solely in U.S. issuers,
as discussed below under "Other Investment Practices and
Considerations -- Certain Risk Factors."
You may also refer to the SAI for further information about the Funds'
investment policies.
7
<PAGE> 10
COMMON INVESTMENT POLICIES
CASH EQUIVALENTS. With the exception of the Money Market Fund, for
temporary defensive purposes (for example, when Bank of America or a Subadviser
believes such a position is warranted by uncertain or unusual market conditions,
or when liquidity is required to meet unusually high redemption requests), each
Fund may invest without limitation in cash equivalents such as money market
instruments (including short-term bank time deposits, certificates of deposit,
bankers' acceptances, obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, and commercial paper issued by U.S. and
foreign issuers which is rated at the time of purchase at least Prime-2 by
Moody's or A-2 by S&P) and, subject to the investment limitations described
below, shares of other open-end investment companies which seek to maintain a
$1.00 net asset value per share ("money market funds"). With the exception of
the Money Market Fund, under normal market conditions, no more than 10% of a
Fund's net assets will be invested in cash equivalents.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in U.S. Government
obligations. Investments in U.S. Treasury securities are backed by the "full
faith and credit" of the U.S. Government. Such securities include Treasury
bills, Treasury notes and Treasury bonds. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Small Business
Administration, are backed by the full faith and credit of the U.S. Government;
others, like obligations of the Federal National Mortgage Association ("FNMA"),
are backed by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others, including obligations of the Student
Loan Marketing Association, are backed solely by the issuer's credit. There is
no assurance that the U.S. Government would support a U.S. Government-sponsored
entity if it were not required to do so by law.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. Each
Fund may purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and yield. Forward commitments involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later). Delayed settlement
describes a securities transaction in a secondary market for which settlement
will occur sometime in the future. When-issued and forward commitment
transactions permit a Fund to lock in a price or yield on a security it owns or
intends to purchase or sell, regardless of changes in interest rates.
When-issued, forward commitment and delayed settlement transactions, however,
involve the risk that the yield or price obtained in a transaction may be less
favorable than the yield or price available in the market when the securities
delivery takes place. Each Fund's activities in these transactions are not
expected to exceed 10% of the value of the Fund's total assets, measured at the
time of investment, absent unusual market conditions. However, for temporary
purposes such as to facilitate redemptions, up to 25% of the value of a Fund's
net assets may be invested in such securities. The Funds do not intend to engage
in these transactions for speculative purposes but only in furtherance of their
investment objectives.
FIXED-INCOME SECURITIES. Each Fund may invest in fixed income securities.
The standards for investment in such securities by the Money Market Fund are
described above under "Investment Objectives and Policies -- Money Market Fund."
Fixed income securities, particularly corporate bonds, acquired by the other
Funds will be investment grade at the time of purchase, except that the Managed
Bond Fund may invest up to 35% of its total assets in lower rated securities.
Investment grade debt securities ordinarily carry lower rates of interest than
lower quality debt securities with similar maturities. While bonds rated
investment grade are regarded as having adequate capacity to pay interest and
repay principal, adverse economic conditions, changing circumstances, or
circumstances not known or adequately taken into account by the rating agency
could lead to a weakened capacity to pay interest and repay principal. Bonds
with the lowest investment grade rating (i.e., BBB or Baa) do not have
outstanding investment characteristics and may have speculative characteristics
as well. Unrated securities will be purchased only if Bank of America or its
Subadviser believes that they are of comparable quality to the rated securities
in which the Funds may invest.
If fixed income securities purchased by the Blue Chip, Mid-Cap Equity,
Aggressive Growth or International Fund, or by the Managed Bond Fund with
respect to 65% of its portfolio, subsequently fall below
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investment grade, the Fund will seek to dispose of the securities in an orderly
and prudent manner, normally over a period of approximately 30 to 90 days. If
the rating of a fixed income security held by the Capital Income or
International Fund falls below investment grade, or if the rating of a fixed
income security held by the Managed Bond Fund falls below BB, the Fund will not
be obligated to dispose of such security and may continue to hold the security
if, in the opinion of Bank of America or its Subadviser, such investment is
considered appropriate under the circumstances.
Yields on fixed income securities depend on a variety of factors, including
the general conditions of the money and bond markets, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. Debt
obligations with longer maturities tend to produce higher yields and are
generally subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities. The market prices of debt obligations
vary depending on available yields. An increase in interest rates will generally
reduce the value of such portfolio investments, and a decline in interest rates
will generally increase the value of such portfolio investments.
NON-INVESTMENT GRADE SECURITIES. The Capital Income and Managed Bond Funds
may invest in securities rated below investment grade or in comparable unrated
securities. While any investment carries some risk, some of the risks associated
with lower-rated securities are different from the risks associated with
investment grade securities. The risk of loss through default is greater because
lower-rated securities are usually unsecured and are often subordinate to an
issuer's other obligations. Additionally, the issuers of these securities
frequently have high debt levels and are thus more sensitive to changing
economic conditions, individual corporate developments and rising interest
rates. Consequently, the market price of these securities, and the net asset
value of the Funds' shares, may be quite volatile.
RELATIVE YOUTH OF LOWER-RATED SECURITIES MARKET. Because the market for
lower-rated securities, at least in its present size and form, is relatively
new, there remains some uncertainty about its performance level under adverse
market and economic environments. An economic downturn or increase in interest
rates could have a negative impact on both the market for lower-rated securities
(resulting in a greater number of bond defaults) and the value of lower-rated
securities held in a Fund's portfolio.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The economy and interest
rates can affect lower-rated securities differently than other securities. For
example, the prices of lower-rated securities are more sensitive to adverse
economic changes or individual corporate developments than are the prices of
higher-rated investments. Also, during an economic downturn or a period in which
interest rates are rising significantly, highly leveraged issuers may experience
financial difficulties, which in turn would adversely affect their ability to
service their principal and interest payment obligations, meet projected
business goals and obtain financing. If the issuer of a security defaults, the
Fund may incur additional expenses to seek recovery. In addition, periods of
economic uncertainty would likely result in increased volatility for the market
prices of lower-rated securities as well as a Fund's net asset value. In
general, both the prices and yields of lower-rated securities will fluctuate.
LIQUIDITY AND VALUATION. In certain circumstances it may be difficult to
determine a security's fair value due to a lack of reliable objective
information. Such instances may occur when there is not an established secondary
market for the security or the security is thinly traded. As a result, a Fund's
valuation of a security and the price it is actually able to obtain when it
sells the security could differ. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the values and
liquidity of lower-rated securities held by a Fund, especially in a thinly
traded market. Illiquid or restricted securities held by a Fund may involve
special registration responsibilities, liabilities and costs, and could involve
other liquidity and valuation difficulties.
CONGRESSIONAL PROPOSALS. Current laws, as well as pending proposals, may
have a material impact on the market for lower-rated securities.
CREDIT RATINGS. S&P, Moody's and other nationally recognized statistical
rating organizations evaluate the safety of a lower-rated security's principal
and interest payments, but do not address market value risk. Because the ratings
by the rating agencies may not always reflect current conditions and events, in
addition to
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using recognized rating agencies and other sources, Bank of America and Scudder
perform their own analyses of the issuers whose lower-rated securities the Funds
purchase. Because of this, a Fund's performance may depend more on the Manager's
or Subadviser's own credit analysis than is the case for mutual funds investing
in higher rated securities. In selecting such securities, Bank of America or
Scudder considers factors such as those relating to the creditworthiness of
issuers, the ratings and performance of the securities, the protections afforded
the securities and the diversity of the Fund's portfolio. Bank of America or
Scudder monitors the issuers of lower-rated securities held in a Fund's
portfolio for their ability to make required principal and interest payments, as
well as in an effort to control the liquidity of the Fund's portfolio so that it
can meet redemption requests. If a portfolio security undergoes a rating
revision, a Fund may continue to hold the security if Bank of America or Scudder
determines such retention is warranted.
CONVERTIBLE SECURITIES. The Managed Bond, Capital Income, and International
Funds may invest in Convertible Securities. Convertible Securities are generally
non-investment grade and have unique investment characteristics because they
generally have higher yields than common stocks, generally are less subject to a
decline in value than their underlying common stocks because of their fixed
income characteristics, and generally provide for the potential of capital
appreciation if the market value of their underlying common stock increases.
Because Convertible Securities purchased by the International Fund are acquired
in substantial part for their equity characteristics, they are not subject to
minimum rating requirements. An issuer of a Convertible Security may have the
option to redeem it at a price established in the Convertible Security's
governing instruments. If a Convertible Security held by a Fund is called for
redemption, the Fund will either have to permit the redemption, convert the
Convertible Security into the underlying common stock or sell the Convertible
Security to a third party. Any of these actions could adversely affect the
Fund's ability to attain its objective. A Fund would convert a Convertible
Security either to permit the orderly disposition of the investment or when it
has reached maturity or been called for redemption. A Fund might also convert a
Convertible Security if the underlying common stock's dividend rate were to
increase above the yield on the Convertible Security.
Eurodollar Convertibles, in which the Capital Income and International
Funds may invest up to 15% of their respective total assets, are fixed income
securities of a U.S. or foreign issuer that are issued in U.S. dollars outside
of the U.S. and are convertible into or exchangeable for specified equity
securities. Eurodollar Convertibles in which the Capital Income Fund invests
will be convertible into or exchangeable for foreign equity securities.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Money Market, Managed Bond,
Capital Income, Blue Chip, Mid-Cap Equity, Aggressive Growth and International
Funds may invest in variable and floating rate instruments, which may include
master demand notes. Although payable on demand by a Fund, master demand notes
may not be marketable. Consequently, the ability to redeem such notes may depend
on the borrower's ability to pay, which will be monitored by Bank of America or
a Subadviser. Such notes will be purchased only from domestic corporations that
either (a) are rated Aa or better by Moody's or AA or better by S&P, (b) have
commercial paper rated at least Prime-2 by Moody's or A-2 by S&P, (c) are backed
by a bank letter of credit or (d) are determined by the Manager or a Subadviser
to be of a quality comparable to securities described in either clause (a) or
(b).
DERIVATIVES. "Derivatives" is a broad term which may be used to describe
many investment instruments whose values are derived, at least in part, from the
value of another underlying asset or reference instrument. Some derivative
instruments have simple structures and other have intricate components and
terms. Some are more volatile, and some have equal or less volatility, than the
asset or reference instrument upon whose value the derivative is based. If used
to leverage a portfolio, derivatives could magnify risk. However, the Funds are
not permitted to engage in leveraging transactions. Derivatives are often used
by the Manager or Subadvisers to hedge positions, defray the risks of interest
rate or currency changes and reduce portfolio or market risk.
Each Fund has its own authorizations to use prescribed instruments, which
may include options, forward foreign currency contracts, foreign currency
options, spread transactions, futures contracts and options thereon, foreign
futures, mortgage-related securities, CMOs, stripped mortgage-backed securities
and other asset-backed securities. Each of the Funds has the authority to use
some type of derivative instrument. The
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strategy employed and the magnitude of the position maintained will determine
the level of risk a Fund may assume by utilizing derivative instruments. The
types and investment techniques employed with respect to the derivative
instruments which are most commonly purchased and sold by the Funds are included
among the descriptions below and in the SAI.
MORTGAGE-BACKED SECURITIES. The Managed Bond, Capital Income, Blue Chip,
Mid-Cap Equity and Aggressive Growth Funds may invest in mortgage-backed
securities. Mortgage-backed securities such as Government National Mortgage
Association ("GNMA"), FNMA and Federal Home Loan Mortgage Corporation ("FHLMC")
securities consist of interests in pools of real estate mortgage loans with
varying guarantees with respect to principal and interest, but not market value,
by the U.S. Government or by one of its agencies or instrumentalities. These
securities are more fully described in the SAI. A risk associated with
mortgage-backed securities is early paydown resulting from refinancing of the
underlying mortgages which is similar to the risk that corporate bonds might be
called by the issuer if the bond interest rate is higher than currently
prevailing interest rates. The rate of such prepayments, and hence the life of
the security, will primarily be a function of current market rates. In periods
of falling interest rates, the rate of prepayments tends to increase. During
such periods, the reinvestment of prepayment proceeds will generally be at lower
rates than the rates on the prepaid obligations.
Such Funds may also invest in mortgage-related securities which are issued
by private entities such as investment banking firms and companies related to
the construction industry. The privately issued mortgage-related securities in
which the Funds may invest include, but are not limited to: (i) privately issued
securities which are collateralized by pools of mortgages in which some
mortgages are guaranteed as to payment of principal and interest by an agency,
instrumentality or sponsored enterprise of the U.S. Government; (ii) privately
issued securities which are collateralized by pools of mortgages in which such
mortgages are guaranteed as to the payment of principal and interest by the
issuer and such guarantee is collateralized by U.S. Government securities; and
(iii) other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and which mortgage-related securities
are supported as to the payment of the principal and interest by the credit of
any agency, instrumentality or sponsored enterprise of the U.S. Government.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Managed Bond and Aggressive Growth
Funds may invest in CMOs, which are hybrids between mortgage-backed bonds and
mortgage pass-through securities. Similar to a bond, interest and prepaid
principal on CMOs are paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage passthrough securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams
ASSET-BACKED SECURITIES. The Managed Bond and Aggressive Growth Funds may
invest in asset-backed securities, which consist of undivided fractional
interests in pools of mortgages, consumer loans or receivables held in a trust.
Examples include certificates for automobile receivables ("CARs") and credit
card receivables ("CARDs"). Payments of principal and interest on the mortgages,
loans or receivables are passed through to certificate holders. Asset-backed
securities may be issued by either governmental or non-governmental entities.
Payment on asset-backed securities of private issuers is typically supported by
some form of credit enhancement, such as a letter of credit, surety bond,
limited guaranty, or subordination. The extent of credit enhancement varies, but
usually amounts to only a fraction of the asset-backed security's par value
until exhausted. Ultimately, asset-backed securities are dependent upon payment
of the mortgages, consumer loans or receivables by individuals, and the
certificate holder frequently has no recourse to the entity that originated the
loans or receivables.
The assets underlying asset-backed securities may be prepaid with the
result of shortening the certificates' weighted average life. Prepayment rates
vary widely and may be affected by changes in market interest rates. It is not
possible to accurately predict the average life of a particular pool of
mortgages, loans or receivables. The proceeds of prepayments received by a Fund
must be reinvested in securities whose yields reflect interest rates prevailing
at the time. Thus, a Fund's ability to maintain a portfolio which includes high-
yielding asset-backed securities will be adversely affected to the extent
reinvestments are in lower yielding securities. The actual maturity and realized
yield will therefore vary based upon the prepayment experience of
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the underlying asset pool and prevailing interest rates at the time of
prepayment. Also, while the secondary market for certain asset-backed securities
is ordinarily quite liquid, in times of financial stress the secondary market
may not be as liquid as the market for other types of securities, which could
make valuing or liquidating such securities difficult.
EQUITY SECURITIES. The Capital Income, Blue Chip, Mid-Cap Equity,
Aggressive Growth and International Funds may invest in equity securities,
including common and preferred stocks and securities convertible into such
stocks of domestic and foreign companies with small, medium and large market
capitalizations (public market price times total outstanding shares). While
equity securities have historically experienced a higher level of volatility due
to market fluctuations than fixed income securities, they have also historically
provided higher levels of total return. In addition, investments in companies
with smaller market capitalizations involve greater risk than investments in
larger, more established companies, including more volatile market price
movements.
FOREIGN SECURITIES. Subject to its investment objectives and policies
stated above, the International Fund will invest in debt and equity securities
of foreign issuers that may or may not be publicly traded in the United States.
In addition, the Managed Bond, Capital Income and Aggressive Growth Funds may
invest in such securities, and all Funds except the Money Market Fund may invest
indirectly in foreign securities through ADRs. It is currently the intention of
the Aggressive Growth Fund to invest no more than 20% of its total assets at the
time of purchase in securities of foreign issuers (including ADRs), of which up
to 10% of such total assets may be invested in debt obligations of foreign
issuers. The Managed Bond Fund's direct investments in issuers of foreign
securities (excluding ADRs) will not exceed 25% of its total assets at the time
of purchase.
Such securities may include, subject to the further investment limitations
stated under "Investment Company Securities," below, shares of closed-end
investment companies that invest primarily in securities of foreign issuers.
Foreign debt securities may include Yankee bonds (dollar-denominated bonds sold
in the United States by non-U.S. issuers), Eurobonds (bonds issued in a country
and sometimes a currency other than the country of the issuer) and Samurai Bonds
(yendenominated bonds issued in Japan by non-Japanese borrowers). Except for the
Managed Bond Fund, a Fund's investment limitations regarding its investments in
foreign securities also apply to investments in Depositary Receipts.
Investments in foreign securities by a Fund, whether made directly or
indirectly, also involve certain inherent risks, including political or economic
instability of the issuer or the country of issue, the difficulty of predicting
international trade patterns, changes in foreign currency exchange rates and the
possibility of adverse changes in investment or exchange control regulations.
There is typically less publicly available information about a foreign company
than about a U.S. company. Moreover, these companies may be subject to less
stringent reserve, auditing and reporting requirements than their U.S.
counterparts. Additionally, foreign stock markets are generally not as developed
or efficient as those in the U.S., and in most foreign markets volume and
liquidity are less than in the U.S. Fixed commissions on foreign stock exchanges
are also generally higher than the negotiated commissions on U.S. exchanges, and
there is generally less government supervision and regulation of foreign stock
exchanges, brokers and companies than in the U.S. There is also the possibility
that foreign governments could expropriate assets or levy confiscatory taxes,
set limitations on the removal of assets or suffer adverse diplomatic
developments.
Each Fund that invests in foreign securities is subject to guidelines for
diversification of foreign security investments imposed by California insurance
authorities. Under these guidelines, foreign investments must be allocated to at
least five countries if at least 80% of a Fund's net assets is invested in
foreign securities. In addition, a Fund may not invest more than 20% of its net
assets in any one country, except that a Fund may invest up to 35% of its net
assets in one of the following countries: Australia, Canada, France, Japan, the
United Kingdom or Germany. The California diversification guidelines are more
fully described in the SAI.
DEPOSITARY RECEIPTS. All Funds except the Money Market Fund may invest in
ADRs, and the International Fund may invest in various other types of Depositary
Receipts, such as American Depositary Shares ("ADSs"), European Depositary
Receipts ("EDRs"), Global Depositary Receipts ("GDRs"), Global Depositary
Certificates ("GDCs") and International Depositary Receipts ("IDRs"). ADRs and
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ADSs typically are issued by a United States bank or trust company and evidence
ownership of underlying securities issued by a foreign corporation. EDRs, which
are sometimes referred to as Continental Depositary Receipts ("CDRs"), GDRs,
GDCs and IDRs are typically issued by foreign banks or trust companies, although
they also may be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. Depositary Receipts may be available for investment through
"sponsored" or "unsponsored" facilities. A sponsored facility is established
jointly by the issuer of the security underlying the receipt and a depository,
whereas an unsponsored facility may be established by a depository without
participation by the issuer of the receipt's underlying security. Holders of an
unsponsored Depositary Receipt generally bear all the costs of the unsponsored
facility. The depository of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through to the holders of the receipts voting
rights with respect to the deposited securities.
OPTIONS. Each Fund except the Money Market Fund may enter into options
transactions. Put options and call options may be purchased by each of such
Funds on securities; by the Blue Chip, Mid-Cap Equity, and Aggressive Growth
Funds on stock indices; and by the Aggressive Growth and International Funds on
foreign currencies. In addition, the International Fund may sell, or "write,"
covered put options on securities, securities indices and foreign currencies.
Covered call options may be written by the Managed Bond, Capital Income, Blue
Chip, Mid-Cap Equity, Aggressive Growth and International Funds on securites; by
the Blue Chip, Aggressive Growth and International Funds on securities indices;
and by the International Fund on foreign currencies. All such options
transactions will be on U.S. securities traded on U.S. exchanges, except that
the International Fund's options transactions may be on U.S. or foreign
exchanges and in over-the-counter markets.
A call option for a particular security gives the purchaser of the option
the right to buy, and a writer the obligation to sell, the underlying security
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is the consideration for undertaking the obligations under the option contract.
A put option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
In contrast to an option on a particular security, an option on a stock index or
currency provides the holder with the right to receive or obligation to make a
cash settlement upon exercise of the option.
Options trading is a highly specialized activity and carries greater than
ordinary investment risk. Purchasing options may result in the complete loss of
the amounts paid as premiums to the writer of the option. In writing a covered
call option, a Fund gives up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price (except to the
extent the premium represents such a profit). Moreover, the Fund will not be
able to sell the underlying security on which a call option has been written
until the option expires or is exercised or the Fund closes out the option. In
addition, except to the extent that a call option written by a Fund on a
particular index is covered by an option on the same index purchased by the
Fund, movements in the index may cause the Fund to incur a loss, although such
loss might be lessened to the extent that the value of the securities held by
the Fund changed during the time the option was outstanding. In writing a
covered put option, a Fund must retain the assets underlying the option until
the option expires or is exercised or the Fund closes out the option. For
additional information relating to options transactions and the particular risks
thereof, please refer to the SAI.
A Fund will write options only if Bank of America or its Subadviser
believes a liquid secondary market will exist on a national securities exchange
for options of the same series, thus permitting the Fund to close out its option
position. There is no assurance that a liquid secondary market will exist on an
exchange for a particular option or at any particular time. In fact, for some
options no secondary market on an exchange may exist at all. If a Fund cannot
close out an option, it will not be able to sell the securities underlying the
option until the option expires or is exercised. Furthermore, a Fund's ability
to engage in transactions in options may be limited by IRS requirements on its
gross income from certain securities, including options and futures contracts,
held by the Fund for less than three months. Bank of America does not believe
that transactions in options will significantly affect the Funds' ability to
comply with IRS requirements. The times of day that
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options on particular securities, indices or currencies are sold may not be the
same as those during which the securities, indices or currencies themselves are
traded, which means that significant activity could occur in the markets for the
underlying securities or indices that would not be reflected in the options
markets.
FUTURES AND RELATED OPTIONS. Each Fund except the Money Market Fund may
each enter into futures transactions (and related options transactions) as a
hedge against anticipated interest rate fluctuations or changes resulting from
market conditions in the values of the securities that a Fund holds in its
portfolio or intends to purchase or sell, where the transactions are
economically appropriate for the reduction of risks inherent in the ongoing
management of the Fund's portfolio, or for income enhancement. Each of such
Funds may purchase and sell futures contracts and may purchase options on
futures contracts. In addition, the Capital Income Fund may write (sell) options
on futures contracts.
Such futures and related options may be on interest rates (Managed Bond,
Capital Income, and International Funds), stock indices (Blue Chip, Mid-Cap
Equity, Capital Income, Aggressive Growth, and International Funds), and foreign
currencies (Aggressive Growth and International Funds). Such futures contracts
and related options will be traded on U.S. or foreign exchanges and in
over-the-counter markets.
The Funds may be subject to additional risks associated with futures
contracts, such as the possibility that the Manager's or Subadviser's forecasts
of market values and other factors are not correct, imperfect correlation
between a Fund's hedging instrument and the asset or liability being hedged,
default by the other party to the transaction, and inability to close out a
position because of the lack of a liquid market. In addition to the possibility
that there may be an imperfect correlation, or no correlation at all, between
movements in a futures contract and the securities being hedged, the price of
futures contracts may not correlate perfectly with movement in the cash market
due to certain market distortions. As a result of these factors, a correct
forecast of general market trends or interest rate movements by the Manager or
Subadviser still may not result in a successful hedging transaction over a short
time frame. More information regarding futures contracts and related options,
including the costs and risks related to such instruments, is included in the
SAI.
INVESTMENT COMPANY SECURITIES. Each Fund may invest in securities of money
market funds as a temporary defensive measure, when market conditions are
uncertain or unusual, or for other purposes. Each Fund may also invest in
securities issued by other investment companies, including those which invest in
foreign securities of the type in which the Funds are authorized to invest. No
more than 10% of the value of a Fund's total assets will be invested in
securities of other investment companies, with no more than 5% of its total
assets invested in the securities of any one investment company (except that a
Fund may invest the greater of 5% of its net assets or $2.5 million in the
securities of a money market mutual fund advised by Bank of America). In
addition, a Fund may hold no more than 3% of the outstanding voting stock of any
other investment company.
As the shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. However, Bank of America will reduce its
advisory fees to the Funds by the amount of any advisory fees of such other
investment company borne by the Funds. Such expenses are in addition to the
expenses a Fund pays in connection with its own operations.
REPURCHASE AGREEMENTS. Each Fund may buy securities subject to the seller's
agreement to repurchase them at an agreed upon time and price. These
transactions are known as repurchase agreements. The Funds will enter into
repurchase agreements only with financial institutions (such as banks and
broker-dealers) deemed creditworthy by Bank of America or a Subadviser, under
guidelines approved by the Company's Board of Trustees. It is intended that such
agreements will not have maturities longer than 60 days. During the term of any
repurchase agreement, the seller must maintain the value of the securities
subject to the agreement in an amount that is greater than the repurchase price.
Bank of America or its Subadviser monitors that value to make sure that it is
maintained. Should the seller default on its obligations under the agreement or
the value of the security fall below the repurchase price, the Fund would be
exposed to possible loss due to adverse market action or delays connected with
the disposition of the underlying obligations. Repurchase agreements are
considered to be loans under the 1940 Act.
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REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow money for temporary
purposes by entering into transactions called reverse repurchase agreements.
Under these agreements, a Fund sells portfolio securities to financial
institutions (such as banks and broker-dealers) and agrees to buy them back
later at an agreed upon time and price. When a Fund enters into a reverse
repurchase agreement, it places in a separate custodial account either liquid
assets or other high-grade debt securities which have a value equal to or
greater than the repurchase price. The account is monitored by Bank of America
or its Subadviser to make sure that an appropriate value is maintained. Reverse
repurchase agreements involve the risk that the value of portfolio securities a
Fund relinquishes may decline below the price the Fund must pay when the
transaction closes. Interest paid by a Fund in connection with a reverse
repurchase agreement will reduce the net investment income of such Fund. The
Funds will only enter into reverse repurchase agreements to avoid the need to
sell portfolio securities to meet redemption requests. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act. Borrowings may
magnify the potential for gain or loss on amounts invested, resulting in an
increase in the speculative character of a Fund's outstanding shares. A Fund's
investment in reverse repurchase agreements, together with its investment in
when-issued, forward commitment and delayed settlement transactions, is normally
limited to 10% of the Fund's total assets measured at the time of investment.
However, for temporary purposes such as to facilitate redemptions, up to 25% of
a Fund's total assets may be invested in reverse repurchase agreements.
SECURITIES LENDING. In order to earn additional income, each Fund other
than the Money Market Fund may lend portfolio securities to banks,
broker-dealers or other financial institutions that Bank of America or its
Subadviser considers to be of good standing. Borrowers of portfolio securities
may not be affiliated directly or indirectly with the Trust or the particular
Fund. If the borrower should become bankrupt, however, a Fund could experience
delays in recovering its securities. A securities loan will only be made when,
in the judgment of Bank of America or its Subadviser, the possible reward from
the loan justifies the possible risks. In addition, such loans will not be made
by a Fund if, as a result, the value of securities loaned exceeds 1/3 of the
Fund's total assets. Securities loans will be fully collateralized
ILLIQUID SECURITIES. No Fund will invest more than 15% (10% for the Money
Market Fund) of the value of its net assets (determined at the time of
acquisition) in securities that are illiquid. If, after the time of acquisition,
events cause a Fund to exceed this limit, the Fund will take steps to reduce the
aggregate amount of illiquid securities as soon as is reasonably practicable.
The Trust intends that the investments in securities that are not registered
under the Securities Act of 1933 (the "1933 Act") but may be purchased by
institutional buyers under Rule 144A and for which a liquid trading market
exists as determined by the Board of Trustees (or Bank of America or its
Subadviser pursuant to guidelines adopted by the Board), will not be subject to
the limitation on illiquid securities. This investment practice could have the
effect of increasing the level of illiquidity in the Funds during any period
that institutional buyers under Rule 144A became uninterested in purchasing
these restricted securities.
Each Fund may also invest in commercial paper issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is restricted as
to disposition under the Federal securities laws and generally is sold to
institutional investors such as the Funds that agree to purchase the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors through or with the assistance of the
issuer or investment dealers that make a market in Section 4(2) paper. Section
4(2) paper will not be subject to the Funds' 15% (10% for the Money Market Fund)
limitation on illiquid securities where the Board of Trustees (or Bank of
America or its Subadviser pursuant to the guidelines adopted by the Board)
determines that a liquid trading market exists.
SECURITIES ISSUED BY BANK OF AMERICA AND AFFILIATES. The Funds will not
invest in instruments or securities issued by Bank of America or any of its
affiliates.
PORTFOLIO TURNOVER. The Funds' investment practices may result in portfolio
turnover greater than 100%. Higher rates of turnover may require payment of
brokerage commissions and impose other transaction costs on the Funds. Although
no commissions are paid on bond transactions, purchases and sales are at net
prices which reflect dealers' mark-ups and mark-downs, and a higher portfolio
turnover rate for bond investments
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<PAGE> 18
will result in the payment of more dealer mark-ups and mark-downs than would
otherwise be the case. Anticipated turnover rates will not be a limiting factor
in making investment decisions for the Funds. The anticipated annual turnover
rates for the Funds are as follows: Managed Bond Fund, 40%; Capital Income Fund,
85%; Blue Chip Fund, 100%; Mid-Cap Equity Fund, 100%; Aggressive Growth Fund,
95%; and International Fund, 75%.
DIVERSIFICATION AND CHANGES IN INVESTMENT POLICIES
Each Fund is diversified, so that, with respect to 75% of the total assets
of the Fund, it may not invest more than 5% of its total assets (taken at market
value at the time of investment) in securities of any one issuer, except that
this restriction does not apply to U.S. Government securities.
The investment objective of each Fund and its status as a diversified
portfolio are "fundamental" matters that may not be changed without the approval
of the holders of a majority of the Fund's outstanding shares as defined in the
1940 Act. A Fund's investment policies may be changed by the Trust's Board of
Trustees without the affirmative vote of the Fund's outstanding shares. However,
the Funds are subject to investment restrictions described in the SAI, some of
which are designated as fundamental matters which may not be changed without
shareholder approval.
OTHER INVESTMENT PRACTICES AND CONSIDERATIONS
INVESTMENT DECISIONS. Bank of America and each Subadviser places orders for
the purchase and sale of assets it manages with brokers and dealers selected by
and in its discretion. In executing such transactions, Bank of America or the
Subadviser seeks to obtain the best price and execution for the Funds, but a
Fund may pay higher than the lowest available commission rates when Bank of
America or the Subadviser believes it is reasonable to do so in light of the
value of the brokerage and research services provided by the broker effecting
the transaction. The selection of such brokers, however, will be made in
accordance with Section 28(e) of the Securities Exchange Act of 1934. Section
28(e) requires an investment adviser to make a good faith determination that the
commissions paid to a broker are reasonable in relation to the value of the
brokerage and research services provided by such broker, viewed in terms of
either that particular transaction or the adviser's overall responsibilities
with respect to the accounts as to which it exercises investment discretion.
Investment decisions for a particular Fund are made independently from
those for other investment companies and accounts managed by Bank of America and
its Subadvisers and their affiliated entities. Such other investment companies
and accounts may also invest in the same securities as a Fund. When a purchase
or sale of the same security is made at substantially the same time on behalf of
a Fund and another investment company or account, available investments or
opportunities for sales will be equitably allocated pursuant to procedures of
Bank of America or its Subadviser. In some instances, this investment procedure
may adversely affect the price paid or received by such Fund or the size of the
position obtained or sold by the Fund.
In allocating the purchase and sale orders for investment securities
involving the payment of brokerage commissions or dealer concessions, Bank of
America or a Subadviser may consider the sale of Fund shares by broker-dealers
and other financial institutions (including affiliates of Bank of America or its
Subadviser to the extent permitted by law), provided the Manager or Subadviser
believes the quality of the transaction and the price to a Fund are not less
favorable than what they would be with any other qualified firm.
CERTAIN RISK FACTORS. Although investing in any mutual fund has certain
inherent risks, including the risks described above, the Funds described below
are subject to certain additional risks.
CAPITAL INCOME FUND. The Capital Income Fund will invest principally in
Convertible Securities, which may be rated below "investment grade" or unrated.
These securities are subject to the risk considerations described above under
"Certain Investment Policies -- Non-Investment Grade Securities."
MANAGED BOND FUND. The Managed Bond Fund will invest principally in
investment grade intermediate and longer-term fixed income securities. Fixed
income securities are subject to interest rate risk, as the value of such
securities will vary inversely with changes in interest rates. Thus, during
periods of rising interest rates, the market value of the Fund's portfolio
securities, and the value of the Fund's shares, can be expected to
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<PAGE> 19
decline, which may reduce the total return to shareholders from an investment in
the Fund. Fixed income securities are also subject to additional risks described
above under "Certain Investment Policies -- Fixed Income Securities."
The Managed Bond Fund may invest in securities rated below "investment
grade" or unrated. These securities are subject to the risk considerations
described under "Certain Investment Practices -- Non-Investment Grade
Securities."
AGGRESSIVE GROWTH FUND. An investment in the Aggressive Growth Fund may
have even greater risks than investments in most other types of mutual funds.
This Fund is not a complete investment program, and it may not be appropriate
for an investor if he or she cannot bear financially the loss of at least a
significant portion of his or her investment. The Fund's net asset value per
share is subject to rapid and substantial changes because greater risk is
assumed in seeking maximum growth. The securities of the small-capitalized
companies which the Fund expects to emphasize may be subject to more abrupt or
erratic market movements than larger more established companies, both because
the securities typically are traded in lower volume and because the issuers
typically are subject to a greater degree to changes in earnings and prospects.
Many of the securities which Bank of America believes would have the greatest
growth potential may be considered highly speculative. Additionally, such
securities may not be traded every day or in the volume typical of trading on a
national securities exchange. As a result, the disposition by the Fund of
portfolio securities, to meet redemptions or otherwise, may require the Fund to
sell these securities at a discount from market prices, to sell during periods
when such disposition is not desirable, or to make many small sales over a
lengthy period of time.
The Aggressive Growth Fund's investments in foreign securities are subject
to the risk considerations described above under "Certain Investment
Policies -- Foreign Securities."
INTERNATIONAL FUND. The International Fund invests principally in foreign
securities, which are subject to the risk considerations described above under
"Certain Investment Policies -- Foreign Securities."
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<PAGE> 20
THE BUSINESS OF THE FUNDS
FUND MANAGEMENT
The business affairs of the Trust are managed under the general supervision
of its Board of Trustees, under the laws of the State of Delaware. Information
about the Trustees and officers of the Trust is included in the SAI under
"Management."
EXPENSES
The Funds bear all costs of their operations. Operating expenses borne by
the Funds include taxes, interest, brokerage fees and commissions, fees and
expenses of the independent Trustees, the Manager's fees, custodial and transfer
agency fees, certain insurance premiums, outside auditing and legal expenses,
costs of shareholder reports, proxies and meetings and any extraordinary
expenses. The Funds' expenses also include Securities and Exchange Commission
fees, costs of maintaining the Trust's legal status as a trust, costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to shareholders, and certain support
servicing fees. Except as noted in this Prospectus, the service
contractors bear all expenses in connection with the performance of their
services and the Funds bear the expenses incurred in their operations.
SERVICE PROVIDERS
MANAGER. Bank of America serves as the Funds' Manager. Bank of America is a
subsidiary of BankAmerica Corporation, a registered bank holding company. Its
principal offices are located at 555 California Street, San Francisco,
California 94104.
Formed in 1904, Bank of America is a national banking association that
provides commercial banking and trust business through an extensive system of
branches across the western United States. Bank of America's principal banking
affiliates operate branches in ten U.S. states as well as corporate banking and
business credit offices in major U.S. cities. In addition, it has corporate
offices and representative offices in 36 foreign countries.
In its management agreement, Bank of America has agreed to manage the
Funds' investments and to be responsible for, place orders for, and make
decisions with respect to, all purchases and sales of the Funds' securities. The
management agreement also provides that Bank of America may, in its discretion,
provide advisory services through its own employees or employees of one or more
of its affiliates that are under the common control and management of Bank of
America's parent, BankAmerica Corporation. Bank of America may also employ a
subadviser, provided that Bank of America remains fully responsible to the Funds
for the acts and omissions of the subadviser.
Ed Cassens, Senior Portfolio Manager with Bank of America, is primarily
responsible for the day-to-day investment activities of the Capital Income Fund.
Mr. Cassens is a Chartered Financial Analyst and has been associated since 1966
with BofA Capital Management, Inc. and Seattle-First National Bank, a subsidiary
of Seafirst Corporation which is controlled by BankAmerica Corporation. Mr.
Cassens currently manages Bank of America's EBT Convertible Securities Trust,
Bank of America's Equity Income Fund, and the Pacific Horizon Capital Income
Fund.
Bank of America Illinois' Investment Advisors Division is responsible for
the day-to-day investment activities of the Blue Chip Fund and Mid-Cap Equity
Fund. Its investment management team is headed by James Miller, Executive Vice
President and Chief Investment Officer of BofA Illinois (a wholly owned
subsidiary of Bank America Corporation). Mr. Miller has been the manager of the
Pacific Horizon Blue Chip Fund since May 1995 and has been associated with BofA
Illinois Investment Management (and its predecessor Continental Bank) since
1988. Mr. Miller is a Chartered Financial Analyst, a member of the Association
of Investment Management and Research, and a former Director of the Investment
Analysts Society of Chicago.
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<PAGE> 21
Scott A. Billeadeau is primarily responsible for the day-to-day investment
activities of the Aggressive Growth Fund. Mr. Billeadeau, a Chartered Financial
Analyst and a Senior Portfolio Manager with Bank of America, has been associated
with Bank of America since 1991. He is currently the manager of the Pacific
Horizon Aggressive Growth Fund and is also responsible for research and
portfolio management of two of Bank of America's commingled accounts, the EBT
Aggressive Equity Fund and Aggressive Equity Fund G, as well as individual
accounts.
For its services as Manager, Bank of America is entitled to receive fees
from the Funds equal to the following percentages of the average net assets of
each Fund on an annual basis: Money Market Fund, .22%; Managed Bond Fund, .37%;
Capital Income Fund, .48%; Blue Chip Fund, .53%; Mid-Cap Equity Fund, .53%;
Aggressive Growth Fund, .61%; and International Fund, .66%. These fees may be
reduced pursuant to undertakings by Bank of America. (See the information below
in the section entitled "Fee Waivers.")
SUBADVISERS. As authorized by its management agreement, Bank of America has
employed the Subadvisers to manage certain of the Funds, as described below. In
its subadvisory agreement with Bank of America, each Subadviser has agreed to
manage the investments of the Fund for which it has been employed and to be
responsible for, place orders for, and make decisions with respect to, all
purchases and sales of the Fund's securities. Each Subadviser's fee described
below is paid by Bank of America, and may be reduced pursuant to undertakings by
the Subadviser. (See the information below in the section entitled "Fee
Waivers.")
SCUDDER, STEVENS & CLARK, INC. Bank of America has employed Scudder,
Stevens & Clark, Inc. to manage the investments of the Managed Bond Fund.
Scudder was founded in 1919. Today the firm manages in excess of $90 billion for
many private accounts and over 50 mutual fund portfolios.
Thomas M. Poor and Davis B. Clayson, Managing Director and Vice President,
respectively of Scudder, will manager the Managed Bond Fund. Mr. Poor, a
Chartered Financial Analyst, is the Product Leader of the Firm's Limited
Volatility Bond Product and is responsible for the policy, coordination and
promotion of this Product. He joined the Firm in 1970 and manages several
institutional bond portfolios and four mutual funds, including the Scudder Short
Term Bond and the Scudder Managed GIC Trust. Mr. Clayson is a member of the
Firm's Limited Volatility Bond team and has been with Scudder since 1994. Prior
to that he was Director of Marketing and Client Services at Interinvest
Corporation, a global money management firm.
WELLINGTON MANAGEMENT COMPANY, LLP. Bank of America has employed Wellington
Management Company, LLP to manage the investments of the International Fund.
Wellington is one of America's oldest and largest independent investment
management firms. It serves as investment adviser to more than 300 institutional
clients and over 100 mutual fund portfolios covering a wide range of investment
styles, and has over $119 billion in discretionary client assets under
management.
Wellington Management's Global Equity Strategy Group, a group of global
portfolio managers and senior investment professionals headed by Trond
Skramstad, manages the International Fund. Mr. Skramstad joined Wellington
Management in 1993 as the firm's Director of International Equity Investments.
Prior to joining Wellington Management, Mr. Skramstad was a Principal at
Scudder.
PACIFIC MUTUAL LIFE INSURANCE COMPANY. Pacific Mutual provides support
services to the Funds and acts as the Funds' Transfer Agent. In its support
services agreement, Pacific Mutual has agreed to coordinate matters relating to
the operation of the Separate Accounts with the operation of the Funds
(including the Fund's Custodian, record keeping agents, accountant, attorneys
and others), maintain appropriate books and records of the Separate Accounts as
required by law, arrange for the distribution of Fund proxy materials and
periodic reports to Contract owners, address inquiries and provide information
to the Contract owners which relate to Fund matters, tabulate Contract owner
voting for proxies, and coordinate the preparation of certain documents with the
Securities and Exchange Commission and other federal and state regulatory
authorities. In its agreement with the Trust, Pacific Mutual serves as the
Trust's transfer agent.
FUND ACCOUNTANT AND SUB-ADMINISTRATOR. PFPC Inc. ("PFPC") provides fund
accounting services to the Funds. In this capacity, PFPC has agreed to provide
certain accounting services to the Funds including calculation of the net asset
value of the Funds, dividends and capital gains distributions to shareholders.
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<PAGE> 22
Under its management agreement, Bank of America has also agreed to provide
statistical and research data, data processing services, and clerical services,
and coordinate the preparation of reports to shareholders of the Funds and the
SEC. Pursuant to the authority granted in its management agreement, Bank of
America has retained PFPC as Sub-Administrator to perform certain administrative
services for the Trust, such as preparing and filing various periodic regulatory
reports, preparing tax returns, coordinating certain of the Trust's contractual
relationships and assisting with Fund compliance monitoring. Bank of America
bears all fees and expenses charged by PFPC for sub-administration services.
DISTRIBUTOR. The Fund's shares are sold on a continuous basis and
distributed through BISYS Fund Services Limited Partnership (the "Distributor").
The Distributor is an indirect, wholly owned subsidiary of The BISYS Group, Inc.
and is located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
CUSTODIAN. PNC Bank, N.A., 200 Stevens Drive, Lester, Pennsylvania, 19113
serves as the Custodian of the Fund.
FEE WAIVERS
Bank of America and Pacific Mutual have agreed to waive fees and reimburse
Fund operating expenses to ensure that the operating expenses for each Fund
(other than interest, taxes, brokerage commissions and other portfolio
transaction expenses, capital expenditures and extraordinary expenses) will not
exceed the following percentages of the average net assets of each Fund on an
annual basis: Money Market Fund, 0.60%; Managed Bond Fund, 0.75%; Capital Income
Fund, 0.87%; Blue Chip Fund, 0.94%; Mid-Cap Equity Fund, 0.94%; Aggressive
Growth Fund, 1.03%; and International Fund, 1.24%. Bank of America will waive
its fees or reimburse expenses with respect to a Fund to the extent of the
aggregate of its management fees and administration fees (less 0.02%) with
respect to the Fund, on an annual basis. If this waiver and reimbursement is not
sufficient to reduce expenses below the levels set forth above, Pacific Mutual
will waive or reimburse its support service and transfer agent fees and, to the
extent necessary, to pay or reimburse the Fund's other expenses, so that
expenses are maintained at the levels set forth above. However, at such time as
the annualized expenses of a Fund are less than the expense limitation for such
Fund set forth above, Pacific Mutual's obligation to provide further fee waivers
and expenses payments or reimbursements will cease, even if the expenses of the
Fund subsequently increase above such levels.
Expenses can also be reduced by voluntary fee waivers and expense
reimbursements by Bank of America and other service providers. Periodically,
during the course of the Funds' fiscal year, Bank of America and other service
providers may prospectively choose not to receive fee payments and/or may assume
certain of the Funds' expenses as a result of competitive pressures and in order
to preserve and protect the business and reputation of Bank of America. However,
Bank of America and other service providers retain the ability to discontinue
such fee waivers and expense reimbursements at any time.
MORE ON THE FUNDS' SHARES
HOW TO BUY SHARES
Shares of the Funds are not sold directly to the general public. Shares of
the Funds are currently offered only for purchase by the Separate Accounts to
serve as an investment medium for the Contracts issued or administered by
Pacific Mutual. For information on purchase of a Contract, consult the
prospectus for the Separate Accounts.
HOW TO REDEEM SHARES
Shares of any Portfolio may be redeemed on any business day upon receipt of
a request for redemption from the insurance company whose Separate Account owns
the shares. Redemptions are effected at the per share net asset value next
determined after receipt of the redemption request. Redemption proceeds
ordinarily
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<PAGE> 23
will be paid within seven days following receipt of instructions in proper form
or any sooner period required by law.
HOW ARE SHARES PRICED?
Shares are purchased at their public offering price, which is based upon a
Fund's net asset value per share. Each Fund calculates its net asset value
("NAV") as follows:
<TABLE>
<S> <C> <C>
(Value of Fund Assets) - (Fund Liabilities)
--------------------------------------------
NAV =
Number of Outstanding Shares
</TABLE>
Net asset value is determined as of the end of regular trading hours on the
New York Stock Exchange (the "Exchange") (normally 4:00 p.m. Eastern time) on
days the Exchange is open.
In computing net asset values, the Money Market Fund uses the amortized
asset method of valuation as described in the SAI, and each of the other Funds
uses the following procedures: A Fund's investments in securities that are
primarily traded on a domestic exchange or traded on the NASDAQ National Market
System are valued at the last sale price on the exchange or market where
primarily traded or listed or, if there is no recent sale price available, at
the mean between the closing bid and ask prices. Securities not so traded are
valued at the last current bid quotation if market quotations are available.
Except for short-term securities with remaining maturities of 60 days or less
("Short-Term Securities"), fixed income securities are valued by using market
quotations, or independent pricing services that use prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Short-Term Securities
are valued at amortized cost, which approximates market value. Equity options
are valued at the last sale price unless the bid price is higher or the asked
price is lower, in which event such bid or asked price is used. Futures
contracts and options thereon are valued at the settlement price established
each day by the board of trade or exchange on which they are traded. Other
securities and assets are valued at fair value as determined in good faith
pursuant to procedures adopted by the Board of Trustees. Trading in foreign
securities is generally completed prior to the end of regular trading on the
Exchange. Trading may occur in foreign securities, however, on Saturdays and
U.S. holidays and at other times when the Exchange is closed. As a result, there
may be delays in reflecting changes in the market values of foreign securities
in the calculation of the net asset value of a Fund. For further information
about valuing securities, see the SAI. For voice recorded price and yield
information call (800) .
CAN I EXCHANGE MY INVESTMENT FROM ONE FUND TO ANOTHER?
Contract owners do not deal directly with the Trust to purchase, redeem, or
exchange shares of a Fund, and Contract owners should refer to the Prospectus
for the Separate Accounts for information on the allocation of purchase payments
and on transfers of accumulated value among options available under the
Contract.
DIVIDENDS AND DISTRIBUTIONS
Dividends of net investment income are declared daily and paid monthly by
the Money Market Fund, declared and paid monthly by the Managed Bond Fund, and
declared and paid at least annually by the other Funds. Each Fund's net capital
gain, if any, is distributed at least annually, on or about the last day of
December. All dividends and distributions of each Fund are automatically
reinvested in additional shares of the Fund at the Fund's net asset value as of
the payment date for the dividend unless the shareholder (Separate Account)
properly elects to receive cash in respect of dividends payable in cash or in
additional Fund shares.
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<PAGE> 24
TAX INFORMATION
Each Fund intends to qualify each year as a "regulated investment company"
for federal income tax purposes and to meet all other requirements necessary for
it to be relieved of federal income taxes on income and gains it distributes to
the Separate Accounts. Internal Revenue Service regulations applicable to the
Separate Accounts generally require that portfolios that serve as the funding
vehicles solely for such Separate Accounts invest no more than 55% of the value
of their assets in one investment, 70% in two investments, 80% in three
investments and 90% in four investments. Alternatively, a portfolio will be
treated as meeting these requirements for any quarter of its taxable year if, as
of the close of such quarter, the portfolio meets the diversification
requirements applicable to regulated investment companies (see "Additional
Information Concerning Taxes" in the SAI) and no more than 55% of the value of
its total assets consists of cash and cash items (including receivables), U.S.
government securities and securities of other regulated investment companies.
Each of the Funds intends to comply with these requirements.
Fund transactions in foreign currencies and hedging activities will likely
produce a difference between book income and taxable income. This difference may
cause a portion of a Fund's income distributions to constitute a return of
capital for tax purposes or require a Fund to make distributions exceeding book
income to qualify as a regulated investment company for tax purposes.
Reference is made to the Prospectus for the Separate Accounts and Contracts
for information regarding the Federal income tax treatment of distributions to
the Separate Accounts. See "Additional Information Concerning Taxes" in the SAI
for more information on taxes.
MEASURING PERFORMANCE
From time to time, the Trust may advertise each Fund's "total return" and,
if applicable, its "yield" or "effective yield." These figures will not reflect
any fees and charges made pursuant to the terms of the Contracts funded by the
Separate Accounts that invest in shares of the Funds. Fund performance
information will be presented only in conjunction with performance information
for the Contracts. Purchasers of Contracts issued by Pacific Mutual should
recognize that such fees and charges will reduce the yield and total return to
Contract owners.
Since a Fund's performance will fluctuate, it should not be compared with
bank deposits, savings accounts and similar investments that often provide an
agreed or guaranteed fixed yield for a stated period of time. Performance is
generally a function of the kind and quality of the instruments in a portfolio,
portfolio maturity, operating expenses and market conditions.
Performance information should be considered in light of a Fund's
investment objectives and policies, the characteristics of the Fund, and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future. For a description of the
methods used to determine yield and total return for the Funds, see the SAI.
PRIOR PERFORMANCE OF THE MANAGER AND SUBADVISERS
The following tables set forth composite performance data relating to the
historical performance of common trust funds, mutual funds and/or institutional
private accounts managed by the Bank of America and the Subadvisers, since the
dated indicated, that have investment objectives, policies, strategies and risks
substantially similar to those of the Funds. The data is provided to illustrate
the past performance of Bank of America and the Subadvisers in managing
substantially similar accounts as measured against specified market indices and
does not represent the performance of the Funds. Investors should not consider
this performance data as an indication of future performance of the Funds or of
Bank of America and the Subadvisers.
With respect to the International Fund, all returns presented were
calculated on a total return basis and include all dividends and interest,
accrued income and realized and unrealized gains and losses. Returns reflect the
deduction of all anticipated Fund expenses. This includes investment advisory
fees, brokerage commissions and custodial fees, but not fees and charges at the
separate account level under the variable contracts (or
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<PAGE> 25
other fees and charges under the variable contracts) related to an associated
variable annuity. The composite includes all actual, fee-paying, discretionary
mutual funds managed by Wellington that have investment objectives, policies,
strategies and risks substantially similar to those of the Fund. For multi-asset
portfolios in which a portion of the portfolio is appropriate to include in the
composite, an estimation of portfolio expenses has been subtracted from the
gross component returns on a monthly basis. Securities transactions are
accounted for on the trade date and accrual accounting is utilized. Cash and
equivalents are included in the performance returns. The monthly returns of each
composite combine the individual accounts' return by asset-weighting each
individual account's asset value as of the beginning of the month. Quarterly and
yearly returns are calculated by geometrically linking the monthly returns.
The figures shown for the Aggressive Growth, Money Market and Capital
Income Funds reflect the performance of the comparable Pacific Horizon Funds.
The performances of the Blue Chip, Mid-Cap Equity and Managed Bond Funds reflect
the adjusted total return performance of composites of private accounts (and, in
the case of the Blue Chip and Mid-Cap Equity Funds, common trust funds) managed
by the Manager or Scudder. The tables reflect performance on composites of all
advisory accounts (collectively such accounts are referred to as "comparable
accounts") that have substantially similar, although not necessarily identical,
investment objectives, policies and strategies to those employed by the Manager
and Scudder. The performance figures for the composites are based on gross
results that are adjusted to reflect the anticipated expenses of the pertinent
Fund. The performance figures for all of the comparable accounts also reflect
the inclusion of any dividends and interest income received, the deduction of
any brokerage commissions, and other related portfolio transaction expenses
which are generally reflected as part of the cost of a security.
Because of the differences in computation methods, such as the method or
frequency of reinvesting dividends or measuring gains, the data shown below may
not be precisely comparable to performance data for the Funds. In addition, the
performance data for the private accounts may not be representative of the
pertinent Fund insofar as the management of the Fund is affected by the Fund's
obligation to redeem its shares upon request. If the asset size of the
comparable accounts varies from that of the pertinent Fund, this might reduce
the comparability of the Fund's performance to that of the comparable accounts.
In addition, the Funds' current and future investments are not and will not
necessarily be identical to those of the comparable accounts whose performance
is reflected below.
The institutional private accounts that are included in the composites are
not subject to the same types of expenses to which the Funds are subject nor to
the diversification requirements, specific tax restrictions and investment
limitations imposed on the Funds by the Investment Company Act or Subchapter M
of Internal Revenue Code. Consequently, the performance results for the
composites could have been adversely affected if the institutional private
accounts had been regulated as investment companies under the federal securities
laws.
The investment results of the composites presented are unaudited and are
not intended to predict or suggest the returns that might be experienced by the
Funds or an individual investor investing in such Funds. Investors should also
be aware that the use of a methodology different from that used below to
calculate performance could result in different performance data.
The following performance data is not the performance of the Pacific
Innovations Funds but that of comparable accounts, and does not reflect a
deduction for Separate Account charges and Contract level charges. This data
should not be taken as an indication of the future performance either of the
comparable accounts reflected in the figures or of the Pacific Innovations
Funds.
[PERFORMANCE DATA TO BE ADDED]
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<PAGE> 26
DESCRIPTION OF SHARES
THE TRUST IS A DELAWARE BUSINESS TRUST
THAT WAS ORGANIZED ON SEPTEMBER 25, 1996.
ABOUT THE TRUST
The Trust's charter authorizes the Board of Trustees to issue an unlimited
number of shares of beneficial interest.
Shares representing beneficial interests in a Fund are entitled to
participate in the dividends and distributions declared by the Board of Trustees
and in the net distributable assets of the Fund on liquidation. The Funds'
shares have no preemptive rights and only such conversion and exchange rights as
the Board may grant in its discretion. When issued for payment as described in
this Prospectus, a Fund's shares will be fully paid and non-assessable.
VOTING RIGHTS
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held, unless a different allocation of
voting rights is required under applicable law for an open-end investment
company that serves as an investment medium for variable insurance products.
Additionally, shareholders will vote in the aggregate and not by series, except
as required by law or when permitted by the Board of Trustees. For a further
discussion of voting rights, see the prospectus for the applicable Contract.
The Funds do not presently intend to hold annual meetings of shareholders
to elect trustees or for other business unless and until such time as less than
a majority of the trustees holding office has been elected by the shareholders.
At that time, the trustees then in office will call a shareholders' meeting for
the election of trustees. Under certain circumstances, however, shareholders
have the right to call a shareholder meeting to consider the removal of one or
more trustees. Such meetings will be held when requested by the shareholders of
10% or more of the Trust's outstanding shares of beneficial interest. Each Fund
will assist in shareholder communications in such matters to the extent required
by law and the Trust's undertaking with the Securities and Exchange Commission.
OUTSTANDING SHARES
As of the date of this Prospectus, all of the outstanding shares of the
Funds were owned by Pacific Financial Asset Management Corporation, a wholly
owned subsidiary of Pacific Mutual.
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<PAGE> 27
APPENDIX A
CORPORATE BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings:
Aaa -- judged to be the best quality, carry the smallest degree of investment
risk and are generally referred to as "gilt edge"; Aa -- judged to be of high
quality by all standards; A -- deemed to have many favorable investment
attributes and considered as upper medium grade obligations; Baa -- considered
as medium grade obligations, i.e. they are neither highly protected nor poorly
secured; Ba, B, Caa, Ca, C -- protection of interest and principal payments is
questionable (Ba indicates some speculative elements, B represents bonds that
generally lack characteristics of the desirable investment, Caa represents bonds
which are in poor standing, Ca represents a high degree of speculation and C
represents the lowest rated class of bonds); Caa, Ca and C bonds may be in
default.
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt rated
AAA has the highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is considered to be extremely strong. Debt rated AA
is considered to have a very strong capacity to pay interest and to repay
principal and differs from the highest rated issues only in small degree. Debt
rated A is considered to have a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in a higher rated
category. Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and to repay
principal for debt in this category than in higher rated categories. Debt rated
BB, B, CCC, CC or C is regarded, on balance, as predominately speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligations. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions. Debt rated CI is reserved for income
bonds on which no interest is being paid. Debt rated D is in default, and
payment of interest and/or repayment of principal is in arrears. The ratings
from AA to CCC may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. The designation A-1 indicates the degree of safety regarding timely
payment is considered to be strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity, excess of 9
months. The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
UNRATED SECURITIES
Unrated securities are securities which have not been rated by a nationally
recognized statistical rating organization.
A-1
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PACIFIC INNOVATIONS TRUST
STATEMENT OF ADDITIONAL INFORMATION
, 1996
<TABLE>
<S> <C>
MONEY MARKET FUND MID-CAP EQUITY FUND
MANAGED BOND FUND AGGRESSIVE GROWTH FUND
CAPITAL INCOME FUND INTERNATIONAL FUND
BLUE CHIP FUND
</TABLE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
The Trust............................................................................. 1
Investment Objectives and Policies.................................................... 2
Additional Purchase and Redemption Information........................................ 19
Additional Information Concerning Taxes............................................... 21
Management............................................................................ 24
Performance Information............................................................... 27
General Information................................................................... 29
Appendix A: Ratings................................................................... A-1
Appendix B: Futures Contracts......................................................... B-1
</TABLE>
This Statement of Additional Information supplements the Prospectus
offering of shares of the Money Market Fund, Managed Bond Fund, Capital Income
Fund, Blue Chip Fund, Mid-Cap Equity Fund, Aggressive Growth Fund, and
International Fund (each a "Fund" and, collectively, the "Funds"). Each Fund is
a series of Pacific Innovations Trust, a Delaware Business Trust which is a
registered open-end management investment company (the "Trust").
This Statement of Additional Information, which is incorporated by
reference in its entirety into the Prospectus, should be read only in
conjunction with the Prospectus for the Funds, dated , 1996, as it
may from time to time be revised.
Because this Statement of Additional Information is not itself a
prospectus, no investment in shares of any Fund should be made solely upon the
information contained herein. Copies of the Prospectus for the Funds to which
this Statement of Additional Information relates may be obtained by calling
at 800- - . Capitalized terms used but not defined
herein have the same meaning as in the Prospectus.
THE TRUST
The Trust was organized on September 25, 1996 as a Delaware business trust.
It is a series company that currently consists of the following investment
portfolios or Funds: the Money Market Fund, Managed Bond Fund, Capital Income
Fund, Blue Chip Fund, Mid-Cap Equity Fund, Aggressive Growth Fund and
International Fund. Each Fund has its own investment objective and policies.
The investment adviser to each Fund is Bank of America National Trust and
Savings Association ("Bank of America" or "investment adviser"). Scudder,
Stevens & Clark, Inc. and Wellington Management Company, LLP (each a
"Subadviser" and, collectively, the "Subadvisers") serve as subadvisers to the
Managed Bond Fund and International Fund respectively.
Shares of the Funds may be sold only to separate accounts ("Separate
Accounts") of Pacific Mutual Life Insurance Company ("Pacific Mutual") to serve
as investment vehicles for variable annuity contracts issued
-1-
<PAGE> 29
by Pacific Mutual (the "Contracts"). It is possible at some later date that
shares of the Funds may be offered and sold to separate accounts funding
variable life insurance policies issued by Pacific Mutual.
Pacific Mutual, which will be the owner of Fund shares held by the Separate
Accounts, will invest in such shares in accordance with instructions received
from the owners of the Contracts. Contract owners should consider that the
investment experience of the Fund or Funds they select will affect the value of
and the benefits provided under the Contracts. See the prospectus for the
Separate Accounts for a discussion of the relationship between increases or
decreases in the net asset value of the Funds (and any distributions of such
shares) and the benefits provided under the Contracts.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the discussion of the investment
objective and policies for each Fund appearing in the Prospectus. There can be
no assurance that the investment objective of any Fund will be achieved.
PORTFOLIO TRANSACTIONS
The portfolio turnover rate described in the Prospectus is calculated by
dividing the lesser of purchases or sales of portfolio securities for the year
by the monthly average value of the portfolio securities. The calculation
excludes all securities whose maturities at the time of acquisition were one
year or less. Portfolio turnover may vary greatly from year to year as well as
within a particular year, and may also be affected by cash requirements for
redemptions of shares. Portfolio turnover will not be a limiting factor in
making portfolio decisions. The portfolio turnover rate for the Aggressive
Growth Fund may be particularly high.
Subject to the general supervision and oversight of the Trust's Board of
Trustees, Bank of America is responsible for, makes decisions with respect to,
and places orders for all purchases and sales of portfolio securities for each
Fund, except where Bank of America has selected certain persons to provide
investment advisory services to a particular Fund (see discussion below under
"Management").
Transactions on stock exchanges involve the payment of negotiated brokerage
commissions. There is generally no stated commission in the case of securities
traded in the over-the-counter market through market-makers, but the price
includes an undisclosed commission or mark-up. The cost of securities purchased
from underwriters includes an underwriting commission or concession, and the
prices at which securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down.
In executing portfolio transactions and selecting brokers or dealers, it is
the Trust's policy to seek the best overall terms available. The Management
Agreement between the Trust and Bank of America, and the Subadvisory Agreement
among the Trust, Bank of America and each Subadviser, each provides that, in
assessing the best overall terms available for any transaction, Bank of America
or its Subadviser shall consider factors it deems relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, the Management Agreement and each Subadvisory
Agreement authorizes Bank of America or its Subadviser, subject to the approval
of the Board of Trustees of the Trust, to cause the Trust to pay a broker-dealer
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker-dealer for effecting the same
transaction, provided that such commission is deemed reasonable in terms of
either that particular transaction or the overall responsibilities of Bank of
America or the Subadviser to the accounts over which it exercises investment
discretion. Brokerage and research services may include: (1) advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities or purchasers or sellers of
securities; and (2) analyses and reports concerning industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
It is possible that certain of the brokerage and research services received
will primarily benefit one or more other investment companies or other accounts
for which Bank of America or its Subadviser exercises investment discretion.
Conversely, the Trust or any given Fund may be the primary beneficiary of the
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<PAGE> 30
brokerage or research services received as a result of portfolio transactions
effected for such other accounts or investment companies. Brokerage and research
services so received are in addition to and not in lieu of services required to
be performed by Bank of America and its Subadvisers and do not reduce the
advisory fee payable to Bank of America or its Subadvisers. Such services may be
useful to Bank of America and its Subadvisers in serving both the Trust and
other clients and, conversely, services obtained by the placement of business of
other clients may be useful to Bank of America and its Subadvisers in carrying
out its obligations to the Trust.
In connection with their investment management services provided to the
Funds, Bank of America and its subadvisers will not acquire certificates of
deposit or other securities issued by itself or its affiliates. Portfolio
securities in general may be purchased from and sold to affiliates of the Trust,
Bank of America, its Subadvisers and their affiliates acting as syndicate
member, market-maker, broker, dealer, or in any other similar capacity, provided
such purchase, sale or dealing is permitted under the Investment Company Act of
1940 (the "1940 Act") and the rules thereunder.
A Fund may participate, if and when practicable, in bidding for the
purchase of securities of the U.S. Government and its agencies and
instrumentalities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. A Fund will engage
in this practice only when Bank of America or its Subadvisers, in its sole
discretion subject to guidelines adopted by the Board of Trustees of the Trust,
believes such practice to be in the interest of the Funds. In addition, to the
extent permitted by law, Bank of America and its Subadvisers may aggregate the
securities to be sold or purchased on behalf of the Funds with those to be sold
or purchased for other investment companies or common trust funds in order to
obtain best execution.
INVESTMENT POLICIES FOR THE MONEY MARKET FUND
The investment objective and investment policies of the Money Market Fund
are described in the Prospectus. The following description presents more
detailed information on investment policies that apply to the Fund, and is
intended to supplement the information provided in the Prospectus. A money
market instrument will be considered to be highest quality (1) if the instrument
(or other comparable short-term instrument of the same issuer) is rated in the
highest rating category (e.g., Aaa or Prime-1 by Moody's Investors Service, Inc.
("Moody's"), AAA or A-1 by Standard & Poor's Corporation ("S&P")) by (i) any two
national recognized statistical rating organizations ("NRSROs") or, (ii) if
rated by only one NRSRO, by that NRSRO and whose acquisition is approved or
ratified by the Board of Trustees; (2) if, for an instrument with a remaining
maturity of 13 months or less that was long term at the time of issuance, it is
issued by an issuer that has short-term debt obligations of comparable maturity,
priority, and security, and that are rated in the highest rating category by (i)
any two NRSROs or, (ii) if rated by only one NRSRO, by that NRSRO, and whose
acquisition is approved or ratified by the Board of Trustees; or (3) an unrated
security that is of comparable quality to a security in the highest rating
category as determined by Bank of America, and unless it is a U.S. Government
security, whose acquisition is approved or ratified by the Board of Trustees.
With respect to 5% of its total assets, measured at the time of investment, the
Fund may also invest in money market instruments that are in the second-highest
rating category for short-term obligations (e.g., rated Aa or Prime-2 by Moody's
or AA or A-2 by S&P). A money market instrument will be considered to be in the
second highest rating category under the criteria described above with respect
to instruments considered highest quality, as applied to instruments in the
second-highest rating category.
The Fund may not invest more than 5% of its total assets, measured at the
time of investment, in securities of any one issuer that are of the highest
quality, except that this limitation shall not apply to U.S. Government
securities and repurchase agreements thereon. The Fund may not invest more than
the greater of 1% of its total assets or $1,000,000, measured at the time of
investment, in securities of any one issuer that are in the second-highest
rating category, except that this limitation shall not apply to U.S. Government
securities. In the event that an instrument acquired by the Fund is downgraded
or otherwise ceases to be of the quality that is eligible for the Fund, Bank of
America, under procedures approved by the Board of Trustees (or the Board of
Trustees itself if the investment adviser becomes aware an unrated security is
downgraded below high quality and the investment adviser does not dispose of the
security or it does not mature within five
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<PAGE> 31
business days) will promptly reassess whether such security presents minimal
credit risk and determine whether or not to retain the instrument.
TYPES OF OBLIGATIONS, INVESTMENT RISKS, AND OTHER INVESTMENT INFORMATION
The following discussion supplements the discussion of Trust investments in
the Prospectus.
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME
DEPOSITS. Certificates of deposit, bankers' acceptances and time deposits are
eligible investments for each of the Funds except the Money Market Fund, as
described in the Prospectus. Certificates of deposit are negotiable certificates
issued against funds deposited in a commercial bank for a definite period of
time and earning a specified return. Bankers' acceptances are negotiable drafts
or bills of exchange, normally drawn by an importer or exporter to pay for
specific merchandise, which are "accepted" by a bank, meaning, in effect, that
the bank unconditionally agrees to pay the face value of the instrument at
maturity. Certificates of deposit and bankers' acceptances will be obligations
of domestic or foreign banks or financial institutions with total assets at the
time of purchase in excess of $2.5 billion (including assets of both domestic
and foreign branches).
Instruments issued by foreign banks or financial institutions may be
subject to investment risks that are different in some respects from the risks
associated with instruments issued by comparable U.S. issuers. Such risks
include future political and economic developments, the possible imposition of
withholding taxes by the particular country in which the issuer is located on
interest income payable on the instruments, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these instruments.
Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic banks are,
among other things, required to maintain specified levels of reserves, limited
in the amount which they can loan to a single borrower, and subject to other
regulations designed to promote financial soundness. However, such laws and
regulations do not necessarily apply to foreign bank obligations.
In addition to purchasing certificates of deposit and bankers' acceptances,
to the extent permitted under their respective investment objectives and
policies stated in the Prospectus, each Fund may make interest-bearing time or
other interest-bearing deposits in commercial or savings banks. Time deposits
are non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate. Obligations issued by the
International Bank for Reconstruction and Development (sometimes called the
World Bank), the Asian Development Bank or the Inter-American Development Bank
are not permissible investments for the Funds.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Money Market Fund may invest in
U.S. dollar denominated commercial paper and short-term notes in accordance with
the policies described above under "Investment Policies for the Money Market
Fund." The other Funds may also invest in commercial paper and short-term notes.
Commercial paper consists of unsecured promissory notes issued by domestic and
foreign corporations. Except as noted below with respect to variable and
floating rate instruments, issues of commercial paper and short-term notes will
normally have maturities of less than nine months and fixed rates of return,
although such instruments may have maturities of up to one year.
Commercial paper and short-term notes will consist of issues rated at the
time of purchase A-2 or higher by Standard & Poor's Corporation ("S&P"), Prime-2
or higher by Moody's Investors Service, Inc. ("Moody's"), or similarly rated by
another nationally recognized statistical rating organization ("NRSRO") or, if
unrated, will be determined by Bank of America or its Subadviser to be of
comparable quality under
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<PAGE> 32
procedures established by the Board of Trustees of the Trust. These rating
symbols are described in Appendix A.
REPURCHASE AGREEMENTS. Each Fund is permitted to enter into repurchase
agreements with respect to its portfolio securities. Pursuant to such
agreements, a Fund acquires securities from financial institutions, such as
banks and broker-dealers, which are considered to be creditworthy, subject to
the seller's agreement to repurchase and the agreement of the Fund to resell
such securities at a mutually agreed upon date and price. Repurchase agreements
maturing in more than seven days will be considered illiquid for purposes of the
Funds' limitations on investment in illiquid securities. The Funds are not
permitted to enter into repurchase agreements with Bank of America, the
Subadvisers, or their affiliates. The repurchase price generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the underlying portfolio
security). Securities subject to repurchase agreements will be held by the
custodian of the Fund or in the Federal Reserve/Treasury Book-Entry System. The
seller under a repurchase agreement will be required to maintain the value of
the underlying securities at an amount greater than the repurchase price. If the
seller defaulted on its repurchase obligation, a Fund would suffer a loss
because of adverse market action or to the extent that the proceeds from a sale
of the underlying securities were less than the repurchase price under the
agreement. Bankruptcy or insolvency of such a defaulting seller may cause the
particular Fund's rights with respect to such securities to be delayed or
limited. Repurchase agreements are considered to be loans by a Fund under the
1940 Act.
GOVERNMENT OBLIGATIONS. Each Fund is permitted to make investments in U.S.
Government obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of government agencies or
instrumentalities such as the Government National Mortgage Association, Export-
Import Bank of the United States, Tennessee Valley Authority, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association, Federal Home Loan Mortgage Corporation,
and the Student Loan Marketing Association. Treasury bills have maturities of
one year or less, Treasury notes have maturities of one to ten years, Treasury
bonds generally have maturities of more than ten years and all are direct
obligations of or guaranteed by the U.S. Government. Some of other obligations
referred to above, such as those of the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government sponsored instrumentalities if it is not obligated to do so
by law.
The Managed Bond and International Funds may also invest in sovereign debt
obligations of foreign countries. A sovereign debtor's willingness or ability to
repay principal and interest in a timely manner may be affected by a number of
factors, including its cash flow situation, the extent of its foreign reserves,
the availability of sufficient foreign exchange on the date a payment is due,
the relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward principal international lenders and the
political constraints to which it may be subject.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Fund may acquire variable and
floating rate instruments, including master demand notes which permit a Fund to
invest fluctuating amounts which may change daily without penalty. Such
instruments are frequently not rated by credit rating agencies. However, in
determining the creditworthiness of unrated variable and floating rate
instruments and their eligibility for purchase by a Fund, Bank of America or its
Subadviser will consider the earning power, cash flow and other liquidity ratios
of the issuers of such instruments (which include financial, merchandising, bank
holding and other companies) and will monitor their financial condition. An
active secondary market may not exist with respect to particular variable or
floating rate instruments purchased by a Fund. The absence of such an active
secondary market could make it difficult to dispose of a variable or floating
rate instrument in the event the issuer of the instrument defaulted on its
payment obligation or during periods that the Fund is not entitled to
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<PAGE> 33
exercise its demand rights, and the Fund could, for these or other reasons,
suffer a loss to the extent of the default. Investments in illiquid variable and
floating rate instruments (instruments which are not payable upon seven days'
notice and do not have active trading markets) are subject to a Fund's
fundamental limitation on investment in illiquid securities. Variable and
floating rate instruments may be secured by bank letters of credit.
MUNICIPAL SECURITIES. The Managed Bond Fund may invest, from time to time,
in obligations issued by state and local government issuers ("Municipal
Securities"). The purchase of Municipal Securities may be advantageous when, as
a result of prevailing economic, regulatory or other circumstances, the
performance of such securities, on a pre-tax basis, is comparable to that of
corporate or U.S. Government obligations. Dividends received by shareholders
which are attributable to interest income received from Municipal Securities
generally will be subject to Federal income tax.
The two principal classifications of Municipal Securities which may be held
by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from unrestricted revenues of the
issuer. Private activity bonds are issued by or on behalf of public authorities
to finance various privately operated facilities. Consequently, the credit
quality of such private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved. The Fund may also hold
"moral obligation" securities, which are normally issued by special purpose
public authorities. If the issuer of moral obligation securities is unable to
meet its debt service obligations from current revenues, it may draw on a
reserve fund, the restoration of which is a moral commitment but not a legal
obligation of the state or municipality which created the issuer.
CONVERTIBLE SECURITIES AND WARRANTS. The Capital Income, Managed Bond and
International Funds may invest in securities which may be exchanged for,
converted into, or exercised to acquire a predetermined number of shares of the
issuer's common stock at the option of the holder during a specified time
period. Convertible preferred securities generally pay interest or dividends and
provide for participation in the appreciation of the underlying common stock but
have a lower level of risk because the yield is higher and the security is
senior to common stock. The value of a convertible security is a function of its
"investment value" (determined by its yield in comparison with the yields of
other securities of comparable maturity and quality that do not have a
conversion privilege) and its "conversion value" (the security's worth, at
market value, if converted into the underlying common stock). The credit
standing of the issuer and other factors may also affect the investment value of
convertible security. The conversion value of a convertible security is
determined by the market price of the underlying common stock. If the conversion
value is low relative to the investment value, the price of the convertible
security is governed principally by its investment value. To the extent the
market price of the underlying common stock approaches or exceeds conversion
price, the price of the convertible security will be increasingly influenced by
its conversion value. Like other debt securities, the market value of a
convertible security tends to vary inversely with the level of interest rates;
the value of the security declines if interest rates increase and increases as
interest rates decline. Convertible securities may be subject to redemption at
the option of the issuer at a price established in the instrument governing the
convertible security. If a convertible security held by a Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party.
The International Fund may invest in warrants or rights (valued at the
lower of cost or market) to purchase securities; and the Capital Income and
Managed Bond Funds may acquire warrants or rights as part of a unit or attached
to securities at the time of purchase. Warrants may be considered speculative in
that they have no voting rights, pay no dividends, and have no rights with
respect to the assets of the corporation issuing them. Warrants basically are
options to purchase equity securities at a specific price valid for a specific
period of time. They do not represent ownership of the securities, but only the
right to buy them. Warrants differ from call options in that warrants are issued
by the issuer of the security which may be purchased on their
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<PAGE> 34
exercise, whereas call options may be written or issued by anyone. The prices of
warrants do not necessarily move parallel to the prices of the underlying
securities.
ILLIQUID SECURITIES. No Fund may invest more than 15% of the value of its
net assets (10% in the case of the Money Market Fund) in securities that at the
time of purchase have legal or contractual restrictions on resale, repurchase
agreement maturing in more than seven days, or assets which are otherwise
illiquid. Bank of America or its Subadviser will monitor the amount of illiquid
securities in the Funds' portfolios, under the supervision of the Board of
Trustees, to ensure compliance with the Funds' investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the Securities Act of 1933
(the "Securities Act") are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption within
seven days. The Fund might also have to register such restricted securities in
order to dispose of them, resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, or are issued in reliance on Section 4(2) of the Securities Act of 1933,
Bank of America or its Subadviser may determine, pursuant to guidelines
established by the Board of Trustees, that such securities are not illiquid
securities notwithstanding their legal or contractual restrictions on resale. In
all other cases, however, securities subject to restrictions on resale will be
deemed illiquid.
MORTGAGE-BACKED SECURITIES. The Managed Bond, Capital Income, Blue Chip,
Mid-Cap Equity and Aggressive Growth Funds may invest in mortgage-backed
securities issued by governmental and non-governmental entities (such as banks,
savings and loans, and private mortgage insurance companies). Mortgage-backed
securities are derivative interests in pools of mortgage loans made to U.S.
residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. The Funds may also invest in debt
securities which are secured with collateral consisting of U.S. mortgage-related
securities, and in other types of U.S. mortgage-related securities.
Mortgage-backed securities issued by non-governmental entities may be supported
up to certain amounts and for certain time periods by credit enhancements such
as letters of credit, pool and hazard insurance and/or guarantees of a financial
institution (such as a bank or insurance company) unaffiliated with the issuers.
Interests in pools of mortgage-related securities differ from other forms
of debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their residential
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some mortgage-related
securities (such as securities issued by the Government National Mortgage
Association) are described
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<PAGE> 35
as "modified pass-throughs." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.
The principal governmental guarantor of U.S. mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned
United States Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the United States Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
mortgages insured by the Federal Housing Agency or guaranteed by the Veterans
Administration.
Government-related guarantors include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders and subject to general regulation by the Secretary of Housing and
Urban Development. FNMA purchases conventional residential mortgages not insured
or guaranteed by any government agency from a list of approved seller/services
which includes state and federally chartered savings and loan associations,
mutual savings banks, commercial banks and credit unions and mortgage bankers.
FHLMC is a government-sponsored corporation created to increase availability of
mortgage credit for residential housing and owned entirely by private
stockholders. FHLMC issues participation certificates which represent interests
in conventional mortgages from FHLMC's national portfolio. Pass-through
securities issued by FNMA are guaranteed as to timely payment of principal and
interest by FNMA and participant certificates issued by FHLMC are guaranteed as
to timely payment of interest and ultimate payment of principal, respectively,
but are not backed by the full faith and credit of the United States Government.
Although the underlying mortgage loans in a pool may have maturities of up
to 30 years, the actual average life of the pool certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Prepayment rates vary widely
and may be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of the pool certificates; therefore, during periods of
declining interest rates, mortgage-backed securities may be less effective at
"locking in" yields than typical bonds of similar maturities. Conversely, when
interest rates are rising, the rate of prepayments tends to decrease, thereby
lengthening the actual average life of the certificates. Accordingly, it is not
possible to predict accurately the average life of a particular pool.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Managed Bond and
Aggressive Growth Funds may invest in CMOs, which are a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Like a bond, interest
is paid, in most cases, semiannually. CMOs may be collateralized by whole
mortgage loans, but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FNMA, FHLMC or equivalent foreign
entities.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life depend upon the prepayment experience
of the collateral. CMOs provide for a modified form of call protection through a
de facto breakdown of the underlying pool of mortgages according to how quickly
the loans are repaid. Monthly payment of principal received from the pool of
underlying mortgages, including prepayments, is first returned to the investors
holding the shortest maturity class. Investors holding the longer maturity
classes received principal only after the first class has been retired.
Unscheduled or early repayment of principal on mortgage passthrough securities
may expose the Fund to a lower rate of return upon reinvestment of principal.
ASSET-BACKED SECURITIES. The Managed Bond and Aggressive Growth Funds may
invest in other types of asset-backed securities (i.e., other than
mortgage-backed securities discussed above). Non-mortgage-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided factual ownership
interest in the underlying pools of assets. Such securities may also be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a
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special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. Non-mortgage-backed securities are not issued or
guaranteed by the U.S. Government or its agencies or instrumentalities; however,
the payment of principal and interest on such obligations may be guaranteed up
to certain amounts and for certain time periods by a letter of credit issued by
a financial institution (such as a bank or insurance company) unaffiliated with
the issuer of such securities.
The purchase of asset-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in the respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligation superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to protect such security interest against competing claims of other parties.
Because of the large number of vehicles involved, however, the certificate of
title to each vehicle financed, pursuant to the obligations underlying the
asset-backed securities, usually is not amended to reflect the assignment of the
seller's security interest for the benefit of the holders of the asset-backed
securities. There is the possibility, therefore, that recoveries on repossessed
collateral may not, in some cases, be available to support payments on those
securities. In addition, various state and federal laws give the motor vehicle
owner the right to assert against the holder of the owner's obligation certain
defenses such owner would have against the seller of the motor vehicle. The
assertion of such defenses could reduce payments on the related asset-backed
securities.
Insofar as credit card receivables are concerned, credit card holders are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such holders the right to set off certain amounts
against balances owed on the credit card, thereby reducing the amount paid on
such receivables. In addition, unlike most other asset-backed securities, credit
card receivables are unsecured obligations of the card holder.
Asset-backed securities may be subject to greater risk of default during
periods of economic downturn than other instruments. Also, while the secondary
market for certain asset-backed securities is ordinarily quite liquid, in times
of financial stress the secondary market may not be as liquid as the market for
other types of securities, which could result in the Fund's experiencing
difficulty in valuing or liquidating such securities.
BORROWING. Each Fund may borrow up to certain limits. A Fund may not borrow
if, as a result of such borrowing, the total amount of all money borrowed by the
Fund exceeds 10% of the value of its net assets (at the time of such borrowing),
or if borrowing for temporary purposes such as to facilitate redemptions, 25% of
the value of its total assets. This borrowing may be unsecured. Borrowing may
exaggerate the effect on net asset value of any increase or decrease in the
market value of a Fund's portfolio. Money borrowed will be subject to interest
costs which may or may not be recovered by appreciation of the securities
purchased. A Fund also may be required to maintain minimum average balances in
connection with such borrowing or to pay a commitment or other fee to maintain a
line of credit; either of these requirements would increase the cost of
borrowing over the stated interest rate.
Reverse repurchase agreements will be included as borrowing subject to the
borrowing limitations described above.
OPTIONS. Each Fund (except the Money Market Fund) may purchase put and call
options. Such options may relate to particular securities or to various stock
indices. The Funds currently intend that the aggregate premiums paid for such
options will not exceed 2% of the value of a Fund's net assets (5% for the
Capital Income, International and Aggressive Growth Funds).
Options trading is a highly specialized activity which entails greater than
ordinary investment risks. Regardless of how much the market price of the
underlying security or index increases or decreases, the option buyer's risk is
limited to the amount of the original premium paid for the purchase of the
option plus
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transaction costs. However, options may be more volatile than the underlying
instruments, and therefore, on a percentage basis, an investment in options may
be subject to greater fluctuation than an investment in the underlying
instruments themselves. A listed call option for a particular security gives the
purchaser of the option the right to buy from a clearing corporation, and a
writer has the obligation to sell to the clearing corporation, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is in consideration for undertaking the obligations under the option
contract. A listed put option gives the purchaser the right to sell to a
clearing corporation the underlying security at the stated exercise price at any
time prior to the expiration date of the option, regardless of the market price
of the security. A Fund will continue to receive interest or dividend income on
the securities underlying such puts until they are exercised by the Fund.
In contrast to an option on a particular security, an option on a stock
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
The Managed Bond, Capital Income, Blue Chip, Mid-Cap Equity, Aggressive
Growth and International Funds are permitted to write call options if they are
"covered." In the case of a call option on a security, the option is "covered"
if a Fund owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash, cash equivalents or liquid
portfolio securities in such amount as are held in a segregated account by its
custodian) upon conversion or exchange of other securities held by it. For a
call option on an index, the option is covered if a Fund maintains with its
custodian cash, cash equivalents or liquid portfolio securities equal to the
contract value. A call option is also covered if a Fund holds a call on the same
security or index as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written, or (ii)
greater than the exercise price of the call written provided the difference is
maintained by the Fund in cash or cash equivalents in a segregated account with
its custodian.
The principal reason for writing call options on a securities portfolio is
the attempt to realize, through the receipt of premiums, a greater current
return than would be realized on the securities alone. In return for the
premium, the covered option writer gives up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
his obligation as a writer continues, but retains the risk of loss should the
price of the security decline. Unlike one who owns securities not subject to an
option, the covered option writer has no control over when it may be required to
sell its securities, since it may be assigned an exercise notice at any time
prior to the expiration of its obligation as a writer.
If a Fund desires to sell a particular security it owns, on which it has
written an option, the Fund will seek to effect a closing purchase transaction
prior to, or concurrently with, the sale of the security. In order to close out
a covered call option position, a Fund will enter into a "closing purchase
transaction" -- the purchase of a call option on a security or stock index with
the same exercise price and expiration date as the call option which it
previously wrote on the same security or index. If a Fund is unable to effect a
closing purchase transaction, it will not be able to sell a security on which a
call option has been written until the option expires or the Fund delivers the
underlying security upon exercise.
The International Fund is also permitted to write covered put options. A
put option is covered if the Fund maintains with its custodian cash, cash
equivalents or liquid portfolio securities equal to the contract value. A put
option is also covered if the Fund holds a put on the same underlying security
or index as the put written where the exercise price of the put held is (i)
equal to or greater than the exercise price of the put written, or (ii) less
than the exercise of the put written provided the difference is maintained by
the Fund in cash or cash equivalents in a segregated account with its custodian.
The principal reason for writing put options is the attempt to realize
additional current return through the receipt of premiums. In return for the
premium, the Fund bears the risk of loss should the price of the security
increase. As in the case of covered call options, the covered put option writer
has no control over when it may be required to pay the exercise price, since it
may be assigned an exercise notice at any time prior to the expiration of its
obligation as a writer.
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If the Fund desires to terminate its obligation pursuant to a put option it
has written, the Fund will seek to effect a closing purchase transaction, in the
same manner as a closing purchase transaction for a call option written by the
Fund. If the Fund is unable to effect a closing purchase transaction, it will
not be able to use the assets segregated to cover the option for other purposes
until the option expires or the Fund delivers the purchase price of the
securities which are the subject of the option.
When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. When a Fund writes an option, an amount equal
to the net premium (the premium less the commission) received by the Fund is
included in the liability section of the statement of assets and liabilities as
a deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the average of the closing bid and asked
prices. If an option purchased by a Fund expires unexercised, the Fund realizes
a loss equal to the premium paid. If a Fund enters into a closing sale
transaction on an option purchased by it, the Fund will realize a gain if the
premium received by it on the closing transaction is more than the premium paid
to purchase the option, or a loss if it is less. Moreover, because increases in
the market price of an option will generally reflect (although not necessarily
in direct proportion) increases in the market price of the underlying security
any loss resulting from a closing purchase transaction is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
If an option written by a Fund expires on the stipulated expiration date or if
the Fund enters into a closing purchase transaction, it will realize a gain (or
loss if the cost of a closing purchase transaction exceeds the net premium
received when the option is sold) and the deferred credit related to such option
will be eliminated. If an option written by a Fund is exercised, the proceeds of
the sale will be increased by the net premium originally received and the Fund
will realize a gain or loss.
As noted previously, there are several risks associated with transactions
in options on securities and indices. For example, there are significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objectives. In addition, a liquid secondary market for particular
options, may be absent for reasons which include the following: there may be
insufficient trading interest in certain options; restrictions may be imposed by
a national securities exchange ("Exchange") on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities; unusual or unforeseen circumstances may interrupt normal operations
on an Exchange; the facilities of an Exchange or the Options Clearing
Corporation may not at all times be adequate to handle current trading volume;
or one or more Exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that Exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the exercise
of skill and judgment, and even a well-conceived transaction may be unsuccessful
to some degree because of market behavior or unexpected events.
FUTURES AND RELATED OPTIONS. Each Fund (except the Money Market Fund) may
enter into futures transactions and related options transactions. A futures
contract is a bilateral agreement pursuant to which two parties agree to take or
make delivery of a specified quantity of financial instruments (such as GNMA
certificates or Treasury bonds) or an amount of cash equal to a specified dollar
amount times the difference between the value of a specified stock index (which
assigns relative values to the common stocks included in the index) at the close
of the last trading day of the contract and the price at which the futures
contract is originally struck. No physical delivery of the underlying securities
is normally made.
A Fund may not purchase or sell futures contracts and purchase related
options unless immediately after any such transaction the aggregate initial
margin that is required to be posted by that Fund under the rules of the
exchange on which the futures contract (or futures option) is traded, plus any
premiums paid by the Fund on its open futures options positions, does not exceed
5% of the Fund's total assets, after taking into account
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<PAGE> 39
any unrealized profits and losses on the Fund's open contracts and excluding the
amount that a futures option is "in-the-money" at the time of purchase. An
option to buy a futures contract is "in-the-money" if the then current purchase
price of the contract that is subject to the option is less than the exercise or
strike price; an option to sell a futures contract is "in-the-money" if the
exercise or strike price exceeds the then current purchase price of the contract
that is the subject of the option.
There are several risks in connection with the use of futures contracts by
a Fund as a hedging devise. One risk arises because of the imperfect correlation
between movements in the price of the futures contract and movements in the
price of the securities which are the subject of hedge. The price of the futures
contract may move more than or less than the price of the securities being
hedged. If the price of the futures contract moves less than the price of the
securities which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
futures contract. If the price of the futures contract moves more than the price
of the hedged securities, the Fund will experience either a loss or gain on the
futures contract which will not be completely offset by movements in the price
of the securities which are the subject of the hedge.
It is also possible that, where a Fund has sold futures contracts to hedge
its portfolio against a decline in the market, the market may advance and the
value of securities held in the Fund may decline. If this occurred, the Fund
would lose money on the futures contract and also experience a decline in value
in its portfolio securities.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in a futures contract and the
securities being hedged, the price of futures contracts may not correlate
perfectly with movement in the cash market due to certain market distortions. As
a result of these factors, a correct forecast of general market trends or
interest rate movements by Bank of America or its Subadviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market for such futures contracts.
Although the Funds intend to purchase or sell futures contracts only on
exchanges or boards of trade where there appear to be active secondary markets,
there is no assurance that a liquid secondary market on any exchange or board of
trade will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures investment position, and in the
event of adverse price movements, a Fund would continue to be required to make
daily cash payments of variation margin. The liquidity of a secondary market in
a futures contract may in addition be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions.
For additional information concerning futures and options thereon, please
see Appendix B to this Statement of Additional Information.
FOREIGN CURRENCY TRANSACTIONS. The Aggressive Growth and International
Funds may engage in foreign currency forward contracts, options and futures
transactions, and the International Fund may engage in foreign currency forward
contracts.
CURRENCY RISKS. The exchange rates between the U.S. dollar and foreign
currencies are a function of such factors as supply and demand in the currency
exchange markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not convert its holdings
of foreign currencies to U.S. dollars daily. The Fund may incur conversion costs
when it converts its holdings to another currency. Foreign exchange dealers may
realize a profit on the difference between the price at which the Fund buys and
sells currencies. The Fund will engage in foreign currency exchange transactions
in connection with its portfolio investments. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
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<PAGE> 40
rate prevailing in the foreign currency exchange market or through forward
contracts to purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into
forward currency exchange contracts in order to protect against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
a foreign currency involved in an underlying transaction. However, forward
foreign currency exchange contracts may limit potential gains which could result
from a positive change in such currency relationships. The Investment Adviser
believes that it is important to have the flexibility to enter into forward
foreign currency exchange contracts whenever the Investment Adviser or
Subadviser determines that it is in the Fund's best interest to do so. The Fund
will not speculate in foreign currency exchange.
The Fund will not enter into forward currency exchange contracts or
maintain a net exposure in such contracts which it would be obligated to deliver
an amount of foreign currency in excess of the value of its portfolio securities
or other assets denominated in that currency or, in the case of a "cross-hedge"
denominated in a currency or currencies that the investment adviser believes
will tend to be closely correlated with that currency with regard to price
movements. Generally, the Fund will not enter into a forward foreign currency
exchange contract with a term longer than one year.
FOREIGN CURRENCY OPTIONS. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency at the
exercise price on a specified date or during the option period. The owner of a
call option has the right, but not the obligation, to buy the currency.
Conversely, the owner of a put option has the right, but not the obligation, to
sell the currency. When the option is exercised, the seller (i.e., writer) of
the option is obligated to fulfill the terms of the sold option. However, either
the seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on a foreign currency
generally rises in value if the underlying currency depreciates in value.
Although purchasing a foreign currency option can protect the Fund against an
adverse movement in the value of a foreign currency, the option will not limit
the movement in the value of such currency. For example, if the Fund was holding
securities denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, the Fund would not have to exercise its put option. Likewise, if the
Fund were to enter into a contract to purchase a security denominated in foreign
currency and, in conjunction with that purchase, were to purchase a foreign
currency call option to hedge against a rise in value of the currency, and if
the value of the currency instead depreciated between the date of purchase and
the settlement date, the Fund would not have to exercise its call. Instead, the
Fund could acquire in the spot market the amount of foreign currency needed for
settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS. Buyers and sellers
of foreign currency options are subject to the same risks that apply to options
generally. In addition, there are certain risks associated with foreign currency
options. The markets in foreign currency options are relatively new, and the
Fund's ability to establish and close out positions on such options is subject
to the maintenance of a liquid secondary market. Although the Fund will not
purchase or write such options unless and until, in the opinion of the
Investment Adviser or Subadviser, the market for them has developed sufficiently
to ensure that the risks in connection with such options are not greater than
the risks in connection with the underlying currency, there can be no assurance
that a liquid secondary market will exist for a particular option at any
specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally. The
value of a foreign currency option depends upon the value of the underlying
currency relative to the U.S. dollar. As a result, the price of the option
position may vary with changes in the value of either or both currencies and may
have no relationship to the investment merits of a foreign security. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
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There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Available
quotation information is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. option markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets until
they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS. By using foreign currency futures
contracts and options on such contracts, the Fund may be able to achieve many of
the same objectives as it would through the use of forward foreign currency
exchange contracts. The Fund may be able to achieve these objectives possibly
more effectively and at a lower cost by using futures transactions instead of
forward foreign currency exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS. Buyers and sellers of foreign currency futures contacts are
subject to the same risks that apply to the use of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
currencies, as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such options
is subject to the maintenance of a liquid secondary market. To reduce this risk,
the Fund will not purchase or write options on foreign currency futures
contracts unless and until, in the opinion of the Investment Adviser or
Subadviser, the market for such options has developed sufficiently that the
risks in connection with such options are not greater than the risks in
connection with transactions in the underlying foreign currency futures
contracts. Compared to the purchase or sale of foreign currency futures
contracts, the purchase of call or put options on futures contracts involves
less potential risk to the Fund because the maximum amount at risk is the
premium paid for the option (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures contract
would result in a loss, such as when there is no movement in the price of the
underlying currency or futures contract.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. Each
Fund may purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. "Delayed
settlement" describes a securities transaction in the secondary market for which
settlement will occur sometime in the future.
When a Fund agrees to purchase securities on a when-issued, forward
commitment or delayed settlement basis, its custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. During the time that the Fund is obligated to purchase such securities
it will maintain in a segregated account U.S. Government securities, high-grade
debt obligations, marketable equity securities, and/or cash or cash equivalents
sufficient to satisfy a purchase commitment. In such a case, a Fund may be
required subsequently to place additional assets in the separate account in
order to assure that the value of the account remains equal to the amount of the
commitment. It may be expected that the net assets of a Fund will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. The Funds do not intend to engage in
these transactions for speculative purposes but only in furtherance of their
investment objectives. Because a Fund will set aside cash or liquid portfolio
securities to satisfy its purchase commitments in the manner described, its
liquidity and the ability of the investment adviser to manage it may be affected
in the event the forward commitments and commitments to purchase when-issued or
delayed settlement securities ever exceeded 25% of the value of the Fund's net
assets.
A Fund will purchase securities on a when-issued, forward commitment or
delayed settlement basis only with the intention of completing the transaction.
If deemed advisable as a matter of investment strategy, however, a Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases the Fund may realize a taxable
capital gain or loss.
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When a Fund engages in when-issued, forward commitment and delayed
settlement transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when issued purchase or
forward commitment and delayed settlement transaction and any subsequent
fluctuations in their market value is taken into account when determining the
market value of a Fund starting on the day the Fund agrees to purchase the
securities. A Fund does not earn interest on the securities it has committed to
purchase until they are paid for and delivered on the settlement date.
SECURITIES LENDING. Each Fund except the Money Market Fund may lend its
securities to brokers, dealers and financial institutions, provided (1) the loan
is secured continuously by collateral consisting of U.S. Government securities
or cash or letters of credit which is marked to the market daily to ensure that
each loan is fully collateralized at all times; (2) the Fund involved may call
the loan at any time upon reasonable notice; (3) the Fund will receive any
interest or dividends paid on the securities loaned; and (4) the aggregate
market value of securities loaned will not at any time exceed certain specified
limits of the total assets of the Fund.
A Fund will earn income on the collateral for lending its securities. In
connection with lending securities, a Fund may pay reasonable finders,
administrative and custodial fees. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to provide additional
collateral.
Although the Funds reserve the right to lend their securities, none of the
Funds have any current intention of doing so in the foreseeable future.
SMALL CAPITALIZATION SECURITIES. Each Fund except the Money Market, Blue
Chip and Mid-Cap Equity Funds, particularly the Aggressive Growth Fund, may hold
common stock of companies with relatively small market capitalizations that Bank
of America or its Subadviser expects will experience above-average growth in
earnings and price. Some of these companies have limited product lines, markets
and financial resources and will be dependent upon a limited management group.
Examples of possible investments include emerging growth companies employing new
technology, initial public offerings of companies offering high growth
potential, or other corporations offering good potential for high growth in
market value. The securities of small companies may be subject to more abrupt or
erratic market movements than larger, more established companies both because
the securities typically are traded in lower volume and because the issuers
typically are subject to a greater degree to changes in earnings and prospects.
Some of the securities owned by certain of the Funds may be traded only in
the over-the-counter market or on a regional securities exchange, may be listed
only in the quotation service commonly known as the "pink sheets," and may not
be traded every day or in the volume typical of trading on a national securities
exchange. As a result, the disposition by the Funds of portfolio securities, to
meet redemptions or otherwise, may require a Fund to sell these securities at a
discount from market prices, to sell during periods when such disposition is not
desirable, or to make many small sales over a lengthy period of time.
PREFERRED STOCK. The Capital Income and International Funds may invest in
preferred stocks. Generally, preferred stock has a specified dividend and ranks
after bonds and before common stocks in its claim on income for dividend
payments and on assets should the issuer be liquidated. While most preferred
stocks pay a dividend, a Fund may purchase preferred stock where the issuer has
omitted, or is in danger of omitting, payment of its dividend. Such investments
would be made primarily for their capital appreciation potential.
FOREIGN INVESTMENTS. The Managed Bond, Capital Income, Aggressive Growth
and International Funds may invest directly in foreign securities subject to the
limits set forth in the Prospectus. In considering whether to invest in the
securities of a foreign company, Bank of America or a Subadviser considers such
factors as the characteristics of the particular company, differences between
economic trends and the performance of securities markets within the U.S. and
those within other countries, and also factors relating the general economic,
governmental and social conditions of the country or countries where the company
is located.
The Managed Bond, Capital Income and International Funds may purchase debt
obligations issued or guaranteed by governments (including states, provinces or
municipalities) of countries other than the United
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States, or by their agencies, authorities or instrumentalities. The Funds may
also purchase debt obligations issued or guaranteed by supranational entities
organized or supported by several national governments, such as the
International Bank for Reconstruction and Development (the "World Bank"), the
Inter-American Development Bank, the Asian Development Bank and the European
Investment Bank. In addition, the Funds may purchase debt obligations of foreign
corporations or financial institutions, such as Yankee bonds (dollar-denominated
bonds sold in the United States by non-U.S. issuers), Samurai bonds
(yen-denominated bonds sold in Japan by non-Japanese issuers) and Euro bonds
(bonds not issued in the country (and possibly the currency of the country) of
the issuer).
The Funds' investments will be allocated among securities denominated in
the currencies of a number of foreign countries and, within each such country,
among different types of debt securities. The percentage of assets invested in
securities of a particular country or denominated in a particular currency will
vary in accordance with Bank of America's or a Subadviser's assessment of the
country's gross domestic product, purchasing power parity and market
capitalization and the relationship of a country's currency to the United States
dollar. Fundamental economic strength, credit quality and interest rate trends
will be the principal factors considered by Bank of America or a Subadviser in
determining whether to increase or decrease the emphasis placed upon a
particular type of security within a Fund's portfolio.
Securities transactions conducted outside the U.S. may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in a Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and the margin requirements than in
the U.S., and (v) lower trading volume and liquidity.
In accordance with regulations of the California Department of Insurance,
the International Fund will invest in the securities of issuers domiciled or
primarily traded in at least five foreign countries if the Fund has invested at
least 80% of its net assets in foreign issuers. If the Fund has invested less
than 20% of its net assets in foreign issuers, then all of such investment may
be in issuers domiciled or primarily traded in one country. If the Fund has
invested at least 20% but less than 40% of its net assets in foreign issuers,
then such investment must be allocated to issuers domiciled or primarily traded
in at least two foreign countries. Similarly, if the Fund has invested at least
40% but less than 60% of its net assets invested in foreign issuers, such
investment must be allocated to at least three foreign countries. Foreign
investments must be allocated to at least four foreign countries if such
investments comprise at least 60% but less than 80% of the Fund's net assets.
The Fund will not invest more than 20% of its net assets in securities of
issuers domiciled or primarily traded in any one country, except that the Fund
may invest up to 35% of its net assets in issuers domiciled or primarily traded
in any one of the following countries: Australia, Canada, France, Japan, the
United Kingdom, or Germany. The Fund is not subject to any limit upon investment
in issuers domiciled or primarily traded in the United States.
DURATION
Duration is a measure of average life of a bond on a present value basis,
which was developed to incorporate a bond's yield, coupons, final maturity and
call features into one measure. Duration is one of the fundamental tools that
may be used by the Investment Adviser or Subadviser in fixed income security
selection. In this discussion, the term "bond" is generally used to connote any
type of debt instrument.
Most notes and bonds have provided interest ("coupon") payments in addition
to a final ("par") payment at maturity. Some obligations also feature call
provisions. Depending on the relative magnitude of these payments, debt
obligations may respond differently to changes in the level and structure of
interest rates. Traditionally, a debt security's "term to maturity" has been
used as a proxy for the sensitivity of the securities price to changes in
interest rates (which is the "interest rate risk" or "volatility" of the
security). However,
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"term to maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity.
Duration is a measure of the average life of a fixed-income security on a
present value basis. Duration takes the length of time intervals between the
present time and the time that the interest and principal payments are
scheduled, or, in the case of a callable bond, expected to be received, and
weights them by the present values of the cash to be received at each future
point in time. For any fixed-income security with interest payments occurring
prior to the payments of principal duration is always less than maturity. In
general, all other things being the same, the lower stated or coupon rate of
interest of a fixed income security, the longer the duration of the security;
conversely, the higher the stated or coupon rate of interest of a fixed-income
security, the shorter the duration of the security.
Although frequently used, the "term of maturity" of a bond is not a useful
measure of the longevity of a bond's cash flow because it refers only to the
time remaining to the repayment of principal or corpus and disregards earlier
coupon payments. Thus, for example, three bonds with the same maturity may not
have the same investment characteristics (such as risk or repayment time). One
bond may have large coupon payments early in its life, whereas another may have
payments distributed evenly throughout its life. Some bonds (such as zero coupon
bonds) make no coupon payments until maturity. Clearly, an investor
contemplating investing in these bonds should consider not only the final
payment or sum of payments on the bond, but also the timing and magnitude of
payments in order to make an accurate assessment of each bond. Maturity, or the
term to maturity does not provide a prospective investor with a clear
understanding of the time profile of cash flows over the life of a bond.
Another way of measuring the longevity of a bond's cash flow is to compute
a simple average time to payment, where each year is weighted by the number of
dollars the bond pays that year. This concept is termed the "dollar-weighted
mean waiting time," indicating that it is a measure of the average time to
payment of a bond's cash flow. The critical shortcoming of this approach is that
it assigns equal weight to each dollar paid over the life of a bond, regardless
of when the dollar is paid. Since the present value of a dollar decreases with
the amount of time which must pass before it is paid, a better method might be
to weight each year by the present value of the dollars paid that year. This
calculation puts the weights on a comparable basis and creates a definition of
longevity which is known as duration.
A bond's duration depends on three variables: (i) the maturity of the bond;
(ii) the coupon payments attached to the bond; and (iii) the bond's yield to
maturity. Yield to maturity, or investment return as used here, represents the
approximate return an investor purchasing a bond may expect if he holds that
bond to maturity. In essence, Yield to maturity is the rate of interest, which,
if applied to the purchase price of a bond, would be capable of exactly
reproducing the entire time schedule of future interest and principal payments.
Increasing the size of the coupon payments on a bond, while leaving the
maturity and yield unchanged, will reduce the duration of the bond. This follows
from the fact that because bonds with higher coupon payments pay relatively more
of their cash flows sooner, they have shorter durations. Increasing the yield to
maturity on a bond (e.g., by reducing its purchase price), while leaving the
terms to maturity and coupon payments unchanged, also reduces the duration of
the bond. Because a higher yield leads to lower present values for more distant
payments relative to earlier payments, and, to relatively lower weights attached
to the years remaining to those payments, the duration of the bond is reduced.
There are some situations where event the standard duration calculation
does not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by duration is mortgage pass-throughs. The stated final maturity is
generally 30 years but current prepayment rates are more critical in determining
the securities' interest rate exposure. In these and other similar situations,
the Investment Adviser or Subadviser will use more sophisticated analytical
techniques which incorporate the economic life of a security into the
determination of its interest rate exposures.
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OTHER INVESTMENT LIMITATIONS
The following is a list of restrictions and fundamental policies that may
not be changed for any Fund without the affirmative vote of the holders of a
majority of the Fund's outstanding shares (as defined below under "General
Information -- Miscellaneous").
None of the Funds may:
1. Purchase securities (except securities issued by the U.S.
Government, its agencies or instrumentalities) if, as a result, more than
5% of its total assets will be invested in the securities of any one issuer
or it would own more than 10% of the voting securities of such issuer,
except that (a) up to 25% of its total assets may be invested without
regard to these limitations, and (b) assets may be invested in the
securities of one or more diversified management investment companies to
the extent permitted by the 1940 Act.
2. Purchase any securities that would cause more than 25% of the value
of the Fund's total assets at the time of such purchase to be invested in
the securities of one or more issuers conducting their principal activities
in the same industry, provided that (a) there is no limitation with respect
to investments in obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities, (b) assets may be invested in the
securities of one or more diversified management investment companies to
the extent permitted by the 1940 Act, and (c) this limitation does not
apply to investments by the Money Market Fund in repurchase agreements.
3. Issue senior securities, except in connection with permissible
borrowings and futures and options transactions.
4. Underwrite any issue of securities, except when, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under federal securities laws.
5. Purchase or sell real estate. However, a Fund may, to the extent
appropriate to its investment objective, purchase securities secured by
real estate or interests therein, and securities issued by companies
investing in real estate or interests therein.
The following is a list of non-fundamental restrictions and operating
policies that may be changed by the Board of Trustees for any Fund without
approval of the Fund's shareholders:
None of the Funds may:
1. Pledge, mortgage or hypothecate the assets of the Fund except in
connection with permissible borrowings and futures and options
transactions.
2. Invest the assets of any Fund in securities that are not readily
marketable or in securities with legal or contractual restrictions on
resale (including repurchase agreements maturing in more than seven days)
to any extent greater than 15% of the value of the net assets of the Fund
(10% for the Money Market Fund). It is not intended that securities
purchased by a Fund in an offering exempt from registration in reliance on
Rule 144A or 4(2) Commercial Paper under the Securities Act and for which a
liquid trading market exists, as determined by the Board of Trustees of
such Fund or by Bank of America or a Subadviser (pursuant to guidelines
adopted by the Board), be included within this limitation.
3. Borrow money for any Fund except for temporary emergency purposes
and then only in an amount not exceeding 10% of the value of the total
assets of that Fund, except that a Fund may borrow up to 25% of its total
assets when such borrowing is required to meet Fund redemptions. Borrowing
shall, for purposes of this paragraph, include reverse repurchase
agreements. Any borrowings, other than reverse repurchase agreements, will
be from banks.
4. Purchase on margin or sell short, except that this limitation shall
not apply to transactions in options or futures contracts.
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<PAGE> 46
5. Purchase securities of any other open-end or closed-end investment
company, except (a) by purchase in the open market where no commission or
profit to a sponsor or dealer results from the purchase other than the
customary broker's commission, (b) in connection with a merger,
consolidation, acquisition or reorganization, and (c) assets may be
invested in the securities of one or more diversified management investment
companies to the extent permitted by the 1940 Act.
6. Purchase or sell commodities or commodity contracts, other than
futures contracts and options thereon as described in the Prospectus or
SAI, as amended from time to time. This limitation does not apply to
foreign currency transactions, including forward currency contracts.
7. Purchase securities of companies for the purpose of exercising
control.
8. Make loans, except that a Fund (a) may purchase or hold debt
instruments, certificates of deposit, commercial paper, bankers'
acceptances, fixed time deposits and repurchase agreements, pursuant to its
investment objectives and policies, and (b) may lend portfolio securities
against collateral consisting of cash or securities of the U.S. Government
and its agencies and instrumentalities, which are consistent with its
permitted investments, in an amount not exceeding 1/3 of the Fund's total
assets.
9. Purchase securities on margin, except for the use of short term
credit necessary for clearance of purchases and sales of portfolio
securities. This does not apply to margin deposits in connection with
options, futures contracts and options thereon.
* * *
If a percentage restriction is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in asset value
will not constitute a violation of such restriction.
In accordance with the current views of the Staff of the SEC and as a
matter of non-fundamental policy that may be changed without a vote of
shareholders or interestholders, the Funds treat all supranational organizations
as a single industry and each foreign government (and all of its agencies) as a
separate industry.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The price paid for purchases and redemptions of shares of the Funds is the
net asset value per share, which is calculated once daily at the close of
trading (currently 4:00 p.m. New York time) each day the New York Stock Exchange
is open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas Day. The offering price
is effective for orders received by the Transfer Agent prior to the time of
determination of net asset value.
The net asset value of a Fund share is calculated by dividing (i) the value
of the securities held by the Fund, plus any cash or other assets, minus all
liabilities (including accrued estimated expenses on an annual basis), by (ii)
the total number of shares of the Fund outstanding. The value of the investments
and assets of the Fund is determined each business day in accordance with
certain procedures described below.
MONEY MARKET FUND
The Money Market Fund uses the amortized cost method of valuation in
computing the net asset value of its shares for purposes of sales and
redemptions. Under this method the Fund values each of its portfolio securities
at cost on the date of purchase and thereafter assumes a constant proportionate
amortization of any discount or premium until maturity of the security. As a
result the value of a portfolio security for purposes of determining net asset
value normally does not change in response to fluctuating interest rates. While
the amortized cost method seems to provide certainty in portfolio valuation, it
may result in periods during which values, as determined by amortized cost, are
higher or lower than the amount the Fund would receive if it sold its portfolio
securities. The market value of the securities in the Fund can be expected to
vary inversely with changes in prevailing interest rates. Thus, if interest
rates have increased from the time a security was
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purchased, such security, if sold, might be sold at a price less than its
amortized cost. Similarly, if interest rates have declined from the time a
security was purchased, such security, if sold, might be sold at a price greater
than its amortized cost. In either instance, if the security is held to
maturity, no gain or loss will be realized.
In connection with its use of amortized cost valuation, the Fund limits the
dollar-weighted average maturity of its portfolio to not more than 90 days and
does not purchase an instrument with a remaining maturity of greater than 397
calendar days (except for longer agency floating rate instruments with interest
reset dates at least every thirteen months). The Board of Trustees has also
established, pursuant to rules promulgated by the SEC, procedures that are
intended to stabilize the Fund's net asset value per share for purposes of sales
and redemptions at $1.00. Such procedures include the determination, at such
intervals as the Board deems appropriate, of the extent, if any, to which the
Fund's net asset value per share calculated by using available market quotations
deviates from $1.00 per share. In the event such deviation exceeds 1/2 of 1% the
Board will promptly consider what action, if any, should be initiated. If the
Board believes that the amount of any deviation may result in material dilution
or other unfair results to investors or existing shareholders, it will take
steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity, shortening the Fund's
average portfolio maturity, withholding or reducing dividends, reducing the
number of the Fund's outstanding shares without monetary consideration or
determining net asset value per share by using available market quotations. If
the Fund reduces the number of its outstanding shares without monetary
consideration it will mail written notice to shareholders at least three
business days before the redemption and in the notice will state the reason for
the redemption and the fact that the redemption may result in a capital loss to
shareholders.
OTHER FUNDS. Except for debt securities with remaining maturities of 60
days or less, the following assets held by the Funds (other than the Money
Market Fund) for which market quotations are available are valued as follows:
(a) U.S. Government and agency obligations are valued based upon bid quotations
from the Federal Reserve Bank for identical or similar obligations; and (b)
short-term money market instruments (such as certificates of deposit, bankers'
acceptances and commercial paper) are most often valued by bid quotations or by
reference to bid quotations of available yields for similar instruments of
issuers with similar credit ratings. The Board of Trustees of the Trust has
determined that the values obtained using the procedures described above
represent the fair values of the securities valued by such procedures. Most of
these prices are obtained by PFPC Inc. from a service that collects and
disseminates such market prices. Bid quotations for short-term money market
instruments reported by such service are the bid quotations reported to it by
major dealers in such instruments.
The valuation of options is described above in the section entitled
"Investment Objectives and Policies: Types of Obligations, Investment Risks, and
Other Investment Information -- Options."
Debt securities held by the Funds with remaining maturities of 60 days or
less are valued on the basis of amortized cost, which provides stability of net
asset value. Under this valuation method, the security is initially valued at
cost on the date of purchase or, in the case of securities purchased with more
than 60 days remaining to maturity and to be valued on the amortized cost basis
only during the final 60 days of its maturity, the market value on the 61st day
prior to maturity. Thereafter the Funds assume a constant proportionate
amortization in value until maturity of any discount or premium regardless of
the impact of fluctuating interest rates on the market value of the security,
unless the Board of Trustees determines that amortized cost no longer represents
fair value. The Funds will monitor the market value of these investments for the
purpose of ascertaining whether any such circumstances exist.
Trading in securities on foreign securities exchanges and over-the-counter
markets is normally completed well before the close of business day in New York.
In addition, foreign securities trading may not take place on all business days
in New York, and may occur in various foreign markets on days which are not
business days in New York and on which net asset value is not calculated. The
calculation of net asset value may not take place contemporaneously with the
determination of the prices of portfolio securities used in such calculation.
Events affecting the values of portfolio securities that occur between the time
their prices are determined and the close of the New York Stock Exchange will
not be reflected in the calculation of net asset value unless the
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Board of Trustees determines that the particular event would materially affect
net asset value, in which case an adjustment will be made. Information that
becomes known to the Trust or its agents after the time that net asset value is
calculated on any business day may be assessed in determining net asset value
after the time of the receipt of information, but will not be used retroactively
to adjust such prices determined earlier or on a prior day.
Assets or liabilities initially expressed in terms of foreign currencies
are translated prior to the next determination of the net asset value into U.S.
dollars at the spot exchange rates at 12:00 noon New York time or at such other
rates as Bank of America may determine to be appropriate in computing net asset
value.
PRICING SERVICES. When approved by the Board of Trustees, certain
securities may be valued on the basis of valuations provided by an independent
pricing service when such prices are believed to reflect the fair market value
of such securities. These securities may include those that have no available
recent market value, have few outstanding shares and, therefore, infrequent
trades, or for which there is a lack of consensus on the value, with quoted
prices covering a wide range. The lack of consensus might result from relatively
unusual circumstances, such as no trading in the security for long periods of
time, or a company's involvement in merger or acquisition activity, with widely
varying valuations placed on the company's assets or stock. Prices provided by
an independent pricing service may be determined without exclusive reliance on
quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data.
In the absence of an ascertainable market value, assets are valued at their
fair value as determined using methods and procedures reviewed and approved by
the Board of Trustees.
ADDITIONAL INFORMATION CONCERNING TAXES
FEDERAL TAXES
Each Fund will be treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to qualify as a
"regulated investment company." By following this policy, each Fund expects to
eliminate or reduce to a nominal amount the federal income taxes to which it may
be subject. If for any taxable year a Fund does not qualify for the special
federal tax treatment afforded regulated investment companies, all of the Fund's
taxable income would be subject to tax at regular corporate rates (without any
deduction for distributions to shareholders). In such event, the Fund's dividend
distributions to shareholders would be taxable as ordinary income to the extent
of the current and accumulated earnings and profits of the particular Fund and
would be eligible for the dividends received deduction in the case of corporate
shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that each Fund distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income (if
any) and 90% of its tax-exempt income (if any), net of certain deductions for
each taxable year. In general, a Fund's taxable income will include the revenues
derived from dividends, interest, and short-term capital gains (the excess of
net short-term capital gain over net long-term capital loss), adjusted for
certain items, and excluding the excess of any net long-term capital gain for
the taxable year over the net short-term capital loss, if any, for such year. A
Fund will be taxed on its undistributed investment company taxable income, if
any. Each Fund intends to distribute at least 90% of its investment company
taxable income (if any) for each taxable year. To the extent such income is
distributed by a Fund (whether in cash or additional shares), it will be taxable
to shareholders as ordinary income.
Qualification as a regulated investment company under the Code also
requires that each Fund (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such securities
or currencies; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities and securities
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<PAGE> 49
of other regulated investment companies, and other securities (for purposes of
this calculation generally limited, in respect of any one issuer, to an amount
not greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government or
foreign government securities or the securities of other regulated investment
companies), or two or more issuers which the Trust controls and which are
determined to be engaged in the same or similar trades or businesses.
A Fund will not be treated as a regulated investment company under the Code
if 30% or more of the Fund's gross income for a taxable year is derived from
gains realized on the sale or other disposition of the following investments
held for less than three months: (1) stock and securities (as defined in section
2(a)(36) of the 1940 Act); (2) options, futures and forward contracts other than
those on foreign currencies; and (3) foreign currencies (and options, futures
and forward contracts on foreign currencies) that are not directly related to a
Fund's principal business of investing in stock and securities (and options and
futures with respect to stocks and securities). Interest (including original
issue discount and accrued market discount) received by a Fund upon maturity or
disposition of a security held for less than three months will not be treated as
gross income derived from the sale or other disposition of such security within
the meaning of this requirement. Any other income that is attributable to
realized market appreciation, however, will be treated as gross income from the
sale or other disposition of securities for this purpose. With respect to
covered call options, if the call is exercised by the holder, the premium and
the price received on exercise constitute the proceeds of sale, and the
difference between the proceeds and the cost of the securities subject to the
call is capital gain or loss. Premiums from expired call options written by a
Fund and net gains from closing purchase transactions are treated as short-term
capital gains for federal income tax purposes, and losses on closing purchase
transactions are short-term capital losses. See Appendix B -- "Accounting and
Tax Treatment" for a general discussion of the federal tax treatment of futures
contracts, related options thereon and other financial instruments, including
their treatment under the 30% test.
In addition, each Fund must satisfy the diversification requirements of
Section 817(h) of the Code. In general, for a Fund to meet these investment
diversification requirements, Treasury regulations require that no more than 55%
of the total value of the assets of the Fund may be represented by any one
investment, no more than 70% by two investments, no more than 80% by three
investments and no more than 90% by four investments. Generally, for purposes of
the regulations, all securities of the same issuer are treated as a single
investment. With respect to U.S. Government securities (including any security
that is issued, guaranteed or insured by the United States or an instrumentality
of the United States), each governmental agency or instrumentality is treated as
a separate issuer. Compliance with the regulations is tested on the last day of
each calendar year quarter. There is a 30 day period after the end of each
calendar year quarter in which to cure any non-compliance.
Dividends paid by a Fund from ordinary income, and distributions of the
Fund's net realized short-term capital gains, are treated as ordinary income in
the hands of a Separate Account shareholder. Under the Code, any distributions
designated as being made from net capital gains will be treated as long-term
capital gains in the hands of a Separate Account, regardless of the holding
period of such Separate Account. Such distributions of net capital gains will be
designated by the Fund as a capital gains distribution in a written notice to
its shareholders which accompanies the distribution payment. Any loss on the
sale of Fund shares held for less than six months will be treated as a long-term
capital loss for federal tax purposes to the extent a Separate Account receives
net capital gain distributions on such shares.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail currently to distribute specific percentages of their ordinary taxable
income and capital gain net income (excess of capital gains over capital
losses). To avoid the tax, a Fund must distribute (or be deemed to have
distributed) during each calendar year (i) at least 98% of its ordinary income
(not taking into account any capital gains or losses) for the calendar year,
(ii) at least 98% of its capital gains in excess of capital losses for the
twelve month period ending on October 31 of the calendar year (adjusted for
certain ordinary losses), and (iii) all ordinary income and capital gains for
previous years that were not distributed during such years. Each Fund intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year to
avoid liability for this excise tax.
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OTHER TAX INFORMATION
Contract owners should refer to the prospectus for the Separate Accounts
and Contracts for information regarding the federal income tax treatment of
distributions made by the Funds to the Separate Accounts and the circumstances
under which distributions may be made from the Separate Accounts to Contract
owners.
The Trust may be subject to state or local taxes in certain states where it
is deemed to be doing business. Further, the state tax treatment of the Trust
and of Pacific Mutual, with respect to investments made by its Separate Accounts
in the Funds, may differ from federal tax treatment. Appropriate tax advisers
should be consulted with respect to such questions arising under federal, state
and local tax law.
The foregoing discussion of federal income taxation is based on tax laws
and regulations which are in effect on the date of this Statement of Additional
Information. Such laws and regulations may be changed by legislative or
administrative action. This discussion is only a summary of some of the
important tax considerations generally affecting purchasers of Fund shares. No
attempt is made to present a detailed explanation of the federal income tax
treatment of the Funds or their shareholders, and this discussion is not
intended as a substitute for careful tax planning. Accordingly, potential
purchasers of Fund shares should consult their tax advisers with specific
reference to their own tax situation.
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<PAGE> 51
MANAGEMENT
TRUSTEES AND OFFICERS OF THE TRUST
The trustees and officers of the Trust, their addresses, and principal
occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH COMPANY AND AGE
---------------- ------------ ---------------------
<S> <C> <C>
Robert E. Greeley Trustee/Chairman Chairman, Page Mill Asset Management (a private investment
Page Mill Asset Management company) since 1991; Director, Pacific Horizon Funds, Inc.
433 California Street (since 1994), Morgan Grenfell Small Cap Fund (since 1986);
Suite 900 Trustee, Master Investment Trust Series I (since 1993),
San Francisco, CA 94104 Master Investment Trust, Series II (since 1993), Time
Horizon Funds (since 1995), (registered investment
companies); formerly Director, Bunker Hill Income
Securities, Inc. (1989 to 1994), Trustee, SunAmerica Fund
Group (previously Equitec Siebel Fund Group), 1984 to 1992
(registered investment companies); formerly Director,
Manager, Corporate Investments, Hewlett Packard Company
from 1979 to 1991. Age: 64.
Edward S. Bottom Trustee Managing Director, Chase Franklin Corporation (venture
c/o Chase Franklin Corporation capital firm) since 1990; Trustee, Time Horizon Funds
100 S. Wacker Drive (since 1995); formerly Vice Chairman of Continental Bank
Chicago, IL 60606 N.A. (retired 1990); formerly Trustee, 231 Funds (February
1993 to August 1995). Age: 62.
William P. Carmichael Trustee Trustee, Time Horizon Funds (since 1995); formerly Senior
808 S. Garfield Vice President, Sara Lee Corporation (1992 to 1993);
Hinsdale, IL 60521 formerly Treasurer, Senior Vice President and Chief
Financial Officer, Beatrice Company (1987 to 1990);
formerly Trustee, 231 Funds (registered investment
company) (February 1993 to August 1995). Age: 52.
Harold T. Joanning Trustee Retired. Formerly Executive Vice President, Finance and
3621 Sausalito Drive Administration, Pacific Mutual Life Insurance Company
Corona del Mar, CA 92625 (1980 to 1991). Age: 69.
John Privat Trustee Director, Seafirst Retirement Funds (since 1993)
8852 NE 24th Street (registered investment company); Trustee, Time Horizon
Bellevue, WA 98004 Funds (since 1995). Age: 61.
J. David Huber President President, BISYS Fund Services, Inc. since 1996, (prior
BISYS Fund Services, L.P. thereto, Senior Vice President of Client Services, BISYS
3435 Stelzer Road Fund Services, Inc., since 1987); President, Time Horizon
Columbus, OH 43219 Funds, Master Investment Trust, Series I and Master
Investment Trust, Series II (since 1995); President,
Pacific Horizon Funds (since 1996). Age: 50.
Irimga McKay Vice President Senior Vice President, July 1995 to date, BISYS Fund
BISYS Fund Services, L.P. Services, Inc.; Vice President, Pacific Horizon Funds,
1230 Columbia St. Master Investment Trust, Series II and Seafirst Retirement
San Diego, CA 92101 Funds (since 1993); First Vice President, Concord
Corporation (November 1988 to April 1995). Age: 36.
Stephanie L. Blaha Vice President Director of Client Services, BISYS Fund Services, Inc.,
BISYS Fund Services, L.P. March 1995 to date; Vice President, Time Horizon Funds,
3435 Stelzer Road Seafirst Retirement Funds, Master Investment Trust, Series
Columbus, OH 43219 I and Master Investment Trust, Series II (since 1996);
Assistant Vice President, Pacific Horizon Funds (since
1996); Assistant Vice President of Concord Financial
Group, Inc. (October 1991 to March 1995); Account Manager,
AT&T Transtech, Mutual Fund Division, July 1989 to October
1991. Age: 37.
George O. Martinez Secretary Senior Vice President and Director of Legal and Compliance
BISYS Fund Services, L.P. Services (since April 1995), BISYS Fund Services, Inc.;
3435 Stelzer Road Secretary, Time Horizon Funds (since 1996), Assistant
Columbus, OH 43219 Secretary, Pacific Horizon Funds and Master Investment
Trust, Series II (since 1995); prior thereto, Vice
President and Associate General Counsel, Alliance Capital
Management, L.P. Age: 35.
Mark E. Nagle Treasurer Senior Vice President, Fund Accounting Services, BISYS
BISYS Fund Services, L.P. Fund Services, Inc., September 1995 to present; Treasurer,
3435 Stelzer Road Seafirst Retirement Funds, Master Investment Trust, Series
Columbus, OH 43219 II and Time Horizon Funds (since 1996); Senior Vice
President, Fidelity Institutional Retirement Services
(1993 to 1995); Fidelity Accounting & Custody Services
(1981 to 1993). Age: 36.
</TABLE>
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<PAGE> 52
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH COMPANY AND AGE
- ---------------------------------- ----------------- ----------------------------------------------------------
<S> <C> <C>
Lisa Ling Assistant Registration and Compliance Officer, November 1995 to
BISYS Fund Services, L.P. Treasurer date, BISYS Fund Services, Inc., Assistant Treasurer,
3435 Stelzer Road Pacific Horizon Funds, Master Investment Trust, Series II,
Columbus, OH 43219 Seafirst Retirement Funds and Time Horizon Funds (since
1996); Financial Services Manager, Federated Investors,
Inc. (from 1991 to October 1995). Age: 36.
Cathy G. O'Kelly Assistant Partner in the Law Firm of Vedder, Price, Kaufman &
Vedder, Price, Kaufman & Kammholz Secretary Kammholz. Age: 43.
222 South LaSalle St.
Chicago, IL 60601
</TABLE>
The Audit Committee of the Board is comprised of all trustees and is
chaired by . The Board does not have an Executive Committee.
Each trustee receives an estimated aggregate annual fee of $ per
Fund plus $ per day for each full day devoted to travel in connection
with each meeting attended, for his or her services as trustee of all of the
Funds of the Trust [and receives an additional $ per annum as
Chairman of the Board]. Each independent trustee will also be reimbursed for
out-of-pocket expenses incurred as a trustee. The following table sets forth the
aggregate compensation expected to be paid by the Trust for the fiscal year
ended , 199 , to the trustees who are not affiliated with Bank of
America or the Subadvisers and the aggregate compensation paid to such trustees
for services on the Trust's Board and that of all other funds in the "Trust
complex" (as defined in Schedule 14A under the Securities Exchange Act of 1934):
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM THE TRUST
COMPENSATION AS PART OF FUND BENEFITS UPON AND
NAME FROM THE TRUST EXPENSES RETIREMENT FUND COMPLEX
- ----------------------------- --------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
</TABLE>
As of the date of this Statement of Additional Information, the trustees
and officers of the Trust, as a group, own less than 1% of the outstanding
shares of each of the Funds.
MANAGER
Pursuant to a Management Agreement with the Trust, Bank of America has
agreed to provide investment advisory and administrative services to the Trust
as described in the Prospectus.
In providing management services to the Trust, Bank of America may use the
services of officers who are employees of trust departments of Bank of America.
Bank of America may also use officers, and utilize the facilities, of wholly
owned subsidiaries and other affiliates of Bank of America or its parent
corporation in providing management services to the Trust.
The Management Agreement will continue in effect until , 1999
and thereafter will be extended for successive one year periods with respect to
a particular Fund, provided that each such extension is specifically approved
(a) by vote of a majority of those members of the Board of Trustees of the Trust
who are not parties to the Management Agreement or "interested persons" (as
defined in the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (b) by the Board of Trustees of
the Trust or by vote of a "majority of the outstanding voting securities" of the
Funds. The Management Agreement may be terminated at any time without cause upon
giving 60 days' prior written notice to Bank of America.
The Management Agreement provides that Bank of America will not be liable
for any error of judgment or mistake of law or for any loss suffered in
connection with the performance of the investment advisory agreements, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation
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<PAGE> 53
for services or a loss resulting from willful misfeasance, bad faith or
negligence in the performance of its duties or from reckless disregard by it of
its duties and obligations thereunder.
THE GLASS-STEAGALL ACT AND PROPOSED LEGISLATION
The Glass-Steagall Act, among other things, prohibits banks from engaging
in the business of underwriting securities, although national and
state-chartered banks generally are permitted to purchase and sell securities
upon the order and for the account of their customers. In 1971, the United
States Supreme Court held in Investment Company Institute v. Camp that the
Glass-Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act"), or any non-bank affiliate thereof, from
sponsoring, organizing or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but do not prohibit such a
holding company or affiliate from acting as investment adviser, transfer agent
and custodian to such an investment company. In 1981, the United States Supreme
Court held in Board of Governors of the Federal Reserve System v. Investment
Company Institute that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies.
Bank of America believes that if the question were properly presented, a
court should hold that Bank of America may perform the services for the Trust
contemplated by the Management Agreement, as described in the Prospectus and
this Statement of Additional Information, without violating the Glass-Steagall
Act or other applicable banking law or regulations. It should be noted, however,
that no court has yet decided whether a national bank may perform services
comparable to those performed by Bank of America and that future changes in
either federal or state statutes and regulations relating to permissible
activities of banks or trust companies and their subsidiaries or affiliates, as
well as further judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent Bank of America from
continuing to perform such services for the Trust or from continuing to purchase
Fund shares for the accounts of its customers.
As noted previously, the Funds are distributed by BISYS Fund Services
Limited Partnership. If current restrictions under the Glass-Steagall Act
preventing a bank from sponsoring, organizing, controlling, or distributing
shares of an investment company were relaxed, the Trust expects that Bank of
America would offer to perform some or all of the services now provided by BISYS
Fund Services Limited Partnership. From time to time, legislation modifying such
restriction has been introduced in Congress which, if enacted, would permit a
bank holding company to establish a non-bank subsidiary having the authority to
organize, sponsor and distribute shares of an investment company. If this or
similar legislation were enacted, the Funds and the Trust expects that Bank of
America's parent bank holding company would consider using one of its non-bank
subsidiaries to provide some or all of the services now provided by BISYS Fund
Services Limited Partnership. It is not possible, of course, to predict whether
or in what form such legislation might be enacted or the terms upon which Bank
of America or such a non-bank affiliate might offer to provide services for
consideration by the Trust's Board of Trustees.
SUBADVISERS
The Management Agreement authorizes Bank of America to use the services of
any person Bank of America believes will be appropriate and helpful to it in
performing its duties to the Trust under this Agreement. Pursuant to this
authority, Bank of America has selected Scudder, Stevens & Clark, Inc.
("Scudder") to provide investment advisory services to the Managed Bond Fund,
and Wellington Management Company, LLP ("Wellington Management") to provide
investment advisory services to the International Fund.
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<PAGE> 54
For their services, the Subadvisers are entitled to receive fees from Bank
of America equal to the following annual percentages of the Funds' average daily
net assets: Managed Bond Fund -- Scudder will receive .20% of the first $25
million, .15% of the next $25 million, and .10% of average daily net assets in
excess of $50 million; International Fund -- Wellington Management will receive
.40% of the first $50 million, .30% of the next $100 million, .25% of the next
$350 million, and .20% of average daily net assets in excess of $500 million.
Each Subadvisory Agreement contains provisions regarding annual renewal and
termination similar to those of the Management Agreement.
DISTRIBUTOR
BISYS Fund Services Limited Partnership (the "Distributor") acts as
distributor of the shares of the Trust pursuant to a Distribution Agreement with
the Trust. The General Partner of the Distributor is BISYS Fund Services, Inc.,
an indirect wholly owned subsidiary of The BISYS Group, Inc. The Distributor's
principal offices are at 3435 Stelzer Road, Columbus, Ohio 43218. Shares are
sold on a continuous basis and distributed through the Distributor. The
Distributor has agreed to use its best efforts to solicit orders for the sale of
the Trust's shares, but it is not obliged to sell any particular amount of
shares. The Distribution Agreement will continue in effect with respect to each
Fund until , 1998. Thereafter, if not terminated, the Distribution
Agreement will continue automatically for successive terms of one year, provided
that such continuance is specifically approved at least annually (a) by a vote
of a majority of those members of the Board of Trustees of the Trust who are not
parties to the Distribution Agreement or "interested persons" (as defined in the
1940 Act) of any such party, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the Board of Trustees of the Trust or by
vote of a "majority of the outstanding voting securities" of the Funds.
The Distribution Agreement may be terminated by the Trust at any time with
respect to a Fund, without the payment of any penalty, by vote of a majority of
the entire Board of Trustees of the Trust or by a vote of a "majority of the
outstanding voting securities" of such Fund on 60 days' written notice to the
Distributor, or by the Distributor at any time, without the payment of any
penalty, on 90 days' written notice to the Trust. The Distribution Agreement
will automatically and immediately terminate in the event of its "assignment"
(as defined in the 1940 Act) or purported assignment.
The Distributor does not receive any compensation under the Distribution
Agreement. In accordance with the terms of the Distribution Agreement, the Trust
has agreed to indemnify the Distributor, to the extent permitted by applicable
law, against certain liabilities under the Securities Act of 1933.
PERFORMANCE INFORMATION
The discussion of performance information for the Funds presented below
does not take into account the fees and charges which a Contract owner may incur
at the level of the Separate Accounts or directly under the Contract.
Accordingly, Contract owners should note that any performance figures computed
in accordance with the procedures described below must be further reduced by the
fees and charges incurred at the Separate Account and Contract levels.
Performance for the Funds will not be advertised or included in sales literature
unless accompanied by comparable information for a Separate Account to which the
Fund offers its shares.
YIELD AND TOTAL RETURN
YIELD CALCULATIONS FOR MONEY MARKET FUND. Current yield for the Money
Market Fund will be based on the change in the value of a hypothetical
investment (exclusive of capital charges) over a particular 7-day period, less a
pro-rata share of Fund expenses accrued over that period (the "base period"),
and stated as a percentage of the investment at the start of the base period
(the "base period return"). The base period return is then annualized by
multiplying by 365/7, with the resulting yield figure carried to at least the
nearest hundredth of one percent. "Effective yield" for the Money Market Fund
assumes that all dividends received during an annual period have been
reinvested. Calculation of "effective yield" begins with the same "base
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<PAGE> 55
period return" used in calculation of yield, which is then annualized to reflect
weekly compounding pursuant to the following formula:
Effective yield = [(Base Period Return + 1) (To the power of 365/7)]-1
YIELD CALCULATIONS FOR OTHER FUNDS. The yield for Funds other than the
Money Market Fund is calculated by dividing the net investment income per share
(as described below) earned by the Fund during a 30-day (or one month) period by
the maximum offering price per share on the last day of the period and
annualizing the result on a semi-annual basis by adding one to the quotient,
raising the sum to the power of six, subtracting one from the result and then
doubling the difference. The Fund's net investment income per share earned
during the period is based on the average daily number of shares outstanding
during the period entitled to receive dividends and includes dividends and
interest earned during the period minus accrued expenses, net of reimbursements.
This calculation can be expressed as follows:
a-b
--- 6
Yield = 2 [( + 1) - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities is
recognized by accruing 1/360 of the stated dividend rate of the security each
day. Except as noted below, interest earned on debt obligations is calculated by
computing the yield to maturity of each obligation based on the market value of
the obligation (including actual accrued interest) at the close of business on
the last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest), and
dividing the result by 360 and multiplying the quotient by the market value of
the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held. For purposes of this calculation, it is assumed that each
month contains 30 days. The maturity of an obligation with a call provision is
the next call date on which the obligation reasonably may be expected to be
called or, if none, the maturity date. With respect to debt obligations
purchased at a discount or premium, the formula generally calls for amortization
of the discount or premium. The amortization schedule will be adjusted monthly
to reflect changes in the market values of such debt obligations.
Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have the discounts based on current market value that
are less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations which are
expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are accounted
for as an increase or decrease to interest income during the period; and (b) a
Fund may elect either (i) to amortize the discount and premium on the remaining
security, based on the cost of the security, to the weighted average maturity
date, if such information is available, or to the remaining term of
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<PAGE> 56
the security, if any, if the weighted average maturity date is not available, or
(ii) not to amortize discount or premium on the remaining security.
Undeclared earned income will be subtracted from the maximum offering price
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared and paid as a
dividend shortly thereafter.
TOTAL RETURN CALCULATIONS. The Funds compute their average annual total
returns by determining the average annual compounded rates of return during
specified periods that equate the initial amount invested in a particular Fund
to the ending redeemable value of such investment in the Fund. This is done by
dividing the ending redeemable value of a hypothetical $1,000 initial payment by
$1,000 and raising the quotient to a power equal to one divided by the number of
years (or fractional portion thereof) covered by the computation and subtracting
one from the result. This calculation can be expressed as follows:
1/n
T = [(ERV/P) - 1]
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms of
Years.
The Funds compute their aggregate total returns by determining the
aggregate rates of return during specified periods that likewise equate the
initial amount invested in a particular Fund to the ending redeemable value of
such investment in the Fund. The formula for calculating aggregate total return
is as follows:
aggregate total return = [(ERV - 1)]
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment, the deduction of a proportional share of all Trust
expenses on an annual basis, and the deduction of all nonrecurring charges at
the end of the period covered by the computations.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Delaware business trust. The Trust's Declaration of Trust authorizes the Board
of Trustees to issue an unlimited number of full and fractional shares of
beneficial interest.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board may grant in its discretion. When issued for payment as
described in the Prospectus, the Trust's shares will be fully paid and
non-assessable. For information concerning possible restrictions upon the
transferability of the Trust's shares and redemption provisions with respect to
such shares, see "Additional Purchase and Redemption Information" above.
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the aggregate and
not by class or series except as otherwise required by the 1940 Act or other
applicable law or when permitted by the Board of Trustees. Shares have
cumulative voting rights to the extent they may be required by applicable law.
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<PAGE> 57
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company, such as the Trust, shall not be deemed to have been effectively acted
upon unless approved by a majority of the outstanding shares of each Fund
affected by the matter. Under Rule 18f-2 the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a Fund only if approved by a majority of the
outstanding shares of such Fund. However, the rule also provides that the
ratification of independent public accountants, the approval of principal
underwriting contracts and the election of directors may be effectively acted
upon by shareholders of the Trust voting without regard to particular Funds.
Unless otherwise provided by law (for example, by Rule 18f-2 discussed
above) or by the Trust's Declaration of Trust, the Trust may take or authorize
any action upon the favorable vote of the holders of more than 50% of the shares
of the Trust.
The Declaration of Trust of the Trust provide that obligations of the Trust
are not binding upon its Trustees, officers, employees and agents individually
and that the Trustees, officers, employees and agents will not be liable to the
Trust or its investors for any action or failure to act, but nothing in the
Declaration of Trust protects a Trustee, officer, employee or agent against any
liability to the Trust or its investors to which the Trustee, officer, employee
or agent would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of his or her duties. The Declaration of
Trust also provides that the debts, liabilities, obligations and expenses
incurred, contracted for or existing with respect to a Fund shall be enforceable
against the assets and property of such Fund only, and not against the assets or
property of any other Fund or the investors therein.
REPORTS
Contract owners will receive unaudited semi-annual reports describing the
Trust's investment operations and annual financial statements audited by
independent accountants. Copies of the Trust's annual reports to shareholders
may be obtained at no charge by writing or telephoning the Trust at
.
SUPPORT SERVICES AGREEMENT
Pursuant to an agreement between the Trust and Pacific Mutual, Pacific
Mutual provides support services to the Trust for a fee of .16% of average daily
net assets annually. Such support services include: coordinating matters related
to the Separate Accounts, maintaining books and records of the Separate
Accounts, and preparing necessary documents for filing with the SEC and other
federal and state regulatory authorities as may be required.
CUSTODIAN, SUB-ADMINISTRATOR AND FUND ACCOUNTING AGENT
Pursuant to a Custodian Agreement between PNC Bank, N.A. ("PNC Bank") and
the Trust, PNC Bank serves as custodian for the Funds. As custodian of the
Trust's assets, PNC Bank: (i) maintains a separate account or accounts in the
name of the respective Funds; (ii) holds and disburses portfolio securities;
(iii) makes receipts and disbursements of money; (iv) collects and receives
income and other payments and distributions on account of portfolio securities;
and (v) makes periodic reports concerning their duties.
Pursuant to a Subcustodian Agreement among PNC Bank, the Fund and Barclays
Bank PLC ("Barclays"), Barclays maintains the Trust's foreign securities
holdings. Barclays may hold the foreign securities at its principal office in
the United Kingdom or at any branch of Barclays or other bank or depository with
which Barclays or its subcustodians may contract, which is an eligible foreign
subcustodian or depository, subject to the approval of the Board.
In addition, Bank of America has contracted with PFPC Inc. ("PFPC"), which
is an indirect wholly owned subsidiary of PNC Bank Corp., to provide the Funds
with certain subadministration services, and the Trust has contracted with PFPC
to provide the Funds with certain accounting services pursuant to a Sub-
Administration and Accounting Services Agreement. Under the Sub-Administration
and Accounting Services Agreement, PFPC has agreed to provide certain
subadministration, accounting, bookkeeping, pricing,
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<PAGE> 58
dividend, distribution calculation, and disbursing services with respect to the
Trust. The monthly fees charged by PFPC under the Fund Sub-Administration and
Accounting Agreement for sub-administration services are paid by the Manager.
The monthly fees charged by PFPC under the Sub-Administration and Accounting
Services Agreement for accounting services are paid by the Funds.
Pacific Mutual is transfer agent for the Funds.
COUNSEL
Vedder, Price, Kaufman & Kammholz serves as counsel to the Trust.
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP has been selected as independent accountants of each
Fund.
CAPITALIZATION
Pacific Mutual paid the Trust's expenses in connection with the Trust's
organization and establishment of the initial seven Funds.
FINANCIAL STATEMENTS
The Company's Statement of Assets as of , 1996 and the report
of Ernst & Young, LLP thereon, appear at the end of this Statement of Additional
Information. Such financial statement has been included herein in reliance upon
such report given upon their authority as experts in accounting and auditing.
MISCELLANEOUS
As used in the Prospectus and this Statement of Additional Information, a
"vote of a majority of the outstanding shares of a Fund, means the affirmative
vote of the lesser of (a) more than 50% of the outstanding interests or shares
of a Fund, or (b) 67% of the interests or shares of a Fund present at a meeting
at which more than 50% of the outstanding interests or shares of a Fund are
represented in person or by proxy.
The Prospectus relating to the Funds and this Statement of Additional
Information omit certain information contained in the Trust's registration
statement filed with the SEC. Copies of the registration statement, including
items omitted herein, may be obtained from the Commission by paying the charges
prescribed under its rules and regulations.
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<PAGE> 59
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" -- Issue's degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are denoted
"A-1+."
"A-2" -- Issue's capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated "A-1."
"A-3" -- Issue has an adequate capacity for timely payment. It is, however,
somewhat more vulnerable to the adverse effects of changes and circumstances
than an obligation carrying a higher designation.
"B" -- Issue has only a speculative capacity for timely payment.
"C" -- Issue has a doubtful capacity for payment.
"D" -- Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the rating categories used by
Moody's for commercial paper:
"Prime-1" -- Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term promissory obligations.
Principal repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" -- Issuer or related supporting institutions are considered to
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
"Prime-3" -- Issuer or related supporting institutions have an acceptable
capacity for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
"Not Prime" -- Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps or investment grade commercial
paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs three
designations, "Duff 1+," "Duff 1" and "Duff 1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"Duff 1+" -- Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"Duff 1" -- Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.
A-1
<PAGE> 60
"Duff 1-" -- Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"Duff 2" -- Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"Duff 3" -- Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"Duff 4" -- Debt possesses speculative investment characteristics.
"Duff 5" -- Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" -- Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
"F-1" -- Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."
"F-2" -- Securities possess good credit quality. Issues carrying this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" -- Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" -- Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" -- Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to indicate
that the rating is based upon a letter of credit issued by a commercial bank.
Thomson BankWatch commercial paper ratings assess the likelihood of an
untimely payment of principal or interest of debt having a maturity of one year
or less which is issued by United States commercial banks, thrifts and non-bank
banks; nonUnited States banks; and broker-dealers. The following summarizes the
ratings used by Thomson BankWatch:
"TBW-1" -- This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" -- This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" -- This designation represents the lowest investment grade category
and indicates that while the debt is more susceptible to adverse developments
(both internal and external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is considered adequate.
"TBW-4" -- This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings:
"A1+" -- Obligations are supported by the highest capacity for timely
repayment.
A-2
<PAGE> 61
"A1" -- Obligations are supported by a strong capacity for timely
repayment.
"A2" -- Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
"A3" -- Obligations are supported by an adequate capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher categories.
"B" -- Obligations' capacity for timely repayment is susceptible to adverse
changes in business, economic, or financial conditions.
"C" -- Obligations have an inadequate capacity to ensure timely repayment.
"D" -- Obligations have a high risk of default or are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" -- This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" -- Debt is considered to have a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
"A" -- Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" -- Debt is regarded as having an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC," and "C" -- Debt that possesses one of these ratings
is regarded, on balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "C" the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
"CI" -- This rating is reserved for income bonds on which no interest is
being paid.
"D" -- Debt is in default, and payment of interest and/or repayment of
principal is in arrears.
PLUS (+) OR MINUS (-) -- The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" -- Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" -- Bonds are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
A-3
<PAGE> 62
"A" -- Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" -- Bonds considered medium-grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" -- Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates some
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" represents a poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (--) -- Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks at the lower end of its generic rating category.
The following summarizes the ratings used by Duff & Phelps for corporate
and municipal long-term debt:
"AAA" -- Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" -- Debt is considered of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" -- Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB" -- Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" -- Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" -- Bonds considered to be investment grade and of very high credit
quality. The obligors ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because
A-4
<PAGE> 63
bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
"BBB" -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have an adverse impact on these bonds, and
therefore, impair timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" -- Bonds that possess one
of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" to "C" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major rating categories.
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for long-term debt ratings:
"AAA" -- Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
"AA" -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk albeit not very significantly.
"A" -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
"BBB" -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" -- Obligations are assigned one of these
ratings where it is considered that speculative characteristics are present.
"BB" represents the lowest degree of speculation and indicates a possibility of
investment risk developing. "C" represents the highest degree of speculation and
indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" -- This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
A-5
<PAGE> 64
"AA" -- This designation indicates a superior ability to repay principal
and interest on a timely basis with limited incremental risk versus issues rated
in the highest category.
"A" -- This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" -- This designation represents Thomson BankWatch's lowest investment
grade category and indicates an acceptable capacity to repay principal and
interest. Issues rated "BBB" are, however, more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," -- These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and "CC"
the highest degree of speculation.
"D" -- This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) -- The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Corporation for municipal
notes:
"SP-1" -- The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" -- The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" -- The issuers of these municipal notes exhibit speculative capacity
to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" -- Loans bearing this designation are of the best quality,
enjoying strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" -- Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" -- Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" -- Loans bearing this designation are of adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" -- Loans bearing this designation are of speculative quality and lack
margins of protection.
Fitch uses the short-term ratings described under Commercial Paper Ratings
for municipal notes.
A-6
<PAGE> 65
APPENDIX B
FUTURES CONTRACTS
As stated in the Prospectus, the Funds may enter into futures contracts and
options for hedging purposes. Such transactions are described in this Appendix.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both
the cash market and the futures market. In the cash market, bonds are purchased
and sold with payment for the full purchase price of the bond being made in
cash, generally within five business days after the trade. In the futures
market, only a contract is made to purchase or sell a bond in the future for a
set price on a certain date. Historically, the prices for bonds established in
the futures markets have tended to move generally in the aggregate in concert
with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it hopes
to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by a Fund, through using future contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by a Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges principally, the Chicago Board of Trade and the
Chicago Mercantile Exchange. The Fund would deal only in standardized contracts
on recognized exchanges. Each exchange guarantees performance under contract
provisions through a clearing corporation, a nonprofit organization managed by
the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury bonds and notes;
Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and
ninety-day commercial paper. A Fund may trade in any futures contract for which
there exists a public market, including, without limitation, the foregoing
instruments.
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<PAGE> 66
EXAMPLES OF FUTURES CONTRACT SALE. A Fund would engage in an interest rate
futures contract sale to maintain the income advantage from continued holding of
a long-term bond while endeavoring to avoid part or all of the loss in market
value that would otherwise accompany a decline in long-term securities prices.
Assume that the market value of a certain security in the Portfolio 1 tends to
move in concert with the futures market prices of long-term United States
Treasury bonds ("Treasury bonds"). The adviser wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and the adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
A Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Bank of America or a Subadviser could be wrong in its forecast of interest
rates and the equivalent futures market price could rise above 98. In this case,
the market value of the portfolio securities, including the portfolio security
being protected, would increase. The benefit of this increase would be reduced
by the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an off-setting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
EXAMPLES OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter-term securities
whose yields are greater than those available on long-term bonds. The Fund's
basic motivation would be to maintain for a time the income advantage from
investing in the short-term securities; the Fund would be endeavoring at the
same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that a Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the adviser believes that, because of an
anticipated fall in interest rates, the-price will have risen to 105 (and the
yield will have dropped to about 9 1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 9 to 103. In that case, the
5-point increase in the price that the Fund pays for the long-term bond would be
offset by the 5-point gain realized by closing out the futures contract
purchase.
Bank of America or a Subadviser could be wrong in its forecast of interest
rates; long-term interest rates might rise to above 10%; and the equivalent
futures market price could fall below 98. If short-term rates at the same time
fall to 10% or below, it is possible that the Fund would continue with its
purchase program for long-term bonds. The market price of available long-term
bonds would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio,
B-2
<PAGE> 67
including those originally in the pool assigned to the particular long-term
bond, would remain higher than yields on long-term bonds. The benefit of this
continued incremental income will be reduced by the loss realized on closing out
the futures contract purchase. In each transaction, expenses would also be
incurred.
II. STOCK INDEX FUTURES CONTRACTS
A stock index assigns relative values to the stocks included in the index
and the index fluctuates with changes in the market values of the stocks
included. A stock index futures contract is a bilateral agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value
(which assigns relative values to the common stocks included in the index) at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
stocks in the index is made. Some stock index futures contracts are based on
broad market indices, such as the Standard & Poor's 500 or the New York Stock
Exchange Composite Index. In contrast, certain exchanges offer futures contracts
on narrower market indices, such as the Standard & Poor's 100 or indices based
on an industry or market segment, such as oil and gas stocks. Futures contracts
are traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
The Funds will sell stock index futures contracts in order to offset a
decrease in market value of their respective portfolio securities that might
otherwise result from a market decline. The Funds may do so either to hedge the
value of their respective portfolios as a whole, or to protect against declines,
occurring prior to sales of securities, in the value of the securities to be
sold. Conversely, the Funds will purchase stock index futures contracts in
anticipation of purchases of securities. In a substantial majority of these
transactions, the Funds will purchase such securities upon termination of the
long futures position, but a long futures position may be terminated without a
corresponding purchase of securities.
In addition, the Funds may utilize stock index futures contracts in
anticipation of changes in the composition of their respective portfolio
holdings. For example, in the event that a Fund expects to narrow the range of
industry groups represented in its holdings it may, prior to making purchases of
the actual securities, establish a long futures position based on a more
restrictive index, such as an index comprised of securities of a particular
industry group. The Funds may also sell futures contracts in connection with
this strategy, in order to protect against the possibility that the value of the
securities to be sold as part of the restructuring of their respective
portfolios will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: BUY THE FUTURE
HEDGE OBJECTIVE: PROTECT AGAINST INCREASING PRICE
<TABLE>
<CAPTION>
FUND FUTURES
- --------------------------------------------- ---------------------------------------------
<S> <C>
-- Day Hedge is Placed --
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Portfolio 2 Value of Futures = $62,500/Contract
-- Day Hedge is Lifted --
Buy Portfolio 2 with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Price = $2,500 Gain on Futures = $2,500
</TABLE>
B-3
<PAGE> 68
HEDGING A STOCK FUND: SELL THE FUTURE
HEDGE OBJECTIVE: PROTECT AGAINST DECLINING VALUE OF THE FUND
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 X $500 = $62,500
Fund Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
FUND FUTURES
- --------------------------------------------- ---------------------------------------------
<S> <C>
-- Day Hedge is Placed --
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Portfolio 2 Value of Futures = $1,000,000
-- Day Hedge is Lifted --
Portfolio 2-Own Stock with Buy 16 Index Future at 120
Value = $960,000 Value of Futures = $960,000
Loss in Fund Value = $40,000 Gain on Futures = $40,000
</TABLE>
If, however, the market moved in the opposite direction, that is, market
value decreased and a Fund had entered into an anticipatory purchase hedge, or
market value increased and a Fund had hedged its stock portfolio, the results of
the Fund's transactions in stock index futures would be as set forth below.
ANTICIPATORY PURCHASE HEDGE: BUY THE FUTURE
HEDGE OBJECTIVE: PROTECT AGAINST INCREASING PRICE
<TABLE>
<CAPTION>
FUND FUTURES
- --------------------------------------------- ---------------------------------------------
<S> <C>
-- Day Hedge is Placed --
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Portfolio 2 Value of Futures = $62,500/Contract
-- Day Hedge is Lifted --
Buy Portfolio 2 with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Price = $2,500 Loss on Futures = $2,500
</TABLE>
HEDGING A STOCK FUND: SELL THE FUTURE
HEDGE OBJECTIVE: PROTECT AGAINST DECLINING VALUE OF THE FUND
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 X $500 = $62,500
Fund Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
FUND FUTURES
- --------------------------------------------- ---------------------------------------------
<S> <C>
-- Day Hedge is Placed --
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Portfolio 2 Value of Futures = $1,000,000
-- Day Hedge is Lifted --
Portfolio 2-Own Stock with Buy 16 Index Future at 130
Value = $1,040,000 Value of Futures = $1,040,000
Gain in Fund Value = $40,000 Loss on Futures = $40,000
</TABLE>
B-4
<PAGE> 69
III. FUTURES CONTRACTS ON FOREIGN CURRENCIES
A futures contract on foreign currency creates a binding obligation on one
party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of a foreign currency, for an amount fixed in
U.S. dollars. Foreign currency futures may be used by the Fund to hedge against
exposure to fluctuations in exchange rates between the U.S. dollar and other
currencies arising from multinational transactions.
IV. MARGIN PAYMENTS
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's custodian an amount of cash or cash equivalents, the value of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-market. For example, when a Fund has purchased a futures contract and
the price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and the Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the future contract has declined in response to a decrease in the
underlying instruments, the position would be less valuable and the Fund would
be required to make a variation margin payment to the broker. At any time prior
to expiration of the futures contract, the adviser may elect to close the
position by taking an opposite position, subject to the availability of a
secondary market, which will operate to terminate the Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
V. OPTIONS ON FUTURES CONTRACTS
Each Fund may purchase options on the futures contracts described above. A
futures option gives the holder, in return for the premium paid, the right to
buy (call) from or sell (put) to the writer of the option a futures contract at
a specified price at any time during the period of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price. Like the buyer or seller
of a futures contract, the holder, or writer, of an option has the right to
terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations that
are involved in connection with investments in futures contracts (for example,
the existence of a liquid secondary market). In addition, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
Depending on the pricing of the option compared to either the futures contract
upon which it is based, or upon the price of the securities being hedged, an
option may or may not be less risky than ownership of the futures contract or
such securities. In general, the market prices of options can be expected to be
more volatile than the market prices on the underlying futures contract.
Compared to the purchase or sale of futures contracts, however, the purchase of
call or put options on futures contracts may frequently involve less potential
risk to the Funds because the maximum amount at risk is the premium paid for the
options (plus transaction costs).
B-5
<PAGE> 70
VI. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures in the Funds
as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the future. If the price of the future moves
more than the price of the hedged securities, the Fund involved will experience
either a loss or gain on the future which will not be completely offset by
movements in the price of the securities which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of securities
being hedged and movement in the price of futures contracts, a Fund may buy or
sell futures contracts in a greater dollar amount than the dollar amount of
securities being hedged if the volatility over a particular time period of the
prices of such securities has been greater than the volatility over such time
period of the future, or if otherwise deemed to be appropriate by the investment
adviser. Conversely, a Fund may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the securities being
hedged is less than the volatility over such time period of the futures contract
being used, or if otherwise deemed to be appropriate by the adviser. It is also
possible that, where the Fund has sold futures to hedge its portfolio against a
decline in the market, the market may advance and the value of securities held
in the Fund may decline. If this occurred, the Fund would lose money on the
future and also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser may still not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event
B-6
<PAGE> 71
futures contracts have been used to hedge portfolio securities, such securities
will not be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if any, may partially
or completely offset losses on the futures contract. However, as described
above, there is no guarantee that the price of the securities will in fact
correlate with the price movements in the futures contract and thus provide an
offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund is also subject to the ability of Bank
of America or a Subadviser to predict correctly movements in the direction of
the market. For example, if a Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Fund will lose part of all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. A Fund may
have to sell securities at a time when it may be disadvantageous to do so.
VII. OTHER HEDGING TRANSACTIONS
The Funds presently intend to use interest rate futures contracts, stock
index futures contracts and foreign currency futures contracts in connection
with their hedging activities. Nevertheless, each of the Funds is authorized to
enter into hedging transactions in any other futures contracts which are
currently traded or which may subsequently become available for trading. Such
instruments may be employed in connection with the Funds' hedging strategies if,
in the judgment of Bank of American or a Subadviser, transactions therein are
necessary or advisable.
VIII. ACCOUNTING AND TAX TREATMENT
Accounting for futures contracts and related options will be in accordance
with generally accepted accounting principles.
Generally, futures contracts and options on futures contracts held by a
Fund at the close of the Fund's taxable year will be treated for federal income
tax purposes as sold for their fair market value on the last business day of
such year, a process known as "marking-to-market." Forty percent of any gain or
loss resulting from such constructive sale will be treated as short-term capital
gain or loss and 60% of such gain or loss will be treated as long-term capital
gain or loss without regard to the length of time the Fund holds the futures
contract or option ("the 40%-60% rule"). The amount of any capital gain or loss
actually realized by a Fund in a subsequent sale or other disposition of those
futures contracts or options will be adjusted to reflect any capital gain or
loss taken into account by a Fund in a prior year as a result of the
constructive sale of the contracts. With respect to futures contracts to sell,
which will be regarded as parts of a "mixed straddle" because their values
fluctuate inversely to the values of specific securities held by a Fund, losses
as to such contracts to sell will be subject to certain loss deferral rules
which limit the amount of loss currently deductible on either part of the
straddle to the amount thereof which exceeds the unrecognized gain (if any) with
respect to the other part of the straddle, and to certain wash sales
regulations. Under short sales rules, which will also be applicable, the holding
period of the securities forming part of the straddle will (if they have not
been held for the long-term holding period) be deemed not to begin prior to
termination of the straddle. With respect to certain futures contracts,
deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such, a Fund may make an election which
will exempt (in whole or in part) those identified futures contracts from being
treated for federal income tax purposes as sold on the last business day of the
Fund's taxable year, but gains and losses will be subject to such short sales,
wash sales and loss deferral rules and the requirement to
B-7
<PAGE> 72
capitalize interest and carrying charges. Under Temporary Regulations, a Fund
would be allowed (in lieu of the foregoing) to elect to either (1) offset gains
or losses from portions which are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies, or (2)
establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, the 40%-60% rule will apply to the net gain or loss attributable to
the futures contracts, but in the case of a mixed straddle account election, not
more than 50 percent of any net gain may be treated as long-term and no more
than 40 percent of any net loss may be treated as short-term.
Certain foreign currency contracts entered into by the Funds may be subject
to the "marking-to-market" process but gain or loss will be treated as 100%
ordinary income or loss. To receive such federal income tax treatment, a foreign
currency contract must meet the following conditions: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts. As
of the date of this Statement of Additional Information, the Treasury has not
issued any such regulations. Foreign currency contracts entered into by the Fund
may result in the creation of one or more straddles for federal income tax
purposes, in which case certain loss deferral, short sales, and wash sales rules
and the requirement to capitalize interest and carrying charges may apply.
Some investments may be subject to special rules which govern the federal
income tax treatment of certain transactions denominated in terms of a currency
other than the U.S. dollar or determined by reference to the value of one or
more currencies other than the U.S. dollar. The types of transactions covered by
the special rules include the following: (i) the acquisition of, or becoming the
obligor under, a bond or other debt instrument (including, to the extent
provided in Treasury regulations, preferred stock); (ii) the accruing of certain
trade receivables and payables; and (iii) the entering into or acquisition of
any forward contract, futures contract, option and similar financial instrument.
However, regulated futures contracts and non-equity options are generally not
subject to the special currency rules if they are or would be treated as sold
for their fair market value at year-end under the marking-tomarket rules unless
an election is made to have such currency rules apply. The disposition of a
currency other than the U.S. dollar by a U.S. taxpayer is also treated as a
transaction subject to the special currency rules. With respect to transactions
covered by the special rules, foreign currency gain or loss is calculated
separately from any gain or loss on the underlying transaction and is normally
taxable as ordinary gain or loss. A taxpayer may elect to treat as capital gain
or loss foreign currency gain or loss arising from certain identified forward
contracts, futures contracts and options that are capital assets in the hands of
the taxpayer and which are not part of a straddle. In accordance with Treasury
regulations, certain transactions subject to the special currency rules that are
part of a "section 988 hedging transaction" (as defined in the Code and the
Treasury regulations) will be integrated and treated as a single transaction or
otherwise treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code. It is anticipated that some of the non-U.S. dollar denominated
investments and foreign currency contracts that the Funds may make or may enter
into will be subject to the special currency rules described above. Gain or loss
attributable to the foreign currency component of transactions engaged in by a
Fund which are not subject to special currency rules (such as foreign equity
investments other than certain preferred stocks) will be treated as capital gain
or loss and will not be segregated from the gain or loss on the underlying
transaction.
Qualification as a regulated investment company under the Code requires
that each Fund satisfy certain requirements with respect to the source of its
income during a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interests, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency gains which are
not directly related to a Fund's principal business of investing in stock or
securities, or futures with respect to stock or securities. Any income derived
by a Fund from a partnership or trust is treated as derived with respect to the
Fund's business of investing in stock,
B-8
<PAGE> 73
securities or currencies only to the extent that such income is attributable to
items of income which would have been qualifying income if realized by the Fund
in the same manner as by the partnership or trust.
An additional requirement for qualification as a regulated investment
company under the Code is that less than 30% of a Fund's gross income must be
derived from gains realized on the sale or other disposition of the following
investments held for less than three moths: (1) stock and securities (as defined
in section 2(a)(36) of the Investment Company Act of 1940); (2) options, futures
and forward contracts other than those on foreign currencies; and (3) foreign
currencies (and options, futures and forward contracts on foreign currencies)
that are not directly related to a Fund's principal business of investing in
stock and securities (and futures with respect to stocks and securities). With
respect to futures contracts and other financial instruments subject to the
marking-to-market rules, the Internal Revenue Service has ruled in private
letter rulings that a gain realized from such a futures contract or financial
instrument will be treated as being derived from a security held for three
months or more (regardless of the actual period for which the contract or
instrument is held) if the gain arises as a result of a constructive sale under
the marking-to-market rules, and will be treated as being derived from a
security held for less than three months only if the contract or instrument is
terminated (or transferred) during the taxable year (other than by reason of
marking-to-market) and less than three months have elapsed between the date the
contract or instrument is acquired and the termination date. In determining
whether the 30% test is met for a taxable year, increases and decreases in the
value of each Fund's futures contracts and other investments that qualify as
part of a "designated hedge," as defined in the Code, may be netted.
B-9
<PAGE> 74
PACIFIC INNOVATIONS TRUST,
A DELAWARE BUSINESS TRUST
FORM N-1A
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
a. Financial Statements:
Registrant's Statement of Assets and Liabilities as of
______________, 1996 to be provided in Part B.
b. Exhibits:
(1.1) Certificate of Trust of Registrant.
(1.2) Declaration of Trust of Registrant.
(2) Bylaws of Registrant.
(3) None.
(4) None.
(5.1) Form of Management Agreement between Registrant and
Bank of America NT&SA.
(5.2) Form of Subadvisory Agreement between Bank of America
NT&SA and Scudder, Stevens & Clark, Inc.
(5.3) Form of Subadvisory Agreement between Bank of America
NT&SA and Wellington Management Company, LLP.
(6) Form of Distribution Agreement between Registrant and
BISYS Fund Services Limited Partnership.
(7) None.
(8.1) Form of Custodian Services Agreement between
Registrant and PNC Bank, N.A.
<PAGE> 75
(8.2) Form of Global Custody Agreement between PNC Bank,
N.A. and Barclays Bank PLC.
(9.1) Form of Sub-Administration and Accounting Services
Agreement among Registrant, PFPC Inc. and Bank of
America NT&SA.
(9.2) Form of Transfer Agency Agreement between Registrant
and Pacific Mutual Life Insurance Company.
(9.3) Form of Support Services Agreement between Registrant
and Pacific Mutual Life Insurance Company.
(9.4) Form of Participation Agreement between Registrant
and Pacific Mutual Life Insurance Company.
(10) Opinion and Consent of Counsel - to be filed by
pre-effective amendment.
(11) Consent of independent accountants - to be filed by
pre-effective amendment.
(12) Not applicable.
(13) Form of investment letter of initial investor in
Registrant -- to be filed by pre-effective amendment.
(14) None.
(15) None.
(16) Not applicable.
(17) Not applicable.
(18) None.
Item 25. Persons Controlled by or Under Common Control with Registrant.
As of ______________, 1996, all of the outstanding shares of
Registrant were held by Pacific Financial Asset Management Corporation, a
subsidiary of Pacific Mutual Life Insurance Company, which may be deemed to
control Registrant for purposes of the Investment Company Act of 1940.
C-2
<PAGE> 76
Item 26. Number of Holders of Securities.
As of _____________, 1996, the number of record holders of
each series of Registrant was as follows:
<TABLE>
<CAPTION>
Title of Series Number of Record Holders
--------------- ------------------------
<S> <C>
Money Market Fund 1
Managed Bond Fund 1
Capital Income Fund 1
Blue Chip Fund 1
Mid-Cap Equity Fund 1
Aggressive Growth Fund 1
International Fund 1
</TABLE>
Item 27. Indemnification.
Article V of Registrant's Declaration of Trust, filed herewith
as Exhibit 1, provides for the indemnification of Registrant's trustees,
officers, employees and agents against liabilities incurred by them in
connection with the defense or disposition of any action or proceeding in which
they may be involved or with which they may be threatened, while in office or
thereafter, by reason of being or having been in such office, except with
respect to matters as to which it has been determined that they acted with
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of their office ("Disabling Conduct").
Registrant intends to obtain from a major insurance carrier a
trustees' and officers' liability policy covering certain types of errors and
omissions.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer, or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
C-3
<PAGE> 77
Item 28. Business and Other Connections of Investment Manager.
(a) Bank of America performs investment management
services for Registrant. Bank of America and its predecessors have been in the
business of managing investments of fiduciary and other accounts since 1904.
In addition to its trust business, Bank of America provides commercial and
consumer banking services.
To the knowledge of Registrant, none of the directors or
officers of Bank of America, except those set forth below, is or has been, at
any time during the past two calendar years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers of Bank of America also hold various positions with, and
engage in business for, BankAmerica Corporation (which owns all the outstanding
stock of Bank of America) or other subsidiaries of BankAmerica Corporation.
Set forth below are the names and principal businesses of the directors of Bank
of America and the directors and certain of the senior executive officers of
Bank of America who are engaged in any business, profession, vocation or
employment of a substantial nature other than with BankAmerica Corporation.
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<PAGE> 78
<TABLE>
<CAPTION>
Position with Bank of
America NT&SA Name Principal Occupation Type of Business
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Director Joseph F. Alibrandi Chairman of the Board Manufacturer of Aerospace
and Chief Executive and Biotechnology Products
Officer, Whittaker
Corporation
Director Jill E. Barad President and Chief Toy Manufacturer
Executive Officer,
Mattel, Inc.
Director Peter B. Bedford Chairman and CEO, California based Real
Bedford Property Estate Development and
Investors, Inc. Investment Firm
Director Andrew F. Brimmer President, Brimmer & Consulting
Co., Inc.
Director Richard A. Clarke Retired Chairman of the Utility Company
Board, Pacific Gas and
Electric Company
Director David A. Coulter Chief Executive Officer National Bank
and Chairman of the
Board, Bank of America
NT&SA
Director Timm F. Crull Chairman, Hallmark Greeting Cards
International
Director Kathleen Feldstein President, Economic Economic Consulting
Studies, Inc.
Director Donald E. Guinn Chairman Emeritus, Telecommunications and
Pacific Telesis Group Diversified Holding
Company
Director Frank L. Hope, Jr. Consulting Architect Architectural and
Engineering Consulting
Director Ignacio E. Lozano, Jr. Chairman, "La Opinion" Newspaper Publishing
Director Walter E. Massey President, Morehouse Higher Education
College
Director John M. Richman Counsel, Wachtell, Law Firm
Lipton, Rosen & Katz
Director A. Michael Spense Dean of the Graduate Higher Education
School of Business,
Stanford University
</TABLE>
C-5
<PAGE> 79
<TABLE>
<CAPTION>
Position with Bank of
America NT&SA Name Principal Occupation Type of Business
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Director Solomon D. Trujillo President and Chief Telecommunications
Executive Officer, US
West Communications
Group
</TABLE>
(b) Scudder, Stevens & Clark, Inc. ("Scudder") is an
investment adviser registered under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"). The list required by this Item 28 of officers
and partners of Scudder, together with any information as to any business
profession, vocation or employment of a substantial nature engaged in by such
officers and partners during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by Scudder pursuant to the Advisers Act
(SEC File No. 801-252).
(c) Wellington Management Company, LLP ("Wellington
Management") is an investment adviser registered under the Advisers Act. The
list required by this Item 28 of officers and partners of Wellington
Management, together with any information as to any business profession,
vocation or employment of a substantial nature engaged in by such officers and
partners during the last two years, is incorporated herein by reference to
Schedules A and D of Form ADV filed by Wellington Management pursuant to the
Advisers Act (SEC File No. 801-159089).
Item 29. Principal Underwriters.
(a) BISYS Fund Services Limited Partnership ("BISYS")
acts as principal underwriter for the Company. BISYS also acts as principal
underwriter or exclusive distributor for the following registered investment
companies: American Performance Funds; AmSouth Mutual Funds; The ARCH Fund,
Inc.; The BB&T Mutual Funds Group; The Coventry Group; Fountain Square Funds;
HSBC Family of Funds; The HighMark Group; The Kent Funds; Marketwatch Funds;
MMA Praxis Mutual Funds; M.S.D.&T. Funds; Pacific Capital Funds; Parkstone
Group of Funds; The Parkstone Advantage Funds; Pegasus Funds; Qualivest Funds;
The Republic Funds; The Riverfront Funds, Inc.; SBSF Funds, Inc. dba Key Mutual
Funds; The Sessions Group; Summit Investment Trust; and The Victory Portfolios.
(b) For information as to the business, profession,
vocation or employment of a substantial nature of each of BISYS, its officers
and partners, reference is made to the Form BD filed by BISYS (file no.
8-32480), which is incorporated by reference herein. Information as to the
positions or offices of each of BISYS, its officers and partners is as follows:
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<PAGE> 80
<TABLE>
<CAPTION>
Position and
Name and Principal Business Position and Offices with Office with
Address BISYS Registrant
----------------- --------------- ------------
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus Ohio 43219
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, New Jersey 07424
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records.
(1) BISYS Fund Services Limited Partnership, 3435 Stelzer Road,
Columbus, Ohio 43219 (records relating to the Distributor).
(2) Bank of America National Trust and Savings Association, 555
California Street, San Francisco, California 94104 (records
relating to the Manager).
(3) Pacific Mutual Life Insurance Company, 700 Newport Center
Drive, Newport Beach, California 92660 (records relating to
the Transfer Agent).
(4) Vedder, Price, Kaufman & Kammholz, 222 N. LaSalle, 26th Floor,
Chicago, Illinois 60601 (Registrant's Declaration of Trust,
By-Laws and minute books).
(5) PNC Bank, N.A., Broad and Chestnut Streets, Philadelphia,
Pennsylvania 19101 (records relating to the Custodian).
(6) PFPC Inc., 103 Bellevue Parkway, Wilmington, Delaware 19809
(records relating to the Sub-Administration and Accounting
Services Agreement).
Item 31. Management Services.
Not Applicable.
C-7
<PAGE> 81
Item 32. Undertakings.
Registrant hereby undertakes that if it is requested by the
holders of at least 10% of its outstanding shares to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
Trustee, it will do so and will assist in communications with other
shareholders as required by Section 16(c) of the Investment Company Act of
1940.
Registrant hereby undertakes to file a post-effective
amendment using financial statements which need not be certified, within four
to six months from the effective date of this Registration Statement.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
C-8
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on the 14th
day of October, 1996.
PACIFIC INNOVATIONS TRUST,
a Delaware Business Trust
By s/J. David Huber
------------------------
J. David Huber
President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C> <C>
s/J. David Huber President October 14, 1996
-----------------------
J. David Huber
s/Mark E. Nagle Treasurer October 14, 1996
-----------------------
Mark E. Nagle
Robert E. Greeley* Trustee October 14, 1996
-----------------------
Robert E. Greeley
Edward S. Bottom* Trustee October 14, 1996
-----------------------
Edward S. Bottom
William P. Carmichael* Trustee October 14, 1996
-----------------------
William P. Carmichael
Harold T. Joanning* Trustee October 14, 1996
-----------------------
Harold T. Joanning
John Privat* Trustee October 14, 1996
-----------------------
John Privat
*By s/J. David Huber October 14, 1996
------------------------------
J. David Huber
Attorney-in-fact
</TABLE>
<PAGE> 83
EXHIBIT INDEX
PACIFIC INNOVATIONS TRUST,
a Delaware Business Trust
FORM N-1A REGISTRATION STATEMENT
FILE NO. 811-____
<TABLE>
<CAPTION>
Exhibit No. Title of Exhibit
----------- ----------------
<S> <C>
(1.1) Certificate of Trust of Registrant.
(1.2) Declaration of Trust of Registrant.
(2) Bylaws of Registrant.
(3) None.
(4) None.
(5.1) Form of Management Agreement between Registrant and Bank of America NT&SA.
(5.2) Form of Subadvisory Agreement between Bank of America NT&SA and Scudder, Stevens & Clark, Inc.
(5.3) Form of Subadvisory Agreement between Bank of America NT&SA and Wellington Management Company, LLP.
(6) Form of Distribution Agreement between Registrant and BISYS Fund Services Limited Partnership.
(7) None.
(8.1) Form of Custodian Services Agreement between Registrant and PNC Bank, N.A.
(8.2) Form of Global Custody Agreement between PNC Bank, N.A. and Barclays Bank PLC.
(9.1) Form of Sub-Administration and Accounting Services Agreement among Registrant, PFPC Inc. and Bank of
America NT&SA.
(9.2) Form of Transfer Agency Agreement between Registrant and Pacific Mutual Life Insurance Company.
</TABLE>
<PAGE> 84
<TABLE>
<S> <C>
(9.3) Form of Support Services Agreement between Registrant and Pacific Mutual Life Insurance Company.
(9.4) Form of Participation Agreement between Registrant and Pacific Mutual Life Insurance Company.
(10) Opinion and Consent of Counsel - to be provided.
(11) Consent of independent accountants - to be provided.
(12) Not applicable.
(13) Form of investment letter of initial investor in Registrant -- to be provided.
(14) None.
(15) None.
(16) Not applicable.
(17) Not applicable.
(18) None.
</TABLE>
<PAGE> 1
Exhibit 1.1
CERTIFICATE OF TRUST
OF
PACIFIC INNOVATIONS TRUST, A DELAWARE BUSINESS TRUST
The undersigned, constituting the sole member of the Board of Trustees
of PACIFIC INNOVATIONS TRUST, A DELAWARE BUSINESS TRUST (the "Trust"), in order
to form a Delaware business trust pursuant to Section 3810 of the Delaware
Business Trust Act, does hereby certify the following:
1. The name of the Delaware business trust is Pacific Innovations
Trust, a Delaware Business Trust.
2. Prior to the issuance of beneficial interests, the Trust will
become a registered investment company under the Investment Company Act of
1940, as amended.
3. Notice is hereby given that pursuant to Section 3804 of the
Delaware Business Trust Act, the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to a particular
series of the Trust shall be enforceable against the assets of such series only
and not against the assets of the Trust generally.
4. The registered office of the Trust in Delaware is Pacific
Innovations Trust, a Delaware Business Trust, c/o The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, County of New Castle,
Wilmington, Delaware 19801.
5. The registered agent for service of process on the Trust is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, County
of New Castle, Wilmington, Delaware 19801.
6. This Certificate of Trust shall be effective the date it is filed
with the Office of the Delaware Secretary of State.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned Trustee of Pacific Innovations
Trust, a Delaware Business Trust, has executed this Certificate as of the 25th
day of September, 1996.
s/Michael Glazer
------------------------
Michael Glazer
Trustee
-2-
<PAGE> 1
EXHIBIT 1.2
DECLARATION OF TRUST
OF
PACIFIC INNOVATIONS TRUST,
A DELAWARE BUSINESS TRUST
This DECLARATION OF TRUST of PACIFIC INNOVATIONS TRUST, A DELAWARE
BUSINESS TRUST, is made on September 25, 1996 by the parties signatory hereto,
as trustees.
WHEREAS, the Trustees desire to form a business trust under the
law of Delaware for the investment and reinvestment of its assets; and
WHEREAS, it is proposed that the Trust assets be composed of cash,
securities and other assets contributed to the Trust by the Holders of
Interests in the Trust entitled to ownership rights in the Trust;
NOW, THEREFORE, the Trustees hereby declare that the Trustees will
hold in trust all cash, securities and other assets which they may from time to
time acquire in any manner as Trustees hereunder, and manage and dispose of the
same for the benefit of the Holders of Interests in the Trust and subject to
the following terms and conditions.
ARTICLE I
The Trust
1.1 Name. The name of the trust created hereby (the "Trust")
shall be "Pacific Innovations Trust, a Delaware Business Trust," and so far as
may be practicable the Trustees shall conduct the Trust's activities, execute
all documents and sue or be sued under that name, which name (and the word
"Trust" wherever hereinafter used) shall not refer to the Trustees in their
individual capacities or to the officers, agents, employees or holders of
interest in the Trust. However, should the Trustees determine that the use of
the name of the Trust is not advisable, they may select such other name for the
Trust as they deem proper and the Trust may hold its property and conduct its
activities under such other name. Any name change shall become effective upon
the execution by a majority of the then Trustees of an instrument setting forth
the name and the filing of a certificate of amendment pursuant to Section
3810(b) of the DBTA. Any such instrument shall not require the approval of the
Holders of Interests in the Trust, but shall have the status of an amendment to
this Declaration.
-1-
<PAGE> 2
1.2 Trust Purpose. The purpose of the Trust is to conduct,
operate and carry on the business of an open-end management investment company
registered under the 1940 Act. In furtherance of the foregoing, it shall be
the purpose of the Trust to do everything necessary, suitable, convenient or
proper for the conduct, promotion and attainment of any businesses and purposes
which at any time may be incidental or may appear conducive or expedient for
the accomplishment of the business of an open-end management investment company
registered under the 1940 Act and which may be engaged in or carried on by a
trust organized under the DBTA, and in connection therewith the Trust shall
have and may exercise all of the powers conferred by the laws of the State of
Delaware upon a Delaware business trust.
1.3 Definitions. As used in this Declaration, the following
terms shall have the following meanings:
(a) "1940 Act" shall mean the Investment Company Act of
1940, as amended from time to time, and the rules and regulations thereunder,
as adopted or amended from time to time.
(b) "Affiliated Person," "Assignment" and "Interested
Person" shall have the meanings given such terms in the 1940 Act.
(c) "Administrator" shall mean any party furnishing
services to the Trust pursuant to any administrative services contract
described in Section 4.1 hereof.
(d) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time.
(e) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time, and the rules and regulations thereunder,
as adopted or amended from time to time.
(f) "Commission" shall mean the Securities and
Exchange Commission.
(g) "Declaration" shall mean this Declaration of
Trust as amended from time to time. References in this Declaration to
"Declaration," "hereof," "herein" and "hereunder" shall be deemed to refer to
the Declaration rather than the article or section in which such words appear.
This Declaration shall, together with the By-Laws, constitute the governing
instrument of the Trust under the DBTA.
(h) "DBTA" shall mean the Delaware Business Trust
Act, Delaware Code Annotated title 12, Sections 3801 et seq., as amended from
time to time.
(i) "Fiscal Year" shall mean an annual period as
determined by the Trustees unless otherwise provided by the Code or applicable
regulations.
<PAGE> 3
(j) "Holders" shall mean as of any particular time
any or all holders of record of Interests in the Trust or in Trust Property, as
the case may be, at such time.
(k) "Interest" shall mean a Holder's units of
interest into which the beneficial interest in the Trust and each series of the
Trust shall be divided from time to time.
(l) "Investment Adviser" shall mean any party
furnishing services to the Trust pursuant to any investment advisory contract
described in Section 4.1 hereof.
(m) "Majority Interests Vote" shall mean the vote, at
a meeting of the Holders of Interests, of the lesser of (A) 67% or more of the
Interests present or represented at such meeting, provided the Holders of more
than 50% of the Interests are present or represented by proxy or (B) more than
50% of the Interests.
(n) "Person" shall mean and include an individual,
corporation, partnership, trust, association, joint venture and other entity,
whether or not a legal entity, and a government and agencies and political
subdivisions thereof.
(o) "Registration Statement" as of any particular
time shall mean the Registration Statement of the Trust which is effective at
such time under the 1940 Act.
(p) "Trust Property" shall mean as of any particular
time any and all property, real or personal, tangible or intangible, which at
such time is owned or held by or for the account of the Trust or the Trustees
or any series of the Trust established in accordance with Section 6.2.
(q) "Trustees" shall mean such persons who are
indemnified as trustees of the Trust on the signature page of this Declaration,
so long as they shall continue in office in accordance with the terms of this
Declaration of Trust, and all other persons who at the time in question have
been duly elected or appointed as trustees in accordance with the provisions of
this Declaration of Trust and are then in office, in their capacity as trustees
hereunder.
-3-
<PAGE> 4
ARTICLE II
Trustees
2.1 Number and Qualification. The number of Trustees shall
initially be one and shall thereafter be fixed from time to time by written
instrument signed by a majority of the Trustees so fixed then in office,
provided, however, that the number of Trustees shall in no event be less than
one. A Trustee shall be an individual at least 21 years of age who is not
under legal disability.
(a) Any vacancy created by an increase in Trustees
shall be filled by the appointment or election of an individual having the
qualifications described in this Article as provided in Section 2.4. Any such
appointment shall not become effective, however, until the individual appointed
or elected shall have accepted in writing such appointment or election and
agreed in writing to be bound by the terms of the Declaration. No reduction in
the number of Trustees shall have the effect of removing any Trustee from
office.
(b) Whenever a vacancy in the number of Trustees
shall occur, until such vacancy is filled as provided in Section 2.4 hereof,
the Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by this Declaration.
2.2 Term and Election. Each Trustee named herein, or elected
or appointed prior to the first meeting of the Holders, shall (except in the
event of resignations or removals or vacancies pursuant to Section 2.3 or 2.4
hereof) hold office until his or her successor has been elected at such meeting
and has qualified to serve as Trustee. Beginning with the Trustees elected at
the first meeting of Holders, each Trustee shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided unless
such Trustee resigns or is removed as provided in Section 2.3 below or his term
expires pursuant to Section 2.4 hereof.
2.3 Resignation and Removal. Any Trustee may resign (without
need for prior or subsequent accounting) by an instrument in writing signed by
him or her and delivered or mailed to the Chairman, if any, the President or
the Secretary and such resignation shall be effective upon such delivery, or at
a later date according to the terms of the instrument.
(a) Any of the Trustees may be removed with or
without cause by the affirmative vote of the Holders of two-thirds (2/3) of the
Interests or (provided the aggregate number of Trustees, after such removal and
after giving effect to any appointment made to fill the vacancy created by such
removal, shall not be less than the number required by Section 2.1 hereof) with
cause, by the action of two-thirds (2/3) of
-4-
<PAGE> 5
the remaining Trustees. Removal with cause shall include, but not be limited
to, the removal of a Trustee due to physical or mental incapacity.
(b) Upon the resignation or removal of a Trustee, or
his or her otherwise ceasing to be a Trustee, he or she shall execute and
deliver such documents as the remaining Trustees shall require for the purpose
of conveying to the Trust or the remaining Trustees any Trust Property held in
the name of the resigning or removed Trustee. Upon the death of any Trustee or
upon removal or resignation due to any Trustee's incapacity to serve as
trustee, his or her legal representative shall execute and deliver on his or
her behalf such documents as the remaining Trustees shall require as provided
in the preceding sentence.
2.4 Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the earliest to occur of
the following: the Trustee's attainment of age 72, death, resignation,
adjudicated incompetence or other incapacity to perform the duties of the
office, or removal, of the Trustee. A vacancy shall also occur in the event of
an increase in the number of trustees as provided in Section 2.1. No such
vacancy shall operate to annul this Declaration or to revoke any existing trust
created pursuant to the terms of this Declaration. In the case of a vacancy,
the Holders of a plurality of the Interests entitled to vote, acting at any
meeting of the Holders held in accordance with Article VIII hereof, or, to the
extent permitted by the 1940 Act, a majority vote of the Trustees continuing in
office acting by written instrument or instruments, may fill such vacancy, and
any Trustee so elected by the Trustees or the Holders shall hold office as
provided in this Declaration. There shall be no cumulative voting by the
Holders in the election of Trustees.
2.5 Meetings. Meetings of the Trustees shall be held from
time to time within or without the State of Delaware upon the call of the
Chairman, if any, the President, the Chief Operating Officer, the Secretary, an
Assistant Secretary or any two Trustees.
(a) Regular meetings of the Trustees may be held
without call or notice at a time and place fixed by the By-Laws or by
resolution of the Trustees. Notice of any other meeting shall be given not
later than 72 hours preceding the meeting by United States mail or by
electronic transmission to each Trustee at his business address as set forth in
the records of the Trust or otherwise given personally not less than 24 hours
before the meeting but may be waived in writing by any Trustee either before or
after such meeting. The attendance of a Trustee at a meeting shall constitute
a waiver of notice of such meeting except where a Trustee attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting has not been lawfully called or convened.
(b) A quorum for all meetings of the Trustees shall
be one-third of the total number of Trustees, but (except at such time as there
is only one Trustee) no less
-5-
<PAGE> 6
than two Trustees. Unless provided otherwise in this Declaration, any action
of the Trustees may be taken at a meeting by vote of a majority of the Trustees
present (a quorum being present) or without a meeting by written consent of a
majority of the Trustees, which written consent shall be filed with the minutes
of proceedings of the Trustees or any such committee. If there be less than a
quorum present at any meeting of the Trustees, a majority of those present may
adjourn the meeting until a quorum shall have been obtained.
(c) Any committee of the Trustees, including an
executive committee, if any, may act with or without a meeting. A quorum for
all meetings of any such committee shall be two or more of the members thereof,
unless the Board shall provide otherwise. Unless provided otherwise in this
Declaration, any action of any such committee may be taken at a meeting by vote
of a majority of the members present (a quorum being present) or without a
meeting by written consent of a majority of the members, which written consent
shall be filed with the minutes of proceedings of the Trustees or any such
committee.
(d) With respect to actions of the Trustees and any
committee of the Trustees, Trustees who are Interested Persons of the Trust or
are otherwise interested in any action to be taken may be counted for quorum
purposes under this Section 2.5 and shall be entitled to vote to the extent
permitted by the 1940 Act.
(e) All or any one or more Trustees may participate
in a meeting of the Trustees or any committee thereof by means of a conference
conducted by telephone or similar communications equipment in a manner in which
all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to such communications system shall constitute presence
in person at such meeting, unless the 1940 Act specifically requires the
Trustees to act "in person," in which case such term shall be construed
consistent with Commission or staff releases or interpretations.
2.6 Officers; Chairman of the Board. The Trustees shall, from
time to time, elect officers of the Trust, including a President, a Secretary
and a Treasurer. The Trustees shall elect or appoint a Trustee to act as
Chairman of the Board who shall preside at all meetings of the Trustees and
carry out such other duties as the Trustees shall designate. The position of
the Chairman of the Board shall be rotated among the Trustees, each of whom
shall act as such for a term of two years. The Trustees may elect or appoint
or authorize the President to appoint such other officers or agents with such
powers as the Trustees may deem to be advisable. The President, Secretary and
Treasurer may, but need not, be a Trustee. Except as set forth above, the
Chairman of the Board and such officers of the Trust shall serve in such
capacity for such time and with such authority as the Trustees may, in their
discretion, so designate or as provided in the By-Laws.
-6-
<PAGE> 7
2.7 By-Laws. The Trustees may adopt and, from time to time,
amend or repeal the By-Laws for the conduct of the business of the Trust not
inconsistent with this Declaration and such By-Laws are hereby incorporated in
this Declaration by reference thereto.
ARTICLE III
Powers of Trustees
3.1 General. The Trustees shall have exclusive and absolute
control over management of the business and affairs of the Trust, but with such
powers of delegation as may be permitted by this Declaration and the DBTA. The
Trustees may perform such acts as in their sole discretion are proper for
conducting the business and affairs of the Trust. The enumeration of any
specific power herein shall not be construed as limiting the aforesaid power.
Such powers of the Trustee may be exercised without order of or recourse to any
court.
3.2 Investments. The Trustees shall have power to:
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase
or otherwise acquire, hold, pledge, sell, assign, transfer, exchange,
distribute or otherwise deal in or dispose of United States and foreign
currencies and related instruments including forward contracts, and securities,
including common and preferred stock, warrants, bonds, debentures, time notes
and all other evidences of indebtedness, negotiable or non-negotiable
instruments, obligations, certificates of deposit or indebtedness, commercial
paper, repurchase agreements, reverse repurchase agreements, convertible
securities, forward contracts, options, futures contracts, and other
securities, including, without limitation, those issued, guaranteed or
sponsored by any state, territory or possession of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, or by the United States Government, any foreign government,
or any agency, instrumentality or political subdivision of the United States
Government or any foreign government, or international instrumentalities, or by
any bank, savings institution, corporation or other business entity organized
under the laws of the United States or under foreign laws; and to exercise any
and all rights, powers and privileges of ownership or interest in respect of
any and all such investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto, with
power to designate one or more persons, firms, associations, or corporations to
exercise any of said rights, powers and privileges in respect of any of said
-7-
<PAGE> 8
instruments; and the Trustees shall be deemed to have the foregoing powers with
respect to any additional securities in which the Trustees may determine to
invest.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees
be limited by any law limiting the investments which may be made by
fiduciaries.
3.3 Legal Title. Legal title to all the Trust Property shall
be vested in the Trust as a separate legal entity under the DBTA, except that
the Trustees shall have the power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees or in the name of any
other Person on behalf of the Trust on such terms as the Trustees may
determine.
In the event that title to any part of the Trust Property is
vested in one or more Trustees, the right, title and interest of the Trustees
in the Trust Property shall vest automatically in each person who may hereafter
become a Trustee upon his or her due election and qualification. Upon the
resignation, removal or death of a Trustee he or she shall automatically cease
to have any right, title or interest in any of the Trust Property, and the
right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. To the extent permitted by law, such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
3.4 Sale of Interests. Subject to the more detailed
provisions set forth in Article VII, the Trustees shall have the power to
permit persons to purchase Interests and to add or reduce, in whole or in part,
their Interest in the Trust.
3.5 Borrow Money. The Trustees shall have power to borrow
money or otherwise obtain credit and to secure the same by mortgaging, pledging
or otherwise subjecting as security the assets of the Trust, including the
lending of portfolio securities, and to endorse, guarantee or undertake the
performance of any obligation, contract or engagement of any other person,
firm, association or corporation.
3.6 Delegation; Committees. The Trustees shall have the
power, consistent with their continuing exclusive authority over the management
of the Trust and the Trust Property, to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of such
things and the execution of such instruments, either in the name of the Trust
or the names of the Trustees or otherwise, as the Trustees may deem expedient.
3.7 Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property;
-8-
<PAGE> 9
to foreclose any security interest securing any obligations, by virtue of which
any property is owned to the Trust; and to enter into releases, agreements and
other instruments.
3.8 Expenses. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and
Trustees. The Trustees may pay themselves such compensation for special
services, including legal and brokerage services, as they in good faith may
deem reasonable (subject to any limitations in the 1940 Act), and reimbursement
for expenses reasonably incurred by themselves on behalf of the Trust. There
shall be no retirement compensation plan for Trustees; provided, however, that
the Trustees may adopt a deferred compensation plan consistent with industry
and regulatory standards.
3.9 Miscellaneous Powers. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust and terminate such
employees or contractual relationships as they consider appropriate; (b) enter
into joint ventures, partnerships and any other combinations or associations;
(c) purchase, and pay for out of Trust Property, insurance policies (including,
but not limited to, fidelity bonding and errors and omission policies) insuring
the Investment Adviser, Administrator, distributor, Holders, Trustees,
officers, employees, agents, or independent contractors of the Trust against
all claims arising by reason of holding any such position or by reason of any
action taken or omitted by any such person in such capacity, whether or not the
Trust would have the power to indemnify such Person against liability; (d)
establish pension, profit-sharing and other retirement, incentive and benefit
plans for any Trustees, officers, employees and agents of the Trust; (e) to the
extent permitted by law, indemnify any Person with whom the Trust has dealings,
including the Investment Adviser, Administrator, distributor, Holders,
Trustees, officers, employees, agents or independent contractors of the Trust,
to such extent as the Trustees shall determine; (f) guarantee indebtedness or
contractual obligations of others; (g) determine and change the Fiscal Year of
the Trust and the method by which its accounts shall be kept; and (h) adopt a
seal for the Trust, but the absence of such seal shall not impair the validity
of any instrument executed on behalf of the Trust.
3.10 Further Powers. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and all of its
branches and maintain offices, whether within or without the State of Delaware,
in any and all states of the United States of America, in the District of
Columbia, in any foreign countries, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or instrumentalities
of the United States of America and of foreign countries, and to do all such
other things and execute all such instruments as they deem necessary, proper or
-9-
<PAGE> 10
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive
and shall be binding upon the Trust and the Holders, past, present and future.
In construing the provisions of this Declaration, the presumption shall be in
favor of a grant of power to the Trustees. The Trustees shall not be required
to obtain any court order to deal with Trust Property.
ARTICLE IV
Investment Advisory, Administrative Services
and Placement Agent Arrangements
4.1 Investment Advisory and Other Arrangements. The Trustees
may in their discretion, from time to time, enter into contracts or agreements
for investment advisory services, administrative services (including transfer
and dividend disbursing agency services), distribution services, fiduciary
(including custodian) services, placement agent services, Holder servicing and
distribution services, or other services, whereby the other party to such
contract or agreement shall undertake to furnish the Trustees such services as
the Trustees shall, from time to time, consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any other provisions of this Declaration to the contrary, the
Trustees may authorize any Investment Adviser (subject to such general or
specific instructions as the Trustees may, from time to time, adopt) to effect
purchases, sales, loans or exchanges of Trust Property on behalf of the
Trustees or may authorize any officer, employee or Trustee to effect such
purchases, sales, loans or exchanges pursuant to recommendations of any such
Investment Adviser (all without further action by the Trustees). Any such
purchases, sales, loans and exchanges shall be binding upon the Trust.
4.2 Parties to Contract. Any contract or agreement of the
character described in Section 4.1 of this Article IV or in the By-Laws of the
Trust may be entered into with any Person, although one or more of the Trustees
or officers of the Trust or any Holder may be an officer, director, trustee,
shareholder, or member of such other party to the contract or agreement, and no
such contract or agreement shall be invalidated or rendered voidable by reason
of the existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of such contract or agreement or
accountable for any profit realized directly or indirectly therefrom, provided
that the contract or agreement when entered into was reasonable and fair and
not inconsistent with the provisions of this Article IV or the By-Laws. Any
Trustee or officer of the Trust or any Holder may be the other party to
contracts or agreements entered into pursuant to Section 4.1 hereof or the
By-Laws of the Trust, and any Trustee or officer of the Trust or any Holder may
be
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<PAGE> 11
financially interested or otherwise affiliated with Persons who are parties to
any or all of the contracts or agreements mentioned in this Section 4.2.
ARTICLE V
Limitations of Liability
5.1 No Personal Liability of Trustees, Officers, Employees,
Agents. No Trustee, officer, employee or agent of the Trust when acting in
such capacity shall be subject to any personal liability whatsoever, in his or
her individual capacity, to any Person, other than the Trust or its Holders, in
connection with Trust Property or the affairs of the Trust; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature against a Trustee, officer, employee or agent of the Trust arising
in connection with the affairs of the Trust. No Trustee, officer, employee or
agent of the Trust shall be liable to the Trust, Holders of Interests therein,
or to any Trustee, officer, employee, or agent thereof for any action or
failure to act (including, without limitation, the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his or
her own bad faith, willful misfeasance, gross negligence or reckless disregard
of his or her duties.
5.2 Indemnification of Trustees, Officers, Employees, Agents.
The Trust shall indemnify each of its Trustees, officers, employees, and agents
(including Persons who serve at its request as directors, officers or trustees
of another organization in which it has any interest, as a shareholder,
creditor or otherwise) against all liabilities and expenses (including amounts
paid in satisfaction of judgments, in compromise, as fines and penalties, and
as counsel fees) reasonably incurred by him or her in connection with the
defense or disposition of any action, suit or other proceeding, whether civil
or criminal, in which he or she may be involved or with which he or she may be
threatened, while in office or thereafter, by reason of his or her being or
having been such a Trustee, officer, employee or agent, except with respect to
any matter as to which he or she shall have been adjudicated to have acted in
bad faith, willful misfeasance, gross negligence or reckless disregard of his
or her duties; provided, however, that as to any matter disposed of by a
compromise payment by such Person, pursuant to a consent decree or otherwise,
no indemnification either for said payment or for any other expenses shall be
provided unless there has been a determination that such Person did not engage
in willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office by the court or other
body approving the settlement or other disposition or by a reasonable
determination, based upon review of readily available facts (as opposed to a
full trial-type inquiry), that he or she did not engage in such conduct by a
reasonable determination, based upon a review of the facts, that such Person
was not liable by reason of such conduct, by (a) the vote of a majority of a
quorum of Trustees who are neither "interested persons" of the Trust as defined
in Section 2(a)(19)
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of the 1940 Act nor parties to the proceeding, or (b) a written opinion from
independent legal counsel approved by the Trustees. The rights accruing to any
Person under these provisions shall not exclude any other right to which he or
she may be lawfully entitled; provided that no Person may satisfy any right of
indemnity or reimbursement granted herein or in Section 5.1 or to which he or
she may be otherwise entitled except out of the Trust Property. The Trustees
may make advance payments in connection with indemnification under this Section
5.2, provided that the indemnified Person shall have given a written
undertaking to reimburse the Trust in the event it is subsequently determined
that he or she is not entitled to such indemnification.
5.3 Liability of Holders; Indemnification. The Trust shall
indemnify and hold each Holder harmless from and against any claim or liability
to which such Holder may become subject solely by reason of his or her being or
having been a Holder and not because of such Holder's acts or omissions or for
some other reason, and shall reimburse such Holder for all legal and other
expenses reasonably incurred by him or her in connection with any such claim or
liability (upon proper and timely request by the Holder); provided, however,
that no Holder shall be entitled to indemnification by any series established
in accordance with Section 6.2 unless such Holder is a Holder of Interests of
such series. The rights accruing to a Holder under this Section 5.3 shall not
exclude any other right to which such Holder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Holder in any appropriate situation even though not specifically
provided herein.
5.4 No Bond Required of Trustees. No Trustee shall, as such,
be obligated to give any bond or surety or other security for the performance
of any of his or her duties hereunder.
5.5 No Duty of Investigation; Notice in Trust Instruments,
Etc. No purchaser, lender, or other Person dealing with the Trustees or any
officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate or other interest or undertaking of the Trust, and
every other act or thing whatsoever executed in connection with the Trust,
shall be conclusively taken to have been executed or done by the executors
thereof only in their capacity as Trustees, officers, employees or agents of
the Trust. Every written obligation, contract, instrument, certificate or
other interest or undertaking of the Trust made by the Trustees or by any
officer, employee or agent of the Trust, in his or her capacity as such, shall
contain an appropriate recital to the effect that the Trustee, officer,
employee and agent of the Trust shall not personally be bound by or liable
thereunder, nor shall resort be had to their private property or the private
property of the Holders for the satisfaction of any obligation or claim
thereunder, and appropriate references shall be made therein to the
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Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, officers, employees or agents of the
Trust. The Trustees may maintain insurance for the protection of the Trust
Property, Holders, Trustees, officers, employees and agents in such amount as
the Trustees shall deem advisable.
5.6 Reliance on Experts, Etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his or her duties, be fully
and completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or other
records of the Trust, upon an opinion of counsel, or upon reports made to the
Trust by any of its officers or employees or by any Investment Adviser,
Administrator, accountant, appraiser or other experts or consultants selected
with reasonable care by the Trustees, officers or employees of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
5.7 Assent To Declaration. Every Holder, by virtue of having
become a Holder in accordance with the terms of this Declaration, shall be held
to have expressly assented and agreed to the terms hereof and to have become a
party hereto.
ARTICLE VI
Interests in the Trust
6.1 General Characteristics. (a) The Trustees shall have the
power and authority, without Holder approval, to issue Interests in one or more
series from time to time as they deem necessary or desirable. Each series
shall be separate from all other series in respect of the assets and
liabilities allocated to that series and shall represent a separate investment
portfolio of the Trust. The Trustees shall have exclusive power, without
Holder approval, to establish and designate such separate and distinct series,
as set forth in Section 6.2, and to fix and determine the relative rights and
preferences as between the Interests of the separate series as to right of
redemption, special and relative rights as to dividends and other distributions
and on liquidation, conversion rights, and conditions under which the series
shall have separate voting rights or no voting rights.
(b) The number of Interests authorized shall be
unlimited, and the Interests so authorized may be represented in part by
fractional Interests. From time to time, the Trustees may divide or combine
the Interests of any series into a greater or lesser number without thereby
changing the proportionate beneficial interests in the series. The Trustees
may issue Interests of any series for such consideration and on such terms as
they may determine (or for no consideration if pursuant to an Interest dividend
or split-up), all without action or approval of the Holders. All Interests
when so issued
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on the terms determined by the Trustees shall be fully paid and non-assessable.
The Trustees may classify or reclassify any unissued Interests or any Interests
previously issued and reacquired of any series into one or more series that may
be established and designated from time to time. The Trustees may hold as
treasury Interests, reissue for such consideration and on such terms as they
may determine, or cancel, at their discretion from time to time, any Interests
of any series reacquired by the Trust.
6.2 Establishment of Series of Interests. (a) Without
limiting the authority of the Trustees set forth in Section 6.2(b) to establish
and designate any further series, the Trustees hereby establish and designate
seven series, as follows:
Money Market Fund
Managed Bond Fund
Capital Income Fund
Blue Chip Fund
Mid-Cap Equity Fund
Aggressive Growth Fund
International Fund.
The provisions of this Article VI shall be applicable to the above
designated series and any further series that may from time to time be
established and designated by the Trustees as provided in Section 6.2(b).
(b) The establishment and designation of any series
of Interests other than those set forth above shall be effective upon the
execution by a majority of the then Trustees of an instrument setting forth
such establishment and designation and the relative rights and preferences of
such series, or as otherwise provided in such instrument. At any time that
there are no Interests outstanding of any particular series previously
established and designated, the Trustees may by an instrument executed by a
majority of their number abolish that series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration.
(c) Section 9.2 of this Agreement shall apply also
with respect to each such series as if such series were a separate trust.
6.3 Assets of Series. All consideration received by the Trust
for the issue or sale of Interests of a particular series together with all
Trust Property in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to that series for all purposes, subject
only to the rights of creditors of such series and except as may otherwise be
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required by applicable tax laws, and shall be so recorded upon the books of
account of the Trust. Separate and distinct records shall be maintained for
each series and the assets associated with a series shall be held and accounted
for separately from the other assets of the Trust, or any other series. In the
event that there is any Trust Property, or any income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular series, the Trustees shall allocate them among any
one or more of the series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and
binding upon the Holders of all Interests for all purposes.
6.4 Liabilities of Series. (a) The Trust Property belonging
to each particular series shall be charged with the liabilities of the Trust in
respect of that series and all expenses, costs, charges and reserves
attributable to that series, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as
belonging to any particular series shall be allocated and charged by the
Trustees to and among any one or more of the series established and designated
from time to time in such manner and on such basis as the Trustees in their
sole discretion deem fair and equitable. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be conclusive and
binding upon the Holders of all Interests for all purposes. The Trustees shall
have full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items as capital,
and each such determination and allocation shall be conclusive and binding upon
the Holders.
(b) Without limitation of the foregoing provisions of
this Section, but subject to the right of the Trustees in their discretion to
allocate general liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular series shall be
enforceable against the assets of such series only, and not against the assets
of any other series. Notice of this limitation on interseries liabilities
shall be set forth in the certificate of trust of the Trust (whether originally
or by amendment) as filed or to be filed in the Office of the Secretary of
State of the State of Delaware pursuant to the DBTA, and upon the giving of
such notice in the certificate of trust, the statutory provisions of Section
3804 of the DBTA relating to limitations on interseries liabilities (and the
statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each series.
Every note, bond, contract or other undertaking issued by or on behalf of a
particular series shall include a recitation limiting the obligation
represented thereby to that series and its assets.
6.5 Dividends and Distributions. (a) Dividends and
distributions on Interests of a particular series may be paid with such
frequency as the Trustees may determine, which may be daily or otherwise,
pursuant to a standing resolution or resolution adopted
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only once or with such frequency as the Trustees may determine, to the Holders
of Interests in that series, from such of the income and capital gains, accrued
or realized, from the Trust Property belonging to that series, as the Trustees
may determine, after providing for actual and accrued liabilities belonging to
that series. All dividends and distributions on Interests in a particular
series shall be distributed pro rata to the Holders of Interests in that series
in proportion to the total outstanding Interests in that series held by such
Holders at the date and time of record established for the payment of such
dividends or distribution, except to the extent otherwise required or permitted
by the preferences and special or relative rights and privileges of any series.
Such dividends and distributions may be made in cash or Interests of that
series or a combination thereof as determined by the Trustees or pursuant to
any program that the Trustees may have in effect at the time for the election
by each Holder of the mode of the making of such dividend or distribution to
that Holder. Any such dividend or distribution paid in Interests will be paid
at the net asset value thereof as determined in accordance with Section 7.4.
(b) The Interests in a series of the Trust shall
represent beneficial interests in the Trust Property belonging to such series.
Each Holder of Interests in a series shall be entitled to receive its pro rata
share of distributions of income and capital gains made with respect to such
series. Upon reduction or withdrawal of its Interests or indemnification for
liabilities incurred by reason of being or having been a Holder of Interests in
a series, such Holder shall be paid solely out of the funds and property of
such series. Upon liquidation or termination of a series of the Trust, Holders
of Interests in such series shall be entitled to receive a pro rata share of
the Trust Property belonging to such series.
6.6 Voting Rights. Notwithstanding any other provision
hereof, on each matter submitted to a vote of the Holders, each Holder shall be
entitled to one vote for each whole Interest standing in his name on the books
of the Trust, and each fractional Interest shall be entitled to a proportionate
fractional vote, irrespective of the series thereof and all Interests of all
series shall vote together as a single class; provided, however, that as to any
matter (i) with respect to which a separate vote of one or more series is
permitted or required by the 1940 Act or the provisions of the instrument
establishing and designating the series, such requirements as to a separate
vote by such series shall apply in lieu of all Interests of all series voting
together; and (ii) as to any matter which affects only the interests of one or
more particular series, only the Holders of the one or more affected series
shall be entitled to vote, and each such series shall vote as a separate class.
6.7 Record Dates. The Trustees may from time to time close
the transfer books or establish record dates and times for the purposes of
determining the Holders entitled to be treated as such, to the extent provided
or referred to in Section 8.6.
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6.8 Transfer. All Interests of each particular series shall
be transferable, but transfers of Interests of a particular series will be
recorded on the Interest transfer records of the Trust applicable to that
series only at such times as Holders shall have the right to require the Trust
to redeem Interests of that series and at such other times as may be permitted
by the Trustees.
6.9 Equality. Except as provided herein or in the instrument
designating and establishing any series, all Interests of each particular
series shall represent an equal proportionate interest in the assets belonging
to that series, subject to the liabilities belonging to that series, and each
Interest of any particular series shall be equal to each other Interest of that
series; but the provisions of this sentence shall not restrict any distinctions
permissible under Section 6.7 that may exist with respect to dividends and
distributions on Interests of the same series. The Trustees may from time to
time divide or combine the Interests of any particular series into a greater or
lesser number of Interests of that series without thereby changing the
proportionate beneficial interest in the assets belonging to that series or in
any way affecting the rights or Interests of any other series.
6.10 Fractions. Any fractional Interest of any series, if any
such fractional Interest is outstanding, shall carry proportionately all the
rights and obligations of a whole Interest of that series, including rights and
obligations with respect to voting, receipt of dividends and distributions,
redemption of Interests, and liquidation of the Trust.
6.11 Conversion of Interests. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to provide
that Holders of Interests of any series shall have the right to convert said
Interests into one or more other series in accordance with such requirements
and procedures as may be established by the Trustees.
6.12 Investments in the Trust. The Trustees may accept
investments in the Trust from such persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as they
from time to time authorize. The Trustees may authorize any distributor,
principal underwriter, custodian, transfer agent or other person to accept
orders for the purchase of Interests that conform to such authorized terms and
to reject any purchase orders for Interests whether or not conforming to such
authorized terms.
6.13 No Pre-emptive Rights; Derivative Suits. Holders shall
have no pre-emptive or other right to subscribe to any additional Interests or
other securities issued by the Trust. No action may be brought by a Holder on
behalf of the Trust unless Holders owning no less than 10% of the then
outstanding Interests or series join in the bringing of such action. A Holder
of Interests in a particular series of the Trust shall not
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be entitled to participate in a derivative or class action lawsuit on behalf of
any other series or on behalf of the Holders of Interests in any other series
of the Trust.
6.14 No Appraisal Rights. Holders shall have no right to
demand payment for their Interests or to any other rights of dissenting Holders
in the event the Trust participates in any transaction which would give rise to
appraisal or dissenters' rights by a stockholder of a corporation organized
under the General Corporation Law of Delaware, or otherwise.
6.15 Status of Interests and Limitation of Personal Liability.
Interests shall be deemed to be personal property giving only the rights
provided in this Declaration of Trust. Every Holder by virtue of acquiring
Interests shall be held to have expressly assented and agreed to the terms
hereof and to be bound hereby. The death, incapacity, dissolution, termination
or bankruptcy of a Holder during the continuance of the Trust shall not operate
to dissolve or terminate the Trust or any series thereof nor entitle the
representative of such Holder to an accounting or to take any action in court
or elsewhere against the Trust or the Trustees, but shall entitle the
representative of such Holder only to the rights of such Holder under this
Trust. Ownership of Interests shall not entitle the Holder to any title in or
to the whole or any part of the Trust Property or right to call for a partition
or division of the same or for an accounting, nor shall the ownership of
Interests constitute the Holders partners. Neither the Trust nor the Trustees,
nor any officer, employee or agent of the Trust, shall have any power to bind
personally any Holder, nor except as specifically provided herein to call upon
any Holder for the payment of any sum of money or assessment whatsoever other
than such as the Holder may at any time personally agree to pay.
ARTICLE VII
Purchases and Redemptions
7.1 Purchases. The Trustees, in their discretion, may, from
time to time, without a vote of the Holders, permit the purchase of Interests
by such party or parties (or increase in the Interests of a Holder) and for
such type of consideration, including, without limitation, cash or property, at
such time or times (including, without limitation, each business day), and on
such terms as the Trustees may deem best, and may in such manner acquire other
assets (including, without limitation, the acquisition of assets subject to,
and in connection with the assumption of, liabilities) and businesses.
7.2 Redemption by Holder. (a) Each Holder of Interests of the
Trust or any series shall have the right at such times as may be permitted by
the Trust to require the Trust to redeem all or any part of his or her
Interests of the Trust or series at a redemption price equal to the net asset
value per Interest of the Trust or series next
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determined in accordance with Section 7.4 hereof after the Interests are
properly tendered for redemption, subject to any redemption charge in effect at
the time of redemption. Payment of the redemption price shall be in cash;
provided, however, that if the Trustees determine, which determination shall be
conclusive, that conditions exist which make payment wholly in cash unwise or
undesirable, the Trust may, subject to the requirements of the 1940 Act, make
payment wholly or partly in securities or other assets belonging to the Trust
or series of which the Interests being redeemed are part at the value of such
securities or assets used in such determination of net asset value.
(b) Notwithstanding the foregoing, the Trust may
postpone payment of the redemption price and may suspend the right of the
Holders of Interests of the Trust or series to require the Trust to redeem
Interests of the Trust or of any series during any period or at any time when
and to the extent permissible under the 1940 Act.
7.3 Redemption by Trust. Each Interest of the Trust or series
thereof that has been established and designated is subject to redemption by
the Trust at the redemption price which would be applicable if such Interest
was then being redeemed by the Holder pursuant to Section 7.2 hereof: (i) at
any time, if the Trustees determine in their sole discretion and by majority
vote that it is in the best interests of the Trust or any series thereof to
abolish any series of the Trust, or (ii) upon such other conditions as may from
time to time be determined by the Trustees and set forth in the then current
Prospectus of the Trust with respect to maintenance of Holder accounts of a
minimum amount. Upon such redemption the Holders of the Interests so redeemed
shall have no further right with respect thereto other than to receive payment
of such redemption price.
7.4 Net Asset Value. (a) The net asset value per Interest of
any series shall be the quotient obtained by dividing the value of the net
assets of that series (being the value of the assets belonging to that series
less the liabilities belonging to that series) by the total number of Interests
of that series outstanding, determined in accordance with the methods and
procedures, including without limitation those with respect to rounding,
established by the Trustees from time to time.
(b) The Trustees may determine to maintain the net
asset value per Interest of any series at a designated constant dollar amount
and, in connection therewith, may adopt procedures consistent with the 1940 Act
for continuing declarations of income attributable to that series as dividends
payable in additional Interests of that series at the designated constant
dollar amount and for the handling of any losses attributable to that series.
Such procedures may provide that in the event of any loss each Holder shall be
deemed to have contributed to the capital of the Trust attributable to that
series his or her pro rata portion of the total number of Interests required to
be cancelled in order to permit the net asset value per Interest of that series
to be maintained, after reflecting such loss, at the designated constant dollar
amount. Each Holder of the Trust shall be deemed to have agreed, by his or her
investment in any series with respect to which the Trustees
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shall have adopted any such procedure, to make the contribution referred to in
the preceding sentence in the event of any such loss.
ARTICLE VIII
Holders
8.1 Rights of Holders. The right to conduct any business
hereinbefore described is vested exclusively in the Trustees, and the Holders
shall have no rights under this Declaration or with respect to the Trust
Property other than the beneficial interest conferred by their Interests and
the voting rights accorded to them under this Declaration.
8.2 Register of Interests. A register shall be kept by the
Trust under the direction of the Trustees which shall contain the names and
addresses of the Holders and Interests held by each Holder. Each such register
shall be conclusive as to the identity of the Holders of the Trust and the
Persons who shall be entitled to payments of distributions or otherwise to
exercise or enjoy the rights of Holders. No Holder shall be entitled to
receive payment of any distribution, nor to have notice given to it as herein
provided, until it has given its address to such officer or agent of the
Trustees as shall keep the said register for entry thereon. No certificates
certifying the ownership of interests need be issued except the Trustees may
otherwise determine from time to time.
8.3 Notices. Any and all notices to which any Holder
hereunder may be entitled and any and all communications shall be deemed duly
served or given if presented personally to a Holder, left at his or her
residence or usual place of business or sent via United States mail or by
electronic transmission to a Holder at his or her address as it is registered
with the Trust, as provided in Section 8.2. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to the
Holder at his or her address as it is registered with the Trust, as provided in
Section 8.2, with postage thereon prepaid.
8.4 Meetings of Holders. Meetings of the Holders may be
called at any time by a majority of the Trustees and shall be called by any
Trustee upon written request of Holders holding, in the aggregate, not less
than 10% of the Interests (or series thereof), such request specifying the
purpose or purposes for which such meeting is to be called. Any such meeting
shall be held within or without the State of Delaware on such day and at such
time as the Trustees shall designate. Holders of one-third of the Interests in
the Trust, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as may otherwise be required by the 1940
Act or other applicable law or by this Declaration or the By-Laws of the Trust.
If a quorum is present at a meeting, an affirmative vote by the Holders
present, in person or by proxy, holding more than 50% of the total Interests
(or series thereof) of the Holders present, either in person or by
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proxy, at such meeting constitutes the action of the Holders, unless the 1940
Act, other applicable law, this Declaration or the By-Laws of the Trust
requires a greater number of affirmative votes. Notwithstanding the foregoing,
the affirmative vote by the Holders present, in person or by proxy, holding
less than 50% of the Interests (or series thereof) of the Holders present, in
person or by proxy, at such meeting shall be sufficient for adjournments. Any
meeting of Holders, whether or not a quorum is present, may be adjourned for
any lawful purpose provided that no meeting shall be adjourned for more than
six months beyond the originally scheduled meeting date. Any adjoined session
or sessions may be held, within a reasonable time after the date set for the
original meeting without the necessity of further notice.
8.5 Notice of Meetings. Written or printed notice of all
meetings of the Holders, stating the time, place and purposes of the meeting,
shall be given as provided in Section 8.3 for the giving of notices. At any
such meeting, any business properly before the meeting may be considered
whether or not stated in the notice of the meeting. Any adjourned meeting held
as provided in Section 8.4 shall not require the giving of additional notice.
8.6 Record Date. For the purpose of determining the Holders who
are entitled to notice of any meeting and to vote at any meeting, or to
participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time fix a date, not more than 90 calendar days prior
to the date of any meeting of the Holders or payment of distributions or other
action, as the case may be, as a record date for the determination of the
persons to be treated as Holders of record for such purposes, and any Holder
who was a Holder at the date and time so fixed shall be entitled to vote at
such meeting or to be treated as a Holder of record for purposes of such other
action, even though he or she has since that date and time disposed of his or
her Interests, and no Holder becoming such after that date and time shall be so
entitled to vote at such meeting or to be treated as a Holder of record for
purposes of such other action. If the Trustees shall divide the Interests into
two or more series in accordance with Section 6.2 herein, nothing in this
Section shall be construed as precluding the Trustees from setting different
record dates for different series.
8.7 Proxies, Etc. At any meeting of Holders, any Holder
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary
may direct, for verification prior to the time at which such vote shall be
taken.
(a) Pursuant to a resolution of a majority of the
Trustees, proxies may be solicited in the name of one or more Trustees or one
or more of the officers of the Trust. Only Holders of record shall be entitled
to vote. Each Holder shall be entitled to a vote proportionate to its Interest
in the Trust.
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(b) When Interests are held jointly by several
persons, any one of them may vote at any meeting in person or by proxy in
respect of such Interest, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Interest.
(c) A proxy purporting to be executed by or on behalf
of a Holder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger.
If the Holder is a minor or a person of unsound mind, and subject to
guardianship or to the legal control of any other person regarding the charge
or management of its Interest, he or she may vote by his or her guardian or
such other person appointed or having such control, and such vote may be given
in person or by proxy.
8.8 Reports. The Trustees shall cause to be prepared, at
least annually, a report of operations containing a balance sheet and statement
of income and undistributed income of the Trust prepared in conformity with
generally accepted accounting principles and an opinion of an independent
public accountant on such financial statements. The Trustees shall, in
addition, furnish to the Holders at least semi-annually interim reports
containing an unaudited balance sheet as of the end of such period and an
unaudited statement of income and surplus for the period from the beginning of
the current Fiscal Year to the end of such period.
8.9 Inspection of Records. The records of the Trust shall be
open to inspection by Holders during normal business hours and for any purpose
not harmful to the Trust.
8.10 Voting Powers. (a) The Holders shall have power to vote
only (i) for the election of Trustees as contemplated by Section 2.2 hereof,
(ii) with respect to any investment advisory contract as contemplated by
Section 4.1 hereof, (iii) with respect to termination of the Trust as provided
in Section 9.2 hereof, (iv) with respect to amendments to the Declaration of
Trust as provided in Section 9.3 hereof, (v) with respect to any merger,
consolidation or sale of assets as provided in Section 9.4 hereof, (vi) with
respect to incorporation of the Trust to the extent and as provided in Section
9.5 hereof, (vii) with respect to such additional matters relating to the Trust
as may be required by the 1940 Act, DBTA, or any other applicable law, the
Declaration, the By-Laws or any registration of the Trust with the Commission
(or any successor agency) or any state, or as and when the Trustees may
consider necessary or desirable.
(b) Each Holder shall be entitled to vote based on
the ratio its Interest bears to the Interests of all Holders entitled to vote.
Until Interests are issued, the Trustees may exercise all rights of Holders and
may take any action required by law, the Declaration or the By-Laws to be taken
by Holders. The By-Laws may include further
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provisions for Holders' votes and meetings and related matters not inconsistent
with this Declaration.
8.11 Holder Action by Written Consent. Any action which may be
taken by Holders may be taken without notice and without a meeting if Holders
holding more than 50% of the total Interests entitled to vote (or such larger
proportion thereof as shall be required by any express provision of this
Declaration) shall consent to the action in writing and the written consents
shall be filed with the records of the meetings of Holders. Such consents
shall be treated for all purposes as votes taken at a meeting of Holders.
8.12 Holder Communications. (a) Whenever ten or more Holders
who have been such for at least six months preceding the date of application,
and who hold in the aggregate at least 1% of the total Interests, shall apply
to the Trustees in writing, stating that they wish to communicate with other
Holders with a view to obtaining signatures to a request for a meeting of
Holders and accompanied by a form of communication and request which they wish
to transmit, the Trustees shall within five business days after receipt of such
application either (1) afford to such applicants access to a list of the names
and addresses of all Holders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of Holders, and the
approximate cost of transmitting to them the proposed communication and form of
request.
(b) If the Trustees elect to follow the course
specified in clause (2) above, the Trustees, upon the written request of such
applicants, accompanied by a tender of the material to be transmitted and of
the reasonable expenses of transmission, shall, with reasonable promptness,
transmit, by United States mail or by electronic transmission, such material to
all Holders at their addresses as recorded on the books, unless within five
business days after such tender the Trustees shall transmit, by United States
mail or by electronic transmission, to such applicants and file with the
Commission, together with a copy of the material to be transmitted, a written
statement signed by at least a majority of the Trustees to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion. The Trustees shall thereafter comply with any order
entered by the Commission and the requirements of the 1940 Act and the
Securities Exchange Act of 1934.
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ARTICLE IX
Duration; Termination of Trust;
Amendment; Mergers: Etc.
9.1 Duration. Subject to possible termination in accordance
with the provisions of Section 9.2, the Trust created hereby shall continue
perpetually pursuant to Section 3808 of DBTA.
9.2 Termination of Trust.
(a) The Trust may be terminated (i) by the
affirmative vote of the Holders of not less than two-thirds of the Interests in
the Trust at any meeting of the Holders, or (ii) by an instrument in writing,
without a meeting, signed by a majority of the Trustees and consented to by the
Holders of not less than two-thirds of such Interests, or (iii) by the Trustees
by written notice to the Holders. Upon any such termination,
(i) The Trust shall carry on no business
except for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the Trustees under
this Declaration shall continue until the affairs of the Trust
shall have been wound up, including the power to fulfill or
discharge the contracts of the Trust, collect its assets, sell,
convey, assign, exchange, or otherwise dispose of all or all or
any part of the remaining Trust Property to one or more Persons at
public or private sale for consideration which may consist in
whole or in part of cash, securities or other property of any
kind, discharge or pay its liabilities, and do all other acts
appropriate to liquidate its business; provided that any sale,
conveyance, assignment, exchange, or other disposition of all or
substantially all of the Trust Property shall require approval of
the principal terms of the transaction and the nature and amount
of the consideration by the Holders by a Majority Interests Vote.
(iii) After paying or adequately providing for
the payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements, as they deem necessary for
their protection, the Trustees may distribute the remaining Trust
Property, in cash or in kind or partly each, among the Holders
according to their respective rights.
(b) Upon termination of the Trust and distribution to
the Holders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination and file a certificate of cancellation in accordance
with Section 3810 of the DBTA. Upon
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termination of the Trust, the Trustees shall thereon be discharged from all
further liabilities and duties hereunder, and the rights and interests of all
Holders shall thereupon cease.
9.3 Amendment Procedure.
(a) All rights granted to the Holders under this
Declaration of Trust are granted subject to the reservation of the right of the
Trustees to amend this Declaration of Trust as herein provided, except as set
forth herein to the contrary. Subject to the foregoing, the provisions of this
Declaration of Trust (whether or not related to the rights of Holders) may be
amended at any time, so long as such amendment is not in contravention of
applicable law, including the 1940 Act, by an instrument in writing signed by a
majority of the then Trustees (or by an officer of the Trust pursuant to the
vote of a majority of such Trustees). Any such amendment shall be effective as
provided in the instrument containing the terms of such amendment or, if there
is no provision therein with respect to effectiveness, upon the execution of
such instrument and of a certificate (which may be a part of such instrument)
executed by a Trustee or officer of the Trust to the effect that such amendment
has been duly adopted.
(b) No amendment may be made, under Section 9.3(a)
above, which would change any rights with respect to any Interest in the Trust
by reducing the amount payable thereon upon liquidation of the Trust, by
repealing the limitations on personal liability of any Holder or Trustee, or by
diminishing or eliminating any voting rights pertaining thereto, except with a
Majority Interests Vote.
(c) A certification signed by a majority of the
Trustees setting forth an amendment and reciting that it was duly adopted by
the Holders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, and executed by a majority of the Trustees, shall be conclusive
evidence of such amendment when lodged among the records of the Trust.
(d) Notwithstanding any other provision hereof, until
such time as Interests are first sold, this Declaration may be terminated or
amended in any respect by the affirmative vote of a majority of the Trustees or
by an instrument signed by a majority of the Trustees.
9.4 Merger, Consolidation and Sale of Assets. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of its
property, including its good will, upon such terms and conditions and for such
consideration when and as authorized by no less than a majority of the Trustees
and by a Majority Interests Vote of the Trust or by an instrument or
instruments in writing without a meeting, consented to by the Holders of
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not less than 50% of the total Interests of the Trust and any such merger,
consolidation, sale, lease or exchange shall be deemed for all purposes to have
been accomplished under and pursuant to the statutes of the State of Delaware.
In accordance with Section 3815(f) of DBTA, an agreement of merger or
consolidation may effect any amendment to the Declaration or By-Laws or effect
the adoption of a new declaration of trust or by-laws of the Trust if the Trust
is the surviving or resulting business trust. A certificate of merger or
consolidation of the Trust shall be signed by a majority of the Trustees.
9.5 Incorporation. Upon a Majority Interests Vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust,
partnership, association or other organization to take over all of the Trust
Property, or series thereof, or to carry on any business in which the Trust
shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust Property, or series thereof, to any such corporation, trust,
association or organization in exchange for the equity interests thereof or
otherwise, and to lend money to, subscribe for the equity interests of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust,
association or organization in which the Trust holds or is about to acquire
equity interests. The Trustees may also cause a merger or consolidation
between the Trust or any successor thereto and any such corporation, trust,
partnership, association or other organization if and to the extent permitted
by law, as provided under the law then in effect. Nothing contained herein
shall be construed as requiring approval of the Holders for the Trustees to
organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring a portion of the Trust Property to such organizations or entities.
ARTICLE X
Miscellaneous
10.1 Certificate of Designation; Agent for Service of Process.
The Trust shall file, in accordance with Section 3812 of DBTA, in the office of
the Secretary of State of Delaware, a certificate of trust, in the form and
with such information required by Section 3810 by DBTA and executed in the
manner specified in Section 3811 of DBTA. In the event the Trust does not have
at least one Trustee qualified under Section 3807(a) of DBTA, then the Trust
shall comply with Section 3807(b) of DBTA by having and maintaining a
registered office in Delaware and by designating a registered agent for service
of process on the Trust, which agent shall have the same business office as the
Trust's registered office. The failure to file any such certificate, to
maintain a registered office, to designate a registered agent for service of
process, or to include such other information shall not affect the validity of
the establishment of the Trust, the Declaration, the By-Laws or any action
taken by the Trustees, the Trust officers or any other Person
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with respect to the Trust except insofar as a provision of the DBTA would have
governed, in which case the Delaware common law governs.
10.2 Governing Law. This Declaration is executed by all of the
Trustees and delivered with reference to DBTA and the laws of the State of
Delaware, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to DBTA and
the laws of the State of Delaware (unless and to the extent otherwise provided
for and/or preempted by the 1940 Act or other applicable federal securities
laws); provided, however, that there shall not be applicable to the Trust, the
Trustees or this Declaration (a) the provisions of Section 3540 of Title 12 of
the Delaware Code or (b) any provisions of the laws (statutory or common) of
the State of Delaware (other than the DBTA) pertaining to trusts which are
inconsistent with the rights, duties, powers, limitations or liabilities of the
Trustees set forth or referenced in this Declaration.
10.3 Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
10.4 Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to (a) the number or identity of Trustees or Holders, (b)
the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Holders, (d) the fact that
the number of Trustees or Holders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (e) the form
of any By-Laws adopted by or the identity of any officers elected by the
Trustees, or (f) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any person dealing with the Trustees and their
successors.
10.5 Provisions in Conflict With Law or Regulations.
(a) The provisions of this Declaration are severable,
and if the Trustees shall determine, with the advice of counsel, that any of
such provisions is in conflict with the 1940 Act, the DBTA, or with other
applicable laws and regulations, the conflicting provisions shall be deemed
never to have constituted a part of this Declaration; provided, however, that
such determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
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(b) If any provision of this Declaration shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration in any jurisdiction.
10.6 Trust Only. It is the intention of the Trustees to create
only a business trust under DBTA with the relationship of Trustee and
beneficiary between the Trustees and each Holder from time to time. It is not
the intention of the Trustees to create a general partnership, limited
partnership, joint stock association, corporation, bailment, or any form of
legal relationship other than a Delaware business trust except to the extent
such trust is deemed to constitute a corporation under the Code and applicable
state tax laws. Nothing in this Declaration of Trust shall be construed to
make the Holders, either by themselves or with the Trustees, partners or
members of a joint stock association.
10.7 Withholding. Should any Holder be subject to withholding
pursuant to the Code or any other provision of law, the Trust shall withhold
all amounts otherwise distributable to such Holder as shall be required by law
and any amounts so withheld shall be deemed to have been distributed to such
Holder under this Declaration of Trust. If any sums are withheld pursuant to
this provision, the Trust shall remit the sums so withheld to and file the
required forms with the Internal Revenue Service, or other applicable
government agency.
10.8 Headings and Construction. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this instrument.
Whenever the singular number is used herein, the same shall include the plural;
and the neuter, masculine and feminine genders shall include each other, as
applicable.
IN WITNESS WHEREOF, the undersigned have caused these presents to
be executed as of the day and year first above written.
s/Michael Glazer September 25, 1996
Michael Glazer
Trustee
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EXHIBIT 2
PACIFIC INNOVATIONS TRUST,
a Delaware Business Trust
BY-LAWS
These By-Laws are made as of the __ day of __________, 1996 and
adopted pursuant to Section 2.7 of the Declaration of Trust establishing
Pacific Innovations Trust, a Delaware Business Trust dated September 25, 1996,
as from time to time amended (hereinafter called the "Declaration"). All words
and terms capitalized in these By-Laws shall have the meaning or meanings set
forth for such words or terms in the Declaration.
ARTICLE I
Meetings of Holders
Section 1.1 Annual Meeting. An annual meeting of the Holders of
Interests in the Trust, which may be held on such date and at such hour as may
from time to time be designated by the Board of Trustees and stated in the
notice of such meeting, is not required to be held unless certain actions must
be taken by the Holders as set forth in Section 8.7 of the Declaration, or
except when the Trustees consider it necessary or desirable.
Section 1.2 Chairman. The President or, in his or her absence,
the Chief Operating Officer shall act as chairman at all meetings of the
Holders and, in the absence of both of them, the Trustee or Trustees present at
the meeting may elect a temporary chairman for the meeting, who may be one of
themselves or an officer of the Trust.
Section 1.3 Proxies; Voting. Holders may vote either in person
or by duly executed proxy and each Holder shall be entitled to a vote
proportionate to his or her Interest in the Trust, all as provided in Article
VIII of the Declaration. No proxy shall be valid after eleven (11) months from
the date of its execution, unless a longer period is expressly stated in such
proxy.
Section 1.4 Fixing Record Dates. For the purpose of determining
the Holders who are entitled to notice of or to vote or act at a meeting,
including any adjournment thereof, or who are entitled to participate in any
distributions, or for any other proper purpose, the Trustees may from time to
time fix a record date in the manner provided in Section 8.6 of the
Declaration. If the Trustees do not, prior to any meeting of the Holders, so
fix a record date, then the date of mailing notice of the meeting shall be the
record date.
Section 1.5 Inspectors of Election. In advance of any meeting of
the Holders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman, if any, of any meeting of the Holders may, and on the
request of any Holder or his or her proxy shall,
<PAGE> 2
appoint Inspectors of Election of the meeting. The number of Inspectors shall
be either one or three. If appointed at the meeting on the request of one or
more Holders or proxies, a Majority Interests Vote shall determine whether one
or three Inspectors are to be appointed, but failure to allow such
determination by the Holders shall not affect the validity of the appointment
of Inspectors of Election. In case any person appointed as Inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment
made by the Trustees in advance of the convening of the meeting or at the
meeting by the person acting as chairman. The Inspectors of Election shall
determine the Interests owned by Holders, the Interests represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results,
and do such other acts as may be proper to conduct the election or vote with
fairness to all Holders. If there are three Inspectors of Election, the
decision, act or certificate of a majority is effective in all respects as the
decision, act or certificate of all. On request of the chairman, if any, of
the meeting, or of any Holder or his or her proxy, the Inspectors of Election
shall make a report in writing of any challenge or question or matter
determined by them and shall execute a certificate of any facts found by them.
Section 1.6 Records of Meetings of Holders. At each meeting of
the Holders there shall be open for inspection the minutes of the last previous
meeting of Holders of the Trust and a list of the Holders of the Trust,
certified to be true and correct by the Secretary or other proper agent of the
Trust, as of the record date of the meeting. Such list of Holders shall
contain the name of each Holder in alphabetical order, the Holder's address and
Interests owned by such Holder. Holders shall have the right to inspect books
and records of the Trust during normal business hours for any purpose not
harmful to the Trust.
ARTICLE II
Trustees
Section 2.1 Annual and Regular Meetings. The Trustees shall hold
an Annual Meeting of the Trustees for the election of officers and the
transaction of other business which may come before such meeting. Regular
meetings of the Trustees may be held without call or notice at such place or
places and times as the Trustees may by resolution provide from time to time.
Section 2.2 Special Meetings. Special Meetings of the Trustees
shall be held upon the call of the chairman, if any, the President, the
Secretary, or any two Trustees, at such time, on such day and at such place, as
shall be designated in the notice of the meeting.
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Section 2.3 Notice. Notice of a meeting shall be given by mail
(which term shall include overnight mail) or by telegram (which term shall
include a cablegram or telefacsimile) or delivered personally (which term shall
include notice by telephone). If notice is given by mail, it shall be mailed
not later than 72 hours preceding the meeting and if given by telegram or
personally, such notice shall be delivered not later than 24 hours preceding
the meeting. Notice of a meeting of Trustees may be waived before or after any
meeting by signed written waiver. Neither the business to be transacted at,
nor the purpose of, any meeting of the Board of Trustees need be stated in the
notice or waiver of notice of such meeting, and no notice need be given of
action proposed to be taken by written consent. The attendance of a Trustee at
a meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting, at the
commencement of such meeting, to the transaction of any business on the ground
that the meeting has not been lawfully called or convened.
Section 2.4 Chairman; Records. The Trustees shall appoint a
Chairman of the Board from among their number. Such Chairman of the Board
shall act as chairman at all meetings of the Trustees; in his or her absence
the President shall act as chairman; and, in the absence of all of them, the
Trustees present shall elect one of their number to act as temporary chairman.
The results of all actions taken at a meeting of the Trustees, or by written
consent of the Trustees, shall be recorded by the Secretary.
Section 2.5 Audit Committee. The Board of Trustees may, by the
affirmative vote of a majority of the entire Board, appoint from its members an
Audit Committee composed of two or more Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust, as the Board may from time
to time determine. The Audit Committee shall (a) recommend independent public
accountants for selection by the Board, (b) review the scope of audit,
accounting and financial internal controls and the quality and adequacy of the
Trust's accounting staff with the independent public accountants and such other
persons as may be deemed appropriate, (c) review with the accounting staff and
the independent public accountants the compliance of transactions of the Trust
with its investment adviser, administrator or any other service provider with
the financial terms of applicable contracts or agreements, (d) review reports
of the independent public accountants and comment to the Board when warranted,
(e) report to the Board at least once each year and at such other times as the
committee deems desirable, and (f) be directly available at all times to
independent public accountants and responsible officers of the Trust for
consultation on audit, accounting and related financial matters.
Section 2.6 Nominating Committee of Trustees. The Board of
Trustees may, by the affirmative vote of a majority of the entire Board,
appoint from its members a Trustee Nominating Committee composed of two or more
Trustees. The Trustee Nominating Committee shall recommend to the Board a
slate of persons to be nominated for election as Trustees by the Holders at a
meeting of the Holders and a person to be elected to fill
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any vacancy occurring for any reason in the Board. Notwithstanding anything in
this Section to the contrary, if the Trust has in effect a plan pursuant to
Rule 12b-1 under the 1940 Act, the selection and nomination of those Trustees
who are not "interested persons" (as defined in the Act) shall be committed to
the discretion of such Disinterested Trustees.
Section 2.7 Executive Committee. The Board of Trustees may
appoint from its members an Executive Committee composed of those Trustees as
the Board may from time to time determine, of which committee the Chairman of
the Board shall be a member. In the intervals between meetings of the Board,
the Executive Committee shall have the power of the Board to (a) determine the
value of securities and assets owned by the Trust, (b) elect or appoint
officers of the Trust to serve until the next meeting of the Board, and (c)
take such action as may be necessary to manage the portfolio security loan
business of the Trust. All action by the Executive Committee shall be recorded
and reported to the Board at its meeting next succeeding such action.
Section 2.8 Other Committees. The Board of Trustees may appoint
from among its members other committees composed of two or more of its Trustees
which shall have such powers as may be delegated or authorized by the
resolution appointing them.
Section 2.9 Committee Procedures. The Board of Trustees may at
any time change the members of any committee, fill vacancies or discharge any
committee. In the absence of any member of any committee, the member or
members thereof present at any meeting, whether or not they constitute a
quorum, may unanimously appoint to act in the place of such absent member a
member of the Board who, except in the case of the Executive Committee, is not
an "interested person" of the Trust as the Board may from time to time
determine. Each committee may fix its own rules of procedure and may meet as
and when provided by those rules. Copies of the minutes of all meetings of
committees other than the Nominating Committee and the Executive Committee
shall be distributed to the Board unless the Board shall otherwise provide.
ARTICLE III
Officers
Section 3.1 Officers of the Trust; Compensation. The officers of
the Trust shall consist of a President, a Secretary, a Treasurer and such other
officers or assistant officers, including Vice Presidents, as may be elected by
the Trustees. Any two or more of the offices may be held by the same person.
The Trustees may designate a Vice President as an Executive Vice President and
may designate the order in which the other Vice Presidents may act. No officer
of the Trust need be a Trustee. The Board of Trustees may determine what, if
any, compensation shall be paid to officers of the Trust.
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Section 3.2 Election and Tenure. At the initial organization
meeting and thereafter at each annual meeting of the Trustees, the Trustees
shall elect the President, Secretary, Treasurer and such other officers as the
Trustees shall deem necessary or appropriate in order to carry out the business
of the Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and qualified.
The Trustees may fill any vacancy in office or add any additional officers at
any time.
Section 3.3 Removal of Officers. Any officer may be removed at
any time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of
action which any officer may have as a result of removal in breach of a
contract of employment. Any officer may resign at any time by notice in
writing signed by such officer and delivered or mailed to the President or
Secretary, and such resignation shall take effect immediately, or at a later
date according to the terms of such notice in writing.
Section 3.4 Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of his or her duties in such
amount and with such sureties as the Trustees may determine.
Section 3.5 President and Vice-Presidents. The President shall
be the chief executive officer of the Trust and, subject to the control of the
Trustees, shall have general supervision, direction and control of the business
of the Trust and of its employees and shall exercise such general powers of
management as are usually vested in the office of president of a corporation.
The President shall preside at all meetings of the Holders and, in the absence
of the Chairman of the Board, the President shall preside at all meetings of
the Trustees. The President shall be, ex officio, a member of all standing
committees. Subject to direction of the Trustees, the President shall have the
power, in the name and on behalf of the Trust, to execute any and all loan
documents, contracts, agreements, deeds, mortgages, and other instruments in
writing, and to employ and discharge employees and agents of the Trust. Unless
otherwise directed by the Trustees, the President shall have full authority and
power, on behalf of all of the Trustees, to attend and to act and to vote, on
behalf of the Trust at any meetings of business organizations in which the
Trust holds an interest, or to confer such powers upon any other persons, by
executing any proxies duly authorizing such persons. The President shall have
such further authorities and duties as the Trustees shall from time to time
determine. In the absence or disability of the President, the Vice Presidents
in order of their rank or the Vice President designated by the Trustees, shall
perform all of the duties of President, and when so acting shall have all the
powers of and be subject to all of the restrictions upon the President.
Subject to the direction of the President, the Treasurer and each Vice
President shall have the power in the name and on behalf of the Trust to
execute any and all loan documents, contracts, agreements, deeds, mortgages and
other
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instruments in writing, and, in addition, shall have such other duties and
powers as shall be designated from time to time by the Trustees, the Chairman,
or the President.
Section 3.6 Secretary. The Secretary shall keep the minutes of
all meetings of, and record all votes of, Holders, Trustees and any committees
of Trustees, provided that, in the absence or disability of the Secretary, the
Holders or Trustees or committee may appoint any other person to keep the
minutes of a meeting and record votes. The Secretary shall attest the
signature or signatures of the officer or officers executing any instrument on
behalf of the Trust. The Secretary shall also perform any other duties
commonly incident to such office in a Delaware business trust and shall have
such other authorities and duties as the Trustees shall from time to time
determine.
Section 3.7 Treasurer. Except as otherwise directed by the
Trustees, the Treasurer shall have the general supervision of the monies,
funds, securities, notes receivable and other valuable papers and documents of
the Trust, and shall have and exercise under the supervision of the Trustees
and of the Chairman and the President all powers and duties normally incident
to his office. He or she may endorse for deposit or collection all notes,
checks and other instruments payable to the Trust or to its order. He or she
shall deposit all funds of the Trust as may be ordered by the Trustees, the
Chairman or the President. He or she shall keep accurate account of the books
of the Trust's transactions which shall be the property of the Trust and which,
together with all other property of the Trust in his or her possession, shall
be subject at all times to the inspection and control of the Trustees. Unless
the Trustees shall otherwise determine, the Treasurer shall be the principal
accounting officer of the Trust and shall also be the principal financial
officer of the Trust. He or she shall have such other duties and authorities
as the Trustees shall from time to time determine. Notwithstanding anything to
the contrary herein contained, the Trustees may authorize any adviser or
administrator to maintain bank accounts and deposit and disburse funds on
behalf of the Trust.
Section 3.8 Other Officers and Duties. The Trustees may elect
such other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of the
Trust. Assistant officers shall act generally in the absence of the officer
whom they assist and shall assist that officer in the duties of his or her
office. Each officer, employee and agent of the Trust shall have such other
duties and authority as may be conferred upon him or her by the Trustees or
delegated to him or her by the President.
ARTICLE IV
Custodian
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Section 4.1 Appointment and Duties. The Trustees shall at all
times employ a custodian or custodians with authority as its agent, but subject
to such restrictions, limitations and other requirements, if any, as may be
contained in these By-Laws:
(1) to hold the securities owned by the Trust and
deliver the same upon written order;
(2) to receive and receipt for any moneys due to the
Trust and deposit the same in its own banking department or
elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books
and accounts of the Trust and furnish clerical and accounting
services; and
(5) if authorized to do so by the Trustees, to
compute the net income and net assets of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. The Trustees may also authorize the custodian to employ one
or more sub-custodians, from time to time, to perform such of the acts and
services of the custodian and upon such terms and conditions as may be agreed
upon between the custodian and such sub-custodian and approved by the Trustee.
Section 4.2 Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, any such other person or
entity with which the Trustees may authorize deposit in accordance with the
1940 Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery of
such securities. All such deposits shall be subject to withdrawal only upon
the order of the Trust.
ARTICLE V
Miscellaneous
Section 5.1 Depositories. In accordance with Article IV of these
By-Laws, the funds of the Trust shall be deposited in such depositories as the
Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers,
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agent or agents (including any adviser or administrator), as the Trustees may
from time to time authorize.
Section 5.2 Signatures. All contracts and other instruments
shall be executed on behalf of the Trust by such officer, officers, agent or
agents, as provided in these By-Laws or as the Trustees may from time to time
by resolution or authorization provide.
Section 5.3 Fiscal Year. The fiscal year of the Trust shall end
on [JUNE 30] of each year, subject, however, to change from time to time by the
Board of Trustees.
ARTICLE VI
Interests
Section 6.1 Interests. Except as otherwise provided by law, the
Trust shall be entitled to recognize the exclusive right of a person in whose
name Interests stand on the record of Holders as the owners of such Interests
for all purposes, including, without limitation, the rights to receive
distributions, and to vote as such owner, and the Trust shall not be bound to
recognize any equitable or legal claim to or interest in any such Interests on
the part of any other person.
Section 6.2 Regulations. The Trustees may make such additional
rules and regulations, not inconsistent with these By-Laws, as they may deem
expedient concerning the sale and purchase of Interests of the Trust.
Section 6.3 Distribution Disbursing Agents and the Like. The
Trustees shall have the power to employ and compensate such distribution
disbursing agents, warrant agents and agents for the reinvestment of
distributions as they shall deem necessary or desirable. Any of such agents
shall have such power and authority as is delegated to any of them by the
Trustees.
ARTICLE VII
Amendment of By-Laws
Section 7.1 Amendment and Repeal of By-Laws. In accordance with
Section 2.7 of the Declaration, the Trustees shall have the power to alter,
amend or repeal the By-Laws or adopt new By-Laws at any time. The Trustees
shall in no event adopt By-Laws which are in conflict with the Declaration,
DBTA, the 1940 Act or applicable federal securities laws.
Section 7.2 No Personal Liability. The Declaration establishing
Pacific Innovations Trust, a Delaware Business Trust provides that the name
Pacific Innovations
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Trust, a Delaware Business Trust does not refer to the Trustees as individuals
or personally; and no Trustee, officer, employee or agent of, or Holder of
Interest in, Pacific Innovations Trust, a Delaware Business Trust shall be held
to any personal liability, nor shall resort be had to their private property
for the satisfaction of any obligation or claim or otherwise in connection with
the affairs of Pacific Innovations Trust, a Delaware Business Trust (except to
the extent of a Holder's Interest in the Trust).
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EXHIBIT 5.1
MANAGEMENT AGREEMENT
This Management Agreement is made as of ____________, 1997 between
PACIFIC INNOVATIONS TRUST, a Delaware Business Trust (herein called the
"Company"), and Bank of America National Trust and Savings Association (herein
called the "Manager").
WHEREAS, the Company is registered as an open-end management
investment company under the Investment Company Act of 1940 (the "1940 Act");
and
WHEREAS, the Company wishes to retain the Manager under this
Agreement to render investment advisory and management services to the
portfolios of the Company known as the Money Market Fund, Managed Bond Fund,
Capital Income Fund, Blue Chip Fund, Mid-Cap Equity Fund, Aggressive Growth
Fund, and International Fund (the "Initial Funds", together with any other
Company portfolios which may be established later and served by the Manager
hereunder, being herein referred to collectively as the "Funds" and
individually as a "Fund"); and
WHEREAS, pursuant to a Distribution Agreement of even date
herewith (the "Distribution Agreement") between the Company and BISYS Fund
Services Limited Partnership (the "Distributor"), the Company has retained the
Distributor to provide for the sale and distribution of shares of beneficial
interest of each Fund (herein collectively called "Shares"); and
WHEREAS, the Company desires to retain the Manager to provide all
investment management and administrative services for the Funds required by
applicable law, and the Manager is willing to render such services and is a
bank exempt from registration and regulation under the Investment Advisers Act
of 1940;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
1. Appointment of Manager.
(A) The Company hereby appoints the Manager as
manager of each Fund on the terms and for the period set forth in this
Agreement and the Manager hereby accepts such appointment and agrees to perform
the services and duties set forth herein on the terms herein provided. The
Manager may, in its discretion, provide such services through its own employees
or the employees of one or more affiliated companies that are qualified to
provide such services to the Company under applicable law and are under the
common control of BankAmerica Corporation, provided (i) that all persons, when
providing services hereunder, are functioning as part of an organized group of
persons,
<PAGE> 2
(ii) that such organized group of persons is managed at all times by authorized
officers of the Manager, and (iii) the Manager remains obligated under Section
7 of this Agreement.
(B) In the event that the Company establishes one or
more portfolios other than the Initial Funds with respect to which it desires
to retain the Manager to render investment advisory and management services
hereunder, it shall notify the Manager in writing. If the Manager is willing
to render such services, it shall notify the Company in writing whereupon such
portfolio or portfolios shall become a Fund or Funds hereunder.
2. Administrative Services and Duties. Subject to the
supervision and control of the Company's Board of Trustees, the Manager shall
provide to the Company facilities, equipment, statistical and research data,
clerical, accounting and bookkeeping services, internal auditing and legal
services, and personnel to carry out all management services required for
operation of the business and affairs of the Funds other than those services to
be performed by any sub-adviser appointed by the Board of Trustees (each a
"Sub-adviser" and collectively the "Sub-advisers"), those services to be
provided by the Distributor pursuant to the Distribution Agreement, those
services to be performed by PNC Bank, N.A. (the "Custodian"), pursuant to the
Company's Custody Agreement, those services to be performed by PFPC Inc.
("PFPC") pursuant to the Company's Sub-Administration and Accounting Services
Agreement, those services to be performed by Pacific Mutual Life Insurance
Company ("Pacific Mutual") pursuant to the Company's Support Services
Agreement, those services to be provided by Pacific Mutual pursuant to the
Company's Transfer Agency Agreement, and those services normally performed by
the Company's counsel and auditors.
(A) The Manager's oversight responsibilities shall
include:
(1) Overseeing the performance of each
Sub-adviser under its Sub-Advisory Agreement with respect to the
Funds;
(2) Overseeing the performance of the
Custodian under the Custody Agreement with respect to the Funds;
(3) Overseeing the performance of PFPC under
Sub-Administration and Accounting Services Agreement with respect
to the Funds; and
(4) Overseeing the performance of Pacific
Mutual pursuant to the Support Services Agreement and Transfer
Agency Agreement with respect to the Funds.
(B) The Manager's other responsibilities shall
include without limitation the following services:
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(1) Providing a facility to receive purchase
and redemption orders for Shares via toll-free telephone lines;
(2) Making available information concerning
each Fund to its shareholders; distributing written communications
to each Fund's shareholders such as periodic listings of each
Fund's securities, annual and semi-annual reports, and
prospectuses and supplements thereto; and handling shareholder
problems and calls relating to administrative matters; and
(3) Providing and supervising the services of
employees whose principal responsibility and function shall be to
preserve and strengthen each Fund's relationships with its
shareholders.
(C) The Manager shall assure that persons are
available to transmit redemption requests for Shares to the Company's transfer
agent as promptly as practicable.
(D) The Manager shall assure that persons are
available to transmit orders accepted for the purchase of Shares to the
transfer agent of the Company as promptly as practicable.
(E) The Manager shall participate in the periodic
updating of the Funds' prospectuses and statements of additional information
and shall accumulate information for and, subject to approval by the Company's
Treasurer and legal counsel, coordinate the preparation, filing, printing and
dissemination of reports to the Funds' shareholders and the Securities and
Exchange Commission (the "Commission"), including but not limited to annual
reports and semi-annual reports on Form N-SAR, notices pursuant to Rule 24f-2
and proxy materials pertaining to the Funds, and any supplements to any of the
foregoing.
(F) The Manager shall calculate dividends and capital
gain distributions to be paid by each Fund in conformity with subchapter M and
Section 817(h) of the Internal Revenue Code of 1986, as amended.
(G) The Manager shall pay all costs and expenses of
maintaining the offices of the Company, wherever located, and shall arrange for
payment by the Company of all expenses payable by the Company.
(H) The Manager, after consultation with legal
counsel for the Company, shall determine the jurisdictions in which the Shares
shall be registered or qualified for sale, if any, and, in connection
therewith, shall be responsible for the maintenance of the registration or
qualification of the Shares for sale under the securities
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<PAGE> 4
laws of any such state. Payment of any Share registration fees and any fees
for qualifying or continuing the qualification of the Company shall be made by
the Company.
(I) The Manager shall maintain such other books and
records with respect to the Funds as may be required by law or may be required
for the proper operation of the business and affairs of the Funds, other than
those required to be maintained under any Sub- Advisory Agreements to which the
Company is a party, the Custodian Agreement, the Sub-Administration and
Accounting Services Agreement, the Support Services Agreement and the Transfer
Agency Agreement, and by the Manager under Section 3 of this Agreement.
Without limiting the foregoing, the Manager shall be responsible for the proper
maintenance of the records to be maintained by the Company, throughout the term
of this Agreement.
(J) The Manager shall prepare the Funds' federal,
state and local income tax returns.
(K) The Manager shall prepare and, subject to
approval of the Company's Treasurer, disseminate to the Company's trustees each
Fund's quarterly financial statements and schedules of investments, and shall
prepare such other reports relating to the business and affairs of the Funds
(not otherwise appropriately prepared by the Company's counsel, auditors or
other Company service providers) as the officers and trustees of the Company
may from time to time reasonably request in connection with performance of
their duties.
(L) The Manager shall assist the Custodian, Transfer
Agent, counsel and auditors as required to carry out the business and
operations of the Funds.
3. Investment Services and Duties. Subject to the
supervision of the Company's Board of Trustees, the Manager shall provide a
continuous investment program for the Funds, including investment research and
management with respect to all securities and investments and cash equivalents
in the Funds. The Manager shall determine from time to time what securities
and other investments will be purchased, retained or sold by the Company with
respect to each Fund. The Manager shall provide the services under this
Section 3 in accordance with the Funds' investment objectives, policies and
restrictions as stated in the Funds' then current registration statement and
resolutions of the Company's Board of Trustees and all applicable state and
federal law or rules.
(A) The Manager shall use the same skill and care in
providing services under this Section 3 as it uses in providing services to
fiduciary accounts for which it has investment responsibilities.
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<PAGE> 5
(B) The Manager shall place all orders for the
purchase and sale of portfolio securities for the account of the each Fund with
brokers or dealers selected by the Manager. In executing portfolio
transactions and selecting brokers or dealers, the Manager will use its best
efforts to seek on behalf of each Fund the best overall terms available. In
assessing the best overall terms available for any transaction the Manager
shall consider all factors it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. In evaluating the best overall terms available, and in selecting the
broker or dealer to execute a particular transaction, the Manager may also
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Fund
and/or other accounts over which the Manager or any affiliate of the Manager
exercise investment discretion. The Manager is authorized, subject to the
prior approval of the Company's Board of Trustees, to pay to a broker or dealer
who provides such brokerage and research services a commission for executing a
portfolio transaction for any Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if, but only if, the Manager determines in good faith that such
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of that
particular transaction or in terms of the overall responsibilities of the
Manager to that Fund and to the Company. In no instance may portfolio
securities be purchased from or sold to the Manager, any sub-adviser, or an
affiliated person of any of them acting as principal or as broker, except as
permitted by law. In executing portfolio transactions for the Funds the
Manager may, to the extent permitted by applicable laws and regulations, but
shall not be obligated to, aggregate the securities to be sold or purchased
with those of other investment portfolios and its other clients where such
aggregation is not inconsistent with the policies set forth in the Company's
registration statement. In such event, the Manager shall allocate the
securities so purchased or sold, and the expenses incurred in the transaction,
in the manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Funds and such other clients.
(C) In performing the investment advisory services
hereunder, the Manager is authorized to purchase, sell or otherwise deal with
securities or other instruments for which (i) the Manager or any Sub-adviser,
(ii) any affiliate of the Manager or any Sub-adviser, (iii) an entity in which
the Manager or any Sub-adviser has a direct or indirect interest, and (iv)
another member of a syndicate or other intermediary (where an entity referred
to in (i), (ii) or (iii) above was a member of the syndicate), has acted, now
acts or in the future will act as an underwriter, syndicate member,
market-maker, dealer, broker or in any other similar capacity, whether the
purchase, sale or other dealing occurs during the life of the syndicate or
after the close of the syndicate, provided such purchase, sale or dealing is
permitted under the 1940 Act and the rules thereunder. Insofar as permitted by
law, any rules of or under applicable law prohibiting
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<PAGE> 6
or restricting in any way an agent or fiduciary from dealing with itself or
from dealing with respect to any matter in which it may or does have a personal
interest shall not apply to the Manager, to the extent its actions are
authorized under this paragraph.
(D) The Manager shall maintain books and records with
respect to the securities transactions of the Company, and furnish the
Company's Board of Trustees such periodic and special reports as the Board may
request.
(E) The Manager shall maintain a policy and practice
of conducting its investment advisory operations independently of its
commercial banking operations. When the Manager makes investment
recommendations for a Fund, its investment advisory personnel shall not inquire
or take into consideration whether the issuer of securities proposed for
purchase or sale for the Fund's account are customers of its commercial
department. In dealing with commercial customers, the Manager's commercial
department shall not inquire or take into consideration whether securities of
those customers are held by the Funds except as required by law.
(F) The Manager shall review, monitor and report to
the Board of Trustees regarding the performance and investment practices,
strategies, and procedures of the Manager and any Sub-adviser appointed by the
Board of Trustees, and shall assist and consult with any Sub-adviser in
connection with the Fund's continuous investment program.
4. Compliance with Governing Instruments and Laws. In
performing its duties as Manager for the Funds, the Manager shall act in
conformity with the Company's Declaration of Trust, Bylaws, prospectuses and
statements of additional information, and the instructions and directions of
the Board of Trustees of the Company. In addition, the Manager shall conform
to and comply with the requirements of the 1940 Act, the Rules and Regulations
of the Commission, and all other applicable federal or state laws and
regulations, including, but not limited to, Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") and Section 817(h) of Subchapter
L of the Code.
5. Services Not Exclusive. The Manager shall for all
purposes herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided herein or authorized by the Board of Trustees from
time to time, have no authority to act for or represent the Company in any way
or otherwise be deemed its agent. The services furnished by the Manager
hereunder are not deemed exclusive, and the Manager shall be free to furnish
similar services to others so long as its services under this Agreement are not
impaired thereby.
6. Books and Records. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Manager hereby agrees that all records which
it maintains for the Company are the property of the Company and further agrees
to surrender promptly to
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the Company any such records upon the Company's request. The Manager agrees to
obtain all Company records held by any subcontractor upon the termination of
such subcontractor. The Manager further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act. The Company shall have the right
to inspect, audit or request copies of any and all records pertaining to this
Agreement.
7. Subcontractors. It is understood that the Manager may
from time to time employ or associate with itself such person or persons as the
Manager may believe to be particularly fitted to assist in the performance of
this Agreement; provided, however, that the compensation of such person or
persons shall be paid to the Manager. Without limiting the generality of the
foregoing, it is understood that the Manager and the Company intend to enter
into an agreement with PFPC under which PFPC will provide certain
administration services to the Company ("subadministration services"), and that
the Manager shall pay PFPC for the provision of such subadministration
services. It is understood that the Manager shall be as fully responsible to
the Company for the acts and omissions of any subcontractor as it is for its
own acts and omissions. It is also understood that the Manager and the Company
intend to enter into an agreement with PFPC under which PFPC will provide
certain accounting, bookkeeping, pricing and dividend distribution calculation
services ("accounting services") with respect to the Funds, and that the Funds
shall pay PFPC for the provision of such accounting services.
8. Expenses Assumed as Manager. Except as otherwise stated
in this Agreement, the Manager shall pay all expenses incurred by it in
performing its services and duties hereunder as Manager including the fees of
any subadviser and the cost of any independent pricing service used in
connection with the Funds (other than the cost of securities purchased for the
Company). The Company shall bear other expenses incurred in the operation of
the Funds, including without limitation taxes, interest, brokerage fees and
commissions, if any, fees of trustees who are not officers, directors,
partners, employees or holders of 5 percent or more of the outstanding voting
securities of the Manager or any of its affiliates, Commission fees, charges of
custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, outside auditing and legal expenses, costs of maintaining trust
existence, costs of preparing and printing prospectuses or any supplements or
amendments thereto necessary for the continued effective registration of the
Shares under federal or state securities laws, costs of printing and
distributing any prospectus, supplement or amendment thereto for existing
shareholders of the Funds described therein, costs of shareholders' reports and
meetings, and any extraordinary expenses.
9. Compensation. For the services provided and the expenses
assumed pursuant to this Agreement, the Company shall pay the Manager a fee,
computed daily and payable monthly, at the following annual rates of the
average net assets of each Fund: Money Market Fund - .22%; Managed Bond Fund -
.37%; Capital Income Fund -
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.48%; Mid-Cap Equity Fund - .53%; Blue Chip Fund - .53%; Aggressive Growth Fund
- - .61%; and International Fund - .66%. Such fee as is attributable to each
Fund shall be a separate (and not joint or joint and several) obligation of
each such Fund. Notwithstanding anything to the contrary herein, if in any
fiscal year the aggregate operating expenses of any Fund, other than interest,
taxes, brokerage commissions and extraordinary expenses, exceed the following
expense limitations, the Company may deduct from the fees to be paid pursuant
to this Agreement, or the Manager shall bear such excess, to the extent of its
management fees with respect to such Fund for such year less 0.02% of the
average net assets of the Fund for such year: Money Market Fund - .60%; Managed
Bond Fund - .75%; Capital Income Fund - .87%; Blue Chip Fund - .94%; Mid-Cap
Equity Fund - .94%; Aggressive Growth Fund - 1.03%; and International Fund -
1.24%. Such deduction or payment, if any, will be estimated and accrued daily
and paid on a monthly basis.
10. Confidentiality. The Manager shall treat confidentially
and as proprietary information of the Company all records and other information
relative to the Company and prior or present shareholders or those persons or
entities who respond to the Distributor's inquiries concerning investment in
the Company, and shall not use such records and information for any purpose
other than performance of its responsibilities and duties hereunder or under
any other agreement with the Company except after prior notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where the Manager may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Company. Nothing contained herein, however, shall prohibit the Manager from
advertising to or soliciting the public generally with respect to other
products or services, including, but not limited to, any advertising or
marketing via radio, television, newspapers, magazines or direct mail
solicitation, regardless of whether such advertisement or solicitation may
coincidentally include prior or present Company shareholders or those persons
or entities who have responded to inquiries with respect to the Funds.
11. Limitations of Liability. Subject to the provisions of
this Agreement concerning the Manager's responsibilities for the acts and
omissions of persons employed or associated with the Manager, the Manager shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Company or by any Fund in connection with the matters to which
this Agreement relates, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith or negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
director, employee or agent of the Manager, who may be or become an officer,
director, employee or agent of the Company, shall be deemed, when rendering
services to the Company or to any Fund, or acting on any business of the
Company or of any Fund (other than services or business in connection
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<PAGE> 9
with the Manager's duties as Manager hereunder or under any other agreement
with the Company) to be rendering such services to or acting solely for the
Company or Fund and not as an officer, director, employee or agent or one under
the control or direction of the Manager even though paid by the Manager.
The Manager acknowledges and agrees that the Declaration of Trust
of the Company provides that the Trustees of the Company and the officers of
the Company executing this Agreement on behalf of the Company shall not be
personally bound hereby or liable hereunder, nor shall resort be had to their
private property or the private property of the shareholders of the Company for
the satisfaction of any claim or obligation under this Agreement.
12. Duration or Termination. This Agreement shall become
effective as of the date first written above and, unless sooner terminated as
provided herein, shall continue until __________, 1999. Thereafter, this
Agreement will be extended with respect to a particular Fund for successive
one-year periods ending on October 31st of each year, provided each such
extension is specifically approved at least annually (a) by vote of a majority
of those members of the Company's Board of Trustees who are not interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Company's Board of
Trustees or by vote of a majority of the outstanding voting securities of such
Fund. This Agreement may be terminated by the Company at any time with respect
to any Fund, without the payment of any penalty, by vote of a majority of the
entire Board of Trustees of the Company or by a vote of a majority of the
outstanding voting securities of such Fund on 60 days' written notice to the
Manager, or by the Manager at any time, without the payment of penalty, on 60
days' written notice to the Company. This Agreement will immediately terminate
in the event of its assignment. As used in this Agreement, the terms "majority
of the outstanding voting securities," "interested persons" and "assignment"
shall have the same meanings as such terms have in the 1940 Act.
13. Names. The name "Pacific Innovations Trust, a Delaware
Business Trust" refers to the trust created and the trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated September 25, 1996, as amended, which is hereby referred to and a
copy of which is on file at the principal office of the Company. The trustees,
officers, employees and agents of the Company shall not personally be bound by
or liable under any written obligation, contract, instrument, certificate or
other interest or undertaking of the Company made by the trustees or by an
officer, employee or agent of the Company, in his or her capacity as such, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim thereunder. All persons dealing with any series or class
of shares of the Company may enforce claims against the Company only against
the assets belonging to such series or class.
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<PAGE> 10
14. Notices. Notices of any kind to be given to the Company
hereunder by the Manager shall be in writing and shall be duly given if mailed
or delivered to the Company at the following:
Pacific Innovations Trust, a
Delaware Business Trust
c/o PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
With a copy to:
Cathy O'Kelly, Esq.
Vedder, Price, Kaufman & Kammholz
222 N. LaSalle, 26th Floor
Chicago, Illinois 60695
or at such other address or to such individual as shall be so specified by the
Company to the Manager. Notices of any kind to be given to the Manager
hereunder by the Company shall be in writing and shall be duly given if mailed
or delivered to the Manager at:
Bank of America National Trust and
Savings Association
555 South Flower Street
Los Angeles, California 90071
Attn: Debra McGinty-Poteet
With a copy to:
Bank of America National Trust and Savings Association
555 California Street, Eighth Floor
San Francisco, California 94104
Attn: Jay Gould, Esq.
or at such other address or to such individual as shall be so specified by the
Manager to the Company.
15. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect. 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. Subject to the provisions of
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Section 12 hereof, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Delaware law (without regard to principles of conflicts of law);
provided, however, that nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or regulation of the Commission
thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.
PACIFIC INNOVATIONS TRUST, A
DELAWARE BUSINESS TRUST
By: ________________________________
________________________________
President
Attest: ________________________________
________________________________
Secretary
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: ________________________________
________________________________
(title) ________________________
Attest: ________________________________
________________________________
(title) _________________________
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EXHIBIT 5.2
SUB-ADVISORY AGREEMENT
Pacific Innovations Managed Bond Fund
AGREEMENT, made as of _______________,1997 between Bank of America
National Trust and Savings Association, a national banking association
(hereinafter called the "Manager"), and Scudder, Stevens & Clark, Inc., a New
York Corporation, (hereinafter called the "Sub-Adviser").
WHEREAS, the Pacific Innovations Managed Bond Fund (hereinafter
called the "Fund"), is a series of Pacific Innovations Trust, a Delaware
business trust (the "Trust"), an open-end, management investment company
organized as a business trust under the laws of the state of Delaware; and
WHEREAS, pursuant to Management Agreement of even date herewith
(hereinafter called the "Management Agreement") by and between the Trust and
the Manager, the Manager has agreed to furnish investment management services
to the Fund; and
WHEREAS, the Management Agreement specifically authorizes the
Manager to sub-contract investment advisory services on behalf of the Fund to
the Sub-Adviser pursuant to a sub-advisory agreement agreeable to the Trust and
approved in accordance with the provisions of the Declaration of Trust and
Bylaws of the Trust; and
WHEREAS, the Board of Trustees of the Trust has approved this
Agreement, and the Sub-Adviser is willing to furnish such services upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
The Manager hereby appoints the Sub-Adviser to act as
sub-investment adviser with respect to the investment portfolio of the Fund for
the period and on the terms set forth in this Agreement and the Sub-Adviser
accepts such appointment and agrees to furnish the services herein set forth
for the compensation herein provided.
2. SERVICES OF SUB-ADVISER.
Subject to the oversight and supervision of the Manager and the
Trust's Board of Trustees, the Sub-Adviser will provide a continuous investment
program for the Fund, including investment research and management with respect
to all securities, investments, cash and cash equivalents in the portfolio of
the Fund. The Sub-Adviser will determine
<PAGE> 2
from time to time what securities and other investments will be purchased,
retained or sold by the Fund. The Sub-Adviser will provide the services
rendered by it under this Agreement in accordance with the investment criteria
and policies established from time to time for the Fund by the Manager, the
investment objective, policies and restrictions as stated in the Fund's current
Prospectus with respect to the Fund, and resolutions of the Trust's Board of
Trustees. Without limiting the generality of the foregoing, the Sub-Adviser
further agrees that it will maintain all books and records regarding the
securities transactions with respect to the Fund, keep books of account with
respect to the Fund and supply the Trust and its Board of Trustees with
reports, statistical data and economic information as reasonably requested.
3. OTHER COVENANTS.
The Sub-Adviser agrees that it:
(a) will conform with all applicable rules and
regulations of the U.S. Securities and Exchange Commission and
will, in addition, conduct its activities under this Agreement in
accordance with other applicable law;
(b) will use the same skill and care in providing
services under this Agreement as it uses in providing services to
other investment funds for which it has investment
responsibilities;
(c) will place orders pursuant to its investment
determinations with respect to the Fund with brokers or dealers
reasonably acceptable to the Manager including its broker-dealer
affiliate Scudder Investor Services, Inc or any successor to it.
In executing portfolio transactions and selecting brokers or
dealers, the Sub-Adviser will use its best efforts to seek on
behalf of the Fund the best overall terms available. In assessing
the best overall terms available for any transaction, the
Sub-Adviser shall consider all factors that it deems relevant,
including the breadth of the market in the security, the price of
the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of any commission or
spread, if any, both for the specific transaction and on a
continuing basis. In evaluating the best overall terms available,
and in selecting the broker-dealer to execute a particular
transaction, the Sub-Adviser may also consider the brokerage and
research services (as those terms are defined in Section 28(e) of
the U.S. Securities Exchange Act of 1934, (as amended) provided
with respect to the Fund or other accounts over which the
Sub-Adviser or an affiliate of the Sub-Adviser exercises
investment discretion. The Sub-Adviser is authorized, subject to
the prior approval of the Manager and the Fund's Board of Trustees
to pay to a broker or dealer who provides such brokerage and
research services a commission or spread for executing a portfolio
transaction with respect to the Fund that is in excess of the
amount of commission
-2-
<PAGE> 3
or spread another broker or dealer would have charged for
effecting that transaction if, but only if, the Sub-Adviser
determines in good faith that such commission or spread was
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer -- viewed in terms of
that particular transaction or in terms of the overall
responsibilities of the Sub-Adviser to the Fund. In no instance
will portfolio securities be purchased from or sold to the
Manager, the Sub-Adviser, or Concord Holding Corporation (or any
of its affiliates) acting as principal or broker, except to the
extent permitted by law. In executing portfolio transactions with
respect to the Fund, the Sub-Adviser may, but is not obligated to
the extent permitted by applicable laws and regulations,aggregate
the securities to be sold or purchased with those of its other
clients where such aggregation is not inconsistent with the
policies set forth in the Fund's currently effective Prospectus.
In such event the Sub- Adviser will allocate the securities so
purchased or sold, and the expenses incurred in the transaction,
in the manner it considers to be most equitable and consistent
with its fiduciary obligations to the Fund and such other clients.
(d) When the Sub-Adviser makes investment
recommendations with respect to the Fund, its investment advisory
personnel will not inquire or take into consideration whether the
issuers of securities proposed for purchase or sale for the
account of the Fund are customers of its, or any of its
affiliates' other departments.
(e) will treat confidentially and as proprietary
information of the Fund all records and other information relative
to the Fund and prior or present Fund interest holders
("Investors") or those persons or entities who respond to
inquiries concerning investment in the Fund and will not use such
records and information for any purpose other than performance of
its responsibilities and duties hereunder or under any other
agreement with the Trust except after prior notification to an
approval in writing by the Trust, which approval shall not be
unreasonably withheld and may not be withheld where the
Sub-Adviser may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested
by the Trust. Nothing contained herein, however, shall prohibit
the Sub-Adviser from advertising to or soliciting the public
generally with respect to other products or services, including,
but not limited to, any advertising or marketing via radio,
television, newspapers, magazines or direct mail solicitation,
regardless of whether such advertisement or solicitation may
coincidentally include prior or present Investors or those persons
or entities who have responded to inquiries regarding the Fund, to
the extent permitted by applicable law.
(f) will not purchase any securities from or sell any
securities to or engage in any financial transactions with the
Manager or any of its affiliates on
-3-
<PAGE> 4
behalf of the Fund. Nothing in this subsection shall in any way
prohibit the Sub-Adviser or any or its affiliates from purchasing
securities from, selling securities to or engaging in any other
financial transactions with the Manager or any of its affiliates
on behalf of any other accounts managed by the Sub-Adviser or for
the Sub-Adviser's own account.
(g) will provide the information set forth on
Appendix A attached hereto.
4. SERVICES NOT EXCLUSIVE.
The services furnished by the Sub-Adviser hereunder are deemed not
to be exclusive, and the Sub-Adviser shall be free to furnish similar services
to others so long as its services under this Agreement are not impaired
thereby. The Sub-Adviser will for all purposes herein be deemed to be an
independent contractor and will, unless otherwise expressly authorized, have no
authority to act for or represent the Fund or the Manager in any way or
otherwise be deemed their agent.
5. BOOKS AND RECORDS.
The Sub-Adviser hereby agrees that all records that it maintains
with respect to the Fund are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request,
copies of which may be retained by the Sub- Adviser. The Sub-Adviser further
agrees to maintain and to preserve the information required pursuant to and for
the periods prescribed by Rule 31a-1 and Rule 31a-2, respectively under the
U.S. Investment Company Act of 1940 (the "1940 Act").
6. EXPENSES.
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions or spreads
and other transaction costs, if any) purchased or sold with respect to the
Fund.
7. COMPENSATION.
For the services provided and the expenses assumed pursuant to
this Agreement, the Manager will pay the Sub-Adviser, and the Sub- Adviser will
accept as full compensation therefor, a fee, computed daily and payable monthly
(in arrears), at the following annual rates based on the total net assets of
the Fund as follows:
-4-
<PAGE> 5
<TABLE>
<CAPTION>
FUND ASSETS RATE OF SUB-ADVISORY FEE
----------- ------------------------
<S> <C>
0 -- $25 million 0.20%
in excess of $25 million
up to and including $50 million 0.15%
in excess of $50 million 0.10%
</TABLE>
The Sub-Adviser acknowledges that it shall not be entitled to any
further compensation from the Manager in respect of the services provided and
expenses assumed by it under this Agreement. The Sub-Adviser's fees hereunder,
and the Sub-Adviser's sole recourse for payment of such fees shall be to the
Manager.
8. REDUCTION OF FEES.
The Manager and the Sub-Adviser hereby agree that the fees of the
Sub-Adviser pursuant to this Agreement shall be subject to reduction or waiver
in the event that the Manager reduces or waives all or a portion of the
Management fee otherwise due to the Manager pursuant to the Management
Agreement in order to permit the Fund to meet its initial target expense ratio
of 0.75 of 1%. To the extent Fund meets its initial target expense ratio
including partial or full Management fees, the Sub-adviser shall not be
required to waive fees in order for the Fund to maintain expenses below the
target expense ratio. Such reduction or waiver shall be effective with respect
to the Sub-Advisory fee due hereunder upon thirty (30) days written notice (or
facsimile) by the Manager to the Sub-Adviser. All such reductions of the
Management fee pursuant to notice as provided herein shall be shared by and
assessed against the Manager and the Sub-Adviser equally rather than pro rata.
Nothing in this section 8 shall be interpreted to limit the ability of the
Manager and the Sub-Adviser to voluntarily and immediately waive or reduce any
portion of their respective fees nor shall any such voluntary and immediate fee
reduction or waiver be construed as a waiver by the Sub-Adviser of the notice
provision in any future fee reductions or waivers as provided for herein.
9. LIMITATION OF LIABILITY.
The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
performance of this Agreement, except that the Sub-Adviser shall be liable to
the Fund for any loss resulting from a breach of fiduciary duty by the
Sub-adviser with respect to the receipt of compensation for services or any
loss resulting from willful misfeasance, bad faith or negligence on the part of
the Sub-Adviser in the performance of its duties or from reckless disregard by
it of its obligations and duties under this Agreement. The Sub-Adviser
acknowledges and
-5-
<PAGE> 6
agrees that the performance of this Agreement is for the benefit of the Fund,
that the Sub-Adviser is therefore directly liable and responsible to the Fund
for the performance of its obligations hereunder, and that the Fund may enforce
in its own name and for itself such liability and responsibility.
10. DURATION AND TERMINATION.
This Agreement will become effective as of the date hereof and,
unless sooner terminated as provided herein, shall continue in effect until
_______________, 1999. Thereafter, if not terminated, this Agreement shall
automatically continue in effect for successive annual periods ending on
_____________, provided such continuance is specifically approved at least
annually by the vote of a majority of the Trust's Board of Trustees at a
meeting called for the purpose of voting on such approval. Notwithstanding the
foregoing, this Agreement may be terminated at any time, without the payment of
any penalty, by the Manager or by the Trust (by vote of the Trust's Board of
Trustees) on sixty days' written notice to the Sub-Adviser, or by the
Sub-Adviser, on sixty days' written notice to the Trust, provided that in each
such case, notice shall be given simultaneously to the Manager. In addition,
notwithstanding anything herein to the contrary, in the event of the
termination of the Management Agreement for any reason (whether by the Trust,
by the Manager or by operation of law) this Agreement shall terminate upon the
effective date of such termination of the Management Agreement. This Agreement
will immediately terminate in the event of its assignment. (As used in this
Agreement, the term "assignment" shall have the same meaning as such term has
in the 1940 Act.)
11. AMENDMENT OF THIS AGREEMENT.
No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until approved by
vote of a majority of the Trust's Trustees.
12. MISCELLANEOUS.
The captions in the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by the internal
laws, and not the law of conflicts, of the State of California, provided that
nothing herein will be construed in a manner inconsistent with the 1940 Act,
the Investment Manager's
-6-
<PAGE> 7
Act of 1940, as amended, any rule or regulation of the U.S. Securities and
Exchange Commission thereunder.
13. NAMES.
The names "Fund", "Trust" and the "Board of Trustees," refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under the Declaration of
Trust, dated ________________, which is hereby referred to and a copy of which
is on file at the principal office of the Trust. The Trustees, officers,
employees and agents of the Trust shall not personally be bound by or liable
under any written obligation, contract, instrument, certificate or other
interest or undertaking of the Trust made by the Trustees or by an officer,
employee or agent of the Trust, in his or her capacity as such, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
--------------------------
Senior Vice President
SCUDDER, STEVENS & CLARK, INC.
By:
---------------------------
Title:
-7-
<PAGE> 8
APPENDIX A
TO SUB-ADVISORY AGREEMENT
1. On at least a monthly basis, the Sub-Adviser will provide to the
Manager within 15 days of the end of the month the following:
- a current schedule of all portfolio securities held by the
Fund;
- a schedule of all securities sold by the Fund during the
previous month;
- a schedule of brokerage commissions or other dealer
concessions paid during the previous month and the broker
or dealer to whom such benefit flowed;
- a schedule and description of all repurchase transactions
and reverse repurchase transactions during the previous
month and the counterparties to such transactions; and
- a description of the current strategies and tactics to be
employed by the Sub-Adviser on behalf of the Fund.
- a copy of the Sub-Adviser's monthly review of the Fund's
performance against its benchmark.
2. On a periodic basis the Manager may request and the Sub-Adviser
shall deliver to the Manager within a period of time that is
reasonable depending upon the information requested the following:
- trade tickets evidencing securities trades on behalf of
the fund;
- copies of credit files regarding the issuers of portfolio
securities held by the Fund;
- a description, including any identification numbers
similar to CUSIP, and dealer through which such security
was purchased on behalf of the Fund; and
- and a description including any identification numbers
similar to CUSIP and dealer through which such security
was purchased/sold on behalf of the Fund.
<PAGE> 1
EXHIBIT 5.3
SUB-ADVISORY AGREEMENT
AGREEMENT, made as of _____________, 1997 between Bank of
America National Trust and Savings Association, a national banking association
(hereinafter called the "Manager"), Wellington Management Company, LLP a
Massachusetts limited liability partnership, (hereinafter called the
"Sub-Adviser").
WHEREAS, the Pacific Innovations International Fund
(hereinafter called the "Fund"), is a series of an open-end, management
investment company organized as a business trust under the laws of the State of
Delaware (the "Trust"); and
WHEREAS, pursuant to a Management Agreement of even date
herewith (hereinafter called the "Management Agreement") by and between the
Fund and the Manager, the Manager has agreed to furnish investment management
services to the Fund; and
WHEREAS, the Management Agreement specifically authorizes
the Manager to sub-contract investment advisory services on behalf of the Fund
to the Sub-Adviser pursuant to a sub-advisory agreement agreeable to the Trust
and approved in accordance with the provisions of the Declaration of Trust and
Bylaws of the Trust; and
WHEREAS, the Board of Trustees of the Trust has approved
this Agreement, and the Sub-Adviser is willing to furnish such services upon
the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and
mutual covenants herein contained, it is agreed between the parties hereto as
follows:
1. APPOINTMENT.
The Manager hereby appoints the Sub-Adviser to act as
sub-investment adviser with respect to the investment portfolio of the Fund for
the period and on the terms set forth in this Agreement and the Sub-Adviser
accepts such appointment and agrees to furnish the services herein set forth
for the compensation herein provided.
2. SERVICES OF SUB-ADVISER.
Subject to the oversight and supervision of the Manager and the
Trust's Board of Trustees, the Sub-Adviser will provide a continuous investment
program for the Fund, including investment research and management with respect
to all securities, investments, cash and cash equivalents in the portfolio of
the Fund. The Sub-Adviser will determine from time to time what securities and
other investments will be purchased, retained or sold by the Fund. The
Sub-Adviser will provide the services rendered by it under this
<PAGE> 2
Agreement in accordance with the investment criteria and policies established
from time to time for the Fund by the Manager, the investment objective,
policies and restrictions as stated in the Fund's current Prospectus with
respect to the Fund, and resolutions of the Trust's Board of Trustees. Without
limiting the generality of the foregoing, the Sub-Adviser further agrees that
it will maintain such books and records regarding the securities transactions
with respect to the Fund, as may be required or otherwise requested by the
Manager and supply the Trust and its Board of Trustees with reports,
statistical data and economic information as reasonably requested.
3. OTHER COVENANTS.
The Sub-Adviser agrees that it:
(a) will conform with all applicable rules and
regulations of the U.S. Securities and Exchange Commission and
will, in addition, conduct its activities under this Agreement in
accordance with other applicable law;
(b) will use the same skill and care in providing
services under this Agreement as it uses in providing services to
other investment funds for which it has investment
responsibilities;
(c) will place orders pursuant to its investment
determinations with respect to the Fund with brokers or dealers in
accordance with the policy set forth in the Fund's prospectus or
as the Manager or Board of Trustees may direct from time to time.
In executing portfolio transactions and selecting brokers or
dealers, the Sub-Adviser will use its best efforts to seek on
behalf of the Fund the best overall terms available. In assessing
the best overall terms available for any transaction, the
Sub-Adviser shall consider all factors that it deems relevant,
including the breadth of the market in the security, the price of
the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of any commission or
spread, if any, both for the specific transaction and on a
continuing basis. In evaluating the best overall terms available,
and in selecting the broker-dealer to execute a particular
transaction, the Sub-Adviser may also consider the brokerage and
research services (as those terms are defined in Section 28(e) of
the U.S. Securities Exchange Act of 1934, as amended (provided
with respect to the Fund or other accounts over which the
Sub-Adviser or an affiliate of the Sub-Adviser exercises
investment discretion. The Sub-Adviser is authorized to pay to a
broker or dealer who provides such brokerage and research services
a commission or spread for executing a portfolio transaction with
respect to the Fund that is in excess of the amount of commission
or spread another broker or dealer would have charged for
effecting that transaction if, but only if, the Sub-Adviser
determines in good faith that such commission or spread was
reasonable in relation to the value of the brokerage and
-2-
<PAGE> 3
research services provided by such broker or dealer -- viewed in
terms of that particular transaction or in terms of the overall
responsibilities of the Sub-Adviser to the Fund. In no instance
will portfolio securities be purchased from or sold to the
Manager, the Sub-Adviser, or Concord Holding Corporation (or any
of its affiliates) acting as principal or broker, except to the
extent permitted by law. In executing portfolio transactions with
respect to the Fund, the Sub-Adviser may, but is not obligated to
the extent permitted by applicable laws and regulations,aggregate
the securities to be sold or purchased with those of its other
clients where such aggregation is not inconsistent with the
policies set forth in the Fund's currently effective Prospectus.
In such event the Sub-Adviser will allocate the securities so
purchased or sold, and the expenses incurred in the transaction,
in the manner it considers to be most equitable and consistent
with its fiduciary obligations to the Fund and such other clients.
(d) will treat confidentially and as proprietary
information of the Fund all records and other information relative
to the Fund and prior or present Fund interest holders
("Investors") or those persons or entities who respond to
inquiries concerning investment in the Fund and will not use such
records and information for any purpose other than performance of
its responsibilities and duties hereunder or under any other
agreement with the Fund except after prior notification to an
approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where the
Sub-Adviser may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested
by the Fund. Nothing contained herein, however, shall prohibit
the Sub-Adviser from advertising to or soliciting the public
generally with respect to other products or services, including,
but not limited to, any advertising or marketing via radio,
television, newspapers, magazines or direct mail solicitation,
regardless of whether such advertisement or solicitation may
coincidentally include prior or present Investors or those persons
or entities who have responded to inquiries regarding the Fund, to
the extent permitted by applicable law.
(e) will not purchase any securities from or sell any
securities to or engage in any financial transactions with the
Manager or any of its affiliates on behalf of the Fund. Nothing
in this subsection shall in any way prohibit the Sub-Adviser or
any or its affiliates from purchasing securities from, selling
securities to or engaging in any other financial transactions with
the Manager or any of its affiliates on behalf of any other
accounts managed by the Sub-Adviser.
(f) will provide the Fund's Custodian on each
business day with information relating to all transactions
concerning the Fund's assets and shall provide the Manager with
such information upon request.
-3-
<PAGE> 4
(g) on a monthly basis, will provide information
regarding investment strategy to be employed by the Sub-Adviser on behalf of
the Fund and information regarding the Fund's performance against its benchmark
and will provide such other information as the Manager may reasonably request
from time to time.
4. SERVICES NOT EXCLUSIVE.
The services furnished by the Sub-Adviser hereunder are deemed not
to be exclusive, and the Sub-Adviser shall be free to furnish similar services
to others so long as its services under this Agreement are not impaired
thereby. The Sub-Adviser will for all purposes herein be deemed to be an
independent contractor and will, unless otherwise expressly authorized, have no
authority to act for or represent the Fund or the Adviser in any way or
otherwise be deemed their agent.
5. BOOKS AND RECORDS.
The Sub-Adviser hereby agrees that all records that it maintains
with respect to the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's request;
provided, however, that the Sub-Adviser may retain a copy of such records. The
Sub-Adviser further agrees to maintain and to preserve the information required
pursuant to and for the periods prescribed by Rule delaware-1 and Rule 31a-2,
respectively under the U.S. Investment Company Act of 1940 (the "1940 Act").
6. EXPENSES.
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions or spreads
and other transaction costs, if any) purchased or sold with respect to the
Fund.
7. COMPENSATION.
For the services provided and the expenses assumed pursuant to
this Agreement, the Manager will pay the Sub-Adviser, and the Sub- Adviser will
accept as full compensation therefor, a fee, computed daily and payable monthly
(in arrears), at the following annual rates based on the total net assets of
the Fund as follows:
-4-
<PAGE> 5
<TABLE>
<CAPTION>
FUND ASSETS RATE OF SUB-ADVISORY FEE
----------- ------------------------
<S> <C>
0 --U.S. $50 million 0.400%
in excess of U.S. $50 million
up to and including U.S. $350 million 0.300%
in excess of U.S. $350 million
up to and including U.S. $500 million 0.250%
in excess of U.S. $500 million 0.200%
</TABLE>
The Sub-Adviser acknowledges that it shall not be entitled to any
further compensation from the Manager in respect of the services provided and
expenses assumed by it under this Agreement. The Sub-Adviser's fees hereunder,
and that the Sub-Adviser's sole recourse for payment of such fees shall be to
the Manager.
8. LIMITATION OF LIABILITY.
The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
performance of this Agreement, except that the Sub-Adviser shall be liable to
the Fund for any loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services or any loss resulting from willful
misfeasance, bad faith or negligence on the part of the Sub-Adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. The Sub-Adviser acknowledges and agrees that
the performance of this Agreement is for the benefit of the Fund, that the
Sub-Adviser is therefore directly liable and responsible to the Fund for the
performance of its obligations hereunder, and that the Fund may enforce in its
own name and for itself such liability and responsibility.
9. DURATION AND TERMINATION.
This Agreement will become effective as of the date hereof and,
unless sooner terminated as provided herein, shall continue in effect until
_____________, 1999. Thereafter, if not terminated, this Agreement shall
automatically continue in effect for successive annual periods ending on
_____________, provided such continuance is specifically approved at least
annually by the vote of a majority of the Trust's Board of Trustees at a
meeting called for the purpose of voting on such approval. Notwithstanding the
foregoing, this Agreement may be terminated at any time, without the payment of
any penalty, by the Manager or by the Trust (by vote of the Trust's Board of
Trustee) on sixty days' written notice to the Sub-Adviser, or by the
Sub-Adviser, on sixty days' written notice to the Trust, provided that in each
such case, notice shall be given
-5-
<PAGE> 6
simultaneously to the Manager. In addition, notwithstanding anything herein to
the contrary, in the event of the termination of the Management Agreement for
any reason (whether by the Fund, by the Manager or by operation of law) this
Agreement shall terminate upon the effective date of such termination of the
Management Agreement. This Agreement will immediately terminate in the event
of its assignment. (As used in this Agreement, the term "assignment" shall
have the same meaning as such term has in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT.
No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until approved by
vote of a majority of the Trust's Trustees.
11. MISCELLANEOUS.
The captions in the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by the internal
laws, and not the law of conflicts, of the State of California, provided that
nothing herein will be construed in a manner inconsistent with the 1940 Act,
the Investment Adviser's Act of 1940, as amended, any rule or regulation of the
U.S. Securities and Exchange Commission thereunder.
12. NAMES.
The names "Fund", "Trust" and the "Board of Trustees," (of the
Trust) refer respectively to the Trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under the
Declaration of Trust, dated ______________, which is hereby referred to and a
copy of which is on file at the principal office of the. The Trustees,
officers, employees and agents of the Trust shall not personally be bound by or
liable under any written obligation, contract, instrument, certificate or other
interest or undertaking of the Trust made by the Trustees or by an officer,
employee or agent of the Trust, in his or her capacity as such, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim thereunder.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: _________________________
Senior Vice President
WELLINGTON MANAGEMENT COMPANY, LLP
By: _________________________
Title:
-7-
<PAGE> 1
EXHIBIT 6
DISTRIBUTION AGREEMENT
This Distribution Agreement is made as of this ___ day of
__________, 1997 between PACIFIC INNOVATIONS TRUST, a Delaware Business Trust
(herein called the "Company"), and BISYS FUND SERVICES LIMITED PARTNERSHIP, an
Ohio limited partnership (herein called "Distributor").
WHEREAS, the Company is an open-end, management investment company
and is so registered under the Investment Company Act of 1940; and
WHEREAS, the Company will offer and maintain the following
investment portfolios: Money Market Fund, Intermediate Bond Fund, Capital
Income Fund, Blue Chip Fund, Mid-Cap Equity Fund, Aggressive Growth Fund, and
International Equity Fund (each individually a "Fund" and collectively the
"Funds"); and
WHEREAS, pursuant to a Management Agreement of even date herewith
between the Company and Bank of America National Trust and Savings Association
(the "Manager"), the Company has retained the Manager to provide management
services to the Funds; and
WHEREAS, the Company desires to retain Distributor as distributor
for the Funds to provide for the sale, distribution and redemption of shares of
beneficial interest of the Funds (herein collectively called "Shares"), and
Distributor is willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
The Company has delivered to Distributor copies of each of the
following documents and shall deliver to it all future amendments and
supplements thereto, if any:
(a) The Company's Declaration of Trust and all amendments
thereto (such Declaration of Trust, as presently in effect and as it shall from
time to time be amended, herein called the "Company's Declaration");
(b) Bylaws of the Company (such Bylaws, as presently in effect
and as they shall from time to time be amended, herein called the "Bylaws");
(c) Resolutions of the Board of Trustees of the Company
authorizing the execution and delivery of this Agreement;
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(d) The Company's registration statement under the Securities
Act of 1933, as amended (the "1933 Act"), and the Investment Company Act of
1940, as amended (the "1940 Act"), on Form N-1A as filed with the Securities
and Exchange Commission (the "Commission") relating to the Shares, and all
subsequent amendments thereto (said registration statement, as presently in
effect and as amended or supplemented from time to time, is herein called the
"Registration Statement");
(e) Notification of Registration of the Company under the 1940
Act on Form N-8A as filed with the Commission; and
(f) Prospectuses and statements of additional information of
the Company and of the Funds (such prospectuses and statements of additional
information, as presently in effect and as they shall from time to time be
amended and supplemented, herein called individually the "Prospectus" and
collectively the "Prospectuses").
II. DISTRIBUTION
1. APPOINTMENT OF DISTRIBUTOR. The Company hereby appoints
Distributor as Distributor of the Funds' Shares and Distributor hereby accepts
such appointment and agrees to render the services and duties set forth in this
Section II. The Distributor shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided herein or
authorized by the Board of Trustees of the Company from time to time, have no
authority to act for or represent the Company in any way or otherwise be deemed
its agent. The services furnished by the Distributor hereunder are not deemed
exclusive, and the Distributor shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby.
2. SERVICES AND DUTIES.
(a) The Company agrees to sell through Distributor,
as agent, from time to time during the term of this Agreement, Shares of the
Funds upon the terms and at the current offering price as described in the
applicable Prospectus. Distributor shall act only on its own behalf as
principal in making agreements for the sale and redemption of Shares, and shall
sell Shares only at the offering price thereof as set forth in the applicable
Prospectus. Distributor shall devote its best efforts to effect sales of
Shares of each of the Funds, but shall not be obligated to sell any certain
number of Shares.
(b) In all matters relating to the sale and
redemption of Shares, Distributor shall act in conformity with the Company's
Declaration, Bylaws and Prospectuses and with the instructions and directions
of the Board of Trustees of the
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Company, and shall conform to and comply with the requirements of the 1933 Act,
the 1940 Act, the regulations of the National Association of Securities
Dealers, Inc. and all other applicable federal or state laws and regulations.
In connection with such sales, Distributor acknowledges and agrees that it is
not authorized to provide any information or make any representations other
than as contained in the Company's Registration Statement and Prospectuses and
any sales literature specifically approved by the Company. The Company shall
furnish from time to time, for use in connection with the sale of the Shares,
such information with respect to the Funds and the Shares as Distributor may
reasonably request. The Company shall also furnish Distributor upon request
with: (a) unaudited semi-annual statements of the Funds' books and accounts
prepared by the Company, (b) a monthly itemized list of the securities in the
Funds, (c) monthly balance sheets as soon as practicable after the end of each
month, and (d) from time to time such additional information regarding the
financial condition of the Funds as Distributor may reasonably request.
(c) Distributor shall bear the cost of (i) printing
and distributing any Prospectus (including any supplement thereto), and (ii)
preparing, printing and distributing any literature, advertisement or material
which is primarily intended to result in the sale of the Shares; provided,
however, that Distributor shall not be obligated to bear the expenses incurred
by the Company in connection with (1) the preparation and printing of any
supplement or amendment to any Registration Statement or Prospectus necessary
for the continued effective registration of the Shares under the 1933 Act or
any state securities laws; and (2) the printing and distribution of any
Prospectus, supplement or amendment thereto for existing shareholders of the
Fund described therein.
(d) The Company, or any agent of the Company
designated in writing by the Company, shall be promptly advised of all purchase
orders for Shares received by the Distributor.
(e) The Distributor shall provide the services of
certain persons who may be appointed as officers of the Company by the
Company's Board of Trustees.
3. SALES AND REDEMPTIONS.
(a) Shares of the Company are to be sold by the
Distributor to shareholders at the offering price as set forth in the
Prospectuses then in effect.
(b) The Company shall pay all costs and expenses in
connection with the registration of the Shares under the 1933 Act, and all
expenses in connection with maintaining facilities for the issue and transfer
of the Shares and for supplying information, prices and other data to be
furnished by the Company hereunder, and all expenses in connection with
preparing, printing and distributing the Prospectuses except
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as set forth in subsection 2(c) of Section II hereof or in any other agreement
entered into by the Company.
(c) The Company shall execute all documents, furnish
all information and otherwise take all actions which may be reasonably
necessary in the discretion of the Company's officers in connection with the
qualification of the Shares for sale in such states as Distributor may
designate to the Company and the Company may approve, and the Company shall pay
all filing fees which may be incurred in connection with such qualification.
Distributor shall pay all expenses connected with its qualification as a dealer
under state or federal laws and, except as otherwise specifically provided in
this Agreement, all other expenses incurred by Distributor in connection with
the sale of the Shares as contemplated in this Agreement.
(d) Any of the outstanding Shares of the Company may
be tendered for redemption at any time, and the Company agrees to repurchase or
redeem the Shares so tendered in accordance with the Company's Declaration,
Bylaws and Prospectuses. The price to be paid to redeem or repurchase the
Shares shall be equal to the net asset value per Share determined as set forth
in the applicable Prospectus (the "redemption price"). All payments by the
Company hereunder shall be made in the manner set forth in Section 3(e) below.
(e) The Company (or its agent) shall pay the total
amount of the redemption price pursuant to the instructions of the Distributor
on or before the seventh calendar day subsequent to the Company (or its agent)
having received the notice of redemption in proper form. The proceeds of any
redemption of shares shall be paid by the Company (or its agent) to or for the
account of the redeeming shareholder, in each case in accordance with the
applicable provisions of the applicable Prospectus.
(f) The Company shall have the right to suspend the
sale of Shares of any Fund at any time in response to conditions in the
securities markets or otherwise, and to suspend the redemption of Shares of any
Fund at any time as permitted by the 1940 Act or the rules of the Commission
("Rules").
(g) The Company reserves the right to reject any
order for Shares, but shall not do so arbitrarily or without reasonable cause.
III. LIMITATIONS OF LIABILITY
Distributor shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Company or any Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or
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negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
IV. CONFIDENTIALITY
Distributor shall treat confidentially and as proprietary
information of the Company all records and other information relative to the
Company and the Funds and prior or present shareholders or those persons or
entities who respond to Distributor'S inquiries concerning investment in the
Company, and shall not use such records and information for any purpose other
than the performance of its responsibilities and duties hereunder or under any
other agreement with the Company, except after prior notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where Distributor may be exposed to civil or
criminal contempt proceedings for failure to comply, when Distributor is
requested to divulge such information by duly constituted authorities, or when
Distributor is so requested by the Company.
V. INDEMNIFICATION
1. COMPANY REPRESENTATIONS. The Company represents and
warrants to Distributor that (a) it is duly organized as a Delaware business
trust and is and at all times will remain duly authorized to enter into and
perform this Agreement, and (b) at all times the Registration Statement and
Prospectuses will in all material respects conform to the applicable
requirements of the 1933 Act and the Rules and will not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation or warranty in this subsection shall apply to statements or
omissions made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of and with respect to Distributor
expressly for use in the Registration Statement or Prospectuses.
2. DISTRIBUTOR REPRESENTATIONS. Distributor represents and
warrants to the Company that (a) it is duly organized as an Ohio limited
partnership and is and at all times will remain duly authorized and licensed to
carry out its services as contemplated herein and (b) at all times any written
information furnished to the Company by or on behalf of Distributor expressly
for use in the Registration Statement or Prospectuses will not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
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3. COMPANY INDEMNIFICATION. The Company shall indemnify,
defend and hold harmless Distributor, its several officers and partners, and
any person who controls Distributor within the meaning of Section 15 of the
1933 Act, from and against any losses, claims, damages or liabilities, joint or
several, to which any of them may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectuses or any application or other document
executed by or on behalf of the Company, or arise out of, or are based upon,
information furnished by or on behalf of the Company filed in any state in
order to qualify the Shares under the securities or blue sky laws thereof
("Blue Sky Application"), or arise out of, or are based upon, the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
Distributor, its several officers and partners, and any person who controls
Distributor within the meaning of Section 15 of the 1933 Act, for any legal or
other expenses reasonably incurred by any of them in investigating, defending
or preparing to defend any such action, proceeding or claim; provided, however,
that the Company shall not be liable in any case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, any untrue
statement, alleged untrue statement, or omission or alleged omission made in
the Registration Statement, the Prospectuses, any Blue Sky Application or any
application or other document executed by or on behalf of the Company in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of and with respect to Distributor specifically for
inclusion therein.
The Company shall not indemnify any person pursuant to this
subsection 3 of Section VI hereof unless the court or other body before which
the proceeding was brought has rendered a final decision on the merits that
such person was not liable by reason of his willful misfeasance, bad faith or
negligence in the performance of his duties, or his reckless disregard of
obligations and duties, under this Agreement ("disabling conduct") or, in the
absence of such a decision, a reasonable determination (based upon a review of
the facts) that such person was not liable by reason of disabling conduct has
been made by the vote of a majority of a quorum of trustees of the Company who
are neither "interested persons" of the Company (as defined in the 1940 Act)
nor parties to the proceeding, or by an independent legal counsel in a written
opinion.
Each Fund shall advance attorneys' fees and other expenses
incurred by any person in defending any claim, demand, action or suit which is
the subject of a claim for indemnification pursuant to this subsection 3 of
Section VI hereof, so long as: (a) such person shall undertake to repay all
such advances unless it is ultimately determined that he is entitled to
indemnification hereunder; and (b) such person shall provide security for such
undertaking, or the Fund shall be insured against losses arising by reason of
any lawful advances, or a majority of a quorum of the disinterested, non-party
trustees of the
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Company (or an independent legal counsel in a written opinion) shall determine
based on a review of readily available facts (as opposed to a full trial-type
inquiry) that there is reason to believe that such person ultimately will be
found entitled to indemnification hereunder.
4. DISTRIBUTOR INDEMNIFICATION. Distributor shall indemnify,
defend and hold harmless the Company, each Fund, the Company's several officers
and trustees and any person who controls the Company or any Fund within the
meaning of Section 15 of the 1933 Act, from and against any losses, claims,
damages or liabilities, joint or several, to which any of them may become
subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of, or are based upon, any breach of its representations and warranties in
subsection 2 of Section VI or its agreements in subsection 2 of Section II
hereof, or which arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, the Prospectuses, any Blue Sky Application or any application or
other document executed by or on behalf of the Company, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, which statement or
omission was made in reliance upon and in conformity with information furnished
in writing to the Company or any of its several officers and trustees by or on
behalf of and with respect to Distributor specifically for inclusion therein,
and shall reimburse the Company, each Fund, the Company's several officers and
trustees, and any person who controls the Company or any Fund within the
meaning of Section 15 of the 1933 Act, for any legal or other expenses
reasonably incurred by any of them in investigating, defending or preparing to
defend any such action, proceeding or claim.
5. GENERAL INDEMNITY PROVISIONS. No indemnifying party shall
be liable under its indemnity agreement contained in subsection 3 or 4 of
Section VI hereof with respect to any claim made against such indemnifying
party unless the indemnified party shall have notified the indemnifying party
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the indemnified party (or after the indemnified party shall have received
notice of such service on any designated agent), but failure to notify the
indemnifying party of any such claim shall not relieve it from any liability
which it may otherwise have to the indemnified party. The indemnifying party
shall be entitled to participate at its own expense in the defense or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, and if the indemnifying party elects to assume the defense, such
defense shall be conducted by counsel chosen by it and reasonably satisfactory
to the indemnified party. In the event the indemnifying party elects to assume
the defense of any such suit and retain such counsel, the indemnified party
shall bear the fees and expenses of any additional counsel retained by the
indemnified party.
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6. NAMES. The name "Pacific Innovations Trust, a Delaware
Business Trust" refers to the trust created and the trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated September 25, 1996, as amended, which is hereby referred to and a
copy of which is on file at the principal office of the Company. The trustees,
officers, employees and agents of the Company shall not personally be bound by
or liable under any written obligation, contract, instrument, certificate or
other interest or undertaking of the Company made by the trustees or by an
officer, employee or agent of the Company, in his or her capacity as such, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim thereunder. All persons dealing with any series or class
of shares of the Company may enforce claims against the Company only against
the assets belonging to such series or class.
VI. DURATION AND TERMINATION
This Agreement shall become effective as of the date hereof and,
unless sooner terminated as provided herein, shall continue in effect with
respect to each Fund until ______________, 1998. Thereafter, if not
terminated, this Agreement shall continue automatically for successive terms of
one year, provided that such continuance is specifically approved at least
annually (a) by a vote of a majority of those members of the Board of Trustees
of the Company who are not parties to this Agreement or "interested persons" of
any such party, cast in person at a meeting called for the purpose of voting on
such approval, and (b) by the Board of Trustees of the Company or by vote of a
"majority of the outstanding voting securities" of the Funds as to which the
Agreement is effective; provided, however, that this Agreement may be
terminated by the Company at any time, without the payment of any penalty, by
vote of a majority of the entire Board of Trustees of the Company or by a vote
of a "majority of the outstanding voting securities" of such Funds on sixty
(60) days' prior written notice to Distributor, or by Distributor at any time,
without the payment of any penalty, on sixty (60) days' prior written notice to
the Company. This Agreement shall automatically and immediately terminate in
the event of its "assignment." As used in this Agreement, the terms "majority
of the outstanding voting securities," "interested person" and "assignment"
shall have the same meanings as such terms have in the 1940 Act.
VII. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged
or terminated except by an instrument in writing signed by the party against
whom an enforcement of the change, waiver, discharge or termination is sought.
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VIII. NOTICES
Notices of any kind to be given to the Company hereunder by
Distributor shall be in writing and shall be duly given if mailed or delivered
to the Company at:
Pacific Innovations Trust,
a Delaware Business Trust
c/o PFPC Inc.
103 Bellevue Parkway
Willmington, DE 19809
With a copy to
Cathy O'Kelly, Esq.
Vedder, Price, Kaufman & Kammholz
222 N. LaSalle, 26th Floor
Chicago, IL 60695
Notices of any kind to be given to Distributor hereunder by the
Company shall be in writing and shall be duly given if mailed or delivered to
Distributor at:
BISYS Fund Services
Limited Partnership
3435 Stelzer Road
Columbus, OH 43218
IX. MISCELLANEOUS
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. 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.
Subject to the provisions of Section VII hereof, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and shall be governed by New York law (without regard to
principles of conflicts of law); provided, however, that nothing herein shall
be construed in a manner inconsistent with the 1940 Act or any rule or
regulation of the Commission thereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.
PACIFIC INNOVATIONS TRUST, A
DELAWARE BUSINESS TRUST
By __________________________
__________________________
President
Attest: _____________________
_____________________
Secretary
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS FUND SERVICES, INC.,
its General Partner
By: __________________________
__________________________
Chief Executive Officer
Attest: _____________________
_____________________
Secretary
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EXHIBIT 8.1
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of _______________, 1996 by and between
PNC BANK, NATIONAL ASSOCIATION, a national banking association ("PNC Bank"),
and PACIFIC INNOVATIONS TRUST, a Delaware business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund wishes to retain PNC Bank to provide custodian
services to the portfolios listed on Exhibit A attached hereto and made a part
hereof, as such Exhibit A may be amended from time to time (each, a "Portfolio"
and collectively, the "Portfolios"), and PNC Bank wishes to furnish custodian
services, either directly or through an affiliate or affiliates, as more fully
described herein.
NOW, THEREFORE, In consideration of the premises and mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as
amended.
(b) "1934 Act" means the Securities Exchange Act of
1934, as amended.
(c) "Authorized Person" means any officer of the Fund
and any other person duly authorized by the Fund's Board of Trustees to give
Oral Instructions and Written Instructions on behalf of the Fund and listed on
the Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PNC Bank. An Authorized Person's scope
of authority may be limited by the Fund by setting forth such limitation in the
Authorized Persons Appendix.
(d) "Book-Entry System" means Federal Reserve
Treasury book-entry system for United States and federal agency securities, its
successor or successors, and its nominee or nominees and any book-entry system
maintained by an exchange registered with the SEC under the 1934 Act.
(e) "CEA" means the Commodities Exchange Act, as
amended.
(f) "Oral Instructions" mean oral instructions
received by PNC Bank from an Authorized Person or from a person reasonably
believed by PNC Bank to be an Authorized Person.
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(g) "PNC Bank" means PNC Bank, National Association
or a subsidiary or affiliate of PNC Bank, National Association.
(h) "SEC" means the Securities and Exchange
Commission.
(i) "Securities Laws" mean the 1933 Act, the 1934
Act, the 1940 Act and the CEA.
(j) "Shares" mean the shares of beneficial interest
of any series or class of the Fund.
(k) "Property" means:
(i) any and all securities and other
investment items which the Fund may from
time to time deposit, or cause to be
deposited, with PNC Bank or which PNC
Bank may from time to time hold for the
Fund;
(ii) all income in respect of any of such
securities or other investment items;
(iii) all proceeds of the sale of any of such
securities or investment items; and
(iv) all proceeds of the sale of securities
issued by the Fund, which are received by
PNC Bank from time to time, from or on
behalf of the Fund.
(l) "Written Instructions" mean written instructions
signed by two Authorized Persons and received by PNC Bank. The instructions
may be delivered by hand, mail, tested telegram, cable, telex or facsimile
sending device.
2. APPOINTMENT. The Fund hereby appoints PNC Bank as
custodian of the Fund's Property, on behalf of each of its investment
portfolios (each, a "Portfolio"), and PNC Bank accepts such appointment and
agrees to furnish such custodial services as provided in this Agreement.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where
applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of the
resolutions of the Fund's Board of Trustees,
approving the appointment of PNC Bank or its
affiliates to provide services;
(b) a copy of the Fund's most recent effective
registration statement;
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(c) a copy of each Portfolio's advisory agreements;
(d) a copy of the distribution agreement with respect
to each class of Shares;
(e) a copy of each Portfolio's administration
agreement if PNC Bank is not providing the
Portfolio with such services;
(f) copies of any shareholder servicing agreements
made in respect of the Fund or a Portfolio; and
(g) certified or authenticated copies of any and all
amendments or supplements to the foregoing.
4. COMPLIANCE WITH LAWS.
PNC Bank undertakes to comply with all applicable
requirements of the Securities Laws and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to the duties to be
performed by PNC Bank hereunder. Except as specifically set forth herein, PNC
Bank assumes no responsibility for such compliance by the Fund or any
Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PNC
Bank shall act only upon Oral Instructions and Written Instructions.
(b) PNC Bank shall be entitled to rely upon any Oral
Instructions and Written Instructions it receives from an Authorized Person (or
from a person reasonably believed by PNC Bank to be an Authorized Person)
pursuant to this Agreement. PNC Bank may assume that any Oral Instructions or
Written Instructions received hereunder are not in any way inconsistent with
the provisions of organizational documents of the Fund or of any vote,
resolution or proceeding of the Fund's Board of Trustees or of the Fund's
shareholders, unless and until PFPC receives Written Instructions to the
contrary.
(c) The Fund agrees to forward to PNC Bank Written
Instructions confirming Oral Instructions (except where such Oral Instructions
are given by PNC Bank or its affiliates) so that PNC Bank receives the Written
Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by PNC Bank shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral Instructions or Written Instructions reasonably appear to have been
received from an Authorized Person, PNC Bank shall incur no liability to the
Fund in acting upon
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such Oral Instructions or Written Instructions provided that PNC Bank's actions
comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PNC Bank is in doubt as
to any action it should or should not take, PNC Bank may request directions or
advice, including Oral Instructions or Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt
as to any question of law pertaining to any action it should or should not
take, PNC Bank may request advice at its own cost from such counsel of its own
choosing (who may be counsel for the Fund, the Fund's investment adviser or PNC
Bank, at the option of PNC Bank).
(c) Conflicting Advice. In the event of a conflict
between directions, advice or Oral Instructions or Written Instructions PNC
Bank receives from the Fund, and the advice it receives from counsel, PNC Bank
shall be entitled to rely upon and follow the advice of counsel. In the event
PNC Bank so relies on the advice of counsel, PNC Bank remains liable for any
action or omission on the part of PNC Bank which constitutes willful
misfeasance, bad faith, negligence or reckless disregard by PNC Bank of any
duties, obligations or responsibilities set forth in this Agreement.
(d) Protection of PNC Bank. PNC Bank shall be
protected in any action it takes or does not take in reliance upon directions,
advice or Oral Instructions or Written Instructions it receives from the Fund
or from counsel and which PNC Bank believes, in good faith, to be consistent
with those directions, advice or Oral Instructions or Written Instructions.
Nothing in this section shall be construed so as to impose an obligation upon
PNC Bank (i) to seek such directions, advice or Oral Instructions or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
Instructions or Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PNC Bank's properly
taking or not taking such action. Nothing in this subsection shall excuse PNC
Bank when an action or omission on the part of PNC Bank constitutes willful
misfeasance, bad faith, negligence or reckless disregard by PNC Bank of any
duties, obligations or responsibilities set forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to the
Fund and any Portfolio, which are in the possession or under the control of PNC
Bank, shall be the property of the Fund. Such books and records shall be
prepared and maintained as required by the 1940 Act and other applicable
securities laws, rules and regulations. The Fund and Authorized Persons shall
have access to such books and records at all times during PNC Bank's normal
business hours. Upon the reasonable request of the Fund, copies of any such
books and records shall be provided by PNC Bank to the Fund or to an authorized
representative of the Fund, at the Fund's expense.
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8. CONFIDENTIALITY. PNC Bank agrees to keep confidential all
records of the Fund and information relating to the Fund and its shareholders,
unless the release of such records or information is otherwise consented to, in
writing, by the Fund. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PNC Bank may be exposed to
civil or criminal contempt proceedings or when required to divulge such
information or records to duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PNC Bank shall cooperate
with the Fund's independent public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to ensure
that the necessary information is made available to such accountants for the
expression of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PNC Bank shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provisions for emergency use of electronic data processing equipment
to the extent appropriate equipment is available. In the event of equipment
failures, PNC Bank shall, at no additional expense to the Fund, take reasonable
steps to minimize service interruptions but shall have no liability with
respect thereto.
11. COMPENSATION. As compensation for custody services
rendered by PNC Bank during the term of this Agreement, the Fund, on behalf of
each of the Portfolios, will pay to PNC Bank a fee or fees as agreed to in
writing in the Custodian Services Fee Letter between PNC Bank and the Fund
dated ______, 1997, as the same may be amended from time to time.
12. INDEMNIFICATION. The Fund, on behalf of each Portfolio,
agrees to indemnify and hold harmless PNC Bank and its affiliates from all
taxes, charges, expenses, assessments, claims and liabilities (including,
without limitation, liabilities arising under the Securities Laws and any state
and foreign securities and blue sky laws, and amendments thereto), and
expenses, including (without limitation) attorneys' fees and disbursements,
arising directly or indirectly from any action or omission to act which PNC
Bank takes (i) at the request or on the direction of or in reliance on the
advice of the Fund or (ii) upon Oral Instructions or Written Instructions.
Neither PNC Bank, nor any of its affiliates, shall be indemnified against any
liability (or any expenses incident to such liability) arising out of PNC
Bank's or its affiliates' own willful misfeasance, bad faith, negligence or
reckless disregard of its duties under this Agreement.
13. RESPONSIBILITY OF PNC BANK.
(a) PNC Bank shall be under no duty to take any
action on behalf of the Fund or any Portfolio except as specifically set forth
herein or as may be specifically agreed to by PNC Bank in writing. PNC Bank
shall be obligated to exercise care and diligence in the performance of its
duties hereunder, to act in good faith and to use its
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<PAGE> 6
best efforts, within reasonable limits, in performing services provided for
under this Agreement. PNC Bank shall be liable for any damages arising out of
PNC Bank's failure to perform its duties under this agreement to the extent
such damages arise out of PNC Bank's willful misfeasance, bad faith, negligence
or reckless disregard of its duties under this Agreement.
(b) Without limiting the generality of the foregoing
or of any other provision of this Agreement, (i) PNC Bank shall not be under
any duty or obligation to inquire into and shall not be liable for (A) the
validity or invalidity or authority or lack thereof of any Oral Instruction or
Written Instruction, notice or other instrument which conforms to the
applicable requirements of this Agreement, and which PNC Bank reasonably
believes to be genuine; or (B) subject to section 10, delays or errors or loss
of data occurring by reason of circumstances beyond PNC Bank's control,
including acts of civil or military authority, national emergencies, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the
contrary, neither PNC Bank nor its affiliates shall be liable to the Fund or to
any Portfolio for any consequential, special or indirect losses or damages
which the Fund may incur or suffer by or as a consequence of PNC Bank's or its
affiliates' performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PNC Bank or its affiliates.
14. DESCRIPTION OF SERVICES.
(a) Delivery of the Property. The Fund will deliver
or arrange for delivery to PNC Bank all the Property owned by the Portfolios,
including cash received as a result of the distribution of Shares, during the
period that is set forth in this Agreement. PNC Bank will not be responsible
for such Property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank,
acting upon Written Instructions, shall open and maintain separate accounts in
the Fund's name using all cash received from or for the account of the Fund,
subject to the terms of this Agreement. In addition, upon Written
Instructions, PNC Bank shall open separate custodial accounts for each separate
series or Portfolio of the Fund (collectively, the "Accounts") and shall hold
in the Accounts all cash received from or for the Accounts of the Fund
specifically designated to each separate series or Portfolio.
PNC Bank shall make cash payments from or for the Accounts of a
Portfolio only for:
(i) purchases of securities in the name of a Portfolio or PNC
Bank or PNC Bank's nominee as provided in sub-section (j)
and for which PNC Bank has
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<PAGE> 7
received a copy of the broker's or dealer's confirmation
or payee's invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund delivered to
PNC Bank;
(iii) payment of, subject to Written Instructions, interest,
taxes, administration, accounting, distribution, advisory,
management fees or similar expenses which are to be borne
by a Portfolio;
(iv) payment to, subject to receipt of Written Instructions,
the Fund's transfer agent, as agent for the
shareholders, an amount equal to the amount of dividends
and distributions stated in the Written Instructions to be
distributed in cash by the transfer agent to shareholders,
or, in lieu of paying the Fund's transfer agent, PNC
Bank may arrange for the direct payment of cash dividends
and distributions to shareholders in accordance with
procedures mutually agreed upon from time to time by and
among the Fund, PNC Bank and the Fund's transfer agent.
(v) payments, upon receipt Written Instructions, in connection
with the conversion, exchange or surrender of securities
owned or subscribed to by the Fund and held by or
delivered to PNC Bank;
(vi) payments of the amounts of dividends received with respect
to securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in
sub-section (c) of this Section; and
(viii) payments, upon Written Instructions, made for other proper
Fund purposes.
PNC Bank is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received as custodian for the
Accounts.
(c) Receipt of Securities.
PNC Bank shall hold all securities received by
it for the Accounts in a separate account that
physically segregates such securities from those
of any other persons, firms or corporations,
except for securities held in a Book-Entry
System. All such securities shall be held or
disposed of only upon Written Instructions of the
Fund pursuant to the terms of this Agreement.
PNC Bank shall have no power or authority to
assign, hypothecate, pledge or otherwise dispose
of any such securities or investment, except
upon the
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<PAGE> 8
express terms of this Agreement and upon Written Instructions,
accompanied by a certified resolution of the Fund's Board of
Trustees authorizing the transaction. In no case may any member
of the Fund's Board of Trustees, or any officer, employee or agent
of the Fund withdraw any securities.
(d) Subcustodians; Domestic.
At PNC Bank's own expense and for its own
convenience, PNC Bank may enter into
sub-custodian agreements with other banks or
trust companies (other than for foreign
subcustodial services as described above) to
perform duties described in this sub-section (d).
Such bank or trust company shall have an
aggregate capital, surplus and undivided profits,
according to its last published report, of at
least one million dollars ($1,000,000), if it is
a subsidiary or affiliate of PNC Bank, or at
least twenty million dollars ($20,000,000) if
such bank or trust company is not a subsidiary or
affiliate of PNC Bank. In addition, such bank or
trust company must be qualified to act as
custodian and agree to comply with the relevant
provisions of the 1940 Act and other applicable
rules and regulations. Any such arrangement will
not be entered into without prior written notice
to the Fund and approval of the Fund's Board of
Trustees, although such notice and approval shall
be deemed granted with respect to the use of
Bankers Trust Company to maintain physical
securities, by virtue of the Fund Board's
approval of this Agreement.
PNC Bank shall remain responsible for the
performance of all of its duties as described in
this Agreement and shall hold the Fund and each
Portfolio harmless from its own acts or
omissions, under the standards of care provided
for herein, or the acts and omissions of any
sub-custodian chosen by PNC Bank under the terms
of this sub-section (d).
(e) Subcustodians; Foreign.
(i) PNC Bank may propose appointment of any
bank, trust company or other entity
meeting the requirements of an "eligible
foreign custodian" under the 1940 Act and
the rules and regulations thereunder or
by order of the SEC exempted therefrom to
act as subcustodian for the Fund, to
maintain securities, funds and other
property of the Fund which are maintained
outside the United States. Any such
bank, trust company or other entity
appointed pursuant to the provisions
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<PAGE> 9
of this section 14(e) is herein referred to as a "Foreign
Subcustodian". The Fund shall approve in writing the appointment
of each Foreign Custodian and the subcustodian agreement to be
entered into between such Foreign Custodian and PNC Bank.
(ii) Upon the proposed appointment of a
Foreign Subcustodian, PNC Bank shall use
its best efforts to provide the Fund with
information of a type similar in kind and
scope to that generally provided in the
industry with respect to consideration of
a foreign subcustodian pursuant to Rule
17f-5 under the 1940 Act ("Rule 17f-5"),
but PNC Bank shall have no liability with
respect to such information (other than
to use its best efforts to see that such
information is provided).
(iii) PNC Bank shall use its best efforts to
provide annually to the Fund information
of a type similar in kind and scope to
that generally provided in the industry
with respect to consideration of a
foreign subcustodian pursuant to Rule
17f-5, but PNC Bank shall have no
liability with respect to such
information. In addition, PNC Bank will
inform the Fund in the event that PNC
Bank is made aware of a material adverse
change in the financial condition of a
Foreign Subcustodian or any material loss
of the assets of the Fund held by a
Foreign Subcustodian, or in the case of
any Foreign Subcustodian required
pursuant to Rule 17f-5 to have
shareholders' equity in excess of $200
million and not the subject of an
exemptive order from the Securities and
Exchange Commission if PNC Bank is
notified by such Foreign Subcustodian
that there appears to be a substantial
likelihood that its shareholders' equity
will decline below $200 million (U.S.
dollars or the equivalent thereof) or
that its shareholders' equity has
declined below $200 million.
Upon the request of the Fund, PNC Bank shall
provide to the Fund such other information as may
be reasonably requested by the Fund and agreed to
by PNC Bank to ensure compliance with Rule 17f-5.
(iv) Provided a Foreign Subcustodian has been
selected by PNC Bank in writing and PNC
Bank is a party to the subcustodian
agreement pursuant to which the Foreign
Subcustodian acts as a foreign
subcustodian for the Fund, in the event
of any loss to the Fund by reason of the
action or failure to act of
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<PAGE> 10
said Foreign Subcustodian, PNC Bank shall be liable to the Fund
for the Fund's direct and foreseeable damages (but not any
consequential, special or indirect damages regardless of whether
PNC Bank was aware of the possibility of such damages) to the same
extent that the Foreign Custodian is liable to PNC Bank. To the
extent PNC Bank is liable to the Fund pursuant to this subsection
(iv), PNC Bank shall be subrogated to all rights of the Fund
against such Foreign Subcustodian. PNC Bank shall not be liable
for among other things any loss, damage, cost, expense, liability
or claim resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism.
(f) Transactions Requiring Instructions. Upon
receipt of Oral Instructions or Written Instructions and not otherwise, PNC
Bank, directly or through the use of the Book-Entry System, shall:
(i) deliver any securities held for a
Portfolio against the receipt of payment
for the sale of such securities;
(ii) execute and deliver, to such persons as
may be designated in such Oral
Instructions or Written Instructions,
proxies, consents, authorizations, and
any other instruments whereby the
authority of a Portfolio as owner of any
securities may be exercised;
(iii) deliver any securities to the issuer
thereof, or its agent, when such
securities are called, redeemed, retired
or otherwise become payable; provided
that, in any such case, the cash or other
consideration is to be delivered to PNC
Bank;
(iv) deliver any securities held for a
Portfolio against receipt of other
securities or cash issued or paid in
connection with the liquidation,
reorganization, refinancing, tender
offer, merger, consolidation or
recapitalization of any corporation, or
the exercise of any conversion privilege;
(v) deliver any securities held for a
Portfolio to any protective committee,
reorganization committee or other person
in connection with the reorganization,
refinancing, merger, consolidation,
recapitalization or sale of assets of any
corporation, and receive and hold under
the terms of this Agreement such
certificates of deposit, interim receipts
or
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<PAGE> 11
other instruments or documents as may be
issued to it to evidence such delivery;
(vi) make such transfer or exchanges of the
assets of the Portfolios and take such
other steps as shall be stated in said
Oral Instructions or Written Instructions
to be for the purpose of effectuating a
duly authorized plan of liquidation,
reorganization, merger, consolidation or
recapitalization of the Fund;
(vii) release securities belonging to a
Portfolio to any bank or trust company
for the purpose of a pledge or
hypothecation to secure any loan incurred
by the Fund on behalf of that Portfolio;
provided, however, that securities shall
be released only upon payment to PNC Bank
of the monies borrowed, except that in
cases where additional collateral is
required to secure a borrowing already
made subject to proper prior
authorization, further securities may be
released for that purpose; and repay such
loan upon redelivery to it of the
securities pledged or hypothecated
therefor and upon surrender of the note
or notes evidencing the loan;
(viii) release and deliver securities owned by a
Portfolio in connection with any
repurchase agreement entered into on
behalf of the Fund, but only on receipt
of payment therefor; and pay out moneys
of the Fund in connection with such
repurchase agreements, but only upon the
delivery of the securities;
(ix) release and deliver or exchange
securities owned by the Fund in
connection with any conversion of such
securities, pursuant to their terms, into
other securities;
(x) release and deliver securities owned by
the Fund for the purpose of redeeming in
kind shares of the Fund upon delivery
thereof to PNC Bank; and
(xi) release and deliver or exchange
securities owned by the Fund for other
corporate purposes. PNC Bank must also
receive a certified resolution describing
the nature of the corporate purpose and
the name and address of the person(s) to
whom delivery shall be made when such
action is pursuant to sub-paragraph xi.
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<PAGE> 12
(g) Use of Book-Entry System. The Fund shall deliver
to PNC Bank certified resolutions of the Fund's Board of Trustees approving,
authorizing and instructing PNC Bank, on a continuous basis, to deposit in the
Book-Entry System all securities belonging to the Portfolios eligible for
deposit therein and to utilize the Book-Entry System to the extent possible in
connection with settlements of purchases and sales of securities by the
Portfolios, and deliveries and returns of securities loaned by the Portfolios,
subject to repurchase agreements or used as collateral in connection with
borrowings. PNC Bank shall continue to perform such duties until it receives
Written Instructions or Oral Instructions authorizing contrary actions. PNC
Bank shall administer the Book-Entry System as follows:
(i) With respect to securities of each
Portfolio which are maintained in the
Book-Entry System, the records of PNC
Bank shall identify by Book-Entry or
otherwise those securities belonging to
each Portfolio. PNC Bank shall furnish
to the Fund a detailed statement of the
Property held for each Portfolio under
this Agreement at least monthly and from
time to time and upon written request.
(ii) Securities and any cash of each Portfolio
deposited in the Book-Entry System will
at all times be segregated from any
assets and cash controlled by PNC Bank in
other than a fiduciary or custodian
capacity but may be commingled with other
assets held in such capacities. PNC Bank
and its sub-custodian, if any, will pay
out money only upon receipt of securities
and will deliver securities only upon the
receipt of money.
(iii) All books and records maintained by PNC
Bank which relate to the Fund's
participation in the Book-Entry System
will at all times during PNC Bank's
regular business hours be open to the
inspection of Authorized Persons, and PNC
Bank will furnish to the Fund all
information in respect of the services
rendered as it may require.
PNC Bank will also provide the Fund with such reports on its own
system of internal control as the Fund may reasonably request from time to
time.
(h) Registration of Securities. All Securities held
for a Portfolio which are issued or issuable only in bearer form, except such
securities held in the Book-Entry System, shall be held by PNC Bank in bearer
form; all other securities held for a Portfolio may be registered in the name
of the Fund on behalf of that Portfolio, PNC Bank, the Book-Entry System, a
sub-custodian, or any duly appointed nominees of the Fund, PNC Bank,
Book-Entry System or sub-custodian. The Fund reserves the right to
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<PAGE> 13
instruct PNC Bank as to the method of registration and safekeeping of the
securities of the Fund. The Fund agrees to furnish to PNC Bank appropriate
instruments to enable PNC Bank to hold or deliver in proper form for transfer,
or to register in the name of its nominee or in the name of the Book-Entry
System, any securities which it may hold for the Accounts and which may from
time to time be registered in the name of the Fund on behalf of a Portfolio.
(i) Voting and Other Action. Neither PNC Bank nor
its nominee shall vote any of the securities held pursuant to this Agreement
by or for the account of a Portfolio, except in accordance with Written
Instructions. PNC Bank, directly or through the use of the Book-Entry System,
shall execute in blank and promptly deliver all notices, proxies and proxy
soliciting materials to the registered holder of such securities. If the
registered holder is not the Fund on behalf of a Portfolio, then Written
Instructions or Oral Instructions must designate the person who owns such
securities.
(j) Transactions Not Requiring Instructions. In the
absence of contrary Written Instructions, PNC Bank is authorized to take the
following actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the
account of each Portfolio all
income, dividends,
distributions, coupons, option
premiums, other payments and
similar items, included or to be
included in the Property, and,
in addition, promptly advise
each Portfolio of such receipt
and credit such income, as
collected, to each Portfolio's
custodian account;
(B) endorse and deposit for
collection, in the name of the
Fund, checks, drafts, or other
orders for the payment of money;
(C) receive and hold for the account
of each Portfolio all securities
received as a distribution on
the Portfolio's securities as a
result of a stock dividend,
share split-up or
reorganization,
recapitalization, readjustment
or other rearrangement or
distribution of rights or
similar securities issued with
respect to any securities
belonging to a Portfolio and
held by PNC Bank hereunder;
(D) present for payment and collect
the amount payable upon all
securities which may mature or
be called,
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<PAGE> 14
redeemed, or retired, or otherwise become payable on the date such
securities become payable; and
(E) take any action which may be
necessary and proper in
connection with the collection
and receipt of such income and
other payments and the
endorsement for collection of
checks, drafts, and other
negotiable instruments.
(ii) Miscellaneous Transactions.
(A) deliver or cause to be delivered
Property against payment or
other consideration or written
receipt therefor in the
following cases:
(1) for examination by a broker or
dealer selling for the
account of a Portfolio in
accordance with street
delivery custom;
(2) for the exchange of interim
receipts or temporary
securities for definitive
securities; and
(3) for transfer of securities into
the name of the Fund on
behalf of a Portfolio or PNC
Bank or nominee of either,
or for exchange of securities
for a different number of
bonds, certificates, or other
evidence, representing the
same aggregate face amount or
number of units bearing the
same interest rate, maturity
date and call provisions, if
any; provided that, in any
such case, the new securities
are to be delivered to PNC
Bank.
(B) Unless and until PNC Bank
receives Oral Instructions or
Written Instructions to the
contrary, PNC Bank shall:
(1) pay all income items held by it
which call for payment upon
presentation and hold the
cash received by it upon such
payment for the account of
each Portfolio;
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<PAGE> 15
(2) collect interest and cash
dividends received, with
notice to the Fund, to the
account of each Portfolio;
(3) hold for the account of each
Portfolio all stock
dividends, rights and
similar securities issued
with respect to any
securities held by PNC Bank;
and
(4) execute as agent on behalf of
the Fund all necessary
ownership certificates
required by the Internal
Revenue Code or the Income
Tax Regulations of the United
States Treasury Department or
under the laws of any state
now or hereafter in effect,
inserting the Fund's name, on
behalf of a Portfolio, on
such certificate as the owner
of the securities covered
thereby, to the extent it may
lawfully do so.
(k) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written
Instructions or Oral Instructions
establish and maintain a segregated
account(s) on its records for and on
behalf of each Portfolio. Such accounts
may be used to transfer cash and
securities, including securities in the
Book-Entry System:
(A) for the purposes of compliance
by the Fund with the procedures
required by a securities or
option exchange, providing such
procedures comply with the 1940
Act and any releases of the SEC
relating to the maintenance of
segregated accounts by
registered investment companies;
and
(B) Upon receipt of Written Instructions, for other proper corporate
purposes.
(ii) PNC Bank shall arrange for the
establishment of IRA custodian accounts
for such shareholders holding Shares
through IRA accounts, in accordance with
the Fund's prospectuses, the Internal
Revenue Code of 1986, as amended
(including regulations promulgated
thereunder), and
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<PAGE> 16
with such other procedures as are mutually
agreed upon from time to time by and among
the Fund, PNC Bank and the Fund's transfer
agent.
(l) Purchases of Securities. PNC Bank shall settle
purchased securities upon receipt of Oral Instructions or Written Instructions
from the Fund or its investment advisers that specify:
(i) the name of the issuer and the title of
the securities, including CUSIP number if
applicable;
(ii) the number of shares or the principal
amount purchased and accrued interest, if
any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such
purchase;
(vi) the Portfolio involved; and
(vii) the name of the person from whom or the
broker through whom the purchase was
made. PNC Bank shall upon receipt of
securities purchased by or for a
Portfolio pay out of the moneys held for
the account of the Portfolio the total
amount payable to the person from whom or
the broker through whom the purchase was
made, provided that the same conforms to
the total amount payable as set forth in
such Oral Instructions or Written
Instructions.
(m) Sales of Securities. PNC Bank shall settle sold
securities upon receipt of Oral Instructions or Written Instructions from the
Fund that specify:
(i) the name of the issuer and the title of
the security, including CUSIP number if
applicable;
(ii) the number of shares or principal amount
sold, and accrued interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon
such sale;
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<PAGE> 17
(vi) the name of the broker through whom or the
person to whom the sale was made; and
(vii) the location to which the security must be
delivered and delivery deadline, if any;
and
(viii) the Portfolio involved.
PNC Bank shall deliver the securities upon
receipt of the total amount payable to the
Portfolio upon such sale, provided that
the total amount payable is the same as
was set forth in the Oral Instructions or
Written Instructions. Subject to the
foregoing, PNC Bank may accept payment in
such form as shall be satisfactory to it,
and may deliver securities and arrange for
payment in accordance with the customs
prevailing among dealers in securities.
(n) Reports; Proxy Materials.
(i) PNC Bank shall furnish to the Fund the
following reports:
(A) such periodic and special reports
as the Fund may reasonably
request;
(B) a monthly statement summarizing
all transactions and entries for
the account of each Portfolio,
listing each Portfolio
securities belonging to each
Portfolio with the adjusted
average cost of each issue and
the market value at the end of
such month and stating the cash
account of each Portfolio
including disbursements;
(C) the reports required to be
furnished to the Fund pursuant to
Rule 17f-4; and
(D) such other information as may be
agreed upon from time to time
between the Fund and PNC Bank.
ii) PNC Bank shall transmit promptly to the
Fund any proxy statement, proxy material,
notice of a call or conversion, class
action notice or other corporate action
received by it as custodian of the
Property. PNC Bank shall be under no
other obligation to inform the Fund as
to such actions or events.
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<PAGE> 18
(o) Collections. All collections of monies or other
property in respect, or which are to become part, of the Property (but not the
safekeeping thereof upon receipt by PNC Bank) shall be at the sole risk of the
Fund. If payment is not received by PNC Bank within a reasonable time after
proper demands have been made, PNC Bank shall notify the Fund in writing,
including copies of all demand letters, any written responses, and memoranda of
all oral responses, and shall await instructions from the Fund. PNC Bank shall
not be obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. PNC Bank shall also notify the Fund as soon
as reasonably practicable whenever income due on securities is not collected in
due course and shall provide the Fund with periodic status reports of such
income collected after a reasonable time.
15. DURATION AND TERMINATION. This Agreement shall continue
until terminated without penalty by the Fund or by PNC Bank on sixty (60) days'
prior written notice to the other party. In the event this Agreement is
terminated and PNC Bank has not received Written Instructions regarding the
appointment of a successor to PNC Bank or vote of the shareholders of the Fund
to dissolve or to function without a custodian of its cash, securities or other
property, PNC Bank shall not deliver cash, securities or other property of the
Portfolios to the Fund; it may deliver them to a bank or trust company of PNC
Bank's choice, having an aggregate capital, surplus and undivided profits, as
shown by its last published report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held under terms similar to
those of this Agreement. At the termination of the Agreement and provided PNC
Bank has received Written Instructions regarding the appointment of a successor
custodian, PNC Bank shall deliver the Property to such successor custodian.
PNC Bank shall not be required to make any delivery or payment until full
payment shall have been made to PNC Bank of all of its fees, compensation,
costs and expenses. PNC Bank shall have a security interest in and shall have
a right of setoff against the Property as security for the payment of such
fees, compensation, costs and expenses.
16. NOTICES. All notices and other communications, including
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notice shall be addressed (a) if to PNC
Bank at Airport Business Center, International Court 2, 200 Stevens Drive,
Lester, Pennsylvania 19113, marked for the attention of the Custodian Services
Department (or its successor) (b) if to the Fund, at _______________________,
Attn:________________ or (c) if to neither of the foregoing, at such other
address as shall have been given by like notice to the sender of any such
notice or other communication by the other party. If notice is sent by
confirming telegram, cable, telex or facsimile sending device, it shall be
deemed to have been given immediately. If notice is sent by first-class mail,
it shall be deemed to have been given five days after it has been mailed. If
notice is sent by messenger, it shall be deemed to have been given on the day
it is delivered.
17. AMENDMENTS. This Agreement, or any term hereof, may be
changed or waived only by a written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
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<PAGE> 19
18. ASSIGNMENT. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by the Fund
without written consent of PNC Bank, or by PNC Bank without written consent of
the Fund, authorized or approved by a resolution of the Fund's Board of
Trustees.
19. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such
further acts and execute such further documents as are necessary to effectuate
the purposes hereof.
21. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the
entire agreement and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their agreement,
if any, with respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to
be a contract made in Pennsylvania and governed by Pennsylvania law, without
regard to principles of conflicts of law.
(d) Partial Invalidity. 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.
(e) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of
any party to this Agreement shall constitute the valid and binding execution
hereof by such party.
(g) Responsibility of Trustees, etc.. The names
"Pacific Innovations Trust" and "Trustees of Pacific Innovations Trust" refer
respectively to the trust created and the trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated __________, which is hereby referred to and a copy of which is on
file at the principal office of the Fund. The trustees, officers, employees
-19-
<PAGE> 20
and agents of the Fund shall not personally be bound by or liable under any
written obligation, contract, instrument, certificate or other interest or
undertaking of the Fund made by the trustees or by an officer, employee or
agent of the Fund, in his or her capacity as such, nor shall resort be had to
their private property for the satisfaction of any obligation or claim
thereunder. All persons dealing with any class of shares of the Fund may
enforce claims against the Fund only against the assets belonging to such
class.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By: ______________________________
Title: ___________________________
PACIFIC INNOVATIONS TRUST
By: ______________________________
Title: ___________________________
-20-
<PAGE> 21
AUTHORIZED PERSONS APPENDIX
<TABLE>
<CAPTION>
NAME (TYPE) SIGNATURE
<S> <C>
____________________ ____________________
____________________ ____________________
____________________ ____________________
____________________ ____________________
____________________ ____________________
____________________ ____________________
</TABLE>
-21-
<PAGE> 1
Exhibit 8.2
November 8, 1993
Mr. John Foster
Vice President
PNC Bank, National Association
200 Stevens Drive
Lester, PA 19113
RE: GLOBAL CUSTODY AGREEMENT, DATED OCTOBER 28, 1992 ("GLOBAL CUSTODY
AGREEMENT") BETWEEN BARCLAYS BANK PLC ("BARCLAYS") AND PNC BANK,
NATIONAL ASSOCIATION ("PNC BANK")
Dear John:
PNC Bank hereby appoints Barclays as its agent to provide recordkeeping
services for the Assets held on behalf of PNC Bank pursuant to the above
mentioned Global Custody Agreement. Barclays hereby accept the appointment of
agent, subject to the terms and conditions hereof. Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to
these terms in the Agreement.
Barclays shall provide recordkeeping services for each Account in form and
substance to be mutually agreed upon by Barclays and PNC Bank. Such
recordkeeping services shall include some or all of the recordkeeping services
which are set forth on Exhibit A, attached hereto and made a part hereof.
Barclays shall provide to PNC Bank a monthly statement with respect to any
Assets in the Accounts held by a Subcustodian, including an identification of
the entity having possession of such Assets, and Barclays will send to PNC Bank
an advice or notification of any transfers of Assets to or from any Account,
indicating as to the Assets acquired for PNC Bank the identity of the entity
having physical possession of such Assets. Barclays shall use it best effects
to supply the information required herein at such times and in such formats as
PNC Bank may reasonably request. Any request by PNC Bank for additional
recordkeeping services shall be provided to Barclays in writing.
Barclays shall be responsible for the performance only of such duties as are
specifically set forth herein. Barclays will use reasonable care in the
performance of its functions and duties under this Letter Agreement. Barclays
shall be liable to PNC Bank for any direct and foreseeable loss, liability,
expense, claim or demand which shall occur as the result of Barclays'
negligence in the performance of its functions or duties in connection
herewith. In the event of any direct and foreseeable loss to PNC Bank by
reason of Barclays' negligence, Barclays shall indemnify and hold PNC Bank
harmless from any such liability, expense, claim or demand.
<PAGE> 2
PNC Bank agrees to pay Barclays from time to time such compensation for
services pursuant to this Letter Agreement as may be mutually agreed upon in
writing.
Sincerely,
Paul Correlli
Vice President and Manager
Global Custody Group
Accepted and Agreed Upon:
- ----------------------------- ---------------------------------
For Barclays Bank PLC For PNC Bank, National Association
2
<PAGE> 3
GLOBAL CUSTODY AGREEMENT dated as of October 28, 1992 between
Barclays Bank PLC, a company organized and existing under the laws of England
and Wales, (hereinafter called "Barclays") and Provident National Bank
(hereinafter called the "Custodian"), and the investment companies which are
signatories hereto.
WHEREAS, the Custodian acts as a custodian of the property of
certain of its customers (the "Customers"), including without limitation
certain investment companies registered under the Investment Company Act of
1940, as amended (the "Act");
WHEREAS, the agreements between each Customer and the
Custodian (the "Custodian Agreements") provide that the Custodian may from time
to time employ as its agent one or more subcustodians, all in compliance with
Section 17(f) of the Act and Rule 17 f-5 thereunder; and
WHEREAS, the Custodian and each Customer a party hereto wish
to employ Barclays as such intermediary custodian and expert third party for
the Customers and appoint Barclays as the agent of the Custodian and its
Customers and Barclays is willing to act as such subcustodian, expert third
party and agent;
NOW, THEREFORE, in consideration of the mutual promises herein
made, the Custodian and Barclays agree as follows:
1. CUSTODY AND CASH ACCOUNTS. (a) Upon satisfaction of
the condition specified in paragraph (b) below, Barclays agrees to establish
and maintain (i) separate custody accounts for the benefit of the Custodian,
acting as custodian for each Customer (each a "Custody Account"), for any and
all stocks, shares, bonds, debentures, notes, mortgages or other obligations
for the payment of money and any certificates, receipts, warrants or other
instruments representing rights to receive, purchase or subscribe for the same
or evidencing or representing any other rights or interests therein and other
similar property (hereinafter called "Securities") and all other assets (except
cash) from time to time received by Barclays or its Subcustodians (as defined
in Section 3 hereof) on behalf of a Customer of the Custodian, and (ii)
separate deposit accounts for the benefit of the Custodian, acting as
custodians for each Customer (each a "Cash Account"; the Custody Account(s) and
the Cash Account(s), collectively referred to herein as the "Accounts") for any
and all cash in any currency received by Barclays or its Subcustodians on
behalf of a Customer of the Custodian, which cash shall not be subject to
withdrawal by draft or check except upon Instructions (as defined in Section 8
hereof) from the Custodian or as provided in Sections 7 and 16 hereof.
(b) The obligation of Barclays to establish and maintain any
account is subject to the condition precedent that it shall have
received an agreement setting forth the fees payable to Barclays in
respect of its services hereunder.
2. MAINTENANCE OF SECURITIES AND ASSETS ABROAD. (a)
Securities and other assets in each Custody Account shall be held in such
country or other jurisdiction as shall be the one in which the principal
trading market for such Securities is located or the country or jurisdiction in
which such Securities may be presented for payment or are acquired for a
Custody Account. Cash credited to any Cash Account shall be denominated in the
legal currency for the payment of public or private debts for the country or
jurisdiction where such Cash Account is located.
<PAGE> 4
2
(b) Barclays is authorized to enter into separate
transfer or foreign exchange arrangements with Custodian, from time to
time, in order to facilitate the transfer of cash to or from any Cash
Account.
3. FOREIGN SUBCUSTODIANS AND DEPOSITORIES. Barclays may
act under this Agreement through the subcustodians listed in Schedule A hereto,
with each of whom Barclays has entered into subcustodial agreements
("Subcustodians"). The Custodian authorizes Barclays to hold cash and
Securities in accounts which Barclays has established with its branches and the
Subcustodians. Barclays and the Subcustodians are authorized to hold
Securities with securities depository facilities with whom they participate.
Barclays reserves the right to add new, or to replace or remove, Subcustodians.
The Custodian will be given reasonable prior notice by Barclays of any
amendment to Schedule A.
4. USE OF SUBCUSTODIAN. With respect to Securities,
other assets and Cash of any Customer which are maintained by Barclays in the
custody of any Subcustodian of Barclays pursuant to Section 3 hereof (such
Securities, other assets and cash hereinafter referred to as "Assets"):
(a) Barclays will identify on its books as belonging to
the Custodian, as custodian for such Customer, any Assets held by such
Subcustodian.
(b) Each Subcustodian will hold Assets together with
assets belonging to other customers of Barclays in accounts
identified on such Subcustodian's books as special custody accounts
for the exclusive benefit of customers of Barclays; in the event that
a Subcustodian permits any of the Securities placed in its care to be
held in a foreign securities depository, such Subcustodian will be
required by its agreement with Barclays to identify on its books such
Assets as being held for the account of Barclays as agent for the
Custodian. Each Subcustodian will hold Securities in a separate
custody account for each Customer and cash in a general account
established with Barclays.
(c) Any Assets in the Custody Account or a Cash Account
held by such Subcustodian will be subject only to the instructions of
Barclays, and any Securities held in a securities depository for the
account of a Subcustodian will be subject only to the instructions of
such Subcustodian.
(d) Each Foreign Sub-Custody Agreement shall provide,
through Barclays, that the Assets will not be subject to any right,
charges, security interest, lien or claim of any kind in favor of such
Subcustodian or its creditors except a claim for payment for their
safe custody or administration and that beneficial ownership of the
Assets will be freely transferable without payment of money or value
other than for safe custody or administration.
(e) Barclays shall allow independent public accountants
of each Customer such reasonable access to the records of Barclays
relating to the Assets of such Customer held in the Custody Accounts
or Cash Accounts as is required by such accountants in connection with
their examination of the books and records pertaining to the affairs
of such Customer. Barclays shall, subject to restrictions under
applicable law, also obtain from any Subcustodian with which Barclays
maintains the custody of any Assets in the Custody Accounts or Cash
Accounts an undertaking to permit independent public
<PAGE> 5
3
accountants of such Customer such reasonable access to the records of
such Subcustodian as may be required in connection with their
examination of the books and records pertaining to the affairs of such
Customer.
(f) Barclays will supply to the Custodian from time to
time as mutually agreed upon a statement with respect to any Assets in
the Custody Accounts and Cash Accounts held by a Subcustodian,
including an identification of the entity having possession of such
Assets, and Barclays will send to the Custodian an advice or
notification of any transfers of Assets to or from any Custody Account
or Cash Account, indicating as to the Assets acquired for the
Custodian the identity of the entity having physical possession of
such Assets. Unless the Custodian sends Barclays an exception or
objection to any statement within sixty days of receipt (such
objection or exception to be subsequently confirmed in writing), the
Custodian shall be deemed to have approved such statement. In such
event, or where the Custodian has otherwise approved any such
statement, Barclays shall, to the extent permitted by law, be
released, relieved and discharged with respect to all matters set
forth in such statement or reasonably implied therefrom as though it
had been settled by decree of a court of competent jurisdiction in an
action where the Custodian and all persons having or claiming an
interest in the Custodian or the Accounts were parties.
5. CASH ACCOUNT TRANSACTIONS. (a) Subject to Sections
7 and 8, Barclays shall make, or cause its Subcustodians to make, payments of
cash credited to a Cash Account only:
(i) in connection with the purchase of Assets for a
Customer, which purchase (A) shall, unless Instructions are received
to the contrary, be made in accordance with the customary or
established securities trading and processing practices and procedures
in the jurisdiction or market in which such purchase is to take place,
including, without limitation, payments of cash in connection with
such purchase to the seller, the dealer or their agents against a
receipt indicating, or the expectation of, future delivery of such
Security, and (B) shall be made at prices set forth in Instructions
from Authorized Persons (as defined in Section 10 hereof);
(ii) when required in connection with the
conversion, exchange or surrender of Assets held in a Custody Account;
(iii) for any other proper corporate purpose of a
Customer; or
(iv) upon the termination of this Agreement as
hereinafter set forth.
All payment of cash for a purpose permitted by subsection (i),
(ii) or (iii) of this Section 5 will be made, except as provided in Sections 7
and 8 hereof, only upon receipt by Barclays of Instructions from Authorized
Persons which shall specify the purpose for which the payment is to be made and
all other information required by Barclays. Any payment pursuant to subsection
(iv) above will be made in accordance with Section 16 hereof.
(b) In the event that any payment made under this Section
5 exceeds the funds available in the applicable Cash Account, Barclays
may, in its discretion, advance the Custodian an amount equal to such
excess and such advance shall be deemed a loan
<PAGE> 6
4
from Barclays to the Custodian, payable on demand and bearing interest
at the rate of interest customarily charged by Barclays on similar
loans.
6. CUSTODY ACCOUNT TRANSACTIONS. Subject to Sections 7
and 8, Assets of any Customer in a Custody Account will be transferred,
exchanged or delivered by Barclays or its Subcustodians only:
(a) upon sale of such Assets for the account of such
Customer, which sale (i) shall, unless Instructions are received to
the contrary, be made in accordance with the customary or established
securities trading and processing practices and procedures in the
jurisdiction or market in which such sale is to take place, including,
without limitation, delivery of a Security in connection with such
sale to the buyer, the dealer or their agents against a receipt
indicating, or the expectation of, future payment for such Security
and (ii) shall be at prices set forth in Instructions from Authorized
Persons;
(b) to a depository agent in connection with tender or
other similar offers for Securities of such Customer;
(c) to the issuer of Securities or its agent, when such
Securities are called, redeemed or retired or otherwise become
payable; provided that, in any such case, the cash or other
consideration is to be delivered to Barclays or its Subcustodian;
(d) to the issuer of Securities, or its agent, for
transfer into the name of any nominee of Barclays or any of its
Subcustodians; or for exchange for a different number of bonds,
certificates or other evidences of securities representing the same
aggregate face amount or number of shares or units; provided that, in
any such case, the new Securities are to be delivered to Barclays or
its Subcustodian;
(e) for exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization or
readjustment of Securities or pursuant to provisions for conversion of
such Securities, or pursuant to any deposit agreement; provided that
in any such case, the new Securities or cash, if any, are to be
delivered to Barclays or its Subcustodians;
(f) in the case of warrants, rights or similar
securities, the surrender thereof in connection with exercise of such
warrants, rights of similar securities, or the surrender of interim
receipts or temporary Securities for definitive Securities, provided
that, in any such case, the new Securities and cash, if any, are to be
delivered to Barclays or its Subcustodian;
(g) for any other proper corporate purposes of such
Customer; and
(h) upon the termination of this Agreement as hereinafter
set forth;
All transfers, exchanges or deliveries of Assets in a Custody
Account for a purpose permitted by either subsection (a), (b), (c), (d), (e),
(f) or (g) of this Section 6 will be made, except as provided in Section 7
hereof, only upon receipt by Barclays of Instructions from Authorized Persons
which shall specify the purpose of the transfer, exchange or delivery
<PAGE> 7
5
to be made and all other information required by Barclays. Any transfer or
delivery pursuant to subsection (h) of this Section 6 will be made in
accordance with Section 16 hereof.
7. ACCOUNTING PROCEDURES. (a) Barclays may, in
its sole discretion, credit or debit any of the Cash Accounts on the
contractual settlement date in amounts equal to the sale proceeds or purchase
price relating to any sale, exchange or purchase of Securities. Otherwise,
such transactions will be credited or debited to the Cash Account on the date
cash is actually received by Barclays and reconciled to the Cash Account.
(b) Barclays will provisionally credit, or will cause
provisional credits to be made to, each relevant Cash Account with
Subject Income (as defined in the second following sentence) on or
before specific crediting dates as established by Barclays from time
to time for such Subject Income ("Crediting Dates"). Schedule B
attached hereto sets forth the Crediting Dates as of the date hereof.
For purposes hereof, "Subject Income" with respect to a Customer shall
mean interest on, or dividends with respect to, Securities actually
known by Barclays to be part of such Customer's portfolio credited to
the relevant Customer Custody Account and with respect to which the
issuer thereof has declared or scheduled an interest or dividend
payment date. In no event shall Subject Income include any income not
referred to above, including market claims and non-cash distributions
or entitlements, such as stock dividends.
(c) Subject to the immediately following sentence,
Barclays may reverse credits or debits made to any Account in its sole
discretion if the related transaction fails to settle within a
reasonable period, determined by Barclays in its discretion, after the
contractual settlement date for the related transaction. If Barclays
credits any Cash Account on a payable date, or at any time prior to
actual collection and reconciliation to such Cash Account, with
interest, dividends, redemptions or any other amount, including,
without limitation, any provisional credit under Section 7(b) hereof,
the Custodian will promptly return any such amount upon oral or
written notification: (i) that such amount has not been received in
the ordinary course of business or (ii) that such amount was
incorrectly credited. If the Custodian does not promptly return any
amount upon such notification, Barclays shall be entitled, upon oral
or written notification to the Custodian, to reverse such credit by
debiting the relevant Cash Account for the amount previously credited.
Barclays or its Subcustodian shall have no duty or obligation to
institute legal proceedings, file a claim or a proof of claim in any
insolvency proceeding or take any other action with respect to the
collection of such amount, but may act for the Custodian upon
instructions after consultation with the Custodian.
(d) If any Securities delivered pursuant to this Section
7 are returned by the recipient thereof, Barclays may reverse the
credits and debits of the particular transaction of any time.
8. ACTIONS OF BARCLAYS. Until Barclays receives
Instructions from Authorized Persons to the contrary, Barclays will, or will
instruct its Subcustodian to:
(a) promptly collect all income and other payments known
by Barclays or its Subcustodian to be payable with respect to
Securities held hereunder and credit such income, as collected, to the
applicable Cash Account. Barclays or its Subcustodian shall
<PAGE> 8
6
do all things necessary and proper in connection with such prompt
collections and, without limiting the foregoing, Barclays or its
Subcustodian will:
(i) present for payment all coupons and other
income items known by Barclays or its Subcustodian as
requiring presentation;
(ii) present for payment all Securities, known to
Barclays or its Subcustodian which have matured or have been
called, redeemed, retired or otherwise become payable; and
(iii) endorse and deposit for collection, in the
name of the Custodian, checks, drafts or other negotiable
instruments;
(b) in respect of Securities in a Custody Account,
execute in the name of the Custodian such ownership and other
certificates as may be required to obtain payments in respect thereof;
(c) exchange interim receipts or temporary Securities in
a Custody Account for definitive Securities;
(d) where any Securities held in any securities
depository are called for a partial redemption by the issuer of such
Securities, allot in Barclays' or such Subcustodian's sole discretion
the called portion to the respective holders in any manner deemed to
be fair and equitable in Barclays' or such Subcustodian's judgment;
and
(e) subject to the prior receipt of all documentation
required by applicable law, pay or cause to be paid any and all taxes
and levies in the nature of taxes imposed on the Assets in the Custody
or Cash Accounts by any governmental authority and shall use
reasonable efforts where appropriate to promptly enable the Custodian
or a Customer to reclaim any foreign withholding tax relating to any
such Assets.
9. SETTLEMENT PROCEDURES; INSTRUCTIONS. (a) Promptly
after the acceptance of an offer to purchase Securities by a Customer for which
such Customer intends Barclays, directly or through any foreign custodian or
depository, to act as custodian, the Custodian shall deliver to Barclays
Instructions specifying, inter alia and as necessary, with respect to each such
purchase: (a) the name of the issuer and the title of the Securities, including
CUSIP number or other similar securities identification number, if any, (b) the
number of shares or the principal amount purchased and accrued interest, if
any, (c) to the extent known, the date payment is due and the date delivery is
to be made, (d) the purchase price per unit, (e) the total amount payable upon
such purchase, (f) the name of the person from whom or the broker through whom
the purchase was made, and (g) the foreign subcustodian or depository where
such Securities are to be delivered and held, and whether the total amount
payable will be paid from the Cash Account maintained in the country or
jurisdiction where such subcustodian or depository is located. Subject to
Section 5, Barclays directly or through the applicable foreign subcustodian or
depository shall receive Securities purchased by a Customer from the person
through or from whom the same were purchased, and shall pay, out of the monies
credited to the applicable Cash Account, the total amount payable upon such
purchase, provided that the same conforms to the total amount payable shown on
the Instructions with respect to such purchase. On the scheduled date for
payment for any Security to be purchased for deposit in
<PAGE> 9
7
a Custody Account, the Custodian shall have caused there to be deposited in the
Cash Account located in the country or jurisdiction where such purchase is to
take place, amounts sufficient, and in such denominations, to enable Barclays
or the foreign subcustodian to pay for such Security.
(b) Promptly after the acceptance of an offer to sell any
Securities by a Customer, the Custodian shall deliver to Barclays
Instructions specifying, inter alia and as necessary, with respect to
such sale: (a) the name of the issuer and the title of the Security,
including CUSIP number or other similar securities identification
number, if any, (b) the number of shares or principal amount sold, and
accrued interest, if any, (c) to the extent known, the date payment is
to be received and the date delivery of the Security is to be made,
(d) the sale price per unit, (e) the total amount payable upon such
sale, (f) the name of the broker through whom or the person to whom
the sale was made and to whom the Security is to be delivered, and (g)
the foreign subcustodian or depositary from which such Securities are
to be delivered. Subject to Section 6, Barclays shall directly or
through the applicable foreign subcustodian or depository deliver the
Securities sold to the broker or other person named in such
Instructions upon receipt by Barclays or a foreign subcustodian of the
total amount payable to such Customer upon such sale provided that the
same conforms to the total amount payable to the Customer as set forth
in the Instructions with respect to such sale. Unless Barclays shall
be in receipt of Instructions to the contrary, amounts received from
the sale of any Security shall be deposited in the Cash Account
located in the country or jurisdiction where such sale shall have
occurred, in the denomination in which payment was made, and, subject
to the provisions of Section 5, shall be held in such Cash Account
until Instructions are received from the Custodian.
(c) As used in this Agreement, the term "Instructions"
means instructions of the Custodian to Barclays containing all
information required by Barclays received via telephone, telex, TWX,
facsimile transmission, bank wire or other teleprocess or electronic
instruction systems acceptable to Barclays which Barclays believes in
good faith to have been given by Authorized Persons or which are
transmitted with proper testing or authentication pursuant to terms
and conditions which Barclays may specify.
(d) Any Instructions delivered to Barclays by telephone
or facsimile transmission shall promptly thereafter be confirmed in
writing by an Authorized Person (which confirmation shall bear the
original or facsimile signature of such Authorized Person). However,
Barclays may rely upon instructions by telephone or facsimile
transmission in the event of failure of an Authorized Person to send
such confirmation in writing. Barclays may rely upon telephone
instructions in the event of the failure of such confirmation to
conform to the telephone instructions received if such telephone
instructions are acted upon prior to receipt of such confirmation.
Unless otherwise expressly provided, all Instructions shall continue
in full force and effect until cancelled or superseded. If Barclays
requires test arrangements, authentication methods or other security
devices to be used with respect to Instructions, any Instructions
given by the Custodian thereafter shall be given and processed in
accordance with such terms and conditions for the use of such
arrangements, methods or devices as Barclays may put into effect and
modify from time to time. The Custodian shall safeguard any testkeys,
identifications, codes or other security devices which Barclays shall
make available to
<PAGE> 10
8
it. Barclays and the Custodian may electronically record any
Instructions given by telephone, and any other telephone discussions,
with respect to a Custody Account or a Cash Account.
(e) If the Custodian elects, Barclays shall provide the
Custodian with such instructions and passwords as may be necessary in
order for the Custodian to have dial up access or other means of
access to Barclays telecommunications system for securities in custody
accounts. The Custodian understands information provided to it
through such system shall be limited to information relating to the
Custody Accounts and the Cash Accounts. If the Custodian elects to
utilize such system, the Custodian agrees to assume full
responsibility for the consequence of any misuse or unauthorized use
by the Custodian of any terminal device of the instructions or
passwords mentioned above.
10. AUTHORIZED PERSONS. As used in this Agreement, the
term "Authorized Persons" means such officials or such agents of the Custodian
as have been designated in writing to Barclays to act on behalf of the
Custodian in the performance of any acts which Authorized Persons may do under
this Agreement. Such persons shall continue to be Authorized Persons until
such time as Barclays receives Instructions from Authorized Persons that any
such official or agent is no longer an Authorized Person.
11. NOMINEES. Securities in a Custody account which are
ordinarily held in registered form may be registered in the nominee name of
Barclays, any Subcustodian or securities depository. The Custodian agrees to
hold any such nominee harmless from any liability as a holder of record of such
Securities. Barclays may cause any such Securities to cease to be registered
in the name of any such nominee and to be registered in the name of another
nominee provided such nominee is either a Subcustodian or a securities
depository.
12. STANDARD OF CARE. (a) Barclays shall be
responsible for the performance only of such duties as are specifically set
forth herein or contained in Instructions given to Barclays by Authorized
Persons which are not contrary to the provisions of this Agreement. Barclays
will use reasonable care with respect to the safekeeping of the Assets in the
Custody Accounts and Cash Accounts and in the performance of its functions and
duties under this Agreement. Barclays shall be liable to the Custodian for any
loss which shall occur as the direct and foreseeable result of the failure of a
Subcustodian to exercise reasonable care with respect to the safekeeping of
Asssets or in the performance of its functions or duties in connection herewith
to the same extent that such Subcustodian would be liable to the Custodian
under applicable law if such Subcustodian and the Custodian had directly
entered into a custodial agreement governed by the law of the country of such
Subcustodian. In the event of any loss to the Custodian by reason of the
failure of Barclays or its Subcustodian to utilize reasonable care, Barclays
shall be liable to the Custodian to the extent of the Custodian's direct and
foreseeable damages, to be determined (in the case of a loss of property) based
on the market value in U.S. dollars of the property which is the subject of the
loss at the date on which actual notice of such loss is received by Barclays,
and without reference to any special conditions or circumstances. Barclays
shall be held to the exercise of reasonable care in carrying out this Agreement
but shall be indemnified by, and shall be without liability to, the Custodian
for any action taken or omitted by Barclays in good faith without negligence in
accordance with the terms of this Agreement. Barclays shall be entitled to
rely, and may act, on advice of counsel (who may be counsel for the Custodian)
on all matters and shall be without liability for any action reasonably taken
or omitted pursuant to such advice. Barclays
<PAGE> 11
9
will be subject to the reasonableness standard articulated above.
(b) Except as otherwise specifically agreed to herein,
Barclays shall have no liability for any loss occasioned by any
mistakes contained in, or errors in the transmission of, any
Instruction, or by delay in the actual receipt of any Instruction or
any notice to Barclays or by or to its Subcustodian of any payment,
redemption or other transaction regarding Securities in the Custody
Accounts in respect of which Barclays has agreed to take action as
provided in Section 8 hereof. Barclays shall not be liable for any
action taken in good faith upon Instructions or in reliance upon the
designation of "Authorized Persons" referred to in Section 10 hereof
and may rely on the genuineness of any such documents which it may in
good faith believe to be validly executed. Barclays shall not be
liable for any loss or damage resulting from or caused by
nationalization, expropriation, currency or other regulatory
restrictions, labor unrest, acts of war, civil war or terrorism,
insurrection, revolution, military or unsurped powers, nuclear fusion,
fission or radiation, earthquake, storm or other disturbance of nature
or acts of God.
(c) Without limiting the generality of the foregoing,
neither Barclays nor any Subcustodian shall be under any duty of
obligation to inquire into, or be liable for:
(i) the validity of the issue of any Securities
purchased by or for any Customer, the legality of the purchase
thereof, or the propriety of the amount paid therefore; or
(ii) the legality of the sale of any Securities by
or for any Customer, or the propriety of the amount for which
the same are sold; or
(iii) any default in the payment of principal or
income of any security other than as provided in Section 7 of
this Agreement; or
(iv) the financial condition of any broker, agent
or other party to which Securities are delivered or payments
are made pursuant to this Agreement; or
(v) the existence or content of any trade
confirmations received from brokers; the Custodian or its
Authorized Persons issuing Instructions shall bear any
responsibility to review such confirmations against
Instructions issued to and statements issued by Barclays.
(d) Neither Barclays nor any Subcustodian shall be liable
for, or considered to be the custodian of, any money represented by
any check, draft, or other instrument for the payment of money
received by it on behalf of any Customer, until Barclays or such
Subcustodian actually receives such money.
(e) Neither Barclays nor any Subcustodian shall be under
any duty or obligation to take action to effect collection of any
amount, if the Securities upon which such amount is payable are in
default, or if payment is refused after due demand or presentation,
unless and until (i) it shall be directed to take such action by
Instructions, and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses
<PAGE> 12
10
by the Custodian in connection with any such action.
(f) Neither Barclays nor any Subcustodian shall be under
any duty or obligation to ascertain whether any Securities at any time
delivered to or held by it in any Custody Account are such as may
properly be held by a Customer.
(g) It is understood and agreed that Barclays is not
under any duty to maintain any insurance for the benefit of any
Customer or the Custodian or to supervise the investment of, or to
advise or make any recommendation to any Customer or the Custodian
with respect to the sale or other disposition of any Securities at any
time held hereunder or to advise or recommend the purchase of any
Securities at any time.
(h) The Custodian will indemnify Barclays for any direct
and foreseeable damages to Barclays with respect to the performance of
Barclays' obligations under this Agreement (including, but not limited
to, Barclays' legal fees and expenses and any other legal fees and
expenses for which Barclays is liable, and any loss or liability in
connection with a claim settled by Barclays, which agreement is
accepted by the Custodian) unless such direct ant foreseeable damages
arises from any failure by Barclays or any Subcustodian to exercise
reasonable care with respect to any assets in any Custody or Cash
Account or from any negligence, fraud, bad faith, willful misconduct
or reckless disregard of duties on the part of Barclays or any
Subcustodian which maintains any Securities.
13. PROXIES; CORPORATE ACTION. Unless Instruction to
the contrary are received, Barclays or its Subcustodian shall forward to the
Custodian only such communications from issuers relating to the Securities in a
Custody Account as call for voting or the exercise of rights or other specific
action (including material relative to legal proceedings intended to be
transmitted to security holders) to the extent sufficient copies are received
by Barclays or its Subcustodian in time for forwarding to the Custodian.
Barclays or its Subcustodian will cause its nominee to execute and deliver to
the Custodian proxies relating to Securities in a Custody Account registered in
the name of such nominee, but without indicating the manner in which such
proxies are to be voted. Proxies relating to bearer Securities will be
delivered in accordance with written Instructions.
14. FEES AND EXPENSES. The Custodian agrees to pay to
Barclays from time to time such compensation for its services pursuant to this
Agreement and such out-of-pocket or incidental expenses as may be mutually
agreed upon in writing from time to time. The Custodian hereby agrees to hold
Barclays harmless from any liability or loss resulting from any taxes or other
governmental charges, and any expenses related thereto, which may be imposed or
assessed with respect to any Custody Account. The Custodian agrees to pay for
and hold Barclays harmless from any liability or loss resulting from the
imposition or assessment of any taxes or other governmental charges, and any
related expenses with respect to income from or assets in the Accounts and
Barclays is authorized to charge any account of the Custodian for such items.
15. EFFECTIVENESS. This Agreement shall be effective on
the date first noted above.
<PAGE> 13
11
16. TERMINATION. This Agreement or the accounts of any
Customer may be terminated by the Custodian or Barclays by 90 days' written
notice to the other, sent by registered mail, provided that such notice from
the Custodian shall specify the names of the persons to whom Barclays shall
deliver the Securities in the applicable Custody Accounts and to whom the cash
in the applicable Accounts shall be paid. If notice of termination is given by
Barclays, the Custodian shall, within 60 days following the giving of such
notice, specify in writing the names of the persons to whom Barclays shall
deliver the Securities in the applicable Custody Accounts and to whom the cash
in the applicable Cash Accounts shall be paid. In either case Barclays will
deliver such Securities and cash to the person so specified. If within 60 days
following the giving of a notice of termination by Barclays, the Custodian has
not specified in writing the names of the persons to whom Barclays shall
deliver the Securities in the applicable Custody Accounts and to whom the cash
in the applicable Cash Accounts shall be paid, Barclays, at its election, may
deliver such Securities and pay such cash to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions of this Agreement, or to Authorized Persons, or may continue to hold
such Securities and Cash until such information is delivered in writing to
Barclays. The obligations of the parties hereto regarding the use of
reasonable care, indemnities and payments of fees and expenses shall survive
the termination of this Agreement.
17. NOTICES. Any notice or other communication including
Instructions from the Custodian to Barclays is to be delivered or mailed,
postage prepared to the office of Barclays at 75 Wall Street, New York, New
York 10265, Attention: Global Custody Group, Telephone: (212) 412-4000,
Telecopier: (212) 797-3024 or such other address as may hereafter be given to
the Custodian in accordance with the notice provisions hereunder. Any notice
from Barclays to any Customer or the Custodian is to be delivered or mailed
postage prepaid to the office of the Custodian as set forth below, or such
other address as may hereafter be given to Barclays in accordance with the
notice provisions hereunder.
18. GOVERNING LAW, SUCCESSORS AND ASSIGNS AND THIRD PARTY
BENEFICIARIES. This Agreement shall be governed by the law of the State of
New York and shall not be assignable by either party, but shall bind the
successors (including, without limitation, by merger) and assigns of the
Custodian and Barclays.
19. HEADINGS. The headings of the paragraphs hereof
are included for convenience of reference only and do not form a part of this
Agreement.
20. RIDERS. Rider A to this Agreement is incorporated
herein to the extent Assets governed hereby are subject to the Employee
Retirement Income Security Act of 1974, as amended. Rider B to this Agreement
is incorporated herein to the extent Assets governed hereby are subject to the
Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
as of the date first above written.
<PAGE> 14
12
Attest: PROVIDENT NATIONAL BANK
BY:
- ------------------------------ --------------------------------
Title:
-----------------------------
Address: 200 Stevens Drive
Lester, PA 19113
Attest: BARCLAYS BANK PLC
BY:
- ------------------------------ --------------------------------
Authorized Officer
<PAGE> 15
13
Rider A
Required Revisions for Pension Funds
SECTION 1. CUSTODY AND CASH ACCOUNTS.
Add the following language to the end of Section 1:
(c) The Custodian represents that the Assets being placed
in Barclays' custody are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). It is understood that in
connection therewith Barclays is a service provider and not a
fiduciary of the plan and trust to which the assets are related.
Barclays shall not be considered a party to the underlying plan and
trust, and the Custodian hereby assumes all responsibility to assure
that Instructions issued under this Agreement are in compliance with
such plan and trust and all applicable requirements under ERISA.
(d) This Agreement will be interpreted so as to be in
compliance with the Department of Labor Regulations Section
2550.404b-1 concerning the maintenance of indicia of ownership of plan
assets outside of the jurisdiction of the district courts of the
United States.
SECTION 2. MAINTENANCE OF SECURITIES AND ASSETS ABROAD.
Add the following paragraph at the end of Subsection 2(b):
Instructions to execute foreign exchange transactions with
Barclays, its subsidiaries, affiliates or Subcustodians will include (1) the
time period in which the transaction must be completed; (2) the location or the
Subcustodian with whom the contract is to be executed and (3) such additional
information and guidelines as may be deemed necessary; and, if the instruction
is a standing instruction, a provision allowing such instruction to be
overridden by specific contrary instructions.
SECTION 3. FOREIGN SUBCUSTODIANS AND DEPOSITORIES.
Add the following language to the end of Section 3:
As used in this Agreement, the term Subcustodian and the term
securities depositories include a branch of Barclays, a branch of a qualified
U.S. bank, an eligible foreign custodian, or an eligible foreign securities
depository, where such terms shall mean:
(a) "qualified U.S. bank" shall mean a U.S. bank as
described in paragraph (a) 2 (ii) (A) (1) of the Department of Labor
Regulations Section 2550.404b-1;
(b) "eligible foreign custodian" shall mean a banking
institution incorporated or organized under the laws of a country
other than the United States which is
<PAGE> 16
14
supervised or regulated by that country's government or an agency
thereof or other regulatory authority in the foreign jurisdiction
having authority over banks; and
(c) "eligible foreign securities depository" shall mean a
securities depository or clearing agency, incorporated or organized
under the laws of a country other than the United States, which is
supervised or regulated by that country's government or an agency
thereof or other regulatory authority in the foreign jurisdiction
having authority over such depositories or clearing agencies and which
is described in paragraph (c) (2) of the Department of Labor
Regulations Section 2550.404b-1.
SECTION 5. CASH ACCOUNT TRANSACTIONS.
Subsection (b) is amended to read as follows:
(b) in the event that any payment made under this Section
5 exceeds the funds available in the Cash Account, such discretionary
advance shall be deemed a service provided by Barclays under this
Agreement for which it is entitled to recover its reasonable costs and
expenses as may be determined by Barclays in good faith.
SECTION 10. AUTHORIZED PERSONS.
Add the following paragraph at the end of Section 10:
The Custodian represents that: (i) Instructions will only be
issued by or for a fiduciary pursuant to Department of Labor Regulations
Section 404b-1 (a) (2) (i), and (ii) if instructions are to be issued by an
investment manager, such entity will meet the requirements of Section 3 (38) of
ERISA and will have been designated by the Custodian or the Customer to manage
assets held in the Accounts ("Investment Manager"). An Investment Manager may
designate certain of its employees to act as Authorized Persons under this
Agreement.
<PAGE> 17
15
Rider B
Required Revision for Mutual Funds
SECTION 1. CUSTODY AND CASH ACCOUNTS.
Add the following language to the end of Section 1:
(c) The Custodian represents that the Assets being placed
in Barclays' custody are subject to the Investment Company Act of 1940
(the "Act"), as the same may be amended from time to time.
(d) Barclays shall be responsible for assuring that it
and each Subcustodian is an eligible foreign custodian, qualified U.S.
Bank or overseas branch of a qualified U.S. Bank in accordance with
the definitions thereof set forth herein.
(e) Except to the extent that Barclays has specifically
agreed to comply with a condition of a rule, regulation or
interpretation promulgated by or under the authority of the Securities
Exchange Commission (the "SEC") or an exemptive order applicable to
accounts of this nature issued to Barclays, one or more of the other
parties hereto shall be responsible to assure that the maintenance of
assets under this Agreement complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the
authority of the SEC.
(f) As used in this Agreement, as applied to any assets
or property of an investment company having multiple portfolios or
series, the term "Customer" shall mean each of such Customer's
individual investment portfolios or series.
SECTION 3. FOREIGN SUBCUSTODIANS AND DEPOSITORIES.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in
this Agreement shall mean a branch of a qualified U.S. bank, an eligible
foreign custodian or an eligible foreign securities depository, which are
further defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S.
bank as defined in Rule 17f-5 under the Act;
(b) "eligible foreign custodian" shall mean (i) a banking
institution or trust company incorporated or organized under the laws
of a country other than the United States that is regulated as such by
that country's government or an agency thereof and that has
shareholders' equity in excess of $200 million in U.S. currency (or
foreign currency equivalent thereof), (ii) a majority owned direct or
indirect subsidiary of a qualified U.S. bank or bank holding company
that is incorporated or organized under
<PAGE> 18
16
the laws of a country other than the United States and that has
shareholders' equity in excess of $100 million in U.S. currency (or a
foreign currency equivalent thereof), (iii) a banking institution or
trust company incorporated or organized under the laws of a country
other than the United States or a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other than the
United States which has such qualifications, in addition to those set
forth in clause (i) or (ii) above, as shall be specified in
Instructions and approved by Barclays, or (iv) any other entity that
shall have been so qualified by exemptive order, rule or other
appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a
securities depository or clearing agency, incorporated or organized
under the laws of a country other than the United States, which
operates (i) the central system for handling securities or equivalent
book-entries in that country or (ii) a transnational system for the
central handling of securities or equivalent book-entries.
The Custodian represents that the Board of each Customer has
approved each of the Subcustodians listed in Schedule A to this Agreement and
the terms of each subcustody agreement between Barclays and each Subcustodian,
and further represents that each Board has determined that the use of each
Subcustodian and the terms of each subcustodian agreement are consistent with
the best interests of the Customer's fund(s) and its (their) shareholders, in
each case, to the extent required by the Act. Barclays will supply the
Custodian with any amendment to Schedule A for approval and will supply the
Custodian and, at the Custodian's request, each Customer's Board of Directors,
with information reasonably necessary to determine such new Subcustodian's
eligibility under Rule 17f-5, including a copy of the proposed agreement with
such Subcustodian. Each Customer has supplied or will supply the Custodian
with certified copies of its Board resolution(s) with respect to the foregoing
prior to placing Assets of such Customer with any Subcustodian so approved. If
Barclays intends to remove any Subcustodian previously approved, it shall so
notify the Custodian and shall move the Securities and other assets to another
Subcustodian previously approved or to a new Subcustodian, subject to the
requirements set forth in this paragraph. Barclays shall take steps as may be
required to remove any Subcustodian which has ceased to meet the requirements
of Rule 17f-5.
Barclays hereby warrants to the Customers and the Custodian
that in its opinion, after due inquiry, the established procedures to be
followed by each of its branches, each branch of a qualified U.S. bank, each
eligible foreign custodian and each eligible foreign securities depository
holding Securities pursuant to this Agreement afford protection for such
Securities not materially different than that provided with respect to similar
securities held by Barclays (and its securities depositories) in the United
States.
The Custodian acknowledges that Barclays, in accordance with
orders of the Commission (Investment Company Act Release No. IC- 16536 August
24, 1988 and No. IC-17268 December 19, 1989), shall be permitted to delegate
its subsidiaries located in Australia, Canada, France, Japan, Spain and
Switzerland, such of Barclays' duties and obligations as is necessary to permit
any such subsidiary to hold Securities and cash in custody in the country or
countries in which it operates; provided, however, Barclays shall continue to
be liable for any loss due to such delegation except such loss as may result
from political risk or any other risk of loss (excluding bankruptcy or
insolvency of the subsidiary) for which neither Barclays
<PAGE> 19
17
nor the subsidiary would otherwise be liable.
SECTION 9. SETTLEMENT PROCEDURES; INSTRUCTIONS.
Add the following language to the end of Section 9:
(f) Account transactions made pursuant to Section 5 and 6
of this Agreement may be made only for the purposes listed below.
Instructions must specify the purpose for which any transaction is to
be made and the Custodian shall be solely responsible to assure that
instructions are in accord with any limitations or restrictions
applicable to the Customer by law or as may be set forth in its
prospectus.
(i) In connection with the purchase or sale of
Securities at prices as confirmed by Instructions.
(ii) When Securities are called, redeemed or
retired, or otherwise become payable.
(iii) In exchange for or upon conversion into other
securities alone or other securities and cash pursuant to any
plan or merger, consolidation, reorganization,
recapitalization or readjustment.
(iv) Upon conversion of Securities pursuant to
their terms into other securities.
(v) Upon exercise of subscription, purchase or
other similar rights represented by Securities.
(vi) For the payment of interest, taxes,
management or supervisory fees, distributions or operating
expenses.
(vii) In connection with any borrowings by the
Customer requiring a pledge of Securities, but only against
receipt of amounts borrowed.
(viii) In connection with any loans, but only
against receipt of adequate collateral as specified in
Instructions which shall reflect any restrictions applicable
to the Customer.
(ix) For the purpose of redeeming shares of the
capital stock of the Customer and the delivery to, or the
crediting to the account of Barclays, its Subcustodian or the
Customer's transfer agent, such shares to be purchased or
redeemed.
(x) For the purpose of redeeming in kind shares
of the Customer against delivery of the shares to be redeemed
to Barclays, its Subcustodian or the Customer's transfer
agent.
(xi) For delivery in accordance with the
provisions of any agreement among the Customer, Barclays and a
broker-dealer registered under the
<PAGE> 20
18
Securities Exchange Act of 1934 (the "Exchange Act") and a
member of the National Association of Securities Dealers,
Inc., relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Customer.
(xii) For release of Securities to designated
brokers under covered call options, provided, however, payment
to Barclays of monies for the premium due and a receipt for
the Securities which are to be held in escrow. Upon exercise
of the option, or at expiration, Barclays will receive the
Securities previously deposited from brokers. Barclays will
act strictly in accordance with Instructions in the delivery
of Securities to be held in escrow and will have no
responsibility or liability for any such Securities which are
not returned promptly when due other than to make proper
request for such return.
(xiii) For spot or forward foreign exchange
transactions to facilitate security trading, receipt of income
from Securities or related transactions.
(xiv) For other proper purposes as may be specified
in Instructions, which shall include a statement that the
purpose is a proper purpose under the instruments governing
the Customer.
(xv) Upon the termination of this Agreement as set
forth in Section 16.
SECTION 12. STANDARD OF CARE.
Section 12(a) is hereby amended by deleting paragraph (a)
thereof in its entirety and substituting therefore the following:
(a) Barclays shall be responsible for the performance
only of such duties as are specifically set forth herein or contained
in Instructions given to Barclays by Authorized Persons which are not
contrary to the provisions of this Agreement. Barclays will use
reasonable care with respect to the safekeeping of the Assets in the
Custody Accounts and Cash Accounts and in the performance of its
functions and duties under this Agreement. Barclays shall be liable
to, and indemnify and hold harmless, the Custodian and the Customer,
for any loss which shall occur as the direct and foreseeable result of
the failure of a Subcustodian to exercise reasonable care with respect
to the safekeeping of Assets or in the performance of its functions or
duties in connection herewith to the same extent that such
Subcustodian would be liable to the Custodian and the Customer, as
under applicable law if such Subcustodian and the Custodian and the
Customer had directly entered into a custodial agreement governed by
the law of the country of such Subcudtodian. In the event of any loss
to the Custodian or the Customer by reason of the failure of Barclays
or its Subcustodian to utilize reasonable care, Barclays shall be
liable to, and indemnify and hold harmless, the Custodian and the
Customer to the extent of such party's direct and foreseeable damages,
to be determined (in the case of a loss of property) based on the
market value in U.S. dollars of the property which is the subject of
the loss at the date on which actual notice of such loss is received
by Barclays, and without reference to any special conditions or
circumstances. Barclays shall be held to the exercise of reasonable
care
<PAGE> 21
19
in carrying out this Agreement but shall be indemnified by, and shall
be without liability to, the Custodian and the Customer for any action
taken or omitted by Barclays in good faith without negligence in
accordance with this Agreement. Barclays shall be entitled to rely,
and may act, on advice of counsel (who may be counsel for the
Custodian) on all matters and shall be without liability for any
action reasonably taken or omitted pursuant to such advice. Barclays
will be subject to the reasonableness standard articulated above.
SECTION 21. REPORTS.
In addition to the reports specified in Section 4 (f) of this
Agreement, which Barclays shall provide at least monthly to the Custodian, and
at the Custodian's request, to the Board of Directors of each Customer,
Barclays shall provide to the Custodian and to the Board of Directors of each
Customer on an annual basis a report confirming that it and each of the
Subcustodians is an eligible foreign custodian, a qualified U.S. Bank or branch
of a qualified U.S. Bank, as defined herein. Barclays shall also provide such
information regarding the Securities and other assets, any Subcustodian, any
foreign country or itself as may be reasonably requested from time to time by
the Custodian.
SECTION 22. CORPORATE ACTION.
Whenever Barclays or a Subcustodian receives information
concerning the Securities which requires discretionary action by the beneficial
owner of the Securities (other than a proxy), such as subscription rights,
bonus issues, stock repurchase plans and rights offerings, or legal notice or
other material intended to be transmitted to securities holders ("Corporate
Actions"), Barclays will promptly give the Custodian notice of such Corporate
Actions to the extent that Barclays has actual knowledge of a Corporate Action.
When a rights entitlement or a fractional interest resulting
from a rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, Barclays will endeavor to obtain
Instructions, but if Instructions are not received in time for Barclays to take
timely action, or actual notice of such Corporate Action was received too late
to seek Instructions, Barclays is authorized to sell such rights entitlement or
fractional interest and to credit the applicable Cash Account with the proceeds
and to take any other action it deems, in good faith, to be appropriate in
which case, provided it has met the standard of care in this Agreement, it
shall be held harmless by the Customers for any such action.
<PAGE> 22
20
SIGNATURES.
Add the following after the signature lines:
The provisions of Section 3 hereof
are hereby acknowledged by:
BARCLAYS BANK OF CANADA
By:
-------------------------------
Authorized Attorney-in-Fact
BARCLAYS BANK S.A. (FRANCE)
By:
-------------------------------
Authorized Attorney-in-Fact
BARCLAYS TRUST AND BANKING
COMPANY (JAPAN) LIMITED
By:
-------------------------------
Authorized Attorney-in-Fact
BARCLAYS BANK S.A.E. (SPAIN)
By:
-------------------------------
Authorized Attorney-in-Fact
BARCLAYS BANK S.A. (SWITZERLAND)
By:
-------------------------------
Authorized Attorney-in-Fact
BARCLAYS BANK AUSTRALIA LIMITED
By:
-------------------------------
Authorized Attorney-in-Fact
<PAGE> 23
21
The following investment companies hereby agree and become parities to the
provision of the Global Custody Agreement of which this Rider B is a part.
Barclays and the Custodian undertake to discharge their respective obligations
set forth in the Global Custody Agreement and herein to the undersigned
investment companies which shall each be a "Customer" under this Agreement.
By:
---------------------------------------
Title:
------------------------------------
Dated as of: November 8, 1993
<PAGE> 24
22
Continuation of Investment Company Signatures
to
Rider B of
Global Custody Agreement
between Barclays Bank PLC
Provident National Bank
and
Investment Companies signing
this Rider B
[Name of Fund]
---------------------------------------
Title:
---------------------------------
Dated as of:
---------------------------
<PAGE> 1
EXHIBIT 9.1
SUB-ADMINISTRATION AND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made as of _______, 1997 by and among BANK OF
AMERICA NT & SA ("Bank of America"), PFPC INC., a Delaware corporation
("PFPC"), which is an indirect wholly owned subsidiary of PNC Bank Corp. and
PACIFIC INNOVATIONS TRUST, a Delaware business trust (the "Fund").
W I T N E S S E T H :
WHEREAS, Bank of America has entered into an Administration
Agreement dated ________, 1997, with the Fund (the "Administration Agreement"),
concerning the provision of administrative services to the portfolios listed
on Exhibit A attached hereto and made a part hereof, as such Exhibit A may be
amended from time to time (each, a "Portfolio" and collectively, the
"Portfolios");
WHEREAS, the Fund is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, Bank of America wishes to retain PFPC to provide
sub-administration services and the Fund wishes to retain PFPC to provide
accounting services to the Portfolios and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and intending to be legally bound hereby the
parties hereto agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as
amended.
(b) "1934 Act" means the Securities Exchange Act of
1934, as amended.
(c) "Authorized Person" means any officer of the Fund
and any other person duly authorized by the Fund's Board of Trustees to give
Oral Instructions and Written Instructions on behalf of the Fund and listed on
the Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Fund by setting forth such limitation in the
Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as
amended.
<PAGE> 2
(e) "Oral Instructions" mean oral instructions
received by PFPC from an Authorized Person or from a person reasonably believed
by PFPC to be an Authorized Person.
(f) "SEC" means the Securities and Exchange
Commission.
(g) "Securities Laws" means the 1933 Act, the 1934
Act, the 1940 Act and the CEA.
(h) "Shares" mean the shares of beneficial interest
of any series or class of the Fund.
(i) "Written Instructions" mean written instructions
signed by an Authorized Person and received by PFPC. The instructions may be
delivered by hand, mail, tested telegram, cable, telex or facsimile sending
device.
2. APPOINTMENT. Bank of America hereby appoints PFPC to
provide sub-administration services and the Fund hereby appoints PFPC to
provide accounting services to the each of the Portfolios, in accordance with
the terms set forth in this Agreement. PFPC accepts such appointment and
agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund or Bank of America has
provided or, where applicable, will provide PFPC with the following:
(a) certified or authenticated copies of the
resolutions of the Fund's Board of Trustees, approving the appointment of PFPC
or its affiliates to provide services to each Portfolio and approving this
Agreement;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of each Portfolio's advisory, sub-advisory
or management agreement or agreements;
(d) a copy of the distribution agreement with respect
to each class of Shares representing an interest
in a Portfolio;
(e) a copy of any additional administration agreement
with respect to a Portfolio;
(f) a copy of any shareholder servicing or transfer
agency agreement made in respect of the Fund or a Portfolio; and
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<PAGE> 3
(g) copies (certified or authenticated, where
applicable) of any and all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to
comply with all applicable requirements of the Securities Laws, and any laws,
rules and regulations of governmental authorities having jurisdiction with
respect to the duties to be performed by PFPC hereunder. Except as
specifically set forth herein, PFPC assumes no responsibility for such
compliance by Bank of America, the Fund or any Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC
shall act only upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral
Instructions and Written Instructions it receives from an Authorized Person (or
from a person reasonably believed by PFPC to be an Authorized Person) pursuant
to this Agreement. PFPC may assume that any Oral Instruction or Written
Instruction received hereunder is not in any way inconsistent with the
provisions of organizational documents or this Agreement or of any vote,
resolution or proceeding of the Fund's Board of Trustees or of the Fund's
shareholders, unless and until PFPC receives Written Instructions to the
contrary.
(c) Bank of America shall cause the Fund to forward
to PFPC Written Instructions confirming Oral Instructions (except where such
Oral Instructions are given by PFPC) so that PFPC receives the Written
Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral Instructions or Written Instructions reasonably appear to have been
received from an Authorized Person, PFPC shall incur no liability to Bank of
America or the Fund in acting upon such Oral Instructions or Written
Instructions provided that PFPC's actions comply with the other provisions of
this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of Bank of America or the Fund. If PFPC
is in doubt as to any action it should or should not take, PFPC may request
directions or advice, including Oral Instructions or Written Instructions, from
Bank of America or the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as
to any question of law pertaining to any action it should or should not take,
PFPC may request advice at its own cost from such counsel of its own choosing
(who may be counsel for Bank of America, the Fund or PFPC, at the option of
PFPC).
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<PAGE> 4
(c) Conflicting Advice. In the event of a conflict
between directions, advice or Oral Instructions or Written Instructions PFPC
receives from Bank of America or the Fund and the advice PFPC receives from
counsel, PFPC may rely upon and follow the advice of counsel. In the event
PFPC so relies on the advice of counsel, PFPC shall remain liable for any
action or omission on the part of PFPC which constitutes willful misfeasance,
bad faith, negligence or reckless disregard by PFPC of any duties, obligations
or responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in
any action it takes or does not take in reliance upon directions, advice or
Oral Instructions or Written Instructions it receives from Bank of America or
the Fund or from counsel and which PFPC believes, in good faith, to be
consistent with those directions, advice or Oral Instructions or Written
Instructions. Nothing in this section shall be construed so as to impose an
obligation upon PFPC (i) to seek such directions, advice or Oral Instructions
or Written Instructions, or (ii) to act in accordance with such directions,
advice or Oral Instructions or Written Instructions unless, under the terms of
another provision of this Agreement, the same is a condition of PFPC's properly
taking or not taking such action. Nothing in this subsection shall excuse PFPC
when an action or omission on the part of PFPC constitutes willful misfeasance,
bad faith, negligence or reckless disregard by PFPC of any duties, obligations
or responsibilities set forth in this Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Fund and
the Portfolios which are in the possession or under the control of PFPC shall
be the property of the Fund. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities laws,
rules and regulations. The Fund and Authorized Persons, as well as bank,
securities and insurance regulators, shall have access to such books and
records at all times during PFPC's normal business hours. Upon the reasonable
request of Bank of America or the Fund, copies of any such books and records
shall be provided by PFPC to Bank of America or the Fund or to an Authorized
Person, at the Fund's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to
each Portfolio's books of account;
(ii) records of each Portfolio's securities
transactions;
(iii) all other books and records as PFPC is
required to maintain pursuant to Rule
31a-1 of the 1940 Act in connection with
the services provided hereunder.
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<PAGE> 5
8. CONFIDENTIALITY. PFPC agrees to keep confidential all
records of the Fund and information relating to the Fund and its shareholders,
unless the release of such records or information is otherwise consented to, in
writing, by Bank of America. Bank of America agrees that such consent shall
not be unreasonably withheld and may not be withheld where PFPC may be exposed
to civil or criminal contempt proceedings or when required to divulge such
information or records to duly constituted authorities.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with
the Fund's independent public accountants and shall provide account analyses,
fiscal year summaries, and other audit-related schedules with respect to each
Portfolio. PFPC shall take all reasonable action in the performance of its
duties under this Agreement to assure that the necessary information is made
available to such accountants for the expression of their opinion, as required
by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provisions for emergency use of electronic data processing equipment
to the extent appropriate equipment is available. In the event of equipment
failures, PFPC shall, at no additional expense to Bank of America or the Fund,
take reasonable steps to minimize service interruptions but shall have no
liability with respect thereto.
11. COMPENSATION. As compensation for services rendered by
PFPC during the term of this Agreement, Bank of America will pay to PFPC a fee
or fees with respect to the sub-administration services provided herein as
described in paragraph 15 below as may be agreed to in writing by Bank of
America and PFPC. As compensation for accounting services described in
paragraph 14 below rendered by PFPC during the term of this Agreement, the Fund
will pay to PFPC a fee or fees with respect to the accounting services provided
herein as may be agreed to in writing by the Fund and PFPC.
12. INDEMNIFICATION. Bank of America (for itself and on
behalf of the Fund) agrees to indemnify and hold harmless PFPC and its
affiliates from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state or foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) attorneys'
fees and disbursements, arising directly or indirectly from any action or
omission to act which PFPC takes (i) at the request or on the direction of or
in reliance on the advice of Bank of America or the Fund or (ii) upon Oral
Instructions or Written Instructions. PFPC shall not, however, be indemnified
against any liability (or any expenses incident to such liability) arising out
of PFPC's own willful misfeasance, bad faith, negligence or reckless disregard
of its duties and obligations under this Agreement.
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<PAGE> 6
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on
behalf of Bank of America, the Fund or any Portfolio except as specifically set
forth herein or as may be specifically agreed to by PFPC in writing. PFPC
shall be obligated to exercise care and diligence in the performance of its
duties hereunder and shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent such damages
arise out of PFPC's willful misfeasance, bad faith, negligence or reckless
disregard of such duties.
(b) Without limiting the generality of the foregoing
or of any other provision of this Agreement, (i) PFPC shall not be liable for
losses beyond its control, provided that PFPC has acted in accordance with the
standard of care set forth above; and (ii) PFPC shall not be liable for (A) the
validity or invalidity or authority or lack thereof of any Oral Instruction or
Written Instruction, notice or other instrument which conforms to the
applicable requirements of this Agreement, and which PFPC reasonably believes
to be genuine; or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the
contrary, PFPC shall not be liable for any consequential, special or indirect
losses or damages which Bank of America, the Fund or any Portfolio may incur or
suffer by or as a consequence of PFPC's performance of the services provided
hereunder, whether or not the likelihood of such losses or damages was known by
PFPC.
14. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS.
PFPC will perform the following accounting services with respect to each
Portfolio:
(i) Journalize investment, capital share and income
and expense activities;
(ii) Verify investment buy/sell trade tickets when
received from the investment adviser for a
Portfolio (the "Adviser") and transmit trades to
the Fund's custodian (the "Custodian") for proper
settlement;
(iii) Maintain individual ledgers for investment
securities;
(iv) Maintain historical tax lots for each security;
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<PAGE> 7
(v) Reconcile cash and investment balances of the
Fund with the Custodian, and provide the Adviser
with the beginning cash balance available for
investment purposes;
(vi) Update the cash availability throughout the
day as required by the Adviser;
(vii) Post to and prepare the Statement of Assets and
Liabilities and the Statement of Operations;
(viii) Calculate various contractual expenses (e.g.,
advisory and custody fees);
(ix) Monitor the expense accruals and notify an
officer of the Fund of any proposed adjustments;
(x) Control all disbursements and authorize such
disbursements upon Written Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine net income;
(xiii) Obtain security market quotes from independent
pricing services approved by the Adviser, or if
such quotes are unavailable, then obtain such
prices from the Adviser, and in either case
calculate the market value of each Portfolio's
investments;
(xiv) Transmit or mail a copy of the daily portfolio
valuation to the Adviser;
(xv) Compute net asset value for each Portfolio and
transmit to the Portfolio's transfer agent;
(xvi) As appropriate, compute yields, total return,
expense ratios, portfolio turnover rate, and, if
required, portfolio average dollar-weighted
maturity; and
(xvii) Prepare a monthly financial statement, which will
include the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
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<PAGE> 8
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses.
15. DESCRIPTION OF SUB-ADMINISTRATION SERVICES ON A CONTINUOUS
BASIS.
PFPC will perform the following sub-administration
services with respect to each Portfolio:
(i) Prepare quarterly broker security transactions
summaries;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary Portfolio and
Fund statistical data as requested on an ongoing
basis;
(iv) Prepare for execution and file the Fund's Federal
and state tax returns;
(v) Prepare and file the Fund's Semi-Annual Reports
with the SEC on Form N-SAR;
(vi) Prepare and file with the SEC the Fund's annual
and semi-annual shareholder reports;
(vii) Assist in the preparation of registration
statements and other filings relating to the
registration of Shares;
(viii) Monitor each Portfolio's status as a regulated
investment company under Sub-chapter M of the
Internal Revenue Code of 1986, as amended;
(ix) Coordinate contractual relationships and
communications between the Fund and its
contractual service providers;
(x) Monitor the Fund's compliance with the amounts
and conditions of each state qualification;
(xi) Assist in the monitoring of compliance with 1940
Act provisions and the rules thereunder and the
investment policies and limitations as stated in
the Fund's registration statement;
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<PAGE> 9
(xii) Prepare minutes of the meetings of the Board of
Trustees and shareholders and assist Fund counsel
as required; and
(xiii) Perform such administrative services (including
without limitation, the furnishing of reports to
the Board) as the Fund or an Authorized Person
shall from time to time reasonably request.
16. DURATION AND TERMINATION. This Agreement shall continue
until terminated without penalty by a party on sixty (60) days' prior written
notice to the other parties.
17. NOTICES. All notices and other communications, including
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. If notice is sent by confirming telegram,
cable, telex or facsimile sending device, it shall be deemed to have been given
immediately. If notice is sent by first-class mail, it shall be deemed to have
been given three days after it has been mailed. If notice is sent by
messenger, it shall be deemed to have been given on the day it is delivered.
Notices shall be addressed (a) if to PFPC, at 400 Bellevue Parkway, Wilmington,
Delaware 19809; (b) if to Bank of America, at Bank of America NT & SA, 555
South Flower Street, Los Angeles, California 90071, Attn: Debra
McGinty-Poteet, with a copy to Bank of America NT & SA, 555 South Flower
Street, Eighth Floor, Los Angeles, California 90071, Attn: Jay Gould, Esq.;
(c) if to the Fund, at __________ ; or (d) if to none of the foregoing, at such
other address as shall have been provided to the sender of any such notice or
other communication by the other party.
18. AMENDMENTS. This Agreement, or any term thereof, may be
changed or waived only by written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
19. ASSIGNMENT. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by any party
without the written consent of the other parties.
20. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
21. FURTHER ACTIONS. Each party agrees to perform such
further acts and execute such further documents as are necessary to effectuate
the purposes hereof.
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<PAGE> 10
22. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the
entire agreement and understanding among the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their agreement,
if any, with respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to
be a contract made in Delaware and governed by Delaware law, without regard to
principles of conflicts of law.
(d) Partial Invalidity. 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.
(e) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of
any party to this Agreement shall constitute the valid and binding execution
hereof by such party.
(g) Responsibility of Trustees, etc.. The names
"Pacific Innovations Trust" and "Trustee of Pacific Innovations Trust" refer
respectively to the trust created and the trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated _________________, which is hereby referred to and a copy of which
is on file at the principal office of the Fund. The trustees, officers,
employees and agents of the Fund shall not personally be bound by or liable
under any written obligation, contract, instrument, certificate or other
interest or undertaking of the Fund made by the trustees or by an officer,
employee or agent of the Fund, in his or her capacity as such, nor shall resort
be had to their private property for the satisfaction of any obligation or
claim thereunder. All persons dealing with any class of shares of the Fund may
enforce claims against the Fund only against the assets belonging to such
class.
(h) Reservation of Authority. Notwithstanding any
other provision of this Agreement, it is understood and agreed that the Fund
shall at all times retain the ultimate responsibility for directions and
control of all services provided pursuant to this Agreement, and retain the
right to direct, approve or disapprove any action taken hereunder, which
responsibility and right shall be reasonably exercised, provided,
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however, that this Paragraph 22(h) shall not in any way limit or interfere with
the rights and protections afforded to PFPC pursuant to Paragraphs 5, 6, 8, 12
or 13 of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year first above written.
PFPC INC.
By:
--------------------------
Title:
-----------------------
BANK OF AMERICA NT & SA
By:
--------------------------
Title:
-----------------------
PACIFIC INNOVATIONS TRUST
By:
--------------------------
Title:
-----------------------
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<PAGE> 12
EXHIBIT A
THIS EXHIBIT A, dated as of ______, 1997, is Exhibit A to that
certain Sub-Administration and Accounting Services Agreement dated as of _____,
1997 among PFPC INC., BANK OF AMERICA NT & SA and PACIFIC INNOVATIONS TRUST.
PORTFOLIOS
Money Market Fund
Managed Bond Fund
Capital Income Fund
Mid Cap Equity Fund
Blue Chip Fund
Aggressive Growth Fund
International Fund
<PAGE> 13
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
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<PAGE> 1
EXHIBIT 9.2
TRANSFER AGENCY AGREEMENT
This Transfer Agency Agreement is made as of the ____ of _________,
1996 between Pacific Innovations Trust, a Delaware business trust (herein
called the "Company"), having its principal office and place of business c/o
PFPC, Inc., 103 Bellevue Parkway, Wilmington, Delaware 19809 and Pacific Mutual
Life Insurance Company, a California corporation having its principal office
and place of business at 700 Newport Center Drive, Newport Beach, California
92660 (herein called the "Transfer Agent").
W I T N E S S E T H:
That for and in consideration of the mutual promises herein set forth,
the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall
have the following meanings:
1. "Approved Institution" shall mean an entity so named in a
Certificate. From time to time the Company may amend a Certificate by
delivering to the Transfer Agent a Certificate naming an additional entity or
deleting any entity named in a previously delivered Certificate.
2. "Board of Trustees" shall mean the Board of Trustees of the
Company.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Transfer Agent by the Company which is signed by any Officer, as
hereinafter defined, and actually received by the Transfer Agent.
4. "Class" shall mean a subclass of shares within a particular
series.
5. "Custodian" shall mean the financial institution appointed as
custodian under the terms and conditions of the Custody Agreement between the
financial institution and the Company, or its successor(s).
6. "Company Accountant" shall mean the entity appointed as
accountant under the terms and conditions of the Accounting Services Agreement
between the entity and the Company, or its successor(s).
7. "Company Business Day" shall be deemed to be each day on which
the New York Stock Exchange, Inc. and the Company are open for trading.
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8. "Manager" shall mean Bank of America, NT&SA, acting under the
terms and conditions of the Management Agreement and includes any successor and
assigns.
9. "Officer" shall be deemed to be the Company's Chairman of the
Board, the Company's President, any Vice President of the Company, the
Company's Secretary, the Company's Treasurer, the Company's Controller, any
Assistant Controller of the Company, any Assistant Treasurer of the Company and
any Assistant Secretary of the Company, and any other person duly authorized by
the Board of Trustees of the Company to execute any Certificate, instruction,
notice or other instrument on behalf of the Company and named in the
Certificate annexed hereto as Appendix A, as such Certificate may be amended
from time to time, and any person reasonably believed by the Transfer Agent to
be such a person.
10. "Prospectus" shall mean with respect to a Class or Series of
Shares, the last Company prospectus actually received by the Transfer Agent
from the Company with respect to such Class or Series of Shares and with
respect to which the Company has indicated a Registration Statement under the
Securities Act of 1933, as amended, has become effective, including the
Statements of Additional Information, incorporated by reference therein.
11. "Funds" shall mean the various portfolios of the Company as
described from time to time in the current and effective Prospectuses.
12. "Shares" shall mean all or any part of each class or series of
shares of beneficial interest of the Company listed in the Certificate,
attached hereto as Appendix B, as may be amended from time to time, which are
from time to time authorized and/or issued by the Company.
13. "Transfer Agent" shall mean Pacific Mutual Life Insurance
Company as transfer agent under the terms and conditions of this Agreement, its
successor(s) or assigns(s).
14. "Out of Pocket Expenses" means amounts reasonably necessary
and actually paid to third parties by the Transfer Agent in the provision of
the Transfer Agent services or pursuant to this Agreement. Such amounts will
not include charges of legal counsel, but will otherwise include amounts paid
for the following purposes: (i) postage and all freight and other delivery and
bonding charges incurred by the Transfer Agent in delivering materials to and
from the Company and in delivering all materials to dealers of shareholders;
(ii) all direct telephone, telephone transmission, telecopy, or other
electronic transmission expenses incurred by the Transfer Agent in
communication with the Company's dealers, shareholders or others, as required
for the Transfer Agent to perform the services to be provided hereunder; (iii)
all charges related to the settlement of
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shareholder transactions, including but not limited to NSCC/FUND SERV charges,
bank wire charges, and checking account charges; (iv) charges associated with
satisfying Internal Revenue Service tax reporting requirements; (v) expenses
associated with Securities and Exchange Commission examinations of Company
books and records; (vi) paper stocks and printing costs for statements,
checks, envelopes, tax and other forms; and (vii) such other expenses paid or
incurred by Transfer Agent on behalf of the Company at the request of the
Manager. All out of pocket expenses for the preceding quarter shall be
provided to the Board of Trustees at each quarterly meeting of such Board.
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
1. The Company hereby appoints the Transfer Agent as transfer
agent of all the Shares of the Company during the period of this Agreement.
2. (a) The Transfer Agent hereby accepts appointment as
transfer agent and agrees to perform the duties thereof as herein set forth,
including those duties set forth in Schedule I hereto.
(b) The services and specific capabilities to be provided
under this Agreement by the Transfer Agent shall include those specifically
listed in this Agreement.
3. The Company shall deliver the following documents to the
Transfer Agent:
(a) A copy of the Certificate of Trust and Declaration of
Trust of the Company and all amendments thereto certified by the Secretary of
the Company;
(b) A copy of the By-Laws of the Company, and all
amendments thereto certified by the Secretary of the Company;
(c) A copy of a resolution of the Board of Trustees of
the Company certified by the Secretary of the Company appointing the Transfer
Agent and authorizing the execution of this Transfer Agency Agreement;
(d) A Certificate signed by the Secretary or any
Assistant Secretary of the Company specifying: with respect to each Class or
Fund, the number of authorized Shares, the number of such authorized Shares
issued, and the number of such authorized Shares issued and currently
outstanding; the names and specimen signatures of the Officers of the Company;
and the name and address of the legal counsel for the Company;
(e) Copies of the Company's Registration Statement, as
amended to date, and the most recently filed Post-Effective Amendment thereto,
filed by the Company with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, together with any applications filed in connection therewith;
and
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(f) Opinion of counsel for the Company with respect to
the validity of the authorized and outstanding Shares, whether such Shares are
fully paid and non-assessable and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable federal law or
regulation (i.e., if subject to registration, that they have been registered
and that the Registration Statement has become effective or, if exempt, the
specific grounds therefore).
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Company shall deliver to the Transfer Agent the following
documents on or before the effective date of any increase or decrease in the
total number of Shares authorized to be issued:
(a) A certified copy of the amendment to the Declaration
of Trust giving effect to such increase or decrease;
(b) In the case of an increase, an opinion of counsel for
the Company with respect to the validity of the Shares of the Company and the
status of such Shares under the Securities Act of 1933, as amended, and any
other applicable federal law or regulation (i.e., if such to registration, that
they have been registered and that the Registration Statement has become
effective or, if exempt, the specific grounds therefor); and
(c) In the case of an increase, if the appointment of the
Transfer Agent is expressly limited to the previously authorized number of
Shares, a certified copy of a resolution of the Board of Trustees of the
Company increasing the authority of the Transfer Agent.
2. Prior to the issuance of any additional Shares of the Company
pursuant to actions such as share dividends or share splits, and prior to any
reduction in the number of Shares outstanding, the Company shall deliver the
following documents to the Transfer Agent:
(a) A certified copy of the resolution(s) adopted by the
Board of Trustees and/or the shareholders of the Company authorizing such
issuance of additional Shares of the Company or such reduction, as the case may
be; and
(b) An opinion of counsel for the Company with respect to
the validity of the Shares of the Company and the status of such Shares under
the Securities Act of 1933, as amended, and any other applicable federal law or
regulation (i.e., if subject to registration, that they have been registered
and that the Registration Statement has become effective, or, if exempt, the
specific grounds therefor).
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ARTICLE IV
ISSUANCE,
REDEMPTION AND TRANSFER OF SHARES
1. The Transfer Agent acknowledges that it has received a copy of
the Company's Prospectus with respect to its currently authorized Funds and
Classes of Shares, which Prospectus describes how sales and redemption of
shares of the Company shall be made, and the Transfer Agent agrees to accept
purchase orders and redemption requests with respect to Company shares on each
Company Business Day in accordance with such Prospectus. The Company agrees to
notify the Transfer Agent in writing as soon as possible under the
circumstances of any changes in the procedures set forth in the Prospectus
regarding such purchase and redemption procedures.
2. On each Company Business Day, the Transfer Agent shall, as of
the time at which the Company computes the net asset value of each Class or
Fund of the Company, issue to and redeem from the shareholder accounts
specified in a purchase order, redemption request or computer tape, which in
accordance with the Prospectuses is effective on such Company Business Day, the
appropriate number of full and fractional Shares based on the net asset value
per Share of such Class or Fund specified in an advice received on such Company
Business Day from the Company or the Company Accountant. Notwithstanding the
foregoing, if a redemption specified in a computer tape is for a dollar value
of Shares in excess of the dollar value of uncertificated Shares in the
specified account, the Transfer Agent shall not effect such redemption in whole
or in part and shall within twenty-four (24) hours orally advise both the
Company and the Approved Institution which supplied such tape of the
discrepancy.
3. In connection with a reinvestment of a dividend or
distribution on Shares of any Class or Fund of the Company, the Transfer Agent
shall, as of each Company Business Day, as specified in a Certificate or
resolution described in paragraph 1 of Article V, issue Shares of a Class or
Fund to the appropriate shareholder account, based on the net asset value per
Share of such Class or Fund specified in an advice received from the Company or
its Company Accountant on such Company Business Day.
4. On each Company Business Day:
(a) the Transfer Agent shall supply the Company Accountant with a
statement specifying with respect to the immediately preceding Company Business
Day: the total number of Shares of each Class or Fund (including fractional
shares) issued and outstanding at the opening of business on such day; the
total number of Shares of each Class or Fund sold on such day, pursuant to
paragraph 2 of this Article IV; the total number of Shares of each Class or
Fund redeemed by the Transfer Agent on such day; the total number of Shares of
each Class or Fund, if any, sold on such day pursuant to paragraph 3 of this
Article IV; and the total number of Shares of each Class or Fund issued and
outstanding. On the same day such statement is received by the Company, the
Company
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shall confirm the information contained therein, after making any necessary
correction, by delivering to the Transfer Agent a Certificate with respect to
the same, if requested by Transfer Agent.
(b) The Transfer Agent shall supply by telephone call to an Officer
of the Company or by such other form to such other person as shall be agreed
upon from time to time by the Company and the Transfer Agent:
i) The total dollar amount to be applied to the purchase of
Shares of each Class or Fund on such day, computed by aggregating the amount so
specified in such of the purchase orders described in paragraph 1 of this
Article IV with respect to which payment has been, or will be, credited by the
Custodian to the Company's custody account with the Custodian on such day. The
Transfer Agent shall also accept with respect to each Company Business Day, at
such times as are agreed upon from time to time, in writing by the Transfer
Agent and the Company, a computer tape, as described in Article IV, Section
12(a), or in such other form as may be agreed upon by the Company and the
Transfer Agent, consistent in all respects with the Transfer Agent's
transmission layout package, as amended from time to time, upon prior written
notice to the Company or its Distributor, which is believed by the Transfer
Agent to be furnished by or on behalf of any Approved Institution. The
Transfer Agent shall not be liable for any loss or damage to the Company or it
shareholders in the event that a computer tape or electronic date transmission
from an Approved Institution is unable to be processed for any reason beyond
the control of the Transfer Agent, or if any other information on such tape or
transmission is found to be incorrect.
ii) The total dollar amount of Shares of each Class or
Fund redeemed on such day, computed by aggregating the amount so specified in
(a) such of the redemption requests described in paragraph 1 of this Article IV
with respect to which the amount payable as redemption proceeds has been, or
will be, charged by the Custodian on such day, and (b) all computer tapes
described in paragraph 4(b)(i) of this Article IV with respect to which the
amount payable as redemption proceeds has been, or will be, charged by the
Custodian on such day.
(c) The Transfer Agent shall furnish the Custodian with a statement
(which may be by electronic facsimile transfer) setting forth the number and
dollar amount of each Class or Fund of Shares to be redeemed on such Company
Business Day in accordance with paragraph 2 of this Article IV.
5. In connection with each purchase and each redemption of
Shares, and each reinvestment of a dividend or distribution of Shares, the
Transfer Agent shall send to the affected shareholder such statements as are
prescribed by the federal securities laws applicable to transfer agents and as
are described in the applicable Prospectus. If the Prospectus indicates that
certificates for Shares are available and if specifically requested in writing
by any shareholder, or if otherwise required hereunder, the Transfer Agent
shall countersign, issue and mail by first-class mail to such shareholder at
the address set forth in
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the records of the Transfer Agent, a Share certificate for any full Shares
requested, but Transfer Agent is not required to issue or mail certificates for
Shares, if not required by the Board of Trustee, or regulatory authority.
6. In connection with a redemption of Shares, the Transfer Agent
shall cancel the redeemed Shares and, after making appropriate deduction for
any withholding of taxes required of it by applicable law, (a) in the case of a
redemption of Shares pursuant to a redemption described in paragraph 1 of this
Article IV, make payment in accordance with the Company's redemption and
payment procedures described in the Prospectuses, and (b) in the case of a
redemption of Shares pursuant to a computer tape described in paragraph 4(b)(i)
of this Article IV, make payment by directing a federal funds wire order to the
account previously designated by the Approved Institution specified in the
computer tape.
7. The Transfer Agent shall not be required to issue any Shares
after it has received from an Officer of the Company or from an appropriate
federal or state authority written notification that the sale of Shares has
been suspended or discontinued, and the Transfer Agent shall be entitled to
rely upon such written notification.
8. Upon the issuance of any Shares in accordance with this
Agreement, the Transfer Agent shall not be responsible for the payment of any
original issue or other taxes required to be paid by the Company in connection
with such issuance of any Shares.
9. The Transfer Agent shall accept a computer tape consistent
with the Transfer Agent's transmission layout package, as amended from time to
time upon prior notice to the Company or the Distributor, which is reasonably
believed by the Transfer Agent to be furnished by or on behalf of an Approved
Institution and is represented to be instructions with respect to the transfer
of Shares from one account of such Approved Institution to another such
account, and shall effect the transfers specified in said computer tape. The
Transfer Agent shall not be liable for any losses to the Company or its
shareholders in the event that a computer tape or electronic data transmission
from and Approved Institution is unable to be processed for any reason beyond
the control of the Transfer Agent, or if any of the information on such tape or
transmission is found to be incorrect.
10. (a) Except as otherwise provided in sub-paragraph (b) of
this paragraph and in paragraph 12(a) of this Article IV, Shares shall be
transferred or redeemed upon presentation to the Transfer Agent of Share
certificates or instructions properly endorsed for transfer or redemption,
accompanied by such documents as the Transfer Agent deems necessary to evidence
the authority of the person making such transfer or redemption, and bearing
satisfactory evidence of the payment of any transfer taxes. The Transfer Agent
reserves the right to refuse to transfer or
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<PAGE> 8
redeem Shares until it is satisfied that the endorsement on the share
certificate or instructions is valid and genuine, and for that purpose it will
require, unless otherwise instructed by an authorized officer of the Company, a
guarantee of signature, acceptable to the Transfer Agent and in compliance with
applicable law. The Transfer Agent also reserves the right to refuse to
transfer or redeem Shares until it is satisfied that the requested transfer or
redemption is legally authorized, and it shall incur no liability for the
refusal, in good faith, to make transfers or redemptions which the Transfer
Agent, in its judgment, deems improper or unauthorized, or until it is
satisfied that there is no basis to any claims adverse to such transfer or
redemption. The Transfer Agent, may in effecting transfers and redemptions of
Shares, rely upon those provisions of the Uniform Act for the Simplification of
Fiduciary Security Transfers or the Uniform Commercial Code, as the same may be
amended from time to time and as is applicable to the transfer in question, and
the Company shall indemnify the Transfer Agent for any act performed or omitted
by it in good faith in reliance upon such laws.
(b) Notwithstanding the foregoing or any other provision
contained in this Agreement to the contrary, the Transfer Agent shall be fully
protected by the Company in the event the Transfer Agent does not require any
instruments, documents, assurances, endorsements or guarantees, including,
without limitation, any signature guarantees, in connection with a redemption
or transfer of Shares whenever the Transfer Agent reasonably believes that
requiring the same would be inconsistent with the transfer and redemption
procedures as described in the applicable Prospectus.
11. Notwithstanding any provision contained in this Agreement to
the contrary, the Transfer Agent shall not be required or expected to require,
as a condition to any transfer of any Shares pursuant to paragraph 9 of this
Article IV or any redemption of any Shares pursuant to a computer tape
described in this Agreement, any documents, including, without limitation, any
documents of the kind described in sub-paragraph (a) of paragraph 12(a) of this
Article IV, to evidence the authority of the person requesting the transfer or
redemption and/or the payment of any share transfer taxes, and shall be fully
protected in acting in accordance with the applicable provisions of this
Article IV.
12. (a) As used in this Agreement, the terms "computer tape"
and "computer tape believed by the Transfer Agent to be furnished by an
Approved Institution" shall include any tape or electronic transmission
generated by the Transfer Agent to reflect information believed by the Transfer
Agent to have been input by an Approved Institution, via a remote terminal or
other similar link, into a data processing, storage, or collection system, or
similar system (the "System"), located on the Transfer Agent's premises or
utilized by the Transfer Agent. For purposes of paragraph 2 of this Article
IV, such computer tape shall be deemed to have been furnished at such times as
are agreed upon from time to time by the Transfer Agent and Company only if the
information reflected thereon was input into the System at such times as are
agreed upon from time to time by the Transfer Agent and the Company.
(b) Nothing contained in this Agreement shall constitute
any agreement or representation by the Transfer Agent to permit, or to agree to
permit, any Approved Institution to input information into a System.
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<PAGE> 9
(c) The Transfer Agent reserves the right to approve in
advance any Approved Institution, such approval not to be unreasonably
withheld. The Transfer Agent also reserves the right to terminate any and all
automated date communications, at its discretion, upon a reasonable attempt to
notify the Company when in the opinion of the Transfer Agent continuation of
such communications would jeopardize the accuracy and/or integrity of the
Company's records on the System.
ARTICLE V
DIVIDENDS AND DISTRIBUTIONS
1. The Company shall furnish to the Transfer Agent a copy of a
resolution of its Board of Trustees, certified by the Secretary or any
Assistant Secretary, either (i) setting forth with respect to a Class or Fund
of Shares the date of the declaration of a dividend or distribution, the date
of accrual or payment, as the case may be, thereof, the record date as of which
Shareholders entitled to payment or accrual shall be determined, the amount per
Share of such dividend or distribution, the payment date on which all
previously accrued and unpaid dividends are to be paid, and the total amount,
if any, authorizing the declaration of dividends and distributions on a daily
or other periodic basis and authorizing the Transfer Agent to rely on a
Certificate setting forth the information described in subsection (i) of this
paragraph.
2. It is understood that the Transfer Agent shall in no way be
responsible for the determination of the rate or form of dividends or capital
gain distributions due to the shareholders. It is expressly agreed and
understood that the Transfer Agent is not liable for any loss as a result of
processing a distribution based on information provided in the Certificate that
is incorrect. The Company agrees to pay the Transfer Agent for any and all
costs, both direct and Out-of-Pocket Expenses, incurred in such corrective work
as necessary to remedy such error.
ARTICLE VI
CONCERNING THE COMPANY
1. The Company represents to the Transfer Agent that:
(a) It is a business trust duly organized and existing
under the laws of the State of Delaware.
(b) It is empowered under applicable laws and by its
Declaration of Trust and By-Laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been held to
authorize it to enter into and perform this Agreement.
(d) It is an investment company registered under the
Investment Company Act of 1940 (the "1940 Act"), as amended.
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(e) A registration statement has been filed under the
Securities Act of 1933, as amended, with respect to the Shares being offered
for sale is effective. The Company shall notify the Transfer Agent if such
registration statement or any state securities registrations have been
terminated or a stop order has been entered with respect to the Shares.
2. Each copy of the Declaration of Trust of the Company and any
amendment thereto provided by the Company to the Transfer Agent shall be
certified by the Secretary of State (or other appropriate official) of the
state of organization, and if such Declaration of Trust and/or amendments are
required by law also to be filed with a county or other officer or official
body, a certificate of such filing shall be filed with a certified copy
submitted to the Transfer Agent. Each copy of the Declaration of Trust and
By-Laws and copies of all amendments thereto, and copies of resolutions of the
Board of Trustees of the Company, shall be certified by the Secretary or
Assistant Secretary of the Company.
3. It shall be the sole responsibility of the Company to deliver
to the Transfer Agent the Company's currently effective Prospectuses, and any
and all amendments, supplements, stickers, and, for purposes of this Agreement,
the Transfer Agent shall not be deemed to have notice of any information
contained in such Prospectuses until they are actually received by the Transfer
Agent.
ARTICLE VII
CONCERNING THE TRANSFER AGENT
1. The Transfer Agent represents to the Company that:
(a) It is a corporation duly organized and existing under
the laws of the State of California.
(b) It is empowered under applicable law and by its
Articles of Incorporation and By-Laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been held to
authorize it to enter into and perform this Agreement.
(d) It is duly registered as a transfer agent under
Section 17A of the Securities Exchange Act of 1934, as amended, or exempt
therefrom. The Transfer Agent shall promptly give written notice to the
Company and the Manager in the event that its registration is revoked or a
proceeding is commenced that could result in such revocation.
2. The Transfer Agent shall not be liable and shall be
indemnified in acting upon any computer tape, writing or document reasonably
believed by it to be genuine and to have been signed or made by the proper
person or persons and shall not be held to have any notice of any change of
authority of any person until receipt of written notice thereof
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from the Company or such person. It shall also be protected in processing
Share certificates which bear the proper countersignature of the Transfer Agent
and which it reasonably believes to bear the proper manual of facsimile
signature of the Officers of the Company.
3. The Transfer Agent upon notice to and consent of the Company,
which consent will not be unreasonably withheld, may establish such additional
procedures, rules and regulations governing the transfer or registration of
Share certificates as it may be deemed advisable and consistent with such rules
and regulations generally adopted by mutual fund transfer agents.
4. The Transfer Agent shall keep such records as are specified in
Schedules I and II hereto in the form and manner and for such period as it may
deem advisable and is agreeable to the Company but not inconsistent with the
rules and regulations of appropriate government authorities, in particular
Rules 31a-2 and 31a-3 under the 1940 Act, as amended. The Transfer Agent may
deliver to the Company from time to time at its discretion, for safekeeping or
disposition by the Company, in accordance with law, such records, papers, Share
certificates which have been canceled in transfer, exchange or redemption, or
other documents accumulated in the execution of its duties as such Transfer
Agent, as the Transfer Agent may deem expedient, other than those which the
Transfer Agent is required to maintain pursuant to applicable laws and
regulations. The Company shall assume all responsibility for any failure
thereafter to produce any record, paper, canceled Share certificate, or other
document so returned, if and when required. The records maintained by the
Transfer Agent pursuant to this paragraph 4, which have not been previously
delivered to the Company pursuant to the foregoing provisions of this paragraph
4, shall be considered to be the property of the Company, shall be made
available upon request for inspection by the officers, employees, and auditors
of the Company or other persons authorized by the Company and shall be
delivered to the Company upon request and in any event upon the date of
termination of this Agreement, as specified in Article VIII of this Agreement,
in the form and manner kept by the Transfer Agent on such date of termination
or such earlier date as may be requested by the Company. Upon reasonable
request by the Company, the Transfer Agent shall provide in hard copy or on
microfilm, whichever the Transfer Agent shall elect, any records included in
any such delivery which are maintained by the Transfer Agent on a computer disk
or are similarly maintained.
5. The Transfer Agent shall not be liable for any loss or damage,
including counsel fees, resulting from its actions or omissions to act or
otherwise, except for any loss or damage arising out of its bad faith,
negligence, willful misfeasance, or reckless disregard of its duties under this
Agreement.
6. In performing its services hereunder, the Transfer Agent shall
seek to attain the Performance Objectives set forth in hereto. The Transfer
Agent's failure to meet any Transfer Agent Performance Objective shall not in
and of itself constitute willful misconduct or negligence under this Agreement.
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7. (a) The Company shall indemnify and hold harmless the
Transfer Agent, its officers, trustees, employees, and agents from and against
all claims (whether with or without basis in fact or law), demands, expenses
(including attorneys' fees) and liabilities of any and every nature which the
Transfer Agent may sustain or incur or which may be asserted against the
Transfer Agent by any person as a result of any action taken or omitted to be
taken by the Transfer Agent in good faith and without negligence or willful
misconduct or in reliance upon (i) any provision of this Agreement; (ii) the
Prospectuses; (iii) any instruction or order including, without limitation,
any computer tape reasonably believed by the Transfer Agent to have been
received from an Approved Institution; (iv) any instrument or order reasonably
believed by it to be genuine and to be signed, countersigned or executed by any
duly authorized Officer of the Company; (v) any Certificate or other
instruction of an Officer; or (vi) any opinion of legal counsel for the Company
or Transfer Agent. The Company shall indemnify and hold harmless the Transfer
Agent, its officers, trustees, employees, and agents from and against all
claims (whether with or without basis in fact or law), demands, expenses
(including attorneys' fees) and liabilities of any nature which the Transfer
Agent may sustain or incur or which may be asserted against the Transfer Agent
by any person by reason of or as a result of any action taken or omitted to be
taken by the Transfer Agent in good faith in connection with its appointment or
in reasonable reliance upon any law, act, regulation or any interpretation of
the same even though such law, act or regulation may have been altered,
changed, amended or repealed thereafter.
(b) The Transfer Agent shall indemnify and hold harmless
the Company, its officers, trustees, employees and agents from and against all
claims (whether with or without basis in fact or law), demands, expenses
(including attorneys' fees) and liabilities of any and every nature which the
Company may sustain or incur or which may be asserted against the Company by
any person as a result of any action taken or omitted to be taken by the
Transfer Agent which constitutes negligence or willful misconduct or arising
out of a failure of the Transfer Agent to comply with this Agreement or a
breach by the Transfer Agent of any representation contained in this Agreement
of the attached Exhibits or Schedules.
(c) Neither party ("Indemnified Party") shall settle nor
make any compromise of any claim, demand, expense or liability to which it may
seek indemnity pursuant to paragraph 7(a) of this Article VII (each, an
"Indemnification Claim") without the express written consent of the other party
("Indemnifying Party"). The Indemnified Party shall notify the Indemnifying
Party within 15 days of receipt of notification of an Indemnifiable Claim,
provided that the failure by the Indemnified Party to furnish such notification
shall not impair its right to seek Indemnification from the Indemnifying Party
unless the Indemnifying Party's ability to adequately defend the Indemnificable
Claim is impaired as a result of such failure, and further provided, that if as
a result of the Indemnified Party's failure to provide the Indemnifying Party
with timely notice of the initiation of litigation, a judgment by default is
entered, prior to seeking indemnification from the Indemnifying Party, the
Indemnified Party, at its own cost and expense, shall
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oppose such judgment. The Indemnifying Party shall have the right to defend
any Indemnifiable Claim at its own expense, provided that such defense shall be
conducted by counsel selected by the Indemnifying Party and reasonably
acceptable to the Indemnified Party. The Indemnified Party may join in such
defense at its own expense, but to the extent that it shall so desire, the
Indemnifying Party shall direct such defense. The Indemnifying Party shall not
settle any Indemnifiable Claim without the express written consent of the
Indemnified Party if the Indemnified Party determines that such settlement
would have an adverse effect on the Indemnified Party beyond the scope of this
Agreement. In such event, each of the Indemnifying Party and the Indemnified
Party shall be responsible for their own defense at their own cost and expense,
and such claim shall not be deemed an Indemnifiable Claim hereunder. If the
Indemnifying Party fails or refuses to defend in Indemnifiable Claim, the
Indemnified Party may provide its own defense at the cost and expense of the
Indemnifying Party.
(d) Notwithstanding an provision in this Agreement to the
contrary, the Indemnifying Party shall not indemnify the Indemnified Party
against any liability or expense arising out of the Indemnifying Party's
negligence, willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties and obligations under this Agreement. The Indemnified
Party shall indemnify and hold harmless the Indemnifying Party from and against
any and all claims (whether with or without basis in fact or law), losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to any action or failure or omission to act by the
Indemnified Party as a result of the Indemnified Party's bad faith, negligence,
willful misfeasance or reckless disregard of its duties under this Agreement.
8. Excluded from the consideration of whether the Transfer Agent
has been negligent or has breached this Agreement shall be any period of time,
and only such period of time, during which the Transfer Agent's performance is
materially affected by reason of circumstances beyond its control
(collectively, "Causes"), including without limitation mechanical breakdowns of
equipment (including any alternative power supply and operating systems
software), flood or catastrophe, acts of God, failures of transportation,
communication or power supply, strikes, lockouts, work stoppages, earthquake or
other similar circumstances.
9. At any time, the Transfer Agent may apply to an Officer of the
Company for written instructions with respect to any matter arising in
connection with the Transfer Agent's duties and obligations under this
Agreement, and the Transfer Agent shall not be liable for any action taken or
omitted by it in good faith in accordance with such written instructions. Such
application by the Transfer Agent for written instructions from an Officer of
the Company may set forth in writing any action proposed to be taken or omitted
by the Transfer Agent with respect to its duties or obligations under this
Agreement and the date on and/or after which such action shall be taken. The
Transfer Agent shall not be liable for any action taken or omitted in
accordance with a proposal included in any such application on or after the
date specified therein unless, prior to taking or omitting any such action, the
Transfer Agent has received written instructions in response to such
application
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specifying the action to be taken or omitted. The Transfer Agent may consult
with counsel of the Company, or upon notice to and consent of the Company and
Manages, its own counsel, at the expense of the Company and shall be fully
protected with respect to anything done or omitted by it in good faith in
accordance with the advice or opinion of counsel to the Company or its own
counsel.
10. The Transfer Agent shall issue and mail subscription warrants
for Shares, Shares representing share dividends, exchanges or splits, or act as
conversion agent upon receiving written instructions from an Officer and such
other documents as the Transfer Agent may deem necessary.
11. The Transfer Agent shall supply shareholder lists to the
Company upon receiving a request therefor from an Officer of the Company.
12. (a) The Transfer Agent shall treat confidentially and as
proprietary information of the Company records and other information relative
to the Company and to persons who are at any time shareholders of the Company,
and shall not use such records and information for any purpose other than the
performance of its responsibilities and duties hereunder. In case of any
request or demand for the inspection of the shareholder records of the Company,
including, but not limited to regulatory agencies, the Transfer Agent shall
endeavor to notify the Company promptly in writing, and to secure instructions
from an Officer as to such inspection. The Transfer Agent reserves the right,
however, to exhibit the shareholder records to any person whenever it receives
an opinion from its counsel that there is a reasonable likelihood that the
Transfer Agent will be held liable for the failure to exhibit the shareholder
records to such person; provided, however, that in connection with any such
disclosure the Transfer Agent shall promptly in writing notify the Company and
the Manager that such disclosure has been made or is to be made.
(b) The obligations of confidentiality in this Section
shall survive termination or cancellation of this Agreement and shall not apply
to any information which a party has in its possession when disclosed to it by
the other party, information which a party develops, information which is or
becomes known to the public other than by breach of this Agreement, or
information rightfully received by either party from a third-party without the
obligation of confidentiality.
13. At the request of an Officer of the Company, the Transfer
Agent shall address and mail such appropriate notices to shareholders as the
Company may direct.
14. Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to inquire
into, and shall not be liable for:
(a) The legality of the issue or sale of any Shares, the
sufficiency of the amount to be received therefor, or the authority of the
Approved Institution or of the Company to request such sale or issuance;
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(b) The legality of a transfer of Shares, or of a
redemption of any Shares, the propriety of the amount to be paid therefor, or
the authority of the Approved Institution or of the Company to request such
transfer or redemption;
(c) The legality of the declaration of any dividend by
the Company, or the legality of the issue of any Shares in payment of any share
dividend; or
(d) The legality of any recapitalization or readjustment
of Shares.
15. The Transfer Agent shall be entitled to receive and the
Company hereby agrees to pay to the Transfer Agent for its performance
hereunder, including its performance of the duties and functions set forth in
Schedule I hereto, (i) its reasonable Out-of-Pocket Expenses (including legal
expenses and attorneys' fees) incurred in connection with its performance
hereunder and (ii) such compensation as may be agreed upon in writing from time
to time by the Transfer Agent and the Company.
16. The Transfer Agent shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set
forth in this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Transfer Agent.
17. Purchase and Price of Services.
(a) The Company shall compensate the Transfer Agent for,
and the Transfer Agent will provide, beginning on the execution date of this
Agreement and continuing until the termination of this Agreement as provided
herein, the Services set forth in Schedules I.
(b) The current unit prices for the Services shall be as
set forth in Schedule II (the "Schedule II Fee Schedule"). At least 90 days
prior to the end of each calendar year, the Transfer Agent may negotiate with
the Company to adjust the Schedule II Fee Schedule for the following calendar
year upon the approval of the Board of Trustees of the Company.
Notwithstanding the above, at any time the Transfer Agent shall be entitled to
increased fees or one-time charges due to changes in legal or regulatory
requirements; provided that such increased fees or one-time charges shall be
subject to the approval of the Board of Trustees of the Company, which approval
shall not be unreasonably withheld.
18. Billing and Payment.
(a) The Transfer Agent shall bill the Company as follows:
(i) monthly in arrears for Accounts maintained and in arrears for any
Out-of-Pocket Expenses incurred by the Transfer Agent; provided, however, that
with respect to Out-of-Pocket Expenses, the Transfer Agent shall provide the
Company monthly with an amount to be advanced to the Transfer Agent for
estimated postage expenses for the following month. Documentation to
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support reconciliation of actual postal charges shall be provided to the
Company monthly. The Transfer Agent may from time to time request the Company
to make additional advances when appropriate.
(b) The Company shall pay the Transfer Agent in
immediately available funds at Newport Beach, California within thirty (30)
days of the date of the bill, provided the bill is received in proper order and
on a timely basis.
19. The name "Pacific Innovations Trust" refers to the trust
created by, and the trustees, as trustees but not individually or personally,
acting from time to time under, a Declaration of Trust dated __________, 1996,
as amended, which is hereby referred to and a copy of which is on file at the
principal office of the Company. The trustee, officers, employees and agents
of the Company shall not personally be bound by or liable under any written
obligation, contract, instrument, certificate or other interest or undertaking
of the Company made by the trustees or be any officer, employee or agent of the
Company, in his or her capacity as such, nor shall resort be had to their
private property for the satisfaction of any obligation or claim thereunder.
All persons dealing with any Fund or Class of Shares of the Company may enforce
claims against the Company only against the assets belonging to such Fund or
Class.
20. Transfer Agent shall provide the Company and the Manager with
annual financial statements not later than 150 days after the end of each of
Transfer Agent's fiscal years. These financial statements shall be prepared in
accordance with generally accepted accounting principles and shall be audited
by an independent firm of certified public accounts. Upon the Company's
request, Transfer Agent shall provide the Company and the Manager with its
quarterly financial statements no later than 60 days after the end of each
fiscal quarter.
ARTICLE VIII
TERMINATION
1. Either of the parties hereto may terminate this Agreement by
giving to the other party notice in writing specifying the date of such
termination, which shall be not less than 90 days after the date of receipt of
such notice.
2. If either party fails to observe, keep or perform any material
term or condition of this Agreement, or if a voluntary or involuntary petition
is commenced by or against either party under Title 11 of the United States
Code or a party becomes insolvent, or should any substantial part of either
party's property be subject to any levy, seizure, assignment, application or
sale for or by any creditor or government agency, the other party may terminate
this Agreement in whole or in part. The party seeking to terminate this
Agreement shall give the other party written notice of any of the foregoing
claimed to be a basis for termination, and the Agreement shall terminate 30
days after the receipt of the notice if the party receiving the notice has then
failed to correct or remedy the situation. The party charged with alleged
material breach may initiate the procedures in Article IX
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<PAGE> 17
Section 5, and in that case, termination shall not be effective during the
pendency of such procedures. In the event such notice is given by the Company,
it shall be accompanied by a copy of a resolution of the Board of Trustees of
the Company, certified by the Secretary or any Assistant Secretary, electing to
terminate this Agreement.
3. In the event such notice is given by the Transfer Agent, the
Company shall, on or before the termination date, deliver to the Transfer Agent
a copy of a resolution of its Board of Trustees certified by the Secretary or
an Assistant Secretary designating a successor transfer agent or transfer
agents. In the absence of such designation by the Company, the Company shall,
upon the date specified in the notice of termination of this Agreement and
delivery of the records maintained hereunder, be deemed to be its own transfer
agent and the Transfer Agent shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement. Transfer Agent shall immediately
apprise the Company of all formal proceedings against the Transfer Agent by the
SEC and notice of any SEC finding of deficiency in an informal review to the
extent such reviews involve the Transfer Agency function.
4. In the event this Agreement is terminated as provided herein,
upon the written request of the Company, the Transfer Agent shall deliver the
records of the Company on electromagnetic media to the Company or its successor
transfer agent. The Company shall be responsible to the Transfer Agent for the
reasonable costs and expenses associated with the preparation and delivery of
such media, including copies of computer ready formats, to the extent such
costs were approved by the Company prior to such costs being incurred. Upon
termination as described in Article VII, for so long as the Transfer Agent
continues to perform any one or more of the services contemplated by this
Agreement or any Schedule hereto, the provisions of this Agreement, including
without limitation the provisions dealing with indemnification, shall continue
in full force and effect. Fees and out-of-pocket expenses incurred by the
Transfer Agent but unpaid by the Company upon such termination shall be
immediately due and payable upon and notwithstanding such termination. The
Transfer Agent shall be entitled to collect from the Company, in addition to
the compensation described in this Agreement the amount of all of the Transfer
Agent's cash disbursements for services approved in advance by the Company in
connection with the Transfer Agent's activities in effecting such terminate,
including without limitation the delivery to the Company and/or its designees
of the Company's property, records, instruments and documents, or any copies
thereof. Subsequent to such termination, for a reasonable fee, the Transfer
Agent shall provide the Company with reasonable access to any Company documents
or records remaining in its possession and previously provided to the Company.
ARTICLE IX
MISCELLANEOUS
1. Representatives of the Company's independent outside auditors
("Auditors") shall have the right from time to time to perform on-site audits
at the facility of the Transfer Agent which do not result in an unreasonable
disruption of the business of the Transfer
17
<PAGE> 18
Agent. Such audits shall be conducted in accordance with an audit program, the
scope and frequency of which shall be agreed upon from time to time in good
faith by the parties. The Auditors may obtain a reasonable number of copies of
records and accounts directly related to the services to be supplied hereunder
the by Transfer Agent. Except as provided in clause (c) below, nothing in this
paragraph shall be deemed to permit the Auditors to have access to any records
or information concerning (a) any other customer of the Transfer Agent, (b) the
manner or method used by the Transfer Agent in establishing the fees it charges
any customer, including the Company, or (c) the Transfer Agent's internal
operating procedures, provided that the Transfer Agent shall permit officers or
employees of the Auditors to have access to such internal operating procedures
to the extent necessary for the proper completion of such audit and the
expression of the unqualified opinion in the Company's semi-annual report on
Form N-SAR, provided such Auditors have agreed to keep such internal operating
procedures confidential and treat such information as proprietary information
of the Transfer Agent.
2. During the term of this Agreement, at no additional cost to
the Company, the Transfer Agent shall provide a facility capable of
safeguarding the transfer agency records of the Company in case of damage to
the primary facility providing those services (the "Back-Up Facility").
Transfer of the transfer agency records of the Company to the Back-Up Facility
shall be at the Transfer Agent's expense, shall commence immediately after
damage to the primary facility results in an inability to provide the transfer
agency services, and shall be completed within 72 hours of commencement. After
the primary facility has recovered, the Transfer Agent shall again utilize it
to provide the transfer agency services to the Company at no additional cost to
the Company. The Transfer Agent shall use reasonable efforts to provide the
services described in this Agreement from the Back-Up Facility.
3. The Transfer Agent represents that it has and is currently
registered as a transfer agent with the Securities and Exchange Commission
("SEC") and has complied with the SEC's regulations for registered transfer
agents, or is exempt therefrom. The Transfer Agent agrees that it will
continue to be registered with the SEC as a transfer agent for the duration of
this Agreement. Should the Transfer Agent fail to be registered with the SEC
as a transfer agent at any time during this Agreement, the Company may, upon
written notice to the Transfer Agent, immediately terminate this Agreement, or
is no longer exempt therefrom.
4. The following procedures will be adhered to in all disputes
arising under this Agreement which the parties cannot resolve informally. The
aggrieved party shall notify the other party in writing of the nature of the
dispute with as much detail as possible about the deficient performance of the
other party. Representatives of the parties shall meet (in person or by
telephone) within seven days of the date of the written notification to reach
an agreement about the nature of the deficiency and the corrective action to be
taken by the respective parties. The representatives of the parties shall
produce a report about the nature of the dispute in detail to their respective
management. If the representatives of the parties are unable to agree on
corrective action, the managers to whom the representatives of the
18
<PAGE> 19
parties report or their successors ("Management") shall meet or otherwise act
to facilitate an agreement within 14 days of the date of the written
notification. If Management cannot resolve the dispute, or agree upon a
written plan of corrective action to do so, within seven days after their
initial meeting or other action, or if the agreed upon completion dates in the
written plan of correction action are exceeded, either party may request
arbitration as provided for in this Agreement. Except as otherwise
specifically provided, neither party shall terminate this Agreement for breach
or initiate arbitration or other dispute resolution procedures unless and until
this dispute resolution procedure has been employed or waived in writing by
both parties.
5. (a) Any controversy or claim between or among the
parties, including, but not limited to, those arising out of or relating to
this Agreement or any agreements or instruments relating hereto or delivered in
connection herewith and any claim based on or arising from an alleged tort,
shall at the request of any party be determined by arbitration. The
arbitration shall be conducted in accordance with the United States Arbitration
Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this
Agreement, and under the auspices and rules of the American Arbitration
Association then in effect. The parties submit to personal jurisdiction in San
Francisco, California. Each party may serve a single request for production of
documents. If disputes arise concerning these requests, the arbitrator(s)
shall have sole and complete discretion to determine the disputes. The
arbitrator(s) shall give effect to statutes of limitation in determining any
claim, and any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s) The arbitrator(s) shall deliver a written
opinion setting forth findings of fact and the rationale for the decision. The
arbitrator(s) shall reconsider the decision once upon the motion and at the
expense of a party.
(b) The confidentiality provisions of Article VII Section
12 of this Agreement shall apply to the arbitration proceeding, all evidence
taken and the opinion. Judgment upon the decision rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The institution
and maintenance of an action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the controversy or claim to arbitration if
any other party contests such action for judicial relief.
(c) No provision of this section shall limit the right of
a party to this Agreement to obtain provisional or ancillary remedies from a
court of competent jurisdiction before, after, or during the pendency of any
arbitration. The exercise of a remedy does not waive the right of either party
to resort to arbitration.
(d) If a legal action or arbitration is commenced in
connection with the enforcement of this Agreement or any instrument or
agreement required under this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees actually incurred (including allocated costs for
in-house legal services), costs and necessary disbursements incurred in
connection with such action or proceeding, as determined by the court or
arbitrator(s).
19
<PAGE> 20
6. The Company agrees that prior to effecting any change in any
Prospectus which would increase or alter the duties and obligations of the
Transfer Agent hereunder, it shall advise the Transfer Agent of such proposed
change prior to the intended date of the same, and shall proceed with such
change only if it shall have received the consent of the Transfer Agent
thereto, which shall not be unreasonably withheld.
7. (a) Notices of any kind to be given to the Manager
hereunder shall be in writing and shall be duly given if mailed or delivered to
the Manager at the following address:
Bank of America NT&SA With a copy to:
555 South Flower Street _________________
5th Floor Bank of America NT&SA
Los Angeles, CA 90071 555 South Flower Street
8th Floor
Attn: Debra McGinty Poteet Los Angeles, CA 90071
or at such other address or to such individual as shall be so specified by the
Manager.
(b) Notices of any kind to be given to the Transfer Agent
hereunder shall be in writing and shall be duly given if mailed or delivered to
the Transfer Agent at the following address:
Pacific Mutual Life Insurance Company
700 Newport Center Drive
Newport Beach, CA 92660
Attn: _____________________________
or at such other address or to such individual as shall be so specified by the
Transfer Agent.
(c) Notices of any kind to be given to the Company shall
be in writing and shall be duly given if mailed or delivered to the Company at
the following address:
Pacific Innovations Trust
c/o PFPC, Inc. With a copy to:
103 Bellevue Parkway Cathy G. O'Kelly, Esq.
Wilmington, Delaware 19809 Vedder, Price, Kaufman & Kammholz
222 N. LaSalle
26th Floor
Chicago, Illinois 60695
20
<PAGE> 21
8. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties to this Agreement.
9. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns. This Agreement
shall not be assignable by either party without the prior written consent of
the other party. This Agreement will automatically terminate in the event of
its assignment, as described hereunder, or as such term is defined in the 1940
Act.
10. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (without reference to
principles of conflicts of law).
11. This Agreement may be executed in any number of counterparts
each of which shall be deemed to be an original; but such counterparts shall,
together, constitute only one instrument.
12. The provisions of this Agreement are intended to benefit only
the Transfer Agent and the Company, and no rights shall be granted to any other
person by virtue of this Agreement, except upon assignment.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers, thereunto duly authorized, as of the
day and year first above written.
Pacific Mutual Life Insurance Company Pacific Innovations Trust
By: By:
---------------------------------- ---------------------------
By:
----------------------------------
21
<PAGE> 22
TRANSFER AGENT AGREEMENT
APPENDIX A
I, ___________________, President and I, _______________,
Secretary, of PACIFIC INNOVATIONS TRUST, a Delaware business trust (the
"Company"), do hereby certify that:
The following individuals have been duly authorized by the
board of Trustees of the Company in conformity with the Company's Declaration
of Trust and By-Laws to execute any Certificate, instruction, notice or other
instrument, including an amendment to Appendix B or Schedule I hereto, or to
give oral instructions on behalf of the Company, and the signatures set forth
opposite their respective names are their true and correct signatures.
NAME SIGNATURE
- ----------------------------- -----------------------------------
- ----------------------------- -----------------------------------
- ----------------------------- -----------------------------------
- ----------------------------- -----------------------------------
- ----------------------------- -----------------------------------
PACIFIC INNOVATIONS TRUST
By:
--------------------------------
------------------------------
President
Dated: By:
----------------------- -------------------------------
------------------------------
Secretary
<PAGE> 23
TRANSFER AGENCY AGREEMENT
APPENDIX B
I, ____________________, President and I, ______________,
Secretary, of PACIFIC INNOVATIONS TRUST, a Delaware business trust (the
"Company"), do hereby certify that:
The following is a list of the Funds of the Company issued
and/or authorized on or before the date of this Transfer Agency Agreement:
FUND CLASS
PACIFIC INNOVATIONS TRUST
By:
--------------------------------
Dated: By:
----------------------- --------------------------------
<PAGE> 24
SCHEDULE I
DESCRIPTION OF SERVICES
In consideration of the fees to be paid in such manner and at
such times as the Company and the Transfer Agent may agree, the Transfer Agent
shall provide the services set forth below:
Examine and establish new accounts, and record initial
payments, subsequent payments, liquidations, exchanges, wire order trades,
direct trades, dividends, reinstatement of dividends, dividend statements,
issue certificates and provide dealer statements as required.
DAILY ACTIVITY
Maintain the following shareholder information on computer
recordkeeping systems or in such other manner as the Transfer Agent
shall determine:
Shareholder Name and Address, including Zip Code;
Balance of uncertificated Shares;
Balance of certificated Shares;
Certificate number, number of Shares, issuance date of each
certificate outstanding and cancellation date for each
certificate no longer outstanding, if issued;
Balance of Shares;
Balance of dollars available for redemption;
Establishment date indicating the date an account was opened,
carrying forward pre-conversion data as available;
Original establishment date for accounts opened by exchange;
W-9 withholding status and periodic reporting if applicable;
Social Security or taxpayer identification number, and
indication of certification if applicable;
<PAGE> 25
Historical transaction on the account for the most recent 12
months, or other period as mutually agreed to from
time-to-time;
FUNCTIONS
Examine and process transfers of Shares insuring that all transfer
requirements and legal documents have been supplied.
Process and confirm address changes.
Process standard account record changes as required, i.e. dividend
codes, dealer and salesperson codes, etc.
Perform backup withholding for those accounts which federal government
regulations indicate is necessary.
Prepare and mail shareholder reporting forms relative to processing
performed, including 1099s, as required.
REPORTS PROVIDED
Daily Journals Reflecting all Shares and
dollar activity for the
previous day
N-SAR Report Supply monthly correspondence,
redemption and liquidation
information for use in
Company's N-SAR Report
Additionally, the following will be provided at the Company's request
to the Company at no charge:
1. Shareholder listings
2. Dealer Transaction Totals.
3. Monthly average daily balance reports.
4. Prepare and mail copies of summary statements to dealers and
manager;
<PAGE> 26
DEALER SERVICES
Prepare and mail statements to dealers daily.
Prepare and mail copies of statements to dealers, same frequency as
investor statements.
PERIODIC ACTIVITIES
Mail transaction confirmation statements daily to investors.
Mail periodic statement to investors.
Compute, prepare and furnish all necessary reports to Governmental
authorities: Forms 1096, 1099DIV, 1099B, 1042 and 1042S.
<PAGE> 27
SCHEDULE II
FEE SCHEDULE - PACIFIC INNOVATIONS
Funds:
Money Market Fund
Managed Bond Fund
Capital Income Fund
Mid-Cap Fund
Blue Chip Fund
Aggressive Growth Fund
International Fund
.05% on an annual basis for each of the Funds' average daily net assets,
accrued daily & payable monthly.
<PAGE> 1
EXHIBIT 9.3
PM SUPPORT SERVICES AGREEMENT
This AGREEMENT is made this ____ day of __________, 1996 by and
between Pacific Innovations Trust, a Delaware business trust (the "Fund"), and
Pacific Mutual Life Insurance Company (the "Servicer" or "PM"), a California
mutual life insurance company.
WHEREAS, the Pacific Innovations Trust (the "Fund") is registered
with the Securities and Exchange Commission ("SEC") as an open- end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of beneficial
interest ("Shares") in separate portfolios with each such portfolio
representing interests in a separate portfolio of securities and other assets;
and
WHEREAS, the Fund initially established eight (8) portfolios,
which are designated as the Money Market Portfolio, Managed Bond Portfolio,
Capital Income Portfolio, Blue Chip Portfolio, Mid-Cap Equity Portfolio,
International Portfolio and Aggressive Growth Portfolio being herein
individually referred to as each "Portfolio" or collectively referred to as the
"Portfolios"; and
WHEREAS, the Fund is available to offer shares of one or more of
its Portfolios to the separate accounts of PM that fund variable annuity
contracts ("Variable Contracts") and to serve as an investment medium for
Variable Contracts offered by PM and other portfolios as may be established in
the future; and
WHEREAS, pursuant to a Management Agreement between the Fund and
Bank of America NT&SA ("Management Agreement") the Fund has retained Bank of
America NT&SA ("BofA") to provide investment advisory services with respect to
the Portfolios in the manner and on the terms thereinafter set forth; and
WHEREAS, pursuant to the Management Agreement, the Fund has also
retained BofA to provide certain administrative and management services with
respect to the Portfolios in the manner and on the terms thereinafter set
forth; and
WHEREAS, the Fund wishes to retain PM to provide certain support
services to the Fund with respect to the Portfolios in the manner and on the
terms hereinafter set forth; and
WHEREAS, PM is willing to furnish such in the manner and on the
terms hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties agree as follows:
<PAGE> 2
1. Appointment. The Fund hereby appoints PM as the support
servicer (the "Servicer") to provide the administrative and other services with
respect to the Portfolios for the period and on the terms set forth in this
Agreement. The Servicer accepts such appointment and agrees during such period
to render the services herein set forth for the compensation herein provided.
In the event the Fund establishes and designates additional
portfolios with respect to which it desires to retain the Servicer to render
administrative and other services hereunder, it shall notify the Servicer in
writing. If the Servicer is willing to render such services it shall notify
the Fund in writing, whereupon such additional portfolios shall become a
Portfolio hereunder.
2. Duties. Subject to the general supervision of the
Trustees, the Servicer shall provide those support services reasonably
necessary for the operation of the Portfolio other than the administrative
services and investment advisory services provided by BofA pursuant to the
Management Agreement.
(a) Support Services. The Servicer shall initially
provide the Fund and the Portfolios, at the Servicer's expense,
with the services necessary to organize the Fund so that the Fund
can conduct business as described in its Registration Statement.
(b) The services hereunder shall also include the
following: (i) coordinating matters relating to the operation of
the Separate Account with the Portfolios, including any necessary
coordination with the custodian, transfer agent, dividend
disbursing agent, and recordkeeping agent, accountants, attorneys,
and other parties performing services or operational functions for
the Portfolios; (ii) maintaining such appropriate books and
records of the Separate Accounts, including contractowner
information as may be required by applicable federal or state law;
(iii) providing information periodically to contractowners showing
their interest in the Separate Accounts or subaccounts thereof
that invest in the Fund or in any Portfolios thereof; (iv)
addressing inquiries for contractowners relating to investing,
exchanging or transferring, or redeeming interests under the
Variable Contract and the Separate Account or subaccounts or any
Portfolios thereof funding such Variable Contracts, which
inquiries may relate to the Fund or a Portfolio thereof; (v)
providing explanations to owners regarding Fund investment
objectives and policies and other information about the Fund and
its Portfolios, including the performance of the Portfolios; (vi)
delivering any notices of shareholder meetings and proxy
statements accompanying such notices in connection with general
and special meetings of shareholders of the Fund under which
contractowner may have voting rights, and tabulating the voting of
contractowners tendering voting instructions to the Separate
Account; (vii) coordinating the preparation of the necessary
documents with the SEC and other federal and state regulatory
authorities as may be required; and (viii) taking such
2
<PAGE> 3
other action as may be required by applicable law, with respect to
the foregoing, including without limitation the rules and
regulations of the SEC and of state insurance authorities and
other regulatory agencies.
(c) The Servicer shall also make its officers and
employees available to the Trustees and officers of the Fund for
consultation and discussions regarding the administration of the
Portfolios and services provided to the Portfolios under this
Agreement.
(d) In performing these services, the Servicer:
(i) Shall conform with the 1940 Act and all
rules and regulations thereunder, all other applicable
federal and state laws and regulations, with any
applicable procedures adopted by the Fund's Trustees, and
with the provisions of the Fund's Registrations Statement
filed on Form N-1A as supplemented or amended from time to
time.
(ii) Will make available to the Fund, promptly
upon request, appropriate books and records as are
maintained under this Agreement, and will furnish to
regulatory authorities having the requisite authority any
such books and records and any information or reports in
connection with the Servicer's services under this
Agreement that may be requested in order to ascertain
whether the operations of the Fund are being conducted in
a manner consistent with applicable laws and regulations.
(iii) Will regularly report to the Fund's
Trustees on the services provided under this Agreement and
will furnish the Fund's Board of Trustees with respect to
the Portfolios such periodic and special reports as the
Trustees may reasonably request.
3. Documentation. The Fund has delivered copies of each of
the following documents to the Servicer and will deliver to it all future
amendments and supplements thereto, if any:
(a) the Fund's Registration Statement as filed with
the SEC and any amendments thereto; and
(b) exhibits, powers of attorneys, certificates and
any and all other documents relating to or filed in connection
with the Registration Statement described above.
4. Independent Contractor. The Servicer shall for all
purposes herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided
3
<PAGE> 4
herein or authorized by the Board of Trustees of the Fund from time to time,
have no authority to act for or represent the Fund in any way or otherwise be
deemed its agent.
5. Service Fee. As compensation for the services rendered
under this Agreement, the Fund shall pay to the Servicer a fee based on the
average daily net assets of each of the Portfolios at an annual rate of .16%.
The fees payable to the Servicer for all of the Portfolio shall be computed and
accrued daily and paid monthly. If the Servicer shall serve for less than any
whole month, the foregoing compensation shall be prorated.
6. Non-Exclusivity. It is understood that the services of
the Servicer hereunder are not exclusive, and the Servicer shall be free to
render similar services to other investment companies and other clients.
7. Expenses. During the term of this Agreement, the Servicer
will pay all ordinary expenses incurred by it in connection with its
obligations under this Agreement.
8. Liability. The Servicer shall give the Fund the benefit
of the Servicer's best effort in rendering services under this Agreement. The
Servicer may rely on information reasonably believed by it to be accurate and
reliable. As an inducement for the Servicer's undertaking to render services
under this Agreement, the Fund agrees that neither the Servicer nor its
officers, directors, or employees shall be subject to any liability for any
damages, expenses or losses incurred in connection with, any act or omission or
mistake in judgment connected with or arising out of any services rendered
under this Agreement, except by reason of willful misfeasance, bad faith, or
negligence in performance of the Servicer's duties, or by reason of reckless
disregard of the Servicer's obligations and duties under this Agreement. This
provision shall govern only the liability to the Fund of the Servicer and that
of its officers, directors, and employees, and shall in no way govern the
liability to the Fund or the Servicer or provide a defense for any other person
including persons that provide services for the Portfolios as described in
Section 2(b) of this Agreement.
9. Terms and Continuation. This Agreement shall take effect
as of the date indicated above, and shall remain in effect, unless sooner
terminated as provided herein, for two years from such date, and shall continue
thereafter on an annual basis with respect to the Portfolios provided that such
continuance is specifically approved at least annually (a) by the vote of a
majority of the Board of Trustees of the Fund, or (b) by vote of a majority of
the outstanding voting shares of the Portfolios, and provided continuance is
also approved by the vote of a majority of the Board of Trustees of the Fund
who are not parties to this Agreement or "interested persons" (as defined in
the 1940 Act) of the Fund, or PM, cast in person at a meeting called for the
purpose of voting on such approval.
This Agreement may be terminated:
4
<PAGE> 5
(a) by the Fund at any time with respect to the
services provided by the Servicer, by vote of a majority of the
entire Board of Trustees of the Fund or by a vote of a majority of
the outstanding voting shares of the Fund or, with respect to a
particular Portfolio, by vote of a majority of the outstanding
voting shares of such Portfolio, on sixty (60) days' written
notice to the Servicer;
(b) by the Servicer at any time, without the payment
of any penalty, upon sixty (60) days' written notice to the Fund.
10. Notices. Notices of any kind to be given to the Servicer
by the Fund shall be in writing and shall be duly given if mailed or delivered
to the Servicer at 700 Newport Center Drive, Newport Beach, California 92660,
Attention: Law Department , or to such other address or to such individual as
shall be specified by the Servicer. Notices of any kind to be given to the
Fund by the Servicer shall be in writing and shall be duly given if mailed or
delivered to, _________________ or to such other address or to such individual
as shall be specified by the Fund.
11. Fund Obligations. A copy of the Fund's Agreement and
Declaration of Trust is on file with the Secretary of the state of Delaware and
notice is hereby given that the Agreement has been executed on behalf of the
Trust by a trustee of the Trust in his or her capacity as trustee and not
individually. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any trustee,
officer, or shareholders of the Fund individually.
12. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original.
13. Miscellaneous.
(a) This Agreement shall be governed by the laws of
California, provided that nothing herein shall be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act
of 1940, or any rule or order of the SEC thereunder.
(b) If any provisions 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 and,
to this extent, the provisions of this Agreement shall be deemed
to be severable. To the extent that any provision of this
Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise with regard to any party hereunder,
such provisions with respect to other parties hereto shall not be
affected thereby.
5
<PAGE> 6
(c) The captions in this Agreement are included for
convenience only and in no way define any of the provisions hereof
or otherwise affect their construction or effect.
(d) This Agreement may not be assigned by the Fund
or the Servicer without the consent of the other party.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below on the day and year first
above written.
PACIFIC INNOVATIONS TRUST,
a Delaware business trust
By: ________________________
By: ________________________
PACIFIC MUTUAL LIFE INSURANCE COMPANY,
a California mutual life insurance
Company
By: ________________________________
By: ________________________________
6
<PAGE> 1
EXHIBIT 9.4
FUND PARTICIPATION AGREEMENT
This AGREEMENT is made this ___ day of __________, 1996, by and between
Pacific Mutual Life Insurance Company (the "Company"), a mutual life insurance
company domiciled in California, on its behalf and on behalf of the segregated
asset accounts of the Company listed on Exhibit "A" to this Agreement (the
"Separate Accounts"): Pacific Innovations Trust, a Delaware/business trust
("Fund"); BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("Distributor"), an Ohio Limited Partnership; and Bank of America National Trust
and Savings Association ("Manager"), a national banking association.
W I T N E S S E T H
WHEREAS, the Fund is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act") and the Fund is
authorized to issue separate classes of shares of beneficial interests
("shares"), each representing an interest in a separate portfolio of assets
known as a fund ("portfolio") and each portfolio has its own investment
objective, policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its
portfolios to the Separate Accounts that fund variable annuity contracts and
variable life insurance contracts ("Variable Contracts") and to serve as an
investment medium for Variable Contracts of the Company and other portfolios
which may be established in the future; and
<PAGE> 2
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS, the Manager is a national banking association; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company wishes to purchase shares of one or more of the Fund
portfolios on behalf of its Separate Accounts to serve as an investment medium
for Variable Contracts funded by the Separate Accounts, and the Distributor is
authorized to sell shares of the Fund's portfolios;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants hereinafter set forth, the parties hereby agree as
follows:
ARTICLE I. - SALE OF FUND SHARES
1.1 The Distributor agrees to sell to the Company those shares of
the portfolios offered and made available by the Fund and identified on Exhibit
"B" ("Portfolios") that the Company orders on behalf of its Separate Accounts,
and agrees to execute such orders on each day on which the Fund calculates its
net asset value pursuant to rules of the SEC ("business day") at the net asset
value next computed after receipt and acceptance by the Fund or its designee of
the order for the shares of the Fund.
1.2 The Fund agrees to make available on each business day shares
of the Portfolio for purchase at the applicable net asset value per share by
the Company on behalf of its Separate Accounts; provided, however, that the
Trustees of the Fund may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio, if such action
is required by law or by regulatory authorities having jurisdiction over it, in
the sole discretion of the Trustees, acting in good faith and in
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<PAGE> 3
light of the Trustees' fiduciary duties under applicable law, necessary in the
best interests of the shareholders of any Portfolios.
1.3 The Fund and the Distributor agree that shares of the
Portfolios of the Fund will be sold only to the Company, its Separate Accounts,
and other persons affiliated with the Company, consistent with each Portfolio
being adequately diversified pursuant to Section 817(h) of the Internal Revenue
Code of 1986, as amended ("Code") and the regulations thereunder. No shares of
any Portfolio will be sold directly to the general public. No shares of any
Portfolio will be sold directly to any other insurance company or its separate
account(s) or to any person without the mutual consent of the Fund, the Manager
and the Company.
1.4 The Fund and Distributor will not sell shares of the Fund to
any separate account to serve as an investment vehicle for variable life
insurance contracts unless the Fund has first obtained an appropriate exemptive
order from the SEC if required by the 1940 Act and the rules thereunder, to the
extent necessary to permit "mixed funding" if the Fund offers its shares to a
variable life insurance Separate Account of the Company, and, if applicable, to
permit "shared funding" if the Fund offers its shares to separate accounts
funding variable annuity or variable life insurance contracts of unaffiliated
insurance companies or to any other person. In such event, all parties to this
Agreement agree to comply with any applicable conditions imposed under any
exemptive order issued by the SEC, or any applicable conditions specified in
Rule 6e-2 or Rule 6e-3(T) under the 1940 Act (or, if permanently adopted, Rule
6e-3), whichever is applicable. The Fund and Distributor will not sell shares
of the Fund to any Separate Account funding variable life insurance contracts
unless there is in effect an agreement containing provisions necessary to
comply with any applicable conditions of an SEC exemptive
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order, Rule 6e-2 or 6e-3(T) (or, if permanently adopted, Rule 6e-3), whichever
is applicable.
1.5 Upon receipt of a request for redemption in proper form from
the Company, the Fund agrees to redeem in cash any full or fractional shares of
the Portfolio held by the Company, its Separate Accounts, and other persons
affiliated with the Company, ordinarily executing such requests on each
business day at the net asset value next computed after receipt and acceptance
by the Fund or its designee of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemptions shall be paid
in federal funds ordinarily on the next business day following receipt by the
Fund or its designee of the order for redemption; however the Fund reserves the
right to postpone payment upon redemption consistent with Section 22(e) of the
Act and any Rules thereunder.
1.6 For purposes of Sections 1.1 and 1.5, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Separate Account, and receipt by such designee shall constitute receipt by the
Fund; provided that the Company receives the order by 4:00 p.m. New York City
time, or the close of the New York Stock Exchange if earlier, and the Fund
receives notice of such order by 10:00 a.m., New York City time on the
following business day.
1.7 The Company shall pay for shares of the Portfolio on the
business day next following the day the Company places an order to purchase
shares of the Portfolios, except with respect to shares of any Portfolio of the
Fund ("Acquired Portfolio") ordered by the Company for a Separate Account or
any subaccount thereof in connection with an exchange or transfer from another
Separate Account or another subdivision of a Separate
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Account under the Variable Contracts, the Company shall pay for shares of the
Acquired Portfolio on the latter of (1) the next business day after an order to
purchase the shares is made in accordance with Section 1.1 hereof, or (2) on
the same business day that the Separate Account or subdivision from which the
exchange or transfer is being made receives payment from the investment company
portfolio in which it invests. Payment shall be in federal funds transmitted
by wire or by any other method mutually agreed upon by the parties hereto.
1.8 Issuance and transfer of shares of the Portfolios will be by
book entry only, unless otherwise required by state insurance authorities.
Fund and Distributor agree that shares ordered from the Fund will be recorded
properly in an appropriate title for the Separate Accounts or the appropriate
subaccounts of the Separate Accounts.
1.9 The Fund shall promptly furnish same-day notice (by wire or
telephone or facsimile, followed by written confirmation) to the Company of any
income dividends or capital gain distributions payable on the shares of the
Portfolios. The Company hereby elects to reinvest in the Portfolios all such
dividends and distributions as are payable on a Portfolio's shares and to
receive such dividends and distributions in additional shares of that
Portfolio. The Company reserves the right to revoke this election in writing
and to receive all such dividends and distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10 The Fund shall instruct its recordkeeping agent to advise the
Company on each business day of the net asset value per share for each
Portfolio as soon as reasonably practical after the net asset value per share
is calculated, (normally by 6:00 p.m., New York City time), and shall use its
best efforts to make such net asset value per share available by 6:30 p.m., New
York City time.
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ARTICLE II. - REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that it is an insurance
company duly organized and in good standing under California law and that it is
taxed as an insurance company under Subchapter L of the Code.
2.2 The Company represents and warrants that it has legally and
validly established each of the Separate Accounts as a segregated asset account
under the California Insurance Code, and that each of the Separate Accounts is
a validly existing segregated asset account under California law.
2.3 The Company represents and warrants that the Variable
Contracts issued by the Company or interests in the Separate Accounts under
such Variable Contracts (1) and or, prior to issuance, will be registered as
securities under the Securities Act of 1933 ("1933 Act") or, alternatively (2)
are not registered because they are properly exempt from registration under the
1933 Act.
2.4 The Company represents and warrants that each of the Separate
Accounts (1) has been registered as a unit investment trust in accordance with
the provisions of the 1940 Act or, alternatively (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
2.5 The Company represents that it believes, in good faith, that
the Variable Contracts issued by the Company are currently treated as annuity
contracts or life insurance contracts (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6 The Company represents and warrants that any of its Separate
Accounts that fund variable life insurance contracts and that are registered
with the SEC as
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investment companies, rely on the exemptions provided by Rule 6e-2 or Rule
6e-3(T), or any successor thereto, under the 1940 Act.
2.7 The Fund represents and warrants that it is duly organized as
a business trust under the laws of the state of Delaware, and is in good
standing under applicable law.
2.8 The Fund represents and warrants that the shares of the
Portfolios are duly authorized for issuance in accordance with applicable law
and that the Fund is registered as an open-end management investment company
under the 1940 Act.
2.9 The Fund represents that it believes, in good faith, that the
Portfolios currently comply with the diversification provisions of Section
817(h) of the Code and the regulations issued thereunder relating to the
diversification requirements for variable life insurance contracts and variable
annuity contracts, and that each Portfolio has complied with such provisions
since its commencement of operations.
2.10 The Distributor represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. - GENERAL DUTIES
3.1 The Fund shall take all such actions as are necessary to permit
the sale of the shares of each Portfolio to the Separate Accounts, including
maintaining its registration as an investment company under the 1940 Act, and
registering the shares of the Portfolios sold to the Separate Accounts under the
1933 Act for so long as required by applicable law. The Fund shall amend its
Registration Statement filed with the SEC under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of the
shares of the Portfolios. The Fund shall register and qualify its shares for
sale in accordance with the laws of the various
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states to the extent deemed necessary by the Fund or the Distributor. The Fund
and Distributor shall take all steps necessary to sell shares of the Fund in
compliance with all applicable federal and state securities laws.
3.2 The Fund shall make every effort to maintain qualification of
each Portfolio as a Regulated Investment Company under Subchapter M of the Code
(or any successor or similar provision) and shall notify the Company
immediately upon having a reasonable basis for believing that a Portfolio has
ceased to so qualify or that it might not so qualify in the future; and to meet
the distribution requirements necessary to avoid payment of any excise tax
pursuant to Section 4982 of the Code.
3.3 The Fund and Manager or a sub-manager as appropriate will
invest the assets of the Portfolios in such a manner as to ensure that the
Variable Contracts will be treated as annuity or life insurance contracts,
whichever is appropriate, under the Code and the regulations thereunder (or any
successor provisions). Without limiting the scope of the foregoing, the Manager
on behalf of the Fund shall make every effort to enable each Portfolio to comply
with the diversification provisions of Section 817(h) of the Code and the
regulations issued thereunder relating to the diversification requirements for
variable life insurance contracts and variable annuity contracts and any
prospective amendments or other modifications to Section 817 or regulations
thereunder, and shall notify the Company immediately upon having a reasonable
basis for believing that any Portfolio has ceased or might cease to comply.
3.4 The Fund and Manager agree that each Portfolio of the Fund
shall be managed consistent with its investment objective or objectives,
investment policies, and investment restrictions as described in the Fund's
prospectus and registration statement, as amended or modified from time to
time.
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3.5 The Company shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Company, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all
necessary approvals to offer the Variable Contracts from the applicable state
insurance commissioners.
3.6 The Company shall make every reasonable effort to maintain the
treatment of the Variable Contracts issued by the Company as annuity contracts
or life insurance contracts, whichever is appropriate, under applicable
provisions of the Code, and shall notify the Fund and the Distributor
immediately upon having a reasonable basis for believing that such Variable
Contracts have ceased to be so treated or that they might not be so treated in
the future.
3.7 The Company shall require that any person who offers and sells
the Variable Contracts issued by the Company do so in accordance with
applicable provisions of the 1933 Act, the 1934 Act, the 1940 Act, the NASD
Rules of Fair Practice, banking and state law respecting the offering of
variable life insurance contracts and variable annuity contracts.
3.8 The Distributor shall sell and distribute the shares of the
Portfolios of the Fund in accordance with the applicable provisions of the 1933
Act, the 1934 Act, the NASD Rules of Fair Practice, and state law.
3.9 A majority of the Board of Trustees of the Fund shall consist
of persons who are not "interested persons" of the Fund ("disinterested
Trustees"), as defined by Section 2(a)(19) of the 1940 Act, except that if this
provision of this Section 3.9 is not
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met by reason of the death, disqualification, or bona fide resignation of any
Trustees, then the operation of this provision shall be suspended (a) for a
period of 45 days if the vacancy or vacancies may be filled by the Fund's
Board; (b) for a period of 60 days if a vote of shareholders is required to
fill the vacancy or vacancies; or (c) for such longer period as the SEC may
prescribe by order upon application.
3.10 Each party hereto shall cooperate with each other party and
all appropriate governmental authorities having jurisdiction (including,
without limitation, the SEC, the NASD, and banking and state insurance
regulators) and shall permit such authorities reasonable access to its books
and records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
3.11 The Company shall, at least annually, submit to the Board of
Trustees of the Fund such reports, materials or data as the Trustees may
reasonably request so that the Trustees may carry out the obligations imposed
upon them by said reports, materials and data shall be submitted more
frequently if deemed appropriate by the Board of Trustees.
3.12 Fund and Manager agree to notify the Company immediately upon
gaining knowledge of any change(s) or proposed change(s) in a Portfolio's
investment objective(s), investment policies, or investment restrictions, in any
material services provided to the Fund or Portfolio, or in any service agreement
with respect to any services provided to the Fund or Portfolio, and to cooperate
with the Company in obtaining any necessary approvals from state insurance
authorities before implementing any such change(s).
ARTICLE IV. - POTENTIAL CONFLICTS
4.1 The Fund's Board of Trustees shall monitor the Fund for the
existence of any material irreconcilable conflicts between the interests of
owners of variable annuity contracts and variable life insurance contracts. An
irreconcilable material conflict may
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arise for a variety of reasons, including (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretive letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
the Fund or any Portfolio are being managed; or (e) a decision by the Company
to disregard the voting instructions of Variable Contract Owners.
4.2 The Company agrees that it shall be responsible for reporting
any potential or existing conflicts to the Fund's Board of Trustees. The
Company will be responsible for assisting the Board of Trustees of the Fund in
carrying out its responsibilities under this Agreement, by providing the Board
with all information reasonably necessary for the Board to consider any issues
raised. This includes, but is not limited to, an obligation by the Company to
inform the Board whenever Variable Contract Owner voting instructions are
disregarded. The Company shall carry out its responsibility under this Section
4.2 with a view only to the interests of the Variable Contract Owners.
4.3 The Company agrees that in the event that it is determined by
a majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, the
Company shall, at its own expense and to the extent reasonably practical (as
determined by a majority of the disinterested Trustees of the Board of the
Fund), take whatever steps are necessary to eliminate the irreconcilable
material conflict, including: (1) withdrawing the assets allocable to some or
all of the Separate Accounts from the Fund or any Portfolio and reinvesting
such assets in a different investment medium, which may include another
Portfolio of the Fund, or submitting the question of whether such segregation
should be implemented to a vote of
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<PAGE> 12
all affected Variable Contract Owners and, as appropriate, segregating the
assets of any appropriate group that votes in favor of such segregation, or
offering to the affected Variable Contract Owners the option of making such a
change; and (2) establishing a new registered management investment company or
managed separate account. If a material irreconcilable conflict arises because
of the Company's decision to disregard Variable Contract Owners' voting
instructions and that decision represents a minority position or would preclude
a majority vote, the Company shall be required, at the Fund's election, to
withdraw the Separate Accounts' investment in the Fund, and no charge or
penalty will be imposed as a result of such withdrawal. The Fund shall neither
be required to bear the costs of remedial actions taken to remedy a material
irreconcilable conflict nor shall it be requested to pay a higher investment
advisory fee for the sole purpose of covering such costs. In addition, no
Variable Contract Owner shall be required directly or indirectly to bear the
direct or indirect costs of remedial actions taken to remedy a material
irreconcilable conflict. A majority of the disinterested members of the Board
of Trustees of the Fund shall determine whether any proposed action adequately
remedies any material irreconcilable conflict, but in no event will the Fund be
required to establish a new funding medium for any Variable Contract. A new
funding medium for any Variable Contract need not be established by the Company
pursuant to this Section 4.3, if an offer to do so has been declined by vote of
a majority of Variable Contract Owners who would be materially and adversely
affected by the irreconcilable material conflict. All reports received by the
Fund's Board of Trustees of potential or existing conflicts, and all Board
action with regard to determining the existence of a conflict, notifying the
Company and the Fund's investment Manager of a conflict, shall be properly
recorded in the minutes of the Board of Trustees of the Fund or other
appropriate records, and such
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minutes or other records shall be made available to the SEC upon request. The
Company and the Fund shall carry out their responsibilities under this Section
4.3 with a view only to the interests of the Variable Contract Owners.
4.4 The Board of Trustees of the Fund shall promptly notify the
Company in writing of its determination of the existence of an irreconcilable
material conflict and its implications.
ARTICLE V. - PROSPECTUSES AND PROXY STATEMENTS, VOTING
5.1 The Company shall distribute such prospectuses, proxy
statements and periodic reports of the Fund to the owners of Variable Contracts
issued by the Company as required to be distributed to such Variable Contract
Owners under applicable federal or state laws.
5.2 The Distributor shall provide the Company with as many copies
of the current prospectus of the Fund as the Company may reasonably request.
If requested by the Company in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type
or in camera-ready copy) and other assistance as is reasonably necessary in
order for the Company to print together in one document the current prospectus
for the Variable Contracts issued by the Company and the current prospectus for
the Fund. The Fund shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Variable Contract Owners, and
the Company shall bear the expense of printing copies of the Fund's prospectus
that are used in connection with offering the Variable Contracts issued by the
Company.
5.3 The Distributor shall provide the Company with as many copies
of the current Statement of Additional Information ("SAI") of the Fund as the
Company may reasonably request. If requested by the Company in lieu thereof,
the Fund shall provide
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such documentation (including a final copy of the Fund's SAI as set in type or
in camera-ready copy) and other assistance as is reasonably necessary in order
for the Company to print together in one document the current SAI for the
Variable Contracts issued by the Company and the current SAI for the Fund. The
Fund shall bear the expense of printing copies of its current SAI that may be
distributed to existing Variable Contract Owners, and the Company shall bear
the expense of printing copies of the Fund's SAI that are used in connection
with offering the Variable Contracts issued by the Company.
5.4 The Fund, at its expense, shall provide the Company with
copies of its proxy material, periodic reports to shareholders and other
communications to shareholders in such quantity as the Company shall reasonably
require for purposes of distributing to owners of Variable Contracts issued by
the Company and to state insurance authorities. The Fund, at the Company's
expense, shall provide the Company with copies of its periodic reports to
shareholders and other communications to shareholders in such quantity as the
Company shall reasonably request for use in connection with offering the
Variable Contracts issued by the Company. If requested by the Company in lieu
thereof, the Fund shall provide such documentation (including a final copy of
the Fund's proxy materials, periodic reports to shareholders and other
communications to shareholders, as set in type or in camera-ready copy) and
other assistance as is reasonably necessary in order for the Company to print
such shareholder communications for distribution to owners of Variable
Contracts issued by the Company.
5.5 For so long as the SEC interprets the 1940 Act to require
pass-through voting by the Company whose Separate Accounts are registered as
investment companies under the 1940 Act ("Registered Separate Accounts"), the
Company shall vote shares of each Portfolio of the Fund held in Registered
Separate Accounts or subaccounts thereof,
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at regular and special meetings of the Fund in accordance with instructions
timely received by the Company (or a designated agent) from owners of Variable
Contracts funded by such Registered Separate Accounts or subaccounts thereof
having a voting interest in the Portfolio. The Company shall vote shares of a
Portfolio of the Fund held in Registered Separate Accounts or subaccounts
thereof that are attributable to the Variable Contracts as to which no timely
instructions are received, as well as shares held in such Registered Separate
Accounts or subaccounts thereof that are not attributable to the Variable
Contracts and owned beneficially by the Company (resulting from charges against
the Variable Contracts or otherwise), in the same proportion as the votes cast
by owners of the Variable Contracts funded by that Separate Account or
subaccount thereof having a voting interest in the Portfolio from whom
instructions have been timely received. The Company shall vote shares of each
Portfolio of the Fund held in its general account or in any Separate Account
that is not registered under the 1940 Act, if any, and any affiliate of the
Company shall vote shares of a Portfolio of the Fund that it holds, in its
discretion or in the same proportion as the votes cast with respect to shares
of the Portfolios held in all Registered Separate Accounts of the Company or
subaccounts thereof, in the aggregate. In the event that the Shared Funding
Exemptive Order requires all Participating Insurance Companies to calculate
voting privileges in substantially the same manner, the Company agrees to take
steps so that each Registered Separate Account or subaccount thereof investing
in the Fund calculates voting privileges substantially in the manner
established by the Fund, provided that such manner is reasonable and
communicated to the Company by the Fund.
5.6 To the extent applicable, the Fund shall disclose in its
prospectus, in substance, that: (1) shares of the Portfolios of the Fund are
offered to affiliated or
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unaffiliated insurance company separate accounts which fund both annuity and
life insurance contracts, (2) due to differences in tax treatment or other
considerations, the interests of various Variable Contract Owners participating
in the Fund or a Portfolio might at some time be in irreconcilable conflict,
and (3) the Board of Trustees of the Fund will monitor for any material
irreconcilable conflicts and determine what action, if any, should be taken.
ARTICLE VI. - SALES MATERIAL AND INFORMATION
6.1 The Company agrees that neither it nor any of its affiliates
shall give any information or make any representations or statements on behalf
of the Fund or concerning the Fund other than the information or representation
contained in the Registration Statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund, or its designee
(the Manager), and/or by the Distributor or its designee, except with the prior
permission of the Fund or its designee and/or the Distributor or its designee.
The Parties agree that total return information of the Fund and its Portfolios
derived from the prospectus or Registration Statement of the Fund or from
reports provided by the Fund, the Manager, or Distributor to the Company may be
used by the Company in connection with the sale of the Variable Contracts
without prior approval of the Fund or the Distributor, or their designees, and
the Company shall be responsible for using such information in conformity with
the information it is provided.
6.2 The Fund or the Distributor or the designee of either shall
furnish to the Company or its designee, each piece of sales literature or other
promotional material in
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which the Company or its Separate Accounts are named, and no such material
shall be used without the prior approval of the Company or its designee.
6.3 The Fund and the Distributor agree that each and the
affiliates of each shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Separate Accounts, or
the Variable Contracts issued by the Company, other than the information or
representations contained in a registration statement, prospectus or SAI for
such Variable Contracts, as such registration statement and prospectus may be
amended or supplemented from time to time, or in reports for the Separate
Accounts or prepared for distribution to owners of such Variable Contracts, or
in sales literature or other promotional material approved by the Company or
its designee, except with the prior permission of the Company.
6.4 The Fund will provide to the Company at least one complete
copy of all prospectuses, SAI's, reports, proxy statements and other voting
solicitation materials, and all amendments and supplements to any of the above,
that relate to the Fund or its shares, promptly after the filing of such
document with the SEC and other regulatory authorities.
6.5 The Company will provide to the Fund at least one complete
copy of all prospectuses (which shall include an offering memorandum if the
Variable Contracts issued by the Company or interests therein are not
registered under the 1933 Act), SAI's, reports, solicitations for voting
instructions, and all amendments or supplements to any of the above, that
relate to the Variable Contracts issued by the Company or the Separate Accounts
promptly after the filing of such document with the SEC or other regulatory
authority.
6.6 For purposes of this Article VI, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material
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published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboards, motion pictures, computerized media, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees.
ARTICLE VII - INDEMNIFICATION
7.1 Indemnification By the Company
The Company agrees to indemnify and hold harmless the Fund, the
Manager and the Distributor, each of their Trustees/Directors and officers, and
each person, if any, who controls the Manager or Distributor within the meaning
of Section 15 of the 1933 Act, (collectively, the "Indemnified Parties" for
purposes of this Section 7.1), against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation expenses (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or litigation expenses are related to the sale or acquisition of the Fund's
shares or the Variable Contracts or to the operation of the Separate Accounts or
the Fund, and in any such case:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement, prospectus (which shall include an offering
memorandum) or SAI for the Separate Accounts or sales literature for
the Variable Contracts issued by the Company (or any amendment or
supplement to any of the
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foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company, directly or
indirectly, by or on behalf of any Indemnified Party for use in the
registration statement, prospectus or SAI for the Separate Account or
in sales literature issued by the Company (or any amendment or
supplement to any of the foregoing) or otherwise, for use in
connection with the sale of the Variable Contracts or Fund shares or
acceptance of applications for the Variable Contracts; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations (1) contained
in the registration statement, prospectus, SAI, or sales literature of
the Fund or any amendment or supplement to any of the foregoing not
supplied by the Company or persons under its control, or (2) contained
in the registration statement, prospectus, or SAI for the Separate
Account, or sales literature for the Variable Contracts made in
reliance upon and in conformity with information furnished to the
Company by or on behalf of the Fund, the Manager or the Distributor)
or wrongful conduct of the Company or any of its affiliates, employees
or agents (but not including agents that are Indemnified Parties or
employees or agents of Indemnified Parties) thereof with respect to
the sale or distribution of the Variable Contracts issued by the
Company or the Fund shares or the acceptance of applications for the
Variable Contracts; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, SAI or sales literature of the Fund (or any amendment
thereof or supplement to the foregoing) or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, if
such a statement or omission was made in reliance upon information
furnished to an Indemnified Party by or on behalf of the Company; or
(iv) arise out of or result from the material breach of
any representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Company;
except to the extent provided in Sections 7.4 and 7.5 hereof.
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7.2 Indemnification By the Manager
The Manager agrees to indemnify and hold harmless the Fund, the
Distributor and the Company and its Separate Accounts, each of their
Trustees/Directors and officers, and each person, if any, who controls the
Distributor or Company within the meaning of Section 15 of the 1933 Act,
(collectively, the "Indemnified Parties" for purposes of this Section 7.2),
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Distributor and or the Company) or
litigation expenses (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or litigation
expenses:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus of the Fund or sales literature of the
Variable Contracts or the Fund generated by the Manager or an
affiliate thereof (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Manager or the Fund or
the designee of either by or on behalf of any Indemnified Party for
use in the registration statement, prospectus, or SAI for the Fund or
in sales literature for the Fund or the Variable Contracts or
otherwise, for use in connection with the sale of the Variable
Contracts issued by the Company or Fund shares or the acceptance of
applications for the Variable Contracts; or
(ii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus,
or SAI for the Separate Account or sales literature for the Variable
Contracts, (or any amendment or supplement to any of the foregoing),
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Indemnified Party by or on
behalf of the Manager; or
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(iii) arise out of or result from the material breach of any
representation and/or warranty made by the Manager in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Manager, including but not limited to, compliance
with the diversification requirements of Section 817(h) of the Code
and qualification of each Portfolio of the Fund as a Regulated
Investment Company under Subchapter M of the Code;
except to the extent provided in Section 7.4 and 7.5 hereof.
7.3 Indemnification By the Distributor
The Distributor agrees to indemnify and hold harmless the Fund, the
Manager and the Company and its Separate Accounts, each of their Trustees and
officers, and each person, if any, who controls the Fund, the Manager or
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Distributor) or litigation expenses (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or litigation expenses are related to the sale or
acquisition of the Fund's shares or the Variable Contracts or to the operation
of the Fund, in any such case:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Fund generated by
the Distributor (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Distributor directly or indirectly or its
designee by or on behalf of any Indemnified Party; for use in sales
literature for the Fund or otherwise in connection with the sale of
Fund shares; or
(ii) arise out of as a result of any unauthorized use of any sales
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materials related to the Fund by the Distributor, or wrongful conduct
of Distributor, or the affiliates, employees, or agents of Distributor
with respect to the sale or distribution of the Fund shares, including
but not limited to any verbal or written misrepresentations, or
unlawful sales practices.
except to the extent provided in Section 7.4 and 7.5 hereof.
7.4 No person required to provide indemnification under the terms
of Sections 7.1, 7.2, or 7.3 of this Agreement shall be liable under any such
section with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party under any such section would otherwise
be subject by reason of willful misfeasance, or bad faith on the part of such
Indemnified Party, or gross negligence (negligence if the Manager), in the
performance of his or her duties or by reason of his or her reckless disregard
of obligations or duties under this Agreement or to the Fund or the Separate
Account, as applicable.
7.5 No person required to provide indemnification under the terms
of Sections 7.1, 7.2 or 7.3 of this Agreement ("Indemnifying Party") shall be
liable under the terms of any such section with respect to any claim made
against an Indemnified Party under any such section unless such Indemnified
Party shall have notified the Indemnifying Party in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or
after such Party shall have received notice of such service on any designated
agent), but failure to notify the Indemnifying Party of any such claim shall
not relieve the Indemnifying Party from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of the above designated indemnification provisions. In case any such action is
brought against an Indemnified Party, the Indemnifying Party shall be entitled
to participate, at its own expense, in the
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defense of such action. The Indemnifying Party also shall be entitled to assume
the defense thereof, with counsel satisfactory to the Indemnified Party named
in the action. After notice from the Company to such Indemnified Party of the
Indemnifying Party's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by
it, and the Indemnifying Party will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
7.6 Each party to this Agreement shall promptly notify the other
parties to the Agreement of the commencement of any litigation or proceedings
against it or any of its officers or Trustees or affiliated persons in
connection with the issuance or sale of the Fund shares, or the acceptance of
applications for the Variable Contracts or the operation of the Fund the
Variable Contracts, or the Separate Account.
ARTICLE VIII. - APPLICABLE LAW
8.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Delaware.
8.2 This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including but not limited to, any mixed funding exemptive order) and
the terms hereof shall be interpreted and construed in accordance therewith.
The word "affiliate" or "affiliated" shall have the meaning as defined in
Section 2(a)(3) of the 1940 Act.
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ARTICLE IX. - TERMINATION
9.1 This Agreement shall terminate:
(a) at the option of any party to this Agreement upon 90
days advance written notice to the other parties, unless a shorter time is
agreed to by the parties to this Agreement; or
(b) at the option of the Company if shares of the
Portfolios are not reasonably available to meet the requirements of the
Variable Contracts issued by the Company, as determined by the Company, and
upon written notice by the Company to the other parties to this Agreement; or,
(c) at the option of the Fund, the Manager or the
Distributor upon institution of formal proceedings against the Company by the
NASD, the SEC, or any banking, state securities, insurance authorities or any
other regulatory body if the Fund, the Manager or the Distributor shall
determine, in their sole judgment exercised in good faith, that the Company has
suffered a material adverse change in its business, operations, financial
condition, or prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(d) at the option of the Company upon institution of
formal proceedings against the Fund, the Manager, or Distributor by the NASD,
the SEC, or any state securities or insurance department or any other regulatory
body if the Company shall determine, in its sole judgment exercised in good
faith, that the Fund, Manager or Distributor has suffered a material adverse
change in its business, operations, financial condition, or prospects since the
date of this Agreement or is the subject of material adverse publicity; or
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<PAGE> 25
(e) upon requisite vote of the Variable Contract Owners
having an interest in the Separate Accounts (or any subaccounts thereof) to
substitute the shares of another investment company or portfolio thereof for
the corresponding shares of the Fund or a Portfolio in accordance with the
terms of the Variable Contracts for which those shares had been selected to
serve as the underlying investment media; or
(f) in the event any of the shares of a Portfolio are not
registered, issued or sold in accordance with applicable state and/or federal
law, or such law precludes the use of such shares as the underlying investment
media of the Variable Contracts issued or to be issued by the Company; or
(g) by any party to this Agreement upon a determination
by a majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, that an irreconcilable material conflict exists; or
(h) at the option of the Company if the Fund or a
Portfolio fails to meet the diversification requirements specified in Section
3.2 or 3.3 hereof; or
(i) at the option of the Fund or the Distributor if the
Variable Contracts issued by the Company cease to qualify as annuity contracts
or life insurance contracts, as applicable, under the Code or if the Variable
Contracts are not registered, issued or sold in accordance with applicable
state and/or federal law; or
(j) at the option of the Company upon any substitution of
the shares of another investment company or portfolio thereof for shares of the
Fund or a Portfolio of the Fund in accordance with the terms of the Contracts,
provided that the Company has given at least 30 days prior written notice to
the Fund or Distributor of the date of the substitution; or
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<PAGE> 26
(k) at the option of any party to this Agreement upon a
material breach of this Agreement or of any representation or warranty herein
by any other party to this Agreement.
9.2 Each party to this Agreement shall promptly notify the other
parties to the Agreement of the institution against such party of any such
formal proceedings as described in Sections 9.1(c) and (d) hereof. The Company
shall give 30 days prior written notice to the Fund of the date of any proposed
vote of Variable Contract Owners to replace the Fund's shares as described in
Section 9.1(e) hereof.
9.3 Under the terms of the Variable Contracts, the Company
reserves the right, subject to compliance with the law as then in effect, to
make substitutions for the securities that are held by a Separate Account of
the Company under certain circumstances. The parties acknowledge that the
Company has the right to substitute other securities for the shares of the Fund
or a Portfolio thereof already purchased or to be purchased in the future if
the shares of the Fund or any or all of the Portfolios of the Fund should no
longer be available for investment, or if, in the judgment of Company
management, further investment in shares of the Fund or any or all of the
Portfolios thereof should become inappropriate in view of the purposes of the
Contracts. The Company will provide 30 days written notice to the Fund or to
the Distributor prior to effecting any such substitution.
9.4 If this Agreement terminates, any provision of this Agreement
necessary to the orderly windup of business under it will remain in effect as
to that business, after termination.
9.5 Effect of Termination. Notwithstanding any termination of
this Agreement, the Fund, the Manager, and Distributor (assuming the Manager
and/or the Distributor is still acting pursuant to an agreement with the Fund),
shall at the option of the Company,
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<PAGE> 27
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Variable Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, based upon
instructions from the owners of the Existing Contracts, the Separate Account
shall be permitted to reallocate investments in the Portfolios of the Fund and
redeem investments in the Portfolios, and shall be permitted to invest in the
Portfolios in the event that owners of the Existing Contracts make additional
purchase payments under the Existing Contracts. If this Agreement terminates,
the parties agree that Article VII, and Sections 3.9, 11.1, 11.3, 11.4, 11.5
and 11.6, and, to the extent that all or a portion of the assets of the
Separate Account continue to be invested in the Fund or any Portfolios of the
Fund, Article I, IV and V and Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.8, 3.9,
3.10 and 3.11 will remain in effect after termination.
ARTICLE X - NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund: Pacific Innovations Trust
c/o PFPC Inc.
103 Bellevue Parkway
Wilmington, DE 19809
If to the Manager: Bank of America National Trust and Saving
Association
Debra McGinty Poteet
555 S. Flower Street, 5th Floor
Los Angeles, CA 90071
If to the Distributor: BISYS Fund Services Limited Partnership
3435 Stelzer Rd.
Columbus, OH 43218
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If to the Company: Pacific Mutual Life Insurance Company
General Counsel
700 Newport Center Drive
Newport Beach, CA 92660
ARTICLE XI - MISCELLANEOUS
11.1 The Fund and the Company agree that if and to the extent Rule
6e-2 or 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in
final form or amended, to the extent applicable, the Fund and the Company shall
each take such steps as may be necessary to comply with such Rule as amended or
adopted in final form.
11.2 A copy of the Fund's Agreement and Declaration of Trust is on
file with the Secretary of the state of Delaware and notice is hereby given
that the Agreement has been executed on behalf of the Fund by a trustee of the
Fund in his or her capacity as Trustee and not individually. The obligations
of this Agreement shall only be binding upon the assets and property of the
Fund and shall not be binding upon any trustee, officer or shareholder of the
Fund individually.
11.3 Rights of Trustees and Shareholders. Nothing in this
Agreement shall impede the Fund's Trustees or shareholders of the shares of the
Fund's Portfolios from exercising any of the rights provided to such Trustees
or shareholders in the Fund's Declaration of Trust, as amended, a copy of which
will be provided to the Company upon request.
11.4 It is understood that the name "Pacific Mutual Life Insurance
Company" or any derivative thereof or logo associated with that name is the
valuable property of the Company and that the Fund, Manager, or Distributor has
the right to use such name (or derivative or logo), with the prior consent of
the Company for use in required regulatory filings, such consent not to be
reasonably withheld, only so long as this Agreement is in effect. Upon
termination of this Agreement the Fund, Manager or Distributor shall forthwith
cease to use such name (or derivative or logo).
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11.5 It is understood that the name "Bank of America National Trust
and Savings Association" or any derivative thereof or logo associated with that
name is the valuable property of the Manager and its affiliates, and that the
Company and Distributor has the right to use such name (or derivative or logo),
with prior consent of BofA for use in required regulatory filings, such consent
not to be unreasonably withheld, only so long as this Agreement is in effect.
Upon termination of this Agreement the Company and Distributor shall forthwith
cease to use such name (or derivative or logo).
11.6 It is understood that the name "BISYS Fund Services, Limited
Partnership" or any derivative thereof or logo associated with that name is the
valuable property of the Distributor and its affiliates, and that the Fund,
Manager and Company, has the right to use such name (or derivative or logo) only
so long as this Agreement is in effect. Upon termination of this Agreement the
Fund, Manager and Company shall forthwith cease to use such name (or derivative
or logo).
11.7 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
11.8 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.9 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
11.10 This Agreement may not be assigned by any party to this
Agreement except with the written consent of the other parties to this
Agreement. For purposes of this provision, assignment shall be as defined in
the Investment Company Act of 1940 and the rules thereunder.
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<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
PACIFIC INNOVATIONS TRUST
ATTEST: _______________________ By: _________________________
Name: Name
Title: Title:
BANK OF AMERICA
NATIONAL TRUST & SAVINGS
ASSOCIATION
ATTEST: _______________________ By: _________________________
Name: Name
Title: Title:
BISYS FUND SERVICES
LIMITED PARTNERSHIP
ATTEST: _______________________ By: _________________________
Name: Name
Title: Title:
PACIFIC MUTUAL LIFE INSURANCE
COMPANY
ATTEST: _______________________ By: _________________________
Name: Name
Title: Title:
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EXHIBIT A
Separate Accounts
Separate Account B
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EXHIBIT B
Portfolios
Money Market Fund
Managed Bond Fund
Capital Income Fund
Mid-Cap Fund
Blue Chip Fund
Aggressive Growth Fund
International Fund
32
